NOVA Chemicals: Continued Business Improvement.Business Editors PITTSBURGH--(BUSINESS WIRE)--April 21, 2004 NOVA Chemicals NOVA Chemicals is a leading chemical company jointly headquartered in Calgary, Alberta, and the Pittsburgh, Pennsylvania, suburb of Moon Township. It was founded in 1954. The corporation's chemical assets are divided into two divisions: Olefins/Polyolefins and Styrenics. Corporation (NYSE NYSE See: New York Stock Exchange :NCX NCX Sodium Calcium Exchanger (cell membrane protein) NCX Network Connections ) (TSX TSX Toronto Stock Exchange (TSE before April, 2002) TSX Transfer from Stack Pointer to Index TSX True Space Extension :NCX) NOVA Chemicals will host a conference call today, Wednesday Wednesday: see week. , Apr. 21, 2004, for investors and analysts at 1 p.m. EDT EDT abbr. Eastern Daylight Time EDT Eastern Daylight Time EDT n abbr (US) (= Eastern Daylight Time) → hora de verano de Nueva York EDT (11 a.m. MDT MDT abbr. Mountain Daylight Time MDT (in the US and Canada) Mountain Daylight Time MDT n abbr (US) (= mountain daylight time) → ; 10 a.m. PDT PDT abbr. Pacific Daylight Time PDT Pacific Daylight Time PDT n abbr (US) (= Pacific Daylight Time) → hora de verano del Pacífico PDT ). Media are welcome to join this call in a "listen only" mode. The dial in number for this call is (416) 405-9328. The replay number is (416) 695-5800 (Reservation A clause in a deed of real property whereby the grantor, one who transfers property, creates and retains for the grantor some right or interest in the estate granted, such as rent or an Easement ,a right of use over the land of another. No. 1530168). The live call is also available on the Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the at www.vcall.com. All financial information is in U.S. dollars unless otherwise indicated. NOVA Chemicals Corporation (NOVA Chemicals) (NYSE:NCX) (TSX:NCX) reported net income to common shareholders of $7 million ($0.08 per share diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. ) for the first quarter of 2004. This quarter is the first positive quarter in our operated businesses after three years of losses, and compares to a net loss to common shareholders of $15 million ($0.18 per share loss diluted) in the fourth quarter of 2003. Net income to common shareholders reported in the first quarter of 2003 of $4 million ($0.05 per share diluted) included $25 million ($0.29 per share diluted) in equity earnings from Methanex, which was sold in the second quarter of 2003. "Operating performance continued to improve in the first quarter," said Jeff Lipton For people named Lipton, see . Lipton is one of the world's best-known and best-selling brands of both hot leaf and ready-to-drink tea. It forms part of the Unilever portfolio. , NOVA Chemicals' President and Chief Executive Officer. "Margins in the ethylene/polyethylene business expanded with modest price increases for both ethylene ethylene (ĕth`əlēn') or ethene (ĕth`ēn), H2C=CH2, a gaseous unsaturated hydrocarbon. It is the simplest alkene. and polyethylene polyethylene (pŏl'ēĕth`əlēn), widely used plastic. It is a polymer of ethylene, CH2=CH2, having the formula (-CH2-CH2-)n , and lower net ethylene costs from our flexicracker. Styrenics volume expanded 12% from the fourth quarter and price increases held margins despite sharply higher feedstock feed·stock n. Raw material required for an industrial process. Noun 1. feedstock - the raw material that is required for some industrial process raw material, staple - material suitable for manufacture or use or finishing costs." "Feedstock costs remain high, and we are pursuing price increases across the business," Lipton continued. "Margins could expand if the demand strength we've we've Contraction of we have. we've have seen in March continues into the second quarter." The Olefins/Polyolefins business reported net income of $34 million in the first quarter, $11 million higher than the fourth quarter net income of $23 million, due mainly to strong co-product contributions. Prices for ethylene and polyethylene largely kept pace with rising feedstock costs. Sales volumes decreased slightly from record-setting fourth quarter levels. The Styrenics business reported a net loss of $22 million in the first quarter, a $9 million improvement over the fourth quarter net loss of $31 million. Prices increased overall for all products, keeping pace with the flow through of rising feedstock costs. Styrene sty·rene n. A colorless oily liquid from which polystyrenes, plastics, and synthetic rubber are produced. Also called vinylbenzene. monomer monomer (mŏn`əmər): see polymer. monomer Molecule of any of a class of mostly organic compounds that can react with other molecules of the same or other compounds to form very large molecules (polymers). and polymer polymer (pŏl`əmər), chemical compound with high molecular weight consisting of a number of structural units linked together by covalent bonds (see chemical bond). volumes were up as a result of solid demand and the resumption RESUMPTION. To reassume; to promise again; as, the resumption of payment of specie by the banks is general. It also signifies to take things back; as the government has resumed the possession of all the lands which have not been paid for according to the requisitions of the law, and the of full operations at the Bayport Bayport may refer to a place in the United States:
NOVA Chemicals began expensing stock options for both Canadian Canadian (kənā`dēən), river, 906 mi (1,458 km) long, rising in NE New Mexico. and flowing E across N Texas and central Oklahoma into the Arkansas River in E Oklahoma. and U.S. generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting (GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). ) in the first quarter of 2004. See Notes to the Consolidated Financial Statements Consolidated Financial Statements The combined financial statements of a parent company and its subsidiaries. Notes: Because consolidated financial statements present an aggregated look at the financial position of a parent and its subsidiaries, they enable you to gauge for a review of stock-based incentive plans.
NOVA Chemicals Highlights
(unaudited; millions of U.S. dollars
except per share amounts and as noted)
Three Months Ended
--------------------------
Mar. 31 Dec. 31 Mar. 31
2004 2003 2003
-------- -------- --------
Net income (loss)
Olefins/Polyolefins $ 34 $ 23 $ 4
Styrenics (22) (31) (17)
------- ------- -------
Operated business income (loss) $ 12 $ (8) $ (13)
Methanex - - 25
Preferred securities dividends
and distributions(1) (5) (7) (8)
------- ------- -------
Net income (loss) to common shareholders $ 7 $ (15) $ 4
------- ------- -------
------- ------- -------
Income (loss) per share
Basic and diluted $ 0.08 $ (0.18) $ 0.05
Weighted-average common shares
outstanding (millions)
Basic 87 87 87
Diluted 89 87 87
Revenue $ 1,126 $ 1,041 $ 977
EBITDA(2),(3) $ 121 $ 81 $ 85
Depreciation and amortization $ 80 $ 78 $ 71
Funds from operations $ 92 $ 55 $ 69
Capital expenditures $ 43 $ 52 $ 14
Average capital employed(4) $ 3,205 $ 3,270 $ 3,126
After-tax return on capital employed(5) 3.6% 0.7% 0.6%
Return (loss) on average common equity(6) 2.2% (4.7)% 1.5%
(1) On Mar. 1, 2004, NOVA Chemicals redeemed $383 million of preferred
securities. See Financing.
(2) See Supplemental Measures.
(3) Net income (loss) before income taxes, other gains and losses,
earnings from equity investment in affiliates, interest expense
and depreciation and amortization (see Consolidated Statement of
Income (Loss) and Supplemental Measures).
(4) Average capital employed equals cash expended on plant, property
and equipment (less accumulated depreciation and amortization) and
working capital, and excludes assets under construction and
investments. Amounts are converted to U.S. dollars using current
exchange rates.
(5) After-tax return on capital employed equals NOVA Chemicals' net
income (loss) plus after-tax interest expense (annualized) divided
by average capital employed.
(6) Return (loss) on average common equity equals annualized net
income (loss) to common shareholders divided by average common
equity.
OLEFINS/POLYOLEFINS BUSINESS
Financial Highlights
(unaudited; millions of U.S. dollars
except as noted) Three Months Ended
--------------------------
Mar. 31 Dec. 31 Mar. 31
2004 2003 2003
-------- -------- --------
Revenue(1) $ 709 $ 691 $ 637
Operating income $ 62 $ 47 $ 26
Depreciation and amortization 51 50 44
------- ------- -------
EBITDA(2) $ 113 $ 97 $ 70
Net income(3) $ 34 $ 23 $ 4
Capital expenditures $ 23 $ 29 $ 8
Average capital employed(4) $ 1,890 $ 1,938 $ 1,805
After-tax return on capital employed(5) 9.0% 6.1% 2.8%
(1) Before intersegment eliminations.
(2) Net income (loss) before income taxes, other gains and losses,
interest expense and depreciation and amortization. See
Supplemental Measures.
(3) Before dividends and distributions on preferred securities.
(4) Average capital employed equals cash expended on plant, property
and equipment (less accumulated depreciation and amortization) and
working capital and excludes assets under construction. Amounts
are converted to U.S. dollars using current exchange rates.
(5) Equals net income (loss) plus after-tax interest expense
(annualized) divided by average capital employed.
