Exhibit 99.5
CTE PETROCHEMICALS
COMPANY
COMPANY
Financial Statements
December 31, 2009, 2008 and 2007
CTE PETROCHEMICALS COMPANY
FINANCIAL STATEMENTS
Index to Financial Statements
FINANCIAL STATEMENTS
Index to Financial Statements
| PAGE | ||||
| Independent Auditors’ Report | 2 | |||
| Statements of Operations for the years ended December 31, 2009, 2008 and 2007 | 3 | |||
| Balance Sheets as of December 31, 2009 and 2008 | 4 | |||
| Statements of Partners’ Capital for the years ended December 31, 2009, 2008 and 2007 | 5 | |||
| Statements of Cash Flows for the years ended December 31, 2009, 2008 and 2007 | 6 | |||
| Notes to Financial Statements | 7 | |||
1
INDEPENDENT AUDITORS’ REPORT
To the Board of Directors and Partners of
CTE Petrochemicals Company
CTE Petrochemicals Company
We have audited the accompanying balance sheets of CTE Petrochemicals Company (the “Company”) as of December 31, 2009 and 2008, and the related statements of operations, partners’ capital, and cash flows for each of the three years in the period ended December 31, 2009. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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, such financial statements present fairly, in all material respects, the financial position of CTE Petrochemicals Company as of December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2009, in conformity with accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Houston, Texas
September 13, 2010
September 13, 2010
2
CTE PETROCHEMICALS COMPANY
STATEMENTS OF OPERATIONS
STATEMENTS OF OPERATIONS
| Year Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (In $ thousands) | ||||||||||||
| Equity in net earnings of Ibn Sina | $ | 134,466 | $ | 201,477 | $ | 173,042 | ||||||
| Income tax benefit | 4,750 | 0 | 0 | |||||||||
| Withholding tax expense | (4,126 | ) | (11,941 | ) | (8,215 | ) | ||||||
| Net earnings | $ | 135,090 | $ | 189,536 | $ | 164,827 | ||||||
See the accompanying notes to the financial statements.
3
CTE PETROCHEMICALS COMPANY
BALANCE SHEETS
BALANCE SHEETS
| As of December 31, | ||||||||
| 2009 | 2008 | |||||||
| (In $ thousands) | ||||||||
ASSETS | ||||||||
| Investment in Ibn Sina | $ | 158,771 | $ | 109,488 | ||||
| Total assets | $ | 158,771 | $ | 109,488 | ||||
LIABILTIES AND PARTNERS’ CAPITAL | ||||||||
| Current liabilities | ||||||||
| Income taxes payable | $ | 14,499 | $ | 0 | ||||
| Total current liabilities | 14,499 | — | ||||||
| Tax liability | — | 19,250 | ||||||
| Total liabilities | 14,499 | 19,250 | ||||||
| Partners’ capital | $ | 144,272 | $ | 90,238 | ||||
| Total liabilities and partners’ capital | $ | 158,771 | $ | 109,488 | ||||
See the accompanying notes to the financial statements.
4
CTE PETROCHEMICALS COMPANY
STATEMENTS OF PARTNERS’ CAPITAL
STATEMENTS OF PARTNERS’ CAPITAL
| 2009 | 2008 | 2007 | ||||||||||||||||||||||||||||||||||
| Texas | Texas | Texas | ||||||||||||||||||||||||||||||||||
| Eastern | Elwood | Eastern | Elwood | Eastern | Elwood | |||||||||||||||||||||||||||||||
| Arabian | Insurance | Arabian | Insurance | Arabian | Insurance | |||||||||||||||||||||||||||||||
| Ltd. | Ltd. | Total | Ltd. | Ltd. | Total | Ltd. | Ltd. | Total | ||||||||||||||||||||||||||||
| (In $ thousands) | (In $ thousands) | (In $ thousands) | ||||||||||||||||||||||||||||||||||
Partners’ Capital | ||||||||||||||||||||||||||||||||||||
| Balance as of the beginning of the period | $ | 46,143 | $ | 46,143 | $ | 92,286 | $ | 70,686 | $ | 70,685 | $ | 141,371 | $ | 70,423 | $ | 70,423 | $ | 140,846 | ||||||||||||||||||
| Net earnings | 67,545 | 67,545 | 135,090 | 94,768 | 94,768 | 189,536 | 82,413 | 82,414 | 164,827 | |||||||||||||||||||||||||||
| Dividends | (40,940 | ) | (40,941 | ) | (81,881 | ) | (119,310 | ) | (119,311 | ) | (238,621 | ) | (82,151 | ) | (82,151 | ) | (164,302 | ) | ||||||||||||||||||
| Balance as of the end of the year | 72,748 | 72,747 | 145,495 | 46,144 | 46,142 | 92,286 | 70,685 | 70,686 | 141,371 | |||||||||||||||||||||||||||
| Accumulated Other Comprehensive Income(Loss), Net | ||||||||||||||||||||||||||||||||||||
| Balance as of the beginning of the period | (1,024 | ) | (1,024 | ) | (2,048 | ) | (899 | ) | (899 | ) | (1,798 | ) | (496 | ) | (497 | ) | (993 | ) | ||||||||||||||||||
| Pension and postretirement benefits | 412 | 413 | 825 | (125 | ) | (125 | ) | (250 | ) | (402 | ) | (403 | ) | (805 | ) | |||||||||||||||||||||
| Balance as of the end of the period | (612 | ) | (611 | ) | (1,223 | ) | (1,024 | ) | (1,024 | ) | (2,048 | ) | (898 | ) | (900 | ) | (1,798 | ) | ||||||||||||||||||
| Total Partners’ Capital | $ | 72,136 | $ | 72,136 | $ | 144,272 | $ | 45,120 | $ | 45,118 | $ | 90,238 | $ | 69,787 | $ | 69,786 | $ | 139,573 | ||||||||||||||||||
See the accompanying notes to the financial statements.
5
CTE PETROCHEMICALS COMPANY
STATEMENTS OF CASH FLOWS
STATEMENTS OF CASH FLOWS
| Year Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (In $ thousands) | ||||||||||||
| Operating activities | ||||||||||||
| Net earnings | $ | 135,090 | $ | 189,536 | $ | 164,827 | ||||||
| Equity in net earnings of Ibn Sina | (134,466 | ) | (201,477 | ) | (173,042 | ) | ||||||
| Income tax benefit | (4,750 | ) | — | — | ||||||||
| Dividends received | 86,007 | 250,562 | 172,517 | |||||||||
| Net cash provided by operating activities | 81,881 | 238,621 | 164,302 | |||||||||
| Financing activities | ||||||||||||
| Dividends paid | (81,881 | ) | (238,621 | ) | (164,302 | ) | ||||||
| Net cash provided by (used in) financing activities | (81,881 | ) | (238,621 | ) | (164,302 | ) | ||||||
| Net change in cash and cash equivalents | — | — | — | |||||||||
| Cash and cash equivalents at beginning of period | — | — | — | |||||||||
| Cash and cash equivalents at end of period | $ | 0 | $ | 0 | $ | 0 | ||||||
See the accompanying notes to the financial statements.
