Exhibit 99.2  Consolidated Six-Year Review  (millions of U.S. dollars,
  except per share amounts,ratios and miscellaneous data)
  
  2006
  
  
  2005(1)
  
  2004(1)
  
  2003(1)
  
  2002
  
  2001Operating ResultsRevenue
  
  $
  6,519
  
  
  5,616
  
  5,270
  
  3,949
  
  3,091
  
  3,194Operating
  income (loss)
  
  $
  (680
  )
  
  3
  
  265
  
  (94
  )
  (71
  )
  (195
  )Net income
  (loss)
  
  $
  (703
  )
  
  (101
  )
  253
  
  (14
  )
  (112
  )
  (161
  )Total assets
  
  $
  4,155
  
  
  5,217
  
  5,047
  
  4,413
  
  4,154
  
  4,359CapitalizationCurrent bank
  loans
  
  $
  1
  
  
  1
  
  
  
  
  
  3
  
  14Long-term
  debt(2)
  
  1,877
  
  
  2,038
  
  1,714
  
  1,682
  
  1,793
  
  2,089Less: Cash
  and cash equivalents(3)
  
  (147
  )
  
  (238
  )
  (317
  )
  (284
  )
  (64
  )
  (92
  )Net debt(4)
  
  $
  1,731
  
  
  1,801
  
  1,397
  
  1,398
  
  1,732
  
  2,011Shareholders
  equity
  
  546
  
  
  1,215
  
  1,484
  
  1,301
  
  980
  
  1,033Total
  capitalization net of cash and cash equivalents(4)
  
  $
  2,277
  
  
  3,016
  
  2,881
  
  2,699
  
  2,712
  
  3,044Cash Flow DataCapital
  expenditures (net of project advances)
  
  $
  198
  
  
  419
  
  227
  
  119
  
  70
  
  168Cash
  provided by (used in) operating activities
  
  $
  324
  
  
  219
  
  335
  
  (26
  )
  314
  
  239Net debt
  additions (repayments)
  
  $
  (162
  )
  
  317
  
  15
  
  (157
  )
  (307
  )
  68Adjusted EBITDA(4)
  
  $
  604
  
  
  461
  
  570
  
  219
  
  215
  
  62Data per Common ShareNet income
  (loss) Basic
  
  $
  (8.52
  )
  
  (1.22
  )
  2.92
  
  (0.16
  )
  (1.30
  )
  (1.88
  ) Diluted
  
  $
  (8.52
  )
  
  (1.22
  )
  2.72
  
  (0.16
  )
  (1.30
  )
  (1.88
  )Common
  shareholders equity at year-end(4)(5)
  
  $
  6.62
  
  
  14.76
  
  16.00
  
  13.60
  
  12.40
  
  13.05RatiosReturn
  (loss) on average common equity(6)
  
  (55.6
  )%
  
  (7.5
  )%
  19.2
  %
  (0.8
  )%
  (11.1
  )%
  (13.5
  )%Net debt to
  total capitalization(4)
  
  76.0
  %
  
  59.7
  %
  48.5
  %
  51.8
  %
  63.9
  %
  66.1
  %Funds flow
  coverage of financial charges(4)(7)
  
  2.6
  x
  
  2.9
  x
  4.4
  x
  1.7
  x
  1.8
  x
  1.2
  xMiscellaneous DataEmployees at
  year-end
  
  3,300
  
  
  3,600
  
  4,100
  
  4,300
  
  4,300
  
  4,600Closing
  share price TSX ($Cdn)
  
  $
  32.50
  
  
  38.81
  
  56.70
  
  35.04
  
  28.89
  
  30.75 NYSE ($U.S.)
  
  $
  27.90
  
  
  33.40
  
  47.30
  
  26.95
  
  18.30
  
  19.27Dividends and distributionsCommon
  shares
  
  $
  29
  
  
  27
  
  28
  
  25
  
  23
  
  23  (1)
  2005, 2004 and 2003 have been retrospectively
  adjusted due to a change in accounting policy  see Note 2 of the Notes to
  Consolidated Financial Statements.(2)
  Long-term debt includes current portion of long-term
  debt.(3)
  Cash and cash equivalents include restricted cash
  associated with the preferred shares, which is classified in the Consolidated
  Balance Sheets in Restricted cash and other assets for 2006 and Investments
  and other assets for prior years.(4)
  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 62 of the
  Managements Discussion and Analysis.(5)
  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.(6)
  Net income (loss) divided by average common equity.(7)
  Funds from operations plus interest expense (net)
  less interest income divided by gross interest expense.  72   Consolidated 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 results of this work
have 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.
  MacDonaldPresident & Chief
  Executive Officer
  
  Senior Vice President &
  Chief Financial OfficerFebruary 8, 2007Calgary, Canada  Consolidated Financial Statements   73


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
Sates 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 NOVA Innovene joint venture via proportionate consolidation in
accordance with Canadian GAAP. Management has been unable to assess the
effectiveness of internal control within the joint venture due to the fact that
NOVA Chemicals does not have the ability to dictate or modify the controls of
the joint venture and does not have the ability, in practice, to assess those
controls. Managements conclusion regarding the effectiveness of internal
controls does not extend to the internal controls of the joint venture. The
2006 Consolidated Financial Statements of NOVA Chemicals included $230 million
and $130 million of total and net assets, respectively, related to the NOVA
Innovene joint venture, as of December 31, 2006, and $669 million and $32 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, 2006, 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, 2006, has also
issued a report on internal controls under Auditing Standard No. 2 of the
Public Company Accounting Oversight Board (United States). This report is
located on page 76 of this Annual Report.  Jeffrey M.
  Lipton
  
  Larry A.
  MacDonaldPresident & Chief
  Executive Officer
  
  Senior Vice President &
  Chief Financial OfficerFebruary 8, 2007Calgary, Canada  74Consolidated 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 December 31,
2006, 2005, and 2004 and the Consolidated Statements of Income (Loss) and
Reinvested Earnings (Deficit) and Cash Flows for each of the years in the
three-year period ended December 31, 2006. 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 ofNOVA
Chemicals Corporation as at December 31, 2006, 2005, and 2004 and the results
of its operations and its cash flows for each of the years in the three-year
period ended December 31, 2006 in accordance with Canadian Generally Accepted
Accounting Principles.  As discussed in Note 2 to the
Consolidated Financial Statements, the Corporation made changes to its method
of measuring stock-based compensation. In addition, as described in Note 21,
the Corporation has restated its segmented reporting for the years ended
December 31, 2005 and 2004.  We have also audited, in
accordance with the Standards of the Public Company Accounting Oversight Board
(United States), the effectiveness of NOVA Chemicals Corporations internal
control over financial reporting as of December 31, 2006, 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 8, 2007, expressed an unqualified opinion thereon.  Ernst &
  Young LLPChartered AccountantsFebruary 8, 2007Calgary, Canada  Consolidated Financial Statements   75


Independent Auditors 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 managements
assessment, included on page 74 of this annual report, that NOVA Chemicals
Corporation (NOVA Chemicals) maintained effective internal control over
financial reporting as of December 31, 2006, 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 managements assessment and 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 NOVA Innovene
joint venture, included in NOVA Chemicals 2006 Consolidated Financial
Statements and constituting $230 million and $130 million of total and net
assets, respectively, as of December 31, 2006, and $669 million and $32 million
of revenues and net loss, respectively, for the year then ended. Management did
not assess the effectiveness of internal control over financial reporting at
the joint venture because NOVA Chemicals does not have the ability to dictate
or modify the controls of the joint venture, nor the ability, in practice, to
assess those controls. Our audit of internal control over financial reporting
of NOVA Chemicals did not include an evaluation of the internal controls over
financial reporting of NOVA Innovene.  In our opinion, managements
assessment that NOVA Chemicals maintained effective internal control over
financial reporting as of December 31, 2006, is fairly stated, in all material
respects, based on the COSO criteria. Also, in our opinion, NOVA Chemicals
maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2006 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,
2006, 2005 and 2004 and the Consolidated Statements of Income (Loss) and
Reinvested Earnings (Deficit) and Cash Flows for each of the years in the
three-year period ended December 31, 2006, and our report dated February 8,
2007, expressed an unqualified opinion thereon .  Ernst &
  Young LLPChartered AccountantsFebruary 8, 2007Calgary, Canada  76   Consolidated Financial Statements


Consolidated Statements of Income (Loss)
And Reinvested Earnings (Deficit)  year ended December 31 (millions of U.S. dollars,
  except number of shares and per share amounts)
  
  2006
  
  
  2005(1)
  
  2004(1)Revenue
  
  $
  6,519
  
  
  $
  5,616
  
  $
  5,270Feedstock
  and operating costs
  
  5,663
  
  
  4,906
  
  4,378Depreciation
  and amortization
  
  299
  
  
  290
  
  297Selling,
  general and administrative
  
  201
  
  
  199
  
  274Research and
  development
  
  51
  
  
  50
  
  48Restructuring
  charges (Note 14)
  
  985
  
  
  168
  
  87,199
  
  
  5,613
  
  5,005Operating
  income (loss)
  
  (680
  )
  
  3
  
  265Interest
  expense, net (Note 8)
  
  (168
  )
  
  (113
  )
  (108
  )Other gains
  (Note 15)
  
  1
  
  
  8
  
  177(167
  )
  
  (105
  )
  69Income
  (loss) before income taxes
  
  (847
  )
  
  (102
  )
  334Income tax
  recovery (expense) (Note 16)
  
  144
  
  
  1
  
  (81
  )Net Income
  (Loss)
  
  $
  (703
  )
  
  $
  (101
  )
  $
  253Reinvested
  earnings, beginning of year
  
  381
  
  
  621
  
  584Changes in
  accounting policies (Note 2)
  
  
  
  
  
  
  (20
  )Common share
  repurchases (Note 10)
  
  
  
  
  (107
  )
  (155
  )Stock
  options retired for cash (Note 12)
  
  (3
  )
  
  (5
  )
  (13
  )Common share
  dividends
  
  (29
  )
  
  (27
  )
  (28
  )Reinvested
  earnings (deficit), end of year
  
  $
  (354
  )
  
  $
  381
  
  $
  621Weighted-average
  number of common shares outstanding (millions) Basic
  
  83
  
  
  83
  
  87 Diluted
  
  83
  
  
  83
  
  95Net income
  (loss) per common share (Note 10) Basic
  
  $
  (8.52
  )
  
  $
  (1.22
  )
  $
  2.92 Diluted
  
  $
  (8.52
  )
  
  $
  (1.22
  )
  $
  2.72  See accompanying Notes to Consolidated Financial
Statements.  (1)  2005 and 2004 have been retrospectively
adjusted due to a change in accounting policy  see Note 2.  Consolidated Financial Statements   77


Consolidated Balance Sheets  December 31 (millions of U.S. dollars)
  
  2006
  
  
  2005(1)
  
  2004(1)AssetsCurrent
  assetsCash and cash equivalents
  
  $
  75
  
  
  $
  166
  
  $
  245Accounts receivable (Note 3)
  
  507
  
  
  564
  
  567Inventories (Note 4)
  
  669
  
  
  680
  
  634Restricted cash and other assets
  
  72
  
  
  
  
  1,323
  
  
  1,410
  
  1,446Investments
  and other assets (Note 5)
  
  113
  
  
  181
  
  147Plant,
  property and equipment, net (Note 6)
  
  2,719
  
  
  3,626
  
  3,454$
  4,155
  
  
  $
  5,217
  
  $
  5,047Liabilities and Shareholders EquityCurrent
  liabilitiesBank loans
  
  $
  1
  
  
  $
  1
  
  $
  Accounts payable and accrued liabilities
  (Note 7)
  
  926
  
  
  974
  
  790Long-term debt due within one year (Note 8)
  
  262
  
  
  301
  
  1001,189
  
  
  1,276
  
  890Long-term
  debt (Note 8)
  
  1,615
  
  
  1,737
  
  1,614Deferred
  credits and long-term liabilities (Note 9)
  
  370
  
  
  346
  
  388Future
  income taxes (Note 16)
  
  435
  
  
  643
  
  6713,609
  
  
  4,002
  
  3,563Shareholders EquityCommon
  shares (Note 10)
  
  497
  
  
  494
  
  499Contributed
  surplus (Note 11)
  
  25
  
  
  16
  
  11Cumulative
  translation adjustment
  
  378
  
  
  324
  
  353Reinvested
  earnings (deficit)
  
  (354
  )
  
  381
  
  621546
  
  
  1,215
  
  1,484$
  4,155
  
  
  $
  5,217
  
  $
  5,047Contingencies
  and commitments (Notes 8, 20 and 22)  See accompanying Notes to Consolidated Financial
Statements.  (1)  2005 and 2004 have been retrospectively
adjusted due to a change in accounting policy  see Note 2.  On behalf of the board:Kerry L. Hawkins
  
