VANCOUVER, BRITISH COLUMBIA
-- (Marketwired)
-- 01/28/15
Methanex Corporation (TSX: MX)(NASDAQ: MEOH) -
For the fourth quarter of 2014, Methanex reported Adjusted EBITDA(1) of $150 million and Adjusted net income(1) of $80 million ($0.85 per share on a diluted basis(1)). This compares with Adjusted EBITDA(1) of $137 million and Adjusted net income(1) of $66 million ($0.69 per share on a diluted basis(1)) for the third quarter of 2014. For the year ended December 31, 2014, Methanex reported Adjusted EBITDA(1) of $702 million and Adjusted net income(1) of $397 million ($4.12 per share on a diluted basis(1)). This compares with Adjusted EBITDA of $736 million and Adjusted net income(1) of $471 million ($4.88 per share on a diluted basis) for the year ended December 31, 2013.
John Floren, President and CEO of Methanex commented, "We achieved solid results in Q4, with higher Adjusted EBITDA and earnings versus Q3. A steep drop in oil and related downstream product prices this quarter lowered the affordability for methanol into certain energy applications and this, along with strong industry supply, pressured global methanol pricing. We continue to see stable demand from chemical applications, and the recently lower methanol pricing has helped to restore the affordability of methanol for energy applications."
Mr. Floren added, "We announced earlier this week that our Geismar 1 plant has successfully started up on schedule and is producing methanol. This marks another key milestone in our 2013 commitment to grow our operating capacity by approximately three million tonnes over three years. We also continue to make excellent progress on the construction of our one million tonne Geismar 2 plant, and remain on target for methanol production in late Q1 2016."
"During the quarter, we returned over $100 million in cash to shareholders in the form of dividends and share repurchases, bringing total cash returned to shareholders in 2014 to just over $340 million. We announced today that we have increased our Normal Course Issuer Bid initiated on May 6, 2014 to allow for up to an incremental 3,751,519 common shares to be purchased, for a total of 8,577,716 common shares, or 10% of our public float."
"In Q4 we issued $600 million in new bonds, bringing our total cash on hand as at December 31, 2014 to over $900 million. With our cash on hand, undrawn credit facility, robust balance sheet, and strong future cash flow generation, we are well positioned to meet our financial commitments, invest to grow the Company and return excess cash to shareholders through dividends and our share buyback program."
A conference call is scheduled for January 29, 2015 at 12:00 noon ET (9:00 am PT) to review these fourth 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 February 19, 2015 at (905) 694-9451, or toll free at (800) 408-3053. The passcode for the playback version is 3241984. Presentation slides summarizing Q4-14 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 Fourth Quarter 2014 press release contains forward-looking statements with respect to us and the chemical industry. Refer to Forward-Looking Information Warning in the attached Fourth Quarter 2014 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 certain items considered by management to be non-operational. Refer to the Additional Information - Supplemental Non-GAAP Measures section of the attached Interim Report for the three months ended December 31, 2014 for reconciliations to the most comparable GAAP measures.
4 Interim Report for the Three Months Ended December 31, 2014
At January 28, 2015 the Company had 91,814,390 common shares issued and outstanding and stock options exercisable for 1,443,001 additional common shares.
Share Information
Methanex Corporation's common shares are listed for trading on the Toronto
Stock Exchange under the symbol MX and on the Nasdaq Global Market under the
symbol MEOH.
Transfer Agents & Registrars
CST Trust Company
320 Bay Street
Toronto, Ontario Canada M5H 4A6
Toll free in North America: 1-800-387-0825
Investor Information
All financial reports, news releases and corporate information can be
accessed on our website at http://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
FOURTH 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 Years Ended
------------------------- ----------------
($ millions except number of Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
shares and per share amounts) 2014 2014 2013 2014 2013
------------------------------------------ ---------------- ------- --------
Net income attributable to
Methanex shareholders $ 133 $ 52 $ 128 $ 455 $ 329
Mark-to-market impact of share-
based compensation, net of tax (53) 14 34 (31) 101
Argentina gas settlement, net of
tax - - - (27) -
Write-off of oil and gas rights,
net of tax - - 5 - 19
Geismar project relocation
expenses, net of tax - - - - 22
------------------------------------------ ---------------- ------- --------
Adjusted net income(1) $ 80 $ 66 $ 167 $ 397 $ 471
------------------------------------------ ---------------- ------- --------
Diluted weighted average shares
outstanding (millions) 94 95 97 96 96
Adjusted net income per common
share(1) $ 0.85 $ 0.69 $ 1.72 $ 4.12 $ 4.88
------------------------------------------ ---------------- ------- --------
-- We recorded Adjusted EBITDA(1) of $150 million for the fourth quarter of
2014 compared with $137 million for the third quarter of 2014. The
increase in Adjusted EBITDA(1) was primarily due to a decrease in our
total cash costs per tonne on produced methanol improving margins in the
fourth quarter as compared to the third quarter of 2014 partially offset
by a decrease in sales of Methanex-produced methanol.
-- Production for the fourth quarter of 2014 was 1,207,000 tonnes compared
with 1,204,000 tonnes for the third quarter of 2014. Refer to the
Production Summary section.
-- Sales of Methanex-produced methanol were 1,249,000 tonnes in the fourth
quarter of 2014 compared with 1,258,000 in the third quarter of 2014.
-- We have reached a significant milestone on our Geismar relocation
project, having produced the first methanol from the Geismar 1 facility.
We are targeting to produce methanol from Geismar 2 in late Q1 2016.
-- During the fourth quarter of 2014, we issued $600 million of unsecured
notes with $300 million due in 2024 and $300 million due in 2044 and
renewed and extended our $400 million revolving credit facility for a 5
year term to 2019.
-- During the fourth quarter of 2014 we paid a $0.25 per share dividend to
shareholders for a total of $23 million.
-- During the fourth quarter of 2014, we continued to repurchase common
shares under the Normal Course Issuer Bid. Total shares repurchased to
December 31, 2014 of 4,311,206 represents 89% of the shares approved to
be repurchased under the Normal Course Issuer Bid initiated on May 6,
2014.
-- We announced today that we will increase our Normal Course Issuer Bid to
allow for up to an incremental 3,751,519 common shares to be purchased,
for a total of 8,577,716 common shares, or 10% of our public float.
(1) These items are non-GAAP measures that do not have any standardized meaning prescribed by GAAP and therefore are unlikely to be comparable to similar measures presented by other companies. Refer to the Additional Information - Supplemental Non-GAAP Measures section for a description of each non-GAAP measure and reconciliations to the most comparable GAAP measures.
This Fourth Quarter 2014 Management's Discussion and Analysis ("MD&A") dated January 28, 2015 for Methanex Corporation ("the Company") should be read in conjunction with the Company's condensed consolidated interim financial statements for the period ended December 31, 2014 as well as the 2013 Annual Consolidated Financial Statements and MD&A included in the Methanex 2013 Annual Report. Unless otherwise indicated, the financial information presented in this interim report is prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). The Methanex 2013 Annual Report and additional information relating to Methanex is available on SEDAR at www.sedar.com and on EDGAR at www.sec.gov.
FINANCIAL AND OPERATIONAL DATA
Three Months Ended Years Ended
--------------------------- ------------------
($ millions, except per share Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
amounts and where noted) 2014 2014 2013 2014 2013
-------------------------------------------------------- ------------------
Production (thousands of
tonnes) (attributable to
Methanex shareholders) 1,207 1,204 1,194 4,853 4,344
Sales volumes (thousands of
tonnes):
Methanex-produced methanol
(attributable to Methanex
shareholders) 1,249 1,258 1,190 4,878 4,304
Purchased methanol 694 694 663 2,685 2,715
Commission sales 248 191 274 941 972
-------------------------------------------------------- ------------------
Total sales volumes(1) 2,191 2,143 2,127 8,504 7,991
Methanex average non-
discounted posted price ($
per tonne)(2) 453 444 557 507 507
Average realized price ($ per
tonne)(3) 390 389 493 437 441
Adjusted EBITDA (attributable
to Methanex shareholders)(4) 150 137 245 702 736
Cash flows from operating
activities 211 171 162 801 586
Adjusted net income
(attributable to Methanex
shareholders)(4) 80 66 167 397 471
Net income attributable to
Methanex shareholders 133 52 128 455 329
Adjusted net income per
common share (attributable
to Methanex shareholders)(4) 0.85 0.69 1.72 4.12 4.88
Basic net income per common
share (attributable to
Methanex shareholders) 1.43 0.55 1.33 4.79 3.46
Diluted net income per common
share (attributable to
Methanex shareholders) 1.11 0.54 1.32 4.55 3.41
Common share information
(millions of shares):
Weighted average number of
common shares 93 94 96 95 95
Diluted weighted average
number of common shares 94 95 97 96 96
Number of common shares
outstanding, end of period 92 94 96 92 96
-------------------------------------------------------- ------------------
(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 36.9% of
the Atlas methanol facility and the portion of the Egypt methanol facility
that we do not own.
(2) Methanex average non-discounted posted price represents the average of
our non-discounted posted prices in North America, Europe and Asia Pacific
weighted by sales volume. Current and historical pricing information is
available at www.methanex.com.
(3) Average realized price is calculated as revenue, excluding commissions
earned and the Egypt non-controlling interest share of revenue but including
an amount representing our share of Atlas revenue, divided by the total
sales volumes of Methanex-produced (attributable to Methanex shareholders)
and purchased methanol.
(4) These items are non-GAAP measures that do not have any standardized
meaning prescribed by GAAP and therefore are unlikely to be comparable to
similar measures presented by other companies. Refer to the Additional
Information - Supplemental Non-GAAP Measures section for a description of
each non-GAAP measure and reconciliations to the most comparable GAAP
measures.
