VANCOUVER, BRITISH COLUMBIA
-- (Marketwired)
-- 07/29/15
For the second quarter of 2015, Methanex (TSX:MX)(NASDAQ:MEOH) reported Adjusted EBITDA(1) of $129 million and Adjusted net income(1) of $51 million ($0.56 per share on a diluted basis(1)). This compares with Adjusted EBITDA(1) of $97 million and Adjusted net income(1) of $21 million ($0.23 per share on a diluted basis(1)) for the first quarter of 2015. Net income attributable to Methanex shareholders was $104 million in the second quarter compared to $9 million in the first quarter of 2015.
John Floren, President and CEO of Methanex commented, "Our second quarter Adjusted net income reflects higher average realized methanol pricing compared to the first quarter of 2015. Prices increased as the margins for most methanol energy applications improved relative to the first quarter, in alignment with higher oil and related product prices. These energy applications, especially methanol-to-olefins, have continued to drive growth in demand for our product. The higher average realized pricing in Q2 was partially offset by lower produced product sales volume relative to the first quarter. Net income attributable to Methanex shareholders of $104 million in the second quarter of 2015 includes a $57 million after tax gain related to the termination of a terminal services agreement."
Mr. Floren continued, "Construction of our one million tonne Geismar 2 plant is proceeding very well, and if the pace achieved to date continues then we would expect to achieve first methanol by the end of 2015 and complete the project with no change to our total cost estimate. Production from our Geismar 1 facility continued to exceed our expectations, producing 276,000 tonnes during the second quarter of 2015. During the quarter, we also undertook a major refurbishment of our Medicine Hat facility and resumed operations in mid-July. We expect that this refurbishment will support increased production reliability of our plant for years to come."
"We returned over $85 million to shareholders in the second quarter of 2015 in the form of dividends and share repurchases. With cash on hand, an undrawn credit facility, robust balance sheet, and strong future cash flow 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 July 30, 2015 at 12:00 noon ET (9:00 am PT) to review these second 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 August 20, 2015 at (905) 694-9451, or toll free at (800) 408-3053. The passcode for the playback version is 4843537. Presentation slides summarizing the Q2 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 second 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 second 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 months ended June 30, 2015 for
reconciliations to the most comparable GAAP measures.
Interim Report for the Three and Six Months Ended June 30, 2015
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: invest@methanex.com
Methanex Toll-Free: 1-800-661-8851
At July 29, 2015 the Company had 90,263,298 common shares issued and outstanding and stock options exercisable for 1,716,224 additional common shares.
SECOND 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 Six Months Ended
---------------------------- --------------------
($ millions except number
of shares and per share Jun 30 Mar 31 Jun 30 Jun 30 Jun 30
amounts) 2015 2015 2014 2015 2014
------------------------------------------------------- --------------------
Net income attributable to
Methanex shareholders $ 104 $ 9 $ 125 $ 113 $ 270
Mark-to-market impact of
share-based
compensation, net of tax 4 12 (7) 16 8
Gain related to the
termination of a
terminal services
agreement, net of tax (57) - - (57) -
Argentina gas settlement,
net of tax - - (27) - (27)
------------------------------------------------------- --------------------
Adjusted net income (1) $ 51 $ 21 $ 91 $ 72 $ 251
------------------------------------------------------- --------------------
Diluted weighted average
shares outstanding
(millions) 91 92 97 92 97
Adjusted net income per
common share (1) $ 0.56 $ 0.23 $ 0.94 $ 0.79 $ 2.59
------------------------------------------------------- --------------------
-- We recorded Adjusted EBITDA(1) of $129 million for the second quarter of
2015 compared with $97 million for the first quarter of 2015. The
increase in Adjusted EBITDA(1) was primarily due to an increase in our
average realized price to $350 per tonne for the second quarter of 2015
from $337 per tonne for the first quarter of 2015.
-- Production for the second quarter of 2015 was 1,281,000 tonnes compared
with 1,264,000 tonnes for the first quarter of 2015. Refer to the
Production Summary section.
-- Sales of Methanex-produced methanol were 1,203,000 tonnes in the second
quarter of 2015 compared with 1,237,000 in the first quarter of 2015.
-- During the quarter, we recorded a gain of $65 million ($57 million, net
of tax) related to the termination of a terminal services agreement.
-- We continue to make excellent progress on the construction of the
Geismar 2 facility and, if the pace achieved to date continues, we would
expect to be producing first methanol by the end of 2015.
-- During the second quarter of 2015 we paid a $0.275 per share dividend to
shareholders for a total of $25 million.
-- During the second quarter of 2015, we repurchased 1.1 million common
shares for $61 million. Under the current normal course issuer bid, we
are authorized to purchase up to a further 3.8 million shares by May 5,
2016.
(1) These items are non-GAAP measures that do not have any standardized
meaning prescribed by GAAP and therefore are unlikely to be comparable
to similar measures presented by other companies. Refer to the
Additional Information - Supplemental Non-GAAP Measures section for a
description of each non-GAAP measure and reconciliations to the most
comparable GAAP measures.
This Second Quarter 2015 Management's Discussion and Analysis ("MD&A") dated July 29, 2015 for Methanex Corporation ("the Company") should be read in conjunction with the Company's condensed consolidated interim financial statements for the three and six month periods ended June 30, 2015 as well as the 2014 Annual Consolidated Financial Statements and MD&A included in the Methanex 2014 Annual Report. Unless otherwise indicated, the financial information presented in this interim report is prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). The Methanex 2014 Annual Report and additional information relating to Methanex is available on SEDAR at www.sedar.com and on EDGAR at www.sec.gov.
FINANCIAL AND OPERATIONAL DATA
Three Months Ended Six Months Ended
------------------------- -----------------
($ millions, except per share Jun 30 Mar 31 Jun 30 Jun 30 Jun 30
amounts and where noted) 2015 2015 2014 2015 2014
--------------------------------------------------------- -----------------
Production (thousands of tonnes)
(attributable to Methanex
shareholders) 1,281 1,264 1,216 2,545 2,442
Sales volume (thousands of
tonnes):
Methanex-produced methanol
(attributable to Methanex
shareholders) 1,203 1,237 1,143 2,440 2,371
Purchased methanol 813 652 643 1,465 1,297
Commission sales 109 185 206 294 502
--------------------------------------------------------- -----------------
Total sales volume (1) 2,125 2,074 1,992 4,199 4,170
Methanex average non-discounted
posted price ($ per tonne) (2) 403 382 523 393 569
Average realized price ($ per
tonne) (3) 350 337 450 344 488
Adjusted revenue (attributable
to Methanex shareholders) (4) 696 625 794 1,321 1,760
Adjusted EBITDA (attributable to
Methanex shareholders) (4) 129 97 160 226 415
Cash flows from operating
activities 82 37 240 119 419
Adjusted net income
(attributable to Methanex
shareholders) (4) 51 21 91 72 251
Net income attributable to
Methanex shareholders 104 9 125 113 270
Adjusted net income per common
share (attributable to
Methanex shareholders) (4) 0.56 0.23 0.94 0.79 2.59
Basic net income per common
share (attributable to Methanex
shareholders) 1.15 0.09 1.30 1.24 2.81
Diluted net income per common
share (attributable to Methanex
shareholders) 1.15 0.09 1.24 1.23 2.79
Common share information
(millions of shares):
Weighted average number of
common shares 91 92 96 91 96
Diluted weighted average
number of common shares 91 92 97 92 97
Number of common shares
outstanding, end of period 90 91 95 90 95
--------------------------------------------------------- -----------------
(1) Methanex-produced methanol includes volume produced by Chile using
natural gas supplied from Argentina under a tolling arrangement
("Tolling Volume"). For the 2nd quarter of 2015, Tolling Volume was
28,000 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
YTD Q2 YTD Q2
Q2 2015 Q1 2015 Q2 2014 2015 2014
Operating
(thousands Capacity
of tonnes) (1) Production Production Production Production Production
----------------------------------------------------------------------------
New Zealand
(2) 608 487 481 559 968 1,059
Atlas
(Trinidad)
(63.1%
interest) 281 236 209 191 445 440
Titan
(Trinidad) 218 183 186 203 369 352
Geismar 1
and 2
(Louisiana
, USA) (3) 250 276 180 - 456 -
Egypt (50%
interest) 158 8 8 99 16 238
Medicine
Hat
(Canada) 140 51 127 138 178 260
Chile I and
IV (4) 100 40 73 26 113 93
----------------------------------------------------------------------------
1,755 1,281 1,264 1,216 2,545 2,442
----------------------------------------------------------------------------
(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.
