NOVA Chemicals: Solid Performance; Stronger Balance Sheet

    Business Editors

    PITTSBURGH--(BUSINESS WIRE)--Jan. 26, 2005--NOVA Chemicals Corporation (NYSE:NCX)(TSX:NCX)

    All financial information is in U.S. dollars unless otherwise indicated.

    NOVA Chemicals will host a conference call today, Wednesday, Jan. 26, 2005, for investors and analysts at 1 p.m. EDT (11 a.m. MDT; 10 a.m. 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 No. 3099729). The live call is also available on the Internet at www.vcall.com.

    NOVA Chemicals Corporation (NOVA Chemicals) reported net income to common shareholders of $162 million ($1.78 per share diluted) for the fourth quarter of 2004. This compares to net income to common shareholders of $56 million ($0.60 per share diluted) in the third quarter of 2004.
    In the fourth quarter of 2003, NOVA Chemicals reported a net loss to common shareholders of $15 million ($0.18 per share loss diluted).
    For the full year 2004, net income to common shareholders was $252 million ($2.71 per share diluted) compared with a net loss of $1 million ($0.02 per share loss diluted) for 2003.
    "I am very pleased with our operating results in a quarter that was impacted by a normal seasonal downturn in demand and highly volatile feedstock costs. In addition, our balance sheet strengthened considerably from an asset sale and a tax-related settlement," said Jeff Lipton, NOVA Chemicals' President and Chief Executive Officer.
    The Olefins/Polyolefins business reported net income of $83 million in the fourth quarter, $5 million higher than the third quarter. Prices increased and contributions from ethylene co-products remained strong. Polyethylene sales volumes were down 2% versus the third quarter but were the second highest in our history.
    The Styrenics business reported a net loss of $16 million in the fourth quarter, versus a third quarter net loss of $10 million. Overall, polymer prices were able to keep pace with increased feedstock costs. Styrene monomer margins fell as spot prices followed a rapid decline in spot benzene prices. Polymer volumes decreased 12% versus the third quarter on seasonally lower demand.
    Corporate items increased net income by $97 million in the fourth quarter. These items included a $91 million (after-tax) gain from a tax-related settlement, and a $40 million (after-tax) gain on the sale of our interest in the Alberta Ethane Gathering System. These were offset by $29 million (after-tax) in mark-to-market charges related to our stock-based compensation and profit sharing programs and a $5 million (after-tax) restructuring charge related to the SCLAIR(TM) A-Line closure in the second quarter of 2004.

NOVA Chemicals Highlights (unaudited, millions of U.S. dollars except per share amounts and as noted) ------------------------ --------------- Three Months Ended Year Ended ------------------------ --------------- Dec. 31 Sept. 30 Dec. 31 Dec. 31 Dec. 31 2004 2004 2003 2004 2003 ------- -------- ------- ------- ------- Net income (loss) Olefins/Polyolefins $ 83 $ 78 $ 27 $ 255 $ 18 Styrenics (16) (10) (29) (69) (127) Corporate and other(1) 97 (11) (6) 76 100 ------ ------ ------ ------ ------ Operated business income (loss)(2) 164 57 (8) 262 (9) Methanex - - - - 37 Preferred securities dividends and distributions(3) (2) (1) (7) (10) (29) ------ ------ ------ ------ ------ Net income (loss) to common shareholders $ 162 $ 56 $ (15) $ 252 $ (1) ====== ====== ====== ====== ======

Earnings (loss) per common share Basic $ 1.91 $ 0.64 $(0.18) $ 2.91 $(0.02) Diluted $ 1.78 $ 0.60 $(0.18) $ 2.71 $(0.02)

Weighted-average common shares outstanding (millions)(4) Basic 85 87 87 87 87 Diluted 92 96 87 95 87

Revenue $1,527 $1,379 $1,041 $5,270 $3,949 EBITDA(5) $ 123 $ 164 $ 81 $ 561 $ 223

Depreciation and amortization $ 72 $ 68 $ 78 $ 297 $ 298 Funds from operations $ 78 $ 129 $ 55 $ 424 $ 140 Capital expenditures (net) $ 100 $ 60 $ 52 $ 242 $ 130 Average capital employed(6) $3,455 $3,328 $3,270 $3,294 $3,228 After-tax return on capital employed(7) 21.3% 9.1% 0.7% 10.2% 1.8% Return(loss) on average common equity(8) 45.3% 16.9% (4.7)% 19.1% (9.8)%

(1) See "Corporate and other" table for a description of all corporate items. (2) Operated business income (loss) is provided to highlight results from our core business operations. It can be determined from the Consolidated Statement of Income (Loss) by adding back after-tax earnings from equity investment in affiliates to net income (loss). (3) On Mar. 1, 2004, NOVA Chemicals redeemed $383 million of preferred securities. (4) Weighted average number of common shares outstanding during the period used to calculate the earnings (loss) per share. See footnote 5 following the "Liquidity and Capital Resources, Capitalization" table for more information. (5) Net income before income taxes, other gains and losses, earnings from equity investment in affiliates, interest expense and depreciation and amortization. Consolidated EBITDA for the fourth quarter of 2004 includes EBITDA of $179 million from the Olefins/Polyolefins and Styrenics businesses less $56 million related to the corporate items described in footnote 1 above. See Consolidated Statement of Income (Loss) and Supplemental Measures. (6) 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 quarter-end exchange rates. See Supplemental Measures. (7) After-tax return on capital employed equals NOVA Chemicals' net income plus after-tax interest expense (annualized) divided by average capital employed. See Supplemental Measures. (8) Return on average common equity equals annualized net income 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 Year Ended ------------------------ --------------- Dec. 31 Sept. 30 Dec. 31 Dec. 31 Dec. 31 2004 2004 2003 2004 2003 ------- -------- ------- ------- ------- Revenue(1) $ 912 $ 824 $ 691 $3,230 $2,559 Operating income $ 134 $ 137 $ 53 $ 445 $ 98 Depreciation and amortization 42 40 50 181 187 ------ ------ ------ ------ ------ EBITDA(2) $ 176 $ 177 $ 103 $ 626 $ 285 Net income(3) $ 83 $ 78 $ 27 $ 255 $ 18 Capital expenditures (net) $ 61 $ 31 $ 29 $ 127 $ 74 Average capital employed(4) $2,072 $1,942 $1,938 $1,940 $1,898 After-tax return on capital employed(5) 18.2% 18.0% 6.8% 15.2% 2.6%

(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 quarter-end exchange rates. (5) After-tax return on capital employed equals net income 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 Year Average ------------------------ --------------- Dec. 31 Sept. 30 Dec. 31 Dec. 31 Dec. 31 2004 2004 2003 2004 2003 ------- -------- ------- ------- ------- Ethylene(2) $ 0.39 $ 0.33 $ 0.28 $ 0.34 $ 0.29 Polyethylene - linear low-density butene liner(3) $ 0.54 $ 0.48 $ 0.42 $ 0.48 $ 0.43 Polyethylene - weighted-average benchmark(4) $ 0.57 $ 0.49 $ 0.44 $ 0.50 $ 0.46 NYMEX natural gas (dollars per mmBTU)(5) $ 6.87 $ 5.84 $ 4.58 $ 6.09 $ 5.44 WTI crude oil (dollars per barrel)(6) $48.28 $43.88 $31.18 $41.41 $31.04

(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) 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. (5) Source: NYMEX Henry Hub 3-Day Average Close. (6) Source: NYMEX WTI daily spot settle price average for calendar month.