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PRODUCTION SUMMARY
Annual 2014 2013
(thousands of tonnes) Capacity(1) Production Production
----------------------------------------------------------------------------
New Zealand(2) 2,430 2,196 1,419
Atlas (Trinidad) (63.1% interest) 1,125 907 971
Titan (Trinidad) 875 664 651
Egypt (50% interest)(3) 630 416 623
Medicine Hat 560 505 476
Chile I and IV 1,800 165 204
Geismar 1 and 2 (Louisiana, USA) - - -
----------------------------------------------------------------------------
7,420 4,853 4,344
----------------------------------------------------------------------------
PRODUCTION SUMMARY
Q4 2014 Q3 2014 Q4 2013
(thousands of tonnes) Production Production Production
----------------------------------------------------------------------------
New Zealand(2) 542 595 400
Atlas (Trinidad) (63.1% interest) 233 234 268
Titan (Trinidad) 127 185 173
Egypt (50% interest)(3) 128 50 159
Medicine Hat 115 130 86
Chile I and IV 62 10 108
Geismar 1 and 2 (Louisiana, USA) - - -
----------------------------------------------------------------------------
1,207 1,204 1,194
----------------------------------------------------------------------------
(1) The production capacity of our facilities may be higher than original
nameplate capacity as, over time, these figures have been adjusted to
reflect ongoing operating efficiencies. Actual production for a facility in
any given year may be higher or lower than annual production capacity due to
a number of factors, including natural gas composition or the age of the
facility's catalyst.
(2) The annual production capacity of New Zealand represents the two Motunui
facilities and the Waitara Valley facility (refer to New Zealand section
below).
(3) On December 9, 2013, we completed a sale of 10% equity interest in the
Egypt facility. Production figures prior to December 9, 2013 reflect a 60%
interest.
New Zealand
Our New Zealand methanol facilities produced 542,000 tonnes of methanol in the fourth quarter of 2014 compared with 595,000 tonnes in the third quarter of 2014. Production in the fourth quarter of 2014 was interrupted due to a required statutory pipeline inspection at the Motonui and Waitara Valley sites. In addition, we experienced some minor operating issues. These facilities are able to produce 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 production capacity of 875,000 tonnes and have a 63.1% interest in the Atlas facility with an annual production capacity of 1,125,000 tonnes (63.1% interest). The Titan facility produced 127,000 tonnes in the fourth quarter of 2014 compared with 185,000 tonnes in the third quarter of 2014. The Titan facility did not operate for approximately one month due to mechanical issues and a regional electricity outage.
The Atlas facility produced 233,000 tonnes in the fourth quarter of 2014 compared with 234,000 tonnes in the third quarter of 2014. The regional electricity outage also impacted production at the Atlas facility in the fourth quarter of 2014. Gas curtailments at both Titan and Atlas during the fourth quarter of 2014 were lower than in the third quarter of 2014.
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, which becomes apparent when an upstream supplier has a technical issue or planned maintenance that reduces gas delivery. We are engaged with key stakeholders to find a solution to this issue, but in the meantime expect to continue to experience gas curtailments to the Trinidad site.
Egypt
On a 100% basis, the Egypt methanol facility produced 256,000 tonnes in the fourth quarter of 2014 (Methanex share of 128,000 tonnes) compared with 100,000 tonnes (Methanex share of 50,000 tonnes) in the third quarter of 2014. Production during the fourth quarter of 2014 was higher than in the third quarter of 2014 due to higher natural gas supply deliveries. The plant was idled during a significant portion of the third quarter which was the peak summer electricity consumption period.
The Egypt facility has experienced periodic natural gas supply restrictions since mid-2012 which have resulted in production below full capacity. This situation may persist in the future and becomes more acute during the summer months when natural gas demand for electricity generation is at its peak.
Medicine Hat, Canada
During the fourth quarter of 2014, we produced 115,000 tonnes at our Medicine Hat facility compared with 130,000 tonnes during the third quarter of 2014. Production from the Medicine Hat facility was lower than the third quarter due to an unplanned outage and ongoing mechanical issues experienced in the fourth quarter.
Chile
After idling our Chile operations during the southern hemisphere winter as a result of insufficient natural gas feedstock, we restarted the Chile I facility in September 2014. During the fourth quarter of 2014, we produced 62,000 tonnes in Chile operating the facility at approximately 30% of production capacity, supported by natural gas supplies from both Chile and Argentina through a tolling arrangement.
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.
Geismar, Louisiana
In January 2015 the Geismar 1 plant commenced first methanol production. We continue to make excellent progress on the construction of Geismar 2 and we are targeting to be producing methanol in late Q1 2016. The Geismar 1 and Geismar 2 facilities will each add an incremental one million tonnes to our operating capacity.
During the fourth quarter of 2014, we incurred $150 million of capital expenditures related to this project, excluding capitalized interest.
FINANCIAL RESULTS
For the fourth quarter of 2014 we recorded Adjusted EBITDA of $150 million and Adjusted net income of $80 million ($0.85 per share on a diluted basis). This compares with Adjusted EBITDA of $137 million and Adjusted net income of $66 million ($0.69 per share on a diluted basis) for the third quarter of 2014.
For the fourth quarter of 2014, we reported net income attributable to Methanex shareholders of $133 million ($1.11 per share on a diluted basis) compared with net income attributable to Methanex shareholders for the third quarter of 2014 of $52 million ($0.54 income per share on a diluted basis).
We calculate Adjusted EBITDA and Adjusted net income by including amounts related to our equity share of the Atlas (63.1% interest) and Egypt (50% interest) facilities and by excluding the mark-to-market impact of share-based compensation as a result of changes in our share price and certain items which are considered by management to be non-operational. Refer to the Additional Information - Supplemental Non-GAAP Measures section for a further discussion on how we calculate these measures. Our analysis of depreciation and amortization, finance costs, finance income and other expenses and income taxes is consistent with the presentation of our consolidated statements of income and excludes amounts related to Atlas.
A reconciliation from net income attributable to Methanex shareholders to Adjusted net income and the calculation of Adjusted net income per common share is as follows:
Three Months Ended Years Ended
------------------------- ----------------
($ millions except number of Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
shares and per share amounts) 2014 2014 2013 2014 2013
----------------------------------------------------------- ----------------
Net income attributable to
Methanex shareholders $ 133 $ 52 $ 128 $ 455 $ 329
Mark-to-market impact of share-
based compensation, net of tax (53) 14 34 (31) 101
Argentina gas settlement, net of
tax - - - (27) -
Write-off of oil and gas rights,
net of tax - - 5 - 19
Geismar project relocation
expenses, net of tax - - - - 22
----------------------------------------------------------- ----------------
Adjusted net income(1) $ 80 $ 66 $ 167 $ 397 $ 471
----------------------------------------------------------- ----------------
Diluted weighted average shares
outstanding (millions) 94 95 97 96 96
Adjusted net income per common
share(1) $ 0.85 $ 0.69 $ 1.72 $ 4.12 $ 4.88
----------------------------------------------------------- ----------------
(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, Argentina gas settlement, write-off of oil and gas rights, Geismar project relocation expenses, finance costs, finance income and other expenses and income taxes. A summary of our consolidated statements of income is as follows:
Three Months Ended Years Ended
--------------------------- -----------------
Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
($ millions) 2014 2014 2013 2014 2013
---------------------------------------------------------- -----------------
Consolidated statements of
income:
Revenue $ 733 $ 730 $ 881 $ 3,223 $ 3,024
Cost of sales and operating
expenses, excluding mark-to-
market impact of share-based
compensation (574) (581) (645) (2,464) (2,255)
Adjusted EBITDA of associate
(Atlas)(1) 9 5 37 41 56
----------------------------------------------------------------------------
168 154 273 800 825
Comprised of:
Adjusted EBITDA (attributable
to Methanex shareholders)(2) 150 137 245 702 736
Attributable to non-
controlling interests 18 17 28 98 89
---------------------------------------------------------- -----------------
168 154 273 800 825
Mark-to-market impact of
share-based compensation 64 (16) (37) 38 (110)
Depreciation and amortization (36) (39) (35) (143) (123)
Argentina gas settlement - - - 42 -
Write-off of oil and gas
rights - - (8) - (25)
Geismar project relocation
expenses and charges - - - - (34)
Earnings of associate,
excluding amount included in
Adjusted EBITDA(1) (6) (8) (13) (32) (34)
Finance costs (9) (8) (13) (37) (57)
Finance income and other
expenses (3) (5) 2 (7) 5
Income tax expense (38) (19) (25) (155) (70)
----------------------------------------------------------------------------
Net income $ 140 $ 59 $ 144 $ 506 $ 377
----------------------------------------------------------------------------
Net income attributable to
Methanex shareholders $ 133 $ 52 $ 128 $ 455 $ 329
----------------------------------------------------------------------------
(1) Earnings of associate has been divided into an amount included in
Adjusted EBITDA and an amount excluded from Adjusted EBITDA. The amount
excluded from Adjusted EBITDA represents depreciation and amortization,
finance costs, finance income and other expenses and income tax expense
relating to earnings of associate.
(2) This item is a non-GAAP measure that does not have any standardized
meaning prescribed by GAAP and therefore is unlikely to be comparable to
similar measures presented by other companies. Refer to the Additional
Information - Supplemental Non-GAAP Measures section for a description of
the non-GAAP measure and reconciliation to the most comparable GAAP measure.
Adjusted EBITDA (Attributable to Methanex Shareholders)
Our operations consist of a single operating segment - the production and sale of methanol. We review the results of operations by analyzing changes in the components of Adjusted EBITDA. For a discussion of the definitions used in our Adjusted EBITDA analysis, refer to the How We Analyze Our Business section.
