NINAS
ANNA
A Responsible Care’ Company
Table of Contents
E 2011 Financial Highlights
President’s Message to Shareholders
E Chairman’s Message to Shareholders
a Management’s Discussion and Analysis
Consolidated Financial Statements
B Notes to Consolidated Financial Statements
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. About
two-thirds of methanol demand is used as a chemical feedstock in the manufacture of a
wide range of consumer and industrial products such as building materials, foams, resins,
paints, and recyclable plastic bottles. About one-third of methanol demand is used in the
energy sector and this has been the fastest growing market. There are growing markets for
methanol in energy applications such as direct blending into gasoline, dimethyl ether (DME),
olefins and biodiesel. Methanol is also used to produce methyl tertiary-butyl ether (MTBE), a
gasoline component.
Methanex- Global Methanol Leader
WEIR IIA AAA NAAA TIVA SANA las
Methanex in Chile Methanex in Trinidad Methanex in Canada
The Punta Arenas production complex Our two plants in Trinidad, Titan We restarted our plant in Medicine Hat,
in southern Chile produces methanol and Atlas (Methanex interest 63.1%) Alberta in 2011. The plant supplies
IIA NE] primarily supply North American and EAN in
America, Europe and Asia. SE EE
Methanex in the United States
Methanex in New Zealand Methanex in Egypt NETA NA Ara
Our production facilities in New Zealand (ANA ESTARSE
NASA (Methanex interest 60%), which IS NA
in Japan, South Korea and China. We are started up in 2011, is located on the for Q3 2012 and we are targeting the
planning to restart a second methanol Mediterranean Sea and primarily e NA SAA
plant in New Zealand in mid-2012. ESSE EAS
Methanex has an extensive global supply chain and distribution network of terminals and storage facilities throughout Asia, North America,
EN EEN IS IAE EN EA ASES ESA AS:
II ESTA EE ESE ANS EA ARSENAL ASE AE
IES SE STAN AENA NAMES
Methanex is a Responsible Care? company. Responsible Care is the umbrella under which Methanex and other leading chemical
EA EEE NASA ASE ASE ARES EA
ANECA EE ISI ADAN NES ERES
O
0 0 Medicine Hat e
6 KM Brussels
Vancouver (HO)
Segub O 5 e
Beijing MW Loyisiana
Dall 9 :
Shanghai á MN Tokyó allas E Damietta
y
A
E Cairo Dubai
Hong Kong
TRINIDAD
AND TOBAGO
Santiago e?
A
Production Facilities
Future Production (2014)
NEW ZEALAND ($)
Global Office Locations
ooo
Distribution Terminals and Storage Facilities
Punta Arenas
Shipping Lanes
METHANEX | Report 2011 1
2011 Financial Highlights (US$ millions, except where noted)
20119 20108 2009 2008 2007
Operations
Revenue 2,608 1,967 1,198 2,314 2,266
Net income attributable to Methanex shareholders 201 96 1 169 373
Income before unusual item (after-tax)’ 201 74 1 169 373
Adjusted EBITDA: 427 291 143 313 653
Adjusted cash flows from operating activities! 392 303 129 235 491
Modified Return on Capital Employed (ROCE)? 1.3% 8.0% 1.2% 13.6% 25.4%
Diluted Per Share Amounts (US$ per share)
Net income attributable to Methanex shareholders 2.06 1.03 0.01 1.78 3.65
Income before unusual item (after-tax)’ 2.06 0.79 0.01 1.78 3.65
Financial Position
Cash and cash equivalents 351 194 170 328 488
Total assets 3,394 3,141 2,923 2,799 2,862
Long-term debt, including current portion 903 947 914 782 597
Debt to capitalization3 36% 40% 40% 36% 30%
Net debt to capitalization+ 26% 35% 35% 25% 1%
Other Information
Average realized price (US$ per tonne)s 374 306 225 424 375
Total sales volume (ooos tonnes) 7,514 6,929 5,948 6,054 6,612
Sales of Methanex-produced product (ooos tonnes) 3,853 3,540 3,764 3,363 4,569
Adjusted EBITDA Share Price Performance [$00
(US$ millions) (Indexed at December 31)
E LL
E) – Methanex (US$, NASDAO) 500
– SEP 500 Chemicals Index
[200
[300
mn
a E 3
ES L-
E 3 [200
a
m [100
3
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Regular Dividends Per Share (Uss) l75
ÉS
e
2 a |_
de [150
[125
A
E
a
Weighted Average A poo
Shares Outstanding (millions)
Pas
a
oe 3
E S
S
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Adjusted EBITDA, adjusted 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. Referto page 41 for a reconciliation of
these amounts to the most directly comparable IFRS measures,
Modified ROCE is defined as income before unusual items and finance costs (after-tax) divided by average productive capital employed. Average productive capital employed is the sum of average total assets (excluding plants under
construction) less the average of current non-interest-bearing liabilties, Average total assets exclude cash held in excess of $50 million. We use an estimated mid-life depreciated cost base for calculating our average assets in use
during the period. The calculation of Modified ROCE includes our 60% share of income, assets and liabilities in the Egypt methanol facility.
3 Defined as total debt divided by total equity and total debt (including 100% of debt related to the Egypt methanol facility)
2 Defined as total debt less cash’and cash equivalents divided by total equity and total debt less cash and cash equivalents (including 100% of debt related to the Egypt methanol facility)
5 Average realized price is calculated as revenue, excluding comimissions earned and the Egypt non-controlling interest share of revenue, divided by the total sales volumes of Methanex-produced methanol (attributable to Methanex
shareholders) and purchased methanol
6 The 201 and igures are reported in accordance with IFRS as the company’s date of transition from Canadian GAAP to IFRS was January 1, 2010. The 2009, 2008 and 2007 figures have not been restated in accordance with IFRS
and are reported in accordance with Canadian GAAP.
For addit Factbook available at www.methanex.com.
al highlights and additional information about Methanex, referto our 20
2 METHANEX | Annual Report 2011
President’s Message to Shareholders
Dear fellow shareholders,
2011 was a very good year for Methanex
and the methanol industry.
Despite continuing weak economic conditions in many
developed economies, demand for methanol grew at healthy
rates and methanol prices were up over 20 percent from 2010.
We grew production with the start-up of plants in Egypt and
Canada, helping us achieve record sales volumes and our highest
level of production since 2007. These factors contributed to a
more than doubling of net income compared to 2010.
We see significantly more upside potential to earnings as the
outlook for the methanol industry and our company is excellent.
The high energy price environment has resulted in increased
demand for methanol in energy derivatives and olefins
production and there is little new methanol supply entering the
industry over the next few years. Methanex is in a unique
position to increase production and take advantage of these
positive industry fundamentals.
In fact, we have the potential to double production levels over
the next few years. In 2012, we will enjoy a full year of production
from our plants in Egypt and Canada and we have committed to
restarting a second plant in New Zealand in mid-2012
lA o
This was a year of significant accomplishments. We:
RNE EN TN
Ilo
ESA E NA
increased the regular dividend by 10 percent, the seventh time
ENE MENEEASN EAEAl
2002,
ESA lo
SERE NE!
significantly improved cash generation with the successful
E A EAS
SEE RS AREA
IN llEEA
We are making good progress on a project to relocate one
Chilean plant to the US Gulf Coast with an expectation that we
could begin producing from this facility in late 2014. Over the
next few years, we also have potential for higher production
from our Chilean assets as a result of increases in Chilean gas
supply and a coal gasification project we are assessing. These
initiatives should support substantially higher methanol
production and earnings for shareholders in 2012 and beyond
Industry Review
Despite continued weakness in the global economy, methanol
demand grew at healthy rates in 2011. High industrial production
rates in China increased the demand for chemical derivatives,
while demand for methanol in Europe and North America
experienced a modest recovery in line with the low economic
growth rates in those regions. Energy demand was strong, which
was a key factor driving growth in the methanol industry. Overall,
global methanol demand grew about seven percent in 2011 to
approximately 49 million tonnes – and ended the year at record
high levels
E MNAC el
EAN
secured a long-term gas supply agreement to underpin
the restart of a second plant in New Zealand in
mid-2012 (contract finalized in January 2012),
IES RR RN
plants to the US Gulf Coast and secured a site in
Geismar, Louisiana, and
NN NARRA ES
applications; this is a growing market, with demand for
CE SN ONE
EA
METHANEX | /
President’s Message to Shareholders
Methanol prices were up by over 20 percent over the past year.
There was upward pressure on the cost curve, as higher-cost
producers were affected by a strengthening crude oil price
environment and higher coal prices in China. Supply was also
challenged to keep up with growing demand. The only new
plants that started up outside of China were our Egypt and
Medicine Hat plants, and, as is typical, there were many planned
and unplanned outages across the industry. In particular, the
methanol industry in China continued to operate at low rates of
utilization and imports into that country grew over the past year.
Looking forward, tight market conditions are expected to
continue. Little new supply is expected to enter the market over
the next several years, and the outlook for methanol demand
growth continues to look strong. The wide disparity between the
price of crude oil and that of natural gas and coal has resulted in
increased use of methanol in energy applications, which now
accounts for about one-third of global methanol demand. Led by
China, methanol demand for fuel blending and DME has been
particularly strong and grew at double-digit rates again in 2011.
These applications are clean-burning and economically
competitive; they reduce China’s reliance on imported oil
products and government policy in China continues to support
their adoption. Eleven provinces in China have now introduced
methanol fuel-blending standards. China also has national
standards in place for methanol fuel blending (M85 8 M100,
meaning 85 percent and 100 percent methanol respectively).
Over the past year, methanol demand into olefins (MTO)
emerged as a significant methanol derivative. China is leading
the commercialization of MTO and, at current energy prices, the
process is proving to be cost competitive relative to the
traditional production of olefins from naphtha. The first MTO
plant in China started up in 2010, and there are now four plants
operating in China, consuming over five million tonnes of
methanol annually. Three ofthese projects were not expected to
impact the merchant methanol market as they are integrated
projects – coal to methanol to olefins. However, over the past
year, these plants have purchased methanol to supplement their
own methanol production and the one non-integrated plant has
been dependent on merchant methanol supply. A number of
non-integrated projects are currently being planned in China,
and these will depend on merchant methanol supply. Ifthe
projects go ahead, they could significantly impact the global
supply and demand balance of methanol.
While methanol into fuel blending, DME and MTO are primarily
occurring in China today, many other countries have projects in
4 METHANEX | Annual Report 2011
place or are considering adopting these derivatives on a wider
scale. For example, methanol is being used in small quantities in
gasoline in the United Kingdom and Korea, and there are fuel-
blending trials under way in various countries around the world.
DME projects are also under development in countries that
include Indonesia, India, Sweden and Japan.
Company Review
Operating Performance
In 2011, our marketing organization did an excellent job, growing
sales by 8 percent and achieving record sales volumes of
7.5 million tonnes. These results were accomplished in a
challenging environment as we had some unexpected
production shortfalls during the year. We had to increase our
purchasing levels and flexibly manage our supply chain and
shipping operations to keep customers supplied.
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. We set a challenging target of 97 percent. In 2011, we
achieved an overall company reliability rate of 95 percent.
Although we believe this performance is above the industry
average, it is below our target forthe second consecutive year.
We missed our target this year primarily due to the performance
of our Trinidad operations. The Atlas plant operated at a 94
percent reliability rate in 2011, and it was limited to 70 percent
operating rates in the last four-and-a-half months of the year
due to equipment failure. The Titan plant also experienced some
outages due to technical issues and operated at an 85 percent
reliability rate. Our Chile and New Zealand plants operated very
well, achieving 99 percent and 100 percent reliability rates
respectively. We were very pleased with the reliability of our new
plants in Medicine Hat and Egypt. Typically, plants in their first
year of operation take some time to achieve a stable operating
rate; however, Egypt operated at 93 percent reliability while
Medicine Hat ran at 98 percent.
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 doesn’t 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.
We track many indicators to assess our Responsible Care
performance. An important and universal measurement related
to site safety is the recordable injury frequency rate (RIFR). In 2011,
four employees across our global organization experienced a
recordable injury. This equates to an employee RIFR of 0.44 and
although it was higher than last year’s performance, it compared
favourably to the Canadian industry average of 1.04 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 continued
our improved safety performance in 2011, with a resulting
contractor RIFR of 0.86 (the Canadian industry average
comparator was 1.25).
We also recognize the importance of making efficient use of
natural resources and minimizing emissions. In 2010, we adopted
a greenhouse gas policy that formalized our commitment to
managing emissions, and we completed the construction and
commissioning of a 2.55 megawatt wind farm that now supplies
electricity to our plant site in southern Chile. This wind farm
operated throughout 2011. 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 31 percent between 1994 and 2011 through asset turnover,
improved plant reliability, energy efficiency and emissions
management. We also aim to reduce the CO, emitted from our
marine operations. Between 2002 and 2011, we reduced CO,
intensity (tonnes of CO, from fuel burned per tonne of product
moved) from marine operations by nearly 22 percent.
Financial Performance
We reported significantly improved earnings in 201 as methanol
prices were up by over 20 percent. We also achieved higher
Methanex-produced sales as a result of starting up plants in
Egypt and Medicine Hat during the year. We generated
$2.6 billion in revenue, $427 million in EBITDA, $392 million of
operating cash flow and $201 million in net income. While we are
pleased with the improved financial results in 2011, we also
believe there is significantly more upside potential for Methanex
over the next few years as a result of our plans to increase
production.
President’s Message to Shareholders
With our improved cash generation capability, we increased our
dividend by 10 percent in 2011. This represents the seventh
increase since we implemented a regular dividend in 2002, and
as our business and earnings potential continues to improve, we
are optimistic that we can continue to increase the dividend in
coming years.
Over the longer term, we are committed to returning excess cash
to shareholders and building on our excellent track record of
buying back shares. In 2000, we had 173 million shares
outstanding and since that time have reduced shares
outstanding to the current level of 93 million. Over this period,
shares were repurchased at an average price of about $12.
We target a minimum ROCE (Modified Return on Capital
Employed) of 12 percent. In 2011, we exceeded our target and
achieved a ROCE of 13.8 percent. Over the past five years, we have
achieved an average ROCE of 12.4 percent despite going through
a global recession and a period of sustained economic weakness.
It has been a challenging period for equity markets over the past
year. Since the beginning of 2011 up until the end of February
2012, our share price was up three percent, while the SP 500
Chemicals Index was up seven percent. However, long-term
shareholders of Methanex have been well rewarded. Over the
past ten years, and taking into account dividends, an investment
in Methanex achieved a total return of 537 percent, significantly
outperforming the SP 500 Chemicals Index, which saw a total
return of 148 percent over the same period. Given our modest
valuation relative to our strong cash flow generation and our
initiatives to continue growing production and cash flow, we
believe there is significant upside potential for our share price.
Review of Growth Initiatives
In the current environment, we are prioritizing financial
resources for growth initiatives. The supply and demand outlook
is very attractive for adding new capacity, and we are in the
unique position of having idle assets that have the potential to
be brought on stream in less time and with less capital than a
greenfield methanol project. These projects also strengthen our
leading market position in the industry and they offer excellent
return potential – well above our target return.
Based on the various growth initiatives implemented in 2011 and
projects in place for the future, we have the potential to double
2011 production levels over the next few years. In 2011, we took a
big step towards meeting this target.
METHANEX | Annual Report 2011 5
President’s Message to Shareholders
We began producing methanol at the new Egypt plant in March
2011. During the balance ofthe year the plant performed
extremely well and operated at close to design capacity. We
experienced a brief shutdown as a result of the civil unrest
around the time of the Egyptian elections. However, the plant
was restarted in early December and has again operated at high
rates since that time. From the start of commercial production,
the plant operated at a 93 percent reliability rate and produced
887,000 tonnes of methanol during the year. While we continue
to be faced with political uncertainty in Egypt, we believe that
our operation in Egypt supports the country’s objectives of
creating jobs and economic development by adding value to
natural resources.
Competitive natural gas prices in North America made it
economical for us to restart our idle plant in Medicine Hat,
Alberta, in April 2011. The plant has already, in the first year,
generated cash in excess of the $50 million spent to bring the
plant back into production. It is a valuable addition to our
portfolio of production facilities, and we are confident that this
plant will generate substantial cash flow for many years to come.
In recent years, we had been optimistic about securing sufficient
gas in southern Chile to allow us to return to a four-plant
operation. Positive results from two exploration blocks enabled
us to continue operating one plant. However, the overall pace of
gas development and the amount of gas discovered in southern
Chile has been below expectations, and the decline rate of
existing reserves has been high. As a result, we are looking at
multiple options to increase production from those assets.
Firstly, we remain committed to supporting gas development in
southern Chile and we continue to believe that gas deliveries will
increase over the next few years to a level that will allow us to
sustain a multi-plant operation in Chile. Drilling activity should
start in several new blocks over the next year, and the
Government of Chile is in the process of awarding additional
blocks in the region for hydrocarbon development. In late 2011, a
hydraulic fracturing campaign also began in southern Chile, and
success is expected to provide further upside potential to gas
deliveries over the next year.
Secondly, we began a project to relocate one of the Chilean
plants to the US Gulf Coast, and we secured a site in Geismar,
Louisiana. This project offers excellent return potential. It
benefits from competitive natural gas prices and an excellent
business environment in Geismar with extensive infrastructure
and significant methanol demand nearby. We also expect to
execute the project with significantly less capital and in less time
than a greenfield methanol project. We plan to make a final
6 METHANEX | Annual Report 2011
investment decision on this project in the third quarter of 2012,
and are targeting the start of production at the new site by the
end of 2014.
Finally, in 2011 we began to assess a project to convert one of our
Chilean plants to operate on competitively priced coal from
southern Chile. We are currently completing a feasibility study,
and assuming we proceed, would expect to complete much of
the front-end engineering by the end of 2012 prior to making a
final investment decision.
In New Zealand we made excellent progress securing gas supply,
and in early 2012 we signed a long-term gas supply agreement
with Todd Energy and announced our commitment to restart the
second plant on our Motunui site in mid-2012. Our ability to
increase methanol production in New Zealand is based on the
positive gas supply fundamentals in that country. Gas
exploration has increased significantly in recent years in the
Taranaki Basin near our plants. The gas fields in the area benefit
from having high-value natural gas liquids, creating a strong
incentive for exploration and development activities. Based on
the positive supply outlook for gas and our long-term supply
agreement, we are confident that we will maintain a two-plant
operation in New Zealand over the long term.
We are well positioned to finance growth initiatives with a
healthy balance sheet with $351 million of cash at the end of 2011,
low leverage, an undrawn credit facility and an expectation of
continued strong cash flow generation.
Looking Ahead…
The outlook for the global methanol industry has rarely looked as
positive as it does today. Demand for methanol for use in energy
applications and olefins production is driving stronger industry
demand growth, and there is limited new supply expected to
enter the market. These factors combine to create a strong price
environment for methanol – one that we expect to last for several
years.
We are in the unique position to be able to quickly add new
competitive cost capacity in this positive industry environment.
This will be a key focus of the company over the next few years. In
2012, we will restart a second plant in New Zealand and we expect
to finalize the project to relocate one of our idle Chilean plants to
Louisiana with the target of producing methanol there by the end
of 2014. We will also continue to invest to accelerate gas
development in southern Chile and develop the opportunity to
convert a Chilean plant to operate on coal. In pursuing our growth
initiatives, we will remain committed to prudent financial
management and adding sustainable value over the long term.
Beyond this, we will focus on improving the reliability of our
plants, building on our strong track record of reliably supplying
customers and striving for continuous improvement in
Responsible Care. And, as the global methanol leader, we will
continue to promote the use of methanol in energy applications
to support ongoing strong demand growth in the industry.
In closing, | would like to thank all of our employees for their
contributions in what has been a challenging year with many
accomplishments. It was a year that made us a stronger
President’s Message to Shareholders
company –a company that is superbly positioned to benefit from
a healthy price environment and the growing demand for our
product. Finally, on behalf ofthe Board and our employees, |
thank you, our shareholders, for your continued support.
Bruce Aitken
President 8: Chief Executive Officer
METHANEX | Annual Report 2011 7
Chairman’s Message to Shareholders
Dear fellow shareholders,
Good corporate governance is an ongoing process and we are
committed to continuous improvement in our governance
practices. As in last year’s annual report, ‘d like to take this
opportunity to update you about certain aspects of corporate
governance at Methanex and also tell you of the impending
retirement of our longest-serving director.
Executive Compensation
Your Board is well aware that executive compensation in North
American public companies is a matter receiving close scrutiny by
both securities regulators and the general public. | believe
Methanex has a robust process for determining executive
compensation and the Board plays an important role init. |
encourage you to read the Information Circular to learn about
that process. | also firmly believe that our executive
compensation program properly aligns management with
corporate goals and that it fairly compensates management. In
2011, we learned that the vast majority of our shareholders agree.
With over 70 million shares cast for our first “say on pay” vote,
over 98 percent of those shares were in favour ofthe company’s
approach to executive compensation.
We encourage all shareholders to cast their “say on pay” vote
again this year at our annual meeting. Additionally, we ask you to
visit www.methanex.com to access our annual web-based survey
so that you can provide us with more in-depth feedback on our
approach to executive compensation. We are continually looking
for ways to improve.
Streamlining Board Committees
Each year, the Board conducts an annual Board and director
performance assessment. This process includes director self-
evaluations, peer reviews, an assessment of my own
performance as Chairman and an evaluation of howthe Board
and each committee is functioning. Let me give you a sense of
how this evaluation process is improving Board processes by
highlighting just one of several follow-up actions we are taking
from the assessment results.
In recent evaluations, directors questioned whether Board
committees – each with five or six sitting members – had grown
so large that their effectiveness was reduced. In addition, with
committees having so many members and with the CEO and |
8 METHANEX | Annual Report 2011
also attending each meeting, directors questioned the usefulness
of the committee reports being made to the Board. For most
directors, hearing the report was redundant since they had
already been in the committee meeting.
After much discussion and review, we decided to reduce each
committee to three or four directors. In addition, we directed
committee chairs to sharply focus their reports on the key
substantive matters addressed at the meetings. We are
monitoring these changes, but so far, | believe that they have
improved committee effectiveness and that the focused
committee reports have increased Board members’ engagement
in the work of the committees.
Farewell to Pierre
Shareholders who have reviewed the Information Circular will
have noticed that Pierre Choquette is not standing for re-election
to our Board of Directors.
Pierre has had a long and distinguished career at Methanex. He
became CEO in October 1994 and held that position for 10 years,
and he was then Chairman of the Board from September 2003
until May 2010. In all, he has served the company for nearly 18
years.
Over the past several years, Pierre has championed the
importance of Board renewal- and he has never considered
himselfimmune from the process. Consequently, in 2011 Pierre
advised me that he wished to step down in 2012.
