Annual Report
METHANEX
A Responsible Care’ Company
Methanex Corporation is:
the world’s largest supplier of methanol to major
international markets in North America, Asia Pacific,
Europe and Latin America.
Methanol is:
a versatile liquid chemical produced primarily from natural gas and used as a chemical
feedstock in the manufacture of a wide range of consumer and industrial products such as
building materials, foams, resins and plastics. In addition, about one-third of methanol
demand goes into the energy sector. There has been strong demand growth for methanol for
direct blending into transportation fuels, dimethyl ether (DME) and biodiesel. Methanol is also
used to produce methy]l tertiary butyl ether (MTBE), a gasoline component.
Contents
02 2010Financial Highlights
03 President’s Message
to Shareholders
07 Chairman’s Message
to Shareholders
08 Management’s Discussion
and Analysis
50 Consolidated
Financial Statements
57 -Notesto Consolidated
Financial Statements
METHANEX Annual Report 2010
Global Production Facilities
Methanex’s global production hubs are strategically positioned to supply every major global market.
Methanex Chile
The Punta Arenas production complex in southern Chile produces methanol for customers in North America, Latin
America, Europe and Asia.
Methanex New Zealand
Our production facilities in New Zealand supply methanol primarily to customers in Japan, South Korea and China.
Methanex Trinidad
Our two plants in Trinidad, Titan and Atlas (Methanex interest 63.1%), primarily supply North American and European
methanol markets.
Methanex in Egypt
Our new facility in Egypt (joint venture with the Egyptian government and a regional investor – Methanex interest 60%),
which produced first methanol in early 2011, is located on the Mediterranean Sea, and will primarily supply European
methanol markets.
Methanex Canada
We are restarting our plant in Medicine Hat, Alberta in 2011. The plant, which has been idle since 2001, will supply
methanol to customers in North America.
Global Supply Chain
Methanex has an extensive global supply chain and distribution network of terminals and storage facilities throughout
Asia, North America, Latin America and Europe. Methanex’s wholly owned subsidiary, Waterfront Shipping, operates the
largest methanol ocean tanker fleet in the world. The fleet forms a seamless transportation network dedicated to keeping
an uninterrupted flow of methanol moving to storage terminals and customers” plant sites around the world. For further
information on Waterfront Shipping, please visit www.wfs-cl.com.
Our Responsible Care” Commitment
Methanex is a Responsible Care” company. Responsible Care is the umbrella under which Methanex and other leading
chemical manufacturers manage issues relating to health, safety, the environment, community awareness and
involvement, social responsibility, security and emergency preparedness. The total commitment to Responsible Care is an
integral part of Methanex’s global corporate culture.
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Annual Report 2010 METHANEX 1
2010 Financial Highlights
(US$ millions, except where noted)
2010 2009 2008 2007 2006
Operations
Revenue 1,967 1,198 2,314 2,266 2,108
Net income 102 1 169 373 482
Income before unusual item (after-tax)’ 80 1 169 373 456
Cash flows from operating activities! 2 252 129 235 491 622
Adjusted EBITDA’ 267 142 330 649 799
Modified Return on Capital Employed (ROCE)s 8.0% 1.2% 13.6% 25.4% 32.6%
Diluted Per Share Amounts (US$ per share)
Net income 1.09 0.01 1.78 3.65 4.40
Income before unusual item (after-tax)’ 0.85 0.01 1.78 3.65 4.17
Financial Position
Cash and cash equivalents 194 170 328 488 355
Total assets 3,070 2,923 2,799 2,862 2,453
Long-term debt, including current portion 947 914 782 597 487
Debt to capitalization4 40% 40% 36% 30% 29%
Net debt to capitalizations 35% 35% 25% 1% 10%
Other Information
Average realized price (US$ per tonne)? 306 225 424 375 328
Total sales volume (ooos tonnes) 6,929 5,948 6,054 6,612 6,995
Sales of produced product (ooos tonnes) 3,540 3,764 3,363 4,569 5,310
Adjusted EBITDA E] Weighted Average
(US$ millions) E] Shares Outstanding (millions)
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2007 2008 2009 2010 2001
Share Price Performance
(Indexed at December 31)
– Methanex (US$, NASDAO)
– SEP 500 Chemicals Index
2002 2003 2004
2005 2006 2007
2008 2009 2010
* Adjusted EBITDA, cash flows from operating activities, income before unusual item (after-tax) and diluted income before unusual item (after-tax) per share are non-
GAAP measures. Refer to page 45 for a reconciliation of these amounts to the most directly comparable GAAP measures.
2 The term “cash flows from operating activities” in this document refers to cash flows from operating activities before changes in non-cash working capital.
3 Defined as net income before interest expense (after-tax) divided by average productive capital employed. Average productive capital employed is the sum of average
total assets less the average of current non-interest bearing liabilities. Average total assets exclude projects under development (Egypt plant under construction) and
cash held in excess of $50 million. Additionally, we use an estimated mid-life depreciated cost base for calculating our average assets in use during the period.
4 Defined as total debt divided by the total of shareholders’ equity and total debt.
5 Defined as total debt less cash and cash equivalents divided by the total of shareholders’ equity and total debt less cash and cash equivalents.
$ Average realized price is calculated as revenue, net of commissions earned, divided by the total sales volumes of produced and purchased methanol.
For additional highlights and additional information about Methanex, refer to our 2010 Factbook available at www.methanex.com.
2 METHANEX Annual Report 2010 Financial Highlights
President’s Message to Shareholders
Dear fellow shareholders,
In 2010, the global methanol market recovered significantly from
the effects of the 2009 economic slowdown. Methanol demand
was Up about 13 percent and ended the year at record levels, and
methanol prices improved. These factors contributed to stronger
earnings in 2010.
We see considerable potential for earnings growth in 2011 and
beyond. Our plant in Egypt is in the commissioning phase and
produced first methanol in January 2011, and our Medicine Hat,
Alberta plant is on track to restart early in the second quarter of
this year. The gas supply outlook in New Zealand also continues
to improve and we are targeting to restart a second plant in that
country in the next year. Longer term, we anticipate substantial
increases in our production in Chile, where gas exploration
activity is expected to ramp up over the next few years with the
probability for increased natural gas feedstock availability for our
plants.
The supply and demand outlook for our industry is also very
positive. Recovering global economies and the growing use of
methanol into fuel blending and other energy applications are
expected to drive strong demand growth, and there is limited
new methanol supply expected to come on line over the next few
years.
This is, indeed, a very exciting time for our Company.
Industry Review
Entering 2010, global methanol demand had recovered to
pre-recession levels, driven by strong demand in Asia and, in
particular, China. Throughout the year, the story was much the
same. Strong industrial production rates in China continued to
drive high growth rates in traditional chemical derivatives and
China increased its adoption of methanol into energy
applications. In 2010, methanol demand also improved in other
regions, including Latin America, Europe and North America, in
line with recovering industrial production. Overall, global
methanol demand grew about 13 percent in 2010 to
approximately 45 million tonnes, and ended the year at a record
high level.
Despite the addition of three new world-scale plants outside of
China during the year, demand and supply was balanced to tight
and methanol prices were strong. A number of planned and
unplanned outages in various regions contributed to market
tightness and higher prices. Most notably, methanol facilities in
China continued to operate at low utilization levels because of
several factors, including economics, feedstock restrictions,
maintenance outages and environmental controls.
We believe the future for the methanol industry is also very
positive. There is little new supply expected to enter the market
President’s Message to Shareholders
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Annual Report 2010. METHANEX 3
over the next few years and demand growth is expected
to be strong. China is increasingly choosing methanol as
an alternative energy source to reduce the country’s
reliance on imported crude oil. High crude oil prices in
recent years have reinforced this trend. China’s use of
methanol in fuel blending grew again in 2010, supported
by provincially sponsored programs, and there is
significantly more upside potential. Last year, China
became the world’s largest market for both energy and
automobiles, and as a developing country, China’s per
capita use of automobiles is expected to grow
dramatically. In 2009, national standards were introduced
for the use of M85 and Mioo (85 percent and 100 percent
methanol blends) and we expect the Government of
China to introduce an M15 national standard in 201,
which should be a further catalyst to grow methanol fuel
blending in China. DME (dimethyl ether) demand in China
in 2010 was also strong and closed out the year at record
levels. DME is produced from methanol and blended into
liquified petroleum gas.
With China continuing to demonstrate the success of
methanol-based fuels, many other countries are also
considering the use of methanol in energy applications.
Australia, Iran, Pakistan and Malaysia are currently
studying the use of methanol in gasoline, and we are
involved in a project to test methanol fuel blending in
Trinidad. We have also engaged with several producers of
renewable methanol to help develop markets that
recognize the unique characteristics of methanol
produced from renewable feedstock. Furthermore, there
is also potential for growth in the DME industry outside
China, with Indonesia, Japan, Sweden, Iran and India all
studying or developing DME projects, and in 2010 we
continued to advance our joint venture DME project in
Egypt.
Another interesting recent development is the use of
methanol to produce olefins, which again, is being led by
China, with the first commercial methanol-to-olefins
plant starting up in Baotou in 2010. Historically, we have
viewed these projects as fully integrated and, as such,
they could be expected to have little impact on the
merchant methanol market. However, some projects are
now being considered that require the purchase of
merchant methanol. These projects consume a
substantial amount of methanol and there are a number
of projects under development in several countries. This
industry could therefore have a major impact on future
demand for merchant methanol.
Company Review
Asthe global methanol leader, one ofthe main
competitive advantages we offer customers is secure
global supply. We sustain this advantage by ensuring the
cost competitiveness of our assets, running our plants
reliably, efficiently managing our supply chain and
shipping operations, and focusing on operational
excellence in all aspects of our operations. It is within this
context that | want to review our performance in 2010.
Review of Operations
Our global marketing team did an excellent job of
growing sales volumes by 16 percent in 2010, and we are
positioned to grow our sales volumes further in 2011. Our
marketing organization was also effective at managing
our supply chain and shipping operations in the face of
challenges such as the delay in the Egypt project and
lower than anticipated production from our operations in
Chile.
To measure the performance of our manufacturing
operations, we track a reliability factor that records the
on-stream time of our plants, excluding planned
maintenance and events beyond our control. In 2010, we
achieved an overall company reliability rate of 95 percent,
which we believe was above the industry average, but
slightly below the challenging 97 percent target that we
set for ourselves. We missed the target because our Atlas
facility in Trinidad operated at an 82 percent reliability
rate for the year due to a 60-day unplanned outage in the
second quarter. While this was disappointing, it was an
uncommon event for us. We achieved an average overall
company reliability rate of 97 percent over the past five
years and have comprehensive processes in place to
minimize the likelihood of unplanned outages. Apart
from the Atlas plant, all of our other assets either met or
exceeded our reliability target in 2010. Our second plant
in Trinidad, Titan, operated at 99 percent reliability, while
our operations in New Zealand and Chile operated at 97
percent and 100 percent reliability, respectively.
The ethic of Responsible Care is firmly embedded in the
culture of our company; it is an integral part of everything
we do and a key contributor to our leadership position in
the methanol industry. Responsible Care is the chemical
industry’s global voluntary initiative under which
companies work to continuously improve their health,
safety and environmental performance. Through our
membership in chemical industry associations that are
committed to Responsible Care, we actively support the
implementation of Responsible Care in locations where it
currently does not exist. At Methanex, Responsible Care is
the umbrella under which we manage issues related to
health, safety, the environment, community involvement,
social responsibility, security and emergency
preparedness at each of our facilities and locations. Our
Social Responsibility policy addresses business-linked
programs and issues related to governance, employee
engagement and social investment.
4 METHANEX Annual Report 2010 President’s Message to Shareholders
We track many leading and lagging indicators in the
assessment of our Responsible Care performance. An
important and universal measurement related to site
safety is the recordable injury frequency rate (RIFR), which
is defined as recordable injuries per 200,000 exposure
hours, where exposure hours are the total number of
hours worked. In 2010, we had no employee recordable
injuries (zero RIFR) across our organization for the first
time in the history of the company, which compares to
the Canadian industry average of 0.50 for comparable
companies. We have also worked hard to improve
contractor safety performance. | am pleased to report
that thanks to changes in how we manage contractors,
we improved our safety performance in 2010, with a
resulting RIFR of 0.85 (the Canadian industry average
comparator was 1.02). In my 2009 Annual Report letter, |
discussed the incident in early 2010 at the Egypt plant
construction site that resulted in the death of two third-
party contractors. We have made every effort to
maximize learning from that tragic occurrence and have
shared our findings and lessons learned both within and
beyond Methanex. l am pleased to report that the Egypt
project has had an outstanding safety record throughout
the remainder of 2010.
We place a high importance on minimizing the impact of
our operations on the environment. In 2010, we continued
our excellent environmental record with no significant
incidents for the fourth year in a row. We also recognize
the importance of making efficient use of resources and
minimizing emissions. In 2010, we adopted a greenhouse
gas policy that formalized our commitment to managing
emissions. This past year we also completed the
construction and commissioning of a 2.55 megawatt wind
farm that now supplies electricity to our plant site in
southern Chile, decreasing our dependence on natural
gas for electricity production. We continuously strive to
increase the energy efficiency of our plants and marine
fleet, which not only reduces costs but also minimizes CO,
emissions. We have reduced CO, emission intensity in our
manufacturing operations by 33 percent between 1994
and 2010 through asset turnover, improved plant
reliability, energy efficiency and emissions management.
We also aim to reduce the CO, emitted from our marine
operations, and between 2002 and 2010, we reduced our
CO, intensity (tonnes of CO, from fuel burned per tonne
of product moved) from marine operations by 17 percent.
Financial Performance
Higher methanol prices led to improved financial results
in 2010. We sold 6.93 million tonnes of methanol and
generated $2.0 billion in revenue, $267 million in EBITDA
and $102 million in net income. While EBITDA and net
income were up significantly, 2010 results are still modest
relative to the earnings potential of our Company.
We have disciplined targets around capital allocation, and
we measure this with a Modified Return on Capital
Employed (ROCE) target of 12 percent. Over the last five
years, we have exceeded our target and ROCE has
averaged 16 percent. However, the 2010 ROCE of 8 percent
was below target. We are focused on delivering a better
result for shareholders in 2011, supported by specific
growth initiatives to increase production and earnings.
Historically, we have sought a balance between
reinvesting capital in our business and distributing excess
cash to shareholders. During the last few years,
influenced by the financial crisis, we focused on
maintaining a strong balance sheet and completing
strategic initiatives, such as the Egypt Project. We are also
allocating capital in Chile, Medicine Hat and New Zealand
to increase production, and a focus on these projects
remains a priority in 2011. The projects involve restarting
idle capacity, and capital spending in each instance is
modest relative to asset replacement values, making
them excellent investments. As they begin to generate
cash flow, Methanex should be in a stronger position to
build on an excellent track record of returning excess cash
to shareholders. We have increased our dividend six times
since implementing it in 2002, and have reduced shares
outstanding from 173 million in 2000 to the current level
of 93 million.
Finally, our share price closed the year at US$30.40 and
appreciated 56 percent in 2010, strongly outperforming
the S8P 500 Chemicals Index, which was up 19 percent in
2010. Taking into account dividends, an investment in
Methanex achieved a total return of 88 percent over the
last five years, also comparing favourably to the SP 500
Chemicals Index, which achieved a total return of
57 percent over the same period. Despite strong share
price performance, | believe there is significantly more
upside potential given our initiatives to increase
production and the cash flow these projects have the
potential to generate.
Review of Growth Initiatives
Our key priority over the next few years is to increase
production. While production levels were below target in
2010, we made significant headway during the year and
are positioned to increase production in the future.
Increased levels of production will help strengthen our
market leadership position, drive down costs and
generate strong cash flow for shareholders.
Firstly, after some construction delays, our 60 percent
joint venture Egypt plant produced its first methanol at
the beginning of 2011. The start-up process coincided with
President’s Message to Shareholders Annual Report 2010 METHANEX 5
the period of widespread anti-government protests and
civil unrest in Egypt. For the safety and security of our
employees, we took the decision to temporarily close our
Cairo office and curtail the commissioning activities at
the Damietta plant site. As conditions stabilized, we
safely returned all of our employees and resumed the
commissioning process. While we were frustrated with
the construction delays, we are excited to welcome this
first-class asset into our supply chain. This represents an
important new supply source for our customers. The
1.26 million tonne plant, of which we own 60 percent, is
underpinned by a long-term natural gas contract and has
a very competitive cost position that will result in
excellent returns for shareholders over the long term.
In the third quarter of 2010, we reacted quickly to the
changing North American natural gas market and
announced our plans to restart our idled 0.47 million
tonne plant in Medicine Hat, Alberta. The widening value
gap between crude oil and North American natural gas
prices has made the economics of this plant very
attractive. As long as that gap continues, we expect the
plant to generate significant cash flow.
The outlook for our operations in New Zealand has also
improved steadily. In late 2008, we moved production
from a 0.5 million tonne plant to one of our larger
0.85 million tonne plants. We took this action based on
the improved natural gas supply that had developed in
that country. This trend has continued, with successful oil
and gas exploration programs in New Zealand leading to
a better reserve-to-production ratio over the next few
years. We believe the improved natural gas supply and
demand outlook will allow us to increase production in
New Zealand, and we are currently working on securing
additional gas supply to allow for the restart of a second
plant.
Finally, our results in Chile have been disappointing over
the past few years, as we have not achieved our targets
for increasing gas supply and plant operating rates. The
gas exploration blocks where we have committed capital
– GeoPark’s Fell block and the Dorado Riquelme block,
where we have a joint venture with ENAP – have
continued to report positive results; however, these new
gas deliveries were offset by declines from other mature
gas fields in the region. In addition, while there has been
an increasing level of development activity, we have not
yet received any gas from the nine blocks awarded by the
Government of Chile to exploration companies in an
earlier international bidding round.
The short-term outlook for gas supply in Chile continues
to be challenging; however, we have not changed our
view on the long-term potential for gas development in
southern Chile. We expect to start receiving gas deliveries
later this year from two new blocks that were part of the
2008 international bidding round. We anticipate that
about 175 wells will be drilled in southern Chile in the next
couple of years, which is more than double the activity
that occurred in the region over the past two years. Based
on the significant increase in activity and the success seen
to date, we are optimistic that we can increase our
operating rate in Chile considerably. What we have
learned is that the timelines for natural gas exploration
and development in this region are much longer than we
originally anticipated.
Looking Ahead…
This is a very exciting time for our company and our
industry. Methanol demand growth is expected to be
strong, supported by the increased use of methanol in
energy applications. The ongoing recovery in global
economies should also lead to higher demand for
methanol in traditional chemical derivatives. With little
new capacity expected to enter the market over the next
few years, we are well positioned with the projects we are
focusing on to increase production at our existing sites.
As production from these projects comes on line, our cash
flows and earnings should increase dramatically, our
market leadership position will be enhanced and the
overall cost position of our assets will improve.
Beyond this, we will continue to focus on operational
excellence in all aspects of our business, including
operating our plants reliably, never compromising on
health, safety and the environment, further optimizing
our supply chain and ensuring the prudent financial
management of the Company. As the global market
leader, we will continue to encourage the use of
methanol in energy applications to support ongoing
strong sales growth.
In closing, | would like to thank all of our talented
employees for their stellar contributions during another
year of both challenges and opportunities. Finally, on
behalf of the Board and our employees, | thank you, our
shareholders, for your continued support.
Bruce Aitken
President 8: Chief Executive Officer
6 METHANEX Annual Report 2010 President’s Message to Shareholders
Chairman’s Message to Shareholders
Dear fellow shareholders,
Asthis is my first letter to shareholders, it is most
appropriate to start by acknowledging the valuable
guidance and strong governance ethic that Pierre
Choquette, our former Chairman, instilled into the culture
of your Board of Directors and throughout the Company.
On behalf of the Board, I’d like to thank Pierre for his
leadership and for continuing to serve as a Director.
The Board is as committed as ever to sound corporate
governance practices. At Methanex, we define corporate
governance as having the appropriate processes and
structures in place to ensure that our business is
managed in the best interests of our shareholders while
also taking into account the concerns of all stakeholders.
This framework – combined with the right blend of
knowledge, skills, integrity, openness between
management and the Board and a collegial environment
among the Directors – results in all views being on the
table when decisions are made. Good corporate
governance is an ongoing process, and we are committed
to continuously improving it. Below, | talk about our
process for ensuring Board effectiveness and the
continued focus on Executive Compensation.
Evaluating Board Performance
We assess Board and Director performance annually
through a comprehensive evaluation process. Each
Director completes a self-evaluation, a peer review of all
other Directors, an assessment of the Chairman’s
performance, and an evaluation of howthe Board and
each committee are functioning. Following this, each
Director and | meet for a one-on-one discussion of results.
This year was my first opportunity to conduct these
sessions, and while the discussions focused on the
evaluation results, they also provided an opportunity to
explore numerous other topics, including Directors”
preferences and expectations and their ideas for
enhancing Board effectiveness.
The evaluation process deepened our understanding of
what the Board did well in 2010 and where it can improve.
With this knowledge, we have developed Board objectives
for the coming year and we will review these objectives at
each 2011 Board meeting. The evaluation also included
several questions to assess Board values and ethics as
well as Director engagement in strategy development
and risk management, all of which are scored annually to
provide a benchmark for continuous improvement. In my
opinion, the question that asks Directors to rankthe
performance of Methanex’s Board relative to those of
other boards on which they sit is an important one. The
consensus view is that we have a very high-functioning
Board. While this is gratifying to know, | can assure you
that your Board of Directors remains committed to
continuously improving its performance.
Executive Compensation
Executive compensation continues to be in the spotlight.
At last year’s Annual General Meeting, a shareholder
proposal was passed calling for the institution of an
advisory “say on pay” vote. As a result, shareholders will
be voting on a say on pay resolution for the first time at
this year’s meeting.
We believe a say on pay vote is of limited value, as
shareholders can only vote “yes” or “no” in support of our
approach to executive compensation as disclosed in our
information circular. We continue to believe that a better
and more meaningful governance practice is to seek more
complete views and deeper engagement from
shareholders. Consequently, we will conduct our second
annual web-based survey to receive constructive and
comprehensive feedback from shareholders (the survey is
available on our website at www.methanex.com). All
comments are provided to the Chair ofthe Human
Resources Committee and will be discussed at a
committee meeting. We believe our executive
compensation program aligns management with
corporate goals and that it compensates management
fairly. We encourage you to cast your vote on “say on pay”
and we also look forward to receiving your comments
through our web-based survey on executive
compensation.
_ ña
Tom Hamilton
Chairman of the Board
Chairman’s Message to Shareholders Annual Report 2010 METHANEX 7
Management’s Discussion 8: Analysis
INDEX
8 Overview of the Business 35 Critical Accounting Estimates
10 OurStrategy 37 Anticipated Changes to Canadian Generally
12 How We Analyze Our Business Accepted Accounting Principles
13 Financial Highlights 45 Supplemental Non-GAAP Measures
13 Production Summary 46 Quarterly Financial Data (Unaudited)
15 Results of Operations 46 Selected Annual Information
21 Liquidity and Capital Resources 46 Controls and Procedures
27 Risk Factors and Risk Management 47 Forward-Looking Statements
This Management’s Discussion and Analysis is dated March 24, 2011 and should be read in conjunction with our
consolidated financial statements and the accompanying notes for the year ended December 31, 2010. Our consolidated
financial statements are prepared in accordance with Canadian generally accepted accounting principles (Canadian GAAP).
We use the United States dollar as our reporting currency. Except where otherwise noted, all dollar amounts are stated in
United States dollars.
Canadian GAAP differs in some respects from accounting principles generally accepted in the United States (US GAAP).
Significant differences between Canadian GAAP and US GAAP are described in note 20 to our consolidated financial
statements. The Canadian Accounting Standards Board confirmed January 1, 2011 as the changeover date for Canadian
publicly accountable enterprises to start using International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board (IASB). Accordingly, we will issue our first interim consolidated financial
statements in accordance with IFRS beginning with the first quarter ending March 31, 2011 with comparative financial
results for 2010 (refer to the Anticipated Changes to Canadian Generally Accepted Accounting Principles section on page 37
for more information).
At March 18, 2011 we had 92,715,072 common shares issued and outstanding and stock options exercisable for 3,987,749
additional common shares.
Additional information relating to Methanex, including our Annual Information Form, is available on the Canadian
Securities Administrators* SEDAR website at www.sedar.com and on the United States Securities and Exchange
Commission’s EDGAR website at www.sec.gov.
OVERVIEW OF THE BUSINESS
Methanol is a clear liquid commodity chemical that is predominantly produced from natural gas and also, particularly in
China, from coal. Approximately two-thirds of all methanol demand is used to produce traditional chemical derivatives
including formaldehyde, acetic acid and a variety of other chemicals that form the basis of a large number of chemical
derivatives for which demand is influenced by levels of global economic activity. The remaining one-third of methanol
demand comes from the energy sector. There has been strong demand growth for methanol in energy-related
applications such as direct methanol blending into gasoline and dimethyl ether (DME), which can be blended with
liquefied petroleum gas for use in household cooking and heating, and also as a substitute for diesel. Methanol ¡is also
used to produce biodiesel and methyl tertiary butyl ether (MTBE), a gasoline component.
We are the world’s largest supplier of methanol to the major international markets of Asia Pacific, North America, Europe
and Latin America. Our total annual production capacity, including equity interests in jointly owned plants, is
approximately 7.93 million tonnes and is located in Chile, Trinidad, New Zealand, Egypt and Canada (refer to the Production
Summary section on page 13 for more information). We have marketing rights for 100% of the production from our jointly
owned plants in Trinidad and Egypt and this provides us with an additional 1.17 million tonnes per year of methanol offtake
supply. In addition to the methanol produced at our sites, we purchase methanol produced by others under methanol
8 METHANEX Annual Report 2010 Management’s Discussion 8: Analysis
offtake contracts and on the spot market. This gives us flexibility in managing our supply chain while continuing to meet
customer needs and support our marketing efforts.
2010 Industry Overview 8: Outlook
Methanol is a global commodity and our earnings are significantly affected by fluctuations in the price of methanol, which
is directly impacted by the balance of methanol supply and demand. Demand for methanol is driven primarily by levels of
industrial production, energy prices and the strength of the global economy.
During 2010, the methanol industry experienced strong demand growth with total demand of approximately 45 million
tonnes, representing a 13% increase over 2009. The increase in demand was driven primarily by demand for both
traditional and energy-related derivatives in Asia, particularly China. There were also increases in demand for traditional
methanol derivatives in other regions, including Europe, Latin America and North America.
Energy-related derivatives currently represent approximately one-third of global methanol demand, and over the last few
years high energy prices have driven strong demand growth for methanol into energy applications such as gasoline
blending and DME in China. During 2010, methanol blending into gasoline in China was particularly strong and continues
to be supported by standards introduced by national and provincial governments. There are a number of provincially
sponsored programs for methanol fuel blending and more are under development. In 2009, national standards were
introduced for the use of M85 and M100 (85 percent and 100 percent methanol blends) and we expect the Government of
China to introduce an M5 national standard in 2011, which should be a further catalyst to grow methanol fuel blending in
China. China is currently the largest energy and automobile market in the world and, as a developing country, the per
capita use of automobiles and the demand for transportation fuels is expected to grow significantly over time. DME
demand in China in 2010 was also strong and ended the year at record levels.
The methanol industry conditions were balanced to tight in 2010, underpinned by strong global methanol demand growth
and supply constraints. While three new world-scale plants (in Brunei, Oman and Venezuela) with combined capacity
totalling 2.8 million tonnes per year started up in 2010, there were also some shut-ins of higher cost capacity and a number
of planned and unplanned plant outages across the industry. These factors, combined with the continuing higher energy
price environment, led to balanced to tight market conditions and a strong methanol pricing environment throughout
2010. Our average non-discounted price in 2010 was $356 per tonne compared with $252 per tonne in 2009, and our
average realized price for 2010 was $306 per tonne compared with $225 per tonne in 2009.
Going forward, with China continuing to demonstrate the success of methanol for use in energy, other countries are also
considering the use of methanol in energy applications. Australia, Iran, Pakistan and Malaysia are currently studying the
use of methanol in gasoline, and we are involved in a project to test methanol fuel blending in Trinidad. We are also
working with several producers of renewable methanol to help develop markets that recognize the unique characteristics
of methanol produced from renewable feedstock. Finally, there is also potential for growth in the DME industry outside
China, with Indonesia, Japan, Sweden, Iran, Egypt and India all studying or developing DME projects.
Another recent development that is also being led by China is the use of methanol to produce olefins, with the first
commercial methanol-to-olefins plant starting up in Baotou in 2010. Historically, we have viewed these projects as fully
integrated and therefore having little impact on the merchant methanol market. However, some projects are now being
considered that require the purchase of merchant methanol. These methanol-to-olefin projects consume a significant
amount of methanol and there are a number of projects under development in several countries. This industry could
therefore have a significant impact on future demand for merchant methanol.