Operating Highlights
Average Benchmark Prices(1)
(U.S. dollars per pound, unless otherwise noted)
Three Month Average
--------------------------
Mar. 31 Dec. 31 Mar. 31
2004 2003 2003
-------- -------- --------
Ethylene(2) $ 0.31 $ 0.28 $ 0.28
Polyethylene - linear low-density
butene liner(3) $ 0.44 $ 0.42 $ 0.42
Polyethylene - weighted-average
benchmark(4) $ 0.46 $ 0.44 $ 0.46
NYMEX natural gas (dollars per mmBTU)(5) $ 5.69 $ 4.58 $ 6.60
WTI crude oil (dollars per barrel) $ 35.15 $ 31.18 $ 33.86
(1) Average benchmark prices are not intended to be actual prices
realized by NOVA Chemicals or any other petrochemical company.
(2) Source: Chemical Market Associates, Inc. (CMAI) USGC Net
Transaction Price.
(3) Source: Townsend Polymer Services Information (TPSI). TPSI's
benchmark polyethylene prices received a one-time downward,
non-market adjustment beginning in July 2003. The linear
low-density butene liner price was reduced by 5 cents per pound.
Months prior to July 2003 have not been restated by TPSI.
(4) Benchmark prices weighted according to NOVA Chemicals' sales
volume mix in North America. Source for benchmark prices: TPSI.
TPSI's benchmark polyethylene prices received a one-time downward,
non-market adjustment beginning in July 2003. Months prior to July
2003 have not been restated by TPSI.
(5) Source: NYMEX Henry Hub 3-Day Average Close.
Polyethylene Sales Volumes
(millions of pounds) Three Months Ended
--------------------------
Mar. 31 Dec. 31 Mar. 31
2004 2003 2003
-------- -------- --------
NOVAPOL(R)
Linear low-density polyethylene 304 364 305
Low-density polyethylene 74 73 58
High-density polyethylene 108 98 96
SCLAIR(R)
Linear low-density and high-density
polyethylene 132 126 133
Advanced SCLAIRTECH(TM)
Linear low-density and high-density
polyethylene 173 165 140
-------- -------- --------
Total 791 826 732
-------- -------- --------
-------- -------- --------
----------------------------------
NOVAPOL(R) is a registered trademark of NOVA Brands Ltd.
SCLAIR(R) is a registered trademark of NOVA Chemicals Corporation in
Canada and of NOVA Chemicals (International) S.A. elsewhere.
Advanced SCLAIRTECH(TM) is a trademark of NOVA Chemicals.
Review of Operations Olefins/Polyolefins First Quarter 2004 The Olefins/Polyolefins business reported net income of $34 million in the first quarter of 2004, compared to net income of $23 million in the fourth quarter of 2003. Prices for ethylene and polyethylene largely offset rising feedstock costs. Strong co-product contributions, which lowered net ethylene costs from our Corunna, Ontario Corunna is a community in southwestern Ontario, Canada, located on the St. Clair River, across from the U.S. state of Michigan approximately nine kilometers south of the city of Sarnia. Corunna is located in St. flexi-cracker, and feedstock derivative derivative: see calculus. derivative In mathematics, a fundamental concept of differential calculus representing the instantaneous rate of change of a function. gains (see Feedstock Derivative Positions), were important factors in the Olefins/Polyolefins first quarter improvement. Feedstocks and Ethylene Average NYMEX See New York Mercantile Exchange. NYMEX See New York Mercantile Exchange (NYM). natural gas prices were up 24% from the fourth quarter, and average WTI WTI West Texas Intermediate WTI Western Transportation Institute (Montana State University) WTI World Tribunal on Iraq WTI With The Idea (used in chess to point to the idea behind a specific move) crude oil prices were up 13%. Our Joffre, Alberta Alberta (ălbûr`tə), province (2001 pop. 2,974,807), 255,285 sq mi (661,188 sq km), including 6,485 sq mi (16,796 sq km) of water surface, W Canada. ethane-based crackers' cash-cost advantage averaged approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. 4 cents per pound for the quarter over similar U.S. Gulf Coast (USGC USGC US Gulf Coast USGC United States Global Change USGC United States Grain Corporation USGC United States Government Classified USGC United States Gymnastics Championships USGC United States Gypsum Corporation USGC US Government Consulting, Inc ) ethylene plants. USGC ethane ethane (ĕth`ān), CH3CH3, gaseous hydrocarbon. It is a continuous-chain alkane. As a constituent of natural gas, it is used for fuel. It can be prepared by cracking and fractional distillation of petroleum. pricing increased only 6% during the first quarter due to relatively weak ethane demand, despite the 24% rise in natural gas prices. The Olefins/Polyolefins business benefited from strong co-product contribution margins primarily from the Corunna, Ontario flexi-cracker, which has the flexibility to switch part of its feedstock slate between natural gas liquids and crude oil and its derivatives derivatives In finance, contracts whose value is derived from another asset, which can include stocks, bonds, currencies, interest rates, commodities, and related indexes. Purchasers of derivatives are essentially wagering on the future performance of that asset. , depending on market conditions. As an example, the first quarter benchmark A performance test of hardware and/or software. There are various programs that very accurately test the raw power of a single machine, the interaction in a single client/server system (one server/multiple clients) and the transactions per second in a transaction processing system. price for propylene propylene /pro·pyl·ene/ (pro´pi-len) a gaseous hydrocarbon, CH3CHdbondCH2. propylene glycol a colorless viscous liquid used as a humectant and solvent in pharmaceutical preparations. was up 36%, while crude oil was up only 13%. Polyethylene First quarter weighted-average benchmark polyethylene prices were up 2 cents per pound from the fourth quarter of 2003. Implementation of a 4 cents per pound polyethylene price increase in North America North America, third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere. , originally announced for Dec. 1, 2003, was only partially successful during the first quarter of 2004. A second increase of 5 cents per pound, originally announced for Feb. 1, 2004, was delayed and is expected to be implemented May 1, 2004, without further price protection. Total polyethylene sales volumes for the first quarter were down 4% from a record 2003 fourth quarter, and were up 8% from the first quarter of 2003. North American North American named after North America. North American blastomycosis see North American blastomycosis. North American cattle tick see boophilusannulatus. volumes were down 5% from the fourth quarter, and international volumes were flat. International sales represented 14% of NOVA Chemicals' total polyethylene sales volume for the first quarter. Sales to China were down, but sales into other Southeast Southeast or south east is the ordinal direction halfway between south and east. It the opposite of northwest. Southeast or South East can refer to: Asian nation country, land, state - the territory occupied by a nation; "he returned to the land of his birth"; "he visited several European countries" increased. Advanced SCLAIRTECH Polyethylene The Advanced SCLAIRTECH polyethylene plant continued to step up production rates and sold a record 173 million pounds of Advanced SCLAIRTECH polyethylene in the first quarter of 2004. NOVA Chemicals commercialized a new polyethylene grade for thin-wall injection molding injection molding n. A manufacturing process for forming objects, as of plastic or metal, by heating the molding material to a fluid state and injecting it into a mold. applications based on our proprietary single-site catalyst catalyst, substance that can cause a change in the rate of a chemical reaction without itself being consumed in the reaction; the changing of the reaction rate by use of a catalyst is called catalysis. . We eliminated one standard grade of polyethylene as we continue to shift production to higher-value products. First Quarter 2004 versus First Quarter 2003 Net income of $34 million in the first quarter of 2004 was up from net income of $4 million in the first quarter of 2003, primarily due to higher prices and sales volumes for polyethylene and co-products, which were partially offset by rising feedstock costs. In addition, higher feedstock derivative gains were recognized. See Forward-Looking for·ward-look·ing adj. Concerned with or making provision for the future: forward-looking educators; a forward-looking corporate plan. Adj. 1. Information.
STYRENICS BUSINESS
Financial Highlights
(unaudited; millions of U.S. dollars except as noted)
Three Months Ended
--------------------------
Mar. 31 Dec. 31 Mar. 31
2004 2003 2003
-------- -------- --------
Revenue(1) $ 474 $ 404 $ 386
Operating loss $ (21) $ (44) $ (12)
Depreciation and amortization 29 28 27
------- ------- -------
EBITDA(2) $ 8 $ (16 ) $ 15
Net loss(3) $ (22) $ (31) $ (17)
Capital expenditures $ 20 $ 23 $ 6
Average capital employed(4) $ 1,343 $ 1,336 $ 1,305
After-tax return on capital employed(5) (4.1)% (7.3)% (2.4)%
(1) Before intersegment eliminations.
(2) Net income (loss) before income taxes, other gains and losses,
interest expense and depreciation and amortization. See
Supplemental Measures.
(3) Before dividends and distributions on preferred securities.
(4) Average capital employed equals cash expended on plant, property
and equipment (less accumulated depreciation and amortization) and
working capital and excludes assets under construction. Amounts
are converted to U.S. dollars using current exchange rates.
(5) Equals net income (loss) plus after-tax interest expense
(annualized) divided by average capital employed.