Pierre has had far too many accomplishments at Methanex for
me to enumerate them here. Let me simply say that he is leaving
a profound legacy at Methanex, and the company’s identity of
high performance, integrity and professionalism is nothing less
than a reflection of Pierre himself. He is passionate about safe
industry practices through Responsible Care, financial prudence,
developing and executing a strategic plan and always doing
what is right for the company’s many stakeholders.
l referred earlier to the directors’ annual peer evaluation. Pierre’s
peers consider him to be one of the most effective directors they
have encountered. He is an outstanding communicator with a
rare gift for making complex issues understandable. His
preparation and engagement at Board and committee meetings
is second to none. His passion and commitment to Methanex is
absolute.
On behalf of the directors, Methanex’s employees and our
shareholders, let me take this opportunity to thank Pierre for his
invaluable contributions to Methanex over the years. He is a
remarkable man and he can be rightly proud of his many
accomplishments. He will be missed, but his legacy and impact at
Chairman’s Message to Shareholders
Methanex will remain for years to come. All the best to you, my
friend.
_ ña.
Tom Hamilton
Chairman of the Board
METHANEX | Annual Report 2011 9
Management’s Discussion tx Analysis
INDEX
Overview of the Business Financial Results Supplemental Non-GAAP Measures
Our Strategy Liquidity and Capital Resources Quarterly Financial Data (Unaudited)
Selected Annual Information
Ha Production Summary Critical Accounting Estimates Controls and Procedures
International Financial Reporting
Forward-Looking Statements
Standards (IFRS)
E
24]
Financial Highlights EE] Risk Factors and Risk Management
ES
40)
BOAEBDBEA
How We Analyze Our Business
Anticipated Changes to IFRS
This Management’s Discussion and Analysis is dated March 15, 2012 and should be read in conjunction with our consolidated
financial statements and the accompanying notes for the year ended December 31, 2011. We use the United States dollar as our
reporting currency. Except where otherwise noted, all currency amounts are stated in United States dollars.
The year ending December 31, 2011, with comparative results for 2010, is our first annual period reported under International
Financial Reporting Standards (IFRS). All comparative figures have been restated to be in accordance with IFRS, unless specifically
noted otherwise. For a description of the significant accounting policies the Company has adopted under IFRS, including the
estimates and judgments we consider most significant in applying those accounting policies, please refer to note 2 ofthe
consolidated financial statements.
Our financial statements were prepared in accordance with Canadian generally accepted accounting principles (Canadian GAAP)
until December 31, 2010. While IFRS uses a conceptual framework similarto Canadian GAAP, there are significant differences in
recognition, measurement and disclosures. The transition to IFRS had a cumulative impact on the Company’s shareholders’ equity
of $25 million as of January 1, 2010, excluding the presentation reclassification of the non-controlling interests. To help users ofthe
financial statements better understand the impact of the adoption of IFRS on the Company, we have provided reconciliations from
Canadian GAAP to IFRS for total assets, liabilities and equity, as well as net income and comprehensive income, for the comparative
reporting periods. Please refer to note 24 of the consolidated financial statements for the reconciliations between IFRS and
Canadian GAAP.
At March 9, 2012 we had 93,522,155 common shares issued and outstanding and stock options exercisable for 4,239,460 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 energy-
related applications. There has been strong demand growth for direct methanol blending into gasoline, as a feedstock in the
production of dimethyl ether (DME), which can be blended with liquefied petroleum gas for use in household cooking and heating,
and in the production of biodiesel. Methanol is also used to produce methyl tertiary-butyl ether (MTBE), a gasoline component, and
an emerging application is for methanol demand into olefins.
We are the world’s largest supplier of methanol to major international markets in Asia Pacific, North America, Europe and Latin
America. Our total annual production capacity, including Methanex equity interests in jointly owned plants, is currently 9.3 million
10 METHANEX | Annual Report 2011
Management’s Discussion $ Analysis
tonnes and is located in Chile, New Zealand, Trinidad, Egypt and Canada (refer to the Production Summary section on page 15 for
more information). We have marketing rights for 100% of the production from the jointly owned plants in Trinidad and Egypt and
this provides us with an additional 1.2 million tonnes per year of methanol offtake supply when the plants are operating at full
capacity. In addition to the methanol produced at our sites, we purchase methanol produced by others under methanol 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.
2011 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.
Despite concerns throughout 201 regarding the health of the global economy, the methanol industry experienced demand
growth of 7% compared with 2010, leading to total demand of approximately 49 million tonnes. Increases in demand have been
driven by both traditional derivatives and energy-related applications in Asia, particularly in China.
The methanol industry added 1.7 million tonnes of capacity outside of China in 2011, consisting of the new 1.26 million tonne plant
in Egypt and our 0.47 million tonne plant in Medicine Hat, Alberta; however, there were also a number of planned and unplanned
outages. Overall industry conditions were balanced and this led to a stable methanol pricing environment throughout 2011. Our
average realized price for 2011 was $374 per tonne.
The outlook for methanol demand growth continues to be strong. The wide disparity between the price of crude oil and that of
natural gas and coal has resulted in increased use of methanol in energy applications, which now accounts for approximately
one-third of global methanol demand. Led by China, methanol demand for gasoline blending and in the production of DME has
been particularly strong and grew at high rates in 2011. We believe that future growth in these applications is supported by
regulatory changes in that country as many provinces in China have implemented fuel blending standards, and M85 and Mi00 (or
85% methanol and 100% methanol respectively) national standards took effect in 2009. We believe demand potential into energy-
related applications will be stronger in a high energy price environment.
China is also leading the commercialization of methanol demand into olefins (MTO), which is emerging as a significant methanol
application. MTO, at current energy prices, is proving to be cost competitive relative to the traditional production of olefins from
naphtha. The first MTO plant in China started up in 2010, and there are now four plants operating in China, consuming over
five million tonnes of methanol annually. Three of these projects were not expected to impact the merchant methanol market as
they are integrated projects – coal to methanol to olefins. However, over the past year, these plants have purchased methanol to
supplement their own methanol production and the one non-integrated plant has been dependent on merchant methanol supply.
A number of non-integrated projects are currently being planned in China, and these will depend on merchant methanol supply. If
the projects go ahead, they could significantly impact the global supply and demand balance of methanol.
While methanol demand in energy applications is strongest in China, many other countries have projects in place or are
considering adopting these derivatives on a wider scale. For example, methanol is being used in small quantities in gasoline in the
United Kingdom and Korea, and there are fuel-blending trials under way in various countries around the world. DME projects are
also under development in countries that include Indonesia, India, Sweden and Japan.
We increased production in 2011 and anticipate a further increase in production capacity over the next few years. In addition to our
commitment to restart a second New Zealand facility in mid-2012, we are also focused on increasing the utilization of our Chile
assets. We are pursuing investment opportunities to accelerate natural gas exploration and development in Chile, which we
expect will allow us to increase production rates at our Chile site in the future. We are considering other projects to increase the
utilization of our Chilean assets. We are planning to relocate one of the idle Chile methanol plants to Geismar, Louisiana, with a
final investment decision expected in the third quarter of 2012, and we are also continuing to examine the viability of utilizing coal
gasification as an alternative feedstock in Chile.
Beyond our own capacity additions, there is a modest level of new capacity expected to come on stream over the next few years.
There is a 0.85 million tonne plant expected to restart in Beaumont, Texas in 2012, a 0.8 million tonne plant expected to restart in
METHANEX | Annual Report 2011 1
Management’s Discussion Analysis
Channelview, Texas in 2013, a 0.7 million tonne plant expected to start up in Azerbaijan in 2014, and a 0.8 million tonne plant
expected to start up in Russia in 2015.
Despite continued concerns regarding the global economy, methanol demand continues to be stable, supported by a higher
energy price environment. With few capacity additions expected to enter the market over the next few years relative to expected
demand growth, we believe we are well positioned with anticipated production increases from our existing assets. As production
from these assets 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 cash flows and earnings.
The methanol price will ultimately depend on the strength of the global economy, 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 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 customers and supporting both
traditional and energy-related global methanol demand growth.
We are the leading supplier of methanol to the major international markets of North America, Asia Pacific, Europe and Latin
America. We grew sales volumes by 8% in 201 to 7.5 million tonnes, representing approximately 15% of global demand. 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.
The geographically diverse location of our production sites allows us to deliver methanol cost-effectively to customers in all major
global markets, while investments in global distribution and supply infrastructure, which include a dedicated fleet of ocean-going
vessels and terminal capacity within all major international markets, enable 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
capability. We increased production in 2011 with the start-up of the new 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. We recently announced our commitment to restart a
second facility in New Zealand in mid-2012 and this will provide an additional 0.65 million tonnes of methanol capacity. Our New
Zealand facilities are ideally situated to supply the growing Asia Pacific market.
Our methanol facilities in Chile represent 3.8 million tonnes of annual production capacity and since 2007 we have operated the
site significantly below capacity. This is primarily due to curtailments of natural gas supply from Argentina (refer to the Risk Factors
and Risk Management – Chile section on page 30 for further information). Our primary goal is to progressively increase production
at the Chile site with natural gas from suppliers in Chile by supporting the acceleration of natural gas development in southern
Chile. Significant investments have been made in the last few years for natural gas exploration and development in southern Chile,
and gas deliveries from these investments have allowed us to continue to operate one plant. However, the timelines for significant
increases in gas production are much longer than we had originally anticipated and existing gas fields are experiencing declines.
As a result, the short-term outlook for gas supply in Chile continues to be challenging and we are considering other projects to
increase the utilization of our Chile assets. We are planning to relocate one of the idle Chile methanol plants with a capacity of
approximately 1.0 million tonnes to Geismar, Louisiana, with a final investment decision expected in the third quarter of 2012. We
are also continuing to examine the viability of utilizing coal gasification as an alternative feedstock in Chile.
12 METHANEX | Annual Report 2011
Management’s Discussion $ Analysis
Another key component of our global leadership strategy is our ability to supplement methanol production with methanol
purchased 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 sales and purchasing levels in 201 in anticipation of increased production
from the Egypt and Medicine Hat facilities. We expect purchased methanol will represent a lower proportion of overall sales
volumes in 2012 compared to 2011 as a result of higher production from Egypt, Medicine Hat and New Zealand.
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
and we have offices in Hong Kong, Shanghai, Beijing, Seoul and Tokyo to enhance customer service and industry positioning in the
region. This enables us to participate in and improve our knowledge of the rapidly evolving and high growth methanol markets 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.
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 a drive to improve our cost structure, expand margins and create
value for shareholders. The most significant components of total costs are natural gas for feedstock and distribution costs
associated with delivering methanol to customers.
Our production facilities in Trinidad and Egypt represent 2.8 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. This pricing relationship enables these facilities to be competitive
throughout the methanol price cycle.
During 2011, we operated one Motunui facility in New Zealand and we recently announced our commitment to restart a second
Motunui facility in mid-2012, which will add up to 0.65 million tonnes of incremental capacity per annum. In support of the restart,
Methanex has entered into a ten-year natural gas purchase agreement that is expected to supply up to half of the 1.5 million
tonnes of annual capacity at the Motunui site under terms that include base and variable price components.
Our 0.47 million tonne facility in Medicine Hat, Alberta is ideally situated to supply customers in North America. We have a
program in place to purchase natural gas on the Alberta gas market and we believe that the long-term natural gas dynamics in
North America will support the long-term operation of this facility.
The cost to distribute methanol from production locations to customers is also a significant component of total 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 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 the manufacturing and
supply chain processes, marketing and sales, human resources, corporate governance practices and financial management.
To differentiate ourselves from 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
METHANEX | Annual Report 2011 13
Management’s Discussion Analysis
to health, safety, the environment, community involvement, social responsibility, security and emergency preparedness at each of
our facilities and locations. We believe a commitment to Responsible Care helps us reduce the likelihood of unplanned shutdowns
and safety incidents and achieve an excellent overall environmental and safety record.
Product stewardship is a vital component of a 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 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 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.
Asa natural extension of the Responsible Care ethic, we have a Social Responsibility policy that aligns corporate governance,
employee engagement and development, community involvement and social investment strategies with our core values and
corporate strategy.
Our strategy of operational excellence also 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, 2011, we had a strong balance sheet with a cash balance of
$351 million and a $200 million undrawn credit facility. On February 21, 2012, we issued $250 million of notes due in 2022. We intend
to repay the $200 million of notes due in August 2012 from cash on hand, cash generated from operations and proceeds from the
2012 offering. We believe we are well positioned to meet our financial commitments and continue investing to grow the business.
FINANCIAL HIGHLIGHTS
($ MILLIONS, EXCEPT WHERE NOTED) 2011 2010
Production (thousands of tonnes) (attributable to Methanex shareholders) 3,847 3,540
Sales volumes (thousands of tonnes):
Methanex-produced methanol (attributable to Methanex shareholders) 3,853 3,540
Purchased methanol 2,815 2,880
Commission sales 846 509
Total sale volumes 7,514 6,929
Methanex average non-discounted posted price ($ per tonne)? 440 356
Average realized price ($ per tonne) 374 306
Revenue 2,608 1,967
Adjusted EBITDA (attributable to Methanex shareholders)+ 427 291
Cash flows from operating activities 480 183
Adjusted cash flows from operating activities (attributable to Methanex shareholders)+ 392 303
come (attributable to Methanex shareholders) 201 96
Net income before unusual item (attributable to Methanex shareholders)4 201 74
Basic net income per common share ($ per share) 2.16 1.04
Diluted net income per common share ($ per share)5 2.06 1.03
Diluted net income per common share before unusual item ($ per share)a 2.06 0.79
Common share information (millions of shares):
Weighted average number of common shares outstanding 93 92
Diluted weighted average number of common shares outstanding 94 94
Number of common shares outstanding 93 93
Commission sales represent volumes marketed on a commission basis related to the 36.9% of the Atlas methanol facility and 40% of the Egypt methanol
facility that we do not own.
Methanex average non-discounted posted price represents the average of our non-discounted posted prices in North America, Europe and Asia Pacific
weighted by sales volume. Current and historical pricing information is available at www.methanex.com.
Average realized price is calculated as revenue, excluding commissions earned and the Egypt non-controlling interest share of revenue, divided by the total
sales volumes of Methanex-produced (attributable to Methanex shareholders) and purchased methanol.
14. METHANEX | Annual Report 201
Management’s Discussion $ Analysis
>.
These items are non-GAAP measures that do not have any standardized meaning prescribed by GAAP and therefore are unlikely to be comparable to similar
measures presented by other companies. Refer to the Supplemental Non-GAAP Measures section on page 41 for a description of each non-GAAP measure and
a reconciliation to the most comparable GAAP measure.
For the year ended December 31, 2011, diluted net income per common share is $0.10 lower than basic net income per common share. The large difference
between diluted and basic net income per common share is due to the basis for the calculation of diluted net income per common share differing from the
accounting treatment for certain types of share-based compensation. See note 13 of the Company’s consolidated financial statements for the calculation of
diluted net income per common share.
PRODUCTION SUMMARY
The following table details the annual production capacity and actual production of our facilities in 2011 and 2010:
ANNUAL
PRODUCTION
(THOUSANDS OF TONNES) CAPACITY! 2011 2010
Chile 1, ll, lll and IV 3,800 554 935
New Zealand? 2,230 830 830
Atlas (Trinidad) (63.1% interest) 1,150 891 884
Titan (Trinidad) 900 m 891
Egypt (60% interest) 760 532 –
Medicine Hat3 470 329 –
9,310 3,847 3,540
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
The annual production capacity of New Zealand represents the two 0.85 million tonne facilities at Motunui and the o.5 million tonne facility at Waitara
Valley. We recently committed to restart a second Motunui facility in mid-2012, which is supported by a new ten-year natural gas agreement (refer to the
New Zealand section on page 16 for more information). Due to current distillation capacity constraints at the Motunui site, the combined operating capacity
of both plants is approximately 1.5 million tonnes, compared with the combined nameplate capacity of 1.7 million tonnes.
The Egypt methanol facility commenced commercial production in March 2011 and the Medicine Hat facility was restarted in April 2011.
Chile
The methanol facilities in Chile produced 0.55 million tonnes of methanol in 2011 compared with 0.94 million tonnes in 2010. Since
2007, we have operated the methanol facilities in Chile significantly below site capacity, primarily due to curtailments of natural
gas supply from Argentina. In June 2007, 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 ofthe methanol production at the Chile facilities since June 2007 has been produced
with natural gas from Chile.
Our primary goal is to progressively increase production at the 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, 2011, we had contributed approximately $106 million. Over the past few years, we have also provided
$57 million in financing to GeoPark (of which approximately $40 million had been repaid at December 31, 2011) 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 began in 2008.
Other investment activities are also supporting the acceleration of natural gas exploration and development in areas of southern
Chile. Over the past few years, the Government of Chile has completed international bidding rounds 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. For two of the exploration blocks, we are participating in a consortium with other international oil and gas companies
with Geopark as the operator. We have approximately a 15% participation in the consortium and at December 31, 2011, we had
contributed $9 million for our share of the exploration costs.
METHANEX | Annual Report 2011 15
Management’s Discussion Analysis
During 2011, approximately 75% of total production at the Chilean facilities was produced with natural gas supplied from the Fell
and Dorado Riquelme blocks, with the remaining natural gas supplied by ENAP. Lower production from the Chile facilities in 2011
compared with 2010 was primarily as a result of declines in the deliverability from existing fields. As we entered 2012, we were
operating one plant at approximately 40% of capacity and were working closely with ENAP to manage through the seasonality of
gas demand with the objective of maintaining operations through the winter season in 2012.
While significant investments have been made in the last few years for oil and natural gas exploration and development in
southern Chile, the timelines for significant increases in gas production are much longer than we had originally anticipated and
existing gas fields are experiencing declines. As a result, the short-term outlook for gas supply in Chile continues to be challenging
and we are also considering other projects to increase the utilization of the Chilean assets. We are planning to relocate one of the
idle Chile methanol plants with a capacity of approximately 1.0 million tonnes to Geismar, Louisiana and expect to make a final
investment decision in the third quarter of 2012 with production in late 2014. We are also continuing to examine the viability of
utilizing coal gasification as an alternative feedstock in Chile. Refer to the Risk Factors and Risk Management – Chile section on
page 30 for more information.
New Zealand
During 2010 and 2011, we operated one methanol facility at the Motunui site in New Zealand and produced 0.83 million tonnes of
methanol each year. We recently announced our commitment to restart a second Motunui facility in mid-2012 which will add up to
0.65 million tonnes of incremental annual capacity to our New Zealand operations. In support of the restart, we have entered into
a ten-year gas supply agreement that is expected to supply up to half of the 1.5 million tonnes of annual capacity at the Motunui
site. We have an additional 0.53 million tonne per year plant at the nearby Waitara Valley site which remains idle. This facility
provides additional potential to increase New Zealand production depending on methanol supply and demand dynamics and the
availability of competitively priced natural gas. We continue to pursue opportunities to contract additional natural gas supply to
our plants in New Zealand and are also pursuing natural gas exploration and development opportunities in that country. We have
an agreement with Kea Petroleum, an oil and gas exploration and development company, to explore areas of the Taranaki basin,
which is close to our plants.
Trinidad
Our equity ownership of methanol facilities in Trinidad represents 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 1.60 million tonnes in 201 compared with 1.78 million tonnes in 2010. As a result ofan
equipment failure in July 2011, the Atlas facility operated at approximately 70% of capacity until it was shut down in January 2012
for a maintenance outage to complete the repair.
In addition, production at the Titan facility was lower than capacity, primarily due to unplanned maintenance outages and lower
gas deliveries. During 2011, we experienced some natural gas curtailments to the Titan facility due to a mismatch between
upstream commitments to supply The National Gas Company in Trinidad (NGC) and downstream demand from NGC’s customers
which becomes apparent when an upstream technical problem arises. We are engaged with key stakeholders to find a solution to
this issue, but in the meantime expect to continue to experience some gas curtailments to the Trinidad site. Refer to the Risk
Factors and Risk Management – Trinidad on page 30 for more information.
Egypt
The new 1.26 million tonne per year methanol plant in Egypt commenced commercial operations in March 2011 and produced
0.89 million tonnes (0.53 million tonnes on a 60% basis) in 2011. We have a 60% interest in the facility and have marketing rights
for 100% of the production. This facility is well located to supply the European market and is underpinned by a 25-year take-or-pay
natural gas purchase agreement where the gas price varies with methanol prices.
During 2011, Egypt experienced periods of anti-government protests and civil unrest and in November 2011, for the safety and
security of our employees, we took the decision to temporarily curtail operations ofthe methanol plant. Since restarting in
December the plant has operated near capacity. Refer to the Risk Factors and Risk Management – Egypt section on page 31 for more
information.
16 METHANEX | Annual Report 2011
Management’s Discussion $ Analysis
Medicine Hat
Our 0.47 million tonne per year facility in Medicine Hat, Alberta was restarted in April 2011 and has operated well since that time,
producing 0.33 million tonnes of methanol in 2011. We have a program in place to purchase natural gas on the Alberta gas market
and we believe that the long-term natural gas dynamics in North America will support the long-term operation of this facility.
HOW WE ANALYZE OUR BUSINESS
Our operations consist of a single operating segment -the production and sale of methanol. We review our financial results by
analyzing changes in the components of Adjusted EBITDA (refer to the Supplemental Non-GAAP Measures section on page 41 for a
description of Adjusted EBITDA and a reconciliation to the most comparable GAAP measure), mark-to-market impact of share-
based compensation, depreciation and amortization, finance costs, finance income and other expenses, 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, excluding commission sales volumes. The key drivers of change in Adjusted EBITDA are average realized
price, cash costs and sales volume which are defined and calculated as follows:
PRICE The change in Adjusted EBITDA as a result of changes in average realized price is calculated as the difference
from period to period in the selling price of methanol multiplied by the current period total methanol sales
volume excluding commission sales volume plus the difference from period to period in commission revenue.
CASH COSTS The change in Adjusted EBITDA as a result of changes in cash costs is calculated as the difference from period to
period in cash costs per tonne multiplied by the current period total methanol sales volume excluding
commission sales volume in the current period. The cash costs per tonne is the weighted average ofthe cash cost
pertonne of Methanex-produced methanol and the cash cost per tonne of purchased methanol. The cash cost
pertonne 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 ofthe cost of methanol itself. In
addition, the change in Adjusted EBITDA as a result of changes in cash costs includes the changes from period to
period in unabsorbed fixed production costs, consolidated selling, general and administrative expenses and fixed
storage and handling costs.
VOLUME The change in Adjusted EBITDA as a result of changes in sales volume is calculated as the difference from period
to period in total methanol sales volume excluding commission sales volumes multiplied by the margin per
tonne for the prior period. The margin per tonne for the prior period is the weighted average margin per tonne of
Methanex-produced methanol and margin per tonne of purchased methanol. The margin per tonne for
Methanex-produced methanol is calculated as the selling price pertonne 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 pertonne of methanol less the cost of purchased methanol per tonne.