Polyethylene Sales Volumes (millions of pounds) Three Months Ended Year Ended ------------------------ --------------- Dec. 31 Sept. 30 Dec. 31 Dec. 31 Dec. 31 2004 2004 2003 2004 2003 ------- -------- ------- ------- ------- NOVAPOL(R) Linear low-density polyethylene 358 329 364 1,320 1,256 Low-density polyethylene 73 82 73 305 261 High-density polyethylene 117 115 98 449 392 SCLAIR(R) Linear low-density and high-density polyethylene 94 118 126 452 500 Advanced SCLAIRTECH(TM) Linear low-density and high-density polyethylene 186 198 165 759 600 ------- -------- ------- ------- ------- Total 828 842 826 3,285 3,009 ======= ======== ======= ======= =======

-------------------------- NOVAPOL(R) is a registered trademark of NOVA Brands Ltd.; authorized use. SCLAIR(R) is a registered trademark of NOVA Chemicals Corporation in Canada and of NOVA Chemicals (International) S.A. elsewhere; authorized use. Advanced SCLAIRTECH(TM) is a trademark of NOVA Chemicals.

    Review of Operations

    Olefins/Polyolefins

    Fourth Quarter 2004

    The Olefins/Polyolefins business reported net income of $83 million in the fourth quarter of 2004, compared to net income of $78 million in the third quarter of 2004. Ethylene and polyethylene price increases offset the adverse effect of a strengthening Canadian dollar, an unplanned outage at our Corunna, Ontario flexi cracker and higher feedstock costs.

    Feedstocks and Ethylene

    Earnings from Ethylene operations were flat with the third quarter due to higher ethylene prices being completely offset with higher crude and condensate feedstock costs, slightly declining co-product pricing and a Corunna cracker outage that cost $4 million after-tax. USGC ethylene prices increased 18% from the third quarter while average WTI crude oil and NYMEX natural gas prices were up 10% and 18% respectively from the third quarter.
    Our Joffre, Alberta ethane-based crackers' cash-cost advantage averaged approximately 10 cents per pound for the quarter over typical ethane-based U.S. Gulf Coast (USGC) ethylene plants, about the same as the third quarter.

    Polyethylene

    Fourth quarter weighted-average benchmark polyethylene prices were up about 8 cents per pound from the third quarter of 2004. NOVA Chemicals announced a 5 cents per pound polyethylene price increase effective December 1, 2004. An additional price increase of 4 cents per pound was announced at the end of December 2004 for implementation Feb. 1, 2005.
    Total polyethylene sales volumes for the fourth quarter were down 2% from a record high third quarter sales volume of 842 million pounds, and were slightly higher than the fourth quarter of 2003. During the fourth quarter the polyethylene industry experienced a normal seasonal reduction in demand. For NOVA Chemicals, North American volumes were flat with the third quarter, and international volumes were down 12%. International sales represented 14% of NOVA Chemicals' total polyethylene sales volume this quarter.

    Advanced SCLAIRTECH(TM) Polyethylene

    NOVA Chemicals sold 186 million pounds of Advanced SCLAIRTECH polyethylene in the fourth quarter of 2004. Sales of higher-margin performance grades, including new rotational molding and thin-wall injection molding products, represented approximately 48% of plant capacity. This is up slightly from previous quarters. Sales of AST products were up 27% for the year.

    Fourth Quarter 2004 versus Fourth Quarter 2003

    Net income of $83 million in the fourth quarter of 2004 was up from net income of $27 million in the fourth quarter of 2003, primarily due to strong industry operating rates that are driving up polyethylene margins. As reported by the American Plastics Council (APC), industry operating rates for polyethylene in North America were 96% in the fourth quarter of 2004 versus 88% in the fourth quarter of 2003. Effective industry operating rates for ethylene in the United States, as reported by CMAI for the fourth quarter of 2004, were 95%, up from 94% in the fourth quarter of 2003.

    Fiscal Year 2004 versus Fiscal Year 2003

    Net income of $255 million for fiscal year 2004 was up from net income of $18 million for fiscal year 2003. EBITDA was $626 million in 2004, $341 million higher than 2003, due to higher industry operating rates, improvement in polyethylene margins, and stronger ethylene co-product contributions. During fiscal year 2004, APC reported North American industry operating rates for polyethylene of 94%, up from 85% for fiscal 2003. CMAI reported effective industry operating rates for ethylene in the United States for the fiscal year 2004 of 95% versus 89% for fiscal 2003.
    Our ability to implement announced price increases depends on many factors that may be beyond our control, including market conditions, the supply/demand balance for each particular product and feedstock costs. Successful price increases, when realized, are typically phased in over several months, vary by product or market, and can be reduced in magnitude during the anticipated implementation period. See Forward-Looking Information.

    STYRENICS BUSINESS

Financial Highlights (unaudited, millions of U.S. dollars except as noted)

Three Months Ended Year Ended ------------------------ --------------- Dec. 31 Sept. 30 Dec. 31 Dec. 31 Dec. 31 2004 2004 2003 2004 2003 ------- -------- ------- ------- ------- Revenue(1) $ 691 $ 641 $ 404 $2,324 $1,579 Operating loss $ (27) $ (5) $ (39) $ (71) $ (147) Depreciation and amortization 30 28 28 116 111 ------ ------ ------ ------ ------ EBITDA(2) $ 3 $ 23 $ (11) $ 45 $ (36) Net loss(3) $ (16) $ (10) $ (29) $ (69) $ (127) Capital expenditures (net) $ 39 $ 29 $ 23 $ 115 $ 56 Average capital employed(4) $1,447 $1,405 $1,336 $1,386 $1,323 After-tax return on capital employed(5) (1.9)% (0.4)% (6.5)% (2.5)% (6.9)%

(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 quarter-end exchange rates. (5) After-tax return on capital employed 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 Year Average ------------------------ --------------- Dec. 31 Sept. 30 Dec. 31 Dec. 31 Dec. 31 2004 2004 2003 2004 2003 ------- -------- ------- ------- ------- Styrene monomer(2) $ 0.68 $ 0.66 $ 0.40 $ 0.58 $ 0.41 Polystyrene - weighted-average benchmark(3) $ 0.87 $ 0.77 $ 0.56 $ 0.72 $ 0.56 Benzene (dollars per gallon)(2) $ 3.59 $ 3.62 $ 1.49 $ 2.88 $ 1.54

(1) Average benchmark prices do not necessarily reflect actual prices realized by NOVA Chemicals or any other petrochemical company. (2) Source: CMAI Contract Market. A 10 cents per gallon change in the cost of benzene generally results in about a 1 cent per pound change in the variable cost of producing styrene monomer. (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.

Styrenics Sales Volumes (millions of pounds) Three Months Ended Year Ended ------------------------ --------------- Dec. 31 Sept. 30 Dec. 31 Dec. 31 Dec. 31 2004 2004 2003 2004 2003 ------- -------- ------- ------- ------- Styrene monomer(1) 500 431 342 1,772 1,305 Solid and expandable polystyrene 489 565 522 2,172 2,110 Other styrenic polymers (including DYLARK(R) resins) 63 59 68 245 265 ------- -------- ------- ------- ------- Total 1,052 1,055 932 4,189 3,680 ======= ======== ======= ======= =======

(1) Third-party sales only. -------------------------------- DYLARK(R) is a registered trademark of NOVA Chemicals Inc.