The changes in Adjusted EBITDA resulted from changes in the following:
Q4 2014 Q4 2014 2014
compared with compared with compared with
($ millions) Q3 2014 Q4 2013 2013
----------------------------------------------------------------------------
Average realized price $ 3 $ (199) $ (45)
Sales volume (4) 18 69
Total cash costs 14 86 (58)
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Increase (decrease) in Adjusted
EBITDA $ 13 $ (95) $ (34)
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Average realized price
Three Months Ended Years Ended
--------------------- --------------
Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
($ per tonne) 2014 2014 2013 2014 2013
------------------------------------------------------------ --------------
Methanex average non-discounted posted
price 453 444 557 507 507
Methanex average realized price 390 389 493 437 441
------------------------------------------------------------ --------------
Methanex's average realized prices for the fourth quarter were slightly higher compared to the third quarter. Non-discounted posted prices moved higher leading into the quarter, and then declined later in the quarter, pressured by a sharp decline in China spot pricing in December (refer to the Supply/Demand Fundamentals section for more information). Our average non-discounted posted price for the fourth quarter of 2014 was $453 per tonne compared with $444 per tonne for the third quarter of 2014 and $557 per tonne for the fourth quarter of 2013. Our average realized price for the fourth quarter of 2014 was $390 per tonne compared with $389 per tonne for the third quarter of 2014 and $493 per tonne for the fourth quarter of 2013. The weighted average discount realized in the fourth quarter of 2014 was higher than in the third quarter of 2014 as a result of the gap between spot and contract pricing widening toward the end of 2014. The change in average realized price for the fourth quarter of 2014 increased Adjusted EBITDA by $3 million compared with the third quarter of 2014 and decreased Adjusted EBITDA by $199 million compared with the fourth quarter of 2013. For the year ended December 31, 2014 compared with the year ended December 31, 2013, the change in average realized price decreased adjusted EBITDA by $45 million.
Sales volume
Methanol sales volumes excluding commission sales volumes were lower in the fourth quarter of 2014 compared with the third quarter of 2014 by 9,000 tonnes and were higher compared with the fourth quarter of 2013 by 90,000 tonnes. Lower methanol sales volumes excluding commission sales volumes for the fourth quarter of 2014 compared with the third quarter of 2013 decreased Adjusted EBITDA by $4 million while higher methanol sales volumes excluding commission sales volumes for the fourth quarter of 2014 compared with the fourth quarter of 2013 increased Adjusted EBITDA by $18 million. For the year ended December 31, 2014 compared with the same period in 2013, methanol sales volumes excluding commission sales volumes were higher by 544,000 tonnes and this resulted in higher Adjusted EBITDA by $69 million.
Total cash costs
The primary drivers of changes in our total cash costs are changes in the cost of methanol we produce at our facilities (Methanex-produced methanol) and changes in the cost of methanol we purchase from others (purchased methanol). All of our production facilities except Medicine Hat are underpinned by natural gas purchase agreements with pricing terms that include base and variable price components linked to the price of methanol. We supplement our production with methanol produced by others through methanol offtake contracts and purchases on the spot market to meet customer needs and support our marketing efforts within the major global markets.
We have adopted the first-in, first-out method of accounting for inventories and it generally takes between 30 and 60 days to sell the methanol we produce or purchase. Accordingly, the changes in Adjusted EBITDA as a result of changes in Methanex-produced and purchased methanol costs primarily depend on changes in methanol pricing and the timing of inventory flows.
In a rising price environment, our margins at a given price are higher than in a stable price environment as a result of timing of methanol purchases and production versus sales. Conversely, the opposite applies when methanol prices are decreasing.
The impact on Adjusted EBITDA from changes in our cash costs are explained below:
Q4 2014 Q4 2014 2014
compared with compared with compared with
($ millions) Q3 2014 Q4 2013 2013
----------------------------------------------------------------------------
Methanex-produced methanol costs $ 16 $ 11 $ (63)
Proportion of Methanex-produced
methanol sales (2) 3 48
Purchased methanol costs (10) 61 (29)
Other, net 10 11 (14)
----------------------------------------------------------------------------
Increase (decrease) in Adjusted
EBITDA $ 14 $ 86 $ (58)
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Methanex-produced methanol costs
We purchase natural gas for the New Zealand, Trinidad, Egypt, and Chile methanol facilities under natural gas purchase agreements where the unique terms of each contract include a base price and a variable price component linked to the price of methanol. 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 fourth quarter of 2014 compared with the third quarter of 2014 and with the fourth quarter of 2013, Methanex-produced methanol costs were lower by $16 million and $11 million, respectively, primarily due to the impact of lower realized methanol prices on the variable portion of our natural gas costs, timing of inventory flows, and changes in the mix of production sold from inventory. For the year ended December 31, 2014 compared with the same period in 2013, Methanex-produced methanol costs were higher by $63 million, primarily due to the impact of realized methanol prices on our natural gas costs, timing of inventory flows, 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 fourth quarter of 2014 compared with the third quarter of 2014, a lower proportion of Methanex-produced methanol sales decreased Adjusted EBITDA by $2 million. For the three months and year ended December 31, 2014 compared with the same periods in 2013, sales of Methanex-produced methanol made up a higher proportion of our total sales and this increased Adjusted EBITDA by $3 million and $48 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
For the three month period ended December 31, 2014 compared to the three month periods ended September 30, 2014 and December 31, 2013, other costs were lower by $10 and $11 million, respectively, primarily due to lower logistics costs in the quarter. The change in other, net for the year ended December 31, 2014 compared to the year ended December 31, 2013 primarily relates to increased logistics costs from higher production volumes and increased selling, general and administrative expenses related to Geismar organizational build-up costs that are not eligible for capitalization.
Mark-to-Market Impact of Share-based Compensation
We grant share-based awards as an element of compensation. Share-based awards granted include stock options, share appreciation rights, tandem share appreciation rights, deferred share units, restricted share units and performance share units. For all the share-based awards, share-based compensation is recognized over the related vesting period for the proportion of the service that has been rendered at each reporting date. Share-based compensation includes an amount related to the grant-date value and a mark-to-market impact as a result of subsequent changes in the fair value of the share-based awards primarily driven by the Company's share price. The grant-date value amount is included in Adjusted EBITDA and Adjusted net income. The mark-to-market impact of share-based compensation as a result of changes in our share price is excluded from Adjusted EBITDA and Adjusted net income and analyzed separately.
Three Months Ended Years Ended
------------------------- ----------------
Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
($ millions except share price) 2014 2014 2013 2014 2013
----------------------------------------------------------- ----------------
Methanex Corporation share
price(1) $ 45.83 $ 66.80 $ 59.24 $ 45.83 $ 59.24
Grant-date fair value expense
included in Adjusted EBITDA and
Adjusted net income 3 5 4 22 21
Mark-to-market impact due to
change in share price (64) 16 37 (38) 110
----------------------------------------------------------- ----------------
Total share-based compensation
expense (recovery), before tax $ (61) $ 21 $ 41 $ (16) $ 131
----------------------------------------------------------- ----------------
(1) US dollar share price of Methanex Corporation as quoted on NASDAQ Global
Market on the last trading day of the respective period.
The Methanex Corporation share price decreased from US $66.80 per share at September 30, 2014 to US $45.83 per share at December 31, 2014. As a result of this decrease, we recorded a $64 million mark-to-market recovery on share-based compensation in the fourth quarter of 2014 compared with a $16 million mark-to-market expense in the third quarter of 2014 and a $37 million expense in the fourth quarter of 2013. For the year ended December 31, 2014, we recorded a $38 million mark-to-market recovery on share based compensation.
Depreciation and Amortization
Depreciation and amortization was $36 million for the fourth quarter of 2014 compared with $39 million for the third quarter of 2014 and $35 million for the fourth quarter of 2013. Depreciation and amortization was lower in the fourth quarter of 2014 compared with the third quarter of 2014 primarily due to lower sales volumes of Methanex-produced methanol and lower unabsorbed depreciation recognized for production sites impacted by natural gas restrictions and production outages. Depreciation and amortization was slightly higher in the fourth quarter of 2014 compared to the same quarter in 2013 primarily due to higher sales volumes of Methanex-produced methanol.
Finance Costs
Three Months Ended Years Ended
--------------------------- -----------------
Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
($ millions) 2014 2014 2013 2014 2013
---------------------------------------------------------- -----------------
Finance costs before
capitalized interest $ 19 $ 15 $ 16 $ 65 $ 65
Less capitalized interest (10) (7) (3) (28) (8)
---------------------------------------------------------- -----------------
Finance costs $ 9 $ 8 $ 13 $ 37 $ 57
---------------------------------------------------------- -----------------
Finance costs before capitalized interest primarily relate to interest expense on the unsecured notes and limited recourse debt facilities. Capitalized interest relates to interest costs capitalized for the Geismar project.
Finance Income and Other Expenses
Three Months Ended Years Ended
-------------------------- ----------------
Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
($ millions) 2014 2014 2013 2014 2013
----------------------------------------------------------- ----------------
Finance income and other expenses $ (3) $ (5) $ 2 $ (7) $ 5
----------------------------------------------------------------------------
The change in finance income and other expenses for all periods presented was primarily due to the impact of changes in foreign exchange rates.
Income Taxes
A summary of our income taxes for the year ended December 31, 2014 compared with 2013 is as follows:
Year Ended Year Ended
December 31, 2014 December 31, 2013
---------------------------- ---------------------------
($ millions, except Adjusted Net Adjusted Net
where noted) Net Income Income(1) Net Income Income(1)
------------------------------------------------ ---------------------------
Amount before income
tax $ 662 $ 520 $ 447 $ 562
Income tax expense (156) (123) (70) (91)
------------------------------------------------ ---------------------------
$ 506 $ 397 $ 377 $ 471
------------------------------------------------ ---------------------------
Effective tax rate 24% 24% 16% 16%
----------------------------------------------------------------------------
(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, Egypt, Chile, Canada and New Zealand. In Trinidad and Chile, the statutory tax rate is 35%. The statutory rates in Canada and New Zealand are 26% and 28%, respectively. 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.