We own 63.1% of the Atlas methanol facility and market the remaining 36.9% of its production through a commission offtake
agreement. We account for this investment using proportionate consolidation, which results in 63.1% of its results being included
in revenues and expenses with the remaining 36.9% portion included as commission income.
We own 60% of the 1.26 million tonne per year Egypt methanol facility and market the remaining 40% of its production through a
commission offtake agreement. We account for this investment using consolidation accounting, which results in 100% of the
revenues and expenses being included in our financial statements with the other investors’ interest in the methanol facility being
presented as “non-controlling interests”. For purposes of analyzing our business, Adjusted EBITDA and Adjusted cash flows from
operating activities exclude the amounts associated with the other investors’ 40% non-controlling interest, which are included in
commission income on a consistent basis with how we present the Atlas facility.
METHANEX | Annual Report 2011 17
Management’s Discussion Analysis
FINANCIAL RESULTS
($ MILLIONS) 2011 2010
Consolidated statements of income:
Revenue $ 2,608 $ 1,967
Cost of sales and operating expenses, excluding mark-to-market impact of share-based compensation (2,128) (1,676)
480 291
Comprised of:
Adjusted EBITDA (attributable to Methanex shareholders): 427 291
Amounts attributable to non-controlling interests 53 –
480 291
Mark-to-market impact of share-based compensation 21 (19)
Gain on sale of Kitimat assets > 22
Depreciation and amortization (157) (137)
Operating income* 344 157
Finance costs (62) (81)
Finance income and other expenses 2 2
Income tax expense (56) 64)
Net income $ 228 $ 94
Net income attributable to Methanex shareholders $ 201 $ 96
1 These items are non-GAAP measures that do not have any standardized meaning prescribed by GAAP and therefore are unlikely to be comparable to similar
measures presented by other companies. Refer to the Supplemental Non-GAAP Measures section on page 41 for a description of the non-GAAP measures and
a reconciliation to the most comparable GAAP measures.
For the year ended December 31, 2011, we recorded Adjusted EBITDA (attributable to Methanex shareholders) of $427 million and
net income attributable to Methanex Corporation shareholders of $201 million ($2.16 basic net income per common share and
$2.06 per share on a diluted basis). This compares with Adjusted EBITDA (attributable to Methanex shareholders) of $291 million
and net income attributable to Methanex Corporation shareholders of $96 million ($1.04 basic net income per common share and
$1.03 per share on a diluted basis) for the year ended December 31, 2010. Included in our 2010 results was an unusual gain of $22
million from the sale of Kitimat assets. Refer to page 42 for a reconciliation of net income to net income before unusual item.
The following discussion provides a description of changes in revenue, Adjusted EBITDA, mark-to-market impact of share-based
compensation, depreciation and amortization, finance costs, finance income and other expenses, and income taxes for 2011
compared with 2010.
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, energy prices and changes in general economic conditions, which
can vary across the major international methanol markets.
Methanex Average Realized Price 2010 – 2011
500
2 400 +
c A
£
3
e 300 y
200
2010 2011
18 METHANEX | Annual Report 201
Management’s Discussion $ Analysis
Revenue for 201 was $2.6 billion compared with $2.0 billion in 2010. The increase in revenue was primarily due to higher methanol
pricing and increased sales volumes in 2011 compared with 2010.
Despite concerns throughout 201 regarding the health of the global economy, we estimate that global methanol demand grew at
approximately 7% in 2011 and is currently 49 million tonnes on an annualized basis. Increases in demand have been driven by both
traditional derivatives and energy-related applications in Asia (particularly in China). We grew our total sales volumes, including
commission sales volumes, by approximately 8% in 2011, primarily in anticipation of the start-up of the Egypt and Medicine Hat
facilities.
The methanol industry added 1.7 million tonnes of capacity outside of China in 2011, consisting of the new 1.26 million tonne plant
in Egypt and our 0.47 million tonne plant in Medicine Hat, Alberta; however, there were also a number of planned and unplanned
outages. Overall market conditions were balanced and this led to a stable methanol pricing environment throughout 2011. Our
average realized price for 2011 was $374 per tonne compared with $306 per tonne in 2010.
The methanol industry is highly competitive and prices are affected by supply and demand fundamentals. We publish regional
non-discounted reference prices for each major methanol market and these posted prices are reviewed and revised monthly or
quarterly based on industry fundamentals and market conditions. Most of our customer contracts use published Methanex
reference prices as a basis for pricing, and we offer discounts to customers based on various factors. Our average non-discounted
published reference price for 2011 was $440 per tonne compared with $356 per tonne in 2010, and our average realized prices were
15% and 14% lower, respectively, than the average non-discounted published prices.
Distribution of Revenue
The distribution of revenue for 2011 and 2010 is as follows:
($ MILLIONS, EXCEPT WHERE NOTED) 201 2010
Canada $ 176 71% $ 142 7%
United States 632 24% 470 24%
Europe 679 26% 454 23%
China 431 1% 351 18%
Korea 267 10% 216 1%
Other Asia 155 6% 127 6%
Latin America 268 10% 207 1%
$ 2,608 100% $ 1967 100%
The geographic distribution in our revenue in 2011 was similar to 2010.
Adjusted EBITDA (Attributable to Methanex Shareholders)
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 revenues and expenses being included in our financial statements with the other
investors’ interest in the methanol facility being presented as “non-controlling interests”. We analyze Adjusted EBITDA by
excluding the amounts associated with the other investors” 40% non-controlling interest and include these results in commission
income on a consistent basis with how we present the Atlas facility.
METHANEX | Annual Report 2011 19
Management’s Discussion Analysis
Commencing in 2011, we have modified our definition of Adjusted EBITDA to exclude the mark-to-market impact of items that
impact the comparability of our results from one period to another, which currently include only the mark-to-market impact of
share-based compensation as a result of changes in our share price. We grant share-based awards as an element of compensation
and, as more fully discussed on page 22, certain of these awards are marked to market each period with the changes in fair value
recognized in earnings for the proportion of the service that has been rendered at the reporting date. We believe excluding the
mark-to-market impact of share-based compensation as a result of changes in our share price will provide readers with a better
measure of the Company’s underlying ability to generate cash from operations and improve the comparability of our results from
one period to another. A reconciliation ofthe change in the definition of Adjusted EBITDA is as follows:
($ MILLIONS) 2011 2010
Adjusted EBITDA, as previously defined $ 448 $ 272
Mark-to-market impact of share-based compensation (1) 19
Adjusted EBITDA (attributable to Methanex shareholders) $ 427 $ 291
2011 Adjusted EBITDA was $136 million higher than 2010 Adjusted EBITDA. The key drivers of changes in our Adjusted EBITDA are
average realized price, sales volume and cash costs as described below (refer to the How We Analyze Our Business section on
page 17 for more information).
($ MILLIONS) 2011 VS. 2010
Average realized price $ 454
Sales volume 7
Total cash costs (835)
Increase in Adjusted EBITDA $ 16
Average Realized Price
Our average realized price for the year ended December 31, 2011 was $374 per tonne compared with $306 per tonne for 2010, and
this increased our Adjusted EBITDA by $454 million (refer to the Revenue section on page 18 for more information).
Sales Volumes
Total methanol sales volumes, excluding commission sales volumes, for the year ended December 31, 2011 were 0.25 million tonnes
higher than in 2010, and this increased Adjusted EBITDA by $17 million. We grew our sales volumes in 2011, primarily in anticipation
of the start-up of the Egypt and Medicine Hat facilities.
Total Cash Costs
The primary drivers of changes in our total cash costs are changes in the cost of methanol we produce at our facilities (Methanex-
produced methanol) and changes in the cost of methanol we purchase from others (purchased methanol). All of our production
facilities except Medicine Hat are underpinned by natural gas purchase agreements with pricing terms that include base and
variable price components. We supplement our production with methanol produced by others through methanol offtake contracts
and purchases on the spot market to meet customer needs and support our marketing efforts within the major global markets.
We have adopted the first-in, first-out method of accounting for inventories and it generally takes between 30 and 60 days to sell
the methanol we produce or purchase. Accordingly, the changes in Adjusted EBITDA as a result of changes in Methanex-produced
and purchased methanol costs will depend on changes in methanol pricing and the timing of inventory flows.
20 METHANEX | Annual Report 2011
Management’s Discussion $ Analysis
Costs for Methanex-produced methanol and purchased methanol were $335 million higher in 2011 than 2010. The changes in our
cash costs were due to the following:
($ MILLIONS) 2011 VS. 2010
Methanex-produced methanol costs $ (144)
Purchased methanol costs (200)
Proportion of Methanex-produced methanol sales 24
Other, net (15)
Increase in total cash costs $ (335)
Methanex-Produced Methanol Costs
Natural gas is the primary feedstock at our methanol facilities and is the most significant component of Methanex-produced
methanol costs. We purchase natural gas for the Chile, Trinidad, Egypt and New Zealand methanol facilities under natural gas
purchase agreements where the terms include a base price and a variable price component linked to the price of methanol to
reduce our commodity price risk exposure. The variable price component of each gas contract is adjusted by a formula related to
methanol prices above a certain level. We believe this pricing relationship enables these facilities to be competitive throughout the
methanol price cycle. Methanex-produced methanol costs were higher in 2011 compared with 2010 by $144 million, primarily due to
the impact of higher methanol prices on our natural gas costs and the timing of inventory flows. For additional information
regarding our natural gas agreements refer to the Summary of Contractual Obligations and Commercial Commitments section on
page 27.
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 ofthe
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 purchase agreements, we look for opportunities that provide synergies with our existing supply chain that allow us to
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 2011
increased the cost of purchased methanol per tonne and this decreased Adjusted EBITDA by $200 million compared with 2010.
Proportion of Methanex-Produced Methanol Sales
The cost of purchased methanol is directly linked to the selling price for methanol at the time of purchase and the cost of
purchased methanol is generally higher than the cost of Methanex-produced methanol. Accordingly, an increase in the proportion
of Methanex-produced methanol sales results in a decrease in our overall cost structure for a given period. The proportion of
Methanex-produced methanol sales for the year ended 2011 was higher compared with 2010 and this increased Adjusted EBITDA
by $24 million. We increased our production capacity in 201 with the start-up of the new methanol plant in Egypt and the restart
of our facility in Medicine Hat, Alberta. Higher sales volumes from these facilities in 2011 were partially offset by lower sales of
methanol produced at our Chile and Titan facilities.
Other, net
We experienced an equipment failure at our Atlas facility in July 2011 and operated this facility at approximately 70% of capacity
forthe remainder of the year. Our operations are covered by business interruption insurance and we have recorded $17 million for
the estimated insurance proceeds net of deductibles related to 2011 as a result of this event.
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
METHANEX | Annual Report 2011 21
Management’s Discussion Analysis
backhaul arrangements. However, excess capacity in the global tanker market over the last few years has made it more difficult to
mitigate these costs. For the year ended December 31, 2011 compared with 2010, ocean freight and other logistics costs were higher
by $15 million primarily as a result of fewer backhaul opportunities and higher bunker fuel costs.
Other cash costs in 2011 were $17 million higher than 2010 due primarily to the impact of a weaker US dollar on our cost structure
and the timing of recognizing fixed manufacturing costs in earnings. We allocate fixed manufacturing costs to inventory based on
the normal operating capacity of our manufacturing facilities. During 2011, primarily as a result of our facilities in Chile and
Trinidad operating below capacity for certain periods, a portion of fixed manufacturing costs were charged directly to earnings
rather than to inventory and this decreased Adjusted EBITDA in 2011.
Mark-to-Market Impact of Share-Based Compensation
We grant share-based awards as an element of compensation. Share-based compensation expense (recovery) includes an amount
related to the grant-date fair value and a mark-to-market impact as a result of subsequent changes in the Company’s share price.
The grant-date fair value amount is included in Adjusted EBITDA. The mark-to-market impact of share-based compensation as a
result of changes in the share price is excluded from Adjusted EBITDA and analyzed separately.
($ MILLIONS, EXCEPT PER SHARE AMOUNTS) 2011 2010
Methanex Corporation share price’ $ 22.82 $ 30.40
Grant-date fair value expense included in Adjusted EBITDA 16 7
Mark-to-market impact due to change in share price (1) 19
Total share-based compensation expense (recovery) $ (5) $ 36
+ US dollar share price of Methanex Corporation as quoted on NASDAO Global Market on the last trading day of the respective period.
Share-based awards granted include stock options, share appreciation rights, tandem share appreciation rights, deferred share
units, restricted share units and performance share units.
For stock options, the cost is measured based on an estimate of the fair value at the date of grant using the Black-Scholes option
pricing model, and this grant-date fair value is recognized as compensation expense over the related vesting period with no
subsequent re-measurement in fair value. Accordingly, share-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 with the objective 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. The fair value of SARs and TSARSs are re-measured each quarter using the
Black-Scholes option pricing model, which considers the market value ofthe Company’s common shares on the last trading day of
the quarter.
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 re-measured based on the market value of the Company’s common shares on the last trading day of
each quarter.
For all the share-based awards, the grant-date fair value is recognized in earnings and Adjusted EBITDA over the related vesting
period for the proportion of the service that has been rendered at each reporting date. Any mark-to-market impact as a result of
subsequent changes in the share price are also recognized in earnings over the related vesting period for the proportion ofthe
service that has been rendered at each reporting date but are excluded from Adjusted EBITDA.
22 METHANEX | Annual Report 2011
Management’s Discussion $ Analysis
Depreciation and Amortization
Depreciation and amortization was $157 million for the year ended December 31, 2011 compared with $137 million for 2010. The
increase in depreciation and amortization for 201 compared with 2010 was primarily a result ofthe commencement of
depreciation associated with the methanol facilities in Egypt (100% basis) and Medicine Hat and due to a portion of depreciation
being charged directly to earnings rather than to inventory due to lower production from our Titan and Chile facilities.
Finance Costs
($ MILLIONS) 2011 2010
Finance costs before capitalized interest $ 69 $ 69
Less capitalized interest related to Egypt plant under construction (7) (38)
Finance costs $ 62 $ 31
Finance costs before capitalized interest were $69 million for each ofthe years ended December 31, 2011 and 2010. Capitalized
interest relates to interest costs capitalized during the construction of the 1.26 million tonne per year methanol facility in Egypt
(100% basis). The Egypt methanol facility commenced production in mid-March 2011 and, accordingly, we ceased capitalization of
interest costs from this date.
Finance Income and Other Expenses
Finance income and other expenses were $2 million for each of the years ended December 31, 2011 and 2010.
Income Taxes
We recorded income tax expense of $56 million for the year ended December 31, 2011 compared with $34 million for 2010. The
effective tax rate for the year ended December 31, 2011 was approximately 20% compared with 27% for the same period in 2010.
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, British Columbia. Excluding this item, the effective tax rate for 2010 was 32%.
We earn the majority of our pre-tax earnings in Trinidad, Egypt, Chile, Canada and New Zealand. In Chile and Trinidad, the
statutory tax rate is 35%, and in Egypt, the statutory tax rate is 25%. Our Atlas facility in Trinidad has partial relief from corporate
income tax until 2014. During the year ended December 31, 2011, we earned a higher proportion of our consolidated income from
Egypt, Canada and New Zealand and a lower proportion of our consolidated income from Chile and this resulted in a lower
effective tax rate in 201 compared with 2010. We have loss carryforwards and other temporary differences in Canada and New
Zealand of $304 million and $82 million, respectively, which have not been recognized for accounting purposes.
In Chile, the tax rate consists of a first-tier tax that is payable when income is earned and a second-tier tax that is due when
earnings are distributed from Chile. The second category tax is initially recorded as future income tax expense and is subsequently
reclassified to current income tax expense when earnings are distributed. Accordingly, the ratio of current income tax expense to
total income tax expense is highly dependent on the level of cash distributed from Chile.
For additional information regarding income taxes, refer to note 16 of our 2011 consolidated financial statements.
METHANEX | Annual Report 2011 23
Management’s Discussion Analysis
LIQUIDITY AND CAPITAL RESOURCES
($ MILLIONS) 2011 2010
Cash flows from operating activities:
Cash flows from operating activities before changes in non-cash working capital: $ 444 $ 303
Changes in non-cash working capital 36 (120)
480 183
Cash flows from investing activities:
Property, plant and equipment (128) (122)
Oil and gas properties (30) (24)
GeoPark repayments 8 20
Proceeds on sale of assets > 32
Other, net – (1)
Changes in non-cash working capital relating to investing activities 7 (2)
(143) (97)
Cash flows from financing activities:
Dividend payments (62) (57)
Interest paid, including interest rate swap settlements (60) (64)
Proceeds from limited recourse debt 3 68
Repayment of limited recourse debt (50) (81)
Change in project finance reserve accounts (27) –
Equity contributions by non-controlling interests 19 26
Distributions to non-controlling interests (8) (1)
Proceeds on issue of shares on exercise of stock options n 9
Repayment of finance leases and other long-term liabilities (6) (12)
(180) (62)
Increase in cash and cash equivalents 157 24
Cash and cash equivalents, end of year $ 351 $ 194
* This is a non-GAAP measure. Referto page 41 for a reconciliation to the most comparable GAAP measure.
Cash Flow Highlights
Cash Flows from Operating Activities
Cash flows from operating activities for the year ended December 31, 2011 were $480 million compared with $183 million for 2010.
The increase in cash flows from operating activities is primarily explained by higher net income before unusual item, after
excluding depreciation and amortization, share-based compensation expense and finance costs, and changes in non-cash working
capital. The following table provides a summary of these items for 2011 and 2010:
($ MILLIONS) 2011 2010
Net income before unusual item’ $ 228 $ nm
Add (deduct) non-cash items:
Depreciation and amortization 157 137
Share-based compensation expense (5) 36
Finance costs 62 31
Other, net 2 27
Cash flows from operating activities before changes in non-cash working capital: 444 303
Changes in non-cash working capital:
Trade and other receivables (59) (64)
Inventories (44) (52)
Prepaid expenses 2 6)
Accounts payable and accrued liabilities, including long-term payables 17 (1)
36 (120)
Cash flows from operating activities $ 480 $ 183
Adjusted cash flows from operating activities (attributable to Methanex shareholders)’ $ 392 $ 303
+ These are non-GAAP measures. Refer to page 41 for a reconciliation to the most directly comparable GAAP measure.
24 METHANEX | Annual Report 2011
Management’s Discussion $ Analysis
For a discussion of the changes in net income before unusual item, depreciation and amortization, share-based compensation
expense and finance costs, refer to the analysis of our financial results on page 18.
Changes in non-cash working capital increased cash flows from operating activities by $36 million for the year ended December 31,
2011 compared with decreasing cash flows from operating activities by $120 million for the year ended December 31, 2010. The
most significant change in non-cash working capital for 2011 was an increase in accounts payable and accrued liabilities of $137
million as higher methanol pricing resulted in higher natural gas payables and purchased methanol payables. Trade and other
receivables increased in both 2011 and 2010, primarily as a result of higher methanol pricing and higher sales volumes. Inventories
also increased in both 2011 and 2010, primarily as a result of the impact of higher methanol pricing on Methanex-produced and
purchased methanol.
Adjusted cash flows from operating activities, which exclude the amounts associated with the 40% non-controlling interest in the
methanol facility in Egypt and changes in non-cash working capital, were $392 million and $303 million for 2011 and 2010,
respectively (refer to Supplemental Non-GAAP Measures on page 41 for a reconciliation from cash flows from operating activities to
adjusted cash flows from operating activities). The change in adjusted cash flows from operating activities between 201 and 2010
was primarily due to higher Adjusted EBITDA of $136 million. Refer to page 19 for a discussion of the change in Adjusted EBITDA.
Cash Flows from Investing Activities
In 2011, our priorities for allocating capital were funding the completion ofthe methanol project in Egypt and the restart ofthe
Medicine Hat methanol facility, supporting natural gas development in Chile and investing to maintain the reliability of our
existing plants.
During 2011, additions to property, plant and equipment totaled $128 million. Capital expenditures were $34 million for the
completion of the methanol project in Egypt and $40 million for the restart of our Medicine Hat, Alberta plant. The remaining $54.
million of expenditures include $30 million associated with turnarounads, catalyst and maintenance activities, and $24 million of
costs incurred in relation to the expected restart of a second Motunui facility in 2012.
In 2011, we incurred $18 million related to our share of Dorado Riquelme expenditures and $12 million related to other oil and gas
initiatives in southern Chile. 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.
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 2011, GeoPark repaid approximately
$8 million, bringing cumulative repayments for this financing to $40 million as at December 31, 2011. We have no further
obligations to provide funding to GeoPark.
Cash Flows from Financing Activities
During 2011, we increased our regular quarterly dividend by 10% to $0.17 per share, beginning with the dividend payable on June 30,
2011. Total dividend payments in 2011 were $62 million compared with $57 million in 2010.
We have limited recourse debt facilities totaling $530 million (100% basis) for the methanol facility in Egypt that were fully drawn
at December 31, 2010. During 2011, project finance reserve accounts related to the limited recourse debt facilities increased by $27
million.
During 2011, we repaid $32 million on our Egypt limited recourse debt facilities, $16 million on our Atlas limited recourse debt
facilities and $2 million on our other limited recourse debt facilities compared with total repayments in 2010 of $31 million.
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 29 for more
information). The cash settlements associated with these interest rate swap contracts during 2011 and 2010 were approximately
$16 million and $16 million, respectively, and are included in interest paid.
METHANEX | Annual Report 2017 25
Management’s Discussion Analysis
During 2011, we received proceeds of $11 million on the issue of 0.6 million common shares on the exercise of stock options.
Liquidity and Capitalization
We maintain conservative financial policies and focus on maintaining our financial strength and flexibility through prudent
financial management. Our objectives in managing liquidity and capital are to provide financial capacity and flexibility to meet our
strategic objectives, to provide an adequate return to shareholders commensurate with the level of risk and to return excess cash
through a combination of dividends and share repurchases.
The following table provides information on our liquidity and capitalization position as at December 31, 201 and December 31, 2010:
($ MILLIONS, EXCEPT WHERE NOTED) 2011 2010
Liquidity:
Cash and cash equivalents $ 351 $ 194
Undrawn credit facilities 200 200
Total liquidity 551 394
Capitalization:
Unsecured notes 349 348
Limited recourse debt facilities, including current portion 554 599
Total debt 903 947
Non-controlling interest 197 156
Shareholders’ equity 1,405 1,253
Total capitalization $ 2,505 $ 2,356
Total debt to capitalization 36% 40%
Net debt to capitalization? 26% 35%
1 Defined as total debt divided by total capitalization (including 100% of debt related to the Egypt methanol facility).
2 Defined as total debt less cash and cash equivalents divided by total capitalization less cash and cash equivalents (including 100% of debt related to the
Egypt methanol facility).