Operating Highlights
Average Benchmark Prices(1)
(U.S. dollars per pound, unless otherwise noted)
Three Month Average
--------------------------
Mar. 31 Dec. 31 Mar. 31
2004 2003 2003
-------- -------- --------
Styrene monomer(2) $ 0.47 $ 0.40 $ 0.43
Weighted-average polystyrene(3) $ 0.59 $ 0.56 $ 0.55
Benzene (dollars per gallon)(2) $ 1.90 $ 1.49 $ 1.78
(1) Average benchmark prices are not intended to be actual prices
realized by NOVA Chemicals or any other petrochemical company.
(2) Source: CMAI Contract Market.
(3) Benchmark prices weighted according to NOVA Chemicals' polystyrene
sales volume mix in North America and Europe. Includes solid and
expandable polystyrene, but excludes high performance styrenic
polymers. Source for benchmark prices: CMAI. CMAI's published
North American low-range contract/market high-heat crystal
benchmark polystyrene prices received a one-time downward,
non-market adjustment of 6 cents per pound beginning in June 2003.
Months prior to June 2003 have not been restated by CMAI.
Styrenics Sales Volumes
(millions of pounds) Three Months Ended
--------------------------
Mar. 31 Dec. 31 Mar. 31
2004 2003 2003
-------- -------- --------
Styrene monomer(1) 434 342 308
Solid and expandable polystyrene 555 522 558
High performance styrenics (including
DYLARK(R) resins) 57 68 63
-------- -------- --------
Total 1,046 932 929
-------- -------- --------
-------- -------- --------
(1) Third-party sales only.
---------------------------------
DYLARK(R) is a registered trademark of NOVA Chemicals Inc.
Review of Operations Styrenics First Quarter 2004 The Styrenics business reported a net loss of $22 million in the first quarter, compared to a net loss of $31 million in the fourth quarter of 2003. Prices overall kept pace with the flow-through of rapidly rising benzene benzene (bĕn`zēn, bĕnzēn`), colorless, flammable, toxic liquid with a pleasant aromatic odor. It boils at 80.1°C; and solidifies at 5.5°C;. Benzene is a hydrocarbon, with formula C6H6. costs. The improvement in the quarter was due to higher sales volumes and the discontinuance Cessation; ending; giving up. The discontinuance of a lawsuit, also known as a dismissal or a non-suit, is the voluntary or involuntary termination of an action. DISCONTINUANCE, pleading. A chasm or interruption in the pleading. 2. of third-party purchases of ethylbenzene Ethylbenzene is an organic chemical compound which is an aromatic hydrocarbon. Its major use is in the petrochemical industry as an intermediate compound for the production of styrene, which in turn is used for making polystyrene, a commonly used plastic material. , as the Bayport styrene monomer unit started back up in late January January: see month. . Total sales volume, for both styrene monomer and polymers, was up 12% from the fourth quarter. Third-party styrene monomer sales volume was up 27%. North American styrenic polymer volume was up 2%, and European European emanating from or pertaining to Europe. European bat lyssavirus see lyssavirus. European beech tree fagussylvaticus. European blastomycosis see cryptococcosis. styrenic polymer volume was up 7% from seasonally low fourth quarter volumes. Styrene Monomer Early in the first quarter, the styrene monomer unit at Bayport operated using shipments of ethylbenzene from NOVA Chemicals' Sarnia, Ontario Sarnia is a city in Southwestern Ontario, Canada (city population 71,419, census area population 88,793, in 2006). It is the largest city on Lake Huron and is located where the three upper Great Lakes empty into the St. Clair River. production facility and supplemental purchases of ethylbenzene. The Bayport ethylbenzene unit, damaged in a June June: see month. 2003 fire, was restarted on Jan. 18, 2004, and has operated at full capacity. The outage out·age n. 1. A quantity or portion of something lacking after delivery or storage. 2. A temporary suspension of operation, especially of electric power. had minimal impact on NOVA Chemicals' first quarter results. The USGC first quarter average spot price for styrene was 38 cents per pound, up from the fourth quarter average price of 31 cents per pound and rose to 42 cents per pound by mid-April Noun 1. mid-April - the middle part of April period, period of time, time period - an amount of time; "a time period of 30 years"; "hastened the period of time of his recovery"; "Picasso's blue period" Apr, April - the month following March and preceding May . Average first quarter benchmark contract pricing was 47 cents per pound, up from the fourth quarter price of 40 cents per pound. The benzene benchmark feedstock cost averaged $1.90 per gallon gallon: see English units of measurement. in the first quarter, up from the fourth quarter average of $1.49 per gallon. Benzene costs increased dramatically through the first quarter, starting the quarter at $1.71 per gallon, and finishing the quarter at $2.00 per gallon. Since then, planned and unplanned outages have resulted in a contract benzene price high of $2.35 per gallon for April and an all-time all-time adj. Exceeding all others up to the present time: an all-time speed skating record. all-time Adjective Informal high spot price of $3.09 per gallon. NOVA Chemicals announced North American styrene monomer contract price increases of 3 cents per pound effective Mar. 1, 2004, 4 cents per pound effective Apr. 1, 2004 and 4 cents per pound effective May 1, 2004. The announcement of 3 cents per pound effective Feb. 1, 2004 reported last quarter was subsequently revised to 5 cents per pound prior to the implementation date. In Europe Europe (y  r`əp), 6th largest continent, c.4,000,000 sq mi (10,360,000 sq km) including adjacent islands (1992 est. pop. 512,000,000). , styrene contract prices were 41 cents per pound in the
first quarter, up from the fourth quarter price of 35 cents per pound.
Effective April 2004, industry-wide styrene prices will be settled
monthly, replacing the practice of quarterly settlement. The April price
settled at 44 cents per pound.Solid Polystyrene polystyrene (pŏl'ēstī`rēn), widely used plastic; it is a polymer of styrene. Polystyrene is a colorless, transparent thermoplastic that softens slightly above 100°C; (212°F;) and becomes a viscous liquid at around 185°C; (SPS (Standby Power System) A UPS system that switches to battery backup upon detection of power failure. See UPS. SPS - Symbolic Programming System. Assembly language for IBM 1620. ) The weighted-average North American SPS price increased from the fourth quarter, but did not keep pace with rising feedstock costs. Volume was flat with the fourth quarter. NOVA Chemicals announced a price increase for North American SPS of 4 cents per pound effective May 1, 2004. Average European SPS prices increased in the first quarter, just keeping pace with rising feedstock costs. European volumes improved slightly from the fourth quarter. Customers kept inventories at low levels. NOVA Chemicals announced a European SPS price increase of 4 cents per pound effective Mar. 1, 2004. Expandable Polystyrene (EPS (Encapsulated PostScript) A PostScript file format used to transfer a graphic image between applications and platforms. EPS files contain PostScript code as well as an optional preview image in TIFF, WMF, PICT or EPSI, the latter being an ASCII-only format. ) NOVA Chemicals' first quarter average North American and European EPS prices increased, staying ahead of rising feedstock costs in North America. European price increases did not maintain margins. Volumes were up from the fourth quarter in North America. NOVA Chemicals announced North American EPS price increases of 3 cents per pound which became effective Apr. 1, 2004 and 4 cents per pound effective May 1, 2004. NOVA Chemicals announced a European EPS price increase of 3 cents per pound effective Mar. 1, 2004. First Quarter 2004 versus First Quarter 2003 The Styrenics business lost $22 million in the first quarter of 2004, compared to a net loss of $17 million in the first quarter of 2003. Price increases for all products and higher sales volumes in styrene monomer and EPS were more than offset by higher feedstock costs. See Forward-Looking Information.
Liquidity and Capital Resources
Capitalization
(unaudited; millions of U.S. dollars Mar. 31 Dec. 31
except as noted) 2004 2003
-------- --------
Long-term debt(1) $ 1,498 $ 1,101
Less: cash and cash equivalents (208) (212)
------- -------
Total debt net of cash and cash equivalents 1,290 889
------- -------
Shareholders' equity
9.50% preferred securities(2) - 210
9.04% preferred securities(2) - 173
Retractable preferred shares(3),(4) 198 198
------- -------
198 581
Common share equity(5),(6),(7),(8) 1,290 1,309
------- -------
Total shareholders' equity 1,488 1,890
------- -------
Total capitalization(9) $ 2,778 $ 2,779
------- -------
------- -------
(1) On Jan. 13, 2004, NOVA Chemicals issued $400 million of 6.5%
Senior Notes due 2012. Maturity dates for NOVA Chemicals'
long-term debt range from September 2005 to August 2028. The 2005
maturities total $103 million.
(2) On Mar. 1, 2004, NOVA Chemicals redeemed the 9.04% and 9.50%
preferred securities.
(3) Preferred shares of a subsidiary, paying dividends of 2%, which
are exchangeable into NOVA Chemicals' common shares.