    Review of Operations

    Styrenics

    Fourth Quarter 2004

    The Styrenics business reported a net loss of $16 million in the fourth quarter, compared to a net loss of $10 million in the third quarter of 2004.
    Styrene monomer margins declined in the fourth quarter. High benzene costs in inventory at Sept. 30, 2004 impacted our cost of sales in the fourth quarter and spot styrene prices declined rapidly in December following a sharp decline in spot benzene prices.
    Third-party styrene monomer sales volume was up 16% from the third quarter. However, North American and European polymer volumes were down from the third quarter, as a result of the typical seasonal decline in demand and reductions in customer inventories. Polymer prices overall were able to keep pace with rising flow through feedstock costs, however prices in Europe were weaker than North America, particularly in December.

    Styrene Monomer

    The USGC fourth quarter average spot price for styrene was 56 cents per pound, essentially flat with the third quarter average price of 57 cents per pound. Average fourth quarter benchmark contract pricing was 68 cents per pound, up from the third quarter price of 66 cents per pound. Fourth quarter average benzene benchmark prices declined 3 cents per gallon to $3.59 per gallon but there was a 14% drop for the month of December.
    NOVA Chemicals announced contract price increases for North American styrene monomer of 2 cents per pound effective Oct. 1, 2004, and 4 cents per pound effective Nov. 1, 2004. In Europe, the fourth quarter average price for styrene monomer was 65 cents per pound, up from the third quarter price of 59 cents per pound.

    Solid Polystyrene (SPS)

    North American and European SPS price increases kept pace with flow through feedstock costs. The weighted-average North American SPS benchmark price increased from the third quarter by 10 cents per pound. North American SPS volumes declined 9% and European volumes declined 8% over the third quarter as a result of the seasonal demand decline and customers depleting inventories.
    NOVA Chemicals announced a European SPS price increase of 5.5 cents per pound effective Oct. 1, 2004.

    Expandable Polystyrene (EPS)

    North American EPS price increases kept pace with flow through feedstock costs despite seasonal volume declines. European EPS volumes declined, price increases did not keep pace with feedstock flow through costs and margins declined.
    NOVA Chemicals announced a North American EPS price increase of 5 cents per pound effective Nov. 1, 2004; and European EPS price increases of 3 cents per pound effective Oct. 1, 2004 and 2.5 cents per pound effective Nov. 1, 2004.

    Fourth Quarter 2004 versus Fourth Quarter 2003

    The Styrenics business had a net loss of $16 million in the fourth quarter of 2004, compared to a net loss of $29 million in the fourth quarter of 2003, primarily due to increased styrene monomer sales. Volume increased 13% over the fourth quarter of 2003 due to increased styrene production at Bayport, Texas, where capacity was constrained from a fire in 2003.

    Fiscal Year 2004 versus Fiscal Year 2003

    The net loss of $69 million for fiscal year 2004 improved from a net loss of $127 million for fiscal 2003. Volumes increased by 509 million pounds in 2004, primarily in global styrene spot sales and North American polymers. Margins strengthened on stronger demand.

    Joint Venture with BP

    In November, NOVA Chemicals and BP plc (BP) announced a non-binding agreement in principle to merge their European styrenic polymers businesses into a new 50:50 Joint Venture. The Joint Venture is expected to be a leading manufacturer and marketer of styrenic polymers in Europe. The Joint Venture will be headquartered in Fribourg, Switzerland and is expected to generate approximately $1 billion U.S. in annual revenue from seven manufacturing sites in France, Germany, the Netherlands, Sweden and the United Kingdom. The Joint Venture will leverage the existing assets and capabilities of both participants and has the potential to deliver meaningful cost reductions and a stronger, broader product line to its customers. Pending final agreements and regulatory and other approvals, we anticipate the Joint Venture to be operational by mid-2005.
    Our ability to implement announced price increases depends on many factors that may be beyond our control, including market conditions, the supply/demand balance for each particular product and feedstock costs. Successful price increases, when realized, are typically phased in over several months, vary by product or market, and can be reduced in magnitude during the anticipated implementation period. See Forward-Looking Information.

Liquidity and Capital Resources Capitalization (unaudited, millions of U.S. dollars Dec. 31 Sept. 30 Dec. 31 except as noted) 2004 2004 2003 ------- -------- -------

Current debt (1) $ 100 $ 100 $ - Long-term debt(2) 1,416 1,406 1,101 Less: cash and cash equivalents (245) (233) (212) ------ ------ ------ Total debt net of cash and cash equivalents 1,271 1,273 889 ------ ------ ------

Shareholders' equity 9.50% preferred securities - - 210 9.04% preferred securities - - 173 Retractable preferred shares(3),(4) 198 198 198 ------ ------ ------ 198 198 581

Common share equity(5),(6),(7),(8),(9) 1,493 1,346 1,309 ------ ------ ------

Total shareholders' equity 1,691 1,544 1,890 ------ ------ ------

Total capitalization(10) $2,962 $2,817 $2,779 ====== ====== ======

(1) A total of $100 million of 7% 10-year notes are due in September 2005. (2) On Jan. 13, 2004, NOVA Chemicals issued $400 million of 6.5% senior notes due 2012. Maturity dates for NOVA Chemicals' current and long-term debt range from September 2005 to August 2028. The 2005 maturities total $100 million. (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. Using the December 31, 2004 common share price, the maximum number of shares that could be issued is approximately 4.2 million shares. (5) Common shares outstanding on Jan. 21, 2005 were 84,397,086 (Dec. 31, 2004 - 84,268,293; Sept. 30, 2004 - 86,396,602; Dec. 31, 2003 - 87,099,781). (6) A total of 5,614,716 stock options were outstanding to officers and employees on Jan. 21, 2005 and 5,849,131 were outstanding on Dec. 31, 2004 to purchase common shares of NOVA Chemicals. A total of 2,720,751 common shares were reserved but unallocated at December 31, 2004. A total of 13 million common shares were initially 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 is subject to further reconfirmation in April 2005 and expires May 2009. (9) For the three months ended Dec. 31, 2004, a total of 2,737,100 shares were repurchased and 608,791 shares were issued upon the exercise of stock options. For the three months ended Sept. 30, 2004, a total of 2,197,500 shares were repurchased and 836,019 shares were issued upon the exercise of stock options. For the three months ended June 30, 2004, a total of 337,879 shares were issued upon the exercise of stock options. For the three months ended March 31, 2004, a total of 320,423 shares were issued upon the exercise of stock options. (10) 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) Fitch Ratings BB+ (stable) Moody's Ba2 (stable) Standard & Poor's BB+ (stable)

(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 ------------------------ Dec. 31 Sept. 30 Dec. 31 2004 2004 2003 ------- -------- ------- Net debt to total capitalization(1) 42.9% 45.2% 32.0% Interest coverage on long-term debt(2) 4.3x 2.3x 0.9x Net tangible asset coverage on long-term debt(3) 2.1x 2.0x 2.7x

