Methanex Corporation
Annual Report 2015

Plain-text annual report

2015 A N N U A L R E P O R T 81390Methanex2015AR_Cover3.indd 1 2016-01-26 12:07 PM 2015 A N N U A L R E P O R T TABLE OF CONTENTS 2 2015 Financial Highlights 3 President’s Message to Shareholders 6 Chairman’s Message to Shareholders 7 Management’s Discussion and Analysis 45 Consolidated Financial Statements 50 Notes to Consolidated Financial Statements MethanexCorporation is the world’s largest producer and supplier of methanol to major international markets in North America, Asia Pacific, Europe and South America. The Power of Agility™ is what sets us apart from our competitors – what really makes us stand out in the marketplace. It is the ability of our global team members to quickly adapt and respond to our customers’ needs. It is our ability to swiftly create and capitalize on opportunities. It is our ability to safely and professionally respond to production challenges with innovative solutions. It helps us attract the right customers and top talent. It inspires us to achieve our vision of global methanol leadership. The Power of Agility™ is a reflection of what we believe and how we behave. For customers, this means peace of mind: secure supply and safe, responsive, reliable and cost- effective operations. For shareholders, this means confidence that Methanex will sustain its competitive advantage and global leadership position and deliver value through profitable investments. For employees, it is a culture aligned with their values, personal well-being and professional development. For communities, this means upholding our commitment to health, safety, environment and social responsibility. Methanex – Global Methanol Industry Leader …………………………………………………………………………………………………………………………………………………………………………………………………………………………… EUROPE Brussels Damietta MIDDLE EAST Dubai Cairo AFRICA ASIA Beijing Seoul Shanghai Tokyo Hong Kong Vancouver Medicine Hat NORTH AMERICA Dallas Geismar Trinidad and Tobago SOUTH AMERICA Santiago Punta Arenas New Zealand Production Sites Global Office Locations Distribution Terminals and Storage Facilities Shipping Lanes Methanex in Egypt Our joint venture facility in Egypt (Methanex interest 50%) is located on the Mediterranean Sea and supplies methanol markets in Europe and Asia Pacific. Methanex in Canada Our plant in Medicine Hat, Alberta, supplies methanol to customers in North America. Methanex in Chile The Punta Arenas production complex in southern Chile is well positioned to supply customers in South America. Global Production Facilities Methanex’s global production hubs are strategically positioned to supply every major global market. Methanex in New Zealand Our three production facilities in New Zealand supply methanol primarily to customers in Asia Pacific. Methanex in Trinidad Our two plants in Trinidad, Titan and Atlas (Methanex interest 63.1%), supply methanol markets in North America, Europe, Asia Pacific and South America. Methanex in the United States The Geismar 1 and 2 plants were relocated from our site in Chile and produced first methanol in January and December 2015, respectively. The Geismar site has the capability to serve customers in all major markets around the globe and is a significant enhancement to Methanex’s global supply chain. Global Supply Chain Methanex has an extensive global supply chain and distribution network of terminals and storage facilities throughout North America, Asia Pacific, Europe and South America. Methanex’s wholly owned subsidiary, Waterfront Shipping, operates the largest methanol ocean tanker fleet in the world. The fleet forms a seamless transportation network dedicated to keeping an uninterrupted flow of methanol moving to storage terminals and customers’ plant sites around the world. For further information on Waterfront Shipping, please visit www.wfs-cl.com. Our Responsible Care® Commitment Methanex is a Responsible Care company. Responsible Care is the umbrella under which Methanex and other leading chemical manufacturers manage issues relating to health, safety, the environment, community involvement, social responsibility, security and emergency preparedness. The total commitment to Responsible Care is an integral part of Methanex’s global corporate culture. 2015 Methanex Corporation Annual Report 1 2015 Financial Highlights (US$ millions, except where noted) Operations Revenue Adjusted net income1 Net income (loss) (attributable to Methanex shareholders) Adjusted EBITDA1 Cash flows from operating activities Modified Return on Capital Employed (ROCE)2 Diluted Per Share Amounts (US$ per share) Adjusted net income1 Net income (loss) (attributable to Methanex shareholders) Financial Position Cash and cash equivalents Total assets Long-term debt, including current portion Debt to capitalization3 Net debt to capitalization4 Other Information Average realized price (US$ per tonne)5 Total sales volume (000s tonnes) Sales of Methanex-produced methanol (000s tonnes) Adjusted EBITDA (US $ million) 9 9 7 9 4 6 6 3 7 2 0 7 7 2 4 9 2 4 1 0 4 0 3 3 1 9 2 2 4 1 2015 2,226 110 201 401 297 6.2% 1.20 2.01 255 4,494 1,536 44% 39% 322 8,471 5,050 2014 2013 2012 20116 3,223 3,024 2,543 2,608 397 455 702 801 471 329 736 586 180 (68) 429 416 182 201 427 392 16.2% 23.0% 12.0% 13.8% 4.12 4.55 952 4,775 1,722 46% 27% 437 8,504 4,878 4.88 3.41 733 4,121 1,168 38% 19% 441 7,991 4,304 1.90 (0.73) 727 3,443 1,194 45% 24% 382 7,459 4,039 1.93 2.06 351 3,394 903 36% 26% 374 7,514 3,853 Share Price Performance (Indexed at December 31) Methanex (US$, NASDAQ) S&P 500 Chemicals Index 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Regular Dividends Per Share (US $) Weighted Average Shares Outstanding (millions) 8 0 1 . 5 9 0 . 109.10 1 6 0 . 2 6 0 . 2 6 0 . 7 6 0 . 5 5 0 . 0 5 0 . 9 7 0 . 3 7 0 . 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 80 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 36 for a description of each non-GAAP measure and reconciliations to the most comparable GAAP measures. 2 Modified ROCE is defined as adjusted net income before 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 liabilities. 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 share of income, assets and liabilities in the Egypt and Atlas methanol facilities. 3 Defined as total debt divided by the sum of total equity and total debt (including 100% of debt related to the Egypt methanol facility). 4 Defined as total debt less cash and cash equivalents divided by the sum of 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 commissions earned and the Egypt non-controlling interest share of revenue, but including an amount representing our share of Atlas revenue, divided by the total sales volume of Methanex-produced (attributable to Methanex shareholders) and purchased methanol, but excluding Tolling Volume. 6 Effective January 1, 2013, Methanex adopted new IASB accounting standards related to consolidation and joint arrangements. As a result, Methanex’s 63.1% interest in the Atlas entity is now accounted for using the equity method. Methanex restated its figures as at and for the year ended December 31, 2012 using the equity method. Figures prior to 2012 have not been restated. For additional highlights and additional information about Methanex, refer to our 2015 Factbook available at www.methanex.com. 2 2015 Methanex Corporation Annual Report 250 200 150 100 50 0 120 110 100 90.65 90 President’s Message to Shareholders DEAR FELLOW SHAREHOLDERS, 2015 marked the achievement of several important strategic We believe that our financial position and financial flexibility, milestones for Methanex. Thanks to the unified dedication and outstanding global supply network and competitive-cost commitment of our global team of employees, we successfully position will provide a sound basis for Methanex to continue to started two 1.0 million tonne plants in Geismar, Louisiana, fully be the leader in the methanol industry. We also remain refurbished the 0.6 million tonne facility in Medicine Hat, focused on developing longer-term opportunities for methanol Alberta and secured longer-term gas supply in Trinidad, the to meet the world’s increasing need for clean-burning energy United States and Canada. We also returned over $240 million products. With our excellent team and resilient company to shareholders in the form of dividends and share buybacks. culture, we are well positioned to benefit from a recovery in Although market conditions weakened in the second half of methanol prices. the year, with our growth capital expenditures behind us, a solid balance sheet and assets that are in excellent shape, we are in a strong position to navigate through this period of economic uncertainty and are poised to benefit from a recovery in methanol pricing. This past year is an excellent example of how Methanex applies innovation to deliver value to our customers and shareholders. Numbering just under 1,300 worldwide, our people are the key to our success in developing innovative ideas and unique partnerships to grow demand for our one product. Whether relocating underutilized assets, working with partners to grow new applications for methanol or joining forces with other global team members to improve the reliability and longevity of our assets, we work together by adapting, responding, creating and capitalizing on opportunities that build demand for methanol and grow our business. The low oil price environment has continued to weigh on methanol pricing heading into 2016 and has caused considerable uncertainty in the methanol market. However, we operate in a cyclical business and have positioned our Company to withstand periods of market weakness and generate substantial shareholder value over the cycle. The key components of our strategy – global market leadership, operational excellence and low cost – are proving to be vital in this challenging environment. As the global methanol leader, our solid and long-standing customer relationships are highly Our Responsible Care performance in 2015 was mixed: while we had a second consecutive year of excellent environmental performance, our safety performance was very disappointing, with 11 recordable injuries across the Company in 2015. After extensive analysis of these incidents we have taken action to address this and we expect to improve our results in 2016 and into the future. In 2015, we recorded Adjusted EBITDA of $401 million and Adjusted Net Income of $110 million, or $1.20 per common share. This compares to Adjusted EBITDA of $702 million and Adjusted Net Income of $397 million, or $4.12 per common share in 2014. Our weaker financial performance in 2015 is primarily attributable to falling methanol prices through the year, which moved lower in tandem with the decline in the price of oil. At the end of 2015, the price of Brent crude oil hit an 11-year low and was down just under 50 percent from its 2015 peak level in May. As oil prices declined, so did the prices for certain energy-linked products that use methanol as a feedstock, which negatively impacted the affordability of methanol for those applications. The methanol cost curve also shifted down in 2015 due to new low cost supply in the United States, lower gas and coal feedstock costs in China and a devaluation of the Chinese currency. As a result, global methanol pricing came under pressure and Methanex’s average realized price for methanol weakened from $390 per tonne in the fourth quarter of 2014 to $277 per tonne in the fourth quarter of 2015. important. We value our customers’ loyalty as much as they Despite the decline in methanol prices, we saw methanol value our commitment to providing them with a secure and demand continue to grow by just over five percent relative to reliable supply of methanol. Through our ongoing emphasis on 2014, led by strong growth in energy applications, and, in operational excellence, we took important steps in 2015 to particular, methanol-to-olefins (MTO). At the end of 2014, enhance the reliability of our assets. Our competitive cost there were seven merchant MTO and methanol-to-propylene position, along with input costs that contractually move lower (MTP) plants completed, capable of consuming just under at lower methanol prices, offers invaluable protection in the seven million tonnes of methanol at full operating rates. By the trough of a cycle. While the impact of lower energy prices has end of 2015, those figures almost doubled to 12 plants with created some methanol market uncertainty, we believe the capacity to consume over 12 million tonnes of methanol. The industry fundamentals underpinning our strategy are intact. new MTO/MTP capacity led to strong growth in methanol 2015 Methanex Corporation Annual Report 3 demand, although we have yet to see these plants operate at contracts to hedge natural gas prices for approximately their full potential. In total, we estimate that approximately 40 percent of the requirements for our Geismar 2 plant, and six million tonnes of demand did not materialize from energy we established additional supply for our Medicine Hat facility applications – including MTO, MTP, di-methyl ether (DME) and on the forward market. These initiatives have enhanced the methanol-to-gasoline (MTG) – due to low methanol security of our feedstock supply and reduced our exposure to affordability. This latent demand capacity underscores the potential North American feedstock price volatility over the potential upward momentum for industry demand. medium to long term. We also finalized the renewal of the Methanex’s share of production from our facilities was 5.2 million tonnes in 2015, which was our highest annual production volume achieved since 2006. Nonetheless, production was lower than planned due to significant gas restrictions in Egypt and some unforeseen mechanical issues in New Zealand. We expect that gas supply in Egypt will be significantly curtailed in the medium term, especially during the summer months. However, we believe the longer-term future of the Egypt plant remains positive, supported by significant large gas discoveries in the region in 2015. The mechanical issues in New Zealand were fully resolved with repairs completed by December 2015, and we ended the year with 10 methanol plants running simultaneously, the highest number in Methanex’s history. In 2013, we launched an initiative to grow our operating capacity by approximately three million tonnes. The startup of the Geismar 2 plant in late December 2015, one quarter ahead of schedule, marks the achievement of that goal. The relocation of the Geismar plants from Chile required the effort of our entire global organization, through planning, dismantling, transport, reconstruction and startup. As was the case with Geismar 1, the Geismar 2 relocation was accomplished with outstanding Responsible Care results, with both plants being completed without a major incident. At the end of 2015, our global operating capacity was just over 8.0 million tonnes, approximately 60 percent higher than the 2012 level. In reaching this goal, we have improved the risk profile of our asset portfolio with a higher degree of asset diversification around the globe and a higher proportion of our assets located in lower-risk jurisdictions. Titan gas contract in Trinidad for an additional five years. In Chile, we restarted our plant in September 2015 with newly contracted gas from Empresa Nacional del Petróleo (ENAP) sufficient to allow one plant to operate at a 40 percent rate through to April 2016. We are pleased to see that ENAP has made considerable drilling progress in the region. The U.S. Geological Survey has assessed a total potential resource of unconventional tight gas in the Magallanes Basin to be more than eight trillion cubic feet. This is more than sufficient to supply our two Chile plants for many years into the future. Whether this will translate into an opportunity for Methanex depends on a number of factors, including the cost of developing the gas, but this is nonetheless encouraging news. We remain focused on developing new applications for methanol as a clean-burning and efficient energy product. In 2015, we continued to work with Stena Line and other stakeholders to develop methanol as a fuel for ships. On April 20, 2015, the Stena Germanica sailed her maiden voyage running on methanol, after approximately four years of planning and development work by Stena, Methanex, Wartsila (the engine supplier) and other partners to support the ferry’s conversion to methanol. Stena is in the process of converting the ferry’s remaining three engines to run on methanol and has also announced plans to convert additional vessels. At the same time, our wholly owned subsidiary Waterfront Shipping has been working with shipowners, engine supplier MAN Turbo and other partners and will take delivery of seven new ships in 2016 that are equipped with dual-fuel engines capable of operating on either methanol or traditional marine fuels. The seven new ships have more efficient design features and will result in lower emissions than engines burning conventional fuel. These During 2015, we also completed a major refurbishment of our initiatives are a clear signal to the shipping world that methanol Medicine Hat facility, which has positioned the plant to is a viable clean-burning fuel that can meet the new sulphur produce efficiently and reliably for years to come. At the peak emission regulations recently implemented by the International of the turnaround, more than 850 employees and contractors Maritime Organization in North America and Europe. While the were on site. We also drew on the specialized knowledge and marine fuel application represents minimal methanol demand expertise of 17 global employees who temporarily relocated to today, it is a significant future growth opportunity for methanol, Medicine Hat for the turnaround, which exemplifies our as even a small penetration into this market would represent culture of working together as one team to achieve success. significant demand growth. As a vehicle fuel, methanol also We further solidified our natural gas feedstock supply to underpin our assets in 2015. We secured 10-year forward continues to demonstrate strong growth. In January 2016, Chinese auto manufacturer Geely opened up a methanol car 4 2015 Methanex Corporation Annual Report manufacturing plant in Shanxi province in China with the the balance sheet and a $400 million undrawn credit facility. capability of producing 100,000 flex-fuel vehicles capable of Our planned capital expenditures for 2016 are limited to operating on pure methanol. Geely is in the process of $80 million, including $30 million to complete the Geismar constructing a second plant (estimated cost of US$1.6 billion) in project, and we have minimal debt maturities until 2019. Guizhou province in China, which is targeted to start production in 2017. The Chinese government has been expanding its national program for high-blend methanol vehicles and continues to support methanol as a fuel through an increasing number of provincial and national blending standards. I want to thank all team members throughout the organization, the members of our executive leadership team and our Board of Directors for the energy and dedication they have brought to Methanex over the past year. We have accomplished a great deal in 2015 and are well positioned to As in the past, in 2015 we continued to take a balanced continue to grow and prosper in the years to come. And, on approach to the use of cash. We increased our dividend by behalf of the Board and all of our employees, I thank you, our 10 percent and paid $97 million to shareholders in dividends. shareholders, for your continued support. We also implemented a five percent normal course issuer bid that expires on May 5, 2016, and during the year, we returned $146 million to shareholders in the form of share buybacks. In the current low methanol price environment, we are focused on maintaining an appropriate level of liquidity and controlling costs. As at December 31, 2015, we had $255 million in cash on John Floren President & Chief Executive Officer 2015 Methanex Corporation Annual Report 5 Chairman’s Message to Shareholders DEAR FELLOW SHAREHOLDERS, Methanex’s Board remains focused on the continuous improvement of our corporate governance practices. Last year, Methanex was pleased to see its commitment to good in an area key to future growth. This small overlap will allow retiring directors to transfer some of their specific knowledge and insights to new directors and will allow new directors to deepen their understanding of the Company and its business governance recognized when the Company received the 2015 before existing directors retire. Governance Gavel Award for “Best Disclosure of Board Governance Practices and Director Qualifications” from the Canadian Coalition for Good Governance (CCGG). As the pre- eminent corporate governance organization in Canada, the In 2015, the Company approved a Diversity Policy that applies to both employees and directors. Although this policy does not have specific gender-balance targets, the Board is pleased that the two most recent appointments to the Board, particularly CCGG promotes good governance practices in publicly traded competent and experienced individuals, are both women. companies, and its Governance Gavel Awards recognize large public companies that have achieved excellence in communications with shareholders through their annual proxy circular. With this award, CCGG has acknowledged Methanex’s strong governance practices as reflected in our annual disclosure documents. Board Renewal Process Annually, the Board conducts an assessment of the skills and experience required of the Board as a whole so it can continue to provide effective oversight of and guidance to the Company. Our Information Circular describes the ongoing process by which we identify these needed skills and experience, and describes our process for identifying potential new directors. In 2015, Margaret Walker joined the Board, bringing with her many years of experience as a senior leader in manufacturing, construction and project management who has overseen the development of numerous large capital projects. More recently, we welcomed Benita Warmbold to the Board. Ms. Warmbold has vast financial experience and expertise and is currently the Senior Managing Director & Chief Financial Officer of the Canada Pension Plan Investment Board. This year, Monica Sloan and John Reid will not be standing for re- election at the Annual General Meeting. Ms. Sloan has been a director since 2003 and has been instrumental in developing both the board renewal process and Diversity Policy. Mr. Reid has also been a director since 2003 and has provided exemplary guidance in his role as Chair of the Human Methanex has benefited from a stable, well-balanced and Resources Committee and as a member of the Audit, Finance effective Board for many years; indeed, for a six-year period & Risk Committee. I wish to thank both Ms. Sloan and Mr. Reid prior to 2015, only one new director, John Floren, was for their contributions to the Board over the past 13 years. appointed. However, knowing that a few of our directors were approaching retirement, we accelerated the board renewal Oversight of a Cyclical Business process in 2014. I spoke with each director to get a sense of their potential retirement date. Using this information, we mapped out the expected timing of when the Board might lose certain skills and expertise as directors retired. This enabled us to develop a detailed schedule showing when we would need to appoint new directors so that the Board as a whole would continue to be well-balanced and effective in all essential skill areas and expertise. In 2015, the Board strategically increased its size by one director (from 11 to 12) in anticipation of the director retirements that will occur over the next three to five years, while also strengthening the Board’s knowledge and expertise The Board is intimately aware of the cyclical nature of the commodity industry. The best defence against price cyclicality is financial prudence and a strong balance sheet. In both high and low methanol price environments, the Board and the Audit, Finance and Risk Committee regularly receive financial updates from management setting out cash flow projections at various methanol prices. Oversight of the Company’s finances is always top of mind and the Board satisfies itself that appropriate steps have been taken to ensure the Company’s financial position is stable, no matter the state of the methanol industry. Tom Hamilton Chairman of the Board 6 2015 Methanex Corporation Annual Report Management’s Discussion and Analysis Index Overview of the Business Liquidity and Capital Resources Quarterly Financial Data (Unaudited) Our Strategy Financial Highlights Production Summary How We Analyze Our Business Financial Results Risk Factors and Risk Management Selected Annual Information Critical Accounting Estimates Controls and Procedures Anticipated Changes to International Forward-Looking Statements Financial Reporting Standards Supplemental Non-GAAP Measures This Management’s Discussion and Analysis (“MD&A”) is dated March 7, 2016 and should be read in conjunction with our consolidated financial statements and the accompanying notes for the year ended December 31, 2015. Except where otherwise noted, the financial information presented in this MD&A is prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (the “IASB”). We use the United States dollar as our reporting currency and, except where otherwise noted, all currency amounts are stated in United States dollars. In this MD&A, a reference to the “Company” refers to Methanex Corporation and a reference to “Methanex”, “we”, “our” and “us” refers to the Company and its subsidiaries or any one of them as the context requires, as well as their respective interests in joint ventures and partnerships. As at March 7, 2016, we had 89,788,738 common shares issued and outstanding and stock options exercisable for 1,795,733 additional common shares. Additional information relating to Methanex, including our Annual Information Form, is available on our website at www.methanex.com, 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 is also produced from coal, particularly in China. Approximately 60% 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 40% of methanol demand comes from a range of energy- related applications. These include direct blending of methanol into gasoline (primarily in China), and using methanol as a feedstock in the production of di-methyl ether (“DME”), biodiesel and methanol-to-olefins (“MTO”). Methanol is also used to produce methyl tertiary-butyl ether (“MTBE”), a gasoline component. We are the world’s largest producer and supplier of methanol to the major international markets in Asia Pacific, North America, Europe and South America. Our total annual production capacity, including Methanex interests in jointly owned plants, is currently 9.4 million tonnes and is located in New Zealand, the United States, Trinidad, Egypt, Canada and Chile. In early 2015, we commenced first methanol production from our 1 million tonne plant in Geismar, Louisiana (“Geismar 1”) and we commenced first methanol production from a second 1 million tonne plant relocated from Chile to Geismar (“Geismar 2”) in December 2015. 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. We have marketing rights for 100% of the production from the jointly-owned plants in Trinidad and Egypt, which provides us with an additional 1.3 million tonnes per year of methanol offtake supply when the plants are operating at full capacity. Refer to the Production Summary section on page 12 for more information. 2015 Industry Overview & Outlook Methanol is a global commodity and our earnings are significantly affected by fluctuations in the price of methanol, which is directly impacted by changes in methanol supply and demand. Demand for methanol is driven primarily by levels of industrial production, energy prices and the strength of the global economy. 