6
CTE PETROCHEMICALS COMPANY
NOTES TO FINANCIAL STATEMENTS
1. Description of the Company and Basis of Presentation
CTE Petrochemicals Company (“CTE” or the “Company”) is a common general partnership (the “Partnership”) which was formed on January 27, 1981 pursuant to the laws of the Cayman Islands, British West Indies. The original partners, Celanese Arabian Inc. (“Celanese Arabian”) and Texas Eastern Arabian Ltd., a wholly owned subsidiary of Duke Energy Corporation (“Duke”), each acquired an equal ownership interest in CTE. Through a series of transactions, Elwood Insurance Limited (“Elwood”), a wholly owned subsidiary of Celanese Corporation (“Celanese”), acquired Celanese Arabian’s original interest in CTE, and Celanese and Duke continue to have an equal ownership interest, including profit and loss distribution.
CTE’s only asset is its 50% investment in National Methanol Company (“Ibn Sina”). Ibn Sina, a Saudi limited liability company registered under the laws of Saudi Arabia, is owned equally by CTE and Saudi Basic Industries Corporation (“SABIC”), a privately-held Saudi Arabian joint stock company. Ibn Sina was formed in 1981 and is in the business of operating a petrochemical complex which produces methanol and methyl tertiary butyl ether (“MTBE”).
Basis of Presentation
The consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for all periods presented.
2. Summary of Accounting Policies
| • | Estimates and assumptions |
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and revenues and expenses. These estimates, based on best available information at the time, could differ from actual results.
| • | Investment in Ibn Sina |
The Company accounts for its investment in Ibn Sina using the equity method of accounting as it has the ability to exercise significant influence over operating and financial policies of Ibn Sina, but does not exercise control.
The Company assesses the recoverability of the carrying value of its investment whenever events or changes in circumstances indicate a loss in value that is other than a temporary decline. A loss in value of an equity-method investment which is other than a temporary decline will be recognized as the difference between the carrying amount of the investment and its fair value.
| • | Dividends |
The Company records dividends when received. Historically, Ibn Sina has distributed a substantial portion of the after tax earnings to its shareholders. CTE remits the dividends to its shareholders, Celanese and Duke, simultaneously when received from Ibn Sina.
| • | Accumulated Other Comprehensive Income |
Accumulated other comprehensive income is the Company’s share of Ibn Sina’s gains or losses for pension and postretirement benefits that are not recognized immediately as a component of net periodic pension cost.
3. Investment in Ibn Sina
The following are summarized US GAAP financial statement results of Ibn Sina (in thousands):
7
| 2009 | 2008 | 2007 | ||||||||||
| Total Assets | $ | 468,447 | $ | 356,089 | $ | 511,825 | ||||||
| Debt | 0 | 0 | 0 | |||||||||
| Total Liabilities | 140,229 | 112,040 | 169,398 | |||||||||
| Net Sales | 752,572 | 1,073,511 | 885,814 | |||||||||
| Operating Profit | 324,991 | 469,869 | 410,077 | |||||||||
| Net Income | 289,100 | 421,233 | 365,821 | |||||||||
The laws of Saudi Arabia require different allocations of income taxes to capital balances based upon the respective partner’s country of domicile. Accordingly, CTE’s percentage of Ibn Sina’s net income in equity is not proportioned to its ownership percentages.
4. Taxes
The financial statements reflect no provision or liability for income taxes because the Company’s financial results are included in the income tax returns of the Partners for the years ended December 31, 2009, 2008 and 2007. The Company incurs withholding tax at a rate of 5% on dividends received from its investment in Ibn Sina. Withholding taxes are reported as withholding tax expense on the Company’s income statement when dividends are received. Amounts shown as withholding tax expense were paid in the respective periods presented.
The Company adopted the provisions of FASB ASC 740,Income Taxes(originally issued as FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxes), which clarifies the accounting and disclosure for uncertainty in income tax positions, as defined, on January 1, 2007. Based on the Company’s review, a reserve of $19.3 million related to Saudi Arabia corporate income tax on the Company’s share of Ibn Sina earnings for tax years 1997 to 2003 was required. The tax reserve was recorded through income tax expense on the Company’s financials prior to the adoption of FASB ASC 740 and no cumulative effect adjustment was required at adoption. Upon receiving a final tax assessment from the Saudi Arabian tax authority in 2009, the Company reversed $4.7 million of the tax reserve and reclassed the remaining $14.5 million to current Income taxes payable. The tax was paid in the first quarter of 2010.
5. Subsequent Events
Effective April 1, 2010, Celanese, Duke and SABIC agreed to expand the scope of Ibn Sina to include the creation of a polyacetal (“POM”) production facility, and extend the term of the joint venture to 2032. The capital required to build the POM plant will be funded equally by SABIC and CTE. Celanese and Duke will provide 65% and 35%, respectively, of the POM funding requirements of CTE. Once the POM plant becomes commercially operational, which is estimated to take approximately three years to complete, CTE’s respective earnings will be split 65% and 35% to Celanese and Duke, respectively. However, the partners’ equal ownership percentage in CTE will remain unchanged. Celanese and Duke will continue to share equal powers and influence over the significant activities of the Company. SABIC will continue to have 50% ownership in Ibn Sina, including its respective share of profits and losses.
The production of methanol, methyl tertiary butyl ether (“MTBE”) and POM requires natural gas. Ibn Sina has a natural gas supply contract through 2022. If the natural gas contract is renewed in 2022, CTE’s earnings split will remain 65% and 35% to Celanese and Duke, respectively, until the termination of the joint venture in 2032. If the net income of Ibn Sina is below $10 million in any given year, the earnings split will change to 99% and 1% to Celanese and Duke, respectively, for that year. At the end of the joint venture term, SABIC and Celanese have a call and put option, respectively, to buy out Celanese and Duke at fair market value, unless Ibn Sina is liquidated or the joint venture is extended.
Subsequent events were updated through September 13, 2010, the date at which the financials were available to be issued.
8
NATIONAL METHANOL COMPANY (IBN SINA)
(LIMITED LIABILITY COMPANY)
(LIMITED LIABILITY COMPANY)
FINANCIAL STATEMENTS AND AUDITORS’ REPORT
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
NATIONAL METHANOL COMPANY (IBN SINA)
(LIMITED LIABILITY COMPANY)
(LIMITED LIABILITY COMPANY)
FINANCIAL STATEMENTS AND AUDITORS’ REPORT
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
| INDEX | PAGE | |||
| Independent auditors’ report | 1 | |||
| Balance sheets | 2 | |||
| Statements of income | 3 | |||
| Statements of shareholders’ equity | 4 | |||
| Statements of cash flows | 5 | |||
| Notes to the financial statements | 6 — 18 | |||
INDEPENDENT AUDITORS’ REPORT
To the management
National Methanol Company (Ibn Sina)
Al-Jubail, Saudi Arabia
National Methanol Company (Ibn Sina)
Al-Jubail, Saudi Arabia
We have audited the accompanying balance sheets of National Methanol Company (Ibn Sina), a Saudi limited liability company (the “Company”) as of December 31, 2009 and 2008, and the related statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2009. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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, such financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2009 and 2008, and the results of its operations and its cash flows for the years then ended and for the year ended December 31, 2007 in conformity with accounting principles generally accepted in Saudi Arabia.
Accounting principles generally accepted in Saudi Arabia vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in Note 21 to the financial statements.
/s/ Deloitte & Touche
Bakr Abulkhair & Co.