  Jeffrey M. LiptonDirector
  
  Director  78   Consolidated Financial Statements


Consolidated Statements of Cash Flows  year ended December 31 (millions of U.S. dollars)
  
  2006
  
  
  2005(1)
  
  2004(1)Operating ActivitiesNet income
  (loss)
  
  $
  (703
  )
  
  $
  (101
  )
  $
  253Depreciation
  and amortization
  
  299
  
  
  290
  
  297Future
  income tax expense (recovery) (Note 16)
  
  (219
  )
  
  (69
  )
  36Other gains
  and losses (Note 15)
  
  (1
  )
  
  (8
  )
  (177
  )Stock option
  expense (Note 12)
  
  8
  
  
  8
  
  2(Gains) loss
  on derivatives, net
  
  6
  
  
  (19
  )
  Asset
  writedowns (Note 14)
  
  907
  
  
  161
  
  Funds from
  operations
  
  297
  
  
  262
  
  411Changes in
  non-cash working capital (Note 17)
  
  27
  
  
  (43
  )
  (76
  )Cash
  provided by operating activities
  
  324
  
  
  219
  
  335Investing ActivitiesProceeds on
  sales of assets, investments and other capital transactions
  
  3
  
  
  11
  
  225Plant,
  property and equipment additions
  
  (198
  )
  
  (419
  )
  (242
  )Settlement
  of derivatives
  
  15
  
  
  7
  
  (6
  )Turnaround
  costs, long-term investments and other assets
  
  (48
  )
  
  (176
  )
  (4
  )Change in
  non-cash working capital (Note 17)
  
  (2
  )
  
  110
  
  (110
  )Cash used by
  investing activities
  
  (230
  )
  
  (467
  )
  (137
  )Financing ActivitiesIncrease in
  current bank loans
  
  
  
  
  1
  
  Long-term
  debt additions
  
  38
  
  
  419
  
  400Long-term
  debt repayments
  
  (308
  )
  
  (103
  )
  (2
  )Long-term
  debt  increase in revolving debt
  
  108
  
  
  
  
  Affiliate
  long-term notes
  
  3
  
  
  
  
  Preferred
  securities redeemed (Note 8)
  
  
  
  
  
  
  (383
  )Common
  shares issued (Note 10)
  
  3
  
  
  13
  
  37Common share
  repurchases (Note 10)
  
  
  
  
  (125
  )
  (188
  )Options
  retired for cash (Note 12)
  
  (2
  )
  
  (11
  )
  (18
  )Common share
  dividends
  
  (29
  )
  
  (27
  )
  (28
  )Project
  advances from third parties (Note 17)
  
  
  
  
  
  
  15Changes in
  non-cash working capital (Note 17)
  
  2
  
  
  2
  
  2Cash (used)
  provided by financing activities
  
  (185
  )
  
  169
  
  (165
  )Increase
  (decrease) in cash and cash equivalents
  
  (91
  )
  
  (79
  )
  33Cash and
  cash equivalents, beginning of year
  
  166
  
  
  245
  
  212Cash and
  cash equivalents, end of year
  
  $
  75
  
  
  $
  166
  
  $
  245Cash tax
  payments
  
  $
  53
  
  
  $
  55
  
  $
  11Cash
  interest payments
  
  $
  168
  
  
  $
  131
  
  $
  107  See accompanying Notes to Consolidated Financial
Statements.  (1)  2005 and 2004 have been retrospectively
adjusted due to a change in accounting policy  see Note 2.  Consolidated Financial Statements   79


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 the NOVA Innovene and other
joint ventures. These transactions arise from business conducted between NOVA
Chemicals and NOVA Innovene and other joint ventures.  These Consolidated Financial
Statements have been prepared by management on the historical cost basis 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 23, United States Generally Accepted Accounting Principles (U.S. GAAP).  The Corporation measures and
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 Measurement
Date.Effective
January 1, 2006, NOVA Chemicals changed the measurement date for reporting
related to its defined benefit plans from November 30 to December 31. This
change in measurement date will be used consistently in future periods and 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 Emerging Issues Committee (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 will result in acceleration of the
recognition of stock-based compensation expenses. EIC 162 is to be 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 have been retrospectively adjusted, thereby reducing net loss in 2005
by $3 million and increasing net income in 2004 by $1 million. Opening
reinvested earnings at January 1, 2004 has been reduced by $13 million for the
effects on net income (loss) of years prior to 2004. The impact on NOVA
Chemicals 2006 Consolidated Financial Statements is a $1 million reduction in
net loss.  Accounting
for Financial Instruments with Characteristics of Both Debt and Equity.On January 1, 2005, the Corporation adopted
new accounting standards as prescribed by the Canadian Institute of Chartered
Accountants (CICA), which harmonize accounting standards with U.S. GAAP for
certain types of mandatorily redeemable shares and other financial instruments.
Beginning on January 1, 2005, these instruments were required to be
reclassified, on a retroactive basis, as liabilities rather than equity. As a
result, the preferred shares of NOVA Chemicals subsidiary, NOVA Chemicals
Inc., and the Corporations preferred securities have been reclassified as
debt. In addition, dividends and distributions associated with these preferred
shares and securities have been reclassified to interest expense, reducing net
income by $10 million in 2004 as the presentation for all prior periods was
restated.  80   Notes to Consolidated Financial
Statements


Stock-Based
Incentive Plans.On
January 1, 2004, NOVA Chemicals adopted a new accounting standard related to
stock-based compensation as prescribed by the CICA. The recommendations require
that the fair value of stock options be expensed over their vesting period.
Previously, NOVA Chemicals followed the intrinsic-value approach, where the
granting and exercising of stock options were accounted for as equity
transactions and no amounts were expensed. The Corporation adopted the
accounting policy on a retroactive basis with no restatement of prior periods.
Accordingly, on January 1, 2004, reinvested earnings was reduced and
contributed surplus was increased by $7 million to account for the stock option
expense that would have been charged to income (loss) in 2002 and 2003 with
respect to all options granted since January 1, 2002. NOVA Chemicals uses the
Black-Scholes option valuation model to calculate the fair value of options at
the date of grant.  Derivative
Financial Instruments.Effective
January 1, 2004, NOVA Chemicals adopted the CICA accounting standard that
requires all derivative positions, except those that qualify for hedge
accounting treatment, to be marked-to-market at each period end with any
resulting gains or losses recorded in income (loss). NOVA Chemicals adopted the
new accounting standard on a prospective basis. In accordance with the
transitional provisions of the accounting standard, $10 million of unrealized
gains and $18 million of crystallized losses that existed on January 1, 2004
were deferred on the Consolidated Balance Sheets. These amounts were recognized
in income (loss) over the remaining term to maturity of the previously hedged
transaction.  Cost of Service Under the terms of certain
sales agreements, the Corporation sold ethylene on a take-or-pay basis, for a
price determined by a cost-of-service formula that included the cost of fuel
and feedstock, operating expenses, depreciation, income taxes, return on
capital and realized foreign exchange gains or losses in respect of debt
service. The return on capital included a 20% after-tax return on equity based
on a deemed debt-to-equity ratio. NOVA Chemicals cost-of-service agreements
expired on June 30, 2004.  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.  Foreign Currency Translation 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 the cumulative translation adjustment account (CTA) until there is
a realized reduction of the investment in the foreign operations.  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. 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.  Notes to Consolidated Financial Statements   81


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.  Unrealized gains or losses on
derivative instruments that do not qualify for hedge accounting are reflected
in income (loss) each period as a result of the derivatives being
marked-to-market. Gains or losses realized on settlement of derivative
instruments qualifying for hedge accounting are recognized in income (loss) in
the same period and the same Statement of Income (Loss) category as the
revenues or expenditures arising from the hedged transaction.  Gains or losses on
termination or liquidation of derivative instruments qualifying for hedge accounting
are deferred as current or non-current assets or liabilities on the balance
sheet, as appropriate, and are recognized in income (loss) in the period in
which the underlying hedged transaction is recognized. Gains or losses on early
termination or liquidation of derivative instruments that do not qualify for
hedge accounting are recognized in income (loss) on termination or liquidation.  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, except
investments in joint ventures, are carried 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.  Plant, Property And Equipment (PP&E) NOVA Chemicals PP&E
consists primarily of manufacturing equipment, land and buildings for producing
petrochemicals. 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 Plant and equipment are
depreciated on a straight-line basis at annual rates ranging from 3% to 40%.
These rates are designed to write-off assets to their salvage values over their
estimated useful lives. The Alberta cost-of-service ethylene plants and the
hydrogen plant were depreciated over the lives of the related sales agreements.  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.  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 with PP&E. Obligations recorded under capital leases are
reduced by lease payments net of imputed interest and are classified with
long-term debt.  82   Notes to Consolidated Financial
Statements


Income Taxes Cost-of-service activities operated
under billing structures that allowed NOVA Chemicals to recover related income
tax costs from customers were based on the taxes-payable method. NOVA Chemicals
recorded income tax expense on these operations equal to recoverable amounts.
All cost-of-service agreements expired on June 30, 2004.  For non-cost-of-service
operations, 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 more likely than not that the future tax asset will not 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.  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 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. For purposes of calculating
the expected return on plan assets, pension assets are revalued at fair value.
Liabilities are measured at market discount rates that reflect the yield at the
latest valuation date on a portfolio of 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 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.  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 estimated average remaining service lifetime 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.  Notes to Consolidated Financial Statements   83


Securitizations Accounts receivable
securitization transactions are recorded as sales of assets based on the
transfer of control to the purchaser. 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. Transactions in which there is no transfer of
control to the purchaser are recorded as secured financings.  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.  3. Accounts Receivable  December 31 (millions of dollars)
  
  2006
  
  
  2005
  
  2004Trade(1)
  
  $
  315
  
  
  $
  350
  
  $
  382Affiliate
  trade
  
  4
  
  
  27
  
  319
  
  
  377
  
  382Allowance
  for doubtful accounts
  
  (5
  )
  
  (6
  )
  (10
  )314
  
  
  371
  
  372Proceeds
  receivable(2)
  
  
  
  
  
  
  110Trade
  accruals
  
  63
  
  
  65
  
  40Recoverable
  taxes
  
  15
  
  
  22
  
  7Other
  
  46
  
  
  50
  
  32Due from
  affiliate(3)
  
  51
  
  
  52
  
  489
  
  
  560
  
  561Income taxes
  receivable
  
  18
  
  
  4
  
  6$
  507
  
  
  $
  564
  
  $
  567  (1)
  Trade accounts receivable of the NOVA Innovene joint
  venture have been provided as security under an accounts receivable
  securitization financing program. At December 31, 2006, $33 million is
  outstanding under the financing program (2005 and 2004 - $nil) (See Note 8).(2)
  In 2004, the Corporation recorded final resolution of
  a tax dispute related to the deductibility of foreign taxes in certain
  returns filed with the U. S. Internal Revenue Service prior to 1982. In this
  regard, $110 million was received in 2005 from a former affiliate of a
  company in which the Corporation previously had an interest.(3)
  Includes advances and notes receivable from affiliate.
  $46 million (2005  $43 million) in unsecured notes receivable bear interest
  at 4.5% per annum.  84   Notes to Consolidated Financial
Statements


Accounts Receivable Securitizations 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 collections reduce previously sold interests, new accounts receivable are
sold, to a maximum amount equal to the lesser of eligible receivables or $350
million (2005  $300 million and 2004  $250 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 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)
  
  2006
  
  
  2005
  
  2004Amount sold
  at end of year
  
  $
  247
  
  
  $
  153
  
  $
  250Loss,
  dilution and other reserves (as a % of eligible accounts receivable)
  
  22
  %
  
  16
  %
  16
  %Interest
  expense, net of servicing fees
  
  $
  14
  
  
  $
  8
  
  $
  4  One of the Corporations securitization
agreements involves the use of a special purpose entity (SPE). Information regarding
the cash flows between the Corporation and the SPE are as follows:  December 31 (millions of dollars)
  
  2006
  
  
  2005
  
  2004Proceeds
  from (repayment of) new securitizations
  
  $
  (2
  )
  
  $
  3
  
  $
  33Proceeds
  from collections reinvested in revolving period securitizations(1)
  
  $
  1,993
  
  
  $
  1,933
  
  $
  1,646Servicing
  fees received
  
  $
  2
  
  
  $
  2
  
  $
  2Other cash
  flows received
  
  $
  499
  
  
  $
  547
  
  $
  452  (1)  Collections received by the SPE on accounts receivable
previously sold are used to purchase interests in new accounts receivable.  In 2006, the NOVA Innovene joint venture
entered into an accounts receivable securitization program for the financing of
its trade receivables, to a maximum of 120 million euros. The program expires
in November 2011.  4. Inventories  December 31 (millions of
  dollars)
  
  2006
  
  
  2005
  
  2004Materials
  and supplies
  
  $
  48
  
  
  $
  48
  
  $
  47Raw
  materials
  
  325
  
  
  340
  
  255Finished
  goods
  
  296
  
  
  292
  
  332$
  669
  
  
  $
  680
  
  $
  634  5. Investments and Other Assets  December 31 (millions of
  dollars)
  