2015 Methanex Corporation Annual Report 7 Demand Demand for methanol grew by 5% or 3 million tonnes in 2015, leading to total demand, excluding demand from integrated coal-to- olefins facilities, of just over 60 million tonnes in 2015. Annualized demand at year-end was approximately 62 million tonnes. The increase in demand was driven by strong growth in MTO and steady growth in traditional derivatives. Traditional chemical derivatives consume approximately 60% of global methanol and we believe that growth is correlated to GDP and industrial production growth rates. During 2015, traditional chemical demand growth for methanol grew just over 2%, helped by strong growth from the acetic acid sector. Energy-related demand grew just under 10% in 2015, led by MTO demand as five new plants were completed during the year. There are now twelve completed MTO/methanol-to-propylene (“MTP”) plants in China which are dependent on merchant methanol supply and these have the capacity to consume just over twelve million tonnes of methanol annually. We understand that some MTO facilities operated at lower rates during 2015 as a result of low oil and olefins pricing, which weighed on methanol affordability into that application. MTO-related demand is anticipated to grow further in 2016, aided by the full impact of new MTO facilities which commenced operations during 2015. Further, there are four additional MTO plants at various stages of construction which are anticipated to be completed in 2016 with the capacity to consume over 6.5 million tonnes of methanol. The future operating rates and methanol consumption from these facilities will depend on a number of factors, including pricing for their various final products and the impact of feedstock costs on relative competitiveness. We estimate that at least six million tonnes of annual methanol demand for energy-related derivatives did not operate in the fourth quarter of 2015 as a result of lower methanol affordability, including MTO, MTP, methanol-to-gasoline and dimethyl-ether. Demand for direct methanol blending into gasoline in China has remained strong and we believe that future growth in this application is supported by numerous provincial fuel-blending standards. Fuel blending has continued to gain interest outside of China with several countries currently conducting demonstration programs to test the use of methanol-blended fuels. Supply Approximately 3.5 million tonnes of new capacity outside of China was introduced in 2015, including the 1.3 million tonne Fairway Methanol LLC plant which commenced operation late in the third quarter of 2015 in Clear Lake, Texas, and Methanex’s two 1.0 million tonne facilities in Geismar, Louisiana which achieved first methanol in January and December 2015, respectively. In China, we estimate that approximately three million tonnes of new production capacity was added in 2015. Over the next few years, outside of China, the majority of new capacity additions are expected in the Atlantic Basin and the Middle East. OCI N.V. is constructing a 1.8 million tonne plant in Beaumont, Texas and in Iran, a 2.5 million tonne Kaveh plant is under construction, although timing of start-up and future operating rates at these facilities will be dependent on various factors. There are a number of other projects under discussion in the United States, but with limited committed capital to date and no projects that we are aware of in the construction phase. To the end of 2017 we expect approximately three to four million tonnes of new capacity additions in China. Beyond 2017 we anticipate that new capacity additions in China will be modest due to an increasing degree of restrictions placed on new coal-based methanol capacity additions in that country. We expect that production from new capacity in China will be consumed in that country. Price Over the past six to seven years, methanol demand growth has been led by strong demand from energy-related applications, as relatively high oil prices generated an economic incentive to substitute lower cost methanol for petroleum products or as a feedstock in energy-related products. A steep drop in oil and related product prices in 2015 lowered the affordability for methanol into certain of these energy-related applications and this pushed global methanol pricing lower at the end of the year. The methanol cost curve also shifted down in 2015 due to lower gas and coal feedstock costs in China, a devaluation of the Chinese currency, and the introduction of new low cost capacity in the Atlantic region. As a result, global methanol pricing came under pressure and Methanex’s average realized price in 2015 was $322 per tonne versus $437 per tonne in 2014. Contract prices continued to move lower in the first quarter of 2016. Future methanol prices will ultimately depend on the strength of the global economy, industry operating rates, global energy prices, new supply additions and the strength of global demand. 8 2015 Methanex Corporation Annual Report 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. To achieve this objective we have a simple, clearly defined strategy: global leadership, low cost and operational excellence. Our brand differentiator “The Power of Agility™” defines our culture of flexibility, responsiveness and creativity that allows us to capitalize on opportunities quickly as they arise, and swiftly respond to customer needs. Global Leadership Global leadership is a key element of our strategy. We are focused on maintaining and enhancing our position as the major producer and supplier in the global methanol industry, improving our ability to cost-effectively deliver methanol to customers and supporting both traditional and energy-related global methanol demand growth. We are the leading producer and supplier of methanol to the major international markets in Asia Pacific, North America, Europe and South America. Our 2015 sales volume of 8.5 million tonnes of methanol represented approximately 14% of global methanol demand. Our leadership position has enabled us to play an important role in the industry, which includes publishing Methanex reference prices that are used in each major market as the basis of pricing for our customer contracts. The geographically diverse locations of our production sites allow us to deliver methanol cost-effectively to customers in all major global markets, while investments in global distribution and supply infrastructure, which include a 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 to strengthen our asset position. The successful start-up of our Geismar project has added 2 million tonnes to our operating capacity and enabled us to reach over 8 million tonnes of operating capacity in 2015. Our Chile operations are currently operating at less than full production capacity and provide further potential upside to our operating capacity. Another key component of our global leadership strategy is our ability to supplement methanol production with methanol purchased from third parties to give us flexibility in our supply chain and continue to meet customer commitments. We purchase methanol 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. 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, South Korea and Japan 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-related sector. Low Cost A low cost structure is an important 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 are well located to supply global methanol markets. The Geismar 1, New Zealand, Trinidad and Egypt facilities are underpinned by natural gas purchase agreements where the natural gas price varies with methanol prices. This pricing relationship enables these facilities to be competitive throughout the methanol price cycle. During 2015, we entered into forward contracts to hedge natural gas prices for approximately 40% of the natural gas requirements of our Geismar 2 facility for a 10-year period and we continue to pursue opportunities to further solidify our gas costs for Geismar 2. We have a 0.6 million tonne facility located in Medicine Hat, Alberta, for which we have locked in over 90% of our gas requirements to the end of 2016, approximately 70% of the requirements for 2017 and 50% for both 2018 and 2019. We continue to pursue opportunities to further solidify our gas costs for our Medicine Hat facility. 2015 Methanex Corporation Annual Report 9 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. In 2016, we will be adding seven new vessels equipped with flex-fuel engines that can run on conventional fuel or methanol, which will provide us with further flexibility in our supply chain. 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 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 (an operating ethic and set of principles developed by the Chemistry Industry Association of Canada) and we use it as the umbrella under which we manage issues related to employee health and safety, environmental protection, community involvement, social responsibility, sustainability, security and emergency preparedness at each of our facilities and locations. Through the International Council of Chemical Associations, over 60 countries have adopted the Responsible Care Ethic and Principles for Sustainability. We believe a commitment to Responsible Care helps us reduce the likelihood of unplanned events 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. 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 associations, seminars and conferences and online education initiatives. As a 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. We have an undrawn $400 million credit facility provided by highly rated financial institutions that expires in late 2019. As at December 31, 2015, we had a strong balance sheet with a cash balance of $255 million. We believe we are well- positioned to meet our financial and capital commitments and leverage a recovery in methanol prices to generate strong future cash flows. 10 2015 Methanex Corporation Annual Report FINANCIAL HIGHLIGHTS ($ Millions, except as noted) Production (thousands of tonnes) (attributable to Methanex shareholders)1 Sales volume (thousands of tonnes): Methanex-produced methanol (attributable to Methanex shareholders) Purchased methanol Commission sales Total sales volume1 Methanex average non-discounted posted price ($ per tonne)2 Average realized price ($ per tonne)3 Revenue Adjusted EBITDA4 Cash flows from operating activities Adjusted net income4 Net income (attributable to Methanex shareholders) Adjusted net income per common share ($ per share)4 Basic net income per common share ($ per share) Diluted net income per common share ($ per share) Common share information (millions of shares): Weighted average number of common shares Diluted weighted average number of common shares Number of common shares outstanding, end of period 2015 5,193 5,050 2,780 641 8,471 374 322 2,226 401 297 110 201 1.20 2.21 2.01 91 91 90 2014 4,853 4,878 2,685 941 8,504 507 437 3,223 702 801 397 455 4.12 4.79 4.55 95 96 92 1 Methanex-produced methanol includes volume produced by Chile using natural gas supplied from Argentina under a tolling arrangement (“Tolling Volume”). For 2015, Tolling Volume was 74,000 tonnes (2014 – 100,000 tonnes). Commission sales represent volume marketed on a commission basis related to the 36.9% of the Atlas methanol facility and 50% of the Egypt methanol facility that we do not own. 2 Methanex average non-discounted posted price represents the average of our non-discounted posted prices in North America, Europe and Asia Pacific weighted by sales volume. Current and historical pricing information is available at www.methanex.com. 3 Average realized price is calculated as revenue, excluding commissions earned and the Egypt non-controlling interest share of revenue, but including an amount representing our share of Atlas revenue, divided by the total sales volume of Methanex-produced (attributable to Methanex shareholders) and purchased methanol, but excluding Tolling Volume. 4 The Company has used the terms Adjusted EBITDA, Adjusted net income, Adjusted net income per common share, Adjusted revenue and Operating income throughout this document. 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 36 for a description of each non-GAAP measure and reconciliations to the most comparable GAAP measures. 2015 Methanex Corporation Annual Report 11 PRODUCTION SUMMARY The following table details the annual production capacity and actual production of our facilities in 2015 and 2014: (Thousands of tonnes) New Zealand2 Geismar 1 and 2 (Louisiana, USA)3 Atlas (Trinidad) (63.1% interest) Titan (Trinidad) Egypt (50% interest) Medicine Hat (Canada) Chile I and IV4 Annual production capacity Annual operating capacity1 2,430 2,000 1,125 875 630 600 1,720 9,380 2,430 2,000 1,125 875 630 600 400 2015 1,856 959 912 732 74 456 204 2014 2,196 – 907 664 416 505 165 8,060 5,193 4,853 1 Operating capacity includes only those facilities which are currently capable of operating, but excludes any portion of an asset that is underutilized due to a lack of natural gas feedstock over a prolonged period of time. Our current annual operating capacity is 8.1 million tonnes, including 0.4 million tonnes related to our Chile operations. The operating capacity of our production facilities may be higher than original nameplate capacity as, over time, these figures have been adjusted to reflect ongoing operating efficiencies at these facilities. Actual production for a facility in any given year may be higher or lower than operating capacity due to a number of factors, including natural gas composition or the age of the facility’s catalyst. 2 The operating capacity of New Zealand is made up of the two Motunui facilities and the Waitara Valley facility (refer to the New Zealand section below). 3 We commenced methanol production from Geismar 1 during the first quarter of 2015 and from Geismar 2 late in the fourth quarter of 2015. Each facility has an annual operating capacity of 1.0 million tonnes. 4 The production capacity of our Chile I and IV facilities is 1.7 million tonnes annually assuming access to natural gas feedstock. New Zealand In New Zealand, we produced 1.9 million tonnes of methanol in 2015 compared with 2.2 million tonnes in 2014. Mechanical issues at our New Zealand plants impacted production during 2015. Repairs to address these issues were completed by the end of the year. The plants are able to produce at annual production capacity of up to 2.4 million tonnes of methanol, depending on natural gas composition. Our New Zealand facilities are ideally situated to supply the growing Asia Pacific market. We have entered into several natural gas purchase agreements with various suppliers to underpin the future operation of our New Zealand facilities. Each natural gas purchase agreement has base and variable components, where the gas price varies with methanol prices. United States Both of our Geismar facilities commenced first methanol production in 2015; Geismar 1 during the first quarter and Geismar 2 late in the fourth quarter of 2015. These two plants, which were relocated from Chile to Geismar, Louisiana, have each added an incremental one million tonnes to our annual operating capacity. We have entered into a natural gas purchase agreement for our Geismar 1 facility that has base and variable components, where the gas price varies with methanol prices above a threshold methanol price. The Geismar 1 gas contract expires in 2025. We have entered into forward contracts for approximately 40% of the natural gas requirements of our Geismar 2 facility to hedge natural gas prices for a 10-year period. Trinidad Our equity ownership of methanol facilities in Trinidad represents 2.0 million tonnes of cost-competitive annual capacity. The Titan and Atlas facilities in Trinidad are well located to supply global methanol markets and are underpinned by natural gas purchase agreements where the natural gas price varies with methanol prices. The Atlas gas contract expires in 2024 and the Titan gas contract expires in 2019. The Trinidad facilities produced a total of 1.6 million tonnes of methanol (Methanex share) in 2014 and 2015. For both 2014 and 2015, we operated these facilities at below operating capacity due to natural gas restrictions and unplanned outages. During 2014 and 2015, we continued to experience some natural gas curtailments to our Trinidad facilities due to a mismatch between upstream supply to the National Gas Company of Trinidad and Tobago Limited (“NGC”) and downstream demand from NGC’s customers. We are engaged with key stakeholders to find a solution to this issue, but expect to continue to experience some gas curtailments to the Trinidad site. Refer to the Risk Factors and Risk Management – Trinidad section on page 28 for more information. 12 2015 Methanex Corporation Annual Report Egypt We operate a 1.26 million tonne per year methanol facility in Egypt and have marketing rights for 100% of the production. The Egypt methanol facility is well located to supply European and Asia Pacific methanol markets and is underpinned by a natural gas purchase agreement where the gas price varies with methanol prices. We produced 148,000 metric tonnes (Methanex share of 74,000) at the plant during 2015, which represents only 53 days of operation, compared to 832,000 metric tonnes (Methanex share of 416,000) in 2014. Production from the Egypt facility during 2014 and 2015 was substantially lower than capacity, primarily due to natural gas supply restrictions. The Egypt facility has experienced periodic natural gas supply restrictions, typically during the peak Egyptian summer electricity consumption period, since mid-2012; however, gas restrictions have become more significant since 2014. We cannot predict when the gas supply situation will improve, but are optimistic that recent developments impacting upstream gas supply in Egypt could result in improved gas deliveries in the future. Refer to the Risk Factors and Risk Management – Egypt section on page 28 for more information. Canada The Medicine Hat facility produced 0.5 million tonnes in each of 2014 and 2015. The facility underwent a planned major refurbishment during the second quarter of 2015 which improved its production capacity to 0.6 million tonnes. We purchase natural gas on the Alberta gas market, and by the end of 2015, we had contracted sufficient natural gas volume to meet approximately 90% of our requirements for 2016, 70% of our requirements for 2017 and 50% of our requirements for 2018 and 2019. Chile During 2014 and 2015, we operated our Chile methanol facilities significantly below annual production capacity due to insufficient natural gas feedstock. In 2007, our natural gas suppliers from Argentina curtailed all gas supplied to our plants in Chile pursuant to long-term gas supply agreements. Under the existing circumstances, we do not expect to receive any further natural gas supply from Argentina under those long-term gas supply agreements. However, during 2014 and 2015, we received some natural gas from Argentina pursuant to a tolling agreement whereby the Company converts the natural gas into methanol and then re-delivers the methanol to Argentina. Approximately 35% of the Chile production during 2015 was produced using natural gas supplied from Argentina under this arrangement, compared to 60% in 2014. We also have reached an agreement with Empresa Nacional del Petróleo (“ENAP”) for gas supply until April 2016. In recent years, there has been considerable third party investment in exploration and development of natural gas in southern Chile. The U.S. Geological Survey has assessed a total potential resource of unconventional tight gas in the Magallanes Basin to be more than eight trillion cubic feet. However, the potential for a significant increase in gas production will depend on the cost to develop the gas. We are continuing to work with gas suppliers in Chile and Argentina to secure sufficient natural gas to sustain our operations and, while the continued operation of the Chile plant through the 2016 southern hemisphere winter is possible based on the current projections of gas availability, we believe it is unlikely. Refer to the Risk Factors and Risk Management – Chile section on page 29 for more information. 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, mark-to-market impact of share-based compensation, depreciation and amortization, gain on terminal services agreement, Argentina gas settlement, finance costs, finance income and other expenses and income taxes. The Company has used the terms Adjusted EBITDA, Adjusted net income, Adjusted net income per common share, Adjusted revenue and Operating income throughout this document. 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 36 for a description of each non-GAAP measure and reconciliations to the most comparable GAAP measures. In addition to the methanol that we produce at our facilities (“Methanex-produced methanol”), we also purchase and resell methanol produced by others (“purchased methanol”) and we sell methanol on a commission basis. We analyze the results of all 2015 Methanex Corporation Annual Report 13 methanol sales together, excluding commission sales volume. The key drivers of changes in Adjusted EBITDA are average realized price, cash costs and sales volume, which are defined and calculated as follows: PRICE CASH COSTS SALES VOLUME 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 and Tolling Volume, plus the difference from period to period in commission revenue. 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 and Tolling Volume in the current period. The cash costs per tonne is the weighted average of the cash cost per tonne of Methanex-produced methanol and the cash cost per tonne of purchased methanol. The cash cost per tonne of Methanex-produced methanol includes absorbed fixed cash costs per tonne and variable cash costs per tonne. The cash cost per tonne of purchased methanol consists principally of the cost of methanol itself. In addition, the change in Adjusted EBITDA as a result of changes in cash costs includes the changes from period to period in unabsorbed fixed production costs, consolidated selling, general and administrative expenses and fixed storage and handling costs. The change in Adjusted EBITDA as a result of changes in sales volume is calculated as the difference from period to period in total methanol sales volume, excluding commission sales volume and Tolling Volume, multiplied by the margin per tonne for the prior period. The margin per tonne for the prior period is the weighted average margin per tonne of Methanex-produced methanol and margin per tonne of purchased methanol. The margin per tonne for Methanex-produced methanol is calculated as the selling price per tonne of methanol less absorbed fixed cash costs per tonne and variable cash costs per tonne. The margin per tonne for purchased methanol is calculated as the selling price per tonne of methanol less the cost of purchased methanol per tonne. We own 63.1% of the Atlas methanol facility and market the remaining 36.9% of its production through a commission offtake agreement. A contractual agreement between us and our partners establishes joint control over Atlas. As a result, we account for this investment using the equity method of accounting, which results in 63.1% of the net assets and net earnings of Atlas being presented separately in the consolidated statements of financial position and consolidated statements of income, respectively. For purposes of analyzing our business, Adjusted EBITDA, Adjusted net income, Adjusted net income per common share and Adjusted revenue include an amount representing our 63.1% equity share in Atlas. Our analysis of depreciation and amortization, finance costs, finance income and other expenses and income taxes is consistent with the presentation of our consolidated statements of income and excludes amounts related to Atlas. We own 50% of the 1.26 million tonne per year Egypt methanol facility and market the remaining 50% of its production through a commission offtake agreement. We account for this investment using consolidation accounting, which results in 100% of the revenues and expenses being included in our financial statements. We also consolidate owned entities for which we have a controlling interest. Non-controlling interests are included in the Company’s consolidated financial statements and represent the non-controlling shareholders’ interests in the Egypt methanol facility and any entity where we have control. For purposes of analyzing our business, Adjusted EBITDA, Adjusted net income, Adjusted net income per common share and Adjusted revenue exclude the amounts associated with non-controlling interests. FINANCIAL RESULTS For the year ended December 31, 2015, we reported Adjusted EBITDA of $401 million and Adjusted net income of $110 million ($1.20 per common share on a diluted basis), compared with Adjusted EBITDA of $702 million and Adjusted net income of $397 million ($4.12 per common share on a diluted basis) for the year ended December 31, 2014. We calculate Adjusted EBITDA and Adjusted net income by including amounts related to our equity share of the Atlas facility (63.1% interest) and by excluding the non-controlling interests’ share, the mark-to-market impact of share-based compensation as a result of changes in our share price and the impact of certain items associated with specific identified events. During 2015, we recorded a gain of $65 million ($57 million after-tax) related to the termination of a terminal services agreement. During 2014, we recorded a gain of $42 million ($27 million after-tax) after reaching a settlement with Total Austral S.A. (“Total”) in relation to Total’s natural gas delivery obligations pursuant to a long-term gas supply agreement in Chile (the “Argentina gas 14 2015 Methanex Corporation Annual Report settlement”). Including these items and the mark-to-market impact of share-based compensation, we reported net income attributable to Methanex shareholders for the year ended December 31, 2015 of $201 million ($2.01 per common share on a diluted basis) compared with a net income attributable to Methanex shareholders for the year ended December 31, 2014 of $455 million ($4.55 per common share on a diluted basis). A reconciliation from net income attributable to Methanex shareholders to Adjusted net income and the calculation of Adjusted diluted net income per common share is as follows: ($ Millions, except number of shares and per share amounts) Net income attributable to Methanex shareholders Mark-to-market impact of share-based compensation, net of tax Gain related to the termination of a terminal services agreement, net of tax Argentina gas settlement, net of tax Adjusted net income Diluted weighted average shares outstanding (millions) Adjusted net income per common share A summary of our consolidated statements of income for 2015 and 2014 is as follows: ($ Millions) Consolidated statements of income: Revenue Cost of sales and operating expenses Mark-to-market impact of share-based compensation Adjusted EBITDA (attributable to associate) Amounts excluded from Adjusted EBITDA attributable to non-controlling interests Adjusted EBITDA (attributable to Methanex shareholders) Mark-to-market impact of share-based compensation Depreciation and amortization Gain related to the termination of a terminal services agreement Argentina gas settlement Finance costs Finance income and other expenses Income tax expense Earnings of associate adjustment1 Non-controlling interests adjustment1 Net income attributable to Methanex shareholders Net income 2015 2014 $ 201 $ 455 (34) (57) – (31) – (27) $ 110 $ 397 91 96 $ 1.20 $ 4.12 2015 2014 $ 2,226 $ 3,223 (1,858) (2,426) (43) 108 (32) 401 43 (195) 65 – (70) (6) (11) (56) 30 201 202 $ $ (38) 41 (98) 702 38 (143) – 42 (37) (7) (155) (32) 47 455 506 $ $ 1 These adjustments represent depreciation and amortization, finance costs, finance income and other expenses and income taxes associated with our 63.1% interest in the Atlas methanol facility and the non-controlling interests. 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. Our average realized price decreased in 2015 resulting in revenue of $2.2 billion in 2015 compared to revenue of $3.2 billion in 2014. 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 in 2015 was $374 per tonne compared with $507 per tonne in 2014. Our average realized price in 2015 was $322 per tonne compared with $437 per tonne in 2014. 