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 itis appropriate to maintain a conservative balance sheet
and retain financial flexibility. At December 31, 2011, we had a strong balance sheet with a cash balance of $351 million, including
$37 million relating to the Egypt non-controlling interest, and a $200 million undrawn credit facility. 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, 2011, our long-term debt obligations included $350 million in unsecured notes ($200 million that matures in 2012
and $150 million that matures in 2015), $483 million related to the Egypt limited recourse debt facilities and $65 million related to
our Atlas limited recourse debt facilities. Subsequent to December 31, 2011, we issued $250 million of unsecured notes that mature
1n 2022.
We have covenant and default provisions on our long-term debt obligations and we also have certain covenants that could restrict
access to the credit facility. The Egypt limited recourse debt facilities contain a covenant to complete by March 31, 2013 certain land
title registrations and related mortgages that require action by Egyptian government entities. We do not believe that the
finalization of these items is material. Refer to note 8 ofthe Company’s consolidated financial statements for further information.
26 METHANEX | Annual Report 2011
Management’s Discussion $ Analysis
At December 31, 2011, management believes the Company was in compliance with all ofthe covenants and default provisions
related to its long-term debt obligations.
Our planned capital maintenance expenditures directed towards major maintenance, turnarounds and catalyst changes for
current operations are estimated to be approximately $60 million for the period to the end of 2012. We also recently committed to
restart a second facility in New Zealand with an estimated future capital cost of $60 million.
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 2012, we expect our share of total contributions for strategic oil and gas exploration and development in Chile
and New Zealand to be approximately $60 million.
We believe we are well positioned to meet our financial commitments and continue to invest to grow our business.
Summary of Contractual Obligations and Commercial Commitments
A summary of the estimated amount and estimated timing of cash flows related to our contractual obligations and commercial
commitments as at December 31, 2011 is as follows:
($ MILLIONS) 2012 2013-2014 2015-2016 AFTER 2016 TOTAL
Long-term debt repayments $ 251 $ m5 $ 253 $ 299 $ 918
Long-term debt interest obligations 49 66 35 38 188
Repayment of other long-term liabilities 21 89 18 91 219
Natural gas and other 248 323 204 1,233 2,008
Operating lease commitments 136 200 137 340 813
$ 705 $ 793 $ 647 $ 2,001 $ 4,146
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 that expire between 2017 and
2025 with Argentinean suppliers for natural gas sourced from Argentina for a significant portion of the capacity of our facilities in
Chile. 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
proportionate share of total expected principal repayments related to the Atlas limited recourse debt facilities and other limited
recourse debt. Interest obligations related to variable interest rate long-term debt were estimated using current interest rates in
effect at December 31, 2011. For additional information, refer to note 8 of our 2011 consolidated financial statements.
Subsequent to December 31, 2011, we issued $250 million of unsecured notes bearing an interest rate of 5.25% that mature in 2022
(effective yield 5.30%). These notes and the associated interest payments are excluded from the table above.
Repayments of Other Long-Term Liabilities
Repayments of other long-term liabilities represent contractual payment dates or, ifthe 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.
METHANEX | Annual Report 2011 27
Management’s Discussion Analysis
Take-or-pay means that we are obliged to pay for the supplies regardless of whether we take delivery. Such commitments are
common 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, Egypt and New Zealand 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.
We have a program in place to purchase natural gas on the Alberta gas market and we believe that the long-term natural gas
dynamics in North America will support the long-term operation of this facility. In the above table, we have included 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. Over the
past few years, ENAP has delivered significantly 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 ten-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 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.
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 1.2 million tonnes per year of methanol offtake supply when these plants operate at capacity. At December 31, 2011, we
also have methanol purchase commitments with other suppliers under offtake contracts for approximately 0.54 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, 2011, 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.
28 METHANEX | Annual Report 2011
Management’s Discussion $ Analysis
Financial Instruments
Afinancial 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. 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, 2011 and December 31, 2010:
($ MILLIONS) 201 2010
Financial assets:
Loans and receivables:
Cash and cash equivalents $ 351 $ 194
Trade and other receivables, excluding current portion of GeoPark financing 333 273
Project financing reserve accounts included in other assets 40 1
GeoPark financing, including current portion 18 26
Total financial assets’ $ 742 $ 505
Financial lia!
Other financial liabilities:
Trade, other payables and accrued liabilities $ 306 $ 232
Deferred gas payments included in other long-term liabilities 51 –
Long-term debt, including current portion 903 947
Financial liabilities held-for-trading:
Derivative instruments designated as cash flow hedges? 42 43
Total financial liabilities $ 1,302 $ 1,222
+ The carrying amount of the financial assets represents the maximum exposure to credit risk at the respective reporting periods.
2 We have Egypt interest rate swaps designated as cash flow hedges and these are measured at fair value based on industry accepted valuation models and
inputs obtained from active markets.
At December 31, 2011, all ofthe financial instruments were recorded on the balance sheet at amortized cost with the exception of
derivative financial instruments, which are 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 $367 million as at December 31, 2011. The notional amount
decreases over the expected repayment of the Egypt limited recourse debt facilities. At December 31, 2011, these interest rate swap
contracts had a fair value of negative $42 million (December 31, 2010 – negative $43 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 38, to be among the most important for understanding the issues that face our
business and our approach to risk management.
METHANEX | Annual Report 2011 29
Management’s Discussion Analysis
Security of Natural Gas Supply and Price
Natural gas is 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 significantly 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 15. We are pursuing investment opportunities with
ENAP, GeoPark and others to help accelerate natural gas exploration and development in southern Chile. In addition, over the past
few years, the Government of Chile has completed international bidding rounds 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 2012, we were operating one plant at approximately 40% capacity at our Chile site. We are working closely with
ENAP to manage through the seasonality of gas demand with the objective of being able to maintain our operations throughout
the southern hemisphere winter season in 2012. The future operating rate of our Chile site is primarily dependent on production
rates from existing natural gas fields, the level of natural gas deliveries from future exploration and development activities in
southern Chile, and demand for natural gas for residential purposes, which is higher in the southern hemisphere winter. 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 about the level of natural gas supply or whether
we will be able to source sufficient natural gas to operate any capacity in Chile or that we will have sufficient future cash flows
from Chile to support the carrying value of our Chilean assets and that this will not have an adverse impact on our results of
operations and financial condition.
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 could be a source of supply 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
and that this will not have an adverse impact on our results of operations and financial condition.
Over the past year, large industrial consumers in Trinidad, including our Titan facility, experienced periodic curtailments of natural
gas supply due to a mismatch between upstream commitments to supply The National Gas Company in Trinidad (NGC) and
downstream demand from NGC’s customers which becomes apparent when an upstream technical problem arises. We are
engaged with key stakeholders to find a solution to this issue, but in the meantime expect to continue to experience some gas
30 METHANEX | Annual Report 2011
Management’s Discussion $ Analysis
curtailments to our Trinidad facilities. We cannot provide assurance that we will not experience longer or greater than anticipated
curtailments due to upstream outages or other issues in Trinidad and that these curtailments will not be material and that this
would not have an adverse impact on our results of operations and financial condition.
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. We recently announced
our commitment to restart a second Motunui facility in mid-2012 which will add up to 0.65 million tonnes of incremental annual
capacity to our New Zealand operations. In support of the restart, we have entered into a ten-year gas supply agreement that is
expected to supply up to half of the 1.5 million tonnes of annual capacity at the Motunui site. We have an additional 0.53 million
tonne per year plant at the nearby Waitara Valley site which remains idle. This facility provides additional potential to increase
New Zealand production depending on methanol supply and demand dynamics and the availability of competitively priced natural
gas.
We continue to pursue opportunities to contract additional natural gas supply to our plants in New Zealand and are also pursuing
natural gas exploration and development opportunities in that country. We have an agreement with Kea Petroleum, an oil and gas
exploration and development company, to explore areas of the Taranaki basin, which is close to our plants.
The future operation of our New Zealand facilities depends on methanol industry supply and demand, the ability of our contracted
suppliers to meet their commitments, 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 to
enable our operations to operate at capacity.
Egypt
Natural gas for the 1.26 million tonne per year production facility in Egypt, which commenced commercial production in March
2011, is supplied under a single long-term contract with the government-owned Egyptian Natural Gas Holding Company
(EGAS). Natural gas is 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 would have an adverse impact on our results of operations and financial condition.
Refer also to the Foreign Operations section on page 34.
Canada
We restarted our 0.47 million tonne per year facility in Medicine Hat, Alberta in April 2011. We have a program in place to purchase
natural gas on the Alberta gas market and we believe that the long-term natural gas dynamics in North America will support the
long-term operation of this facility.
The future operation of our Medicine Hat facility depends on methanol industry supply and demand and 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 and that this will not have an adverse
impact on our results of operations and financial condition.
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
METHANEX | Annual Report 2011 31
Management’s Discussion Analysis
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
Volatile global economic conditions over the past few years have added significant risks and uncertainties to our business,
including risks and uncertainties related to the 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 demand for methanol grew in 2011 and methanol prices were relatively
stable, there can be no assurance that future global economic conditions will not have an adverse impact on the methanol
industry and that this will not have an adverse impact on our results of operations and financial condition.
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 US
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”. In April 2011, the EPA announced that it was dividing
the draft assessment for methanol into carcinogenic and non-carcinogenic assessments. The timeline for the carcinogenic
assessment remains unknown while the non-carcinogenic assessment is expected in 2012. We are unable to determine whether
the current draft classification will be maintained in the final assessment or ifthis 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 and financial condition.
Demand for Methanol in the Production of Formaldehyde
In 2011, methanol demand for the production of formaldehyde represented approximately 33% 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 and in June 2010, the EPA released its draft
formaldehyde assessment, proposing formaldehyde as “Known to be Carcinogenic to Humans”. The timeline for the release of the
final assessment of formaldehyde is currently unknown.
In May 2009, the US 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
32 METHANEX | Annual Report 2011
Management’s Discussion $ Analysis
isthe first part of an update of the 2004 NCI study that indicated possible links between formaldehyde exposure and
nasopharyngeal cancer and leukemia. The NCI has not outlined its expected schedule with regards to the second portion ofthe
study, which focuses on nasopharyngeal cancer and other cancers. The International Agency for Research on Cancer also concluded
that there is sufficient evidence in humans of a causal association of formaldehyde with leukemia. Finally, in June 201, the US
Department of Health and Human Services” (HHS) National Toxicology Program (NTP) released its 12th Report on Carcinogens,
modifying its listing of formaldehyde from “Reasonably Anticipated to be a Human Carcinogen” to “Known to be a Human
Carcinogen.”
In 2010, the US 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.
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 2011, methanol demand for the production of MTBE represented approximately 12% of global methanol demand. Demand
growth has been particularly strong in China. 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 2011 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 2012 to remain steady, it could decline materially ifexport 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 2012.
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.
METHANEX | Annual Report 2011 33
Management’s Discussion Analysis
Foreign Operations
The majority of our operations and investments are located outside of North America, in 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.
During 2011, there were periods of anti-government protests and civil unrest in Egypt. For the safety and security of our employees,
we took the decision to temporarily curtail the operations of the methanol plant in Damietta, Egypt in November 2011. The
methanol plant is currently operating. 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 ongoing operations or on the
terms or enforceability of our natural gas or other contracts and that this would not have an adverse impact on our results of
operations and financial condition.
Because we derive the majority 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.
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, Canadian dollars 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 for five years starting from December 24, 2010. 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. However, 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, which actions 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
34 METHANEX | Annual Report 2011
Management’s Discussion $ Analysis
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 ofthe
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 and financial condition.
Liquidity Risk
We have an undrawn $200 million credit facility that expires in mid-2015. 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, 2011, our long-term debt obligations include $350 million in unsecured notes ($200 million that matures in 2012
and $150 million that matures in 2015), $483 million related to the Egypt limited recourse debt facilities, $65 million related to the
Atlas limited recourse debt facilities and $20 million related to other limited recourse debt. The covenants governing the unsecured
notes, which are specified in an indenture, 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, a requirement to fulfill certain conditions before the payment of cash or other distributions and a
restriction on these distributions if there is a default subsisting.
The Egypt limited recourse debt facilities contain a covenant to complete by March 31, 2013 certain land title registrations and
related mortgages that require action by Egyptian government entities. We do not believe that the finalization of these items is
material. We cannot provide assurance that we will be able to obtain a waiver from the lenders.
For additional information regarding long-term debt, refer to note 8 of our 2011 consolidated financial statements.
Subsequent to December 31, 2011, we issued $250 million of unsecured notes that mature in 2022.
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 of the 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 of the principal and accrued interest on
any outstanding loans. 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 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.
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
METHANEX | Annual Report 2011 35
Management’s Discussion Analysis
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. 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 that 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.
New Zealand Plant Restart
We believe that our estimates of project costs and anticipated completion for the restart of our second Motunui plant in New
Zealand 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, ifat all, or that the facility will operate at its designed capacity
or on a sustained basis. This could have an adverse impact on results of operations and financial condition.
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 or relocation of existing 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
36 METHANEX | Annual Report 2017
Management’s Discussion $ Analysis
environmental laws. Non-compliance with these laws and regulations may give rise to work orders, fines, injunctions, civil liability
and criminal sanctions.
Asa 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 31% between 1994 and 2011 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 2011, we
reduced our CO2 intensity (tonnes of CO2 from fuel burned per tonne of product moved) from marine operations by nearly 22%.
We also actively support global industry efforts to voluntarily reduce both energy consumption and CO2 emissions.
We manufacture methanol in Chile, Trinidad, Egypt, New Zealand and Canada. All of these countries have signed and ratified the
Kyoto Protocol; however, Canada has since removed itself from that Agreement. Under the Kyoto Protocol, the developing nations
of Chile, Trinidad and Egypt are not currently required to reduce greenhouse gases (“GHGs”), whereas our production in New
Zealand and Canada is subject to GHG reduction regulations. We cannot predict whether GHG reductions will be required in Chile,
Trinidad or Egypt in the future, which could have a significant adverse impact on our results of operation and financial condition.
New Zealand passed legislation to establish an Emissions Trading Scheme (ETS) that came into force in 2010. The ETS imposes a
carbon price on producers of fossil fuels, including natural gas, which is passed on 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. As a consequence, we will likely incur increased costs after 2012. It is impossible to 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 and financial condition after 2012.
Medicine Hat is located in the Canadian province of Alberta, which has an established GHG reduction regulation that applies to our
plant. The regulation requires facilities to reduce emissions intensities by up to 12% of their established emissions intensity
baseline. “Emissions intensity” means the quantity of specified GHGs released 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 CDN$15 per tonne of CO2 equivalent. Financial obligations are set to begin in 2014
and based on the expected GHG baseline intensity, we do not believe that, when applied, the cost will be significant.
METHANEX | Annual Report 2011 37
Management’s Discussion Analysis
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 and financial condition.
Legal Proceedings
The Board of Inland Revenue of Trinidad and Tobago issued an assessment in 2011 against our 63.1% owned joint venture, Atlas
Methanol Company Unlimited (“Atlas”), in respect ofthe 2005 financial year. All subsequent tax years remain open to assessment.
The assessment relates to the pricing arrangements of certain long-term fixed-price sales contracts that extend to 2014 and 2019
related to methanol produced by Atlas. The impact of the amount in dispute for the 2005 financial year is nominal as Atlas was not
subject to corporation income tax in that year. Atlas has partial relief from corporation income tax until 2014.
The Company has lodged an objection to the assessment. Based on the merits ofthe case and legal interpretation, management
believes its position should be sustained.
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
2 to our 2011 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, 201, the net book value of our property, plant and equipment was $2,233 million.
Capitalization
Property, plant and equipment are initially recorded at cost. Cost includes expenditures that are directly attributable to the
acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly
attributable to bringing the assets to a working condition for their intended use, the costs of dismantling and removing the items
and restoring the site on which they are located, and borrowing costs on self-constructed assets that meet certain criteria. Routine
repairs and maintenance costs are expensed as incurred.
At December 31, 2011, we have accrued $25.9 million for site restoration costs relating to the decommissioning and reclamation of
our methanol production sites and oil and gas properties. Inherent uncertainties exist in this estimate 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.
Depreciation and Amortization
We estimate the useful lives of property, plant and equipment for our major assets, and this is used as the basis for recording
depreciation and amortization. Depreciation and amortization is generally provided on a straight-line basis at rates calculated to
amortize the cost of the asset from the beginning of commercial operations over their estimated useful lives to estimated residual
value. The estimated useful lives of our buildings, plant installations and machinery is 5 to 25 years.
Oil and Gas Properties
Exploration and evaluation costs incurred for oil and natural gas exploration properties with unproven reserves are capitalized to
other assets. Upon recognition of proven reserves and internal approval for development, these costs are transferred to property,
plant and equipment. Costs associated with properties with no proven reserves are transferred to property, plant and equipment
and become subject to depreciation when they have been deemed abandoned by management. Subsequent costs incurred for
38 METHANEX | Annual Report 2011
Management’s Discussion $ Analysis
oil and natural gas properties with proven reserves are capitalized to property, plant and equipment. Oil and gas costs included in
property, plant and equipment are depreciated using a unit-of-production method, taking into consideration estimated proven
reserves and estimated future development costs.
Proven and probable reserves for oil and natural gas properties are estimated based on independent reserve reports and represent
the estimated quantities of natural gas that are considered commercially feasible. These reserve estimates are used to determine
depreciation and to assess the carrying value of oil and natural gas properties.
Recoverability of Asset Carrying Values
Property, Plant and Equipment and Oil and Gas Properties
Long-lived assets are tested 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.
Recoverability of long-lived assets is measured by comparing the carrying value of an asset or cash-generating unit to estimated
pre-tax fair value, which is determined by measuring the pre-tax cash flows expected to be generated from the asset or cash-
generating unit over their estimated useful life discounted by a pre-tax discount rate. An impairment writedown is recorded for the
difference that the carrying value exceeds the pre-tax fair value. An impairment writedown recognized in prior periods for an asset
or cash-generating unit is reversed ifthere has been a subsequent recovery in the value of the asset or cash-generating unit due to
changes in events and circumstances. For purposes of recognition and measurement of an impairment writedown, we group our
long-lived assets with other assets and liabilities to form a “cash-generating unit” 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.
The four methanol facilities at the Company’s Chile site, the Chile oil and gas properties included in Property, Plant and Equipment,
and the Chile oil and gas assets accounted for as Other Assets are considered as a single cash-generating unit (“Chile cash-
generating unit”). Production from the site was lower than expected in 2011 as a result of lower natural gas deliveries, and as a
consequence, the carrying value of the Chile cash-generating unit, being $650 million on a pre-tax basis and $460 million on a
post-tax basis, was tested for recoverability. The estimated future pre-tax cash flows were discounted to a present value using a
pre-tax discount rate based on the Company’s weighted average cost of capital. Based on the test performed, the carrying value of
the Company’s Chile cash-generating unit is recoverable.
METHANEX | Annual Report 2011 39
Management’s Discussion Analysis
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 Methanex-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.
Income Taxes
Deferred income tax assets and liabilities are determined using enacted or substantially enacted tax rates for the effects of net
operating losses and temporary differences between the book and tax bases of assets and liabilities. We recognize deferred tax
assets to the extent it is probable that taxable profit will be available against which the asset can be utilized. In making this
determination, 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. We also consider historical
profitability and volatility to assess whether we believe it is probable 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, 2011, we had recognized future tax assets of $115 million and unrecognized future income tax assets of
approximately $100 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.
Financial Instruments
We enter into derivative financial instruments from time to time to manage certain exposures to commodity price volatility,
foreign exchange volatility and variable interest rate volatility, which contributes towards managing our cost structure. 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. Assessment of contracts
as derivative instruments, the valuation of financial instruments and derivatives, and hedge effectiveness assessments require a
high degree of judgment and are considered critical accounting estimates due to the complex nature of these products and the
potential impact on our financial statements.
At December 31, 2011, the fair value of our derivative financial instruments used to limit our exposure to variable interest rate
volatility that have been designated as cash flow hedges approximated their carrying value of negative $42 million. Until settled,
the fair value of the derivative financial instruments will fluctuate based on changes in variable interest rates.
INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)
Transition from Canadian Generally Accepted Accounting Principles (Canadian GAAP) to IFRS
The year ending December 31, 2011 with comparative results for 2010 is our first period reported under International Financial Reporting
Standards (IFRS). All comparative figures have been restated to be in accordance with IFRS, unless specifically noted otherwise. For a
description ofthe significant accounting policies the Company has adopted under IFRS, including the estimates and judgments we
consider most significant in applying those accounting policies, please refer to note 2 of the consolidated financial statements.
Our financial statements were prepared in accordance with Canadian GAAP until December 31, 2010. While IFRS uses a conceptual
framework similar to Canadian GAAP, there are significant differences in recognition, measurement and disclosures. The transition
to IFRS had a cumulative impact on the Company’s shareholders’ equity of $25 million as of January 1, 2010, excluding the
presentation reclassification ofthe non-controlling interests.
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. To
help users of the financial statements better understand the impact of the adoption of IFRS on the Company, we have provided
40 METHANEX | Annual Report 2011
Management’s Discussion $ Analysis
reconciliations from Canadian GAAP to IFRS for total assets, liabilities and equity, as well as net income and comprehensive
income, for the comparative reporting periods. Please refer to note 24 of the consolidated financial statements for a detailed
description of the IFRS 1 exemptions we elected to apply and reconciliations between IFRS and Canadian GAAP.
ANTICIPATED CHANGES TO INTERNATIONAL FINANCIAL REPORTING STANDARDS
Consolidation and Joint Arrangement Accounting
In May 2011, the lASB issued new accounting standards related to consolidation and joint arrangement accounting. The lASB has
revised the definition of “control,” which is a criterion for consolidation accounting. In addition, changes to IFRS in the accounting
for joint arrangements were issued that, under certain circumstances, removed the option for proportionate consolidation
accounting so that the equity method of accounting for such interests would need to be applied. The impact of applying
consolidation accounting or equity accounting does not result in any change to net earnings or shareholders’ equity, but would
result in a significant presentation impact. We are currently assessing the impact on our financial statements. We currently
account for our 63.1% interest in Atlas Methanol Company using proportionate consolidation accounting and this represents the
most significant potential change under these new standards. The effective date for these standards is for periods commencing on
or after January 1, 2013, with earlier adoption permitted.
Leases
As part of their global conversion project, the International Accounting Standards Board (IASB) and the US Financial Accounting
Standards Board (“FASB”) issued a joint Exposure Draft in 2010 proposing that lessees would be required to recognize all leases on
the statement of financial position. We have a fleet of ocean-going vessels under time charter agreements with terms of up to 15
years, which are currently accounted for as operating leases. The proposed rules would require these time charter agreements to
be recorded on the Consolidated Statements of Financial Position, resulting in a material increase to total assets and liabilities. The
1ASB and FASB currently expect to issue a re-exposed draft in 2012.
