Exhibit 99.2  Consolidated
Six-Year Review  (millions
  of U.S. dollars, except per share amounts,
  ratios and miscellaneous data)
  
  2007
  
  2006
  (1)
  2005
  (1)
  2004
  
  2003
  
  2002Operating ResultsRevenue
  
  $6,732
  
  $6,519
  
  $5,616
  
  $5,270
  
  $3,949
  
  $3,091Adjusted EBITDA(2)
  
  $   885
  
  $604
  
  $461
  
  $570
  
  $219
  
  $215Operating income
  (loss)(2)
  
  $   553
  
  $(680
  )
  $3
  
  $265
  
  $(94
  )
  $(71
  )Net income (loss)
  
  $   347
  
  $(703
  )
  $(101
  )
  $253
  
  $(14
  )
  $(112
  )Total assets
  
  $4,836
  
  $4,077
  
  $5,178
  
  $5,047
  
  $4,413
  
  $4,154CapitalizationCurrent bank
  loans
  
  $       3
  
  $1
  
  $1
  
  $
  
  $
  
  $3Long-term debt(3)
  
  1,794
  
  1,779
  
  1,973
  
  1,714
  
  1,682
  
  1,793Less: Cash and
  cash equivalents and restricted cash and other assets
  
  (122
  )
  (60
  )
  (166
  )
  (317
  )
  (284
  )
  (64
  )Net debt(2)
  
  $1,675
  
  $1,720
  
  $1,808
  
  $1,397
  
  $1,398
  
  $1,732Shareholders
  equity
  
  1,101
  
  546
  
  1,215
  
  1,484
  
  1,301
  
  980Total capitalization
  net of cash and cash equivalents and restricted cash(3)
  
  $2,776
  
  $2,266
  
  $3,023
  
  $2,881
  
  $2,699
  
  $2,712Cash Flow DataCash provided by
  (used in) operating activities
  
  $   329
  
  $350
  
  $338
  
  $335
  
  $(26
  )
  $314Capital
  expenditures (net of project advances)
  
  $   156
  
  $198
  
  $419
  
  $227
  
  $119
  
  $70Net debt
  (repayments) additions
  
  $(13
  )
  $(195
  )
  $317
  
  $15
  
  $(157
  )
  $(307
  )Data per Common ShareNet income (loss) Basic
  
  $  4.19
  
  $(8.52
  )
  $(1.22
  )
  $  2.92
  
  $(0.16
  )
  $(1.30
  ) Diluted
  
  $  4.16
  
  $(8.52
  )
  $(1.22
  )
  $  2.72
  
  $(0.16
  )
  $(1.30
  )Common
  shareholders equity at year-end(2)(4)
  
  $  13.3
  
  $6.62
  
  $14.76
  
  $16.00
  
  $13.60
  
  $12.40RatiosReturn (loss) on
  average common equity(2)(5)
  
  43.2
  %
  (55.6
  )%
  (7.5
  )%
  19.2
  %
  (0.8
  )%
  (11.1
  )%Net debt to total
  capitalization(2)
  
  60.3
  %
  75.9
  %
  59.8
  %
  48.5
  %
  51.8
  %
  63.9
  %Miscellaneous DataEmployees at
  year-end(6)
  
  2,820
  
  3,300
  
  3,600
  
  4,100
  
  4,300
  
  4,300Closing share
  price TSX ($Cdn)
  
  $32.27
  
  $32.50
  
  $38.81
  
  $56.70
  
  $35.04
  
  $28.89 NYSE ($U.S.)
  
  $32.40
  
  $27.90
  
  $33.40
  
  $47.30
  
  $26.95
  
  $18.30Dividends and distributionsCommon shares
  
  $31
  
  $29
  
  $27
  
  $28
  
  $25
  
  $23  (1)In 2007,
NOVA Chemicals changed its accounting for its interest in the European accounts
receivable securitization program, undertaken by the European joint venture in
2006. Accounts receivable securitization transactions are recorded as sales of
assets based on the transfer of control to the purchaser as opposed to
financing. Also in 2007, NOVA Chemicals reclassified the current portion of
stock-based compensation and pension assets from Deferred credits and long-term
liabilities to Accounts payable and accrued liabilities and Investments and
other assets, respectively, in 2006 and 2005. In addition, $65 million was
reclassified from Restricted cash and other assets to Long-term debt in 2006
and 2005. (2)In
addition to providing measures in accordance with Canadian GAAP, NOVA Chemicals
presents certain supplemental measures. These measures do not have any
standardized meaning prescribed by Canadian GAAP, and are, therefore, unlikely
to be comparable to measures provided by other companies. Certain of these
measures are defined on page 54 of the Managements Discussion &
Analysis. (3)Long-term
debt includes current portion of long-term debt. (4)Common
shareholders equity divided by outstanding common shares. Years prior to 2005
assume the retractable preferred shares were exchanged for common shares to a
maximum of 8.5 million. Effective September 2005, the preferred shares are
no longer convertible to common shares. (5)Net
income (loss) divided by average common equity. (6)Excludes
approximately 450 NOVA Chemicals employees who have been transferred to INEOS
NOVA.   66Consolidated Six-Year Review


Managements Report  TO THE SHAREHOLDERS OF NOVA CHEMICALS CORPORATION The Consolidated Financial Statements and other
financial information included in this annual report have been prepared by
management. It is managements responsibility to ensure that sound judgment,
appropriate accounting principles and methods and reasonable estimates have
been used in the preparation of this information. They also ensure that all
information presented is consistent.  Management is also responsible for establishing
and maintaining internal controls and procedures over the financial reporting
process. The internal control system includes an internal audit function and an
established business conduct policy that applies to all employees. In addition,
the Company has adopted a code of ethics that applies to its Chief Executive
Officer, Chief Financial Officer and Corporate Controller. The code of ethics
can be viewed on NOVA Chemicals website (www.novachemicals.com). Management
believes the system of internal controls, review procedures and established
policies provide reasonable assurance as to the reliability and relevance of
financial reports. Management also believes that NOVA Chemicals operations are
conducted in conformity with the law and with a high standard of business
conduct.  During the past year, we have directed efforts
to improve and document the design and operating effectiveness of internal
control over external financial reporting. The effectiveness of internal
control over financial reporting has been subjected to audit by the
shareholders auditors. As at year-end, we have reported that internal control
over financial reporting is effective. In compliance with Section 302 of
the United States Sarbanes-Oxley Act of 2002, NOVA Chemicals Chief Executive
Officer and Chief Financial Officer will provide to the Securities and Exchange
Commission a certification related to NOVA Chemicals annual disclosure
document in the U.S. (Form 40-F). The same certification will be provided
to the Canadian Securities Administrators.  The Board of Directors is responsible for
ensuring that management fulfills its responsibilities for financial reporting
and internal control. The Board carries out this responsibility principally
through its Audit, Finance and Risk Committee. The Committee, which consists
solely of independent directors, reviews the financial statements and annual
report and recommends them to the Board for approval. The Committee meets with
management, internal auditors and external auditors to discuss internal
controls, auditing matters and financial reporting issues. Internal and
external auditors have full and unrestricted access to the Audit, Finance and
Risk Committee. The Committee also recommends a firm of external auditors to be
appointed by the shareholders.   Jeffrey M. Lipton
  
  Larry A. MacDonaldChief Executive Officer
  
  Senior Vice President & Chief Financial OfficerFebruary 7, 2008Calgary, Canada
   Consolidated Financial Statements67


Managements
Annual Report on Internal Control
Over Financial Reporting  The following report is provided by management
in respect of NOVA Chemicals internal control over financial reporting (as
defined in Rules 13a-15f and 15d-15f under the United States Securities
Exchange Act of 1934):  1.NOVA Chemicals management is responsible
for establishing and maintaining adequate internal control over financial
reporting for NOVA Chemicals.  2.Management has used the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) framework to
evaluate the effectiveness of NOVA Chemicals internal control over financial
reporting. Management believes that the COSO framework is a suitable framework
for its evaluation of NOVA Chemicals internal control over financial reporting
because it is free from bias, permits reasonably consistent qualitative and
quantitative measurements of NOVA Chemicals internal controls, is sufficiently
complete so that those relevant factors that would alter a conclusion about the
effectiveness of NOVA Chemicals internal controls are not omitted and is
relevant to an evaluation of internal control over financial reporting.  3.NOVA Chemicals Consolidated Financial
Statements include the accounts of the INEOS NOVA joint venture via
proportionate consolidation in accordance with Canadian GAAP. Management is
unable to evaluate the effectiveness of internal control within the joint
venture due to the fact that NOVA Chemicals does not have the right or authority
to evaluate the internal controls of the joint venture and does not have the
access necessary, in practice, to evaluate those controls. Managements
conclusion regarding the effectiveness of internal controls does not extend to
the internal controls of the joint venture. The 2007 Consolidated Financial
Statements of NOVA Chemicals included $920 million and $396 million of total
and net assets, respectively, related to the INEOS NOVA joint venture as of December 31,
2007, and $1,005 million and $60 million of revenues and net loss,
respectively, for the year then ended.  4.Management has assessed the effectiveness
of NOVA Chemicals internal control over financial reporting, as at December 31,
2007, and has concluded that such internal control over financial reporting is
effective. There are no material weaknesses in NOVA Chemicals internal control
over financial reporting that have been identified by management.  5.Ernst & Young LLP, who has audited
the Consolidated Financial Statements of NOVA Chemicals for the year ended December 31,
2007, has also issued a report on internal controls under AuditingStandard No. 5
of the Public Company Accounting Oversight Board (United States). This report
is located on page 70 of this Annual Report.   Jeffrey M. Lipton
  
  Larry A. MacDonaldChief Executive Officer
  
  Senior Vice President & Chief Financial OfficerFebruary 7, 2008Calgary, Canada
   68Consolidated Financial Statements


Independent
Auditors Report on Financial Statements  Under Canadian Generally Accepted Auditing
Standards and the Standards of the Public Company Accounting Oversight Board
(United States)  TO THE SHAREHOLDERS OF NOVA CHEMICALS CORPORATION We have audited the Consolidated Balance Sheets
of NOVA Chemicals Corporation as at December31, 2007 and 2006, and the related
Consolidated Statements of Income (Loss), Changes in Shareholders Equity,
Comprehensive Income (Loss) and Cash Flows for each of the years in the
three-year period ended December 31, 2007. These financial statements are
the responsibility of the Corporations management. Our responsibility is to
express an opinion on these financial statements based on our audits.  We conducted our audits in accordance with
Canadian Generally Accepted Auditing Standards and the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform an audit to obtain reasonable assurance whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.  In our opinion, these Consolidated Financial
Statements present fairly, in all material respects, the financial position of
NOVA Chemicals Corporation as at December 31, 2007 and 2006, and the
results of its operations and its cash flows for each of the years in the
three-year period ended December 31, 2007, in conformity with Canadian
Generally Accepted Accounting Principles.  As discussed in Note 2 to the Consolidated
Financial Statements, the Corporation made changes to its methods of accounting
for stock-based compensation, financial instruments and hedges, and has also
changed its presentation of equity and changes in equity, including reporting
of comprehensive income. As discussed in Note 21, the Corporation made changes
to its methods of accounting for uncertainty in income taxes and defined
benefit pension and other post-retirement plans. In addition, as described in
Note 19, the Corporation has restated its segmented reporting for the years
ended December 31, 2006 and 2005.  We have also audited, in accordance with the
Standards of the Public Company Accounting Oversight Board (United States),
NOVA Chemicals Corporations internal control over financial reporting as of December 31,
2007, based on criteria established in Internal Control -Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
and our report dated February 7, 2008, expressed an unqualified opinion
thereon.     Ernst & Young LLP Chartered Accountants  February 7,
2008 Calgary,
Canada   Consolidated Financial Statements69


Independent
Auditors Report on Internal Controls  Under Standards of the Public Company Accounting
Oversight Board (United States)  TO THE SHAREHOLDERS OF NOVA CHEMICALS CORPORATION We have audited NOVA Chemicals Corporation (NOVA
Chemicals or the Corporation) internal control over financial reporting as of December 31,
2007, based on criteria established in Internal Control - Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(the COSO criteria). NOVA Chemicals management is responsible for maintaining
effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting. Our
responsibility is to express an opinion on the effectiveness of the Corporations
internal control over financial reporting based on our audit.  We conducted our audit in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, evaluating
managements assessment, testing and evaluating the design and operating
effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.  A companys internal control over financial
reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with Generally Accepted Accounting Principles.
A companys internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with Generally Accepted Accounting
Principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the financial statements.  Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may
deteriorate.  As indicated in Managements Annual Report on
Internal Control Over Financial Reporting, managements assessment of and
conclusion on the effectiveness of internal control over financial reporting
did not include the internal controls of the INEOS NOVA joint venture, included
in NOVA Chemicals 2007 Consolidated Financial Statements and constituting $920
million and $396 million of total and net assets, respectively, as of December 31,
2007, and $1,005 million and $60 million of revenues and net loss,
respectively, for the year then ended. Our audit of internal control over
financial reporting of NOVA Chemicals did not include an evaluation of the
internal controls over financial reporting of the INEOS NOVA joint venture.  In our opinion, NOVA Chemicals maintained, in
all material respects, effective internal control over financial reporting as
of December 31, 2007, based on the COSO criteria.  We have also audited, in accordance with
Canadian generally accepted auditing standards and the standards of the Public
Company Accounting Oversight Board (United States), the Consolidated Balance
Sheets of NOVA Chemicals Corporation as at December 31, 2007 and 2006, and
the Consolidated Statements of Income (Loss), Changes in Shareholders Equity,
Comprehensive Income (Loss) and Cash Flows for each of the years in the
three-year period ended December 31, 2007, and our report dated February 7,
2008, expressed an unqualified opinion thereon.     Ernst & Young LLP Chartered Accountants  February 7,
2008 Calgary,
Canada   70Consolidated Financial Statements


Consolidated Statements of Income
(Loss)  year ended December 31 (millions of U.S.
  dollars,except number of shares and per share amounts)
  
  2007
  
  2006
  
  2005Revenue
  
  $6,732
  
  $6,519
  
  $5,616Feedstock and operating
  costs
  
  5,598
  
  5,663
  
  4,906Depreciation and
  amortization
  
  246
  
  299
  
  290Selling, general and
  administrative
  
  199
  
  201
  
  199Research and development
  
  50
  
  51
  
  50Restructuring charges
  (Note 13)
  
  86
  
  985
  
  1686,179
  
  7,199
  
  5,613Operating income (loss)
  
  553
  
  (680
  )
  3Interest expense, net
  (Note 8)
  
  (175
  )
  (168
  )
  (113
  )Other gains (Note 14)
  
  20
  
  1
  
  8(155
  )
  (167
  )
  (105
  )Income (loss) before
  income taxes
  
  398
  
  (847
  )
  (102
  )Income tax (expense)
  recovery (Note 15)
  
  (51
  )
  144
  
  1Net income (loss)
  
  $  347
  
  $  (703
  )
  $  (101
  )Weighted-average number
  of common shares outstanding (millions) Basic
  
  83
  
  83
  
  83 Diluted
  
  84
  
  83
  
  83Net income (loss) per
  common share (Note 10) Basic
  
  $  4.19
  
  $  (8.52
  )
  $  (1.22
  ) Diluted
  
  $  4.16
  
  $  (8.52
  )
  $  (1.22
  )See accompanying Notes
  to Consolidated Financial Statements.Consolidated Statements of Comprehensive Income
  (Loss)year ended December 31 (millions of U.S.
  dollars)
  
  2007
  
  2006
  
  2005Net income (loss)
  
  $347
  
  $(703
  )
  $(101
  )Other comprehensive income (loss):Unrealized loss
  on available-for-sale securities,net of tax of $0
  
  (1
  )
  
  
  Unrealized gain
  (loss) on translation of self-sustainingforeign
  operations
  
  235
  
  54
  
  (29
  )234
  
  54
  
  (29
  )Comprehensive income (loss)
  
  $581
  
  $(649
  )
  $(130
  )See accompanying Notes
  to Consolidated Financial Statements.    Consolidated Financial Statements71


Consolidated Balance Sheets  December 31 (millions of U.S. dollars)
  
  2007
  
  2006
  (1)AssetsCurrent assetsCash and cash
  equivalents
  
  $  118
  
  $    53Accounts
  receivable (Note 3)
  
  608
  
  496Inventories (Note
  4)
  
  882
  
  669Restricted cash
  and other assets
  
  4
  
  71,612
  
  1,225Investments and other
  assets (Note 5)
  
  177
  
  133Property, plant and
  equipment, net (Note 6)
  
  3,047
  
  2,719$4,836
  
  $4,077Liabilities
  and Shareholders EquityCurrent liabilitiesBank loans
  
  $      3
  
  $1Accounts payable
  and accrued liabilities (Note 7)
  
  1,163
  
  983Long-term debt
  due within one year (Note 8)
  
  254
  
  1971,420
  
  1,181Long-term debt (Note 8)
  
  1,540
  
  1,582Deferred credits and
  long-term liabilities (Note 9)
  
  265
  
  333Future income taxes (Note
  15)
  
  510
  
  4353,735
  
  3,531Shareholders
  EquityCommon shares
  
  505
  
  497Contributed surplus
  
  27
  
  25Accumulated other
  comprehensive income
  
  612
  
  378Deficit
  
  (43
  )
  (354
  )1,101
  
  546$4,836
  
  $4,077Contingencies and
  commitments (Notes 8, 18 and 20)  (1)In 2007, NOVA Chemicals reclassified certain balance sheet
amounts. See Notes 2 and 3. See
accompanying Notes to Consolidated Financial Statements.  On
behalf of the board:   Kerry L. Hawkins
  Jeffrey M. LiptonDirector
  Director    72Consolidated Financial Statements


Consolidated Statements of Cash
Flows  year ended December 31
  (millions of U.S. dollars)
  
  2007
  
  2006
  (1)
  2005
  (1)Operating
  ActivitiesNet
  income (loss)
  
  $ 347
  
  $(703
  )
  $(101
  )Depreciation
  and amortization
  
  246
  
  299
  
  290Future
  income tax recovery (Note 15)
  
  (58
  )
  (219
  )
  (69
  )Other
  gains (Note 14)
  
  (20
  )
  (1
  )
  (8
  )Stock
  option expense (Note 11)
  
  2
  
  8
  
  8Unrealized
  (gain) loss on derivatives
  
  (21
  )
  20
  
  (12
  )Non-cash
  restructuring charges (Note 13)
  
  61
  
  907
  
  161Changes
  in non-cash working capital
  
  (113
  )
  2
  
  143Changes
  in non-current assets and liabilities
  
  (115
  )
  37
  
  (74
  )Cash
  provided by operating activities
  
  329
  
  350
  
  338Investing
  ActivitiesProceeds
  on sales of assets, investments andother capital transactions
  
  6
  
  3
  
  11Property,
  plant and equipment additions
  
  (156
  )
  (198
  )
  (419
  )Turnaround
  costs, long-term investments and other assets
  
  (42
  )
  (48
  )
  (176
  )Acquisition
  of production rights
  
  (30
  )
  
  
  Cash
  used in investing activities
  
  (222
  )
  (243
  )
  (584
  )Financing
  ActivitiesIncrease
  in current bank loans
  
  2
  
  
  
  1(Decrease)
  increase in revolving debt
  
  (4
  )
  108
  
  Long-term
  debt additions
  
  1
  
  5
  
  419Long-term
  debt repayments
  
  (12
  )
  (308
  )
  (103
  )Affiliate
  long-term notes
  
  
  
  3
  
  Common
  shares issued
  
  8
  
  3
  
  13Common
  shares repurchased
  
  
  
  
  
  (125
  )Options
  retired for cash (Note 11)
  
  (6
  )
  (2
  )
  (11
  )Common
  share dividends
  
  (31
  )
  (29
  )
  (27
  )Cash
  (used in) provided by financing activities
  
  (42
  )
  (220
  )
  167Increase
  (decrease) in cash and cash equivalents
  
  65
  
  (113
  )
  (79
  )Cash
  and cash equivalents, beginning of year
  
  53
  
  166
  
  245Cash
  and cash equivalents, end of year
  
  $  118
  
  $    53
  
  $  166Cash
  tax payments
  
  $    62
  
  $    53
  
  $    55Cash
  interest payments
  
  $  172
  
  $  168
  
  $  131 (1)In 2007,
NOVA Chemicals reclassified certain balance sheet amounts. See Notes 2 and 3. See accompanying Notes to Consolidated
Financial Statements.   Consolidated Financial Statements73


Consolidated Statements of
Changes in Shareholders Equity  (millions of U.S dollars, except
  number of shares)
  
  Common
  Shares 
  (Issued and Outstanding)
  
  Contributed Surplus
  
  Accumulated 
  Other Comprehensive Income
  
  Reinvested Earnings (Deficit)
  
  TotalShares
  (1)
  AmountBalance at December 31,
  2004
  
  84,268,293
  
  $499
  
  $11
  
  $353
  
  $ 621
  
  $1,484Net loss
  
  
  
  
  
  
  
  
  
  (101
  )
  (101
  )Other comprehensive lossUnrealized loss on 
  translation of self-sustaining 
  foreign operations
  
  
  
  
  
  
  
  (29
  )
  