Bakr Abulkhair & Co.
/s/ Nasser M. Al-Sagga
License No. 322
September 13, 2010
License No. 322
September 13, 2010
- 1 -
NATIONAL METHANOL COMPANY (IBN SINA)
(LIMITED LIABILITY COMPANY)
(LIMITED LIABILITY COMPANY)
BALANCE SHEETS
AS OF DECEMBER 31, 2009 AND 2008
AS OF DECEMBER 31, 2009 AND 2008
| 2009 | 2008 | |||||||||||
| Note | SR 000 | SR 000 | ||||||||||
ASSETS | ||||||||||||
Current assets | ||||||||||||
| Cash and cash equivalents | 3 | 284,318 | 55,208 | |||||||||
| Trade receivables from related parties | 15 | 471,770 | 326,152 | |||||||||
| Inventories | 4 | 180,718 | 122,957 | |||||||||
| Other receivables and prepayments | 5 | 52,146 | 34,040 | |||||||||
Total current assets | 988,952 | 538,357 | ||||||||||
Non-current assets | ||||||||||||
| Property, plant and equipment | 6 | 697,663 | 742,486 | |||||||||
| Intangible assets | 7 | 39,264 | 23,441 | |||||||||
| Other non-current assets | 8 | 27,334 | 26,413 | |||||||||
Total non-current assets | 764,261 | 792,340 | ||||||||||
TOTAL ASSETS | 1,753,213 | 1,330,697 | ||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||
Current liabilities | ||||||||||||
| Accounts payable | 9 | 29,825 | 30,972 | |||||||||
| Accrued and other current liabilities | 10 | 388,729 | 270,474 | |||||||||
Total current liabilities | 418,554 | 301,446 | ||||||||||
Non-current liabilities | ||||||||||||
| End-of-service indemnities | 11 | 83,371 | 100,459 | |||||||||
| Other liabilities | 12 | 15,422 | 18,912 | |||||||||
Total non-current liabilities | 98,793 | 119,371 | ||||||||||
Shareholders’ equity | ||||||||||||
| Share capital | 1 | 558,000 | 558,000 | |||||||||
| Statutory reserve | 18 | 279,000 | 279,000 | |||||||||
| Retained earnings | 398,866 | 72,880 | ||||||||||
Total shareholders’ equity | 1,235,866 | 909,880 | ||||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | 1,753,213 | 1,330,697 | ||||||||||
The accompanying notes form an integral part of these financial statements
- 2 -
NATIONAL METHANOL COMPANY (IBN SINA)
(LIMITED LIABILITY COMPANY)
(LIMITED LIABILITY COMPANY)
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
| 2009 | 2008 | 2007 | ||||||||||||||
| Note | SR 000 | SR 000 | SR 000 | |||||||||||||
| Sales | 15 | 2,822,144 | 4,025,668 | 3,321,802 | ||||||||||||
| Cost of sales | 15 | 1,585,055 | 2,243,193 | 1,769,829 | ||||||||||||
Gross profit | 1,237,089 | 1,782,475 | 1,551,973 | |||||||||||||
| Distribution expenses | 525 | 797 | 2,623 | |||||||||||||
| General and administrative expenses | 14,15 | 14,817 | 19,501 | 18,954 | ||||||||||||
Operating income | 1,221,747 | 1,762,177 | 1,530,396 | |||||||||||||
| Financial income | 812 | 18,166 | 18,013 | |||||||||||||
| Other income (expenses), net | 4,155 | (2,272 | ) | (1,515 | ) | |||||||||||
| NET INCOME | 1,226,714 | 1,778,071 | 1,546,894 | |||||||||||||
The accompanying notes form an integral part of these financial statements
- 3 -
NATIONAL METHANOL COMPANY (IBN SINA)
(LIMITED LIABILITY COMPANY)
(LIMITED LIABILITY COMPANY)
STATEMENTS OF SHAREHOLDERS’ EQUITY
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
| Saudi | ||||||||||||||||
| Basic | �� | CTE | ||||||||||||||
| Industries | Petrochemicals | |||||||||||||||
| Corporation | Company | Total | ||||||||||||||
| Note | SR 000 | SR 000 | SR 000 | |||||||||||||
Share capital | ||||||||||||||||
| December 31, 2009, 2008 and 2007 | 1 | 279,000 | 279,000 | 558,000 | ||||||||||||
Statutory reserve | ||||||||||||||||
| December 31, 2009, 2008 and 2007 | 18 | 139,500 | 139,500 | 279,000 | ||||||||||||
Retained earnings | ||||||||||||||||
| January 1, 2007 | 195,108 | 197,375 | 392,483 | |||||||||||||
| Net income for the year | 773,447 | 773,447 | 1,546,894 | |||||||||||||
| Zakat and income tax for year | 13 | (23,703 | ) | (151,799 | ) | (175,502 | ) | |||||||||
| Amounts withheld from shareholders towards zakat and income tax | — | 87,213 | 87,213 | |||||||||||||
| Dividend related to year 2006, net | (195,108 | ) | (197,375 | ) | (392,483 | ) | ||||||||||
| Dividend related to current year | (505,970 | ) | (505,970 | ) | (1,011,940 | ) | ||||||||||
| December 31, 2007 | 243,774 | 202,891 | 446,665 | |||||||||||||
| Net income for the year | 889,036 | 889,035 | 1,778,071 | |||||||||||||
| Zakat and income tax for year | 13 | (21,064 | ) | (182,688 | ) | (203,752 | ) | |||||||||
| Amounts withheld from shareholders towards zakat and income tax | — | 117,561 | 117,561 | |||||||||||||
| Dividend related to year 2007, net | (243,774 | ) | (202,891 | ) | (446,665 | ) | ||||||||||
| Dividend related to current year | (809,500 | ) | (809,500 | ) | (1,619,000 | ) | ||||||||||
| December 31, 2008 | 58,472 | 14,408 | 72,880 | |||||||||||||
| Net income for the year | 613,357 | 613,357 | 1,226,714 | |||||||||||||
| Zakat and income tax for year | 13 | (16,495 | ) | (121,047 | ) | (137,542 | ) | |||||||||
| Amounts withheld from shareholders towards zakat and income tax | — | 106,105 | 106,105 | |||||||||||||
| Dividend related to year 2008, net | (58,616 | ) | (15,640 | ) | (74,256 | ) | ||||||||||
| Dividend related to current year | (397,518 | ) | (397,517 | ) | (795,035 | ) | ||||||||||
| December 31, 2009 | 199,200 | 199,666 | 398,866 | |||||||||||||
Total shareholders’ equity | ||||||||||||||||
| December 31, 2009 | 617,700 | 618,166 | 1,235,866 | |||||||||||||
| December 31, 2008 | 476,972 | 432,908 | 909,880 | |||||||||||||
| December 31, 2007 | 662,274 | 621,391 | 1,283,665 | |||||||||||||
The accompanying notes form an integral part of these financial statements
- 4 -
NATIONAL METHANOL COMPANY (IBN SINA)
(LIMITED LIABILITY COMPANY)
(LIMITED LIABILITY COMPANY)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
| 2009 | 2008 | 2007 | ||||||||||
| SR 000 | SR 000 | SR 000 | ||||||||||
OPERATING ACTIVITIES | ||||||||||||
| Net income | 1,226,714 | 1,778,071 | 1,546,894 | |||||||||
| Adjustments for: | ||||||||||||
| Depreciation | 94,850 | 84,830 | 84,595 | |||||||||
| Amortization of intangible assets | 57,280 | 47,108 | 38,440 | |||||||||
| End-of-service indemnities | 7,040 | 12,975 | 15,129 | |||||||||
| Loss on disposal of property, plant and equipment | 460 | 220 | 9,709 | �� | ||||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Trade receivable from related parties | (145,618 | ) | 339,768 | (393,620 | ) | |||||||
| Inventories | (57,761 | ) | 8,680 | (8,805 | ) | |||||||
| Other receivables and prepayments | (18,106 | ) | 4,893 | (10,483 | ) | |||||||
| Accounts payable | (1,147 | ) | (4,401 | (1,914 | ) | |||||||
| Accrued and other current liabilities | 171,636 | (210,752 | ) | 114,979 | ||||||||
| Other liabilities | (3,490 | ) | (493 | ) | (8,093 | ) | ||||||
| Cash from operations | 1,331,858 | 2,060,899 | 1,386,831 | |||||||||
| End-of-service indemnities paid | (24,128 | ) | (6,331 | ) | (7,738 | ) | ||||||
| Zakat and income tax paid | (190,923 | ) | (205,850 | ) | (115,515 | ) | ||||||
Net cash from operating activities | 1,116,807 | 1,848,718 | 1,263,578 | |||||||||