  2006
  
  
  2005
  
  2004Investments(1)
  
  $
  33
  
  
  $
  28
  
  $
  28Advances
  receivable from affiliate(2)
  
  13
  
  
  10
  
  Other assets(3)
  
  67
  
  
  143
  
  119$
  113
  
  
  $
  181
  
  $
  147  (1)
  Includes an investment of $15 million (2005 and 2004
   $15 million) in a special purpose entity with respect to the accounts
  receivable securitization program described in Note 3, an $11 million (2005
  and 2004  $11 million) investment in sEnergy, a $5 million investment in
  common shares of Envirokare Tech Inc. (2005 and 2004  $1 million) and other
  miscellaneous investments at cost.(2)
  $5 million (2005  $8 million) of the advances
  receivable is not scheduled for repayment until 18 months (March 31, 2007)
  from the date of commencement of the NOVA Innovene joint venture, and is
  subordinated to certain notes receivable. The advance is repayable upon the
  achievement of certain accounts receivable performance targets in respect of
  NOVA Chemicals trade accounts receivable contributed to the joint venture.(3)
  See schedule of Other Assets on page 86.  Notes to Consolidated Financial Statements   85


Other Assets Other assets are comprised of
the following:  December 31 (millions of dollars)
  
  2006
  
  
  2005
  
  2004Restricted cash on Series A preferred shares (Note 8)(1)
  
  $
  
  
  
  $
  65
  
  $
  65Deferred
  debt issue costs(2)
  
  14
  
  
  23
  
  20Deferred
  start-up costs(3)
  
  30
  
  
  27
  
  5Prepaid
  pension
  
  
  
  
  2
  
  5Other assets
  and deferred costs
  
  23
  
  
  26
  
  24$
  67
  
  
  $
  143
  
  $
  119  (1)
  In 2006, restricted cash has been reclassified to
  Restricted Cash and other assets.(2)
  Debt issue costs are amortized on a straight-line
  basis over the terms of the related debt instruments.(2)
  Start-up costs consist of the unamortized portion of
  costs incurred in 2005 and 2006 associated with the start-up of the Corunna
  facility after the maintenance turnaround and expansion and modernization
  project. Prior periods also include the unamortized portion of operating
  costs, net of incidental revenues, incurred during the pre-operating period
  on constructed assets at Joffre, Alberta.  Joint Ventures 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 October 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 with 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.  NOVA Chemicals sells the
joint venture 50% of its styrene monomer requirements and certain styrenic
polymer products for distribution in Europe. During 2006 and 2005, NOVA
Chemicals recognized revenues of $254 million and $60 million, respectively,
from the sale of these products to the joint venture.  NOVA Chemicals has provided a
guarantee of $25 million to a financial institution to secure various
obligations of the NOVA Innovene joint venture.  On October 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 NOVA Chemicals solid polystyrene in Mexico.  In addition to its interests
in recently formed joint ventures, NOVA Chemicals owns a 50% interest in an
ethylene plant, a 50% interest in LRM Industries, LLC (a 50:50 joint venture
with Envirokare Composite Corporation (a unit of Envirokare Tech Inc.) and a
20% interest in a cogeneration facility located at Joffre, Alberta.  86   Notes to Consolidated Financial
Statements


The following is summarized
financial information for NOVA Chemicals interests in its joint ventures:  year ended December 31
  (millions of dollars)
  
  2006
  
  
  2005
  
  2004Revenue
  
  $
  1,099
  
  
  $
  518
  
  $
  260Operating
  expenses, depreciation and income taxes
  
  (1,043
  )
  
  (499
  )
  (236
  )Net income
  
  $
  56
  
  
  $
  19
  
  $
  24  December 31 (millions of
  dollars)
  
  2006
  
  
  2005
  
  2004Current
  assets
  
  $
  234
  
  
  $
  248
  
  $
  37Plant,
  property and equipment and other assets
  
  547
  
  
  909
  
  522Current
  liabilities
  
  (181
  )
  
  (161
  )
  (26
  )Long-term
  liabilities
  
  (68
  )
  
  (130
  )
  (33
  )Venturers
  equity
  
  $
  532
  
  
  $
  866
  
  $
  500  year ended December 31
  (millions of dollars)
  
  2006
  
  
  2005
  
  2004Cash inflows
  (outflows) from:Operating
  activities
  
  $
  49
  
  
  $
  127
  
  $
  43Financing
  activities
  
  $
  (10
  )
  
  $
  (32
  )
  $
  (2
  )Investing
  activities
  
  $
  32
  
  
  $
  (3
  )
  $
  36  In December 2004, the
Corporation sold its 33.3% interest in an ethane gathering system in Alberta
for cash proceeds of $78 million, resulting in a before-tax gain of $53 million
($40 million after-tax).  6. Plant, Property and Equipment  December 31 (millions of
  dollars)
  
  2006(1)
  
  
  2005(1)
  
  2004(1)Plant and
  equipment
  
  $
  6,266
  
  
  $
  5,787
  
  $
  5,962Assets under
  capital lease
  
  20
  
  
  19
  
  Land
  
  29
  
  
  29
  
  35Under
  construction(2)
  
  356
  
  
  643
  
  3516,671
  
  
  6,478
  
  6,348Accumulated
  depreciation(3)(4)
  
  (3,952
  )
  
  (2,852
  )
  (2,894
  )Net book
  value
  
  $
  2,719
  
  
  $
  3,626
  
  $
  3,454  (1)
  See Note 8 for discussion of security provided on the
  committed credit facility.(2)
  Assets under construction are not depreciated until
  such time at which commercial production is achieved.(3)
  Accumulated depreciation for assets under capital
  lease was $4 million at December 31, 2006, ($nil million - December 31, 2005)(4)
  See Note 14 for discussion of impairment charge
  related to plant and equipment, which has been recorded as an increase in
  accumulated depreciation in 2006.  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.  Notes to Consolidated Financial Statements   87


7. Accounts
Payable and Accrued Liabilities   December 31 (millions of
  dollars)
  
  2006
  
  
  2005
  
  2004Accounts
  payableTrade
  
  $
  596
  
  
  $
  617
  
  $
  581Other
  
  27
  
  
  22
  
  38623
  
  
  639
  
  619Accrued
  liabilitiesPension and post-retirement benefit
  obligations
  
  4
  
  
  30
  
  22Interest
  
  31
  
  
  33
  
  30Dividends
  
  7
  
  
  7
  
  7Deferred gains on interest rate swaps(1)
  
  2
  
  
  4
  
  7Site clean-up and restoration
  
  3
  
  
  5
  
  4Deferred commodity hedging gains(2)
  
  
  
  
  
  
  2Advances and notes due to affiliate
  
  9
  
  
  5
  
  Notes payable(3)
  
  39
  
  
  47
  
  Trade accruals and other accrued
  liabilities
  
  208
  
  
  204
  
  99303
  
  
  335
  
  171$
  926
  
  
  $
  974
  
  $
  790  (1)
  Represents the portion of deferred gains realized on
  liquidation of floating-for-fixed interest rate swaps to be recognized within
  one year (see Note 22).(2)
  Represents the portion of deferred gains realized on
  liquidation of natural gas option positions to be recognized within one year
  (see Note 22).(3)
  Includes $39 million (2005 - $41 million) of
  unsecured notes payable, bearing interest at 4.5% per annum.  8. Long-Term
Debt  December 31 (millions of
  dollars,unless otherwise noted)
  
  
  
  2006
  
  
  2005
  
  2004Weighted-
  Average
  Year-End
  Interest
  
  
  
  
  Weighted-
  Average
  Year-End
  Interest
  
  
  
  Weighted-
  Average
  Year-End
  InterestMaturity
  
  Debt
  
  Rate
  
  
  Debt
  
  Rate
  
  Debt
  
  RateRevolving
  credit facilities
  
  2007  2011
  
  $
  110
  
  7.7
  %
  
  
  
  
  
  
  
  Unsecured
  debentures and notes
  
  2010  2028
  
  1,240
  
  7.6
  %
  
  $
  1,239
  
  7.3
  %
  $
  933
  
  7.1
  %Medium-term
  notes
  
  2009
  
  250
  
  7.4
  %
  
  550
  
  8.0
  %
  550
  
  7.0
  %Preferred
  shares and securities
  
  2007
  
  198
  
  8.1
  %
  
  198
  
  7.6
  %
  198
  
  8.1
  %Other
  unsecured debt(1)
  
  2007  2020
  
  46
  
  7.6
  %
  
  51
  
  6.9
  %
  33
  
  6.2
  %Other
  secured debt(2)
  
  2011
  
  33
  
  4.3
  %
  
  
  
  
  
  
  
  1,877
  
  
  
  
  2,038
  
  
  
  1,714Less
  installments due within one year
  
  
  
  (262
  )
  
  
  
  (301
  )
  
  
  (100
  )$
  1,615
  
  
  
  
  $
  1,737
  
  
  
  $
  1,614  (1)
  Composed primarily of non-recourse joint venture
  secured debt (2006  $24 million, 2005  $32 million and 2004  $33 million),
  whereby security is limited to NOVA Chemicals net investment in the Joffre
  co-generation joint venture, and obligations under capital leases (2006  $22
  million, 2005  $19 million and 2004  $nil million).(2)
  Revolving financing arrangement collateralized by the
  NOVA Innovene joint ventures trade accounts receivable.  Unsecured Debentures And Notes On October 31, 2005, the
Corporation issued $400 million Senior Floating Rate Notes due 2013.  On January 13, 2004, the
Corporation issued $400 million 6.50% Senior Notes due 2012. The net proceeds
were used to redeem the Corporations preferred securities.  88   Notes to Consolidated Financial
Statements


The remaining debentures and
notes are unsecured borrowings, which rank pari
passuin 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)
  
  
  
  2006
  
  
  2005
  
  2004Maturity
  
  Stated
  Interest Rate (%)2005(1)
  
  7.0
  
  $
  
  
  
  $
  
  
  $
  1002010(2)
  
  7.85
  
  215
  
  
  214
  
  2082012(3)
  
  6.5
  
  400
  
  
  400
  
  4002013(3)
  
  Floating(4)
  
  400
  
  
  400
  
  2025(5)
  
  7.875
  
  100
  
  
  100
  
  1002028(6)
  
  7.25
  
  125
  
  
  125
  
  125$
  1,240
  
  
  $
  1,239
  
  $
  933  (1)
  Matured and retired for cash in September 2005.(2)
  $250 million Canadian; callable at the option of the
  Corporation at any time.(3)
  Callable at the option of the Corporation at any
  time.(4)
  LIBOR + 3.125%; 8.502% at December 31, 2006 (7.561%
  at December 31, 2005).(5)
  Callable at the option of the Corporation on or after
  September 15, 2005.(6)
  Redeemable at the option of the holders on August 15,
  2008.  Revolving Credit Facilities The Corporation has $575
million of revolving credit facilities, which expire on the following dates:
$100 million on December 31, 2007; $375 million on June 30, 2010 and $100
million on March 20, 2011. As of December 31, 2006, NOVA Chemicals had utilized
$154 million of the facilities, of which $44 million was in the form of letters
of credit. The $100 million facility expiring on December 31, 2007 and the $375
million facility are governed by the same financial covenants. The remaining
$100 million facility has no financial covenants associated with it.  On December 31, 2006, NOVA
Chemicals negotiated an amendment to its financial covenants governing these
two credit facilities. 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 will be in effect for the period
December 31, 2006 to June 29, 2007. The Company is currently in discussions
with its banks and expects to restructure covenants to be consistent with the
existing maturity dates of the credit facilities prior to the expiry of the
amendment.  At Dec. 31, 2006 NOVA Chemicals
was in compliance with all required financial covenants under the credit
facilities.  The $375 million facility is
secured by $1.2 billion (2005 and 2004  $1.2 billion) in net book value of
assets in Canada, including real estate. The remaining credit facilities are
unsecured.  As a result of the STYRENIX
asset write-down, the amount of secured debt permitted under the terms of NOVA
Chemicals public indentures will be reduced. Accordingly, the $375 million
secured revolving credit facility was reduced to $325 million, effective
February 5, 2007. The remaining two unsecured revolving credit facilities are
not affected.  Medium-Term Notes The notes are unsecured
borrowings ranking pari passuwith
all other unsecured and unsubordinated debt of the Corporation. The $300
million 7% notes were due and repaid in May 2006. The $250 million 7.4% notes
are due in April 2009 and are redeemable by the Corporation at any time.  Preferred Securities On March 1, 2004, the
Corporation redeemed its $172.5 million 9.04% and $210 million 9.50% preferred
securities, which were due March 31, 2048 and December 31, 2047, respectively.
Net proceeds from the 2004 issuance of $400 million 6.5% Senior Notes were used
to redeem the securities.  Notes to Consolidated Financial Statements   89