(1) See Supplemental Measures. (2) Interest coverage on long-term debt is equal to net income before interest expense on long-term debt and income taxes, for the last four quarters, divided by annual interest requirements on long-term debt. (3) 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 Year Ended Dec. 31 Dec. 31 2004 2004 ------------------ ------------------ Operating income $ 51 $ 264 Add back - depreciation and amortization 72 297 ----------------- ----------------- EBITDA(1) 123 561 Interest (26) (96) Current tax expense and other (19) (41) ----------------- ----------------- Funds from operations 78 424 Operating working capital (increase) decrease 81 (72) ----------------- ----------------- Cash from operations 159 352

Asset sale proceeds (net of unreceived cash 78 109 Capital expenditures (100) (242) Project advances from third parties 6 15 Turnaround costs and other assets (1) (9) Dividends paid (9) (38) Common shares issued for stock options 12 37 Common shares repurchased (116) (188) Options retired for cash (17) (18) Preferred securities redemption - (383) Foreign exchange and other (10) (17) ----------------- ----------------- Total change in cash and debt $ 2 $ (382) ================= ================= Increase in cash $ 12 $ 33 Increase in debt (10) (415) ----------------- ----------------- Total change in cash and debt $ 2 $ (382) ================= =================

(1) Net income 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.

    NOVA Chemicals' net debt to total capitalization ratio was 42.9% at Dec. 31, 2004. Cash on hand at the end of the fourth quarter was $245 million, up from $233 million at the end of the third quarter of 2004. During the fourth quarter, $116 million of cash was used to repurchase 2.7 million common shares.
    NOVA Chemicals' funds from operations were $78 million for the fourth quarter of 2004, down from $129 million in the third quarter of 2004 due to higher operating losses in the Styrenics business, higher current tax expense, as well as higher accruals for corporate expenses and restructuring charges.
    Operating working capital decreased by $81 million in the fourth quarter of 2004, related primarily to reductions in accounts receivable and increases in payables. Accounts receivable on December 31, 2004, net of the $110 million tax receivable, decreased due to lower sales in December versus September 2004. Receivables were further reduced by the $24 million increase in the usage of our securitization program at the end of Q4 versus the end of Q3. Quarter over quarter inventory increases were more than offset by increases in accounts payable over the same timeframe.
    NOVA Chemicals assesses its working capital management effectiveness through a Cash Flow Cycle Time (CFCT) 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 to determine which portion of changes in working capital results from factors other than price movements. CFCT was 35 days as of Dec. 31, 2004, versus our target range of 25 to 30 days, and up from 33 days as of Sept. 30, 2004, due to building of inventories for maintenance turnarounds and a temporary fall off of sales in December. (The receivable related to the $110 million tax-related settlement is eliminated from the CFCT calculation.)
    During the fourth quarter, NOVA Chemicals sold its interest in the Alberta Ethane Gathering System (AEGS) for proceeds of $78 million and an after-tax gain of approximately $40 million. Capital expenditures were $94 million (after third-party project advances) in the fourth quarter of 2004, compared to $57 million in the third quarter of 2004 and $49 million in the fourth quarter of 2003.
    NOVA Chemicals continued its share repurchase program during the fourth quarter. (See Normal Course Issuer Bid below.) In addition, the Company paid stock option exercise values of $17 million in cash in lieu of issuing stock in the fourth quarter.
    Selling, general and administrative expenses (SG&A) increased by $2 million from the third quarter of 2004. SG&A was also up $23 million from the fourth quarter of 2003, and $83 million for fiscal 2004 versus fiscal 2003. The increase for the year was primarily due to the $76 million pre-tax impact of NOVA Chemicals' stock appreciation on the mark-to-market liability of our stock-based compensation plans, as well as a $9 million impact from a higher Canadian Dollar and a higher euro.
    A restructuring charge of $8 million ($5 million after-tax) was recorded in the fourth quarter of 2004 due to additional environmental and severance obligations related to the permanent 2004 shutdown of one of our linear low density polyethylene production lines at our St. Clair River polyethylene plant site.

    Financing

    NOVA Chemicals has a $300 million revolving credit facility, expiring April 1, 2007. NOVA Chemicals continues to comply with all financial covenants under the facility. As of Jan. 25, 2005, NOVA Chemicals has utilized $55 million of the revolving credit facility in the form of operating letters of credit.
    In Sept. 2005, $100 million of debt will mature.
    As of Dec. 31, 2004, the amount of receivables sold under the accounts receivable securitization program was $250 million, compared to $226 million as of Sept. 30, 2004.

    Normal Course Issuer Bid

    On July 21, 2004, NOVA Chemicals announced a share repurchase program for up to approximately 7.5 million common shares. As of Jan. 21, 2005, 5.1 million common shares have been repurchased at an average price of $48.02 Cdn.

    FIFO Impact

    NOVA Chemicals uses the first-in, first-out (FIFO) method of valuing inventory. Most of NOVA Chemicals' competitors use the last-in, first-out (LIFO) method. Because we use FIFO, a portion of the third quarter feedstock purchases flowed through the income statement in the fourth quarter. Fourth quarter average NYMEX natural gas pricing was higher than the third quarter average price by $1.03 per mmBTU and WTI crude was higher by $4.40 per bbl. Benchmark benzene prices fell during the quarter, starting the quarter at $3.95 per gallon and ending the quarter at $3.25 per gallon. We estimate that net income would have been about $14 million higher in the fourth quarter had NOVA Chemicals used the LIFO method of accounting.

    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 fourth quarter of 2004 was $6 million after-tax ($5 million gain after-tax for fiscal year 2004).

    In addition, NOVA Chemicals is required to record on its balance sheet the market value of any outstanding feedstock positions that do not qualify for hedge accounting treatment. The gain or loss resulting from changes in the market value of positions is recorded through earnings each period. NOVA Chemicals has recorded $6 million of after-tax mark-to-market losses on outstanding feedstock derivative positions in the fourth quarter ($5 million gain after-tax for fiscal year 2004.) This is in addition to the realized gain reported above, bringing the total fiscal year gain to $10 million after-tax. There was no impact to NOVA Chemicals' income statement as the gain from the derivatives program in the fourth quarter of 2004 was entirely offset by the mark-to-market loss during the same time period.

    Supplemental Measures

    In addition to providing measures in accordance with Canadian GAAP, NOVA Chemicals presents certain supplemental measures. These are EBITDA (defined below), average capital employed (defined above), after-tax return on capital employed (defined above) and operated business income (loss) (defined above). It also includes net debt to total capitalization (see "Capitalization" table above), with net debt and total capitalization defined 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 meaning prescribed 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 Statement of Income (Loss) by adding back income taxes, interest expense, other gains and losses, earnings from equity investment in affiliates and depreciation and amortization. Segment EBITDA is determined as segment operating income or loss before depreciation and amortization.