INVESTING ACTIVITIES | ||||||||||||
| Additions to property, plant and equipment | (50,973 | ) | (62,746 | ) | (64,427 | ) | ||||||
| Proceeds from disposal of property, plant and equipment | 486 | — | 1,473 | |||||||||
| Additions to intangible assets | (73,103 | ) | (17,012 | ) | (72,067 | ) | ||||||
| Other non-current assets | (921 | ) | 6,928 | 2,023 | ||||||||
Net cash used in investing activities | (124,511 | ) | (72,830 | ) | (132,998 | ) | ||||||
FINANCING ACTIVITIES | ||||||||||||
| Dividends paid net of zakat and income tax | (763,186 | ) | (1,948,104 | ) | (1,317,210 | ) | ||||||
Net cash used in financing activities | (763,186 | ) | (1,948,104 | ) | (1,317,210 | ) | ||||||
Net change in cash and cash equivalents | 229,110 | (172,216 | ) | (186,630 | ) | |||||||
| Cash and cash equivalents, January 1 | 55,208 | 227,424 | 414,054 | |||||||||
CASH AND CASH EQUIVALENTS, DECEMBER 31 | 284,318 | 55,208 | 227,424 | |||||||||
The accompanying notes form an integral part of these financial statements
- 5 -
NATIONAL METHANOL COMPANY (IBN SINA)
(LIMITED LIABILITY COMPANY)
(LIMITED LIABILITY COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
| 1. | ORGANIZATION AND ACTIVITIES |
| National Methanol Company (“Ibn Sina”) (the “Company”) is a Saudi limited liability company registered under Commercial Registration No. 2055000779 dated 19 Rajab 1401H (May 23, 1981). | ||
| The Company is owned equally by Saudi Basic Industries Corporation (“SABIC”) a Saudi Arabian joint stock company and CTE Petrochemicals Company (“CTE”), a partnership registered in Cayman Islands, British West Indies. CTE is equally owned by Elwoods Insurance Company, a Bermuda Corporation, and Texas Eastern Arabian Ltd, a Bermuda Corporation. | ||
| The authorized share capital of the Company is SR 742 million divided into 7,420 units of SR 100,000 each. The paid up capital at December 31, 2009 and 2008 was SR 558 million comprised of 5,580 units of SR 100,000 each. | ||
| The Company’s principal business activity is to operate a petrochemical complex at Al-Jubail Industrial City which produces Methanol and Methy1 Tertiary Butyl Ether (“MTBE”). The Company’s Methanol and MTBE plants commenced commercial operations on November 1, 1984 and July 1, 1994, respectively. SABIC distributes and markets the Company’s products. | ||
| The Company’s registered office is in Al-Jubail Industrial City in the Kingdom of Saudi Arabia. |
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
| The accompanying financial statements have been prepared in compliance with the accounting standards issued by the Saudi Organization for Certified Public Accountants. The following is a summary of significant accounting policies applied by the Company: | ||
| Accounting convention | ||
| The financial statements are prepared under the historical cost convention. | ||
| Revenue recognition | ||
| Product sales are made to SABIC (the “Marketer”). Upon delivery of products to the Marketer, sales are recorded at provisional selling prices net of marketing expenses paid directly by the Marketer. These selling prices are later adjusted based upon actual selling prices received by the Marketer from third parties. Adjustments are recorded as they become known to the Company. | ||
| Distribution and general and administrative expenses | ||
| Distribution expenses principally comprise of costs incurred in the distribution and sale of the Company’s products / services. All other expenses are classified as general and administrative expenses. | ||
| General and administrative expenses include direct and indirect costs not specifically part of production costs as required under generally accepted accounting principles. Allocations between general and administrative expenses and cost of sales, when required, are made on a consistent basis. | ||
| Accounts receivable | ||
| Accounts receivable are stated at the original invoice amount less an allowance for any uncollectible amounts. Adjustments are recorded as they become known to the Company. An estimate for doubtful debts is made when the collection of the accounts receivable amount is considered doubtful. Bad debts are written off as incurred. |
- 6 -
NATIONAL METHANOL COMPANY (IBN SINA)
(LIMITED LIABILITY COMPANY)
(LIMITED LIABILITY COMPANY)
NOTES TO THE FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
| Inventories | ||
| Finished goods and chemicals are stated at the lower of cost or net realizable value. Cost of finished goods, chemicals, spare parts and supplies is determined on a weighted average cost basis. Inventories of finished goods include cost of materials, labor and an appropriate portion of direct overheads. | ||
| Inventory items that are considered as essential to ensure continuous plant operations are treated as capital spare parts and are classified as plant and equipment and are depreciated using the depreciation rate relevant to the corresponding plant and equipment. | ||
| Property, plant and equipment | ||
| Property, plant and equipment are stated at cost net of accumulated depreciation except for construction in progress which is stated at cost. Expenditure on maintenance and repairs is expensed, while expenditure for betterments is capitalized. Depreciation is provided over the estimated useful lives of the applicable assets using the straight line method. Leasehold improvements are amortized over the shorter of the estimated useful life or the remaining term of the lease. The estimated years of depreciation of the principal classes of assets are as follows: |
| Years | ||||
| Buildings | 33 | |||
| Plant and equipment | 20 | |||
| Catalyst | 1-6 | |||
| Furniture, fixtures and vehicles | 4-10 | |||
| Impairment |
| At each balance sheet date, the Company reviews the carrying amounts of its property, plant and equipment and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. |
| If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. Impairment losses are recognized as an expense immediately. |
| Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognized as income immediately. |
| Intangible assets |
| Intangible assets anticipated to provide identifiable future benefits are classified as non-current assets, and are amortized using the straight-line method over their estimated useful lives. Such intangibles assets and their expected amortization periods are as follows: |
| Employee home ownership (“HOP”) costs |
| Costs incurred in connection with the construction of employee housing are capitalized with the related assets and are amortized using the straight line method over a period of five years. |
- 7 -
NATIONAL METHANOL COMPANY (IBN SINA)
(LIMITED LIABILITY COMPANY)
(LIMITED LIABILITY COMPANY)
NOTES TO THE FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
| Planned turnaround costs |