(4) A total of 8,500,000 common shares (plus preferred shares if the
market value of such common shares is less than $198 million) have
been reserved for future issue under the terms of the retractable
preferred share agreement.
(5) Common shares outstanding at Apr. 16, 2004 were 87,433,351 (Mar.
31, 2004 - 87,420,204; Dec. 31, 2003 - 87,099,781; Sept. 30, 2003
- 86,931,487; June 30, 2003 - 86,760,361; Mar. 31, 2003 -
86,699,887).
(6) A total of 8,755,233 stock options were outstanding to officers
and employees on Mar. 31, 2004 to purchase common shares of NOVA
Chemicals. A total of 1,597,338 common shares were reserved but
unallocated. A total of 13 million common shares have been
reserved for issuance under the Option Plan.
(7) A total of 47,800 shares were reserved for the Directors' Share
Compensation Plan.
(8) In May 2002, NOVA Chemicals' shareholders reconfirmed a
shareholder rights plan where one right was issued for each
outstanding common share. The plan expires May 2009.
(9) Total capitalization reflects shareholders' equity and total debt
net of cash and cash equivalents. See Supplemental Measures.
Senior Debt Ratings(1)
Senior Unsecured Debt
------------------------------------
DBRS BBB (low) (stable)
Moody's Ba2 (stable)
Standard & Poor's BB+ (negative)
(1) Credit ratings are not recommendations to purchase, hold or sell
securities and do not comment on market price or suitability for a
particular investor. There is no assurance that any rating will
remain in effect for any given period of time or that any rating
will not be revised or withdrawn entirely by a rating agency in
the future.
Coverage Ratios
Twelve Months Ended
--------------------------
Mar. 31 Dec. 31 Mar. 31
2004 2003 2003
-------- -------- --------
Net debt to total capitalization 46.4% 32.0% 43.5%
Interest coverage on long-term debt(1) 0.6x 0.9x 0.4x
Net tangible asset coverage on
long-term debt(2) 2.0x 2.7x 2.3x
(1) Interest coverage on long-term debt is equal to net income (loss)
before interest expense on long-term debt and income taxes, for
the last four quarters, divided by annual interest requirements on
long-term debt.
(2) Net tangible asset coverage on long-term debt is equal to total
assets (excluding deferred tax assets) less liabilities (excluding
long-term debt) divided by long-term debt.
Funds Flow and Changes in Cash and Debt The following table shows major sources and uses of cash.
(unaudited; millions of U.S. dollars) Three Months Ended
Mar. 31
2004
------------------
Operating income $ 41
Add back - depreciation and amortization 80
----------------
EBITDA 121
Interest (22)
Other gains and losses (2)
Current tax expense and other (5)
----------------
Funds from operations 92
Operating working capital increase (56)
----------------
Cash from operations 36
Preferred securities redemption (383)
Capital expenditures (43)
Project advances 3
Turnaround costs and other assets (5)
Dividends paid (12)
Foreign exchange and other 3
----------------
Total change in cash and debt $ (401)
----------------
----------------
Decrease in cash $ (4)
Increase in debt (397)
----------------
Total change in cash and debt $ (401)
----------------
----------------
NOVA Chemicals' net debt to total capitalization Total capitalization The total long-term debt and all types of equity of a company that constitutes its capital structure. total capitalization See capitalization. ratio was 46.4% at Mar. 31, 2004. Debt increased in the first quarter as a result of the issuance of $400 million of 6.5% Senior Notes to redeem redeem v. to buy back, as when an owner who had mortgaged his/her real property pays off the debt. The term also refers to paying the amount due and all charges after a foreclosure (due to failure to make payments when due) has begun. $383 million of preferred securities (see Financing for more information). Additionally, debt was reduced by $3 million as a result of translating our Canadian dollar Noun 1. Canadian dollar - the basic unit of money in Canada; "the Canadian dollar has the image of loon on one side of the coin" loonie dollar - the basic monetary unit in many countries; equal to 100 cents denominated debt to U.S. dollars at a lower Canadian dollar exchange rate. Cash on hand at the end of the first quarter was $208 million. NOVA Chemicals' funds from operations Funds From Operations (FFO) Used by real estate and other investment trusts to define the cash flow from trust operations; earnings with depreciation and amortization added back. were $92 million for the first quarter of 2004, up $37 million from the fourth quarter of 2003 due to improved results. Operating working capital increased by $56 million in the first quarter of 2004, related primarily to lower accounts payable due to timing of receipt and payment of feedstock shipments and general price increases. NOVA Chemicals assesses its progress in managing working capital through a Cash Flow Cycle Time (CFCT CFCT Cedar Falls Community Theater (Cedar Falls, IA) ) measure. CFCT measures working capital from operations in terms of the number of days sales (calculated as working capital from operations divided by average daily sales). This metric helps determine which portion of changes in working capital result from factors other than price movements. CFCT was 30 days as of Mar. 31, 2004, within our target range of 25 to 30 days, up from 28 days as of Dec. 31, 2003. Capital expenditures were $43 million in the first quarter of 2004, compared to $52 million in the fourth quarter of 2003. From 2003 to 2007, NOVA Chemicals' capital expenditures are expected to average about $155 million to $160 million annually, or about 50% of depreciation charges. This includes maintenance, Responsible Care, cost reduction and small growth projects, and is net of project advances. Capital expenditures, net of project advances, were $40 million in the first quarter of 2004. Financing On Jan. 13, 2004, NOVA Chemicals issued $400 million of 6.5% Senior Notes due 2012. These Senior Notes were issued with investment-grade investment-grade Of, relating to, or being a bond suitable for purchase by institutions under the prudent man rule. Investment-grade is restricted to those bonds graded BBB and above by Standard & Poor's and graded Baa3 and above by Moody's. covenants that are identical in all material respects to the covenants on NOVA Chemicals' existing bonds. Net proceeds Net Proceeds The amount received after all costs are deducted from the sale of a piece of property or security. Notes: In the case of an investor selling a security, net proceeds represent the proceeds from the sale minus any trading costs (i.e. commissions). of the offering were used to redeem, on Mar. 1, 2004, the 9.04% preferred securities due 2048 and 9.50% preferred securities due 2047. The two issues of preferred securities total $382.5 million. These transactions will reduce annual financing costs by about $10 million before-tax. NOVA Chemicals has a $300 million revolving credit Revolving Credit A line of credit where the customer pays a commitment fee and is then allowed to use the funds when they are needed. It is usually used for operating purposes, fluctuating each month depending on the customers current cash flow needs. facility, expiring ex·pire v. ex·pired, ex·pir·ing, ex·pires v.intr. 1. To come to an end; terminate: My membership in the club has expired. 2. Apr. 1, 2007. NOVA Chemicals' first quarter results and financial position were within the financial covenants related to this facility. As of Apr. 20, 2004, NOVA Chemicals has utilized $47 million of the revolving credit facility in the form of operating letters of credit. During the first quarter of 2004, NOVA Chemicals continued to utilize its $195 million accounts receivable accounts receivable n. the amounts of money due or owed to a business or professional by customers or clients. Generally, accounts receivable refers to the total amount due and is considered in calculating the value of a business or the business' problems in paying securitization Securitization The process of creating a financial instrument by combining other financial assets and then marketing them to investors. Notes: Mortgage backed securities are a perfect example of securitization. May also be spelled as "securitisation. program. As of Mar. 31, 2004, the amount of receivables Receivables An asset designation applicable to all debts, unsettled transactions or other monetary obligations owed to a company by its debtors or customers. Receivables are recorded by a company's accountants and reported on the balance sheet, and they and include all debts owed sold under this program was $187 million, compared to $177 million as of Dec. 31, 2003. On Apr. 15, 2004, NOVA Chemicals amended a·mend v. a·mend·ed, a·mend·ing, a·mends v.tr. 1. To change for the better; improve: amended the earlier proposal so as to make it more comprehensive. 2. the securitization program to extend the maturity date to Apr. 14, 2007 and increased the size of the facility to $200 million. Historically, this facility had been renewed re·new v. re·newed, re·new·ing, re·news v.tr. 1. To make new or as if new again; restore: renewed the antique chair. 