(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 487,000 tonnes of methanol in the second quarter of 2015 compared with 481,000 tonnes in the first quarter of 2015. Mechanical issues at our two Motunui facilities resulted in lost production of approximately 110,000 tonnes during the second quarter of 2015. The New Zealand facilities are capable of producing up to 2.4 million tonnes annually, depending on natural gas composition.
Trinidad
In Trinidad, we own 100% of the Titan facility with an annual operating capacity of 875,000 tonnes and have a 63.1% interest in the Atlas facility with an annual operating capacity of 1,125,000 tonnes (63.1% interest). Production in Trinidad during the quarter was impacted by gas curtailments at both plants. The Titan facility produced 183,000 tonnes in the second quarter of 2015 compared with 186,000 tonnes in the first quarter of 2015. The Atlas facility produced 236,000 tonnes (63.1% interest) in the second quarter of 2015 compared with 209,000 tonnes (63.1% interest) in the first quarter of 2015.
We continue to experience some natural gas curtailments to our Trinidad facilities due to a mismatch between upstream commitments to supply the Natural Gas Company of Trinidad and Tobago (NGC) and downstream demand from NGC's customers 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 276,000 tonnes during the second quarter of 2015 compared to 180,000 tonnes during the first quarter of 2015. We continue to make excellent progress on the construction of Geismar 2 and if the pace achieved to date continues, we would 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
On a 100% basis, the Egypt methanol facility produced 16,000 tonnes in the second quarter of 2015 (Methanex share of 8,000 tonnes) compared with 16,000 tonnes (Methanex share of 8,000 tonnes) in the first quarter of 2015. Production during the second quarter of 2015 continued to be impacted by natural gas supply restrictions and we idled the plant in June due to lack of natural gas availability. Although the restart date and future operating rates are difficult to predict, our current expectation is that we will be able to resume operations 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. Gas restrictions became more significant in 2014 and 2015. We cannot predict when the gas supply situation will improve, but are optimistic that recent developments for upstream gas supply in Egypt will result in improved gas deliveries in the future.
Medicine Hat, Canada
During the second quarter of 2015, we produced 51,000 tonnes at our Medicine Hat facility compared with 127,000 tonnes during the first 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.
Chile
During the second quarter of 2015, we produced 40,000 tonnes in Chile supported by natural gas supplies from both Chile and Argentina through a tolling arrangement.
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. We believe that we will be able to secure sufficient natural gas from Chilean sources supplemented by Argentine gas to restart our operations later in 2015.
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 second quarter of 2015, we reported net income attributable to Methanex shareholders of $104 million ($1.15 per share on a diluted basis) compared with net income attributable to Methanex shareholders for the first quarter of 2015 of $9 million ($0.09 income per share on a diluted basis).
For the second quarter of 2015, we recorded Adjusted EBITDA of $129 million and Adjusted net income of $51 million ($0.56 per share on a diluted basis). This compares with Adjusted EBITDA of $97 million and Adjusted net income of $21 million ($0.23 per share on a diluted basis) for the first quarter of 2015. During the second quarter of 2015, we recorded a gain of $65 million ($57 million, net of tax) related to the termination of a terminal services agreement, which has been excluded from Adjusted net income.
We calculate Adjusted EBITDA and Adjusted net income by including amounts related to our equity share of the Atlas (63.1% interest) and Egypt (50% interest) facilities and by excluding the mark-to-market impact of share-based compensation as a result of changes in our share price and the impact of certain items associated with specific identified events. Refer to the Additional Information - Supplemental Non-GAAP Measures section for a further discussion on how we calculate these measures. Our analysis of depreciation and amortization, finance costs, finance income and other expenses and income taxes is consistent with the presentation of our consolidated statements of income and excludes amounts related to Atlas.
A reconciliation from net income attributable to Methanex shareholders to Adjusted net income and the calculation of Adjusted net income per common share is as follows:
Three Months Ended Six Months Ended
---------------------------- --------------------
($ millions except number
of shares and per share Jun 30 Mar 31 Jun 30 Jun 30 Jun 30
amounts) 2015 2015 2014 2015 2014
------------------------------------------------------- --------------------
Net income attributable to
Methanex shareholders $ 104 $ 9 $ 125 $ 113 $ 270
Mark-to-market impact of
share-based
compensation, net of tax 4 12 (7) 16 8
Gain related to the
termination of a
terminal services
agreement, net of tax (57) - - (57) -
Argentina gas settlement,
net of tax - - (27) - (27)
------------------------------------------------------- --------------------
Adjusted net income (1) $ 51 $ 21 $ 91 $ 72 $ 251
------------------------------------------------------- --------------------
Diluted weighted average
shares outstanding
(millions) 91 92 97 92 97
Adjusted net income per
common share (1) $ 0.56 $ 0.23 $ 0.94 $ 0.79 $ 2.59
------------------------------------------------------- --------------------
(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 Six Months Ended
----------------------------- --------------------
Jun 30 Mar 31 Jun 30 Jun 30 Jun 30
($ millions) 2015 2015 2014 2015 2014
------------------------------------------------------- --------------------
Consolidated statements of
income:
Revenue $ 638 $ 577 $ 792 $ 1,215 $ 1,760
Cost of sales and
operating expenses (526) (502) (609) (1,028) (1,319)
Mark-to-market impact of
share-based
compensation 4 14 (8) 18 10
Adjusted EBITDA
(attributable to
associate) 18 22 10 40 27
Amounts excluded from
Adjusted EBITDA
attributable to non-
controlling interests (5) (14) (25) (19) (63)
------------------------------------------------------- --------------------
Adjusted EBITDA
(attributable to Methanex
shareholders) (1) 129 97 160 226 415
Mark-to-market impact of
share-based compensation (4) (14) 8 (18) (10)
Depreciation and
amortization (47) (47) (33) (94) (68)
Gain related to the
termination of a terminal
services agreement 65 - - 65 -
Argentina gas settlement - - 42 - 42
Finance costs (18) (21) (9) (39) (20)
Finance income and other
expenses 2 (9) 1 (7) 1
Income tax (expense)
recovery (20) 5 (46) (15) (98)
Earnings of associate
adjustment (2) (11) (12) (9) (23) (18)
Non-controlling interests
adjustment (2) 8 10 11 18 26
----------------------------------------------------------------------------
Net income attributable to
Methanex shareholders $ 104 $ 9 $ 125 $ 113 $ 270
----------------------------------------------------------------------------
Net income $ 101 $ 13 $ 139 $ 114 $ 307
----------------------------------------------------------------------------
(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:
Q2 2015 Q2 2015 YTD Q2 2015
compared with compared with compared with
($ millions) Q1 2015 Q2 2014 YTD Q2 2014
----------------------------------------------------------------------------
Average realized price $ 26 $ (198) $ (553)
Sales volume 12 26 30
Total cash costs (6) 141 334
----------------------------------------------------------------------------
Increase (decrease) in Adjusted
EBITDA $ 32 $ (31) $ (189)
----------------------------------------------------------------------------
Average realized price
Three Months Ended Six Months Ended
------------------------- -----------------
Jun 30 Mar 31 Jun 30 Jun 30 Jun 30
($ per tonne) 2015 2015 2014 2015 2014
---------------------------------------------------------- -----------------
Methanex average non-discounted
posted price 403 382 523 393 569
Methanex average realized price 350 337 450 344 488
---------------------------------------------------------- -----------------
Methanex's average realized price for the second quarter of 2015 was higher compared to the first quarter of 2015. Non-discounted posted prices moved higher through the quarter in Asia Pacific and the United States, and remained flat in Europe compared to the first quarter of 2015 (refer to the Supply/Demand Fundamentals section for more information). Our average non-discounted posted price for the second quarter of 2015 was $403 per tonne compared with $382 per tonne for the first quarter of 2015 and $523 per tonne for the second quarter of 2014. Our average realized price for the second quarter of 2015 was $350 per tonne compared with $337 per tonne for the first quarter of 2015 and $450 per tonne for the second quarter of 2014. The change in average realized price for the second quarter of 2015 increased Adjusted EBITDA by $26 million compared with the first quarter of 2015 and decreased Adjusted EBITDA by $198 million compared with the second quarter of 2014.