| Planned turnaround costs are deferred and amortized over the period until the date of the next planned turnaround. Should an unexpected turnaround occur prior to the previously envisaged date of planned turnaround, then the previously unamortized deferred costs are immediately expensed and the new turnaround costs are amortized over the period likely to benefit from such costs. |
| Costs of implementation of SAP Enterprise Resource Planning System (“SAP ERP”) |
| As per the requirements of SABIC’s unified accounting policies, all costs relating to Fanar-SAP ERP implementation are deferred and amortized using the straight line method over a period of five years. |
| Production advances |
| Amounts received from affiliates in respect of capital advances to finance tangible assets of the Company are included under non current liabilities and are amortized over the estimated useful lives of the related assets using the straight line method. |
| End-of-service indemnities |
| End-of-service indemnities, required by the Saudi Arabian labor law, are provided in the financial statements based on the employees’ length of service. |
| Employees’ home ownership program |
| The Company has a home ownership program that offers eligible Saudi employees home ownership opportunities. |
| Unsold housing units constructed for eventual sale to eligible employees are included under property, plant and equipment and depreciated over 33 years. |
| When the houses are allocated to the employees, the cost of houses constructed and sold to the employees under the program is transferred from property, plant and equipment to other non-current assets. Down payments and installments of purchase price received from employees are set off against the other non-current assets. |
| The cost of the houses and the related purchase price is removed from other non-current assets when the title to the houses is transferred to the employees, at which time, no significant gain or loss is expected to result to the Company. |
| Employees’ savings plan |
| The Company maintains an employee saving plan. The contributions from the participants are deposited in a separate bank account and provision is established for the Company’s contribution. |
| Dividends |
| Dividends are recognised as a liability at the time of their approval by the Board of Directors. Interim dividends are recorded as and when approved by the Board of Directors. |
| Foreign currency translation |
| Foreign currency transactions are translated into Saudi Riyals at the rates of exchange prevailing at the time of the transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to Saudi Riyals at the exchange rates prevailing at that date. Gains and losses from settlement and translation of foreign currency transactions are included in the statements of income. |
- 8 -
NATIONAL METHANOL COMPANY (IBN SINA)
(LIMITED LIABILITY COMPANY)
(LIMITED LIABILITY COMPANY)
NOTES TO THE FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
| Zakat and income tax |
| The Company is subject to the Regulations of the Department of Zakat and Income Tax (“DZIT”) in the Kingdom of Saudi Arabia. Zakat and income tax are provided on an accruals basis and charged to retained earnings. The zakat charge is computed at 2.5% on the zakat base. Income tax is computed at 20% of adjusted net income. Any difference in the estimate is recorded when the final assessment is approved, at which time the provision is cleared. |
| As per the requirements of the standard issued by the Saudi Organization for Certified Public Accountants, zakat and income tax provisions for mixed companies are presented as a separate item in the statements of shareholders’ equity. Any amount withheld or recovered from shareholders towards zakat and income tax is added back to the shareholders’ equity. |
| By-product sales |
| Sales of by — products are credited to cost of sales. |
| Technology and innovation |
| Technology and innovation costs are expensed when incurred. |
| Leasing |
| Leases are classified as capital leases whenever the terms of the lease transfer substantially all of the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Rentals payable under operating leases are charged to income on a straight line basis over the term of the operating lease. |
| 3. | CASH AND CASH EQUIVALENTS |
| Cash and cash equivalents include cash, demand deposits, and highly liquid investments with original maturities of three months or less. Cash and cash equivalents as of December 31, 2009 and 2008 comprise entirely of bank balances. |
| Bank balances at December 31, 2009 include employees saving plan deposits held in a separate bank account of SR 3.5 million (2008: SR 5.2 million) which are not available to the Company. |
| 4. | INVENTORIES |
| 2009 | 2008 | |||||||
| SR 000 | SR 000 | |||||||
| Finished goods | 97,602 | 54,504 | ||||||
| Chemicals | 5,119 | 3,250 | ||||||
| Spare parts and supplies | 72,215 | 61,027 | ||||||
| Goods in transit | 5,782 | 4,176 | ||||||
| 180,718 | 122,957 | |||||||
| Inventories at December 31, 2009 are shown net of allowance for obsolescence of SR 12.3 million (2008 — SR 12.3 million). The spare parts inventory primarily relates to plant and machinery and, accordingly, this inventory is expected to be utilized over a period exceeding one year. |
- 9 -
NATIONAL METHANOL COMPANY (IBN SINA)
(LIMITED LIABILITY COMPANY)
(LIMITED LIABILITY COMPANY)
NOTES TO THE FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
| 5. | OTHER RECEIVABLES AND PREPAYMENTS |
| 2009 | 2008 | |||||||
| SR 000 | SR 000 | |||||||
| Advances to related parties (note 15) | 37,680 | 18,213 | ||||||
| Prepayments | 8,197 | 8,352 | ||||||
| Others | 6,269 | 7,475 | ||||||
| 52,146 | 34,040 | |||||||
| 6. | PROPERTY, PLANT AND EQUIPMENT | |
| 2009 |
| Furniture, | ||||||||||||||||||||||||
| Plant and | fixtures and | Construction | ||||||||||||||||||||||
| Buildings | equipment | Catalyst | vehicles | in progress | Total | |||||||||||||||||||
| SR 000 | SR 000 | SR 000 | SR 000 | SR 000 | SR 000 | |||||||||||||||||||
Cost | ||||||||||||||||||||||||
| January 1, 2009 | 304,149 | 2,094,182 | 88,600 | 75,743 | 93,503 | 2,656,177 | ||||||||||||||||||
| Additions | 5,189 | 23,440 | 1,478 | 617 | 20,249 | 50,973 | ||||||||||||||||||
| Disposals | — | — | — | (346 | ) | (946 | ) | (1,292 | ) | |||||||||||||||
| Transfers | 2,230 | 16,311 | 31,216 | 3,816 | (53,573 | ) | — | |||||||||||||||||
| December 31, 2009 | 311,568 | 2,133,933 | 121,294 | 79,830 | 59,233 | 2,705,858 | ||||||||||||||||||
Depreciation | ||||||||||||||||||||||||
| January 1, 2009 | 196,310 | 1,600,819 | 47,041 | 69,521 | — | 1,913,691 | ||||||||||||||||||
| Charge for year | 9,530 | 72,451 | 10,831 | 2,038 | — | 94,850 | ||||||||||||||||||
| Disposals | — | — | — | (346 | ) | — | (346 | ) | ||||||||||||||||
| December 31, 2009 | 205,840 | 1,673,270 | 57,872 | 71,213 | — | 2,008,195 | ||||||||||||||||||
Net book value | ||||||||||||||||||||||||
| December 31, 2009 | 105,728 | 460,663 | 63,422 | 8,617 | 59,233 | 697,663 | ||||||||||||||||||