We anticipate a significant increase in our production capacity in 2011 from the 1.26 million tonne per year Egypt plant and
the restart of our 0.47 million tonne per year Medicine Hat facility. We also are focused on accessing natural gas to
increase production at our existing sites in Chile and New Zealand over the next few years (refer to the Production
Summary section on page 13 for more information). Beyond our own capacity additions, there are few global methanol
capacity additions outside China expected over the next few years. There is a 0.85 million tonne plant in Beaumont, Texas
and a 0.7 million tonne plant in Azerbaijan and we anticipate that product from both of these plants will enter the market
over the 2012-2013 period.
Management’s Discussion €: Analysis Annual Report 2010. METHANEX 9
Global methanol demand continues to be strong, supported by continuing growth of methanol into energy applications,
and further recovery of global economies should lead to increased demand for traditional methanol derivatives. With few
capacity additions expected to enter the market over the next few years, we believe we are well positioned with
anticipated production increases from our existing sites. As production from these sites comes on line, we believe our
leadership position in the industry will be strengthened, the overall cost position of our assets will be improved and we will
have significant upside potential to our cash flows and earnings.
The methanol price will ultimately depend on the strength of the economic recovery, industry operating rates, global
energy prices, the rate of industry restructuring 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.
OUR STRATEGY
Our primary objective is to create value by maintaining and enhancing our leadership in the global production, marketing
and delivery of methanol to our customers. Our simple, clearly defined strategy – global leadership, low cost and
operational excellence – has helped us achieve this objective.
Global Leadership
Global Leadership is a key element of our strategy, with a focus on maintaining and enhancing our position as the major
supplier to the global methanol industry, enhancing our ability to cost-effectively deliver methanol supply to our
customers and supporting global methanol demand growth for both traditional and energy-related methanol derivatives.
We are the leading supplier of methanol to the major international markets of North America, Asia Pacific, Europe and
Latin America. Our sales volumes in 2010 represented approximately 15% of total global methanol demand and we grew
sales volumes by 16% from 5.95 million tonnes in 2009 to 6.93 million tonnes in 2010. Our leadership position has enabled
us to play an important role in the industry, which includes publishing Methanex reference prices that are generally used
in each major market as the basis of pricing for most of our customer contracts and which we believe enhances market
transparency.
The geographically diverse location of our production sites allows us to deliver methanol cost-effectively to customers in
all major global markets, while our global distribution and supply infrastructure, which includes a dedicated fleet of ocean-
going vessels and terminal capacity within all major international markets, enables us to enhance value to customers by
providing reliable and secure supply.
A key component of our Global Leadership strategy is a focus on strengthening our asset position and increasing
production at our sites. We expect increased production in 201 with the start-up of production from the 1.26 million tonne
per year methanol plant in Egypt and the restart of our 0.47 million tonne per year Medicine Hat, Alberta plant. Both of
these sites are well located and will provide additional security of supply for our customers. Our methanol facilities in Chile
represent 3.8 million tonnes of annual production capacity and since mid-2007 we have operated the site significantly
below capacity. This is primarily due to curtailments of natural gas supply from Argentina (refer to the Production
Summary – Chile section on page 14). Our goal is to progressively increase production at our Chile site with natural gas
from suppliers in Chile by supporting the acceleration of natural gas development in southern Chile. We are also focused
on accessing additional natural gas supply to increase production in New Zealand, where we currently have approximately
135 million tonnes of annual idled production capacity.
Another key component of our Global Leadership strategy is our ability to supplement our methanol production with
methanol purchases from others to give us flexibility in our supply chain and continue to meet customer commitments.
We purchase through a combination of methanol offtake contracts and spot purchases. We manage the cost of purchased
methanol by taking advantage of our global supply chain infrastructure, which allows us to purchase methanol in the
most cost-effective region while still maintaining overall security of supply. We grew our sales and purchasing levels in
2010 in anticipation of increased production from the Egypt plant. However, we expect purchased methanol will represent
a lower proportion of our overall sales volumes with increased production in Egypt and Canada in 2011.
10 METHANEX Annual Report 2010 Management’s Discussion 8; Analysis
The Asia Pacific region continues to lead global methanol demand growth and we have invested in and developed our
presence in this important region. We have storage capacity in China and Korea that allows us to cost-effectively manage
supply to customers in this region. We have offices in Hong Kong, Shanghai, Beijing, Korea and Japan to enhance customer
service and industry positioning in the region. This also enables us to participate in and improve our knowledge of the
rapidly evolving and high growth methanol market in China and other Asian countries. Our expanding presence in Asia has
also helped us identify several opportunities to support the development of applications for methanol in the energy sector.
With China continuing to demonstrate the success of methanol for use in energy markets, other countries are also
considering the use of methanol in energy applications and we are involved in a project to test methanol fuel blending in
Trinidad. We are also working with several producers of renewable methanol to help develop markets that recognize the
unique characteristics of methanol produced from renewable feedstock. We also continued to advance our joint venture
DME project in Egypt.
Low Cost
A low cost structure is an important element of competitive advantage in a commodity industry and is a key element of
our strategy. Our approach to major business decisions is guided by our drive to improve our cost structure, expand
margins and return value to shareholders. The most significant components of our costs are natural gas for feedstock and
distribution costs associated with delivering methanol to customers.
Our production facilities in Trinidad represent 2.05 million tonnes per year of competitive cost production capacity. These
facilities are well located to supply markets in North America and Europe and are underpinned by take-or-pay natural gas
purchase agreements where the gas price varies with methanol prices.
As described above, we expect an increase in our production capability in 201 from the new methanol plant in Egypt and
the restart of our Medicine Hat, Alberta plant. We also are focused on accessing natural gas to increase production at our
existing sites in Chile and New Zealand. We believe these initiatives will further enhance our competitive cost structure
and our ability to cost-effectively deliver methanol to customers (refer to the Production Summary section on page 13 for
more information on all of our production sites).
The cost to distribute methanol from production facilities to customers is also a significant component of our operating
costs. These include costs for ocean shipping, in-market storage facilities and in-market distribution. We are focused on
identifying initiatives to reduce these costs, including optimizing the use of our shipping fleet to reduce costs and taking
advantage of prevailing conditions in the shipping market by varying the type and length of term of ocean vessel
contracts. We are continuously investigating opportunities to further improve the efficiency and cost-effectiveness of
distributing methanol from our production facilities to customers. We also look for opportunities to leverage our global
asset position by entering into product exchanges with other methanol producers to reduce distribution costs.
Operational Excellence
We maintain a focus on operational excellence in all aspects of our business. This includes excellence in our manufacturing
and supply chain processes, marketing and sales, human resources, corporate governance practices and financial
management.
To differentiate ourselves from our competitors, we strive to be the best operator in all aspects of our business and to be
the preferred supplier to customers. We believe that reliability of supply is critical to the success of our customers”
businesses and our goal is to deliver methanol reliably and cost-effectively. We have a commitment to Responsible Care (a
risk-minimization approach developed by the Chemistry Industry Association of Canada) and we use it as the umbrella
under which we manage issues related to health, safety, the environment, community involvement, social responsibility,
security and emergency preparedness at each of our facilities and locations. We believe our commitment to Responsible
Care helps us reduce the likelinood of unplanned shutdowns and safety incidents and achieve an excellent overall
environmental record. In 2010 we experienced no employee recordable injuries across the organization as well as
improvement in contractor safety performance, resulting in overall safety performance that exceeds the Canadian
industry average for comparable companies.
Management’s Discussion €: Analysis Annual Report 2010. METHANEX 11
Product stewardship is a vital component of our Responsible Care culture and guides our actions through the complete life
cycle of our product. We aim for the highest safety standards to minimize risk to our employees, customers and suppliers
as well as to the environment and the communities in which we do business. We promote the proper use and safe
handling of methanol at all times through a variety of internal and external health, safety and environmental initiatives,
and we work with industry colleagues to improve safety standards and regulatory compliance. We readily share our
technical and safety expertise with key stakeholders, including customers, end-users, suppliers, logistics providers and
industry associations in the methanol and methanol applications marketplace through active participation in local and
international industry seminars and conferences, and online education initiatives.
As a natural extension of our Responsible Care ethic, we have a Social Responsibility policy that aligns our corporate
governance, employee engagement and development, community involvement and social investment strategies with our
core values and corporate strategy.
Our strategy of operational excellence includes the financial management of the Company. We operate in a highly
competitive commodity industry. Accordingly, we believe it is important to maintain financial flexibility and we have
adopted a prudent approach to financial management. At December 31, 2010, we had a strong balance sheet with a cash
balance of $194 million, a $200 million undrawn credit facility and no re-financing requirements until mid-2012. We believe
we are well positioned to meet our financial commitments and continue investing to grow our business.
HOW WE ANALYZE OUR BUSINESS
Our operations consist of a single operating segment – the production and sale of methanol. We review our results of
operations by analyzing changes in the components of our adjusted earnings before interest, taxes, depreciation and
amortization (Adjusted EBITDA) (refer to the Supplemental Non-GAAP Measures section on page 45 for a reconciliation to
the most comparable GAAP measure), depreciation and amortization, interest expense, interest and other income, and
income taxes. In addition to the methanol that we produce at our facilities (“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. The key drivers of change in our Adjusted EBITDA are average
realized price, cash costs and sales volume.
The price, cash cost and volume variances included in our Adjusted EBITDA analysis are defined and calculated as follows:
PRICE The change in Adjusted EBITDA as a result of changes in average realized price is calculated as the
difference from period to period in the selling price of methanol multiplied by the current period total
methanol sales volume excluding commission sales volume plus the difference from period to period in
commission revenue.
CASH COST The change in our Adjusted EBITDA as a result of changes in cash costs is calculated as the difference from
period to period in cash costs per tonne multiplied by 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 our 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.
12 METHANEX Annual Report 2010 Management’s Discussion €: Analysis
We also sell methanol on a commission basis. Commission sales represent volumes marketed on a commission basis
related to the 36.9% of the Atlas methanol facility in Trinidad that we do not own.
FINANCIAL HIGHLIGHTS
($ MILLIONS, EXCEPT WHERE NOTED) 2010 2009
Production (thousands of tonnes): 3,540 3,543
Sales volumes (thousands of tonnes):
Produced methanol 3,540 3,764
Purchased methanol 2,880 1,546
Commission sales! 509 638
Total sale volumes 6,929 5,948
Methanex average non-discounted posted price ($ per tonne)? 356 252
Average realized price ($ per tonne)s 306 225
Revenue 1,967 1198
Adjusted EBITDA+ 267 142
Cash flows from operating activities 153 no
Cash flows from operating activities before changes in non-cash working capital 252 129
Net income 102 1
Net income before unusual itemst 80 1
Basic net income per common share ($ per share) 1.10 0.01
Diluted net income per common share ($ per share) 1.09 0.01
Diluted net income per common share before unusual item ($ per share)4 0.85 0.01
Common share information (millions of shares):
Weighted average number of common shares outstanding 92 92
Diluted weighted average number of common shares outstanding 94 93
Number of common shares outstanding 93 92
1 Commission sales represent volumes marketed on a commission basis. Commission income is included in revenue when earned.
2 Methanex average non-discounted posted price represents the average of our non-discounted posted prices in North America, Europe and Asia
Pacific weighted by sales volume. Current and historical pricing information is available on our website at www.methanex.com.
Average realized price is calculated as revenue, net of commission income, divided by total sales volumes of produced and purchased methanol.
Poo
These items are non-GAAP measures that do not have any standardized meaning prescribed by Canadian Generally Accepted Accounting
Principles (GAAP) and therefore are unlikely to be comparable to similar measures presented by other companies. Refer to the Supplemental
Non-GAAP Measures section on page 45 for a description of each non-GAAP measure and a reconciliation to the most comparable GAAP measure.
PRODUCTION SUMMARY
The following table details the annual production capacity and actual production of our facilities that operated in 2010 and
2009:
ANNUAL
PRODUCTION
(THOUSANDS OF TONNES) CAPACITY! 2010 2009
Chile 1, 1, lll and IV 3,800 935 942
Atlas (Trinidad) (63.1% interest) 1,150 884 1,015
Titan (Trinidad) 900 891 764
New Zealand 850 830 822
Egypt (60% interest) 760 – –
Medicine Hats 470 – –
7,930 3,540 3,543
1 The annual production capacity of our production facilities may be higher than original nameplate capacity as, over time, these figures have been
adjusted to reflect ongoing operating efficiencies at these facilities.
2 The annual production capacity of New Zealand represents only our 0.85 million tonne per year Motunui facility that we restarted in late 2008.
Practical operating capacity will depend partially on the composition of natural gas feedstock and may differ from the stated capacity above. We
also have additional potential production capacity that is currently idled in New Zealand (refer to the New Zealand section on page 14 for more
information).
These two plants are anticipated to commence production in 2011. The Egypt methanol facility produced first methanol in January 2011 and we are
nearing completion of the restart of our Medicine Hat, Alberta facility (refer to the Egypt and Medicine Hat sections on page 15 for more
information).
Management’s Discussion 8: Analysis Annual Report 2010 METHANEX 13
Chile
Our methanol facilities in Chile produced 0.94 million tonnes of methanol in 2010 and 2009. Since 2007, we have operated
our methanol facilities in Chile significantly below site capacity primarily due to curtailments of natural gas supply from
Argentina. In June 2007, our natural gas suppliers from Argentina curtailed all gas supply to our plants in Chile in response
to various actions by the Argentinean government, including imposing a large increase to the duty on natural gas exports.
Under the current circumstances, we do not expect to receive any further natural gas supply from Argentina. As a result of
the Argentinean natural gas supply issues, all of the methanol production at our Chile facilities since June 2007 has been
produced with natural gas from Chile.
Our goal is to progressively increase production at our Chile site with natural gas from suppliers in Chile. We are pursuing
investment opportunities with the state-owned energy company Empresa Nacional del Petroleo (ENAP), GeoPark Chile
Limited (GeoPark) and others to help accelerate natural gas exploration and development in southern Chile. We are
working with ENAP to develop natural gas in the Dorado Riquelme block in southern Chile. Under the arrangement, we
fund a 50% participation in the block and, as at December 31, 2010, we had contributed approximately $86 million. Over
the past few years, we have also provided $57 million in financing to GeoPark (of which approximately $32 million had
been repaid at December 31, 2010) to support and accelerate GeoPark’s natural gas exploration and development activities
in southern Chile. GeoPark has agreed to supply us with all natural gas sourced from the Fell block in southern Chile under
a ten-year exclusive supply arrangement that commenced in 2008. Approximately 60% of total production at our Chilean
facilities is currently being produced with natural gas supplied from the Fell and Dorado Riquelme blocks.
Other investment activities are also supporting the acceleration of natural gas exploration and development in areas of
southern Chile. In late 2007, the Government of Chile completed an international bidding round to assign oil and natural
gas exploration areas that lie close to our production facilities and announced the participation of several international oil
and gas companies. The terms of the agreements from the bidding round require minimum investment commitments. To
date, two companies that participated in the bidding round have advised of gas discoveries and we expect first deliveries
of gas from these new finds in 2011. We are participating in a consortium for two exploration blocks under this bidding
round – the Tranquilo and Otway blocks. The consortium includes Wintershall, GeoPark and Pluspetrol each having 25%
participation and International Finance Corporation, member of the World Bank Group, and Methanex each having 12.5%
participation. GeoPark is the operator of both blocks.
Our methanol facilities in Chile produced 0.94 million tonnes of methanol in both 2010 and 2009. During 2010, natural gas
deliveries from ENAP were lower than 2009 primarily as a result of declines in deliverability from existing wells and this
was offset by increased natural gas deliveries from the Dorado Riquelme block in 2010 compared with 2009. As we entered
2011, we were operating one plant at approximately 65% capacity at our Chile site and the short-term outlook for gas
supply in Chile continues to be challenging. While significant investments have been made in the last few years for natural
gas exploration and development in southern Chile, the timelines for a significant increase in gas deliveries to our plants
are much longer than we originally anticipated. As a result, we expect there to be short-term pressure on gas supply in
southern Chile that could impact the operating rate of our Chile site, particularly in the southern hemisphere winter
months when residential energy demand is at its peak.
Refer to the Risk Factors and Risk Management – Chile section on page 27 for more information.
Trinidad
Our equity ownership of methanol facilities in Trinidad represents approximately 2.05 million tonnes of competitive cost
annual capacity. The Titan and Atlas facilities in Trinidad are well located to supply markets in North America and Europe
and are underpinned by take-or-pay natural gas purchase agreements that expire in 2014 and 2024, respectively, where
the gas price varies with methanol prices. These facilities produced a total of 1.78 million tonnes in both 2010 and 2009. For
both 2010 and 2009, we operated these facilities at below operating capacity due to planned and unplanned maintenance
activities. During 2010, we experienced an outage at our Atlas facility that lasted approximately 60 days.
New Zealand
Our New Zealand facilities provide competitive cost capacity and are underpinned by shorter term natural gas supply
contracts. For both 2010 and 2009, we produced 0.83 million tonnes from one 0.85 million tonne per year plant at our
Motunui facility in New Zealand. We have natural gas contracts with a number of gas suppliers that will allow us to
14 METHANEX Annual Report 2010 Management’s Discussion €: Analysis
continue to operate the 0.85 million tonne per year Motunui plant through 2012. We also have an additional 1.38 million
tonnes per year of idled capacity in New Zealand, including a second 0.85 million tonne per year Motunui plant and a 0.53
million tonne per year plant at our nearby site in Waitara Valley. These facilities provide the potential to increase
production in New Zealand depending on the methanol supply and demand dynamics and the availability of economically
priced natural gas feedstock.
We believe there has been continued improvement in the natural gas supply outlook in New Zealand and we are focused
on accessing additional natural gas supply to increase production in New Zealand. We continue to pursue opportunities to
obtain economically priced natural gas with suppliers in New Zealand to underpin a restart of a second plant. We are also
pursuing natural gas exploration and development opportunities in the area close to our plants with the objective of
obtaining long-term competitively priced supply. During 2010, we entered into an agreement with Kea Exploration (Kea),
an oil and gas exploration and development company, to explore areas of the Taranaki basin in New Zealand close to our
plants. Under the agreement, funding will be shared 50% by both parties, and we will be entitled to all natural gas
deliveries from our participation at a price that is competitive to our other locations in Trinidad, Chile and Egypt. During
2010, we spent approximately $10 million on exploration activities with Kea. Under the agreement, there are no minimum
investment commitments and future contributions will be agreed by the parties on an ongoing basis.
Egypt
The new 1.26 million tonne per year methanol plant in Egypt is in the commissioning phase and produced first methanol in
January 2011. The start-up coincided with widespread anti-government protests and civil unrest in Egypt. For the safety
and security of our employees, we took the decision to temporarily close our Cairo office and curtail the commissioning
activities at the plant in Damietta, Egypt. As conditions stabilized, we reopened our Cairo office and our plant in Damietta
resumed operations to continue the start-up and commissioning process.
We have a 60% interest in the facility and have marketing rights for 100% of the production. This facility is underpinned by
a 25-year take-or-pay natural gas purchase agreement where the gas price varies with methanol prices. We believe this
methanol facility will further enhance our cost structure and our market position and it is well located to supply the
European market.
Medicine Hat
In September 2010, we made the decision to restart the 0.47 million tonne per year idled facility in Medicine Hat, Alberta,
Canada. In support of the restart, we commenced a program to purchase natural gas on the Alberta gas market, and by the
end of 2010 we had contracted sufficient volumes of natural gas to meet approximately 80% of our requirements when
operating at capacity for the period from start-up to October 2012. We are nearing completion of this restart project with
production expected to commence in the second quarter of 2011.
RESULTS OF OPERATIONS
($ MILLIONS) 2010 2009
Consolidated statements of income:
Revenue $ 1,967 $ 1,198
Cost of sales and operating expenses (1,700) (1,056)
Adjusted EBITDA’ 267 142
Gain on sale of Kitimat assets 22 –
Depreciation and amortization (131) (18)
Operating income’ 158 24
Interest expense (24) (27)
Interest and other income 2 –
Income tax recovery (expense) (34) 4
Net income $ 102 $ 1
These items are non-GAAP measures that do not have any standardized meaning prescribed by Canadian GAAP and therefore are unlikely to be
comparable to similar measures presented by other companies. Refer to the Supplemental Non-GAAP Measures section on page 45 for a
description of each non-GAAP measure and a reconciliation to the most comparable GAAP measure.
Management’s Discussion €: Analysis Annual Report 2010 METHANEX 15
For the year ended December 31, 2010, we recorded Adjusted EBITDA of $267 million and net income of $102 million ($1.09
per share on a diluted basis) and net income of $80 million ($0.85 per share on a diluted basis) before an after-tax gain of
$22 million related to the sale of land and terminal facilities in Kitimat, Canada. This compares with Adjusted EBITDA of
$142 million and net income of $1 million ($0.01 per share on a diluted basis) for the year ended December 31, 2009.
The following discussion on pages 16 – 20 provides a description of changes in revenue, Adjusted EBITDA, depreciation and
amortization, interest expense, interest and other income, and income taxes for 2010 compared with 2009.
Revenue
There are many factors that impact our global and regional revenue levels. The methanol business is a global commodity
industry affected by supply and demand fundamentals. Due to the diversity of the end products in which methanol is
used, demand for methanol largely depends upon levels of industrial production, the value of energy and changes in
general economic conditions, which can vary across the major international methanol markets.
Methanex Average Realized Price 2009 – 2010
400
2 300 +
<
2
3
e 200 –
100
2009 2010
Revenue for 2010 was $2.0 billion compared with $1.2 billion in 2009. The increase in revenue was primarily due to higher
methanol pricing and increased sales volumes in 2010 compared with 2009.
Entering 2010, global methanol demand had recovered to pre-recession levels. During 2010, global methanol demand was
45 million tonnes, a 13% increase over 2009. This was primarily driven by demand growth for both traditional and energy-
related derivatives in Asia (particularly China). There were also increases in demand for traditional methanol derivatives in
other regions, including Europe, Latin America and North America. In anticipation of the start-up of the new methanol
plant in Egypt, we grew our total sales volumes by approximately 16%, from 5.95 million tonnes in 2009 to 6.93 million
tonnes in 2010, and this increased our revenues by approximately $0.2 billion.
Methanol industry conditions were balanced to tight in 2010, underpinned by strong global demand growth and supply
constraints. While three new world-scale plants (in Brunei, Oman and Venezuela) with combined capacity totalling
2.8 million tonnes per year started up in 2010, there were also some shut-ins of higher cost capacity and a number of
planned and unplanned plant outages across the industry. These factors, combined with the continuing higher energy
price environment, led to tight market conditions and a strong methanol pricing environment throughout 2010. Our
average realized price in 2010 was $306 per tonne compared with $225 per tonne in 2009, and this increased our revenues
by approximately $0.6 billion.
The methanol industry is highly competitive and prices are affected by supply and demand fundamentals. We publish
non-discounted reference prices for each major methanol market and offer discounts to customers based on various
factors. Our average non-discounted published reference price for 2010 was $356 per tonne compared with $252 per tonne
in 2009. Our average realized price was approximately 14% and 11% lower than our average non-discounted published
reference price for 2010 and 2009, respectively.
We have entered into long-term contracts for a portion of our production volume with certain global customers where
prices are either fixed or linked to costs plus a margin. Sales under these contracts represented approximately 8% of our
total sales volumes in 2010 compared with 19% of our total sales volumes in 2009. The difference between our average
non-discounted published reference price and our average realized price is expected to narrow during periods of lower
pricing.
16 METHANEX Annual Report 2010 Management’s Discussion 8; Analysis
Distribution of Revenue
The distribution of revenue for 2010 and 2009 ¡sas follows:
($ MILLIONS, EXCEPT WHERE NOTED) 2010 2009
Canada $ 142 7% $ 106 9%
United States 470 24% 355 30%
Europe 454 23% 198 17%
China 351 18% 195 16%
Korea 216 1% 136 1%
Other Asia 127 6% 83 1%
Latin America 207 1% 125 10%
$ 1967 100% $ 1198 100%
The primary changes in the distribution of our revenue in 2010 compared with 2009 were an increase in the proportion of
revenues earned in Europe and Asia and a decrease in the proportion of revenues earned in North America. This is primarily
due to growth in sales volumes in Europe and China, with sales volumes remaining relatively flat in North America in 2010
compared with 2009. Revenue in Europe increased as a proportion of our total revenue in 2010 compared with 2009 by
6%, primarily as a result of our initiative to grow sales in this region in anticipation of the start-up of the 1.26 million tonne
per year methanol facility in Egypt. We also grew sales volumes in China, resulting in a 2% increase in the proportion of
total revenue earned in China in 2010 compared with 2009. China continues to play an important role in the methanol
industry as a substantial producer and consumer. A key part of our global leadership strategy is to increase our presence in
China and the Asia Pacific region.
Adjusted EBITDA
We review our results of operations by analyzing changes in the components of Adjusted EBITDA. In addition to the
methanol that we produce at our facilities, we also purchase and re-sell methanol produced by others and we sell
methanol on a commission basis. We analyze the results of all methanol sales together. The key drivers of change in our
Adjusted EBITDA are average realized price, sales volume and cash costs (refer to the How We Analyze Our Business section
on page 12 for more information).
2010 Adjusted EBITDA was $267 million compared with $142 million in 2009. The increase in Adjusted EBITDA of $125
million resulted from changes in the following:
($ MILLIONS) 2010 vs. 2009
Average realized price $ 520
Sales volume 62
Total cash costs (457)
Increase in Adjusted EBITDA $ 125
1 Includes cash costs related to both Methanex-produced methanol and purchased methanol, as well as consolidated selling, general and
administrative expenses and fixed storage and handling costs.
Average Realized Price
Our average realized price for the year ended December 31, 2010 was $306 per tonne compared with $225 per tonne for
2009, and this increased our revenues by $520 million (refer to the Revenue section on page 16 for more information).
Sales Volumes
Total methanol sales volumes, excluding commission sales volumes, for the year ended December 31, 2010 were 1.11 million
tonnes higher than in 2009, which resulted in higher Adjusted EBITDA of $62 million.
Total Cash Costs
The primary driver of changes in our total cash costs are changes in the cost of methanol we produce at our facilities and
changes in the cost of methanol we purchase from others. Our production facilities are underpinned by natural gas
purchase agreements with pricing terms that include base and variable price components. We supplement our production
with methanol produced by others through methanol offtake contracts and purchases on the spot market to meet
Management’s Discussion €: Analysis Annual Report 2010 METHANEX 17
customer needs and support our marketing efforts within the major global markets. We have adopted the first-in, first-out
method of accounting for inventories and it generally takes between 30 and 60 days to sell the methanol we produce or
purchase. Accordingly, the changes in Adjusted EBITDA as a result of changes in natural gas costs and purchased methanol
costs will depend on changes in methanol pricing and the timing of inventory flows.
Cash costs for produced methanol and purchased methanol were $457 million higher in 2010 than in 2009. The primary
changes in cash costs were as follows:
($ MILLIONS) 2010 vs. 2009
Natural gas costs on sales of produced methanol $ 98
Purchased methanol costs 223
Proportion of purchased methanol sales 90
Stock-based compensation 19
Other, net 21
Increase in total cash costs $ 457
Natural gas costs on sales of produced methanol
Natural gas is the primary feedstock at our methanol production facilities and is the most significant component of our
cost structure. The natural gas supply contracts for our production facilities in Chile, Trinidad and New Zealand include
base and variable price components to reduce our commodity price risk exposure. The variable price component of each
gas contract is adjusted by a formula related to methanol prices above a certain level. We believe this pricing relationship
enables these facilities to be competitive throughout the methanol price cycle. The higher average methanol prices in 2010
increased our natural gas costs per tonne for produced methanol and this increased cash costs by approximately $98
million compared with 2009. For additional information regarding our natural gas agreements refer to the Summary of
Contractual Obligations and Commercial Commitments section on page 24.
Purchased methanol costs
A key element of our corporate strategy is global leadership, and as such we have built a leading market position in each of
the major global markets where methanol is sold. We supplement our production with purchased methanol through
methanol offtake contracts and on the spot market to meet customer needs and support our marketing efforts within the
major global markets. In structuring offtake agreements, we look for opportunities that provide synergies with our
existing supply chain and market position. Our strong global supply chain allows us to take advantage of unique
opportunities to add value through logistics cost savings and purchase methanol in the lowest-cost region. The cost of
purchased methanol consists principally of the cost of the methanol itself, which is directly related to the price of
methanol at the time of purchase. The higher average methanol prices in 2010 increased the cost of purchased methanol
pertonne and this increased cash costs by approximately $223 million compared with 2009.
Proportion of purchased 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 produced methanol. Accordingly, an increase in the proportion of
purchased methanol sales results in an increase in our overall cost structure for a given period. The proportion of
purchased methanol sales for the year ended December 31, 2010 was higher compared with 2009 and this increased cash
costs by $89 million. The increase in the proportion of purchased methanol sales in 2010 compared with 2009 was
primarily due to the increase in sales volumes in anticipation of the start-up of the Egypt methanol facility. When the
Egypt and Medicine Hat methanol facilities commence production in 2011, we expect the proportion of purchased
methanol to decrease.