Corporate and other

A listing of after-tax corporate and other items for the periods presented is as follows:

Three Months Ended Year Ended ------------------------ --------------- (unaudited, millions of Dec. 31 Sept. 30 Dec. 31 Dec. 31 Dec. 31 U.S. dollars) 2004 2004 2003 2004 2003 ------- ------------------------ ------- Stock based compensation and profit sharing(1) $ (29) $ (21) $ (6) $ (60) $ (7) Restructuring(2) (5) - - (5) (10) Tax-related settlement(3) 91 10 - 101 - Bayport charge(4) - - - - (8) Gain on sale of investments: AEGS(5) 40 - - 40 - Methanex(6) - - - - 61 Fort Saskatchewan Ethylene Storage(7) - - - - 64

------- -------- ------- ------- ------ $ 97 $ (11) $ (6) $ 76 $ 100 ====== ======= ====== ====== ======

(1) 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. The market price on Dec. 31, 2004, was $47.30 US. In addition, NOVA Chemicals maintains a profit sharing program, available to most employees, based on the achievement of shareholder return on equity targets. (2) In 2003, NOVA Chemicals announced the shutdown of its oldest, highest-cost 275-million-pound polyethylene production line at the St. Clair River site in Ontario, Canada and took a charge for restructuring at that time. $8 million ($5 million after-tax) of additional costs associated with environmental and severance obligations have been recorded in the fourth quarter of 2004. (3) The fourth quarter of 2004 included an after-tax gain of $91 million related to the final resolution of a tax dispute. The dispute was related to the deductibility of foreign taxes in certain returns filed with the United States Internal Revenue Service prior to 1982. The payment of approximately $110 million will be received from an affiliate of a company in which NOVA Chemicals previously had an interest. The Corporation also recorded an after-tax gain of $10 million in the third quarter of 2004 for a similar item. (4) NOVA Chemicals had an explosion, which resulted in a fire at its Bayport, Texas styrene monomer manufacturing facility and as a result incurred a charge of $13 million before-tax ($8 million after-tax) primarily related to the amount of property damage not covered by insurance. (5) NOVA Chemicals sold its investment in AEGS for $78 million in cash proceeds and a before-tax gain of $53 million ($40 million after-tax). (6) In the second quarter of 2003, NOVA Chemicals sold its interest in Methanex Corporation, resulting in a gain of $29 million ($61 million after-tax). A future income tax recovery of $32 million was recorded to reverse income taxes provided for on Methanex related equity earnings in prior periods. NOVA Chemicals has no remaining equity interest in Methanex. (7) In the second quarter of 2003, NOVA Chemicals sold its interest in the Fort Saskatchewan Ethylene Storage Facility, resulting in a gain of $76 million ($64 million after-tax).

    NOVA Chemicals' share price on the New York Stock Exchange (NYSE) increased to U.S. $47.30 at Dec. 31, 2004 from U.S. $38.70 at Sept. 30, 2004. NOVA Chemicals' share value increased 22% for the quarter ending Dec. 31, 2004 on the NYSE and 16% on the Toronto Stock Exchange (TSX), while peer chemical companies' share values increased 18% on average and the S&P Chemicals Index increased 13%. The S&P/TSX Composite Index was up 7% and the S&P 500 was up 9% in the fourth quarter. As of Jan. 25, 2005, NOVA Chemicals' share price was U.S. $46.90, down 0.8% from Dec. 31, 2004. The S&P Chemicals Index was down 3.8% in the same period.
    In the fourth quarter, approximately 59% of trading in NOVA Chemicals' shares took place on the TSX and 41% of trading took place in the U.S. For 2004, approximately 65% of trading in NOVA Chemicals' shares took place on the TSX and 35% of trading took place in the U.S.

% of % of Fourth quarter trading volumes Millions of Shares float trading ----------------------------------- ------------------ ------- ------- Toronto Stock Exchange 25.8 31 59 Consolidated U.S. Trading Volumes 18.0 21 41 ------------------ ------- ------- Total 43.8 52 100 ================== ======= =======

---------------------------------------------------------------------- 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/ Contact Information 1-800-387-0825 Phone: (403) 750-3600 (Canada) or Fax: (403) 264-2100 (412) 490-4000 (United States) Internet: www.cibcmellon.ca Internet: www.novachemicals.com E-Mail: inquiries@cibcmellon.ca E-Mail: invest@novachem.com Share Information NOVA Chemicals Corporation NOVA Chemicals' trading symbol 1000 Seventh Avenue S.W. on the New York and Toronto P.O. Box 2518 Stock Exchanges is NCX. On the Calgary, Alberta, Canada T2P 5C6 TSX, NOVA Chemicals is listed and traded in both Canadian and If you would like to receive a U.S. dollars. The U.S. dollar shareholder information package, trading symbol on the TSX is please contact us at (403) 750-3600 NCX.U. 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) Q4 2004 Compared with 2004 --------------- Compared with Q3 2004 Q4 2003 2003 ------- ------- ------------ (Lower) higher net unit margins $ (22) $ 80 $ 334 (Lower) higher sales volumes (6) (5) 83 ------ ------ ------ (Lower) higher gross margin(1) (28) 75 417 Higher research and development (3) (2) (3) Higher selling, general and administrative (2) (23) (83) (Higher) lower restructuring charges (8) (8) 7 (Higher) lower depreciation and amortization (4) 6 1 Higher interest expense (1) (9) (7) Lower equity earnings in Methanex - - (39) Higher other gains and losses 152 164 85 Lower (higher) income tax expense (Note 5 to the Consolidated Financial Statements) 1 (31) (144) (Higher) lower preferred securities dividends and distributions (1) 5 19 ------ ------ ------ Increase in net income (loss) to common shareholders $ 106 $ 177 $ 253 ====== ====== ======

(1) Revenue less feedstock and operating costs.

Consolidated Balance Sheet

(unaudited, millions of U.S. dollars) Dec. 31, 2004 Dec. 31, 2003 ------------- ------------- Assets Current assets Cash and cash equivalents $ 245 $ 212 Receivables 567 316 Inventories 634 392 ----------- ----------- 1,446 920

Investments and other assets 147 157 Plant, property and equipment, net 3,454 3,336 ----------- ----------- $ 5,047 $ 4,413 =========== ===========

Liabilities and Shareholders' Equity Current liabilities Accounts payable and accrued liabilities $ 808 $ 587 Long-term debt due within one year 100 - ----------- ----------- 908 587 Long-term debt 1,416 1,101 Future income taxes 677 586 Deferred credits 355 249 ----------- ----------- 3,356 2,523 ----------- -----------

Shareholders' equity Preferred securities - 383 Retractable preferred shares 198 198 Common equity Common shares 499 493 Contributed surplus (Note 1) 8 - Cumulative translation adjustment 353 232 Reinvested earnings 633 584 ----------- ----------- 1,691 1,890 ----------- ----------- $ 5,047 $ 4,413 =========== ===========

FINANCIAL STATEMENTS

Consolidated Statement of Income (Loss) (unaudited, millions of U.S. dollars except per share amounts)

Three Months Ended Year Ended ------------------------ --------------- Dec. 31 Sept. 30 Dec. 31 Dec. 31 Dec. 31 2004 2004 2003 2004 2003 ------- -------- ------- ------- ------- Revenue $1,527 $1,379 $1,041 $5,270 $3,949 ------ ------ ------ ------ ------

Feedstock and operating costs 1,300 1,124 889 4,380 3,476 Research and development 14 11 12 48 45 Selling, general and administrative 82 80 59 273 190 Restructuring charges 8 - - 8 15 Depreciation and amortization 72 68 78 297 298 ------ ------ ------ ------ ------ 1,476 1,283 1,038 5,006 4,024 ------ ------ ------ ------ ------ Operating income (loss) 51 96 3 264 (75) ------ ------ ------ ------ ------