2015 Methanex Corporation Annual Report 15 Distribution of Revenue We have seen an increase in the proportion of our sales to customers in China in 2015 when compared to 2014, with a corresponding decrease in the United States and Europe. The remaining geographic distribution of revenue by customer location for 2015 was similar to 2014. Details are as follows: ($ Millions, except where noted) Canada United States Europe China South Korea Latin America Other $ 153 221 610 380 350 289 223 2015 7% $ 10% 27% 17% 16% 13% 10% 248 459 1,001 320 447 408 340 2014 8% 14% 31% 10% 14% 13% 10% $ 2,226 100% $ 3,223 100% Adjusted EBITDA (Attributable to Methanex Shareholders) 2015 Adjusted EBITDA was $401 million compared with 2014 Adjusted EBITDA of $702 million, a decrease of $301 million. The key drivers of changes in our Adjusted EBITDA are average realized price, sales volume and cash costs as described below (refer to the How We Analyze Our Business section on page 13 for more information). ($ Millions) Average realized price Sales volume Total cash costs Decrease in Adjusted EBITDA Average Realized Price 2015 vs. 2014 $ (898) 33 564 $ (301) Our average realized price for the year ended December 31, 2015 was $322 per tonne compared with $437 per tonne for 2014, and this decreased Adjusted EBITDA by $898 million (refer to the Financial Results – Revenue section on page 15 for more information). Sales Volume Methanol sales volume, excluding commission sales volume, for the year ended December 31, 2015 was 267,000 tonnes higher than in 2014, and this increased Adjusted EBITDA by $33 million. Including commission sales volume from the Atlas and Egypt facilities, our total methanol sales volume was 8.5 million tonnes in both 2014 and 2015. Total Cash Costs The primary drivers of changes in our total cash costs are changes in the cost of Methanex-produced methanol and changes in the cost of purchased methanol. All of our production facilities except Medicine Hat and Geismar 2 have natural gas purchase agreements with pricing terms that include base and variable price components. We supplement our production with methanol produced by others through methanol offtake contracts and purchases on the spot market to meet customer needs and support our marketing efforts within the major global markets. We have adopted the first-in, first-out method of accounting for inventories and it generally takes between 30 and 60 days to sell the methanol we produce or purchase. Accordingly, the changes in Adjusted EBITDA as a result of changes in Methanex-produced and purchased methanol costs primarily depend on changes in methanol pricing and the timing of inventory flows. 16 2015 Methanex Corporation Annual Report The changes in our total cash costs for 2015 compared with 2014 were due to the following: ($ Millions) Methanex-produced methanol costs Proportion of Methanex-produced methanol sales Purchased methanol costs Other, net Decrease in total cash costs Methanex-Produced Methanol Costs 2015 vs. 2014 $ 198 1 326 39 $ 564 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 New Zealand, Geismar 1, Trinidad and Egypt methanol facilities under natural gas purchase agreements where the unique terms of each contract include a base price and a variable price component linked to the price of methanol 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 these pricing relationships enable each facility to be competitive throughout the methanol price cycle. Methanex-produced methanol costs were lower in 2015 compared with 2014 by $198 million, primarily due to the impact of lower methanol prices on our natural gas costs, timing of inventory flows and changes in the mix of production sold from inventory. For additional information regarding our natural gas supply agreements, refer to the Liquidity and Capital Resources – Summary of Contractual Obligations and Commercial Commitments section on page 22. 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. Sales of Methanex- produced methanol made up a higher proportion of our total sales and this increased Adjusted EBITDA by $1 million for 2015 compared with 2014. Purchased Methanol Costs A key element of our corporate strategy is global leadership and, as such, we have built a leading market position in each of the major global markets where methanol is sold. We supplement our production with purchased methanol through methanol offtake contracts and on the spot market to meet customer needs and support our marketing efforts within the major global markets. In structuring purchase agreements, we look for opportunities that provide synergies with our existing supply chain that allow us to purchase methanol in the most cost effective 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. As a result of changes in methanol prices in 2015 and the timing of inventory flows and purchases, the cost of purchased methanol per tonne decreased and this increased Adjusted EBITDA by $326 million compared with 2014. Other, Net Our investment in global distribution and supply infrastructure includes a dedicated fleet of ocean-going vessels. We utilize these vessels to enhance value to customers by providing reliable and secure supply and to optimize supply chain costs overall, including through third-party backhaul arrangements when available. Logistics costs can also vary from period to period depending on the levels of production from each of our production facilities and the resulting impact on our supply chain. For the year ended December 31, 2015 compared with 2014, ocean freight and other logistics costs were lower, increasing Adjusted EBITDA by $26 million. The remaining change in “other, net” primarily relates to costs related to our Geismar project. Certain costs incurred for the Geismar project are related to organizational build-up and are not eligible for capitalization under IFRS. These costs are charged directly to earnings and were lower in 2015 compared with 2014. 2015 Methanex Corporation Annual Report 17 Mark-to-Market Impact of Share-Based Compensation We grant share-based awards as an element of compensation. Share-based awards granted include stock options, share appreciation rights, tandem share appreciation rights, deferred share units, restricted share units and performance share units. For all share-based awards, share-based compensation is recognized over the related vesting period for the proportion of the service that has been rendered at each reporting date. Share-based compensation includes an amount related to the grant-date value and a mark-to-market impact as a result of subsequent changes in the Company’s share price. The grant-date value amount is included in Adjusted EBITDA and Adjusted net income. The mark-to-market impact of share-based compensation as a result of changes in our share price is excluded from Adjusted EBITDA and Adjusted net income and analyzed separately. ($ Millions, except as noted) Methanex Corporation share price1 Grant-date fair value expense included in Adjusted EBITDA and Adjusted net income Mark-to-market impact due to change in share price Total share-based compensation recovery, before tax 1 U.S. dollar share price of Methanex Corporation as quoted on the NASDAQ Global Market on the last trading day of the respective period. 2015 2014 $ 33.01 $ 45.83 21 (43) (22) $ 22 (38) (16) $ 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. 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 of the Company’s common shares and the exercise price that is determined at the date of grant. Tandem share appreciation rights (“TSARs”) give the holder the choice between exercising a regular stock option or a SAR. The fair values of SARs and TSARs are re-measured each quarter using the Black-Scholes option pricing model, which considers the market value of the Company’s common shares on the last trading day of each quarter. Deferred, restricted and performance share units are grants of notional common shares that are redeemable for cash 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 performance share units that will ultimately vest will be in the range of 50% to 120% of the original grant for grants prior to 2014 and in the range of 25% to 150% for subsequent grants based on the weighted-average closing share price for the 90 calendar days on the NASDAQ Global Market immediately preceding the year end date that the performance share units vest. For deferred, restricted and performance share units, the 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. The price of the Company’s common shares as quoted on the NASDAQ Global Market decreased from $45.83 per share at December 31, 2014 to $33.01 per share at December 31, 2015. As a result of the decrease in the share price and the resulting impact on the fair value of the outstanding units, we recorded a $43 million million mark-to-market recovery related to share-based compensation during 2015. Depreciation and Amortization Depreciation and amortization was $195 million for the year ended December 31, 2015 compared with $143 million for the year ended December, 31 2014. The increase in depreciation and amortization in 2015 compared with 2014 is primarily as a result of depreciation associated with commencement of commercial operations of the Geismar 1 facility in early 2015. Gain on Termination of Terminal Services Agreement In 2015, we recorded a gain of $65 million ($57 million, net of tax) related to the termination of a terminal services agreement. The Company received $30 million on termination of the agreement during the year ended December 31, 2015 and the remaining $35 million is due to be received in early 2016. 18 2015 Methanex Corporation Annual Report Argentina Gas Settlement In 2014, we entered into a settlement agreement with Total in relation to Total’s natural gas delivery obligations pursuant to a long- term supply agreement in Chile. Total paid the Company a lump sum payment of $42 million to terminate its obligations under the agreement. Finance Costs ($ Millions) Finance costs before capitalized interest Less capitalized interest Finance costs 2015 2014 $ $ 91 (21) 70 $ $ 65 (28) 37 Finance costs before capitalized interest primarily relate to interest expense on the unsecured notes and limited recourse debt facilities. Capitalized interest in 2015 and 2014 relate to interest costs capitalized for the Geismar project. The increase in finance costs is due to higher average debt levels in 2015 compared to 2014. Finance Income and Other Expenses Finance income and other expenses was a loss of $6 million for the year ended December 31, 2015 compared to a loss of $7 million for the year ended December 31, 2014. The change in finance income and other expenses in 2015 compared with 2014 is primarily related to the impact of changes in foreign exchange rates. Income Taxes A summary of our income taxes for 2015 compared with 2014 is as follows: ($ Millions, except where noted) Amount before income tax Income tax expense Amount after income tax Effective tax rate 2015 Adjusted net income $ $ 133 (23) 110 17% Net income $ $ 213 (11) 202 5% 2014 Adjusted net income $ $ 520 (123) 397 24% Net income $ $ 662 (156) 506 24% We earn the majority of our pre-tax earnings in New Zealand, the United States, Trinidad, Egypt, Canada and Chile. In Trinidad and Chile, the statutory tax rate is 35%. The statutory rates in Canada and New Zealand are 26% and 28%, respectively. The United States statutory rate is 36% and the Egypt statutory rate is 22.5%. As the Atlas entity is accounted for using the equity method, any income taxes related to Atlas are included in earnings of associate and therefore not included in total income taxes. 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 Chile’s current income tax expense to total income tax expense is dependent on the level of cash distributed from Chile. The effective tax rate related to Adjusted net income was 17% for the year ended December 31, 2015 compared with 24% for the year ended December 31, 2014. Adjusted net income represents the amount that is attributable to Methanex shareholders and excludes the mark-to-market impact of share-based compensation and the impact of certain items associated with specific identified events. The effective tax rate differs from period to period depending on the source of earnings and the impact of foreign exchange fluctuations against the United States dollar on our tax balances. In periods with low income levels, the distribution of income and loss between jurisdictions can result in income tax rates that are not indicative of the longer term corporate tax rate. For additional information regarding income taxes, refer to note 15 of our 2015 consolidated financial statements. 2015 Methanex Corporation Annual Report 19 LIQUIDITY AND CAPITAL RESOURCES A summary of our consolidated statements of cash flows is as follows: ($ Millions) Cash flows from / (used in) operating activities: 2015 2014 Cash flows from operating activities before changes in non-cash working capital $ 414 $ Changes in non-cash working capital Cash flows from / (used in) financing activities: Payments for the repurchase of shares Dividend payments Interest paid, including interest rate swap settlements Net proceeds on issue of long-term debt Repayment of long-term debt Loan to associate Other Changes in non-cash working capital relating to financing activities Cash flows from / (used in) investing activities: Property, plant and equipment Geismar plants under construction Termination of terminal services agreement Other assets Changes in non-cash working capital relating to investing activities Increase (decrease) in cash and cash equivalents Cash and cash equivalents, end of year Cash Flow Highlights Cash Flows from Operating Activities (117) 297 (146) (97) (82) 5 (194) (31) (3) (20) (568) (97) (328) 65 1 (67) (426) (697) $ 255 $ 743 58 801 (253) (90) (53) 592 (42) (29) (17) (9) 99 (84) (574) – (2) (21) (681) 219 952 Cash flows from operating activities for the year ended December 31, 2015 were $297 million compared with $801 million for 2014. The decrease in cash flows from operating activities is primarily due to lower net income, after excluding depreciation and amortization, share-based compensation recovery, finance costs and changes in non-cash working capital. The following table provides a summary of these items for 2015 and 2014: ($ Millions) Net income Deduct earnings of associate Add dividends received from associate Add (deduct) non-cash items: Depreciation and amortization Share-based compensation recovery Finance costs Other Cash flows from operating activities before changes in non-cash working capital Changes in non-cash working capital: Trade and other receivables Inventories Prepaid expenses Accounts payable and accrued liabilities, including long-term payables 2015 2014 $ 202 $ 506 (52) 76 195 (22) 70 (55) 414 (100) 54 3 (74) (117) (9) 25 143 (16) 37 57 743 130 28 (3) (97) 58 801 Cash flows from operating activities $ 297 $ 20 2015 Methanex Corporation Annual Report For a discussion of the changes in net income, depreciation and amortization, share-based compensation recovery and finance costs, refer to the analysis of our financial results on page 14. Changes in non-cash working capital decreased cash flows from operating activities by $117 million for the year ended December 31, 2015, compared with an increase of $58 million for the year ended December 31, 2014. Trade and other receivables increased in 2015 and this decreased cash flows from operating activities by $100 million, primarily due to the impact of receivables related to a gain on the termination of a terminal services agreement and recoveries related to gas supplier commitments. Inventories decreased primarily due to the impact of a lower methanol price on Methanex-produced methanol costs and purchased product costs. This increased cash flows from operating activities by $54 million. Accounts payable and accrued liabilities, including long-term payables, decreased cash flows from operating activities by $74 million, primarily due to the impact of lower methanol prices on natural gas supply payables and lower costs for purchased methanol. Cash Flows from Financing Activities During 2015, we increased our regular quarterly dividend by 10% to $0.275 per common share, beginning with the dividend payable on June 30, 2015. Total dividend payments in 2015 were $97 million compared with $90 million in 2014 and total interest payments in 2015 were $82 million compared with $53 million in 2014. Under two normal course issuer bids, one that expired on May 5, 2015 and the second which was approved by the Board of Directors on April 29, 2015, we repurchased approximately 3 million common shares for $146 million. In 2015, we repaid $194 million of unsecured notes and other limited recourse debt compared to $42 million of other limited recourse debt repayments in 2014. Cash Flows from Investing Activities During 2015, we incurred capital expenditures of $328 million related to our Geismar project compared to $574 million in 2014. Other capital expenditures during 2015 of $97 million were primarily related to sustaining projects in Medicine Hat, Trinidad and New Zealand. Liquidity and Capitalization Our objectives in managing liquidity and capital are to provide financial capacity and flexibility to meet our strategic objectives, to provide an adequate return to shareholders commensurate with the level of risk and to return excess cash through a combination of dividends and share repurchases. The following table provides information on our liquidity and capitalization position as at December 31, 2015 and December 31, 2014: ($ Millions, except where noted) Liquidity: Cash and cash equivalents Undrawn credit facilities Total liquidity Capitalization: Unsecured notes Limited recourse debt facilities, including current portion Total debt Non-controlling interests Shareholders’ equity Total capitalization Total debt to capitalization1 Net debt to capitalization2 1 Defined as total debt (including 100% of Egypt limited recourse debt facilities) divided by total capitalization. 2 Defined as total debt (including 100% of Egypt limited recourse debt facilities) less cash and cash equivalents divided by total capitalization less cash and cash equivalents. 2015 2014 $ $ 255 400 655 1,185 351 1,536 249 1,720 3,505 $ $ 952 400 1,352 1,333 389 1,722 267 1,786 3,775 44% 39% 46% 27% 2015 Methanex Corporation Annual Report 21 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 have employed include the issue or repayment of general corporate debt, the issue of project debt, 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 and TSARs. We operate in a highly competitive commodity industry and believe that it is appropriate to maintain a strong balance sheet and retain financial flexibility. As at December 31, 2015, we had a cash balance of $255 million, access to a $400 million undrawn credit facility and no term debt maturities until 2019. We invest our cash only in highly rated instruments that have maturities of three months or less to ensure preservation of capital and appropriate liquidity. We have covenant and default provisions under our long-term debt obligations and we also have certain covenants that could restrict access to the credit facility. The covenants governing the unsecured notes, which are specified in an indenture, apply to the Company and its subsidiaries, excluding the Egypt entity, and include restrictions on liens, sale and lease-back transactions, a merger or consolidation with another corporation or sale of all or substantially all of our assets. The indenture also contains customary default provisions. The significant covenants and default provisions under the credit facility include: a) the obligation to maintain an EBITDA to interest coverage ratio of greater than 2:1 calculated on a four-quarter trailing basis and a debt to capitalization ratio of less than or equal to 55%, both ratios calculated 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 a creditor on any indebtedness of $50 million or more of the Company and its subsidiaries, except for the limited recourse subsidiaries, and c) a default if a default occurs that permits a 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 Egypt limited recourse debt facilities have covenants and default provisions that apply only to the Egypt entity, including restrictions on the incurrence of additional indebtedness and requirement to fulfill certain conditions before the payment of cash or other shareholder distributions. Certain conditions have not been met, resulting in a restriction on shareholder distributions from the Egypt entity. As at December 31, 2015, the Egypt cash balance on a 100% ownership basis was $99 million. The Egypt entity continues to be able to fully utilize its funds for operating, capital and financing needs, including the repayment of the Egypt limited recourse debt facilities. As at December 31, 2015, management believes the Company was in compliance with all significant terms and default provisions related to its long-term debt obligations. Our planned capital maintenance expenditure program directed towards maintenance, turnarounds and catalyst changes for existing operations is currently estimated to total approximately $50 million to the end of 2016. The remaining capital expenditures including payment of accrued liabilities related to the Geismar project are approximately $30 million. We believe we are well positioned to meet our financial and capital commitments in this time of uncertainty and leverage a recovery in methanol prices to generate strong future cash flows. Summary of Contractual Obligations and Commercial Commitments A summary of the estimated amount and estimated timing of cash flows related to our contractual obligations and commercial commitments as at December 31, 2015 is as follows: ($ Millions) Long-term debt repayments Long-term debt interest obligations Repayments of other long-term liabilities Natural gas and other Operating lease commitments 22 2015 Methanex Corporation Annual Report 2016 2017-2018 2019-2020 After 2020 Total $ 56 61 40 467 87 $ $ 97 123 24 796 123 459 109 22 522 87 $ 945 481 171 1,230 209 $ 1,557 774 257 3,015 506 $ 711 $ 1,163 $ 1,199 $ 3,036 $ 6,109 Long-Term Debt Repayments and Interest Obligations We have $350 million of unsecured notes that mature in 2019, $250 million of unsecured notes that mature in 2022, $300 million of unsecured notes that mature in 2024 and $300 million of unsecured notes that mature in 2044. The remaining debt repayments represent the total expected principal repayments relating to the Egypt project debt 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, 2015. For additional information, refer to note 8 of our 2015 consolidated financial statements. Repayments of Other Long-Term Liabilities Repayments of other long-term liabilities represent contractual payment dates or, if the timing is not known, we have estimated the timing of repayment based on management’s expectations. Natural Gas and Other We have commitments under take-or-pay contracts to purchase natural gas, to pay for transportation capacity related to this natural gas and to purchase oxygen and other feedstock requirements. Take-or-pay means that we are obliged to pay for the supplies regardless of whether we take delivery. Such commitments are 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 above represent only the minimum take-or-pay quantity. The natural gas supply contracts for our facilities in New Zealand, Trinidad, Egypt and for one of our facilities in the United States 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 throughout the methanol price cycle. 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 to support the Medicine Hat facility. 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 volume and prices. The above table does not include costs for planned capital maintenance or expansion expenditures or any obligations with original maturities of less than one year. We have supply contracts with Argentine suppliers for natural gas sourced from Argentina for a significant portion of the capacity for our 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. Under the current circumstances, the Company does not expect to receive any further natural gas supply from Argentina under these long-term arrangements. These potential purchase obligations have been excluded from the table above. We also have supply contracts with Empresa Nacional del Petróleo (“ENAP”) for a portion of the capacity for our facilities in Chile. Over the last few years ENAP has delivered significantly less than the full amount of natural gas than it was obligated to deliver under these contracts. These potential purchase obligations have been excluded from the table above. We have marketing rights for 100% of the production from our jointly owned Atlas and Egypt plants which results in purchase commitments of an additional 1.3 million tonnes per year of methanol offtake supply when these plants operate at capacity. As at December 31, 2015, the Company also had commitments to purchase methanol from other suppliers for approximately 1.1 million tonnes for 2016 and thereafter. The pricing under these purchase commitments is referenced to pricing at the time of purchase or sale, and accordingly, no amounts have been included in the table above. Operating Lease Commitments We have future minimum lease payments under operating leases relating primarily to vessel charter, terminal facilities, office space and equipment. We have entered into two time charter agreements for vessels which are currently under construction and expected to be delivered in 2016. The minimum lease payments under these leases have been excluded from the operating lease commitments table above as, once delivered, an asset and liability will be recognized at the lower of fair value and the present value of the minimum lease payments. This is estimated to be approximately $50 million per vessel. We also have future minimum lease 2015 Methanex Corporation Annual Report 23 payments under operating leases related to three time charter agreements for vessels which are currently under construction and expected to be delivered in 2016. The minimum lease payments under these leases have been excluded from the operating lease commitments table above as the contracts contain certain cancellation features which are dependent on the delivery of the vessels. Once delivered, these vessels will have a total minimum commitment of approximately $50 million per vessel. Off-Balance Sheet Arrangements As at December 31, 2015, we did not have any off-balance sheet arrangements, as defined by applicable securities regulators in Canada and the United States, that have, or are reasonably likely to have, a current or future material effect on our results of operations or financial condition. Financial Instruments A financial instrument is any contract that gives rise to a financial asset of one party and a financial liability or equity instrument of another party. Financial instruments are either measured at amortized cost or fair value. In the normal course of business, the Company’s assets, liabilities and forecasted transactions, as reported in U.S. dollars, are impacted by various market risks including, but not limited to, natural gas prices and currency exchange rates. The time frame and manner in which the Company manages those risks varies for each item based on the Company’s assessment of the risk and the available alternatives for mitigating risks. The Company uses derivatives as part of its risk management program to mitigate variability associated with changing markets values. Changes in fair value of derivative financial instruments are recorded in earnings unless the instruments are designated as cash flow hedges, in which case the changes in fair value are recorded in other comprehensive income and are reclassified to profit or loss when the underlying hedged transaction is recognized in earnings. The Company designates as cash flow hedges derivative financial instruments to hedge its risk exposure to fluctuations in natural gas prices and to hedge its risk exposure to fluctuations in the euro compared to the U.S. dollar. The following table shows the carrying value of each of our categories of financial assets and liabilities and the related balance sheet item as at December 31, 2015 and December 31, 2014: ($ Millions) Financial assets: Financial assets measured at fair value: Derivative instruments designated as cash flow hedges1 Financial assets not measured at fair value: Cash and cash equivalents Trade and other receivables, excluding tax receivable Project financing reserve accounts included in other assets Total financial assets2 Financial liabilities: Financial liabilities not measured at fair value: Trade, other payables and accrued liabilities, excluding tax payable Deferred gas payments included in other long-term liabilities Long-term debt, including current portion Financial liabilities measured at fair value: Derivative instruments designated as cash flow hedges1 Total financial liabilities 2015 2014 $ 1 $ 1 255 483 33 772 $ 952 394 37 $ 1,384 $ 457 $ – 1,536 486 56 1,722 43 6 $ 2,036 $ 2,270 1 The Geismar 2 natural gas hedges and euro foreign currency hedges 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. As at December 31, 2015, all of the financial instruments were recorded on the consolidated statements of financial position at amortized cost with the exception of derivative financial instruments, which are recorded at fair value unless exempted. The fair value of derivative instruments is determined based on industry-accepted valuation models using market observable inputs and are classified within Level 2 of the fair value hierarchy. The fair value of all the Company’s derivative contracts includes an 24 2015 Methanex Corporation Annual Report adjustment for credit risk. The effective portion of the changes in fair value of derivative financial instruments designated as cash flow hedges is recorded in other comprehensive income. The spot element of forward contracts in the hedging relationships is recorded in other comprehensive income as the change in fair value of cash flow hedges. The change in the fair value of the forward element of forward contracts is recorded separately in other comprehensive income as the forward element excluded from hedging relationship. The Company has elected to manage its exposure to changes in natural gas prices for the Geismar 2 facility by executing a number of forward contracts which it has designated as cash flow hedges for its highly probable forecast natural gas purchases in North America. During 2015, we entered into forward contracts to hedge natural gas prices for approximately 40% of the natural gas requirements of our Geismar 2 facility for a 10-year period. The Company also designates as cash flow hedges forward exchange contracts to sell euros at a fixed U.S. dollar exchange rate to hedge its exposure to exchange rate fluctuations on certain foreign currency denominated revenues. 