SUPPLEMENTAL NON-GAAP MEASURES
In addition to providing measures prepared in accordance with International Financial Reporting Standards (IFRS), we present
certain supplemental measures that are not defined terms under IFRS (non-GAAP measures). These are Adjusted EBITDA, Adjusted
cash flows from operating activities, operating income, net income before unusual items and diluted net income before unusual
items per share. These measures do not have any standardized meaning prescribed by IFRS and therefore are unlikely to be
comparable to similar measures presented by other companies. We believe these measures are useful in assessing the operating
performance and liquidity of the Company’s ongoing business. We also believe Adjusted EBITDA is frequently used by securities
analysts and investors when comparing our results with those of other companies.
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 IFRS.
Adjusted EBITDA (Attributable to Methanex Shareholders)
Adjusted EBITDA differs from the most comparable GAAP measure, cash flows from operating activities, because it does not
include changes in non-cash working capital, other cash payments related to operating activities, share-based compensation
excluding mark-to-market impact, other non-cash items, taxes paid, finance income and other expenses, and amounts associated
with the 40% non-controlling interest in the methanol facility in Egypt.
METHANEX | Annual Report 2011 41
Management’s Discussion Analysis
The following table shows a reconciliation of cash flows from operating activities to Adjusted EBITDA:
($ MILLIONS) 2011 2010
Cash flows from operating activities $ 480 $ 183
Add (deduct):
Changes in non-cash working capital (36) 120
Other cash payments, including share-based compensation 10 6
Share-based compensation expense, excluding mark-to-market impact (16) (17)
Other non-cash items 8) (8)
Income taxes paid 46 9
Finance income and other expenses (2) (2)
Net (income) loss attributable to non-controlling interests (27) 2
Non-controlling interests adjustments’ (25) (2)
Adjusted EBITDA (attributable to Methanex shareholders) $ 427 $ 291
* This adjustment represents finance costs, income tax expense, and depreciation and amortization associated with the 40% non-controlling interest in the
methanol facility in Egypt.
Adjusted Cash Flows from Operating Activities (Attributable to Methanex Shareholders)
Adjusted cash flows from operating activities differs from the most comparable GAAP measure, cash flows from operating
activities, because it does not include changes in non-cash working capital and cash flows associated with the 40% non-controlling
interest in the methanol facility in Egypt.
The following table shows a reconciliation of cash flows from operating activities to adjusted cash flows from operating activities:
($ MILLIONS) 2011 2010
Cash flows from operating activities $ 480 $ 183
Add (deduct) non-controlling interests adjustment:
Net (income) loss (27) 2
Non-cash items (25) (2)
Changes in non-cash working capital (36) 120
Adjusted cash flow from operating activities (attributable to Methanex shareholders) $ 392 $ 303
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 attributable to Methanex shareholders 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) 2011 2010
Net income! $ 201 $ 96
Gain on sale of Kitimat assets – (22)
Net income before unusual item’ $ 201 $ 74
Diluted weighted average number of common shares (millions) 94 94
Diluted net income per share before unusual item! $ 2.06 $ 0.79
1 Attributable to Methanex Corporation shareholders.
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 GAAP
measures in our Consolidated Statements of Income and Consolidated Statements of Cash Flows, respectively.
42 METHANEX | Annual Report 2011
Management’s Discussion $ Analysis
OQUARTERLY FINANCIAL DATA (UNAUDITED)
THREE MONTHS ENDED
($ MILLIONS, EXCEPT WHERE NOTED) DEC 31 SEP 30 JUN 30 MAR 31
2011
Revenue $ 696 $ 670 $ 623 $ 619
Net income 64 62 41 35
Net income before unusual item” 64 62 41 35
Basic net income per share’ 0.69 0.67 0.44 0.37
Diluted net income per share: 0.68 0.59 0.43 0.37
Diluted net income per share before unusual item” 0.68 0.59 0.43 0.37
2010
Revenue $ 570 $ 481 $ 449 $ 467
Net income* 26 29 15 21
Net income before unusual item” 26 6 15 21
Basic net income per share: 0.28 0.31 0.16 0.29
Diluted net income per share’ 0.28 0.31 0.15 0.29
Diluted net income per share before unusual item! 0.27 0.07 0.15 0.29
1 Attributable to Methanex Corporation shareholders.
Adiscussion and analysis of our results for the fourth quarter of 2011 is set out in our fourth quarter of 2011 Management’s
Discussion and Analysis filed with the Canadian Securities Administrators and the U.S. Securities and Exchange Commission and
incorporated herein by reference.
SELECTED ANNUAL INFORMATION
($ MILLIONS, EXCEPT WHERE NOTED) 2011 2010 20092
Revenue $ 2,608 $ 1,967 $ 1,198
Net income 201 96 1
Net income before unusual item” 201 74 1
Basic net income per share’ 2.16 1.04 0.01
Diluted net income per share: 2.06 1.03 0.01
Diluted net income per share before unusual item” 2.06 0.79 0.01
Cash dividends declared per share 0.665 0.620 0.620
Total assets 3,394 3,141 2,923
Total long-term financial liabilities 886 1,105 982
1 Attributable to Methanex Corporation shareholders.
2 The 2009 figures are reported in accordance with Canadian GAAP. The Company transitioned to IFRS on January 1, 2010 and the 2009 figures have not been
restated to be in accordance with IFRS.
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, 2011, 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 that our disclosure controls and procedures are effective.
METHANEX | Annual Report 2011 43
Management’s Discussion Analysis
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.
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, 2011, based on the
framework set forth in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. 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, 2011. The
attestation report is included on the third page of our consolidated financial statements.
Changes in Internal Control over Financial Reporting
There have been no changes during the year ended December 31, 201 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 201 Management’s Discussion and Analysis (“MDeA”) contains forward-looking statements with respect to us and our
industry. These statements relate to future events or our future performance. All statements other than statements of historical
fact are forward-looking statements. Statements that include the words “believes,
expects,” “may,” “will,” “should,” “potentia
“estimates,” “anticipates,” “aim”, “goal” or other comparable terminology and similar statements of a future or forward-looking
nature identify forward-looking statements.
More particularly, and without limitation, any statements regarding the following are forward-looking statements:
E expected demand for methanol and its derivatives,
E expected new methanol supply and timing for start-up of the same,
5″ expected shutdowns (either temporary or permanent) or restarts of existing methanol supply (including our own facilities),
including, without limitation, the timing and length of planned maintenance outages,
E expected methanol and energy prices,
E expected levels of methanol purchases from traders or other third parties,
E expected levels, timing and availability of economically-priced natural gas supply to each of our plants, including, without
limitation, levels of natural gas supply from investments in natural gas exploration and development in Chile and New Zealand,
E commitments, capital or otherwise of third parties to future natural gas exploration and development in the vicinity of our
plants,
E expected capital expenditures, including, without limitation, those to support natural gas exploration and development for our
plants and the restart of our idled methanol facilities,
E anticipated production rates of our plants, including, without limitation, our Chilean facilities and the planned restart of the
Motunui1 facility in New Zealand,
E expected operating costs, including natural gas feedstock costs and logistics costs,
44 METHANEX | Annual Report 2011
Management’s Discussion $ Analysis
E ability to reduce CO2 emissions and other greenhouse gases from our operations,
IM expected tax rates or resolutions to tax disputes,
“expected cash flows, earnings capability and share price,
E ability to meet covenants or obtain waivers associated with our long-term debt obligations, including, without limitation, the
Egypt limited recourse debt facilities that have conditions associated with finalization of certain land title registration and
related mortgages that require actions by Egyptian governmental entities,
E availability of committed credit facilities and other financing,
E shareholder distribution strategy and anticipated distributions to shareholders,
“commercial viability of, or ability to execute, future projects, plant restarts, capacity expansions, plant relocations or other
business initiatives or opportunities, including the planned relocation of one of our idle Chile methanol plants to the United
States Gulf Coast,
E financial strength and ability to meet future financial commitments,
” expected global or regional economic activity (including industrial production levels),
” expected outcomes of litigation or other disputes, claims and assessments,
E expected impact of regulatory actions, including assessments of carcinogenicity of methanol, formaldehyde and MTBE, the
imposition of formaldehyde emission limits and legislation related to CO2 emissions,
“expected actions of governments, government agencies, gas suppliers, courts, tribunals or other third parties, and
MH 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:
E supply of, demand for, and price of, methanol, methanol derivatives, natural gas, oil and oil derivatives,
Il 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,
E production rates of our facilities,
E 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,
E operating costs including natural gas feedstock and logistics costs, capital costs, tax rates, cash flows, foreign exchange rates
and interest rates,
E availability of committed credit facilities and other financing,
“timing of completion and cost of our Motunui 1 restart project in New Zealand,
5″ global and regional economic activity (including industrial production levels),
Ml absence of a material negative impact from major natural disasters,
METHANEX | Annual Report 2011 45
Management’s Discussion Analysis
MH absence of a material negative impact from changes in laws or regulations,
E accuracy and sustainability of opinions provided by our legal, accounting and other professional advisors,
MH absence of material negative impact from political instability in the countries in which we operate, and
E 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:
E conditions in the methanol and other industries, including fluctuations in supply, demand and price for methanol and its
derivatives, including demand for methanol for energy uses,
E the price of natural gas, oil and oil derivatives,
IM the success of natural gas exploration and development activities in southern Chile and New Zealand and our ability to obtain
any additional gas in Chile, New Zealand and Canada on commercially acceptable terms,
E the ability to successfully carry out corporate initiatives and strategies,
E actions of competitors, suppliers and financial institutions,
E actions of governments and governmental authorities, including, without limitation, the implementation of policies or other
measures that could impact the supply or demand for methanol or its derivatives,
E changes in laws or regulations,
E import or export restrictions, anti-dumping measures, increases in duties, taxes and government royalties, and other actions by
governments that may adversely affect our operations or existing contractual arrangements,
E worldwide economic conditions, and
mother risks described in the 201 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.
46 METHANEX | Annual Report 2011
Consolidated Financial Statements
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 International Financial Reporting
Standards 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 ofthe 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, 2011.
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 four 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 ofthe 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.
LÓ
A. Terence Poole Bruce Aitken lan Cameron
Chairman of the Audit, President and Senior Vice President,
Finance and Risk Committee Chief Executive Officer Corporate Development
and Chief Financial Officer
March 15, 2012
METHANEX | Annual Report 2011 47
Consolidated Financial Statements
Independent Auditors” Report of Registered
Public Accounting Firm
To the Shareholders and Board of Directors of Methanex Corporation
We have audited the accompanying consolidated statements of financial position of Methanex Corporation as at December 31,
2011, December 31, 2010 and January 1, 2010 and the related consolidated statements of income, comprehensive income, changes in
equity and cash flows for the years ended December 31, 2011 and December 31, 2010. These consolidated financial statements are
the responsibility of Methanex Corporation’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 whether the 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 consolidated
financial position of Methanex Corporation as at December 31, 2011, December 31, 2010 and January 1, 2010, and its consolidated
financial performance and its consolidated cash flows for the years ended December 31, 2011 and December 31, 2010 in conformity
with International Financial Reporting Standards as issued by the International Accounting Standards Board.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
Methanex Corporation’s internal control over financial reporting as of December 31, 2011, 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 15, 2012 expressed an unqualified opinion on the effectiveness of Methanex Corporation’s
internal control over financial reporting.
Lino “?
==
Chartered Accountants
Vancouver, Canada
March 15, 2012
48 METHANEX | Annual Report 2011
Consolidated Financial Statements
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, 2011 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. Acompany’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 of the 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, 2011, 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 the Canadian generally accepted auditing standards and the standards of the Public
Company Accounting Oversight Board (United States), the consolidated statements of financial position of the Company as of
December 31, 2011, December 31, 2010 and January 1, 2010, and the related consolidated statements of income, comprehensive
income, changes in equity and cash flows for the years ended December 31, 2011 and December 31, 2010, and our report dated
March 15, 2012 expressed an unqualified opinion on those consolidated financial statements.
Lfnó “e?
==
Chartered Accountants
Vancouver, Canada
March 15, 2012
METHANEX | Annual Report 2011 49
Consolidated Statements of Financial Position
(thousands of US dollars, except number of common shares)
Dec 31 Dec 31 Jan1
ASAT 201 2010 2010
ASSETS
Current assets:
Cash and cash equivalents 350,711 $ 193,794 $ 169,788
Trade and other receivables (note 3) 378,430 320,027 257,418
Inventories (note 4) 281,015 229,657 170,904
Prepaid expenses 24,465 26,877 23,893
1,034,621 770,355 622,003
Non-current assets:
Property, plant and equipment (note 5) 2,233,023 2,258,576 2,226,673
Other assets (note 7) 125,931 111,762 134,905
2,358,954 2,370,338 2,361,578
3,393,575 $ 3,140,693 $ 2,983,581
LIABILITIES AND EQUITY
Current liabilities:
Trade, other payables and accrued liabilities 327,130 $ 259,039 $ 238,699
Current maturities on long-term debt (note 8) 251,107 49,965 29,330
Current maturi on finance leases (note 9) 6,713 11,570 10,655
Current maturities on other long-term liabilities (note 10) 18,031 9,677 4,304
602,981 330,251 282,988
Non-current liabilities:
Long-term debt (note 8) 652,148 896,976 884,914
Finance leases (note 9) 55,979 67,842 79,506
Other long-term liabilities (note 10) 178,172 140,570 97,509
Deferred income tax liabilities (note 16) 302,332 295,431 290,390
1,188,631 1,400,819 1,352,319
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, 2011 were
93,247,755 (2010 – 92,632,022) 455,434 440,092 427,792
Contributed surplus 22,281 25,393 26,981
Retained earnings 942,978 813,819 716,139
Accumulated other comprehensive loss (15,968) (26,093) (19,910)
Shareholders’ equity 1,404,725 1,253,211 1,211,002
Non-controlling interests 197,238 156,412 137,272
Total equity 1,601,963 1,409,623 1,348,274
3,393,575 $ 3,140,693 $ 2,983,581
Commitments and contingencies (notes 16 and 22)
See accompanying notes to consolidated financial statements.
Approved by the Board:
A pmp
Terence Poole (Director) Bruce Aitken (Director)
50 METHANEX | Annual Report 2011
Consolidated Statements of Income
(thousands of US dollars, except number of common shares and per share amounts)
FOR THE YEARS ENDED DECEMBER 31 2011 2010
Revenue $ 2,608,037 $ 1,966,583
Cost of sales and operating expenses (note 11) (2,107,320) (1,694,865)
Depreciation and amortization (note 11) (156,667) (137,214)
Gain on sale of Kitimat assets – 22,223
Operating income 344,050 156,727
Finance costs (note 12) (61,797) (30,648)
Finance income and other expenses 1,667 2,454
Profit before income tax expense 283,920 128,533
Income tax expense (note 16):
Current (36,241) (29,463)
Deferred (19,679) (5,041)
(55,920) (34,504)
Net income $ 228,000 $ 94,029
Attributable to:
Methanex Corporation shareholders $ 201,326 $ 96,019
Non-controlling interests 26,674 (1,990)
$ 228,000 $ 94,029
Income for the period attributable to Methanex Corporation shareholders
Basic net income per common share $ 2.16 $ 1.04
Diluted net income per common share (note 13) $ 2.06 $ 1.03
Basic net income per common share before unusual item $ 2.16 $ 0.80
Diluted net income per common share before unusual item $ 2.06 $ 0.79
Weighted average number of common shares outstanding 93,026,482 92,218,320
Diluted weighted average number of common shares outstanding 94,360,956 93,509,799
See accompanying notes to consolidated financial statements.
METHANEX | Annual Report 2011
s1
Consolidated Statements of Comprehensive Income
(thousands of US dollars)
FOR THE YEARS ENDED DECEMBER 31 2011 2010
Net income $ 228,000 94,029
Other comprehensive income:
Change in fair value of forward exchange contracts, net of tax (note 19) 326 –
Change in fair value of interest rate swap contracts, net of tax (notes 16 and 19) (3,764) (25,985)
Realized loss on interest rate swap reclassified to interest expense 12,816 –
Realized loss on interest rate swap reclassified to property, plant and equipment 7,279 15,682
Actuarial losses on defined benefit pension plans, net of tax (notes 16 and 21(a)) (10,258) (1,139)
6,399 (11,442)
Comprehensive income $ 234,399 82,587
Attributable to:
Methanex Corporation shareholders $ 201,193 88,697
Non-controlling interests 33,206 (6,110)
$ 234,399 82,587
See accompanying notes to consolidated financial statements.
52 METHANEX | Annual Report 2011
Consolidated Statements of Changes in Equity
(thousands of US dollars, except number of common shares)
Accumulated
Number of Other
Common | Capital Contributed Retained Comprehensive | Shareholders’ Non-Controlling Total
Shares Stock Surplus Earnings Loss Equity Interests Equity
Balance, January 1, 2010 92,108,242 | $ 427,792 $26,981 $776,139 $ (19,910) $1,211,002 $137,272 | $1,348,274
Net income (loss) – – – 96,019 – 96,019 (1,990) 94,029
Other comprehensive loss – – – (1,139) (6,183) (7,322) (4,120) (11,442)
Compensation expense
recorded for stock options – – 1,475 – – 1,475 – 1,475
Issue of shares on exercise of
stock options 523,780 9,237 – – – 9,237 – 9,237
Reclassification of grant-date
fair value on exercise of stock
options – 3,063 (3,063) – – – – –
Dividend payments to
Methanex Corporation
shareholders – – – (57,200) – (57,200) – (57,200)
Distributions to non-controlling
interests – – – – – – (750) (750)
Equity contributions by
non-controlling interests – – – – – – 26,000 26,000
Balance, December 31, 2010 92,632,022 | 440,092 25,393 813,819 (26,093) 1,253,211 156,412 | 1,409,623
Net income – – – 201,326 – 201,326 26,674 228,000
Other comprehensive income
(loss) – – – (10,258) 10,125 (133) 6,532 6,399
Compensation expense
recorded for stock options – – 837 – – 837 – 837
Issue of shares on exercise of
stock options 615,733 11,393 – – – 11,393 – 11,393
Reclassification of grant-date
fair value on exercise of stock
options – 3,949 (3,949) – – – – –
Dividend payments to
Methanex Corporation
shareholders – – – (61,909) – (61,909) – (61,909)
Distributions to non-controlling
interests – – – – – – (1,580) (1,580)
Equity contributions by
non-controlling interests – – – – – – 19,200 19,200
Balance, December 31, 2011 93,247,155 | $ 455,434 $ 22,281 $ 942,978 $ (15,968) $ 1,404,725 $ 197,238 | $1,601,963
See accompanying notes to consolidated financial statements.
METHANEX | Annual Report 2011
53
Consolidated Statements of Cash Flows
(thousands of US dollars)
FOR THE YEARS ENDED DECEMBER 31 2011 2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 228,000 $ 94,029
Add (deduct) non-cash items:
Depreciation and amortization 156,667 137,214
Gain on sale of Kitimat assets – (22,223)
Income tax expense 55,920 34,504
Share-based compensation expense (recovery) (4,890) 36,084
Finance costs 61,797 30,648
Other 3,459 8,047
Income taxes paid (46,331) (9,090)
Other cash payments, including share-based compensation (10,303) (6,049)
Cash flows from operating activities before undernoted 444,319 303,164
Changes in non-cash working capital (note 17) 35,388 (120,618)
479,707 182,546
CASH FLOWS FROM FINANCING ACTIVITIES
Dividend payments to Methanex Corporation shareholders (61,909) (57,200)
Interest paid, including interest rate swap settlements (60,467) (63,704)
Proceeds from ited recourse debt 2,700 67,515
Repayment of limited recourse debt (49,650) (30,991)
Changes in project finance reserve accounts (27,291) 372
Equity contributions by non-controlling interests 19,200 26,000
Distributions to non-controlling interests (8,239) (750)
Proceeds on issue of shares on exercise of stock options 11,393 9,237
Repayment of finance leases and other long-term liabilities (5,964) (11,583)
(180,227) (61,104)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of assets – 31,7M
Property, plant and equipment (127,524) (122,082)
Oil and gas assets (30,098) (24,233)
GeoPark repayments 7,551 20,227
Other assets – (769)
Changes in non-cash working capital related to investing activities (note 17) 7,508 (2,350)
(142,563) (97,436)
Increase in cash and cash equivalents 156,917 24,006
Cash and cash equivalents, beginning of year 193,794 169,788
Cash and cash equivalents, end of year $ 350,711 $ 193,794
See accompanying notes to consolidated financial statements.
54 METHANEX | Annual Report 2011
Notes to Consolidated Financial Statements
(Tabular dollar amounts are shown in thousands of US dollars, except where noted)
Year ended December 31, 2011
1. Nature of operations:
Methanex Corporation (“the Company”) is an incorporated entity with corporate offices in Vancouver, Canada. The Company’s
operations consist of the production and sale of methanol, a commodity chemical. The Company is the world’s largest supplier of
methanol to the major international markets of Asia Pacific, North America, Europe and Latin America.
2. Significant accounting policies:
a) Statement of compliance:
These consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS), as
issued bythe International Accounting Standards Board (IASB). These are the Company’s first IFRS consolidated financial statements
and IFRS 1, First-time Adoption of IFRS, has been applied. The consolidated financial statements were approved and authorized for
issue by the Board of Directors on March 15, 2012.
The Company’s consolidated financial statements were prepared in accordance with accounting principles generally accepted in
Canada (Canadian GAAP) until December 31, 2010. Canadian GAAP differs from IFRS in some areas and, accordingly, the significant
accounting policies applied in the preparation ofthese consolidated financial statements are set out below and have been
consistently applied to all periods presented except in instances where IFRS 1 either requires or permits an exemption. An
explanation of how the transition from Canadian GAAP to IFRS has affected the reported Consolidated Statements of Income,
Comprehensive Income, Financial Position, Cash Flows and Changes in Equity ofthe Company is provided in note 24. This note
includes information on the provisions of IFRS 1 and the exemptions that the Company elected to apply, reconciliations of assets,
liabilities, equity, net income and comprehensive income for the comparative period and at the date of transition, January 1, 2010.
b) Basis of presentation and consolidation:
These consolidated financial statements include the accounts ofthe Company, its wholly owned subsidiaries, less than wholly
owned entities for which it has a controlling interest and its proportionate share ofthe accounts of joint ventures. Wholly owned
subsidiaries are entities in which the Company has control, directly or indirectly, where control is defined as the power to govern the
financial and operating policies of an enterprise so as to obtain benefits from its activities. For less than wholly owned entities for
which the Company has a controlling interest, a non-controlling interest is included in the Company’s consolidated financial
statements and represents the non-controlling shareholders’ interest in the net assets of the entity. The Company also consolidates
any special purpose entity where the substance ofthe relationship indicates the Company has control. All significant intercompany
transactions and balances have been eliminated. Preparation of these consolidated financial statements requires estimates,
judgments and assumptions that affect the amounts reported and disclosed in the financial statements and related notes. The
areas of estimation and judgment that management considers most significant are inventories (note 2(f)), property, plant and
equipment (note 2(g)), oil and gas properties (notes 2(g) and 2(h)), financial instruments (note 2(0)), and income taxes (note 2(p)).