Stock-based compensation
We grant stock-based awards as an element of compensation. Stock-based awards granted include stock options, share
appreciation rights or tandem share appreciation rights, deferred share units, restricted share units and performance
share units.
18 METHANEX Annual Report 2010 Management’s Discussion 8: Analysis
For stock options, the cost is measured based on an estimate of the fair value at the date of grant and this grant-date fair
value is recognized as compensation expense over the related service period. Accordingly, stock-based compensation
expense associated with stock options will not vary significantly from period to period. Commencing in 2010, we granted
share appreciation rights (SARs) and tandem share appreciation rights (TSARs) to replace grants of stock options as a result
of our initiative to reduce dilution to shareholders. SARs and TSARs are units that grant the holder the right to receive a
cash payment upon exercise for the difference between the market price of the Company’s common shares and the
exercise price, which is determined at the date of grant. SARs and TSARs are measured based on the intrinsic value, which
is defined as the amount by which the market value of common shares exceeds the exercise price.
Deferred, restricted and performance share units are grants of notional common shares that are redeemable for cash upon
vesting based on the market value of the Company’s common shares and are non-dilutive to shareholders. Performance
share units have an additional feature where the ultimate number of units that vest will be determined by the Company’s
total shareholder return in relation to a predetermined target over the period to vesting. The number of units that will
ultimately vest will be in the range of 50% to 120% of the original grant. For deferred, restricted and performance share
units, the fair value is initially measured at the grant date and subsequently remeasured based on the market value of
common shares.
For all the stock-based awards with the exception of stock options, the initial value and any subsequent change in value due
to changes in the market value of common shares is recognized in earnings over the related service period forthe proportion
of the service that has been rendered at each reporting date. Accordingly, stock-based compensation associated with these
stock-based awards may vary significantly from period to period as a result of changes in the share price.
Stock-based compensation expense for the year ended December 31, 2010 was $31 million compared with $12 million for
2009. The increase in stock-based compensation of $19 million during 2010 was primarily due to the impact of the increase
in the share price during the year from $19.49 per share to $30.40 per share. This resulted in a higher charge of
approximately $13 million from an increase in the fair value of deferred, restricted and performance share units and a
higher charge of approximately $3 million related to the value of SARs and TSARs. Additionally, the increase in share price
resulted in a higher charge of approximately $3 million due to an increase in the estimated number of performance share
units that will ultimately vest.
Other, net
Our investment in global distribution and supply infrastructure includes a dedicated fleet of ocean-going vessels. We
utilize these vessels to enhance value to customers by providing reliable and secure supply and to optimize supply chain
costs overall. Due to the significant reduction of production levels in Chile since mid-2007, we have had excess shipping
capacity that is subject to fixed time charter costs. We have been successful in mitigating some of these costs by entering
into sub-charters and third-party backhaul arrangements. However, excess capacity in the global tanker market over the
last two years has made it more difficult to mitigate these costs. For the year ended December 31, 2010 compared with
2009, ocean freight and other logistics costs were higher by $16 million primarily as a result of lower backhaul cost
recoveries and higher bunker fuel costs.
Selling, general and administrative expenses were higher by $11 million in 2010 compared with 2009 as a result of higher
costs associated with employee training, travel and other initiatives combined with the negative impact of the weakening
US dollar in 2010 on costs incurred in other currencies. Selling, general and administrative costs returned to more
normalized levels in 2010 following spending deferrals and reductions in 2009 as a result of economic recession.
Depreciation and Amortization
Depreciation and amortization was $131 million for the year ended December 31, 2010 compared with $118 million for 2009.
The increase in depreciation and amortization expense for 2010 compared with 2009 was primarily due to the inclusion of
depletion charges associated with our oil and gas investment in Chile. Upon receipt of final approval from the Government
of Chile in late 2009, we adopted the full cost methodology for accounting for oil and gas exploration costs associated
with our 50% participation in the Dorado Riquelme block in southern Chile (refer to the Production Summary section on
page 13 for more information). Under these accounting standards, cash investments in the block are initially capitalized
and are recorded to earnings through non-cash depletion charges as natural gas is produced from the block.
Management’s Discussion €: Analysis Annual Report 2010. METHANEX 19
Interest Expense
($ MILLIONS) 2010 2009
Interest expense before capitalized interest $ 62 $ 60
Less capitalized interest related to Egypt plant under construction (38) (83)
Interest expense $ 24 $ 27
Interest expense before capitalized interest in 2010 was $62 million compared with $60 million in 2009. Interest expense
before capitalized interest was higher in 2010 primarily as a result of higher debt balances related to our methanol project
in Egypt. We have limited recourse debt facilities of $530 million for this 1.26 million tonne per year methanol facility that
we are developing with partners. Interest costs related to the project are capitalized.
Interest and Other Income
Interest and other income for the year ended December 31, 2010 was $2 million compared with nil for 2009. The increase in
interest and other income during 2010 compared with 2009 was primarily due to the impact of changes in foreign
exchange rates.
Income Taxes
We recorded an income tax expense of $34 million for the year ended December 31, 2010 compared with an income tax
recovery of $4 million for 2009. The effective tax rate for the year ended December 31, 2010 was approximately 25%.
Included in income before tax for 2010 was a before and after-tax gain of $22.2 million on the sale of our land and terminal
assets in Kitimat, Canada. Excluding this item, the effective tax rate for 2010 was approximately 30%.
The statutory tax rate in Chile and Trinidad, where we earn a substantial portion of pre-tax earnings, is 35%. Our Atlas
facility in Trinidad has partial relief from corporate income tax until 2014. In Chile, the tax rate consists of a first tier tax
that is payable when income is earned and a second tier tax that is due when earnings are distributed from Chile. The
second category tax is initially recorded as future income tax expense and is subsequently reclassified to current income
tax expense when earnings are distributed. Accordingly, the ratio of current income tax expense to total income tax
expense is highly dependent on the level of cash distributed from Chile.
For additional information regarding income taxes, refer to note 13 of our 2010 consolidated financial statements.
20 METHANEX Annual Report 2010 Management’s Discussion €: Analysis
LIQUIDITY AND CAPITAL RESOURCES
($ MILLIONS) 2010 2009
Cash flows from operating activities:
Cash flows from operating activities” $ 252 $ 128
Changes in non-cash working capital (99) (18)
153 To
Cash flows from investing activities:
Property, plant and equipment (58) (61)
Egypt plant under construction (86) (262)
Oil and gas assets (24) (23)
GeoPark financing, net 20 (9)
Proceeds on sale of assets 32 –
Other, net 0) 3
Changes in non-cash working capital (2) (28)
(19) (380)
Cash flows from financing activities:
Dividend payments (57) (57)
Proceeds from limited recourse debt 68 151
Equity contributions by non-controlling interest 23 45
Repayment of limited recourse debt 1€1)) (15)
Settlements on interest rate swap contracts (16) (6)
Proceeds on issue of shares on exercise of stock options 9 =-
Other, net (6) (6)
(10) 12
Increase (decrease) in cash and cash equivalents 24 (158)
Cash and cash equivalents, end of year $ 194 $ 170
1 Before changes in non-cash working capital.
Cash Flow Highlights
Cash Flows from Operating Activities
Cash flows from operating activities for the year ended December 31, 2010 were $153 million compared with $110 million for
2009. The change in cash flows from operating activities is explained by changes in Adjusted EBITDA after excluding
non-cash expenses such as stock-based compensation expense and other items (net of any related cash payments), and
changes in interest expense, interest and other income, current taxes and non-cash working capital. The following table
provides a summary of these items for 2010 and 2009.
($ MILLIONS) 2010 2009
Adjusted EBITDA $ 267 $ 142
Stock-based compensation expense 31 1
Other non-cash items (net of cash payments) 2 (4)
Interest expense (24) (27)
Interest and other income 3 –
Current taxes (27) 6
252 129
Changes in non-cash working capital:
Receivables (62) (43)
Inventories (55) 5
Prepaid expenses 6) (7)
Accounts payable and accrued liabilities 21 26
(99) (19)
Cash flows from operating activities $ 153 $ no
Cash flows from operating activities before changes in non-cash working capital for the year ended December 31, 2010
were $252 million compared with $129 million for 2009. Adjusted EBITDA was higher by $125 million for the year ended
Management’s Discussion 8: Analysis Annual Report 2010 METHANEX 21
December 31, 2010 compared with 2009 and this was the primary driver of the increase in cash flows from operating
activities before changes in non-cash working capital (refer to the Adjusted EBITDA section on page 17 for a discussion of
changes in Adjusted EBITDA). Non-cash stock-based compensation expense included in Adjusted EBITDA for the year
ended December 31, 2010 was higher compared with 2009 by $19 million primarily due to the impact of the increase in our
share price during 2010 (refer to the Stock-based Compensation section on page 18 for more information). Cash flows from
operating activities were lower by $33 million for the year ended December 31, 2010 compared with 2009 due to higher
current taxes as a result of higher income levels in 2010.
For the year ended December 31, 2010, non-cash working capital increased by $99 million, resulting in a decrease in cash
flows from operating activities. The primary changes in non-cash working capital for 2010 were increases in receivables
and inventories of $62 million and $55 million, respectively, offset by an increase in accounts payable and accrued liabilities
of $21 million. The increase in receivables was primarily due to the impact of higher methanol pricing and higher sales
volumes on trade receivables at December 31, 2010 compared with December 31, 2009. The increase in inventories was also
primarily due to the impact of higher methanol pricing on both produced and purchased ending inventory as well as
higher ending inventory volumes at December 31, 2010 compared with December 31, 2009. During 2010, we grew total
sales volumes by approximately 16% from 5.95 million tonnes in 2009 to 6.93 million tonnes in 2010, and as a result we
had a higher volume of trade receivables and higher ending inventory at December 31, 2010 compared with December 31,
2009 to support these sales. The increase in accounts payable and accrued liabilities at December 31, 2010 compared with
December 31, 2009 was primarily as a result of the impact of higher methanol pricing on natural gas payables and the
timing of other payments.
Cash Flows from Investing Activities
In 2010, our priorities for allocating capital were funding the completion of the methanol project in Egypt, supporting
natural gas development in Chile and investing to maintain the reliability of our existing plants.
During 2010, additions to property, plant and equipment, which include turnarounds, catalyst and other capital
expenditures, were $58 million. This includes approximately $12 million associated with major maintenance activities at
our Trinidad facilities with the remaining capital expenditure of approximately $27 million relating primarily to
maintenance costs at our plants in Chile and New Zealand. In 2010, approximately $10 million was also incurred for the
restart of our Medicine Hat, Alberta plant. Included in additions to property, plant and equipment for 2010 is $9 million for
the acquisition of an ocean-going vessel that we acquired through a 50% interest in a joint venture.
During 2010, total capital expenditures were $86 million for the development and construction of the 1.26 million tonne
per year methanol plant in Egypt.
We have an agreement with ENAP to invest in natural gas exploration and development in the Dorado Riquelme
exploration block in southern Chile. Under the arrangement, we fund a 50% participation in the block and receive 100% of
the natural gas produced in the block. In 2010, we contributed $24 million and to December 31, 2010, we had made total
contributions of approximately $86 million.
We also have agreements with GeoPark under which we have provided $57 million in financing to support and accelerate
GeoPark’s natural gas exploration and development activities in southern Chile. During 2010, GeoPark repaid
approximately $20 million of this financing, $15 million of which was funded through proceeds of a debt financing,
bringing cumulative repayments for this financing to $32 million as at December 31, 2010. We have no further obligations
to provide funding to GeoPark.
During 2010, we sold our land and terminal facilities at the Kitimat, Canada site and received proceeds from this sale of
$32 million.
We are pursuing natural gas exploration and development opportunities in New Zealand. During 2010, we entered into an
agreement with Kea to explore areas of the Taranaki basin in New Zealand close to our plants. Under the agreement,
funding will be shared 50% by both parties, and we will be entitled to all natural gas deliveries from our participation at a
price that is competitive to our other locations in Trinidad, Chile and Egypt. During 2010, we spent approximately
$10 million on exploration activities with Kea.
22 METHANEX Annual Report 2010 Management’s Discussion €: Analysis
During 2010, we sold our 20% equity interest in Xinneng (Zhangjiagang) Energy Co. Ltd, a company that owns a DME
production facility in China, for approximately $10 million to the ENN Group with no gain or loss on sale. Under the
arrangement, we continue to supply all of the methanol requirements for the DME facility under an exclusive supply
arrangement.
Cash Flows from Financing Activities
During 2010, we paid our regular quarterly dividend of $0.155 per share and made total dividend payments of $57 million,
the same amount as in 2009.
We own 60% of the 1.26 million tonne per year Egypt methanol facility and we account for this investment using
consolidation accounting, which results in 100% of the assets and liabilities being included in our financial statements
with the other investors’ interest in the project being presented as “non-controlling interest”. We have limited recourse
debt facilities totalling $530 million for the methanol facility in Egypt. During 2010, a total of $58 million of this limited
recourse debt was drawn for construction activities and a total of $23 million was funded by equity contributions from our
partners in the project. At December 31, 2010, the full amount of $530 million had been drawn under these facilities. The
remaining proceeds on limited recourse debt of $10 million relates to debt facilities obtained on the acquisition of an
ocean-going vessel during 2010.
We repaid $15 million in principal on our Atlas and other limited recourse debt facilities in each of 2010 and 2009. On
September 30, 2010, we also made the first debt principal payment of $16 million on the Egypt limited recourse debt
facilities.
The Egypt limited recourse debt facilities bear interest at LIBOR plus a spread. We have entered into interest rate swap
contracts to swap the LIBOR-based interest payments for an average aggregated fixed rate of 4.8% plus a spread on
approximately 75% of the Egypt limited recourse debt facilities for the period to March 31, 2015 (refer to the Financial
Instruments section on page 26 for more information). The cash settlements associated with these interest rate swap
contracts during 2010 and 2009 were approximately $16 million and $6 million, respectively.
During 2010, we received proceeds of $9 million on the issue of o.5 million common shares on the exercise of stock options.
Liquidity and Capitalization
We maintain conservative financial policies and focus on maintaining our financial strength and flexibility through
prudent financial management. Our objectives in managing liquidity and capital are to provide financial capacity and
flexibility to meet our strategic objectives, to provide an adequate return to shareholders commensurate with the level of
risk and to return excess cash through a combination of dividends and share repurchases.
The following table provides information on our liquidity and capitalization position as at December 31, 2010 and
December 31, 2009, respectively:
($ MILLIONS, EXCEPT WHERE NOTED) 2010 2009
Liquidity:
Cash and cash equivalents $ 194 $ 170
Undrawn Egypt limited recourse debt facilities – 58
Undrawn credit facilities 200 200
Total liquidity $ 394 $ 428
Capitalization:
Unsecured notes $ 348 $ 347
Limited recourse debt facilities, including current portion 599 567
Total debt 947 914
Non-controlling interest 146 133
Shareholders’ equity 1,277 1,236
Total capitalization $ 2,370 $ 2,283
Total debt to capitalization’ 40% 40%
Net debt to capitalization? 35% 35%
1 Defined as total debt divided by total capitalization.
2 Defined as total debt less cash and cash equivalents divided by total capitalization less cash and cash equivalents.
Management’s Discussion €: Analysis Annual Report 2010. METHANEX 23
We manage our liquidity and capital structure and make adjustments to it in light of changes to economic conditions, the
underlying risks inherent in our operations and the capital requirements to maintain and grow our business. The
strategies we employ include the issue or repayment of general corporate debt, the issue of project debt, the issue of
equity, the payment of dividends and the repurchase of shares.
We are not subject to any statutory capital requirements and have no commitments to sell or otherwise issue common
shares except pursuant to outstanding employee stock options.
We operate in a highly competitive commodity industry and believe that it is appropriate to maintain a conservative
balance sheet and retain financial flexibility. At December 31, 2010, we had a strong balance sheet with a cash balance of
$194 million, a $200 million undrawn credit facility and no re-financing requirements until mid-2012. We invest cash only
in highly rated instruments that have maturities of three months or less to ensure preservation of capital and appropriate
liquidity.
At December 31, 2010, our long-term debt obligations included $350 million in unsecured notes ($200 million that matures
in 2012 and $150 million that matures in 2015), $514 million related to the Egypt limited recourse debt facilities and
$81 million related to our Atlas limited recourse debt facilities.
We have covenant and default provisions on our long-term debt obligations, including certain conditions of the Egypt
limited recourse debt facilities associated with completion of plant construction and commissioning. We also have certain
covenants that could restrict access to the credit facility. For additional information regarding long-term debt, refer to
note 8 of our consolidated financial statements.
Our planned capital maintenance expenditures directed towards major maintenance, turnarounds and catalyst changes
for current operations are estimated to be approximately $80 million for the period to the end of 2012.
The estimated capital cost to restart the Medicine Hat plant is approximately $40 million, of which $10 million was
incurred in 2010 and the remaining $30 million is expected to be incurred in the first half of 2011.
As previously discussed, we are focused on accessing natural gas to increase production at our existing sites in Chile and
New Zealand. We are working with ENAP in the Dorado Riquelme block in southern Chile and with Kea in the Taranaki
basin in New Zealand. For 2011, we expect our share of total contributions for oil and gas exploration and development in
Chile and New Zealand to be approximately $60-70 million.
We believe we are well positioned to meet our financial commitments and continue to invest to grow our business.
Summary of Contractual Obligations and Commercial Commitments
A summary of the estimated amount and estimated timing of cash flows related to our contractual obligations and
commercial commitments as at December 31, 2010 is as follows:
($ MILLIONS) 2011 2012-2013 2014-2015 AFTER 2015 TOTAL
Long-term debt repayments $ 50 309 254 352 $ 965
Long-term debt interest obligations 57 81 48 54 240
Repayment of other long-term liabilities 21 34 4 46 105
Natural gas and other 237 390 262 1,424 2,313
Operating lease commitments 142 241 162 409 954
$ 507 1,055 730 2,285 $ 4577
The above table does not include costs for planned capital maintenance expenditures, costs for purchased methanol under
offtake contracts or any obligations with original maturities of less than one year. We have supply contracts with
Argentinean suppliers for natural gas sourced from Argentina for a significant portion of the capacity of our facilities in
Chile. These contracts have expiration dates between 2017 and 2025 and represent a total potential future commitment of
approximately $1 billion at December 31, 2010. We have excluded these potential purchase obligations from the table
above. Since June 2007, our natural gas suppliers from Argentina have curtailed all gas supply to our plants in Chile in
response to various actions by the Argentinean government, including imposing a large increase to the duty on natural
gas exports. Under the current circumstances, we do not expect to receive any further natural gas supply from Argentina.
Long-Term Debt Repayments and Interest Obligations
We have $200 million of unsecured notes that mature in 2012 and $150 million of unsecured notes that mature in 2015.
The remaining debt repayments represent the total expected principal repayments relating to the Egypt project debt, our
24 METHANEX Annual Report 2010 Management’s Discussion 8: Analysis
proportionate share of total expected principal repayments related to the Atlas limited recourse debt facilities. Interest
obligations related to variable interest rate long-term debt were estimated using current interest rates in effect at
December 31, 2010. For additional information, refer to note 8 of our 2010 consolidated financial statements.
Repayments of Other Long-Term Liabilities
Repayments of other long-term liabilities represent contractual payment dates or, if the timing is not known, we have
estimated the timing of repayment based on management’s expectations.
Natural Gas and Other
We have commitments under take-or-pay contracts to purchase annual quantities of natural gas and to pay for
transportation capacity related to this natural gas. We also have take-or-pay contracts to purchase oxygen and other
feedstock requirements. Take-or-pay means that we are obliged to pay for the supplies regardless of whether we take
delivery. Such commitments are in the methanol industry. These contracts generally provide a quantity that is subject to
take-or-pay terms that is lower than the maximum quantity that we are entitled to purchase. The amounts disclosed in
the table represent only the minimum take-or-pay quantity.
Most of the natural gas supply contracts for our facilities in Chile, Trinidad, New Zealand and the natural gas supply
contract for the new methanol plant in Egypt are take-or-pay contracts denominated in United States dollars and include
base and variable price components to reduce our commodity price risk exposure. The variable price component of each
natural gas contract is adjusted by a formula related to methanol prices above a certain level. We believe this pricing
relationship enables these facilities to be competitive at all points in the methanol price cycle and provides gas suppliers
with attractive returns. The amounts disclosed in the table for these contracts represent only the base price component.
In support of the restart of the Medicine Hat plant, we commenced a program to purchase natural gas on the Alberta gas
market and have contracted sufficient volumes of natural gas to meet 80% of our requirements when operating at
capacity for the period from start-up to October 2012. In the above table, we have included these natural gas commitments
at the contractual volumes and prices.
The natural gas commitments for our Chile facilities included in the above table relate to our natural gas contracts with
ENAP, the Chilean state-owned energy company. These contracts represent approximately 20% of the natural gas
requirements for our Chile facilities operating at capacity. These contracts have a base component and variable price
component determined with reference to 12-month trailing average published industry methanol prices and have
expiration dates that range from 2017 to 2025. Under these contracts with ENAP, we have rights to receive quantities of
“make-up gas” if ENAP fails to deliver quantities of gas that it is obligated to deliver to us. Over the past few years, ENAP
has delivered less than the full amount of natural gas that it was required to deliver under these contracts.
We have an agreement with ENAP to accelerate natural gas exploration and development in the Dorado Riquelme
exploration block in southern Chile. Under the arrangement, we fund a 50% participation in the block and take all natural
gas produced from the block. We also have an arrangement with GeoPark to purchase all natural gas produced by GeoPark
from the Fell block in southern Chile for a 10-year period. The pricing under this arrangement has a base component and a
variable component determined with reference to a three-month trailing average of methanol prices. We cannot
determine the amount of natural gas that will be purchased under these agreements in the future, and accordingly, no
amounts have been included in the above table.
In Trinidad, we also have take-or-pay supply contracts for natural gas, oxygen and other feedstock requirements and these
are included in the above table. The variable component of our natural gas contracts in Trinidad is determined with
reference to average published industry methanol prices each quarter and the base prices increase over time. The natural
gas and oxygen supply contracts for Titan and Atlas expire in 2014 and 2024, respectively.
In New Zealand, we have take-or-pay supply contracts that have a variable pricing component and these are included in
the above table. These contracts are with a number of suppliers, which, together with some spot purchases of natural gas,
will enable us to continue operating our 0.85 million tonne per year Motunui plant until the end of 2012.
We have a 25 year, take-or-pay natural gas supply agreement for a 1.26 million tonne per year methanol plant that we have
constructed in Egypt. The plant is in the commissioning phase and produced first methanol in January 2011. In March 201,
EGAS (the gas supplier to EMethanex) requested us to enter into discussions concerning the gas supply agreement based
Management ‘s Discussion €: Analysis Annual Report 2010 METHANEX 25
on a 2008 government declaration concerning natural gas pricing. The Company met with EGAS concerning this issue and
based on these discussions, we do not believe that this issue will result in a material adverse impact on the anticipated
results of operations from the Egypt plant or on our financial position. Any ultimate outcome of this issue would be
subject to ratification by various parties.
We have marketing rights for 100% of the production from our jointly owned plants (the Atlas plant in Trinidad in which
we have a 63.1% interest and the new plant in Egypt in which we have a 60% interest), which results in purchase
commitments of an additional 1.17 million tonnes per year of methanol offtake supply when these plants operate at
capacity. At December 31, 2010, we also have annual methanol purchase commitments with other suppliers under offtake
contracts for approximately 0.38 million tonnes for 2011 and approximately 0.27 million tonnes for 2012. The pricing under
the purchase commitments related to our 100% marketing rights from our jointly owned plants and the purchase
commitments with other suppliers is referenced to pricing at the time of purchase or sale, and accordingly, no amounts
have been included in the above table.
Operating Lease Commitments
The majority of these commitments relate to time charter vessel agreements with terms of up to 15 years. Time charter
vessels typically meet most of our ocean shipping requirements.
Off-Balance Sheet Arrangements
At December 31, 2010, we did not have any off-balance sheet arrangements, as defined by applicable securities regulators
in Canada and the United States, that have, or are reasonably likely to have, a current or future material effect on our
results of operations or financial condition.
Financial Instruments
A financial instrument is any contract that gives rise to a financial asset of one party and a financial liability or equity
instrument of another party. 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 balance sheet at fair value. From time to
time we enter into derivative financial instruments to limit our exposure to foreign exchange volatility and to variable
interest rate volatility and to contribute towards achieving cost structure and revenue targets. Until settled, the fair value
of derivative financial instruments will fluctuate based on changes in foreign exchange rates and variable interest rates.
Derivative financial instruments are classified as held for trading and are recorded on the balance sheet at fair value unless
exempted. Changes in fair value of derivative financial instruments are recorded in earnings unless the instruments are
designated as cash flow hedges.
The following table shows the carrying value of each of our categories of financial assets and liabilities and the related
balance sheet item as at December 31, 2010 and December 31, 2009, respectively:
($ MILLIONS) 2010 2009
Financial assets:
Held for trading financial assets:
Cash and cash equivalents $ 194 $ 170
Debt service reserve accounts included in other assets 1 E
Loans and receivables:
Receivables, excluding current portion of GeoPark financing 316 249
GeoPark financing, including current portion 26 46
$ 548 $ 478
Financial liabilities:
Other financial liabilities:
Accounts payable and accrued liabilities $ 251 $ 233
Long-term debt, including current portion 947 914
Held for trading financial liabilities:
Derivative instruments designated as cash flow hedges 43 33
$ 1241 $ 1180
26 METHANEX Annual Report 2010 Management’s Discussion €: Analysis
At December 31, 2010, all of the financial instruments were recorded on the balance sheet at amortized cost with the
exception of cash and cash equivalents, derivative financial instruments and debt service reserve accounts included in
other assets, which were recorded at fair value.
The Egypt limited recourse debt facilities bear interest at LIBOR plus a spread. We have entered into interest rate swap
contracts to swap the LIBOR-based interest payments for an average aggregated fixed rate of 4.8% plus a spread on
approximately 75% of the Egypt limited recourse debt facilities for the period to March 31, 2015.
These interest rate swaps had outstanding notional amounts of $368 million as at December 31, 2010. The notional
amount decreases over the expected repayment of the Egypt limited recourse debt facilities. At December 31, 2010, these
interest rate swap contracts had a negative fair value of $43 million (December 31, 2009 – $33 million) recorded in other
long-term liabilities. The fair value of these interest rate swap contracts will fluctuate until maturity. Changes in the fair
value of derivative financial instruments designated as cash flow hedges have been recorded in other comprehensive
income.
RISK FACTORS AND RISK MANAGEMENT
We are subject to risks that require prudent risk management. We believe the following risks, in addition to those
described in the Critical Accounting Estimates section on page 35, to be among the most important for understanding the
issues that face our business and our approach to risk management.
Security of Natural Gas Supply and Price
We use natural gas as the principal feedstock for producing methanol and it accounts for a significant portion of our
operating costs. Accordingly, our results from operations depend in large part on the availability and security of supply and
the price of natural gas. If, for any reason, we are unable to obtain sufficient natural gas for any of our plants on
commercially acceptable terms or we experience interruptions in the supply of contracted natural gas, we could be forced
to curtail production or close such plants, which could have an adverse effect on our results of operations and financial
condition.
Chile
We have four methanol plants in Chile with a total production capacity of 3.8 million tonnes per year. Although we have
long-term natural gas supply contracts in place that entitle us to receive a significant quantity of our total natural gas
requirements in Chile from suppliers in Argentina, these suppliers have curtailed all gas supply to our plants in Chile since
June 2007 in response to various actions by the Argentinean government that include imposing a large increase to the
duty on natural gas exports from Argentina. Since then we have been operating our Chile facilities significantly below site
capacity. We are not aware of any plans by the Government of Argentina to decrease or remove this duty. Under the
current circumstances, we do not expect to receive any further natural gas supply from Argentina.
Over the past few years, ENAP, our primary supplier in Chile, has delivered less than the full amount of natural gas that it
was obligated to deliver to us primarily due to declines in the production rates of existing wells. The shortfalls in natural
gas deliveries from ENAP are generally greater in the southern hemisphere winter due to the need to satisfy increased
demand for residential uses in the region. We are focused on sourcing additional gas supply for our Chile facilities from
suppliers in Chile as discussed in more detail in the Production Summary – Chile section on page 14 of this document. We
are pursuing investment opportunities with ENAP, GeoPark and others to help accelerate natural gas exploration and
development in southern Chile. In addition, the Government of Chile completed an international bidding round in 2007 to
assign natural gas exploration areas that lie close to our production facilities and announced the participation of several
international oil and gas companies.