  
  (29
  )Comprehensive loss
  
  
  
  
  
  
  
  
  
  
  
  (130
  )Stock option expense
  (Note 11)
  
  
  
  
  
  8
  
  
  
  
  
  8Issued for cash on
  exercise ofstock options
  (Note 11)
  
  570,547
  
  13
  
  (3
  )
  
  
  
  
  10Issued on exercise of
  stockoptions as share
  appreciation 
  rights (Note 11)
  
  124,610
  
  
  
  
  
  
  
  
  
  Stock options
  retired for 
  cash (Note 11)
  
  
  
  
  
  
  
  
  
  (5
  )
  (5
  )Common share dividends
  
  
  
  
  
  
  
  
  
  (27
  )
  (27
  )Common shares
  repurchased(2)
  
  (2,598,551
  )
  (18
  )
  
  
  
  
  (107
  )
  (125
  )Balance at December 31,
  2005
  
  82,364,899
  
  $494
  
  $16
  
  $324
  
  $ 381
  
  $1,215Net loss
  
  
  
  
  
  
  
  
  
  (703
  )
  (703
  )Other
  comprehensive income 
  Unrealized gain on 
  translation of self-sustaining 
  foreign operations
  
  
  
  
  
  
  
  54
  
  
  
  54Comprehensive loss
  
  
  
  
  
  
  
  
  
  
  
  (649
  )Stock option expense
  (Note 11)
  
  
  
  
  
  9
  
  
  
  
  
  9Issued for cash on
  exercise ofstock options
  (Note 11)
  
  129,007
  
  3
  
  
  
  
  
  
  
  3Issued on exercise of
  stockoptions as share
  appreciation 
  rights (Note 11)
  
  67,366
  
  
  
  
  
  
  
  
  
  Stock options
  retired for 
  cash (Note 11)
  
  
  
  
  
  
  
  
  
  (3
  )
  (3
  )Common share dividends
  
  
  
  
  
  
  
  
  
  (29
  )
  (29
  )Balance at December 31,
  2006
  
  82,561,272
  
  $497
  
  $25
  
  $378
  
  $(354
  )
  $  546Net income
  
  
  
  
  
  
  
  
  
  347
  
  347Other comprehensive
  incomeUnrealized loss
  onavailable-for-sale
  securities
  
  
  
  
  
  
  
  (1
  )
  
  
  (1
  )Unrealized gain on 
  translation of self-sustaining 
  foreign operations
  
  
  
  
  
  
  
  235
  
  
  
  235Comprehensive income
  
  
  
  
  
  
  
  
  
  
  
  581Stock option expense
  (Note 11)
  
  
  
  
  
  2
  
  
  
  
  
  2Issued for cash on
  exerciseof stock options
  (Note 11)
  
  357,683
  
  8
  
  
  
  
  
  
  
  8Issued on exercise of
  stockoptions as share
  appreciation 
  rights (Note 11)
  
  135,573
  
  
  
  
  
  
  
  
  
  Stock options
  retired for 
  cash (Note 11)
  
  
  
  
  
  
  
  
  
  (5
  )
  (5
  )Common share dividends
  
  
  
  
  
  
  
  
  
  (31
  )
  (31
  )Balance at December 31,
  2007(3)
  
  83,054,528
  
  $505
  
  $27
  
  $612
  
  $  (43
  )
  $1,101 See
accompanying Notes to Consolidated Financial Statements. (1)  Unlimited number of authorized voting common shares without par
value, non-voting first preferred shares, and non-voting second preferred
shares. Currently only common shares are issued and outstanding. (2)  In 2007 and 2006, the Corporation did not repurchase any common
shares. In 2005, the Corporation repurchased 2,598,551 of its common shares,
with a carrying value of $18 million, on the Toronto Stock Exchange for cash of
$125 million. The difference between the cash paid and the carrying value of
the shares was charged to reinvested earnings. (3)  Stated common share capital for legal purposes at Dec. 31,
2007, is $1,640 million.    74Consolidated Financial Statements


Notes To Consolidated Financial
Statements All amounts in U.S. dollars, unless otherwise
noted.  1. Basis of Presentation NOVA Chemicals is incorporated under the laws of
the Canada Business Corporations Act. Where used in these financial statements,
NOVA Chemicals or the Corporation or the Company means NOVA Chemicals
Corporation alone or together with its subsidiaries and affiliates, depending
on the context in which such terms are used. The Consolidated Financial
Statements include the accounts of the Corporation, its subsidiaries and the
proportionate share of the accounts of its joint ventures. Where reference is
made to balances due to and from, and transactions with affiliate; affiliate
means INEOS NOVA (see Note 5 on page 83) and other joint ventures. These
transactions arise from business conducted between NOVA Chemicals and INEOS
NOVA and other joint ventures.  These Consolidated Financial Statements have
been prepared by management in accordance with Canadian Generally Accepted
Accounting Principles (GAAP). These accounting principles are different in some
respects from those generally accepted in the United States and the significant
differences are described in Note 21, United States Generally Accepted
Accounting Principles (U.S. GAAP).  The Corporation reports its Consolidated
Financial Statements in U.S. dollars.  The preparation of these Consolidated Financial
Statements in conformity with Canadian GAAP requires management to make
estimates and assumptions that affect amounts reported and disclosed in the
financial statements and related notes. Actual results could differ materially
from those estimates due to factors such as fluctuations in commodity prices,
foreign exchange rates, interest rates, changes in economic conditions and regulatory
changes. Examples of significant estimates include: the estimated useful lives
of assets; the recoverability of tangible assets; certain actuarial and
economic assumptions used in determining defined benefit pension costs, accrued
pension benefit obligations and pension plan assets; and estimates of cash
flows related to environmental site restoration and clean-up and the resulting
asset retirement obligations.  2. Summary of Significant
Accounting Policies CHANGES IN ACCOUNTING POLICIES Changes in Accounting Policies
and Estimates, and Errors.On Jan. 1, 2007,
NOVA Chemicals adopted new accounting standards as prescribed by the Canadian
Institute of Chartered Accountants (CICA) Section 1506, Changes in Accounting Policies and Estimates, and
Errors,which provides that an entity is permitted to change
accounting policies only when it is required by a primary source of GAAP, or
when the change results in a reliable and more relevant presentation in the
financial statements. This new standard applies to fiscal years beginning on or
after Jan. 1, 2007.  Financial Instruments  Recognition and Measurement (CICA Section 3855).On Jan. 1, 2007, NOVA Chemicals
adopted CICA 3855, which establishes standards for recognizing and measuring
financial assets, financial liabilities and non-financial derivatives. Under
CICA 3855, all financial assets must be classified as either held-for-trading,
available-for-sale, held-to-maturity investments or loans and receivables. All
financial liabilities must be classified as held-for-trading or other financial
liabilities. All financial instruments, including derivatives, are included on
the Consolidated Balance Sheets and are measured at fair value, except for
held-to-maturity investments, loans and receivables and other financial
liabilities, which are measured at amortized cost. Subsequent measurement and
recognition of changes in fair value depend on the instruments initial
classification. Held-for-trading financial instruments are measured at fair
value, and all gains and losses are included in net income (loss) in the period
in which they arise. Available-for-sale financial instruments are measured at
fair value, determined by published market prices in an active market, except
for investments in equity instruments that do not have quoted market prices in
an active market which are measured at cost. Changes in fair value are recorded
in other comprehensive income (loss) until the assets are removed from the
balance sheet. Investments classified as available-for-sale are written down to
fair value through income whenever it is necessary to reflect
other-than-temporary impairment. Realized gains and losses on the disposal of
available-for-sale securities are recognized in other gains and losses. Also,
transaction costs related to all financial assets and liabilities are added to
the acquisition or issue cost, unless the financial instrument is classified as
held-for-trading, in which case the transaction costs are recognized
immediately in net income (loss).    Notes to Consolidated
Financial Statements   75


CICA Section 3855 also requires financial
and non-financial derivative instruments to be measured at fair value and
recorded as either assets or liabilities, with the exception of non-financial
derivative contracts that were entered into and continue to be held for the
purpose of receipt or delivery of a non-financial item in accordance with NOVA
Chemicals expected purchase, sale or usage requirements. Certain derivatives
embedded in non-derivative contracts must also be measured at fair value. Any
changes in the fair value of recognized derivatives are included in net income
(loss) in the period in which they arise, unless specific hedge accounting
criteria are met, as defined in CICA Section 3865. NOVA Chemicals included
an unrealized gain of $20 million ($0.24 per share diluted) in feedstock and
operating costs on the Consolidated Statements of Income (Loss) for the year
ended Dec. 31, 2007. The same accounting treatment applied to these
non-financial derivative contracts prior to the adoption of CICA Section 3855.
Fair values for NOVA Chemicals recognized commodity-based derivatives are
based on the forward prices of the associated market index. No non-financial
derivatives have been recognized as a result of the application of this
standard, as all of NOVA Chemicals non-financial derivative contracts have
been designated and documented as meeting NOVA Chemicals expected purchase,
sale or usage requirements.  As a result of the adoption of CICA Section 3855,
NOVA Chemicals has classified at Dec. 31, 2007 and Jan. 1, 2007, its
financial instruments as follows: cash and cash equivalents and derivative
instruments (included in Accounts receivables, Investments and other assets,
Accounts payable and accrued liabilities and Deferred credits and long-term
liabilities on the Consolidated Balance Sheets) as held-for-trading; trade
accounts receivable, advances receivable from affiliates and other receivables
(included in Accounts receivable on the Consolidated Balance Sheets) and
Restricted cash and other assets as loans and receivables; investments in
non-affiliated entities (included in Investments and other assets on the
Consolidated Balance Sheets) as available-for-sale; and trade accounts payable,
other accounts payable, certain accrued liabilities (included in Accounts
payable and accrued liabilities on the Consolidated Balance Sheets), bank loans
(line of credit), long-term liabilities (included in Deferred credits and long-term
liabilities on the Consolidated Balance Sheets) and long-term debt as other
financial liabilities.  Under CICA Section 3855, long-term debt
classified as other financial liability is required to be initially measured at
fair value and subsequently measured at amortized cost. As a result, certain
deferred debt discount and issuance costs that were previously reported in
Restricted cash and other assets and Investments and other assets on the
Consolidated Balance Sheets have been reclassified, on a prospective basis, and
are now reported as a reduction of the respective debt obligations. In total,
$17 million was reclassified on Jan. 1, 2007.  As noted above, certain investments in
non-affiliated entities classified as available-for-sale are now measured at
fair market value. Previously, these investments were measured at cost. On Jan. 1,
2007, the impact of this change was not material to the Consolidated Financial
Statements. During the year ending Dec. 31, 2007, the change in fair value
of these investments resulted in a loss of $1 million, net of tax, which was
recorded in Other comprehensive income. NOVA Chemicals investments in
non-affiliated entities that do not have a quoted market price in an active
market are measured at cost. As of Dec. 31, 2007, these investments
totaled $11 million.  In addition, NOVA Chemicals has early adopted
the related disclosure and presentation requirements contained in CICA Section 3862,
Financial Instruments  Disclosureand
CICA Section 3863, Financial
Instruments  Presentationas of Dec. 31, 2007. These two
standards replace CICA Section 3861, Financial
Instruments  Disclosure and Presentation.The new standards revise
and enhance the disclosure requirements and carry forward, substantially
unchanged, the presentation requirements. These new standards emphasize the
significance of financial instruments for the entitys financial position and
performance, the nature and extent of risks arising from financial instruments,
and how these risks are managed. These new standards are applicable to interim
and annual periods relating to fiscal years beginning on or after Oct. 1,
2007. NOVA Chemicals has chosen to early adopt these new standards.  Accounting Policy for Transaction Costs (EIC 166).This
standard requires an entity to disclose the accounting policy for transaction
costs for all financial assets/liabilities other than those classified as
held-for-trading. Transaction costs can either be recognized in net income or
added to the initial carrying amount of the asset/liability it is directly
attributable to. The same accounting policy must be chosen for all similar
financial instruments, but a different accounting policy may be chosen for
financial instruments that are not similar. EIC 166 should be applied retrospectively
to transaction costs accounted for in accordance with CICA Section 3855 in
financial statements issued for interim and annual periods ending on or after Sep. 30,
2007. NOVA Chemicals accounting policy with respect to transaction costs has
been to capitalize all transaction costs for all financial instruments (except
for those classified as held-for-trading). This policy did not change as a
result of adopting EIC 166.    76   Notes to Consolidated Financial
Statements


Hedges (CICA Section 3865).The recommendations of CICA Section 3865,
Hedges,replaces and expands the
guidance in CICA Accounting Guideline 13 (AcG-13), Hedging Relationships,and the hedging guidance in CICA Section 1650,
Foreign Currency Translation.CICA
Section 3865 establishes standards for when and how hedge accounting may
be applied as well as related disclosure requirements. Hedge accounting ensures
the recording, in the same period, of counterbalancing gains, losses, revenues
and expenses from designated derivative financial instruments as those related
to the hedged item. NOVA Chemicals evaluated the impact of CICA Section 3865
on its Consolidated Financial Statements at Jan. 1, 2007, and determined
that a gain on settlement of a derivative instrument that was previously
designated as a hedge and deferred on the Consolidated Balance Sheets should
now be reported as an adjustment of the previously hedged long-term debt
instrument. As such, the deferred gain of $4 million was reclassified, on a
prospective basis, from Accounts payable and accrued liabilities and Deferred
credits and long-term liabilities to Long-term debt.  Comprehensive Income (CICA Section 1530).Adopted by NOVA Chemicals on Jan. 1,
2007, this standard establishes standards for reporting and presentation of
comprehensive income (loss), which is defined as the change in equity from
transactions and other events and circumstances from non-owner sources. As a
result of adopting CICA Section 1530, two new statements, Consolidated
Statements of Changes in Shareholders Equity and Consolidated Statements of
Comprehensive Income (Loss), have been presented. Comprehensive income (loss)
is composed of NOVA Chemicals net income (loss) and other comprehensive income
(loss). Other comprehensive income (loss) includes unrealized gains (losses) on
available-for-sale financial assets, foreign currency translation gains
(losses) on the net investment in self-sustaining foreign operations and
changes in the fair market value of derivative instruments designated as cash
flow hedges (not including the amount of ineffectiveness, if any), all net of
income taxes. The components of comprehensive income (loss) are disclosed in
the Consolidated Statements of Changes in Shareholders Equity and Consolidated
Statements of Comprehensive Income (Loss). As a result of the adoption of CICA Section 1530,
the cumulative translation adjustment, formerly presented as a separate line
item as part of Shareholders equity in the Consolidated Balance Sheets, of
$378 million as of Dec. 31, 2006, (Dec. 31, 2005 - $324; Dec. 31,
2004 - $353) was reclassified to Accumulated other comprehensive income (AOCI).  Equity (CICA Section 3251).CICA Section 3251 establishes
standards for the presentation of equity and changes in equity during the
reporting periods. The requirements of this Section have been effected in
the presentation of the Consolidated Statements of Changes in Shareholders
Equity. This standard was adopted by NOVA Chemicals on Jan. 1, 2007.  Accounts Receivable
Securitization (Europe).In the first quarter of
2007, NOVA Chemicals changed its accounting for its interest in the European
accounts receivable securitization program, undertaken by the European joint
venture. Accounts receivable securitization transactions are recorded as sales
of assets based on the transfer of control to the purchaser as opposed to
financing (Note 3).  Measurement Date.Effective
Jan. 1, 2006, NOVA Chemicals changed the measurement date for reporting
related to its defined benefit plans from Nov. 30 to Dec. 31. This
change in measurement date has been used consistently in 2007 and will be for
future periods. The change in measurement date had no significant impact on the
2006 Consolidated Financial Statements.  Stock-Based Compensation for
Employees Eligible to Retire Before the Vesting Date (EIC 162).This
standard, issued by the EIC, clarifies inconsistencies regarding accounting for
stock-based awards granted to employees who are either eligible for retirement
at the grant date or will be eligible before the end of the vesting period.
Compensation costs for stock-based awards for employees eligible to retire at
the grant date must be recognized at the grant date. Compensation costs for
stock-based awards for employees who will become eligible to retire during the
vesting period should be recognized over the period from the grant date to the
date on which the employee becomes eligible to retire. Application of this
standard has resulted in acceleration of the recognition of stock-based
compensation expenses. EIC 162 was applied retroactively, with restatement of
prior periods, and is effective for interim and annual periods ending on or
after Dec. 31, 2006. Accordingly, NOVA Chemicals adopted EIC 162 in the
fourth quarter of 2006. Prior periods presented were retrospectively adjusted,
thereby reducing net loss in 2005 by $3 million ($0.04 per share diluted).  Accounting for Financial
Instruments with Characteristics of Both Debt and Equity.On
Jan. 1, 2005, the Corporation adopted new accounting standards as
prescribed by the CICA, which harmonize accounting standards with U.S. GAAP for
certain types of mandatorily redeemable shares and other financial instruments.
Beginning on Jan. 1, 2005, these instruments were required to be
reclassified, on a retroactive basis, as liabilities rather than equity. As a
result, the    Notes to Consolidated
Financial Statements   77


Series A preferred shares of NOVA Chemicals
subsidiary, NOVA Chemicals Inc., were reclassified as debt. In addition,
dividends and distributions associated with these preferred shares were
reclassified as interest expense.  CASH AND CASH EQUIVALENTS Short-term investments with initial maturities
not greater than 90 days are considered to be cash equivalents and are recorded
at cost, which approximates current market value.  ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS Trade accounts receivable are recorded at the
invoiced amount and do not bear interest. NOVA Chemicals maintains an allowance
for doubtful accounts for estimated losses of accounts that may become
uncollectible. The allowance is based on the Corporations historical
percentage of uncollectible accounts, current delinquent customer accounts and
managements assessment of the current business environment and its potential
impact on the Corporations customers. NOVA Chemicals considers a receivable
delinquent if it is unpaid after the terms of the related invoice have expired.
The allowance is evaluated quarterly based on a review of the aged receivables.
Accounts receivable are written off to the allowance account at the time a
customer receivable is known to be uncollectible or are written down to their
estimated net realizable value if not collectible in full.  FOREIGN CURRENCY TRANSLATION NOVA Chemicals financial results are impacted
by both translation and transaction currency effects resulting from changes in
currency exchange rates. The Corporations foreign operations are considered self-sustaining
and are translated into U.S. dollars using the current rate method. Resulting
translation gains or losses are deferred in AOCI until there is a realized
reduction of the investment in the foreign operations. Transaction currency
effects occur when NOVA Chemicals or one of its subsidiaries incurs monetary
assets or liabilities in a currency different from its functional currency.
These transaction gains and losses are recorded in Feedstock and operating
costs in the Consolidated Statements of Income (Loss).  DERIVATIVE INSTRUMENTS The Corporation sells petrochemical products at
prices denominated in various currencies; purchases energy commodities; invests
in foreign operations; issues short- and long-term debt, including amounts in
foreign currencies; and utilizes a number of stock-based compensation plans.
These activities result in exposures to fluctuations in foreign currency
exchange rates, commodity prices, interest rates, and common stock prices. NOVA
Chemicals may choose to modify these exposures by entering into contractual
arrangements (derivatives), which reduce the exposure by creating offsetting
positions. Derivative instruments are used only for economic hedges of foreign
exchange rate, commodity price, interest rate, and stock price volatility
risks. NOVA Chemicals enters into derivative financial instruments with high
credit quality counterparties and diversifies its positions among such
counterparties in order to reduce its exposure to credit losses. In addition,
the credit risk of financial instruments with a positive fair value is
minimized by way of limit management, which sets individual relative and
absolute figures for risk exposure depending on the counterpartys credit
rating. The Company has not experienced any credit losses on derivatives during
the three-year period ended Dec. 31, 2007. Negative fair value is also
minimized by way of limit management. If the aggregate negative fair value is
at or above the corporate market risk limit, the appropriate level of
management must be immediately notified and an appropriate course of action is
determined. These derivative instruments are not utilized for trading or
speculative purposes.  NOVA Chemicals has U.S., Canadian and
European-based petrochemical operations. The Corporation periodically manages
its exposure to fluctuations in Canadian and Euro dollar exchange rates by
using forward exchange contracts.  NOVA Chemicals may choose to use commodity-based
derivatives to manage its exposure to price fluctuations on crude oil, refined
products and natural gas transactions. The instruments are used to moderate
against adverse short-term price movements. Occasionally, longer-term positions
will be taken to manage price risk for anticipated supply requirements.  When considered appropriate, NOVA Chemicals
enters into interest rate swaps in order to manage the fixed and floating
interest rate mix on its long-term debt portfolio. The interest rate swap
agreements generally involve the periodic exchange of payments without the
exchange of the notional principal amounts upon which the payments are based.  Equity
forward contracts are used to manage exposures to fluctuations in the
Corporations stock-based compensation costs, as the costs of the plans vary
with changes in the market price of the underlying common shares.    78   Notes to Consolidated Financial
Statements