2. on an annual basis. FIFO (First In First Out) A storage method that retrieves the item stored for the longest time. Contrast with LIFO. See traffic engineering methods. FIFO - first-in first-out Impact NOVA Chemicals uses the first-in, first-out first-in, first-out n. A method of inventory accounting in which the oldest remaining items are assumed to have been the first sold. In a period of rising prices, this method yields a higher ending inventory, a lower cost of goods sold, a higher gross (FIFO) method of valuing inventory. Most of NOVA Chemicals' competitors COMPETITORS, French law. Persons who compete or aspire to the same office, rank or employment. As an English word in common use, it has a much wider application. Ferriere, Dict. de Dr. h.t. use the last-in, first-out last-in, first-out n. A method of inventory accounting in which the most recently acquired items are assumed to have been the first sold. In a period of rising prices, this method yields a lower ending inventory, a higher cost of goods sold, a lower (LIFO (Last In-First Out) A queueing method in which the next item to be retrieved is the item most recently placed in the queue. Contrast with FIFO. LIFO - stack ) method. Because we use FIFO, a portion of the fourth quarter feedstock purchases flowed through the income statement in the first quarter. Crude oil prices increased steadily throughout the first quarter. Natural gas prices peaked in January and declined throughout the quarter. First quarter average NYMEX pricing was higher than the fourth quarter average price by $1.11 per mmBTU. Benzene prices spiked spike 1 n. 1. a. A long, thick, sharp-pointed piece of wood or metal. b. A heavy nail. 2. A spikelike part or projection, as: a. , rising from $1.71 per gallon at the start of the quarter to $2.00 per gallon by the end of the quarter. As a result, we estimate that net income would have been about $20 million lower in the first quarter had NOVA Chemicals followed the LIFO method of accounting. Stock Options In accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with new Canadian New Canadian Noun Canad a recent immigrant to Canada GAAP, NOVA Chemicals is required to expense the value of stock options starting Jan. 1, 2004. NOVA Chemicals has also adopted this methodology for U.S. GAAP purposes, although such treatment is optional under U.S. GAAP (see Note 1 to the Consolidated Financial Statements). In the first quarter of 2004, compensation expense related to stock options was approximately $1 million after-tax af·ter-tax also af·ter·tax adj. Relating to or being that which remains after payment, especially of income taxes: after-tax profits. . Feedstock Derivative Positions NOVA Chemicals maintains a derivatives program to manage its feedstock costs. The gain from natural gas and crude oil positions realized in the first quarter of 2004 was $1 million after-tax. Effective Jan. 1, 2004, NOVA Chemicals is required to comply with new Canadian accounting recommendations regarding derivatives. NOVA Chemicals is required to record outstanding positions, which do not qualify for hedge accounting Why is hedge accounting necessary? Many financial institutions and corporate businesses (entities) use derivative financial instruments to hedge their exposure to different risks (eg interest rate risk, foreign exchange risk, commodity risk, etc). treatment, at fair market value and record any resulting gains or losses in market value through earnings each period. In the first quarter of 2004, NOVA Chemicals recorded $5 million of unrealized mark-to-market Mark-to-market Adjustment of the book value or collateral value of a security to reflect current market value. after-tax gains on outstanding feedstock positions (see Note 1 to the Consolidated Financial Statements). This is in addition to the realized gain Realized Gain A gain resulting from selling an asset at a price higher than the original purchase price. Notes: There may be tax consequences for a realized profit. reported above, bringing the total first quarter gain to $6 million after-tax. Supplemental Measures In addition to providing measures in accordance with Canadian GAAP, NOVA Chemicals presents certain supplemental measures. These are EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become (defined below) and total capitalization, which NOVA Chemicals defines to be net of cash and cash equivalents in accordance with the debt covenants for its $300 million revolving credit facility. These measures do not have any standardized standardized pertaining to data that have been submitted to standardization procedures. standardized morbidity rate see morbidity rate. standardized mortality rate see mortality rate. meaning prescribed pre·scribe v. pre·scribed, pre·scrib·ing, pre·scribes v.tr. 1. To set down as a rule or guide; enjoin. See Synonyms at dictate. 2. To order the use of (a medicine or other treatment). by GAAP and are therefore unlikely to be comparable to similar measures presented by other companies. EBITDA This measure is provided to assist investors in determining the ability of NOVA Chemicals to generate cash from operations. EBITDA can be determined from the Consolidated con·sol·i·date v. con·sol·i·dat·ed, con·sol·i·dat·ing, con·sol·i·dates v.tr. 1. To unite into one system or whole; combine: Statement of Income (Loss) by adding back income taxes, interest expense, other gains, earnings from equity investment in affiliates and depreciation and amortization. Segment EBITDA is determined as segment operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. or loss before depreciation and amortization. NOVA Chemicals' share price on the New York Stock Exchange New York Stock Exchange (NYSE) World's largest marketplace for securities. The exchange began as an informal meeting of 24 men in 1792 on what is now Wall Street in New York City. (NYSE) decreased to U.S. $25.09 at Mar. 31, 2004 from U.S. $26.95 at Dec. 31, 2003. NOVA Chemicals' share value decreased 7% for the quarter ending Mar. 31, 2004 on the NYSE and 6% on the Toronto Stock Exchange Toronto Stock Exchange (TSE) Canada's largest stock exchange, trading approximately 1,200 company stocks and 33 options. (TSX). Peer chemical companies' share values increased 2% on average and the S&P Chemicals Index decreased 3%. The S&P/TSX Composite Index Composite Index A grouping of equities, indexes or other factors combined in a standardized way, providing a useful statistical measure of overall market or sector performance over time. Also known simply as a "composite". was up 4% and the S&P 500 was up 1%. As of Apr. 20, 2004, NOVA Chemicals' share price was U.S. $25.20, up just slightly from Mar. 31, 2004. The S&P Chemicals Index was up 2% in the same period. In the first quarter, about 74% of trading in NOVA Chemicals' shares took place on the TSX and 26% of trading took place on the NYSE. Approximately 0.4% of the outstanding float is traded daily. This level of liquidity is comparable to the liquidity of NOVA Chemicals' peers.
First quarter trading volumes % of % of
Millions of Shares float trading
------------------------------- ------------------ --------- ---------
Toronto Stock Exchange 17.1 19 74
New York Stock Exchange 6.0 7 26
------------------ --------- ---------
Total 23.1 26 100
------------------ --------- ---------
------------------ --------- ---------
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INVESTOR INFORMATION
For inquiries on stock-related Transfer Agents and Registrars
matters including dividend CIBC Mellon Trust Company
payments, stock transfers and 600 The Dome Tower,
address changes, contact 333 Seventh Avenue S.W.
NOVA Chemicals toll-free at Calgary, Alberta, Canada T2P 2Z1
1-800-661-8686 or e-mail to
shareholders@novachem.com. Phone: (403) 232-2400/
1-800-387-0825
Contact Information Fax: (403) 264-2100
Phone: (403) 750-3600 (Canada) or Internet: www.cibcmellon.ca
(412) 490-4000 (United States) E-Mail: inquiries@cibcmellon.ca
Internet: www.novachemicals.com
E-Mail: invest@novachem.com Share Information
NOVA Chemicals' trading symbol on
NOVA Chemicals Corporation the New York and Toronto Stock
1000 Seventh Avenue S.W., Exchanges is NCX. On the TSX,
P.O. Box 2518 NOVA Chemicals is listed and
Calgary, Alberta, Canada T2P 5C6 traded in both Canadian and U.S.
dollars. The U.S. dollar trading
If you would like to receive a symbol on the TSX is NCX.U.
shareholder information package,
please contact us at (403) 750-3600
or (412) 490-4000 or via e-mail at
publications@novachem.com.
We file additional information
relating to NOVA Chemicals,
including our Annual Information
Form (AIF), with Canadian
securities administrators. This
information can be accessed
through the System for Electronic
Document Analysis and Retrieval
(SEDAR), at www.sedar.com.
----------------------------------------------------------------------
Forward-Looking Information
The information in this news release contains forward-looking
statements with respect to NOVA Chemicals, its subsidiaries and
affiliated companies. By their nature, these forward-looking
statements involve risks and uncertainties that could cause actual
results to differ materially from those contemplated by the
forward-looking statements. These risks and uncertainties 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; 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; 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, European and Asian
economies; and other risks detailed from time to time in the publicly
filed disclosure documents and securities commissions reports of NOVA
Chemicals and its subsidiaries or affiliated companies. Implementation
of announced price increases depends on many factors, including market
conditions, the supply/demand balance for each particular product and
feedstock costs. Price increases have varying degrees of success. They
are typically phased in and can differ by product or market. There can
be no assurances that any announced price increases will be successful
or will be realized within the anticipated time frame. In addition,
benchmark price indices sometimes lag price increase announcements due
to the timing of publication.
CHANGES IN NET INCOME (LOSS) TO COMMON SHAREHOLDERS
(unaudited; millions of U.S. dollars)
Q1 2004
Compared with
-------------------
Q4 2003 Q1 2003
--------- ---------
Higher net unit margins $ 33 $ 19
Higher (lower) sales volumes (1) 29
-------- --------
Higher gross margin(1) 32 48
Higher research and development - (2)
Lower (higher) selling, general and administrative 8 (10)
Higher depreciation and amortization (2) (9)
Lower (higher) interest expense (5) 1
Lower equity earnings in Methanex - (27)
Lower other gains and losses (2) (2)
(Higher) lower income tax expense (Note 4) (11) 1
Lower preferred securities dividends
and distributions 2 3
-------- --------
Increase in net income to common shareholders $ 22 $ 3
-------- --------
-------- --------
(1) Revenue less feedstock and operating costs.