For the year ended December 31, 2014, the effective tax rate was 24% compared with 16% for the year ended December 31, 2013. Adjusted net income represents the amount that is attributable to Methanex shareholders and excludes the mark-to-market impact of share-based compensation and items that are considered by management to be non-operational. The effective tax rate related to adjusted net income was 24% for the year ended December 31, 2014 compared with 16% for the year ended December 31, 2013. The effective tax rate on both net income and adjusted net income in 2013 was lower compared to 2014 due to the benefit of previously unrecognized tax assets in Canada and New Zealand in 2013.
SUPPLY/DEMAND FUNDAMENTALS
We estimate that methanol demand, excluding methanol demand from integrated methanol to olefins facilities, is currently approximately 59 million tonnes on an annualized basis.
Methanex Non-Discounted Regional Posted Prices(1)
Jan Dec Nov Oct
(US$ per tonne) 2015 2014 2014 2014
----------------------------------------------------------------------------
United States 449 475 499 482
Europe(2) 420 450 450 450
Asia Pacific 355 415 435 435
----------------------------------------------------------------------------
(1) Discounts from our posted prices are offered to customers based on
various factors.
(2) EUR354 for Q1 2015 (Q4 2014 - EUR354) converted to United States
dollars.
----------------------------------------------------------------------------
Our average realized price in the fourth quarter of 2014 was relatively unchanged at $390 per tonne compared with $389 per tonne in the third quarter of 2014. While our weighted average posted price was higher, a decline in the spot price in Asia widened effective discounts relative to Q3. We rolled our pricing in Europe for Q1 2015 at EUR354 per tonne. For the month of January, we decreased our North America contract price by $26 per tonne to $449, and our Asia Pacific contract price by $60 per tonne to $355. We recently announced our February contract prices for North America at $416 per tonne and for Asia Pacific at $315 per tonne.
We continue to see stable demand growth from chemical applications in China and the rest of the world. Traditional chemical derivatives consume about 60% of global methanol and growth is correlated to industrial production growth rates. A steep drop in oil and related product prices has lowered the affordability for methanol into certain energy applications and this, along with sufficient industry supply, has pushed global methanol pricing lower. Some higher cost capacity has ceased to operate and we believe that any sustained period of methanol pricing below the marginal cash cost of production should result in further rationalization of higher cost supply.
There are now six completed MTO / MTP plants in China which are dependent on merchant methanol supply, and these have the capacity to consume over 6 million tonnes of methanol annually. There are also a number of other plants at various stages of construction which are anticipated to be completed in the 2015-16 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.
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 continues 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, there is a modest level of new capacity expected to come on-stream. We have recently started up our first one million tonne Geismar 1 facility in Louisiana, and are targeting to be producing methanol from the second 1.0 million tonne Geismar 2 facility in late Q1 2016. In addition, a 1.3 million tonne Celanese plant is currently under construction in Clear Lake, Texas. OCI N.V. also announced plans to commence construction on 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 fourth quarter of 2014 increased by $40 million to $211 million compared with $171 million for the third quarter of 2014 and increased by $49 million compared to $162 million for the fourth quarter of 2013. The changes in cash flows from operating activities resulted from changes in the following:
Q4 2014 Q4 2014 2014
compared with compared with compared with
($ millions) Q3 2014 Q4 2013 2013
----------------------------------------------------------------------------
Change in Adjusted EBITDA
(attributable to Methanex
shareholders) $ 13 $ (95) $ (34)
Exclude change in Adjusted EBITDA
of associate (Atlas) (4) 28 15
Dividends received from associate - - 25
Cash flows attributable to non-
controlling interests 1 (10) 9
Non-cash working capital 28 107 138
Income taxes paid - 1 (8)
Argentina gas settlement - - 42
Geismar project relocation
expenses - - 34
Share-based payments (1) 17 (1)
Other 3 1 (5)
----------------------------------------------------------------------------
Increase (decrease) in cash flows
from operating activities $ 40 $ 49 $ 215
----------------------------------------------------------------------------
In the fourth quarter of 2014, the company issued $600 million of senior unsecured notes for net proceeds of $591 million after deducting underwriting discounts, underwriting fees and other expenses. The notes were issued in two tranches, $300 million at 4.25% due December 1, 2024 and $300 million at 5.65% due December 1, 2044. Proceeds from the notes issued have been or will be used to repay limited recourse third party debt, to repay senior unsecured notes due in 2015, to fund capital expenditures and for working capital purposes.
During the fourth quarter of 2014, we paid a quarterly dividend of $0.25 per share, or $23 million. On April 29, 2014, the Board of Directors approved a 5% normal course issuer bid, which allows us to repurchase for cancellation up to 4.8 million shares. In the fourth quarter of 2014 we repurchased 1.6 million shares under the normal course issuer bid for a total of 4.3 million shares repurchased and cancelled for the year ended December 31, 2014.
On January 28, 2015, the Board of Directors approved an increase to our normal course issuer bid to allow for up to an incremental 3.8 million common shares to be purchased, for a total of 8.6 million common shares, or 10% of our public float.
We operate in a highly competitive commodity industry and believe it is appropriate to maintain a conservative balance sheet and retain financial flexibility. At December 31, 2014, our cash balance was $952 million, including $69 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. During the fourth quarter, we renewed and extended our $400 million credit facility to 2019. The facility is undrawn at December 31, 2014.
Our planned capital maintenance expenditure program directed towards maintenance, turnarounds and catalyst changes for existing operations is currently estimated to be $110 million to the end of 2015. The estimated remaining capital expenditures related to our Geismar project is approximately $350 million to be expended over the next 15 months.
We believe we are well positioned to meet our financial commitments, invest to grow the Company and continue to deliver on our commitment to return excess cash to shareholders.
SHORT-TERM OUTLOOK
Posted methanol prices were relatively stable through the third and fourth quarter of 2014. Entering 2015, posted methanol prices have decreased as a result of lower demand from energy applications while high cost producers continue to operate. We recently announced our February contract prices for North America at $416 per tonne and for Asia Pacific at $315 per tonne. Methanol prices will ultimately depend on the strength of the global economy, industry operating rates, global energy prices, new supply additions and the strength of global demand. We believe that our financial position and financial flexibility, outstanding global supply network and competitive-cost position will provide a sound basis for Methanex to continue to be the leader in the methanol industry and to invest to grow the Company.
CONTROLS AND PROCEDURES
For the three months ended December 31, 2014, 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 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 depreciation and amortization, finance costs, finance income and other expenses, income tax expense, mark-to-market impact of share-based compensation, Geismar project relocation expenses and charges, write-off of oil and gas rights, and the Argentina gas settlement. Adjusted EBITDA includes an amount representing our 63.1% interest in the Atlas facility and our 50% interest in the methanol facility in Egypt.
Adjusted EBITDA and Adjusted net income exclude the mark-to-market impact of share-based compensation related to the impact of changes in our share price on share appreciation rights, tandem share appreciation rights, deferred share units, restricted share units and performance share units. The mark-to-market impact related to performance share units that is excluded from Adjusted EBITDA and Adjusted net income is calculated as the difference between the grant date value determined using a Methanex total shareholder return factor of 100% and the fair value recorded at each period end. As share-based awards will be settled in future periods, the ultimate value of the units is unknown at the date of grant and therefore the grant date value recognized in Adjusted EBITDA and Adjusted net income may differ from the total settlement cost.
The following table shows a reconciliation from net income attributable to Methanex shareholders to Adjusted EBITDA:
Three Months Ended Years Ended
--------------------------- -----------------
Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
($ millions) 2014 2014 2013 2014 2013
---------------------------------------------------------- -----------------
Net income attributable to
Methanex shareholders $ 133 $ 52 $ 128 $ 455 $ 329
Mark-to-market impact of
share-based compensation (64) 16 37 (38) 110
Depreciation and amortization 36 39 35 143 123
Argentina gas settlement - - - (42) -
Write-off of oil and gas
rights - - 8 - 25
Geismar project relocation
expenses and charges - - - - 34
Finance costs 9 8 13 37 57
Finance income and other
expenses 3 5 (2) 7 (5)
Income tax expense 38 19 25 155 70
Earnings of associate,
excluding amount included in
Adjusted EBITDA(1) 6 8 13 32 34
Non-controlling interests
adjustment(1) (11) (10) (12) (47) (41)
---------------------------------------------------------- -----------------
Adjusted EBITDA (attributable
to Methanex shareholders) $ 150 $ 137 $ 245 $ 702 $ 736
---------------------------------------------------------- -----------------
(1) These adjustments represent depreciation and amortization, finance
costs, finance income and other expenses and income tax expense associated
with the non-controlling interest in the methanol facility in Egypt and our
63.1% interest in the Atlas methanol facility.