Changes in the fair value of derivative
instruments are reported in income or AOCI, depending on the use of the
derivative and whether it qualifies for hedge accounting treatment under the
provisions of CICA 3865, Hedges.Unrealized
gains and losses on derivative instruments qualifying as cash flow hedges are
recorded in AOCI to the extent the hedges are effective, until the underlying
transactions are recognized in Feedstock and operating costs on the
Consolidated Statements of Income (Loss). To the extent effective, unrealized
gains and losses on derivative and non-derivative instruments used as hedges of
the Companys net investment in foreign operations are recorded in AOCI. The
ineffective portions of cash flow hedges and hedges of net investment in
foreign operations, if any, are recognized in income immediately.  Unrealized gains and losses on derivative
instruments designated and qualifying as fair value hedging instruments, as
well as the offsetting unrealized gains and losses on the hedged items, are
recognized in Feedstock and operating costs on the Consolidated Statements of
Income (Loss) in the same accounting period. Unrealized gains and losses on
derivative instruments that do not qualify or are not designated as hedges are
marked to market at the end of each accounting period with the results included
in Feedstock and operating costs on the Consolidated Statements of Income
(Loss).  INVENTORIES Inventories are carried at the lower of cost and
net realizable value. Cost is determined on a first-in, first-out basis with no
allocation of fixed production overhead.  INVESTMENTS Investments in debt and marketable equity
securities, including warrants, are classified as trading, available-for-sale,
or held-to-maturity. Investments classified as trading are reported at fair
value with unrealized gains and losses included in income. Investments
classified as available-for-sale are reported at fair value with unrealized
gains and losses recorded in AOCI. Those classified as held-to-maturity are
recorded at amortized cost. Investments in non-affiliated entities that do not
have a quoted market price in an active market are measured at cost.
Investments are assessed annually for potential impairment.  JOINT VENTURES NOVA Chemicals applies the proportionate
consolidation method of accounting for its investments in joint venture
operations. Under this method, NOVA Chemicals records, on a line-by-line basis
within its financial statements and notes, its pro-rata share of the joint
ventures assets, liabilities, revenues, expenses and cash flows.  PROPERTY, PLANT AND EQUIPMENT (PP&E) NOVA Chemicals PP&E consists primarily of
land and buildings for producing petrochemicals and manufacturing equipment.
PP&E are valued at historical cost. Financing costs incurred during major
construction are capitalized as part of the cost of the asset until the asset
is available for use. Costs related to turnaround activities are capitalized
and amortized over the period remaining to the next turnaround activity, while
maintenance and repair costs are expensed as incurred.  The Corporation periodically reviews the
carrying value of PP&E for impairment when circumstances indicate an assets
value may not be recoverable. If it is determined that an assets undiscounted
cash flows are less than its carrying value, the asset is written down to its
fair value.  DEPRECIATION Buildings are depreciated on a straight-line
basis over twenty years and equipment is depreciated on a straight-line basis
generally between three and twenty years, depending on the type of equipment.
These rates are designed to write-off assets to their salvage values over their
estimated useful lives.  DEFERRED START-UP COSTS Costs
associated with start-up activities on constructed plants are deferred from the
date of mechanical completion of the facilities until the date the Corporation
is ready to commence commercial service. Any revenues earned during this period
are recorded as a reduction in deferred start-up costs. These costs are
amortized on a straight-line basis over a five-year period, commencing on the
date of commercial service.    Notes
to Consolidated Financial Statements   79


LEASES Leases are classified as operating or capital
depending upon the terms and conditions of the contracts. Leases that transfer
substantially all the benefits and risks of ownership to the Corporation are
accounted for as capital leases. Assets under capital leases are amortized on a
straight-line basis over the period of expected use and are classified as
PP&E. Obligations recorded under capital leases are reduced by lease
payments, net of imputed interest, and are classified as long-term debt.  INCOME TAXES The liability method of tax allocation
accounting is used. Under the liability method, future tax assets and
liabilities are determined based on differences between the accounting and tax
basis of assets and liabilities and measured using the substantively enacted
tax rates and laws that will be in effect when the differences are expected to
reverse.  Periodically, future tax assets are evaluated as
to the likelihood of their realization. In instances where it is not more
likely than not that the future tax asset will be realized, a valuation
allowance is recorded to reduce all or a portion of the future tax asset to its
realizable amount. Changes in the valuation allowance are recorded as a component
of income tax expense or recovery.  ASSET RETIREMENT OBLIGATIONS An asset retirement obligation represents a
legal obligation associated with the retirement of PP&E that is incurred
upon the acquisition, construction, development or normal operation of that
long-lived asset. The Corporation recognizes asset retirement obligations in
the period in which they are incurred, if a reasonable estimate of fair value
can be made. The associated estimated asset retirement costs are capitalized as
part of the carrying amount of the PP&E and depreciated over its useful
life. NOVA Chemicals asset retirement obligations are primarily associated
with closure of certain assets used in the chemicals manufacturing process.  EMPLOYEE FUTURE BENEFITS Pension Plans.NOVA
Chemicals sponsors both defined benefit and defined contribution pension
arrangements covering substantially all employees.  The cost of defined benefit pensions is
determined using the projected benefit method prorated on employment services
and is expensed as employees provide services. Adjustments arising from plan
amendments, as well as transitional pension assets or obligations, are
amortized on a straight-line basis over the estimated average remaining service
lifetime (EARSL). Adjustments arising from changes in assumptions and
experience gains and losses are amortized over EARSL when the cumulative
unamortized balance exceeds 10% of the greater of accrued obligations or plan
assets. Gains or losses arising from plan curtailments and settlements are recognized
in the year in which they occur. In the event that curtailments and settlements
occur in the same period, curtailment accounting is performed before settlement
accounting. For purposes of calculating the expected return on plan assets,
pension assets are valued at fair value. Liabilities are measured at market
discount rates that reflect the yield at the latest valuation date on a
portfolio of high quality corporate bonds of similar duration as the
Corporations pension liabilities.  The cost of defined contribution benefits is
expensed as earned by employees. NOVA Chemicals makes contributions in
accordance with all plan agreements.  Post-Retirement Benefits Other
Than Pensions.In North America, NOVA
Chemicals provides medical care and life insurance benefits to eligible
retirees and their dependents. Post-retirement benefit costs are expensed as
the employees provide service.  STOCK-BASED COMPENSATION The
Corporation uses the fair-value based method of accounting for equity-settled,
stock-based compensation awards granted to employees, such as options, where
compensation expense is measured and recognized based on the fair value of the
stock-based award. Amounts related to compensation costs are initially credited
to contributed surplus and then transferred to common shares upon exercise of
options or reinvested earnings (deficit) upon cancellation or retirement of
options.    80   Notes to Consolidated Financial
Statements


The Corporation uses the liability method of
accounting for cash-settled, stock-based compensation awards granted to
employees, such as equity appreciation and restricted stock units. Units
granted are marked to market each period based on the value of NOVA Chemicals
common stock as reported on the Toronto or New York Stock Exchanges, as
applicable. Changes in value are recorded in income (loss) over the service
period or for vested units as such changes arise.  DEFERRED SHARE UNIT PLANS Units issued under these plans are calculated
based on annual management incentive awards or director fees. The cost of the
units earned is expensed as employees and directors provide services. Any
adjustments to the value of the units as a result of expected changes in NOVA
Chemicals common stock value are amortized on a straight-line basis over the
EARSL of individuals participating in the plans.  EARNINGS PER SHARE The treasury stock method is used to calculate
diluted earnings per share. Under this method, the incremental number of common
shares outstanding for the diluted earnings per share calculation is determined
assuming that the proceeds from exercise of dilutive options are used to
repurchase common shares at the average market price during the period.  SECURITIZATIONS Accounts receivable securitization transactions
are recorded as sales of assets based on the transfer of control to the
purchasers. Transactions recorded in this manner result in the removal of the
sold assets from the Corporations balance sheet. Interest paid, net of servicing
fees, on the portfolio of sold receivables is recorded as interest expense.  REVENUE RECOGNITION The Corporation recognizes revenue when the
earnings process is complete. This generally occurs when products are shipped
to the customer in accordance with the terms of the sales agreement; title or
risk of loss has been transferred; and pricing is fixed or determinable. The
Corporation accounts for sales incentives as a reduction in revenue at the time
revenue is recorded.  RESEARCH AND DEVELOPMENT Expenditures associated with research and
development activities are expensed as incurred.  INVESTMENT TAX CREDITS The Corporation accounts for investment tax
credits using the cost-reduction approach. Investment tax credits related to
the acquisition of assets are deducted from the related assets with
depreciation calculated on the net amount. Investment tax credits related to
current expenses are included in the determination of income (loss) for the
period.  COMPARATIVE FIGURES Certain comparative figures have been
reclassified to conform to the current years presentation.  In
2007, NOVA Chemicals reclassified the current portion of stock-based
compensation and pension assets for 2006 and 2005 from Deferred credits and
long-term liabilities to Accounts payable and accrued liabilities and
Investments and other assets, respectively (Notes 5 and 7). For 2006 and 2005,
$65 million was reclassified from Restricted cash and other assets and
Investments and other assets, respectively, to Long-term debt due within one
year related to the Series A preferred shares (Note 8).    Notes
to Consolidated Financial Statements   81


3. Accounts Receivable  December 31 (millions of
  dollars)
  
  2007
  
  2006Trade(1)
  
  $366
  
  $304Affiliate trade(1)
  
  44
  
  4410
  
  308Allowance for doubtful
  accounts(1)
  
  (5
  )
  (5
  )405
  
  303Trade accruals(1)
  
  75
  
  63Recoverable taxes
  
  16
  
  15Fair value of
  commodity-based derivatives(2)
  
  14
  
  1Fair value of foreign
  currency swaps(2)
  
  1
  
  Other(3)
  
  29
  
  45Due from affiliate(1)(4)
  
  62
  
  51602
  
  478Income taxes receivable
  
  6
  
  18$608
  
  $496Carrying amounts are
  classified into the following categories:December 31 (millions of
  dollars)
  
  2007Loans and receivables
  (Note 20)
  
  $552Held-for-trading (Note
  20)
  
  $  15  (1)  Classified
as loans and receivables and carried at amortized cost which approximates fair
value. See Note 20. (2)  Classified
as held-for-trading and carried at fair value. See Note 20. (3)  $10
million classified as loans and receivables and carried at amortized cost which
approximates fair value. See Note 20. (4)  Includes advances and notes receivable from
affiliate. $60 million (2006 - $46 million) in unsecured notes receivable
bearing interest at 4.5% per annum.  ACCOUNTS RECEIVABLE SECURITIZATION PROGRAMS The Corporation sells undivided interests in
certain trade accounts receivable pursuant to revolving securitization
transactions in which the Corporation retains servicing responsibilities. The
receivables are sold at a discount approximating the purchasers financing cost
of issuing commercial paper backed by the accounts receivable. The Corporation
pays a fee on this same basis, plus a margin that varies with the Corporations
interest coverage ratio. The sale of receivables is reflected as a reduction of
accounts receivable and in operating cash flows. As the purchaser receives
collections on the previously sold interests, new accounts receivable are sold
by the Corporation to a maximum amount equal to the lesser of eligible
receivables or $350 million (2006 - $350 million and 2005 - $300 million).
Recourse on sold receivables is limited to the receivables and certain reserves
provided to cover credit losses and dilution (such as discounts, rebates, and
other non-cash reductions). During 2007, there were no changes to the
securitization programs size or expiration dates. During 2006, the Corporation
amended its securitization programs to increase the size of the facilities from
$300 million to $350 million. During 2005, the Corporation amended its
securitization programs to extend the maturity to June 2010 and to
increase the size of the facilities from $250 million to $300 million.  Information regarding the Corporations securitization
programs is as follows:  December 31 (millions of dollars, unless
  otherwise noted)
  
  2007
  
  2006
  
  2005Amount sold at end of
  year
  
  $264
  
  $247
  
  $153Loss, dilution and other
  reserves (as a % of eligible accounts receivable)
  
  23
  %
  22
  %
  16
  %Interest expense, net of
  servicing fees
  
  $  20
  
  $  14
  
  $  8  One of the Corporations securitization programs
involves the use of a special purpose entity (SPE). In that program, the
Corporation sells certain trade accounts receivable to the SPE, which then
sells interests in such receivables to a purchaser. The SPE is legally separate
from the Corporation. The assets of the SPE (including the receivables transferred
to it) are not available to creditors of the Corporation, and the transferred
receivables are not legally an asset of the Corporation.    82   Notes to
Consolidated Financial Statements


Information regarding the cash flows between the Corporation and the SPE
are as follows:  December 31 (millions of dollars)
  
  2007
  
  2006
  
  2005Proceeds from (repayment
  of) new securitizations
  
  $    (23
  )
  $      (2
  )
  $3Proceeds from
  collections reinvested in revolving period securitizations(1)
  
  $1,800
  
  $1,993
  
  $1,933Servicing fees received(2)
  
  $       2
  
  $2
  
  $       2Other cash flows
  received(3)
  
  $   598
  
  $   530
  
  $   567  (1)  Collections
received by the SPE on accounts receivable previously sold are used to purchase
interests in new accounts receivable. (2)  Servicing
fees are considered to be immaterial on an annual basis and as such are
recorded as received. (3)  Sales
proceeds from trade receivables that are ineligible under the terms of the banks
securitization agreement due to items such as age.  In 2006, the INEOS NOVA joint venture (formerly NOVA Innovene) entered
into an accounts receivable securitization program for the sale of its European
trade receivables to a maximum of 120 million euros. This program expires in November 2011.
The INEOS NOVA joint venture has no right to any cash collected from the sold
receivables and control of the accounts receivable has been effectively
transferred to the purchaser; therefore, neither the receivables nor any
obligation to the purchaser is reflected in NOVA Chemicals Consolidated Financial
Statements. In 2007, NOVA Chemicals changed its accounting for its interest in
the European accounts receivable securitization program to reflect that the
accounts receivable securitization transactions are recorded as sales of
receivables and not a financing arrangement. To properly reflect this change,
NOVA Chemicals restated the 2006 Consolidated Balance Sheets by decreasing Cash
and cash equivalents by $22 million and Accounts receivable by $11 million and
decreasing Long-term debt by $33 million.  Information regarding NOVA Chemicals share of INEOS NOVAs
securitization program is as follows:  December 31 (millions of
  euros)
  
  2007
  
  2006Amount sold at end of
  year
  
  37
  
  9Interest expense
  
  5
  
    4. Inventories  December 31 (millions of dollars)
  
  2007
  
  2006Materials and supplies
  
  $  51
  
  $  48Raw materials
  
  474
  
  325Finished goods
  
  357
  
  296$882
  
  $669  5. Investments and Other Assets  December 31 (millions of dollars)
  
  2007
  
  2006Investments(1)
  
  $  30
  
  $  33Advances receivable from
  affiliate(2)(3)
  
  15
  
  13Other assets(4)
  
  132
  
  87$177
  
  $133  (1)  Includes
an investment of $15 million (2006 - $15 million) in an affiliated special
purpose entity with respect to the accounts receivable securitization program
described in Note 3. Also includes an $11 million (2006 - $11
million) investment in sEnergy, classified as available-for-sale securities
with no active market and recorded at cost; $4 million investment in common
shares of Envirokare Tech Inc. (2006 - $5 million), classified as
available-for-sale securities and recorded at fair market value; and other
miscellaneous investments classified as available-for-sale securities with no active
market and recorded at cost. (2)  $5
million (2006 - $5 million) of the advances is subordinated to certain notes
receivable. (3)  Classified
as loans and receivables and carried at amortized cost which approximates fair
value. See Note 20. (4)  See
schedule of Other Assets on page 84.    Notes to Consolidated
Financial Statements   83


OTHER ASSETS Other assets are comprised of the following:  December 31 (millions of dollars)
  
  2007
  
  2006Deferred debt issue
  costs(1)
  
  $  
  
  $14Deferred start-up costs(2)
  
  27
  
  30Fair value of
  commodity-based derivatives(3)
  
  7
  
  Pension asset
  
  54
  
  20Note receivable(4)(5)
  
  13
  
  Other assets and
  deferred costs
  
  31
  
  23$132
  
  $87Carrying amounts are classified
  into the following categories:December 31 (millions of
  dollars)
  
  
  
  2007Held-for-trading (Note
  20)
  
  
  
  $  7Loans and receivables
  (Note 20)
  
  
  
  $28Available-for-sale (Note
  20)
  
  
  
  $15  (1)  Debt
issue costs are amortized on a straight-line basis over the terms of the
related debt instruments. In 2007, certain deferred debt discount and issuance
costs that were previously included in Other assets are now reported as a
reduction of the respective debt obligations and recognized in income using the
effective interest rate method. See Note 2. (2)  Start-up
costs consist of the unamortized portion of costs incurred in 2006 and 2005
associated with the start-up of the Corunna facility after the maintenance
turnaround and expansion and modernization project, as well as the unamortized
portion of operating costs, net of incidental revenues, incurred during the
pre-operating period on constructed assets at Joffre, Alberta. (3)  Classified
as held-for-trading and carried at fair value. See Note 20. (4)  Note
receivable in connection with the sale of the Chesapeake, Virginia, facility in
2007. The note bears interest at 8.75%, requires a balloon payment in November 2012
and is secured by the Chesapeake, Virginia, facility. (5)  Classified
as loans and receivables and carried at amortized cost which approximates fair
value. See Note 20.  JOINT VENTURES On Oct. 1, 2005, the Corporation contributed its European styrenic
polymer assets, comprised of manufacturing facilities, accounts receivable and
inventory, to the NOVA Innovene joint venture with Innovene (now INEOS) in
exchange for a 50% interest in the joint venture. The joint venture produces
styrenic polymers from NOVA Chemicals contributed plants and INEOS
contributed plants. NOVA Chemicals accounted for its contribution to the joint
venture as an exchange of 50% of its contributed non-monetary productive assets
for a 50% interest in similar productive assets of INEOS. Consequently, the
exchange was recorded at the carrying value of the assets given up, with no
gain or loss recognized.  On Oct. 1, 2007, NOVA Chemicals expanded its existing 50:50
European joint venture with INEOS (renamed INEOS NOVA joint venture), to
include NOVA Chemicals STYRENIX assets and other North American styrenic
polymer assets and INEOS North American styrene monomer and styrenic polymer
assets. The Corporation contributed its STYRENIX property, plant and equipment
with a book value of $250 million and other North American styrenic polymer
assets and working capital with a book value of $150 million to the joint
venture in exchange for a 50% interest in the joint venture. The joint venture
produces styrenic polymers from NOVA Chemicals contributed plants and INEOS
contributed plants. The exchange of 50% of its contributed non-monetary
productive assets for a 50% interest in similar assets of INEOS was recorded at
the carrying value of the assets given up, with no gain or loss recognized.  Prior to expanding the INEOS NOVA joint venture, NOVA Chemicals sold to
the European joint venture 50% of its styrene monomer requirements and certain
styrenic polymer products for distribution in Europe. During 2007, 2006 and
2005, NOVA Chemicals recognized revenues of $207 million, $254 million and $60
million, respectively, from the sale of these products to the European joint
venture.  Subsequent to expanding the INEOS NOVA joint venture, NOVA Chemicals
sells benzene and ethylene to the joint venture for use in manufacturing
styrene monomer. During 2007, NOVA Chemicals recognized revenues of $76 million
from the sale of these products to the joint venture.    84   Notes to
Consolidated Financial Statements


NOVA Chemicals has provided a guarantee of $25 million to a financial
institution to secure various obligations of the INEOS NOVA joint venture.  In 2006, the Corporation formed a 50:50 joint venture with Dietrich
Metal Framing (a Worthington Industries company) called Accelerated Building
Technologies, LLC. This joint venture develops and manufactures durable,
energy-saving composite construction products and systems using NOVA Chemicals
expandable polystyrene (EPS) technology and steel. Each party contributed cash
and/or equipment of $1 million to form the joint venture.  On Oct. 1, 2005, the Corporation and Grupo IDESA formed a 50:50
joint venture in Mexico called NOVIDESA, S.A. de C.V. The joint venture
produces EPS from an existing Grupo IDESA facility for construction and
packaging applications in the growing Mexican market. It also produces
applications such as insulating concrete forms (ICFs) and distributes INEOS
NOVAs solid polystyrene in Mexico.  In addition to its interests in recently formed joint ventures, NOVA
Chemicals owns a 50% interest in the Joffre E3 ethylene plant, a 50% interest
in LRM Industries, LLC (a 50:50 joint venture with Envirokare Composite Corp.
(a subsidiary of Envirokare Tech Inc.) and a 20% interest in a cogeneration
facility located at Joffre, Alberta.  The following is summarized financial information for NOVA Chemicals
interests in its joint ventures:  year ended December 31 (millions of dollars)
  
  2007
  
  2006
  
  2005Revenue
  
  $  1,480
  
  $  1,099
  
  $  518Operating expenses,
  depreciation and income taxes
  
  (1,430
  )
  (1,043
  )
  (499
  )Net income
  
  $50
  
  $56
  
  $19December 31 (millions of dollars)
  
  2007
  
  2006Current assets
  
  $    685
  
  $234Plant, property and
  equipment and other assets
  
  829
  
  547Current liabilities
  
  (548
  )
  (181
  )Long-term liabilities
  
  (53
  )
  (68
  )Venturers equity
  
  $    913
  
  $532year ended December 31 (millions of dollars)
  