Actual results could differ from those estimates.
c) Reporting currency and foreign currency translation:
Functional currency is the currency of the primary economic environment in which an entity operates. The majority of the
Company’s business in all jurisdictions is transacted in United States 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, foreign currency denominated non-monetary items at historic
rates, and revenues and expenditures at the rates of exchange at the dates of the transactions. Foreign exchange gains and losses
are included in earnings.
d) Cash equivalents:
Cash equivalents include securities with maturities ofthree months or less when purchased.
e) 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.
METHANEX | Annual Report 2011 55
Notes to Consolidated Financial Statements
f) Inventories:
Inventories are valued at the lower of cost and estimated net realizable value. Cost is determined on a first-in, first-out basis and includes
direct purchase costs, cost of production, allocation of production overhead and depreciation based on normal operating capacity and
transportation.
8) Property, plant and equipment:
Initial recognition
Property, plant and equipment are initially recorded at cost. Cost includes expenditure that is directly attributable to the acquisition ofthe
asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing
the assets to a working condition for their intended use, the costs of dismantling and removing the items and restoring the site on which
they are located and borrowing costs on self-constructed assets that meet certain criteria. Borrowing costs, including the impact of related
cash flow hedges, incurred during construction and commissioning are capitalized until the plant is operating in the manner intended by
management.
Subsequent costs
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 catalysts. Costs associated with these shutdowns
are capitalized and amortized overthe period until the next planned turnaround.
Depreciation
Depreciation and amortization is generally provided on a straight-line 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 estimated
useful life ofthe Company’s buildings, plant installations and machinery is 5 to 25 years.
The Company reviews the depreciation and amortization rates of property, plant and equipment on an annual basis and, if necessary,
changes are accounted for prospectively.
Assets under finance lease are depreciated to their estimated residual value based on the shorter of their useful lives and the lease term.
Oil and gas properties
Costs incurred for oil and natural gas properties with proven reserves are capitalized to property, plant and equipment, including the
reclassification of associated exploration costs and abandoned properties. These costs are depreciated using a unit-of-production method,
taking into consideration estimated proven reserves and estimated future development costs. Proven and probable reserves for oil and gas
properties are estimated based on independent reserve reports and represent the estimated quantities of natural gas that are considered
commercially feasible. These reserve estimates are used to determine depreciation and to assess the carrying value of oil and gas
properties. The accounting for costs incurred for oil and gas exploration properties with unproven reserves are described in note 2(h).
Impairment
The Company reviews the carrying value of long-lived assets for impairment whenever events or changes in circumstances indicate an
asset’s carrying value may not be recoverable. Examples of such events or changes in circumstances 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. Recoverability of long-lived assets is measured by comparing
the carrying value of an asset or cash-generating unit to estimated pre-tax fair value, which is determined by measuring the pre-tax cash
flows expected to be generated from the asset or cash-generating unit over their estimated useful life discounted by a pre-tax discount
rate. An impairment writedown is recorded forthe difference that the carrying value exceeds the pre-tax fair value. An impairment
writedown recognized in prior periods for an asset or cash-generating unit is reversed ifthere has been a subsequent recovery in the value
of the asset or cash-generating unit due to changes in events and circumstances. For purposes of recognition and measurement of an
impairment writedown, we group our long-lived assets with other assets and liabilities to form a “cash-generating unit” 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.
56 METHANEX | Annual Report 2011
Notes to Consolidated Financial Statements
h) Other assets:
Intangible assets are capitalized to other assets and amortized to depreciation and amortization expense on an appropriate basis to charge
the cost ofthe assets against earnings.
Financing fees related to undrawn credit facilities are capitalized to other assets and amortized to finance costs 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 against long-term debt and amortized to finance costs over the repayment term on an
effective interest basis.
Costs incurred for oil and natural gas exploration properties with unproven reserves are capitalized to other assets. Upon recognition of
proven reserves and internal approval for development, these costs are transferred to property, plant and equipment and are depreciated
using a unit-of-production method based on estimated proven reserves. Costs associated with properties with no proven reserves are
transferred to property, plant and equipment and becomes subject to depreciation when they have been deemed abandoned by
management. Upon transfer to property, plant and equipment an impairment assessment is performed. The Company assesses the
recoverability of oil and gas exploration properties as part of a cash-generating unit as described in note 2(g).
i) Leases:
Leasing contracts are classified as either financing or operating leases. Where the contracts are classified as operating leases, payments are
charged to income in the year they are incurred. A lease is classified as a finance lease ¡fit transfers substantially all ofthe risks and
rewards of ownership of the leased asset. The asset and liability associated with a finance lease are recorded at the lower of fair value and
the present value of the minimum lease payments, net of executory costs. Lease payments are apportioned between interest expense and
repayments of the liability.
j) Site restoration costs:
The Company recognizes a liability to dismantle and remove assets or to restore a site upon which the assets are located. The Company
estimates the fair value of the liability by determining the current market cost required to settle the site restoration costs and adjusts for
inflation through to the expected date of the 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 finance costs. The Company reviews asset retirement obligations
and adjusts the liability and corresponding asset as necessary to reflect changes in the estimated future cash flows, timing, inflation and
discount rates underlying the fair value measurement.
k) Employee future benefits:
The Company has non-contributory defined benefit pension plans covering certain employees and defined contribution pension plans. The
Company does not provide any significant post-retirement benefits other than pension plan benefits. For defined benefit pension plans,
the net of the present value of the defined benefit obligation and the fair value of plan assets is recorded to the statement of financial
position. The determination of the defined benefit obligation and associated pension cost is based on certain actuarial assumptions
including inflation rates, salary growth, longevity and expected return on plan assets. The present value of the defined benefit obligation is
determined by discounting estimated future cash flows using current market bond yields that have terms to maturity approximating the
terms ofthe obligation. Actuarial gains and losses arising from differences between these assumptions and actual results are recognized
in other comprehensive income and recorded in retained earnings. The cost for defined contribution benefit plans is recognized in net
income as earned by the employees.
l) Share-based compensation:
The Company grants share-based awards as an element of compensation. Share-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 vesting 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 tranche at the date of grant.
Share appreciation rights (SARs) are units that 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 that is determined at the date of grant. Tandem share
METHANEX | Annual Report 2011 57
Notes to Consolidated Financial Statements
appreciation rights (TSARs) gives the holder the choice between exercising a regular stock option or a SAR. For SARs and TSARSs, the cost of
the service received as consideration is initially 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 vesting period with a corresponding increase in liabilities. For SARs and TSARs, the
liability is re-measured at each reporting date based on an estimate of the fair value with changes in fair value recognized as
compensation expense for the proportion ofthe service that has been rendered at that date. The Company uses the Black-Scholes option
pricing model to estimate the fair value for SARs and TSARs.
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
overthe 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 cost of the service received as consideration is initially measured based on the market
value ofthe Company’s common shares at the date of grant. The grant-date fair value is recognized as compensation expense over the
vesting period with a corresponding increase in liabilities. Deferred, restricted and performance share units are re-measured at each
reporting date based on the market value ofthe Company’s common shares with changes in fair value recognized as compensation
expense for the proportion of the service that has been rendered at that 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 is described in
note 14.
m) Net income per common share:
The Company calculates basic net income per common share by dividing net income attributable to Methanex shareholders 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 is applied to repurchase
common shares at the average market price forthe period. Stock options are dilutive only when the average market price of common
shares during the period exceeds the exercise price ofthe stock option.
Diluted net income per common share is calculated by also giving effect to the potential dilution that would occur if outstanding TSARs
were converted to common shares. Outstanding TSARs may be settled in cash or common shares at the holder’s option and for the
purposes of calculating diluted net income per common share, the more dilutive ofthe cash-settled or equity-settled method is used,
regardless of how the plan is accounted for. Accordingly, TSARs that are accounted for using the cash-settled method will require an
adjustment to the numerator and denominator ifthe equity-settled method is determined to have a dilutive effect on diluted net income
per common share. Additional information related to the calculation of net income per share is described in note 13.
n) 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.
0) Financial instruments:
The Company enters into derivative financial instruments to manage certain exposures to commodity price volatility, foreign exchange
volatility and variable interest rate volatility. Financial instruments are 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. Financial assets and liabilities held-for-trading 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 net income and changes in the fair
value of available-for-sale financial assets are recorded in other comprehensive income until the investment is derecognized or impaired at
which time the amounts would be recorded in net income. The Company classifies cash and cash equivalents and trade and other
receivables as loans and receivables. Trade, other payables 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 Consolidated Statements of Financial Position at fair value. The valuation of derivative financial instruments is a critical
accounting
58 METHANEX | Annual Report 2011
Notes to Consolidated Financial Statements
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 the Company’s financial statements. The Company records all changes in fair value of derivative
financial instruments in net income unless the instruments are designated as cash flow hedges. The Company enters into and designates
as cash flow hedges certain forward exchange purchase and sales contracts to hedge foreign exchange exposure on anticipated sales. The
Company also 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 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 of these
hedging instruments is recognized in other comprehensive income. Any gain or loss in fair value relating to the ineffective portion is
recognized immediately in net income. Until settled, the fair value of the derivative financial instruments will fluctuate based on changes
in foreign exchange or variable interest rates.
p) Income taxes:
Income tax expense represents current tax and deferred tax. The Company records current tax based on the taxable profits for the period
calculated using tax rates that have been enacted or substantively enacted by the reporting date. Income taxes relating to uncertain tax
positions are provided for based on the Company’s best estimate, including related interest charges.
Deferred income taxes are accounted for using the liability method. The 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. Deferred
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 are expected to be realized. The effect of a change in tax rates or tax
legislation is recognized in the period of substantive enactment. Deferred tax assets, such as non-capital loss carryforwards, are recognized
to the extent it is probable that taxable profit will be available against which the asset can be utilized.
The Company accrues for taxes that will be incurred upon distributions from its subsidiaries when itis probable that the earnings will be
repatriated.
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.
q) Provisions:
Provisions are recognized where a legal or constructive obligation has been incurred as a result of past events, it is probable that an
outflow of resources will be required to settle the obligation, and a reliable estimate of the amount ofthe obligation can be made.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation.
r) Segmented information:
The Company’s operation consists of the production and sale of methanol, which constitutes a single operating segment.
s) Anticipated changes to International Financial Reporting Standards:
In May 20m, the lASB issued new accounting standards related to consolidation and joint arrangement accounting. The lASB has revised
the definition of “control,” which is a criterion for consolidation accounting. In addition, changes to IFRS in the accounting for joint
arrangements were issued which, under certain circumstances, removed the option for proportionate consolidation accounting so that the
equity method of accounting for such interests would need to be applied. The impact of applying consolidation accounting or equity
accounting does not result in any change to net earnings or shareholders’ equity, but would result in a significant presentation impact. We
are currently assessing the impact on our financial statements. We currently account for our 63.1% interest in Atlas Methanol Company
using proportionate consolidation accounting and this represents the most significant potential change under these new standards. The
effective date for these standards is for periods commencing on or after January 1, 2013, with earlier adoption permitted.
In addition, as part of their global conversion project, the lASB and the US Financial Accounting Standards Board (“FASB”) issued a joint
Exposure Draft in 2010 proposing that lessees would be required to recognize all leases on the statement of financial position. We have a
fleet ofocean-going vessels under time charter agreements with terms of up to 15 years, which are currently accounted for as operating
leases. The proposed rules would require these time charter agreements to be recorded on the Consolidated Statements of Financial
Position, resulting in a material increase to total assets and liabilities. The lASB and FASB currently expect to issue a re-exposed draft in
2012.
METHANEX | Annual Report 2011 59
Notes to Consolidated Financial Statements
3. Trade and other receivables:
Dec 31 Dec 31 Jan1
AS AT 201 2010 2010
Trade $ 310,616 $ 257,945 $ 191,002
Value-added and other tax receivables 43,132 43,495 56,264
Current portion of GeoPark financing (note 7) 7,200 8,800 8,086
Other 17,482 9,787 2,066
$ 378,430 $ 320,027 $ 257,418
4. Inventories:
The amount of inventories included in cost of sales and operating expenses and depreciation and amortization for the year ended
December 31, 2011 is $2,052 million (2010 – $1,598 million).
5. Property, plant and equipment:
Buildings, Plant
Installations 8 Plant Under Oil 8: Gas
Machinery Construction Properties Other Total
Cost at January 1, 2011 $ 2,131,608 $ 966,320 $ 54,049 $ 116,203 $ 3,268,180
Additions 108,019 4,976 13,045 6,806 132,846
Disposals and other – – – (34,367) (34,367)
Transfers 971,296 (971,296) – – –
Reclassified from other
assets, net – – 10,392 – 10,392
Cost at December 31, 2011 $ 3,210,923 $ – $ 77,486 $ 88,642 $ 3,377,051
Accumulated depreciation
at January 1, 2011 $ 929,079 $ – $ 20,092 $ 60,433 $ 1,009,604
Disposals – – – (25,431) (25,431)
Depreciation 141,188 – 12,898 5,769 159,855
Accumulated depreciation
at December 31, 2011 $ 1,070,267 $ – $ 32,990 $ 40,711 $ 1,144,028
Net book value at
December 31, 2011 $ 2,140,656 $ – $ 44,496 $ 47,871 $ 2,233,023
Buildings, Plant
Installations 8: Plant Under Oil 8: Gas
Machinery Construction Properties Other Total
Cost at January 1, 2010 $ 2,101,991 $ 862,433 $ 39,990 $ 127,623 $ 3,132,037
Additions 48,978 103,887 14,059 10,394 177,318
Disposals and other (19,361) – – (21,814) (41,175)
Cost at December 31, 2010 $ 2,131,608 $ 966,320 $ 54,049 $ 116,203 $ 3,268,180
Accumulated depreciation
at January 1, 2010 $ 832,421 $ – $ 4,560 $ 68,383 $ 905,364
Disposals (6,849) – – (19,351) (26,200)
Depreciation 103,507 – 15,532 11,401 130,440
Accumulated depreciation
at December 31, 2010 $ 929,079 $ – $ 20,092 $ 60,433 $ 1,009,604
Net book value at
December 31, 2010 $ 1202529 5 966,320 $ 33,957 $ 55,770 $ 2,258,576
60 METHANEX | Annual Report 2011
Notes to Consolidated Financial Statements
Included in buildings, plant installations and machinery at December 31, 2011 and 2010 are capitalized costs of $99.3 million relating to the
oxygen production facilities in Trinidad accounted for as finance leases (note 9). The net book value of these assets as at December 31, 2011
was $49.8 million (2010 – $55.8 million).
Other property, plant and equipment includes ocean shipping vessels with a total net book value of $28.6 million at December 31, 2011
(2010 – $36.0 million).
6. Interest in Atlas joint venture:
The Company has a 63.1% joint venture interest in Atlas Methanol Company (Atlas). Atlas owns a 1.8 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:
Dec 31 Dec 31 Jan1
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION AS AT 2011 2010 2010
Cash and cash equivalents $ 9,266 $ 10,676 $ 8,252
Other current assets 92,259 79,51 72,571
Property, plant and equipment 281,263 276,14 287,727
Other assets 9,429 12,548 12,920
Trade, other payables and accrued liabilities 32,990 23,934 22,380
Long-term debt, including current maturities (note 8) 64,397 79,577 93,155
Finance leases and other long-term liabilities 49,305 52,480 55,139
Deferred income tax liabilities 20,814 18,893 16,449
CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31 201 2010
Revenue $224,902 $ 180,314
Expenses (199,303) (165,947)
Income before income taxes 25,599 14,367
Income tax expense (4,853) (4,749)
Net income $ 20,746 $ 9,618
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31 201 2010
Cash inflows from operating activities $ 36,062 $ 33,61
Cash outflows from financing activities (19,641) (22,622)
Cash outflows from investing activities (17,831) (8,625)
7. Other assets:
Dec 31 Dec 31 Jan1
ASAT 201 2010 2010
Oil and gas properties (a) $ 50,946 $ 48,852 $ 28,412
Restricted cash (b) 39,839 12,548 12,920
GeoPark financing (c) 10,872 17,068 37,969
Marketing and production rights, net of accumulated amortization (d) 7,634 11,600 19,099
Deferred financing costs, net of accumulated amortization (e) 2,007 1,791 9,725
Defined benefit pension plans (note 21) – 3,881 5,392
Other 14,633 16,022 21,388
$ 125,931 $ 111,762 $ 134,905
METHANEX | Annual Report 2011 61
Notes to Consolidated Financial Statements
a) Oil and gas properties:
Costs incurred for oil and natural gas exploration properties with unproven reserves are capitalized to other assets. Upon recognition of
proven reserves the costs are transferred to property, plant and equipment. During the year, we incurred $17.5 million (2010 – $20.4 million)
in exploration and evaluation expenditures, which were offset by $133 million (2010 – nil) in transfers to property, plant and equipment
upon recognition of proven reserves.
b) Restricted cash:
During the year, a debt reserve account of $29 million (2010 – nil) was established in relation to the Egypt limited recourse debt facilities
and $2 million (2010 – $0.4 million) was drawn in relation to other debt facilities.
c) GeoPark financing:
Over the past few years, the Company has provided GeoPark Chile Limited (GeoPark) $57 million (of which $40 million has been repaid at
December 31, 2011) in financing to support and accelerate GeoPark’s natural gas exploration and development activities in the 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, 2011, the outstanding balance is $18.1 million (2010 – $25.9 million), of which $7.2 million (2010 – $8.8
million), representing the current portion, has been recorded in trade and other receivables.
d) Marketing and production rights, net of accumulated amortization:
For the year ended December 31, 2011, amortization of marketing and production rights included in depreciation and amortization was $4.0
million (2010 – $7.5 million).
e) Deferred financing costs, net of accumulated amortization:
For the year ended December 31, 2011, amortization of deferred financing fees included in finance costs was $0.9 million (2010 – $0.8 million).
8. Long-term debt:
Dec 31 Dec 31 Jan1
AS AT 201 2010 2010
Unsecured notes:
(i) 8.75% due August 15, 2012 (effective yield 8.88%) $ 199,643 $ 199,112 $ 198,627
(ii) 6.00% due August 15, 2015 (effective yield 6.10%) 149,119 148,908 148,705
348,762 348,020 347,332
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 was paid in 12 semi-annual payments which commenced June 2005. – – 7,0n1
(ii) Senior secured notes with semi-annual interest payments of 7.95% per annum.
Principal is paid in y semi-annual payments which commenced December 2010. 41,730 55,476 62,064
(iii) Senior fixed rate bond with semi-annual interest payments of 8.25% per
annum. Principal will be paid in 4 semi-annual payments commencing June
2015. 14,869 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 is paid in 20 semi-annual payments
which commenced December 2010. 7,798 9,285 9,251
64,397 79,577 93,155
Egypt limited recourse debt facil
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 is paid in 24 semi-annual
payments which commenced in September 2010. 470,208 499,706 461,570
Other limited recourse debt 19,888 19,638 12,187
Total long-term debt: 903,255 946,941 914,244
Less current maturities (251,107) (49,965) (29,330)
$ 652,148 $ 896,976 $ 884,914
+ Total debt is presented net of deferred financing fees of $15.3 million at December 31, 2011 (2010 – $18.5 million).
62 METHANEX | Annual Report 201
Notes to Consolidated Financial Statements
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% ofthe Egypt
limited recourse debt facilities for the period to March 31, 2015 (note 19).
The other limited recourse debt includes one limited recourse facility with a remaining term of approximately eight years with interest
payable at LIBOR plus 0.75% and another limited recourse facility with a remaining term of approximately five-and-a-half years with
interest payable at LIBOR plus 2.8%. Both of these financial obligations are paid in equal quarterly payments including principal and
interest,
Forthe year ended December 31, 2011, non-cash accretion, on an effective interest basis, of deferred financing costs included in finance
costs was $2.1 million (2010 – $1.2 million).
The minimum principal payments for long-term debt in aggregate and for each of the five succeeding years are as follows:
2012 $ 251,107
2013 53,268
2014 61,936
2015 200,114
2016 52,765
Thereafter 299,411
$ 918,601
In February 2012, the Company issued $250 million of unsecured notes bearing an interest rate of 5.25% and due March 1, 2022 (effective
yield 5.30%).
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.
The Company has a $200 million unsecured revolving bank facility provided by highly rated financial institutions and this was extended in
July 201 to May 2015. This facility 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 is accelerated by the creditor on any indebtedness of $10 million or more ofthe Company and its subsidiaries,
except for the limited recourse subsidiaries, and
c) a default if a default occurs that permits the creditor to demand repayment on any other indebtedness of $50 million or more of the
Company and its subsidiaries, except for the limited recourse subsidiaries.
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, a requirement to fulfill certain conditions before
the payment of cash or other distributions and a restriction on these distributions ifthere is a default subsisting.
The Egypt limited recourse debt facilities required that certain conditions associated with plant construction and commissioning be met by
September 30, 2011 (“project completion”). Project completion was achieved during the third quarter of 2011. The Egypt limited recourse
debt facilities contain a covenant to complete by March 31, 2013 certain land title registrations and related mortgages that require action by
Egyptian government entities. We do not believe that the finalization ofthese items is material.
METHANEX | Annual Report 2011 63
Notes to Consolidated Financial Statements
Failure to comply with any of the covenants or default provisions of the 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, 2011, management believes the Company was in compliance with all ofthe covenants and default provisions related to
long-term debt obligations.
9. Finance leases:
Dec 31 Dec 31 Jan1
AS AT 201 2010 2010
Finance lease obligations $ 62,692 $ 79,412 90,161
Less current maturities (6,713) (11,570) (10,655)
$ 55,979 $ 67,842 79,506
At December 31, 2011, the Company has finance lease obligations related to oxygen production facilities in Trinidad that are set to expire in
2015 and 2024. The liabilities mature as follows until the expiry ofthe leases:
Finance
Interest lease
Lease payments component obligations
2012 $ 11,593 $ 4,880 $ 6,713
2013 11,690 4,332 7,358
2014, 11,790 3,733 8,057
2015 10,335 3,091 7,244
2016 7,209 2,640 4,569
Thereafter 37,007 8,256 28,751
$ 89,624 $ 26,932 $ 62,692
10. Other long-term liab
Dec 31 Dec 31 Jan1
AS AT 201 2010 2010
Site restoration costs (a) $ 25,889 $ 23,951 $ 21,033
Deferred gas payments (b) 51,079 – –
Share-based compensation liability (note 14) 42,157 52,987 21,672
Fair value of derivative financial instruments (note 19) 41,536 43,488 33,284
Defined benefit pension plans (note 21) 35,542 29,821 25,824
196,203 150,247 101,813
Less current maturities (18,031) (9,677) (4,304)
$ 178,172 $ 140,570 $ 97,509
64 METHANEX | Annual Report 2011
Notes to Consolidated Financial Statements
a) Site restoration costs:
The Company has accrued liabilities related to the decommissioning and reclamation of its methanol production sites and oil and gas
properties. Because of uncertainties in estimating the amount and timing of the expenditures related to the sites, actual results could
differ from the amounts estimated. At December 31, 2011, the total undiscounted amount of estimated cash flows required to settle the
liabilities was $33.4 million (2010 – $32.4 million). The movement in the provision during the year is explained as follows:
2011 2010
Balance at January 1 $ 23,951 $ 21,033
New or revised provisions 1,454 2,595
Amounts charged against provisions (66) (346)
Accretion expense 550 669
Balance at December 31 $ 25,889 $ 23,951
b) Deferred gas payments:
The Company has a long-term liability related to deferred natural gas payments that is payable in equal installments in 2013, 2014 and
2015.