As we entered 2011, we were operating one plant at approximately 65% capacity at our Chile site. The future operating rate
of our Chile site is primarily dependent on demand for natural gas for residential purposes, which is higher in the southern
hemisphere winter, production rates from existing natural gas fields, and the level of natural gas deliveries from future
exploration and development activities in southern Chile. We cannot provide assurance regarding the production rates
from existing natural gas fields or that we, ENAP, GeoPark or others will be successful in the exploration and development
of natural gas or that we will obtain any additional natural gas from suppliers in Chile on commercially acceptable terms.
As a result, we cannot provide assurance over changes in the level of natural gas supply or that we will be able to source
sufficient natural gas to operate any capacity in Chile and that this will not have an adverse impact on our results of
operations and financial condition.
Management’s Discussion 8: Analysis Annual Report 2010. METHANEX 27
Trinidad
Natural gas for our two methanol production facilities in Trinidad, with a total production capacity of 2.05 million tonnes
per year, is supplied under long-term contracts with The National Gas Company of Trinidad and Tobago Limited. The
contracts for Titan and Atlas expire in 2014 and 2024, respectively. Although Titan and Atlas are located close to other
natural gas reserves in Trinidad, which we believe we could access after the expiration of these natural gas supply
contracts, we cannot provide assurance that we would be able to secure access to such natural gas under long-term
contracts on commercially acceptable terms.
New Zealand
We have three plants in New Zealand with a total production capacity of up to 2.23 million tonnes per year. Two plants are
located at Motunui and the third is located at nearby Waitara Valley. In 2004, we idled our two Motunui plants and
continued to operate the Waitara Valley plant. As a result of improvements to natural gas availability and deliverability, in
2008 we restarted one 0.85 million tonne per year plant in Motunui and idled the 0.53 million tonne per year Waitara
Valley plant. Currently, our second Motunui plant and our Waitara Valley plant provide the potential to increase
production in New Zealand depending on methanol supply and demand dynamics and the availability of natural gas on
commercially acceptable terms.
During the past few years, increased natural gas exploration and development activity in New Zealand has resulted in
improved gas availability and deliverability. We have a range of gas suppliers with short-term contracts and currently have
sufficient quantities of natural gas to operate one Motunui plant through 2011 and 2012. We continue to pursue
opportunities to obtain economically priced natural gas with suppliers in New Zealand to underpin a restart of a second
plant. We are also pursuing natural gas exploration and development opportunities in the area close to our plants and
have entered into an agreement with Kea, an oil and gas exploration and development company, to explore areas of the
Taranaki basin in New Zealand. Based on the improved outlook for natural gas in New Zealand, we are optimistic that we
can secure additional gas supply in New Zealand and restart more capacity there in the future.
The future operation of our New Zealand facilities depends on methanol industry supply and demand and the availability
of natural gas on commercially acceptable terms, and the success of ongoing exploration and development activities. We
cannot provide assurance that we will be able to secure additional gas for our facilities on commercially acceptable terms
or that the ongoing exploration and development activities in New Zealand will be successful.
Egypt
Natural gas for the 1.26 million tonne per year production facility in Egypt, which produced first methanol in January 2011,
is supplied under a single long-term contract with the government-owned Egyptian Natural Gas Holding Company
(EGAS). Gas will be supplied to this facility from the same gas delivery grid infrastructure that supplies other industrial
users in Egypt, as well as the general Egyptian population and, accordingly, the natural gas supplied under this long-term
contract could be impacted by the supply and demand balance of natural gas in Egypt. There can be no assurance that we
will not experience curtailments of natural gas supply, which could have an adverse impact on our results of operations
and financial condition.
Refer also to the Foreign Operations section on page 31.
Canada
We are nearing completion of the project to restart our 0.47 million tonne per year idled facility in Medicine Hat, Alberta,
Canada. In support of the restart, which is expected in the second quarter of 2011, we commenced a program to purchase
natural gas on the Alberta gas market and have contracted sufficient volumes of natural gas to meet 80% of our
requirements when operating at capacity for the period from start-up to October 2012. The Alberta gas market offers
substantial volumes of natural gas in a competitive market where prices can fluctuate widely.
The future operation of our Medicine Hat facility depends on our ability to secure sufficient natural gas on commercially
acceptable terms. There can be no assurance that we will be able to continue to secure sufficient natural gas for our
Medicine Hat facilities on commercially acceptable terms.
28 METHANEX Annual Report 2010 Management’s Discussion 8: Analysis
Methanol Price Cyclicality and Methanol Supply and Demand
The methanol business is a highly competitive commodity industry and prices are affected by supply and demand
fundamentals and global energy prices. Methanol prices have historically been, and are expected to continue to be,
characterized by significant cyclicality. New methanol plants are expected to be built and this will increase overall
production capacity. Additional methanol supply can also become available in the future by restarting idle methanol
plants, carrying out major expansions of existing plants or debottlenecking existing plants to increase their production
capacity. Historically, higher-cost plants have been shut down or idled when methanol prices are low but there can be no
assurance that this practice will occur in the future. Demand for methanol largely depends upon levels of global industrial
production, changes in general economic conditions and energy prices.
We are not able to predict future methanol supply and demand balances, market conditions, global economic activity,
methanol prices or energy prices, all of which are affected by numerous factors beyond our control. Since methanol is the
only product we produce and market, a decline in the price of methanol would have an adverse effect on our results of
operations and financial condition.
Global Economic Conditions
The global economic recession that began in late 2008 added significant risks and uncertainties to our business, including
risks and uncertainties related to the impact on global supply and demand for methanol, its impact on methanol prices,
changes in capital markets and corresponding effects on our investments, our ability to access existing or future credit and
increased risk of defaults by customers, suppliers and insurers. While the global economy has improved and demand for
methanol and methanol prices have recovered, there can be no assurance that this recovery will be sustained.
Liquidity Risk
We have an undrawn $200 million credit facility that expires in mid-2012. This facility is provided by highly rated financial
institutions and our ability to access the facility is subject to certain financial covenants, including an EBITDA to interest
coverage ratio and a debt to capitalization ratio, as defined.
At December 31, 2010, our long-term debt obligations include $350 million in unsecured notes ($200 million which matures
in 2012 and $150 million which matures in 2015), $514 million related to the Egypt limited recourse debt facilities and
$81 million related to our Atlas limited recourse debt facilities. The covenants governing the unsecured notes apply to the
Company and its subsidiaries excluding the Atlas joint venture and Egypt entity (“limited recourse subsidiaries”) and
include restrictions on liens and sale and lease-back transactions, or merger or consolidation with another corporation or
sale of all or substantially all of the Company’s assets. The indenture also contains customary default provisions. The Atlas
and Egypt limited recourse debt facilities are described as limited recourse as they are secured only by the assets of the
Atlas joint venture and the Egypt entity, respectively. Accordingly, the lenders to the limited recourse debt facilities have no
recourse to the Company or its other subsidiaries. The Atlas and Egypt limited recourse debt facilities have customary
covenants and default provisions that apply only to these entities, including restrictions on the incurrence of additional
indebtedness and a requirement to fulfill certain conditions before the payment of cash or other distributions. The Egypt
limited recourse debt facilities also require that certain conditions associated with completion of plant construction and
commissioning be met by no later than September 30, 2011. These conditions include a 9o-day plant reliability test and
finalization of certain land title registrations and related mortgages which require actions by governmental entities.
For additional information regarding long-term debt, refer to note 8 of our 2010 consolidated financial statements.
We cannot provide assurance that we will be able to access new financing in the future or that the financial institutions
providing the credit facility will have the ability to honour future draws. Additionally, failure to comply with any of the
covenants or default provisions could restrict our access to the credit facility or result in acceleration of payment of
outstanding principal and accrued interest on our long-term debt. Any of these factors could have a material adverse
effect on our results of operations, our ability to pursue and complete strategic initiatives or on our financial condition.
Customer Credit Risk
Most of our customers are large global or regional petrochemical manufacturers or distributors and a number are highly
leveraged. We monitor our customers’ financial status closely; however, some customers may not have the financial ability
Management’s Discussion €: Analysis Annual Report 2010 METHANEX 29
to pay for methanol in the future and this could have an adverse effect on our results of operations and financial condition.
Although credit losses have not been significant in the past, this risk still exists.
Methanol Demand
Demand for Methanol – General
Methanol is a global commodity and customers base their purchasing decisions principally on the delivered price of
methanol and reliability of supply. Some of our competitors are not dependent on revenues from a single product and
some have greater financial resources than we do. Our competitors also include state-owned enterprises. These
competitors may be better able than we are to withstand price competition and volatile market conditions.
Changes in environmental, health and safety laws, regulations or requirements could impact methanol demand. The U.S.
Environmental Protection Agency (EPA) is currently evaluating the carcinogenicity classification for methanol as part of a
standard review of chemicals under its Integrated Risk Information System (IRIS). Methanol is currently unclassified under
IRIS. A draft assessment for methanol was released by the EPA in January 2010 classifying methanol as “Likely to Be
Carcinogenic to Humans”. As of June 2010, the EPA’s methanol assessment has been placed “on hold”. Although the EPA
maintains a public target for the second quarter of 2011, we are unable to determine at this time ifand when the methanol
assessment will resume, whether the current draft classification will be maintained in the final assessment or if this will
lead other government agencies to reclassify methanol. Any reclassification could reduce future methanol demand, which
could have an adverse effect on our results of operations, financial condition or our stock price.
Demand for Methanol in the Production of Formaldehyde
In 2010, methanol demand for the production of formaldehyde represented approximately 34% of global demand. The
largest use for formaldehyde is as a component of urea-formaldehyde and phenol-formaldehyde resins, which are used as
wood adhesives for plywood, particleboard, oriented strand board, medium-density fibreboard and other reconstituted or
engineered wood products. There is also demand for formaldehyde as a raw material for engineering plastics and in the
manufacture of a variety of other products, including elastomers, paints, building products, foams, polyurethane and
automotive products.
The current EPA IRIS carcinogenicity classification for formaldehyde is “Likely to Be Carcinogenic to Humans.” However, the
EPA is reviewing this classification for formaldehyde as part of a standard review of chemicals. The final assessment of
formaldehyde is currently set for release in the third quarter of 2011.
In May 2009, the U.S. National Cancer Institute (NCI) published a report on the health effects of occupational exposure to
formaldehyde and a possible link to leukemia, multiple myeloma and Hodgkin’s disease. The NCI report concluded that
there may be an increased risk of cancers of the blood and bone marrow related to a measure of peak formaldehyde
exposure. The NCI report is the first part of an update of the 2004 NCI study that indicated possible links between
formaldehyde exposure and nasopharyngeal cancer and leukemia. The second portion of the study, which focuses on
nasopharyngeal cancer and other cancers, should appear in peer reviewed literature in 2011. The International Agency for
Research on Cancer also recently concluded that there is sufficient evidence in humans of a causal association of
formaldehyde with leukemia.
The U.S. Department of Health and Human Services” (HHS) National Toxicology Program (NTP) Report on Carcinogens
(RoC) currently lists formaldehyde as “reasonably anticipated to be a human carcinogen.” This classification is currently
under review. In April 2010, the NTP released its draft substance profile for formaldehyde with the classification “Known to
be a Human Carcinogen”. Final classification will be confirmed when the NTP releases ¡ts 12th RoC. At this time, the release
date, which was originally expected in December 2010, is uncertain.
In 2010, the U.S. Formaldehyde Standards for Composite Wood Products Act became effective. The legislation sets new
national emissions standards for formaldehyde in various wood products. These standards require a reduction in the
emissions standards for formaldehyde used in hardwood plywood, particleboard and medium-density fibreboard sold in
the United States However, most United States producers are believed to have the technology in place to meet the new
emissions requirements and we do not expect a significant impact on the demand for methanol for formaldehyde in the
United States.
30 METHANEX Annual Report 2010 Management’s Discussion €: Analysis
We are unable to determine at this time ifthe EPA, the HHS or other governments or government agencies will reclassify
formaldehyde or what limits could be imposed related to formaldehyde emissions in the United States or elsewhere. Any
such actions could reduce future methanol demand for use in producing formaldehyde, which could have an adverse
effect on our results of operations and financial condition.
Demand for Methanol in the Production of MTBE
In 2010, methanol demand for the production of MTBE represented approximately 13% of global methanol demand. MTBE
is used primarily as a source of octane and as an oxygenate for gasoline to reduce the amount of harmful exhaust
emissions from motor vehicles.
Several years ago, environmental concerns and legislative action related to gasoline leaking into water supplies from
underground gasoline storage tanks in the United States resulted in the phase-out of MTBE as a gasoline additive in the
United States. We believe that methanol has not been used in the United States to make MTBE for use in domestic fuel
blending since 2007. However, approximately 0.65 million tonnes of methanol was used in the United States in 2010 to
produce MTBE for export markets, where demand for MTBE has continued at strong levels. While we currently expect
demand for methanol for MTBE production in the United States for 201 to remain steady or to decline slightly, it could
decline materially if export demand was impacted by legislation or policy changes.
Additionally, the EPA in the United States is preparing an IRIS review of the human health effects of MTBE, including its
potential carcinogenicity, and its final report is expected to be released in the third quarter of 2011.
The European Union issued a final risk assessment report on MTBE in 2002 that permitted the continued use of MTBE,
although several risk reduction measures relating to the storage and handling of fuels were recommended. Governmental
efforts in recent years in some countries, primarily in the European Union and Latin America, to promote biofuels and
alternative fuels through legislation or tax policy are putting competitive pressures on the use of MTBE in gasoline in these
countries. However, due to strong MTBE demand in other countries, we have observed methanol demand growth for
MTBE production. We cannot provide assurance that this will continue.
Although MTBE demand has remained strong outside of the United States, we cannot provide assurance that further
legislation banning or restricting the use of MTBE or promoting alternatives to MTBE will not be passed or that negative
public perceptions will not develop outside of the United States, either of which would lead to a decrease in the global
demand for methanol for use in MTBE. Declines in demand for methanol for use in MTBE could have an adverse effect on
our results of operations and financial condition.
Foreign Operations
The majority of our operations and investments are located outside of North America, including Chile, Trinidad, New
Zealand, Egypt, Europe and Asia. We are subject to risks inherent in foreign operations such as loss of revenue, property
and equipment as a result of expropriation; import or export restrictions, anti-dumping measures; nationalization, war,
insurrection, civil unrest, terrorism and other political risks; increases in duties, taxes and governmental royalties;
renegotiation of contracts with governmental entities; as well as changes in laws or policies or other actions by
governments that may adversely affect our operations. Many of the foregoing risks related to foreign operations may also
exist for our domestic operations in North America.
In late January 2011, there were widespread anti-government protests and civil unrest in Egypt. For the safety and security
of our employees, we took the decision to temporarily close our Cairo office and curtail the commissioning activities at the
plant in Damietta, Egypt. As conditions stabilized, we reopened our Cairo office and our plant in Damietta resumed
operations to continue the start-up and commissioning process. We cannot provide assurance that future developments
in Egypt, including changes in government or further civil unrest or other disturbances, would not have an adverse impact
on the plant start-up and commissioning or ongoing operations or on the terms or enforceability of our natural gas or
other contracts with governmental entities.
Because we derive substantially all of our revenues from production and sales by subsidiaries outside of Canada, the
payment of dividends or the making of other cash payments or advances by these subsidiaries may be subject to
restrictions or exchange controls on the transfer of funds in or out of the respective countries or result in the imposition of
taxes on such payments or advances.
Management’s Discussion 8: Analysis Annual Report 2010 METHANEX 31
We have organized our foreign operations in part based on certain assumptions about various tax laws (including capital
gains and withholding taxes), foreign currency exchange and capital repatriation laws and other relevant laws of a variety
of foreign jurisdictions. While we believe that such assumptions are reasonable, we cannot provide assurance that foreign
taxation or other authorities will reach the same conclusion. Further, if such foreign jurisdictions were to change or modify
such laws, we could suffer adverse tax and financial consequences.
The dominant currency in which we conduct business is the United States dollar, which is also our reporting currency. The
most significant components of our costs are natural gas feedstock and ocean-shipping costs and substantially all of these
costs are incurred in United States dollars. Some of our underlying operating costs and capital expenditures, however, are
incurred in currencies other than the United States dollar, principally the Canadian dollar, the Chilean peso, the Trinidad
and Tobago dollar, the New Zealand dollar, the euro and the Egyptian pound. We are exposed to increases in the value of
these currencies that could have the effect of increasing the United States dollar equivalent of cost of sales and operating
expenses and capital expenditures. A portion of our revenue is earned in euros and British pounds. We are exposed to
declines in the value of these currencies compared to the United States dollar, which could have the effect of decreasing
the United States dollar equivalent of our revenue.
In June 2009, the Chinese Ministry of Commerce (MOFCOM) began an investigation into domestic methanol producer
allegations of the dumping of methanol from New Zealand, Saudi Arabia, Indonesia and Malaysia. In late December 2010,
MOFCOM issued its Final Determination and recommended that duties of approximately 9% be imposed on imports from
existing producers in New Zealand, Malaysia and Indonesia. However, citing special circumstances, the Customs Tariff
Commission of the Chinese State Council decided to suspend enforcement of the anti-dumping measures, which will
allow methanol from all three countries to enter into China without the imposition of additional duties. In the event that
the suspension is lifted, we do not expect there would be any significant impact on industry supply/demand fundamentals
and we would realign our supply chain. We cannot provide assurance that the suspension will not be lifted or that the
Chinese government will not impose duties or other measures in the future that could have an adverse effect on our
results of operations and financial condition.
Methanol is a globally traded commodity that is produced by many producers at facilities located in many countries
around the world. Some producers and marketers may have direct or indirect contacts with countries that may, from time
to time, be subject to international trade sanctions or other similar prohibitions (“Sanctioned Countries”). In addition to
the methanol we produce, we purchase methanol from third parties under purchase contracts or on the spot market in
order to meet our commitments to customers, and we also engage in product exchanges with other producers and
marketers. We believe that we are in compliance with all applicable laws with respect to sales and purchases of methanol
and product exchanges. However, as a result of the participation of Sanctioned Countries in our industry, we cannot
provide assurance that we will not be exposed to reputational or other risks that could have an adverse impact on our
results of operations, our financial condition or our stock price.
Operational Risks
Production Risks
Most of our earnings are derived from the sale of methanol produced at our plants. Our business is subject to the risks of
operating methanol production facilities, such as unforeseen equipment breakdowns, interruptions in the supply of
natural gas and other feedstocks, power failures, longer-than-anticipated planned maintenance activities, loss of port
facilities, natural disasters or any other event, including unanticipated events beyond our control, that could result in a
prolonged shutdown of any of our plants or impede our ability to deliver methanol to our customers. A prolonged plant
shutdown at any of our major facilities could have an adverse effect on our results of operations and financial condition.
Purchased Product Price Risk
In addition to the sale of methanol produced at our plants, we also purchase methanol produced by others on the spot
market and through purchase contracts to meet our customer commitments and support our marketing efforts. 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 purchase. Consequently, we have the risk of holding losses on the resale of this product to the extent
that methanol prices decrease from the date of purchase to the date of sale. We grew our sales levels in 2010 in
anticipation of increased production from the Egypt plant and we have continued to meet our commitments to customers
32 METHANEX Annual Report 2010 Management’s Discussion €: Analysis
by increasing the amount of methanol we purchase. Holding losses, if any, on the resale of purchased methanol could have
an adverse effect on our results of operations and financial condition.
Distribution Risks
Excess capacity within our fleet of ocean vessels resulting from a prolonged plant shutdown or other event could also have
an adverse effect on our results of operations and financial condition. Due to the significant reduction of production levels
at our Chilean facilities since mid-2007, we have had excess shipping capacity that is subject to fixed time charter costs.
We have been successful in mitigating some of these costs by entering into sub-charters and third-party backhaul
arrangements, although there has been significant excess global shipping capacity over the last few years which has made
it more difficult to mitigate these costs. If we are unable to mitigate these costs in the future, or if we suffer any other
disruptions in our distribution system, this could have an adverse effect on our results of operations and financial
condition.
Insurance Risks
Although we maintain operational and construction insurances, including business interruption insurance and delayed
start-up insurance, we cannot provide assurance that we will not incur losses beyond the limits of, or outside the coverage
of, such insurance or that insurers will be financially capable of honouring future claims. From time to time, various types
of insurance for companies in the chemical and petrochemical industries have not been available on commercially
acceptable terms or, in some cases, have been unavailable. We cannot provide assurance that in the future we will be able
to maintain existing coverage or that premiums will not increase substantially.
Egypt Plant Start-up
The 1.26 million tonne per year methanol facility in Egypt is in the commissioning phase and produced first methanol in
January 2011. We cannot provide any assurance that the facility will begin commercial production within the anticipated
schedule, if at all, or that the facility will operate at its designed capacity or on a sustained basis. This could have an
adverse impact on our financial condition and anticipated results of operations.
Medicine Hat Plant Restart
We believe that our estimates of project costs and anticipated completion for the restart of our 0.47 million tonne per year
methanol plant in Medicine Hat are reasonable. However, we cannot provide any assurance that the cost estimates will
not be exceeded or that the facility will begin commercial production within the anticipated schedule, if at all, or that the
facility will operate at its designed capacity or on a sustained basis. This could have an adverse impact on our financial
condition and anticipated results of operations.
New Capital Projects
As part of our strategy to strengthen our position as the global leader in the production and marketing of methanol, we
intend to continue pursuing new opportunities to enhance our strategic position in the methanol industry. Our ability to
successfully identify, develop and complete new capital projects is subject to a number of risks, including finding and
selecting favourable locations for new facilities where sufficient natural gas and other feedstock is available through long-
term contracts with acceptable commercial terms, obtaining project or other financing on satisfactory terms, developing
and not exceeding acceptable project cost estimates, constructing and completing the projects within the contemplated
schedules and other risks commonly associated with the design, construction and start-up of large complex industrial
projects. We cannot provide assurance that we will be able to identify or develop new methanol projects.
Environmental Regulation
The countries in which we operate all have laws and regulations to which we are subject governing the environment and
the management of natural resources, as well as the handling, storage, transportation and disposal of hazardous or waste
materials. We are also subject to laws and regulations governing emissions and the import, export, use, discharge, storage,
disposal and transportation of toxic substances. The products we use and produce are subject to regulation under various
health, safety and environmental laws. Non-compliance with these laws and regulations may give rise to work orders,
fines, injunctions, civil liability and criminal sanctions.
Management’s Discussion €: Analysis Annual Report 2010 METHANEX 33
As a result of frequently scheduled external and internal audits, we believe that we materially comply with all existing
environmental, health and safety laws and regulations to which our operations are subject. Laws and regulations
protecting the environment have become more stringent in recent years and may, in certain circumstances, impose
absolute liability rendering a person liable for environmental damage without regard to negligence or fault on the part of
such person. Such laws and regulations may also expose us to liability for the conduct of, or conditions caused by, others,
or for our own acts even ifwe complied with applicable laws at the time such acts were performed. To date, environmental
laws and regulations have not had a significant adverse effect on our capital expenditures, earnings or competitive
position. However, operating petrochemical manufacturing plants and distributing methanol exposes us to risks in
connection with compliance with such laws and we cannot provide assurance that we will not incur significant costs or
liabilities in the future.
We believe that minimizing emissions and waste from our business activities is good business practice. Carbon dioxide
(CO2) is a significant by-product of the methanol production process. The amount of CO2 generated by the methanol
production process depends on the production technology (and hence often the plant age), the feedstock and any export
of by-product hydrogen. We continually strive to increase the energy efficiency of our plants, which not only reduces the
use of energy but also minimizes CO2 emissions. We have reduced CO2 emission intensity in our manufacturing
operations by 33% between 1994 and 2010 through asset turnover, improved plant reliability, and energy efficiency and
emissions management. Plant efficiency, and thus CO2 emission, is highly dependent on a particular design of the
methanol plant, so our level of CO2 emissions may vary from year to year depending on the asset mix that is operating. We
also recognize that CO2 is generated from our marine operations, and in that regard we measure the consumption of fuels
by our ocean vessels based on the volume of product transported. Between 2002 and 2010, we reduced our CO2 intensity
(tonnes of CO2 from fuel burned per tonne of product moved) from marine operations by 17%. We also actively support
global industry efforts to voluntarily reduce both energy consumption and CO2 emissions.
We manufacture methanol in Chile, Trinidad and New Zealand and we have constructed a new facility in Egypt. Also, we
are currently working on restarting our manufacturing facility at Medicine Hat, Canada, with the intended start of
production in the second quarter of 2011. All of these countries have signed and ratified the Kyoto Protocol. Under the
Kyoto Protocol, the developing nations of Chile, Trinidad and Egypt are not currently required to reduce greenhouse gases
(GHGs), whereas Canada and New Zealand are listed as industrialized Annex 1 countries and have committed to GHG
reductions under the Kyoto Protocol during the first commitment period (2008-2012).
Medicine Hat is located in the province of Alberta, which has an established GHG reduction regulation that is expected to
apply to the plant in 2011. The regulation requires established facilities to reduce emissions intensities by up to 12% of their
established emissions intensity baseline. “Emissions intensity” means the quantity of specified GHGs released by a facility
per unit of production from that facility. In order to meet the reduction obligation, a facility can choose to make emissions
reduction improvements or it can opt to purchase either offset credits or “Technology Fund” credits for CDNS15 per tonne
of CO2 equivalent. Based on the expected emissions intensity baseline for the Medicine Hat plant, we do not believe that,
when applied, the cost will be significant.
New Zealand also passed legislation to establish an Emission Trading Scheme (ETS) that came into force on July 1, 2010.
The ETS imposes a carbon price on producers of fossil fuels, including natural gas, which is passed on as a liability to
Methanex, increasing the cost of gas that Methanex purchases in New Zealand. However, as a trade-exposed company,
Methanex is entitled to a free allocation of emissions units to partially offset those increased costs, and the legislation
provides further moderation of any residual cost exposure until the end of 2012. Consequently, we do not believe that
these costs will be significant to the end of 2012. However, after this date the moderating features are expected to be
removed and our eligibility for free allocation of emissions units will be progressively reduced. We cannot accurately
quantify the impact on our business after 2012 and therefore we cannot provide assurance that the ETS will not have a
significant adverse impact on our results of operation or financial condition after 2012.
We cannot provide assurance over ongoing compliance with existing legislation or that future laws and regulations to
which we are subject governing the environment and the management of natural resources as well as the handling,
storage, transportation and disposal of hazardous or waste materials will not have an adverse effect on our results of
operations or financial condition.
34 METHANEX Annual Report 2010 Management’s Discussion 8: Analysis
Legal Proceedings
The Board of Inland Revenue of Trinidad and Tobago has issued assessments against our wholly owned subsidiary,
Methanex Trinidad (Titan) Unlimited, in respect of the 2003 and 2004 financial years. The assessments relate to the
deferral of tax depreciation deductions during the five-year tax holiday that ended in 2005. The impact of the amount in
dispute as at December 31, 2010 is approximately $26 million in current taxes and $23 million in future taxes, exclusive of
any interest charges.
We have appealed the assessments and based on the merits of the case and legal interpretation, we believe our position
should be sustained. However, we cannot provide assurance that the final assessment will not have an adverse effect on
our results of operations or financial condition.
CRITICAL ACCOUNTING ESTIMATES
We believe the following selected accounting policies and issues are critical to understanding the estimates, assumptions
and uncertainties that affect the amounts reported and disclosed in our consolidated financial statements and related
notes. See note 1to our 2010 consolidated financial statements for our significant accounting policies.
Property, Plant and Equipment
Our business is capital intensive and has required, and will continue to require, significant investments in property, plant
and equipment. At December 31, 2010, the net book value of our property, plant and equipment was $2,214 million. We
estimate the useful lives of property, plant and equipment and this is used as the basis for recording depreciation and
amortization. Recoverability of property, plant and equipment is measured by comparing the net book value of an asset to
the undiscounted future net cash flows expected to be generated from the asset over its estimated useful life. An
impairment charge is recognized in cases where the undiscounted expected future cash flows from an asset are less than
the net book value of the asset. The impairment charge is equal to the amount by which the net book value of the asset
exceeds its fair value. Fair value is based on quoted market values, if available, or alternatively using discounted expected
future cash flows.
We test our long-lived assets for recoverability whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable. Examples of such events or changes in circumstances related to our long-lived assets
include, but are not restricted to: a significant adverse change in the extent or manner in which the asset is being used or
in its physical condition; a significant change in the price or availability of natural gas feedstock required to manufacture
methanol; a significant adverse change in legal factors or in the business climate that could affect the asset’s value,
including an adverse action or assessment by a foreign government that impacts the use of the asset; or a current-period
operating or cash flow loss combined with a history of operating or cash flow losses, or a projection or forecast that
demonstrates continuing losses associated with the asset’s use. For purposes of recognition and measurement of an
impairment loss, we group our long-lived assets with other assets and liabilities to form an “asset group,” at the lowest
level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. To the
extent that our methanol facilities in a particular location are interdependent as a result of common infrastructure and/or
feedstock from shared sources that can be shared within a facility location, we group our assets based on site locations for
the purpose of determining impairment.