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 April 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
was scheduled to terminate on March 15, 2007. In February 2007, the maturity
date of the total return swap was extended from March 15, 2007 to October 31,
2007. Under the terms of the total return swap: (i) the counterparty pays NOVA
Chemicals the total return on the 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.  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.  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 restricted cash). Subsequent to the termination of the
swap, NOVA Chemicals may, at its option, repurchase the preferred share s for
$198 million plus accrued and unpaid dividends.  Repayment Requirements Repayment requirements in
respect of long-term debt are as follows:  (millions of dollars)2007
  
  $
  2622008
  
  42009
  
  2542010
  
  2192011
  
  87Thereafter
  
  1,051$
  1,877  Interest Expense  year ended December 31 (millions
  of dollars)
  
  2006
  
  
  2005
  
  2004Interest on
  long-term debt
  
  $
  146
  
  
  $
  117
  
  $
  109Interest on
  bank loans, securitizations and other
  
  30
  
  
  14
  
  8Gross
  interest expense
  
  176
  
  
  131
  
  117Interest
  capitalized during plant construction
  
  (3
  )
  
  (14
  )
  (3
  )Interest
  income
  
  (5
  )
  
  (4
  )
  (6
  )Interest
  expense (net)
  
  $
  168
  
  
  $
  113
  
  $
  108   90   Notes to Consolidated Financial
Statements


9. Deferred Credits and Long-Term
Liabilities  December 31 (millions of
  dollars)
  
  2006
  
  
  2005
  
  2004Deferred
  CreditsDeferred income
  
  $
  29
  
  
  $
  29
  
  $
  31Deferred gain on sale of investments(1)
  
  35
  
  
  37
  
  38Deferred gain on sale of asset(2)
  
  14
  
  
  15
  
  20Deferred gains on interest rate swaps(3)
  
  2
  
  
  5
  
  9Deferred gain on sale of railcars
  
  7
  
  
  8
  
  9Deferred commodity hedging gains(4)
  
  
  
  
  
  
  2Other deferred credits
  
  7
  
  
  4
  
  794
  
  
  98
  
  116Long-Term
  LiabilitiesPension and post-retirement benefit
  obligations (Note 18)
  
  99
  
  
  92
  
  106Equity appreciation plan obligations (Note
  12)
  
  24
  
  
  44
  
  98Accrued mark-to-market liability on equity
  derivative (Note 22)
  
  35
  
  
  15
  
  Asset retirement obligations (Note 19)
  
  23
  
  
  21
  
  23Deferred share unit plan obligations (Note
  13)
  
  25
  
  
  24
  
  23Restricted stock unit plan obligations
  (Note 12)
  
  14
  
  
  11
  
  7Other long-term liabilities
  
  56
  
  
  41
  
  15276
  
  
  248
  
  272$
  370
  
  
  $
  346
  
  $
  388  (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
  22).(4)
  Represents the long-term portion of deferred gains
  realized on the liquidation of natural gas option positions (see Note 22).  10. Common Shares Authorized Unlimited number of 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.  Issued And Outstanding  year ended December 31(millions of dollars, except
  number of shares)
  
  2006
  
  
  2005
  
  2004Shares
  
  Dollars
  
  
  Shares
  
  Dollars
  
  Shares
  
  DollarsBeginning of
  year
  
  82,364,899
  
  $
  494
  
  
  84,268,293
  
  $
  499
  
  87,099,781
  
  $
  493Issued for cash on exercise of stock
  options
  
  129,007
  
  3
  
  
  570,547
  
  13
  
  1,917,735
  
  37Issued on exercise of stock options as
  share appreciation rights(1)
  
  67,366
  
  
  
  
  124,610
  
  
  
  185,377
  
  Compensation cost of stock options
  exercised(2)
  
  
  
  
  
  
  
  
  
  
  
  
  2Repurchased(3)
  
  
  
  
  
  
  (2,598,551
  )
  (18
  )
  (4,934,600
  )
  (33
  )End of year(4)
  
  82,561,272
  
  $
  497
  
  
  82,364,899
  
  $
  494
  
  84,268,293
  
  $
  499  (1)
  See Note 12.(2)
  Under the fair value method of accounting for
  stock-based compensation, the compensation cost associated with options
  exercised is transferred from contributed surplus to common stock.(3)
  The Corporation repurchased nil million (2005 
  2,598,551 and 2004  4,934,600) of its common shares with a carrying value of
  $nil million (2005  $18 million and 2004  $33 million) on the Toronto Stock
  Exchange for cash of $nil million (2005  $125 million and 2004  $188
  million). The difference between the cash paid and the carrying value of the
  shares is charged to reinvested earnings.(4)
  Stated common share capital for legal purposes at
  December 31, 2006 is $1,632 million.  Notes to Consolidated Financial Statements   91


Shares Reserved For Future Issue  December 31 (number of shares)
  
  2006
  
  
  2005
  
  2004Under the employee incentive stock option plan(1),(2)
  
  7,678,352
  
  
  7,874,725
  
  8,569,882Under the
  director compensation plan
  
  47,800
  
  
  47,800
  
  47,800Under the
  terms of the retractable preferred share agreement(3)
  
  
  
  
  
  
  8,500,0007,726,152
  
  
  7,922,525
  
  17,117,682  (1)
  Under the employee incentive stock option plan,
  options are outstanding to officers and employees to purchase 4,286,234
  shares at prices ranging from $21.225 to $58.240 (Canadian$ TSX pricing) and
  1,192,463 shares at prices ranging from $33.95 to $47.00 (US$ NYSE pricing)
  per share, with expiration dates between February 19, 2007, and July 12,
  2016. A total of 2,199,655 common shares are reserved but unallocated. See
  Note 12 for further details regarding the plan.(2)
  A total of 13 million common shares was initially
  approved by shareholders for issuance under the employee incentive stock
  option plan.(3)
  See Note 8 for discussion of retractable, now Series
  A, preferred shares.  Net Income (Loss) Per Share The following table outlines
the calculation of basic and diluted net income (loss), or earnings, per common
share (EPS):  year ended December 31
  
  2006
  
  2006
  
  
  2005
  
  2005
  
  2004
  
  2004(millions of dollars, except
  per share amounts)
  
  Basic
  
  Diluted
  
  
  Basic
  
  Diluted
  
  Basic
  
  DilutedNet income
  (loss)
  
  $
  (703
  )
  $
  (703
  )
  
  $
  (101
  )
  $
  (101
  )
  $
  253
  
  $
  253Interest on
  Series A preferred shares
  
  
  
  
  
  
  
  
  
  
  
  
  6Net income
  (loss) for EPS calculation
  
  $
  (703
  )
  $
  (703
  )
  
  $
  (101
  )
  $
  (101
  )
  $
  253
  
  $
  259Weighted-average common shares outstanding
  
  82.5
  
  82.5
  
  
  82.6
  
  82.6
  
  86.7
  
  86.7Add effect
  of dilutive items:(1)Stock options
  
  
  
  
  
  
  
  
  
  
  
  
  2.6Retractable preferred shares
  
  
  
  
  
  
  
  
  
  
  
  
  6.1Weighted average common shares for EPS
  calculation
  
  82.5
  
  82.5
  
  
  82.6
  
  82.6
  
  86.7
  
  95.4Net income
  (loss) per common share
  
  $
  (8.52
  )
  $
  (8.52
  )
  
  $
  (1.22
  )
  $
  (1.22
  )
  $
  2.92
  
  $
  2.72  (1)
  A total of 3.5 million stock options have been
  excluded from the computation of diluted earnings per share for the year
  ended December 31, 2006 (2005  4.8 million and 2004  nil) as their impact
  would not be dilutive. As of September 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. Contributed Surplus On January 1, 2004, the
Corporation adopted accounting recommendations related to stock options (see
Notes 2 and 12). The recommendations require that the fair value of stock
options be expensed over their vesting period, 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). As a result of the 2006
adoption of the standard associated with stock-based compensation for employees
eligible to retire before the vesting date (see Note 2), the 2004 contributed
surplus associated with accounting policy changes has been increased by $5
million.  year ended December 31
  (millions of dollars)
  
  2006
  
  
  2005
  
  2004Balance at
  beginning of year
  
  $
  16
  
  
  $
  11
  
  $
  Accounting
  policy changes (see Note 2)
  
  
  
  
  
  
  12Stock option
  compensation cost
  
  9
  
  
  8
  
  2Transfers on
  exercise, retirement or cancellation of options
  
  
  
  
  (3
  )
  (3
  )Balance at
  end of year
  
  $
  25
  
  
  $
  16
  
  $
  11   92   Notes to Consolidated Financial
Statements


12. 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 will
result 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.  On January 1, 2004, the
Corporation adopted accounting recommendations related to stock options (see
Note 2). The Corporation adopted the accounting policy on a retroactive basis
with no restatement of prior periods. Accordingly, all options granted since
January 1, 2002 are accounted for using the fair-value method. The
recommendations require that the fair value of stock options be expensed over
their vesting period and reflected in earnings as the related services are
provided. The Corporation uses the Black-Scholes option-pricing model to
calculate the fair value of options at the date of grant.  Generally, options are
settled by issuance of common shares. Occasionally, options may be 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 may also 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.  A summary of the status of
the Corporations employee incentive stock option plan, for options based on
TSX pricing, as of December 31, 2006, 2005, and 2004, and changes during the
years then ended is presented below:   year ended December 31
  
  2006
  
  
  2005
  
  2004Weighted-
  
  
  
  
  Weighted-
  
  
  
  Weighted-Average
  
  
  
  
  Average
  
  
  
  AverageExercise
  
  
  
  
  Exercise
  
  
  
  ExercisePrice
  
  
  
  
  Price
  
  
  
  PriceOptions
  
  (Canadian $)
  
  
  Options
  
  (Canadian
  $)
  
  Options
  
  (Canadian
  $)Outstanding
  at beginning of year
  
  4,667,898
  
  $
  28.685
  
  
  5,849,131
  
  $
  27.952
  
  8,822,440
  
  $
  26.791Granted
  
  232,059
  
  $
  38.109
  
  
  91,450
  
  $
  58.135
  
  271,300
  
  $
  36.526Exercised 
  settled in shares
  
  (129,007
  )
  $
  23.698
  
  
  (570,060
  )
  $
  26.928
  
  (1,917,735
  )
  $
  22.938Exercised 
  retired for cash
  
  (259,003
  )
  $
  27.842
  
  
  (469,091
  )
  $
  29.214
  
  (860,750
  )
  $
  26.161Exercised 
  settled as SARs(1)
  
  (179,785
  )
  $
  23.928
  
  
  (218,219
  )
  $
  24.799
  
  (426,246
  )
  $
  25.682Cancelled
  
  (45,928
  )
  $
  39.475
  
  
  (15,313
  )
  $
  29.151
  
  (39,878
  )
  $
  30.284Outstanding
  at end of year
  
  4,286,234
  
  $
  29.480
  
  
  4,667,898
  
  $
  28.685
  
  5,849,131
  
  $
  27.952Exercisable
  at end of year
  
  4,043,465
  
  $
  28.832
  
  
  4,249,162
  
  $
  28.181
  
  5,054,171
  
  $
  27.613  (1)  In 2006, 67,366 shares were issued to
settle options exercised as SARs (2005  124,610 and 2004  185,377).  The following table
summarizes information about employee incentive stock options, based on TSX
pricing, outstanding at December 31, 2006:  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
  $)$21.225 
  $28.050
  
  2,594,598
  
  3.6
  
  $
  25.982
  
  2,592,148
  
  $
  25.982$30.750 
  $39.220
  
  1,610,886
  
  3.9
  
  $
  33.671
  
  1,402,292
  
  $
  33.073$58.240 
  $58.240
  
  80,750
  
  8.1
  
  $
  58.240
  
  49,025
  
  $
  58.2404,286,234
  
  
  
  
  
  4,043,465  Notes to Consolidated Financial Statements   93


A summary of the status of
the Corporations employee incentive stock option plan, for options based on
NYSE pricing, as of December 31, 2006, 2005 and 2004, and changes during the
years then ended is presented below:  year ended December 31
  
  2006
  
  
  2005
  
  2004Weighted-
  
  
  
  
  Weighted-
  
  
  
  Weighted-Average
  
  
  
  
  Average
  
  
  
  AverageExercise
  
  
  
  
  Exercise
  
  
  
  ExercisePrice
  
  
  
  
  Price
  
  
  
  PriceOptions
  
  (U.S. $)
  
  
  Options
  
  (U.S.
  $)
  
  Options
  
  (U.S.
  $)Outstanding
  at beginning of year
  
  439,713
  
  $
  46.78
  
  
  
  
  $
  
  
  
  
  $
  Granted
  
  775,200
  
  $
  33.95
  
  
  441,300
  
  $
  46.78
  
  
  
  $
  Exercised 
  settled in shares
  
  
  
  $
  
  
  
