NOVA Chemicals: Strong Cash Flow, Excellent Operating Results
* Reuters is not responsible for the content in this press release.
PITTSBURGH--(Business Wire)--
All financial information is in U.S. dollars, and all earnings per
share results are diluted, unless otherwise indicated.
Third Quarter 2008 Results
-- Net income of $98 million ($1.18 per share) compares to $18
million ($0.21 per share) for the second quarter of 2008, and
$97 million ($1.16 per share) for the third quarter of 2007.
-- Adjusted net income of $83 million ($1.00 per share) compares
to $83 million ($1.00 per share) in the second quarter of
2008, and $85 million ($1.01 per share) for the third quarter
of 2007. See Supplemental Measures on page 22.
-- Adjusted EBITDA from the businesses of $261 million was
approximately the same strong level as the $258 million
reported in the second quarter of 2008, and the $262 million
in the third quarter of 2007. Adjusted EBITDA from the
businesses for the first nine months of 2008 was a record of
$775 million and compares to $685 million for the first nine
months of 2007. See Supplemental Measures on page 22.
Third Quarter 2008 Highlight
-- Cash flow from operations was $123 million, compared to $54
million for the second quarter of 2008, and $15 million cash
used in operations in the third quarter of 2007.
"As a result of our strong feedstock advantage and record
September polyethylene order demand, NOVA Chemicals again delivered
business EBITDA at more than a $1 billion annualized rate. Our
performance has been remarkably steady and powerful. NOVA Chemicals
significantly increased its cash flow and liquidity in the third
quarter, and I expect further improvement of both in the fourth
quarter," said Jeff Lipton, CEO, NOVA Chemicals.
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Adjusted EBITDA Third Second
from the Businesses Quarter Quarter
($U.S. millions) 2008 2008
Olefins/Polyolefins $282 $258
INEOS NOVA JV (13) 4
Performance Styrenics (8) (4)
------------ -------------
Adjusted EBITDA from
the Businesses $261 $258
-------------------------------------------------
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NOVA Chemicals (NYSE:NCX)(TSX:NCX) will host a conference call
today, Thursday, October 23, 2008 for investors and analysts at 11:30
a.m. EDT (9:30 a.m. MDT; 8:30 a.m. PDT). Media are welcome to join
this call in "listen-only" mode. The dial-in number for this call is
(416) 406-6419. The replay number is (416) 695-5800 (Reservation No.
3230760). The live call is also available on the Internet at
www.investorcalendar.com (ticker symbol NCX).
NOVA Chemicals Financial Highlights
These highlights should be read in conjunction with NOVA
Chemicals' other interim and annual financial statement disclosures
and its 2007 Annual Report.
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Three Months Ended Nine Months Ended
(millions of U.S. dollars,
except per share amounts or Sep. 30 June 30 Sep. 30 Sep. 30 Sep. 30
unless otherwise noted) 2008 2008 2007 2008 2007
---------------------------------------------------- -----------------
Revenue $2,088 $2,213 $1,755 $6,213 $4,937
Adjusted EBITDA (1)
Olefins/Polyolefins (2) $282 $258 $280 $786 $667
INEOS NOVA Joint Venture (13) 4 (22) (1) 23
Performance Styrenics (8) (4) 4 (10) (5)
---------------------------------------------------- -----------------
Adjusted EBITDA from the
Businesses (3) 261 258 262 775 685
Corporate (see page 7) (27) (32) (20) (108) (93)
---------------------------------------------------- -----------------
Adjusted EBITDA $234 $226 $242 $667 $592
Operating income (3) $188 $67 $188 $362 $439
Net income $98 $18 $97 $166 $221
Earnings per common share,
diluted $1.18 $0.21 $1.16 $1.99 $2.65
Adjusted earnings per share,
diluted (3) $1.00 $1.00 $1.01 $2.84 $2.34
Funds from operations (3) $152 $143 $186 $422 $408
Cash from (used in)
operations $123 $54 $(15) $165 $124
(1) Net income before interest expense, income taxes, depreciation and
amortization, other gains/losses, mark-to-market feedstock
derivatives and restructuring charges (see Supplemental Measures on
page 22). In the second quarter of 2008, NOVA Chemicals changed its
definition of adjusted EBITDA to exclude the non-cash mark-to-market
impact of feedstock derivatives. Prior periods have been restated
accordingly.
(2) Olefins/Polyolefins consists of Joffre Olefins, Corunna Olefins
and Polyethylene segments (see Note 8 on page 17).
(3) See Supplemental Measures on page 22.
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Review of Business Results
OLEFINS/POLYOLEFINS BUSINESS UNIT
Financial Highlights (1)
---------------------------------------------------- -----------------
(millions of U.S. dollars,
except as noted) Three Months Ended Nine Months Ended
Sep. 30 June 30 Sep. 30 Sep. 30 Sep. 30
2008 2008 2007 2008 2007
---------------------------------------------------- -----------------
Revenue $1,515 $1,583 $1,206 $4,500 $3,246
Adjusted EBITDA (2)
Joffre Olefins $226 $185 $172 $579 $400
Corunna Olefins 1 27 57 42 157
Polyethylene 61 48 60 153 132
Eliminations (6) (2) (9) 12 (22)
---------------------------------------------------- -----------------
Total Adjusted EBITDA $282 $258 $280 $786 $667
Depreciation 52 52 48 159 136
---------------------------------------------------- -----------------
Operating income (2) $230 $206 $232 $627 $531
Capital Spending $32 $34 $23 $93 $68
PE Sales Volumes (millions of
pounds) (3)
Advanced SCLAIRTECH(TM)
resins 228 213 222 678 641
All other polyethylene
resins 636 692 608 2,007 1,820
---------------------------------------------------- -----------------
Total Sales 864 905 830 2,685 2,461
---------------------------------------------------- -----------------
(1) See Note 8 on page 17 for complete segmented financial results.
(2) See Supplemental Measures on page 22.
(3) Third-party sales. Advanced SCLAIRTECH resins are produced at the
Joffre site and include SCLAIR(R) and SURPASS(R) resins.
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Average Benchmark Prices (1)
--------------------------------------------------- ------------------
(U.S. dollars per pound,
unless otherwise noted) Three Month Average Nine Month Average
Sep. 30 June 30 Sep. 30 Sep. 30 Sep. 30
2008 2008 2007 2008 2007
--------------------------------------------------- ------------------
Principal Products:
Ethylene (2) $0.68 $0.66 $0.50 $0.65 $0.45
Polyethylene - linear low
density butene liner (3) $0.91 $0.85 $0.67 $0.85 $0.62
Polyethylene - weighted-
average benchmark (3) $0.97 $0.89 $0.70 $0.90 $0.65
Raw Materials:
AECO natural gas (dollars
per mmBTU) (4) $7.47 $10.11 $4.96 $8.49 $5.90
NYMEX natural gas (dollars
per mmBTU) (4) $10.09 $10.80 $6.13 $9.66 $6.88
WTI crude oil (dollars per
barrel) (5) $117.98 $123.98 $75.38 $113.29 $66.23
--------------------------------------------------- ------------------
(1) Average benchmark prices do not necessarily reflect actual prices
realized by NOVA Chemicals or any other petrochemical company.
(2) Source: Chemical Market Associates, Inc. (CMAI) U.S. Gulf Coast
(USGC) Net Transaction Price.
(3) Source. Townsend Polymer Services and Information (TPSI).
Benchmark prices weighted according to NOVA Chemicals' sales volume
mix in North America.
(4) Source: Canadian Gas Price Reporter. AECO gas is weighted-average
daily spot gas price. NYMEX gas is Henry Hub 3-Day Average Close.
(5) Source: Platt's. NYMEX WTI daily spot-settled price average for
calendar month.
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Review of Operations
The Olefins / Polyolefins business unit reported adjusted EBITDA
of $282 million, the highest third quarter in history, and up
significantly from $258 million in the second quarter of 2008. The
improvement was due to higher Joffre Olefins and Polyethylene segment
margins, which were driven by higher selling prices and a record
Alberta Advantage that averaged 28 cents per pound in the third
quarter of 2008 versus 17 cents per pound in the second quarter of
2008. In the Joffre Olefins segment, declining natural gas and power
prices led to significantly lower feedstock and operating costs in the
third quarter compared to the second quarter of 2008.
Adjusted EBITDA of $282 million in the third quarter of 2008 was
slightly higher than the $280 million reported in the third quarter
last year. The year-over-year improvement was due to higher Joffre
Olefins and Polyethylene segment margins, which were driven by higher
selling prices and an Alberta Advantage that averaged 28 cents per
pound in the third quarter of 2008 versus 21 cents per pound in the
third quarter one year ago. This improvement more than offset the
lower Corunna Olefins segment's results that were due to reduced
co-product sales volumes and higher feedstock costs.
Olefins / Polyolefins reported adjusted EBITDA of $786 million for
the first nine months of 2008, significantly higher than the $667
million in the first nine months of 2007. The improvement was due to
sharp margin expansion of the Joffre Olefins segment and improved
Polyethylene segment margins which outpaced declines at Corunna
Olefins.
Joffre Olefins
Third Quarter 2008 Versus Second Quarter 2008
The Joffre Olefins segment reported adjusted EBITDA of $226
million in the third quarter of 2008, up sharply from $185 million in
the second quarter of 2008. Margins increased as feedstock and
operating costs fell sharply, while pricing and sales volume were
effectively unchanged. Industry average prices for ethylene increased
3%, driven mainly by higher feedstock costs in the United States Gulf
Coast (USGC) region.
Alberta ethane costs were 19% lower than in the second quarter.
Natural gas prices fell 26% due to temperate weather that reduced
demand and led to strong inventory builds. In comparison, average USGC
ethane prices were 4% higher in the third quarter, driven by strong
demand and low inventories through August. As a result, the Alberta
Advantage averaged a quarterly record 28 cents per pound in the third
quarter, up from 17 cents per pound in the second quarter of 2008. In
September, USGC ethane prices deteriorated as hurricanes Gustav and
Ike disrupted demand for ethane leading to an unsurprising softening
of the Advantage. The Alberta Advantage is about 8 cents per pound on
average so far in October, as some USGC operations have been slow to
restart and ethane prices remain depressed due to excess ethane
inventories.
Third Quarter 2008 Versus Third Quarter 2007
The Joffre Olefins segment reported adjusted EBITDA of $226
million in the third quarter of 2008, up sharply from $172 million in
the third quarter of 2007. Margins improved as higher selling prices
outpaced higher feedstock costs. Industry ethylene prices increased
36%, driven mainly by higher USGC feedstock costs. The Alberta
Advantage averaged 28 cents per pound in the third quarter of 2008,
versus 21 cents per pound in the third quarter of 2007.
Nine Months Ended Sep. 30, 2008, Versus Nine Months Ended Sep. 30,
2007
The Joffre Olefins segment reported a record adjusted EBITDA of
$579 million for the nine months ended Sep. 30, 2008, and was
significantly higher than the $400 million reported for the nine
months ended Sep. 30, 2007. Ethylene price increases outpaced higher
costs, causing margins to expand. Industry average ethylene prices
were 44% higher than the same period last year, driven by strong
demand and higher USGC feedstock costs. The Alberta Advantage averaged
22 cents per pound in the nine months ended Sep. 30, 2008, compared to
14 cents per pound in the same period last year.
Corunna Olefins
Third Quarter 2008 Versus Second Quarter 2008
The Corunna Olefins segment reported adjusted EBITDA of $1 million
in the third quarter of 2008, compared to $27 million in the second
quarter of 2008. The decrease was due to lower co-product sales caused
by a temporary reduction of demand from USGC customers affected by the
hurricanes and a scheduled outage at Corunna's front-end crude oil
refining unit. In addition, higher flow-through feedstock costs
outpaced higher selling prices.
In the third quarter, the average WTI crude oil price decreased
5%, but NOVA Chemicals' average flow-through crude oil costs increased
11%. The Corunna ethylene plant's increased flexibility was employed
in the third quarter to reduce crude oil consumption in favor of
natural gas liquids, thereby mitigating the impact of flow-through
crude oil costs. The average co-product selling price was 13% higher
than last quarter. Industry prices for ethylene increased 3%, driven
mainly by changes in feedstock costs.