Sales volume
Methanol sales volume excluding commission sales volume was higher in the second quarter of 2015 compared with the first quarter of 2015 by 127,000 tonnes and with the second quarter of 2014 by 230,000 tonnes. Higher methanol sales volume excluding commission sales volume for these periods increased Adjusted EBITDA by $12 million and $26 million, respectively. For the six month period ended June 30, 2015, compared with the same period in 2014, methanol sales volume excluding commission sales volume were higher by 237,000 tonnes resulting in higher Adjusted EBITDA by $30 million.
Total cash costs
The primary drivers of changes in our total cash costs are changes in the cost of methanol we produce at our facilities (Methanex-produced methanol) and changes in the cost of methanol we purchase from others (purchased methanol). All of our production facilities except Medicine Hat are underpinned by natural gas purchase agreements with pricing terms that include base and variable price components linked to the price of methanol. We supplement our production with methanol produced by others through methanol offtake contracts and purchases on the spot market to meet customer needs and support our marketing efforts within the major global markets.
We have adopted the first-in, first-out method of accounting for inventories and it generally takes between 30 and 60 days to sell the methanol we produce or purchase. Accordingly, the changes in Adjusted EBITDA as a result of changes in Methanex-produced and purchased methanol costs primarily depend on changes in methanol pricing and the timing of inventory flows.
In a rising price environment, our margins at a given price are higher than in a stable price environment as a result of timing of methanol purchases and production versus sales. Conversely, the opposite applies when methanol prices are decreasing.
The impact on Adjusted EBITDA from changes in our cash costs are explained below:
Q2 2015 Q2 2015 YTD Q2 2015
compared with compared with compared with
($ millions) Q1 2015 Q2 2014 YTD Q2 2014
----------------------------------------------------------------------------
Methanex-produced methanol
costs $ 5 $ 45 $ 111
Proportion of Methanex-
produced methanol sales (14) (20) (21)
Purchased methanol costs (4) 105 231
Other, net 7 11 13
----------------------------------------------------------------------------
Increase (decrease) in Adjusted
EBITDA $ (6) $ 141 $ 334
----------------------------------------------------------------------------
Methanex-produced methanol costs
We purchase natural gas for the New Zealand, Trinidad, Geismar, 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 second quarter of 2015 compared with the first quarter of 2015, Methanex-produced methanol costs were lower by $5 million. For the three and six months ended June 30, 2015 compared with the same periods in 2014, Methanex-produced methanol costs were lower by $45 million and $111 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 second quarter of 2015 compared with the first quarter of 2015, a lower proportion of Methanex-produced methanol sales decreased Adjusted EBITDA by $14 million. For the three and six months ended June 30, 2015 compared with the same periods in 2014, a lower proportion of Methanex-produced methanol sales decreased Adjusted EBITDA by $20 million and $21 million, respectively.
Purchased methanol costs
Changes in purchased methanol costs for all periods presented are primarily as a result of changes in methanol pricing.
Other, net
Changes in other costs for all periods presented are primarily as a result of lower logistics costs.
Mark-to-Market Impact of Share-based Compensation
We grant share-based awards as an element of compensation. Share-based awards granted include stock options, share appreciation rights, tandem share appreciation rights, deferred share units, restricted share units and performance share units. For all the share-based awards, share-based compensation is recognized over the related vesting period for the proportion of the service that has been rendered at each reporting date. Share-based compensation includes an amount related to the grant-date value and a mark-to-market impact as a result of subsequent changes in the fair value of the share-based awards primarily driven by the Company's share price. The grant-date value amount is included in Adjusted EBITDA and Adjusted net income. The mark-to-market impact of share-based compensation as a result of changes in our share price is excluded from Adjusted EBITDA and Adjusted net income and analyzed separately.
Three Months Ended Six Months Ended
--------------------------- ------------------
($ millions except share Jun 30 Mar 31 Jun 30 Jun 30 Jun 30
price) 2015 2015 2014 2015 2014
-------------------------------------------------------- ------------------
Methanex Corporation share
price (1) $ 55.66 $ 53.57 $ 61.78 $ 55.66 $ 61.78
Grant-date fair value expense
included in Adjusted EBITDA
and Adjusted net income 6 8 7 14 14
Mark-to-market impact due to
change in share price 4 14 (8) 18 10
-------------------------------------------------------- ------------------
Total share-based
compensation expense
(recovery), before tax $ 10 $ 22 $ (1) $ 32 $ 24
-------------------------------------------------------- ------------------
(1) US dollar share price of Methanex Corporation as quoted on NASDAQ
Global Market on the last trading day of the respective period.
The Methanex Corporation share price increased from US $53.57 per share at March 31, 2015 to US $55.66 per share at June 30, 2015. As a result of this increase, we recorded a $4 million mark-to-market expense on share-based compensation in the second quarter of 2015 compared with a $14 million mark-to-market expense in the first quarter of 2015 and an $8 million recovery in the second quarter of 2014.
Depreciation and Amortization
Depreciation and amortization was $47 million for the first and second quarter of 2015 compared with $33 million for the second quarter of 2014. Depreciation and amortization was higher in the second quarter of 2015 compared with the second quarter of 2014 primarily due to higher unabsorbed depreciation recognized for production sites impacted by natural gas restrictions and production outages and the commencement of depreciation associated with the start-up of our Geismar 1 facility during the first quarter of 2015.
Finance Costs
Three Months Ended Six Months Ended
-------------------------------- ----------------------
Jun 30 Mar 31 Jun 30 Jun 30 Jun 30
($ millions) 2015 2015 2014 2015 2014
---------------------------------------------------- ----------------------
Finance costs before
capitalized
interest $ 22 $ 27 $ 15 $ 49 $ 31
Less capitalized
interest (4) (6) (6) (10) (11)
---------------------------------------------------- ----------------------
Finance costs $ 18 $ 21 $ 9 $ 39 $ 20
---------------------------------------------------- ----------------------
Finance costs before capitalized interest primarily relate to interest expense on the unsecured notes, limited recourse debt facilities, and finance leases. Finance costs were lower during the second quarter of 2015 compared with the first quarter of 2015 primarily due to a $3 million make-whole payment made in the first quarter of 2015 in conjunction with the early repayment of $150 million of senior notes and lower debt levels as a result of the repayment. Capitalized interest relates to interest costs capitalized for the Geismar project. The Geismar 1 facility commenced production during the first quarter of 2015 and accordingly, we ceased capitalizing interest costs related to Geismar 1 from the date that the facility commenced commercial operations.