  2007
  
  2006
  
  2005Cash inflows (outflows)
  from:Operating activities
  
  $    139
  
  $      49
  
  $  127Financing activities
  
  $(48
  )
  $(10
  )
  $(32
  )Investing activities
  
  $(8
  )
  $      32
  
  $     (3
  )6. Property, Plant and
  EquipmentDecember 31 (millions of dollars)
  
  2007
  (1)
  2006
  (1)Plant and equipment
  
  $  6,382
  
  $  6,266Assets under capital
  lease
  
  24
  
  20Land
  
  26
  
  29Under construction(2)
  
  195
  
  3566,627
  
  6,671Accumulated depreciation(3)(4)
  
  (3,580
  )
  (3,952
  )$  3,047
  
  $  2,719  (1)  See
Note 8 for discussion of the collateral provided under the committed credit
facility. (2)  Assets
under construction are not depreciated until such time as commercial production
is achieved. (3)  Accumulated
depreciation for assets under capital lease at Dec. 31, 2007, was $8
million (Dec. 31, 2006 - $4 million). Accumulated depreciation
for plant and equipment at Dec. 31, 2007, was $3,572 million (Dec. 31,
2006 - $3,948 million). (4)  See
Note 13 for discussion of impairment charge related to plant and equipment,
which was recorded as an increase in accumulated depreciation in 2006.    Notes to Consolidated
Financial Statements   85


During 2004, the Corporation sold its 100% interest in an ethylene
delivery system in Alberta and entered into a pipeline transportation agreement
to lease back the pipeline. Net cash proceeds of $19 million were received from
the sale, resulting in a gain of $19 million. The gain realized on the sale has
been deferred (see Note 9) and is being amortized to income on a straight-line
basis over the term of the pipeline transportation agreement, which expires in
2016.  7. Accounts Payable and Accrued
Liabilities  December 31 (millions of dollars)
  
  2007
  
  2006Accounts payableTrade(1)
  
  $   632
  
  $596Accrued taxes
  
  15
  
  9Other(1)
  
  34
  
  18681
  
  623Accrued liabilitiesInterest(1)
  
  51
  
  31Dividends(1)
  
  8
  
  7Pension and
  post-retirement benefit obligations
  
  26
  
  4Equity
  appreciation plan obligations (Note 11)
  
  27
  
  24Deferred share
  unit plan obligations (Note 12)
  
  22
  
  25Restricted stock
  unit plan obligations (Note 11)
  
  7
  
  8Accrued
  mark-to-market liability on equity derivative(2)(3)
  
  19
  
  Fair value of
  commodity-based derivatives(2)
  
  1
  
  1Deferred revenue
  
  17
  
  5Deferred gains on
  interest rate swaps(4)
  
  
  
  2Deferred gain on
  sale of asset(5)
  
  3
  
  2Site clean-up and
  restoration(1)
  
  
  
  3Advances and
  notes due to affiliate(1)
  
  32
  
  9Notes payable(1)(6)
  
  43
  
  39Trade accruals
  and other accrued liabilities(1)
  
  226
  
  200482
  
  360$1,163
  
  $983  Carrying amounts are classified into the following categories:  December 31 (millions of
  dollars)
  
  
  
  2007Other Liabilities (Note
  20)
  
  
  
  $1,026Held-for-trading (Note
  20)
  
  
  
  $     20  (1)  Classified
as other liabilities and carried at amortized cost, which approximates fair
value. See Note 20. (2)  Classified
as held-for-trading and carried at fair value. See Note 20. (3)  In
2007, equity derivative was reclassified from Deferred credits and long-term
liabilities to Accounts payable and accrued liabilities. See Note 9. (4)  Represents
the portion of deferred gains realized on liquidation of floating-for-fixed
interest rate swaps to be recognized within one year (see Note 20). In 2007,
deferred gains on interest rate swaps have been reclassified to Long-term debt
(see Notes 2 and 8). (5)  Represents
the current portion of deferred gains realized on the 2003 sale of a 50%
interest in Fort Saskatchewan Ethylene Storage Limited Partnership. The
deferred gain is being recognized in income (loss) on a straight-line basis
over the 20-year storage contract entered into immediately following the sale. (6)  Includes
$43 million (2006  $39 million) of unsecured notes payable, bearing
interest at 4.5% per annum.    86   Notes to Consolidated
Financial Statements


8. Long-Term Debt  December 31 (millions of dollars, unless
  otherwise noted)
  
  
  
  2007
  
  2006Weighted-
  
  
  
  Weighted-Average
  
  
  
  AverageYear-End
  
  
  
  Year-EndInterest
  
  
  
  InterestMaturity
  
  Debt
  
  Rate
  
  Debt
  
  RateRevolving credit
  facilities(1)
  
  2008  2011
  
  $   106
  
  7.1
  %
  $   110
  
  7.7
  %Unsecured debentures and
  notes(1)
  
  2008  2028
  
  1,278
  
  7.4
  %
  1,240
  
  7.6
  %Medium-term notes(1)
  
  2009
  
  250
  
  7.4
  %
  250
  
  7.4
  %Preferred shares(1)
  
  2008
  
  126
  
  6.9
  %
  133
  
  8.1
  %Other unsecured debt(2)
  
  2008  2020
  
  40
  
  7.8
  %
  46
  
  7.6
  %Transaction costs and
  other(3)
  
  
  
  (6
  )
  
  
  
  
  1,794
  
  
  
  1,779Less amounts due within
  one year
  
  
  
  (254
  )
  
  
  (197
  )$1,540
  
  
  
  $1,582  Carrying amounts are classified into the following
category:  December 31 (millions of
  dollars)
  
  
  
  2007Other liabilities (Note
  20)
  
  
  
  $1,782  (1)  Classified
as other liabilities (excluding obligations under capital leases 2007  $18
million) and carried at amortized cost. See Note 20. (2)  Composed
primarily of non-recourse joint venture secured debt (2007  $22
million, 2006  $24 million), whereby security is limited to NOVA
Chemicals net investment in the Joffre co-generation joint venture, and obligations
under capital leases (2007  $18 million at 6.85%, 2006  $22
million at 7.57%). The non-recourse joint venture debt is classified as other
liabilities and carried at amortized cost. See Note 20. (3)  Certain
deferred debt discount and issuance costs and deferred gains on interest swaps
have been reclassified on a prospective basis in accordance with CICA Section 3855.
See Note 2.  UNSECURED DEBENTURES AND NOTES The remaining debentures and notes are unsecured borrowings, which rank
pari passu in all respects with other unsecured and unsubordinated debt of the
Corporation.  Terms of the outstanding unsecured debentures and notes are as follows:  December 31 (millions of
  dollars, unless otherwise noted)
  
  
  
  
  
  
  
  2007
  
  2006Maturity
  
  
  
  Stated
  Interest Rate (%)2010(1)
  
  
  
  7.85
  
  $253
  
  $   2152012(2)
  
  
  
  6.5
  
  400
  
  4002013(2)
  
  
  
  Floating
  (3)
  400
  
  4002025(4)
  
  
  
  7.875
  
  100
  
  1002028(5)
  
  
  
  7.25
  
  125
  
  125$1,278
  
  $1,240  (1)  $250
million Canadian; callable at the option of the Corporation at any time. (2)  Callable
at the option of the Corporation at any time. (3)  LIBOR
+ 3.125%; 7.8625% at Dec. 31, 2007 (8.502% at Dec. 31, 2006). (4)  Callable
at the option of the Corporation on or after Sep. 15, 2005. (5)  Redeemable
at the option of the holders on Aug. 15, 2008, thus classified as current
debt.    Notes to Consolidated
Financial Statements   87


REVOLVING CREDIT FACILITIES The Corporation has $590 million of revolving credit facilities which
expire on the following dates: $100 million on Mar. 31, 2008; $65 million
on Mar. 20, 2010; $325 million on June 30, 2010; and $100 million on Mar. 20,
2011. As of Dec. 31, 2007, NOVA Chemicals had utilized $156 million of the
facilities, of which $50 million was in the form of letters of credit. The $100
million facility expiring on Mar. 31, 2008, and the $325 million facility
are governed by the same financial covenants. The remaining $100 million
facility and the $65 million facility have no financial covenants associated
with them.  On Dec. 31, 2006, NOVA Chemicals negotiated an amendment to its
financial covenants governing the $100 million facility expiring on Mar. 31,
2008, and the $325 million facility, as well as the U.S. and Canadian accounts
receivable securitization programs and the total return swap. The amendment
allows for an exemption, in determining Shareholders Equity, of any write-down
of the STYRENIX assets up to $950 million and for the Debt-to-Capitalization
Ratio financial covenant to be raised from 55% to 60%. Both amendments are in
effect until Mar. 30, 2008.  At Dec. 31, 2007, NOVA Chemicals was in compliance with all
required financial covenants under the credit facilities. There were no events
of default during 2007.  $1.2 billion (2006 and 2005 - $1.2 billion) in net book value of assets
in Canada, including real estate, is pledged as collateral for the $325 million
facility. The remaining credit facilities are unsecured.  As a result of the STYRENIX asset write-down in 2006, the amount of
secured debt permitted under the terms of NOVA Chemicals public indentures was
reduced. Accordingly, the secured revolving credit facility was reduced from
$375 million to $325 million, effective Feb. 5, 2007. The remaining three
unsecured revolving credit facilities were not affected.  MEDIUM-TERM NOTES The notes are unsecured borrowings ranking pari passuwith all other unsecured and unsubordinated debt
of the Corporation. The $250 million 7.4% notes are due in April 2009 and
are redeemable by the Corporation at any time.  SERIES A PREFERRED SHARES In connection with the acquisition of styrenics assets from Huntsman
Corporation in 1998, a subsidiary of the Corporation issued retractable
preferred shares with a liquidation preference of $198 million as partial
consideration. Holders of the retractable preferred shares originally had the
right, on or after Apr. 1, 2001, to exchange the shares (a retraction) for
NOVA Chemicals common shares (plus preferred shares if the market value of
such common shares was less than $198 million). In September 2005, the
terms of the retractable preferred shares were amended to eliminate this right.
In connection with this amendment, the retractable preferred shares were
redesignated as Series A preferred shares. Additionally, in December 2005,
the dividend rate was reduced from 2% to 0.5%.  NOVA Chemicals has the right to repurchase the Series A preferred
shares at any time; however, any such repurchase may obligate NOVA Chemicals to
pay an early termination fee under the terms of the total return swap discussed
below.  NOVA Chemicals also entered into a total return swap with respect to the
Series A preferred shares, which is scheduled to terminate on Oct. 31,
2008. On the initial closing date of the total return swap in 2001, the
counterparty through its hedge providers purchased the Series A preferred
shares from Huntsman Corporation for $191 million plus accrued unpaid
dividends. NOVA Chemicals subsequently posted $65 million of cash collateral
with the counterparty that is held by the counterparty as a prepayment against
settlement. Accordingly, the equity notional amount of the Series A
preferred shares is now set at $126 million and on settlement of the total
return swap at the end of the term, NOVA Chemicals will owe the counterparty
$126 million. At Dec. 31, 2007 and 2006, the Series A preferred
shares were classified as current debt.  Under the terms of the total return swap: (i) the counterparty pays
NOVA Chemicals the total return on the Series A preferred shares (periodic
dividends plus positive changes in the equity value of Series A preferred
shares) upon termination of the swap; and (ii) NOVA Chemicals pays the
counterparty a spread to LIBOR, as well as any negative changes in the equity
value of the Series A preferred shares upon termination of the swap.
Because of its short-term nature and immaterial balance sheet effect, the
derivative feature of the total return swap is reported as part of the Series A
preferred shares and is not accounted for separately. All periodic dividends,
changes in equity value of the Series A preferred shares and interest
payments are charged to earnings as incurred.    Notes to Consolidated Financial Statements   88


If the equity value of the Series A
preferred shares decreases by approximately 24% or more at any time, NOVA
Chemicals is required to post maintenance collateral. Once the margin-posting
requirement is triggered, if the equity value of the Series A preferred
shares increases by 5% or more, any excess margin may be returned to NOVA
Chemicals. Changes in the equity value of the Series A preferred shares
during the term of the swap will be determined based on changes in the average
price of the outstanding 6.5% Senior Notes due 2012, issued by NOVA Chemicals.
As of Dec. 31, 2007, NOVA Chemicals has posted $65 million as maintenance
collateral and has legal right of offset against the obligation. The Dec. 31,
2006 balance sheet has been restated to reflect such offset.  If NOVA Chemicals defaults on other debt with an
aggregate principal amount of $25 million or more, or the closing price of the
Corporations common shares is $12.00 U.S. or less, and upon certain other
events, the counterparty would have the right to sell the Series A
preferred shares to a third party and terminate the swap. NOVA Chemicals would
then owe the counterparty the difference between the actual sale price received
by the counterparty and $126 million ($191 million fair value less $65 million
posted as cash collateral which legally offsets the obligation).  REPAYMENT REQUIREMENTS Repayment requirements in respect of long-term
debt are as follows:  (millions of dollars)2008
  
  $   2542009
  
  2532010
  
  3172011
  
  482012
  
  408Thereafter
  
  520$ 1,800INTEREST EXPENSEyear ended December 31 (millions of dollars)
  
  2007
  
  2006
  
  2005Interest
  on long-term debt
  
  $142
  
  $146
  
  $117Interest
  on bank loans, securitizations and other
  
  44
  
  30
  
  14186
  
  176
  
  131Interest
  capitalized during plant construction
  
  (1
  )
  (3
  )
  (14
  )Interest
  income
  
  (10
  )
  (5
  )
  (4
  )$175
  
  $168
  
  $113   Notes to
Consolidated Financial Statements   89


9. Deferred
Credits and Long-Term Liabilities  December 31 (millions of
  dollars)
  
  2007
  
  2006Deferred
  creditsDeferred income
  
  $  21
  
  $  29Deferred gain on sale of investments(1)
  
  38
  
  35Deferred gain on sale of asset(2)
  
  15
  
  14Deferred gains on interest rate swaps(3)
  
  
  
  2Deferred gain on sale of railcars
  
  7
  
  7Other deferred credits
  
  4
  
  785
  
  94Long-term
  liabilitiesPension and post-retirement benefit obligations (Note 16)
  
  98
  
  119Accrued mark-to-market liability on equity derivative (Note 20)(4)(5)
  
  
  
  35Asset retirement obligations (Note 17)
  
  23
  
  20Restricted stock unit plan obligations (Note 11)
  
  19
  
  6Fair value of commodity-based derivatives(5)
  
  
  
  2Other long-term liabilities(6)
  
  40
  
  57180
  
  239$265
  
  $333Carrying amounts are
  classified into the following category:December 31 (millions of dollars)
  
  2007Other
  liabilities (Note 20)
  
  $40  (1)   Represents the
long-term portion of deferred gains realized on the 2003 sale of a 50% interest
in Fort Saskatchewan Ethylene Storage Limited Partnership. The deferred gain is
being recognized in income (loss) on a straight-line basis over the 20-year
storage contract entered into immediately following the sale. (2)   Represents the
long-term portion of a deferred gain realized on the sale of an ethylene
pipeline system. See Note 6. (3)   Represents the
long-term portion of deferred gains realized on liquidation of
floating-for-fixed interest rate swaps. See Note 20. In 2007, deferred gains on
interest rate swaps have been reclassified to Long-term debt. See Note 2. (4)   In 2007, the equity
derivative was reclassified to Accounts payable and accrued liabilities because
it expires in November 2008. See Note 7. (5)   Classified as
held-for-trading and carried at fair value. See Note 20. (6)   Classified as other
liabilities and carried at amortized cost, which approximates fair value. See
Note 20.   10. Common Shares  Shares Reserved For Future Issue December 31 (number of shares)
  
  2007
  
  2006
  
  2005Under
  the employee incentive stock option plan(1)(2)
  
  7,185,096
  
  7,678,352
  
  7,874,725Under
  the director compensation plan
  
  47,800
  
  47,800
  
  47,8007,232,896
  
  7,726,152
  
  7,922,525  (1)   Under the employee
incentive stock option plan, options are outstanding to officers and employees
to purchase 2,826,041 shares at prices ranging from $26.35 to $58.24 (Canadian
dollar TSX pricing) and 1,228,526 shares at prices ranging from $31.05 to
$47.00 (US dollar NYSE pricing) per share, with expiration dates between July 3,
2008, and Feb. 8, 2017. A total of 3,130,529 common shares are reserved
but unallocated. See Note 11 for further details regarding the plan. (2)   A total of 13 million
common shares was approved by shareholders for issuance under the employee
incentive stock option plan. No changes have been made since this approval.   90  Notes to
Consolidated Financial Statements


NET
INCOME (LOSS) PER SHARE The following table outlines the calculation of
basic and diluted net income (loss) and net income (loss) per common share:  year ended December 31
  (millions of dollars,
  
  2007
  
  2007
  
  2006
  
  2006
  
  2005
  
  2005except per share amounts)
  
  Basic
  
  Diluted
  
  Basic
  
  Diluted
  
  Basic
  
  DilutedNet
  income (loss)
  
  $ 347
  
  $347
  
  $(703
  )
  $(703
  )
  $(101
  )
  $(101
  )Weighted-average
  common shares outstanding
  
  82.9
  
  82.9
  
  82.5
  
  82.5
  
  82.6
  
  82.6Add
  effect of dilutive items:(1)Stock options
  
  
  
  0.6
  
  
  
  
  
  
  
  Weighted
  average common shares for EPS calculation
  
  82.9
  
  83.5
  
  82.5
  
  82.5
  
  82.6
  
  82.6Net
  income (loss) per common share
  
  $4.19
  
  $4.16
  
  $(8.52
  )
  $(8.52
  )
  $(1.22
  )
  $(1.22
  ) (1)   No
stock options were excluded from the computation of diluted earnings per share
for the year ended Dec. 31, 2007. A total of 3.5 million and 4.8 million
stock options have been excluded from the computation of diluted earnings per
share for the years ended Dec. 31, 2006 and 2005, respectively, as their
impact would not be dilutive. As of Sep. 30, 2005, the Series A
preferred shares are no longer convertible to NOVA Chemicals common shares
and, therefore, are no longer a dilutive factor in the earnings per share
calculation. No restatements were made to prior years.  SHAREHOLDER RIGHTS PLAN In May 1999, NOVA Chemicals shareholders
approved a shareholder rights plan where one right was issued for each
outstanding common share. The rights remain attached to the shares and are not
exercisable until the commencement or announcement of a takeover bid for NOVA
Chemicals common shares or until a person acquires 20% or more of NOVA
Chemicals common shares. The plan expires in May 2009.  11. Stock-Based Compensation  In 2006, the Corporation adopted accounting
recommendations related to stock-based awards granted to employees who are
eligible for retirement at the grant date or will be eligible before the end of
the vesting period. Application of this recommendation results in acceleration
of the recognition of stock-based compensation expenses (see Note 2).  EMPLOYEE INCENTIVE STOCK OPTION PLAN The Corporation may grant options to its
employees for up to 13 million common shares. During 2005, the Corporation
amended its Employee Incentive Stock Option Plan such that options may be
granted which are exercisable based on the Corporations New York Stock
Exchange (NYSE) common share price. Accordingly, the exercise price of an
option may equal the closing market price on the Toronto Stock Exchange (TSX)
or the NYSE of the Corporations common stock on the date of grant. Options may
be exercised over a 10-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.  All options granted since Jan. 1, 2002, are
accounted for using the fair-value method. The fair value of stock options are
expensed over their vesting period and reflected in earnings as the related
services are provided, with a corresponding amount recorded to contributed
surplus. On exercise of options for common shares, amounts previously recorded
to contributed surplus for compensation costs are transferred to the common
share account. On retirement or cancellation of options, amounts previously
recorded to contributed surplus for compensation costs are transferred to
reinvested earnings (deficit). The Corporation uses the Black-Scholes
option-pricing model to calculate the fair value of options at the date of
grant.  Options
may be settled by issuance of common shares or retired, whereby the option
premium (the differential between the market price and the exercise price) is
paid in cash. Amounts paid are recorded as a charge to reinvested earnings
(deficit), net of related tax benefits. Options also may be settled
periodically as share appreciation rights (SARs), whereby the option premium is
settled by issuance of common shares. Options settled by issuance of shares are
cancelled, whereas options settled by other means are returned to the
unallocated pool of options available for issue.   Notes to
Consolidated Financial Statements   91


A summary of the status of the Corporations
employee incentive stock option plan for options based on TSX pricing, as of
Dec. 31, 2007, 2006 and 2005, and changes during the years then ended is
presented below:  year
  ended December 31
  
  2007
  
  2006
  
  2005Weighted-
  
  
  
  Weighted-
  
  
  
  Weighted-Average
  
  
  
  Average
  
  
  
  AverageExercise
  
  
  
  Exercise
  
  
  
  ExercisePrice
  
  
  
  Price
  
  
  
  PriceOptions
  
  (Canadian
  $)
  
  Options
  
  (Canadian
  $)
  
  Options
  
  (Canadian
  $)Outstanding at beginning
  of year
  
  4,286,234
  
  $29.48
  
  4,667,898
  
  $28.69
  
  5,849,131
  
  $27.95Granted
  
  97,200
  
  $36.69
  
  232,059
  
  $38.11
  
  91,450
  
  $58.14Exercised  settled in
  shares
  
  (357,683
  )
  $25.25
  
  (129,007
  )
  $23.70
  
  (570,060
  )
  $26.93Exercised  retired for
  cash
  
  (670,781
  )
  $29.28
  
  (259,003
  )
  $27.84
  
  (469,091
  )
  $29.21Exercised  settled as
  SARs(1)
  