Third Quarter 2008 Versus Third Quarter 2007
The Corunna Olefins segment reported adjusted EBITDA of $1 million
in the third quarter of 2008, compared to $57 million in the third
quarter one year ago as a result of lower margins. Average
flow-through crude oil costs were 66% higher in the third quarter of
2008 versus the third quarter of 2007, while ethylene and co-product
prices were 48% and 66% higher, respectively. In addition, sales
volumes were limited by scheduled maintenance and hurricane-related
customer shutdowns.
Nine Months Ended Sep. 30, 2008, Versus Nine Months Ended Sep. 30,
2007
The Corunna Olefins segment reported adjusted EBITDA of $42
million for the nine months ended Sep. 30, 2008, compared to $157
million for the nine months ended Sep. 30, 2007. Feedstock cost
increases significantly outpaced higher ethylene and co-product
prices. Similar to USGC ethylene crackers that consume crude oil-based
feedstock like naphtha, Corunna's margins were lower in the first nine
months of 2008 as sharply rising feedstock costs outpaced selling
prices for ethylene and co-products. Feedstock costs were 63% higher
in the first nine months of 2008, while ethylene and co-product
pricing was up 50% and 44% respectively.
Polyethylene
Third Quarter 2008 Versus Second Quarter 2008
The Polyethylene segment reported adjusted EBITDA of $61 million
in the third quarter of 2008 compared to $48 million in the second
quarter of 2008. The quarter-over-quarter improvement was largely due
to higher selling prices that more than offset higher flow-through
feedstock costs.
NOVA Chemicals' polyethylene sales volume was 864 million pounds
in the third quarter. NOVA Chemicals' international sales were 145
million pounds, or 17% of total sales, lower than the 19% in the
second quarter of 2008, but higher than the five-year average of 14%.
The Company reduced international sales due to scheduled outages and
strong domestic demand for all polyethylene products.
Sales of polyethylene manufactured using Advanced SCLAIRTECH(TM)
technology (AST polyethylene) totaled 228 million pounds in the third
quarter, an increase of 7% from the second quarter of 2008. Sales
volume again exceeded nameplate capacity in the third quarter,
reflecting customers' continued strong demand for these new high-value
products.
NOVA Chemicals ended the third quarter with 12 days of
polyethylene inventory, the lowest quarter-end inventory in history,
and much lower than the industry average of 36 days as reported by the
American Chemistry Council. The industry inventory levels were
affected by two key events in the third quarter. First, feedstock
costs fell sharply in August, and buyers reduced purchases to a
minimum in anticipation of lower prices, causing producer inventory to
rise. Second, in September, hurricanes Gustav and Ike shut down a
significant proportion of industry capacity, and producer inventory
was depleted significantly. For the quarter, absolute inventory
declined 162 million pounds from already low levels at the close of
the second quarter, according to the American Chemistry Council.
The North American industry butene liner polyethylene price
increased 6 cents per pound to an average 91 cents per pound,
according to Townsend Polymer Services and Information. The trajectory
of prices in the third quarter followed that of feedstock costs,
increasing early in the quarter and declining later. Industry
feedstock cost declines in the latter part of the quarter
significantly outpaced average price reductions, causing margins to
expand.
Third Quarter 2008 Versus Third Quarter 2007
The Polyethylene segment reported adjusted EBITDA of $61 million
in the third quarter of 2008 compared to $60 million in the third
quarter of 2007. Industry butene liner polyethylene prices averaged 91
cents per pound in the third quarter of 2008 as compared to 67 cents
per pound in the same period one year ago. In the third quarter of
2008, higher selling prices were almost completely offset by higher
feedstock costs compared to the third quarter of 2007.
Nine Months Ended Sep. 30, 2008, Versus Nine Months Ended Sep. 30,
2007
The Polyethylene segment reported adjusted EBITDA of $153 million
for the nine months ended Sep. 30, 2008, compared to $132 million for
the nine months ended Sep. 30, 2007. Average industry butene liner
polyethylene prices were 37% higher in the nine months ended Sep. 30,
2008, while NOVA Chemicals' sales volume increased 9%.
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INEOS NOVA Joint Venture
Financial Highlights (1)
---------------------------------------------------- -----------------
(millions of U.S. dollars,
except as noted) Three Months Ended Nine Months Ended
Sep. 30 June 30 Sep. 30 Sep. 30 Sep. 30
2008 2008 2007 2008 2007
---------------------------------------------------- -----------------
Revenue $549 $594 $537 $1,622 $1,642
Adjusted EBITDA (2) $(13) $4 $(22) $(1) $23
Depreciation 7 5 6 18 16
---------------------------------------------------- -----------------
Operating Income (Loss) (2) $(20) $(1) $(28) $(19) $7
Capital Spending $4 $5 $6 $16 $18
Sales Volumes (3) (millions
of pounds)
Styrene Monomer 237 279 356 759 1,042
Solid and Expandable
Polystyrene 372 421 410 1,207 1,294
---------------------------------------------------- -----------------
Total Sales 609 700 766 1,966 2,336
---------------------------------------------------- -----------------
(1) As of Oct. 1, 2007, the results reflect NOVA Chemicals' 50% share
in INEOS NOVA. See Note 8 on page 17 for details and for complete
segmented results.
(2) See Supplemental Measures on page 22.
(3) Third-party sales. Polystyrene sales consist of solid polystyrene
sales in North America and solid and expandable polystyrene sales in
Europe.
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Average Benchmark Prices (1)
--------------------------------------------------- ------------------
(U.S. dollars per pound,
unless otherwise noted) Three Month Average Nine Month Average
Sep. 30 June 30 Sep. 30 Sep. 30 Sep. 30
2008 2008 2007 2008 2007
--------------------------------------------------- ------------------
Principal Products:
Styrene Monomer - North
America (2) $0.86 $0.78 $0.68 $0.79 $0.68
Solid Polystyrene - North
America (2) $1.20 $1.08 $0.98 $1.11 $0.97
Solid Polystyrene - Europe
(2) $0.94 $0.93 $0.82 $0.92 $0.80
Raw Materials:
Benzene (dollars per gallon)
(2) $4.36 $3.98 $3.55 $4.00 $3.68
Ethylene (2) $0.68 $0.66 $0.50 $0.65 $0.45
--------------------------------------------------- ------------------
(1) Average benchmark prices do not necessarily reflect actual prices
realized by INEOS NOVA or any other petrochemical company.
(2) Source: CMAI Contract Market.
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Review of Operations
Third Quarter 2008 Versus Second Quarter 2008
NOVA Chemicals' 50% share of INEOS NOVA reported an adjusted
EBITDA loss of $13 million in the third quarter of 2008, down from
adjusted EBITDA of $4 million in the second quarter of 2008. For the
joint venture, higher feedstock costs more than offset higher selling
prices, resulting in lower margins in the third quarter.
At the end of the third quarter of 2008, which marked the first
full year of operation for the joint venture, INEOS NOVA achieved an
annualized run rate of $63 million of synergies, up from $53 million
at the end of the second quarter of 2008. The business is on track to
deliver synergies at a new, annualized target rate of $135 million by
the end of 2009 through further cost cutting and business
optimization. NOVA Chemicals' share of these savings is 50%.
In North America, sales volumes of both monomer and polymer
declined due to the impact of hurricane Ike, which disrupted
logistics, constrained raw material availability and caused shutdowns
at INEOS NOVA's styrene monomer production sites at Bayport, TX, and
Texas City, TX. Both styrene monomer and polymer margins contracted in
the third quarter as higher selling prices were more than offset by
higher flow-through feedstock costs in the third quarter compared to
the second quarter of 2008. In Europe, polystyrene margins were
unchanged in the third quarter of 2008 as higher selling prices were
offset by higher feedstock costs and lower sales volumes than the
second quarter of 2008. In September, INEOS NOVA cut production by 30%
to reduce inventory. Expandable polystyrene margins declined in the
third quarter as higher average selling prices were more than offset
by higher feedstock costs compared to the second quarter of 2008.
Third Quarter 2008 Versus Third Quarter 2007
NOVA Chemicals' 50% share of INEOS NOVA provided an adjusted
EBITDA loss of $13 million in the third quarter of 2008 compared to an
adjusted EBITDA loss of $22 million in the third quarter of 2007, a
period prior to the expansion of the joint venture in North America
when flow-through feedstock costs were disadvantaged.
Nine Months Ended Sep. 30, 2008, Versus Nine Months Ended Sep 30,
2007
NOVA Chemicals' 50% share of INEOS NOVA provided an adjusted
EBITDA loss of $1 million for the nine months ended Sep. 30, 2008
compared to adjusted EBITDA of $23 million for the nine months ended
Sep. 30, 2007. Lower demand in key end-use markets such as appliances
and construction caused chain margins to weaken in the first nine
months of 2008 versus the first nine months of 2007.
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PERFORMANCE STYRENICS BUSINESS UNIT
Financial Highlights
---------------------------------------------------- -----------------
(millions of U.S. dollars,
except as noted) Three Months Ended Nine Months Ended
Sep. 30 June 30 Sep. 30 Sep. 30 Sep. 30
2008 2008 2007 2008 2007
---------------------------------------------------- -----------------
Revenue $114 $127 $107 $363 $305
Adjusted EBITDA (1) $(8) $(4) $4 $(10) $(5)
Depreciation 6 6 7 18 19
---------------------------------------------------- -----------------
Operating Loss (1) $(14) $(10) $(3) $(28) $(24)
Capital Spending $1 $5 $6 $7 $10
Sales Volumes (2) (millions
of pounds) 93 105 108 301 318
---------------------------------------------------- -----------------
(1) See Supplemental Measures on page 22.
(2) Third-party sales.
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Average Benchmark Prices (1)
--------------------------------------------------- ------------------
(U.S. dollars per pound) Three Month Average Nine Month Average
Sep. 30 June 30 Sep. 30 Sep. 30 Sep. 30
2008 2008 2007 2008 2007
--------------------------------------------------- ------------------
Styrene Monomer $0.86 $0.78 $0.68 $0.79 $0.68
Expandable Polystyrene $1.14 $1.06 $1.02 $1.07 $0.98
----------------------------------------------------------------------
(1) Source: CMAI Contract Market. Average benchmark prices do not
necessarily reflect actual prices realized by NOVA Chemicals or any
other petrochemical company.
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Review of Operations
Third Quarter 2008 Versus Second Quarter 2008
The Performance Styrenics segment reported an adjusted EBITDA loss
of $8 million in the third quarter of 2008 compared to an adjusted
EBITDA loss of $4 million in the second quarter of 2008. Polymer
margins declined as higher selling prices were more than offset by
styrene monomer costs that increased 9% in the quarter and lower sales
volumes.
Expandable polystyrene volume declined 11% due to the continued
slowdown in construction markets and by reduced demand from customers
who delayed orders in anticipation of lower prices. In addition,
benzene feedstock prices were higher in North America than in Asia,
which increased costs for North American producers and led to higher
Asian imports late in the quarter. Sales volumes for DYLARK(R) resins
fell 22% as automotive production declined in North America and
Europe. ARCEL(R) resin sales increased 6% in the third quarter as
sales growth in new applications outpaced the general slowdown in
demand for consumer durables.
Definitive contract discussions with Reliance Industries Limited
to form a building and construction joint venture continued in the
third quarter, and NOVA Chemicals expects the joint venture to start
up in the fourth quarter of 2008 as scheduled. The joint venture will
be named Reliance Innovative Building Solutions. The parties have
identified the construction sites for the first two buildings and
completed structural engineering designs. During the third quarter,
NOVA Chemicals decided to focus on global licensing of the IMx(TM) cup
and container technology, and to discontinue direct sales of cups in
the North American market by year end.
Third Quarter 2008 Versus Third Quarter 2007
The Performance Styrenics segment reported an adjusted EBITDA loss
of $8 million in the third quarter of 2008 compared to a gain of $4
million in the third quarter of 2007. Higher feedstock costs and lower
sales volume more than offset higher selling prices. Sales volumes
declined 14% overall in the third quarter of 2008 compared to one year
ago. Sales volumes for expandable polystyrene declined 8% due to the
weak building and construction market, and volumes of
automotive-oriented DYLARK resins were down 35% this quarter compared
to one year ago. ARCEL resin sales were unchanged in the third quarter
of 2008 as compared to the third quarter of 2007, reflecting ongoing
successful product qualification by customers that offset slowing
durable goods demand.