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 certain items that are considered by management to be non-operational, including Geismar project relocation expenses and charges, write-off of oil and gas rights, and the Argentina gas settlement. 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 Years Ended
--------------------------- -----------------
($ millions except number of Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
shares and per share amounts) 2014 2014 2013 2014 2013
---------------------------------------------------------- -----------------
Net income attributable to
Methanex shareholders $ 133 $ 52 $ 128 $ 455 $ 329
Mark-to-market impact of
share-based compensation (64) 16 37 (38) 110
Argentina gas settlement - - - (42) -
Write-off of oil and gas
rights - - 8 - 25
Geismar project relocation
expenses and charges - - - - 34
Income tax expense (recovery)
related to above items 11 (2) (6) 22 (27)
---------------------------------------------------------- -----------------
Adjusted net income $ 80 $ 66 $ 167 $ 397 $ 471
---------------------------------------------------------- -----------------
Diluted weighted average shares
outstanding (millions) 94 95 97 96 96
Adjusted net income per common
share $ 0.85 $ 0.69 $ 1.72 $ 4.12 $ 4.88
---------------------------------------------------------- -----------------
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
------------------------------------
Dec 31 Sep 30 Jun 30 Mar 31
($ millions, except per share amounts) 2014 2014 2014 2014
----------------------------------------------------------------------------
Revenue $ 733 $ 730 $ 792 $ 968
Adjusted EBITDA(1, 2) 150 137 160 255
Net income(1) 133 52 125 145
Adjusted net income(1, 2) 80 66 91 160
Basic net income per common share(1) 1.43 0.55 1.30 1.51
Diluted net income per common share(1) 1.11 0.54 1.24 1.50
Adjusted net income per share(1, 2) 0.85 0.69 0.94 1.65
----------------------------------------------------------------------------
Three Months Ended
------------------------------------
Dec 31 Sep 30 Jun 30 Mar 31
($ millions, except per share amounts) 2013 2013 2013 2013
----------------------------------------------------------------------------
Revenue $ 881 $ 758 $ 733 $ 652
Adjusted EBITDA(1, 2) 245 184 157 149
Net income (loss)(1) 128 87 54 60
Adjusted net income(1, 2) 167 117 99 88
Basic net income (loss) per common
share(1) 1.33 0.91 0.57 0.64
Diluted net income (loss) per common
share(1) 1.32 0.90 0.56 0.63
Adjusted net income per share(1, 2) 1.72 1.22 1.02 0.92
----------------------------------------------------------------------------
(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 Fourth Quarter 2014 Management's Discussion and Analysis ("MD&A") as well as comments made during the Fourth Quarter 2014 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 that require action 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 planned
relocation of idle Chile methanol plants to Geismar, Louisiana,
-- 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,
-- satisfaction of conditions precedent contained in the natural gas supply
agreement for Geismar 1, and
-- other risks described in our 2013 Management's Discussion and Analysis
and this Fourth Quarter 2014 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 volumes. 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 volumes
multiplied by the margin per tonne for the prior period. The
margin per tonne for the prior period is the weighted average
margin per tonne of Methanex-produced methanol and margin per
tonne of purchased methanol. The margin per tonne for Methanex-
produced methanol is calculated as the selling price per tonne of
methanol less absorbed fixed cash costs per tonne and variable
cash costs per tonne. The margin per tonne for purchased methanol
is calculated as the selling price per tonne of methanol less the
cost of purchased methanol per tonne.
We own 63.1% of the Atlas methanol facility and market the remaining 36.9% of its production through a commission offtake agreement. A contractual agreement between us and our partners establishes joint control over Atlas. As a result, we account for this investment using the equity method of accounting, which results in 63.1% of the net assets and net earnings of Atlas being presented separately in the consolidated statements of financial position and consolidated statements of income, respectively. For purposes of analyzing our business, Adjusted EBITDA, Adjusted net income and Adjusted net income per common share include an amount representing our 63.1% equity share in Atlas.
On December 9, 2013, we completed the sale of a 10% equity interest in the Egypt methanol facility. At December 31, 2014, 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 Years Ended
---------------------------- ---------------------------
Dec 31 Dec 31 Dec 31 Dec 31
2014 2013 2014 2013
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revenue $ 733,499 $ 880,900 $ 3,223,399 $ 3,024,047
Cost of sales and
operating expenses (509,855) (681,978) (2,425,821) (2,365,520)
Depreciation and
amortization (36,047) (35,594) (142,738) (123,335)
Argentina gas
settlement - - 42,000 -
Geismar project
relocation expenses
and charges - - - (33,867)
Write-off of oil and
gas rights - (7,939) - (24,798)
----------------------------------------------------------------------------
Operating income 187,597 155,389 696,840 476,527
Earnings of
associate (note 4) 3,074 24,365 9,132 22,554
Finance costs (note
6) (8,890) (12,582) (37,042) (56,407)
Finance income and
other expenses (3,348) 1,776 (7,285) 4,446
----------------------------------------------------------------------------
Income before income
taxes 178,433 168,948 661,645 447,120
Income tax recovery
(expense):
Current (13,653) (43,812) (79,865) (83,618)
Deferred (24,235) 18,767 (75,472) 13,498
----------------------------------------------------------------------------
(37,888) (25,045) (155,337) (70,120)
----------------------------------------------------------------------------
Net income $ 140,545 $ 143,903 $ 506,308 $ 377,000
----------------------------------------------------------------------------
Attributable to:
Methanex
Corporation
shareholders 133,144 127,795 454,610 329,167
Non-controlling
interests 7,401 16,108 51,698 47,833
----------------------------------------------------------------------------
$ 140,545 $ 143,903 $ 506,308 $ 377,000
----------------------------------------------------------------------------
Income per share for
the period
attributable to
Methanex
Corporation
shareholders
Basic net income
per common share $ 1.43 $ 1.33 $ 4.79 $ 3.46
Diluted net income
per common share
(note 7) $ 1.11 $ 1.32 $ 4.55 $ 3.41
Weighted average
number of common
shares outstanding
(note 7) 93,324,865 95,890,700 94,996,094 95,259,066
Diluted weighted
average number of
common shares
outstanding (note
7) 94,340,675 96,824,404 96,193,981 96,430,842
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 Years Ended
---------------------- --------------------
Dec 31 Dec 31 Dec 31 Dec 31
2014 2013 2014 2013
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net income $ 140,545 $ 143,903 $ 506,308 $ 377,000
Other comprehensive income, net
of taxes:
Items that may be reclassified
to income:
Change in fair value of
forward exchange contracts 426 (1,348) 849 (57)
Change in fair value of
interest rate swap contracts (6) (34) 412 (936)
Realized loss on interest rate
swap contracts reclassified
to finance costs 2,297 2,680 9,137 10,808
Items that will not be
reclassified to income:
Actuarial gains on defined
benefit pension plans 32 5,362 32 5,362
----------------------------------------------------------------------------
2,749 6,660 10,430 15,177
----------------------------------------------------------------------------
Comprehensive income $ 143,294 $ 150,563 $ 516,738 $ 392,177
----------------------------------------------------------------------------
Attributable to:
Methanex Corporation
shareholders 134,748 133,579 459,773 340,577
Non-controlling interests 8,546 16,984 56,965 51,600
----------------------------------------------------------------------------
$ 143,294 $ 150,563 $ 516,738 $ 392,177
----------------------------------------------------------------------------
See accompanying notes to condensed consolidated interim financial
statements.
Methanex Corporation
Consolidated Statements of Financial Position(unaudited)
(thousands of U.S. dollars)
Dec 31 Dec 31
AS AT 2014 2013
----------------------------------------------------------------------------
----------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 951,600 $ 732,736
Trade and other receivables 404,363 534,130
Inventories (note 2) 306,802 334,968
Prepaid expenses 23,137 20,533
----------------------------------------------------------------------------
1,685,902 1,622,367
Non-current assets:
Property, plant and equipment (note 3) 2,778,078 2,230,938
Investment in associate (note 4) 216,235 202,342
Other assets 95,125 65,253
----------------------------------------------------------------------------
3,089,438 2,498,533
----------------------------------------------------------------------------
$ 4,775,340 $ 4,120,900
----------------------------------------------------------------------------
LIABILITIES AND EQUITY
Current liabilities:
Trade, other payables and accrued liabilities $ 566,881 $ 618,181
Current maturities on long-term debt (note 5) 193,831 41,504
Current maturities on other long-term
liabilities 59,118 85,648
----------------------------------------------------------------------------
819,830 745,333
Non-current liabilities:
Long-term debt (note 5) 1,528,207 1,126,802
Other long-term liabilities 140,861 188,520
Deferred income tax liabilities 233,225 154,912
----------------------------------------------------------------------------
1,902,293 1,470,234
Equity:
Capital stock 521,022 531,573
Contributed surplus 2,803 4,994
Retained earnings 1,262,961 1,126,700
Accumulated other comprehensive loss (413) (5,544)
----------------------------------------------------------------------------
Shareholders' equity 1,786,373 1,657,723
Non-controlling interests 266,844 247,610
----------------------------------------------------------------------------
Total equity 2,053,217 1,905,333
----------------------------------------------------------------------------
$ 4,775,340 $ 4,120,900
----------------------------------------------------------------------------
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
Shares Stock Surplus
----------------------------------------------------------------------
Balance, December 31,
2012 94,309,970 481,779 15,481
Net income - - -
Other comprehensive
income - - -
Compensation expense
recorded for stock
options - - 722
Sale of partial interest
in subsidiary - - -
Issue of shares on
exercise of stock
options 1,790,999 38,585 -
Reclassification of
grant date fair value
on exercise of stock
options - 11,209 (11,209)
Dividend payments to
Methanex Corporation
shareholders - - -
Distributions to non-
controlling interests - - -
Equity contributions by
non-controlling
interests - - -
----------------------------------------------------------------------
Balance, December 31,
2013 96,100,969 531,573 4,994
Net income - - -
Other comprehensive
income - - -
Compensation expense
recorded for stock
options - - 777
Issue of shares on
exercise of stock
options 536,724 10,657 -
Reclassification of
grant date fair value
on exercise of stock
options - 2,968 (2,968)
Payment for shares
repurchased (4,311,206) (24,176) -
Dividend payments to
Methanex Corporation
shareholders - - -
Distributions to non-
controlling interests - - -
Equity contributions by
non-controlling
interests - - -
----------------------------------------------------------------------
Balance, December 31,
2014 92,326,487 $521,022 $ 2,803
----------------------------------------------------------------------
See accompanying notes to condensed consolidated interim financial
statements.