  (487
  )
  $
  47.00
  
  
  
  $
  Cancelled
  
  (22,450
  )
  $
  38.44
  
  
  (1,100
  )
  $
  47.00
  
  
  
  $
  Outstanding
  at end of year
  
  1,192,463
  
  $
  38.60
  
  
  439,713
  
  $
  46.78
  
  
  
  $
  Exercisable
  at end of year
  
  428,538
  
  $
  40.63
  
  
  111,885
  
  $
  46.78
  
  
  
  $
    The following table
summarizes information about employee incentive stock options, based on NYSE
pricing, outstanding at December 31, 2006:  year ended December 31
  
  Options
  Outstanding
  
  Options
  ExercisableWeighted-
  
  Weighted-
  
  
  
  Weighted-Average
  
  Average
  
  
  
  AverageRemaining
  
  Exercise
  
  
  
  ExerciseNumber
  
  Contractual
  
  Price
  
  Number
  
  PriceRange of Exercise Prices (U.S. $)
  
  Outstanding
  
  Life
  (years)
  
  (U.S.
  $)
  
  Exercisable
  
  (U.S.
  $)$33.95 
  $47.00
  
  1,192,463
  
  8.8
  
  $
  38.60
  
  428,538
  
  $
  40.63  In 2006, 2005 and 2004, the
Corporation recognized total compensation cost in income of $8 million, $8
million and $2 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
  
  2006
  
  
  2005
  
  2004Expected
  dividend yield (%)
  
  1.1
  
  
  0.7
  
  1.1Expected
  volatility (%)
  
  33.1
  
  
  31.6
  
  34.0Risk-free
  interest rate (%)
  
  4.5
  
  
  3.8
  
  2.7Expected
  life (years)
  
  4.0
  
  
  4.0
  
  4.0Fair value
  of options granted during the year (U.S. $)
  
  $
  10.02
  
  
  $
  13.40
  
  $
  8.43  Equity Appreciation Plan The Corporation has an equity
appreciation plan in which units are granted to key 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. 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 December 31, 2006, the
mark-to-market value of the vested units was approximately $24 million (2005 
$44 million and 2004  $98 million).  94   Notes to Consolidated Financial
Statements


A summary of the status of
the Corporations equity appreciation plan as of December 31, 2006, 2005 and
2004 and changes during the years then ended is presented below:  year ended December 31
  
  2006
  
  
  2005
  
  2004Weighted-
  
  
  
  
  Weighted-
  
  
  
  Weighted-Average
  
  
  
  
  Average
  
  
  
  AverageRedemption
  
  
  
  
  Redemption
  
  
  
  RedemptionPrice
  
  
  
  
  Price
  
  
  
  PriceEquity
  Appreciation Units
  
  Units
  
  (U.S. $)
  
  
  Units
  
  (U.S. $)
  
  Units
  
  (U.S. $)(1)Outstanding
  at beginning of year
  
  3,618,678
  
  $
  21.18
  
  
  3,801,143
  
  $
  21.08
  
  3,292,987
  
  $
  18.92Granted
  
  
  
  $
  
  
  
  9,000
  
  $
  30.59
  
  942,600
  
  $
  27.90Redeemed
  
  (109,823
  )
  $
  20.26
  
  
  (190,040
  )
  $
  19.69
  
  (410,694
  )
  $
  19.37Cancelled
  
  (3,264
  )
  $
  27.90
  
  
  (1,425
  )
  $
  24.77
  
  (23,750
  )
  $
  21.65Outstanding
  at end of year
  
  3,505,591
  
  $
  21.20
  
  
  3,618,678
  
  $
  21.18
  
  3,801,143
  
  $
  21.08Exercisable
  at end of year
  
  3,276,259
  
  $
  20.73
  
  
  2,786,063
  
  $
  20.54
  
  2,149,390
  
  $
  20.06  (1)
  In February 2004 the definition of redemption price
  was amended to include New York Stock Exchange (NYSE) pricing, reflecting the
  intent and design of the plan to provide the value of the awards in U.S.
  currency for U.S. resident employees. Accordingly, the weighted-average
  redemption price at the beginning of the year has been restated to reflect
  the NYSE price.  The following table
summarizes information about equity appreciation units outstanding at December
31, 2006:  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
  
  2,592,375
  
  5.3
  
  $
  18.87
  
  2,592,375
  
  $
  18.87$23.49 -
  $30.59
  
  913,216
  
  7.1
  
  $
  27.83
  
  683,884
  
  $
  27.793,505,591
  
  
  
  
  
  3,276,259  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 December 31, 2006, 2005 and
2004 and changes during the years then ended is presented below:  year ended December 31
  
  2006
  
  
  2005
  
  2004Restricted Stock Units
  
  Units
  
  
  Units
  
  UnitsOutstanding
  at beginning of year
  
  417,730
  
  
  196,178
  
  Granted
  
  231,470
  
  
  229,395
  
  225,329Dividend
  equivalents credited
  
  6,460
  
  
  3,385
  
  1,457Redeemed
  
  (57,836
  )
  
  (9,403
  )
  (26,528
  )Cancelled
  
  (6,447
  )
  
  (1,825
  )
  (4,080
  )Outstanding
  at end of year
  
  591,377
  
  
  417,730
  
  196,178  The mark-to-market liability
for the RSU plan was $14 million at December 31, 2006 (2005  $11 million and
2004  $7 million).  Notes to Consolidated Financial Statements   95


13. 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.  A summary of the status of
the Corporations deferred share unit plans as of Dec. 31, 2006, 2005 and 2004,
and changes during the years ended on those dates is presented below:  year ended December 31
  
  2006
  
  
  2005
  
  2004Weighted-
  
  
  
  
  Weighted-
  
  
  
  Weighted-Average
  
  
  
  
  Average
  
  
  
  AveragePrice
  
  
  
  
  Price
  
  
  
  PriceEmployee Deferred Share
  Units
  
  Units
  
  (U.S. $)
  
  
  Units
  
  (U.S.
  $)
  
  Units
  
  (U.S.
  $)Outstanding
  at beginning of year
  
  520,885
  
  $
  19.18
  
  
  508,593
  
  $
  18.75
  
  434,243
  
  $
  17.29Earned
  
  23,305
  
  $
  33.24
  
  
  12,292
  
  $
  36.82
  
  116,116
  
  $
  27.27Redeemed
  
  
  
  $
  
  
  
  
  
  $
  
  
  (41,766
  )
  $
  27.21Outstanding
  at end of year
  
  544,190
  
  $
  19.78
  
  
  520,885
  
  $
  19.18
  
  508,593
  
  $
  18.75  year ended December 31
  
  2006
  
  
  2005
  
  2004Weighted-
  
  
  
  
  Weighted-
  
  
  
  Weighted-Average
  
  
  
  
  Average
  
  
  
  AveragePrice
  
  
  
  
  Price
  
  
  
  PriceNon-Employee Directors
  Deferred Share Units
  
  Units
  
  (Canadian $)
  
  
  Units
  
  (Canadian
  $)
  
  Units
  
  (Canadian
  $)Outstanding
  at beginning of year
  
  83,075
  
  $
  31.01
  
  
  79,938
  
  $
  29.80
  
  79,676
  
  $
  29.24Earned
  
  18,056
  
  $
  32.93
  
  
  8,329
  
  $
  42.13
  
  14,636
  
  $
  37.50Redeemed
  
  
  
  $
  
  
  
  (5,192
  )
  $
  30.24
  
  (14,374
  )
  $
  34.57Outstanding
  at end of year
  
  101,131
  
  $
  31.35
  
  
  83,075
  
  $
  31.01
  
  79,938
  
  $
  29.80  The amount expensed in
aggregate related to the award of units was approximately $1 million (2005  $1
million, and 2004  $4 million).  14. Restructuring Charges During the past three years,
NOVA Chemicals has undertaken several restructuring steps to reduce costs. As a
result of these actions, the Company estimates it will reduce costs by about
$100 million per year beginning in 2007. In addition to this, depreciation will
be reduced by about $80 million per year in the three reportable segments
within the STYRENIX business unit.  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 includes the Styrene Monomer, North American Solid
Polystyrene and NOVA Innovene European joint venture segments. The  96   Notes to Consolidated Financial
Statements


STYRENIX business unit has
not been profitable due to poor market conditions, and in recent years both
NOVA Chemicals and the NOVA Innovene joint venture have 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 has 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.  NOVA Innovene permanently
closed its Carrington, UK solid polystyrene facility in October 2006. The
Company recorded a restructuring charge of $57 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 December 31, 2006, $5
million of the severance costs was paid to employees.  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, $22 million has been paid to employees
by the end of 2006 with the majority of the remainder to be paid in 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. To date, $3
million has been paid to employees.  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. No further
costs are expected.  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.  During 2004, the Corporation
incurred $8 million of dismantling costs related to the closure of its oldest
and highest-cost polyethylene production line at the St. Clair River site. This
dismantling began in 2003 and was concluded in 2004 for a total cost of $15
million.  Restructuring activities are
a corporate responsibility and accordingly are classified as Corporate and
Other in segmented reporting.  15. Other Gains and Losses  year ended December 31
  (millions of dollars)
  
  2006
  
  
  2005
  
  2004Before-Tax
  
  After-Tax
  
  
  Before-Tax
  
  After-Tax
  
  Before-Tax
  
  After-TaxTax related settlement(1)
  
  $
  
  
  $
  
  
  
  $
  6
  
  $
  4
  
  $
  122
  
  $
  101Gain on sale of 33.3% interest in Alberta Ethane
  Gathering System (Note 5)
  
  
  
  
  
  
  
  
  
  
  53
  
  40Other
  
  1
  
  1
  
  
  2
  
  1
  
  2
  
  2$
  1
  
  $
  1
  
  
  $
  8
  
  $
  5
  
  $
  177
  
  $
  143  (1)
  The Corporation recorded gains in 2005 and 2004
  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. $12 million was received in
  2004 and an additional $116 million was received in 2005.  Notes to Consolidated Financial
Statements97


16.
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)
  
  2006
  
  
  2005
  
  2004Income (loss) before income taxes
  
  $
  (847
  )
  
  $
  (102
  )
  $
  334Statutory income tax rate
  
  32.49
  %
  
  33.62
  %
  33.87
  %Computed income tax expense (recovery)
  
  $
  (275
  )
  
  $
  (34
  )
  $
  113Increase (decrease) in taxes resulting
  from:(Higher) lower effective foreign tax rates
  
  (37
  )
  
  9
  
  2Lower tax rates and higher recoveries on
  asset sales
  
  
  
  
  
  
  (5
  )Non-provision of future income taxes on
  cost-of-service operations(1)
  
  
  
  
  
  
  4Reduction in tax reserve(2)
  
  
  
  
  
  
  (11
  )Income tax rate adjustments(3)
  
  (60
  )
  
  
  
  (7
  )Lower tax rate on gain related to tax
  settlement(4)
  
  
  
  
  (2
  )
  (21
  )Tax benefits not recognized on
  restructuring charges(5)
  
  226
  
  
  16
  
  Other
  
  2
  
  
  10
  
  6Income tax expense (recovery)
  
  $
  (144
  )
  
  $
  (1
  )
  $
  81Current income tax expense
  
  $
  75
  
  
  $
  68
  
  $
  45Future income tax expense (recovery)
  
  (219
  )
  
  (69
  )
  36Income tax expense (recovery)
  
  $
  (144
  )
  
  $
  (1
  )
  $
  81  (1)
  Certain agreements for cost-of-service operations
  provide for the recovery of income taxes from customers. These agreements
  expired on June 30, 2004. While the agreements were in effect, the
  Corporation recorded income tax expense on these operations equal to the
  amounts recoverable under the agreements, resulting in no effect on net
  income (loss). Some agreements limited the recoverable amount to current
  taxes payable. Accordingly, the provision for income taxes excluded future
  income tax recoveries relating to these operations.(2)
  NOVA Chemicals has a tax reserve, which is available
  to settle periodic tax disputes and ongoing tax adjustments. NOVA Chemicals
  assesses this reserve from time to time for adequacy and in 2004, determined
  that it was over-provided.(3)
  In 2006, the Alberta and Federal Canadian Governments
  (2004  the Alberta Government) substantively enacted a tax-rate reduction,
  which reduced income tax accruals for future tax liabilities by $60 million
  (2005  $nil and 2004  $7 million). These benefits have been recorded as a
  reduction of income tax expense.(4)
  The Corporation recorded gains in 2005 and 2004
  related to the resolution of a tax dispute. The dispute related to the
  deductibility of foreign taxes in certain returns filed with the United
  States Internal Revenue Service prior to 1982.(5)
  In instances where there is uncertainty as to the
  ultimate realization of tax benefits related to restructuring charges, the
  full amount of associated future income tax benefits may not be recognized.
  As part of the Corporations impairment charge on its STYRENIX assets (see
  Note 14), $220 million of potential future income tax benefits were not
  recorded. Another $6 million of potential future income tax benefits
  associated with the Carrington, UK plant closure were also not recorded. These
  amounts are reflected as a valuation allowance, which can be taken into
  income in the future to offset any tax expense otherwise recordable in the
  relevant subsidiaries. At such time as these subsidiaries establish a record
  of ongoing profitability, such that the realization of the related future
  income tax asset is more likely than not, the remaining future income tax
  asset could be recognized at that time as a reduction in income tax expense.  The following table outlines
the principal temporary differences comprising the future income tax assets
(liabilities):  (millions of dollars)
  