Nine Months Ended Sep. 30, 2008, Versus Nine Months Ended Sep. 30,
2007
The Performance Styrenics segment reported an adjusted EBITDA loss
of $10 million for the nine months ended Sep. 30, 2008, compared to an
adjusted EBITDA loss of $5 million for the nine months ended Sep. 30,
2007. For all polymers, the weighted-average selling price increase of
10% was more than offset by the 12% increase in feedstock costs and 5%
lower volume, as compared to the nine months ended Sep. 30, 2007.
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CORPORATE
---------------------------------------------------- -----------------
(millions of U.S. dollars) Three Months Ended Nine Months Ended
Sep. 30 June 30 Sep. 30 Sep. 30 Sep. 30
2008 2008 2007 2008 2007
---------------------------------------------------- -----------------
Before-Tax Corporate Items:
Corporate operating costs(1) $(21) $(33) $(16) $(89) $(69)
Stock-based compensation and
profit sharing (2) (9) (3) (6) (29) (30)
Mark-to-market feedstock
derivatives (3) 22 (87) 9 (95) 34
Restructuring - (5) - (5) (10)
---------------------------------------------------- -----------------
Operating loss $(8) $(128) $(13) $(218) $(75)
Add back:
Mark-to-market feedstock
derivatives (3) (22) 87 (9) 95 (34)
Corporate depreciation 3 4 2 10 6
Restructuring - 5 - 5 10
---------------------------------------------------- -----------------
Adjusted EBITDA (4) $(27) $(32) $(20) $(108) $(93)
---------------------------------------------------- -----------------
(1) Includes corporate depreciation.
(2) NOVA Chemicals has two cash-settled, stock-based incentive
compensation plans that are marked to market with changes in the
value of the common stock price. In November 2005, NOVA Chemicals
entered into forward transactions that effectively neutralize the
mark-to-market impact of the stock-based incentive compensation
plans. During the third quarter of 2008, the forward transactions
were extended through November 2009. Stock-based compensation also
includes the amount expensed related to the fair value of stock
options earned by employees during the period. In addition, NOVA
Chemicals maintains a profit sharing program available to most
employees based on the achievement of shareholder return on equity
targets.
(3) NOVA Chemicals is required to record on its balance sheet the
market value of its open derivative positions which do not qualify
for hedge accounting treatment. The gain or loss resulting from
changes in the market value of these derivatives is recorded as
earnings or loss each period. These mark-to-market adjustments are
recorded in the feedstock and operating costs line on the Statements
of Income and as part of Corporate results until the positions are
realized. Once realized, any income effects are recorded in business
results.
(4) See Supplemental Measures on page 22. In the second quarter of
2008, NOVA Chemicals changed its definition of Adjusted EBITDA to
exclude the non-cash mark-to-market impact of feedstock derivatives.
Prior periods have been restated accordingly.
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Corporate Operating Costs
Corporate operating costs of $21 million in the third quarter of
2008 were lower than the $33 million in the second quarter of 2008.
The quarter-over-quarter decrease was primarily due to lower general
corporate costs and a weaker Canadian dollar.
Corporate operating costs were $21 million in the third quarter of
2008 compared to $16 million in the third quarter one year ago
primarily due to higher professional fees and higher incentive
compensation charges.
Corporate operating costs for the nine months ended Sep. 30, 2008,
were $20 million higher than the same period in the prior year
primarily due to higher incentive compensation charges, higher
corporate depreciation and a stronger Canadian dollar.
Stock-based Compensation and Profit Sharing
Stock-based compensation and profit sharing expenses of $9 million
during the third quarter of 2008 were higher than the second quarter
of 2008 and the third quarter of 2007 primarily due to an increase in
the profit sharing accrual, based on the Company's strong performance
year-to-date.
Mark-to-Market Feedstock Derivatives
The mark-to-market value of NOVA Chemicals' open feedstock
positions increased in the third quarter of 2008, resulting in a
non-cash gain of $22 million before tax ($15 million after-tax). The
Company locks in a portion of its propane and butane feedstock
requirements as a percentage of crude oil using forward contracts that
extend to 2012. Strengthening forward propane and butane prices as a
percentage of forward crude oil prices drove the non-cash
mark-to-market improvement.
NOVA Chemicals recorded an unrealized loss of $87 million ($61
million after-tax) in the second quarter of 2008 and an unrealized
gain of $9 million ($6 million after-tax) in the third quarter of 2007
on the feedstock derivative positions.
Restructuring
There were no restructuring charges in the third quarter of 2008.
Refer to Note 3 on page 15 for details related to restructuring
charges for all prior periods presented.
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Capitalization, Liquidity and Cash Flow
Capitalization
----------------------------------------------------------------------
(millions of U.S. dollars) Sep. 30 June 30 Sep. 30
2008 2008 2007
----------------------------------------------------------------------
Net current debt (1) $253 $504 $238
Long-term debt 1,492 1,292 1,663
Less: cash and cash equivalents (76) (67) (121)
----------------------------------------------------------------------
Total debt, net of cash, cash equivalents, and
restricted cash 1,669 1,729 1,780
Total shareholders' equity 1,160 1,167 961
----------------------------------------------------------------------
Net debt to total capitalization (1) 59% 60% 65%
----------------------------------------------------------------------
----------------------------------------------------------------------
Decrease (increase) in debt, net of cash 60 (9) (80)
----------------------------------------------------------------------
(1) See Supplemental Measures on page 22.
*T
Liquidity
Liquidity is defined as total revolving credit facilities, less
utilization (including letters of credit), plus cash and cash
equivalents. NOVA Chemicals' total liquidity at the end of the third
quarter of 2008 was $510 million, up from $483 million at the end of
the second quarter of 2008, and within the Company's target range.
As of Sep. 30, 2008, NOVA Chemicals has five revolving credit
facilities totaling $683 million. The fifth revolving credit facility,
with availability of $100 million, was added in August 2008 and
matures in three tranches between March 2010 and September 2013. As of
Sep. 30, 2008 and June 30, 2008, NOVA Chemicals had utilized $249
million and $167 million of its revolving credit facilities,
respectively (of which $46 million and $49 million, respectively, was
in the form of letters of credit). The Company continues to comply
with all financial covenants related to these facilities.
On Aug. 15, 2008, NOVA Chemicals repaid its $125 million 7.25%
debentures that were scheduled to mature in 2028, but were redeemed at
the option of the holders. On Sep. 22, 2008, NOVA Chemicals extended
the maturity date of the total return swap related to the $126 million
of Series A preferred shares by one year to Oct. 31, 2009. See Note 7
on page 17.
Also in September 2008, the Company extended forward transactions
to November 2009 that are intended to neutralize the mark-to-market
impact of two of NOVA Chemicals' cash-settled stock-based compensation
plans. A $29 million payment of accrued interest is due in November
2008. See page 7.
NOVA Chemicals' $250 million 7.4% debentures are scheduled to
mature in April 2009.
NOVA Chemicals also has $300 million in accounts receivable
securitization programs that expire on June 30, 2010. The balances as
of Sep. 30, 2008 and June 30, 2008, were $286 million and $308
million, respectively. In March 2008, the availability under the
programs was decreased from $350 million to $300 million beginning in
August 2008. NOVA Chemicals does not include any undrawn amounts under
the accounts receivable securitization programs as part of liquidity.
During the third quarter of 2008, INEOS NOVA entered into a $150
million North American accounts receivable securitization program that
expires in July 2010. As of Sep. 30, 2008, $113 million was sold under
the program.
Cash Flow and Working Capital
During the third quarter of 2008, cash flow from operations was
$123 million, up significantly from the second quarter of 2008. Cash
flow from operations exceeded NOVA Chemicals' capital expenditures and
turnaround spending by $56 million in the third quarter, much more
than in the second quarter.
During the third quarter of 2008, NOVA Chemicals invested $46
million in working capital. The investment was primarily due to lower
crude oil prices and purchases and lower natural gas prices, which
decreased accounts payable, partially offset by the start-up of INEOS
NOVA's North American accounts receivable securitization program which
reduced accounts receivable.
NOVA Chemicals has completed the first step in a crude oil
working-capital reduction effort. The Company believes this new
arrangement, combined with lower inventory and accounts receivable
values due to the sharp drop in crude oil prices in the third quarter
of 2008, is expected to significantly reduce the Company's working
capital investment in the fourth quarter of 2008.
Feedstock Derivative Positions
NOVA Chemicals maintains a derivatives program to manage risk
associated with its crude oil feedstock purchases. In the third
quarter of 2008, the Company recorded a net after-tax loss of $8
million on realized positions compared to a net after-tax loss of $5
million in the second quarter of 2008 and a net after-tax loss of $3
million in the third quarter of 2007.
Mark-to-market adjustments, related to the change in the value of
open feedstock positions, are recorded as part of Corporate results
until the positions are realized. Once realized, any income effects
are recorded in business results. See page 7 for more details.
-0-
*T
Summary Quarterly Financial Information
----------------------------------------------------------------------
(millions of
U.S. dollars,
except per
share
amounts) Three Months Ended
----------------------------------------------------------------------
2008 2007 2006
----------------------------------------------------------------------
Sep. June Mar. Dec. Sep. June Mar. Dec. 31
30 30 31 31 30 30 31
----------------------------------------------------------------------
Revenue $2,088 $2,213 $1,912 $1,795 $1,755 $1,676 $1,506 $1,635
Operating
income (loss) $188 $67 $107 $114 $188 $150 $101 $(837)
Net income
(loss) $98 $18 $50 $126 $97 $80 $44 $(781)
Earnings
(loss) per
share
- basic $1.18 $0.21 $0.60 $1.52 $1.17 $0.97 $0.53 $(9.46)
- diluted $1.18 $0.21 $0.60 $1.51 $1.16 $0.96 $0.53 $(9.46)
Adj. Earnings
(loss) per
share (1) $1.00 $1.00 $0.85 $1.53 $1.01 $1.00 $0.33 $(0.17)
Weighted-
average
common shares
outstanding
(millions)
- basic 83.2 83.1 83.1 83.0 83.0 82.9 82.7 82.6
- diluted 83.2 83.2 83.2 83.4 83.8 83.7 83.5 82.6
----------------------------------------------------------------------
(1) See Supplemental Measures on page 22.
*T
-0-
*T
Changes in Net Income
---------------------------------------------- -----------------------
(millions of ((millions of Q3 2008
U.S. dollars) Compared to First Nine Months 2008
Compared to First Nine
Q2 2008 Q3 2007 Months 2007
---------------------------------------------- -----------------------
Higher (lower) operating
margin (1) $107 $22 $(22)
Higher research and
development - - (2)
Lower (higher) selling,
general and administrative 10 (17) (30)
Lower restructuring charges 5 - 5
Higher depreciation and
amortization (1) (5) (28)
Lower interest expense 1 8 8
Higher net (losses) and gains (1) (2) (3)
(Higher) lower income tax
expense (41) (5) 17
---------------------------------------------- -----------------------
Increase (decrease) in net
income $80 $1 $(55)
---------------------------------------------- -----------------------
(1) Operating margin equals revenue less feedstock and operating costs
(includes impact of mark-to-market feedstock derivatives, see page
7).
*T
Third Quarter 2008 Versus Second Quarter 2008
Net income in the third quarter of 2008 was $80 million higher
than the second quarter of 2008, primarily due to higher operating
margins. Margins improved significantly from the second quarter due to
strength in the Company's Olefins and Polyolefins business,
particularly its Joffre based assets, and an improvement in the
mark-to-market feedstock derivatives related to the Company's
feedstock purchasing program.
Third Quarter 2008 Versus Third Quarter 2007
Net income in the third quarter 2008 was $1 million higher than
the third quarter 2007 as the benefit of higher operating margins and
lower interest expense was offset by higher selling, general and
administrative costs and tax expense. Tax expense was $5 million
higher primarily due to higher taxable income. In the third quarter of
2007 there was a $6 million tax benefit due to future tax rate
reductions.
Operating margins improved in the third quarter of 2008 due to
higher polyethylene sales volume, stronger polyethylene chain margins,
and an improvement in the mark-to-market feedstock derivatives related
to the Company's feedstock purchasing program. Selling, general and
administrative costs were $17 million higher than the third quarter of
2007 primarily due to increased professional fees and consulting
costs.