Methanex Corporation
Consolidated Statements of Changes in Equity (unaudited)
(thousands of U.S. dollars, except number of common shares)
Accumulated
Other
Retained Comprehensive Shareholders'
Earnings Loss Equity
----------------------------------------------------------------------------
Balance, December 31,
2012 805,661 (13,045) 1,289,876
Net income 329,167 - 329,167
Other comprehensive
income 5,362 6,048 11,410
Compensation expense
recorded for stock
options - - 722
Sale of partial interest
in subsidiary 61,447 1,453 62,900
Issue of shares on
exercise of stock
options - - 38,585
Reclassification of
grant date fair value
on exercise of stock
options - - -
Dividend payments to
Methanex Corporation
shareholders (74,937) - (74,937)
Distributions to non-
controlling interests - - -
Equity contributions by
non-controlling
interests - - -
----------------------------------------------------------------------------
Balance, December 31,
2013 1,126,700 (5,544) 1,657,723
Net income 454,610 - 454,610
Other comprehensive
income 32 5,131 5,163
Compensation expense
recorded for stock
options - - 777
Issue of shares on
exercise of stock
options - - 10,657
Reclassification of
grant date fair value
on exercise of stock
options - - -
Payment for shares
repurchased (228,468) - (252,644)
Dividend payments to
Methanex Corporation
shareholders (89,913) - (89,913)
Distributions to non-
controlling interests - - -
Equity contributions by
non-controlling
interests - - -
----------------------------------------------------------------------------
Balance, December 31,
2014 $ 1,262,961 $ (413) $ 1,786,373
----------------------------------------------------------------------------
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)
Non-
Controlling Total
Interests Equity
-----------------------------------------------------------
Balance, December 31,
2012 187,861 1,477,737
Net income 47,833 377,000
Other comprehensive
income 3,767 15,177
Compensation expense
recorded for stock
options - 722
Sale of partial interest
in subsidiary 47,100 110,000
Issue of shares on
exercise of stock
options - 38,585
Reclassification of
grant date fair value
on exercise of stock
options - -
Dividend payments to
Methanex Corporation
shareholders - (74,937)
Distributions to non-
controlling interests (39,951) (39,951)
Equity contributions by
non-controlling
interests 1,000 1,000
-----------------------------------------------------------
Balance, December 31,
2013 247,610 1,905,333
Net income 51,698 506,308
Other comprehensive
income 5,267 10,430
Compensation expense
recorded for stock
options - 777
Issue of shares on
exercise of stock
options - 10,657
Reclassification of
grant date fair value
on exercise of stock
options - -
Payment for shares
repurchased - (252,644)
Dividend payments to
Methanex Corporation
shareholders - (89,913)
Distributions to non-
controlling interests (47,338) (47,338)
Equity contributions by
non-controlling
interests 9,607 9,607
-----------------------------------------------------------
Balance, December 31,
2014 $ 266,844 $ 2,053,217
-----------------------------------------------------------
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 Years Ended
---------------------- ---------------------
Dec 31 Dec 31 Dec 31 Dec 31
2014 2013 2014 2013
----------------------------------------------------------------------------
----------------------------------------------------------------------------
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income $ 140,545 $ 143,903 $ 506,308 $ 377,000
Deduct earnings of associate
(note 4) (3,074) (24,365) (9,132) (22,554)
Dividends received from
associate (note 4) - - 25,240 -
Add (deduct) non-cash items:
Depreciation and amortization 36,047 35,594 142,738 123,335
Asset impairment charge - 7,939 - 24,798
Income tax expense 37,888 25,045 155,337 70,120
Share based compensation
expense (60,562) 40,844 (15,805) 130,873
Finance costs 8,890 12,582 37,042 56,407
Other 8,718 569 8,549 1,364
Income taxes paid (13,962) (15,246) (51,156) (42,739)
Other cash payments, including
share-based compensation (11,212) (25,841) (56,030) (52,596)
----------------------------------------------------------------------------
Cash flows from operating
activities before undernoted 143,278 201,024 743,091 666,008
Changes in non-cash working
capital (note 9) 67,610 (39,268) 57,926 (80,211)
----------------------------------------------------------------------------
210,888 161,756 801,017 585,797
----------------------------------------------------------------------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Payments for repurchase of
shares (83,480) - (252,644) -
Dividend payments to Methanex
Corporation shareholders (23,194) (19,205) (89,913) (74,937)
Interest paid, including
interest rate swap settlements (6,190) (6,586) (52,995) (55,446)
Net proceeds on issue of long-
term debt 592,275 - 592,275 -
Repayment of long-term debt and
limited recourse debt (913) (912) (41,504) (39,491)
Equity contributions by non-
controlling interests 9,607 - 9,607 -
Cash distributions to non-
controlling interests - (14,232) (34,158) (39,951)
Sale of partial interest in
subsidiary - 110,000 - 110,000
Proceeds on issue of shares on
exercise of stock options 995 9,885 10,657 38,585
Proceeds from limited recourse
debt - - - 10,000
Loan to associate (29,371) - (29,371) -
Other (1,071) (969) (4,172) (2,777)
Changes in non-cash working
capital related to financing
activities (note 9) (2,398) - (8,913) -
----------------------------------------------------------------------------
456,260 77,981 98,869 (54,017)
----------------------------------------------------------------------------
CASH FLOWS FROM INVESTING
ACTIVITIES
Property, plant and equipment (23,528) (71,726) (84,168) (269,367)
Geismar plants under
construction (154,300) (144,976) (573,844) (309,469)
Other assets - (4,659) (1,758) (15,608)
Changes in non-cash working
capital related to investing
activities (note 9) (13,021) 28,122 (21,252) 68,015
----------------------------------------------------------------------------
(190,849) (193,239) (681,022) (526,429)
----------------------------------------------------------------------------
Increase in cash and cash
equivalents 476,299 46,498 218,864 5,351
Cash and cash equivalents,
beginning of period 475,301 686,238 732,736 727,385
----------------------------------------------------------------------------
Cash and cash equivalents, end
of period $ 951,600 $ 732,736 $ 951,600 $ 732,736
----------------------------------------------------------------------------
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.
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 January 28, 2015.
These condensed consolidated interim financial statements should be read in conjunction with the Company's consolidated financial statements for the year ended December 31, 2013.
2. Inventories:
Inventories are valued at the lower of cost, determined on a first-in first-out basis, and estimated net realizable value. The amount of inventories included in cost of sales and operating expenses and depreciation and amortization for the three months and year ended December 31, 2014 is $552 million (2013 - $582 million) and $2,330 million (2013 - $2,101 million), respectively.
3. Property, plant and equipment:
Buildings,
Plant
Installations Plants
& Under Oil & Gas
Machinery Construction Properties
----------------------------------------------------------------------------
Cost at Dec 31, 2014 $ 3,097,200 $ 996,015 $ 87,686
Accumulated depreciation at Dec
31, 2014 1,384,100 - 84,142
----------------------------------------------------------------------------
Net book value at Dec 31, 2014 $ 1,713,100 $ 996,015 $ 3,544
----------------------------------------------------------------------------
Cost at Dec 31, 2013 $ 3,068,367 $ 393,044 $ 86,312
Accumulated depreciation at Dec
31, 2013 1,289,454 - 78,228
----------------------------------------------------------------------------
Net book value at Dec 31, 2013 $ 1,778,913 $ 393,044 $ 8,084
----------------------------------------------------------------------------
Finance
Leases Other Total
----------------------------------------------------------------------------
Cost at Dec 31, 2014 $ 32,230 $ 106,744 4,319,875
Accumulated depreciation at Dec
31, 2014 30,488 43,067 1,541,797
----------------------------------------------------------------------------
Net book value at Dec 31, 2014 $ 1,742 $ 63,677 $ 2,778,078
----------------------------------------------------------------------------
Cost at Dec 31, 2013 $ 32,230 $ 82,556 $ 3,662,509
Accumulated depreciation at Dec
31, 2013 27,875 36,014 1,431,571
----------------------------------------------------------------------------
Net book value at Dec 31, 2013 $ 4,355 $ 46,542 $ 2,230,938
----------------------------------------------------------------------------
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:
Dec 31 Dec 31
Consolidated statements of financial position as at 2014 2013
----------------------------------------------------------------------------
Cash and cash equivalents $ 24,834 $ 20,776
Other current assets 70,594 128,232
Non-current assets 352,616 378,890
Current liabilities (29,442) (47,359)
Long-term debt, including current maturities - (56,752)
Other long-term liabilities, including current
maturities (145,336) (124,994)
----------------------------------------------------------------------------
Net assets at 100% $ 273,266 $ 298,793
----------------------------------------------------------------------------
Net assets at 63.1% $ 172,431 $ 188,539
Long-term receivable from Atlas 43,804 13,803
----------------------------------------------------------------------------
Investment in associate $ 216,235 $ 202,342
----------------------------------------------------------------------------
Three Months Ended Years Ended
---------------------- ---------------------
Consolidated statements of Dec 31 Dec 31 Dec 31 Dec 31
income 2014 2013 2014 2013
------------------------------------------------------ ---------------------
Revenue $ 92,197 $ 131,642 $ 363,570 $ 359,309
Cost of sales and depreciation
and amortization (85,719) (75,459) (334,648) (301,479)
------------------------------------------------------ ---------------------
Operating income 6,478 56,183 28,922 57,830
Finance costs, finance income
and other expenses (2,259) (3,132) (10,438) (12,899)
Income tax expense 653 (14,438) (4,011) (9,188)
------------------------------------------------------ ---------------------
Net earnings at 100% $ 4,872 $ 38,613 $ 14,473 $ 35,743
------------------------------------------------------ ---------------------
Earnings of associate at 63.1% $ 3,074 $ 24,365 $ 9,132 $ 22,554
------------------------------------------------------ ---------------------
------------------------------------------------------ ---------------------
Dividends received from
associate - - $ 25,240 -
------------------------------------------------------ ---------------------
The Company has reclassified the presentation related to purchases of inventory from associate. The reclassification has been reflected in the comparative figures. For the three months and year ended December 31, 2013 the reclassification resulted in a $7 million increase and $8 million decrease to earnings in associate, respectively. The closing 2013 investment in associate balance has decreased by $14 million. These amounts have been reclassified to cost of sales and inventory with the associated tax impacts reflected in deferred taxes.