  (507,221
  )
  $28.03
  
  (179,785
  )
  $23.93
  
  (218,219
  )
  $24.80Cancelled
  
  (21,708
  )
  $43.19
  
  (45,928
  )
  $39.48
  
  (15,313
  )
  $29.15Outstanding at end of
  year
  
  2,826,041
  
  $30.47
  
  4,286,234
  
  $29.48
  
  4,667,898
  
  $28.69Exercisable at end of
  year
  
  2,640,162
  
  $29.84
  
  4,043,465
  
  $28.83
  
  4,249,162
  
  $28.18 (1)  In 2007, 135,573 shares were issued to settle options exercised as
SARs (2006  67,366 and 2005  124,610).  The following table summarizes information about
employee incentive stock options, based on TSX pricing, outstanding at
Dec. 31, 2007:  Options
  Outstanding
  
  Options
  ExercisableWeighted-Average
  
  Weighted-
  
  
  
  Weighted-Remaining
  
  Average
  
  
  
  AverageNumber
  
  Contractual
  
  Exercise
  Price
  
  Number
  
  Exercise
  PriceRange of Exercise Prices
  (Canadian $)
  
  Outstanding
  
  Life
  (years)
  
  (Canadian
  $)
  
  Exercisable
  
  (Canadian
  $)$26.35  $28.05
  
  1,661,170
  
  2.6
  
  $26.17
  
  1,661,170
  
  $26.17$30.75  $58.24
  
  1,164,871
  
  5.3
  
  $36.59
  
  978,992
  
  $36.072,826,041
  
  
  
  
  
  2,640,162  A summary of the status of the Corporations
employee incentive stock option plan, for options based on NYSE pricing, as of
Dec. 31, 2007, 2006 and 2005, and changes during the years then ended is
presented below:  year
  ended December 31
  
  2007
  
  2006
  
  2005Weighted-
  
  
  
  Weighted-
  
  
  
  Weighted-Average
  
  
  
  Average
  
  
  
  AverageExercise
  
  
  
  Exercise
  
  
  
  ExercisePrice
  
  
  
  Price
  
  
  
  PriceOptions
  
  (U.S. $)
  
  Options
  
  (U.S. $)
  
  Options
  
  (U.S. $)Outstanding at beginning
  of year
  
  1,192,463
  
  $38.60
  
  439,713
  
  $46.78
  
  
  
  $     Granted
  
  76,900
  
  $31.05
  
  775,200
  
  $33.95
  
  441,300
  
  $46.78Exercised  settled in
  shares
  
  
  
  $     
  
  
  
  $     
  
  (487
  )
  $47.00Exercised  retired for
  cash
  
  (12,011
  )
  $33.57
  
  
  
  $     
  
  
  
  $     Cancelled
  
  (28,826
  )
  $39.25
  
  (22,450
  )
  $38.44
  
  (1,100
  )
  $47.00Outstanding at end of
  year
  
  1,228,526
  
  $38.16
  
  1,192,463
  
  $38.60
  
  439,713
  
  $46.78Exercisable at end of
  year
  
  711,965
  
  $39.60
  
  428,538
  
  $40.63
  
  111,885
  
  $46.78  92  Notes to
Consolidated Financial Statements


The following table
summarizes information about employee incentive stock options, based on NYSE
pricing, outstanding at Dec. 31, 2007:  year ended December 31
  
  
  
  Options
  Outstanding
  
  Options
  ExercisableWeighted-Average
  
  Weighted-
  
  
  
  Weighted-Remaining
  
  Average
  
  
  
  AverageNumber
  
  Contractual
  
  Exercise
  Price
  
  Number
  
  Exercise
  PriceRange of Exercise Prices (U.S.
  $)
  
  Outstanding
  
  Life
  (years)
  
  (U.S. $)
  
  Exercisable
  
  (U.S. $)$31.05  $47.00
  
  1,228,526
  
  7.8
  
  $38.16
  
  711,965
  
  $39.60  In 2007, 2006 and 2005, the Corporation
recognized total compensation cost of $2 million, $9 million and $8 million,
respectively, for stock-based employee compensation awards.  The fair value of each stock option grant is
estimated on the date of grant using the Black-Scholes option-pricing model
with the following weighted-average assumptions used for stock options granted:  Weighted-Average Assumptions
  
  2007
  
  2006
  
  2005Expected dividend yield
  (%)
  
  1.1
  
  1.1
  
  0.7Expected volatility (%)
  
  33.6
  
  33.1
  
  31.6Risk-free interest rate
  (%)
  
  4.4
  
  4.5
  
  3.8Expected life (years)
  
  4.0
  
  4.0
  
  4.0Fair value of options
  granted during the year (U.S. $)
  
  $9.3
  
  $10.0
  
  $13.4  EQUITY APPRECIATION PLAN  The Corporation has an equity appreciation plan
in which units are granted to employees. The redemption price of a unit is
determined by the closing market price on the NYSE of the Corporations common
shares on the date of grant. Units may be redeemed for cash over a 10-year
period, and generally 25% of the units vest at the grant date with further
vesting of 25% in each of the next three years. In accordance with EIC 162 (see
Note 2), the stock-based compensation expense is accelerated for units granted
to employees who are eligible for retirement at the grant date or will be
eligible before the end of the vesting period. The value of a unit on the redemption
date is the difference between the closing price of the Corporations common
shares on that date and the redemption price.  At
Dec. 31, 2007, the mark-to-market value of the vested units was
approximately $27 million (2006  $24 million). The entire liability was
classified as current as of Dec. 31, 2007 and 2006.  Notes to
Consolidated Financial Statements   93


A summary of the status of the Corporations
equity appreciation plan as of Dec. 31, 2007, 2006 and 2005, and changes
during the years then ended is presented below:  year ended December 31
  
  2007
  
  2006
  
  2005Weighted-
  
  
  
  Weighted-
  
  
  
  Weighted-Average
  
  
  
  Average
  
  
  
  AverageRedemption
  
  
  
  Redemption
  
  
  
  RedemptionPrice
  
  
  
  Price
  
  
  
  PriceEquity Appreciation Units
  
  Units
  
  (U.S. $)
  
  Units
  
  (U.S. $)
  
  Units
  
  (U.S. $)Outstanding at beginning
  of year
  
  3,505,591
  
  $21.20
  
  3,618,678
  
  $21.18
  
  3,801,143
  
  $21.08Granted
  
  
  
  $     
  
  
  
  $     
  
  9,000
  
  $30.59Redeemed
  
  (930,514
  )
  $18.78
  
  (109,823
  )
  $20.26
  
  (190,040
  )
  $19.69Cancelled
  
  (725
  )
  $27.90
  
  (3,264
  )
  $27.90
  
  (1,425
  )
  $24.77Outstanding at end of
  year
  
  2,574,352
  
  $22.08
  
  3,505,591
  
  $21.20
  
  3,618,678
  
  $21.18Exercisable at end of
  year
  
  2,574,352
  
  $22.08
  
  3,276,259
  
  $20.73
  
  2,786,063
  
  $20.54The following table summarizes information about
  equity appreciation units outstanding at Dec. 31, 2007:Units Outstanding
  
  
  
  Units ExercisableWeighted-
  
  Weighted-
  
  
  
  Weighted-Average
  
  Average
  
  
  
  AverageRemaining
  
  Redemption
  
  
  
  RedemptionNumber
  
  Contractual
  
  Price
  
  Number
  
  PriceRange of Redemption Prices
  (U.S. $)
  
  Outstanding
  
  Life
  (years)
  
  (U.S. $)
  
  Exercisable
  
  (U.S. $)$17.42  $21.72
  
  1,741,675
  
  3.9
  
  $19.33
  
  1,741,675
  
  $19.33$23.49  $30.59
  
  832,677
  
  6.1
  
  $27.82
  
  832,677
  
  $27.822,574,352
  
  
  
  
  
  2,574,352  RESTRICTED STOCK UNIT PLAN The Restricted Stock Unit Plan is a phantom
stock plan wherein the value of a restricted stock unit (RSU) is determined by
the value of the Corporations common shares on the vesting date and is paid to
employees in cash or open market shares at the Corporations discretion. The
value of an RSU is determined using the NYSE price for U.S. residents and the
TSX price for residents of all other countries. Generally, the units vest and
proceeds are distributed three years from the grant date. The value of any
common share dividends declared during the vesting period is credited to each
RSU account. The value of the RSUs is expensed over the vesting period and is
marked to market.  A summary of the status of the Corporations
restricted stock unit plan as of Dec. 31, 2007, 2006 and 2005, and changes
during the years then ended is presented below:  year ended December 31
  
  2007
  
  2006
  
  2005Restricted Stock Units
  
  Units
  
  Units
  
  UnitsOutstanding at beginning
  of year
  
  591,377
  
  417,730
  
  196,178Granted
  
  554,850
  
  231,470
  
  229,395Dividend equivalents
  credited
  
  10,127
  
  6,460
  
  3,385Redeemed
  
  (131,006
  )
  (57,836
  )
  (9,403
  )Cancelled
  
  (30,368
  )
  (6,447
  )
  (1,825
  )Outstanding at end of
  year
  
  994,980
  
  591,377
  
  417,730  The mark-to-market liability for the RSU plan was $26 million
at Dec. 31, 2007 (2006  $14 million). Of the total liability, $7 million
(2006  $8 million) was classified as current.   94Notes to Consolidated Financial Statements


12. Deferred Share Unit Plans  Under the Corporations Deferred Share Unit
Plans (DSUP), key employees and non-employee directors may elect on an annual
basis to receive all or a portion of their management incentive award or fees,
respectively, in deferred share units (DSUs).  The amount of the management incentive award
that a key employee elects to have participate in the DSUP will be converted to
an equivalent number of DSUs based on the average closing price, on the TSX for
Canadian employees and on the NYSE for U.S. employees, of NOVA Chemicals
common shares for the last five consecutive trading days of the month of December prior
to the performance period.  The amount of fees that a non-employee director
elects to have participate in the DSUP will be converted to an equivalent
number of DSUs based on the average closing price, on the TSX or NYSE, of NOVA
Chemicals common shares for the last five consecutive trading days preceding
the end of each fiscal quarter in which the fees are earned. The units are
redeemable upon retirement or termination from the Corporation (see Note 7).  A summary of the status of the Corporations
deferred share unit plans as of Dec. 31, 2007, 2006 and 2005, and changes
during the years ended on those dates is presented below:  year ended December 31
  
  2007
  
  2006
  
  2005Weighted-
  
  
  
  Weighted-Average
  
  
  
  Average
  
  
  
  AveragePrice
  
  
  
  Price
  
  
  
  PriceEmployee Deferred Share Units
  
  Units
  
  (U.S. $)
  
  Units
  
  (U.S. $)
  
  Units
  
  (U.S. $)Outstanding at beginning
  of year
  
  547,643
  
  $19.90
  
  520,885
  
  $19.18
  
  508,593
  
  $18.75Earned
  
  179,249
  
  $28.07
  
  26,758
  
  $34.04
  
  12,292
  
  $36.82Redeemed
  
  (162,191
  )
  $23.65
  
  
  
  $     
  
  
  
  $     Outstanding at end of
  year
  
  564,701
  
  $21.42
  
  547,643
  
  $19.90
  
  520,885
  
  $19.18year ended December 31
  
  2007
  
  2006
  
  2005Weighted-
  
  
  
  Weighted-
  
  
  
  Weighted-Average
  
  
  
  Average
  
  
  
  AveragePrice
  
  
  
  Price
  
  
  
  PriceNon-Employee Directors Deferred
  Share Units
  
  Units
  
  (Canadian
  $)
  
  Units
  
  (Canadian
  $)
  
  Units
  
  (Canadian
  $)Outstanding at beginning
  of year
  
  101,131
  
  $31.35
  
  83,075
  
  $31.01
  
  79,938
  
  $29.80Earned
  
  18,023
  
  $34.09
  
  18,056
  
  $32.93
  
  8,329
  
  $42.13Redeemed
  
  (1,727
  )
  $33.87
  
  
  
  $     
  
  (5,192
  )
  $30.24Outstanding at end of
  year
  
  117,427
  
  $31.73
  
  101,131
  
  $31.35
  
  83,075
  
  $31.01  The amount expensed in aggregate related to the
award of units was approximately $1 million (2006  $1 million and 2005 - $1
million).  13. Restructuring Charges  2007 In 2007, NOVA Chemicals recorded restructuring
charges of $86 million before-tax ($55 million after-tax) related to the
following:  In May 2007, the Company accrued $7 million
of restructuring costs associated with the elimination of approximately 90
positions in the U.S. and Europe. As of Dec. 31, 2007, $4 million of the
severance costs had been paid to employees.  In September 2007, NOVA Chemicals announced
that it had acquired the exclusive production rights from Sterling Chemicals
Texas City, Texas, styrene plant on behalf of the INEOS NOVA joint venture.
These rights were assigned to INEOS NOVA on Oct. 1, 2007. In November 2007,
Sterling Chemicals announced its plans to permanently shut down the   Notes to Consolidated Financial Statements95


Texas City plant as a result of INEOS NOVAs
nomination of zero production volumes. As a result, NOVA Chemicals recorded a
$29 million restructuring charge which represents NOVA Chemicals 50% share of
the charge. Sterling is responsible for all related plant closure and severance
costs.  In October 2007, INEOS NOVA announced its
plans to shut down the Montréal, Quebec, polystyrene site by the end of 2007.
NOVA Chemicals recorded a $3 million charge related to its share of closure and
severance costs incurred by the INEOS NOVA joint venture. No asset write-down
was necessary as there was no remaining book value for this plant. None of
these closure costs were paid as of Dec. 31, 2007.  In November 2007, INEOS NOVA announced that
it would cease polystyrene production at its Belpre, Ohio, polystyrene plant
and permanently shut down the plant in 2008. As a result, NOVA Chemicals
recorded $32 million, its share of the impairment charge, as an increase in accumulated
depreciation. In addition to the plant write-down, a $3 million charge was
recorded related to NOVA Chemicals share of the severance costs associated
with the closure of this plant. None of these closure costs were paid as of Dec. 31,
2007.  NOVA Chemicals also accrued $3 million of
restructuring charges related to additional actions taken in Europe by the
INEOS NOVA joint venture. As of Dec. 31, 2007, $1 million had been paid.  The remaining $9 million relates to INEOS NOVA
and NOVA Chemicals other restructuring actions to reduce costs.  2006 In 2006, NOVA Chemicals recorded a restructuring
charge of $985 million before-tax ($861 million after-tax) related to the
following:  The Company recorded an impairment charge of
$860 million related to the STYRENIX business unit assets. The STYRENIX
business unit included the Styrene Monomer, North American Solid Polystyrene
and NOVA Innovene European joint venture segments. The STYRENIX business unit
had not been profitable due to poor market conditions, and in recent years
leading up to the impairment charge both NOVA Chemicals and the NOVA Innovene
joint venture had reduced production capacity through plant closures. In July 2006,
NOVA Chemicals announced it would investigate various alternatives for the STYRENIX
business unit, including sale, formation of a joint venture with other
producers, or spin out. NOVA Chemicals assessed the recoverability of the
STYRENIX assets and determined that the carrying value exceeded the estimated
future cash flows from these assets. Based on this analysis, the fair market
value of these STYRENIX facilities was determined to be $242 million. In October 2007,
the STYRENIX business unit assets were contributed to the INEOS NOVA joint
venture (see Note 5).  NOVA Innovene permanently closed its Carrington,
UK, solid polystyrene facility in October 2006. The Company recorded a
restructuring charge of $56 million related primarily to non-cash asset
write-downs of the plant including $8 million related to total expected
severance and other departure costs. As of Dec. 31, 2007, substantially
all of the severance and other departure costs were paid.  During 2006, NOVA Chemicals restructured its
North American operations to better align resources and reduce costs. As a
result, the Company recorded a $53 million restructuring charge related to
severance, pension and other employee-related costs. Of this amount, $10
million related to one-time pension curtailment and special termination
benefits. Of the remaining $43 million, $33 million had been paid as of Dec 31,
2007.  A $15 million charge was recorded related to the
accrual of total expected severance costs for the Chesapeake, Virginia,
polystyrene plant, which was closed in 2006. As of Dec. 31, 2007, $9
million had been paid to former employees.  Lastly, $1 million (less than $1 million
after-tax) of restructuring costs related to actions taken by NOVA Innovene
were accrued.  Impairment charges totaling $907 million during
2006 related to non-cash write-downs of plant and equipment were recorded as an
increase in accumulated depreciation.  2005 During 2005, the Corporation provided for $168
million in restructuring charges related to the following:  A
$76 million write-down of the Berre, France, EPS plant and the Carrington, UK,
EPS plant was recorded, following the announcement by NOVA Innovene to cease
EPS production at Berre and permanently shutdown the EPS plant at Carrington.
These actions were completed in 2006. In addition to the plant write-downs, a
$7 million charge related to NOVA Chemicals share of the severance costs
incurred by the NOVA Innovene joint venture associated with these closures was
recorded. All severance costs owing have been paid by the joint venture.   96    Notes to Consolidated Financial
Statements


A $76 million write-down of the Chesapeake,
Virginia, plant value was the result of NOVA Chemicals decision to permanently
close the plant. In addition, a $9 million charge was taken associated with the
write-off of certain other nonproductive assets.  Restructuring activities are a corporate
responsibility and are classified accordingly as Corporate in segmented
reporting.  14. Other Gains  year ended December 31
  (millions of dollars)
  
  2007
  
  2006
  
  2005Before-Tax
  
  After-Tax
  
  Before-Tax
  
  After-Tax
  
  Before-Tax
  
  After-TaxTax related settlement(1)
  
  $
  
  
  $
  
  
  $
  
  
  $
  
  
  $6
  
  
  $4Gain on sale of
  Chesapeake(2)
  
  17
  
  
  12
  
  
  
  
  
  
  
  
  
  
  
  Gain on sale of
  Cambridge
  
  1
  
  
  1
  
  
  
  
  
  
  
  
  
  
  
  Other
  
  2
  
  
  1
  
  
  1
  
  
  1
  
  
  2
  
  
  1$20
  
  
  $14
  
  
  $  1
  
  
  $  1
  
  
  $8
  
  
  $5  (1)The
Corporation recorded a gain in 2005 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. (2)The
Corporation sold the land and plant facility at Chesapeake, Virginia which had
ceased operations in June 2006.  15. Income Taxes  Income tax expense (recovery) varies from
amounts computed by applying the Canadian federal and provincial statutory
income tax rates to income (loss) before income taxes as shown in the following
table:  (millions of dollars, except as noted)
  
  2007
  
  2006
  
  2005Income (loss) before
  income taxes
  
  $398
  
  $(847
  )
  $(102
  )Statutory income tax
  rate
  
  32.12
  %
  32.49
  %
  33.62
  %Computed income tax
  expense (recovery)
  
  $128
  
  $(275
  )
  $  (34
  )Increase (decrease) in
  taxes resulting from:(Higher) lower
  effective foreign tax rates
  
  (9
  )
  (37
  )
  9Income tax rate adjustments(1)
  
  (65
  )
  (60
  )
  Tax benefits not
  recognized(2)
  
  14
  
  226
  
  16Reduction in tax
  reserve(3)
  
  (13
  )
  
  
  Other
  
  (4
  )
  2
  
  8Income tax expense
  (recovery)
  
  $  51
  
  $(144
  )
  $   (1
  )Current income tax
  expense
  
  $109
  
  $   75
  
  $  68Future income tax
  recovery
  
  (58
  )
  (219
  )
  (69
  )Income tax expense
  (recovery)
  
  $  51
  
  $(144
  )
  $   (1
  )  (1)In 2007,
the Federal Canadian Government (2006  Alberta and Federal Canadian
Governments) enacted a tax rate reduction, which reduced income tax accruals
for future tax liabilities by $65 million (2006  $60 million and 2005  $0).
These benefits have been recorded as a reduction of income tax expense. (2)The tax
benefit of certain costs have not been recorded due to the uncertainty that tax
benefits will be realized prior to the expiration of the loss carryforwards in
the U.S. (3)Due to
the settlement of a tax dispute, a previously recorded tax reserve was no
longer required and resulted in a decrease in tax expense.  The following table outlines the principal
temporary differences comprising the future income tax assets (liabilities):  (millions of dollars)
  
  2007
  
  2006Basis difference in
  plant and equipment
  
  $(624
  )
  $(493
  )Unrealized foreign
  exchange gains
  
  (61
  )
  (42
  )Reserves not currently
  deductible
  
  114
  
  108Losses available to be
  carried forward
  
  259
  
  202Other
  
  60
  
  35Valuation allowance
  
  (258
  )
  (245
  )Net future income tax
  liability
  
  $(510
  )
  $(435
  )   Notes to Consolidated Financial
Statements97


At
Dec. 31, 2007, the Corporation has U.S. Federal net operating loss
carryforwards (NOLs) of $493 million. The U.S. NOLs will begin to expire in
2021 and fully expire in 2026. In addition, NOVA Chemicals has $353 million of
NOLs in Switzerland, with expiration dates from 2008 to 2013.  The Companys valuation allowance of $258
million at Dec. 31, 2007, relates principally to the uncertainty of the
utilization of certain deferred tax assets, primarily tax loss and credit
carryforwards in the U.S. and Switzerland.  The following table outlines the income tax
expense (recovery) arising from Canadian and Foreign operations:  year ended December 31 (millions of dollars)
  