There are two key variables that impact our estimate of future cash flows: (1) the methanol price and (2) the price and
availability of natural gas feedstock. Short-term methanol price estimates are based on current supply and demand
fundamentals and current methanol prices. Long-term methanol price estimates are based on our view of long-term
supply and demand, and consideration is given to many factors, including, but not limited to, estimates of global industrial
production rates, energy prices, changes in general economic conditions, future global methanol production capacity,
industry operating rates and the global industry cost structure. Our estimate of the price and availability of natural gas
takes into consideration the current contracted terms, as well as factors that we believe are relevant to supply under these
contracts and supplemental natural gas sources. Other assumptions included in our estimate of future cash flows include
the estimated cost incurred to maintain the facilities, estimates of transportation costs and other variable costs incurred in
producing methanol in each period. Changes in these assumptions will impact our estimates of future cash flows and
could impact our estimates of the useful lives of property, plant and equipment. Consequently, it is possible that our
future operating results could be adversely affected by asset impairment charges or by changes in depreciation and
amortization rates related to property, plant and equipment.
Management’s Discussion 8: Analysis Annual Report 2010. METHANEX 35
Asset Retirement Obligations
We record asset retirement obligations at fair value when incurred for those sites where a reasonable estimate of the fair
value can be determined. At December 31, 2010, we have accrued $16 million for asset retirement obligations. Inherent
uncertainties exist because the restoration activities will take place in the future and there may be changes in
governmental and environmental regulations and changes in removal technology and costs. It is difficult to estimate the
future costs of these activities as our estimate of fair value is based on today’s regulations and technology. Because of
uncertainties related to estimating the cost and timing of future site restoration activities, future costs could differ
materially from the amounts estimated.
Income Taxes
Future income tax assets and liabilities are determined using enacted tax rates for the effects of net operating losses and
temporary differences between the book and tax bases of assets and liabilities. We record a valuation allowance on future
tax assets, when appropriate, to reflect the uncertainty of realizing future tax benefits. In determining the appropriate
valuation allowance, certain judgments are made relating to the level of expected future taxable income and to available
tax-planning strategies and their impact on the use of existing loss carryforwards and other income tax deductions. In
making this analysis, we consider historical profitability and volatility to assess whether we believe it to be more likely than
not that the existing loss carryforwards and other income tax deductions will be used to offset future taxable income
otherwise calculated. Our management routinely reviews these judgments. At December 31, 2010, we had future income
tax assets of $205 million that are substantially offset by a valuation allowance of $143 million. The determination of
income taxes requires the use of judgment and estimates. If certain judgments or estimates prove to be inaccurate, or if
certain tax rates or laws change, our results of operations and financial position could be materially impacted.
Inventories
Inventories are valued at the lower of cost, determined on a first-in, first-out basis, and estimated net realizable value. The
cost of our inventory, for both produced methanol as well as methanol we purchase from others, is impacted by methanol
prices at the time of production or purchase. The net realizable value of inventories will depend on methanol prices when
sold. Inherent uncertainties exist in estimating future methanol prices and therefore the net realizable value of our
inventory. Methanol prices are influenced by supply and demand fundamentals, industrial production, energy prices and
the strength of the global economy.
Oil and Gas Accounting
We apply the full cost method of accounting for our investment in the Dorado Riquelme block. Under this method, all
costs, including internal costs and asset retirement costs, directly associated with the acquisition of, the exploration for,
and the development of natural gas reserves are capitalized. Costs are then depleted and amortized using the
unit-of-production method based on estimated proved reserves. Capitalized costs subject to depletion include estimated
future costs to be incurred in developing proved reserves. Costs of major development projects and costs of acquiring and
evaluating significant unproved properties are excluded from the costs subject to depletion until it is determined whether
or not proved reserves are attributable to the properties or impairment has occurred. Costs that have been impaired are
included in the costs subject to depletion and amortization.
Under full cost accounting, an impairment assessment (“ceiling test”) is performed on an annual basis for all oil and gas
assets. An impairment loss is recognized in earnings when the carrying amount is not recoverable and the carrying
amount exceeds ¡ts fair value. The carrying amount is not recoverable if the carrying amount exceeds the sum of the
undiscounted cash flows from proved reserves. If the sum of the cash flows is less than the carrying amount, the
impairment loss is measured as the amount by which the carrying amount exceeds the sum of the discounted cash flows
of proved and probable reserves.
Derivative Financial Instruments
From time to time we enter into derivative financial instruments to limit our exposure to foreign exchange volatility and
variable interest rate volatility and to contribute towards managing our cost structure. The valuation of derivative financial
instruments is a critical accounting estimate due to the complex nature of these products, the degree of judgment
required to appropriately value these products and the potential impact of such valuation on our financial statements.
36 METHANEX Annual Report 2010 Management’s Discussion €: Analysis
Derivative financial instruments are classified as held-for-trading and are recorded on the balance sheet at fair value.
Changes in the fair value of derivative financial instruments are recorded in earnings unless the instruments are
designated as cash flow hedges, in which case the effective portion of any changes in fair value are recorded in other
comprehensive income. At December 31, 2010, the fair value of our derivative financial instruments used to limit our
exposure to variable interest rate volatility which have been designated as cash flow hedges approximated their carrying
value of negative $43 million. Until settled, the fair value of the derivative financial instruments will fluctuate based on
changes in variable interest rates.
ANTICIPATED CHANGES TO CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
International Financial Reporting Standards
The Canadian Accounting Standards Board confirmed January 1, 2011 as the changeover date for Canadian publicly
accountable enterprises to start using International Financial Reporting Standards (IFRS) as issued by the International
Accounting Standards Board (IASB). IFRS uses a conceptual framework similar to Canadian GAAP, but there are significant
differences in recognition, measurement and disclosures.
As a result of the IFRS transition, changes in accounting policies are likely and may materially impact our consolidated
financial statements. The lASB will also continue to issue new accounting standards throughout 2011, and as a result, the
final impact of IFRS on our consolidated financial statements will only be measured once all the IFRS applicable at the
conversion date are known.
We have established a working team to manage the transition to IFRS. Additionally, we have established a formal project
governance structure that includes the Audit, Finance and Risk Committee, senior management, and an IFRS steering
committee to monitor progress and review and approve recommendations from the working team for the transition to
IFRS. The working team provides regular updates to the IFRS steering committee and to the Audit, Finance and Risk
Committee of the Board.
In 2008, we commenced our plan to convert our consolidated financial statements to IFRS at the changeover date of
January 1, 2011, with comparative financial results for 2010. The IFRS transition plan addresses the impact of IFRS on
accounting policies and implementation decisions, infrastructure, business activities and control activities. We are
progressing according to schedule and continue to be on track toward project completion and will issue our first interim
consolidated financial statements in accordance with IFRS as issued by the lASB beginning with the first quarter ending
March 31, 2011, with comparative financial results for 2010. A summary status of the key elements of the changeover plan is
as follows:
Accounting policies and implementation decisions
m Key activities:
– Identification of differences in Canadian GAAP and IFRS accounting policies
– Selection of ongoing IFRS policies
– Selection of IFRS 1, First-time Adoption of International Financial Reporting Standards (“IFRS 1”) choices
– Development of financial statement format
– Quantification of effects of change in initial IFRS 1 disclosures and 2010 financial statements
m Status:
– We have identified differences between our accounting policies under Canadian GAAP and accounting policy choices
under IFRS, both on an ongoing basis and with respect to certain choices available on conversion, in accordance with
IFRS 1
– We have engaged the Company’s external auditors, KPIMG LLP, to discuss our proposed IFRS accounting policies to
ensure consistent interpretation of IFRS guidance in all areas
– We continue to monitor changes in accounting policies issued by the lASB and the impact of those changes on our
accounting policies under IFRS
– We have a process for compiling parallel 2010 IFRS results for comparative reporting purposes in 2011
Management’s Discussion 8: Analysis Annual Report 2010 METHANEX 37
– See the corresponding sections below for discussion of optional exemptions under IFRS 1 that the Company expects
to elect on transition to IFRS, accounting policy changes that management considers most significant to the
Company, and an overview of the adjustments to the financial statements on transition to IFRS as at January 1, 2010
and for the year ended December 31, 2010
Infrastructure: Financial reporting expertise and communications
m Key activities:
– Development of IFRS expertise
m Status:
– We have provided training for key employees and senior management
= In 2009, we held an IFRS information session with the Audit, Risk and Finance Committee that included an in-depth
review of differences between Canadian GAAP and IFRS, a review of the implementation timeline, an overview of the
project activities to date and a preliminary discussion of the significant impact areas of IFRS
= In 2010, we held IFRS information sessions with the IFRS steering committee, the Audit, Finance and Risk Committee,
and the Board that included an in-depth review of accounting policy changes on transition to IFRS, a discussion of
optional exemptions under IFRS 1 that the Company expects to elect on transition to IFRS, and an overview of the
expected adjustments to the financial statements on transition to IFRS
= In 2010, we held an external Investor Day Conference, which included a presentation to shareholders, research
analysts and other members of the investment community on the expected significant impacts of the IFRS transition
Infrastructure: Information technology and data systems
m Key activities:
– Identification of system requirements for the conversion and post-conversion periods
m Status:
– We have assessed the impact on system requirements for the conversion and post-conversion periods and expect
there will be no significant impact to applications arising from the transition to IFRS
Business activities: Financial covenants
m Key activities:
– Identification ofimpact on financial covenants and financing relationships
– Completion of any required renegotiations/changes
m Status:
= The financial covenant requirements in our financing relationships are measured on the basis of Canadian GAAP in
effect at the commencement of the various agreements, and the transition to IFRS will therefore have no impact on
our current financial covenant requirements
– We will maintain a process to compile our financial results on a historical Canadian GAAP basis and to monitor
financial covenant requirements through to the conclusion of our current financing relationships
Business activities: Compensation arrangements
m Key activities:
-= Identification of impact on compensation arrangements
– Assessment and implementation of required changes
m Status:
– We have identified compensation policies that rely on indicators derived from the financial statements
38 METHANEX Annual Report 2010 Management’s Discussion 8; Analysis
– As part of the transition project, we will ensure that compensation arrangements incorporate IFRS results in
accordance with the Company’s overall compensation principles
– We held an information session to educate the Human Resources Committee of the Board about the impacts of the
IFRS transition on compensation arrangements
Control activities: Internal control over financial reporting
m Key activities:
= For all accounting policy changes identified, assessment of the design and effectiveness of respective changes to
internal controls over financial reporting
– Implementation of appropriate changes
m Status:
– We have identified the required accounting process changes that result from the application of IFRS accounting
policies; these changes are not considered significant
– We are completing the design, implementation and documentation of the accounting process changes that result
from the application of IFRS accounting policies
Control activities: Disclosure controls and procedures
m Key activities:
= For all accounting policy changes identified, assessment of the design and effectiveness of respective changes to
disclosure controls and procedures
– Implementation of appropriate changes
m Status:
– Throughout the transition period, we have continued to provide IFRS project updates in quarterly and annual
disclosure documents
IFRS 1 First-Time Adoption of International Financial Reporting Standards
Adoption of IFRS requires the application of IFRS 1, First-time Adoption of International Financial Reporting Standards,
which provides guidance for an entity’s initial adoption of IFRS. IFRS 1 gives entities adopting IFRS for the first time a
number of optional exemptions and mandatory exceptions, in certain areas, to the general requirement for full
retrospective application of IFRS. The following are the optional exemptions available under IFRS 1 that the Company will
elect on transition to IFRS. The list below and comments should not be regarded as a complete list of IFRS 1 that are
available to the Company as a result of the transition to IFRS.
Business Combinations
Under IFRS 1 an entity has the option to retroactively apply IFRS 3, Business Combinations, to all business combinations or
may elect to apply the standard prospectively only to those business combinations that occur after the date of transition.
The Company has elected this exemption under IFRS 1, which removes the requirement to retrospectively restate all
business combinations prior to the date of transition to IFRS.
Employee Benefits
We have defined benefit pension plans in Canada and Chile. IFRS 1 provides an option to recognize all cumulative actuarial
gains and losses on defined benefit pension plans existing at the date of transition immediately in retained earnings,
rather than continuing to defer and amortize into the results of operations. The Company currently has elected this
exemption under IFRS 1. As at January 1, 2010 this results in a decrease to retained earnings of approximately $16 million, a
decrease to other assets of $10 million and an increase to other long-term liabilities of $6 million.
In comparison to Canadian GAAP for the year ended December 31, 2010, this has resulted in an increase in net earnings by
approximately $1 million as a result of lower pension expense due to this immediate recognition to retained earnings of
Management’s Discussion 8: Analysis Annual Report 2010 METHANEX 39
these actuarial losses on transition to IFRS. As at December 31, 2010, this resulted in a decrease to shareholders’ equity of
approximately $16 million, a decrease to other assets of $1 million and an increase to other long-term liabilities of
$6 million.
Fair Value or Revaluation as Deemed Cost
IFRS 1 provides an option to allow a first-time IFRS adopter to elect to use the amount determined under a previous GAAP
revaluation as the deemed cost of an item of property, plant and equipment so long as the revaluation was broadly
comparable to either fair value or cost or depreciated cost under IFRS. We consider our Canadian GAAP writedown of
certain assets as a “revaluation broadly comparable to fair value” and will elect the written down amount to be deemed
IFRS cost. The IFRS carrying value of those assets on transition to IFRS is therefore consistent with the Canadian GAAP
carrying value on the transition date.
Share-based Payment Transactions
IFRS 1 permits an exemption for the application of IFRS 2, Share-based Payments, to equity instruments granted before
November 7, 2002 and those granted but fully vested before the date of transition to IFRS. Accordingly, we have elected
this exemption and will apply IFRS 2 for stock options granted after November 7, 2002 that are not fully vested at January 1,
2010.
Changes in Asset Retirement Obligations
Under IFRS, we are required to determine a best estimate of asset retirement obligations for all sites, whereas under
Canadian GAAP, asset retirement obligations were not recognized with respect to assets with indefinite or indeterminate
lives. In addition, under IFRS a change in the market-based discount rate will result in a change in the measurement of the
provision. We have elected to apply the IFRS 1 exemption whereby we have measured the asset retirement obligations at
January 1, 2010 in accordance with the requirements in IAS 37 Provisions, estimated the amount that would have been in
property, plant and equipment when the liabilities first arose and discounted the transition date liability to that date using
our best estimate of the historical risk-free discount rate. As at January 1, 2010, adjustments to the financial statements to
recognize asset retirement obligations on transition to IFRS are recognized as an increase to other long-term liabilities of
approximately $5 million and an increase to property, plant and equipment of approximately $1 million, with the balancing
amount recorded as a decrease to retained earnings to reflect the depreciation expense and interest accretion since the
date the liabilities first arose.
In comparison to Canadian GAAP at December 31, 2010, recognition of asset retirement obligations resulted in an increase
to other long-term liabilities of approximately $8 million and an increase to property, plant and equipment of
approximately $4 million, with a corresponding decrease to shareholders’ equity and no significant impact to net earnings.
Oil 8i Gas Assets
For a first-time adopter that has previously employed the full cost method in accounting for oil and natural gas
exploration and development expenditures, IFRS 1 provides an exemption that allows entities to measure those assets at
the transition date at amounts determined under the entity’s previous GAAP. We have elected under IFRS 1 to carry
forward the Canadian GAAP oil and gas asset carrying value as of January 1, 2010 as our balance on transition to IFRS.
Significant Impacts on Transition to IFRS
The Company has completed its initial assessment of the impacts of the transition to IFRS. Based on an analysis of
Canadian GAAP and IFRS in effect at December 31, 2010, we have identified several significant differences between our
current accounting policies and those expected to apply in preparing IFRS consolidated financial statements. In the
determination of what constitutes a significant impact to our consolidated financial statements, we have identified the
following:
m Areas of difference between IFRS and Canadian GAAP that have a significant opening day transition financial statement
impact.
m Areas of difference between IFRS and Canadian GAAP that present greater risk of potential future financial statement
impact.
m Areas of potential future changes to IFRS that could have a significant financial statement impact.
40 METHANEX Annual Report 2010 Management’s Discussion 8: Analysis
Information on those changes that management considers most significant to the Company is presented below.
Interest in Joint Ventures
Under Canadian GAAP, our 63.1% interest in Atlas Methanol Company (Atlas) is accounted for using proportionate
consolidation in the accounting for joint ventures. Current IFRS allows a choice between proportionate consolidation and
equity accounting in the accounting for joint ventures. On transition to IFRS, we have chosen to continue to apply
proportionate consolidation in accounting for our interest in Atlas.
The IASB is currently proceeding on projects related to consolidation and joint venture accounting. The IASB is revising the
definition of “control,” which is a criterion for consolidation accounting. In addition, future changes to IFRS in the
accounting for joint ventures are expected and these changes may remove the option for proportionate consolidation and
allow only the equity method of accounting for such interests. The impact of applying consolidation accounting or the
equity method of accounting does not result in any change to net earnings or shareholders’ equity, but would result in a
significant presentation impact.
The impact these projects may have on the conclusions related to the accounting treatment of our interest in joint
ventures ¡is currently unknown. We continue to monitor changes in accounting policies issued by the lASB in this area.
Leases
Canadian GAAP requires an arrangement that at its inception can be fulfilled only through the use of a specific asset or
assets, and which conveys a right to use that asset, may be a lease or contain a lease, and therefore should be accounted
for as a lease, regardless of whether it takes the legal form of a lease, and therefore should be recorded as an asset with a
corresponding liability. However, Canadian GAAP has grandfathering provisions that exempts contracts entered into
before 2004 from these requirements.
IFRS has similar accounting requirements as Canadian GAAP for lease-like arrangements, with IFRS requiring full
retrospective application. We have long-term oxygen supply contracts for our Atlas and Titan methanol plants in Trinidad,
executed prior to 2004, which are regarded as finance leases under these standards. Accordingly, the oxygen supply
contracts are required to be accounted for as finance leases from original inception of the lease. We measured the value of
these finance leases and applied finance lease accounting retrospectively from inception to January 1, 2010 to determine
the opening day IFRS impact. As at January 1, 2010, this results in an increase to property, plant and equipment of $61
million and other long-term liabilities of $74 million, with a corresponding decrease to retained earnings of $13 million.
In comparison to Canadian GAAP, for the year ended December 31, 2010, this accounting treatment resulted in lower
operating costs and higher interest and depreciation charges with no significant impact to net earnings. As at
December 31, 2010, this resulted in an increase to property, plant and equipment of $55 million and other long-term
liabilities of $69 million, with a corresponding decrease to shareholders’ equity of $14 million.
As part of their global conversion project, the lASB and the U.S. Financial Accounting Standards Board (“FASB”) issued in
August 2010 a joint Exposure Draft proposing that all leases would be required to be recognized on-balance sheet. We
have a fleet of ocean-going vessels under time charter agreements with terms up to 15 years. The proposed rules would
require these time charter agreements to be recorded on-balance sheet resulting in a material increase to our assets and
liabilities. The boards expect to issue a final standard in mid-2011 with a likely effective date for the standard no earlier
than 2014. We continue to monitor changes in accounting policies issued by the IASB in this area.
Impairment of Assets
Ifthere is an indication that an asset may be impaired, an impairment test must be performed. Under Canadian GAAP, this
is a two-step impairment test in which (1) undiscounted future cash flows are compared to the carrying value; and (2) ¡if
those undiscounted cash flows are less than the carrying value, the asset is written down to fair value. Under IFRS, an
entity is required to assess, at the end of each reporting period, whether there is any indication that an asset may be
impaired. If such an indication exists, the entity shall estimate the recoverable amount of the asset by performing a
one-step impairment test, which requires a comparison of the carrying value of the asset to the higher of value in use and
fair value less costs to sell. Value in use is defined as the present value of future cash flows expected to be derived from the
asset in its current state.
Management’s Discussion 8: Analysis Annual Report 2010 METHANEX 41
As a result of this difference, in principle, impairment writedowns may be more likely under IFRS than are currently
identified and recorded under Canadian GAAP. The extent of any new writedowns, however, may be partially offset by the
requirement under lAS 36, Impairment of Assets, to reverse any previous impairment losses where circumstances have
changed such that the impairments have been reduced. Canadian GAAP prohibits reversal of impairment losses. We have
concluded that the adoption of these standards will not result in a change to the carrying value of our assets on transition
to IFRS and for the year ended December 31, 2010.
Provisions
Under Canadian GAAP, a provision is required to be recorded in the financial statements when required payment is
considered “likely” and can be reasonably estimated. The threshold for recognition of provisions under IFRS ¡is lower than
that under Canadian GAAP as provisions must be recognized if required payment is “probable.” Therefore, in principle, it is
possible that there may be some provisions that would meet the recognition criteria under IFRS that were not recognized
under Canadian GAAP.
Other differences between IFRS and Canadian GAAP exist in relation to the measurement of provisions, such as the
methodology for determining the best estimate where there is a range of equally possible outcomes (IFRS uses the
mid-point of the range, whereas Canadian GAAP uses the low end of the range), and the requirement under IFRS for
provisions to be discounted where material.
We have reviewed our positions and concluded that there is no adjustment to our financial statements on transition to
IFRS and for the year ended December 31, 2010 arising from the application of IFRS provisions recognition and
measurement guidance.
Share-based Payments
During 2010, we granted share appreciation rights (SARs) and tandem share appreciation rights (TSARs) in connection with
our employee long-term incentive compensation plan. A SAR gives the holder a right to receive a cash payment equal to
the amount by which the market price of the Company’s common shares exceeds the exercise price of a unit. A TSAR gives
the holder the choice between exercising a regular stock option or surrendering the option for a cash payment equal to the
amount by which the market price of the Company’s common share exceeds the exercise price of a unit. All SARs and
TSARs have a maximum term of seven years with one-third vesting each year after the date of grant.
Under Canadian GAAP, both SARs and TSARs are accounted for using the intrinsic value method. The intrinsic value related
to SARs and TSARs is measured by the amount the market price of the Company’s common shares exceeds the exercise
price of a unit. Changes in intrinsic value each period are recognized in earnings for the proportion of the service that has
been rendered at each reporting date. Under IFRS, SARs and TSARs are required to be accounted for using a fair value
method. The fair value related to SARs and TSARs is measured using an option pricing model. Changes in fair value
determined using an option pricing model each period are recognized in earnings for the proportion of the service that has
been rendered at each reporting date.
The fair value determined using an option pricing model will be higher than the intrinsic value due to the time value
included in the fair value. Accordingly, it is expected that the difference between the accounting expense under IFRS
compared with Canadian GAAP would be higher in the beginning life of a SAR or TSAR with this difference narrowing as
time passes and the total accounting expense ultimately being the same on the date of exercise.
The SARs and TSARs were granted in March 2010, and therefore, there is no adjustment required to our financial
statements on January 1, 2010. The difference in fair value method under IFRS compared with the intrinsic value method
under Canadian GAAP, is the primary reason for the decrease to net earnings of approximately $5 million, increase to other
long-term liabilities of approximately $6 million and corresponding decrease to shareholders’ equity for the year ended
December 31, 2010, respectively.
42 METHANEX Annual Report 2010 Management’s Discussion 8: Analysis
Summary of Adjustments to Financial Statements
The table below provides a summary of the adjustments to our balance sheet on transition to IFRS at January 1, 2010 and at
December 31, 2010:
($ MILLIONS) January 1, 2010 December 31, 2010
Total assets per Canadian GAAP $ 2,923 $ 3,070
Leases (a) 61 55
Employee benefits (b) (10) (nm)
Asset retirement obligations (c) 1 4
Borrowing costs (d) 8 24
Total assets per IFRS $ 2,984 $ 3,142
Total liabilities per Canadian GAAP $ 1,687 $ 1,794
Leases (a) 74 69
Employee benefits (b) 6 6
Asset retirement obligations (c) 5 8
Borrowing costs (d) 3 10
Uncertain tax positions (e) 5 7
Share-based payments (f) – 6
Deferred tax impact of adjustments (g) (8) (9)
Reclassification of non-controlling interest (h) (136) (156)
Total liabilities per IFRS $ 1,637 $ 1,733
Total shareholders’ equity per Canadian GAAP $ 1,236 $ 1,277
Leases (a) (13) (14)
Employee benefits (b) (16) (16)
Asset retirement obligations (c) (4) (4)
Borrowing costs (d) 5 14
Uncertain tax positions (e) (5) (7)
Share-based payments (f) – (6)
Deferred tax impact of adjustments (g) 8 9
Reclassification of non-controlling interest (h) 136 156
Total shareholders’ equity per IFRS $ 1,347 $ 1,409
Total liabilities and shareholders’ equity per IFRS $ 2,984 $ 3,142
The table below provides a summary of the adjustments to our income statement for the year ended December 31, 2010:
($ MILLIONS) 2010
Net income per Canadian GAAP $ 102
Employee benefits (b) 1
Uncertain tax positions (e) (2)
Share-based payments (f) (5)
Deferred tax impact of adjustments (g) 1
Net income per IFRS $ 98
The items noted above in the reconciliations of the balance sheet and income statement from Canadian GAAP to IFRS are
described below:
(a) Leases
For a description of this reconciling item, see discussion under Significant Impacts on Transition to IFRS above.
(b) Employee Benefits
For a description of this reconciling item, see discussion under IFRS 1 First-time Adoption of International Financial
Reporting Standards above.
Management’s Discussion €: Analysis Annual Report 2010. METHANEX 43
(c) Asset Retirement Obligations
For a description of this reconciling item, see discussion under IFRS 1 First-time Adoption of International Financial
Reporting Standards above.
(d) Borrowing Costs
lAS 23 prescribes the accounting treatment and eligibility of borrowing costs. We have entered into interest rate swap
contracts to hedge the variability in LIBOR-based interest payments on our Egypt limited recourse debt facilities. Under
Canadian GAAP, cash settlements for these swaps during construction are recorded in accumulated other comprehensive
income (AOCI). Under IFRS, the cash settlements during construction are recorded to property, plant and equipment
(PP8:E). Accordingly, there is an increase to PPRE of approximately $8 million and $24 million, an increase to AOCI of
approximately $5 million and $14 million (our 60% portion) and an increase in non-controlling interest of approximately $3
million and $10 million as of January 1, 2010 and December 31, 2010, respectively, with no net impact on earnings.
(e) Uncertain Tax Positions
1AS 12 prescribes recognition and measurement criteria of a tax position taken or expected to be taken in a tax return. As at
January 1, 2010, this resulted in an increase to income tax liabilities and a decrease to retained earnings of approximately
$5 million in comparison to Canadian GAAP. For the year ended December 31, 2010, this has resulted in a decrease in net
earnings by $2 million with a corresponding increase to income tax liabilities.
(f) Share-Based Payments
For a description of this reconciling item, see discussion under Significant Impacts on Transition to IFRS above.
(g) Deferred Tax Impact of Adjustments
This adjustment represents the income tax effect of the adjustments related to accounting differences between Canadian
GAAP and IFRS. As at January 1, 2010, this has resulted in a decrease to future income tax liabilities and an increase to
retained earnings of approximately $8 million. For the year ended December 31, 2010, this has resulted in an increase in net
earnings by $1 million with a corresponding decrease to future income tax liabilities.
(h) Reclassification of Non-Controlling Interest from Liabilities
We have a 60% interest in EMethanex, the Egyptian company through which we have developed the Egyptian methanol
project. We account for this investment using consolidation accounting, which results in 100% of the assets and liabilities
of EMethanex being included in our financial statements. The other investors’ interest in the project is presented as “non-
controlling interest”. Under Canadian GAAP, the non-controlling interest is classified as a liability, whereas under IFRS the
non-controlling interest is classified as equity, but presented separately from the parent’s shareholders’ equity. This
reclassification results in a decrease to liabilities and an increase in equity of approximately $136 million and $156 million
asof January 1, 2010 and December 31, 2010, respectively.
The discussion above on IFRS 1 elections, significant accounting policy changes and adjustments to the financial
statements on transition to IFRS is provided to allow readers to obtain a better understanding of our IFRS changeover plan
and the resulting potential effects on our consolidated financial statements. Readers are cautioned, however, that it may
not be appropriate to use such information for any other purpose. IFRS employs a conceptual framework that is similar to
Canadian GAAP; however, significant differences exist in certain matters of recognition, measurement and disclosure. In
order to allow the users of the financial statements to better understand these differences and the resulting changes to
our financial statements, we have provided a description of the significant IFRS 1 exemptions we intend to elect, a
description of significant impacts related to the IFRS transition project as well as the above reconciliations between
Canadian GAAP and IFRS for total assets, total liabilities, shareholders’ equity and net earnings. While this information
does not represent the official adoption of IFRS, it provides an indication of the major differences identified to date based
on the current IFRS guidance, relative to our Canadian GAAP accounting policies at transition and for the year ended
December 31, 2010. This discussion reflects our most recent assumptions and expectations; circumstances may arise, such
as changes in IFRS, regulations or economic conditions, which could change these assumptions or expectations. Any
further changes to the election of IFRS 1 exemptions, the selection of IFRS accounting policies and any related adjustments
44 METHANEX Annual Report 2010 Management’s Discussion €: Analysis
to the financial statements would be subject to approval by the Audit, Finance and Risk Committee prior to being finalized.