FINANCIAL STATEMENTS
Consolidated Statement of Income (Loss)
(unaudited, millions of U.S. dollars except per share amounts)
Three Months Ended
--------------------------
Mar. 31 Dec. 31 Mar. 31
2004 2003 2003
-------- -------- --------
Revenue $ 1,126 $ 1,041 $ 977
------- ------- -------
Feedstock and operating costs 942 889 841
Research and development 12 12 10
Selling, general and administrative 51 59 41
Depreciation and amortization 80 78 71
------- ------- -------
1,085 1,038 963
------- ------- -------
Operating income 41 3 14
------- ------- -------
Interest expense (net) (22) (17) (23)
Earnings from equity investment
in affiliates - - 27
Other gains and losses (2) - -
------- ------- -------
(24) (17) 4
------- ------- -------
Income (loss) before income taxes 17 (14) 18
Income tax recovery (expense) (Note 4) (5) 6 (6)
------- ------- -------
Net income (loss) 12 (8) 12
Preferred securities dividends
and distributions (5) (7) (8)
------- ------- -------
Net income (loss) to common shareholders $ 7 $ (15) $ 4
------- ------- -------
------- ------- -------
Earnings (loss) per share (Note 5)
Basic and diluted $ 0.08 $ (0.18) $ 0.05
Consolidated Statement of Reinvested Earnings
(unaudited, millions of U.S. dollars)
Three Months Ended
--------------------------
Mar. 31 Dec. 31 Mar. 31
2004 2003 2003
-------- -------- --------
Reinvested earnings, beginning of period $ 584 $ 606 $ 610
Change in accounting policy (Note 1) (7) - -
Net income (loss) 12 (8) 12
Common share dividends (7) (7) (6)
Preferred securities dividends
and distributions (5) (7) (8)
------- ------- -------
Reinvested earnings, end of period $ 577 $ 584 $ 608
------- ------- -------
------- ------- -------
Consolidated Balance Sheet
(millions of U.S. dollars) Mar. 31, Dec. 31,
2004 2003
(unaudited) (audited)
----------- -----------
Assets
Current assets
Cash and cash equivalents $ 208 $ 212
Receivables 357 316
Inventories 464 392
---------- ----------
1,029 920
Investments and other assets 167 157
Plant, property and equipment, net 3,271 3,336
---------- ----------
$ 4,467 $ 4,413
---------- ----------
---------- ----------
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and accrued liabilities $ 638 $ 587
Long-term debt 1,498 1,101
Deferred credits 843 835
---------- ----------
2,979 2,523
---------- ----------
Shareholders' equity
Preferred securities - 383
Retractable preferred shares 198 198
Common equity
Common shares 498 493
Contributed surplus (Note 1) 8 -
Cumulative translation adjustment 207 232
Reinvested earnings 577 584
---------- ----------
1,488 1,890
---------- ----------
$ 4,467 $ 4,413
---------- ----------
---------- ----------
Consolidated Statement of Cash Flows
(unaudited; millions of U.S. dollars)
Three Months Ended
--------------------------
Mar. 31 Dec. 31 Mar. 31
2004 2003 2003
-------- -------- --------
Operating activities
Net income (loss) $ 12 $ (8) $ 12
Depreciation and amortization 80 78 71
Future income tax recovery (1) (15) (1)
Earnings from equity investment
in affiliates - - (27)
Dividends received - - 14
Stock option expense 1 - -
------- ------- -------
Funds from operations 92 55 69
Changes in non-cash working capital (56) (28) (133)
------- ------- -------
Cash from operations 36 27 (64)
------- ------- -------
Investing activities
Plant, property and equipment additions (43) (52) (14)
Turnaround costs, long-term
investments and other assets (5) (2) 5
Changes in non-cash working capital - (3) -
------- ------- -------
(48) (57) (9)
------- ------- -------
Financing activities
Decrease in current bank loans - - 18
Long-term debt
Additions 400 - -
Changes in revolving debt - - 55
Preferred securities redeemed (383) - -
Preferred securities dividends and
distributions (5) (7) (8)
Common shares issued 5 3 2
Common share dividends (7) (7) (6)
Project advances 3 3 -
Changes in non-cash working capital (5) (2) 2
------- ------- -------
8 (10) 63
------- ------- -------
Decrease in cash (4) (40) (10)
Cash and cash equivalents,
beginning of period 212 252 14
------- ------- -------
Cash and cash equivalents, end of period $ 208 $ 212 $ 4
------- ------- -------
------- ------- -------
Notes to Consolidated Financial Statements (unaudited; millions of U.S. dollars unless otherwise noted) These interim consolidated financial statements do not include all of the disclosures included in NOVA Chemicals' annual Consolidated Financial Statements. Accordingly, these interim consolidated financial statements should be read in conjunction conjunction, in astronomy conjunction, in astronomy, alignment of two celestial bodies as seen from the earth. Conjunction of the moon and the planets is often determined by reference to the sun. with the Consolidated Financial Statements for the year ended Dec. 31, 2003. Certain comparative amounts have been reclassified to conform with the current period's presentation. 1. Significant Accounting Policies These interim Consolidated Financial Statements have been prepared in accordance with Canadian GAAP, using the same accounting policies as set out in Note 2 to the Consolidated Financial Statements for the year ended Dec. 31, 2003, on pages 53 to 57 of the 2003 Annual Report, except as noted below. Changes in Accounting Policies Required by Canadian GAAP A. Stock-Based Incentive Plans Effective Jan. 1, 2004, Canadian GAAP requires the fair value of options to be expensed over their vesting Vesting The process by which employees accrue non-forfeitable rights over employer contributions that are made to the employee's qualified retirement plan account. Notes: period. Prior to Jan. 1, 2004, NOVA Chemicals followed the intrinsic-value approach, where the granting and exercising of options are accounted for as equity transactions and no amounts are expensed. NOVA Chemicals is adopting the new accounting policy on a retroactive Having reference to things that happened in the past, prior to the occurrence of the act in question. A retroactive or retrospective law is one that takes away or impairs vested rights acquired under existing laws, creates new obligations, imposes new duties, or attaches a basis with no restatement Restatement A revision in a company's earlier financial statements. Notes: The need for restating financial figures can result from fraud, misrepresentation, or a simple clerical error. of prior periods. Accordingly, on Jan.1, 2004, retained earnings Retained Earnings The percentage of net earnings not paid out in dividends, but retained by the company to be reinvested in its core business or to pay debt. It is recorded under shareholders equity on the balance sheet. was reduced and contributed surplus was increased by $7 million to account for the stock option expense that would have been charged to earnings (loss) in 2002 and 2003 with respect to all options granted since Jan. 1, 2002. NOVA Chemicals uses the Black-Scholes option valuation model to calculate the fair value of options at the date of grant. In the first quarter of 2004, compensation expense related to stock options was approximately $1 million after-tax. Effective Jan. 1, 2004, NOVA Chemicals also changed its accounting policy with respect to stock options for U.S. GAAP reporting, to be consistent with Canadian GAAP. Had NOVA Chemicals expensed the fair value of stock options in prior periods, the following pro forma As a matter of form or for the sake of form. Used to describe accounting, financial, and other statements or conclusions based upon assumed or anticipated facts. The phrase pro forma amounts would have resulted:
Three Months Ended
------------------
Dec. 31 Mar. 31
2003 2003
-------- --------
Net income (loss)
As reported $ (8) $ 12
Pro forma $ (9) $ 10
Earnings (loss) per share - basic and diluted
As reported $ (0.18) $ 0.05
Pro forma $ (0.18) $ 0.03
B. Valuing Derivatives Effective Jan. 1, 2004, NOVA Chemicals must comply with a new Canadian accounting guideline guideline Medtalk A series of recommendations by a body of experts in a particular discipline. See Cancer screening guidelines, Cardiac profile guidelines, Gatekeeper guidelines, Harvard guidelines, Transfusion guidelines. that requires all derivative positions, except those that qualify for hedge accounting treatment, be marked-to-market Marked-to-market An arrangement whereby the profits or losses on a futures contract are settled each day. at each period end with any resulting gains or losses recorded in earnings (loss). NOVA Chemicals is adopting the new accounting policy on a prospective basis. In accordance with the transitional provisions of the new accounting policy, $10 million of unrealized gains Unrealized Gain A profit that results from holding on to an asset rather than cashing it in and using the funds. Notes: Let's say you own a stock that has doubled, but you haven't sold it yet. This is said to be an unrealized gain. and $18 million of crystallized crys·tal·lize also crys·tal·ize v. crys·tal·lized also crys·tal·ized, crys·tal·liz·ing also crys·tal·iz·ing, crys·tal·liz·es also crys·tal·iz·es v.tr. 1. losses that existed on Jan. 1, 2004 have been deferred on the consolidated balance sheet consolidated balance sheet A balance sheet in which assets and liabilities of a parent company and its controlled subsidiaries are combined, thereby presenting balance sheet items for the parent and its subsidiaries as if they were a single firm. . These amounts will be recognized in income over the remaining term to maturity. On Mar. 31, 2004, the value of derivatives were marked-to-market, resulting in $5 million of unrealized after-tax gains from the increase in market value since Jan. 1, 2004 being recorded in earnings in the first quarter of 2004. 2. Stock-Based Incentive Plans NOVA Chemicals sponsors several stock-based incentive plans to provide compensation to employees and directors. A description of each of these plans and their accounting treatment follows. For further details see Notes 2, 13 and 14 to the Consolidated Financial Statements for the year ended Dec. 31, 2003. A. Option Plan Options are granted to employees for the purchase of a certain number of NOVA Chemicals common shares (Common Shares) at an exercise price equal to the closing price of the Common Shares on the Toronto Stock Exchange (TSX) on the date of grant. Options may be exercised over a ten-year period and generally 25% of the options vest at the grant date, with further vesting of 25% in each of the next three years. On Feb. 12, 2004, 269,500 options were granted. As of Mar. 31, 2004, NOVA Chemicals had 8,755,233 stock options outstanding, 7,909,830 of which were vested vested adj. referring to having an absolute right or title, when previously the holder of the right or title only had an expectation. Examples: after 20 years of employment Larry Loyal's pension rights are now vested. (See: vest, vested remainder) . In the first quarter of 2004, compensation expense related to stock options was approximately $1 million after-tax (see Note 1). The weighted-average assumptions used to estimate the fair value of stock options granted since Jan. 1, 2002, based on the Black-Scholes option valuation model are as follows:
Three Months Ended
------------------
Mar. 31 Mar. 31
2004 2003
-------- --------
Risk-free interest rate % 3.68 3.82
Expected volatility % 37.3 37.8
Expected life years 3.4 3.3
Expected dividend yield % 1.20 1.21
Grant date fair value $ 6.56 6.39
B. Equity Appreciation Plan The Equity Appreciation Plan provides similar benefits as the Option Plan to employees, except that proceeds are paid in cash. Vesting and expiry dates expiry date expire n → date f d'expiration; (on label) → à utiliser avant ... expiry date expire n → Ablauftermin m are the same in both plans. The value of the equity appreciation units (EAUs) is expensed over the vesting period and is marked-to-market each quarter end. Canadian and U.S. GAAP require this accounting treatment since the value of EAUs is paid in cash. The value of an EAU EAU European Association of Urology EAU Emiratos Árabes Unidos (Spanish: United Arab Emirates) EAU Estonian Agricultural University (Tartu, Estonia) EAU Estimated Annual Usage EAU Environmental Archaeology Unit is the difference between the price of Common Shares on the exercise date (the redemption value Redemption Value refers to the value that is placed on a party's head after they wrong you in some way. It is seen as the payment you are willing to make to get justice. ) and the price on the grant date (the exercise value). In accordance with the plan documentation, the exercise value is equal to the closing price of the Common Shares on the TSX or the NYSE; however the redemption value was previously based on the TSX. In February February: see month. 2004, the Board of Directors amended the definition of redemption value to include NYSE pricing, reflecting the intent and design of the plan to provide the value of the awards in U.S. currency for U.S. resident employees. The Board of Directors also amended the previous resolutions that granted EAUs to reflect an exercise value determined by the closing price on the NYSE rather than the TSX. These amendments resulted in additional compensation expense of $5 million after-tax in the first quarter of 2004. On Feb. 12, 2004, 942,600 EAUs were granted. As of Mar. 31, 2004, NOVA Chemicals had 4,207,087 EAUs outstanding, 2,514,621 of which were vested. In the first quarter of 2004, compensation expense related to EAUs was $3 million after-tax ($6 million after-tax in the fourth quarter of 2003), including the one-time one-time adj. 1. or one·time a. Occurring or undertaken only once: a one-time winner in 1995. b. charge of $5 million after-tax referred to above. C. Restricted Stock Unit Plan The Restricted Stock Unit Plan is a phantom stock plan Phantom Stock Plan An employee benefit plan that gives selected employees (senior management) many of the benefits of stock ownership without actually giving them any company stock. Sometimes referred to as "shadow stock. wherein where·in adv. In what way; how: Wherein have we sinned? conj. 1. In which location; where: the country wherein those people live. 2. the value of a restricted stock unit (RSU RSU Restricted Stock Unit RSU Rogers State University (Claremore, Oklahoma) RSU Rifiuti Solidi Urbani (Italiano) RSU Rappresentanza Sindacale Unitaria (Italian Group of Unions) ) is determined by the value of Common Shares on the vesting date and is paid to employees in cash. The value of the RSU is determined using the NYSE price for U.S. residents and the TSX price for residents of all other countries. The units vest three years from the grant date. The value of any Common Share dividends declared de·clare v. de·clared, de·clar·ing, de·clares v.tr. 1. To make known formally or officially. See Synonyms at announce. 2. To state emphatically or authoritatively; affirm. 3. during the vesting period is credited to each RSU account. The value of RSUs is expensed over the vesting period and is marked-to-market each quarter end. Canadian and U.S. GAAP require this accounting treatment since the value of RSUs is paid in cash. On Feb. 12, 2004, 217,471 RSUs were granted. As of Mar. 31, 2004, NOVA Chemicals had 200,060 RSUs outstanding. In the first quarter of 2004, compensation expense related to RSUs was approximately $1 million after-tax. D. Deferred Share Unit Plan Under the Deferred Share Unit Plan, directors and certain officers of NOVA Chemicals may elect to receive their director's fees or incentive compensation, respectively, in the form of deferred share units (DSU 1. (communications) DSU - Data Service Unit. 2. DSU - Disk Subsystem Unit (Artecon). 3. (humour) DSU - Dwarf Storage Unit. ). The amount of compensation is converted to an equivalent number of DSUs based on the Common Share price on the NYSE for U.S. residents and the TSX price for residents of all other countries. The DSUs are exercisable upon retirement or termination The point where a line, channel or circuit ends. See SCSI termination and hybrid. from the Corporation at a value equal to the market price of Common Shares on the applicable stock exchange at that time. The value of any Common Share dividends declared from the grant date to the exercise date is credited to each DSU account. The value of the units is expensed at the time of grant, based on the expected exercise value. The impact of any change in the estimated exercise value is amortized, on a straight-line straight-line adj. 1. Lying in a straight line. 2. Relating to a device whose linkage produces or copies motion in straight lines. 3. basis, over the estimated remaining service lifetime of individuals participating in the plan. These DSUs are accounted for in the same manner under Canadian and U.S. GAAP. During the first quarter of 2004, 54,794 DSUs were granted. As of Mar. 31, 2004, NOVA Chemicals had 519,787 DSUs outstanding, 41,766 of which were exercisable. In the first quarter of 2004, compensation expense related to DSUs was approximately $1 million after-tax. 3. Pensions and Other Post Retirement Benefits
Components of Net Periodic Benefit Cost
for Defined Benefit Plans Three Months Ended March 31
--------------------------------------- -----------------------------
(millions of U.S. dollars) Pension Benefits Other Benefits
2004 2003 2004 2003
------ ------ ------ -----
Current service cost 6 5 1 1
Interest cost on projected
benefit obligations 8 8 1 1
Expected return on plan assets (7) (6) - -
Amortization of transition assets (1) (1) - -
Recognized net actuarial loss 1 1 - -
------ ------ ------ -----
Net periodic benefit cost $ 7 $ 7 $ 2 $ 2
------ ------ ------ -----
------ ------ ------ -----
The expected long-term rate of return on plan assets is 7.3% in 2004.
Employer Contributions In the 2003 Annual Report, NOVA Chemicals disclosed dis·close tr.v. dis·closed, dis·clos·ing, dis·clos·es 1. To expose to view, as by removing a cover; uncover. 2. To make known (something heretofore kept secret). that it expected to contribute $27 million to its defined benefit pension plans in 2004. As of Mar. 31, 2004, $8 million has been contributed, and the company expects to contribute an additional $19 million over the remainder of 2004. In the quarter ended Mar. 31, 2004, NOVA Chemicals contributed $2 million to its defined contribution plans Defined contribution plan A pension plan whose sponsor is responsible only for making specified contributions into the plan on behalf of qualifying participants. Related: Defined benefit plan and is expected to contribute an additional $5 million over the remainder of 2004. 4.Income Taxes
Three Months Ended
-----------------------
Mar. 31 Dec. 31 Mar. 31
2004 2003 2003
------- ------- -------
Income (loss) before income taxes $17 $(14) $18
Statutory income tax rate 33.87% 36.74% 37.12%
------- ------- -------
Computed income tax expense (recovery) $6 $(5) $7
Increase (decrease) in taxes resulting from:
Higher (lower) effective tax rate on
earnings from equity investment
in affiliates - - (8)
Additional cost-of-service income taxes(1) 2 3 2
Foreign tax rates - 3 8
Income tax rate adjustment(2) (7) 15 -
Reduction in tax reserve(3) - (20) -
Other 4 (2) (3)
------- ------- -------
Income tax expense (recovery) $5 $(6) $6
------- ------- -------
------- ------- -------
(1) Income taxes on the Joffre, Alberta second ethylene plant are
recoverable from customers until June 30, 2004 and are recorded on
the flow-through rather than liability method.