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 34, to be among the most important for understanding the issues that face our business and our approach to risk management. Methanol Price The methanol business is a highly competitive commodity industry and prices are affected by supply and demand fundamentals. Methanol prices have historically been, and are expected to continue to be, characterized by cyclicality. Factors influencing supply and demand for methanol and related risks are found below. We are not able to predict future methanol supply and demand balances, 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 has a significant negative effect on our results of operations and financial condition. Methanol Demand Demand for methanol largely depends upon the level of energy prices, global economic growth rates and government regulations and policies. Energy Prices Approximately 40% of methanol demand is from energy-related applications. Over the past six to seven years, methanol demand growth has been led by strong demand from these applications, as relatively high oil prices generated an economic incentive to substitute lower cost methanol for petroleum products or as a feedstock in energy-related products. The fastest growing application where methanol serves as a substitute for an energy product is MTO, where methanol is an alternative to naphtha as a feedstock in the production of olefins. Methanol can be blended directly with gasoline, and DME (a methanol derivative) can be blended with liquefied petroleum gas (propane). Because of this substitutability, methanol demand is sensitive to the pricing of these energy products, which in turn are generally linked to global energy prices. A steep drop in oil and related energy product prices during 2015 lowered the affordability for methanol into certain energy- related applications and this has had led to a significant decline in methanol pricing. Low oil prices have continued into early 2016. We cannot provide assurance that energy pricing will not continue to decline or will recover from current levels or that methanol demand growth will not be affected. We cannot provide assurance that low oil prices will not persist for a sustained period of time. These factors could have an adverse effect on our results of operations and financial condition. Global Economic Growth Rates Approximately 60% of methanol demand is from traditional chemical applications. As these applications manufacture products used in a wide variety of industrial products and consumer goods, the rate of growth in demand for methanol from these applications tends to be correlated with overall global economic growth. Any slowdown in the global or regional economies can negatively impact demand for methanol and have a detrimental impact on methanol prices. 2015 Methanex Corporation Annual Report 25 In 2015, a slowdown in global growth rates, particularly in China, contributed to lower than expected methanol demand into traditional applications. Slower overall growth rates have persisted into the first quarter of 2016 and it is uncertain how long the current weak economic environment will last or how severe it may become. Government Regulations and Policies Changes in environmental, health and safety laws, regulations or requirements could impact methanol demand. The United States Environmental Protection Agency (“EPA”) is currently evaluating the human health effects of methanol as part of a standard review of chemicals under its Integrated Risk Information System (“IRIS”), a database of chemical health effects. No authoritative body has classified methanol as a carcinogen. A draft assessment for methanol was released by the EPA in 2010 classifying methanol as “Likely to Be Carcinogenic to Humans.” In 2011, the EPA divided the draft assessment for methanol into cancer and non-cancer assessments. In September 2013, the EPA released the final non-cancer assessment, in which it established the maximum ingestion and inhalation levels for methanol that it claims will not result in adverse health impacts. The timeline for the final cancer assessment remains unknown, and no activity on the cancer assessment for methanol is currently contained on the EPA’s work plan. We are unable to determine whether the current draft classification will be maintained in the final cancer assessment or if this will lead other government agencies to reclassify methanol. Any reclassification could reduce future methanol demand, which could have an adverse effect on our results of operations and financial condition. In 2015, methanol demand for the production of formaldehyde represented approximately 30% of global demand. The largest use for formaldehyde is as a component of urea-formaldehyde and phenol-formaldehyde resins, which are used in 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. In 2010, the EPA released its draft formaldehyde assessment, proposing formaldehyde as “Known to be Carcinogenic to Humans.” The EPA IRIS assessment will likely be impacted by the recent listing of formaldehyde as “Known to be Human Carcinogen” issued under the National Toxicology Program’s (NTP) Report on Carcinogens. EPA uses IRIS assessments as a basis for regulatory actions such as restricting emissions from products containing formaldehyde. The release of the final assessment of formaldehyde is not expected prior to the second half of 2016. In 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 was the first part of an update of the 2004 NCI study that indicated possible links between formaldehyde exposure and nasopharyngeal cancer and leukemia. The International Agency for Research on Cancer also concluded that there is sufficient evidence in humans of a causal association of formaldehyde with leukemia. In 2011, the U.S. Department of Health and Human Services’ National Toxicology Program 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.” We are unable to determine at this time if the EPA 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. Methanol Supply An increase in competitively priced methanol supply, all else equal, can displace supply from higher cost producers and have a negative impact on methanol price. Methanol supply is influenced by the cost of production including the availability and cost of raw materials, freight costs, capital costs and government policies. Methanol supply can become available from the construction of new methanol plants, by restarting idle methanol plants, by carrying out major expansions of existing plants or by debottlenecking existing plants to increase their production capacity. 26 2015 Methanex Corporation Annual Report In 2015, lower gas and coal feedstock costs for methanol in China, as well as a devaluation of the Chinese currency, increased the competitiveness of Chinese production. This, combined with three million tonnes of new capacity in China and the introduction of three world-scale methanol plants in the United States, totaling over three million tonnes of production capacity, had the impact of lowering the methanol cost curve. Over the next few years, outside of China, the majority of new capacity additions are expected in the Atlantic Basin and the Middle East. OCI N.V. is constructing a 1.8 million tonne plant in Beaumont, Texas and in Iran, the 2.5 million tonne Kaveh plant is under construction, although timing of start-up and future operating rates at these facilities will be dependent on various factors. To the end of 2017, we expect approximately three to four million tonnes of new capacity to be added in China. Beyond 2017, we anticipate that new capacity additions in China will be modest due to an increasing degree of restrictions placed on new coal-based methanol capacity additions in that country. There are a number of other projects under discussion in the United States, but with limited committed capital to date and no projects that we are aware of in the construction phase. 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. We cannot provide assurance that new supply additions will not outpace the level of future demand growth thereby contributing to negative pressure on methanol price. 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. New Zealand We have three plants in New Zealand with a total production capacity of up to 2.4 million tonnes of methanol per year, depending on natural gas composition. Two plants are located at Motunui and the third is located at nearby Waitara Valley. We have entered into several agreements with various suppliers to underpin our New Zealand operations with terms that range in length up to 2022. All agreements in New Zealand are take-or-pay agreements and include U.S. dollar base and variable price components where the variable price component 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. Certain of these contracts require the supplier to deliver a minimum amount of natural gas with additional volume dependent on the success of exploring and developing the related natural gas field. We continue to pursue opportunities to contract additional natural gas to supply our plants in New Zealand. The future operation of our New Zealand facilities depends on the ability of our contracted suppliers to meet their commitments and the success of ongoing exploration and development activities in the region. We cannot provide assurance that our contracted suppliers will be able to meet their commitments or that their ongoing exploration and development activities in New Zealand will be successful to enable our operations to operate at capacity. We cannot provide assurance that we be able to obtain natural gas with the optimum composition. These factors could have an adverse impact on our results of operations and financial condition. United States During 2015, both of our Geismar facilities commenced first methanol production: Geismar 1 in the first quarter and Geismar 2 late in the fourth quarter of 2015. Each facility has added an incremental 1.0 million tonnes to our annual operating capacity. We have a 10-year take-or-pay agreement for the supply of all of the natural gas requirements for the Geismar 1 facility. Under the contract, the supplier is obligated to supply, and we are obliged to take or pay for, a specified annual quantity of natural gas. The price paid for gas is based on a U.S. dollar base price plus a variable price component where the variable price component is adjusted by a formula related to methanol prices above a certain level. During 2015, we entered into forward contracts to hedge natural gas prices for the Geismar 2 facility for a 10-year period. We have hedged approximately 40% of the natural gas requirements and continue to pursue opportunities to contract additional natural gas to supply the facility. 2015 Methanex Corporation Annual Report 27 We believe that the long-term natural gas dynamics in North America will support the long-term operations of these facilities; however, we cannot provide assurance that we will be able to secure additional natural gas on commercially acceptable terms and this could have an adverse impact on our results of operations and financial condition. Trinidad Natural gas for our two methanol production facilities in Trinidad, with our share of total production capacity being 2.0 million tonnes per year, is supplied under take-or-pay contracts with the National Gas Company of Trinidad and Tobago Limited (“NGC”), which purchases the natural gas from upstream gas producers. Gas paid for, but not taken, in any year may be received in subsequent years subject to limitations. The contracts for Titan and Atlas have U.S. dollar base and variable price components, where the variable portion is adjusted by a formula related to methanol prices above a certain level. The contract for Atlas expires in 2024 and the contract for Titan expires in 2019. We believe the supply and demand fundamentals for natural gas supply in Trinidad will support the continued operation of these facilities. Since 2011, large industrial consumers in Trinidad, including our Titan and Atlas facilities, have experienced periodic curtailments of natural gas supply due to a mismatch between upstream supply to NGC and downstream demand from NGC’s customers, which becomes apparent when an upstream supplier has a technical issue or planned maintenance that reduces gas delivery. We are engaged with key stakeholders to find a solution to this issue, but in the meantime expect to continue to experience some gas curtailments to our Trinidad facilities. We cannot provide assurance that our contracted suppliers will be able to fully meet their commitments, 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. These factors could have an adverse impact on our results of operations and financial condition. Egypt We have a 25-year, take-or-pay natural gas supply agreement for the 1.26 million tonne per year methanol plant in Egypt in which we have a 50% equity interest. The price paid for gas is based on a U.S. dollar base price plus a variable price component that is adjusted by a formula related to methanol prices above a certain level. Under the contract, the gas supplier is obligated to supply, and we are obliged to take or pay for, a specified annual quantity of natural gas. Gas paid for, but not taken, in any year may be received in subsequent years subject to limitations. In addition, the natural gas supply agreement has a mechanism whereby we are partially compensated when gas delivery shortfalls in excess of a certain threshold occur (the “Egypt gas contract recoveries”). 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. The Egypt facility began experiencing periodic, and at times significant, natural gas supply constraints in mid-2012 and since that time has operated below full capacity. Since 2011, Egypt’s government experienced transitions, which has resulted in ongoing civil unrest, including acts of sabotage, political uncertainty and an adverse impact on the country’s economy, and, at times, our operations in Egypt. We believe that these factors are contributing to constraints in the development of new supplies of natural gas coming to market, the delivery of natural gas and an increase in the use of domestically-produced natural gas instead of more expensive imported energy for the purpose of generating domestic electricity, particularly during the summer months when electricity demand is at its peak. These factors have led to frequent natural gas supply restrictions to the Methanex Egypt facility which became more significant in 2014 and 2015. In 2015, natural gas restrictions extended for substantial periods of time outside the peak Egyptian summer electricity consumption period and our total production for the year was reduced to 148,000 metric tonnes in 2015 from 832,000 metric tonnes in 2014. This situation may persist in the future. We cannot provide assurance that we will not experience longer or greater than anticipated natural gas restrictions and that this would not have an adverse impact on our results of operations and financial condition. Canada We have a program in place to purchase natural gas for the 0.6 million tonnes per year Medicine Hat facility on the Alberta gas market. We have entered into fixed price contracts to supply 90% of our gas requirements for the facility for 2016, 70% of our requirements for 2017 and approximately 50% of our gas requirements for 2018 and 2019. The future operation of our Medicine Hat facility depends on methanol industry supply and demand fundamentals and our ability to secure sufficient natural gas on commercially acceptable terms. We continue to pursue opportunities to contract additional natural 28 2015 Methanex Corporation Annual Report gas to supply the facility. If, however, we are unable to secure such arrangements, we believe that the long-term natural gas dynamics in North America will support the long-term operations of this facility. We cannot provide assurance that we will be able to continue to secure sufficient natural gas for our Medicine Hat facility on commercially acceptable terms and that this will not have an adverse impact on our results of operations and financial condition. Chile In June 2007, our natural gas suppliers from Argentina curtailed all gas supplied to our plants in Chile pursuant to our long-term gas supply agreements. Under the current circumstances, we do not expect to receive any further natural gas supply from Argentina under those long-term gas supply agreements. In 2015, we continued to receive some natural gas from Argentina pursuant to a tolling agreement whereby the Company converts the natural gas received into methanol and then re-delivers the methanol to Argentina. Approximately 60% during 2014 and 35% during 2015 of the Chile production was produced using natural gas supplied from Argentina under this arrangement. Since 2007, all of the methanol production at our Chile facilities, other than the natural gas received under the tolling arrangements, has been produced from Chilean natural gas. Entering 2016, we are operating one of the two plants at less than capacity. During 2015, Empresa Nacional del Petróleo made significant investments in the development of natural gas from unconventional reservoirs and increased gas deliveries to one of our facilities in Chile. However, the potential for a sustained increase in gas deliveries to our plants remains challenging given the uncertainty of price and economics of the recent gas discoveries. Since 2013, due to insufficient natural gas feedstock from Chile and Argentina, we have not operated our plant during the southern hemisphere winter when residential energy demand is at its peak. While the continued operation of the Chile plants through the 2016 southern hemisphere winter is possible, we believe it is unlikely based on the current projections of gas availability. The future of our Chile operations is primarily dependent on the level of exploration and development in southern Chile and our ability to secure a sustainable natural gas supply to our facilities on economic terms from Chile and Argentina. We cannot provide assurance that we will be able to continue to secure a sustainable natural gas supply to our facilities on economic terms to operate our Chile operations and that this will not have an adverse impact on our results of operations or financial condition. Global Economic Conditions In addition to the potential influence of global economic activity levels on methanol demand and price, changing global economic conditions can result in changes in capital markets. A deterioration in economic conditions could have a negative impact on our investments, diminish our ability to access existing or future credit and increase the risk of defaults by customers, suppliers, insurers and other counterparties. Foreign Operations A significant portion of our operations and investments are located outside of North America, in New Zealand, Trinidad, Egypt, Chile, 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, sabotage, 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. In Egypt, in January 2016, in what we believe was an act of sabotage, a large gas pipeline in the Damietta area was damaged resulting in a curtailment of gas supply to large gas-consuming facilities, including our plant. Many of the foregoing risks related to foreign operations may also exist for our domestic operations in North America. Because we derive a significant portion 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. 2015 Methanex Corporation Annual Report 29 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, capital expenditures and purchases of methanol, 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, the Egyptian pound and the Chinese yuan. 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, operating expenses and capital expenditures. A portion of our revenue is earned in euros, Canadian dollars and Chinese yuan. 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. Trade in methanol is subject to duty in a number of jurisdictions. Methanol sold in China from any of our producing regions is currently subject to duties ranging from 0% to 5.5%. Currently, the costs we incur in respect of duties are not significant. However, there can be no assurance that the duties that we are currently subject to will not increase, that duties will not be levied in other jurisdictions in the future or that we will be able to mitigate the impact of future duties, if levied, or that future duties will not have a significant negative effect. In 2010, the Chinese Ministry of Commerce (“the Ministry”) investigated allegations made by domestic Chinese producers related to the dumping into China of imported methanol. In December 2010, the Ministry recommended that duties of approximately 9% be imposed on methanol imports from New Zealand, Malaysia and Indonesia for five years starting from December 24, 2010. However, such dumping duties were suspended with the effect that methanol was allowed to be imported from these countries without the imposition of additional duties. In December 2015, the Ministry officially terminated the anti-dumping investigation on methanol. Methanol is a globally traded commodity that is produced by many producers at facilities located around the world. Some producers and marketers may have direct or indirect contacts with countries that may, from time to time, be subject to international trade sanctions or other similar prohibitions (“Sanctioned Countries”). In addition to the methanol we produce, we purchase methanol from third parties under purchase contracts or on the spot market in order to meet our commitments to customers, and we also engage in product exchanges with other producers and marketers. We believe that we are in compliance with all applicable laws with respect to sales and purchases of methanol and product exchanges. However, as a result of the participation of Sanctioned Countries in our industry, we cannot provide assurance that we will not be exposed to reputational or other risks that could have an adverse impact on our results of operations and financial condition. Liquidity Risk As at December 31, 2015, we had a cash balance of $255 million, including $50 million relating to the non-controlling interest in Egypt, and an undrawn $400 million revolving credit facility with a syndicate of banks. The facility expires in December 2019 and our ability to maintain access to the facility is subject to meeting certain financial covenants, including an EBITDA to interest coverage ratio and a debt to capitalization ratio, both ratios calculated in accordance with definitions in the credit agreement that include adjustments related to the Company’s limited recourse subsidiaries. As previously described in the Liquidity and Capital Resources – Liquidity and Capitalization section on page 21, there is currently a restriction on shareholder distributions from the Egypt entity; however the Egypt entity continues to be able to fully utilize its funds for operating, capital and financing needs, including the repayment of the Egypt limited recourse debt facilities. As at December 31, 2015, our long-term debt obligations include $1,200 million in unsecured notes ($350 million that matures in 2019, $250 million that matures in 2022, $300 million that matures in 2024 and $300 million that matures in 2044), $330 million related to the Egypt limited recourse debt facilities (100% basis) and $21 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 Egypt entity, and include restrictions on liens, sale and lease-back transactions, a 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 Egypt limited recourse debt facilities are described as limited recourse as they are secured only by the assets of the Egypt entity. Accordingly, the lenders to the limited recourse debt facilities have no recourse to the Company or its other subsidiaries. The Egypt limited recourse debt facilities have covenants and default provisions that apply only to the Egypt entity, including restrictions on the incurrence of additional indebtedness and a requirement to fulfill certain conditions before the payment of cash or other distributions. 30 2015 Methanex Corporation Annual Report For additional information regarding long-term debt, refer to note 8 of our 2015 consolidated financial statements. We cannot provide assurance that we will be able to access new financing in the future on commercially acceptable terms or at all, 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, accelerate the due date of the principal and accrued interest on any outstanding loans or restrict the payment of cash or other distributions. Any of these factors could have a significant negative effect on our results of operations, our ability to pursue and complete strategic initiatives or on our financial condition. Customer Credit Risk In the current economic environment, the risk of trade losses has increased. 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 from operations and financial condition. Credit losses have not been significant in the past. 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 equipment breakdowns, interruptions in the supply of natural gas and other feedstocks, power failures, longer-than-anticipated planned maintenance activities, loss of port facilities, natural disasters or any other event, including unanticipated events beyond our control, that could result in a prolonged shutdown of any of our plants or impede our ability to deliver methanol to our customers. A prolonged plant shutdown at any of our major facilities could have an adverse effect on our results of operations and financial condition. Purchased Product Price Risk In addition to the sale of methanol produced at our plants, we also purchase methanol produced by others on the spot market and through purchase contracts to meet our customer commitments and support our marketing efforts. We have adopted the first-in, first-out method of accounting for inventories and it generally takes between 30 and 60 days to sell the methanol we purchase. Consequently, we have the risk of holding losses on the resale of this product to the extent that methanol prices decrease from the date of purchase to the date of sale. 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 have an adverse effect on our results of operations and financial condition as our vessel fleet is subject to fixed time charter costs. In the event we have excess shipping capacity, we may be able to mitigate some of the excess costs by entering into sub-charters or third-party backhaul arrangements, although the success of this mitigation is dependent on conditions within the broader global shipping industry. If we suffer any disruptions in our distribution system and are unable to mitigate these costs, this could have an adverse effect on our results of operations and financial condition. Insurance Risks Although we maintain operational and construction insurance, including business interruption 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. 