Nine Months Ended Sep. 30, 2008, Versus Nine Months Ended Sep. 30,
2007
Net income for the first nine months of 2008 was $55 million lower
than the same period last year due to higher selling, general and
administrative expenses, higher depreciation expenses and lower
operating margins.
A stronger Canadian dollar in the first nine months of 2008
increased both selling, general and administrative costs and
depreciation expenses relative to the same period last year. Despite
record adjusted EBITDA from the businesses in the first nine months of
2008, operating margins were lower than the same period last year due
to weaker non-cash mark-to-market results from the Company's feedstock
derivatives.
-0-
*T
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Net Income
---------------------------------------------------- -----------------
Three Months Ended Nine Months Ended
(unaudited, millions of U.S.
dollars, except per share Sep. 30 June 30 Sep. 30 Sep. 30 Sep. 30
amounts) 2008 2008 2007 2008 2007
---------------------------------------------------- -----------------
Revenue $2,088 $2,213 $1,755 $6,213 $4,937
Feedstock and operating costs
(excluding depreciation) 1,772 2,004 1,461 5,431 4,133
Research and development 13 13 13 39 37
Selling, general and
administrative 47 57 30 171 141
Restructuring charges (Note
3) - 5 - 5 10
Depreciation and amortization 68 67 63 205 177
---------------------------------------------------- -----------------
1,900 2,146 1,567 5,851 4,498
---------------------------------------------------- -----------------
Operating income 188 67 188 362 439
---------------------------------------------------- -----------------
Interest expense, net (Note
4) (39) (40) (47) (122) (130)
Other (losses) gains, net (1) - 1 (2) 1
---------------------------------------------------- -----------------
(40) (40) (46) (124) (129)
---------------------------------------------------- -----------------
Income before income taxes 148 27 142 238 310
Income tax expense (Note 5) 50 9 45 72 89
---------------------------------------------------- -----------------
Net income $98 $18 $97 $166 $221
---------------------------------------------------- -----------------
Earnings per share (Note 6)
- basic $1.18 $0.21 $1.17 $1.99 $2.67
- diluted $1.18 $0.21 $1.16 $1.99 $2.65
---------------------------------------------------- -----------------
*T
Notes to the Consolidated Financial Statements appear on pages 13
to 21.
-0-
*T
Consolidated Balance Sheets
----------------------------------------------------------------------
(unaudited, millions of U.S. dollars) Sep. 30 June 30 Dec. 31
2008 2008 2007
----------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents $76 $67 $118
Other assets 48 52 24
Accounts receivable 515 719 608
Inventories 1,031 1,092 882
----------------------------------------------------------------------
1,670 1,930 1,632
Investments and other assets 156 163 177
Property, plant and equipment, net 2,837 2,939 3,047
----------------------------------------------------------------------
$4,663 $5,032 $4,856
Liabilities and Shareholders' Equity
Current liabilities
Bank loans $3 $3 $3
Accounts payable and accrued liabilities 980 1,306 1,183
Long-term debt due within one year (Note 7) 254 505 254
----------------------------------------------------------------------
1,237 1,814 1,440
Long-term debt (Note 7) 1,492 1,292 1,540
Future income taxes 416 439 510
Deferred credits and long-term liabilities 358 320 265
----------------------------------------------------------------------
3,503 3,865 3,755
Shareholders' equity
Common shares 508 507 505
Contributed surplus 24 24 27
Reinvested earnings (deficit) 138 47 (43)
Accumulated other comprehensive income 490 589 612
----------------------------------------------------------------------
1,160 1,167 1,101
----------------------------------------------------------------------
$4,663 $5,032 $4,856
----------------------------------------------------------------------
*T
Notes to the Consolidated Financial Statements appear on pages 13
to 21.
-0-
*T
Consolidated Statements of Cash Flows
----------------------------------------------------------------------
(unaudited, millions of U.S. Three Months Ended Nine Months Ended
dollars)
Sep. 30 June 30 Sep. 30 Sep. 30 Sep. 30
2008 2008 2007 2008 2007
---------------------------------------------------- -----------------
Operating activities
Net income $98 $18 $97 $166 $221
Depreciation and
amortization 68 67 63 205 177
Future income tax expense
(recovery) 6 (29) 34 (48) 43
Unrealized (gain) loss on
derivatives (22) 87 (9) 95 (34)
Other losses (gains) 1 - (1) 2 (1)
Stock option expense 1 - 2 2 2
------------------------ -----------------
152 143 186 422 408
------------------------ -----------------
Changes in non-cash
working capital:
Accounts receivable 204 (99) (81) 78 (45)
Inventories (1) 61 (17) 13 (103) (172)
Other current assets 1 (6) - (1) (7)
Accounts payable and
accrued liabilities (312) 51 (99) (214) 10
---------------------------------------------------- -----------------
(46) (71) (167) (240) (214)
---------------------------------------------------- -----------------
Changes in other current
assets and non-current
assets and liabilities
(1) 17 (18) (34) (17) (70)
---------------------------------------------------- -----------------
Cash flow from (used in)
operating activities 123 54 (15) 165 124
---------------------------------------------------- -----------------
Investing activities
Property, plant and
equipment additions (37) (44) (35) (116) (96)
Turnaround costs, long-
term investments and
other assets (30) (8) (9) (40) (39)
Proceeds on asset sales
and other capital
transactions - - 1 - 2
---------------------------------------------------- -----------------
Cash flow used in investing
activities (67) (52) (43) (156) (133)
---------------------------------------------------- -----------------
Financing activities
Long-term debt additions - - - 1 -
Long-term debt repayments (126) (1) (1) (128) (12)
Increase in revolving debt
facilities 85 16 76 97 107
Options retired for cash - - (1) - (3)
Common shares issued 1 - 4 3 8
Common share dividends (7) (9) (8) (24) (23)
---------------------------------------------------- -----------------
Cash flow (used in) from
financing activities (47) 6 70 (51) 77
---------------------------------------------------- -----------------
Increase (decrease) in cash
and cash equivalents 9 8 12 (42) 68
Cash and cash
equivalents, beginning
of period 67 59 109 118 53
---------------------------------------------------- -----------------
Cash and cash
equivalents, end of
period $76 $67 $121 $76 $121
---------------------------------------------------- -----------------
Cash tax payments, net
of refunds $35 $8 $16 $55 $55
Cash interest payments $44 $37 $48 $127 $130
---------------------------------------------------- -----------------
*T
(1) The nine months ended Sep. 30, 2008, excludes the impact of
adoption of CICA Section 3031. See Note 1.
Notes to the Consolidated Financial Statements appear on pages 13
to 21.
-0-
*T
Consolidated Statements of Changes in Shareholders' Equity
----------------------------------------------------------------------
(unaudited, millions of U.S. Three Months Ended
dollars, except
share amounts) Sep. 30 June 30 Sep. 30
2008 2008 2007
----------------------------------------------------------------------
Common shares
Balance at beginning of period $507 $507 $501
Common shares issued 1 - 4
----------------------------------------------------------------------
Balance at end of period $508 $507 $505
----------------------------------------------------------------------
Contributed surplus
Balance at beginning of period $24 $27 $26
Contribution of post-retirement
plans to INEOS NOVA (Note 2) - (4) -
Stock option compensation cost - 1 -
----------------------------------------------------------------------
Balance at end of period $24 $24 $26
----------------------------------------------------------------------
Reinvested earnings (deficit)
Balance at beginning of period $47 $38 $(246)
Net income 98 18 97
Adoption of inventory full
costing (Note 1) - - -
Common share dividends (7) (9) (8)
Stock options retired for cash - - -
----------------------------------------------------------------------
Balance at end of period $138 $47 $(157)
----------------------------------------------------------------------
Accumulated other comprehensive
income
Balance at beginning of period $589 $567 $497
Other comprehensive (loss)
income:
Unrealized (loss) gain on
translation of self-sustaining
foreign operations (99) 22 91
Unrealized loss on available
for sale securities - - (1)
----------------------------------------------------------------------
Balance at end of period $490 $589 $587
----------------------------------------------------------------------
Total shareholders' equity $1,160 $1,167 $961
----------------------------------------------------------------------
Common shares
Balance at beginning of period 83,140,439 83,136,039 82,861,673
Common shares issued 20,450 4,400 189,316
----------------------------------------------------------------------
Balance at end of period 83,160,889 83,140,439 83,050,989
----------------------------------------------------------------------
Consolidated Statements of Changes in
Shareholders' Equity
---------------------------------------------- -----------------------
(unaudited, millions of U.S. dollars, except Nine Months Ended
share amounts)
Sep. 30 Sep. 30
2008 2007
--------------------------------------------- -----------------------
Common shares
Balance at beginning of period $505 $497
Common shares issued 3 8
--------------------------------------------- -----------------------
Balance at end of period $508 $505
--------------------------------------------- -----------------------
Contributed surplus
Balance at beginning of period $27 $25
Contribution of post-retirement plans to
INEOS NOVA (Note 2) (4) -
Stock option compensation cost 1 1
--------------------------------------------- -----------------------
Balance at end of period $24 $26
--------------------------------------------- -----------------------
Reinvested earnings (deficit)
Balance at beginning of period $(43) $(354)
Net income 166 221
Adoption of inventory full costing (Note 1) 39 -
Common share dividends (24) (23)
Stock options retired for cash - (1)
--------------------------------------------- -----------------------
Balance at end of period $138 $(157)
--------------------------------------------- -----------------------
Accumulated other comprehensive income
Balance at beginning of period $612 $378
Other comprehensive (loss) income:
Unrealized (loss) gain on translation of
self-sustaining foreign operations (122) 210
Unrealized loss on available for sale
securities - (1)
--------------------------------------------- -----------------------
Balance at end of period $490 $587
--------------------------------------------- -----------------------
Total shareholders' equity $1,160 $961
--------------------------------------------- -----------------------
Common shares
Balance at beginning of period 83,054,528 82,561,272
Common shares issued 106,361 489,717
--------------------------------------------- -----------------------
Balance at end of period 83,160,889 83,050,989
--------------------------------------------- -----------------------
*T
Notes to the Consolidated Financial Statements appear on pages 13
to 21.
-0-
*T
Consolidated Statements of Comprehensive (Loss)
Income
---------------------------------------------------- -----------------
(unaudited, millions of U.S. Three Months Ended Nine Months Ended
dollars)
Sep. 30 June 30 Sep. 30 Sep. 30 Sep. 30
2008 2008 2007 2008 2007
---------------------------------------------------- -----------------
Net income $98 $18 $97 $166 $221
Other comprehensive (loss)
income:
Unrealized (loss) gain on
translation of self-
sustaining foreign
operations (99) 22 91 (122) 210
Unrealized loss on
available for sale
securities - - (1) - (1)
---------------------------------------------------- -----------------
Comprehensive (loss) income $(1) $40 $187 $44 $430
---------------------------------------------------- -----------------
*T
Notes to the Consolidated Financial Statements appear on pages 13
to 21.
Notes to Consolidated Financial Statements
(unaudited, millions of U.S. dollars, except per share amounts and
unless otherwise noted)
These interim Consolidated Financial Statements do not include all
of the disclosures included in NOVA Chemicals' annual Consolidated
Financial Statements and should be read in conjunction with the
Consolidated Financial Statements for the year ended Dec. 31, 2007.
1. Significant Accounting Policies
These interim Consolidated Financial Statements have been prepared
in accordance with Canadian Generally Accepted Accounting Principles
(GAAP), using the same accounting policies as set out in Note 2 to the
Consolidated Financial Statements for the year ended Dec. 31, 2007, on
pages 75 to 81 of the 2007 Annual Report, except as follows.
-0-
*T
Date of
Description adoption Impact
----------------------------------------------------------------------
Canadian GAAP
----------------------------------------------------------------------
Canadian Institute of Chartered AccountantsJan. 1, 2008 Disclosure
(CICA) 1535, Capital Disclosures, only
specifies disclosures of (1) information
about the entity's objectives, policies
and processes for managing capital
structure; (2) quantitative data about
what the entity regards as capital; and
(3) whether the entity has complied with
externally imposed capital requirements
and if it has not complied, the
consequences of such non-compliance.