Finance Income and Other Expenses
Three Months Ended Six Months Ended
--------------------------- -------------------
Jun 30 Mar 31 Jun 30 Jun 30 Jun 30
($ millions) 2015 2015 2014 2015 2014
-------------------------------------------------------- -------------------
Finance income and other
expenses $ 2 $ (9) $ 1 $ (7) $ 1
----------------------------------------------------------------------------
The change in finance income and other expenses for all periods presented was primarily due to the impact of changes in foreign exchange rates. Higher foreign exchange losses in 2015 were the result of the significant strengthening of the U.S. dollar against most major currencies during 2015.
Income Taxes
A summary of our income taxes for the second quarter of 2015 compared with the first quarter of 2015 is as follows:
Three Months Ended Three Months Ended
June 30, 2015 March 31, 2015
-------------------------- --------------------------
($ millions, except Adjusted Net Adjusted Net
where noted) Net Income Income(1) Net Income Income (1)
------------------------------------------------ --------------------------
Amount before income
tax $ 121 $ 66 $ 8 $ 24
Income tax (expense)
recovery (20) (15) 5 (3)
----------------------------------------------------------------------------
$ 101 $ 51 $ 13 $ 21
----------------------------------------------------------------------------
Effective tax rate 16% 23% -73% 11%
----------------------------------------------------------------------------
(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 Trinidad, Chile, Canada, New Zealand, the United States and Egypt. In Trinidad and Chile, the statutory tax rate is 35%. The statutory rates in Canada and New Zealand are 26% and 28%, respectively. Effective July 1, 2015, an increase in the statutory tax rate will increase the tax rate to 26.5% in Canada. The United States statutory tax rate is 36% and the Egypt statutory tax rate is 30%. 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 the second quarter of 2015, the effective tax rate based on adjusted net income was 23% compared with 11% for the first quarter of 2015. 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
Entering the third quarter of 2015, we estimate that methanol demand, excluding methanol demand from integrated methanol to olefins facilities, is approximately 61 million tonnes on an annualized basis.
Methanex Non-Discounted Regional Posted Prices (1)
Jul Jun May Apr
(US$ per tonne) 2015 2015 2015 2015
----------------------------------------------------------------------------
----------------------------------------------------------------------------
United States 442 442 442 416
Europe (2) 410 400 400 400
Asia Pacific 375 390 390 365
----------------------------------------------------------------------------
(1) Discounts from our posted prices are offered to customers based on
various factors.
(2) EUR365 for Q2 2015 (July 2015 - EUR365) converted to United States
dollars.
----------------------------------------------------------------------------
Our average realized price in the second quarter of 2015 increased to $350 per tonne from $337 per tonne achieved in the first quarter of 2015. Demand growth continued to be driven by methanol-to-olefins, and traditional demand was also healthy during the quarter. Pricing to date in the third quarter of 2015 is slightly lower, pressured by lower methanol affordability for some energy applications amidst lower crude oil and olefin prices. We rolled our July North America contract price at $442 per tonne, held our EU quarterly contract price flat at EUR365 per tonne for the third quarter of 2015, and moderately reduced our July Asia Pacific contract price by $15 per tonne to $375 per tonne. We also recently announced decreases to our North America and Asia contract prices for August, to $416 per tonne and $360 per tonne, respectively.
We continued to see stable demand growth from 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. Energy related methanol demand continued to grow. There are now ten completed MTO / MTP plants in China which are dependent on merchant methanol supply, and these have the capacity to consume almost 10 million tonnes of methanol annually. There are also a number of other MTO / MTP plants at various stages of construction which are anticipated to be completed in the 2015-2016 timeframe. 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. 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 have recently started up our first one million tonne Geismar 1 facility in Louisiana, and are targeting to be producing first methanol from the second one million tonne Geismar 2 facility by the end of 2015. In addition, a 1.3 million tonne Celanese plant is under construction in Clear Lake, Texas and we understand that it is targeted for completion later in 2015. OCI N.V. has commenced construction of a 1.8 million tonne plant in Beaumont, Texas. We expect that production from new capacity in China will be consumed in that country.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities in the second quarter of 2015 increased by $45 million to $82 million compared with $37 million for the first quarter of 2015 and decreased by $158 million compared to $240 million for the second quarter of 2014. Cash flows from operating activities for the six month period ended June 30, 2015 were $119 million compared with $419 million for the same period in 2014. The changes in cash flows from operating activities resulted from changes in the following:
Q2 2015 Q2 2015 YTD Q2 2015
compared with compared with compared with
($ millions) Q1 2015 Q2 2014 YTD Q2 2014
----------------------------------------------------------------------------
Change in Adjusted EBITDA
(attributable to Methanex
shareholders) $ 32 $ (31) $ (189)
Exclude change in Adjusted
EBITDA of associate 4 (8) (13)
Dividends received from
associate (20) (13) 19
Cash flows attributable to non-
controlling interests (9) (20) (44)
Non-cash working capital (3) (54) (39)
Income taxes paid 18 4 (11)
Argentina gas settlement - (42) (42)
Share-based payments 18 3 21
Other 5 3 (2)
----------------------------------------------------------------------------
Increase (decrease) in cash
flows from operating
activities $ 45 $ (158) $ (300)
----------------------------------------------------------------------------
During the second 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 new 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 3.8 million shares by May 5, 2016. During the quarter we repurchased 1.1 million shares for $61 million including 0.3 million shares purchased pursuant to a previous bid that expired on May 5, 2015.
We operate in a highly competitive commodity industry and believe it is appropriate to maintain a conservative balance sheet and financial flexibility. At June 30, 2015, our cash balance was $485 million, including $74 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.
Our planned capital maintenance expenditure program directed towards maintenance, turnarounds and catalyst changes for existing operations is currently estimated to be $130 million for the 18 month period to the end of 2016. The estimated remaining capital expenditures related to our Geismar project are approximately $185 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 June 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 (recovery), the 50% non-controlling interest in the Egypt facility, gain related to the termination of 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 Six Months Ended
------------------------------ --------------------
Jun 30 Mar 31 Jun 30 Jun 30 Jun 30
($ millions) 2015 2015 2014 2015 2014
------------------------------------------------------ --------------------
Net income attributable
to Methanex
shareholders $ 104 $ 9 $ 125 $ 113 $ 270
Mark-to-market impact
of share-based
compensation 4 14 (8) 18 10
Depreciation and
amortization 47 47 33 94 68
Gain related to the
termination of a
terminal services
agreement (65) - - (65) -
Argentina gas
settlement - - (42) - (42)
Finance costs 18 21 9 39 20
Finance income and
other expenses (2) 9 (1) 7 (1)
Income tax expense
(recovery) 20 (5) 46 15 98
Earnings of associate
adjustment (1) 11 12 9 23 18
Non-controlling
interests adjustment
(1) (8) (10) (11) (18) (26)
------------------------------------------------------ --------------------
Adjusted EBITDA
(attributable to
Methanex shareholders) $ 129 $ 97 $ 160 $ 226 $ 415
------------------------------------------------------ --------------------
(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 Six Months Ended
---------------------------- --------------------
($ millions except number
of shares and per share Jun 30 Mar 31 Jun 30 Jun 30 Jun 30
amounts) 2015 2015 2014 2015 2014
------------------------------------------------------ --------------------
Net income attributable to
Methanex shareholders $ 104 $ 9 $ 125 $ 113 $ 270
Mark-to-market impact of
share-based
compensation, net of
tax 4 12 (7) 16 8
Gain related to the
termination of a
terminal services
agreement, net of tax (57) - - (57) -
Argentina gas
settlement, net of tax - - (27) - (27)
------------------------------------------------------ --------------------
Adjusted net income (1) $ 51 $ 21 $ 91 $ 72 $ 251
------------------------------------------------------ --------------------
Diluted weighted average
shares outstanding
(millions) 91 92 97 92 97
Adjusted net income per
common share (1) $ 0.56 $ 0.23 $ 0.94 $ 0.79 $ 2.59
------------------------------------------------------ --------------------
(1) Excludes intercompany transactions with the Company.