2015 Methanex Corporation Annual Report 31 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, constructing and completing the projects within the contemplated budgets and schedules and other risks commonly associated with the design, construction and start-up of large complex industrial projects. We cannot provide assurance that we will be able to identify or develop new methanol projects. Environmental Regulation The countries in which we operate all have laws and regulations to which we are subject, governing the environment and the management of natural resources as well as the handling, storage, transportation and disposal of hazardous or waste materials. We are also subject to laws and regulations governing emissions and the import, export, use, discharge, storage, disposal and transportation of toxic substances. The products we use and produce are subject to regulation under various health, safety and environmental laws. Non-compliance with these laws and regulations may give rise to compliance orders, fines, injunctions, civil liability and criminal sanctions. 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 if we 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. Management of Emissions We believe that minimizing emissions and waste from our business activities is good for the environment and a good business practice. The majority of greenhouse gas (“GHG”) emissions generated from our business are in the form of carbon dioxide (“CO2”). Our operations generate CO2 emissions when fuel is consumed during the methanol production process, and when we ship methanol to our customers worldwide. The amount of CO2 generated by the methanol production process depends on the production technology (and hence often the plant age) and the feedstock. We continually strive to increase the energy efficiency of our plants, which not only reduces the use of energy but also minimizes CO2 emissions. Our CO2 emissions intensity decreased by 29% between 1994 and 2015. This was a result of some of our older plants being removed from active service. Newer, more energy efficient plants added and improved plant reliability and energy efficiency at our existing plants. Plant efficiency, and thus CO2 emissions, is highly dependent on the design of the methanol plant, so the CO2 emission figure 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 we measure the consumption of fuel by our ocean vessels based on the volume of product transported. Between 2002 and 2015, we reduced our CO2 emissions intensity (tonnes of CO2 from fuel burned per tonne of product moved) from marine operations by nearly 15%. We manufacture methanol in New Zealand, Trinidad, the United States, Egypt, Canada and Chile. While each of these countries (except the United States) signed and ratified the Kyoto Protocol, Canada has since removed itself from that agreement. The United Nations Climate Change Conference (21st meeting of the Conference of the Parties) was held in Paris in late 2015. The 195 participating countries agreed by consensus to the Paris Agreement, the aim of which is to reduce GHG emissions. The Paris Agreement will become legally binding if ratified by at least 55 countries which together represent at least 55% of global GHG emissions and would supersede the Kyoto Protocol once it comes into effect in 2020. We are not currently subject to GHG regulations in the United States, Trinidad, Egypt and Chile, but our production in New Zealand and Canada is subject to such regulations. 32 2015 Methanex Corporation Annual Report 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. In late 2015, the New Zealand government commenced a review of the ETS which may result in changes such as removal of, or reduction to, some or all of the current moderating features. The review may also result in our eligibility for free allocation of emissions units being progressively reduced. We do not expect any changes following the ETS review to have a material impact on our business. We have banked ETS credits which could be used to offset future costs in the event any changes are implemented; however, it is not possible to accurately quantify the impact on our business of ETS-related costs after 2015. We cannot provide assurance that the ETS will not have an impact on our business beyond 2015. Our Medicine Hat facility is located in the Canadian province of Alberta, which has an established GHG reduction regulation that applies to our plant. The regulation requires that facilities reduce emissions intensity by up to 12% of their established emissions intensity baseline. “Emissions intensity” means the quantity of specified GHGs released per unit of production. In order to meet the reduction obligation, a facility can choose to make emissions reduction improvements or it can purchase either offset credits or “technology fund” credits. The 2015 payment was based on a 12% emissions reduction requirement and CAD$15 per tonne of CO2 equivalent (CO2e). The 2016 payment will increase based on a 15% emissions reduction requirement and CAD$20 per tonne of CO2e. The cost of purchasing offset credits, based on the plant’s 2015 emissions intensity and its established GHG baseline intensity, was not material in 2015. Environment Canada has finalized proposed federal regulations outlining the federal CO2 requirements for the existing Medicine Hat plant and for a potential new plant. The regulation is expected to be in force in 2017. Under the proposed new regulations, a methanol plant can meet its compliance obligation by meeting the emissions intensity limits or by purchasing federal offsets. We do not anticipate duplication of regulation between the provincial and federal requirements; however, it is not possible to accurately quantify the impact of these regulations on our business. We have recently completed the process of relocating two of our idle methanol plants from Chile to Geismar, Louisiana. There is currently no GHG legislation that impacts us in the United States. We continue to monitor the development of potential GHG legislation in the United States and the state of Louisiana to ensure compliance with any potential future requirements. At this time, it is unknown what impact potential new GHG legislation or regulations could have on our operations in Geismar. 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. Reputational Risk Damage to our reputation could result from the actual or perceived occurrence of any number of events, and could include any negative publicity (for example, with respect to our handling of environmental, health or safety matters), whether true or not. Although we believe that we conduct our operations in a prudent manner and that we take care in protecting our reputation, we do not ultimately have direct control over how we are perceived by others. Reputation loss may result in decreased investor confidence, an impediment to our overall ability to advance our projects or increased challenges in maintaining our social license to operate, which could have an adverse impact on our results of operations and financial condition. Cyber Security Our business processes rely on IT systems, including internal and external communications, ordering and managing shipments of materials for our operations, coordinating transportation of our products and reporting our results. These processes are becoming more reliant on technology and more interconnected with external networks, which increases the risk of cyber security. We have been the subject of cyber attacks on our internal systems, but these incidents have not had a significant negative impact on our results of operations. Targeted attacks on our systems (or third parties that we rely on), failure of a key IT system or a breach in security measures designed to protect our IT systems could have an adverse impact on our results of operations, financial condition and reputation. Further, as cyber attacks continue to evolve, we may be required to commit additional resources to continue to modify or enhance our protective measures or to investigate and remediate any vulnerabilities to cyber attacks. 2015 Methanex Corporation Annual Report 33 Legal Proceedings The Board of Inland Revenue of Trinidad and Tobago has issued assessments against our 63.1% owned joint venture, Atlas, in respect of the 2005, 2006, 2007, 2008 and 2009 financial years. All subsequent tax years remain open to assessment. The assessments relate to the pricing arrangements of certain long-term fixed-price sales contracts from 2005 to 2019 related to methanol produced by Atlas. Atlas had partial relief from corporation income tax until 2014. We have lodged objections to the assessments. Although there can be no assurance, based on the merits of the cases and legal interpretation, we believe our 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. Certain of our accounting policies, including depreciation and amortization, recoverability of asset carrying values and income taxes require us to make assumptions about the price and availability of natural gas feedstock. See additional discussion of the risk factors and risk management by region in the Security of Natural Gas Supply and Price section on page 27. See note 2 to our 2015 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. As at December 31, 2015, the net book value of our property, plant and equipment was $3.2 billion. Capitalization Property, plant and equipment are initially recorded at cost. The cost of purchased equipment includes expenditures that are directly attributable to the purchase price, delivery and installation. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to the location and 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. As at December 31, 2015, we had accrued $30 million for site restoration costs relating to the decommissioning and reclamation of our methanol production sites. 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 current 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 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 lives of the Company’s buildings, plant installations and machinery, excluding costs related to turnarounds, range from 10 to 25 years depending on the specific asset component and the production facility to which it is related. The Company determines the estimated useful lives of individual asset components based on the shorter of its physical life or economic life. The physical life of these assets is generally longer than the economic life. The economic life is primarily determined by the nature of the natural gas feedstock available to our various production facilities. Factors that influence the nature of natural gas feedstock availability include the terms of individual natural gas supply contracts, access to natural gas supply through open markets, regional factors influencing the exploration and development of natural gas and the expected price of securing natural gas supply. We review the factors related to each production facility on an annual basis to determine if changes are required to the estimated useful lives. 34 2015 Methanex Corporation Annual Report Recoverability of Asset Carrying Values Property, Plant and Equipment Long-lived assets are tested for recoverability whenever events or changes in circumstances, either internal or external, indicate that the carrying amount may not be recoverable (“triggering events”). Examples of such triggering events 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 change in management’s intention or strategy for the asset, which includes a plan to dispose of or idle the asset; a significant adverse change in our long-term methanol price assumption or 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. When a triggering event is identified, recoverability of long-lived assets is measured by comparing the carrying value of an asset or cash-generating unit to the estimated recoverable amount, which is the higher of its estimated fair value less costs to sell or its value in use. Value in use is determined by measuring the pre-tax cash flows expected to be generated from the cash-generating unit over its estimated useful life discounted by a pre-tax discount rate. An impairment writedown is recorded if the carrying value exceeds the estimated recoverable amount. An impairment writedown recognized in prior periods for an asset or cash-generating unit is reversed if there has been a subsequent recovery in the value of the asset or cash-generating unit due to changes in events and circumstances. For the purposes of recognition and measurement of an impairment writedown or reversal, 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 from producing assets: (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, the ability for the industry to add further global methanol production capacity and earn an appropriate return on capital, 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 further asset impairment charges or by changes in depreciation and amortization rates related to property, plant and equipment. The two methanol facilities at the Company’s Chile site are considered as a single cash-generating unit (“Chile cash-generating unit”). The current carrying value of the Chile cash-generating unit is $130 million. We recorded an impairment charge in the year ended December 31, 2012 to reduce the carrying value of our Chile assets to their estimated recoverable amount. We believe that there have been significant investments in the development of natural gas resources in Chile in 2015 that provide positive indications of gas availability in the region in the medium term; however, there is still uncertainty of our ability to access sufficient natural gas supply to our two plants economically. We do not believe that there are significant changes in events or circumstances that would support the reversal of the impairment charge recorded in the year ended December 31, 2012. Income Taxes We calculate current and deferred tax provisions for each of the jurisdictions in which we operate. Actual amounts of income tax expense are not final until tax returns are filed and accepted by the relevant tax authorities. This occurs subsequent to the issuance 2015 Methanex Corporation Annual Report 35 of the financial statements and the final determination of actual amounts may not be completed for a number of years. Transactions may be challenged by tax authorities and the Company’s operations may be assessed in subsequent periods, which could result in significant additional taxes, penalties and interest. 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. Judgment is required in the application of income tax legislation. We are subject to assessments by various taxation authorities who may interpret tax legislation differently. These differences may affect the final amount or timing of the payment of taxes. 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. As at December 31, 2015, we had recognized deferred tax assets of $105 million and had $75 million of unrecognized non-capital loss carryforwards in Egypt that expire in 2016 and $446 million of unrecognized deductible temporary differences in the United States. If judgments or estimates in the determination of our current and deferred tax provision 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 The Company uses derivatives as part of its risk management program to mitigate variability associated with changing markets values. Changes in fair value of derivative financial instruments are recorded in earnings unless the instruments are designated as cash flow hedges, in which case the changes in fair value are recorded in other comprehensive income and are reclassified to profit or loss when the underlying hedged transaction is recognized in earnings. The Company designates as cash flow hedges derivative financial instruments to hedge its risk exposure to fluctuations in natural gas prices and to hedge its risk exposure to fluctuations in the euro compared to the U.S. dollar. 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. ANTICIPATED CHANGES TO INTERNATIONAL FINANCIAL REPORTING STANDARDS In May 2014, the IASB issued IFRS 15, Revenue from Contracts with Customers (“IFRS 15”) establishing a comprehensive framework for revenue recognition. The standard replaces IAS 18, Revenue and IAS 11, Construction Contracts and related interpretations and is effective for annual periods beginning on or after January 1, 2018, with early adoption permitted. The Company is in the process of determining the impact of IFRS 15 on its consolidated financial statements. In January 2016, the IASB issued IFRS 16, Leases (“IFRS 16”), which eliminates the current operating/finance lease dual accounting model for lessees and replaces it with a single, on-balance sheet accounting model, similar to the current finance lease accounting. The standard replaces IAS 17, Leases and related interpretations and is effective for annual periods beginning on or after January 1, 2019, with early application permitted. The Company is in the process of determining the impact of IFRS 16 on its consolidated financial statements. The Company does not expect that any other new or amended standards or interpretations that are effective as of January 1, 2016 will have a significant impact on the Company’s results of operations or financial position. 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 net income, Adjusted net income per common share, Adjusted revenue, cash flow from operating activities before changes in non- cash working capital and Operating income. 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. 36 2015 Methanex Corporation Annual Report 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, net income attributable to Methanex shareholders, because it excludes finance costs, finance income and other expenses, income tax expense, depreciation and amortization, mark-to-market impact of share-based compensation, gain related to the termination of a terminal services agreement and the Argentina gas settlement. Adjusted EBITDA includes an amount representing our 63.1% share of the Atlas facility and excludes the non-controlling shareholders’ interests in entities which we control but do not fully own. Adjusted EBITDA and Adjusted net income exclude the mark-to-market impact of share-based compensation related to the impact of changes in our share price on SARs, TSARs, deferred share units, restricted share units and performance share units. The mark-to- market impact related to share-based compensation that is excluded from Adjusted EBITDA and Adjusted net income is calculated as the difference between the grant-date value and the fair value recorded at each period-end. As share-based awards will be settled in future periods, the ultimate value of the units is unknown at the date of grant and therefore the grant-date value recognized in Adjusted EBITDA and Adjusted net income may differ from the total settlement cost. The following table shows a reconciliation from net income attributable to Methanex shareholders to Adjusted EBITDA: ($ Millions) Net income attributable to Methanex shareholders Finance costs Finance income and other expenses Income tax expense Depreciation and amortization Mark-to-market impact of share-based compensation Gain related to the termination of a terminal services agreement Argentina gas settlement Earnings of associate adjustment1 Non-controlling interests adjustment1 2015 2014 $ 201 $ 455 70 6 11 195 (43) (65) – 56 (30) 37 7 155 143 (38) – (42) 32 (47) Adjusted EBITDA (attributable to Methanex shareholders) $ 401 $ 702 1 These adjustments represent finance costs, finance income and other expenses, income tax expense and depreciation and amortization associated with our 63.1% interest in the Atlas methanol facility and the non-controlling interests. Adjusted Net Income and Adjusted Net Income per Common Share (Attributable to Methanex Shareholders) Adjusted net income and Adjusted net income per common share are non-GAAP measures because they exclude the mark-to-market impact of share-based compensation and the impact of certain items associated with specific identified events, including the gain related to the termination of a terminal services agreement and the Argentina gas settlement. The following table shows a reconciliation from net income attributable to Methanex shareholders to Adjusted net income and the calculation of Adjusted diluted net income per common share: ($ Millions, except number of shares and per share amounts) Net income attributable to Methanex shareholders Mark-to-market impact of share-based compensation, net of tax Gain related to the termination of a terminal services agreement, net of tax Argentina gas settlement, net of tax Adjusted net income Diluted weighted average shares outstanding (millions) Adjusted net income per common share 2015 2014 $ 201 $ 455 (34) (57) – 110 91 1.20 $ $ (31) – (27) 397 96 4.12 $ $ 2015 Methanex Corporation Annual Report 37 Adjusted Revenue (attributable to Methanex shareholders) Adjusted revenue differs from the most comparable GAAP measure, revenue, because it excludes the non-controlling interests’ share of revenue, but includes an amount representing our 63.1% share of Atlas revenue and revenue on volume marketed on a commission basis related to the 36.9% of the Atlas methanol facility and 50% of the Egypt methanol facility that we do not own. A reconciliation from revenue to Adjusted revenue is as follows: ($ Millions) Revenue Methanex share of Atlas revenue1 Non-controlling interests’ share of revenue1 Other adjustments Adjusted revenue (attributable to Methanex shareholders) 1 Excludes intercompany transactions with the Company. 2015 2014 $ 2,226 $ 3,223 308 (27) (11) 231 (181) (1) $ 2,496 $ 3,272 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. QUARTERLY FINANCIAL DATA (UNAUDITED) ($ Millions, except per share amounts) 2015 Revenue Adjusted EBITDA Adjusted net income Net income (attributable to Methanex shareholders) Adjusted net income per common share Basic net income per common share Diluted net income per common share 2014 Revenue Adjusted EBITDA Adjusted net income Net income (attributable to Methanex shareholders) Adjusted net income per common share Basic net income per common share Diluted net income per common share Three months ended Dec 31 Sep 30 Jun 30 Mar 31 $ 484 $ 527 $ 80 15 10 0.16 0.10 0.10 733 150 80 133 0.85 1.43 1.11 $ 95 23 78 0.26 0.87 0.54 730 137 66 52 0.69 0.55 0.54 $ $ 638 129 51 104 0.56 1.15 1.15 792 160 91 125 0.94 1.30 1.24 $ 577 97 21 9 0.23 0.09 0.09 968 255 160 145 1.65 1.51 1.50 $ A discussion and analysis of our results for the fourth quarter of 2015 is set out in our fourth quarter of 2015 Management’s Discussion and Analysis filed with the Canadian Securities Administrators on SEDAR at www.sedar.com and the U.S. Securities and Exchange Commission on EDGAR at www.sec.gov and is incorporated herein by reference. 38 2015 Methanex Corporation Annual Report SELECTED ANNUAL INFORMATION ($ Millions, except per share amounts) Revenue Adjusted EBITDA Adjusted net income Net income (attributable to Methanex shareholders) Adjusted net income per common share Basic net income per common share Diluted net income per common share Cash dividends declared per common share Total assets Total long-term financial liabilities CONTROLS AND PROCEDURES Disclosure Controls and Procedures 2015 2014 2013 $ 2,226 $ 3,223 $ 3,024 401 110 201 1.20 2.21 2.01 1.075 4,494 1,720 702 397 455 4.12 4.79 4.55 0.950 4,775 1,669 736 471 329 4.88 3.46 3.41 0.785 4,121 1,315 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 of December 31, 2015, 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 as of that date. 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, 2015, based on the framework set forth in Internal Control – Integrated Framework issued in 2013 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, 2015. The attestation report is included in our consolidated financial statements on page 44. Changes in Internal Control over Financial Reporting There have been no changes during the year ended December 31, 2015 to internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting. 2015 Methanex Corporation Annual Report 39 FORWARD-LOOKING STATEMENTS This 2015 Management’s Discussion and Analysis (“MD&A”) 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,” “potential,” “estimates,” “anticipates,” “aim”, “goal” or other comparable terminology and similar statements of a future or forward-looking nature identify forward-looking statements. More particularly, and without limitation, any statements regarding the following are forward-looking statements: (cid:2) expected demand for methanol and its derivatives, (cid:2) expected new methanol supply or restart of idled capacity and timing for start-up of the same, (cid:2) 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, (cid:2) expected methanol and energy prices, (cid:2) expected levels of methanol purchases from traders or other third parties, (cid:2) our ability to meet covenants or obtain or continue to obtain waivers associated with our long-term debt obligations, including, without limitation, the Egypt limited recourse debt facilities that have conditions associated with the payment of cash or other distributions and the finalization of certain land title registration and related mortgages which require actions by Egyptian governmental entities, (cid:2) expected impact on our results of operations in Egypt or our financial condition as a consequence of civil unrest, acts of sabotage or actions taken or inaction by the Government of Egypt and its agencies, (cid:2) expected levels, timing and availability of economically (cid:2) our shareholder distribution strategy and anticipated priced natural gas supply to each of our plants, distributions to shareholders, (cid:2) capital committed by third parties towards future natural gas exploration and development in the vicinity of our plants, (cid:2) our expected capital expenditures, (cid:2) anticipated operating rates of our plants, (cid:2) commercial viability and timing of, or our ability to execute, future projects, plant restarts, capacity expansions, plant relocations or other business initiatives or opportunities, (cid:2) our financial strength and ability to meet future financial commitments, (cid:2) expected operating costs, including natural gas feedstock (cid:2) expected global or regional economic activity (including costs and logistics costs, industrial production levels), (cid:2) expected tax rates or resolutions to tax disputes, (cid:2) expected cash flows, earnings capability and share price, (cid:2) availability of committed credit facilities and other financing, (cid:2) expected outcomes of litigation or other disputes, claims and assessments, and (cid:2) expected actions of governments, government agencies, gas suppliers, courts, tribunals or other third parties. We believe that we have a reasonable basis for making such forward-looking statements. The forward-looking statements in this document are based on our experience, our perception of trends, current conditions and expected future developments as well as other factors. Certain material factors or assumptions were applied in drawing the conclusions or making the forecasts or projections that are included in these forward-looking statements, including, without limitation, future expectations and assumptions concerning the following: (cid:2) the supply of, demand for and price of methanol, methanol derivatives, natural gas, coal, oil and oil derivatives, (cid:2) our ability to procure natural gas feedstock on commercially acceptable terms, (cid:2) operating rates of our facilities, (cid:2) the establishment of new fuel standards, (cid:2) operating costs, including natural gas feedstock and logistics costs, capital costs, tax rates, cash flows, foreign exchange rates and interest rates, (cid:2) the availability of committed credit facilities and other (cid:2) receipt or issuance of third-party consents or approvals, financing, including, without limitation, governmental registrations of (cid:2) global and regional economic activity (including industrial land title and related mortgages in Egypt and governmental production levels), approvals related to rights to purchase natural gas, 40 2015 Methanex Corporation Annual Report (cid:2) absence of a material negative impact from major natural disasters, (cid:2) absence of a material negative impact from political instability in the countries in which we operate, and (cid:2) absence of a material negative impact from changes in laws (cid:2) enforcement of contractual arrangements and ability to or regulations, perform contractual obligations by customers, natural gas and other suppliers and other third parties. However, forward-looking statements, by their nature, involve risks and uncertainties that could cause actual results to differ materially from those contemplated by the forward-looking statements. The risks and uncertainties primarily include those attendant with producing and marketing methanol and successfully carrying out major capital expenditure projects in various jurisdictions, including, without limitation: (cid:2) conditions in the methanol and other industries, including fluctuations in the supply, demand and price for methanol (cid:2) competing demand for natural gas, especially with respect to domestic needs for gas and electricity in Chile and Egypt, and its derivatives, including demand for methanol for energy uses, (cid:2) the price of natural gas, coal, oil and oil derivatives, (cid:2) actions of governments and governmental authorities, including, without limitation, implementation of policies or other measures that could impact the supply of or demand (cid:2) our ability to obtain natural gas feedstock on commercially acceptable terms to underpin current operations and future for methanol or its derivatives, (cid:2) changes in laws or regulations, production growth opportunities, (cid:2) import or export restrictions, anti-dumping measures, (cid:2) the ability to carry out corporate initiatives and strategies, increases in duties, taxes and government royalties, and (cid:2) actions of competitors, suppliers and financial institutions, (cid:2) conditions within the natural gas delivery systems that may prevent delivery of our natural gas supply requirements, other actions by governments that may adversely affect our operations or existing contractual arrangements, (cid:2) worldwide economic conditions, and (cid:2) other risks described in this 2015 MD&A. Having in mind these and other factors, investors and other readers are cautioned not to place undue reliance on forward-looking statements. They are not a substitute for the exercise of one’s own due diligence and judgment. The outcomes implied in forward-looking statements may not occur and we do not undertake to update forward-looking statements except as required by applicable securities laws. 2015 Methanex Corporation Annual Report 41 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 of the effectiveness of our internal control over financial reporting based on the internal control framework set out in Internal Control – Integrated Framework (2013) 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, 2015. The Board of Directors (“the Board”) 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 of the Company’s financial statements, news releases and securities filings; the financial reporting process; the systems of internal accounting and financial controls; the professional qualifications and independence of the external auditor; the performance of the external auditors; risk management processes; financing plans; pension plans; and the Company’s compliance with ethics policies and legal and regulatory requirements. The Committee meets regularly with management and the Company’s auditors, KPMG LLP, Chartered Professional 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. A. Terence Poole Chairman of the Audit, Finance and Risk Committee March 7, 2016 John Floren Ian Cameron President and Chief Executive Officer Senior Vice President, Finance and Chief Financial Officer 42 2015 Methanex Corporation Annual Report Report of Independent 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 of December 31, 2015 and December 31, 2014 and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for the years then ended. 