Accordingly, the discussion above is subject to change.
SUPPLEMENTAL NON-GAAP MEASURES
In addition to providing measures prepared in accordance with Canadian GAAP, we present certain supplemental
non-GAAP measures. These are Adjusted EBITDA, operating income and cash flows from operating activities before
changes in non-cash working capital. These measures do not have any standardized meaning prescribed by Canadian
GAAP and therefore are unlikely to be comparable to similar measures presented by other companies. We believe these
measures are useful in evaluating the operating performance and liquidity of our ongoing business. These measures
should be considered in addition to, and not as a substitute for, net income, cash flows and other measures of financial
performance and liquidity reported in accordance with Canadian GAAP.
Net Income before Unusual Item and Diluted Net Income before Unusual Item per Share
These supplemental non-GAAP measures are provided to assist readers in comparing earnings from one period to another
without the impact of unusual items that are considered by management to be non-operational and/or non-recurring.
Diluted income before unusual items per share has been calculated by dividing net income before unusual item by the
diluted weighted average number of common shares outstanding.
The following table shows a reconciliation of net income to net income before unusual item and the calculation of diluted
net income before unusual item per share:
($ MILLIONS, EXCEPT SHARES OR PER SHARE AMOUNTS) 2010 2009
Net income $ 101.7 $ 0.7
Gain on sale of Kitimat assets (22.2) –
Net income before unusual item $ 79.5 $ 0.7
Diluted weighted average number of common shares (millions) 93.5 92.7
Diluted net income per share before unusual item $ 0.85 $ 0.01
Adjusted EBITDA
This supplemental non-GAAP measure is provided to help readers determine our ability to generate cash from operations.
We believe this measure is useful in assessing performance and highlighting trends on an overall basis. We also believe
Adjusted EBITDA is frequently used by securities analysts and investors when comparing our results with those of other
companies. Adjusted EBITDA differs from the most comparable GAAP measure, cash flows from operating activities,
primarily because it does not include changes in non-cash working capital, stock-based compensation expense and other
non-cash items net of cash payments, interest expense, interest and other income, and current income taxes.
The following table shows a reconciliation of cash flows from operating activities to Adjusted EBITDA:
($ MILLIONS) 2010 2009
Cash flows from operating activities $ 153 $ no
Add (deduct):
Changes in non-cash working capital 99 19
Other cash payments 6 n
Stock-based compensation expense 1€1)) (12)
Other non-cash items (8) (8)
Interest expense 24 27
Interest and other income 6) –
Income taxes – current 27 (5)
Adjusted EBITDA $ 267 $ 142
Management’s Discussion 8: Analysis Annual Report 2010 METHANEX 45
Operating Income and Cash Flows from Operating Activities before Changes in Non-Cash Working Capital
Operating income and cash flows from operating activities before changes in non-cash working capital are reconciled to
Canadian GAAP measures in our consolidated statement of income and consolidated statement of cash flows,
respectively.
OQUARTERLY FINANCIAL DATA (UNAUDITED)
THREE MONTHS ENDED
($ MILLIONS, EXCEPT WHERE NOTED) DEC 31 SEP 30 JUN 30 MAR 31
2010
Revenue $ 570 $ 481 $ 449 $ 467
Net income 28 33 1 29
Net income before unusual item 28 n 1 29
Basic net income per share 0.30 0.36 0.13 0.32
Basic net income per share before unusual item 0.30 0.1 0.13 0.32
Diluted net income per share 0.30 0.35 0.13 0.31
Diluted net income per share before unusual item 0.30 0.1 0.13 0.31
2009
Revenue $ 382 S 317 $ 246 S 254
Net income (loss) 26 (1) (6) (18)
Basic net income (loss) per share 0.28 (0.01) (0.06) (0.20)
Diluted net income (loss) per share 0.28 (0.01) (0.06) (0.20)
A discussion and analysis of our results for the fourth quarter of 2010 is set out in our fourth quarter of 2010
Management’s Discussion and Analysis filed with Canadian Securities Administrators and the U.S. Securities and Exchange
Commission and incorporated herein by reference.
SELECTED ANNUAL INFORMATION
($ MILLIONS, EXCEPT WHERE NOTED) 2010 2009 2008
Revenue $ 1,967 $ 1,198 $ 2,314
Net income 102 1 169
Basic net income per share 1.10 0.01 1.79
Diluted net income per share 1.09 0.01 1.78
Diluted net income per share before unusual item 0.85 0.01 1.78
Cash dividends declared per share 0.620 0.620 0.605
Total assets 3,070 2,923 2,799
Total long-term financial liabilities 1,025 982 864
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Disclosure controls and procedures are those controls and procedures that are designed to ensure that the information
required to be disclosed in the filings under applicable securities regulations is recorded, processed, summarized and
reported within the time periods specified. As at December 31, 2010, under the supervision and with the participation of
our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the
effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on this evaluation,
the Chief Executive Officer and Chief Financial Officer have concluded our disclosure controls and procedures are effective.
Management’s Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal
control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that,
in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with
authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial
statements.
46 METHANEX Annual Report 2010. Management’s Discussion €: Analysis
The design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of
future events. There can be no assurance that any design will succeed in achieving its stated goals under all potential
future conditions, regardless of how remote.
Under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer,
management conducted an evaluation of the effectiveness of our internal control over financial reporting, as of
December 31, 2010, based on the framework set forth in Internal Control – Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO). Based on its evaluation under this framework,
management concluded that our internal control over financial reporting was effective as of that date.
KPMG LLP an independent registered public accounting firm that audited and reported on our consolidated financial
statements, has issued an attestation report on the effectiveness of our internal control over financial reporting as of
December 31, 2010. The attestation report is included on the second page of our consolidated financial statements.
Changes in Internal Control over Financial Reporting
There have been no changes during the year ended December 31, 2010 to internal control over financial reporting that have
materially affected, or are reasonably likely to materially affect, internal control over financial reporting.
FORWARD-LOOKING STATEMENTS
This 2010 Annual Report contains forward-looking statements with respect to us and the chemical industry. Statements
expects,” “may,” “will,” “should,” “seeks,
intends,
that include the words “believes, plans,” “estimates,” “anticipates,”
or the negative version of those words or other comparable terminology and similar statements of a future or forward-
looking nature identify forward-looking statements.
More particularly and without limitation, any statements regarding the following are forward-looking statements:
m expected demand for methanol and its derivatives, commissioning phase and the restart of our Medicine
5″ expected new methanol supply and timing for start-up Hat facility expected in the second quarter of 2011,
ofthe same, m expected operating costs, including natural gas
m expected shut downs (either temporary or permanent) feedstock costs and logistics costs,
or re-starts of existing methanol supply (including our m expected tax rates or resolutions to tax disputes,
own facilities), including, without limitation, timing of = expected cash flows and earnings capability,
planned maintenance outages,
m anticipated completion date of, and cost to complete,
m expected methanol and energy prices, our methanol project in Egypt and the Medicine Hat
m expected levels and timing of natural gas supply to our restart project,
plants, including without limitation, levels of natural
gas supply from investments in natural gas exploration m ability to meet covenants associated with our long-
and development in Chile and New Zealand and term debt obligations, including without limitation,
availability of economically priced natural gas in Chile, the Egypt limited recourse debt facilities which have
New Zealand and Canada, conditions associated with operational completion of
the plant and related mortgages which require actions
m capital committed by third parties towards future by governmental entities,
natural gas exploration in Chile and New Zealand,
m availability of committed credit facilities and other
m expected capital expenditures, including without financing,
limitation, those to support natural gas exploration
and development in Chile and New Zealand and the m shareholder distribution strategy and anticipated
restart of our idled methanol facilities, distributlons to shareholders,
m anticipated production rates of our plants, including A commercial viability of, o” ability to execute, future
without limitation, our Chilean facilities, the new projects or capacity expansions,
methanol plant in Egypt which is currently in the
Management’s Discussion 8: Analysis Annual Report 2010 METHANEX 47
m financial strength and ability to meet future financial
commitments,
m expected impact of regulatory actions, including
assessments of carcinogenicity of
formaldehyde and MTBE, the
formaldehyde emission limits and legislation related to
methanol,
imposition of
CO, emissions in New Zealand and Canada,
mexpected global or regional economic activity
(including industrial production levels),
m expected actions of governments, gas suppliers, courts,
tribunals or other third parties, and
m expected impact on our results of operations in Egypt
and our financial condition as a consequence of actions
taken by the Government of Egypt and its agencies.
We believe that we have a reasonable basis for making such forward-looking statements. The forward-looking statements
in this document are based on our experience, our perception of trends, current conditions and expected future
developments as well as other factors. Certain material factors or assumptions were applied in drawing the conclusions or
making the forecasts or projections that are included in these forward-looking statements, including, without limitation,
future expectations and assumptions concerning the following:
m supply of, demand for, and price of, methanol,
methanol derivatives, natural gas, oil and oil
derivatives,
m success of natural gas exploration in Chile and New
Zealand and our ability to procure economically priced
natural gas in Chile, New Zealand and Canada,
m production rates of our facilities, including without
limitation, our Chilean facilities, the new methanol
plant in Egypt which is currently in the commissioning
phase and the restart of our Medicine Hat facility
expected in the second quarter of 2011,
1 receipt or issuance of third party consents or approvals,
including without limitation, governmental
registrations of land title and related mortgages in
Egypt, governmental approvals related to natural gas
exploration rights, rights to purchase natural gas or the
establishment of new fuel standards,
m operating costs including natural gas feedstock and
logistics costs, capital costs, tax rates, cash flows,
foreign exchange rates and interest rates,
m timing of completion and cost of our methanol project
in Egypt and the Medicine Hat restart project,
m ability to meet covenants associated with our long-
term debt obligations, including without limitation,
the Egypt limited recourse debt facilities which have
conditions associated with operational completion of
the plant and completion of certain land title
registrations and related mortgages which require
actions by governmental entities,
m availability of committed credit facilities and other
financing,
m global and regional economic activity (including
industrial production levels),
m absence of a material negative impact from major
natural disasters or global pandemics,
m absence of a material negative impact from changes in
laws or regulations, and
m enforcement of contractual arrangements and ability
to perform contractual obligations by customers,
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:
m 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,
m the price of natural gas, oil and oil derivatives,
mthe success of natural gas exploration and
development activities in southern Chile and New
Zealand and our ability to obtain any additional gas in
Chile, New Zealand and Canada on commercially
acceptable terms,
m the timing of start-up and cost to complete our new
methanol joint venture project in Egypt,
48 METHANEX Annual Report 2010 Management’s Discussion 8: Analysis
m the ability to successfully carry out corporate initiatives
and strategies,
m actions of competitors and suppliers,
m actions of governments and governmental authorities,
including without limitation, implementation of
policies or other measures that could impact the supply
or demand for methanol or its derivatives,
m changes in laws or regulations,
m import or export restrictions, anti-dumping measures,
increases in duties, taxes and government royalties,
and other actions by governments that may adversely
affect our contractual
operations or existing
arrangements,
m world-wide economic conditions and conditions, and
mother risks described in our 2010 Management’s
Discussion and Analysis.
Having in mind these and other factors, investors and other readers are cautioned not to place undue reliance on forward-
looking statements. They are not a substitute for the exercise of one’s own due diligence and judgment. The outcomes
anticipated in forward-looking statements may not occur and we do not undertake to update forward-looking statements
except as required by applicable securities laws.
Management’s Discussion 8: Analysis Annual Report 2010 METHANEX 49
RESPONSIBILITY FOR FINANCIAL REPORTING
The consolidated financial statements and all financial information contained in the annual report are the responsibility of
management. The consolidated financial statements have been prepared in accordance with Canadian generally accepted
accounting principles and, where appropriate, have incorporated estimates based on the best judgment of management.
Management is responsible for establishing and maintaining adequate internal control over financial reporting. Under the
supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial
Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the
internal control framework set out in Internal Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on our evaluation, our management concluded that our internal
control over financial reporting was effective as of December 31, 2010.
The Board of Directors is responsible for ensuring that management fulfills its responsibilities for financial reporting and
internal control, and is responsible for reviewing and approving the consolidated financial statements. The Board carries
out this responsibility principally through the Audit, Finance and Risk Committee (the Committee).
The Committee consists of five non-management directors, all of whom are independent as defined by the applicable
rules in Canada and the United States. The Committee is appointed by the Board to assist the Board in fulfilling its
oversight responsibility relating to: the integrity of the Company’s financial statements, news releases and securities
filings; the financial reporting process; the systems of internal accounting and financial controls; the professional
qualifications and independence of the external auditor; the performance of the external auditors; risk management
processes; financing plans; pension plans; and the Company’s compliance with ethics policies and legal and regulatory
requirements.
The Committee meets regularly with management and the Company’s auditors, KPMG LLP, Chartered Accountants, to
discuss internal controls and significant accounting and financial reporting issues. KPMG has full and unrestricted access
to the Committee. KPMG audited the consolidated financial statements and the effectiveness of internal controls over
financial reporting. Their opinions are included in the annual report.
Pl LC
A. Terence Poole Bruce Aitken lan Cameron
Chairman of the Audit, Finance and President and Senior Vice President, Corporate
Risk Committee Chief Executive Officer Development and Chief Financial
Officer
March 24, 2011
50 METHANEX Annual Report 2010 Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of Methanex Corporation
We have audited the accompanying consolidated balance sheets of Methanex Corporation (“the Company”) as at
December 31, 2010 and 2009 and the related consolidated statements of income, shareholders’ equity, comprehensive
income (loss) and cash flows for each of the years then ended. These consolidated financial statements are the
responsibility ofthe Company’s management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the
Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit
to obtain reasonable assurance about whetherthe financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position ofthe Company as of December 31, 2010 and 2009 and the results of its operations and its cash flows for each of
the years then ended in conformity with Canadian generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the Company’s internal control over financial reporting as of March 24, 201, based on the criteria established in
Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations ofthe Treadway
Commission (COSO), and our report dated March 24, 2011 expressed an unqualified opinion on the effectiveness of the
Company’s internal control over financial reporting.
Linó “e?
__-
Chartered Accountants
Vancouver, Canada
March 24, 2011
Consolidated Financial Statements Annual Report 2010 METHANEX 51
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of Methanex Corporation
We have audited Methanex Corporation’s (“the Company”) internal control over financial reporting as of December 31,
2010, based on the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the effectiveness of internal control over financial
reporting, included in the section entitled “Management’s Annual Report on Internal Control over Financial Reporting”
included in the accompanying Management’s Discussion and Analysis. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also
included performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition ofthe company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2010 based on the criteria established in Internal Control – Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO).
We also have audited, in accordance with Canadian generally accepted auditing standards and the standards of the Public
Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company as at December 31,
2010 and 2009, and the related consolidated statements of income, shareholders’ equity, comprehensive income (loss) and
cash flows for the years then ended, and our report dated March 24, 2011, expressed an unqualified opinion on those
consolidated financial statements.
ino “e
==
Chartered Accountants
Vancouver, Canada
March 24, 2011
52 METHANEX Annual Report 2010 Consolidated Financial Statements
Consolidated Balance Sheets
(thousands of US dollars, except number of common shares)
AS AT DECEMBER 31 2010 2009
ASSETS
Current assets:
Cash and cash equivalents $ 193,794 $ 169,788
Receivables (note 3) 320,027 257,418
Inventories 230,322 171,554
Prepaid expenses 26,877 23,893
71,020 622,653
Property, plant and equipment (note 5) 2,213,836 2,183,787
Other assets (note 7) 85,303 116,977
$ 3,070,159 $ 2,923,417
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 250,730 $ 232,924
Current maturities on long-term debt (note 8) 49,965 29,330
Current maturities on other long-term lia! 13,395 9,350
314,090 271,604
Long-term debt (note 8) 896,976 884,914
Other long-term liabilities (note 9) 128,502 97,185
Future income tax liabilities (note 13) 307,865 300,510
Non-controlling interest 146,099 133,118
Shareholders’ equity:
Capital stock
25,000,000 authorized preferred shares without nominal or par value
Unlimited authorization of common shares without nominal or par value
Issued and outstanding common shares at December 31, 2010 were 92,632,022 (2009 – 92,108,242) 440,092 427,792
Contributed surplus 26,308 27,007
Retained earnings 850,691 806,158
Accumulated other comprehensive loss (40,464) (24,871)
1,276,627 1,236,086
$ 3,070,159 $ 2,923,417
Commitments and contingencies (notes 13 and 19)
See accompanying notes to consolidated financial statements.
Approved by the Board:
0 abr
A. Terence Poole Bruce Aitken
Director Director
Consolidated Financial Statements Annual Report 2010 METHANEX 53
Consolidated Statements of Income
(thousands of US dollars, except number of common shares and per share amounts)
FOR THE YEARS ENDED DECEMBER 31 2010 2009
Revenue $ 1,966,583 $ 1198,169
Cost of sales and operating expenses (1,699,845) (1,056,342)
Depreciation and amortization (131,381) (117,590)
Gain on sale of Kitimat assets (note 2) 22,223 –
Operating income 157,580 24,237
Interest expense (note 11) (24,238) (27,370)
Interest and other income (expense) 2,779 (403)
Income (loss) before income taxes 136,121 (3,536)
Income taxes (note 13):
Current (27,033) 5,592
Future (7,355) (1,318)
(34,388) 4,274
Net income $ 101,733 $ 738
Basic net income per common share $ 1.10 $ 0.01
Diluted net income per common share $ 1.09 $ 0.01
Weighted average number of common shares outstanding (note 1(k)) 92,218,320 92,063,371
Diluted weighted average number of common shares outstanding (note 1(k)) 93,503,568 92,688,510
See accompanying notes to consolidated financial statements.
54 METHANEX Annual Report 2010 Consolidated Financial Statements
Consolidated Statements of Shareholders’ Equity
(thousands of US dollars, except number of common shares)
Accumulated
Number of Other Total
Common Capital Contributed Retained Comprehensive Shareholders”
Shares Stock Surplus Earnings Loss Equity
Balance, December 31, 2008 92,031,392 $ 427,265 $ 22,669 $ 862,507 $ (24,025) $ 1,788,416
Net income – – – 738 – 738
Compensation expense
recorded for stock options – – 4,440 – 4,440
Issue of shares on exercise of
stock options 76,850 425 = = 425
Reclassification of grant date
fair value on exercise of stock
options – 102 (102) – –
Dividend payments – – – (57,087) – (57,087)
Other comprehensive loss – – – (846) (846)
Balance, December 31, 2009 92,108,242 427,792 27,007 806,158 (24,871) 1,236,086
Net income – – – 101,733 – 101,733
Compensation expense
recorded for stock options – – 2,364 – – 2,364
Issue of shares on exercise of
stock options 523,780 9,237 – – – 9,237
Reclassification of grant date
fair value on exercise of stock
options – 3,063 (3,063) – – –
Dividend payments – – – (57,200) – (57,200)
Other comprehensive loss – – – – (15,593) (15,593)
Balance, December 31, 2010 92,632,022 $ 440,092 $ 26,308 $ 850,691 $ (40,464) $ 1,276,627
See accompanying notes to consolidated financial statements.
Consolidated Statements of Comprehensive Income (Loss)
(thousands of US dollars)
FOR THE YEARS ENDED DECEMBER 31 2010 2009
Net income $ 101,733 $ 738
Other comprehensive income (loss):
Change in fair value of forward exchange contracts, net of tax =- 36
Change in fair value of interest rate swap contracts, net of tax (note 16) (15,593) (882)
(15,593) (846)
Comprehensive income (loss) $ 86,140 $ (108)
See accompanying notes to consolidated financial statements.
Consolidated Financial Statements Annual Report 2010 METHANEX 55
Consolidated Statements of Cash Flows
(thousands of US dollars)
FOR THE YEARS ENDED DECEMBER 31 2010 2009
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 101,733 $ 738
Add (deduct) non-cash items:
Depreciation and amortization 131,381 117,590
Gain on sale of Kitimat assets (22,223) –
Future income taxes 7,355 1,318
Stock-based compensation 31,496 12,527
Other 7,897 7,639
Other cash payments, including stock-based compensation (6,051) (1,302)
Cash flows from operating activities before undernoted 251,588 128,510
Changes in non-cash working capital (note 14) (98,706) (18,253)
152,882 110,257
CASH FLOWS FROM FINANCING ACTIVITIES
Dividend payments (57,200) (57,087)
Proceeds from limited recourse debt 67,515 151,378
Repayment of limited recourse debt (30,991) (15,282)
Equity contributions by non-controlling interest 23,376 45,103
Proceeds on issue of shares on exercise of stock options 9,237 425
Settlements on interest rate swap contracts (15,682) (6,386)
Other, net (5,999) (6,720)
(9,744) 111,431
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of assets 31,1 –
Property, plant and equipment (58,154) (60,906)
Egypt plant under construction (85,996) (261,646)
Oil and gas assets (24,233) (22,840)
GeoPark repayment (financing) 20,227 (9,285)
Change in project debt reserve accounts 372 5,229
Other assets, net (769) (2,454)
Changes in non-cash working capital (note 14) (2,350) (28,428)
(119,132) (380,330)
Increase (decrease) in cash and cash equivalents 24,006 (158,642)
Cash and cash equivalents, beginning of year 169,788 328,430
Cash and cash equivalents, end of year $ 193,794 $ 169,788
SUPPLEMENTARY CASH FLOW INFORMATION
Interest paid $ 57,880 $ 52,767
Income taxes paid, net of amounts refunded $ 9,090 $ 6,63
See accompanying notes to consolidated financial statements.
56 METHANEX Annual Report 2010 Consolidated Financial Statements
Notes to Consolidated Financial Statements
(Tabular dollar amounts are shown in thousands of US dollars, except where noted)
Years ended December 31, 2010 and 2009
1. Significant accounting policies:
(a) Basis of presentation:
These consolidated financial statements are prepared in accordance with generally accepted accounting principles (GAAP) in
Canada. These accounting principles are different in some respects from those generally accepted in the United States and the
significant differences are described and reconciled in note 20.
These consolidated financial statements include the accounts of Methanex Corporation, its wholly owned subsidiaries, less than
wholly owned entities for which it has a controlling interest and its proportionate share ofthe accounts of jointly controlled entities
(collectively, the Company). For less than wholly owned entities for which the Company has a controlling interest, a non-controlling
interest is included in the Company’s financial statements and represents the non-controlling shareholders’ interest in the net
assets of the entity. In accordance with Accounting Guideline No. 15, Consolidation of Variable Interest Entities, the Company also
consolidates any variable interest entities of which it is the primary beneficiary, as defined. When the Company does not have a
controlling interest in an entity, but exerts a significant influence over the entity, the Company applies the equity method of
accounting. All significant intercompany transactions and balances have been eliminated. Preparation of these consolidated
financial statements requires estimates and assumptions that affect amounts reported and disclosed in the financial statements
and related notes. Policies requiring significant estimates are described below. Actual results could differ from those estimates.
(b) Reporting currency and foreign currency translation:
The majority of the Company’s business is transacted in US dollars and, accordingly, these consolidated financial statements have
been measured and expressed in that currency. The Company translates foreign currency denominated monetary items at the
rates of exchange prevailing at the balance sheet dates and revenues and expenditures at the rates of exchange at the dates of
the transactions. Foreign exchange gains and losses are included in earnings.
(c) Cash equivalents:
Cash equivalents include securities with maturities ofthree months or less when purchased.
(d) Receivables:
The Company provides credit to its customers in the normal course of business. The Company performs ongoing credit
evaluations of its customers and maintains reserves for potential credit losses. The Company records an allowance for doubtful
accounts or writes down the receivable to estimated net realizable value if not collectible in full. Credit losses have historically
been within the range of management’s expectations.
(e) Inventories:
Inventories are valued at the lower of cost and estimated net realizable value. Cost is determined by the first-in, first-out basis and
includes direct purchase costs, cost of production, allocation of production overhead based on normal operating capacity and
transportation.
(f) Property, plant and equipment:
Property, plant and equipment are recorded at cost. Interest during construction and commissioning is capitalized until the plant
is operating in the manner intended by management. Routine repairs and maintenance costs are expensed as incurred. At regular
intervals, the Company conducts a planned shutdown and inspection (turnaround) at its plants to perform major maintenance
and replacements of catalyst. Costs associated with these shutdowns are capitalized and amortized over the period until the next
planned turnaround.
Depreciation and amortization is generally provided on a straight-line basis, or in the case of the New Zealand operations, on a
unit-of-natural gas consumption basis, at rates calculated to amortize the cost of property, plant and equipment from the
commencement of commercial operations over their estimated useful lives to estimated residual value.
The Company periodically reviews the carrying value of property, plant and equipment for impairment when circumstances
indicate an asset’s value may not be recoverable. If it is determined that an asset’s undiscounted cash flows are less than ¡ts
carrying value, the asset is written down to its fair value.
Notes to Consolidated Financial Statements Annual Report 2010. METHANEX 57
(g) Other assets:
Marketing and production rights are capitalized to other assets and amortized to depreciation and amortization expense on an
appropriate basis to charge the cost of the assets against earnings.
Financing fees related to undrawn credit facilities are capitalized to other assets and amortized to interest expense over the term
ofthe credit facility. Financing fees related to project debt facilities are capitalized to other assets until the project debt is fully
drawn. Once the project debt is fully drawn, these fees are reclassified to long-term debt net of financing fees. Financing fees
included in other long-term debt are amortized to interest expense overthe repayment term on an effective interest rate basis.
(h) Asset retirement obligations:
The Company recognizes asset retirement obligations for those sites where a reasonably definitive estimate of the fair value of
the obligation can be determined. The Company estimates fair value by determining the current market cost required to settle the
asset retirement obligation and adjusts for inflation through to the expected date ofthe expenditures and discounts this amount
back to the date when the obligation was originally incurred. As the liability is initially recorded on a discounted basis, it is
increased each period until the estimated date of settlement. The resulting expense is referred to as accretion expense and is
included in cost of sales and operating expenses. Asset retirement obligations are not recognized with respect to assets with
indefinite or indeterminate lives as the fair value of the asset retirement obligations cannot be reasonably estimated due to
uncertainties regarding the timing of expenditures. The Company reviews asset retirement obligations and adjusts the liability as
necessary to reflect changes in the estimated future cash flows and timing underlying the fair value measurement.
(i) Employee future benefits:
Accrued pension benefit obligations and related expenses for defined benefit pension plans are determined using current market
bond yields to measure the accrued pension benefit obligation. Adjustments to the accrued benefit obligation and the fair value of
the plan assets that arise from changes in actuarial assumptions, experience gains and losses and plan amendments that exceed
10% of the greater ofthe accrued benefit obligation and the fair value ofthe plan assets are amortized to earnings on a straight-
line basis over the estimated average remaining service lifetime ofthe employee group. The cost for defined contribution benefit
plans is expensed as earned by the employees.
(j) Stock-based compensation:
The Company grants stock-based awards as an element of compensation. Stock-based awards granted by the Company can
include stock options, tandem share appreciation rights, share appreciation rights, deferred share units, restricted share units or
performance share units.
For stock options granted by the Company, the cost of the service received as consideration is measured based on an estimate of
the fair value at the date of grant. The grant-date fair value is recognized as compensation expense over the related service period
with a corresponding increase in contributed surplus. On the exercise of stock options, consideration received, together with the
compensation expense previously recorded to contributed surplus, is credited to share capital. The Company uses the Black-
Scholes option pricing model to estimate the fair value of each stock option at the date of grant.
Share appreciation rights are units which grant the holder the right to receive a cash payment upon exercise for the difference
between the market price ofthe Company’s common shares and the exercise price which is determined at the date of grant.
Tandem share appreciation rights gives the holder the choice between exercising a regular stock option or share appreciation
rights. Share appreciation rights and tandem share appreciation rights are measured based on the intrinsic value, the amount by
which the market value of common shares exceeds the exercise price. Changes in intrinsic value are recognized in earnings for the
proportion ofthe service that has been rendered at each reporting date.
Deferred, restricted and performance share units are grants of notional common shares that are redeemable for cash based on the
market value ofthe Company’s common shares and are non-dilutive to shareholders. Performance share units have an additional
feature where the ultimate number of units that vest will be determined bythe Company’s total shareholder return in relation to
a predetermined target over the period to vesting. The number of units that will ultimately vest will be in the range of 50% to
120% ofthe original grant. The fair value of deferred, restricted and performance share units is initially measured at the grant date
based on the market value ofthe Company’s common shares and ¡is recognized in earnings over the related service period.
Changes in fair value are recognized in earnings for the proportion of the service that has been rendered at each reporting date.
Additional information related to the stock option plan, the assumptions used in the Black-Scholes option pricing model, tandem
share appreciation rights, share appreciation rights and the deferred, restricted and performance share units ofthe Company are
described in note 10.