NOVA Chemicals' primary objective has
always been to focus on and monitor
liquidity and cash flow. Liquidity is
assessed by management as discussed on
page 8. Company management focuses on
liquidity and cash flow to ensure that
NOVA Chemicals can make scheduled cash
payments, pay down debt when cash flow
permits and maintain a healthy range of
liquidity to ensure ready access to
capital. In the past, NOVA Chemicals
monitored capital on the basis of the net
debt-to-total capitalization ratio. This
ratio was a financial covenant required to
be maintained for two of NOVA Chemicals'
five revolving credit facilities. This
requirement was eliminated in March 2008
(see Note 7).
----------------------------------------------------------------------
CICA 1400, General Standards of Financial Jan. 1, 2008 No material
Statement Presentation, was amended to impact
include requirements to assess and
disclose an entity's ability to continue
as a going concern.
----------------------------------------------------------------------
CICA 3031, Inventories, replaces CICA 3030,Jan. 1, 2008 One-time
Inventories. The new standard is the credit on
Canadian equivalent to International Jan. 1, 2008
Financial Reporting Standard IAS 2, to opening
Inventories. The main features of CICA retained
3031 are: (1) measurement of inventories earnings and
at the lower of cost and net realizable a
value, with guidance on the determination corresponding
of cost, including allocation of overheads increase in
and other costs to inventory; (2) cost of opening
inventories of items that are not inventory of
ordinarily interchangeable and goods or $47 million
services produced and segregated for ($39 million
specific projects assigned by using a after-tax)
specific identification of their
individual costs; (3) consistent use (by
type of inventory with similar nature and
use) of either first-in, first-out (FIFO)
or weighted-average cost formula; (4)
reversal of previous write-downs to net
realizable value when there is a
subsequent increase in value of
inventories; and (5) possible
classification of major spare parts and
servicing stand-by equipment as property,
plant and equipment (CICA 3061 - Property,
Plant and Equipment, was amended to
reflect this change).
NOVA Chemicals' inventories are carried at
the lower of cost or net realizable value.
Cost is determined on a first-in, first-
out basis and beginning Jan. 1, 2008,
includes all costs of purchase, costs of
conversion (direct costs and an allocation
of fixed and variable production
overheads) and other costs incurred in
bringing the inventories to their present
location and condition. The amount of
inventories included in feedstock and
operating costs and depreciation and
amortization during the three months ended
Sep. 30, 2008 and June 30, 2008, was $1.7
billion and $2.0 billion, respectively.
----------------------------------------------------------------------
Emerging Issues Committee (EIC) 169, Jan. 1, 2008 No material
Determining Whether a Contract is impact
Routinely Denominated in a Single
Currency, provides guidance on how under
CICA 3855, Financial Instruments -
Recognition and Measurement to define or
apply the term "routinely denominated in
commercial transactions around the world"
when assessing contracts for embedded
foreign currency derivatives. It also
determines what factors can be used to
determine whether a contract for the
purchase or sale of a non-financial item
such as a commodity is routinely
denominated in a particular currency in
commercial transactions around the world.
EIC 169 must be applied retrospectively to
embedded foreign currency derivatives in
host contracts that are not financial
instruments accounted for in accordance
with CICA 3855.
----------------------------------------------------------------------
*T
-0-
*T
Date of
Description adoption Impact
----------------------------------------------------------------------
----------------------------------------------------------------------
CICA 3064, Goodwill and Intangible Assets, Fiscal years Currently
will replace CICA 3062, Goodwill and Other beginning on being
Intangible Assets, and results in withdrawal or after evaluated
of CICA 3450, Research and Development Costs, Oct. 1,
and amendments to Accounting Guideline (AcG) 2008, with
11, Enterprises in the Development Stage and early
CICA 1000, Financial Statement Concepts. The adoption
standard intends to reduce the differences encouraged
with International Financial Reporting
Standards (IFRS) in the accounting for
intangible assets and results in closer
alignment with U.S. GAAP. Under current
Canadian standards, more items are recognized
as assets than under IFRS or U.S. GAAP. The
objectives of CICA 3064 are to reinforce the
principle-based approach to the recognition
of assets only in accordance with the
definition of an asset and the criteria for
asset recognition; and clarify the
application of the concept of matching
revenues and expenses such that the current
practice of recognizing as assets items that
do not meet the definition and recognition
criteria is eliminated. The standard will
also provide guidance for the recognition of
internally developed intangible assets
(including research and development
activities), ensuring consistent treatment of
all intangible assets, whether separately
acquired or internally developed.
----------------------------------------------------------------------
EIC 172, Presentation of a Tax Loss Sep. 30, 2008 No
Carryforward Recognized Following an material
Unrealized Gain Recorded in Other impact
Comprehensive Income provides the tax benefit
from the recognition of previously
unrecognized tax loss carryforwards,
consequent to the recording of unrealized
gains on AFS financial assets in OCI, should
be recognized in income. This abstract will
also apply in other circumstances when an
unrealized gain is recognized in OCI.
----------------------------------------------------------------------
In February 2008, the Canadian Accounting Interim and Currently
Standards Board confirmed that the use of annual being
IFRS will be required in 2011 for publicly financial evaluated
accountable profit-oriented enterprises. IFRS statements
will replace Canada's current GAAP for listed relating to
companies and other profit-oriented fiscal years
enterprises that are responsible to large or beginning on
diverse groups of stakeholders. Companies or after
will be required to provide one year of Jan. 1, 2011
comparative data in accordance with IFRS.
During 2008, NOVA Chemicals established a
project team to develop its IFRS changeover
plan. A number of sub-teams were formed to
begin the diagnostic phase of the project.
The diagnostic phase includes the assessment
of differences between Canadian GAAP and
IFRS; options available under IFRS; potential
system changes required; and effects on
internal controls and processes. The Company
will continue to investigate the impact of
IFRS convergence in 2008 and intends to
provide disclosure of its convergence plan
and anticipated effects of IFRS on its
financial statements, on a qualitative basis,
in the 2008 annual MD&A.
----------------------------------------------------------------------
*T
2. Pensions and Other Post-Retirement Benefits
-0-
*T
----------------------------------------------------------------------
Components of Net Three Months Ended
Periodic Benefit
Cost for Defined
Benefit Plans Sep. 30, 2008 June 30, 2008 Sep. 30, 2007
-----------------------------------------------------
Pension Other Pension Other Pension Other
Benefits Benefits Benefits Benefits Benefits Benefits
----------------------------------------------------------------------
Current service
cost $5 $- $6 $- $2 $1
Interest cost on
projected
benefit
obligations 13 1 13 2 11 1
Expected return
on plan assets (14) - (15) - (13) -
Actuarial loss
on accrued
obligation - - - 1 - -
----------------------------------------------------------------------
Costs arising in
the period 4 1 4 3 - 2
Differences
between costs
arising in the
period and
costs
recognized in
the period in
respect of the
long-term
nature of
employee future
benefit costs:
Transitional
(assets)
obligations (2) 1 (1) - (1) 1
Actuarial loss 3 - 3 - 2 -
Past service and
plan amendments - - - (1) - -
----------------------------------------------------------------------
Net defined
benefit cost
recognized $5 $2 $6 $2 $1 $3
Curtailment /
special
termination
charge
(benefit) 1 - - - (4) -
----------------------------------------------------------------------
Total defined
benefit cost
(income)
recognized $6 $2 $6 $2 $(3) $3
----------------------------------------------------------------------
*T
-0-
*T
----------------------------------------------------------------------
Nine Months Ended
Components of Net Periodic Benefit
Cost for Defined Benefit Plans Sep. 30, 2008 Sep. 30, 2007
-----------------------------------
Pension Other Pension Other
Benefits Benefits Benefits Benefits
----------------------------------------------------------------------
Current service cost $16 $1 $17 $1
Interest cost on projected benefit
obligations 39 4 32 2
Expected return on plan assets (44) - (39) -
Actuarial loss on accrued
obligation - 1 2 1
----------------------------------------------------------------------
Costs arising in the period 11 6 12 4
Differences between costs arising
in the period and costs
recognized in the period in
respect of the long-term nature
of employee future benefit costs:
Transitional (assets) obligations (5) 1 (3) -
Actuarial loss 9 - 4 -
Past service and plan amendments - (1) - -
----------------------------------------------------------------------
Net defined benefit cost
recognized $15 $6 $13 $4
Curtailment / special termination
charge (benefit) 1 - (4) -
----------------------------------------------------------------------
Total defined benefit cost
recognized $16 $6 $9 $4
----------------------------------------------------------------------
*T
The expected long-term rate of a return on plan assets is 7.5% for
all periods presented.
On Apr. 1, 2008, approximately 450 of NOVA Chemicals' employees
who were seconded to INEOS NOVA since expansion of the joint venture
on Oct. 1, 2007, became employees of INEOS NOVA. Affected pension
plans were remeasured and transferred in part or in whole as
applicable, at their carrying values. The net pension and
post-retirement asset transferred on Apr. 1, 2008 was $8 million.
Settlement charges triggered as a result of lump-sum distributions
taken by transferred employees are reflected in the three months ended
Sep. 30, 2008 and nine months ended Sep. 30, 2008.
On Sep. 28, 2007, NOVA Chemicals amended certain defined benefit
pension plans. The amendments provided for benefits to be frozen as of
Jan. 1, 2008, and for transition relief to plan participants meeting
certain age and service requirements. At the same time, NOVA Chemicals
also enhanced benefits under one of its defined contribution plans.
The restructuring that occurred in 2007 and the defined benefit
pension plan amendments described above triggered all of the following
charges (benefits) in the third quarter of 2007: a curtailment charge
(benefit), a special termination charge or a settlement charge. The
impact of these changes is reflected in the table above.
Employer Contributions
NOVA Chemicals contributed $12 million, $9 million and $22 million
during the quarters ended Sep. 30, 2008, June 30, 2008 and Sep. 30,
2007, respectively, to its defined benefit pension plans. NOVA
Chemicals contributed $3 million for the quarter ended Sep. 30, 2008,
$4 million for the quarter ended June 30, 2008, and $2 million for the
quarter ended Sep. 30, 2007, to its defined contribution plans. NOVA
Chemicals contributed $30 million and $43 million during the nine
months ended Sep. 30, 2008 and Sep. 30, 2007, respectively, to its
defined benefit pension plans. NOVA Chemicals contributed $11 million
and $6 million during the nine months ended Sep. 30, 2008 and Sep. 30,
2007, respectively, to its defined contribution plans.
3. Restructuring Charges
There were no restructuring charges in the third quarter of 2008.
In the second quarter of 2008, NOVA Chemicals recorded $5 million
($4 million after-tax) of restructuring charges as follows:
-- $3 million ($2 million after-tax) of restructuring costs
related to the June 12, 2008, announcement of the elimination
of approximately 24 information technology positions in North
America. None of the severance costs had been paid to the
employees as of Sep. 30, 2008.
-- $2 million ($2 million after-tax) of restructuring costs for
actions taken by the INEOS NOVA Joint Venture, including the
accrual of $1 million for severance costs related to
reductions at the Bayport facility and $1 million of non-cash
restructuring charges. No amounts have been paid for
severance-related costs to date.
There were no restructuring charges in the third quarter of 2007.
In the second quarter of 2007, NOVA Chemicals recorded $10 million
before-tax ($9 million after-tax) of restructuring charges as follows:
-- $7 million ($7 million after-tax) of restructuring costs
related to the May 31, 2007, announcement of the elimination
of approximately 90 positions in the U.S. and Europe. As of
Sep. 30, 2008, $5 million of the severance costs were paid to
employees.
-- $3 million ($2 million after-tax) of restructuring charges
related to additional actions taken in Europe by the INEOS
NOVA Joint Venture. All amounts have been paid.