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 of December 31, 2015 and December 31, 2014, and its consolidated financial performance and its consolidated cash flows for the years then ended 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, 2015, based on the criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 7, 2016 expressed an unqualified opinion on the effectiveness of Methanex Corporation’s internal control over financial reporting. Chartered Professional Accountants Vancouver, Canada March 7, 2016 2015 Methanex Corporation Annual Report 43 Report of Independent Registered Public Accounting Firm 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, 2015, based on criteria established in Internal Control – Integrated Framework (2013) 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 accompanying “Management’s Annual Report on Internal Control over Financial Reporting”. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition 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, 2015, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. We also have audited, in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of financial position of the Company as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the years then ended and our report dated March 7, 2016 expressed an unqualified (unmodified) opinion on those consolidated financial statements. Chartered Professional Accountants Vancouver, Canada March 7, 2016 44 2015 Methanex Corporation Annual Report Consolidated Statements of Financial Position (thousands of US dollars, except number of common shares) As at ASSETS Current assets: Cash and cash equivalents Trade and other receivables (note 3) Inventories (note 4) Prepaid expenses Non-current assets: Property, plant and equipment (note 5) Investment in associate (note 6) Other assets (note 7) LIABILITIES AND EQUITY Current liabilities: Trade, other payables and accrued liabilities Current maturities on long-term debt (note 8) Current maturities on other long-term liabilities (note 9) Non-current liabilities: Long-term debt (note 8) Other long-term liabilities (note 9) Deferred income tax liabilities (note 15) 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, 2015 were 89,671,198 (2014 – 92,326,487) Contributed surplus Retained earnings Accumulated other comprehensive loss Shareholders’ equity Non-controlling interests Total equity Commitments and contingencies (notes 6 and 21) See accompanying notes to consolidated financial statements. Approved by the Board: Dec 31 2015 Dec 31 2014 $ 254,934 $ 951,600 504,350 253,234 19,560 404,363 306,802 23,137 1,032,078 1,685,902 3,158,782 224,165 79,018 3,461,965 2,778,078 216,235 95,125 3,089,438 $ 4,494,043 $ 4,775,340 $ 508,639 $ 566,881 47,864 25,439 581,942 1,488,026 231,745 223,757 1,943,528 509,464 2,426 1,235,615 (27,776) 1,719,729 248,844 1,968,573 193,831 59,118 819,830 1,528,207 140,861 233,225 1,902,293 521,022 2,803 1,262,961 (413) 1,786,373 266,844 2,053,217 $ 4,494,043 $ 4,775,340 A. Terence Poole (Director) John Floren (Director) 2015 Methanex Corporation Annual Report 45 Consolidated Statements of Income (thousands of US dollars, except number of common shares and per share amounts) For the years ended December 31 Revenue Cost of sales and operating expenses (note 10) Depreciation and amortization (note 10) Gain on termination of terminal services agreement Argentina gas settlement Operating income Earnings of associate (note 6) Finance costs (note 11) Finance income and other expenses Income before income taxes Income tax expense (note 15): Current Deferred Net income Attributable to: Methanex Corporation shareholders Non-controlling interests Income per share for the period attributable to Methanex Corporation shareholders: Basic net income per common share (note 12) Diluted net income per common share (note 12) Weighted average number of common shares outstanding Diluted weighted average number of common shares outstanding See accompanying notes to consolidated financial statements. 2015 2014 $ 2,225,602 $ 3,223,399 (1,857,899) (194,849) 65,000 – 237,854 51,842 (69,859) (6,487) 213,350 (5,487) (5,510) (10,997) 202,353 200,617 1,736 202,353 2.21 2.01 90,647,860 91,345,723 $ $ $ $ $ (2,425,821) (142,738) – 42,000 696,840 9,132 (37,042) (7,285) 661,645 (79,865) (75,472) (155,337) 506,308 454,610 51,698 506,308 4.79 4.55 94,996,094 96,193,981 $ $ $ $ $ 46 2015 Methanex Corporation Annual Report Consolidated Statements of Comprehensive Income (thousands of US dollars) For the years ended December 31 Net income Other comprehensive (loss) income: Items that may be reclassified to income: Change in fair value of cash flow hedges (note 18) Forward elements excluded from hedging relationship (note 18) Change in fair value of interest rate swap contracts Realized loss on interest rate swap contracts reclassified to finance costs Items that will not be reclassified to income: Actuarial (losses) gains on defined benefit pension plans (note 20(a)) Taxes on above items Comprehensive income Attributable to: Methanex Corporation shareholders Non-controlling interests See accompanying notes to consolidated financial statements. 2015 2014 $ 202,353 $ 506,308 (39,731) (2,826) (12) 3,205 (1,371) 13,427 (27,308) 175,045 172,191 2,854 175,045 $ $ $ 1,306 – 412 13,181 32 (4,501) 10,430 516,738 459,773 56,965 516,738 $ $ $ 2015 Methanex Corporation Annual Report 47 Consolidated Statements of Changes in Equity (thousands of US dollars, except number of common shares) Number of common shares Capital stock Contributed surplus Retained earnings Accumulated other comprehensive loss Shareholders’ equity Non-controlling interests Total equity Balance, December 31, 2013 96,100,969 $ 531,573 $ 4,994 $ 1,126,700 $ (5,544) $ 1,657,723 $ 247,610 $ 1,905,333 Net income Other comprehensive income Compensation expense recorded for stock options Issue of shares on exercise of – – – – – – stock options 536,724 10,657 – – 777 – Reclassification of grant-date fair value on exercise of stock options Payments for shares repurchased Dividend payments to Methanex Corporation shareholders ($0.95 per common share) Distributions made and accrued to non-controlling interests Equity contributions by non- controlling interests – 2,968 (2,968) (4,311,206) (24,176) – – – – – – – – – – 454,610 – 454,610 51,698 506,308 32 5,131 5,163 5,267 10,430 – – – (228,468) (89,913) – – – – – – – – – 777 10,657 – (252,644) (89,913) – – – – – 777 10,657 – (252,644) (89,913) – – (47,338) (47,338) 9,607 9,607 Balance, December 31, 2014 92,326,487 $ 521,022 $ 2,803 $ 1,262,961 $ (413) $ 1,786,373 $ 266,844 $ 2,053,217 Net income Other comprehensive income (loss) Compensation expense recorded for stock options Issue of shares on exercise of – – – – – – stock options 290,802 3,927 – – 742 – Reclassification of grant-date fair value on exercise of stock options Payments for shares repurchased Dividend payments to Methanex Corporation shareholders ($1.08 per common share) Distributions made and accrued to non-controlling interests Equity contributions by non- controlling interests – 1,119 (1,119) (2,946,091) (16,604) – – – – – – – – – – 200,617 – 200,617 1,736 202,353 (1,063) (27,363) (28,426) 1,118 (27,308) – – – (129,679) (97,221) – – – – – – – – – 742 3,927 – (146,283) (97,221) – – – – – 742 3,927 – (146,283) (97,221) – – (22,554) (22,554) 1,700 1,700 Balance, December 31, 2015 89,671,198 $ 509,464 $ 2,426 $ 1,235,615 $ (27,776) $ 1,719,729 $ 248,844 $ 1,968,573 See accompanying notes to consolidated financial statements. 48 2015 Methanex Corporation Annual Report Consolidated Statements of Cash Flows (thousands of US dollars) For the years ended December 31 CASH FLOWS FROM / (USED IN) OPERATING ACTIVITIES Net income Deduct earnings of associate Dividends received from associate Add (deduct) non-cash items: Depreciation and amortization Income tax expense Share-based compensation recovery Finance costs Other Income taxes paid Other cash payments, including share-based compensation Cash flows from operating activities before undernoted Changes in non-cash working capital (note 16) CASH FLOWS FROM / (USED IN) FINANCING ACTIVITIES Payments for repurchase of shares Dividend payments to Methanex Corporation shareholders Interest paid, including interest rate swap settlements Net proceeds on issue of long-term debt Repayment of long-term debt Equity contributions by non-controlling interests Cash distributions to non-controlling interests Proceeds on issue of shares on exercise of stock options Loan to associate Other Changes in non-cash working capital related to financing activities (note 16) CASH FLOWS FROM / (USED IN) INVESTING ACTIVITIES Property, plant and equipment Geismar plants under construction Termination of terminal services agreement Other assets Changes in non-cash working capital related to investing activities (note 16) Increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year See accompanying notes to consolidated financial statements. 2015 2014 $ 202,353 $ 506,308 (51,842) 75,720 194,849 10,997 (21,989) 69,859 382 (47,234) (19,018) 414,077 (117,126) 296,951 (9,132) 25,240 142,738 155,337 (15,805) 37,042 8,549 (51,156) (56,030) 743,091 57,926 801,017 (146,283) (252,644) (97,221) (82,275) 4,500 (193,996) 1,700 (2,570) 3,927 (31,176) (3,984) (19,984) (567,362) (96,909) (328,112) 65,000 802 (67,036) (426,255) (696,666) 951,600 (89,913) (52,995) 592,275 (41,504) 9,607 (34,158) 10,657 (29,371) (4,172) (8,913) 98,869 (84,168) (573,844) – (1,758) (21,252) (681,022) 218,864 732,736 $ 254,934 $ 951,600 2015 Methanex Corporation Annual Report 49 Notes to Consolidated Financial Statements (Tabular dollar amounts are shown in thousands of US dollars, except where noted) Year ended December 31, 2015 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 producer and supplier of methanol to the major international markets of Asia Pacific, North America, Europe and South 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 by the International Accounting Standards Board (“IASB”). These consolidated financial statements were approved and authorized for issue by the Board of Directors on March 7, 2016. b) Basis of presentation and consolidation: These consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, less than wholly owned entities for which it has a controlling interest and its equity-accounted joint venture. 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 of the 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 property, plant and equipment (note 2(h)), financial instruments (note 2(p)), fair value measurements (note 2(q)) and income taxes (note 2(r)). Actual results could differ from those estimates. c) Change in accounting policy: The Company adopted IFRS 9, Financial Instruments (2014) as issued in July 2014 (“IFRS 9”) with a date of initial application of January 1, 2015. IFRS 9 replaces the sections of IAS 39 “Financial Instruments: Recognition and Measurement” that relate to the classification, measurement and impairment of financial instruments and hedge accounting. IFRS 9 replaces the financial asset classes to: amortized cost, fair value through profit and loss and fair value through other comprehensive income. The classification of financial assets is dependent on the business model for managing those financial assets and the assets’ contractual cash flow characteristics. This determination is made at initial recognition. As a result of adopting IFRS 9, all of the Company’s non-derivative financial assets as at December 31, 2014 have been reclassified from loans and receivables at amortized cost to financial assets at amortized cost. There were no changes in the carrying values of the Company’s financial instruments for the reclassifications resulting from the adoption of IFRS 9. The classification and measurement guidance was adopted retrospectively in accordance with the transition provisions of IFRS 9, with no restatement of prior periods. The Company also adopted the new hedge accounting guidance in IFRS 9. The new hedge accounting guidance replaces strict quantitative tests of effectiveness with less restrictive quantitative assessments which address how well the hedging instrument accomplishes the Company’s risk management objectives for financial and non-financial risk exposures. Upon adoption of IFRS 9, all of the Company’s existing hedging relationships that qualified for hedge accounting under IAS 39 were reassessed with respect to the new hedge accounting requirements in IFRS 9. The hedging relationships have continued under IFRS 9. The hedge accounting requirements in IFRS 9 have been applied prospectively in accordance with the transition provisions of IFRS 9. 50 2015 Methanex Corporation Annual Report The following summarizes the classification changes for the Company’s non-derivative financial assets and financial liabilities as a result of the adoption of IFRS 9. Financial assets: Cash and cash equivalents Trade and other receivables, excluding tax receivable Project financing reserve accounts included in other assets Financial liabilities: Category under IAS 39 Category under IFRS 9 Loans and receivable Loans and receivable Loans and receivable Amortized cost Amortized cost Amortized cost Trade, other payable and accrued liabilities, excluding tax payable Other financial liabilities Amortized cost Long-term debt, including current portion Other financial liabilities Amortized cost d) 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. e) Cash and cash equivalents: Cash and cash equivalents include securities with maturities of three months or less when purchased. f) 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. g) 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. h) Property, plant and equipment: Initial recognition Property, plant and equipment are initially recorded at cost. The cost of purchased equipment includes expenditures that are directly attributable to the purchase price, delivery and installation. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to the location and 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 replacement of catalysts. Costs associated with these shutdowns are capitalized and amortized over the period until the next planned turnaround and the carrying amounts of replaced components are derecognized and included in earnings. 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. 2015 Methanex Corporation Annual Report 51 The estimated useful lives of the Company’s buildings, plant installations and machinery, excluding costs related to turnarounds, ranges from 10 to 25 years depending on the specific asset component and the production facility to which it is related. The Company determines the estimated useful lives of individual asset components based on the shorter of its physical life or economic life. The physical life of these assets is generally longer than the economic life. The economic life is primarily determined by the nature of the natural gas feedstock available to the various production facilities. Factors that influence the nature of natural gas feedstock availability include the terms of individual natural gas supply contracts, access to natural gas supply through open markets, regional factors influencing the exploration and development of natural gas and the expected price of securing natural gas supply. The Company reviews the factors related to each production facility on an annual basis to determine if changes are required to the estimated useful lives. Assets under finance lease are depreciated to their estimated residual value based on the shorter of their useful lives and the lease term. 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 long-term methanol price or 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 the estimated recoverable amount, which is the higher of its estimated fair value less cost to sell or its value in use. Value in use is determined by estimating the pre-tax cash flows expected to be generated from the asset or cash-generating unit over its estimated useful life discounted by a pre-tax discount rate. An impairment writedown is recorded for the difference that the carrying value exceeds the estimated recoverable amount. An impairment writedown recognized in prior periods for an asset or cash-generating unit is reversed if there 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, the Company groups 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 methanol facilities in a particular location are interdependent as a result of common infrastructure and/or feedstock from sources that can be shared within a facility location, the Company groups assets based on site locations for the purpose of determining impairment. i) Other assets: Intangible assets are capitalized to other assets and amortized to depreciation and amortization expense on an appropriate basis to charge the cost of the assets against earnings. Financing fees related to undrawn credit facilities are capitalized to other assets and amortized to finance costs over the term of the credit facility. j) Leases: Leasing contracts are classified as either finance or operating leases based on the substance of the contractual arrangement at inception date. A lease is classified as a finance lease if it transfers substantially all of the risks and rewards of ownership of the leased asset. Where the contracts are classified as finance leases, upon initial recognition, the asset and liability are recorded at the lower of fair value and the present value of the minimum lease payments, net of executory costs. Finance lease payments are apportioned between interest expense and repayments of the liability. Where the contracts are classified as operating leases, they are not recognized in the Company’s consolidated statements of financial position and lease payments are charged to income as they are incurred on a straight line basis over the lease term. k) 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 present value of the expenditures required to settle the liability by determining the current market cost required to settle the site restoration costs, adjusts for inflation through to the expected date of the expenditures and then discounts this amount back to the date when the obligation was originally incurred. As the liability is initially recorded on a 52 2015 Methanex Corporation Annual Report 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 measurement of the obligation. l) 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 consolidated statements of financial position. The determination of the defined benefit obligation and associated pension cost is based on certain actuarial assumptions including inflation rates, mortality, plan expenses, salary growth and discount rates. The present value of the net defined benefit obligation (asset) is determined by discounting the net estimated future cash flows using current market bond yields that have terms to maturity approximating the terms of the net 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 Company recognizes gains and losses on the settlement of a defined benefit plan in income when the settlement occurs. The cost for defined contribution benefit plans is recognized in net income as earned by the employees. m) 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 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 of the Company’s common shares and the exercise price that is determined at the date of grant. Tandem share appreciation rights (“TSARs”) give the holder the choice between exercising a regular stock option or a SAR. For SARs and TSARs, the cost of the service received 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 of the 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 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 grants prior to 2014 and in the range of 25% to 150% for subsequent grants based on the weighted-average closing share price for the 90 calendar days on the NASDAQ Global Market immediately preceding the year end date that the performance share units vest. For deferred, restricted and performance share units, the cost of the service received as consideration is initially measured based on the market value of the 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 of the 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, tandem share appreciation rights, share appreciation rights and the deferred, restricted and performance share units is described in note 13. n) 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 2015 Methanex Corporation Annual Report 53 stock method. Under the treasury stock method, diluted net income per common share is calculated by considering the potential dilution that would occur if outstanding stock options and, under certain circumstances, TSARs were exercised or converted to common shares. Stock options and TSARs are considered dilutive when the average market price of the Company’s common shares during the period disclosed exceeds the exercise price of the stock option or TSAR. Outstanding TSARs may be settled in cash or common shares at the holder’s option. For the purposes of calculating diluted net income per common share, the more dilutive of the 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 adjustments to the numerator and denominator if the equity-settled method is determined to have a dilutive effect on diluted net income per common share. The calculation of basic net income per common share and a reconciliation to diluted net income per common share is presented in note 12. o) Revenue recognition: Revenue is recognized based on individual contract terms when the 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 if the Company retains risk of loss during shipment. For methanol sold 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. p) Financial instruments: All financial instruments are measured at fair value on initial recognition. Measurement in subsequent periods is dependent on the classification of the respective financial instrument. Financial instruments are classified into one of three categories and, depending on the category, will either be measured at amortized cost or fair value with fair value changes either recorded through profit or loss or other comprehensive income. All non-derivative financial instruments held by the Company are classified and measured at amortized cost. The Company enters into derivative financial instruments to manage certain exposures to commodity price volatility, foreign exchange volatility and variable interest rate volatility. Under these standards, derivative financial instruments, including embedded derivatives, are classified as fair value through profit or loss and are recorded in the consolidated statements of financial position at fair value unless they are in accordance with the Company’s normal purchase, sale or usage requirements. The valuation of derivative financial instruments is a critical accounting estimate due to the complex nature of these instruments, the degree of judgment required to appropriately value these instruments 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 profit or loss unless the instruments are designated as cash flow hedges. The Company enters into and designates as cash flow hedges certain forward contracts to hedge its highly probable forecast natural gas purchases and certain forward exchange purchase and sales contracts to hedge foreign exchange exposure on anticipated purchases or sales. From time to time, 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 of the 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 profit or loss. Until settled, the fair value of the derivative financial instruments will fluctuate based on changes in commodity prices, foreign currency exchange rates or variable interest rates. q) Fair value measurements: Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements within the scope of IFRS 13 are categorized into Level 1, 2 or 3 based on the degree to which the inputs are observable and the significance of the inputs to the fair value measurement in its entirety. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. Financial instruments measured at fair value and categorized within the fair value hierarchy are disclosed in note 18. r) 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 54 2015 Methanex Corporation Annual Report uncertain tax positions are provided for based on the Company’s best estimate, including related interest and penalty 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 it is probable that the earnings will be repatriated. s) 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 of the obligation can be made. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation. t) Segmented information: The Company’s operations consist of the production and sale of methanol, which constitutes a single operating segment. u) Anticipated changes to International Financial Reporting Standards: In May 2014, the IASB issued IFRS 15, Revenue from Contracts with Customers (“IFRS 15”) establishing a comprehensive framework for revenue recognition. The standard replaces IAS 18, Revenue and IAS 11, Construction Contracts and related interpretations and is effective for annual periods beginning on or after January 1, 2018, with early adoption permitted. The Company is in the process of determining the impact of IFRS 15 on its consolidated financial statements. In January 2016, the IASB issued IFRS 16, Leases (“IFRS 16”), which eliminates the current operating/finance lease dual accounting model for lessees and replaces it with a single, on-balance sheet accounting model, similar to the current finance lease accounting. The standard replaces IAS 17, Leases and related interpretations and is effective for annual periods beginning on or after January 1, 2019, with early application permitted. The Company is in the process of determining the impact of IFRS 16 on its consolidated financial statements. The Company does not expect that any other new or amended standards or interpretations that are effective as of January 1, 2016 will have a significant impact on the Company’s results of operations or financial position. 