58 METHANEX Annual Report 2010 Notes to Consolidated Financial Statements
(k) Net income per common share:
The Company calculates basic net income per common share by dividing net income by the weighted average number of common
shares outstanding and calculates diluted net income per common share under the treasury stock method. Under the treasury
stock method, the weighted average number of common shares outstanding for the calculation of diluted net income per share
assumes that the total ofthe proceeds to be received on the exercise of dilutive stock options and the unrecognized portion ofthe
grant-date fair value of stock options is applied to repurchase common shares at the average market price for the period. A stock
option is dilutive only when the average market price of common shares during the period exceeds the exercise price ofthe stock
option. The diluted net income per common share is calculated without the effect oftandem share appreciation rights.
Areconciliation ofthe weighted average number of common shares outstanding is as follows:
FOR THE YEARS ENDED DECEMBER 31 2010 2009
Denominator for basic net income per common share 92,218,320 92,063,371
Effect of dilutive stock options 1,285,248 625,139
Denominator for diluted net income per common share 93,503,568 92,688,510
At December 31, 2010, 1,590,270 stock options (2009 – 3,487,764 stock options) were excluded from the diluted weighted average
number of common shares calculation as their effect would have been anti-dilutive.
(1) Revenue recognition:
Revenue is recognized based on individual contract terms when the title and risk of loss to the product transfers to the customer, which
usually occurs at the time shipment is made. Revenue is recognized at the time of delivery to the customer’s location ifthe Company
retains title and risk of loss during shipment. For methanol shipped on a consignment basis, revenue is recognized when the customer
consumes the methanol. For methanol sold on a commission basis, the commission income is included in revenue when earned.
(m) Financial instruments:
Financial instruments must be classified into one of five categories and, depending on the category, will either be 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 at fair value.
Changes in the fair value of held-for-trading financial assets and liabilities are recognized in earnings and changes in the fair value
of available-for-sale financial assets are recorded in other comprehensive income until the investment is either derecognized or
impaired, at which time the amounts would be recorded in earnings. The Company classifies its cash and cash equivalents as held-
for-trading. Receivables are classified as loans and receivables. Accounts payable and accrued liabilities, long-term debt, net of
financing costs, and other long-term liabilities are classified as other financial liabilities.
Under these standards, derivative financial instruments, including embedded derivatives, are classified as held-for-trading and are
recorded on the balance sheet at fair value unless exempted. The Company records all changes in fair value of derivative financial
instruments in earnings unless the instruments are designated as cash flow hedges. The Company enters into and designates as
cash flow hedges certain interest rate swap contracts to hedge variable interest rate exposure on its limited recourse debt. The
Company also enters into and designates as cash flow hedges certain forward exchange sales contracts to hedge foreign
exchange exposure on anticipated sales. The Company assesses at inception and on an ongoing basis whether the hedges are and
continue to be effective in offsetting changes in the cash flows ofthe hedged transactions. The effective portion of changes in the
fair value ofthese hedging instruments is recognized in other comprehensive income. The ineffective portion of changes in fair
value ofthese hedging instruments is recognized immediately in earnings.
(n) Income taxes:
Future income taxes are accounted for using the asset and liability method. The asset and liability method requires that income
taxes reflect the expected future tax consequences of temporary differences between the carrying amounts of assets and
liabilities and their tax bases. Future income tax assets and liabilities are determined for each temporary difference based on
currently enacted or substantially enacted tax rates that are expected to be in effect when the underlying items of income or
expense are expected to be realized. The effect of a change in tax rates or tax legislation is recognized in the period of substantive
enactment. Future tax benefits, such as non-capital loss carryforwards, are recognized to the extent that realization of such
benefits is considered to be more likely than not.
The Company accrues for taxes that will be incurred upon distributions from its subsidiaries when it is probable that the earnings
will be repatriated.
Notes to Consolidated Financial Statements Annual Report 2010 METHANEX 59
The determination of income taxes requires the use of judgment and estimates. If certain judgments or estimates prove to be
inaccurate, or if certain tax rates or laws change, the Company’s results of operations and financial position could be materially
impacted.
(0) Oil and natural gas exploration and development expenditure:
The Company applies the full cost method of accounting for the investment associated with oil and gas exploration and
development in the Dorado Riquelme block in southern Chile. Under this method, all costs, including internal costs and asset
retirement costs, directly associated with the acquisition of, the exploration for and the development of natural gas reserves are
capitalized. Costs are then depleted and amortized using the unit-of-production method based on estimated proved reserves.
Capitalized costs subject to depletion include estimated future costs to be incurred in developing proved reserves. Costs of major
development projects and costs of acquiring and evaluating significant unproved properties are excluded from the costs subject
to depletion until it is determined whether or not proved reserves are attributable to the properties or impairment has occurred.
Costs that have been impaired are included in the costs subject to depletion and amortization.
Under full cost accounting, an impairment assessment (“ceiling test”) is performed on an annual basis for all oil and gas assets. An
impairment loss is recognized in earnings when the carrying amount is not recoverable and the carrying amount exceeds its fair
value. The carrying amount is not recoverable ifthe carrying amount exceeds the sum of the undiscounted cash flows from
proved reserves. Ifthe sum ofthe cash flows is less than the carrying amount, the impairment loss is measured as the amount by
which the carrying amount exceeds the sum of the discounted cash flows of proved and probable reserves. The Company
performed the annual ceiling test for its investment in the Dorado Riquelme block and concluded no impairment existed as at
December 31, 2010.
(p) Anticipated changes to Canadian generally accepted accounting principles:
The Canadian Accounting Standards Board confirmed January 1, 2011 as the changeover date for Canadian publicly accountable
enterprises to start using International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards
Board (IASB). Consequently, we will issue our first interim consolidated financial statements in accordance with IFRS as issued by
the lASB beginning with the first quarter ending March 31, 2011, with comparative financial results for 2010. Following the
adoption of IFRS, the Company will no longer reconcile the financial statements to US GAAP as presented in note 20.
2. Gain on sale of Kitimat assets:
During 2010 the Company exercised an option to sell the Kitimat land and terminal assets for total proceeds of $31.8 million. The
net book value associated with the assets sold was $9.6 million, resulting in the recognition of a gain of $22.2 million in 2010.
3. Receivables:
AS AT DECEMBER 31 2010 2009
Trade $ 257,945 $ 191,002
Value-added and other tax receivables 43,495 56,264
Current portion of GeoPark financing (note 7) 8,800 8,086
Other 9,787 2,066
$ 320,027 $ 257,418
4. Inventories:
Inventories are valued at the lower of cost, determined on a first-in, first-out basis, and estimated net realizable value.
Substantially all inventories consist of produced and purchased methanol. The amount of inventories included in cost of sales and
operating expenses and depreciation and amortization during the year ended December 31, 2010 is $1,604 million (2009 –
$997 million).
60 METHANEX Annual Report 2010 Notes to Consolidated Financial Statements
5. Property, plant and equipment:
ACCUMULATED NET BOOK
AS AT DECEMBER 31 CcosT DEPRECIATION VALUE
2010
Plant and equipment $ 2,618,802 $ 1,475,323 $ 1,143,479
Egypt plant under construction 942,045 – 942,045
Oil and gas assets 92,634 20,092 72,542
Other 116,203 60,433 55,770
$ 3,769,684 $ 1,555,848 $ 2,213,836
2009
Plant and equipment $ 2,591,480 $ 1,384,939 $ 1,206,541
Egypt plant under construction 854,164 =- 854,164
Oil and gas assets 68,402 4,560 63,842
Other 127,623 68,383 59,240
$ 3,641,669 $ 1,457,882 $ 2,183,787
6. Interest in Atlas joint venture:
The Company has a 63.1% joint venture interest in Atlas Methanol Company (Atlas). Atlas owns a 1.7 million tonne per year
methanol production facility in Trinidad. Included in the consolidated financial statements are the following amounts
representing the Company’s proportionate interest in Atlas:
CONSOLIDATED BALANCE SHEETS AS AT DECEMBER 31 2010 2009
Cash and cash equivalents $ 10,675 $ 8,252
Other current assets 80,493 72,667
Property, plant and equipment 231,978 240,290
Restricted cash for debt service reserve account 12,548 12,920
Accounts payable and accrued liabilities 23,934 22,380
Long-term debt, including current maturities (note 8) 79,577 93,155
Future income tax liabilities 21,189 18,660
CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31 2010 2009
Revenue $ 180,314 $ 194,314
Expenses (165,282) (158,611)
Income before income taxes 15,032 35,703
Income tax expense (3,972) (6,127)
Net income $ 11,060 $ 29,576
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31 2010 2009
Cash inflows from operating activities $ 25,080 $ 36,166
Cash outflows from financing acti (14,032) (14,032)
Cash outflows from investing activities (8,625) (3,568)
7. Other assets:
AS AT DECEMBER 31 2010 2009
Marketing and production rights, net of accumulated amortization (a) $ 11,600 $ 19,099
GeoPark financing (b) 17,068 37,969
Defined benefit pension plans (note 18) 16,007 16,003
Restricted cash (note 6) 12,548 12,920
Deferred financing costs, net of accumulated amortization (c) 1,791 9,725
Other 26,289 21,261
$ 85,03 $ 116,977
(a) Marketing and production rights, net of accumulated amortization:
For the year ended December 31, 2010, amortization of marketing and production rights included in depreciation and
amortization was $7.5 million (2009 – $8.0 million).
(b) GeoPark financing:
Over the past few years, the Company provided GeoPark Chile Limited (GeoPark) $57 million (of which $32 million has been repaid
at December 31, 2010) in financing to support and accelerate GeoPark’s natural gas exploration and development activities in the
Notes to Consolidated Financial Statements Annual Report 2010 METHANEX 61
Fell block in southern Chile. GeoPark agreed to supply the Company with all natural gas sourced from the Fell block under a
ten-year exclusive supply arrangement. As at December 31, 2010, the outstanding balance is $25.9 million, of which $8.8 million,
representing the current portion, has been recorded in receivables.
(c) Deferred financing costs, net of accumulated amortization:
Forthe year ended December 31, 2010, amortization of deferred financing fees included in interest expense was $0.8 million
(2009 – $0.6 million). During 2010, the Company was fully drawn on the Egyptian limited recourse debt facilities and reclassified
the balance relating to deferred financing fees included in other assets to long-term debt.
8. Long-term debt:
AS AT DECEMBER 31 2010 2009
Unsecured notes:
(i) 8.75% due August 15, 2012 (effective yield 8.88%) $ 199,12 $ 198,627
(ii) 6.00% due August 15, 2015 (effective yield 6.10%) 143,908 148,705
348,020 347,332
Atlas limited recourse debt facilities (63.1% proportionate share):
(i) Senior commercial bank loan facility with interest payable semi-annually with rates based on LIBOR plus a
spread ranging from 2.25% to 2.75% per annum. Principal paid in 12 semi-annual payments that
commenced June 2005. – 7,071
(ii) Senior secured notes bearing an interest rate with semi-annual interest payments of 7.95% per annum.
Principal paid in y semi-annual payments that commenced December 2010. 55,476 62,064
(iii) Senior fixed rate bond bearing an interest rate with semi-annual interest payments of 8.25% per annum.
Principal will be paid in 4 semi-annual payments commencing June 2015. 14,816 14,769
(iv) Subordinated loans with an interest rate based on LIBOR plus a spread ranging from 2.25% to 2.75% per
annum. Principal paid in 19 semi-annual payments commencing June 2011. 9,285 9,251
79,577 93,155
Egypt limited recourse debt facilities:
Four facilities with interest payable semi-annually with rates based on LIBOR plus a spread ranging from
1.0% to 1.7% per annum. Principal paid in 24 semi-annual payments that commenced in September 2010. 499,706 461,570
Other limited recourse debt 19,638 12,187
Total long-term debt’ 946,941 914,244
Less current maturities (49,965) (29,330)
$ 896,976 $ 884,914
1 Total debt is presented net of deferred financing fees of $18.5 million at December 31, 2010 (2009 – $14.7 million).
The Egypt limited recourse debt facilities bear interest at LIBOR plus a spread. The Company has entered into interest rate swap
contracts to swap the LIBOR-based interest payments for an average aggregated fixed rate of 4.8% plus a spread on approximately
75% of the Egypt limited recourse debt facilities for the period to March 31, 2015.
The other limited recourse debt includes one limited recourse debt with a remaining term of approximately nine years with
interest payable at LIBOR plus 0.75% and another limited recourse debt with a remaining term of approximately six and a half
years with interest payable at LIBOR plus 2.8%. Both ofthese financial obligations are paid in equal quarterly principal payments.
Forthe year ended December 31, 2010, non-cash accretion, on an effective interest basis, of deferred financing costs included in
interest expense was $1.1 million (2009 – $1.2 million).
The minimum principal payments in aggregate and for each of the five succeeding years are as follows:
2011 $ 49,552
2012 251,041
2013 58,368
2014 54,136
2015 200,114
Thereafter 352,274
$ 965,485
The covenants governing the Company’s unsecured notes apply to the Company and its subsidiaries excluding the Atlas joint
venture and Egypt entity (“limited recourse subsidiaries”) and include restrictions on liens and sale and lease-back transactions, or
merger or consolidation with another corporation or sale of all or substantially all ofthe Company’s assets. The indenture also
contains customary default provisions.
62 METHANEX Annual Report 2010 Notes to Consolidated Financial Statements
The Company has a $200 million unsecured revolving bank facility provided by highly rated financial institutions that expires in
May 2012 and that contains covenant and default provisions in addition to those of the unsecured notes as described above.
Significant covenants and default provisions under this facility include:
a) the obligation to maintain an EBITDA to interest coverage ratio of greater than 2:1 and a debt to capitalization ratio of less than
or equal to 50%, calculated on a four quarter trailing average basis in accordance with definitions in the credit agreement that
include adjustments related to the limited recourse subsidiaries,
b) a default if payment on any indebtedness of $10 million or more ofthe Company and its subsidiaries except for the limited
recourse subsidiaries is accelerated by the creditor, and
c) a default if a default occurs on any other indebtedness of $50 million or more of the Company and its subsidiaries except for the
limited recourse subsidiaries that permits the creditor to demand repayment.
The Atlas and Egypt limited recourse debt facilities are described as limited recourse as they are secured only by the assets ofthe
Egypt entity and the Atlas joint venture, respectively. Accordingly, the lenders to the limited recourse debt facilities have no
recourse to the Company or its other subsidiaries. The Atlas and Egypt limited recourse debt facilities have customary covenants
and default provisions that apply only to these entities, including restrictions on the incurrence of additional indebtedness and a
requirement to fulfill certain conditions before the payment of cash or other distributions. The Egypt limited recourse debt
facilities also require that certain conditions associated with completion of plant construction and commissioning be met by no
later than September 30, 2011. These conditions include a 90-day plant reliability test and finalization of certain land title
registrations and related mortgages that require actions by governmental entities.
Failure to comply with any ofthe covenants or default provisions ofthe long-term debt facilities described above could result in a
default under the applicable credit agreement that would allow the lenders to not fund future loan requests and to accelerate the
due date ofthe principal and accrued interest on any outstanding loans.
At December 31, 2010, management believes the Company was in compliance with all ofthe covenants and default provisions
referred to above.
9. Other long-term liabilities:
AS AT DECEMBER 31 2010 2009
Asset retirement obligations (a) $ 16,241 $ 16,134
Capital lease obligation (b) 10,755 15,921
Stock-based compensation liability (note 10 (b) and 10 (c)) 47,250 21,411
Fair value of derivative financial instruments (note 16) 43,488 33,284
Chile retirement arrangement (note 18) 24,163 19,785
141,897 106,535
Less current maturities (13,395) (9,350)
$ 128,502 $ 97185
(a) Asset retirement obligations:
The Company has accrued for asset retirement obligations related to those sites where a reasonably definitive estimate of the fair
value ofthe obligation can be made. Because of uncertainties in estimating future costs and the timing of expenditures related to
the currently identified sites, actual results could differ from the amounts estimated. During the year ended December 31, 2010,
cash expenditures applied against the accrual for asset retirement obligations were $0.2 million (2009 = nil). At December 31, 2010,
the total undiscounted amount of estimated cash flows required to settle the obligation was $17.0 million (2009 – $17.8 million).
(b) Capital lease obligation:
As at December 31, 2010, the Company has a capital lease obligation related to an ocean-going vessel. The future minimum lease
payment in aggregate until the expiry of the lease in 2012 is $10.8 million, which is net of $6.4 million of executory and imputed
interest costs.
10. Stock-based compensation:
The Company provides stock-based compensation to its directors and certain employees through grants of stock options, tandem
share appreciation rights, share appreciation rights and deferred, restricted or performance share units.
Notes to Consolidated Financial Statements Annual Report 2010. METHANEX 63
(a) Stock options:
At December 31, 2010, the Company had 2,495,458 common shares reserved for future stock option grants and tandem share
appreciation rights under the Company’s stock option plan.
(i) Incentive stock options:
The exercise price of each incentive stock option is equal to the quoted market price ofthe Company’s common shares at the date
ofthe grant. Options granted prior to 2005 have a maximum term often years with one-half ofthe options vesting one year after
the date of the grant and a further vesting of one-quarter of the options per year over the subsequent two years. Beginning in
2005, all options granted have a maximum term of seven years with one-third ofthe options vesting each year after the date of
grant.
Common shares reserved for outstanding incentive stock options at December 31, 2010 and 2009 are as follows:
OPTIONS DENOMINATED IN CAD*
OPTIONS DENOMINATED IN USD
NUMBER WEIGHTED NUMBER WEIGHTED
OF STOCK AVERAGE OF STOCK AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
Outstanding at December 31, 2008 76,450 $ 6.95 3,743,117 $ 23.27
Granted – – 1,361,130 6.33
Exercised (20,100) 5.26 (21,750) 872
Cancelled (1,000) 5.85 (84,255) 20.46
Outstanding at December 31, 2009 55,350 7.58 4,998,242 18.77
Granted – – 89,250 25.22
Exercised (45,600) 8.19 (478,180) 18.54
Cancelled (7,500) 3.29 (35,055) 15.33
Outstanding at December 31, 2010 2,250 $ 956 4,574,257 $ 18.95
1 All options denominated in CAD are outstanding and exercisable at December 31, 2010.
Information regarding incentive stock options outstanding at December 31, 2010 is as follows:
OPTIONS OUTSTANDING AT
DECEMBER 31, 2010
OPTIONS EXERCISABLE AT
DECEMBER 31, 2010
WEIGHTED NUMBER NUMBER
AVERAGE OF STOCK WEIGHTED OF STOCK WEIGHTED
REMAINING OPTIONS AVERAGE OPTIONS AVERAGE
RANGE OF EXERCISE PRICES CONTRACTUAL LIFE OUTSTANDING EXERCISE PRICE EXERCISABLE EXERCISE PRICE
Options denominated in USD
$ 633to11.56 4.9 1,356,780 $ 6.53 479,570 $ 6.90
$ 17.85 to 22.52 2.0 1,256,000 20.27 1,256,000 20.27
$ 23.92to 28.43 3.8 1,961,477 26.69 1,529,168 26.39
3.6 4,574,257 $ 18.95 3,264,138 $ 2117
(ii) Fair value assumptions:
The fair value of each stock option grant was estimated on the date of grant using the Black-Scholes option pricing model with the
following assumptions:
FOR THE YEARS ENDED DECEMBER 31 2010 2009
Risk-free interest rate 1.7% 1.8%
Expected dividend yield 2% 2%
Expected life of option 4 years 5 years
Expected volatility 41% 44%
Expected forfeitures 5% 5%
Weighted average fair value of options granted (USD per share) $7.59 $2.06
For the year ended December 31, 2010, compensation expense related to stock options was $2.4 million (2009 – $4.4 million).
(b) Share appreciation rights and tandem share appreciation rights:
During 2010, the Company’s stock option plan was amended to include tandem share appreciation rights (TSARs) and a new plan
was introduced for share appreciation rights (SARs). A SAR gives the holder a right to receive a cash payment equal to the amount
the market price ofthe Company’s common shares exceeds the exercise price. ATSAR gives the holder the choice between
exercising a regular stock option or surrendering the option for a cash payment equal to the amount the market price ofthe
Company’s common shares exceeds the exercise price. All SARs and TSARs granted have a maximum term of seven years with
one-third vesting each year after the date of grant.
64 METHANEX Annual Report 2010 Notes to Consolidated Financial Statements
(i) Outstanding SARs and TSARs:
SARs and TSARs outstanding at December 31, 2010:
Share Appreciation Rights | Tandem Share Appreciation Rights
NUMBER EXERCISE NUMBER EXERCISE
OF UNITS PRICE OF UNITS PRICE
Outstanding at December 31, 2009 – $ – – $ –
Granted 394,065 25.22 735,505 25.19
Exercised – – – –
Cancelled (5,100) 25.22 – –
Outstanding at December 31, 2010 388,965 $ 25.22 735,505 $ 25.19
(ii) Compensation expense related to SARs and TSARs:
Compensation expense for SARs and TSARs is initially measured based on their intrinsic value and is recognized over the related
service period. The intrinsic value is measured by the amount the market price ofthe Company’s common shares exceeds the
exercise price of a unit. Changes in intrinsic value are recognized in earnings for the proportion of the service that has been
rendered at each reporting date. The intrinsic value at December 31, 2010 was $5.8 million compared with the recorded liability of
$3.4 million. The difference between the intrinsic value and the recorded liability of $2.4 million will be recognized over the
weighted average remaining service period of approximately 2.2 years. Forthe year ended December 31, 2010, compensation
expense related to SARs and TSARs included in cost of sales and operating expenses was $3.4 million (2009 – nil).
(c) Deferred, restricted and performance share units:
Deferred, restricted and performance share units outstanding at December 31, 2010 are as follows:
NUMBER OF NUMBER OF NUMBER OF
DEFERRED RESTRICTED | PERFORMANCE
SHARE UNITS SHARE UNITS SHARE UNITS
Outstanding at December 31, 2008 411,395 12,523 1,057,648
Granted 125,858 15,200 396,470
Granted in lieu of dividends 24,543 1,354 52,789
Redeemed (56,620) (6,599) (395,420)
Cancelled – – (32,675)
Outstanding at December 31, 2009 505,176 22,478 1,078,812
Granted 48,601 29,500 404,630
Granted in lieu of dividends 14,132 1,265 28,915
Redeemed (10,722) (6,639) (326,840)
Cancelled – – (15,900)
Outstanding at December 31, 2010 557,187 46,604 1,169,617
The fair value of deferred, restricted and performance share units is initially measured at the grant date based on the market value
ofthe Company’s common shares and is recognized in earnings over the related service period. Changes in fair value are recognized
in earnings for the proportion of the service that has been rendered at each reporting date. The fair value of deferred, restricted and
performance share units outstanding at December 31, 2010 was $53.8 million (2009 – $26.7 million) compared with the recorded
liability of $43.8 million (2009 – $21.4 million). The difference between the fair value and the recorded liability at December 31, 2010
of $10.0 million will be recognized over the weighted average remaining service period of approximately 1.5 years.
Forthe year ended December 31, 2010, compensation expense related to deferred, restricted and performance share units was
$25.7 million (2009 – $8.2 million). Included in the compensation expense for the year ended December 31, 2010 was $16.3 million
(2009 – $0.9 million) related to the effect of the change in the Company’s share price.
1. Interest expense:
FOR THE YEARS ENDED DECEMBER 31 2010 2009
Interest expense before capitalized interest $ 62,313 $ 59,799
Less capitalized interest related to Egypt plant under construction (38,075) (32,429)
Interest expense $ 24,238 $ 27,370
Interest during construction and commissioning of the Egypt methanol facility is capitalized until the plant is operating in the
manner intended by management. The Company has secured limited recourse debt of $530 million for its joint venture project to
Notes to Consolidated Financial Statements Annual Report 2010. METHANEX 65
construct a 1.26 million tonne per year methanol facility in Egypt. The Company has entered into interest rate swap contracts to
swap the LIBOR-based interest payments for an average aggregated fixed rate of 4.8% plus a spread on approximately 75% ofthe
Egypt limited recourse debt facilities for the period to March 31, 2015. For the year ended December 31, 2010 interest costs of $38.1
million (2009 – $32.4 million) related to this project were capitalized, inclusive of interest rate swaps.
12. Segmented information:
The Company’s operations consist of the production and sale of methanol, which constitutes a single operating segment.
During the years ended December 31, 2010 and 2009, revenues attributed to geographic regions, based on the location of
customers were as follows:
UNITED
STATES CANADA EUROPE CHINA KOREA OTHERASIA LATIN AMERICA TOTAL
Revenue
2010 $ 469,494 $ 142,347 $ 454,130 $ 350,578 $ 216,232 $ 127,242 $ 206,560 | $ 1,966,583
2009 $ 354,605 $ 106,437 $ 198,205 $ 195,315 $ 135,479 $ 83,039 $ 125,089 $ 1198,169
As at December 31, 2010 and 2009, the net book value of property, plant and equipment by country was as follows:
NEW
EGYPT CHILE TRINIDAD ZEALAND CANADA KOREA OTHER TOTAL
Property, plant and equipment
2010 $ 942,045 $ 658,412 $ 461,247 $ 86,491 $ 15,596 $ 14,038 $ 36,007 $ 2,213,836
2009 $ 854,164 $ 687313 $ 488,655 $ 86,730 $ 17101 $ 14,840 $ 34,984 $ 2,183,787
13. Income and other taxes:
(a) Income tax expense:
The Company operates in several tax jurisdictions and therefore its income is subject to various rates oftaxation. Income tax
expense differs from the amounts that would be obtained by applying the Canadian statutory income tax rate to income before
income taxes. These differences are as follows:
FOR THE YEARS ENDED DECEMBER 31 2010 2009
Canadian statutory tax rate 28.5% 30.0%
Income tax expense (recovery) calculated at Canadian statutory tax rate $ 38,794 $ (1060)
Increase (decrease) in income tax expense resulting from:
Impact of income and losses taxed in foreign jurisdictions 5,982 (5,499)
Previously unrecognized loss carryforwards and temporary differences (13,173) =-
Other 2,785 2,285
Total income tax expense (recovery) $ 34,388 $ (4,274)
(b) Net future income tax liabilities:
The tax effect of temporary differences that give rise to future income tax liabilities and future income tax assets are as follows:
AS AT DECEMBER 31 2010 2009
Future income tax liabilities:
Property, plant and equipment $ 232,558 $ 234,162
Other 136,967 121,668
369,525 355,830
Future income tax assets:
Non-capital loss carryforwards 98,392 126,014
Property, plant and equipment 7,622 17,842
Other 98,561 74,310
204,575 218,166
Future income tax asset valuation allowance (142,915) (162,846)
61,660 55,320
Net future income tax liabilities $ 307,865 $ 300,510
66 METHANEX Annual Report 2010 Notes to Consolidated Financial Statements
At December 31, 2010, the Company had non-capital loss carryforwards available for tax purposes of approximately $172 million in
Canada and approximately $102 million in New Zealand. In Canada, these loss carryforwards expire in the period 2014 to 2015,
inclusive. In New Zealand the loss carryforwards do not have an expiry date.
(c) Contingent tax liability:
The Board of Inland Revenue of Trinidad and Tobago issued assessments against the Company’s wholly owned subsidiary,
Methanex Trinidad (Titan) Unlimited, in respect ofthe 2003 and 2004 financial years. The assessments relate to the deferral oftax
depreciation deductions during the five-year tax holiday that ended in 2005. The impact of the amount in dispute as at
December 31, 2010 is approximately $26 million in current taxes and $23 million in future taxes, exclusive of any interest charges.
The Company has appealed the assessments and based on the merits of the case and legal interpretation, management believes
its position should be sustained.
14. Changes in non-cash working capital:
Changes in non-cash working capital for the years ended December 31, 2010 and 2009 are as follows:
FOR THE YEARS ENDED DECEMBER 31 2010 2009
Decrease (increase) in non-cash working capital:
Receivables $ (62,609) $ (43,999)
Inventories (58,768) 6,083
Prepaid expenses (2,984) (7,053)
Accounts payable and accrued liabilities 17,806 (2,445)
(106,555) (47,414)
Adjustments for items not having a cash effect 5,499 733
Changes in non-cash working capital $ (101,056) $ (46,681)
These changes relate to the following activities:
Operating $ (98,706) $ (18,253)
Investing (2,350) (28,428)
Changes in non-cash working capital $ (101,056) $ (46,681)
15. Capital disclosures:
The Company’s objectives in managing its liquidity and capital are to safeguard the Company’s ability to continue as a going
concern, to provide financial capacity and flexibility to meet its strategic objectives, to provide an adequate return to shareholders
commensurate with the level of risk, and to return excess cash through a combination of dividends and share repurchases.