4. Interest Expense
-0-
*T
---------------------------------------------------- -----------------
Components of interest
expense Three Months Ended Nine Months Ended
Sep. 30 June 30 Sep. 30 Sep. 30 Sep. 30
2008 2008 2007 2008 2007
---------------------------------------------------- -----------------
Interest on long-term debt $31 $32 $36 $98 $105
Interest on securitizations
and other 10 10 13 30 32
---------------------------------------------------- -----------------
Gross interest expense 41 42 49 128 137
Interest capitalized during
plant construction - - - - (1)
Interest income (2) (2) (2) (6) (6)
---------------------------------------------------- -----------------
Interest expense, net $39 $40 $47 $122 $130
---------------------------------------------------- -----------------
*T
5. Income Taxes
-0-
*T
---------------------------------------------------- -----------------
Three Months Ended Nine Months Ended
Sep. 30 June 30 Sep. 30 Sep. 30 Sep. 30
2008 2008 2007 2008 2007
---------------------------------------------------- -----------------
Income before income taxes $148 $27 $142 $238 $310
Statutory income tax rate 29.5% 29.5% 32.12% 29.5% 32.12%
---------------------------------------------------- -----------------
Computed income tax expense $43 $8 $46 $70 $100
(Decrease) increase in taxes
resulting from:
Tax benefit of rate
reductions (1) - - (6) - (12)
Foreign tax rates (2) 3 (5) (1) (13)
(Reduction) increase in
valuation allowance 4 (5) 10 (3) 14
Other 5 3 - 6 -
---------------------------------------------------- -----------------
Income tax expense $50 $9 $45 $72 $89
---------------------------------------------------- -----------------
(1) In the second quarter of 2007, the Canadian federal government
reduced the general income tax rate from 19% to 18.5% effective
January 1, 2011. As a result, future tax liabilities were reduced by
$12 million.
*T
6. Earnings Per Share
-0-
*T
----------------------------------------------------------------------
(shares in millions) Three Months Ended
Sep. 30 June 30 Sep. 30
2008 2008 2007
----------------------------------------------------------------------
Basic Diluted Basic Diluted Basic Diluted
Net income available to
common shareholders $98 $98 $18 $18 $97 $97
----------------------------------------------------------------------
Weighted average common
shares outstanding 83.2 83.2 83.1 83.1 83.0 83.0
Add back effect of dilutive
securities: Stock Options - - - 0.1 - 0.8
----------------------------------------------------------------------
Weighted-average common
shares for EPS calculations 83.2 83.2 83.1 83.2 83.0 83.8
----------------------------------------------------------------------
Earnings per share $1.18 $1.18 $0.21 $0.21 $1.17 $1.16
----------------------------------------------------------------------
2.8 million stock options, 3.3 million stock options and 0.7 million
stock options were excluded from the computation of diluted earnings
per share for the quarters ended Sep. 30, 2008, June 30, 2008 and
Sep. 30, 2007, respectively because they were anti-dilutive. 2.9
million stock options for the nine months ended Sep. 30, 2008, and
0.7 million stock options for the nine months ended Sep. 30, 2007,
were excluded from the computation of diluted earnings per share
because they were anti-dilutive. Options become dilutive when the
market price is higher than the strike price and NOVA Chemicals is
profitable. The amount of dilution will vary with the stock price.
*T
-0-
*T
----------------------------------------------------------------------
(shares in millions) Nine Months Ended
Sep. 30 Sep. 30
2008 2007
----------------------------------------------------------------------
Basic Diluted Basic Diluted
Net income available to common shareholders $166 $166 $221 $221
----------------------------------------------------------------------
Weighted average common shares outstanding 83.1 83.1 82.9 82.9
Add back effect of dilutive securities:
Stock Options - 0.1 - 0.7
----------------------------------------------------------------------
Weighted-average common shares for EPS
calculations 83.1 83.2 82.9 83.6
----------------------------------------------------------------------
Earnings per share $1.99 $1.99 $2.67 $2.65
----------------------------------------------------------------------
*T
7. Long-Term Debt
-0-
*T
----------------------------------------------------------------------
(millions of U.S.
dollars, unless Interest Maturity Sep. 30 June 30 Dec. 31
otherwise noted) Rate 2008 2008 2007
----------------------------------------------------------------------
Revolving credit
facilities(1) 5.85% 2009-2013 $203 $118 $106
Unsecured debentures
and notes
$250 Canadian 7.85% 2010(2) $236 $245 $253
$400 6.5% 2012(2) 400 400 400
$400 Floating(3) 2013(2) 400 400 400
$100 7.875% 2025(4) 100 100 100
$125 7.25% 2028(5) - 125 125
----------------------------------------------------------------------
$1,136 $1,270 $1,278
Medium-term notes 7.4% 2009 $250 $250 $250
Preferred shares 4.7% 2009(6) $126 $126 $126
Other unsecured debt 7.5% 2008-2020 $37 $39 $40
Transaction costs and
other $(6) $(6) $(6)
----------------------------------------------------------------------
Total $1,746 $1,797 $1,794
Less long-term debt due
within one year (254) (505) (254)
----------------------------------------------------------------------
Long-term debt $1,492 $1,292 $1,540
----------------------------------------------------------------------
(1) Five facilities totaling $683 million: $68 million due Mar. 15,
2009, $350 million due June 30, 2010, $100 million due Mar. 20, 2011,
$65 million due Mar. 20, 2010, and $100 million of which $30 million
is due Mar. 20, 2010, $30 million due Sep. 20, 2011, and $40 million
due Sep. 20, 2013.
(2) Callable at the option of the Company at any time.
(3) LIBOR + 3.125%; 5.9525% at Sep. 30, 2008, 5.9525% at June 30,
2008, and 7.8625% at Dec. 31, 2007.
(4) Callable at the option of the Company on or after Sep. 15, 2005.
(5) On Aug. 15, 2008, NOVA Chemicals repaid its $125 million 7.25%
debentures which were redeemed at the holders' option.
(6) NOVA Chemicals extended the maturity date of the Series A
preferred shares through Oct. 31, 2009 (see page 8).
*T
In August 2008, NOVA Chemicals added a fifth revolving credit
facility with availability of $100 million. The facility matures in
three tranches from March 2010 through September 2013.
Two of the Company's credit facilities are governed by financial
covenants: the $350 million facility due June 2010 and the $68 million
facility due March 2009. The covenants are: a net debt-to-cash flow
ratio covenant not to exceed 5:1 and an interest coverage ratio
greater than 2:1. All financial covenant calculations exclude the
results of the INEOS NOVA Joint Venture.
8. Segmented Information
Refer to pages 103 and 104 of the Consolidated Financial
Statements for the year ended Dec. 31, 2007, in the 2007 Annual Report
for the description of each segment and accounting policies for
segment reporting. Mark-to-market adjustments on NOVA Chemicals' open
feedstock derivative positions are recorded as part of Corporate
results until the positions are realized. Once realized, any income
effects are recorded in business results.
The following tables provide information for each segment.
-0-
*T
---------------------------------------------------- -----------------
Three Months Ended Nine Months Ended
Sep. 30 June 30 Sep. 30 Sep. 30 Sep. 30
2008 2008 2007 2008 2007
---------------------------------------------------- -----------------
Revenue
Joffre Olefins $616 $631 $448 $1,798 $1,284
Corunna Olefins 711 767 595 2,162 1,494
Polyethylene 709 675 519 2,028 1,417
Performance Styrenics 114 127 107 363 305
INEOS NOVA Joint Venture 549 594 537 1,622 1,642
Eliminations (611) (581) (451) (1,760) (1,205)
---------------------------------------------------- -----------------
$2,088 $2,213 $1,755 $6,213 $4,937
---------------------------------------------------- -----------------
Adjusted EBITDA (1)
Joffre Olefins $226 $185 $172 $579 $400
Corunna Olefins 1 27 57 42 157
Polyethylene 61 48 60 153 132
Performance Styrenics (8) (4) 4 (10) (5)
INEOS NOVA Joint Venture (13) 4 (22) (1) 23
Corporate (27) (32) (20) (108) (93)
Eliminations (6) (2) (9) 12 (22)
---------------------------------------------------- -----------------
$234 $226 $242 $667 $592
---------------------------------------------------- -----------------
*T
(1) In the second quarter of 2008, NOVA Chemicals changed its
definition of adjusted EBITDA to exclude mark-to-market feedstock
derivatives. Prior periods have been restated accordingly.
-0-
*T
---------------------------------------------------- -----------------
Three Months Ended Nine Months Ended
Sep. 30 June 30 Sep. 30 Sep. 30 Sep. 30
2008 2008 2007 2008 2007
---------------------------------------------------- -----------------
Operating Income (Loss)
Joffre Olefins $210 $169 $157 $530 $360
Corunna Olefins (16) 8 41 (11) 110
Polyethylene 42 31 43 96 83
Performance Styrenics (14) (10) (3) (28) (24)
INEOS NOVA Joint Venture (20) (1) (28) (19) 7
Corporate (8) (128) (13) (218) (75)
Eliminations (6) (2) (9) 12 (22)
---------------------------------------------------- -----------------
Total operating income $188 $67 $188 $362 $439
Interest expense, net (39) (40) (47) (122) (130)
Other (losses) and gains,
net (1) - 1 (2) 1
Income tax expense (50) (9) (45) (72) (89)
---------------------------------------------------- -----------------
Net income $98 $18 $97 $166 $221
---------------------------------------------------- -----------------
Depreciation and Amortization
Joffre Olefins $16 $16 $15 $49 $40
Corunna Olefins 17 19 16 53 47
Polyethylene 19 17 17 57 49
Performance Styrenics 6 6 7 18 19
INEOS NOVA Joint Venture 7 5 6 18 16
Corporate 3 4 2 10 6
---------------------------------------------------- -----------------
$68 $67 $63 $205 $177
---------------------------------------------------- -----------------
---------------------------------------------------- -----------------
Capital Spending
Joffre Olefins $3 $5 $ 5 $10 $ 15
Corunna Olefins 3 14 8 24 33
Polyethylene 26 15 10 59 20
Performance Styrenics 1 5 6 7 10
INEOS NOVA Joint Venture 4 5 6 16 18
---------------------------------------------------- -----------------
$37 $44 $35 $116 $96
---------------------------------------------------- -----------------
*T
-0-
*T
----------------------------------------------------------------------
Sep. 30 June. 30 Dec. 31
2008 2008 2007
----------------------------------------------------------------------
Assets
Joffre Olefins $815 $887 $874
Corunna Olefins 1,395 1,499 1,395
Polyethylene 1,128 1,189 1,180
Performance Styrenics 353 379 371
INEOS NOVA Joint Venture 648 763 689
Corporate 350 342 378
Eliminations (26) (27) (31)
----------------------------------------------------------------------
$4,663 $5,032 $4,856
----------------------------------------------------------------------
*T
9. Reconciliation to United States Generally Accepted Accounting
Principles
-0-
*T
---------------------------------------------------- -----------------
Three Months Ended Nine Months Ended
Sep. 30 June 30 Sep. 30 Sep. 30 Sep. 30
2008 2008 2007 2008 2007
---------------------------------------------------- -----------------
Net income in accordance with
Canadian GAAP $98 $18 $97 $166 $221
Add (deduct) adjustments for:
Start-up costs (1) 1 1 - 4 1
Derivative instruments and
hedging activities (2) (1) - - (1) (1)
Inventory costing (3) - - 1 - (3)
Stock-based compensation
(4) - (1) 1 (1) 3
Other 1 - - 1 -
---------------------------------------------------- -----------------
Net income in accordance with
U.S. GAAP $99 $18 $99 $169 $221
Earnings per share - basic $1.19 $0.21 $1.19 $2.03 $2.67
Earnings per share - diluted $1.19 $0.21 $1.18 $2.03 $ 2.64
---------------------------------------------------- -----------------
*T
-0-
*T
---------------------------------------------------- -----------------
Three Months Ended Nine Months Ended
Sep. 30 June 30 Sep. 30 Sep. 30 Sep. 30
2008 2008 2007 2008 2007
----------------------------------------------------------------------
Comprehensive (loss) income
in accordance with Canadian
GAAP $(1) $40 $187 $44 $430
Add (deduct) adjustments to
Canadian GAAP net income
for:
Start-up costs (1) 1 1 - 4 1
Derivative instruments and
hedging activities (2) (1) - - (1) (1)
Inventory costing (3) - - 1 - (3)
Stock-based compensation
(4) - (1) 1 (1) 3
Other 1 - - 1 -
Pension liability adjustments
(net of tax of $ -, $3, $9,
$3 and $9, respectively) (6) - 6 16 6 16
---------------------------------------------------- -----------------
Comprehensive income in
accordance with U.S. GAAP $- $46 $205 $53 $446
---------------------------------------------------- -----------------
*T
-0-
*T
----------------------------------------------------------------------
Sep. 30 June 30 Dec. 31
2008 2008 2007
----------------------------------------------------------------------
Accumulated other comprehensive income
Unrealized loss on available-for-sale
securities $(1) $(1) $(1)
Unrealized gain on translation of self-
sustaining foreign operations 491 590 613
Pension liability adjustment (6) (121) (121) (127)
----------------------------------------------------------------------
$369 $468 $485
----------------------------------------------------------------------
Balance sheet in accordance with U.S. GAAP (7)
Current assets (3) $1,670 $1,930 $1,659
Investments and other assets (1), (6) 136 141 150
Property, plant and equipment, net (1) 2,837 2,939 3,047
Current liabilities (2), (5) (1,243) (1,813) (1,420)
Long-term debt (2) (1,492) (1,292) (1,539)
Deferred income taxes (1), (2), (3), (4),
(5), (6) (313) (335) (409)
Deferred credits and long-term liabilities
(2), (4), (5), 6) (574) (542) (495)
----------------------------------------------------------------------
Common shareholders' equity (5),(6) $1,021 $1,028 $993
----------------------------------------------------------------------
*T
-0-
*T
(1)Start-up Costs. Canadian GAAP provides that when an entity starts
up a new facility or entity, expenditures incurred during the pre-
operating period may be deferred when certain criteria are met.