Adjusted Revenue (attributable to Methanex shareholders)
A reconciliation from revenue to Adjusted revenue is as follows:
Three Months Ended Six Months Ended
----------------------------- --------------------
Jun 30 Mar 31 Jun 30 Jun 30 Jun 30
($ millions) 2015 2015 2014 2015 2014
------------------------------------------------------ --------------------
Revenue $ 638 $ 577 $ 792 $ 1,215 $ 1,760
Methanex share of Atlas
revenue (1) 64 68 47 132 125
Non-controlling
interests' share of
revenue (1) (1) (22) (42) (23) (118)
Other adjustments (5) 2 (3) (3) (7)
------------------------------------------------------ --------------------
Adjusted Revenue
(attributable to
Methanex shareholders) $ 696 $ 625 $ 794 $ 1,321 $ 1,760
------------------------------------------------------ --------------------
(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
---------------------------------------
($ millions, except per share Jun 30 Mar 31 Dec 31 Sep 30
amounts) 2015 2015 2014 2014
----------------------------------------------------------------------------
Revenue $ 638 $ 577 $ 733 $ 730
Adjusted EBITDA (1 2) 129 97 150 137
Net income (1) 104 9 133 52
Adjusted net income (1 2) 51 21 80 66
Basic net income per common share (1) 1.15 0.09 1.43 0.55
Diluted net income per common share
(1) 1.15 0.09 1.11 0.54
Adjusted net income per share (1 2) 0.56 0.23 0.85 0.69
----------------------------------------------------------------------------
Three Months Ended
---------------------------------------
($ millions, except per share Jun 30 Mar 31 Dec 31 Sep 30
amounts) 2014 2014 2013 2013
----------------------------------------------------------------------------
Revenue $ 792 $ 968 $ 881 $ 758
Adjusted EBITDA (1 2) 160 255 245 184
Net income (1) 125 145 128 87
Adjusted net income (1 2) 91 160 167 117
Basic net income per common share (1) 1.30 1.51 1.33 0.91
Diluted net income per common share
(1) 1.24 1.50 1.32 0.90
Adjusted net income per share (1 2) 0.94 1.65 1.72 1.22
----------------------------------------------------------------------------
(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 Second Quarter 2015 Management's Discussion and Analysis ("MD&A") as well as comments made during the Second 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,
-- 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,
-- 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),
-- 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 Second 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 Six Months Ended
--------------------------- ----------------------------
Jun 30 Jun 30 Jun 30 Jun 30
2015 2014 2015 2014
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revenue $ 637,799 $ 791,310 $ 1,214,538 $ 1,759,788
Cost of sales and
operating expenses (525,745) (609,235) (1,027,716) (1,318,922)
Depreciation and
amortization (47,483) (33,113) (94,440) (67,924)
Gain on termination
of terminal
services agreement
(note 11) 65,000 - 65,000 -
Argentina gas
settlement - 42,000 - 42,000
----------------------------------------------------------------------------
Operating income 129,571 190,962 157,382 414,942
Earnings of
associate (note 4) 6,714 2,605 16,889 9,896
Finance costs (note
6) (17,225) (9,570) (38,767) (20,408)
Finance income and
other expenses 2,591 1,277 (6,568) 914
----------------------------------------------------------------------------
Income before
income taxes 121,651 185,274 128,936 405,344
Income tax expense:
Current (2,398) (27,275) (8,505) (53,653)
Deferred (17,532) (19,525) (6,092) (44,878)
----------------------------------------------------------------------------
(19,930) (46,800) (14,597) (98,531)
----------------------------------------------------------------------------
Net income $ 101,721 $ 138,474 $ 114,339 $ 306,813
----------------------------------------------------------------------------
Attributable to:
Methanex
Corporation
shareholders 104,580 124,784 113,234 269,886
Non-controlling
interests (2,859) 13,690 1,105 36,927
----------------------------------------------------------------------------
$ 101,721 $ 138,474 $ 114,339 $ 306,813
----------------------------------------------------------------------------
Income per share for the period
attributable to Methanex
Corporation shareholders
Basic net income
per common share $ 1.15 $ 1.30 $ 1.24 $ 2.81
Diluted net
income per
common share $ 1.15 $ 1.24 $ 1.23 $ 2.79
Weighted average
number of common
shares outstanding
(note 7) 91,020,729 96,124,565 91,387,152 96,212,652
Diluted weighted
average number of
common shares
outstanding (note
7) 91,326,720 97,322,144 92,109,966 96,818,731
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 Six Months Ended
-------------------- ---------------------
Jun 30 Jun 30 Jun 30 Jun 30
2015 2014 2015 2014
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net income $101,721 $138,474 $114,339 $306,813
Other comprehensive income, net
of taxes:
Items that may be
reclassified to income:
Change in fair value of
forward exchange contracts (2,737) 128 (1,137) 276
Change in fair value of
interest rate swap
contracts - 744 (12) 478
Realized loss on interest
rate swap contracts
reclassified to finance
costs - 2,213 2,247 4,426
----------------------------------------------------------------------------
(2,737) 3,085 1,098 5,180
----------------------------------------------------------------------------
Comprehensive income $ 98,984 $141,559 $115,437 $311,993
----------------------------------------------------------------------------
Attributable to:
Methanex Corporation
shareholders 101,843 126,393 113,214 272,121
Non-controlling interests (2,859) 15,166 2,223 39,872
----------------------------------------------------------------------------
$ 98,984 $141,559 $115,437 $311,993
----------------------------------------------------------------------------
See accompanying notes to condensed consolidated interim financial
statements.