  2007
  
  2006
  
  2005Income (loss) before
  income taxesCanadian
  
  $480
  
  $    155
  
  $  201Foreign
  
  (82
  )
  (1,002
  )
  (303
  )$398
  
  $   (847
  )
  $(102
  )Current income tax
  expense (recovery)Canadian
  
  $105
  
  $      71
  
  $   81Foreign
  
  4
  
  4
  
  (13
  )$109
  
  $      75
  
  $   68Future income tax
  recoveryCanadian
  
  $ (28
  )
  $    (79
  )
  $  (14
  )Foreign
  
  (30
  )
  (140
  )
  (55
  )$ (58
  )
  $  (219
  )
  $  (69
  )Total income tax expense
  (recovery)
  
  $  51
  
  $  (144
  )
  $    (1
  )  16. Employee Future Benefits  PENSION PLANS NOVA Chemicals sponsors both defined benefit and
defined contribution pension arrangements.  Defined benefit pensions at retirement are
mainly related to years of service and remuneration during the last years of
employment with some plans having limited or conditional indexing provisions. One
plan has provisions whereby the benefits are related to career average
salaries. Actuarial reports are prepared regularly by independent actuaries for
accounting and funding purposes using the projected unit credit method. The
last actuarial valuation for all significant plans in North America and Europe
was as of Dec. 31, 2006.  Plan assets are measured at fair value while
pension obligations are discounted using current yield rates of high quality
corporate bonds with terms to maturity that approximate the duration of the
Corporations pension liabilities. The plans assets consist primarily of
publicly traded equity and fixed income securities. The Corporation used a
measurement date of Nov. 30 for its 2005 pension and post-retirement
plans. Effective Jan. 1, 2006, the Corporation changed its measurement
date of Nov. 30 to Dec. 31 for its pension and post-retirement plans.
The Dec. 31 measurement date was used in 2007 and will be used
consistently in future periods.  On Sep. 28, 2007, NOVA Chemicals amended
certain U.S. defined benefit plans. The amendments provided for benefits to be
frozen as of Jan. 1, 2008, and provide transition relief to plan
participants meeting certain age and service requirements. At the same time,
NOVA Chemicals also enhanced benefits under one of its U.S. defined
contribution plans. The defined benefit option of certain Canadian pension
plans was closed to new entrants on Jan. 1, 2000.  The restructuring that occurred in 2007 (see
Note 13) and the defined benefit pension plan amendments described above
triggered one or more of the following charges (benefits) during 2007: a
curtailment charge (benefit), a special termination charge and a settlement
charge. A curtailment charge (benefit) results from either the termination of   98Notes to Consolidated Financial Statements


employment earlier than previously assumed or
the significant reduction in future benefit accruals and requires the immediate
recognition of unrecognized amounts that were scheduled to be reflected in
future accounting periods. A special termination charge results from the
enhancements provided under the voluntary programs (e.g., additional years of
age and service). A settlement charge results when the total lump sums paid
during a given year exceed a certain threshold. In 2006, the North American
restructuring and redesign of certain European plans triggered one or more of
the aforementioned charges (benefits). The impact of these charges is reflected
in the tables on pages 99 and 100.  Upon commencement of the NOVA Innovene joint
venture (subsequently expanded to include North American assets and renamed
INEOS NOVA joint venture) in October 2005, the defined benefit pension
plans of each pre-joint venture entity were transferred to the NOVA Innovene
joint venture with the financial responsibility for pre-close assets and
liabilities retained by the pre-joint venture company and the financial
responsibility for post-close assets and liabilities assumed by the NOVA
Innovene joint venture. There is a specific arrangement to identify and
apportion the pre- and post-close assets and liabilities. Therefore, the
amounts presented in the defined benefit pension tables represent NOVA
Chemicals assets and obligations, for which it has provided an indemnity, and
its share of the post-close assets and obligations of NOVA Innovene subsequent
to Oct. 1, 2005.  Pension and post-retirement expense (included in
operating and selling, general and administrative costs) for all significant
defined benefit plans consisted of the following:  Pension
  Plans
  
  Post-Retirement
  Plansyear ended December 31
  (millions of dollars)
  
  2007
  
  2006
  
  2005
  
  2007
  
  2006
  
  2005Current service cost
  
  $  25
  
  $  27
  
  $  26
  
  $   2
  
  $   2
  
  $   2Interest cost on accrued
  benefit obligations
  
  46
  
  43
  
  39
  
  5
  
  5
  
  4Actual loss (return) on
  plan assets
  
  2
  
  (87
  )
  (55
  )
  
  
  
  
  Actuarial loss on
  accrued benefit obligations
  
  5
  
  28
  
  2
  
  
  
  
  
  Costs arising in the
  period
  
  78
  
  11
  
  12
  
  7
  
  7
  
  6Differences between
  costs arising in the periodand costs
  recognized in the period in respect ofthe long-term
  nature of employee futurebenefit costs:(Return) loss on
  plan assets
  
  (58
  )
  42
  
  18
  
  
  
  
  
  Transitional
  (asset) obligation
  
  (6
  )
  (6
  )
  (5
  )
  1
  
  1
  
  1Actuarial loss
  (gain)
  
  4
  
  (18
  )
  5
  
  1
  
  1
  
  1Past service and
  actual plan amendments
  
  
  
  
  
  1
  
  (1
  )
  (1
  )
  Net defined benefit cost
  recognized
  
  18
  
  29
  
  31
  
  8
  
  8
  
  8Curtailment / special
  termination (credit) charge
  
  (4
  )
  9
  
  
  
  
  
  5
  
  Settlement charge
  
  
  
  3
  
  
  
  
  
  
  
  Total benefit cost
  recognized
  
  $  14
  
  $  41
  
  $  31
  
  $   8
  
  $  13
  
  $   8     Notes to
Consolidated Financial Statements   99


The status of all significant defined benefit
pension and post-retirement plans is as follows:  Pension
  Plans
  
  Post-Retirement
  Plansyear ended December 31
  (millions of dollars, except as noted)
  
  2007
  
  2006
  
  2007
  
  2006Change in benefit
  obligationsBenefit
  obligation at beginning of year
  
  $ 821
  
  $ 797
  
  $ 83
  
  $ 70Current service
  cost
  
  25
  
  27
  
  2
  
  2Interest cost
  
  46
  
  43
  
  5
  
  5Experience loss
  
  14
  
  23
  
  7
  
  13Plan amendments
  
  
  
  (8
  )
  (10
  )
  (10
  )Curtailment/special
  (benefits) charges
  
  (20
  )
  (3
  )
  1
  
  6Settlement gain
  
  (3
  )
  (33
  )
  
  
  Employee
  contributions
  
  4
  
  8
  
  
  
  1Acquisition/divestiture
  
  1
  
  
  
  
  
  Benefits paid
  
  (57
  )
  (45
  )
  (5
  )
  (4
  )Foreign currency
  exchange rate loss
  
  119
  
  12
  
  7
  
  Benefit obligation at
  end of year
  
  $ 950
  
  $ 821
  
  $ 90
  
  $ 83Change in plan assetsFair value of
  plan assets at beginning of year
  
  $ 685
  
  $ 585
  
  $ 
  
  $ Actual (loss)
  return on plan assets
  
  (2
  )
  87
  
  
  
  Employer and
  employee contributions
  
  58
  
  83
  
  5
  
  4Settlement loss
  
  (3
  )
  (35
  )
  
  
  Acquisition/divestiture
  
  1
  
  
  
  
  
  Benefits paid
  
  (57
  )
  (44
  )
  (5
  )
  (4
  )Foreign currency
  exchange rate gain
  
  102
  
  9
  
  
  
  Fair value of plan
  assets at end of year
  
  $ 784
  
  $ 685
  
  $ 
  
  $ Funded statusPlan assets in
  deficiency of benefit obligation
  
  $(166
  )
  $(136
  )
  $(90
  )
  $(83
  )Unrecognized net
  transitional (asset) obligation
  
  (39
  )
  (38
  )
  9
  
  8Unrecognized
  prior service cost
  
  (6
  )
  (4
  )
  (17
  )
  (8
  )Unrecognized net
  actuarial loss
  
  229
  
  155
  
  30
  
  23Net amounts recognized
  in consolidated balance sheets
  
  $   18
  
  $  (23
  )
  $(68
  )
  $(60
  )Weighted-average assumptions used to determineend of year obligations
  
  2007
  
  2006
  
  2007
  
  2006Discount rate
  
  5.4
  %
  5.1
  %
  5.8
  %
  5.7
  %Assumed long-term rate
  of return on plan assets(1)
  
  7.5
  %
  7.4
  %
  
  
  Rate of increase in
  future compensation
  
  3.9
  %
  3.2
  %
  
  
  Long-term health care
  inflation(2)
  
  
  
  
  
  5.0
  %
  4.9
  %  (1)NOVA
Chemicals establishes an appropriate long-term rate of return for each plans
assets which reflects asset allocations within each plan as well as independent
views of long-term rate of return expectations for each asset class. (2)Ultimate
trend rate, expected to be achieved by 2013 for Canadian plans and 2014 for
U.S. plans. The assumed health care cost trend rate used to measure the 2007
expected cost of benefits covered by the plans is 9% on average.  POST EMPLOYMENT BENEFITS NOVA
Chemicals recorded a liability of $5 million in 2007; $5 million in 2006; and
$4 million in 2005 for the following: health and welfare benefit continuation
to disabled individuals and dependents until the earliest of the disableds
attainment of age 65, death or recovery; short-term disability income
continuation; and COBRA continuation for medical and dental benefits. This
liability is not included in the table above. A formal actuarial valuation is
performed every three years with the most current evaluation having been
performed as of Dec. 31, 2005.    100   Notes to Consolidated Financial
Statements


The plans are presented on the basis of accrued
benefit obligations, rather than accumulated benefit obligations. The accrued
benefit obligations and fair value of assets for NOVA Chemicals pension plans
in which the accrued benefit obligations exceed the fair value of plan assets,
as of each year end, are shown below:  Accrued
  Benefit
  
  Fair
  Value of(millions of dollars)
  
  Obligation
  
  AssetsDecember 31, 2007
  
  $901
  
  $727December 31, 2006
  
  $694
  
  $551  Expected benefit payments for the defined
benefitNotes to
Consolidated Financial Statementsnpension
plans and the post-retirement plans are as follows:  Post-Retirement(millions of dollars)
  
  Pension
  Plans
  
  Plans2008
  
  $  70
  
  $  62009
  
  $  39
  
  $  62010
  
  $  40
  
  $  72011
  
  $  42
  
  $  72012
  
  $  46
  
  $  7Five Years Thereafter
  
  $282
  
  $39  In 2008, NOVA Chemicals expects to fund its
defined benefit pension plans by $40 million.  DEFINED BENEFIT PLAN ASSETS The investment strategy for NOVA Chemicals
defined benefit plans is determined by the trustees for each plan after taking
into consideration the plan structure, nature of the liabilities, the funded
status and cash flow requirements of the plan; the size of the assets; and the
financial situation of the Corporation and its ability to withstand
fluctuations in pension contributions. For the significant plans,
asset-liability modeling has been utilized to assist in setting the investment
strategy. The assets of each plan are invested in a variety of traditional
financial instruments such as equities and fixed income securities using a combination
of active and passive strategies. Non-traditional assets such as real estate
and venture capital may also be considered in certain situations. Although the
Corporation does not consider derivatives a separate asset class, they are
permitted in order to manage the allocation of investments across asset
classes, markets and currencies. However, under no circumstances can they be
used for speculative purposes or have the effect of leveraging the assets.  While most of the benefits of diversification
are achieved by allocating across different asset classes, the Corporation also
believes it may be appropriate to further diversify by using multiple
investment managers and employing different management styles within an asset
class.  NOVA Chemicals Canadian and U.S. plans are the
most significant to the Corporation with 85% of total pension assets. The asset
allocation for these pension plans at the end of 2007 and 2006, and the target
allocation for 2008, by asset category, follow. This information has been
aggregated within a geographic segment as asset allocations are similar for the
Canadian and U.S. plans.  North American Plans Asset Category
  
  Target
  Allocation
  
  Percentage
  of Plan AssetsYear ended December 31
  
  2008
  
  2007
  
  2006Equities
  
  60
  %
  58
  %
  61
  %Fixed Income
  
  40
  %
  42
  %
  39
  %Total
  
  100
  %
  100
  %
  100
  %  The investment strategies for the pension plans
in Europe (most of which are sponsored by INEOS NOVA) differ significantly
across countries and from NOVA Chemicals North American plans. The different
strategies reflect considerable variations in plan membership, plan liability
structure, pension arrangements and plan asset size. Some European plans are
re-insured with the investment strategy and asset allocation determined or
heavily influenced by the re-insurer.    Notes
to Consolidated Financial Statements   101


POST-RETIREMENT BENEFITS OTHER THAN PENSIONS The Corporation provides medical care and life
insurance benefits to eligible retirees and their dependents in North America.
The Corporation accrues the cost of providing post-retirement benefits as the
employees provide services. Post-retirement costs are funded as they are
incurred.  A 1% increase in the health care inflation rate
would have increased the post-retirement benefit obligation by an additional $8
million at Dec. 31, 2007, for Canadian plans and $4 million for U.S.
plans. A 1% decrease in the same health care inflation rate would have
decreased the post-retirement benefit obligation by $7 million and $3 million
for the Canadian and U.S. plans, respectively.  DEFINED CONTRIBUTION ARRANGEMENTS NOVA Chemicals has a number of defined
contribution arrangements providing pension benefits to certain groups of
employees. The total expense for the Corporations contribution to these plans
was $8 million in 2007; $8 million in 2006; and $7 million in 2005. In 2008,
NOVA Chemicals expects to fund its defined contribution plans by approximately
$14 million. This increase in funding reflects the Corporations decision to
freeze the U.S. salaried defined benefit plan and to enhance contributions to
the U.S. defined contribution plan.  17. Asset Retirement Obligations  The Corporations asset retirement obligations
are comprised of expected costs to be incurred upon termination of operations
and the closure of active manufacturing plant facilities. The total
undiscounted amount of estimated cash flows expected to be incurred on closure
of active plants in 25 to 40 years is between $225 million and $250 million.
This amount is based on third-party cost estimates obtained from reputable
sources after an in-depth review of active plant sites and required clean-up
and restoration activities. In arriving at the estimated asset retirement
obligation, a credit-adjusted risk-free rate of 10.5% was used to discount the
estimated future cash flows. The estimated asset retirement obligation
liability of $23 million at Dec. 31, 2007, will increase, or accrete, each
year over the lives of active plants until it equals the $225 million to $250
million expected to be incurred on closure of the plants.  year ended December 31
  
  2007
  
  2006Beginning of year
  
  $20
  
  $18Obligations contributed
  to INEOS NOVA joint venture
  
  (3
  )
  Increase in present
  value of the obligations (accretion expense)
  
  2
  
  2Liabilities recorded
  from INEOS NOVA
  
  4
  
  End of year
  
  $23
  
  $20  18. Contingencies and Commitments  Various lawsuits and claims are pending by and
against the Corporation. It is the opinion of management that final
determination of these claims will not materially affect the financial position
or operating results of the Corporation.  The Corporation leases office space and
transportation equipment under various operating leases. The minimum lease
payments are approximately $490 million in total with annual amounts of $51
million in 2008, $48 million in 2009, $45 million in 2010, $39 million in 2011,
$37 million in 2012, and $270 million thereafter. Rental expense under
operating leases was $61 million in 2007 (2006  $62 million and 2005  $63
million).  The
Corporation has entered into agreements for the purchase of minimum amounts of
feedstock and other raw materials for short- and long-term supply. The
resulting obligations, based on year-end market prices, are approximately
$8,990 million in total with annual amounts of $2,811 million in 2008, $1,173
million in 2009, $895 million in 2010, $474 million in 2011, $471 million in
2012 and $3,166 million thereafter.    102   Notes to Consolidated Financial
Statements


The Corporation is obligated under several
long-term ethylene and benzene feedstock supply agreements to supply INEOS NOVA
with up to 441 million pounds of ethylene and 65 million gallons of benzene
annually. The agreements run through December 2022. NOVA Chemicals also
agreed to provide IT support and lease office space to INEOS NOVA through December 2008.  19. Segmented Information  NOVA Chemicals considers both qualitative and
quantitative factors in determining reportable segments. Before applying
quantitative analyses, NOVA Chemicals aggregates the business segments with
similar economic characteristics and business segments with similarities in
each of the following areas: nature of the product and service, nature of the
production process, type or class of customer, methods used to distribute the
products or provide the services and, if applicable, the nature of the
regulatory environment. Based on the aggregation of the operating segments, NOVA
Chemicals performs quantitative tests based on revenue, profit and loss and
assets.  NOVA Chemicals has reviewed its reportable
business segments as a result of the commencement of the expansion of its then
existing European joint venture with INEOS to include the North American
STYRENIX assets (see Note 5). Based on results of the quantitative and
qualitative analyses performed, NOVA Chemicals reduced the number of reportable
segments from seven to five. NOVA Chemicals has collapsed the former STYRENIX segments
(styrene monomer, North American polystyrene and European joint venture) into
one segment to reflect the way in which the chief operating decision maker
receives information to allocate resources and assess performance
prospectively. This change does not impact the operation of the business units
or the previously reported financial position, results of operations or cash
flows. Prior periods have been restated accordingly.  (1) JOFFRE OLEFINS Products:Ethylene
and co-products, including propylene, crude C4 and crude C5 hydrocarbons and
hydrogen.  Applications:Ethylene
is used internally by NOVA Chemicals to produce polyethylene or sold to third
parties who use ethylene to produce polyethylene and other products.  (2) CORUNNA OLEFINS Products:Ethylene
and co-products, including propylene, crude C4 hydrocarbons, C5 dienes,
dicyclopentadiene, aromatics, C9 resin oils, hydrogen and fuels. Feedstock mix
determines the type and volume of co-products manufactured.  Applications:Ethylene
is used internally by NOVA Chemicals to produce polyethylene or sold to
customers who use the ethylene to make other products. Chemical co-products are
building blocks that are used by customers to make items such as tires, carpet
and clothing fibers and household goods. Energy co-products are primarily used
by customers for fuel.  (3) POLYETHYLENE Products:LLDPE,
LDPE and HDPE.  Applications:Polyethylene
is sold to customers for production of a variety of end-use industrial and
consumer products. Consumer products include packaging film, plastic bags,
bottles and toys. Industrial applications include storage drums, industrial
wrap, retail packaging, and building products.  (4) PERFORMANCE STYRENICS Products:EPS
and Styrenic Performance Polymers which include polymers such as ARCEL®and
DYLARK®resins, as well as downstream business ventures. None of
these products exceed the quantitative threshold for separate reportable
segments.  Applications:EPS
is sold to customers who make products for end-use applications including
packaging for food and consumer products, and insulation for the building and
construction industry. Customers for Styrenic Performance Polymers make
protective packaging, automotive interiors, food packaging, consumer goods,
appliances and components for the construction industry.    Notes to
Consolidated Financial Statements   103


(5) INEOS NOVA JOINT VENTURE Products:Styrene,
North American SPS, European EPS and SPS, ZYLAR®and NAS®resins.  Applications:Styrene
is used internally by INEOS NOVA to produce styrenic polymers or sold to
customers who use styrene to produce styrenic polymers and other products such
as synthetic rubber and unsaturated polyesters. SPS is sold to customers who
make products for end-use applications including electronics and food
packaging, small appliances and construction components. EPS is sold to
customers who make products for end-use applications including packaging for
food and consumer products, and insulation for the building and construction
industry. ZYLAR and NAS are high-clarity styrene acrylic co-polymers and blends
or alloys thereof with added strength. They are used in medical applications,
clear household appliance applications and computer housings.  CORPORATE Corporate includes all stock-based compensation
and profit sharing costs, all unrealized gains and losses on the stock-based
forward transaction and mark-to-market feedstock derivatives and all
restructuring and corporate operating costs. Beginning in the first quarter of
2007, NOVA Chemicals no longer allocates interest, income taxes or corporate
operating costs to the business segments. Prior periods have been revised to
reflect this change. Operating costs include corporate depreciation.  The accounting policies of the segments are the
same as those described in the summary of significant accounting policies on pages 75
to 81 of the Notes to Consolidated Financial Statements.  Segment performance is evaluated based on
measures of profit or loss. Adjusted EBITDA is the measure of profit or loss
used by management and used by investors to evaluate the ability of each
segment to generate operating cash flow.  NOVA
Chemicals accounts for intersegment sales and transfers as if the sales or
transfers were to third parties, that is, at current market price.    104   Notes to Consolidated Financial
Statements


The following tables provide information for
each segment:  Revenue
from External Customers(1) 2007
  