- 10 -
NATIONAL METHANOL COMPANY (IBN SINA)
(LIMITED LIABILITY COMPANY)
(LIMITED LIABILITY COMPANY)
NOTES TO THE FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
| 2008 |
| Furniture, | ||||||||||||||||||||||||
| Plant and | fixtures and | Construction | ||||||||||||||||||||||
| Buildings | equipment | Catalyst | vehicles | in progress | Total | |||||||||||||||||||
| SR 000 | SR 000 | SR 000 | SR 000 | SR 000 | SR 000 | |||||||||||||||||||
Cost | ||||||||||||||||||||||||
| January 1, 2008 | 300,282 | 2,049,649 | 81,239 | 74,422 | 88,085 | 2,593,677 | ||||||||||||||||||
| Additions | 1,383 | 15,150 | — | 8 | 46,205 | 62,746 | ||||||||||||||||||
| Disposals | — | (28 | ) | — | (13 | ) | (205 | ) | (246 | ) | ||||||||||||||
| Transfers | 2,484 | 29,411 | 7,361 | 1,326 | (40,582 | ) | — | |||||||||||||||||
| December 31, 2008 | 304,149 | 2,094,182 | 88,600 | 75,743 | 93,503 | 2,656,177 | ||||||||||||||||||
Depreciation | ||||||||||||||||||||||||
| January 1, 2008 | 186,455 | 1,530,182 | 44,176 | 68,074 | — | 1,828,887 | ||||||||||||||||||
| Charge for year | 9,855 | 70,656 | 2,865 | 1,454 | — | 84,830 | ||||||||||||||||||
| Disposals | — | (19 | ) | — | (7 | ) | — | (26 | ) | |||||||||||||||
| December 31, 2008 | 196,310 | 1,600,819 | 47,041 | 69,521 | — | 1,913,691 | ||||||||||||||||||
Net book value | ||||||||||||||||||||||||
| December 31, 2008 | 107,839 | 493,363 | 41,559 | 6,222 | 93,503 | 742,486 | ||||||||||||||||||
| The Company has leased land for plant and equipment and buildings from the Royal Commission for Jubail and Yanbu at nominal rent. The lease is for a period of 30 years commencing from 1 Jumada 1402H (February 24, 1982) and is renewable for a similar period under mutually agreed terms and conditions. |
| At December 31, 2009 and 2008, construction in progress mainly represents costs incurred and advances paid in respect of catalyst and housing units under construction. |
| 7. | INTANGIBLE ASSETS | |
| 2009 |
| Employee | ||||||||||||||||
| home | Software | |||||||||||||||
| ownership | Turnaround | development | ||||||||||||||
| costs | Costs | costs | Total | |||||||||||||
| SR 000 | SR 000 | SR 000 | SR 000 | |||||||||||||
Cost | ||||||||||||||||
| January 1, 2009 | 4,359 | 95,552 | 16,118 | 116,029 | ||||||||||||
| Additions | — | 71,636 | 1,467 | 73,103 | ||||||||||||
| December 31, 2009 | 4,359 | 167,188 | 17,585 | 189,132 | ||||||||||||
Amortization | ||||||||||||||||
| January 1, 2009 | 385 | 78,935 | 13,268 | 92,588 | ||||||||||||
| Charge for the year | 872 | 52,091 | 4,317 | 57,280 | ||||||||||||
| December 31, 2009 | 1,257 | 131,026 | 17,585 | 149,868 | ||||||||||||
Net book value | ||||||||||||||||
| December 31, 2009 | 3,102 | 36,162 | — | 39,264 | ||||||||||||
- 11 -
NATIONAL METHANOL COMPANY (IBN SINA)
(LIMITED LIABILITY COMPANY)
(LIMITED LIABILITY COMPANY)
NOTES TO THE FINANCIAL STATEMENTS (Continued)
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
| 2008 |
| Employee | ||||||||||||||||
| home | Software | |||||||||||||||
| ownership | Turnaround | development | ||||||||||||||
| costs | costs | costs | Total | |||||||||||||
| SR 000 | SR 000 | SR 000 | SR 000 | |||||||||||||
Cost | ||||||||||||||||
| January 1, 2008 | 925 | 82,974 | 15,118 | 99,017 | ||||||||||||
| Additions | 3,434 | 12,578 | 1,000 | 17,012 | ||||||||||||
| December 31, 2008 | 4,359 | 95,552 | 16,118 | 116,029 | ||||||||||||
Amortization | ||||||||||||||||
| January 1, 2008 | 200 | 35,425 | 9,855 | 45,480 | ||||||||||||
| Charge for the year | 185 | 43,510 | 3,413 | 47,108 | ||||||||||||
| December 31, 2008 | 385 | 78,935 | 13,268 | 92,588 | ||||||||||||
Net book value | ||||||||||||||||
| December 31, 2008 | 3,974 | 16,617 | 2,850 | 23,441 | ||||||||||||
| 8. | OTHER NON-CURRENT ASSETS |
| 2009 | 2008 | |||||||
| SR 000 | SR 000 | |||||||
| Employee home ownership receivables | 25,641 | 24,731 | ||||||
| Others | 1,693 | 1,682 | ||||||
| 27,334 | 26,413 | |||||||
| 9. | ACCOUNTS PAYABLE |
| 2009 | 2008 | |||||||
| SR 000 | SR 000 | |||||||
| Trade accounts payable | 10,106 | 8,117 | ||||||
| Due to related parties | 19,719 | 22,855 | ||||||
| 29,825 | 30,972 | |||||||
| 10. | ACCRUED AND OTHER CURRENT LIABILITIES |
| 2009 | 2008 | |||||||
| SR 000 | SR 000 | |||||||
| Other operating costs | 342,666 | 171,565 | ||||||
| Technology and innovation costs (note 14) | 1,787 | 1,186 | ||||||
| Zakat and income tax (note 13) | 31,439 | 84,820 | ||||||
| Withholding tax | 6,659 | 10,862 | ||||||
| Others | 6,178 | 2,041 | ||||||
| 388,729 | 270,474 | |||||||
- 12 -
NATIONAL METHANOL COMPANY (IBN SINA)
(LIMITED LIABILITY COMPANY)
(LIMITED LIABILITY COMPANY)
NOTES TO THE FINANCIAL STATEMENTS(Continued)
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
11. END-OF-SERVICE INDEMNITIES
| 2009 | 2008 | |||||||
| SR 000 | SR 000 | |||||||
| January 1 | 100,459 | 93,815 | ||||||
| Additional provision in year | 7,040 | 12,975 | ||||||
| Utilization of provision | (24,128 | ) | (6,331 | ) | ||||
| December 31 | 83,371 | 100,459 | ||||||
12. OTHER LIABILITIES
| 2009 | 2008 | |||||||
| SR 000 | SR 000 | |||||||
| Employees’ savings plan (note 17) | 7,547 | 10,272 | ||||||
| Employees’ early retirement | 311 | 449 | ||||||
| Other deferred credits | 7,564 | 8,191 | ||||||
| 15,422 | 18,912 | |||||||
| Other deferred credits represent capital advances received from two affiliated companies for their share of the capital cost of a commonly used Truck Loading Facility which is owned and managed by the Company. These advances are being amortized to income over a period of twenty years, which approximates the period over which the related assets are depreciated by the Company. |
13. ZAKAT AND INCOME TAX
| The principal elements of the zakat base are as follows: |
| 2009 | 2008 | 2007 | ||||||||||
| SR 000 | SR 000 | SR 000 | ||||||||||
| Non-current assets | 764,261 | 792,340 | 851,668 | |||||||||
| Spare parts and supplies | 72,215 | 61,027 | 44,140 | |||||||||
| Non-current liabilities | 98,793 | 119,371 | 113,220 | |||||||||
| Opening shareholders’ equity | 909,880 | 1,283,665 | 1,229,483 | |||||||||
| Dividends paid | 763,186 | 1,948,104 | 1,317,210 | |||||||||
| Net income | 1,226,714 | 1,778,071 | 1,546,894 | |||||||||
| Some of these amounts have been adjusted in arriving at the zakat charge for the year. |
| The movement in zakat and income tax provision is as follows: |
| 2009 | 2008 | 2007 | ||||||||||
| SR 000 | SR 000 | SR 000 | ||||||||||
Zakat | ||||||||||||
| January 1 | 23,284 | 22,470 | 14,599 | |||||||||
| Provision for year | 16,495 | 21,064 | 23,703 | |||||||||
| Payments during year | (23,284 | ) | (20,250 | ) | (15,832 | ) | ||||||
| December 31 | 16,495 | 23,284 | 22,470 | |||||||||
- 13 -
NATIONAL METHANOL COMPANY (IBN SINA)
(LIMITED LIABILITY COMPANY)
(LIMITED LIABILITY COMPANY)
NOTES TO THE FINANCIAL STATEMENTS(Continued)
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
| 2009 | 2008 | 2007 | ||||||||||
| SR 000 | SR 000 | SR 000 | ||||||||||