Methanex Corporation
Consolidated Statements of Financial Position (unaudited)
(thousands of U.S. dollars)
Jun 30 Dec 31
AS AT 2015 2014
----------------------------------------------------------------------------
----------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 484,711 $ 951,600
Trade and other receivables 546,533 404,363
Inventories (note 2) 316,069 306,802
Prepaid expenses 14,307 23,137
----------------------------------------------------------------------------
1,361,620 1,685,902
Non-current assets:
Property, plant and equipment (note 3) 3,030,352 2,778,078
Investment in associate (note 4) 189,267 216,235
Other assets 82,834 95,125
----------------------------------------------------------------------------
3,302,453 3,089,438
----------------------------------------------------------------------------
$ 4,664,073 $ 4,775,340
----------------------------------------------------------------------------
LIABILITIES AND EQUITY
Current liabilities:
Trade, other payables and accrued
liabilities $ 617,829 $ 566,881
Current maturities on long-term debt (note
5) 45,322 193,831
Current maturities on other long-term
liabilities 72,367 59,118
----------------------------------------------------------------------------
735,518 819,830
Non-current liabilities:
Long-term debt (note 5) 1,506,732 1,528,207
Other long-term liabilities 179,782 140,861
Deferred income tax liabilities 238,269 233,225
----------------------------------------------------------------------------
1,924,783 1,902,293
Equity:
Capital stock 513,784 521,022
Contributed surplus 2,242 2,803
Retained earnings 1,229,261 1,262,961
Accumulated other comprehensive loss (433) (413)
----------------------------------------------------------------------------
Shareholders' equity 1,744,854 1,786,373
Non-controlling interests 258,918 266,844
----------------------------------------------------------------------------
Total equity 2,003,772 2,053,217
----------------------------------------------------------------------------
$ 4,664,073 $ 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 of
Common Capital Contributed Retained
Shares Stock Surplus Earnings
----------------------------------------------------------------------------
Balance, December
31, 2013 96,100,969 531,573 4,994 1,126,700
Net income - - - 269,886
Other comprehensive
income - - - -
Compensation expense
recorded for stock
options - - 464 -
Issue of shares on
exercise of stock
options 430,287 7,701 - -
Reclassification of
grant date fair
value on exercise
of stock option - 2,175 (2,175) -
Payment for shares
repurchased (1,371,447) (7,655) - (74,617)
Dividend payments to
Methanex
Corporation
shareholders - - - (43,228)
Distributions made
and accrued to non-
controlling
interests - - - -
----------------------------------------------------------------------------
Balance, June 30,
2014 95,159,809 533,794 3,283 1,278,741
Net income - - - 184,724
Other comprehensive
income - - - 32
Compensation expense
recorded for stock
options - - 313 -
Issue of shares on
exercise of stock
options 106,437 2,956 - -
Reclassification of
grant date fair
value on exercise
of stock option - 793 (793) -
Payment for shares
repurchased (2,939,759) (16,521) - (153,851)
Dividend payments to
Methanex
Corporation
shareholders - - - (46,685)
Distributions made
and accrued to non-
controlling
interests - - - -
Equity contributions
by non-controlling
interests - - - -
----------------------------------------------------------------------------
Balance, December
31, 2014 92,326,487 521,022 2,803 1,262,961
Net income - - - 113,234
Other comprehensive
income - - - -
Compensation expense
recorded for stock
options - - 455 -
Issue of shares on
exercise of stock
options 236,681 3,616 - -
Reclassification of
grant date fair
value on exercise
of stock options - 1,016 (1,016) -
Payment for shares
repurchased (2,106,991) (11,870) - (99,115)
Dividend payments to
Methanex
Corporation
shareholders - - - (47,819)
Distributions made
and accrued to non-
controlling
interests - - - -
Equity contributions
by non-controlling
interests - - - -
----------------------------------------------------------------------------
Balance, June 30,
2015 90,456,177 $513,784 $ 2,242 $1,229,261
----------------------------------------------------------------------------
Accumulated
Other Non-
Comprehensive Shareholders' Controlling Total
Income (Loss) Equity Interests Equity
----------------------------------------------------------------------------
Balance, December
31, 2013 (5,544) 1,657,723 247,610 1,905,333
Net income - 269,886 36,927 306,813
Other comprehensive
income 2,235 2,235 2,945 5,180
Compensation expense
recorded for stock
options - 464 - 464
Issue of shares on
exercise of stock
options - 7,701 - 7,701
Reclassification of
grant date fair
value on exercise
of stock option - - - -
Payment for shares
repurchased - (82,272) - (82,272)
Dividend payments to
Methanex
Corporation
shareholders - (43,228) - (43,228)
Distributions made
and accrued to non-
controlling
interests - - (36,810) (36,810)
----------------------------------------------------------------------------
Balance, June 30,
2014 (3,309) 1,812,509 250,672 2,063,181
Net income - 184,724 14,771 199,495
Other comprehensive
income 2,896 2,928 2,322 5,250
Compensation expense
recorded for stock
options - 313 - 313
Issue of shares on
exercise of stock
options - 2,956 - 2,956
Reclassification of
grant date fair
value on exercise
of stock option - - - -
Payment for shares
repurchased - (170,372) - (170,372)
Dividend payments to
Methanex
Corporation
shareholders - (46,685) - (46,685)
Distributions made
and accrued to non-
controlling
interests - - (10,528) (10,528)
Equity contributions
by non-controlling
interests - - 9,607 9,607
----------------------------------------------------------------------------
Balance, December
31, 2014 (413) 1,786,373 266,844 2,053,217
Net income - 113,234 1,105 114,339
Other comprehensive
income (20) (20) 1,118 1,098
Compensation expense
recorded for stock
options - 455 - 455
Issue of shares on
exercise of stock
options - 3,616 - 3,616
Reclassification of
grant date fair
value on exercise
of stock options - - - -
Payment for shares
repurchased - (110,985) - (110,985)
Dividend payments to
Methanex
Corporation
shareholders - (47,819) - (47,819)
Distributions made
and accrued to non-
controlling
interests - - (10,449) (10,449)
Equity contributions
by non-controlling
interests - - 300 300
----------------------------------------------------------------------------
Balance, June 30,
2015 $ (433) $ 1,744,854 $258,918 $2,003,772
----------------------------------------------------------------------------
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 Six Months Ended
----------------------- ------------------------
Jun 30 Jun 30 Jun 30 Jun 30
2015 2014 2015 2014
----------------------------------------------------------------------------
----------------------------------------------------------------------------
CASH FLOWS FROM / (USED IN)
OPERATING ACTIVITIES
Net income $ 101,721 $ 138,474 $ 114,339 $ 306,813
Deduct earnings of
associate (6,714) (2,605) (16,889) (9,896)
Dividends received from
associate 12,620 25,240 44,170 25,240
Add (deduct) non-cash
items:
Depreciation and
amortization 47,483 33,113 94,440 67,924
Income tax expense 19,930 46,800 14,597 98,531
Share-based
compensation expense 10,205 (1,121) 31,952 24,125
Finance costs 17,225 9,570 38,767 20,408
Other 424 701 332 424
Income taxes paid (8,551) (12,068) (34,134) (23,426)
Other cash payments,
including share-based
compensation (1,424) (5,627) (14,171) (40,336)
----------------------------------------------------------------------------
Cash flows from operating
activities before
undernoted 192,919 232,477 273,403 469,807
Changes in non-cash
working capital (note 9) (110,781) 7,695 (154,192) (50,564)
----------------------------------------------------------------------------
82,138 240,172 119,211 419,243
----------------------------------------------------------------------------
CASH FLOWS FROM / (USED IN)
FINANCING ACTIVITIES
Payments for repurchase
of shares (60,829) (77,324) (110,985) (77,324)
Dividend payments to
Methanex Corporation
shareholders (24,900) (23,933) (47,819) (43,228)
Interest paid, including
interest rate swap
settlements (27,399) (5,810) (47,941) (26,811)
Repayment of long-term
debt and limited
recourse debt (1,825) (913) (171,653) (20,433)
Cash distributions to
non-controlling
interests - (14,401) (910) (32,498)
Proceeds on issue of
shares on exercise of
stock options 896 133 3,616 7,701
Other (1,438) (1,034) (2,258) (2,049)
Changes in non-cash
working capital related
to financing activities
(note 9) (6,381) (4,312) (7,835) (4,312)
----------------------------------------------------------------------------
(121,876) (127,594) (385,785) (198,954)
----------------------------------------------------------------------------
CASH FLOWS FROM / (USED IN)
INVESTING ACTIVITIES
Property, plant and
equipment (43,886) (15,936) (62,611) (31,764)
Geismar plants under
construction (83,707) (98,453) (170,891) (226,367)
Termination of terminal
services agreement 65,000 - 65,000 -
Other assets - (4,056) 1,996 (8,919)
Changes in non-cash
working capital related
to investing activities
(note 9) (39,675) (55,864) (33,809) (38,493)
----------------------------------------------------------------------------
(102,268) (174,309) (200,315) (305,543)
----------------------------------------------------------------------------
Decrease in cash and cash
equivalents (142,006) (61,731) (466,889) (85,254)
Cash and cash
equivalents, beginning
of period 626,717 709,213 951,600 732,736
----------------------------------------------------------------------------
Cash and cash
equivalents, end of
period $ 484,711 $ 647,482 $ 484,711 $ 647,482
----------------------------------------------------------------------------
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 July 29, 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 six month periods ended June 30, 2015 is $502 million (2014 - $545 million) and $962 million (2014 - $1,236 million), respectively.