Under U.S. GAAP, all costs (except interest on constructed assets)
associated with start-up activities must be expensed as incurred.
(2)Derivative Instruments and Hedging Activities. CICA Section 3855
harmonizes Canadian and U.S. GAAP by establishing standards for
recognition and measurement of financial assets, liabilities and
non-financial derivatives. CICA Section 3865 harmonizes Canadian
GAAP with U.S. GAAP Statement of Financial Accounting Standards
(SFAS) No. 133 by establishing standards for when and how hedge
accounting may be applied and recorded. Certain differences that
existed before the implementation of the above standards on Jan.
1, 2007, pertaining to the termination of interest rate swaps in
2002, continue to be reconciling items between Canadian GAAP and
U.S. GAAP.
(3)Inventory Costing. Prior to Jan. 1, 2008, Canadian GAAP allowed
fixed overhead costs associated with production activities to be
expensed during the period; whereas, U.S. GAAP requires an
allocation of fixed production overhead to inventory. On Jan. 1,
2008, NOVA Chemicals adopted CICA 3031 (see Note 1), which
harmonizes Canadian GAAP and U.S. GAAP in accounting for
inventories. Therefore, as of Jan. 1, 2008, no further U.S. GAAP
difference exists.
(4)Stock-Based Compensation. Under Canadian GAAP, the Employee
Incentive Stock Option Plan is measured using a fair-value based
method, while the Equity Appreciation Plan and the Restricted
Stock Unit Plan are classified as liability instruments and are
marked to market based on intrinsic value. U.S. GAAP, SFAS No.
123(R), Share-Based Payment, effective Jan. 1, 2006, requires the
share-based compensation transactions be accounted for using a
fair-value based method, such as the Black Scholes method. The
fair value of awards classified as liability instruments must be
re-measured subsequently at each reporting date through the
settlement date. Changes in fair value during the requisite
service period will be recognized as compensation cost over that
period.
(5)Income Taxes. Beginning Jan. 1, 2007, FASB Interpretation No. (FIN)
48, Accounting for Uncertainty in Income Taxes, became effective
for U.S. GAAP reporting. FIN 48 clarifies the accounting for
uncertainty in income taxes by prescribing a minimum recognition
threshold that a tax position is required to meet before being
recognized. An entity is required to recognize the best estimate
of a tax position if that position is more likely than not to be
sustained upon examination, based solely on the technical merits
of the position. NOVA Chemicals adopted the provisions of FIN 48
on Jan. 1, 2007, at which time a FIN 48 liability of $36 million
was recognized by reclassifying $34 million out of deferred tax
liability and $4 million from the current tax liability. This
resulted in a $6 million increase in the liability for
unrecognized tax benefits, and was accounted for as a reduction to
the Jan. 1, 2007, U.S. GAAP balance in reinvested earnings. During
the nine months ended Sep. 30, 2008 and 2007, no further changes
to the FIN 48 liability were necessary. It is NOVA Chemicals'
policy to recognize interest and penalties accrued related to
unrecognized tax benefits in income tax expense. At Sep. 30, 2008,
NOVA Chemicals had approximately $5 million accrued for the
payment of interest and penalties.
(6)Pension Liability Adjustment. SFAS No. 158, Employers' Accounting
for Defined Benefit Pension and Other Postretirement Plans - an
amendment of SFAS Nos. 87, 88, 106, and 132(R), requires an
employer to recognize the overfunded or underfunded status of a
defined benefit postretirement plan (other than a multi-employer
plan) as an asset or liability in its statement of financial
position and to recognize changes in that funded status in the
year in which the changes occur through accumulated other
comprehensive income (loss). At Sep. 30, 2007, plan assets and
benefit obligations were re-measured for certain defined benefit
pension plans as a result of pension plan changes described in
Note 2 on page 14. Accordingly, at Sep. 30, 2007, NOVA Chemicals
adjusted its SFAS No. 158 pension and post-retirement liability by
$25 million, resulting in a credit of $16 million (net of tax) to
accumulated other comprehensive income. During the three months
ended June 30, 2008, NOVA Chemicals decreased its SFAS No. 158
pension and post-retirement liability by $9 million as a result of
transferring certain pension plans to INEOS NOVA (see Note 2 on
page 14), resulting in a gain of $6 million, net of tax in other
comprehensive income.
(7)Joint Ventures. NOVA Chemicals accounts for its interests in joint
ventures using the proportionate consolidation method under
Canadian GAAP. As permitted by specific U.S. SEC exemptions,
adjustments to reflect equity accounting, as required under U.S.
GAAP, have not been made. The equity method would not result in
any changes in NOVA Chemicals' net income (loss) or shareholders'
equity; however, all assets, liabilities, revenue, expenses and
most cash flow items would decrease when compared to the amounts
that are presented using proportionate consolidation.
*T
-0-
*T
Date of
Description adoption Impact
----------------------------------------------------------------------
US GAAP - New accounting pronouncements
SFAS No. 157, Fair Value Measurements, Partially No material
defines fair value, establishes a framework adopted on impact
for measuring fair value and expands Jan. 1, expected
disclosures about fair value measurements. 2008
The statement applies also to other
accounting pronouncements, which require or
permit fair value measurements. Financial
Accounting Standards Board (FASB) Staff
Position No. FAS 157-2 was issued on Feb.
12, 2008, and delays the effective date of
SFAS No. 157 for nonfinancial assets and
nonfinancial liabilities, except for items
that are recognized or disclosed at fair
value in the financial statements on a
recurring basis (at least annually).
FASB Staff Position No. FAS 157-3 was issued Sep. 30, No material
on Oct. 10, 2008, and clarifies the 2008 impact
application of SFAS No. 157 in a market that
is not active and provides an example to
illustrate key considerations in determining
the fair value of a financial asset when the
market for that financial asset is not
active.
----------------------------------------------------------------------
SFAS No. 159, The Fair Value Option for Jan. 1, No material
Financial Assets and Financial Liabilities, 2008 impact
including an amendment to SFAS No. 115,
permits entities to choose to measure many
financial instruments and certain other
items at fair value. Most of the provisions
of this Statement apply only to entities
that elect the fair value option. However,
the amendment to SFAS No. 115, Accounting
for Certain Investments in Debt and Equity
Securities, applies to all entities with
available-for-sale and held-for-trading
securities.
----------------------------------------------------------------------
SFAS No. 161, Disclosure about Derivative Fiscal No material
Instruments and Hedging Activities, intends years and impact
to improve financial reporting about interim expected
derivative instruments and hedging periods
activities by requiring enhanced disclosures beginning
to enable investors to better understand after Nov.
their effects on an entity's financial 15, 2008
position, financial performance and cash
flows. SFAS No. 161 improves transparency
about the location and amounts of derivative
instruments in an entity's financial
statements; how derivative instruments and
related hedged items are accounted for under
SFAS No. 133; and how such instruments
affect an entity's financial position,
financial performance and cash flows. SFAS
No. 161 achieves these improvements by
requiring disclosure of the fair values of
derivative instruments and their gains and
losses in a tabular format, providing more
information about an entity's liquidity and
requires cross referencing within footnotes.
----------------------------------------------------------------------
SFAS No. 162, The Hierarchy of Generally 60 days No material
Accepted Accounting Principles, identifies following impact
the sources of accounting principles and the SEC expected
framework for selecting the principles to be approval
used in the preparation of financial of the
statements of nongovernmental entities that PCAOB
are presented in conformity with generally amendments
accepted accounting principles (GAAP) in the to AU
United States (the GAAP hierarchy). This Section
statement is not expected to change current 411
practice.
----------------------------------------------------------------------
Fiscal No material
SFAS No. 141(R), Business Combinations and years impact;
SFAS No. 160, Noncontrolling Interests in beginning however,
Consolidated Financial Statements. These after Dec. these
standards will improve, simplify and 15, 2008 changes may
converge internationally the accounting for affect
business combinations and the reporting of potential
noncontrolling interests in consolidated future
financial statements. SFAS No. 141(R) business
replaces SFAS No. 141, Business combinations
Combinations. SFAS No. 141(R) retains the
fundamental requirements in SFAS No. 141
that the acquisition method of accounting
(formerly called the purchase method) be
used for all business combinations and for
an acquirer to be identified for each
business combination. The new statement
improves reporting by creating greater
consistency in the accounting and financial
reporting of business combinations,
resulting in more complete, comparable and
relevant information for investors and other
users of financial statements. To achieve
this goal, the new standard requires the
acquiring entity in a business combination
to recognize all (and only) the assets
acquired and liabilities assumed in the
transaction; establishes the acquisition-
date fair value as the measurement objective
for all assets acquired and liabilities
assumed; and requires the acquirer to
disclose to investors and other users all of
the information they need to evaluate and
understand the nature and financial
statement effect of the business
combination. SFAS No. 160 amends Accounting
Research Bulletin (ARB) No. 51, Consolidated
Financial Statements, to establish
accounting and reporting standards for the
noncontrolling interests in a subsidiary and
for the deconsolidation of a subsidiary. The
new statement improves the relevance,
comparability and transparency of financial
information provided to investors by
requiring all entities to report
noncontrolling (minority) interests in
subsidiaries in the same way - as equity in
the consolidated financial statements. In
addition, SFAS No. 160 eliminates the
diversity that currently exists in
accounting for transactions between an
entity and noncontrolling interests by
requiring they be treated as equity
transactions and changes the way the
consolidated income statement is presented.
----------------------------------------------------------------------
SFAS No. 163, Accounting for Financial Fiscal Currently
Guarantee Insurance Contracts - an years being
Interpretation of SFAS No. 60, requires that beginning evaluated
an insurance company recognize a claim after Dec.
liability prior to an event of default 15, 2008
(insured event) where there is evidence that
credit deterioration has occurred in an
insured financial obligation. This statement
also clarifies how SFAS No. 60 applies to
financial guarantee insurance contracts,
including the recognition and measurement to
be used to account for premium revenue and
claim liabilities. The scope of this
statement is limited to financial guarantee
insurance (and reinsurance) contracts within
the scope of SFAS No. 60 and does not apply
to such contracts that are derivatives
included within the scope of SFAS No. 133.
----------------------------------------------------------------------
FASB Staff Position (FSP) No. FAS 142-3, Fiscal Currently
Determining the Useful Life of Intangible years being
Assets, amends factors that should be beginning evaluated
considered in developing renewal or after Dec.
extension assumptions used to determine the 15, 2008
useful life of a recognized intangible under
SFAS No. 142, Goodwill and Other Intangible
Assets. Early adoption is prohibited and
this FSP must be applied prospectively to
intangible assets acquired after the
effective date. The disclosure requirements
shall be applied prospectively to all
intangible assets recognized as of and
subsequent to the effective date.