Income tax | ||||||||||||
| January 1 | 61,536 | 64,448 | 12,332 | |||||||||
| Provision for year | 121,047 | 182,688 | 151,799 | |||||||||
| Payments during year | (167,639 | ) | (185,600 | ) | (99,683 | ) | ||||||
| December 31 | 14,944 | 61,536 | 64,448 | |||||||||
| The charge for the year for zakat and income tax is as follows: |
| 2009 | 2008 | 2007 | ||||||||||
| SR 000 | SR 000 | SR 000 | ||||||||||
| Zakat for current year | 16,495 | 21,064 | 23,703 | |||||||||
| Income tax for current year | 121,047 | 182,688 | 151,799 | |||||||||
| Charged to retained earnings | 137,542 | 203,752 | 175,502 | |||||||||
| Outstanding assessments |
| Zakat and income tax assessments have been agreed with the Department of Zakat and Income tax (DZIT) up to 1996. The DZIT has issued assessments for the years 1997 through 2004 with an additional tax, zakat and delay fine liability of SR 85.8 million. The Company has filed appeals against the above assessments and has also submitted bank guarantees amounting to SR 82.9 million to the DZIT. |
| During 2009, the DZIT issued the revised assessments for the years 1997 to 2003 based on the decision of Higher Appeal Committee and demanded an additional tax, zakat, delay fine and deemed profit tax liability of SR 56.3 million. The Company has accepted the revised assessments for the years 1997 to 2003 and paid the additional liability in January 2010. |
| The DZIT did not issue assessments for the year 2005 onwards as these years are in process by the DZIT. |
| Additional liabilities that may become payable in connection with income taxes, delay fines and costs related to the appeals will be borne by the foreign partner. |
14. GENERAL AND ADMINISTRATIVE EXPENSES
| 2009 | 2008 | 2007 | ||||||||||
| SR 000 | SR 000 | SR 000 | ||||||||||
| Employee benefits | 6,496 | 7,156 | 7,262 | |||||||||
| Technology and innovation (note 15) | 6,941 | 11,212 | 10,108 | |||||||||
| Depreciation | 10 | 64 | 140 | |||||||||
| Other | 1,370 | 1,069 | 1,444 | |||||||||
| 14,817 | 19,501 | 18,954 | ||||||||||
15. RELATED PARTY TRANSACTIONS
| The trade receivables from related parties at December 31, 2009 and 2008 mainly represent receivables from the Marketer (SABIC). |
- 14 -
NATIONAL METHANOL COMPANY (IBN SINA)
(LIMITED LIABILITY COMPANY)
(LIMITED LIABILITY COMPANY)
NOTES TO THE FINANCIAL STATEMENTS(Continued)
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
| Effective September 1999, all procurement services, including warehousing , transporting and arranging for delivery of materials related to the Company’s spare parts, supplies and materials are provided by SABIC under the terms of the procurement services agreement entered between the Company and SABIC. Starting October 2004, procurement services are provided by SABIC through the Shared Services Organization (SSO). Advances to SABIC for such services, which are included under other receivables and prepayments, amounted to SR 37.7 million at December 31, 2009 (2008: SR 18.2 million). SABIC charged the Company SR 4.2 million in 2009 (2008: SR 3.6 million) (2007: SR 2.8 million) as procurement services fees. |
| In addition to procurement services, SSO started to provide accounting, human resources, information technology, engineering, and other general services to the Company effective October 2004. The total amount charged in respect of these services was SR 7.7 million (2008: SR 7.5 million) (2007: SR 5.4 million). |
| SABIC Terminal Services Limited (Sabtank) provides shipping and material handling services to the Company. The total service fee charged by the related party in this respect amounted to SR 7.8 million (2008: SR 8.1 million) (2007: SR 6.0 million). |
| The shareholders also provide the Company with certain required technical, research and development, administrative and other services in accordance with executed agreements. The Company has a Technology and Innovation Service agreement with SABIC, under which SABIC provides research and development services to the Company. The Company is required to pay an annual fee under the agreement, which is calculated at one percent of Methanol sales plus the lesser of US $1 million or one percent of MTBE sales. A summary of the amounts charged by the shareholders is as follows: |
| 2009 | 2008 | 2007 | ||||||||||
| SR 000 | SR 000 | SR 000 | ||||||||||
| SABIC — for technology and innovation services | 6,941 | 11,212 | 10,108 | |||||||||
16. OPERATING LEASE ARRANGEMENTS
| 2009 | 2008 | 2007 | ||||||||||
| SR 000 | SR 000 | SR 000 | ||||||||||
| Charges under operating leases recognized as an expense during the year | 7,029 | 5,116 | 4,297 | |||||||||
| Operating lease charges represent rentals payable for vehicles, properties and land (note 6). Rentals are fixed at the start of each lease term for a period of 4 years for vehicles and 1 to 2 years for properties. |
17. EMPLOYEE SAVING PLAN
| The Company administers a saving plan covering substantially all of the Company’s employees. Participating employees may elect to contribute 1 to 15 percent of their basic salary. The Company matches cumulative employee contributions at a rate which increases by 10 percent each year until completion of ten years of participation, at which time Company’s cumulative contributions equal the employee’s cumulative contributions. The Company’s contributions to the saving plan are accrued monthly and are not funded. |
| Employees are always fully vested in their contributions. The employees are fully vested in the Company’s accruals generally after one year of participation in the plan. Employees may withdraw their contribution at any time under certain conditions, and have the option to repay such withdrawals. All fully |
- 15 -
NATIONAL METHANOL COMPANY (IBN SINA)
(LIMITED LIABILITY COMPANY)
(LIMITED LIABILITY COMPANY)
NOTES TO THE FINANCIAL STATEMENTS(Continued)
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
| vested amounts are payable to the employees upon retirement or termination of participation in the plan. Upon completion of ten years participation in the plan, Saudi employees may elect to continue their participation or to collect all fully vested amounts and to rejoin the plan as if for the first time. |
18. STATUTORY RESERVE
| In accordance with Regulations for Companies in Saudi Arabia, the Company has established a statutory reserve by appropriation of 10% of net income until the reserve equaled 50% of the share capital. This reserve is not available for dividend distribution. |
19. RISK MANAGEMENT
| Financial instruments carried on the balance sheet principally include cash and cash equivalents, accounts receivable from related parties and other receivables, accounts payable and accrued and other current liabilities. |
| Credit Riskis the risk that one party will fail to discharge its obligation and will cause the other party to incur a financial loss. Receivables are generally from related parties. Cash is substantially placed with banks with sound credit ratings. Trade accounts receivable are carried net of provision for doubtful debts. |