  2006
  
  
  2005Basis difference in plant and equipment
  
  $
  (493
  )
  
  $
  (843
  )Unrealized foreign exchange gains
  
  (42
  )
  
  (57
  )Reserves not currently deductible
  
  108
  
  
  113Losses available to be carried forward
  
  202
  
  
  184Other
  
  35
  
  
  (21
  )Valuation allowance
  
  (245
  )
  
  (19
  )Net future income tax liability
  
  $
  (435
  )
  
  $
  (643
  )  At December 31, 2006, the
Corporation has U.S. Federal net operating loss carryforwards (NOLs) of $415
million. The U.S. NOLs will begin to expire in 2021 and fully expire in 2026.
In addition, NOVA Chemicals has $110 million of Canadian NOLs that expire in
2010; and $360 million NOLs in Switzerland, with expiration dates from 2008 to
2013.  The Companys valuation
allowance of $245 million at Dec. 31, 2006 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.  98   Notes to Consolidated Financial
Statements


The following table outlines
the income tax expense (recovery) arising from Canadian and Foreign operations:  year ended December 31 (millions of dollars)
  
  2006
  
  
  2005
  
  2004Income
  (loss) before income taxesCanadian
  
  $
  155
  
  
  $
  201
  
  $
  473Foreign
  
  (1,002
  )
  
  (303
  )
  (139
  )$
  (847
  )
  
  $
  (102
  )
  $
  334Current
  income tax expense (recovery)Canadian
  
  $
  71
  
  
  $
  81
  
  $
  44Foreign
  
  4
  
  
  (13
  )
  1$
  75
  
  
  $
  68
  
  $
  45Future
  income tax expense (recovery)Canadian
  
  $
  (79
  )
  
  $
  (14
  )
  $
  83Foreign
  
  (140
  )
  
  (55
  )
  (47
  )$
  (219
  )
  
  $
  (69
  )
  $
  36Total income
  tax expense (recovery)
  
  $
  (144
  )
  
  $
  (1
  )
  $
  81  17. Changes in
Non-Cash Working Capital  year ended December 31 (millions of dollars)
  
  2006
  
  
  2005
  
  2004Accounts
  receivable
  
  $
  57
  
  
  $
  3
  
  $
  (251
  )Inventories
  
  11
  
  
  (46
  )
  (242
  )Accounts
  payable and accrued liabilities
  
  (48
  )
  
  184
  
  203Changes in
  non-cash working capital
  
  20
  
  
  141
  
  (290
  )Reclassification
  and other items not having a cash effect
  
  7
  
  
  (72
  )
  121Changes in
  non-cash working capital having a cash effect
  
  $
  27
  
  
  $
  69
  
  $
  (169
  )These
  changes relate to the following activities:Operating
  
  $
  27
  
  
  $
  (43
  )
  $
  (76
  )Investing
  
  (2
  )
  
  110
  
  (110
  )Financing(1)
  
  2
  
  
  2
  
  17(Increase)
  decrease in working capital
  
  $
  27
  
  
  $
  69
  
  $
  (169
  )  (1)Changes in non-cash working capital
related to financing activities include project advances of $nil million (2005 
$nil million and 2004  $15 million).  18. 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 December 31, 2005.  Plan assets are measured at
fair value while pension obligations are discounted using current yield rates
of 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. Prior to January 1,
2005, the Corporation used a measurement date of December 31 for its
pension and post-retirement plans. Effective January 1, 2005, the
Corporation began using a measurement date of November 30 for its pension
and post-retirement plans. Effective January 1, 2006, the Corporation
reverted back to a measurement date of December 31 for its pension and
post-retirement plans, as this will be required by U.S. accounting rules. The December 31
measurement date will be used consistently in future periods.  Notes to Consolidated
Financial Statements   99


The North American
restructuring that occurred in 2006 and the redesign of certain European plans
triggered the following charges: a curtailment charge, a special termination
charge and a settlement charge. A curtailment charge results from the
termination of employment earlier than previously assumed 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; for example, additional
years of age and service. A settlement charge results when the total lump sums
paid during a given year exceed a certain threshold. The impact of these
charges are reflected in the table below and on page 101.  Upon commencement of the NOVA
Innovene 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 October 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)
  
  2006
  
  
  2005
  
  2004
  
  2006
  
  
  2005
  
  2004Current
  service cost
  
  $
  27
  
  
  $
  26
  
  $
  24
  
  $
  2
  
  
  $
  2
  
  $
  2Interest
  cost on accrued benefit obligations
  
  43
  
  
  39
  
  34
  
  5
  
  
  4
  
  4Actual
  return on plan assets
  
  (87
  )
  
  (55
  )
  (45
  )
  
  
  
  
  
  Actuarial
  (gain) loss on accrued benefit obligations
  
  28
  
  
  2
  
  25
  
  
  
  
  
  
  (2
  )Costs
  arising in the period
  
  11
  
  
  12
  
  38
  
  7
  
  
  6
  
  4Differences
  between costs arising in the period and costs recognized in the period in
  respect of the long-term nature
  of employee future benefit costs:Return on
  plan assets
  
  42
  
  
  18
  
  14
  
  
  
  
  
  
  Transitional
  (asset) obligation
  
  (6
  )
  
  (5
  )
  (5
  )
  1
  
  
  1
  
  1Actuarial
  (gain) loss
  
  (18
  )
  
  5
  
  (21
  )
  1
  
  
  1
  
  3Past service
  and actual plan amendments
  
  
  
  
  1
  
  2
  
  (1
  )
  
  
  
  Net defined
  benefit cost recognized
  
  29
  
  
  31
  
  28
  
  8
  
  
  8
  
  8Curtailment
  / special termination charge
  
  9
  
  
  
  
  
  
  5
  
  
  
  
  Settlement
  charge
  
  3
  
  
  
  
  
  
  
  
  
  
  
  Total
  benefit cost recognized
  
  $
  41
  
  
  $
  31
  
  $
  28
  
  $
  13
  
  
  $
  8
  
  $
  8  100   Notes to Consolidated Financial
Statements


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)
  
  2006
  
  
  2005
  
  2004
  
  2006
  
  
  2005
  
  2004Change in
  benefit obligationsBenefit
  obligation at beginning of year
  
  $
  797
  
  
  $
  668
  
  $
  569
  
  $
  70
  
  
  $
  73
  
  $
  69Current
  service cost
  
  27
  
  
  26
  
  24
  
  2
  
  
  2
  
  2Interest
  cost
  
  43
  
  
  39
  
  34
  
  5
  
  
  4
  
  4Experience
  (gain) loss
  
  23
  
  
  85
  
  25
  
  13
  
  
  (8
  )
  7Plan
  amendments
  
  (8
  )
  
  
  
  
  
  (10
  )
  
  
  
  Curtailment
  / special charges
  
  (3
  )
  
  
  
  
  
  6
  
  
  
  
  Settlement
  gain
  
  (33
  )
  
  
  
  
  
  
  
  
  
  
  Commuted
  value payments
  
  (20
  )
  
  (6
  )
  (7
  )
  
  
  
  
  
  Employee
  contributions
  
  8
  
  
  4
  
  5
  
  1
  
  
  1
  
  1Medicare Act
  subsidy effect
  
  
  
  
  
  
  
  
  
  
  
  
  
  (9
  )Benefits
  paid
  
  (25
  )
  
  (21
  )
  (21
  )
  (4
  )
  
  (3
  )
  (3
  )Foreign
  currency exchange rate loss
  
  12
  
  
  2
  
  39
  
  
  
  
  1
  
  2Benefit
  obligation at end of year
  
  $
  821
  
  
  $
  797
  
  $
  668
  
  $
  83
  
  
  $
  70
  
  $
  73Change in
  plan assetsFair value
  of plan assets at beginning of year
  
  $
  585
  
  
  $
  506
  
  $
  425
  
  $
  
  
  
  $
  
  
  $
  Actual
  return on plan assets
  
  87
  
  
  55
  
  45
  
  
  
  
  
  
  Employer and
  employee contributions
  
  83
  
  
  52
  
  32
  
  4
  
  
  3
  
  3Settlement
  loss
  
  (35
  )
  
  
  
  
  
  
  
  
  
  
  Benefits
  paid
  
  (44
  )
  
  (27
  )
  (28
  )
  (4
  )
  
  (3
  )
  (3
  )Foreign
  currency exchange rate gain (loss)
  
  9
  
  
  (1
  )
  32
  
  
  
  
  
  
  Fair value
  of plan assets at end of year
  
  $
  685
  
  
  $
  585
  
  $
  506
  
  $
  
  
  
  $
  
  
  $
  Funded
  statusPlan assets
  in deficiency of benefit obligation
  
  $
  (136
  )
  
  $
  (212
  )
  $
  (162
  )
  $
  (83
  )
  
  $
  (70
  )
  $
  (73
  )Unrecognized
  net transitional (asset) obligation
  
  (38
  )
  
  (44
  )
  (47
  )
  8
  
  
  10
  
  11Unrecognized
  prior service cost
  
  (4
  )
  
  3
  
  6
  
  (8
  )
  
  
  
  Unrecognized
  net actuarial loss
  
  155
  
  
  195
  
  132
  
  23
  
  
  11
  
  19December contribution
  
  
  
  
  2
  
  
  
  
  
  
  
  
  Net amounts
  recognized in consolidated balance sheets
  
  $
  (23
  )
  
  $
  (56
  )
  $
  (71
  )
  $
  (60
  )
  
  $
  (49
  )
  $
  (43
  )Weighted-average
  assumptionsDiscount
  rate
  
  5.1
  %
  
  5.2
  %
  5.6
  %
  5.7
  %
  
  5.6
  %
  5.8
  %Assumed
  long-term rate of return on plan assets(1)
  
  7.4
  %
  
  7.3
  %
  7.3
  %
  
  
  
  
  
  Rate of
  increase in future compensation
  
  3.2
  %
  
  3.6
  %
  3.2
  %
  
  
  
  
  
  Long-term
  health care inflation(2)
  
  
  
  
  
  
  
  
  4.9
  %
  
  4.9
  %
  5.0
  %  (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 2012. The assumed health care cost trend rate used to measure the 2006
expected cost of benefits covered by the plans is 10% on average.  NOVA Chemicals recorded a
liability of $5 million in 2006 and $4 million in each of years 2005 and 2004
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 December 31,
2005.  Notes to Consolidated
Financial Statements   101


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:  (millions of dollars)
  
  Accrued Benefit Obligation
  
  Fair Value of AssetsDecember 31, 2006
  
  $
  694
  
  $
  551December 31,
  2005
  
  $
  797
  
  $
  585December 31,
  2004
  
  $
  668
  
  $
  506  Expected benefit payments for
the defined benefit pension plans and the post-retirement plans are as follows:  (millions of dollars)
  
  Pension Plans
  
  Post-Retirement Plans2007
  
  $
  34
  
  $
  42008
  
  $
  57
  
  $
  52009
  
  $
  39
  
  $
  52010
  
  $
  42
  
  $
  52011
  
  $
  44
  
  $
  5Five Years
  Thereafter
  
  $
  281
  
  $
  28  In 2007, NOVA Chemicals
expects to fund its defined benefit pension plans by $55 million.  Defined Benefit Plan Assets The investment strategy for
NOVA Chemicals defined benefit plans is determined 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 84% of total
pension assets and 92% of total plan members in these plans. The asset
allocation for these pension plans at the end of 2006, 2005, and 2004, and the
target allocation for 2007, 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
  