  2006
  
  2005Joffre Olefins
  
  $    970
  
  $    881
  
  $    963Corunna Olefins
  
  1,334
  
  1,245
  
  897Polyethylene
  
  2,016
  
  1,917
  
  1,625Performance Styrenics
  
  402
  
  375
  
  360INEOS NOVA Joint Venture
  
  2,080
  
  2,163
  
  1,893Eliminations
  
  (70
  )
  (62
  )
  (122
  )Total revenue from
  external customers
  
  $ 6,732
  
  $ 6,519
  
  $ 5,616  (1)Third-party.  Intercompany
and Affiliate Revenue 2007
  
  2006
  
  2005Joffre Olefins
  
  $    833
  
  $    863
  
  $    741Corunna Olefins
  
  741
  
  752
  
  533Polyethylene
  
  6
  
  5
  
  3Performance Styrenics
  
  10
  
  10
  
  3INEOS NOVA Joint Venture
  
  12
  
  23
  
  44Eliminations
  
  (1,602
  )
  (1,653
  )
  (1,324
  )Total intercompany and
  affiliate revenue
  
  $      
  
  $      
  
  $        Total
Revenue(1) 2007
  
  2006
  
  2005Joffre Olefins
  
  $ 1,803
  
  $ 1,744
  
  $ 1,704Corunna Olefins
  
  2,075
  
  1,997
  
  1,430Polyethylene
  
  2,022
  
  1,922
  
  1,628Performance Styrenics
  
  412
  
  385
  
  363INEOS NOVA Joint Venture
  
  2,092
  
  2,186
  
  1,937Eliminations
  
  (1,672
  )
  (1,715
  )
  (1,446
  )Total revenue
  
  $ 6,732
  
  $ 6,519
  
  $ 5,616  (1)Before intersegment eliminations.  Adjusted
EBITDA(1) 2007
  
  2006
  
  2005Joffre Olefins
  
  $    588
  
  $    587
  
  $    340Corunna Olefins
  
  209
  
  93
  
  79Polyethylene
  
  196
  
  141
  
  234Performance Styrenics
  
  (5
  )
  (17
  )
  7INEOS NOVA Joint Venture
  
  17
  
  (43
  )
  (102
  )Corporate
  
  (102
  )
  (153
  )
  (110
  )Eliminations
  
  (18
  )
  (4
  )
  13Total adjusted EBITDA
  
  $    885
  
  $    604
  
  $    461Restructuring charges
  
  (86
  )
  (985
  )
  (168
  )Other gains
  
  20
  
  1
  
  8Interest expense
  
  (175
  )
  (168
  )
  (113
  )Depreciation and
  amortization
  
  (246
  )
  (299
  )
  (290
  )Income (loss) before
  income taxes
  
  $    398
  
  $   (847
  )
  $   (102
  )  (1)Net income (loss) before restructuring charges, other gains,
interest expense, depreciation and amortization and income taxes.    Notes to Consolidated Financial
Statements   105


Operating Income (Loss) 2007
  
  2006
  
  2005Joffre Olefins
  
  $    531
  
  $    537
  
  $    290Corunna Olefins
  
  144
  
  36
  
  30Polyethylene
  
  127
  
  75
  
  172Performance Styrenics
  
  (30
  )
  (29
  )
  (5
  )INEOS NOVA Joint Venture
  
  (4
  )
  (149
  )
  (211
  )Corporate
  
  (197
  )
  (1,146
  )
  (286
  )Eliminations
  
  (18
  )
  (4
  )
  13Total operating income (loss)
  
  $    553
  
  $   (680
  )
  $3Interest expense (net)
  
  (175
  )
  (168
  )
  (113
  )Other gains and losses
  (net)
  
  20
  
  1
  
  8Income tax (expense)
  recovery
  
  (51
  )
  144
  
  1Net income (loss)
  
  $    347
  
  $   (703
  )
  $   (101
  )  Depreciation and Amortization 2007
  
  2006
  
  2005Joffre Olefins
  
  $      57
  
  $      50
  
  $      50Corunna Olefins
  
  65
  
  57
  
  49Polyethylene
  
  69
  
  66
  
  62Performance Styrenics
  
  25
  
  12
  
  12INEOS NOVA Joint Venture
  
  21
  
  106
  
  109Corporate
  
  9
  
  8
  
  8Total depreciation and
  amortization
  
  $    246
  
  $    299
  
  $    290  Capital Expenditures 2007
  
  2006
  
  2005Joffre Olefins
  
  $      21
  
  $      25
  
  $      18Corunna Olefins
  
  63
  
  45
  
  204Polyethylene
  
  32
  
  23
  
  34Performance Styrenics
  
  10
  
  81
  
  86INEOS NOVA Joint Venture
  
  30
  
  24
  
  77Total capital
  expenditures
  
  $    156
  
  $    198
  
  $    419  Assets 2007
  
  2006Joffre Olefins
  
  $    874
  
  $    728Corunna Olefins
  
  1,395
  
  1,065Polyethylene
  
  1,170
  
  917Performance Styrenics
  
  367
  
  392INEOS NOVA Joint Venture
  
  683
  
  726Corporate
  
  378
  
  267Eliminations
  
  (31
  )
  (18
  )Total assets
  
  $ 4,836
  
  $ 4,077    106   Notes to Consolidated Financial
Statements


GEOGRAPHIC INFORMATION Revenue from External Customers(1) 2007
  
  2006
  
  2005Canada
  
  $2,333
  
  $2,304
  
  $1,976United States
  
  2,896
  
  2,757
  
  2,478Europe and Other
  
  1,503
  
  1,458
  
  1,162$6,732
  
  $6,519
  
  $5,616  (1)  Based on location of customer.  Assets(1) 2007
  
  2006Canada
  
  $3,320
  
  $2,827United States
  
  1,042
  
  857Europe and Other
  
  474
  
  393$4,836
  
  $4,077  (1)  Based on location of operating facility.  20. Financial Instruments  CATEGORIES OF FINANCIAL ASSETS AND FINANCIAL
LIABILITIES  Carrying amounts and net gains/(losses) of NOVA Chemicals
financial instruments are classified into the following categories:  December 31 (millions of dollars)Net gain
  (loss)Carrying
  amounts
  
  From
  interestincome
  
  Unrealized
  
  Net gain2007
  
  (expense),
  net
  
  gain
  (loss)
  
  (loss)Held-for-trading(1)
  
  $    120
  
  $     (2
  )
  $     37
  
  $     35Loans and receivables(2)
  
  $    584
  
  2
  
  
  
  2Available-for-sale
  securities(3)
  
  $      15
  
  
  
  (1
  )
  (1
  )Other financial
  liabilities(4)
  
  $ 2,851
  
  (154
  )
  
  
  (154
  )$ (154
  )
  $     36
  
  $ (118
  )  (1)  Reported
at fair value and classified as held-for-trading in accordance with CICA Section 3855
and includes: Cash and cash equivalents and derivative instruments (see Notes
3, 5, 7 and 9). (2)  Reported
at amortized cost, which approximates fair value and includes: trade accounts
receivable, advances receivable from affiliates, other receivables (see Note 3)
and note receivable (see Notes 3 and 5), and Restricted cash and other assets. (3)  Includes
investments in non-affiliated entities with quoted market prices in an active
market totaling $4 million and investments in non-affiliated entities that do
not have quoted market prices in an active market totaling $11 million which
are carried at cost (see Note 5). (4)  Reported at amortized cost and includes: trade
accounts payable, other accounts payable and certain accrued liabilities (see
Note 7); bank loans; long-term debt, excluding obligations under capital leases
(see Note 8); and certain long-term liabilities (see Note 9).  FINANCIAL INSTRUMENT FAIR VALUES Financial instrument fair values represent a
reasonable approximation of amounts NOVA Chemicals would have received or paid
to counterparties to unwind positions prior to their maturity. NOVA Chemicals
has no plans to unwind these positions prior to maturity and has no significant
exposure to any individual customer or counterparty.  The
carrying amounts reported on the Consolidated Balance Sheets for Cash and cash
equivalents (included in the held-for-trading category), loans and receivables
and other financial liabilities (excluding Long-term debt) approximate their
fair value. Fair values and carrying amounts for long-term debt are as follows:    Notes to Consolidated Financial
Statements   107


December 31 (millions of dollars)
  
  Carrying
  Amount(1)
  
  Estimated
  Fair Value(2)2007
  
  2006
  
  2007
  
  2006Long-term debt
  
  $1,794
  
  $1,844
  
  $1,798
  
  $1,819  (1)  Includes
debt installments due within one year. (2)  The fair value of long-term debt is based on
quoted market prices, where available. Preferred shares can not be valued from
a market perspective, therefore the value is 
based on their face value, less related deferred gain.  FOREIGN EXCHANGE RISK MANAGEMENT NOVA Chemicals has U.S., Canadian and
European-based petrochemical operations and a Canadian functional currency. As
a result, the Corporation is exposed to currency risks from its investing,
financing and operating activities. Risks from foreign currencies may be hedged
using cash contracts, spot contracts, forward contracts and swap transactions
to minimize the gains and losses due to short-term foreign currency exchange
rate fluctuations. The exposure that may be hedged in accordance with the
Companys foreign exchange policy is limited to operational transaction
exposure and is generally used only to balance out NOVA Chemicals cash
positions. Foreign currency risks resulting from the translation of assets and
liabilities of foreign operations into NOVA Chemicals functional currency are
generally not hedged; however, NOVA Chemicals may decide to hedge this risk
under certain circumstances.  Foreign currency risks may also result from
certain investing activities such as the acquisition and disposal of
investments in foreign companies, and may be caused by financial liabilities in
foreign currencies and loans in foreign currencies that are extended to
affiliated entities for financing purposes. These risks also generally are not
hedged.  NOVA Chemicals subsidiaries and affiliated
entities generally execute their operating activities in their respective
functional currencies. NOVA Chemicals normally does not use currency
derivatives to hedge such payments.  At Dec. 31, 2007, NOVA Chemicals had an
outstanding foreign currency swap for the purpose of balancing the Companys
cash position. The swap was set up to buy $63 million Canadian dollars (sell
$63.6 million U.S. dollars) for value on Dec. 31, 2007, and sell $63
million Canadian dollars (buy $63.6 million U.S. dollars) on Jan. 2, 2008.
The fair value of the swap was not material to the Consolidated Financial
Statements.  At Dec. 31, 2007, INEOS NOVA had several
short-term foreign currency swaps outstanding maturing through Feb. 29,
2008. NOVA Chemicals 50% share of the swaps fair value is a gain of $1 million
and is included in Feedstock and operating costs on the Consolidated Statements
of Income (Loss).  For the disclosure of market risks including
foreign currency risk, commodity price risk and interest rate risk, CICA Section 3862
requires a sensitivity analysis that shows the effects of reasonably possible
changes in relevant risk variables on after-tax income and other comprehensive
income. The periodic effects are determined by relating the reasonably possible
changes in the risk variables to the balance of financial instruments at the
reporting date.  Currency risks, as defined by CICA Section 3862,
arise when a monetary financial instrument is denominated in a currency that is
not the functional currency. Differences resulting from the translation of the
consolidated financial statements into NOVA Chemicals reporting currency are
not taken into consideration in such sensitivity analysis. Relevant risk
variables are generally all non-functional currencies in which NOVA Chemicals
has financial instruments.  At
Dec. 31, 2007, NOVA Chemicals assessed the effect of a reasonably possible
change in the Canadian dollar and Euro relative to the U.S. dollar. There was
no material effect on after-tax income and other comprehensive income.  STOCK PRICE VOLATILITY RISK MANAGEMENT In 2005, the Corporation entered into
cash-settled share forward transactions to manage its exposure to fluctuations
in its stock-based compensation costs related to its two cash-settled
stock-based incentive compensation plans (the restricted stock unit plan and
the equity appreciation plan). Compensation costs associated with the plans
fluctuate as a result of changes in the market price of the Corporations
common stock. In 2005, the Corporation entered into forward transactions for a
total of 3,612,100 notional common shares with an average forward price of U.S.
$45.66. The forward transactions are cash-settled at the end of a three-year
term (November 2008), or at any time prior to that date, at the option of the
Corporation, based on the difference between the Corporations common stock
price on the NYSE and the average execution price. If the Corporations common
stock price is in excess of the average execution price on the settlement date,
the Corporation will receive the difference per share in cash, and if the
Corporations common stock price is less than    108   Notes to Consolidated Financial
Statements


the average execution price, the Corporation will
pay the difference per share in cash. The forward transactions include an
interest component which is accrued and payable by the Corporation on
settlement of the forward transactions. The average execution price is
determined by reference to the average forward price, less the interest
component, and is $37.56. If the Corporations common stock price is in excess
of the average execution price, an unrealized gain is recorded and if the
Corporations common stock price is below the average execution price, an
unrealized loss is recorded. Unrealized gains and losses associated with the
share forward transactions are recorded as part of Selling, general and
administrative expenses, offsetting unrealized losses or gains on the
cash-settled stock-based incentive compensation plans, and as long-term
receivables or payables. At Dec. 31, 2007, the mark-to-market value of the
share forward transactions was a $19 million (Dec. 31, 2006  $35 million
and Dec. 31, 2005  $15 million) unrealized loss, resulting in a liability.
At Dec. 31, 2007, this liability is reported in accrued liabilities (2006 
reported in long-term liabilities), since the forward transactions are due to
expire in November 2008.  COMMODITY PRICE RISK MANAGEMENT NOVA Chemicals uses commodity-based derivatives
to manage its exposure to price fluctuations on crude oil, refined products and
natural gas transactions. The instruments are used to moderate the risk of
adverse short-term price movements. Occasionally, longer-term positions will be
taken to manage price risk for anticipated supply requirements. The extent to
which commodity-based derivatives are used depends on market conditions and
requires adherence to the Companys hedging policy. NOVA Chemicals limits its
positions in futures markets to proprietary feedstock requirements and does not
use derivative instruments for speculative purposes.  HEDGING Commodity swaps are sometimes used and
designated as fair value hedges intended to hedge the fair value of NOVA
Chemicals crude inventory against adverse changes in the market price. At
inception of a hedging relationship, the Company documents the relationship
between the hedging instrument and the hedged item, its risk management
objective and its strategy for undertaking the hedge. The Company also requires
a documented assessment, both at hedge inception and on an ongoing basis, of
whether or not the derivatives that are used in hedging transactions are highly
effective in offsetting the changes in the fair value of the hedged items. Open
commodity-based derivatives as of Dec. 31, 2007 used to hedge NOVA
Chemicals crude inventory value matured in January 2008. Unrealized gains
and losses on derivative instruments designated and qualifying as fair value
hedging instruments, as well as the offsetting unrealized gains and losses on
the hedged items, are included in income in the same accounting period. There
was no hedge ineffectiveness recognized in consolidated net income during 2007.  In addition, the Company utilizes options, swaps
and futures instruments that are effective as economic hedges of commodity
price exposures, but do not meet the hedge accounting criteria of CICA Section 3865.
The Corporation has recognized a net pre-tax gain of $58 million from commodity
risk management activities in income (loss) for the year ended Dec. 31,
2007 (2006  $6 million loss and 2005  $19 million gain). This net gain (loss)
is the result of $38 million (2006  $15 million and 2005  $7 million) of net
realized gains from settled, crystallized, and liquidated positions and $21
million (2006  $20 million loss and 2005  $12 million gain) of net
mark-to-market gains (losses) on unrealized positions. Gains and losses on
commodity-based derivatives are included in Feedstock and operating costs in
the Consolidated Statements of Income (Loss).  At Dec. 31, 2007, 2006 and 2005, there are
no outstanding derivative contracts for natural gas or benzene.  At Dec. 31, 2007, 2006 and 2005, the
notional volume and estimated fair value of outstanding derivative contracts for
crude oil, refined products, and alternative feedstock that do not qualify for
hedge accounting are as follows:  December 31
  
  
  
  2007
  
  2006
  
  2005Notional volume(1)
  
  millions bbls
  
  13.8
  
  17.8
  
  5.4Weighted-average price
  per bbl
  
  U.S.
  
  $53.40
  
  $52.69
  
  $51.56Estimated fair value(2)
  
  U.S. millions
  
  $     22
  
  $      (2
  )
  $     19Mark-to-market(3)
  
  U.S. millions
  
  $     22
  
  $      (2
  )
  $     19Term to maturity
  
  Months
  
  1-39
  
  1-21
  
  1-19  (1)  2007
includes 5.5 million bbls (2006  7.5 million and 2005  2.3 million) of crude
contracts and 8.3 million bbls (2006  10.3 million and 2005  3.1 million) of
LPG contracts. (2)  Unrealized
gain (loss) determined using standard pricing models with market-based inputs,
including energy futures price profiles and counterparty price curves. (3)  Recognized before-tax gain (loss), which for
2005 is net of deferred transitional gains.    Notes to Consolidated Financial
Statements   109


At Dec. 31, 2007, the notional volume and
estimated fair value of outstanding derivative contracts for crude oil, refined
products, and alternative feedstock that do qualify for hedge accounting are as
follows:  December 31
  
  
  
  20072007 Notional volume(1)
  
  millions bbls
  
  0.75Weighted-average price
  per bbl
  
  U.S.
  
  $92.15Estimated fair value(2)
  
  U.S. millions
  
  $      (2
  )Mark-to-market(3)
  
  U.S. millions
  
  $      (2
  )Term to maturity
  
  Months
  
  1  (1)2007
includes 0.75 million bbls crude contracts. (2)Estimated
fair values determined by calculating mark-to-market value of hedge positions
using market-based energy futures price profiles and counterparty price curves. (3)Recognized
before-tax loss.  Variable feedstocks are the single largest
component of NOVA Chemicals costs and account for 70%-80% of the total cost of
its products. NOVA Chemicals primary feedstocks include ethane, propane,
butane, crude oil, benzene and natural gas. Feedstock costs heavily influence
the price of the Companys products.  For the disclosure of market risks, CICA Section 3862
requires sensitivity analyses that show the effects of reasonably possible
changes in relevant risk variables on after-tax income and other comprehensive
income. The periodic effects are determined by relating the reasonably possible
changes in the risk variables. The following table illustrates how changes in
various feedstock costs could affect NOVA Chemicals after-tax income and other
comprehensive income and are based on 2007 actual consumption volumes.  Increase inIncrease in
  
  OtherAfter-Tax
  
  Comprehensiveyear ended December 31,
  2007 (millions of U.S. dollars)
  
  Income
  
  IncomeDecrease in natural gas
  cost by U.S. 10¢ per mmBTU
  
  $7.7
  
  $7.7Decrease in benzene cost
  by U.S. 5¢ per gallon
  
  12.2
  
  12.2Decrease in propane cost
  by U.S. 65¢ per barrel
  
  1.5
  
  1.5Decrease in butane cost
  by U.S. 72¢ per barrel
  
  2.9
  
  2.9Decrease in crude
  oil/condensate cost by U.S. $1 per barrel
  
  11.8
  
  11.8  INTEREST RATE RISK MANAGEMENT The Company manages its interest rate risk by
balancing its exposure to fixed and variable rates while attempting to minimize
its interest costs. When deemed appropriate, NOVA Chemicals enters into
interest rate swap agreements to manage its interest rate price risk exposure
on certain fixed-rate debt. The agreements generally involve the receipt of
fixed-rate amounts in exchange for floating-rate LIBOR-based payments over the
terms of the related debt. In 2007, the Company had no floating-for-fixed
interest rate swaps outstanding. In 2006 and 2005, the Company had
floating-for-fixed interest rate swaps outstanding on $300 million of
medium-term notes, which expired upon repayment of the related debt in May 2006.
These positions had an estimated fair market value of $0 at Dec. 31, 2006.  In prior years, a series of interest rate swaps
on $550 million of fixed-rate debt were liquidated, resulting in a before-tax
gain of $40 million in total. The gains have been deferred and are being
recognized in income (loss) as a reduction of interest expense over the terms
of the related debt instruments, of which $300 million matured in 2006 and $250
million matures in 2009. As a result of NOVA Chemicals adoption of CICA Section 3865
at Jan. 1, 2007, the deferred gain of $4 million was reclassified, on a
prospective basis, from Accounts payable and accrued liabilities and Deferred
credits and long-term liabilities to Long-term debt.  For the disclosure of market risks, CICA Section 3862
requires a sensitivity analysis that shows the effects of reasonably possible
changes in relevant risk variables on after-tax income and other comprehensive
income. The periodic effects are determined by relating the reasonably possible
changes in the risk variables to the balance of financial instruments at the
reporting date. For purposes of this analysis, long-term debt balances as of Dec. 31,
2007, were used.  Interest rate risk is defined as the risk that
the fair value or future cash flows of a financial instrument will fluctuate
because of changes in market interest rates. Changes in the market interest
rates of long-term debt with fixed interest rates only affects net income if
such debt is measured at fair value. All of NOVA Chemicals fixed-rate long-term
debt is carried at amortized cost and therefore is not subject to interest rate
risk.   110   Notes to
Consolidated Financial Statements


Changes in market interest rates would affect
interest expense of NOVA Chemicals variable rate, long-term debt which is
included in the sensitivity analysis calculation.  At Dec. 31, 2007, if interest rates at that
date had been 1% lower, with all other variables held constant, after-tax
income and other comprehensive income for the year would have been $6 million
higher, arising mainly as a result of lower interest expense on variable rate
borrowings.  LIQUIDITY RISK MANAGEMENT NOVA Chemicals financial liabilities mature as
follows:  Due betweenDue within
  