AS AT DECEMBER 31 2010 2009
Liquidity:
Cash and cash equivalents $ 193,794 $ 169,788
Undrawn Egypt limited recourse debt facilities – 58,048
Undrawn credit facilities 200,000 200,000
Total liquidity $ 393794 $ 427836
Capitalization:
Unsecured notes $ 348,020 $ 347,332
Limited recourse debt facilities, including current portion 598,921 566,912
Total debt 946,941 914,244
Non-controlling interest 146,099 133,118
Shareholders’ equity 1,276,627 1,236,086
Total capitalization $ 2,369,667 $ 2,283,448
Total debt to capitalization’ 40% 40%
Net debt to capitalization? 35% 35%
+ Total debt divided by total capitalization.
2 Total debt less cash and cash equivalents divided by total capitalization less cash and cash equivalents.
The Company manages its liquidity and capital structure and makes adjustments to it in light of changes to economic conditions,
the underlying risks inherent in its operations and capital requirements to maintain and grow its operations. The strategies
Notes to Consolidated Financial Statements Annual Report 2010 METHANEX 67
employed by the Company include the issue or repayment of general corporate debt, the issue of project debt, the issue of equity,
the payment of dividends and the repurchase of shares.
The Company is not subject to any statutory capital requirements and has no commitments to sell or otherwise issue common
shares except pursuant to outstanding employee stock options.
The undrawn credit facility in the amount of $200 million is provided by highly rated financial institutions, expires in May 2012
and is subject to certain financial and other covenants. Note 8 provides further details regarding the financial and other
covenants.
16. 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 balance sheet at fair value. Derivative financial instruments are classified as held-for-trading
and are recorded on the balance sheet at fair value unless exempted. Changes in the fair value of derivative financial instruments
are recorded in earnings unless the instruments are designated as cash flow hedges.
The following table provides the carrying value of each category of financial assets and liabilities and the related balance sheet item:
AS AT DECEMBER 31 2010 2009
Financial assets:
Held-for-trading financial assets:
Cash and cash equivalents! $ 193,794 $ 169,788
Debt service reserve accounts included in other assets’ 12,548 12,920
Loans and receivables:
Receivables, excluding current portion of GeoPark financing 316,070 249,332
GeoPark financing, including current portion (note 7) 25,868 46,055
Total financial assets? $ 548,280 $ 478,095
Financial liabilities:
Other financial liabilities:
Accounts payable and accrued liabilities $ 250,730 $ 232924
Long-term debt, including current portion 946,941 914,244
Held-for-trading financial liabilities:
Derivative instruments designated as cash flow hedges’ 43,488 33,185
Derivative instruments – 99
Total financial liabilities $ 1,241,159 $ 1,180,452
Cash and cash equivalents and debt service reserve accounts are measured at fair value based on quoted prices in active markets for identical
assets and the Egypt interest rate swaps designated as cash flow hedges are measured at fair value based on quoted prices in non-active markets
received from counterparties.
The carrying amount of the financial assets represents the maximum exposure to credit risk at December 31, 2010.
The Egypt limited recourse debt facilities bear interest at LIBOR plus a spread. The Company has entered into interest rate swap
contracts to swap the LIBOR-based interest payments for an average aggregated fixed rate of 4.8% plus a spread on approximately
75% of the Egypt limited recourse debt facilities for the period to March 31, 2015.
These interest rate swaps had outstanding notional amounts of $368 million as at December 31, 2010. The notional amount
decreases over the repayment period of the Egypt limited recourse debt facilities. At December 31, 2010, these interest rate swap
contracts had a negative fair value of $43.5 million (2009 – $33.2 million) recorded in other long-term liabilities. The fair value of
these interest rate swap contracts will fluctuate until maturity. Changes in the fair value of derivative financial instruments
designated as cash flow hedges have been recorded in other comprehensive income.
The fair values ofthe Company’s derivative financial instruments as disclosed above are determined based on quoted market
prices received from counterparties and adjusted for credit risk.
The Company is exposed to credit-related losses in the event of non-performance by counterparties to derivative financial
instruments but does not expect any counterparties to fail to meet their obligations. The Company deals with only highly rated
counterparties, normally major financial institutions. The Company is exposed to credit risk when there is a positive fair value of
68 METHANEX Annual Report 2010 Notes to Consolidated Financial Statements
derivative financial instruments at a reporting date. The maximum amount that would be at risk ifthe counterparties to
derivative financial instruments with positive fair values failed completely to perform under the contracts was nil at December 31,
2010 (2009 – nil).
The carrying values of the Company’s financial instruments approximate their fair values, except as follows:
2010 2009
AS AT DECEMBER 31 CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE
Long-term debt $ 946,941 $ 951388 | $ 914,244 $ 840577
There is no publicly traded market for the limited recourse debt facilities the fair value of which is estimated by reference to
current market prices for debt securities with similar terms and characteristics. The fair value ofthe unsecured notes was
calculated by reference to a limited number of small transactions at the end of 2010 and 2009. The fair value ofthe Company’s
long-term debt will fluctuate until maturity.
17. Financial risk management:
(a) Market risks:
The Company’s operations consist ofthe production and sale of methanol. Market fluctuations may result in significant cash flow and
profit volatility risk for the Company. Its worldwide operating business as well as its investment and financing activities are affected by
changes in methanol and natural gas prices and interest and foreign exchange rates. The Company seeks to manage and control these
risks primarily through its regular operating and financing activities and uses derivative instruments to hedge these risks when deemed
appropriate. This is not an exhaustive list of all risks, nor will the risk management strategies eliminate these risks.
Methanol price risk
The methanol industry is a highly competitive commodity industry and methanol prices fluctuate based on supply and
demand fundamentals and other factors. Accordingly, it is important to maintain financial flexibility. The Company has
adopted a prudent approach to financial management by maintaining a strong balance sheet including back-up liquidity.
Natural gas price risk
Natural gas isthe primary feedstock for the production of methanol and the Company has entered into long-term natural gas
supply contracts for its production facilities in Chile, Trinidad and Egypt and shorter-term natural gas supply contracts for its
New Zealand operations. These natural gas supply contracts include base and variable price components to reduce the commodity
price risk exposure. The variable price component is adjusted by formulas related to methanol prices above a certain level.
Interest rate risk
Interest rate risk is the risk that the Company suffers financial loss due to changes in the value of an asset or liability or in the
value of future cash flows due to movements in interest rates.
The Company’s interest rate risk exposure is mainly related to long-term debt obligations. Approximately one-half of its debt
obligations are subject to interest at fixed rates. The Company also seeks to limit this risk through the use of interest rate
swaps, which allows the Company to hedge cash flow changes by swapping variable rates of interest into fixed rates of
interest.
AS AT DECEMBER 31 2010 2009
Fixed interest rate debt:
Unsecured notes $ 348,020 $ 347,332
Atlas limited recourse debt facilities (63.1% proportionate share) 70,292 76,833
$ 418,312 $ 424,165
Variable interest rate debt:
Atlas limited recourse debt facilities (63.1% proportionate share) $ 9,285 $ 16,322
Egypt limited recourse debt facilities 499,706 461,570
Other limited recourse debt facilities 19,638 12,187
$ 528,629 $ 490,079
The Company has entered into interest rate swap contracts to hedge the variability in LIBOR-based interest payments on its
Egypt limited recourse debt facilities described in note 16. The notional amount decreases overthe repayment period. The
aggregate impact of these contracts is to swap the LIBOR-based interest payments for an average fixed rate of 4.8% plus a
Notes to Consolidated Financial Statements Annual Report 2010 METHANEX 69
spread on approximately 75% of the Egypt limited recourse debt facilities for the period to March 31, 2015. The net fair value of
cash flow interest rate swaps was negative $43.5 million as at December 31, 2010. The change in fair value of the interest rate
swaps and the related impact on other comprehensive income assuming a 1% change in the interest rates along the yield curve
would be approximately $15.0 million as of December 31, 2010 (2009 – $16.1 million). These interest rate swaps are designated
as cash flow hedges, which results in the effective portion of changes in their fair value being recorded in other comprehensive
income.
For fixed interest rate debt, a 1% change in interest rates would result in a change in fair value of the debt (disclosed in note 16)
of approximately $11.5 million as of December 31, 2010 (2009 – $13.9 million).
For the variable interest rate debt that is unhedged, a 1% change in LIBOR would result in a change in annual interest payments
of $1.6 million as of December 31, 2010 (2009 – $1.4 million).
Foreign currency risk
The Company’s international operations expose the Company to foreign currency exchange risks in the ordinary course of
business. Accordingly, the Company has established a policy that provides a framework for foreign currency management and
hedging strategies and defines the approved hedging instruments. The Company reviews all significant exposures to foreign
currencies arising from operating and investing activities and hedges exposures if deemed appropriate.
The dominant currency in which the Company conducts business isthe United States dollar, which is also the reporting currency.
Methanol is a global commodity chemical that is priced in United States dollars. In certain jurisdictions, however, the
transaction price is set either quarterly or monthly in the local currency. Accordingly, a portion ofthe Company’s revenue is
transacted in Canadian dollars, euros and to a lesser extent other currencies. For the period from when the price is set in local
currency to when the amount due is collected, the Company is exposed to declines in the value ofthese currencies compared
to the United States dollar. The Company also purchases varying quantities of methanol for which the transaction currency is
the euro and to a lesser extent other currencies. In addition, some of the Company’s underlying operating costs and capital
expenditures are incurred in other currencies. The Company is exposed to increases in the value of these currencies that could
have the effect of increasing the United States dollar equivalent of cost of sales and operating expenses and capital
expenditures. The Company has elected not to actively manage these exposures at this time except for significant net
exposure to euro revenues which is hedged through forward exchange contracts each quarter when the euro price for
methanol is established.
As of December 31, 2010, the Company had a net working capital asset of $74.3 million in non-US dollar currencies (2009 – $25.5
million). As of December 31, 2010, each 10% strengthening (weakening) of the US dollar against these currencies would
decrease (increase) the value of net working capital and pre-tax cash flows and earnings by approximately $7 million (2009 –
$3 million).
(b) Liquidity risks:
Liquidity risk is the risk thatthe Company will not have sufficient funds to meet its liabilities, such as the settlement of financial
debt and lease obligations and payment to its suppliers. The Company maintains liquidity and makes adjustments to it in light of
changes to economic conditions, underlying risks inherent in its operations and capital requirements to maintain and grow its
operations. At December 31, 2010, the Company had $194 million of cash and cash equivalents. In addition, the Company has an
undrawn, unsecured revolving bank facility of $200 million provided by highly rated financial institutions that expires in May 2012.
In addition to the above-mentioned sources of liquidity, the Company constantly monitors funding options available in the capital
markets, as well as trends in the availability and costs of such funding, with a view to maintaining financial flexibility and limiting
refinancing risks.
The expected cash outflows of financial liabilities from the date ofthe balance sheet to the contractual maturity date are as
follows:
CARRYING CONTRACTUAL 1YEAR MORE THAN
AS AT DECEMBER 31 AMOUNT CASH FLOWS OR LESS 1-3 YEARS 3 – 5 YEARS 5 YEARS
Trade and other payables! $ 219,731 $ 219,731 219,731 – – –
Long-term debt2 946,941 1,158,761 90,868 366,152 295,278 406,463
Egypt interest rate swaps 43,488 46,488 15,398 23,191 7,299 –
$ 1,710,160 $ 1,424,980 $ 325,997 $ 389,943 $ 302,577 $ 406,463
70 METHANEX Annual Report 2010 Notes to Consolidated Financial Statements
1 Excludes taxes and accrued interest.
2 Contractual cash flows include contractual interest payments related to debt obligations. Interest rates on variable rate debt are based on
prevailing rates at December 31, 2010.
(c) Credit risk:
Counterparty credit risk is the risk that the financial benefits of contracts with a specific counterparty will be lost ifa counterparty
defaults on its obligations under the contract. This includes any cash amounts owed to the Company by those counterparties, less
any amounts owed to the counterparty by the Company where a legal right of offset exists, and also includes the fair values of
contracts with individual counterparties that are recorded in the financial statements.
Trade credit risk
Trade credit risk is defined as an unexpected loss in cash and earnings ifthe customer is unable to pay its obligations in due
time or ifthe value ofthe security provided declines. The Company has implemented a credit policy that includes approvals for
new customers, annual credit evaluations of all customers and specific approval for any exposures beyond approved limits. The
Company employs a variety of risk-mitigation alternatives including certain contractual rights in the event of deterioration in
customer credit quality and various forms of bank and parent company guarantees and letters of credit to upgrade the credit
risk to a credit rating equivalent or better than the stand-alone rating of the counterparty. Trade credit losses have historically
been minimal and at December 31, 2010 substantially all ofthe trade receivables were classified as current.
Cash and cash equivalents
To manage credit and liquidity risk, the Company’s investment policy specifies eligible types of investments, maximum
counterparty exposure and minimum credit ratings. Therefore, the Company invests only in highly rated investment grade
instruments that have maturities ofthree months or less.
Derivative financial instruments
The Company’s hedging policies specify risk management objectives and strategies for undertaking hedge transactions. The
policies also include eligible types of derivatives, required transaction approvals, as well as maximum counterparty exposures
and minimum credit ratings. The Company does not use derivative financial instruments for trading or speculative purposes.
To manage credit risk, the Company only enters into derivative financial instruments with highly rated investment grade
counterparties. Hedge transactions are reviewed, approved and appropriately documented in accordance with policies.
18. Retirement plans:
(a) Defined benefit pension plans:
The Company has non-contributory defined benefit pension plans covering certain employees. The Company does not provide any
significant post-retirement benefits other than pension plan benefits. Information concerning the Company’s defined benefit
pension plans, in aggregate, is as follows:
AS AT DECEMBER 31 2010 2009
Accrued benefit obligations:
Balance, beginning of year $ 61,643 $ 50,020
Current service cost 2,329 2,21
Interest cost on accrued benefit obligations 3,540 3,088
Benefit payments (3,220) (7,602)
Gain on curtailment – (709)
Actuarial loss 2,204 4,266
Foreign exchange loss 3,576 10,309
Balance, end of year 70,072 61,643
Fair values of plan assets:
Balance, beginning of year 42,103 31,864
Actual returns on plan assets 2,993 4,27
Contributions 1,229 8,555
Benefit payments (3,220) (7,602)
Foreign exchange gain 2,273 5,015
Balance, end of year 45,378 42,103
Unfunded status 24,694 19,540
Unamortized actuarial loss (16,531) (15,758)
Accrued benefit liabilities, net $ 8,163 $ 3,782
Notes to Consolidated Financial Statements Annual Report 2010 METHANEX 71
The Company has an unfunded retirement arrangement for its employees in Chile that will be funded at retirement in accordance
with Chilean law. At December 31, 2010, the balance of accrued benefit liabilities, net is comprised of $24.2 million recorded in
other long-term liabilities for an unfunded retirement arrangement in Chile and $16.0 million recorded in other assets for defined
benefit plans in Canada and Europe. The accrued benefit for the unfunded retirement arrangement in Chile is paid when an
employee retires in accordance with Chilean regulations.
The Company’s net defined benefit pension plan expense for the years ended December 31, 2010 and 2009 is as follows:
FOR THE YEARS ENDED DECEMBER 31 2010 2009
Net defined benefit plan pension expense:
Current service cost $ 2,329 $ 2,21
Interest cost on accrued benefit obligations 3,540 3,088
Actual return on plan assets (2,993) (4,271)
Settlement and termination benefit – 1,521
Actuarial losses 2,204 3,557
Other 64 481
$ 514 $ 6,647
The Company uses a December 31 measurement date for its defined benefit pension plans. Actuarial reports for the Company’s
defined benefit pension plans were prepared by independent actuaries for funding purposes as of December 31, 2007 in Canada.
The next actuarial reports for funding purposes for the Company’s Canadian defined benefit pension plans are scheduled to be
completed for the 2011 year end, dated as of December 31, 2010.
The actuarial assumptions used in accounting for the defined benefit pension plans are as follows:
2010 2009
Benefit obligation at December 31:
Weighted average discount rate 5.43% 5.86%
Rate of compensation increase 4.15% 4.14%
Net expense for years ended December 31:
Weighted average discount rate 5.91% 6.08%
Rate of compensation increase 4.44% 4.54%
Expected rate of return on plan assets 7.00% 7.00%
The asset allocation for the defined benefit pension plan assets as at December 31, 2010 and 2009 is as follows:
AS AT DECEMBER 31 2010 2009
Equity securities 41% 46%
Debt securities 25% 24%
Cash and other short-term securities 28% 30%
Total 100% 100%
(b) Defined contribution pension plans:
The Company has defined contribution pension plans. The Company’s funding obligations under the defined contribution pension
plans are limited to making regular payments to the plans, based on a percentage of employee earnings. Total net pension
expense for the defined contribution pension plans charged to operations during the year ended December 31, 2010 was
$3.4 million (2009 – $3.3 million).
19. Commitments and contingencies:
(a) Take-or-pay purchase contracts and related commitments:
The Company has commitments under take-or-pay natural gas supply contracts to purchase annual quantities of feedstock
supplies and to pay for transportation capacity related to these supplies to 2035. The minimum estimated commitment under
these contracts, excluding Argentina natural gas supply contracts, is as follows:
2011 2012 2013 2014 2015 THEREAFTER
$ 237,104 $ 240,107 $ 149,787 $ 150,260 $ 112,014 $ 1,423,921
72 METHANEX Annual Report 2010 Notes to Consolidated Financial Statements
(b) Argentina natural gas supply contracts:
The Company has supply contracts with Argentinean suppliers for natural gas sourced from Argentina for a significant portion of
the capacity of its facilities in Chile. These contracts have expiration dates between 2017 and 2025 and represent a total future
commitment of approximately $1 billion at December 31, 2010. Since June 2007, the Company’s natural gas suppliers from
Argentina have curtailed all gas supply to the Company’s plants in Chile in response to various actions by the Argentinean
government, including imposing a large increase to the duty on natural gas exports. Under the current circumstances, the
Company does not expect to receive any further natural gas supply from Argentina.
(c) Operating lease commitments:
The Company has future minimum lease payments under operating leases relating primarily to vessel charter, terminal facilities,
office space, equipment and other operating lease commitments as follows:
2011 2012 2013 2014 2015 THEREAFTER
$ 141,984 $ 125,545 $ 115,279 $ 95,687 $ 65,979 $ 408,501
(d) Purchased methanol:
We have marketing rights for 100% of the production from our jointly owned plants (the Atlas plant in Trinidad in which we have
a 63.1% interest and the new plant in Egypt in which we have a 60% interest) which results in purchase commitments of an
additional 1.17 million tonnes per year of methanol offtake supply when these plants operate at capacity. At December 31, 2010, the
Company had commitments to purchase methanol under offtake contracts for approximately 375,000 tonnes for 2011 and
approximately 266,000 tonnes for 2012. The pricing under the purchase commitments related to our 100% marketing rights from
our jointly owned plants and the purchase commitments with other suppliers is referenced to pricing at the time of purchase or
sale, and accordingly, no amounts have been included in the above table.
20. United States generally accepted accounting principles:
The Company follows generally accepted accounting principles in Canada (Canadian GAAP) that are different in some respects
from those applicable in the United States and from practices prescribed by the United States Securities and Exchange
Commission (US GAAP). The significant differences between Canadian GAAP and US GAAP with respect to the Company’s
consolidated financial statements as at and for the years ended December 31, 2010 and 2009 are as follows:
2010 2009
CONDENSED CONSOLIDATED CANADIAN US | CANADIAN US
BALANCE SHEETS AS AT DECEMBER 31 GAAP GAAP GAAP GAAP
ASSETS
Current assets $ T1M,020 $ 771,020 $ 622,653 $ 622,653
Property, plant and equipment (a) 2,213,836 2,242,503 2,183,787 2,214,366
Other assets (d) (g) 85,303 91,873 116,977 122,055
$ 3,070,159 $ 3,105,396 $ 2923417 $ 2,959,074
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities (c) $ 314090 $ 321,724 $ 271,604 $ 277,309
Long-term debt (g) 896,976 915,521 884,914 899,632
Other long-term liabilities (b) (d) 128,502 137,068 97,185 103,303
Future income taxes (d) (f) 307,865 316,304 300,510 309,559
Non-controlling interest (h) 146,099 – 133,118 –
Shareholders’ equity:
Capital stock (a) (b) 440,092 846,635 427,192 833,959
Additional paid-in capital – 26,056 – 26,939
Contributed surplus 26,308 – 27,007 –
Retained earnings 850,691 451,390 806,158 414,230
Accumulated other comprehensive loss (d) (40,464) (55,401) (24,871) (38,975)
Non-controlling interest (h) – 146,099 – 133,118
1,276,627 1,414,779 1,236,086 1,369,271
$ 3,070,159 $ 3,105,396 $ 2923417 $ 2,959,074
Notes to Consolidated Financial Statements Annual Report 2010 METHANEX 73
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31 2010 2009
Net income in accordance with Canadian GAAP $ 101,733 $ 738
Add (deduct) adjustments for:
Depreciation and amortization (a) (1,911) (1,911)
Stock-based compensation (b) (4,202) (130)
Uncertainty in income taxes (c) (1,929) (2,136)
Income tax effect of above adjustments (f) 669 669
Net income (loss) in accordance with US GAAP $ 94,360 $ (2,770)
Per share information in accordance with US GAAP:
Basic net income (loss) per common share $ 1.02 $ (0.03)
Diluted net income (loss) per common share $ 1.01 $ (0.03)
2010 2009
CONSOLIDATED STATEMENTS OF COMPREHENSIVE CANADIAN
INCOME (LOSS) FOR THE YEARS ENDED DECEMBER 31 GAAP ADJUSTMENTS US GAAP US GAAP
Net income (loss) $ 101,733 $ (7,373) $ 94,360 $ (2,770)
Change in fair value of forward exchange contracts, net of tax – – – 36
Change in fair value of interest rate swap, net of tax (15,593) – (15,593) (882)
Change related to pension, net of tax (d) – (833) (833) 1,253
Comprehensive income (loss) $ 86,140 $ (8,206) $ 71,934 $ (2,363)
2010 2009
CONSOLIDATED STATEMENTS OF ACCUMULATED OTHER CANADIAN
COMPREHENSIVE LOSS FOR THE YEARS ENDED DECEMBER 31 GAAP ADJUSTMENTS US GAAP US GAAP
Balance, beginning of year $ (24,871) $ (14,104) $ (38,975) $89,382)
Change in fair value of forward exchange contracts, net of tax – – – 36
Change in fair value of interest rate swap, net of tax (15,593) – (15,593) (882)
Change related to pension, net of tax (d) – (833) (833) 1,253
Accumulated other comprehensive loss $ (40,464) $ (14,937) $ (55,401) $(38,975)
(a) Business combination:
Effective January 1, 1993, the Company combined its business with a methanol business located in New Zealand and Chile. Under
Canadian GAAP, the business combination was accounted for using the pooling-of-interest method. Under US GAAP, the business
combination would have been accounted for as a purchase with the Company identified as the acquirer. For US GAAP purposes,
property, plant and equipment at December 31, 2010 has been increased by $28.7 million (2009 – $30.6 million) to reflect the
business combination as a purchase. For the year ended December 31, 2010, an adjustment to increase depreciation expense by
$1.9 million (2009 – $1.9 million) has been recorded in accordance with US GAAP.
(b) Stock-based compensation:
During 2010, the Company granted 394,065 share appreciation rights (SARs) and 735,505 tandem share appreciation rights
(TSARs). A SAR gives the holder a right to receive a cash payment equal to the amount the market price ofthe Company’s common
shares exceeds the exercise price of a unit. ATSAR gives the holderthe choice between exercising a regular stock option or
surrendering the option for a cash payment equal to the difference between the market price of a common share and the exercise
price. Refer to note 10 for further details regarding SARs and TSARs.
Under Canadian GAAP, both SARs and TSARSs are accounted for using the intrinsic value method. The intrinsic value is measured by
the amount the market price ofthe Company’s common shares exceeds the exercise price of a unit. For December 31, 2010,
compensation expense related to SARs and TSARs under Canadian GAAP was $3.4 million as the market price was higher than the
exercise price. Under US GAAP, SARs and TSARs are required to be accounted for using a fair value method. Changes in fair value
are recognized in earnings for the proportion ofthe service that has been rendered at each reporting date. The Company used the
Black-Scholes option pricing model to determine the fair value ofthe SARs and TSARs and this has resulted in an increase in cost of
sales and operating expenses and other long-term liabilities of $4.2 million forthe year ended December 31, 2010.
74 METHANEX Annual Report 2010 Notes to Consolidated Financial Statements
(c) Accounting for uncertainty in income taxes:
US GAAP for recording uncertainties in income taxes prescribes a recognition threshold and measurement attribute forthe
financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Forthe year
ended December 31, 2010, an adjustment to increase income tax expense by $1.9 million (2009 – $2.1 million) has been recorded in
accordance with US GAAP.
(d) Defined benefit pension plans:
US GAAP requires the Company to measure the funded status of a defined benefit pension plan at its balance sheet reporting date
and recognize the unrecorded overfunded or underfunded status as an asset or liability with the change in that unrecorded
funded status recorded to other comprehensive income. As at December 31, 2010, the impact of this standard on the Company is
the recognition of deferred actuarial losses for Canadian GAAP of $16.5 million (2009 – 15.7 million), net of a future income tax
recovery of $1.6 million (2009 – $1.6 million) to accumulated other comprehensive loss, with a corresponding decrease to other
assets of $12.0 million (2009 – $9.6 million) and an increase to other long-term liabilities of $4.5 million (2009 – $6.1 million).
(e) Interest in Atlas joint venture:
US GAAP requires interests in joint ventures to be accounted for using the equity method. Canadian GAAP requires proportionate
consolidation of interests in joint ventures. The Company has not made an adjustment in this reconciliation for this difference in
accounting principles because the impact of applying the equity method of accounting does not result in any change to net
income or shareholders’ equity. This departure from US GAAP is acceptable for foreign private issuers under the practices
prescribed by the United States Securities and Exchange Commission. Details of the Company’s interest in the Atlas joint venture
are provided in note 6.
(f) Income tax accounting:
The income tax differences include the income tax effect ofthe adjustments related to accounting differences between Canadian
and US GAAP. During the year ended December 31, 2010, this resulted in an adjustment to increase net income by $0.7 million
(2009 – $0.7 million).
(g) Deferred financing fees:
Under Canadian GAAP, the Company is required to present long-term debt net of deferred financing fees. Under US GAAP, the
Company is required to present the long-term debt and related finance fees on a gross basis. As at December 31, 2010, the
Company recorded an adjustment to increase other assets and long-term debt by $18.5 million (2009 – $14.7 million) in accordance
with US GAAP.
(h) Non-controlling interests:
US GAAP requires that the ownership interests in subsidiaries held by parties other than the parent be clearly identified, labelled
and presented in the consolidated statement of financial position within equity, but separate from the parent’s equity. Under this
standard, the Company is required to reclassify non-controlling interest on the consolidated balance sheet into shareholders”
equity. This adjustment has also been recorded for the comparative balances.
Notes to Consolidated Financial Statements Annual Report 2010. METHANEX 75
BOARD OF DIRECTORS
Tom Hamilton
Chairman ofthe Board.
Board member since May 2007
Bruce Aitken
President and CEO of
Methanex Corporation.
Board member since July 2004
Howard Balloch
Chair of the Public Policy Committee.
Member ofthe Corporate Governance
and Human Resources Committees.
Board member since December 2004
Pierre Choquette
Member of the Audit, Finance €: Risk,
Responsible Care and Human
Resources Committees.
Board member since October 1994
Phillip Cook
Chair of the Responsible Care
Committee. Member ofthe Audit,
Finance él Risk and Public Policy
Committees.
Board member since May 2006
Robert Kostelnik
Member ofthe Corporate Governance,
Public Policy and Responsible Care
Committees.
Board member since September 2008
Douglas Mahaffy
Member of the Corporate Governance,
Human Resources and Public Policy
Committees.
Board member since May 2006
A. Terence Poole
Chair ofthe Audit, Finance 8z Risk
Committee. Member ofthe
Corporate Governance and Public
Policy Committees.
Board member since September 2003
and from February 1994 to June 2003
John Reid
Chair ofthe Human Resources
Committee. Member of the Audit,
Finance él Risk and Responsible Care
Committees.
Board member since September 2003
Janice Rennie
Member of the Audit, Finance és Risk,
Human Resources and Responsible
Care Committees.
Board member since May 2006
Monica Sloan
Chair ofthe Corporate Governance
Committee. Member ofthe Human
Resources and Responsible Care
Committees.
Board member since September 2003
EXECUTIVE LEADERSHIP TEAM
Bruce Aitken
President and
Chief Executive Officer
lan Cameron
Senior Vice President,
Corporate Development
and Chief Financial Officer
John Floren
Senior Vice President,
Global Marketing and Logistics
John Gordon
Senior Vice President,
Corporate Resources
Michael Macdonald
Senior Vice President,
Global Operations
Randy Milner
Senior Vice President,
General Counsel
and Corporate Secretary
Paul Schiodtz
Senior Vice President,
Latin America
Harvey Weake
Senior Vice President,
Asia Pacific
76 METHANEX Annual Report 2010
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METHANEX Annual Report 2010
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