Interest expense (net) (Note 3) (26) (25) (17) (96) (89) Earnings from equity investment in affiliates - - - - 39 Other gains and losses (Note 4) 164 12 - 177 92 ------ ------ ------ ------ ------ 138 (13) (17) 81 42 ------ ------ ------ ------ ------ Income (loss) before income taxes 189 83 (14) 345 (33) Income tax (expense) recovery (Note 5) (25) (26) 6 (83) 61 ------ ------ ------ ------ ------ Net income (loss) 164 57 (8) 262 28 Preferred securities dividends and distributions (2) (1) (7) (10) (29) ------ ------ ------ ------ ------ Net income (loss) to common shareholders $ 162 $ 56 $ (15) $ 252 $ (1) ====== ====== ====== ====== ======

Earnings (loss) per share (Note 6) - Basic $ 1.91 $ 0.64 $(0.18) $ 2.91 $(0.02) - Diluted $ 1.78 $ 0.60 $(0.18) $ 2.71 $(0.02)

SUMMARY QUARTERLY FINANCIAL INFORMATION Refers to the Consolidated Statement of Income (Loss) above

Three Months Ended (Unaudited; Millions of U.S. Dollars, Except Per Share Amounts)

2003 ---------------------------------------------------------------------- Mar. 31 June 30 Sept. 30 Dec. 31 ------------------------------------- ------- ------- -------- ------- Revenue $ 977 964 967 1,041 ------------------------------------- ------ ------- -------- ------- Operating income (loss) $ 14 (36) (56) 3 ------------------------------------- ------ ------- -------- ------- Net income (loss) $ 12 82 (58) (8) ------------------------------------- ------ ------- -------- ------- Net income (loss) per share ------------------------------------- ------- ------- -------- ------- - basic $ 0.05 0.86 (0.75) (0.18) ------------------------------------- ------ ------- -------- ------- - diluted $ 0.05 0.79 (0.75) (0.18) ------------------------------------- ------ ------- -------- ------- Weighted-average common shares outstanding (millions) ------------------------------------- ------- ------- -------- ------- - basic 86.7 86.8 86.8 87.0 ------------------------------------- ------ ------- -------- ------- - diluted 87.4 96.0 86.8 87.0 ------------------------------------- ------ ------- -------- -------

2004 ---------------------------------------------------------------------- Mar. 31 June 30 Sept. 30 Dec. 31 --------------------------------------------- ------- -------- ------- Revenue $1,126 1,238 1,379 1,527 -------------------------------------- ------ ------- -------- ------- Operating income (loss) $ 41 76 96 51 -------------------------------------- ------ ------- -------- ------- Net income (loss) $ 12 29 57 164 -------------------------------------- ------ ------- -------- ------- Net income (loss) per share --------------------------------------------- ------- -------- ------- - basic $ 0.08 0.31 0.64 1.91 -------------------------------------- ------ ------- -------- ------- - diluted $ 0.08 0.30 0.60 1.78 -------------------------------------- ------ ------- -------- ------- Weighted-average common shares outstanding (millions) --------------------------------------------- ------- -------- ------- - basic 87.3 87.6 87.2 84.8 -------------------------------------- ------ ------- -------- ------- - diluted 89.2 96.9 95.9 92.4 -------------------------------------- ------ ------- -------- -------

Consolidated Statement of Cash Flows (unaudited, millions of U.S. dollars)

Three Months Ended Year Ended ------------------------ --------------- Dec. 31 Sept. 30 Dec. 31 Dec. 31 Dec. 31 2004 2004 2003 2004 2003 ------- -------- ------- ------- ------- Operating activities Net income (loss) $ 164 $ 57 $ (8) $ 262 $ 28 Depreciation and amortization 72 68 78 297 298 Future income tax expense (recovery) 5 15 (15) 38 (78) Earnings from equity investment in affiliates - - - - (39) Dividends received - - - - 14 Asset write down - - - - 9 Other gains (164) (12) - (177) (92) Stock option expense 1 1 - 4 - ------ ------- ------ ------ ------ Funds from operations 78 129 55 424 140 Changes in non-cash working capital 81 (56) (28) (72) (125) ------ ------- ------ ------ ------ Cash from (used in) operations 159 73 27 352 15 ------ ------- ------ ------ ------

Investing activities Proceeds on asset sales and other capital transactions 188 31 - 219 564 Plant, property and equipment net additions (100) (60) (52) (242) (130) Turnaround costs, long-term investments and other assets (1) (4) (2) (9) (57) Changes in non-cash operating working capital (110) - (3) (110) 7 ------ ------- ------ ------ ------ (23) (33) (57) (142) 384 ------ ------- ------ ------ ------ Financing activities Decrease in current bank loans - - - - (3) Long-term debt Additions - - - 400 - Repayments (2) - - (2) (152) Changes in revolving debt - - - - (2) Preferred securities redeemed - - - (383) - Preferred securities dividends and distributions (2) (1) (7) (10) (29) Common shares issued for stock options 12 13 3 37 9 Common share repurchases (116) (72) - (188) - Options retired for cash (17) (1) - (18) - Common share dividends (7) (7) (7) (28) (25) Project advances from third parties 6 3 3 15 11 Changes in non-cash working capital 2 1 (2) - (10) ------ ------- ------ ------ ------ (124) (64) (10) (177) (201) ------ ------- ------ ------ ------

Increase (decrease) in cash and cash equivalents 12 (24) (40) 33 198 Cash and cash equivalents, beginning of period 233 257 252 212 14 ------ ------- ------ ------ ------

Cash and cash equivalents, end of period $ 245 $ 233 $ 212 $ 245 $ 212 ====== ======= ====== ====== ======

Cash tax payments (refunds) $ 5 $ (5) $ 4 $ 11 $ (28) ====== ======= ====== ====== ======

Cash interest payments $ 22 $ 34 $ 22 $ 95 $ 100 ====== ======= ====== ====== ======

Consolidated Statement of Reinvested Earnings (unaudited, millions of U.S. dollars)

Three Months Ended Year Ended ------------------------ --------------- Dec. 31 Sept. 30 Dec. 31 Dec. 31 Dec. 31 2004 2004 2003 2004 2003 ------- -------- ------- ------- ------- Reinvested earnings, beginning of period $ 587 $ 597 $ 606 $ 584 $ 605 Change in accounting policy (Note 1) - - - (7) 5 Net income (loss) 164 57 (8) 262 28 Common share dividends (7) (7) (7) (28) (25) Preferred securities dividends and distributions (2) (1) (7) (10) (29) Common share repurchase (97) (58) - (155) - Options retired for cash (net) (12) (1) - (13) - ------ ------ ------ ------ ------ Reinvested earnings, end of period $ 633 $ 587 $ 584 $ 633 $ 584 ====== ====== ====== ====== ======

Notes to Consolidated Financial Statements

(unaudited, millions of U.S. dollars, except per share amounts 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 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 Option Plan

Effective Jan. 1, 2004, Canadian GAAP requires the fair value of options to be expensed over their vesting period. Prior to Jan. 1, 2004, NOVA Chemicals followed the intrinsic-value approach, where the granting and exercising of stock options are accounted for as equity transactions and no amounts are expensed.