| Interest Rate Riskis the risk that the value of financial instruments will fluctuate due to changes in the market interest rates. The Company has no significant interest bearing long term assets or liabilities. |
| Liquidity Riskis the risk that the Company will encounter difficulty in raising funds to meet commitments associated with financial instruments. Liquidity risk may result from an inability to sell a financial asset quickly at an amount close to its fair value. Liquidity risk is managed by monitoring on a regular basis that sufficient funds are available to meet any future commitments. |
| Currency Riskis the risk that the value of financial instruments will fluctuate due to changes in foreign exchange rates. Management monitors the fluctuations in currency exchange rates and manages its effect on the financial statements accordingly. |
| Fair Valueis the amount for which an asset could be exchanged, or a liability settled between knowledgeable willing parties in an arm’s length transaction. As the Company’s financial instruments are compiled under the historical cost convention, differences can arise between their book values and fair value estimates. Management believes that the fair value of the Company’s financial assets and liabilities are not materially different from their carrying values. |
20. CAPITAL COMMITMENTS
| At December 31, the Company had the following capital commitments: |
| 2009 | 2008 | 2007 | ||||||||||
| SR 000 | SR 000 | SR 000 | ||||||||||
| Commitments for the acquisition of property and equipment | 84,000 | 105,000 | 116,000 | |||||||||
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NATIONAL METHANOL COMPANY (IBN SINA)
(LIMITED LIABILITY COMPANY)
(LIMITED LIABILITY COMPANY)
NOTES TO THE FINANCIAL STATEMENTS(Continued)
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
| 21. | SUMMARY OF PRINCIPAL DIFFERENCES BETWEEN ACCOUNTING STANDARDS ISSUED BY THE SAUDI ORGANIZATION FOR CERTIFIED PUBLIC ACCOUNTANTS (SAUDI GAAP) AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES (US GAAP) | |
| The Company is a Saudi limited liability company registered in the Kingdom of Saudi Arabia and prepares its financial statements in accordance with Saudi GAAP. Saudi GAAP varies in certain respects from US GAAP. The material differences between accounting principles, practices and methods under Saudi GAAP and US GAAP and their effect on net income and shareholders’ equity for the years ended December 31, 2009, 2008 and 2007 are presented below, with an explanation of the adjustments. There are no material effects on the balance sheets or the statements of cash flows under Saudi GAAP for the purposes of reconciliation to US GAAP. In addition, comprehensive income under Saudi GAAP is the same as net income. |
| (a) | Reconciliation of net income |
| Year Ended December 31, | ||||||||||||
| (in SR ‘000) | 2009 | 2008 | 2007 | |||||||||
Net income under Saudi GAAP | 1,226,714 | 1,778,071 | 1,546,894 | |||||||||
| Adjustments: | ||||||||||||
| - Zakat and income tax (i) | (137,542 | ) | (203,752 | ) | (175,502 | ) | ||||||
| - Deferred tax (ii) | (2,019 | ) | 3,521 | (7,526 | ) | |||||||
| - Actuarial valuation adjustments for end of service indemnities (iii) | (6,492 | ) | 668 | 4,200 | ||||||||
| - Other (iv) | 3,463 | 1,115 | 3,763 | |||||||||
Net income under US GAAP | 1,084,124 | 1,579,623 | 1,371,829 | |||||||||
| (b) | Reconciliation of shareholders’ equity |
| Year Ended December 31, | ||||||||||||
| (in SR ‘000) | 2009 | 2008 | 2007 | |||||||||
Shareholders’ equity under Saudi GAAP | 1,235,866 | 909,880 | 1,283,665 | |||||||||
| - Deferred tax (ii) | (147 | ) | 1,872 | (1,649 | ) | |||||||
| - Actuarial valuation adjustments for end of service indemnities (iii) | (21,215 | ) | (14,723 | ) | (15,391 | ) | ||||||
| - Other (iv) | (10,801 | ) | (14,264 | ) | (26,879 | ) | ||||||
Shareholders’ equity under US GAAP | 1,203,703 | 882,765 | 1,239,746 | |||||||||
| (c) | Summary of reconciling items to US GAAP |
| (i) | Zakat and income tax | ||
| Under Saudi GAAP, companies with both Saudi and foreign shareholders (commonly referred to as mixed companies) are required to present income tax and zakat as a separate line item in the statement of changes in shareholders’ equity. However, under US GAAP, income tax and zakat are viewed as expenses attributable to the Company’s operations. Accordingly, income tax and zakat are recognized in the statement of income. | |||
| (ii) | Deferred tax |
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NATIONAL METHANOL COMPANY (IBN SINA)
(LIMITED LIABILITY COMPANY)
(LIMITED LIABILITY COMPANY)
NOTES TO THE FINANCIAL STATEMENTS(Continued)
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
| The Company has not recognized deferred income taxes under Saudi GAAP. Under US GAAP, deferred tax assets and deferred tax liabilities are recognized for future tax consequences of events, which have been recognized in an entity’s financial statements or tax returns. The Company recognized deferred tax assets and liabilities for the portion of temporary differences subject to income tax, that is, the portion of the taxable income attributable to foreign shareholders. Deferred tax assets and liabilities attributable to zakat, which is also considered as a tax based on income, are not material and, as such, have not been recorded. |
| (iii) | Employee benefits — end of service indemnities (“EOSI”) | ||
| Under Saudi GAAP, the Company’s EOSI obligations is calculated as the current value of the aggregate vested benefits to which each employee is entitled, assuming each employee had left the Company at the balance sheet date. However, under US GAAP, EOSI is deemed to be a defined benefit plan, and requires recognition of a liability, known as projected benefit obligation, for the actuarial present value as of the balance sheet date of all benefits attributed by the benefit formula to employee services before that date. Since EOSI is unfunded, under US GAAP, a liability is recognized equal to the projected benefit obligation. Net periodic pension costs comprise of service costs, interest costs, and gains and losses. In addition, gains or losses that are not recognized immediately as a component of net periodic pension cost are recognized as increases or decreases in other comprehensive income as they arise, and subsequently amortized to income using the corridor approach. | |||
| (iv) | Other | ||
| Other adjustments include the impact on net income and shareholders’ equity primarily for intangible assets capitalized under Saudi GAAP which should be expensed under US GAAP and interest-free loans to employees recorded at historical cost under Saudi GAAP that are recorded at amortized cost under US GAAP. |
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