  1 year and
  
  Due afterDecember 31, 2007
  (millions of U.S. dollars)
  
  1 year
  
  5 years
  
  5 years
  
  TotalBank loans
  
  $       3
  
  $     
  
  $  
  
  $       3Current Other
  liabilities (Note 7)
  
  1,123
  
  
  
  
  
  1,123Commodity-based
  derivatives (Notes 7 and 9)
  
  1
  
  
  
  
  
  1Equity derivative (Note
  7)
  
  19
  
  
  
  
  
  19Long-term debt (Note 8)Revolving credit
  facilities
  
  
  
  106
  
  
  
  106Unsecured
  debentures and notes
  
  125
  
  653
  
  500
  
  1,278Medium-term notes
  
  
  
  250
  
  
  
  250Preferred shares
  
  126
  
  
  
  
  
  126Other unsecured
  debt
  
  3
  
  17
  
  20
  
  40Other long-term
  liabilities (Note 9)
  
  
  
  59
  
  121
  
  180$1,400
  
  $1,085
  
  $641
  
  $3,126  A liquidity reserve in the form of cash and
undrawn revolving credit facilities is maintained to assist in the solvency and
financial flexibility of NOVA Chemicals. Liquidity reserves totaled $552
million at Dec. 31, 2007. Repayment of amounts due within one year may
also be funded by normal collection of current trade accounts receivable and
cash on-hand. Capital markets transactions, such as public debt issuances may
also be used in managing the balance between maturing obligations and available
liquidity.  CREDIT RISK MANAGEMENT Credit exposure on financial instruments arises
from the possibility that a counterparty to an instrument in which NOVA Chemicals
is entitled to receive payment of an unrealized gain fails to perform. NOVA
Chemicals has established a limit on contingent exposure for each counterparty
based on the counterpartys credit rating. Credit exposure is managed through
credit approval and monitoring procedures. NOVA Chemicals does not anticipate
that any counterparties it currently transacts with will fail to meet their
obligations. At Dec. 31, 2007, 2006 and 2005, NOVA Chemicals had no credit
exposure for foreign currency, interest rate or share-based instruments. At Dec. 31,
2007, NOVA Chemicals had $20 million credit exposure for commodity-based
instruments (2006  $0 and 2005  $19 million).  Concentration of credit risk relates primarily
to the Corporations receivables, as certain customer groups are located in the
same geographic area and operate in the same industry. NOVA Chemicals monitors
receivables based on two such concentrations: North America and Europe. At Dec. 31,
2007, approximately 82% of the Corporations receivables were from North
American customers and 18% were from customers in Europe. Trade receivables
over 30 days at Dec. 31, 2007, were immaterial and NOVA Chemicals
considers its trade receivables to be neither impaired nor past due. There is
no indication as of Dec. 31, 2007, that the debtors will not meet their
obligations. Bad debt write-offs during 2007 were also immaterial. The
Corporation manages its credit risk relating to these receivables through
credit approval and monitoring procedures. NOVA Chemicals establishes and
reviews limits for all active customers. Such limits are based on trade
information, payment history, credit score, credit rating and financial
analysis, where possible. All credit limits are subject to evaluation and
revision at any time based on changes in levels of credit worthiness; sales
orders cannot be processed unless a credit limit has been properly approved.
Customer credit risk ratings range from low (companies with investment grade
bond ratings and very strong financial conditions) to high business risk
(companies with an unstable financial condition, a strong possibility of
failure and slow payment). Accounts rated low to medium risk are reviewed and
approved every twelve months. Upper level management approval is needed for
customers with existing credit limits above $5 million. Accounts rated high
risk are reviewed every six months. It is sometimes necessary to increase
existing   Notes to Consolidated
Financial Statements   111


credit limits to accommodate rapid price
increases. In those cases, NOVA Chemicals may grant temporary credit limit
increases of up to 25%, subject to meeting certain conditions. High risk and
high business risk accounts are not eligible for temporary credit limit
increases. Customer accounts may be placed on credit watch when a slow
payment trend is noticed and the account balance consistently goes beyond the
approved payment terms or when credit limit review reveals the customers
financial condition is weakening. If necessary, NOVA Chemicals can utilize
credit insurance programs to ensure payment. NOVA Chemicals may also request
collateral when a customer does not meet the financial qualifications for the
size credit limit requested or there is a political or economical risk of
selling in a certain country. The most prominent forms of security used by NOVA
Chemicals are letters of credit and personal or corporate guarantees. Letters
of credit must be issued through acceptable banks with international standing.
At Dec. 31, 2007, NOVA Chemicals held collateral of approximately $21
million in a combination of letters of credit and personal guarantees from
various customers.  The maximum exposure to credit risk is
represented by the carrying amounts of the financial assets classified as loans
and receivables as reported on page 107.  21. United States Generally
Accepted Accounting Principles  RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN
THE UNITED STATES The Corporation prepares its consolidated financial
statements in accordance with Canadian GAAP, which, in some respects, are
different from U.S. GAAP. The effect of these differences on the Corporations
Consolidated Statements of Net Income (Loss) and Consolidated Balance Sheets
are as follows:  year
  ended December 31 (millions of dollars, except per share amounts)
  
  2007
  
  2006
  
  2005restated
  (9)
  restated
  (9)Net income (loss) in
  accordance with Canadian GAAP
  
  $ 347
  
  $ (703
  )
  $ (101
  )Add (deduct) adjustments
  for:Start-up costs(1)
  
  2
  
  (3
  )
  (13
  )Derivative
  instruments and hedging activities(2)
  
  (1
  )
  (2
  )
  (3
  )Inventory costing(3)
  
  7
  
  (1
  )
  (1
  )Stock-based
  compensation(4)
  
  3
  
  (1
  )
  Accounting for
  uncertainty in income taxes(5)
  
  6
  
  
  
  Restructuring(6)
  
  
  
  11
  
  Other
  
  
  
  1
  
  1Net income (loss) in
  accordance with U.S. GAAP
  
  $  364
  
  $ (698
  )
  $ (117
  )Earnings (loss) per
  share using U.S. GAAP Basic
  
  $ 4.39
  
  $(8.46
  )
  $(1.42
  ) Diluted
  
  $ 4.36
  
  $(8.46
  )
  $(1.42
  )Comprehensive income
  (loss) in accordance with Canadian GAAP
  
  $  581
  
  $ (649
  )
  $ (130
  )Add (deduct) adjustments
  to Canadian GAAP net income (loss) for:Start-up costs(1)
  
  2
  
  (3
  )
  (13
  )Derivative
  instruments and hedging activities(2)
  
  (1
  )
  (2
  )
  (3
  )Inventory costing(3)
  
  7
  
  (1
  )
  (1
  )Stock-based
  compensation(4)
  
  3
  
  (1
  )
  Accounting for
  uncertainty in income taxes(5)
  
  6
  
  
  
  Restructuring(6)
  
  
  
  11
  
  Other
  
  
  
  1
  
  1Pension liability
  adjustments (less tax of $21, $(4) and $6, respectively)(7)
  
  (45
  )
  8
  
  (9
  )Comprehensive income
  (loss) in accordance with U.S. GAAP
  
  $  553
  
  $ (636
  )
  $ (155
  )Accumulated other
  comprehensive incomeUnrealized loss
  on available-for-sale securities
  
  $     (1
  )
  $    
  
  $    Unrealized gain
  on translation of self-sustaining foreign operations
  
  613
  
  357
  
  303Pension liability
  adjustments(7)
  
  (127
  )
  (82
  )
  (12
  )Accumulated other
  comprehensive income in accordance with U.S. GAAP
  
  $  485
  
  $  275
  
  $  291   112   Notes to Consolidated Financial
Statements


December 31 (millions of
  dollars)
  
  2007
  
  2006Balance sheet items in
  accordance with U.S. GAAP(8)
  
  
  
  restated
  (9)Current assets(3)
  
  $ 1,653
  
  $ 1,265Investment and
  other assets(1)(7)
  
  150
  
  102Property, plant,
  and equipment (net)(1)(6)
  
  3,047
  
  2,719Current
  liabilities(2)(5)
  
  (1,420
  )
  (1,178
  )Long-term debt(2)
  
  (1,539
  )
  (1,584
  )Deferred income
  taxes(1)(2)(3)(4)(5)(6)(7)
  
  (409
  )
  (394
  )Deferred credits
  and long-term liabilities(2)(4)(5)(6)(7)
  
  (495
  )
  (464
  )Common
  shareholders equity(5)(7)
  
  $    987
  
  $    466  (1)Start-up Costs.Canadian GAAP provides that when starting up a new facility
or entity, expenditures incurred during the pre-operating period may be
deferred when certain criteria are met. Under U.S. GAAP, all costs (except interest
on constructed assets) associated with start-up activities must be expensed as
incurred. See Note 5 for information on the Corporations start-up costs. (2)DerivativeInstruments and Hedging Activities.CICA Section 3855
harmonizes Canadian and U.S. GAAP by establishing standards for recognition and
measurement of financial assets, liabilities and non-financial derivatives.
CICA Section 3865 harmonizes Canadian GAAP with U.S. GAAP SFAS No. 133
by establishing standards for when and how hedge accounting may be applied and
recorded. See Note 2 for further details. Certain differences that existed
before the implementation of the above standards on Jan. 1, 2007,
pertaining to the termination of interest rate swaps in 2002 continue to be
reconciling items between Canadian GAAP and U.S. GAAP. For information
regarding the Corporations use of derivatives and hedging activities under
Canadian GAAP, see Note 20. (3)Inventory Costing.Canadian GAAP allows fixed overhead costs
associated with production activities to be expensed during the period whereas
U.S. GAAP requires an allocation of fixed and variable production overhead to
inventory. (4)Stock-based compensation. Under Canadian GAAP, the Employee Incentive Stock Option
Plan is measured using a fair-value-based method, while the Equity Appreciation
Plan and the Restricted Stock Unit Plan are classified as liability instruments
and are marked-to-market based on intrinsic value. U.S. GAAP, SFAS No. 123(R),
Accounting for Share-Based Payment,
effective Jan. 1, 2006, requires the share-based compensation transactions
to be accounted for using a fair-value-based method, such as the Black-Scholes
method. The Company has adopted this standard using a modified prospective
application. The fair value of awards classified as liability instruments must
be remeasured at fair value subsequently at each reporting date through the
settlement date. Changes in fair value during the requisite service period will
be recognized as compensation cost over that period. The cumulative effect for
the periods prior to Dec. 31, 2005, of $5 million after-tax has been
charged to reinvested earnings (deficit) at Jan. 1, 2006. (5)Income Taxes.Beginning Jan. 1, 2007, FIN 48, Accounting
for Uncertainty in Income Taxes, became effective for U.S. GAAP
reporting. FIN 48 clarifies the accounting for uncertainty in income taxes by
prescribing a minimum recognition threshold that a tax position is required to
meet before being recognized. An entity is required to recognize the best
estimate of a tax position if that position is more likely than not to be
sustained upon examination, based solely on the technical merits of the
position. NOVA Chemicals adopted the provisions of FIN 48 on Jan. 1, 2007,
at which time a FIN 48 liability of $36 million was recognized by reclassifying
$34 million out of deferred tax liability and $4 million from the current tax
liability. This resulted in a $6 million increase in the liability for
unrecognized tax benefits and was accounted for as a reduction to the Jan. 1,
2007, U.S. GAAP balance in reinvested earnings. During 2007, these differences
have reversed and resulted in a $6 million decrease in tax expense for U.S.
GAAP purposes. Also, it is NOVA Chemicals policy to recognize interest and
penalties accrued related to unrecognized tax benefits in income tax expense.
At Dec. 31, 2007, NOVA Chemicals had approximately $4 million accrued for
the payment of interest and penalties. (6)Restructuring.Due to differences in the cost basis, under U.S. GAAP, of
certain assets for which an impairment charge has been recorded (see Note 13),
the resulting charge is lower under U.S. GAAP. (7)Pension Liability Adjustment.In 2006, for U.S. GAAP reporting, SFAS No. 158,
Employers Accounting for Defined Benefit Pension
and Other Postretirement Plans-an amendment of FASB Statements No. 87,
88, 106, and 132(R)  was effective. SFAS No. 158 requires an
employer to recognize the overfunded or underfunded status of a defined benefit
postretirement plan (other than a multiemployer plan) as an asset or liability
in its statement of financial position and to recognize changes in that funded
status in the year in which the changes occur through accumulated other
comprehensive income. Accordingly, at Dec. 31, 2006, the Corporation has
recognized an additional pension and post-retirement liability of $124 million,
resulting in a charge of $82 million (net of tax) to accumulated other
comprehensive income. In 2006 (prior to adoption of SFAS No. 158) and
2005, SFAS No. 87, Employers Accounting for
Pensions, was followed with respect to pension accounting, which
required an employer to record an additional minimum liability (AML) if the
unfunded accumulated benefit obligation exceeded the accrued pension liability
or if there was a prepaid pension asset with respect to the plan. If an AML was
recognized, an intangible asset, in an amount not exceeding the unrecognized
prior service cost, was also recognized. The excess of the AML, over the
intangible asset, if any, was charged to other comprehensive income, net of
income tax effects. At Dec. 31, 2007, NOVA Chemicals increased its SFAS No. 158
pension and post-retirement liability by $66 million, resulting in a charge of
$45 million (net of tax) to accumulated other comprehensive income. (8)Joint Ventures.NOVA Chemicals accounts for its interests in joint ventures
using the proportionate consolidation method under Canadian GAAP. As permitted
by specific United States Securities and Exchange Commission exemptions,
adjustments to reflect equity accounting, as required under U.S. GAAP, have not
been made. The equity method would not result in any changes in NOVA Chemicals
net income (loss) or shareholders equity; however, all assets, liabilities,
revenue, expenses, and most cash flow items would decrease when compared with
the amounts that are presented using proportionate consolidation. (9)Certain
costs that were previously included as inventoriable costs were removed in
2007. Prior periods have been restated.   Notes to Consolidated Financial Statements113


22. New Accounting Pronouncements  CANADIAN GAAP CICA 1535, Capital
Disclosures,applicable to interim and annual periods relating to
fiscal years beginning on or after Oct. 1, 2007, specifies disclosures of (1) information
about the entitys objectives, policies, and processes for managing capital
structure; (2) quantitative data about what the entity regards as capital;
and (3) whether the entity has complied with externally imposed capital
requirements (for example bank covenants) and if it has not complied, the
consequences of such non-compliance. NOVA Chemicals is currently evaluating the
effects of adopting this standard. Because the standard only affects disclosure
requirements, it is not expected to have an impact on the Companys financial
statements.  CICA 1400, General
Standards of Financial Statement Presentation,was amended to
include requirements to assess and disclose an entitys ability to continue as
a going concern. The new requirements are effective for interim and annual
financial statements relating to fiscal years beginning on or after Jan. 1,
2008. NOVA Chemicals does not expect the adoption of these changes to have an
impact on its financial statements.  CICA 3031, Inventories, replaces CICA 3030,
Inventories. The new standard is the Canadian equivalent to International
Financial Reporting Standard IAS 2, Inventories.
The main features of CICA 3031 are: (1) measurement of inventories at the
lower of cost and net realizable value, with guidance on the determination of
cost, including allocation of overheads and other costs to inventory; (2) cost
of inventories of items that are not ordinarily interchangeable and goods or
services produced and segregated for specific projects assigned by using a
specific identification of their individual costs; (3) consistent use (by
type of inventory with similar nature and use) of either first-in, first-out
(FIFO) or weighted-average cost formula; (4) reversal of previous
write-downs to net realizable value when there is a subsequent increase in
value of inventories; and (5) possible classification of major spare parts
and servicing stand-by equipment as property, plant and equipment (CICA 3061 Property, Plant and Equipment, was amended to reflect this
change). CICA 3031, applies to interim and annual financial statements relating
to fiscal years beginning on or after Jan. 1, 2008. NOVA Chemicals adopted
this standard on Jan. 1, 2008. Full absorption inventory costing is
estimated to result in a one-time credit on Jan. 1, 2008 to opening
reinvested earnings and a corresponding increase in opening inventory of $41
million ($33 million after-tax) as a result of full absorption costing.  EIC 169, Determining
Whether a Contract is Routinely Denominated in a Single Currency,provides
guidance on how under CICA 3855 to define or apply the term routinely
denominated in commercial transactions around the world when assessing
contracts for embedded foreign currency derivatives. It also determines what factors
can be used to determine whether a contract for the purchase or sale of a
non-financial item such as a commodity is routinely denominated in a particular
currency in commercial transactions around the world. EIC 169 must be applied
retrospectively to embedded foreign currency derivatives in host contracts that
are not financial instruments accounted for in accordance with Section 3855
in financial statements issued for interim and annual periods ending on or
after Mar. 15, 2008. NOVA Chemicals is evaluating the effects of adopting
this standard.  CICA
3064, Goodwill and Intangible Assets,will
replace CICA 3062, Goodwill and Other
Intangible Assets,and results in withdrawal of CICA 3450, Research and Development Costs,and
amendments to Accounting Guideline (AcG) 11, Enterprises
in the Development Stageand CICA 1000, Financial Statement Concepts.The standard intends to reduce
the differences with IFRS in the accounting for intangible assets and results
in closer alignment with U.S. GAAP. Under current Canadian standards, more
items are recognized as assets than under IFRS or U.S. GAAP. The objectives of
CICA 3064 are to reinforce the principle-based approach to the recognition of
assets only in accordance with the definition of an asset and the criteria for
asset recognition; and clarify the application of the concept of matching
revenues and expenses such that the current practice of recognizing as assets
items that do not meet the definition and recognition criteria is eliminated.
The standard will also provide guidance for the recognition of internally
developed intangible assets (including research and development activities),
ensuring consistent treatment of all intangible assets, whether separately
acquired or internally developed. These changes are effective for fiscal years
beginning on or after Oct. 1, 2008, with early adoption encouraged. NOVA
Chemicals is evaluating the effects of adopting this standard.   114   Notes to Consolidated Financial Statements


The Canadian Accounting Standards Board (AcSB)
has confirmed that the use of International Financial Reporting Standards (IFRS)
will be required in 2011 for publicly accountable profit-oriented enterprises.
IFRS will replace Canadas current GAAP for those enterprises. These include
listed companies and other profit-oriented enterprises that are responsible to
large or diverse groups of stakeholders. The official changeover date is for
interim and annual financial statements relating to fiscal years beginning on
or after Jan. 1, 2011. Companies will be required to provide comparative
IFRS information for the previous fiscal year. NOVA Chemicals is currently
evaluating the impact of adopting IFRS.  U.S. GAAP SFAS No. 157, Fair Value Measurements,defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. The statement applies also to other accounting pronouncements
which require or permit fair value measurements. The standard is effective for
fiscal years beginning after Nov. 15, 2007. NOVA Chemicals is evaluating
the effects of adopting this standard.  SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities,including
an amendment to SFAS No. 115, permits entities to choose to measure many
financial instruments and certain other items at fair value. Most of the
provisions of this Statement apply only to entities that elect the fair value
option. However, the amendment to SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities,applies
to all entities with available-for-sale and held-for-trading securities. SFAS No. 159
is effective as of the beginning of an entitys first fiscal year that begins
after Nov. 15, 2007. The adoption of this standard is not expected to have
a material impact on NOVA Chemicals consolidated financial statements.  SFAS
No. 141(R), Business Combinationsand
SFAS No. 160, Noncontrolling Interests
in Consolidated Financial Statements.Effective for fiscal years beginning
after Dec. 15, 2008, these standards will improve, simplify and converge
internationally the accounting for business combinations and the reporting of
noncontrolling interests in consolidated financial statements. SFAS No. 141(R) replaces
SFAS No. 141, Business Combinations.
SFAS No. 141(R) retains the fundamental requirements in SFAS No. 141
that the acquisition method of accounting (formerly called the purchase method)
be used for all business combinations and for an acquirer to be identified for
each business combination. The new statement improves reporting by creating
greater consistency in the accounting and financial reporting of business
combinations, resulting in more complete, comparable and relevant information
for investors and other users of financial statements. To achieve this goal,
the new standard requires the acquiring entity in a business combination to
recognize all (and only) the assets acquired and liabilities assumed in the
transaction; establishes the acquisition-date fair value as the measurement
objective for all assets acquired and liabilities assumed; and requires the
acquirer to disclose to investors and other users all of the information they
need to evaluate and understand the nature and financial statement effect of the
business combination. SFAS No. 160 amends Accounting Research Bulletin
(ARB) No. 51, Consolidated Financial
Statements,to establish accounting and reporting standards for the
noncontrolling interests in a subsidiary and for the deconsolidation of a subsidiary.
The new statement improves the relevance, comparability, and transparency of
financial information provided to investors by requiring all entities to report
noncontrolling (minority) interests in subsidiaries in the same way  as equity
in the consolidated financial statements. In addition, SFAS No. 160
eliminates the diversity that currently exists in accounting for transactions
between an entity and noncontrolling interests by requiring they be treated as
equity transactions and changes the way the consolidated income statement is
presented. NOVA Chemicals does not expect the adoption of these changes to have
an impact on its current financial statements; however, these changes may
affect potential future business.   Notes to
Consolidated Financial Statements   115