NOVA Chemicals adopted the new accounting policy on a retroactive basis with no restatement of prior periods. Accordingly, on Jan. 1, 2004, retained earnings were 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 stock options granted since Jan. 1, 2002. NOVA Chemicals uses the Black-Scholes option valuation model to calculate the fair value of stock options at the date of grant. In 2004, compensation expense related to stock options was $3 million after-tax, which increased contributed surplus.

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 amounts would have resulted:

Three Months Ended Year Ended Dec. 31, 2003 Dec. 31, 2003 ------------------ ------------------ Net income (loss) As reported $ (8) $ 28 Pro forma $ (9) $ 26

Earnings (loss) per share - basic and diluted As reported $ (0.18) $ (0.02) Pro forma $ (0.18) $ (0.04)

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 and Twelve Months Ended ----------------------------- Dec. 31, 2004 Dec. 31, 2003 -------------- -------------- Risk-free interest rate % 3.67 3.82 Expected volatility % 37.3 37.8 Expected life years 3.4 3.3 Expected dividend yield % 1.19 1.21 Grant date fair value $ 7.15 6.39

B. Valuing Derivatives

Effective Jan. 1, 2004, NOVA Chemicals adopted a new Canadian accounting policy that requires all derivative positions, except those that qualify for hedge accounting treatment, to be marked-to-market at each period end with any resulting gains or losses recorded in earnings (loss).

NOVA Chemicals adopted the new accounting policy on a prospective basis. In accordance with the transitional provisions of the new accounting policy, unrealized gains and losses that existed on Jan. 1, 2004 have been deferred on the consolidated balance sheet. These amounts will be recognized in income over the remaining term to maturity as the hedged items are settled. In 2004, $5 million of unrealized after-tax gains on derivatives have been recorded in earnings, representing the increase in market value since Jan. 1, 2004.

2. Pensions and Other Post-Retirement Benefits

Components of Net Periodic Benefit Cost for Defined Three Months Ended Year Ended Benefit Plans Dec. 31 Dec. 31 ---------------------- ----------------------- ----------------------- Pension Other Pension Other Benefits Benefits Benefits Benefits ----------- ----------- ----------- ----------- 2004 2003 2004 2003 2004 2003 2004 2003 ----- ----- ----- ----- ----- ----- ----- ----- Current service cost $6 $6 $- $2 $24 $21 $2 $2 Interest cost on projected benefit obligations 9 7 1 1 34 30 4 4 Expected return on plan assets (9) (7) - - (31) (26) - - Amortization of transition asset (2) (1) - - (5) (4) 1 - Amortization of prior service costs 1 1 - - 2 2 - - Recognized net actuarial loss 1 1 - 1 4 4 1 1 ----- ----- ----- ----- ----- ----- ----- ----- Net periodic benefit cost $6 $7 $1 $4 $28 $27 $8 $7 ===== ===== ===== ===== ===== ===== ===== =====

The expected long-term rate of return on plan assets is 7.3% in 2004.

Employer Contributions

NOVA Chemicals has contributed $26 million to its defined benefit pension plans in 2004. For the year ending Dec. 31, 2004, NOVA Chemicals has contributed $7 million to its defined contribution plans.

3. Interest Expense

Components of Interest Expense ---------------------------------------------------------------------- Three Months Ended Year Ended ------------------------ --------------- Dec. 31 Sept. 30 Dec. 31 Dec. 31 Dec. 31 2004 2004 2003 2004 2003 ------- -------- ------- ------- ------- Interest on long-term debt $ 28 $ 25 $ 16 $ 97 $ 84 Interest on securitizations and other 2 2 2 8 8 ------ ------ ------ ------ ------ Gross interest expense 30 27 18 105 92 Interest capitalized during plant construction (2) - - (3) - Interest income (2) (2) (1) (6) (3) ------ ------ ------ ------ ------ Interest expense (net) $ 26 $ 25 $ 17 $ 96 $ 89 ====== ====== ====== ====== ======

4. Other Gains and Losses

NOVA Chemicals recorded a tax related settlement in the fourth quarter of 2004 in the amount of $110 million before-tax ($91 million after-tax). The dispute was related to the deductibility of foreign taxes in certain returns filed with the United States Internal Revenue Service prior to 1982. The payment of approximately $110 million will be received from an affiliate of a company in which NOVA Chemicals previously had an interest. Also in the fourth quarter of 2004, NOVA Chemicals sold its investment in the AEGS for $78 million in cash proceeds and a before-tax gain of $53 million ($40 million after-tax). An additional $12 million tax settlement ($10 million after-tax) was received in the third quarter of 2004. Together, these three items, in addition to other minor gains, totaled $177 million before-tax for the year ended December 31, 2004.

For the year ended Dec. 31, 2003, the Corporation recorded before-tax gains of $29 million ($61 million after-tax) and $76 million ($64 million after-tax) from the sale of NOVA Chemical's interest in Methanex Corporation and the Fort Saskatchewan Ethylene Storage Facility, respectively. In addition, the year ended Dec.31, 2003 includes a charge of $13 million ($8 million after-tax) related to the amount of property damage not covered by insurance from an explosion and fire at our Bayport, Texas facility in the second quarter of 2003.

5. Income Taxes

Three Months Ended Year Ended ------------------------ --------------- Dec. 31 Sept. 30 Dec. 31 Dec. 31 Dec. 31 2004 2004 2003 2004 2003 ------- -------- ------- ------- ------- Income (loss) before income taxes $ 189 $ 83 $ (14) $ 345 $ (33) Statutory income tax rate 33.87% 33.87% 36.74% 33.87% 36.74% ------ ------- ------ ------ ------ Computed income tax expense (recovery) $ 64 $ 28 $ (5) $ 117 $ (12) Increase (decrease) in taxes resulting from: Manufacturing and processing deduction - - - - (2) Lower effective tax rate on earnings from equity investment in affiliates - - - - (12) Lower tax rates and higher recoveries on other gains (24) (2) - (26) (56) Additional cost-of-service income taxes(1) - - 3 4 9 Foreign tax rates - (2) 3 2 19 Income tax rate adjustment(2) - - 15 (7) 15 Reduction in tax reserve(3) (11) - (20) (11) (20) Other (4) 2 (2) 4 (2) ------ ------- ------ ------ ------ Income tax expense (recovery) $ 25 $ 26 $ (6) $ 83 $ (61) ====== ======= ====== ====== ======

(1) Income taxes on the Joffre, Alberta second ethylene plant were recoverable from customers until June 30, 2004 and were recorded on the flow-through rather than liability method. Subsequent to June 30, 2004, income taxes are being recorded on the 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. NOVA Chemicals recorded a similar item in the fourth quarter of 2003, however, rate increases resulted in a $15 million additional accrual to future tax liabilities. (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 have determined we were over provided. In the fourth quarter of 2004 and 2003, we reduced this reserve by $11 million and $20 million, respectively.