During the three months ended December 31, 2014, the Company extended a $29.4 million unsecured loan to Atlas due December 4, 2024 with interest due semi-annually.
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:
Dec 31 Dec 31
As at 2014 2013
----------------------------------------------------------------------------
Unsecured notes
$150 million at 6.00% due August 15, 2015 $ 149,835 $ 149,581
$350 million at 3.25% due December 15, 2019 345,387 344,530
$250 million at 5.25% due March 1, 2022 246,991 246,650
$300 million at 4.25% due December 1, 2024 296,073 -
$300 million at 5.65% due December 1, 2044 294,936 -
----------------------------------------------------------------------------
1,333,222 740,761
Egypt limited recourse debt facilities 368,678 404,722
Other limited recourse debt facilities 20,138 22,823
----------------------------------------------------------------------------
Total long-term debt(1) 1,722,038 1,168,306
Less current maturities (193,831) (41,504)
----------------------------------------------------------------------------
$ 1,528,207 $ 1,126,802
----------------------------------------------------------------------------
(1) Long-term debt is presented net of deferred financing fees.
During the three month period ended December 31, 2014, the Company issued $300 million of unsecured notes bearing a coupon of 4.25% and due December 1, 2024 and $300 million of unsecured notes bearing a coupon of 5.65% and due December 1, 2044.
During the three months and year ended December 31, 2014, the Company made repayments on its other limited recourse debt facilities of $0.9 million and $3.6 million, respectively. The Company also made repayments on its Egypt limited recourse debt facilities of $37.9 million during the year ended December 31, 2014.
During the three month period ended December 31, 2014, the Company renewed and extended the term of its $400 million revolving credit facility with a syndicate of banks to December 2019.
At December 31, 2014, 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 Years Ended
-------------------- -------------------
Dec 31 Dec 31 Dec 31 Dec 31
2014 2013 2014 2013
-------------------------------------------------------- -------------------
Finance costs $ 18,703 $ 15,908 $ 65,067 $ 64,742
Less capitalized interest related to
Geismar plants under construction (9,813) (3,326) (28,025) (8,335)
----------------------------------------------------------------------------
$ 8,890 $ 12,582 $ 37,042 $ 56,407
----------------------------------------------------------------------------
Finance costs are primarily comprised of interest on borrowings and finance lease obligations, the effective portion of interest rate swaps designated as cash flow hedges, amortization of deferred financing fees, and accretion expense associated with site restoration costs. Interest during construction of the Geismar plants is capitalized until the plants are substantially completed and ready for productive use.
The Company has interest rate swap contracts on its Egypt limited recourse debt facilities to swap the LIBOR-based interest payments for an average aggregated fixed rate of 4.8% plus a spread on approximately 75% of the Egypt limited recourse debt facilities for the period to March 31, 2015.
7. Net income per common share:
Diluted net income per common share is calculated by considering the potential dilution that would occur if outstanding stock options and, under certain circumstances, tandem share appreciation rights (TSARs) were exercised or converted to common shares.
Outstanding TSARs may be settled in cash or common shares at the holder's option and for purposes of calculating diluted net income per common share, the more dilutive of the cash-settled and equity-settled method is used, regardless of how the plan is accounted for. Accordingly, TSARs that are accounted for using the cash-settled method will require adjustments to the numerator and denominator if the equity-settled method is determined to have a dilutive effect on diluted net income per common share as compared to the cash-settled method. The equity settled method was more dilutive for the three months and year ended December 31, 2014.
A reconciliation of the numerator used for the purposes of calculating diluted net income per common share is as follows:
Three Months Ended Years Ended
--------------------- --------------------
Dec 31 Dec 31 Dec 31 Dec 31
2014 2013 2014 2013
------------------------------------------------------- --------------------
Numerator for basic net income per
common share $ 133,144 $ 127,795 $ 454,610 $ 329,167
Adjustment for the effect of
TSARs:
Cash-settled recovery included
in net income (27,524) - (11,286) -
Equity-settled expense (814) - (5,627) -
----------------------------------------------------------------------------
Numerator for diluted net income
per common share $ 104,806 $ 127,795 $ 437,697 $ 329,167
----------------------------------------------------------------------------
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 follow:
Three Months Ended Years Ended
---------------------- ----------------------
Dec 31 Dec 31 Dec 31 Dec 31
2014 2013 2014 2013
----------------------------------------------------- ----------------------
Denominator for basic net
income per common share 93,324,865 95,890,700 94,996,094 95,259,066
Effect of dilutive stock
options 443,804 933,704 545,421 1,171,776
Effect of dilutive TSARs 572,006 - 652,466 -
----------------------------------------------------------------------------
Denominator for diluted net
income per common share 94,340,675 96,824,404 96,193,981 96,430,842
----------------------------------------------------------------------------
For the three months and year ended December 31, 2014 and 2013, basic and diluted net income per common share attributable to Methanex shareholders were as follows:
Three Months Ended Years Ended
-------------------- -------------------
Dec 31 Dec 31 Dec 31 Dec 31
2014 2013 2014 2013
-------------------------------------------------------- -------------------
Basic net income per common share $ 1.43 $ 1.33 $ 4.79 $ 3.46
Diluted net income per common share $ 1.11 $ 1.32 $ 4.55 $ 3.41
----------------------------------------------------------------------------
8. Share-based compensation:
a) Share appreciation rights (SARs), tandem share appreciation rights (TSARs) and stock options:
(i) Outstanding units:
Information regarding units outstanding at December 31, 2014 is as follows:
SARs TSARs
----------------------- -----------------------
Weighted Weighted
Number Average Number Average
of Exercise of Exercise
(per share amounts in USD) Units Price Units Price
---------------------------------------------------- -----------------------
Outstanding at December 31,
2013 1,093,117 $ 32.02 1,858,585 $ 31.83
Granted 220,590 72.50 303,850 72.66
Exercised (217,810) 29.36 (403,450) 29.78
Cancelled (16,250) 39.91 (17,100) 36.07
---------------------------------------------------- -----------------------
Outstanding at September 30,
2014 1,079,647 $ 40.71 1,741,885 $ 39.38
---------------------------------------------------- -----------------------
Granted 10,000 57.55 8,100 58.69
Exercised - - (17,800) 27.57
Cancelled (4,400) 62.03 - -
---------------------------------------------------- -----------------------
Outstanding at December 31,
2014 1,085,247 $ 40.78 1,732,185 $ 39.59
---------------------------------------------------- -----------------------
Stock Options
-----------------------
Weighted
Number Average
of Exercise
(per share amounts in USD) Units Price
----------------------------------------------------------------------------
Outstanding at December 31, 2013 1,219,420 $ 19.15
Granted 45,600 73.13
Exercised (502,074) 19.15
Cancelled (6,200) 43.10
Expired (22,835) 22.82
----------------------------------------------------------------------------
Outstanding at September 30, 2014 733,911 $ 22.19
----------------------------------------------------------------------------
Exercised (34,650) 27.98
----------------------------------------------------------------------------
Outstanding at December 31, 2014 699,261 $ 21.90
----------------------------------------------------------------------------
Units Outstanding at Units Exercisable at
December 31, 2014 December 31, 2014
------------------------------------ ------------------------
Range of
Exercise Weighted
Prices Average Number Weighted Number Weighted
(per share Remaining of Average of Average
amounts in Contractual Units Exercise Units Exercise
USD) Life (Years) Outstanding Price Exercisable Price
--------------------------------------------------- ------------------------
SARs:
$23.36 to
31.74 3.4 527,827 $ 29.11 415,813 $ 28.43
$31.88 to
73.13 5.6 557,420 51.82 99,730 38.24
--------------------------------------------------- ------------------------
4.5 1,085,247 $ 40.78 515,543 $ 30.33
--------------------------------------------------- ------------------------
TSARs:
$23.36 to
31.74 3.3 889,945 $ 28.98 682,211 $ 28.16
$31.88 to
73.13 5.5 842,240 50.81 178,890 38.02
--------------------------------------------------- ------------------------
4.4 1,732,185 $ 39.59 861,101 $ 30.21
--------------------------------------------------- ------------------------
Stock options:
$6.33 to 25.22 1.3 379,185 $ 8.81 379,185 $ 8.81
$28.43 to
73.13 3.3 320,076 37.41 202,276 30.11
--------------------------------------------------- ------------------------
2.2 699,261 $ 21.90 581,461 $ 16.22
--------------------------------------------------- ------------------------
(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 December 31, 2014 was $34.1 million compared with the recorded liability of $32.5 million. The difference between the fair value and the recorded liability of $1.6 million will be recognized over the weighted average remaining vesting period of approximately 1.5 years. The weighted average fair value was estimated at December 31, 2014 using the Black-Scholes option pricing model.
For the three months and year ended December 31, 2014, compensation expense related to SARs and TSARs included a recovery in cost of sales and operating expenses of $43.3 million (2013 - expense of $24.5 million) and $14.5 million (2013 - expense of $70.7 million), respectively. This included a recovery of $44.8 million (2013 - expense of $21.8 million) and $24.5 million (2013 - expense of $61.2 million), respectively, related to the effect of the change in the Company's share price for the three months and year ended December 31, 2014.