1. Expense by function:
FOR THE YEARS ENDED DECEMBER 31 2011 2010
Cost of sales $ 1,910,889 $ 1,507,161
Selling and distribution 319,026 270,176
Administrative expenses 34,072 54,742
Total expenses by function $ 2,263,987 $ 1,832,079
Cost of sales and operating expenses $ 2,107,320 $ 1,694,865
Depreciation and amortization 156,667 137,214
Total expenses per Consolidated Statements of Income $ 2,263,987 $ 1,832,079
Included in total expenses for the year ended December 31, 2011 are employee expenses, including share-based compensation, of $130.5
million (2010 – $141.7 million).
12. Finance costs:
FOR THE YEARS ENDED DECEMBER 31 2011 2010
Finance costs $ 69,027 $ 68,723
Less capitalized interest related to Egypt plant under construction (7,230) (38,075)
$ 61,797 $ 30,648
Finance costs are primarily comprised of interest on borrowings and finance lease obligations, the effective portion of interest rate swaps
designated as cash flow hedges, amortization of deferred financing fees, and accretion expense associated with site restoration costs.
Interest during construction of the Egypt methanol facility was capitalized until the plant was substantially completed and ready for
productive use in mid-March of 2011. The Company has interest rate swap contracts on ¡ts Egypt limited recourse debt facilities to swap the
LIBOR-based interest payments for an average aggregated fixed rate of 4.8% plus a spread on approximately 75% ofthe Egypt limited
recourse debt facilities for the period to March 31, 2015.
13. Net income per common share:
The Company calculates basic net income per common share by dividing net income attributable to Methanex shareholders 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 of the proceeds to be received on the exercise of dilutive stock options is applied to repurchase
METHANEX | Annual Report 2011 65
Notes to Consolidated Financial Statements
common shares at the average market price forthe period. Stock options are dilutive only when the average market price of common
shares during the period exceeds the exercise price ofthe stock option.
Diluted net income per common share is calculated by also giving effect to the potential dilution that would occur if outstanding TSARs
were converted to common shares. Outstanding TSARs may be settled in cash or common shares at the holder’s option and for purposes of
calculating diluted net income per common share, the more dilutive ofthe cash-settled or equity-settled method is used, regardless of how
the plan is accounted for. Accordingly, TSARs that are accounted for using the cash-settled method will require an adjustment to the
numerator and denominator ifthe equity-settled method is determined to have a dilutive effect on diluted net income per common share.
As a result of changes in the Company’s share price, the equity-settled method has been determined to be the more dilutive for 2011 while
the cash-settled method was more dilutive for 2010. A reconciliation ofthe net income attributable to Methanex shareholders and used for
the purpose of calculating diluted net income per common share is as follows:
FOR THE YEARS ENDED DECEMBER 31 2011 2010
Numerator for basic net income per common share $ 201,326 $ 96,019
Adjustment for the effect of TSARs:
Cash-settled recovery included in net income (2,416) –
Equity-settled expense (4,327) –
Numerator for diluted net income per common share $ 194,583 $ 96,019
Areconciliation ofthe number of common shares used for the purposes of calculating basic and diluted net income per common share is
as follows:
FOR THE YEARS ENDED DECEMBER 31 2011 2010
Denominator for basic net income per common share 93,026,482 92,218,320
Effect of dilutive stock options 1,305,480 1,291,479
Effect of dilutive TSARs 28,994 –
Denominator for diluted net income per common share * 94,360,956 93,509,799
* 3,039,284 and 2,625,030 outstanding options for the years ended December 31, 2011 and 2010, respectively, are dilutive and have been included in the diluted
weighted average number of common shares. 724,905 outstanding TSARs for the year ended December 31, 2011 are dilutive and have been included in the
diluted weighted average number of common shares.
For the years ended December 31, 2011 and 2010, basic and diluted net income per common share attributable to Methanex shareholders
were as follows:
FOR THE YEARS ENDED DECEMBER 31 2011 2010
Basic net income per common share $ 2.16 $ 1.04
Diluted net income per common share $ 2.06 $ 1.03
14. Share-based compensation:
The Company provides share-based compensation to its directors and certain employees through grants of stock options, TSARs, SARs and
deferred, restricted or performance share units.
a) Stock options:
At December 31 2011, the Company had 1,967,798 common shares reserved for future grants of stock options 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 of the options vesting one year after the date ofthe
grant and a further vesting of one-quarter ofthe 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.
66 METHANEX | Annual Report 2011
Notes to Consolidated Financial Statements
Common shares reserved for outstanding incentive stock options at December 31, 2011 and 2010 are as follows:
OPTIONS DENOMINATED IN CAD OPTIONS DENOMINATED IN USD
WEIGHTED WEIGHTED
NUMBER OF AVERAGE NUMBER OF AVERAGE
STOCK EXERCISE STOCK EXERCISE
OPTIONS PRICE OPTIONS PRICE
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 9.56 4,574,257 18.95
Granted – – 67,800 28.74
Exercised (2,250) 9.56 (613,483) 18.53
Cancelled – – (24,370) 17.16
Outstanding at December 31, 2011 – $ – 4,004,204 $ 19.19
Information regarding the stock options outstanding at December 31, 2011 is as follows:
OPTIONS EXERCISABLE AT
OPTIONS OUTSTANDING AT DECEMBER 31, 2011 DECEMBER 31, 2011
WEIGHTED NUMBER NUMBER
AVERAGE oF WEIGHTED OF WEIGHTED
REMAINING STOCK AVERAGE STOCK AVERAGE
CONTRACTUAL OPTIONS EXERCISE OPTIONS EXERCISE
Range of Exercise Prices LIFE (YEARS) OUTSTANDING PRICE EXERCISABLE PRICE
Options denominated in USD
$6.33 to $11.56 3.9 1,208,140 $ 656 778,535 $ 6.67
$17.85 to $22.52 11 950,950 20.48 950,950 20.48
$23.92 to $28.74 2.9 1,845,114 26.79 1,721,914 26.77
28 4,004,204 $ 19:19 3,451,399 $ 20,55
(ii) Fair value assumptions:
The fair value of each stock option grant was estimated on the date of grant using the Black-Scholes
following assumptions:
option pricing model with the
2011 2010
Risk-free interest rate 1.5% 1.7%
Expected dividend yield 2% 2%
Expected life of options 4 years 4 years
Expected volatility 51% 41%
Expected forfeitures 6% 5%
Weighted average fair value (USD per share) $ 9.69 $ 7.59
For the year ended December 31, 2011, compensation expense related to stock options was $0.8 million (2010 – $1.5 million).
METHANEX | Annual Report 2011 67
Notes to Consolidated Financial Statements
b) Share appreciation rights and tandem share appreciation rights:
AI SARs and TSARs granted have a maximum term of seven years with one-third vesting each year after the date of grant. SARs and TSARs
units outstanding at December 31, 2011 are as follows:
SARs TSARS
NUMBER OF EXERCISE NUMBER OF EXERCISE
UNITS PRICE USD UNITS PRICE USD
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
Granted 274,210 28.69 498,190 28.78
Exercised (14,030) 25.22 (7,800) 25.22
Cancelled (25,598) 25.87 (6,160) 27.14
Outstanding at December 31, 2011* 623,547 $ 26.72 1,219,735 $ 26.65
1 As at December 31, 2011 346,693 SARs or TSARs were exercisable. The Company has common shares reserved for outstanding TSARs.
The fair value ofeach SARs and TSARs grant was estimated on December 31, 2011 using the Black-Scholes option pricing model with the
following assumptions:
2011 2010
Risk-free interest rate 0.3% 1.0%
Expected dividend yield 3% 2%
Expected life of SARs and TSARs 2 years 3 years
Expected volatility 40% 52%
Expected forfeitures 4% 4%
Weighted average fair value (USD per share) 3.38 $ 1.14
Compensation expense for SARs and TSARs is initially measured based on their fair value and is recognized over the vesting period.
Changes in fair value each period are recognized in net income for the proportion ofthe service that has been rendered at each reporting
date. The fair value at December 31, 2011 was $6.3 million compared with the recorded liability of $5.0 million. The difference between the
fair value and the recorded liability of $1.3 million will be recognized over the weighted average remaining vesting period of approximately
1.7 years. The weighted average fair value ofthe vested SARs and TSARs was estimated at December 31, 2011 using the Black-Scholes option
pricing model.
For the year ended December 31, 2011, compensation expense related to SARs and TSARs included in cost of sales and operating expenses
was a recovery of $3.5 million (2010 – expense of $8.6 million). This included a recovery of $10.4 million (2010 – expense of $3.0 million)
related to the effect of the change in the Company’s share price.
68 METHANEX | Annual Report 2017
Notes to Consolidated Financial Statements
c) Deferred, restricted and performance share units:
Deferred, restricted and performance share units outstanding at December 31, 2011 are as follows:
NUMBER OF NUMBER OF NUMBER OF
DEFERRED SHARE RESTRICTED SHARE PERFORMANCE SHARE
UNITS UNITS UNITS
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
Granted 25,516 17,100 281,470
Granted in lieu of dividends 15,208 1,566 28,887
Redeemed – (16,682) (343,931)
Cancelled – – (32,994)
Outstanding at December 31, 2011 597,911 48,588 1,103,049
Compensation expense for deferred, restricted and performance share units is measured at fair value based on the market value ofthe
Company’s common shares and is recognized over the vesting period. Changes in fair value are recognized in net income for the proportion
ofthe service that has been rendered at each reporting date. The fair value of deferred, restricted and performance share units at
December 31, 2011 was $38.0 million compared with the recorded liability of $35.5 million. The difference between the fair value and the
recorded liability of $2.5 million will be recognized over the weighted average remaining vesting period of approximately 1.4 years.
Forthe year ended December 31, 2011, compensation expense related to deferred, restricted and performance share units included in cost of
sales and operating expenses was a recovery of $2.2 million (2010 – expense of $26.0 million). This included a recovery of $10.9 million (2010
-expense of $16.4 million) related to the effect ofthe change in the Company’s share price.
15. 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, 2011 and 2010, revenues attributed to geographic regions, based on the location of customers, were
as follows:
UNITED OTHER LATIN
REVENUE STATES CANADA EUROPE CHINA KOREA ASIA AMERICA TOTAL
201 $ 631,822 $ 175,928 $678,968 $ 431,137 $267,058 $154,899 $268,225| $2,608,037
2010 $469,494 $ 142,347 $ 454,130 $350,578 $216,232 $ 127,242 $206,560| $ 1,966,583
As at December 31, 2011 and 2010, the net book value of property, plant and equipment and oil and gas assets by country were as follows:
NEW
CHILE TRINIDAD EGYPT ZEALAND CANADA KOREA OTHER TOTAL
2011
Property, plant 8: equipment $ 598,377 $496,055 $ 939,218 $103,889 $ 53,331 $ 13,238 $ 28,915| $2,233,023
Oil €: gas properties 42,772 – – 8,174 – – – 50,946
$ 641,149 $496,055 $ 939,218 $ 112,063 $ 53,331 $ 13,238 $ 28,915| $2,283,969
2010
Property, plant 8: equipment $ 621,739 $ 518,117 $966,320 $ 86,304 $ 15,596 $ 14,038 $ 36,462 | $ 2,258,576
Oil 8: gas properties 38,585 – – 10,267 – – – 48,852
$660,324 $ 518,117 $966,320 $ 96,571 $ 15,596 $ 14,038 $ 36,462| $2,307,428
METHANEX | Annual Report 2011 69
Notes to Consolidated Financial Statements
16. Income and other taxes:
a) Income tax expense:
FOR THE YEARS ENDED DECEMBER 31 2011 2010
Current tax expense:
Current period $ 35,000 $ 31,596
Adjustments to prior years 1,241 (2,133)
36,241 29,463
Deferred tax expense:
Origination and reversal of temporary differences 17,058 1,891
Adjustments to prior years (274) 1,411
Other 2,895 1,679
19,679 5,041
Total income tax expense $ 55,920 $ 34,504
b) Income tax expense included in other comprehensive income:
Included in other comprehensive income for the year ended December 31, 2011 is a deferred income tax recovery of $12.8 million related to
the fair value of interest rate swap contracts and defined benefit pension plans where the amounts are deductible for tax purposes upon
settlement.
c) Reconciliation of the effective tax rate:
The Company operates in several tax jurisdictions and therefore its income is subject to various rates of taxation. Income tax expense
differs from the amounts that would be obtained by applying the Canadian statutory income tax rate to income before income taxes as
follows:
FOR THE YEARS ENDED DECEMBER 31 2011 2010
Net income before tax $ 283,920 $ 128,533
Canadian statutory tax rate 26.5% 28.5%
Income tax expense calculated at Canadian statutory tax rate $ 75,239 $ 36,632
Increase (decrease) in income tax expense resulting from:
Impact of income and losses taxed in foreign jurisdictions 2,110 6,904
Previously unrecognized loss carryforwards and temporary differences (29,536) (13,173)
Adjustments to prior years 967 (662)
Other 6,540 4,803
Total income tax expense $ 55,920 $ 34,504
d) Net deferred income tax liabilities:
(i) The tax effect of temporary differences that give rise to deferred income tax liabilities and deferred income tax assets are as follows:
Dec 31 Dec 31 Jan1
AS AT 201 2010 2010
Deferred income tax liabilities:
Property, plant and equipment 270,483 $ 226,646 $ 229,625
Repatriation taxes 103,822 99,201 91,441
Other 43,465 41,159 29,174
417,770 367,006 350,241
Deferred income tax assets:
Non-capital loss carryforwards 40,284 7,749 7,830
Property, plant and equipment 11,295 7,625 14,694
Fair value of interest rate swap contracts 10,384 – –
Other 53,475 56,201 37,326
115,438 71,575 59,850
Net deferred income tax liabilities 302,332 $ 295,431 $ 290,390
70 METHANEX | Annual Report 2011
Notes to Consolidated Financial Statements
The Company recognizes deferred income tax assets to the extent that it is probable that the benefit of these assets will be realized. At
December 31, 2011, the Company had non-capital loss carryforwards and other deductible temporary differences in New Zealand of $82
million that have not been recognized. These non-capital loss carryforwards have no expiry date under current legislation. In Canada, the
Company had non-capital loss carryforwards of $194 million, and other deductible temporary differences of $10 million that have not been
recognized. The majority ofthe $194 million in non-capital loss carryforwards expire in the period 2014 to 2015.
(ii) Analysis ofthe change in deferred income tax liabilities:
2011 2010
Balance, January 1 $ 295,431 $ 290,390
Deferred income tax expense included in net income 19,679 5,041
Deferred income tax recovery included in other comprehensive income (12,778) –
Balance, December 31 $ 302,332 $ 295,431
(e) Contingent liability:
The Board of Inland Revenue of Trinidad and Tobago issued an assessment in 2011 against our 63.1% owned joint venture, Atlas Methanol
Company Unlimited (“Atlas”), in respect ofthe 2005 financial year. All subsequent tax years remain open to assessment. The assessment
relates to the pricing arrangements of certain long-term fixed price sales contracts that extend to 2014 and 2019 related to methanol
produced by Atlas. The impact ofthe amount in dispute for the 2005 financial year is nominal as Atlas was not subject to corporation
income tax in that year. Atlas has partial relief from corporation income tax until 2014.
The Company has lodged an objection to the assessment. Based on the merits ofthe case and legal interpretation, management believes
its position should be sustained.
17. Changes in non-cash working capital:
Changes in non-cash working capital for the years ended December 31, 2011 and 2010 are as follows:
FOR THE YEARS ENDED DECEMBER 31 2011 2010
Decrease (increase) in non-cash working capital:
Trade and other receivables $ (58,403) $ (62,609)
Inventories (51,358) (58,753)
Prepaid expenses 2,412 (2,984)
Trade, other payables and accrued liabilities, including long-term payables 119,170 20,340
11,821 (104,006)
Adjustments for items not having a cash effect and working capital changes
relating to taxes and interest paid 31,075 (18,962)
Changes in non-cash working capital $ 42,896 $ (122,968)
These changes relate to the following activities:
Operating $ 35,388 $ (120,618)
Investing 7,508 (2,350)
Changes in non-cash working capital $ 42,896 $ (122,968)
METHANEX | Annual Report 2011 TI
Notes to Consolidated Financial Statements
18. 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.
Dec 31 Dec 31 Jan1
AS AT 201 2010 2010
Liquidity:
Cash and cash equivalents $ 350,711 $ 193,794 $ 169,788
Undrawn Egypt limited recourse debt facilities – – 58,048
Undrawn credit facility 200,000 200,000 200,000
Total liquidity $ 550,711 $ 393,794 $ 427,836
Capitalization:
Unsecured notes $ 348,762 $ 348,020 $ 347,332
Limited recourse debt facilities, including current portion 554,493 598,921 566,912
Total debt 903,255 946,941 914,244
Non-controlling interests 197,238 156,412 137,272
Shareholders’ equity 1,404,725 1,253,211 1,211,002
Total capitalization $ 2,505,218 $ 2,356,564 $ 2,262,518
Total debt to capitalization * 36% 40% 40%
Net debt to capit: tion 2 26% 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 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 mid-2015 and is
subject to certain financial covenants. Note 8 provides further details regarding the financial and other covenants.
19. Financial instruments:
Financial instruments are either measured at amortized cost or fair value. Held-to-maturity investments, loans and receivables and other
financial liabilities are measured at amortized cost. Held-for-trading financial assets and liabilities and available-for-sale financial assets
are measured on the Consolidated Statement of Financial Position at fair value. Derivative financial instruments are classified as held-for-
trading and are recorded on the Consolidated Statement of Financial Position at fair value unless exempted. Changes in fair value of
derivative financial instruments are recorded in net income unless the instruments are designated as cash flow hedges.
72 METHANEX | Annual Report 2011
Notes to Consolidated Financial Statements
The following table provides the carrying value of each category of financial assets and liabilities and the related balance sheet item:
Dec 31 Dec 31 Jan1
ASAT 201 2010 2010
Financial assets:
Financial assets held-for-trading:
Derivative financial instruments designated as cash flow hedges: $ 300 $ – $ –
Loans and receivables:
Cash and cash equivalents 350,711 193,794 169,788
Trade and other receivables, excluding current portion of GeoPark financing 332,642 272,575 193,068
Project financing reserve accounts included in other assets 39,839 12,548 12,920
GeoPark financing, including current portion (note 7) 18,072 25,868 46,055
Total financial assets? $ 741,564 $ 504,785 $ 421,831
Financial lia! :
Other financial liabilities:
Trade, other payable and accrued liabilities $ 306,455 $ 231,994 $ 205,341
Deferred gas payments included in other long-term liabilities 51,079 – –
Long-term debt, including current portion 903,255 946,941 914,244
Financial liabilities held-for-trading:
Derivative financial instruments designated as cash flow hedges: 41,536 43,488 33,185
Derivative financial instruments > – 99
Total financial liabilities $ 1,302,325 $ 1,222,423 $ 1,152,869
1 The euro hedges and the Egypt interest rate swaps designated as cash flow hedges are measured at fair value based on industry accepted valuation models
and inputs obtained from active markets.
2 The carrying amount of the financial assets represents the maximum exposure to credit risk at the respective reporting periods.
At December 31, 2011, all ofthe Company’s financial instruments are recorded on the Consolidated Statement of Financial Position at
amortized cost, with the exception of derivative financial instruments, which are recorded at fair value unless exempted.
The Egypt limited recourse debt facilities bear interest at LIBOR plus a spread. The Company has interest rate swap contracts to swap the
LIBOR-based interest payments for an average aggregated fixed rate of 4.8% plus a spread on approximately 75% ofthe Egypt limited
recourse debt facilities for the period to March 31, 2015. The Company has designated these interest rate swaps as cash flow hedges. These
interest rate swaps had outstanding notional amounts of $367 million as at December 31, 2011. The notional amounts decrease over the
expected repayment period. At December 31, 2011, these interest rate swap contracts had a negative fair value of $41.5 million (2010 – $43.5
million) recorded in other long-term liabilities. The fair value of these interest rate swap contracts will fluctuate until maturity.
The Company also designates as cash flow hedges forward exchange contracts to sell euro at a fixed USD exchange rate. At December 31,
2011, the Company had outstanding forward exchange contracts designated as cash flow hedges to sell a notional amount of 28.2 million
euro in exchange for United States dollars and these euro contracts had a positive fair value of $0.3 million recorded in trade and other
receivables. Changes in the fair value of derivative financial instruments designated as cash flow hedges have been recorded in other
comprehensive income.
The table below shows cash outflows for derivative hedging instruments based upon contractual payment dates using LIBOR at December
31, 2011. The amounts reflect the maturity profile ofthe fair value liability where the instruments will be settled net and are subject to
change based on the prevailing LIBOR at each of the future settlement dates. The swaps are with high investment-grade counterparties
and therefore the settlement day risk exposure is considered to be negligible.
AS AT DECEMBER 31 2011 2010
Within one year $ 14,178 $ 15,398
1to 2 years 13,178 13,675
2to3 years 12,451 10,116
3to 4 years 5,036 5,622
4to5 years – 1,677
$ 44,843 $ 46,488
METHANEX | Annual Report 2011 73
Notes to Consolidated Financial Statements
The fair values ofthe Company’s derivative financial instruments as disclosed above are determined based on Bloomberg quoted market
prices and confirmations received from counterparties, which are 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 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 $0.5 million at December 31, 2011 (December 31, 2010 -nil).
The carrying values ofthe Company’s financial instruments approximate their fair values, except as follows:
AS AT DECEMBER 31 2011 2010
CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE
Long-term debt $ 903,255 $ 913,311 $ 946,941 $ 967,953
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 201 and 2010. The fair value ofthe Company’s unsecured notes will fluctuate until
maturity.
20. Financial risk management:
a) Market risks:
The Company’s operations consist of the production and sale of methanol. Market fluctuations may result in significant cash flow and
profit volatility risk forthe 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 is the 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, New Zealand and Egypt. 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. The Company has entered into short-term natural gas forward supply contracts at fixed prices
for its Medicine Hat operations.
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.