(2) In the first quarter of 2004, the Alberta Government substantively
enacted a tax rate reduction, which reduced income tax accruals
for future tax liabilities by $7 million. This one-time benefit
has been recorded in the first quarter of 2004 through a reduction
of income tax expense. In the fourth quarter of 2003, future
income tax liabilities increased $15 million due to an Ontario tax
rate increase, which impacted future years.
(3) NOVA Chemicals has a tax reserve, which is available to settle
periodic tax disputes and ongoing tax adjustments. We assess this
reserve from time to time for adequacy and determined in the
fourth quarter of 2003 that we were overprovided. In the fourth
quarter of 2003, we reduced this reserve by $20 million.
5. Earnings (Loss) Per Share
(shares in millions)
Three Months Ended
-------------------------------------------------
Mar. 31 Dec. 31 Mar. 31
2004 2003 2003
--------------- ----------------- ---------------
Basic Diluted Basic Diluted Basic Diluted
Net income (loss) to
common shareholders $ 7 $ 7 $ (15) $ (15) $ 4 $ 4
------ ------ ------- ------- ------ ------
------ ------ ------- ------- ------ ------
Weighted-average
common shares
outstanding 87.3 87.3 87.0 87.0 86.7 86.7
Add back effect
of dilutive
securities:
Stock options - 1.9 - - - 0.7
------ ------ ------- ------- ------ ------
Weighted-average
common shares for
EPS calculations 87.3 89.2 87.0 87.0 86.7 87.4
------ ------ ------- ------- ------ ------
Earnings (loss)
per common share $ 0.08 $ 0.08 $ (0.18) $ (0.18) $ 0.05 $ 0.05
------ ------ ------- ------- ------ ------
------ ------ ------- ------- ------ ------
Retractable preferred shares and stock options representing 15 million
common shares have been excluded from the computation of diluted
earnings per share for the quarter ended Mar. 31, 2004, as their
impact would not be dilutive. 17.3 million and 12.7 million Common
Shares were excluded in the quarters ended Dec. 31, 2003 and Mar. 31,
2003, respectively.
6. Segmented Information NOVA Chemicals operates its business under the following principal business segments:
Three Months Ended
--------------------------
Mar. 31 Dec. 31 Mar. 31
2004 2003 2003
-------- -------- --------
Revenue
Olefins/Polyolefins $ 709 $ 691 $ 637
Styrenics 474 404 386
Intersegment eliminations (57) (54) (46)
------- ------- -------
$ 1,126 $ 1,041 $ 977
------- ------- -------
------- ------- -------
Operating income (loss)
Olefins/Polyolefins $ 62 $ 47 $ 26
Styrenics (21) (44) (12)
------- ------- -------
$ 41 $ 3 $ 14
------- ------- -------
------- ------- -------
Net income (loss)(1)
Olefins/Polyolefins $ 34 $ 23 $ 4
Styrenics (22) (31) (17)
Investment in Methanex - - 25
------- ------- -------
$ 12 $ (8) $ 12
------- ------- -------
------- ------- -------
(1) Before preferred securities dividends and distributions.
Mar. 31 Dec. 31
2004 2003
-------- --------
Assets
Olefins/Polyolefins $ 2,250 $ 2,246
Styrenics 1,827 1,767
Corporate and other(1) 390 400
------- -------
$ 4,467 $ 4,413
------- -------
------- -------
(1) Amounts include all cash and cash equivalents.
7. Reconciliation to United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. Accounting Principles
Three Months Ended
--------------------------
Mar. 31 Dec. 31 Mar. 31
2004 2003 2003
-------- -------- --------
Net income (loss) in accordance with
Canadian GAAP $ 12 $ (8) $ 12
Add (deduct) adjustments for:
Foreign exchange hedging(1) - - 3
Other hedging and derivative activity(1) 1 6 (2)
Inventory costing(2) 2 - (1)
Start-up costs(3) (3) 1 1
Preferred securities distributions(4) (4) (6) (6)
Change in accounting policy(5) (7) - 5
Future income taxes(8) 7 - -
------- ------- -------
Net income (loss) in accordance with
U.S. GAAP $ 8 $ (7) $ 12
------- ------- -------
------- ------- -------
Earnings (loss) per share -
basic and diluted $ 0.08 $ (0.09) $ 0.11
------- ------- -------
------- ------- -------
Three Months Ended
--------------------------
Mar. 31 Dec. 31 Mar. 31
2004 2003 2003
-------- -------- --------
Comprehensive income (loss)(6)
Net income (loss) in accordance with
U.S. GAAP $ 8 $ (7) $ 12
Unrealized gains on
cash flow hedging instruments(1) - - 4
Equity in affiliates comprehensive
income (loss) - - 6
Cumulative translation adjustment(9) (25) 102 123
Minimum pension liability adjustment(7) - (3) -
------- ------- -------
Comprehensive income (loss) in accordance
with U.S. GAAP $ (17) $ 92 $ 145
------- ------- -------
------- ------- -------
Three Months Ended
--------------------------
Mar. 31 Dec. 31 Mar. 31
2004 2003 2003
-------- -------- --------
Accumulated other comprehensive
income (loss)(6)
Cumulative translation adjustment(9) $ 186 $ 211 $ (7)
Equity in affiliates other
comprehensive income - - 9
Minimum pension liability(7) 4 (4) (1)
------- ------- -------
$ 182 $ 207 $ 1
------- ------- -------
------- ------- -------
Mar. 31 Dec. 31
2004 2003
-------- --------
Balance sheet in accordance with U.S. GAAP
Current assets(1),(2) $ 1,055 $ 959
Investments and other assets(3),(7) 167 157
Plant, property and equipment, net 3,246 3,311
Current liabilities(1) (622) (585)
Long-term -- preferred securities(4) - (383)
-- other long-term debt(1) (1,531) (1,122)
Deferred credits(1),(7) (840) (829)
Retractable preferred shares (198) (198)
------- -------
Common equity $ 1,277 $ 1,310
------- -------
------- -------
(1) On Jan. 1, 2001, NOVA Chemicals adopted (for U.S. GAAP purposes)
Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities,"
as amended. SFAS No. 133 requires the recognition of all
derivatives on the balance sheet at fair value. Derivatives that
do not qualify for preferential hedge accounting treatment must
be adjusted to fair value through income. If the derivative does
qualify, changes in the fair value of the derivative will either
be offset against the change in fair value of the hedged item and
reported in earnings, or recognized in other comprehensive income
until the hedged item is recognized in earnings. On Jan. 1, 2004,
NOVA Chemicals adopted a new Canadian GAAP guideline for
recording the fair value of derivatives. This guideline
harmonizes Canadian and U.S. GAAP, however, due to the differing
implementation dates, timing differences continue to exist.
(2) U.S. GAAP requires an allocation of fixed production overhead to
inventory. Canadian GAAP allows these costs to be expensed during
the period.
(3) U.S. GAAP requires that all costs (except interest on constructed
assets) associated with start-up activities be expensed as
incurred rather than deferred, as under Canadian GAAP.
(4) Under U.S. GAAP distributions on the preferred securities are
recorded as interest expense. The preferred securities were
redeemed by NOVA Chemicals on Mar. 1, 2004.
(5) On Jan. 1, 2003, the Corporation adopted SFAS No. 143 "Accounting
for Asset Retirement Obligations." This standard and the CICA
standard, also adopted on Jan. 1, 2003, are essentially the same.
On Jan. 1, 2004, NOVA Chemicals adopted the CICA standard for
expensing of stock options (as discussed in Note 1). This
standard was also adopted for U.S. GAAP on that date. Under
U.S. GAAP, the cumulative effect of adopting a new standard
is reflected in net income in the period of adoption, whereas
under Canadian GAAP it is reflected as a charge or credit to
reinvested earnings.
(6) U.S. GAAP requires the presentation of a separate statement of
comprehensive income and accumulated other comprehensive income.
This statement is not required under Canadian GAAP. Comprehensive
income includes certain changes in equity during the period that
are not in net income.
(7) U.S. GAAP requires that an additional minimum pension liability
be recorded through comprehensive income (loss) when the unfunded
accumulated benefit obligation is greater than the accrued
pension liability or if there is a prepaid pension asset.
(8) U.S. GAAP future income taxes are not adjusted for changes in tax
rates until they are enacted, whereas Canadian GAAP requires
adjustment when rate changes are substantively enacted.
(9) Gains (losses) resulting from translation of self-sustaining
foreign operations are recorded in other comprehensive income
until there is a realized reduction in the investment.
(10) NOVA Chemicals has chosen to expense the value of stock options
for U.S. GAAP purposes in accordance with Canadian GAAP, although
such treatment is optional under U.S. GAAP (see Note 1 to the
Consolidated Financial Statements).
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