3. Trade and other receivables: As at Trade Value-added and other tax receivables Egypt gas contract recoveries(a) Termination of terminal services agreement receivable Other Dec 31 2015 Dec 31 2014 $ 263,156 $ 295,215 78,893 88,000 35,000 39,301 46,059 24,016 – 39,073 $ 504,350 $ 404,363 a) Egypt gas contract recoveries: The natural gas supply agreement in Egypt has a mechanism whereby we are partially compensated when gas delivery shortfalls exceed a certain threshold. The receivable is secured by a combination of funds held in escrow and a bank guarantee. 4. Inventories: Inventories are valued at the lower of cost, determined on a first-in first-out basis, and estimated net realizable value. The amount of inventories included in cost of sales and operating expenses and depreciation and amortization for the year ended December 31, 2015 is $1,830 million (2014 – $2,330 million). 2015 Methanex Corporation Annual Report 55 5. Property, plant and equipment: Cost at January 1, 2015 Additions Disposals and other Transfers Cost at December 31, 2015 Accumulated depreciation at January 1, 2015 Disposals and other Depreciation Accumulated depreciation at December 31, 2015 Buildings, plant installations and machinery Plants under construction Finance leases Other TOTAL $ 3,097,200 $ 996,015 $ 32,230 $ 194,430 $ 4,319,875 93,123 (13,721) 1,345,233 4,521,835 1,384,100 (13,994) 175,728 1,545,834 349,218 – (1,345,233) – – – – – – 121,849 (32,230) – 121,849 30,488 (32,230) 8,595 6,853 10,931 (878) – 204,483 127,209 – 9,489 575,121 (46,829) – 4,848,167 1,541,797 (46,224) 193,812 136,698 1,689,385 $ 114,996 $ 67,785 $ 3,158,782 Net book value at December 31, 2015 $ 2,976,001 $ Cost at January 1, 2014 Additions Disposals and other Cost at December 31, 2014 Accumulated depreciation at January 1, 2014 Disposals and other Depreciation Accumulated depreciation at December 31, 2014 Buildings, plant installations and machinery Plants under construction Finance leases Other TOTAL $ 3,068,367 $ 393,044 $ 32,230 $ 168,868 $ 3,662,509 59,978 (31,145) 3,097,200 1,289,455 (37,966) 132,611 1,384,100 601,869 1,102 996,015 – – – – – – 32,230 27,874 – 2,614 30,488 25,954 (392) 194,430 114,242 (100) 13,067 127,209 687,801 (30,435) 4,319,875 1,431,571 (38,066) 148,292 1,541,797 Net book value at December 31, 2014 $ 1,713,100 $ 996,015 $ 1,742 $ 67,221 $ 2,778,078 Included in finance leases as at December 31, 2015 are capitalized costs related to a methanol terminal and storage tanks in Geismar, Louisiana and related to an oxygen production facility in Trinidad (note 9). 6. Interest in Atlas joint venture: a) The Company has a 63.1% equity interest in the Atlas joint venture. Atlas owns a 1.8 million tonne per year methanol production facility in Trinidad. The shareholder agreement governing Atlas establishes joint control between the owners. Summarized financial information of Atlas (100% basis) is as follows: Consolidated statements of financial position as at Cash and cash equivalents Other current assets1 Non-current assets Current liabilities1 Other long-term liabilities, including current maturities Net assets at 100% Net assets at 63.1% Long-term receivable from Atlas1, 2 Investment in associate $ Dec 31 2015 57,620 45,854 332,072 (30,440) (169,681) 235,425 148,553 75,612 $ Dec 31 2014 24,834 70,594 352,616 (29,442) (145,336) 273,266 172,431 43,804 $ 224,165 $ 216,235 56 2015 Methanex Corporation Annual Report Consolidated statements of income for the years ended December 31 Revenue1 Cost of sales and depreciation and amortization Operating income Finance costs, finance income and other expenses Income tax expense Net earnings at 100% Earnings of associate at 63.1% Dividends received from associate 2015 2014 $ 373,034 $ 363,570 (233,790) (334,648) 139,244 (9,378) (47,707) 82,159 51,842 75,720 $ 28,922 (10,438) (4,011) 14,473 9,132 $ 25,240 1 Includes related party transactions between Atlas and the Company (see note 22). 2 During the year ended December 31, 2015, the Company extended a $31.2 million unsecured loan to Atlas due December 14, 2020 with interest due semi-annually. b) Contingent liability: The Board of Inland Revenue of Trinidad and Tobago has issued assessments against Atlas in respect of the 2005, 2006, 2007, 2008 and 2009 financial years. All subsequent tax years remain open to assessment. The assessments relate to the pricing arrangements of certain long-term fixed price sales contracts from 2005 to 2019 related to methanol produced by Atlas. Atlas had partial relief from corporation income tax until late July 2014. The Company has lodged objections to the assessments. Based on the merits of the cases and legal interpretation, management believes its position should be sustained. 7. Other assets: As at Restricted cash Chile VAT receivable Deferred financing costs, net of accumulated amortization Investment in Carbon Recycling International Defined benefit pension plans (note 20) Other 8. Long-term debt: As at Unsecured notes (i) 6.00% due August 15, 2015 (ii) 3.25% due December 15, 2019 (iii) 5.25% due March 1, 2022 (iv) 4.25% due December 1, 2024 (v) 5.65% due December 1, 2044 Egypt limited recourse debt facilities Four facilities with interest payable semi-annually with rates based on LIBOR plus a spread ranging from 1.0% to 1.7% per annum. Principal is paid in 24 semi-annual payments, which commenced in September 2010. Other limited recourse debt facilities Total long-term debt1 Less current maturities Dec 31 2015 Dec 31 2014 $ 33,253 $ 37,090 21,958 1,830 4,502 4,392 13,083 24,778 2,309 4,502 5,968 20,478 $ 79,018 $ 95,125 Dec 31 2015 Dec 31 2014 $ – $ 149,835 346,289 247,360 296,219 295,031 345,387 246,991 296,073 294,936 1,184,899 1,333,222 330,003 20,988 1,535,890 (47,864) 368,678 20,138 1,722,038 (193,831) $ 1,488,026 $ 1,528,207 1 Total debt is presented net of discounts and deferred financing fees of $20.9 million as at December 31, 2015 (2014 – $24.2 million). During 2015, the Company repaid $150 million of unsecured notes bearing a coupon of 6.00%, originally due August 15, 2015. 2015 Methanex Corporation Annual Report 57 The Egypt limited recourse debt facilities bear interest at LIBOR plus a spread. The Company held interest rate swap contracts on its Egypt limited recourse debt facilities to swap the LIBOR-based interest payments for an average aggregated fixed rate of 4.8% plus a spread on approximately 75% of the Egypt limited recourse debt facilities for the period to March 31, 2015. Other limited recourse debt includes a limited recourse facility with a remaining term of less than one year with interest payable at LIBOR plus 2.25%, a limited recourse facility with a remaining term of approximately four years with interest payable at LIBOR plus 0.75%, a limited recourse facility with a remaining term of less than one year with interest payable at LIBOR plus 2.5% and another limited recourse facility with a remaining term of approximately six years with interest payable at LIBOR plus 2.5% on which the company drew down $4.5 million during 2015. For the year ended December 31, 2015, non-cash accretion, on an effective interest basis, of deferred financing costs included in finance costs was $3.2 million (2014 - $3.6 million). The minimum principal payments for long-term debt in aggregate and for each of the five succeeding years are as follows: 2016 2017 2018 2019 2020 Thereafter Limited recourse debt facilities Unsecured notes $ 56,047 $ 46,897 49,972 53,000 55,615 95,212 $ – – – 350,000 – 850,000 Total 56,047 46,897 49,972 403,000 55,615 945,212 $ 356,743 $ 1,200,000 $ 1,556,743 The covenants governing the Company’s unsecured notes, which are specified in an indenture, apply to the Company and its subsidiaries, excluding the Egypt entity (“limited recourse subsidiaries”), and include restrictions on liens, sale and lease-back transactions, a 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 Company has an undrawn $400 million committed revolving credit facility with a syndicate of highly rated financial institutions that expires in December 2019. 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) b) c) the obligation to maintain an EBITDA to interest coverage ratio of greater than 2:1 calculated on a four-quarter trailing basis and a debt to capitalization ratio of less than or equal to 55%, both ratios calculated in accordance with definitions in the credit agreement that include adjustments related to the limited recourse subsidiaries, a default if payment is accelerated by a creditor on any indebtedness of $50 million or more of the Company and its subsidiaries, except for the limited recourse subsidiaries, and a default if a default occurs that permits a 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 Egypt limited recourse debt facilities are described as limited recourse as they are secured only by the assets of the Egypt entity. Accordingly, the lenders to the limited recourse debt facilities have no recourse to the Company or its other subsidiaries. The Egypt limited recourse debt facilities have covenants and default provisions that apply only to the Egypt entity, including restrictions on the incurrence of additional indebtedness and a requirement to fulfill certain conditions before the payment of cash or other distributions. Certain conditions have not been met, resulting in a restriction on shareholder distributions from the Egypt entity. The Company cannot provide assurance that the Egypt entity will be able to obtain a waiver to amend this restriction. As of December 31, 2015, the Egypt cash balance on a 100% ownership basis was $99 million. The Egypt entity continues to be able to fully utilize its funds for operating, capital and financing needs, including the repayment of the Egypt limited recourse debt facilities. The Egypt limited recourse debt facilities contain a covenant to complete certain land title registrations and related mortgages that require action by Egyptian government entities by March 31, 2016. The Company does not believe that the finalization of these items is material to the security provided to the lenders and is seeking a waiver related to this covenant. The Company cannot provide assurance that it will be able to obtain a waiver from the lenders. 58 2015 Methanex Corporation Annual Report 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, accelerate the due date of the principal and accrued interest on any outstanding loans or restrict the payment of cash or other distributions. As at December 31, 2015, management believes the Company was in compliance with all significant terms and default provisions related to long-term debt obligations. 9. Other long-term liabilities: As at Site restoration costs(a) Deferred gas payments(b) Finance lease obligations(c) Share-based compensation liability (note 13) Cash flow hedges (note 18) Fair value of interest rate swap Defined benefit pension plans (note 20) Other Less current maturities Dec 31 2015 $ 29,892 $ – 120,896 38,615 42,653 – 20,072 5,056 257,184 (25,439) Dec 31 2014 23,830 52,030 3,031 84,774 – 6,474 22,149 7,691 199,979 (59,118) $ 231,745 $ 140,861 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. As at December 31, 2015, the total undiscounted amount of estimated cash flows required to settle the liabilities was $40.1 million (2014 – $31.5 million). The movement in the provision during the year is explained as follows: Balance at January 1 New or revised provisions Accretion expense Balance at December 31 2015 $ 23,830 5,643 419 $ 29,892 2014 16,410 7,107 313 23,830 $ $ b) Deferred gas payments: The Company has a liability related to deferred natural gas that is payable in 2016 and has been recorded in trade, other payables and accrued liabilities as at December 31, 2015. c) Finance lease obligations: As at December 31, 2015, the Company has finance lease obligations related to a methanol terminal and storage tanks in Geismar, Louisiana and an oxygen production facility in Trinidad. Total lease payments for 2015 of $18.2 million include an interest component of $14.2 million. Finance lease obligations are payable as follows: 2016 2017 2018 2019 2020 Thereafter Lease payments Interest component Finance lease obligations 18,062 18,431 18,810 19,193 19,583 187,063 281,142 15,734 15,529 15,249 14,884 14,421 84,429 160,246 2,328 2,902 3,561 4,309 5,162 102,634 120,896 2015 Methanex Corporation Annual Report 59 10. Expenses: For the years ended December 31 Cost of sales Selling and distribution Administrative expenses Total expenses by function Cost of raw materials and purchased methanol Ocean freight and other logistics Employee expenses, including share-based compensation Other expenses Cost of sales and operating expenses Depreciation and amortization Total expenses by nature 11. Finance costs: For the years ended December 31 Finance costs Less capitalized interest 2015 2014 $ 1,723,561 $ 2,202,586 298,994 30,193 2,052,748 1,393,032 253,394 113,627 97,846 1,857,899 194,849 327,621 38,352 2,568,559 1,847,138 287,350 124,111 167,222 2,425,821 142,738 $ 2,052,748 $ 2,568,559 2015 90,965 (21,106) 69,859 $ $ 2014 65,067 (28,025) 37,042 $ $ Finance costs are primarily comprised of interest on borrowings and finance lease obligations, amortization of deferred financing fees and accretion expense associated with site restoration costs. Capitalized interest relates to interest capitalized during construction until a plant is substantially completed and ready for productive use. 12. Net income per common share: Diluted net income per common share is calculated by considering the potential dilution that would occur if outstanding stock options and, under certain circumstances, TSARs were exercised or converted to common shares. Outstanding TSARs may be settled in cash or common shares at the holder’s option and for purposes of calculating diluted net income per common share, the more dilutive of the cash-settled and equity-settled method is used, regardless of how the plan is accounted for. Accordingly, TSARs that are accounted for using the cash-settled method will require adjustments to the numerator and denominator if the equity-settled method is determined to have a dilutive effect on diluted net income per common share as compared to the cash-settled method. The equity settled method was more dilutive for the years ended December 31, 2015 and 2014. A reconciliation of the numerator used for the purposes of calculating diluted net income per common share is as follows: For the years ended December 31 Numerator for basic net income per common share Adjustment for the effect of TSARs: Cash-settled recovery included in net income Equity-settled expense Numerator for diluted net income per common share 2015 2014 $ 200,617 $ 454,610 (11,586) (5,308) (11,286) (5,627) $ 183,723 $ 437,697 Stock options and, if calculated using the equity-settled method, TSARs are considered dilutive when the average market price of the Company’s common shares during the period disclosed exceeds the exercise price of the stock option or TSAR. A reconciliation of the denominator used for the purposes of calculating basic and diluted net income per common share is as follows: For the years ended December 31 Denominator for basic net income per common share Effect of dilutive stock options Effect of dilutive TSARs Denominator for diluted net income per common share 60 2015 Methanex Corporation Annual Report 2015 2014 90,647,860 94,996,094 274,961 422,902 545,421 652,466 91,345,723 96,193,981 For the years ended December 31, 2015 and 2014, basic and diluted net income per common share attributable to Methanex shareholders were as follows: For the years ended December 31 Basic net income per common share Diluted net income per common share 2015 2.21 2.01 $ $ 2014 4.79 4.55 $ $ 13. 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. As at December 31, 2015, the Company had 953,443 common shares reserved for future grants of stock options and tandem share appreciation rights under the Company’s stock option plan. a) Share appreciation rights and tandem share appreciation rights: All 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, 2015 are as follows: Outstanding at December 31, 2013 Granted Exercised Cancelled Outstanding at December 31, 2014 Granted Exercised Cancelled Outstanding at December 31, 2015 SARs TSARs Number of units Exercise price USD Number of units Exercise price USD 1,093,117 $ 230,590 (217,810) (20,650) 1,085,247 $ 284,273 (94,037) (16,275) 1,259,208 $ 32.02 71.85 29.36 44.62 40.78 55.40 32.21 58.88 44.48 1,858,585 $ 311,950 (421,250) (17,100) 1,732,185 $ 416,605 (30,300) (9,525) 2,108,965 $ 31.83 72.30 29.69 36.07 39.59 55.39 31.82 60.90 42.73 Information regarding the SARs and TSARs outstanding as at December 31, 2015 is as follows: Range of exercise prices SARs $23.36 to $73.13 TSARs $23.36 to $73.13 Units outstanding at December 31, 2015 Units exercisable at December 31, 2015 Weighted average remaining contractual life (years) Number of units outstanding Weighted average exercise price Number of units exercisable 4.1 4.0 1,259,208 2,108,965 $ $ 44.48 722,187 42.73 1,316,468 Weighted average exercise price $ $ 35.72 34.74 The fair value of each outstanding SARs and TSARs grant was estimated on December 31, 2015 using the Black-Scholes option pricing model with the following weighted average assumptions: Risk-free interest rate Expected dividend yield Expected life of SARs and TSARs (years) Expected volatility Expected forfeitures Weighted average fair value (USD per share) 2015 0.8% 3% 1.3 43% 0.2% 4.21 $ 2014 0.5% 2% 1.5 32% 0.4% $ 12.72 2015 Methanex Corporation Annual Report 61 Compensation expense for SARs and TSARs is measured based on their fair value and is recognized over the vesting period. Changes in fair value in each period are recognized in net income for the proportion of the service that has been rendered at each reporting date. The fair value as at December 31, 2015 was $13.6 million compared with the recorded liability of $13.0 million. The difference between the fair value and the recorded liability of $0.6 million will be recognized over the weighted average remaining vesting period of approximately 1.67 years. For the year ended December 31, 2015, compensation expense related to SARs and TSARs included a recovery in cost of sales and operating expenses of $16.8 million (2014 – recovery of $14.5 million). This included a recovery of $26.1 million (2014 – recovery of $24.5 million) related to the effect of the change in the Company’s share price. b) Deferred, restricted and performance share units: Deferred, restricted and performance share units outstanding as at December 31, 2015 are as follows: Outstanding at December 31, 2013 Granted Granted performance factor1 Granted in lieu of dividends Redeemed Cancelled Outstanding at December 31, 2014 Granted Granted performance factor1 Granted in lieu of dividends Redeemed Cancelled Outstanding at December 31, 2015 Number of deferred share units Number of restricted share units Number of performance share units 346,814 4,200 – 5,183 (54,039) – 302,158 7,196 – 7,878 (31,416) – 285,816 44,131 7,000 – 714 (21,480) – 30,365 6,400 – 760 (23,661) – 13,864 946,446 139,160 55,677 12,842 (334,062) (21,119) 798,944 169,990 71,100 15,508 (426,598) (18,366) 610,578 1 Performance share units have a feature where the ultimate number of units that vest are adjusted by a performance factor of the original grant as determined by the Company’s total shareholder return in relation to a predetermined target over the period to vesting. The performance factor is measured based on the weighted-average closing share price for the 90 calendar days on the NASDAQ Global Market immediately preceding the year end date that the performance share units vest. Compensation expense for deferred, restricted and performance share units is measured at fair value based on the market value of the Company’s common shares and is recognized over the vesting period. Changes in fair value are recognized in net income for the proportion of the service that has been rendered at each reporting date. The fair value of deferred, restricted and performance share units as at December 31, 2015 was $26.0 million compared with the recorded liability of $25.2 million. The difference between the fair value and the recorded liability of $0.8 million will be recognized over the weighted average remaining vesting period of approximately 1.61 years. For the year ended December 31, 2015, compensation expense related to deferred, restricted and performance share units included in cost of sales and operating expenses was a recovery of $5.9 million (2014 – recovery of $2.1 million). This included a recovery of $16.4 million (2014 – recovery of $13.6 million) related to the effect of the change in the Company’s share price. c) Stock options: The exercise price of each incentive stock option is equal to the quoted market price of the Company’s common shares at the date of the grant. Options granted have a maximum term of seven years with one-third of the options vesting each year after the date of grant. 62 2015 Methanex Corporation Annual Report Common shares reserved for outstanding incentive stock options as at December 31, 2015 and 2014 are as follows: Outstanding at December 31, 2013 Granted Exercised Cancelled Expired Outstanding at December 31, 2014 Granted Exercised Cancelled Expired Outstanding at December 31, 2015 Number of stock options 1,219,420 45,600 (536,724) (6,200) (22,835) 699,261 55,917 (286,781) (7,200) (12,690) 448,507 Weighted average exercise price $ $ $ 19.15 73.13 19.72 43.10 22.82 21.90 55.66 13.72 61.50 28.43 30.52 Information regarding the stock options outstanding as at December 31, 2015 is as follows: Options outstanding at December 31, 2015 Options exercisable at December 31, 2015 Weighted average remaining contractual life (years) 0.4 4.2 2.6 Number of stock options outstanding 186,790 261,717 448,507 Weighted average exercise price $ $ 11.35 44.20 30.52 Number of stock options exercisable 186,790 158,200 344,990 Weighted average exercise price $ $ 11.35 36.12 22.71 Range of exercise prices Options $6.33 to $25.22 $28.43 to $73.13 For the year ended December 31, 2015, compensation expense related to stock options was $0.7 million (2014 – $0.8 million). 14. 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, 2015 and 2014, revenues attributed to geographic regions, based on the location of customers, were as follows: Revenue 2015 2014 Canada United States Europe China South Korea Latin America Other TOTAL $ 153,025 $ 221,332 $ 610,322 $ 379,957 $ 349,503 $ 288,606 $ 222,857 $ 2,225,602 $ 247,723 $ 458,792 $ 1,001,041 $ 320,313 $ 447,236 $ 407,814 $ 340,480 $ 3,223,399 For the year ended December 31, 2015, revenues from a single customer across multiple geographic regions represented approximately 11% (2014 – 12%) of the Company’s total revenues (refer to note 19(c)). As at December 31, 2015 and 2014, the net book value of property, plant and equipment by country was as follows: Property, plant and equipment United States Chile Trinidad Egypt New Zealand Canada Other TOTAL 2015 2014 $ 1,545,909 $ 127,948 $ 200,575 $ 778,106 $ 287,323 $ 160,557 $ 58,364 $ 3,158,782 $ 1,134,824 $ 146,360 $ 204,919 $ 818,352 $ 313,936 $ 101,447 $ 58,240 $ 2,778,078 2015 Methanex Corporation Annual Report 63 15. Income and other taxes: a) Income tax expense: For the years ended December 31 Current tax expense: Current period before undernoted items Impact of termination of terminal services agreement and Argentina gas settlement Adjustments to prior years Deferred tax expense: Origination and reversal of temporary differences Impact of termination of terminal services agreement and Argentina gas settlement Derecognition of benefit of non-capital loss carryforwards Adjustments to prior years Change in tax rate Other Total income tax expense 2015 2014 $ 1,964 $ 72,276 3,900 (377) 5,487 (21,931) 4,550 16,875 472 1,848 3,696 5,510 8,820 (1,231) 79,865 68,993 5,880 – 709 (7,538) 7,428 75,472 $ 10,997 $ 155,337 b) 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 net income before income taxes as follows: For the years ended December 31 Income before income taxes Deduct earnings of associate Impact of termination of terminal services agreement and Argentina gas settlement Canadian statutory tax rate Income tax expense calculated at Canadian statutory tax rate Increase (decrease) in income tax expense resulting from: Impact of income and losses taxed in foreign jurisdictions Taxes on termination of terminal services agreement and Argentina gas settlement Derecognition of non-capital loss carryforwards Previously unrecognized loss carryforwards and temporary differences Adjustments to prior years Other Total income tax expense 2015 2014 $ 213,350 $ 661,645 (51,842) (65,000) 96,508 26.0% 25,092 (42,427) 8,450 16,875 (3,449) 95 6,361 (9,132) (42,000) 610,513 26.0% 158,733 (20,766) 14,700 – (5,454) (522) 8,646 $ 10,997 $ 155,337 64 2015 Methanex Corporation Annual Report c) 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: As at Deferred income tax liabilities: Property, plant and equipment Repatriation taxes Other Deferred income tax assets: Non-capital loss carryforwards Fair value of interest rate swap contracts Share-based compensation Other Dec 31 2015 Dec 31 2014 $ 220,557 $ 220,088 81,285 26,711 328,553 49,023 – 8,163 47,610 104,796 95,663 22,903 338,654 42,864 1,118 18,307 43,140 105,429 Net deferred income tax liabilities $ 223,757 $ 233,225 The Company recognizes deferred income tax assets to the extent that it is probable that the benefit of these assets will be realized. As at December 31, 2015, the Company had $75 million of unrecognized non-capital loss carryforwards in Egypt that expire in 2016 and $446 million of deductible temporary differences in the United States that have not been recognized. (ii) Analysis of the change in deferred income tax liabilities: Balance, January 1 Deferred income tax expense included in net income Deferred income tax expense (recovery) included in other comprehensive income Other Balance, December 31 16. Changes in non-cash working capital: Changes in non-cash working capital for the years ended December 31, 2015 and 2014 are as follows: For the years ended December 31 Decrease (increase) in non-cash working capital: Trade and other receivables Inventories Prepaid expenses Trade, other payables and accrued liabilities, including long-term payables included in other long-term liabilities Adjustments for items not having a cash effect and working capital changes relating to taxes and interest paid Changes in non-cash working capital These changes relate to the following activities: Operating Financing Investing 2015 2014 $ 233,225 $ 154,912 5,510 (13,427) (1,551) 75,472 4,501 (1,660) $ 223,757 $ 233,225 2015 2014 $ (99,987) $ 129,767 53,568 3,577 (108,779) (151,621) (52,525) (204,146) (117,126) (19,984) (67,036) $ $ 28,166 (2,604) (54,304) 101,025 (73,264) 27,761 57,926 (8,913) (21,252) $ $ Changes in non-cash working capital $ (204,146) $ 27,761 2015 Methanex Corporation Annual Report 65 17. Capital disclosures: The Company’s objectives in managing its liquidity and capital are to safeguard the Company’s ability to continue as a going concern, to provide financial capacity and flexibility to meet its strategic objectives, to provide an adequate return to shareholders commensurate with the level of risk and to return excess cash through a combination of dividends and share repurchases. As at Liquidity: Cash and cash equivalents Undrawn credit facilities Total liquidity Capitalization: Unsecured notes Limited recourse debt facilities, including current portion Total debt Non-controlling interests Shareholders’ equity Total capitalization Total debt to capitalization1 Net debt to capitalization2 $ $ $ Dec 31 2015 254,934 400,000 654,934 1,184,899 350,991 1,535,890 248,844 1,719,729 $ $ $ Dec 31 2014 951,600 400,000 1,351,600 1,333,222 388,816 1,722,038 266,844 1,786,373 $ 3,504,463 $ 3,775,255 44% 39% 46% 27% 1 Total debt (including 100% of Egypt limited recourse debt facilities) divided by total capitalization. 2 Total debt (including 100% of Egypt limited recourse debt facilities) 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 may 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 $400 million is provided by highly rated financial institutions, expires in December 2019 and is subject to certain financial covenants (note 8). 