(iii) Compensation expense related to stock options:
For the three months and year ended December 31, 2014, compensation expense related to stock options included in cost of sales and operating expenses was $0.2 million (2013 - $0.1 million) and $0.8 million (2013 - $0.7 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 December 31, 2014 are as follows:
Number of Number of Number of
Deferred Restricted Performance
Share Units Share Units Share Units
----------------------------------------------------------------------------
Outstanding at December 31, 2013 346,814 44,131 946,446
Granted 4,200 7,000 139,160
Granted performance factor(1) - - 55,677
Granted in-lieu of dividends 3,550 549 8,506
Redeemed (27,052) - (334,062)
Cancelled - - (19,171)
----------------------------------------------------------------------------
Outstanding at September 30, 2014 327,512 51,680 796,556
----------------------------------------------------------------------------
Granted in-lieu of dividends 1,633 165 4,336
Redeemed (26,987) (21,480) -
Cancelled - - (1,948)
----------------------------------------------------------------------------
Outstanding at December 31, 2014 302,158 30,365 798,944
----------------------------------------------------------------------------
(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, 2014.
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 December 31, 2014 was $55.6 million compared with the recorded liability of $52.0 million. The difference between the fair value and the recorded liability of $3.6 million will be recognized over the weighted average remaining vesting period of approximately 1.1 years.
For the three months and year ended December 31, 2014, compensation expense related to deferred, restricted and performance share units included in cost of sales and operating expenses was a recovery of $17.5 million (2013 - expense of $16.3 million) and $2.1 million (2013 - expense of $59.5 million), respectively. This included a recovery of $19.7 million (2013 - expense of $15.3 million) and $13.6 million (2013 - expense of $49.2 million) related to the effect of the change in the Company's share price for the three months and year ended December 31, 2014.
9. Changes in non-cash working capital:
Changes in non-cash working capital for the three months and year ended December 31, 2014 and 2013 were as follows:
Three Months Ended Years Ended
---------------------- ---------------------
Dec 31 Dec 31 Dec 31 Dec 31
2014 2013 2014 2013
------------------------------------------------------ ---------------------
Decrease (increase) in non-cash
working capital:
Trade and other receivables $ 52,658 $ (62,799) $ 129,767 $(116,974)
Inventories (21,066) (48,771) 28,166 (70,153)
Prepaid expenses (1,472) 9,190 (2,604) 5,055
Trade, other payables and
accrued liabilities, including
long-term payables included in
other long-term liabilities 41,748 127,438 (54,304) 226,637
------------------------------------------------------ ---------------------
71,868 25,058 101,025 44,565
Adjustments for items not having
a cash effect and working
capital changes relating to
taxes and interest paid (19,677) (36,204) (73,264) (56,761)
------------------------------------------------------ ---------------------
Changes in non-cash working
capital having a cash effect $ 52,191 $ (11,146) $ 27,761 $ (12,196)
------------------------------------------------------ ---------------------
These changes relate to the
following activities:
Operating $ 67,610 $ (39,268) $ 57,926 $ (80,211)
Financing (2,398) - (8,913) -
Investing (13,021) 28,122 (21,252) 68,015
------------------------------------------------------ ---------------------
Changes in non-cash working
capital $ 52,191 $ (11,146) $ 27,761 $ (12,196)
------------------------------------------------------ ---------------------
10. Financial instruments:
Financial instruments are either measured at amortized cost or fair value. Held-to-maturity investments, loans and receivables and other financial liabilities are measured at amortized cost. Held-for-trading financial assets and liabilities and available-for-sale financial assets are measured on the Consolidated Statements of Financial Position at fair value. Derivative financial instruments are classified as held-for-trading and are recorded on the Consolidated Statements of Financial Position at fair value unless exempted. Changes in fair value of held-for-trading derivative financial instruments are recorded in earnings unless the instruments are designated as cash flow hedges.
The euro hedges and Egypt interest rate swaps designated as cash flow hedges are measured at fair value based on industry-accepted valuation models and inputs obtained from active markets.
The Egypt limited recourse debt facilities bear interest at LIBOR plus a spread. The Company has interest rate swap contracts to swap the LIBOR-based interest payments for an average aggregated fixed rate of 4.8% plus a spread on approximately 75% of the Egypt limited recourse debt facilities for the period to March 31, 2015. These interest rate swaps had an outstanding notional amount of $287 million as at December 31, 2014. At December 31, 2014, these interest rate swap contracts had a negative fair value of $6.5 million (December 31, 2013 - negative $19.8 million) recorded in current liabilities.
The Company also designates as cash flow hedges forward exchange contracts to sell euro at a fixed USD exchange rate. At December 31, 2014, the Company had outstanding forward exchange contracts designated as cash flow hedges to sell a notional amount of EUR25.0 million in exchange for US dollars. The euro contracts had a positive fair value of $1.1 million recorded in current assets. Changes in fair value of derivative financial instruments designated as cash flow hedges have been recorded in other comprehensive income.
The carrying values of the Company's financial instruments approximate their fair values, except as follows:
December 31, 2014
------------------------------
As at Carrying Value Fair Value
----------------------------------------------------------------------------
Long-term debt excluding deferred financing
fees(1) $ 1,739,767 $ 1,777,670
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(1) The carrying value and fair value include the balance of unsecured notes
due August 15, 2015 that are part of current maturities on long-term debt
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 December 2014. The fair value of the Company's unsecured notes will fluctuate until maturity.
11. Commitments:
At December 31, 2014, the Company held fixed price natural gas contracts to supply a portion of the gas requirements for the Medicine Hat facility for 2015 and 2016 at approximately US $3 per mmbtu.
Methanex Corporation
Quarterly History(unaudited)
2014 Q4 Q3 Q2 Q1
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METHANOL SALES VOLUMES
(thousands of tonnes)
Methanex-produced(1) 4,878 1,249 1,258 1,143 1,228
Purchased methanol 2,685 694 694 643 654
Commission sales(1) 941 248 191 206 296
---------------------------------------------------------------------------
8,504 2,191 2,143 1,992 2,178
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METHANOL PRODUCTION
(thousands of tonnes)
New Zealand 2,196 542 595 559 500
Atlas, Trinidad (63.1%) 907 233 234 191 249
Titan, Trinidad 664 127 185 203 149
Egypt (50%)(2) 416 128 50 99 139
Medicine Hat 505 115 130 138 122
Chile 165 62 10 26 67
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4,853 1,207 1,204 1,216 1,226
---------------------------------------------------------------------------
AVERAGE REALIZED METHANOL
PRICE(3)
($/tonne) 437 390 389 450 524
($/gallon) 1.31 1.17 1.17 1.35 1.58
PER SHARE INFORMATION ($ per
share)(4)
Basic net income (loss) 4.79 1.43 0.55 1.30 1.51
Diluted net income (loss) 4.55 1.11 0.54 1.24 1.50
Adjusted net income(5) 4.12 0.85 0.69 0.94 1.65
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Methanex Corporation
Quarterly History(unaudited)
2013 Q4 Q3 Q2 Q1
---------------------------------------------------------------------------
METHANOL SALES VOLUMES
(thousands of tonnes)
Methanex-produced(1) 4,304 1,190 1,045 1,039 1,030
Purchased methanol 2,715 663 715 749 588
Commission sales(1) 972 274 237 242 219
---------------------------------------------------------------------------
7,991 2,127 1,997 2,030 1,837
---------------------------------------------------------------------------
METHANOL PRODUCTION
(thousands of tonnes)
New Zealand 1,419 400 349 361 309
Atlas, Trinidad (63.1%) 971 268 254 201 248
Titan, Trinidad 651 173 128 169 181
Egypt (50%)(2) 623 159 168 163 133
Medicine Hat 476 86 130 129 131
Chile 204 108 6 29 61
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4,344 1,194 1,035 1,052 1,063
---------------------------------------------------------------------------
AVERAGE REALIZED METHANOL
PRICE(3)
($/tonne) 441 493 438 425 412
($/gallon) 1.33 1.48 1.32 1.28 1.24
PER SHARE INFORMATION ($ per
share)(4)
Basic net income (loss) 3.46 1.33 0.91 0.57 0.64
Diluted net income (loss) 3.41 1.32 0.90 0.56 0.63
Adjusted net income(5) 4.88 1.72 1.22 1.02 0.92
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Methanex Corporation
Quarterly History(unaudited)
2012 Q4 Q3 Q2 Q1
----------------------------------------------------------------------------
METHANOL SALES VOLUMES
(thousands of tonnes)
Methanex-produced(1) 4,039 1,059 1,053 1,001 926
Purchased methanol 2,565 664 641 569 691
Commission sales(1) 855 176 205 276 198
----------------------------------------------------------------------------
7,459 1,899 1,899 1,846 1,815
----------------------------------------------------------------------------
METHANOL PRODUCTION
(thousands of tonnes)
New Zealand 1,108 378 346 210 174
Atlas, Trinidad (63.1%) 826 180 255 264 127
Titan, Trinidad 786 189 186 196 215
Egypt (50%)(2) 557 129 62 164 202
Medicine Hat 481 132 117 118 114
Chile 313 59 59 82 113
----------------------------------------------------------------------------
4,071 1,067 1,025 1,034 945
----------------------------------------------------------------------------
AVERAGE REALIZED METHANOL
PRICE(3)
($/tonne) 382 389 373 384 382
($/gallon) 1.15 1.17 1.12 1.15 1.15
PER SHARE INFORMATION ($ per
share)(4)
Basic net income (loss) (0.73) (1.49) (0.03) 0.56 0.24
Diluted net income (loss) (0.73) (1.49) (0.03) 0.50 0.23
Adjusted net income(5) 1.90 0.64 0.38 0.47 0.41
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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)On December 9, 2013, we completed a sale of 10% equity interest in the
Egypt facility. Production figures prior to December 9, 2013 reflect a 60%
interest.
(3)Average realized price is calculated as revenue, excluding commissions
earned and the Egypt non-controlling interest share of revenue but including
an amount representing our share of Atlas revenue, divided by the total
sales volumes of Methanex-produced (attributable to Methanex shareholders)
and purchased methanol.
(4)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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