3. Property, plant and equipment:
Buildings,
Plant Plants
Installations Under Finance
& Machinery Construction Leases Other Total
----------------------------------------------------------------------------
Cost at June
30, 2015 $ 3,908,195 $ 428,385 $ 135,060 $194,824 $4,666,464
Accumulated
depreciation
at June 30,
2015 1,468,900 - 34,651 132,561 1,636,112
----------------------------------------------------------------------------
Net book value
at June 30,
2015 $ 2,439,295 $ 428,385 $ 100,409 $ 62,263 $3,030,352
----------------------------------------------------------------------------
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
----------------------------------------------------------------------------
Net book value
at December
31, 2014 $ 1,713,100 $ 996,015 $ 1,742 $ 67,221 $2,778,078
----------------------------------------------------------------------------
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 Jun 30 Dec 31
at 2015 2014
----------------------------------------------------------------------------
Cash and cash equivalents $ 12,691 $ 24,834
Other current assets 69,900 70,594
Non-current assets 326,776 352,616
Current liabilities (40,573) (29,442)
Other long-term liabilities, including current
maturities (138,763) (145,336)
----------------------------------------------------------------------------
Net assets at 100% $ 230,031 $ 273,266
----------------------------------------------------------------------------
Net assets at 63.1% $ 145,150 $ 172,431
Long-term receivable from Atlas 44,117 43,804
----------------------------------------------------------------------------
Investment in associate $ 189,267 $ 216,235
----------------------------------------------------------------------------
Three Months Ended Six Months Ended
----------------------- ------------------------
Consolidated statements of Jun 30 Jun 30 Jun 30 Jun 30
income 2015 2014 2015 2014
-------------------------------------------------- ------------------------
Revenue $ 95,119 $ 79,060 $ 182,634 $ 194,795
Cost of sales and
depreciation and
amortization (74,618) (71,821) (136,284) (170,218)
-------------------------------------------------- ------------------------
Operating income 20,501 7,239 46,350 24,577
Finance costs, finance
income and other expenses (2,412) (2,756) (4,694) (5,506)
Income tax expense (7,449) (354) (14,890) (3,387)
-------------------------------------------------- ------------------------
Net earnings at 100% $ 10,640 $ 4,129 $ 26,766 $ 15,684
-------------------------------------------------- ------------------------
Earnings of associate at
63.1% $ 6,714 $ 2,605 $ 16,889 $ 9,896
-------------------------------------------------- ------------------------
Dividends received from
associate $ 12,620 $ 25,240 $ 44,170 $ 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 six month periods ended June 30, 2014 the reclassification resulted in a decrease to earnings of associate by $0.7 million and $0.8 million, respectively.
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:
Jun 30 Dec 31
As at 2015 2014
----------------------------------------------------------------------------
Unsecured notes
$150 million at 6.00% due August 15, 2015 $ - $ 149,835
$350 million at 3.25% due December 15, 2019 345,831 345,387
$250 million at 5.25% due March 1, 2022 247,170 246,991
$300 million at 4.25% due December 1, 2024 296,048 296,073
$300 million at 5.65% due December 1, 2044 294,987 294,936
----------------------------------------------------------------------------
1,184,036 1,333,222
Egypt limited recourse debt facilities 349,704 368,678
Other limited recourse debt facilities 18,314 20,138
----------------------------------------------------------------------------
Total long-term debt (1) 1,552,054 1,722,038
Less current maturities (45,322) (193,831)
----------------------------------------------------------------------------
$ 1,506,732 $ 1,528,207
----------------------------------------------------------------------------
(1) Long-term debt is presented net of deferred financing fees.
During the three months ended June 30, 2015, the Company made repayments on its other limited recourse debt facilities of $0.9 million.
At June 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 Six Months Ended
----------------------- ------------------------
Jun 30 Jun 30 Jun 30 Jun 30
2015 2014 2015 2014
-------------------------------------------------- ------------------------
Finance costs $ 20,890 $ 15,527 $ 48,608 $ 31,048
Less capitalized interest
related to Geismar plants
under construction (3,665) (5,957) (9,841) (10,640)
----------------------------------------------------------------------------
$ 17,225 $ 9,570 $ 38,767 $ 20,408
----------------------------------------------------------------------------
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. Included in finance costs for the six months ended June 30, 2015 is $3 million in interest paid in conjunction with the early repayment of $150 million of unsecured notes during the three months ended March 31, 2015. Interest during construction of the Geismar plants is capitalized until the plants are substantially completed 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 Six Months Ended
---------------------- ----------------------
Jun 30 Jun 30 Jun 30 Jun 30
2015 2014 2015 2014
---------------------------------------------------- ----------------------
Numerator for basic net income
per common share $ 104,580 $ 124,784 $ 113,234 $ 269,886
Adjustment for the effect of
TSARs:
Cash-settled recovery
included in net income - (1,990) - -
Equity-settled expense - (1,874) - -
----------------------------------------------------------------------------
Numerator for diluted net
income per common share $ 104,580 $ 120,920 $ 113,234 $ 269,886
----------------------------------------------------------------------------
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 Six Months Ended
----------------------- -----------------------
Jun 30 Jun 30 Jun 30 Jun 30
2015 2014 2015 2014
--------------------------------------------------- -----------------------
Denominator for basic net
income per common share 91,020,729 96,124,565 91,387,152 96,212,652
Effect of dilutive stock
options 305,991 516,169 722,814 606,079
Effect of dilutive TSARs - 681,410 - -
----------------------------------------------------------------------------
Denominator for diluted net
income per common share 91,326,720 97,322,144 92,109,966 96,818,731
----------------------------------------------------------------------------
8. Share-based compensation:
a) Share appreciation rights ("SARs"), TSARs and stock options:
(i) Outstanding units:
Information regarding units outstanding at June 30, 2015 is as follows:
SARs TSARs
---------------------- ----------------------
Weighted Weighted
Average Average
Number Exercise Number Exercise
(per share amounts in 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 55.66 411,205 55.33
Exercised (16,750) 34.16 (10,800) 32.33
Cancelled - - (4,550) 67.00
---------------------------------------------------- ----------------------
Outstanding at March 31, 2015 1,347,770 $ 43.94 2,128,040 $ 42.61
---------------------------------------------------- ----------------------
Granted - - 5,400 59.92
Exercised (76,837) 31.82 (6,500) 31.16
Cancelled (2,900) 52.68 (2,300) 60.99
---------------------------------------------------- ----------------------
Outstanding at June 30, 2015 1,268,033 $ 44.66 2,124,640 $ 42.67
---------------------------------------------------- ----------------------
Stock Options
--------------------------------------
Number of Weighted Average
(per share amounts in USD) Units Exercise Price
----------------------------------------------------------------------------
Outstanding at December 31, 2014 699,261 $ 21.90
Granted 55,917 55.66
Exercised (106,316) 25.58
Expired (12,690) 28.43
----------------------------------------------------------------------------
Outstanding at March 31, 2015 636,172 $ 24.12
----------------------------------------------------------------------------
Exercised (130,365) 6.88
Expired (3,600) 61.50
----------------------------------------------------------------------------
Outstanding at June 30, 2015 502,207 $ 28.33
----------------------------------------------------------------------------
Units Outstanding at Units Exercisable at
June 30, 2015 June 30, 2015
----------------------------------- ----------------------
Weighted
Range of Exercise Average Weighted Weighted
Prices Remaining Number Average Number Average
(per share amounts Contractual of Units Exercise of Units Exercise
in USD) Life (Years) Outstanding Price Exercisable Price
----------------------------------------------------- ----------------------
SARs:
$23.36 to 38.24 3.58 764,470 $ 32.67 646,736 $ 31.71
$46.42 to 73.13 6.18 503,563 62.85 68,096 72.75
----------------------------------------------------- ----------------------
4.61 1,268,033 44.66 714,832 35.62
----------------------------------------------------- ----------------------
TSARs:
$23.36 to 38.24 3.51 1,401,335 $ 32.41 1,223,901 $ 31.59
$46.42 to 73.13 6.26 723,305 62.55 99,533 72.65
----------------------------------------------------- ----------------------
4.45 2,124,640 42.67 1,323,434 34.68
----------------------------------------------------- ----------------------
Stock options:
$6.33 to 25.22 0.89 236,890 $ 10.30 236,890 $ 10.30
$28.43 to 73.13 4.64 265,317 44.43 159,000 36.30
----------------------------------------------------- ----------------------
2.87 502,207 28.33 395,890 20.74
----------------------------------------------------- ----------------------
(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 June 30, 2015 was $61.1 million compared with the recorded liability of $56.0 million. The difference between the fair value and the recorded liability of $5.1 million will be recognized over the weighted average remaining vesting period of approximately 1.73 years. The weighted average fair value was estimated at June 30, 2015 using the Black-Scholes option pricing model.