18. Financial instruments: Financial instruments are either measured at amortized cost or fair value. In the normal course of business, the Company’s assets, liabilities and forecasted transactions, as reported in U.S. dollars, are impacted by various market risks including, but not limited to, natural gas prices and currency exchange rates. The time frame and manner in which the Company manages those risks varies for each item based on the Company’s assessment of the risk and the available alternatives for mitigating risks. The Company uses derivatives as part of its risk management program to mitigate variability associated with changing markets values. Changes in fair value of derivative financial instruments are recorded in earnings unless the instruments are designated as cash flow hedges, in which case the changes in fair value are recorded in other comprehensive income and are reclassified to profit or loss when the underlying hedged transaction is recognized in earnings. The Company designates as cash flow hedges derivative financial instruments to hedge its risk exposure to fluctuations in natural gas prices and to hedge its risk exposure to fluctuations in the euro compared to the U.S. dollar. 66 2015 Methanex Corporation Annual Report The following table provides the carrying value of each category of financial assets and liabilities and the related balance sheet item: As at Financial assets: Financial assets measured at fair value: Derivative instruments designated as cash flow hedges1 Financial assets not measured at fair value: Cash and cash equivalents Trade and other receivables, excluding tax receivable Project financing reserve accounts included in other assets Total financial assets2 Financial liabilities: Financial liabilities not measured at fair value: Trade, other payables and accrued liabilities, excluding tax payable Deferred gas payments included in other long-term liabilities (note 9(b)) Long-term debt, including current portion Financial liabilities measured at fair value: Derivative instruments designated as cash flow hedges1 Total financial liabilities Dec 31 2015 Dec 31 2014 $ 1,228 $ 1,089 254,934 482,585 33,253 951,600 394,040 37,090 $ 772,000 $ 1,383,819 $ 456,730 $ 485,845 – 55,927 1,535,890 1,722,038 42,653 6,474 $ 2,035,273 $ 2,270,284 1 The Geismar 2 natural gas hedges and euro foreign currency hedges 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. As at December 31, 2015, all of the financial instruments were recorded on the consolidated statements of financial position at amortized cost with the exception of derivative financial instruments, which are recorded at fair value unless exempted. The fair value of derivative instruments is determined based on industry-accepted valuation models using market observable inputs and are classified within Level 2 of the fair value hierarchy. The fair value of all the Company’s derivative contracts includes an adjustment for credit risk. The effective portion of the changes in fair value of derivative financial instruments designated as cash flow hedges is recorded in other comprehensive income. The spot element of forward contracts in the hedging relationships is recorded in other comprehensive income as the change in fair value of cash flow hedges. The change in the fair value of the forward element of forward contracts is recorded separately in other comprehensive income as the forward element excluded from hedging relationship. Natural gas forward contracts The Company has elected to manage its exposure to changes in natural gas prices for the Geismar 2 facility by executing a number of forward contracts which it has designated as cash flow hedges for its highly probable forecast natural gas purchases in North America at the Henry Hub. During 2015, we entered into forward contracts to hedge natural gas prices at the Henry Hub for approximately 40% of the natural gas requirements of our Geismar 2 facility for a 10-year period at an average contract price of $3.63 per mmbtu. Other costs incurred to transport natural gas from the Henry Hub to the Geismar 2 site represent an insignificant portion of the overall underlying risk and are recognized as incurred outside of the hedging relationship. The Company has elected to designate the spot element of the forward contracts as cash flow hedges. The forward element of the forward contracts are excluded from the designation and only the spot element is considered for the purpose of assessing effectiveness and measuring ineffectiveness. The excluded forward element of the swap contracts will be accounted for as a cost of hedging (transaction cost) to be recognized in profit or loss over the term of the hedging relationships. Ineffectiveness may arise in the hedging relationship due to changes in the timing of the anticipated transactions and/or due to changes in credit risk of the hedging instrument not replicated in the hedged item. No hedge ineffectiveness has been recognized in 2015. As at December 31, 2015, the Company had outstanding forward contracts designated as cash flow hedges with a notional amount of $517 million (2014 – nil) and a negative fair value of $42.7 million (2014 – nil) included in other long-term liabilities. Euro forward exchange contracts The Company also designates as cash flow hedges forward exchange contracts to sell euros at a fixed U.S. dollar exchange rate to hedge its exposure to exchange rate fluctuations on certain foreign currency denominated revenues. The Company has elected to 2015 Methanex Corporation Annual Report 67 designate the spot element of the forward contracts as cash flow hedges. The forward element of the forward contracts are excluded from the designation and only the spot element is considered for the purpose of assessing effectiveness and measuring ineffectiveness. The excluded forward element of the swap contracts will be accounted for as a cost of hedging (transaction cost) to be recognized in profit or loss over the term of the hedging relationships. Ineffectiveness may arise in the hedging relationship due to changes in the timing of the anticipated transactions and/or due to changes in credit risk of the hedging instrument not replicated in the hedged item. No hedge ineffectiveness has been recognized in 2015. As at December 31, 2015, the Company had outstanding forward exchange contracts designated as cash flow hedges to sell a notional amount of 35 million euros (2014 – 25 million euros). The euro contracts had a positive fair value of $1.2 million (2014 – $1.1 million) recorded in current assets. The table below shows net cash outflows for derivative hedging instruments, excluding credit risk adjustments, based upon contractual payment dates. The amounts reflect the maturity profile of the fair value liabilities and are subject to change based on the prevailing market rate at each of the future settlement dates. Financial asset derivative positions are held with investment-grade counterparties and therefore the settlement day risk exposure is considered to be negligible. As at Within one year 1-3 years 3-5 years More than 5 years Dec 31 2015 Dec 31 2014 $ 5,073 $ 6,487 10,637 8,570 27,536 – – – $ 51,816 $ 6,487 The fair value of the 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 if the counterparties to derivative financial instruments with positive fair values failed completely to perform under the contracts was $1.2 million as at December 31, 2015 (2014 – $1.1 million). The carrying values of the Company’s financial instruments approximate their fair values, except as follows: As at December 31, 2015 December 31, 2014 Carrying value Fair value Carrying value Fair value Long-term debt excluding deferred financing fees $ 1,550,903 $ 1,449,523 $ 1,739,767 $ 1,777,670 There is no publicly traded market for the limited recourse debt facilities. The fair value disclosed on a recurring basis and categorized as Level 2 within the fair value hierarchy is estimated by reference to current market prices for debt securities with similar terms and characteristics. The fair value of the unsecured notes disclosed on a recurring basis and also categorized as Level 2 within the fair value hierarchy was estimated by reference to a limited number of small transactions at the end of 2015 and 2014. The fair value of the Company’s unsecured notes will fluctuate until maturity. 19. 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 for the Company. Its worldwide operating business as well as its investment and financing activities are affected by changes in methanol and natural gas prices and interest and foreign exchange rates. The Company seeks to manage and control these risks primarily through its regular operating and financing activities and uses derivative instruments to hedge these risks when deemed appropriate. This is not an exhaustive list of all risks, nor will the risk management strategies eliminate these risks. 68 2015 Methanex Corporation Annual Report 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 medium to long-term natural gas supply contracts for its production facilities in New Zealand, Trinidad, the United States 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 enters into natural gas forward supply contracts at fixed prices to manage its exposure to natural gas price risk in North America. Interest rate risk Interest rate risk is the risk that the Company suffers financial loss due to changes in the value of an asset or liability or in the value of future cash flows due to movements in interest rates. The Company’s interest rate risk exposure is mainly related to long-term debt obligations. As at Fixed interest rate debt: Unsecured notes Variable interest rate debt: Egypt limited recourse debt facilities Other limited recourse debt facilities Dec 31 2015 Dec 31 2014 $ 1,184,899 $ 1,333,222 $ 1,184,899 $ 1,333,222 $ $ 330,003 20,988 350,991 $ $ 368,678 20,138 388,816 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 18) of approximately $80.3 million as of December 31, 2015 (2014 – $109.5 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 $3.5 million as of December 31, 2015 (2014 – $1.0 million). Foreign currency risk The Company’s international operations expose the Company to foreign currency exchange risks in the ordinary course of business. Accordingly, the Company has established a policy that provides a framework for foreign currency management and hedging strategies and defines the approved hedging instruments. The Company reviews all significant exposures to foreign currencies arising from operating and investing activities and hedges exposures if deemed appropriate. The dominant currency in which the Company conducts business 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 of the Company’s revenue is transacted in Canadian dollars, euros, Chinese yuan and, to a lesser extent, other currencies. For the period from when the price is set in local currency to when the amount due is collected, the Company is exposed to declines in the value 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, Chinese yuan and, to a lesser extent, other currencies. In addition, some of the Company’s underlying operating costs and capital expenditures are incurred in other currencies. The Company is exposed to increases in the value of these currencies that could have the effect of increasing the United States dollar equivalent of cost of sales and operating expenses and capital expenditures. The Company has elected not to actively manage these exposures at this time except for a portion of the net exposure to euro revenues, which is hedged through forward exchange contracts each quarter when the euro price for methanol is established. 2015 Methanex Corporation Annual Report 69 As at December 31, 2015, the Company had a net working capital asset of $66.6 million in non U.S. dollar currencies (2014 – $117.1 million). Each 10% strengthening (weakening) of the U.S. dollar against these currencies would decrease (increase) the value of net working capital and pre-tax cash flows and earnings by approximately $6.7 million (2014 – $11.7 million). 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. As at December 31, 2015, the Company had $255 million of cash and cash equivalents. In addition, the Company has an undrawn credit facility of $400 million provided by highly rated financial institutions that expires in December 2019. 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 of the balance sheet to the contractual maturity date are as follows: As at December 31, 2015 Trade and other payables1 Finance lease obligations Long-term debt2 Cash flow hedges 1 Excludes tax and accrued interest. Carrying amount Contractual cash flows 1 year or less 1-3 years 3-5 years More than 5 years $ 447,719 $ 447,719 $ 447,719 $ – $ – $ – 120,896 281,142 1,535,890 2,331,526 42,653 51,816 18,062 117,396 5,073 37,241 220,288 10,637 38,776 567,280 8,570 187,063 1,426,562 27,536 $ 2,147,158 $ 3,112,203 $ 588,250 $ 268,166 $ 614,626 $ 1,641,161 2 Contractual cash flows include contractual interest payments related to debt obligations. Interest rates on variable rate debt are based on prevailing rates as at December 31, 2015. c) Credit risks: Counterparty credit risk is the risk that the financial benefits of contracts with a specific counterparty will be lost if a 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 if the customer is unable to pay its obligations in due time or if the value of the 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 as at December 31, 2015 substantially all of the 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 of three 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 and 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 Company policies. 70 2015 Methanex Corporation Annual Report 20. Retirement plans: a) Defined benefit pension plans: The Company has non-contributory defined benefit pension plans covering certain employees. The Company does not provide any significant post-retirement benefits other than pension plan benefits. Information concerning the Company’s defined benefit pension plans, in aggregate, is as follows: As at Accrued benefit obligations: Balance, beginning of year Current service cost Interest cost on accrued benefit obligations Benefit payments Settlements Actuarial loss Foreign exchange gain Balance, end of year Fair values of plan assets: Balance, beginning of year Interest income on assets Contributions Benefit payments Settlements Return on plan assets Foreign exchange loss Balance, end of year Unfunded status Minimum funding requirement Defined benefit obligation, net Dec 31 2015 Dec 31 2014 $ 64,346 $ 70,189 1,615 2,361 (2,369) – (544) (9,443) 55,966 48,165 1,646 1,429 (2,369) – (1,626) (6,959) 40,286 15,680 – 1,851 2,998 (3,509) – (404) (6,779) 64,346 50,477 2,164 1,791 (3,509) – 1,347 (4,105) 48,165 16,181 – $ 15,680 $ 16,181 The Company has an unfunded retirement obligation of $20.0 million as at December 31, 2015 (2014 – $22.1 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 net funded retirement asset of $3.7 million as at December 31, 2015 (2014 – $5.2 million) for certain employees and retirees in Canada and a net funded retirement asset of $0.6 million as at December 31, 2015 (2014 – $0.8 million) in Europe. These defined benefit plans expose the Company to actuarial risks, such as longevity risk, currency risk, interest rate risk and market risk on the funded plans. Additionally, as the plans provide benefits to plan members predominantly in Canada and Chile, the plans expose the Company to foreign currency risk for funding requirements. The primary long-term risk is that the Company will not have sufficient plan assets and liquidity to meet obligations when they fall due. The weighted average duration of the defined benefit obligation is 10 years. The Company estimates that it will make additional contributions relating to its defined benefit pension plans totaling $5.0 million in 2016. The Company’s net defined benefit pension plan expense charged to the consolidated statements of income for the years ended December 31, 2015 and 2014 is as follows: For the years ended December 31 Net defined benefit pension plan expense: Current service cost Net interest cost Cost of settlement 2015 2014 $ 1,615 $ 1,851 715 – 834 – $ 2,330 $ 2,685 2015 Methanex Corporation Annual Report 71 The Company’s current year actuarial gains, recognized in the consolidated statements of comprehensive income for the years ended December 31, 2015 and 2014, are as follows: For the years ended December 31 Actuarial (loss) gain Minimum funding requirement Actuarial (loss) gain, net 2015 (1,371) – (1,371) $ $ 2014 32 – 32 $ $ 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, 2013 in Canada. The next actuarial reports for funding purposes for the Company’s Canadian defined benefit pension plans are scheduled to be completed as of December 31, 2016. The discount rate is the most significant actuarial assumption used in accounting for the defined benefit pension plans. As at December 31, 2015, the weighted average discount rate for the defined benefit obligation was 4.0% (2014 – 4.0%). A decrease of 1% in the weighted average discount rate at the end of the reporting period, while holding all other assumptions constant, would result in an increase to the defined benefit obligation of approximately $5.6 million. The asset allocation for the defined benefit pension plan assets as at December 31, 2015 and 2014 is as follows: As at Equity securities Debt securities Cash and other short-term securities Total Dec 31 2015 Dec 31 2014 47% 30% 23% 100% 47% 30% 23% 100% The fair values of the above equity and debt instruments are determined based on quoted market prices in active markets whereas the fair values of cash and other short-term securities are not based on quoted market prices in active markets. The plan assets are held separately from those of the Company in funds under the control of trustees. 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, 2015 was $6.7 million (2014 – $5.1 million). 21. Commitments and contingencies: a) Take-or-pay purchase contracts and related commitments: The Company has commitments under take-or-pay contracts to purchase natural gas, to pay for transportation capacity related to this natural gas and to purchase oxygen and other feedstock requirements up to 2035. The minimum estimated commitment under these contracts, except as noted below, is as follows: As at December 31, 2015 2016 2017 2018 2019 2020 $ 467,192 $ 405,239 $ 390,646 $ 300,504 $ 221,441 Thereafter $ 1,229,685 In the above table, the Company has included natural gas commitments at the contractual volume and prices. b) Chile and Argentina natural gas supply contracts: The Company has supply contracts with Argentine suppliers for natural gas sourced from Argentina for a significant portion of the capacity for our 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. Under the current circumstances, the Company does not expect to receive any further natural gas supply from Argentina under these long-term arrangements. These potential purchase obligations have been excluded from the table above. 72 2015 Methanex Corporation Annual Report The Company also has supply contracts with Empresa Nacional del Petróleo (“ENAP”) for a portion of the capacity for our facilities in Chile. Over the last few years ENAP has delivered significantly less than the full amount of natural gas than it was obligated to deliver under these contracts. These potential purchase obligations have been excluded from the table above. 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, 2015 2016 $ 86,857 2017 $ 66,802 2018 $ 56,237 2019 $ 48,651 2020 $ 38,410 Thereafter $ 208,535 The minimum lease payments relate to the right of use of the leased asset and exclude non-lease elements such as the reimbursement of operating costs. For the year ended December 31, 2015, the Company recognized as an expense $160.7 million (2014 – expense of $130.5 million) relating to operating lease payments, including time charter vessel payments. d) Leased assets not yet in service: The Company has future minimum lease payments under finance leases related to two time charter agreements for vessels which are currently under construction and expected to be delivered in 2016. The minimum lease payments under these leases have been excluded from the operating lease commitments table above as, once delivered, an asset and liability will be recognized at the lower of fair value and the present value of the minimum lease payments. This is estimated to be approximately $50 million per vessel. The Company also has future minimum lease payments under operating leases related to three time charter agreements for vessels which are currently under construction and expected to be delivered in 2016. The minimum lease payments under these leases have been excluded from the operating lease commitments table above as the contracts contain certain cancellation features which are dependent on the delivery of the vessels. Once delivered, these vessels will have a total minimum commitment of approximately $50 million per vessel. e) Purchased methanol: The Company has marketing rights for 100% of the production from its jointly owned plants (the Atlas plant in Trinidad in which it has a 63.1% interest and the plant in Egypt in which it has a 50% interest), which results in purchase commitments of an additional 1.3 million tonnes per year of methanol offtake supply when these plants operate at capacity. As at December 31, 2015, the Company also had commitments to purchase methanol from other suppliers for approximately 1.1 million tonnes for 2016 and thereafter. The pricing under these purchase commitments is referenced to pricing at the time of purchase or sale, and accordingly, no amounts have been included in the table above. 22. Related parties: The Company has interests in significant subsidiaries and joint ventures as follows: Name Significant subsidiaries: Methanex Asia Pacific Limited Methanex Europe NV Methanex Methanol Company, LLC Egyptian Methanex Methanol Company S.A.E. Methanex Chile S.A. Methanex New Zealand Limited Methanex Trinidad (Titan) Unlimited Methanex U.S.A. LLC Methanex Louisiana LLC Waterfront Shipping Company Limited Significant joint ventures: Atlas Methanol Company Unlimited1 1 Summarized financial information for the group’s investment in Atlas is disclosed in note 6. Country of incorporation Principal activities Interest % Dec 31 2015 Dec 31 2014 Hong Kong Marketing & distribution Belgium Marketing & distribution United States Marketing & distribution Egypt Chile Production Production New Zealand Production Trinidad Production United States Production United States Production Cayman Islands Shipping 100% 100% 100% 50% 100% 100% 100% 100% 100% 100% 100% 100% 100% 50% 100% 100% 100% 100% 100% 100% Trinidad Production 63.1% 63.1% 2015 Methanex Corporation Annual Report 73 Transactions between the Company and Atlas are considered related party transactions and are included within the summarized financial information in note 6. Atlas revenue for the year ended December 31, 2015 of $373 million (2014 – $364 million) is a related party transaction as the Company has marketing rights for 100% of the methanol produced by Atlas. Balances outstanding with Atlas as at December 31, 2015 and provided in the summarized financial information in note 6 include receivables owing from Atlas to the Company of $5 million (2014 – $13 million), and payables to Atlas of $72 million (2014 – $81 million). The Company has total loans outstanding to Atlas as at December 31, 2015 of $75.6 million (2014 – $43.8 million) which are unsecured and due at maturity. Remuneration of non-management directors and senior management, which includes the members of the executive leadership team, is as follows: For the years ended December 31 Short-term employee benefits Post-employment benefits Other long-term employee benefits Share-based compensation recovery Total $ 2015 6,761 411 42 2014 $ 8,782 500 52 (11,682) (7,117) $ (4,468) $ 2,217 23. Non-controlling interest: The Company has a 50% interest in Egyptian Methanex Methanol Company S.A.E. (“Methanex Egypt”) located in Egypt, which has material non-controlling interests. The following table summarizes the Methanex Egypt financial information, except as noted, included in the consolidated financial statements, before any inter-company eliminations: As at Current assets Non-current assets Current liabilities Non-current liabilities Net assets Carrying amount of Methanex Egypt non-controlling interest Carrying amount of other non-controlling interests Total carrying amount of non-controlling interests For the years ended December 31 Revenue Net (loss) income Other comprehensive income Total comprehensive (loss) income Net (loss) income allocated to Methanex Egypt non-controlling interest Net income allocated to other non-controlling interests Total net income allocated to non-controlling interests Other comprehensive income allocated to non-controlling interest Dividends paid to non-controlling interest For the years ended December 31 Cash flows from operating activities Cash flows from financing activities Cash flows from investing activities 74 2015 Methanex Corporation Annual Report Dec 31 2015 Dec 31 2014 $ 231,060 $ 251,100 777,621 (178,775) (359,328) 470,578 229,432 19,412 819,125 (100,035) (455,377) 514,813 248,754 18,090 $ 248,844 $ 266,844 2015 2014 $ 31,237 $ 287,600 (51,766) 2,235 (49,531) (456) 2,192 1,736 1,118 – 2015 14,903 (51,010) (1,604) $ $ $ 53,526 9,549 63,075 49,778 1,920 51,698 5,267 32,498 2014 111,361 (88,660) (2,835) $ $ $ Executive Leadership Team John Floren President and Chief Executive Officer Wendy Bach Senior Vice President, Corporate Resources Ian Cameron Senior Vice President, Finance and Chief Financial Officer Mike Herz Senior Vice President, Corporate Development Vanessa James Senior Vice President, Marketing and Logistics Harvey Weake Senior Vice President, Manufacturing Board of Directors Thomas Hamilton Chairman of the Board Board member since May 2007 John Floren President and CEO of Methanex Corporation Board member since January 2013 Bruce Aitken Member of the Public Policy and Responsible Care Committees Board Member since July 2004 A. Terence Poole Chair of the Audit, Finance & Risk Committee Member of the Public Policy Committee Board member since September 2003 and from February 1994 to June 2003 John Reid Chair of the Human Resources Committee Member of the Audit, Finance & Risk Committee Board member since September 2003 Howard Balloch Chair of the Public Policy Committee Member of the Audit, Finance & Risk Committee Board member since December 2004 Janice Rennie Member of the Audit, Finance & Risk and Human Resources Committees Board member since May 2006 Phillip Cook Chair of the Corporate Governance Committee Member of the Public Policy Committee Board member since May 2006 Monica Sloan Member of the Corporate Governance and Responsible Care Committees Board member since September 2003 Robert Kostelnik Chair of the Responsible Care Committee Member of the Corporate Governance Committee Board member since September 2008 Douglas Mahaffy Member of the Corporate Governance and Human Resources Committees Board member since May 2006 Margaret Walker Member of the Human Resources and Responsible Care Committees Board member since April 2015 Benita Warmbold Member of the Audit, Finance & Risk and Responsible Care Committees Board member since February 2016 Corporate Information Head Office Methanex Corporation 1800 Waterfront Centre 200 Burrard Street Vancouver, BC V6C 3M1 Tel 604 661 2600 Fax 604 661 2676 Toll Free 1 800 661 8851 Within North America Web Site www.methanex.com Sales Inquiries: sales@methanex.com Transfer Agent CST Trust Company acts as transfer agent and registrar for Methanex stock and maintains all primary shareholder records. All inquiries regarding share transfer requirements, lost certificates, changes of address, or the elimination of duplicate mailings should be directed to CST Trust Company at: 1 800 387 0825 Toll Free within North America Investor Relations Inquiries Sandra Daycock Director, Investor Relations Tel 604 661 2600 Annual General Meeting The Annual General Meeting will be held at the Vancouver Convention Centre – East Building in Vancouver, British Columbia on Thursday, April 28, 2016 at 11:00 a.m. (Pacific Time). Shares Listed Toronto Stock Exchange – MX NASDAQ Global Market – MEOH Annual Information Form (AIF) The corporation’s AIF can be found online at www.sedar.com. A copy of the AIF can also be obtained by contacting our head office. 2015 A N N U A L R E P O R T 81390Methanex2015AR_Cover3.indd 1 2016-01-26 12:07 PM 2015 A N N U A L R E P O R T 

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