74 METHANEX | Annual Report 2011
Notes to Consolidated Financial Statements
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.
Dec 31 Dec 31 Jan1
AS AT 201 2010 2010
Fixed interest rate debt:
Unsecured notes $ 348,762 $ 348,020 $ 347,332
Atlas limited recourse debt facilities (63.1% proportionate share) 56,599 70,292 76,833
$ 405,361 $ 418,312 $ 424,165
Variable interest rate debt:
Atlas limited recourse debt facilities (63.1% proportionate share) $ 7,798 $ 9,285 $ 16,322
Egypt limited recourse debt facilities 470,208 499,706 461,570
Other limited recourse debt facilities 19,888 19,638 12,187
$ 497,894 $ 528,629 $ 490,079
For fixed interest rate debt, a 1% change in interest rates would result in a change in the fair value of the debt (disclosed in note 19) of
approximately $7.8 million as of December 31, 2011 (2010 – $11.5 million). The fair value of variable interest rate debt fluctuates primarily
with changes in credit spreads.
For the variable interest rate debt that is unhedged, a 1% change in LIBOR would result in a change in annual interest payments of $1.3
million as of December 31, 2011 (2010 – $1.6 million).
For the variable interest rate debt that is hedged with a variable-for-fixed interest rate swap (note 19), a 1% change in the interest rates
along the yield curve would result in a change in fair value of the interest rate swaps of approximately $11.3 million as of December 31,
2011 (2010 – $15.0 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.
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 is the 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. Forthe 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 of these 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 ofthe 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 a portion ofthe net exposure to euro revenues, which is hedged through forward exchange contracts each quarter when the
euro price for methanol is established.
As at December 31, 2011, the Company had a net working capital asset of $78.4 million in non-US-dollar currencies (2010 – $74.3 million).
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 $7.8 million (2010 = $7 million).
METHANEX | Annual Report 2011 75
Notes to Consolidated Financial Statements
b) Liquidity risks:
Liquidity risk is the risk that the 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, 2011, the Company had $350.7 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 2015.
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, 2011 amount cash flows or less 1-3 years 3-5 years 5 years
Trade and other payables’ $294,351 $294,351 $ 294,351 $ – $ – $ –
Deferred gas payments included in other long-
term liabilities 51,079 52,906 – 52,906 – –
Long-term debt2 903,255 1,059,312 285,569 155,456 280,717 337,570
Egypt interest rate swaps 41,536 44,843 14,178 25,629 5,036 –
$1,290,221 $1,451,412 $594,098 $233,991 $285,753 $337,570
+ 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, 2011.
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 if
the 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, 2011
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.
76 METHANEX | Annual Report 2011
21. Retirement plans:
a) Defined benefit pension plans:
Notes to Consolidated Financial Statements
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:
Dec 31 Dec 31
ASAT 201 2010
Accrued benefit obligations:
Balance, beginning of year $ 70,072 $ 61,643
Current service cost 2,551 2,329
Interest cost on accrued benefit obligations 3,665 3,540
Benefit payments (5,522) (3,220)
Actuarial loss 11,049 2,204
Foreign exchange loss (gain) (3,257) 3,576
Balance, end of year 78,558 70,072
Fair values of plan assets:
Balance, beginning of year 45,378 42,103
Expected return on plan assets 2,333 2,164
Contributions 4,349 1,229
Benefit payments (5,522) (3,220)
Actuarial gain (loss) (2,577) 829
Foreign exchange gain (loss) (685) 2,273
Balance, end of year 43,276 45,378
Unfunded status 35,282 24,694
Minimum funding requirement 260 1,246
Defined benefit obligation, net $ 35,542 $ 25,940
The Company has an unfunded retirement obligation of $33.3 million at December 31, 2011 (2010 – $28.7 million) for its employees in Chile
that will be funded at retirement in accordance with Chilean law. The accrued benefit for the unfunded retirement arrangement in Chile is
paid when an employee leaves the Company in accordance with plan terms and Chilean regulations. The Company has a funded
retirement obligation of $2.3 million at December 31, 2011 (2010 – funded asset $2.8 million) for its employees in Canada and Europe under
which the Company estimates that it will make additional contributions totaling $6.2 million in 2012.
The Company’s net defined benefit pension plan expense charged to the Consolidated Statements of Income for the years ended
December 31, 2011 and 2010 is as follows:
FOR THE YEARS ENDED DECEMBER 31 2011 2010
Net defined benefit pension plan expense:
Current service cost $ 2,551 $ 2,329
Interest cost on defined benefit obligations 3,665 3,540
Expected return on plan assets (2,333) (2,164)
$ 3,883 $ 3,705
The Company’s current year actuarial losses, recognized in the Consolidated Statements of Comprehensive Income for the years ended
December 31, 2011 and 2010, are as follows:
FOR THE YEARS ENDED DECEMBER 31 201 2010
Actuarial loss $ 13,626 $ 1,375
Minimum funding requirement (986) 326
Current year actuarial losses $ 12,640 $ 1,701
METHANEX | Annual Report 2011 77
Notes to Consolidated Financial Statements
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, 2010 in Canada. The next actuarial
reports for funding purposes forthe Company’s Canadian defined benefit pension plans are scheduled to be completed as of December 31,
2013.
The actuarial assumptions used in accounting for the defined benefit pension plans are as follows:
FOR THE YEARS ENDED 2011 2010
Benefit obligation at December 31:
Weighted average discount rate 4.56% 5.43%
Rate of compensation increase 3.93% 4.15%
Net expense for years ended December 31:
Weighted average discount rate 5.85% 5.91%
Rate of compensation increase 4.18% 4.44%
Expected rate of return on plan assets 6.10% 7.00%
The expected rate of return on plan assets is determined by considering the expected returns available on the assets underlying the
current investment policy. The difference between actual return and the expected return is an actuarial gain or loss and ¡is recorded in the
Consolidated Statements of Comprehensive Income for the year. For the year ended December 31, 2011, the Company’s actual return on
plan assets was a loss of $0.3 million (2010 – gain of $3.0 million).
The asset allocation for the defined benefit pension plan assets as at December 31, 2011 and 2010 is as follows:
AS AT DECEMBER 31 2011 2010
Equity securities 46% 41%
Debt securities 28% 25%
Cash and other short-term securities 26% 28%
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, 2011 was $4.2 million (2010 – $3.7 million).
22. 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 up to 2035. The minimum estimated commitment under these contracts,
excluding Argentina natural gas supply contracts, is as follows:
AS AT DECEMBER 31, 2011
2012 2013 2014 2015 2016 Thereafter
$ 248,249 $ 190,781 $ 12,094 $ 101,675 $ 101,929 $ 1232613
78 METHANEX | Annual Report 201
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 ofthe
capacity for its facilities in Chile with expiration dates between 2017 and 2025. 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:
AS AT DECEMBER 31, 2011
2012 2013 2014 2015 2016 Thereafter
$ 136,497 $ 109,724 $ 90,654 $ 70,503 $ 66,028 $ 340,237
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 1.2 million
tonnes per year of methanol offtake supply when these plants operate at capacity. At December 31, 2011, the Company also had
commitments to purchase methanol under other offtake contracts for approximately 544,000 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 atthe time of purchase or sale, and accordingly, no amounts have been included above.
23. Related parties
The Company has interests in significant subsidiaries and joint ventures as follows:
INTEREST %
COUNTRY OF DEC 31 DEC 31
NAME INCORPORATION – PRINCIPAL ACTIVITIES 201 2010
Significant subsidiaries:
Methanex Asia Pacific Limited Hong Kong Marketing 8: Sales 100% 100%
Methanex Europe NV Belgium Marketing 8: Sales 100% 100%
Methanex Methanol Company, LLC USA Marketing 8: Sales 100% 100%
Egyptian Methanex Methanol Company S.A.E. Egypt Production 60% 60%
Methanex Chile S.A. Chile Production 100% 100%
Methanex New Zealand Limited New Zealand Production 100% 100%
Methanex Trinidad (Titan) Unlimited Trinidad Production 100% 100%
Waterfront Shipping Company Limited Cayman Islands Distribution €: Shipping 100% 100%
Significant joint ventures:
Atlas Methanol Company Unlimited: Trinidad Production 63.1% 63.1%
+ Summarized financial information for the group’s share of Atlas is disclosed in note 6.
METHANEX | Annual Report 2011 79
Notes to Consolidated Financial Statements
Remuneration of non-management directors and senior management, which includes the eight members of the executive leadership
team, is as follows:
FOR THE YEARS ENDED DECEMBER 31 2011 2010
Short-term employee benefits $ 10,808 $ 7,978
Post-employment benefits m5 753
Other long-term employee benefits nm 66
Share-based compensation expense (recovery) (3,328) 21,126
Total $ 8,267 $ 29,923
24. Transition to International Financial Reporting Standards:
As stated in note 2, these are the Company’s first consolidated financial statements under IFRS. The accounting policies described in note 2
have been applied in preparing the consolidated financial statements for the year ended December 31, 2011, the comparative information
presented in these consolidated financial statements for the year ended December 31, 2010 and in the preparation of an opening IFRS
statement of financial position at January 1, 2010, the Company’s date of transition. An explanation of the IFRS 1, first-time adoption of IFRS
exemptions and the required reconciliations between IFRS and Canadian GAAP are described below:
IFRS 1 First-time Adoption of International Financial Reporting Standards
In preparing these consolidated financial statements, the Company has applied 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 and mandatory exemptions, 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 has elected to apply:
Business combinations
The Company has elected to apply IFRS 3, Business Combinations, prospectively to 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
The Company has elected to recognize all cumulative actuarial gains and losses on defined benefit pension plans existing at the date of
transition immediately into retained earnings, rather than continuing to defer and amortize into the results of operations. Referto note
24(b) for the impact to the financial statements.
Fair value or revaluation as deemed cost
The Company has used the amount determined under a previous GAAP revaluation as the deemed cost for certain assets. The Company
elected the exemption for certain assets that were written down under Canadian GAAP, as the revaluation was broadly comparable to fair
value under IFRS. The carrying value of those assets on transition to IFRS is therefore consistent with the Canadian GAAP carrying value on
the transition date.
Share-based compensation
The Company elected to not apply 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. As a result, the Company has applied IFRS 2 for stock options granted after
November 7, 2002 that were not fully vested at January 1, 2010.
Site restoration costs
The Company has elected to apply the IFRS 1 exemption whereby it has measured the site restoration costs at January 1, 2010 in accordance
with the requirements in AS 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 the best estimate ofthe historical risk-free discount rate.
Oil and gas properties
The Company has elected to carry forward the Canadian GAAP full-cost method of accounting oil and gas asset carrying value as of
January 1, 2010 as the balance on transition to IFRS.
80 METHANEX | Annual Report 2011
Notes to Consolidated Financial Statements
Reconciliations between IFRS and Canadian GAAP
IFRS 1 requires an entity to reconcile equity, comprehensive income and cash flow for comparative periods. The Company’s adoption of IFRS
did not have a significant impact on total operating, investing or financing cash flows in the prior periods. However, it did result in some
presentation changes. Under Canadian GAAP, interest paid included in profit and loss was classified as operating activities and capitalized
interest was classified as investing activities. Under IFRS, interest paid, including capitalized interest, is classified as financing activities.
There were no other significant adjustments to the statement of cash flows. In preparing these consolidated financial statements, the
Company has adjusted amounts reported previously in financial statements prepared in accordance with Canadian GAAP. An explanation
of how the transition from Canadian GAAP to IFRS has affected the Company’s statements of financial position, net income and
comprehensive income is provided below:
Reconciliation of assets, liabilities and equity
The table below provides a summary of the adjustments to the Company’s statement of financial position at December 31, 2010 and
January 1, 2010:
Dec 31 Jan1
ASAT 2010 2010
Total assets per Canadian GAAP $ 3,070,159 $ 2,923,417
Leases (a) 55,114 61,095
Employee benefits (b) (12,126) (10,611)
Site restoration costs (c) 3,595 1,285
Borrowing costs (d) 23,951 8,269
Other – 126
Total assets per IFRS $ 3,140,693 $ 2,983,581
Total liabilities per Canadian GAAP $ 1,793,532 $ 1,687,331
Leases (a) 68,657 74,240
Employee benefits (b) 5,658 6,038
Site restoration costs (c) 7,709 4,901
Borrowing costs (d) 9,580 3,307
Uncertain tax positions (e) 7,158 5,365
Share-based compensation (f) 5,738 261
Deferred tax impact and other adjustments (g) (10,549) (8,863)
Reclassification of non-controlling interests (h) (156,413) (137,273)
Total liabilities per IFRS $ 1731070 $ 1,635,307
Total equity per Canadian GAAP $ 1,276,628 $ 1,236,086
Leases (a) (13,543) (13,146)
Employee benefits (b) (17,784) (16,650)
Site restoration costs (c) (4,114) (3,612)
Borrowing costs (d) 14,370 4,961
Uncertain tax positions (e) (7,158) (5,365)
Share-based compensation (f) (5,738) (261)
Deferred tax impact and other adjustments (g) 10,549 8,863
Reclassification of non-controlling interests (h) 156,413 137,272
Other – 126
Total equity per IFRS $ 1,409,623 $ 1,348,274
Total liabilities and equity per IFRS $ 3,140,693 $ 2,983,581
METHANEX | Annual Report 2011 81
Notes to Consolidated Financial Statements
Reconciliation of net income
The table below provides a summary of the adjustments to net income for the year ended December 31, 2010:
Dec 31
2010
Net income per Canadian GAAP $ 101,733
Leases (a) (397)
Employee benefits (b) (100)
Site restoration costs (c) (500)
Uncertain tax positions (e) (1,793)
Share-based compensation (f) (4,588)
Deferred tax impact and other adjustments (g) 1,791
Other (127)
Total adjustments (5,714)
Net income per IFRS attributable to Methanex Corporation shareholders $ 96,019
Net loss per IFRS attributable to non-controlling interests (1,990)
Net income per IFRS $ 94,029
Reconciliation of comprehensive income
The table below provides a summary of the adjustments to comprehensive income for the year ended December 31, 2010:
Dec 31
2010
Comprehensive income per Canadian GAAP $ 86,140
IFRS/CDN GAAP differences to net income (see table above) (5,714)
Employee benefits – actuarial losses (1,139)
Borrowing costs transferred to property, plant and equipment (d) 9,410
Comprehensive income per IFRS attributable to Methanex Corporation shareholders $ 88,697
Comprehensive loss per IFRS attributable to non-controlling interests (6,110)
Comprehensive income per IFRS $ 82,587
The items noted above in the reconciliations ofthe statement of financial position, net income and comprehensive income from Canadian
GAAP to IFRS are described below:
a) Leases:
Under Canadian GAAP, an arrangement at inception that can only be fulfilled 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. Regardless of whether the arrangement takes the legal form of a lease,
an asset and corresponding liability should be recorded if certain criteria are met. However, Canadian GAAP has grandfathering provisions
that exempt 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.
The Company has long-term oxygen supply contracts for its 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. The Company 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 $61.1 million and other long-term liabilities of $74.2 million, with a corresponding decrease to retained
earnings of $13.1 million.
In comparison to Canadian GAAP, for the year ended December 31, 2010, this accounting treatment resulted in lower cost of sales and
operating costs, higher finance costs and higher depreciation and amortization charges, with no significant impact to net earnings. As at
December 31, 2010, this resulted in an increase to property, plant and equipment of $55.1 million and other long-term liabilities of $68.6
million, with a corresponding decrease to shareholders’ equity of $13.5 million.
82 METHANEX | Annual Report 2011
Notes to Consolidated Financial Statements
b) Employee benefits:
The Company elected the IFRS 1 exemption to recognize all cumulative actuarial gains and losses on defined benefit pension plans existing
at the date of transition immediately in retained earnings. As at January 1, 2010, this results in a decrease to retained earnings of $16.6
million, a decrease to other assets of $10.6 million and an increase to other long-term liabilities of $6.0 million.
In comparison to Canadian GAAP for the year ended December 31, 2010, net earnings decreased by approximately $0.1 million. This includes
an adjustment to the Company’s 2010 financial statements as previously reported under IFRS to reflect the impact of foreign exchange on
the cumulative actuarial losses as reported. As at December 31, 2010, the recognition of actuarial gains and losses into retained earnings
and the impact of foreign exchange resulted in a decrease to shareholders’ equity of $17.8 million, a decrease to other assets of 912.1 million
and an increase to other long-term liabilities of $5.7 million.
c) Site restoration costs:
Under IFRS, the Company recognizes a liability to dismantle and remove assets or to restore a site upon which the assets are located. The
Company is required to determine a best estimate of site restoration costs for all sites, whereas under Canadian GAAP site restoration
costs 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. As at January 1, 2010, adjustments to the financial
statements to recognize site restorations costs on transition to IFRS are recognized as an increase to other long-term liabilities of
approximately $4.9 million and an increase to property, plant and equipment of approximately $1.3 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 site restoration costs resulted in an increase to other long-term
liabilities of approximately $7.7 million and an increase to property, plant and equipment of approximately $3.6 million, with a
corresponding decrease to shareholders’ equity and no significant impact to net earnings.
d) Borrowing costs:
IAS 23 prescribes the accounting treatment and eligibility of borrowing costs. 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. Under Canadian GAAP, cash
settlements for these swaps during construction are recorded in accumulated other comprehensive income for the Company’s 60%
portion and 40% is recorded in non-controlling interest. Under IFRS, the cash settlements during construction are recorded to property,
plant and equipment. Accordingly, there is an increase to property, plant and equipment of approximately $8.3 million and $24.0 million as
of January 1, 2010 and December 31, 2010, respectively. The increase to property, plant and equipment is offset by an increase to
accumulated other comprehensive income of approximately $5.0 million and $14.4 million and an increase in non-controlling interest of
approximately $3.3 million and $9.6 million as of January 1, 2010 and December 31, 2010, respectively, with no net impact on earnings.
e) Uncertain tax positions:
IAS 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 $5.4 million in comparison to
Canadian GAAP. For the year ended December 31, 2010, this has resulted in a decrease in net earnings of $1.8 million with a corresponding
increase to income tax liabilities.
f) Share-based compensation:
During 2010, the Company made its first grant of SARs and TSARs in connection with the employee long-term incentive compensation
plan.
Under Canadian GAAP, both SARs and TSARSs are accounted for using the intrinsic value method. The intrinsic value related to SARs and
TSARs is measured by the amount the market price ofthe Company’s common shares exceeds the exercise price of a unit. Changes in
intrinsic value in each period are recognized in net income 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 TSARSs is
estimated using an option pricing model. Changes in fair value estimated using an option pricing model each period are recognized in net
income forthe proportion ofthe service that has been rendered at each reporting date.
The fair value estimated using an option pricing model will be higher than the intrinsic value due to the time value included in the
estimated 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 with total accounting
expense ultimately being the same on the date of exercise.
METHANEX | Annual Report 2011 83
Notes to Consolidated Financial Statements
The SARs and TSARs were granted for the first time in March 2010, and therefore, there is no adjustment required to the financial
statements on January 1, 2010. The difference in fair value method under IFRS compared with the intrinsic value method under Canadian
GAAP has resulted in the decrease to net earnings of approximately $4.6 million, increase to other long-term liabilities of approximately
$5.7 million and corresponding decrease to shareholders’ equity for the year ended December 31, 2010.
8) Deferred tax impact and other adjustments:
This adjustment primarily represents the income tax effect ofthe adjustments related to accounting differences between Canadian GAAP
and IFRS. As at January 1, 2010, this has resulted in a decrease to deferred income tax liabilities and an increase to retained earnings of
approximately $8.9 million. For the year ended December 31, 2010, this resulted in an increase to net earnings of $1.8 million.
h) Reclassification of non-controlling interests from liabilities:
The Company has a 60% interest in EMethanex, the Egyptian company through which it has developed the Egyptian methanol project. The
Company accounts for this investment using consolidation accounting, which results in 100% ofthe assets and liabilities of EMethanex
being included in the 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 shareholder equity. This reclassification results in a decrease to liabilities and an
increase in equity of approximately $137.3 million and $156.4 million as of January 1, 2010 and December 31, 2010, respectively.
84 METHANEX | Annual Report 2011
Executive
Leadership Team
President and
Chief Executive Officer
Senior Vice President,
Corporate Development
and Chief Financial Officer
Senior Vice President,
Global Marketing and Logistics
Senior Vice President,
Corporate Resources
Senior Vice President,
Global Operations
Senior Vice President,
General Counsel and
Corporate Secretary
Senior Vice President,
Latin America
Senior Vice President,
Asia Pacific
[do toa!
(iS
Methanex Corporation
ERE ANO
200 Burrard Street
Vancouver, BC V6C 3M1
Tel 604 661 2600
Fax 604 661 2676
Toll Free
1800 6618851
Within North America
WEB
AE
Sales Inquiries:
salesEmethan
Board of Directors
Thomas 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 of the Responsible Care Committee.
Board member since December 2004
Pierre Choquette
Member of the Audit, Finance €: Risk
and Human Resources Committees.
Board member since October 1994
Phillip Cook
Chair of the Responsible Care Committee.
Member of the Public Policy Committee.
Board member since May 2006
Robert Kostelnik
Member of the Corporate Governance
and Responsible Care Committees
Board member since September 2008
Transfer Agent
¡ANOIMAS E ENS
EAN UE
EE
¡CN El
MEDI MICA
EEE El]
EE RR are!
EEE EA NENA
IS INN
Trust Company.
ETE SARA ER AN Aa
416 682 3860 Outside North America
MRS
Investor Relations Inquiries
Jason Chesko
PATAS ASIENTO
Tel 604 661 2600
INC ENSA
Douglas Mahaffy
Member of the Corporate Governance
and Human Resources Committees.
Board member since May 2006
A. Terence Poole
Chair of the Audit, Finance 8: Risk Committee.
Member of the Public Policy Committee.
Board member since September 2003
and from February 1994 to June 2003
John Reid
Chair ofthe Human Resources Committee
Member of the Audit, Finance 8: Risk
Committee
Board member since September 2003
Janice Rennie
Member of the Audit, Finance 8: Risk
and Human Resources Committees.
Board member since May 2006
Monica Sloan
Chair of the Corporate Governance Committee.
Member of the Responsible Care Committee.
Board member since September 2003
METHANEX
Annual General Meeting
The Annual General Meeting will be
IES EIN dl
(ANNAN e
on Thursday, April 26, 2012
E o)
DECIS)
Toronto Stock Exchange – MX
NASALES Ol
SES
NE)
UA TEN Alo!
online at www.methanex.com and
LN r.com.
INN be obtained
AR TER iS
Link al archivo en CMFChile: https://www.cmfchile.cl/sitio/aplic/serdoc/ver_sgd.php?s567=f7c8101fd3c3fbdfcba4f24cd951cdcfVFdwQmVFMXFRWHBOUkVGNlRtcEJOVTlSUFQwPQ==&secuencia=-1&t=1682366909