For the three and six month periods ended June 30, 2015, compensation expense related to SARs and TSARs included an expense in cost of sales and operating expenses of $6.3 million (2014 - recovery of $2.7 million) and an expense of $25.0 million (2014 - expense of $15.5 million), respectively. This included an expense of $3.1 million (2014 - recovery of $5.8 million) and an expense of $18.5 million (2014 - expense of $8.6 million), respectively, related to the effect of the change in the Company's share price for the three and six month periods ended June 30, 2015.
(iii) Compensation expense related to stock options:
For the three and six month periods ended June 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 $0.4 million (2014 - $0.4 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 June 30, 2015 are as follows:
Number of Number of Number of
Deferred Restricted Performance
Share Units Share Units Share Units
----------------------------------------------------------------------------
Outstanding at December 31, 2014 302,158 30,365 798,944
Granted 5,324 6,400 169,990
Granted performance factor (1) - - 71,100
Granted in-lieu of dividends 1,434 175 2,877
Redeemed - - (426,598)
Cancelled - - (8,726)
----------------------------------------------------------------------------
Outstanding at March 31, 2015 308,916 36,940 607,587
----------------------------------------------------------------------------
Granted 466 - -
Granted in-lieu of dividends 1,512 186 3,039
Redeemed (1,500) - -
Cancelled - - (5,521)
----------------------------------------------------------------------------
Outstanding at June 30, 2015 309,394 37,126 605,105
----------------------------------------------------------------------------
(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 June 30, 2015 was $44.0 million compared with the recorded liability of $40.1 million. The difference between the fair value and the recorded liability of $3.9 million will be recognized over the weighted average remaining vesting period of approximately 1.3 years.
For the three and six month periods ended June 30, 2015, compensation expense related to deferred, restricted and performance share units included in cost of sales and operating expenses was an expense of $3.7 million (2014 - expense of $1.5 million) and an expense of $6.4 million (2014 - expense of $8.3 million), respectively. This included a expense of $0.4 million (2014 - recovery of $2.1 million) and an recovery of $0.3 million (2014 - expense of $1.0 million) related to the effect of the change in the Company's share price for the three and six month periods ended June 30, 2015.
9. Changes in non-cash working capital:
Changes in non-cash working capital for the three and six month periods ended June 30, 2015 and 2014 were as follows:
Three Months Ended Six Months Ended
----------------------- ------------------------
Jun 30 Jun 30 Jun 30 Jun 30
2015 2014 2015 2014
-------------------------------------------------- ------------------------
Changes in non-cash working
capital:
Trade and other
receivables $(116,128) $ 88,196 $(142,170) $ 46,339
Inventories (29,699) 24,659 (9,267) 33,517
Prepaid expenses 3,439 (6,371) 8,830 (8,210)
Trade, other payables and
accrued liabilities,
including long-term
payables included in
other long-term
liabilities 47,109 (131,221) 312 (124,954)
-------------------------------------------------- ------------------------
(95,279) (24,737) (142,295) (53,308)
Adjustments for items not
having a cash effect and
working capital changes
relating to taxes and
interest paid (61,558) (27,744) (53,541) (40,061)
-------------------------------------------------- ------------------------
Changes in non-cash working
capital having a cash
effect $(156,837) $ (52,481) $(195,836) $ (93,369)
-------------------------------------------------- ------------------------
These changes relate to the
following activities:
Operating $(110,781) $ 7,695 $(154,192) $ (50,564)
Financing (6,381) (4,312) (7,835) (4,312)
Investing (39,675) (55,864) (33,809) (38,493)
-------------------------------------------------- ------------------------
Changes in non-cash working
capital $(156,837) $ (52,481) $(195,836) $ (93,369)
-------------------------------------------------- ------------------------
10. Financial instruments:
Financial instruments are either measured at amortized cost or fair value. 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 forward exchange contracts to sell euro at a fixed US dollar exchange rate. At June 30, 2015, the Company had outstanding forward exchange contracts designated as cash flow hedges to sell a notional amount of EUR90.0 million in exchange for US dollars. The euro contracts had a negative fair value of $0.3 million recorded in current liabilities at June 30, 2015 (December 31, 2014 - $1.1 million positive fair value recorded in current assets). The euro forward exchange contracts designated as cash flow hedges are measured at fair value based on industry-accepted valuation models and inputs obtained from active markets. Changes in fair value of derivative financial instruments designated as cash flow hedges have been recorded in other comprehensive income.
The carrying values of the Company's financial instruments approximate their fair values, except as follows:
June 30, 2015
------------------------------------
As at Carrying Value Fair Value
----------------------------------------------------------------------------
Long-term debt excluding deferred
financing fees $ 1,568,389 $ 1,579,833
----------------------------------------------------------------------------
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 June 2015. The fair value of the Company's unsecured notes will fluctuate until maturity.
11. Gain on termination of terminal services agreement:
During the quarter, we recorded a gain of $65 million ($57 million, net of tax) related to the termination of a terminal services agreement.
Methanex Corporation
Quarterly History(unaudited)
2015 Q2 Q1 2014 Q4 Q3 Q2 Q1
----------------------------------------------------------------------------
METHANOL SALES
VOLUMES
(thousands of
tonnes)
Methanex-produced
(1) 2,440 1,203 1,237 4,878 1,249 1,258 1,143 1,228
Purchased methanol 1,465 813 652 2,685 694 694 643 654
Commission sales (1) 294 109 185 941 248 191 206 296
----------------------------------------------------------------------------
4,199 2,125 2,074 8,504 2,191 2,143 1,992 2,178
----------------------------------------------------------------------------
METHANOL PRODUCTION
(thousands of
tonnes)
New Zealand 968 487 481 2,196 542 595 559 500
Atlas, Trinidad
(63.1%) 445 236 209 907 233 234 191 249
Titan, Trinidad 369 183 186 664 127 185 203 149
Geismar 1
(Louisiana, USA)
(2) 456 276 180 - - - - -
Egypt (50%) 16 8 8 416 128 50 99 139
Medicine Hat 178 51 127 505 115 130 138 122
Chile 113 40 73 165 62 10 26 67
----------------------------------------------------------------------------
2,545 1,281 1,264 4,853 1,207 1,204 1,216 1,226
----------------------------------------------------------------------------
AVERAGE REALIZED
METHANOL PRICE (3)
($/tonne) 344 350 337 437 390 389 450 524
($/gallon) 1.03 1.05 1.01 1.31 1.17 1.17 1.35 1.58
PER SHARE
INFORMATION ($ per
share) (4)
Basic net income 1.24 1.15 0.09 4.79 1.43 0.55 1.30 1.51
Diluted net income 1.23 1.15 0.09 4.55 1.11 0.54 1.24 1.50
Adjusted net income
(5) 0.79 0.56 0.23 4.12 0.85 0.69 0.94 1.65
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(1) Methanex-produced methanol includes volumes produced by Chile using
natural gas supplied from Argentina under a tolling arrangement.
Commission sales represent volumes 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
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