  2007
  
  2006
  
  
  2005
  
  2004Equities
  
  60
  %
  61
  %
  
  60
  %
  60
  %Fixed Income
  
  40
  %
  39
  %
  
  40
  %
  40
  %Total
  
  100
  %
  100
  %
  
  100
  %
  100
  %  102   Notes to Consolidated Financial
Statements


The investment strategies for
the pension plans in Europe (most of which are sponsored by NOVA Innovene)
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.  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 $6 million at December 31, 2006 for Canadian plans and $7
million for U.S. plans. A 1% decrease in the same health care inflation rate
would have decreased the post-retirement benefit obligation by $5 million for
each of the Canadian and U.S. plans.  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 2006 and $7 million in each of the years 2005 and 2004.
In 2007, NOVA Chemicals expects to fund its defined contribution plans by
approximately $8 million.  19. 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 $19 million at December 31, 2006 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. In addition to
the liability for active sites, the Corporation also has an asset retirement
obligation liability for decommissioning and restoration costs associated with
plant sites that have been divested or are no longer in use. The accrued
liability associated with these sites is $4 million and is considered to be
adequate at this time.  20. 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 $520 million in total with annual amounts of
$46 million in 2007, $43 million in 2008, $46 million in 2009, $41 million in
2010, $35 million in 2011, and $309 million thereafter. Rental expense under
operating leases was $62 million in 2006 (2005  $63 million and 2004  $59
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 $9,200 million in total with annual
amounts of $3,140 million in 2007, $999 million in 2008, $822 million in 2009,
$494 million in 2010, $438 million in 2011, and $3,307 million thereafter.  The Corporation is obligated
under a long-term styrene monomer supply agreement to supply the NOVA Innovene
joint venture with 50% of the joint ventures styrene monomer feedstock requirements.  Notes to Consolidated
Financial Statements   103


21. Segmented Information Based on results of a
Securities and Exchange Commission (SEC) routine, periodic review of NOVA
Chemicals financial statements, NOVA Chemicals has increased the number of
reportable business segments from three to seven. This change increases the
amount of detail disclosed but 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 and styrene, 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, HDPE; (Standard and Performance
Products)  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) Styrene Monomer Products:Styrene Monomer  Applications:Styrene monomer is
used internally by NOVA Chemicals 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.  (5) North American Solid
Polystyrene Products:SPS  Applications:SPS is sold to
customers who make products for end-use applications including electronics and
food packaging, small appliances, and construction components.  104   Notes to Consolidated Financial
Statements


(6) NOVA Innovene
European Joint Venture Products:SPS and EPS. Neither of these products exceed
the quantitative threshold for separate reportable segments.  Applications: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.  (7) Performance
Styrenics Products:EPS and Styrenic Performance Products which
include polymers such as ARCEL®, ZYLAR®and DYLARK®;
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 Products make protective packaging,
automotive interiors, food packaging, consumer goods, medical devices,
appliances and components for the construction industry.  The accounting policies of
the segments are the same as those described in the summary of significant
accounting policies on pages 80 to 84 of the Notes to Consolidated Financial
Statements.  Segment performance is
evaluated based on measures such as operating income (loss) and net income
(loss). In addition, Adjusted EBITDA is reported as it is a measure used by
management 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.  The following tables provide
information for each segment:  Revenues(1) 2006
  
  
  2005
  
  2004Joffre
  Olefins
  
  $
  881
  
  
  $
  963
  
  $
  799Corunna
  Olefins
  
  1,245
  
  
  897
  
  793Polyethylene
  
  1,917
  
  
  1,625
  
  1,464Performance
  Styrenics
  
  408
  
  
  388
  
  394Styrene
  Monomer
  
  1,236
  
  
  962
  
  922North
  American Solid Polystyrene
  
  484
  
  
  521
  
  519NOVA Innovene European joint venture
  
  672
  
  
  616
  
  604Eliminations
  
  (324
  )
  
  (356
  )
  (225
  )Total
  Revenues from External Customers
  
  $
  6,519
  
  
  $
  5,616
  
  $
  5,270  (1) Third-party.  Notes to Consolidated
Financial Statements   105


Intercompany and Affiliate Revenues 2006
  
  
  2005
  
  2004Joffre
  Olefins
  
  $
  863
  
  
  $
  741
  
  $
  618Corunna
  Olefins
  
  752
  
  
  533
  
  613Polyethylene
  
  5
  
  
  3
  
  5Performance
  Styrenics
  
  13
  
  
  4
  
  Styrene
  Monomer
  
  653
  
  
  866
  
  898North
  American Solid Polystyrene
  
  16
  
  
  24
  
  33Eliminations
  
  (2,302
  )
  
  (2,171
  )
  (2,167
  )Total
  Intercompany and Affiliate Revenues
  
  $
  
  
  
  $
  
  
  $
    Consolidated Revenues(1) 2006
  
  
  2005
  
  2004Joffre
  Olefins
  
  $
  1,744
  
  
  $
  1,704
  
  $
  1,417Corunna
  Olefins
  
  1,997
  
  
  1,430
  
  1,406Polyethylene
  
  1,922
  
  
  1,628
  
  1,469Performance
  Styrenics
  
  421
  
  
  392
  
  394Styrene
  Monomer
  
  1,889
  
  
  1,828
  
  1,820North
  American Solid Polystyrene
  
  500
  
  
  545
  
  552NOVA Innovene European Joint Venture
  
  672
  
  
  616
  
  604Eliminations
  
  (2,626
  )
  
  (2,527
  )
  (2,392
  )Total
  Consolidated Revenues
  
  $
  6,519
  
  
  $
  5,616
  
  $
  5,270  (1)   Before intersegment eliminations.  Adjusted EBITDA(1) 2006
  
  
  2005
  
  2004Joffre
  Olefins
  
  $
  558
  
  
  $
  313
  
  $
  300Corunna
  Olefins
  
  83
  
  
  67
  
  142Polyethylene
  
  120
  
  
  202
  
  188Performance
  Styrenics
  
  (24
  )
  
  (5
  )
  8Styrene
  Monomer
  
  (17
  )
  
  (61
  )
  42North
  American Solid Polystyrene
  
  (39
  )
  
  (18
  )
  2NOVA Innovene European Joint Venture
  
  (18
  )
  
  (64
  )
  (11
  )Corporate
  
  (54
  )
  
  13
  
  (98
  )Eliminations
  
  (5
  )
  
  14
  
  (3
  )Total
  Adjusted EBITDA
  
  $
  604
  
  
  $
  461
  
  $
  570  (1)Net income (loss) before restructuring
charges, income taxes, other gains and losses, interest expense and
depreciation and amortization.  106   Notes to Consolidated Financial
Statements


Operating Income (Loss) 2006
  
  
  2005
  
  2004Joffre
  Olefins
  
  $
  506
  
  
  $
  262
  
  $
  228Corunna
  Olefins
  
  24
  
  
  17
  
  93Polyethylene
  
  52
  
  
  137
  
  128Performance
  Styrenics
  
  (36
  )
  
  (18
  )
  (4
  )Styrene
  Monomer
  
  (72
  )
  
  (113
  )
  (1
  )North
  American Solid Polystyrene
  
  (60
  )
  
  (47
  )
  (28
  )NOVA Innovene European Joint Venture
  
  (50
  )
  
  (94
  )
  (42
  )Corporate
  
  (1,039
  )
  
  (155
  )
  (106
  )Eliminations
  
  (5
  )
  
  14
  
  (3
  )Total
  Operating Income (Loss)
  
  $
  (680
  )
  
  $
  3
  
  $
  265  Net Income (Loss) 2006
  
  
  2005
  
  2004Joffre
  Olefins
  
  $
  324
  
  
  $
  154
  
  $
  132Corunna
  Olefins
  
  25
  
  
  2
  
  56Polyethylene
  
  32
  
  
  71
  
  67Performance
  Styrenics
  
  (29
  )
  
  (14
  )
  (6
  )Styrene
  Monomer
  
  (61
  )
  
  (81
  )
  (12
  )North
  American Solid Polystyrene
  
  (44
  )
  
  (33
  )
  (16
  )NOVA Innovene European Joint Venture
  
  (47
  )
  
  (92
  )
  (44
  )Corporate
  
  (901
  )
  
  (117
  )
  77Eliminations
  
  (2
  )
  
  9
  
  (1
  )Total Net
  Income (Loss)
  
  $
  (703
  )
  
  $
  (101
  )
  $
  253  Depreciation and Amortization 2006
  
  
  2005
  
  2004Joffre
  Olefins
  
  $
  52
  
  
  $
  51
  
  $
  72Corunna
  Olefins
  
  59
  
  
  50
  
  49Polyethylene
  
  68
  
  
  65
  
  60Performance
  Styrenics
  
  12
  
  
  13
  
  12Styrene
  Monomer
  
  55
  
  
  52
  
  43North
  American Solid Polystyrene
  
  21
  
  
  29
  
  30NOVA Innovene European Joint Venture
  
  32
  
  
  30
  
  31Total
  Depreciation and Amortization
  
  $
  299
  
  
  $
  290
  
  $
  297  Interest Expense (Net)(1) 2006
  
  
  2005
  
  2004Joffre
  Olefins
  
  $
  50
  
  
  $
  25
  
  $
  25Corunna
  Olefins
  
  20
  
  
  11
  
  10Polyethylene
  
  34
  
  
  30
  
  29Performance
  Styrenics
  
  10
  
  
  7
  
  7Styrene
  Monomer
  
  21
  
  
  14
  
  15North
  American Solid Polystyrene
  
  11
  
  
  9
  
  8NOVA Innovene European Joint Venture
  
  22
  
  
  17
  
  14Total
  Interest Expense (Net)
  
  $
  168
  
  
  $
  113
  
  $
  108  (1)Management primarily relies on interest
expense, rather than gross interest revenue and expense amounts, in managing
the segments, thus only the net interest expense amount is disclosed.  Notes to Consolidated
Financial Statements   107


Income Tax Expense (Recovery) 2006
  
  
  2005
  
  2004Joffre
  Olefins
  
  $
  131
  
  
  $
  82
  
  $
  72Corunna
  Olefins
  
  (19
  )
  
  4
  
  26Polyethylene
  
  (14
  )
  
  37
  
  32Performance
  Styrenics
  
  (18
  )
  
  (12
  )
  (5
  )Styrene
  Monomer
  
  (33
  )
  
  (46
  )
  (3
  )North
  American Solid Polystyrene
  
  (26
  )
  
  (20
  )
  (21
  )NOVA Innovene European Joint Venture
  
  (24
  )
  
  (19
  )
  (11
  )Corporate
  
  (138
  )
  
  (32
  )
  (8
  )Eliminations
  
  (3
  )
  
  5
  
  (1
  )Total Income
  Tax Expense (Recovery)
  
  $
  (144
  )
  
  $
  (1
  )
  $
  81  Capital Expenditures 2006
  
  
  2005
  
  2004Joffre
  Olefins
  
  $
  25
  
  
  $
  18
  
  $
  (2
  )Corunna
  Olefins
  
  45
  
  
  204
  
  105Polyethylene
  
  23
  
  
  34
  
  25Performance
  Styrenics
  
  81
  
  
  86
  
  35Styrene
  Monomer
  
  6
  
  
  55
  
  46North
  American Solid Polystyrene
  
  7
  
  
  7
  
  16NOVA Innovene European Joint Venture
  
  11
  
  
  15
  
  17Total
  Capital Expenditures
  
  $
  198
  
  
  $
  419
  
  $
  242  Assets 2006
  
  
  2005
  
  2004Joffre
  Olefins
  
  $
  743
  
  
  $
  819
  
  $
  750Corunna
  Olefins
  
  1,092
  
  
  1,074
  
  781Polyethylene
  
  946
  
  
  1,009
  
  993Performance
  Styrenics
  
  429
  
  
  332
  
  262Styrene
  Monomer
  
  334
  
  
  720
  
  687North
  American Solid Polystyrene
  
  82
  
  
  312
  
  475NOVA Innovene European Joint Venture
  
  216
  
  
  554
  
  594Corporate
  
  331
  
  
  412
  
  527Eliminations
  
  (18
  )
  
  (15
  )
  (22
  )Total Assets
  
  $
  4,155
  
  
  $
  5,217
  
  $
  5,047  108   Notes to Consolidated Financial
Statements


Geographic Information  Revenues from External
Customers(1) 2006
  
  
  2005
  
  2004Canada
  
  $
  2,304
  
  
  $
  1,976
  
  $
  1,706United
  States
  
  2,757
  
  
  2,478
  
  2,390Europe and
  Other
  
  1,458
  
  
  1,162
  
  1,174$
  6,519
  
  
  $
  5,616
  
  $
  5,270  (1)   Based on location of customer.  Assets(1) 2006
  
  
  2005
  
  2004Canada
  
  $
  2,827
  
  
  $
  3,163
  
  $
  2,943United
  States
  
  857
  
  
  1,252
  
  1,320Europe and
  Other
  
  471
  
  
  802
  
  784$
  4,155
  
  
  $
  5,217
  
  $
  5,047  (1)   Based on location of operating facility.  22. Financial Instruments Financial Instrument Fair
Values Financial instrument fair
values re p resent 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 balance sheets for cash and cash equivalents, accounts receivable, bank
loans, and accounts payable approximate their fair value. Fair values and
carrying amounts for long-term debt are as follows:  December 31 (millions of dollars)
  
  Carrying Amount(1)
  
  Estimated Fair Value(2)2006
  
  
  2005
  
  2004
  
  2006
  
  
  2005
  
  2004Long-term
  debt
  
  $
  1,877
  
  
  $
  2,038
  
  $
  1,714
  
  $
  1,852
  
  
  $
  2,050
  
  $
  1,798  (1)Includes debt installments due within one
year.  (2)The fair value of long-term debt is based
on quoted market prices, where available. If market prices are not available,
fair values are estimated using discounted cash flow analysis, based on NOVA
Chemicals current incremental borrowing rates for similar borrowing
arrangements.  Foreign Exchange Risk
Management NOVA Chemicals has U.S.,
Canadian and European-based petrochemical operations. As a result, a portion of
the Corporations expenditures are incurred in Canadian dollars and Euros. At December 31,
2006, NOVA Chemicals had no outstanding foreign currency forward exchange
contracts.  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 3-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 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  Notes to Consolidated
Financial Statements   109


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 December 31,
2006, the mark-to-market value of the share forward transactions was a $35
million (December 31, 2005  $15 million) unrealized loss, resulting in a
liability, which is reported in long-term liabilities.  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.  At December 31, 2006,
2005, and 2004, the notional volume and estimated fair value of outstanding
derivative contracts for natural gas are as follows:  December 31
  
  
  
  2006
  
  
  2005
  
  2004Basis swapsNotional
  volume
  
  mcf millions
  
  
  
  
  
  
  12.6Weighted-average
  basis differential per mcf(1)
  
  U.S.
  