6. Earnings (Loss) Per Share

(shares in millions) Three Months Ended ----------------------------------------------- Dec. 31 Sept. 30 Dec. 31 2004 2004 2003 --------------- --------------- --------------- Basic Diluted Basic Diluted Basic Diluted Net income (loss) to common shareholders $ 162 $ 162 $ 56 $ 56 $ (15) $ (15) Preferred dividends - 2 - 1 - - ------ ------ ------ ------ ------ ------ Net income (loss) for EPS calculation $ 162 $ 164 $ 56 $ 57 $ (15) $ (15) ====== ====== ====== ====== ====== ====== Weighted-average common shares outstanding 84.8 84.8 87.2 87.2 87.0 87.0 Add back effect of dilutive securities: Stock options - 3.0 - 2.7 - - Retractable preferred shares - 4.6 - 6.0 - - ------ ------ ------ ------ ------ ------ Weighted-average common shares for EPS calculations 84.8 92.4 87.2 95.9 87.0 87.0 ------ ------ ------ ------ ------ ------ Earnings (loss) per common share $ 1.91 $ 1.78 $ 0.64 $ 0.60 $(0.18) $(0.18) ====== ====== ====== ====== ====== ======

(shares in millions) Year Ended ------------------------------- Dec. 31 Dec. 31 2004 2003 --------------- --------------- Basic Diluted Basic Diluted Net income (loss) to common shareholders $ 252 $ 252 $ (1) $ (1) Preferred dividends - 6 - - ------ ------ ------ ------ Net income (loss) for EPS calculation $ 252 $ 258 $ (1) $ (1) ====== ====== ====== ====== Weighted-average common shares outstanding 86.7 86.7 86.8 86.8 Add back effect of dilutive securities: Stock options - 2.6 - - Retractable preferred shares - 6.1 - - ------ ------ ------ ------ Weighted-average common shares for EPS calculations 86.7 95.4 86.8 86.8 ------ ------ ------ ------ Earnings (loss) per common share $ 2.91 $ 2.71 $(0.02) $(0.02) ====== ====== ====== ======

No retractable preferred shares or stock options have been excluded from the computation of diluted earnings per share for the quarters ended Dec. 31, Sept. 30 and the full year 2004. As of Dec. 31, 2004, the fully diluted share count was 91.3 million. A total of 17.3 million common shares were excluded in the quarter ended Dec. 31, 2003, as their impact would not have been 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. The retractable preferred shares are only dilutive if our earnings per share is greater than the preferred share dividend divided by the number of shares issued on conversion. At the fourth quarter average common share price and LIBOR rate, these shares become dilutive whenever earnings are greater than approximately $0.38 per share per quarter.

7. Segmented Information

NOVA Chemicals operates its business under the following principal business segments: Three Months Ended Year Ended ------------------------ --------------- Dec. 31 Sept. 30 Dec. 31 Dec. 31 Dec. 31 2004 2004 2003 2004 2003 ------- -------- ------- ------- ------- Revenue Olefins/Polyolefins $ 912 $ 824 $ 691 $3,230 $2,559 Styrenics 691 641 404 2,324 1,579 Intersegment eliminations (76) (86) (54) (284) (189) ------ ------ ------ ------ ------ $1,527 $1,379 $1,041 $5,270 $3,949 ====== ====== ====== ====== ====== Operating income (loss) Olefins/Polyolefins $ 134 $ 137 $ 53 $ 445 $ 98 Styrenics (27) (5) (39) (71) (147) Corporate and other (56) (36) (11) (110) (26) ------ ------ ------ ------ ------ $ 51 $ 96 $ 3 $ 264 $ (75) ====== ====== ====== ====== ====== Net income (loss)(1) Olefins/Polyolefins $ 83 $ 78 $ 27 $ 255 $ 18 Styrenics (16) (10) (29) (69) (127) Investment in Methanex - - - - 37 Corporate and other 97 (11) (6) 76 100 ------ ------ ------ ------ ------ $ 164 $ 57 $ (8) $ 262 $ 28 ====== ====== ====== ====== ======

(1) Before preferred securities dividends and distributions.

Dec. 31 Dec. 31 2004 2003 --------- --------- Assets Olefins/Polyolefins $ 2,510 $ 2,246 Styrenics 2,018 1,767 Corporate and other(1) 519 400 -------- -------- $ 5,047 $ 4,413 ======== ========

(1) Amounts include all cash and cash equivalents.

8. Reconciliation to United States Accounting Principles

Three Months Ended Year Ended ------------------------ --------------- Dec. 31 Sept. 30 Dec. 31 Dec. 31 Dec. 31 2004 2004 2003 2004 2003 ------- -------- ------- ------- ------- Net income (loss) in accordance with Canadian GAAP $ 164 $ 57 $ (8) $ 262 $ 28 Add (deduct) adjustments for: Foreign exchange hedging(1) - - - - 3 Other hedging and derivative activity(1) (2) (2) 6 - (7) Equity in earnings of affiliates - - - - (1) Inventory costing(2) 1 1 - 4 (1) Start-up costs(3) 3 4 1 5 4 Preferred securities distributions(4) - - (6) (4) (23) Other - - - - 1 Change in accounting policy(5) - - - (7) 5 Other gains - - - - 42 ------ ------ ------ ------ ------ Net income (loss) in accordance with U.S. GAAP $ 166 $ 60 $ (7) $ 260 $ 51 ====== ====== ====== ====== ====== Earnings (loss) per share - basic $ 1.96 $ 0.68 $(0.09) $ 3.00 $ 0.52 ====== ====== ====== ====== ====== Earnings (loss) per share - diluted $ 1.80 $ 0.63 $(0.09) $ 2.73 $ 0.51 ====== ====== ====== ====== ======

Three Months Ended Year Ended ------------------------ --------------- Dec. 31 Sept. 30 Dec. 31 Dec. 31 Dec. 31 2004 2004 2003 2004 2003 ------- -------- ------- ------- ------- Comprehensive income (loss)(6) Net income (loss) in accordance with U.S. GAAP $ 166 $ 60 $ (7) $ 260 $ 51 Change in fair value of cash flow hedging instruments(1) - - - - 4 Equity in affiliates comprehensive income - - - - (3) Cumulative translation adjustment(8) 107 75 102 121 341 Minimum pension liability adjustment 1 - (3) 1 (3) ------ ------ ------ ------ ------ Comprehensive income (loss) in accordance with U.S. GAAP $ 274 $ 135 $ 92 $ 382 $ 390 ====== ====== ====== ====== ======

Year Ended ------------------- Dec. 31 Dec. 31 2004 2003 --------- --------- Accumulated other comprehensive income(6) Cumulative translation adjustment(8) $332 $211 Minimum pension liability(7) (3) (4) --------- --------- $329 $207 ========= =========

Dec. 31 Dec. 31 2004 2003 --------- --------- Balance sheet in accordance with U.S. GAAP Current assets(1),(2) $ 1,482 $ 959 Investments and other assets(3),(7) 139 157 Plant, property and equipment, net 3,429 3,311 Current liabilities(1) (893) (585) Long-term -- preferred securities(4) - (383) -- other long-term debt(1) (1,427) (1,122) Deferred credits(1),(7) (1,030) (829) Retractable preferred shares (198) (198) -------- -------- Common equity $ 1,502 $ 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 company 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 (loss) and accumulated other comprehensive income. This statement is not required under Canadian GAAP. Comprehensive income (loss) 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) 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.

--30--JSW/cl*

CONTACT: NOVA Chemicals Investor Relations: Chris Bezaire, (412) 490-5070 Media Relations: Greg Wilkinson, (412) 490-4166

KEYWORD: PENNSYLVANIA INTERNATIONAL CANADA INDUSTRY KEYWORD: CHEMICALS/PLASTICS MANUFACTURING EARNINGS CONFERENCE CALLS SOURCE: NOVA Chemicals Corporation

Copyright Business Wire 2005