----------------------------------------------------------------------
Emerging Issues Task Force (EITF) Issue No. Fiscal Currently
07-5, Determining Whether an Instrument (or years being
Embedded Feature) is Indexed to an Entity's beginning evaluated
Own Stock, addresses the determination of after Dec.
whether an instrument (or embedded feature) 15, 2008
is indexed to an entity's own stock, which
is the first part of the scope exception in
paragraph 11(a) of SFAS No. 133. This issue
applies to any freestanding financial
instrument or embedded feature that has all
the characteristics of a derivative in
paragraphs 6-9 of SFAS No. 133 and also
applies to any freestanding financial
instrument that is potentially settled in an
entity's own stock, regardless of whether
the instrument has all the characteristics
of a derivative in paragraphs 6-9 of SFAS
No. 133, for purposes of determining whether
the instrument is within scope of EITF 00-
19. EITF 07-5 shall be applied to
outstanding instruments as of the beginning
of the fiscal year in which the EITF is
applied and the cumulative effect of the
change in accounting principle shall be
recognized as an adjustment to the opening
balance of retained earnings. Early adoption
is not permitted.
----------------------------------------------------------------------
EITF 08-3, Accounting by Lessees for Fiscal Currently
Nonrefundable Maintenance Deposits applies years being
to the lessee's accounting for maintenance beginning evaluated
deposits paid by a lessee under an after Dec.
arrangement accounted for as a lease that 15, 2008
are refunded only if the lessee performs
specified maintenance activities. Payments
to a lessor that are not substantively and
contractually related to maintenance of the
leased asset are not within the scope of
this Issue. If at lease inception a lessee
determines that it is less than probable
that the total amount of payments will be
returned to the lessee as a reimbursement
for maintenance activities, the lessee shall
consider that when determining the portion
of each payment that is not within the scope
of this Issue. Maintenance deposits within
the scope of this Issue shall be accounted
for as a deposit asset.
----------------------------------------------------------------------
EITF 07-1, Accounting for Collaborative Fiscal Currently
Arrangements defines collaborative years being
arrangements and establishes reporting beginning evaluated
requirements for transactions between after Dec.
participants in a collaborative arrangement 15, 2008
and between participants in the arrangement
and third parties. A collaborative
arrangement is a contractual arrangement
that involves a joint operating activity.
These arrangements involve two (or more)
parties who are both (a) active participants
in the activity and (b) exposed to
significant risks and rewards dependent on
the commercial success of the activity. A
collaborative arrangement within the scope
of this Issue is not primarily conducted
through a separate legal entity created for
that activity. However, in some situations
part of a collaborative arrangement may be
conducted in a legal entity for specific
activities or for a specific geographic
location. The existence of a legal entity
for part of an arrangement does not prevent
an arrangement from being a collaborative
arrangement as defined in this Issue. The
part of the arrangement that is conducted in
a separate legal entity should be accounted
for under ARB 51, Statement 94, Opinion 18,
Interpretation 46(R), or other related
accounting literature. Participants should
evaluate whether an arrangement is a
collaborative arrangement at its inception
based on the facts and circumstances
specific to the arrangement. However, a
collaborative arrangement can begin at any
point in the life cycle of an endeavor.
Participants in a collaborative arrangement
shall report costs incurred and revenue
generated from transactions with third
parties (that is, parties that do not
participate in the arrangement) in each
entity's respective income statement
pursuant to the guidance in EITF 99-19. An
entity should not apply the equity method of
accounting under Opinion 18 to activities of
collaborative arrangements.
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Supplemental Measures
NOVA Chemicals presents certain supplemental measures below, which
do not have any standardized meaning prescribed by Canadian GAAP and
are therefore unlikely to be comparable to similar measures presented
by other companies. The Company believes that certain non-GAAP
financial measures, when presented in conjunction with comparable GAAP
financial measures, are useful to investors and other readers because
the information is an appropriate measure for evaluating NOVA
Chemicals operating performance. Internally, the Company uses this
non-GAAP financial information as an indicator of business
performance, with specific reference to these indicators. These
measures should be considered in addition to, and not as a substitute
for or superior to, measures of financial performance prepared in
accordance with GAAP.
-- Adjusted EBITDA - defined on page 2, assists investors in
determining NOVA Chemicals' ability to generate cash from
operations.
-- Adjusted EBITDA from the Businesses - defined on page 1,
highlights the ongoing performance of the business units
excluding one-time charges, events or other items that are not
driven by the business units.
-- Adjusted net income - equals net income (loss) plus (minus)
after-tax mark-to-market feedstock derivative unrealized
(gains) losses, after-tax restructuring charges and other
after-tax non-recurring items.
-- Adjusted earnings per share, diluted - equals adjusted net
income divided by diluted weighted-average common shares
outstanding. Adjusted EPS allows investors to analyze the
underlying financial results for various periods on a
comparative basis.
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---------------------------------------------------- -----------------
Reconciliation of Adjusted
Net Income and Three Months Ended Nine Months Ended
Adjusted EPS
(millions of U.S. dollars, Sep. 30 June 30 Sep. 30 Sep. 30 Sep. 30
except per share amounts) 2008 2008 2007 2008 2007
---------------------------------------------------- -----------------
Net income $98 $18 $97 $166 $221
Non-GAAP Adjustments:
After-tax mark-to-market
feedstock derivative
unrealized (gains) losses (15) 61 (6) 66 (22)
Canadian tax-rate reduction
benefit - - (6) - (12)
After-tax restructuring
charges - 4 - 4 9
---------------------------------------------------- -----------------
Adjusted net income $83 $83 $85 $236 $196
Diluted weighted-average
common shares outstanding 83.2 83.2 83.8 83.2 83.6
---------------------------------------------------- -----------------
Adjusted EPS $1.00 $1.00 $1.01 $2.84 $2.34
---------------------------------------------------- -----------------
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-- Funds from operations - equals cash flow from (used in)
operating activities excluding changes in non-cash working
capital and changes in other current assets and non-current
assets and liabilities.
-- Net current debt - equals long-term debt due within one year
and bank loans, less restricted cash.
-- Net debt to total capitalization - equals total debt, net of
cash and cash equivalents, and restricted cash, divided by
total common shareholders' equity plus net debt. This measure
can be used to analyze the leverage of the Company.
-- Operating income (loss) -equals net income (loss) before
income taxes, interest expense and other gains and losses.
This measure is provided to assist investors in analyzing NOVA
Chemicals' income from operations.
-- Total capitalization - includes shareholders' equity and total
debt, net of cash and cash equivalents, and restricted cash.
-- Net debt to cash flow - equals consolidated debt (including
accounts receivable securitization funding), less preferred
shares and cash and cash equivalents, divided by consolidated
adjusted EBITDA. Consolidated debt and consolidated adjusted
EBITDA exclude amounts for the INEOS NOVA JV. This measure is
provided to assist investors in calculating NOVA Chemicals'
debt covenant.
-- Interest coverage - consolidated adjusted EBITDA (excluding
the INEOS NOVA JV) divided by interest expense for the
preceding 12- month period.
Forward-Looking Information
This news release contains forward-looking information with
respect to NOVA Chemicals, its subsidiaries and affiliated companies.
By their nature, forward-looking information requires NOVA Chemicals
to make assumptions and is subject to inherent risks and
uncertainties. There is significant risk that predictions, forecasts,
conclusions and projections that constitute forward-looking
information will not prove to be accurate, that NOVA Chemicals'
assumptions may not be correct and that actual results may differ
materially from such forward-looking information. Forward-looking
information for the time periods beyond 2008 involve longer-term
assumptions and estimates than forward-looking information for 2008
and are consequently subject to greater uncertainty. NOVA Chemicals
cautions readers of this news release not to place undue reliance on
its forward-looking information as a number of factors could cause
actual results, conditions, actions or events to differ materially
from the targets, expectations, estimates or intentions expressed in
the forward-looking information.
The words "believe", "expect", "plan", "intend", "estimate", or
"anticipate" and similar expressions, as well as future or conditional
verbs such as "will", "should", "would", and "could" often identify
forward-looking information. Specific forward-looking information
contained in this news release includes, among others, statements
regarding: NOVA Chemicals' belief that the second half of 2008 will be
stronger than the first half; NOVA Chemicals' beliefs about its
Alberta Advantage; NOVA Chemicals' plans to implement polyethylene and
EPS price increases; NOVA Chemicals' expectations and beliefs about
its proposed joint venture with Reliance Industries; NOVA Chemicals'
expectation that it will improve its cash flow and liquidity in the
fourth quarter of 2008; and NOVA Chemicals' belief that the first step
in the crude oil working capital reduction effort combined with lower
inventory and accounts receivables values due to the sharp drop in
crude oil prices in the third quarter of 2008, is expected to
significantly reduce its working capital investment in the fourth
quarter of 2008. With respect to forward-looking information contained
in this news release, NOVA Chemicals has made assumptions regarding,
among other things: future oil, natural gas and benzene prices; its
ability to obtain raw materials; its ability to market products
successfully to its anticipated customers; the impact of increasing
competition; and its ability to obtain financing on acceptable terms.
Some of the risks that could affect NOVA Chemicals' future results and
could cause results to differ materially from those expressed in the
forward-looking information include: commodity chemicals price levels
(which depend, among other things, on supply and demand for these
products, capacity utilization and substitution rates between these
products and competing products); feedstock availability and prices;
operating costs; terms and availability of financing; technology
developments; currency exchange rate fluctuations; starting up and
operating facilities using new technology; realizing synergy and cost
savings targets; NOVA Chemicals' ability to implement its business
strategies; meeting time and budget targets for significant capital
investments; avoiding unplanned facility shutdowns; safety, health,
and environmental risks associated with the operation of chemical
plants and marketing of chemical products, including transportation of
these products; public perception of chemicals and chemical end-use
products; the impact of competition; changes in customer demand,
including customer acceptance of NOVA Chemicals' Performance Polymers;
changes in, or the introduction of new laws and regulations relating
to NOVA Chemicals' business, including environmental, competition and
employment laws; loss of the services of any of NOVA Chemicals'
executive officers; uncertainties associated with the North American,
South American, European, and Asian economies, terrorist attacks,
severe weather events, and other risks detailed from time to time in
the publicly filed disclosure documents and securities commission
reports of NOVA Chemicals.
NOVA Chemicals' forward-looking information is expressly qualified
in its entirety by this cautionary statement. In addition, the
forward-looking information is made only as of the date of this news
release, and except as required by applicable law, NOVA Chemicals
undertakes no obligation to publicly update this forward-looking
information to reflect new information, subsequent events or
otherwise.
Trademark Information
Advanced SCLAIRTECH(TM) is a trademark of NOVA Chemicals; ARCEL(R)
and DYLARK(R) are registered trademarks of NOVA Chemicals Inc.;
SCLAIR(R) is a registered trademark of NOVA Chemicals Corporation in
Canada and of NOVA Chemicals (International) S.A. elsewhere,
authorized use/utilisation autorissee; SURPASS(R) is a registered
trademark of NOVA Chemicals Corporation in Canada and of NOVA
Chemicals (International) S.A. elsewhere; IMx(TM) is a trademark of
NOVA Chemicals Inc.
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INVESTOR INFORMATION
For inquiries on stock-related matters
including dividend payments, stock
transfers and address changes, contact
NOVA Chemicals toll-free at 1-800-661-
8686 or e-mail to
shareholders@novachem.com Transfer Agent and Registrar
CIBC Mellon Trust Company
600 The Dome Tower, 333
Seventh Avenue S.W.
Calgary, Alberta, Canada T2P
Contact Information 2Z1
Phone: (403) 750-3600 (Canada) or (412)
490-4000 (United States)
Internet: www.novachemicals.com Phone: (403)232-2400 /
1-800-387-0825
E-Mail: invest@novachem.com Fax: (403)264-2100
NOVA Chemicals Corporation Internet:www.cibcmellon.com
1000 Seventh Avenue S.W., P.O. Box 2518
Calgary, Alberta, Canada T2P 5C6
Share Information
If you would like to receive a
shareholder information package, please NOVA Chemicals' trading
contact us at (403) 750-3600 or (412) symbol on the New York and
490-4000 or via e-mail at Toronto Stock Exchanges is
publications@novachem.com NCX.
NOVA Chemicals files additional information, including its Annual
Information Form, with Canadian securities administrators. This
information can be accessed through the System for Electronic
Document Analysis and Retrieval (SEDAR), at www.sedar.com. This same
information is filed with the U.S. Securities and Exchange Commission
and can be accessed via their Electronic Data Gathering Analysis and
Retrieval System (EDGAR) at www.sec.gov/edgar.shtml
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NOVA Chemicals Corporation
Investor Relations
Chuck Magro, 412-490-5047
or
Media Relations
Greg Wilkinson, 412-490-4166
Copyright Business Wire 2008
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