  $
  
  
  
  $
  
  
  $
  0.61Estimated
  fair value(2)
  
  U.S.
  millions
  
  $
  
  
  
  $
  
  
  $
  (3
  )Term to
  maturity
  
  Months
  
  
  
  
  
  
  1-3OptionsNotional
  volume  calls
  
  mcf millions
  
  
  
  
  
  
  1.1Notional
  volume  puts
  
  mcf millions
  
  
  
  
  
  
  8.6Weighted-average
  price per mcf  calls
  
  U.S.
  
  $
  
  
  
  $
  
  
  $
  5.05Weighted-average
  price per mcf  puts(3)
  
  U.S.
  
  $
  
  
  
  $
  
  
  $
  2.50Estimated
  fair value(4)
  
  U.S.
  millions
  
  $
  
  
  
  $
  
  
  $
  1Term to
  maturity
  
  Months
  
  
  
  
  
  
  1-3  (1)The Corporation will pay or receive the
difference between the NYMEX market price and the U.S. export market price,
plus a fixed differential established in the contract.  (2)The Corporation crystallized the losses on
all of the basis swaps by placing offsetting positions. These crystallized
losses will be recognized in income at their originally intended maturity
dates.  (3)The Corporation will pay the difference
between the NYMEX market price and the contract price (if contract is higher
than market).  (4)Unrealized before-tax gain (loss).   At December 31, 2006,
2005, and 2004, the notional volume and estimated fair value of outstanding
derivative contracts for crude oil, refined products, and alternative feedstock
are as follows:  December 31
  
  
  
  2006
  
  
  2005
  
  2004Notional
  volume(1)
  
  bbls
  millions
  
  17.8
  
  
  5.4
  
  4.0Weighted-average
  price per bbl
  
  U.S.
  
  $
  52.69
  
  
  $
  51.56
  
  $
  42.67Estimated
  fair value(2)
  
  U.S.
  millions
  
  $
  (2
  )
  
  $
  19
  
  $
  12Mark-to-market(3)
  
  U.S.
  millions
  
  $
  (2
  )
  
  $
  19
  
  $
  9Term to
  maturity
  
  Months
  
  1-21
  
  
  1-19
  
  1-24  (1)   2006 includes 7.5 million bbls (2005  2.3
million) of crude contracts and 10.3 million bbls (2005  3.1 million) of LPG
contracts.  (2)   Unrealized gain (loss).  (3)   Recognized before-tax gain (loss), which for
2005 and 2004 is net of deferred transitional gains.  110   Notes to Consolidated Financial
Statements


At December 31, 2006,
2005, and 2004, the notional volume and estimated fair value of outstanding
derivative contracts for benzene are as follows:  December 31
  
  
  
  2006
  
  
  2005
  
  2004Notional
  volume
  
  gls millions
  
  
  
  
  
  
  0.2Weighted-average
  price per gl(1)
  
  U.S.
  
  $
  
  
  
  $
  
  
  $
  3.05Estimated
  fair value(2)
  
  U.S.
  millions
  
  $
  
  
  
  $
  
  
  $
  (2
  )Mark-to-market(3)
  
  U.S.
  millions
  
  $
  
  
  
  $
  
  
  $
  (2
  )Term to
  maturity
  
  months
  
  
  
  
  
  
  1-3  (1)   Benzene swaps, options, collars.  (2)   Unrealized loss.  (3)   Recognized before-tax loss.  In addition to the
crystallized and outstanding positions described in the tables above, the
Corporation had liquidated certain natural gas and crude oil positions. Gains
on these positions attributable to changes in value prior to January 1,
2004 were deferred and are being recognized in income loss at the original
maturity dates. The unamortized portion of liquidated gains was $nil million at
December 31, 2006 (2005  $nil million and 2004  $3 million).  The Corporation has
recognized a net pre-tax net (loss) of $(6) million from commodity risk
management activities in income (loss) for the year ended December 31,
2006 (2005  $19 million gain and 2004  $22 million gain). This net (loss)
gain is the result of $15 million (2005  $7 million and 2004  $16 million) of
realized net gains from settled, crystallized, and liquidated positions and
$(21) million loss (2005  $12 million gain and 2004  $6 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.  Interest Rate Risk Management 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 2006, the Corporation had
fixed-for-floating interest rate swaps outstanding on $300 million (2005  $300
million and 2004  $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 $nil million at December 31, 2006 ($(3) million
at December 31, 2005 and $(2) million at December 31, 2004).  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.  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 any counterparties that it currently transacts with will fail to
meet their obligations. At December 31, 2006, 2005, and 2004, NOVA
Chemicals credit exposure was $nil million for foreign currency instruments,
$nil million for interest rate instruments, and $nil million (2005  $19
million and 2004  $11 million) for commodity-based instruments and $nil
million for share-based instruments.  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. The
Corporation manages its credit risk relating to these receivables through
credit approval and monitoring procedures.  Notes to Consolidated
Financial Statements   111


23. 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 diff e rent from U.S. GAAP. The effect of these differences
on the Corporations consolidated net income (loss) and balance sheet are as
follows:  year ended December 31 (millions of dollars, except per share amounts)
  
  2006
  
  
  2005
  
  2004Net income
  (loss) in accordance with Canadian GAAP
  
  $
  (703
  )
  
  $
  (101
  )
  $
  253Add (deduct)
  adjustments for:Start-up
  costs(1)
  
  (3
  )
  
  (13
  )
  5Derivative
  instruments and hedging activities(2)
  
  (2
  )
  
  (3
  )
  Inventory
  costing(3)
  
  (2
  )
  
  4
  
  4Stock-based
  compensation(4)
  
  (1
  )
  
  
  
  Restructuring(5)
  
  11
  
  
  
  
  Change in
  accounting policies(6)
  
  
  
  
  
  
  (7
  )Other
  
  1
  
  
  1
  
  Net income
  (loss) in accordance with U.S. GAAP
  
  $
  (699
  )
  
  $
  (112
  )
  $
  255Earnings
  (loss) per share using U.S. GAAP Basic
  
  $
  (8.47
  )
  
  $
  (1.36
  )
  $
  2.94 Diluted
  
  $
  (8.47
  )
  
  $
  (1.36
  )
  $
  2.74Comprehensive
  income (loss) (net of tax)(7)Net income
  (loss) in accordance with U.S. GAAP
  
  $
  (699
  )
  
  $
  (112
  )
  $
  255Cumulative
  translation adjustment(8)
  
  54
  
  
  (29
  )
  121Pension
  liability adjustments (less tax of $(4), $6 and $nil)(9)
  
  8
  
  
  (9
  )
  1Comprehensive
  income (loss) in accordance with U.S. GAAP
  
  $
  (637
  )
  
  $
  (150
  )
  $
  377Accumulated
  other comprehensive income(7)Cumulative
  translation adjustment(8)
  
  $
  357
  
  
  $
  303
  
  $
  332Pension
  liability adjustments(9)
  
  (82
  )
  
  (12
  )
  (3
  )Accumulated
  other comprehensive income
  
  $
  275
  
  
  $
  291
  
  $
  329  December 31 (millions of dollars)
  
  2006
  
  
  2005
  
  2004Balance
  sheet items in accordance with U.S. GAAPCurrent
  assets(3)
  
  $
  1,370
  
  
  $
  1,455
  
  $
  1,482Investment
  and other assets(1)(9)
  
  82
  
  
  159
  
  139Plant,
  property, and equipment (net)(1)(5)
  
  2,719
  
  
  3,604
  
  3,429Current
  liabilities(2)
  
  (1,186
  )
  
  (1,271
  )
  (875
  )Long-term
  debt(2)
  
  (1,617
  )
  
  (1,742
  )
  (1,625
  )Future
  income taxes
  
  (397
  )
  
  (635
  )
  (677
  )Deferred
  credits and long-term liabilities(2)(4)(9)
  
  (501
  )
  
  (363
  )
  (380
  )Common
  shareholders equity
  
  $
  470
  
  
  $
  1,207
  
  $
  1,493  Notes to Consolidated Financial Statements  112   Notes to Consolidated Financial
Statements


(1)Start-up Costs.Canadian GAAP provides that when an entity
starts up a new facility, 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)Derivative Instruments
and Hedging Activities.Canadian GAAP does not require the recognition of derivative instruments
on the consolidated balance sheet at fair values, unless the derivative
instrument does not qualify for hedge accounting under Canadian Accounting
Guideline 13, Hedging Relationships (AcG-13). Non-qualifying derivatives are
adjusted to fair value through income (loss). Under U.S. GAAP, entities must
follow Statement of Financial Accounting Standards (SFAS) No. 133,
Accounting for Derivative Instruments and Hedging Activities, which requires
the recognition of all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through income
(loss). If the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of derivatives will either be offset against the
change in fair value of the hedged assets, liabilities, or firm commitments
through earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings. For derivatives that are designated and qualify
as hedging instruments, the Corporation documents the hedging strategy,
including hedging instrument and hedged item, based on the risk exposure being
hedged. Based upon the designated hedging strategy, effectiveness of the hedge
in offsetting the hedged risk is assessed at inception and on an ongoing basis
during the term of the hedge. The ineffective portion of a derivatives change
in fair value is immediately recognized in earnings.  The application of
SFAS No. 133 for U.S. GAAP reporting results in differences related to
foreign exchange, commodity based and other derivative instruments used by the
Corporation. For information regarding the Corporations use of derivatives and
hedging activities under Canadian GAAP, see Note 22.  (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 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 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. This standard
requires adoption using a modified prospective application. The fair value of
awards classified as liability instruments must be remeasured 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 December 31, 2005,
of $5 million after-tax has been charged to reinvested earnings (deficit) at January 1,
2006.  (5)RestructuringDue to differences in the cost basis,
under U.S. GAAP, of certain assets for which an impairment charge has been
recorded (see Note 14), the resulting charge is lower under U.S. GAAP.  (6)Change in Accounting
Policies.In the
fourth quarter of 2006, NOVA Chemicals adopted the Canadian recommendations
associated with stock-based compensation for employees eligible to retire
before the vesting date (see Note 2), which rules are essentially the
same as those found in the U.S. GAAP standard, SFAS No. 123. Accordingly,
no differences arose from this.  On January 1,
2004, NOVA Chemicals adopted the fair value method of accounting for equity
settled stock-based compensation, as more fully described in Note 2. In 2004,
under U.S. GAAP, the cumulative effect of a change in accounting policy on
prior period is reflected in net income (loss) for the year, whereas under
Canadian GAAP, it is reflected as an adjustment to opening reinvested earnings
(deficit) in the year of adoption.  (7)Comprehensive Income
(Loss).U.S. GAAP
SFAS No. 130, Reporting Comprehensive Income, requires the presentation of
a statement containing the components of comprehensive income (loss) and the
accumulated balance of other comprehensive income (loss). Comprehensive income
(loss) includes all changes in equity during the period including items that
are not included in net income (loss). This statement is not currently required
under Canadian GAAP.  (8)Cumulative Translation
Adjustment.Under
U.S. GAAP, unrealized gains (losses) resulting from translation of
self-sustaining foreign operations are recorded in other comprehensive income
(loss) until there is a realized reduction in the investment.  (9)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. Retrospective application is not permitted.
Accordingly, at December 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), 2005 and 2004, 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.  (10)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.  Notes to Consolidated
Financial Statements   113


24. New Accounting Pronouncements Canadian GAAP CICA 3855,
Financial Instruments  Recognition and Measurement and CICA 3865, Hedges,is applicable for interim and annual periods
relating to fiscal years beginning on or after October 1, 2006. CICA 3855
harmonize Canadian and U.S. GAAP and International Financial Reporting
Standards (IFRS) by establishing standards for recognition and measurement of
financial assets, liabilities and non-financial derivatives. Previous Canadian
standards addressed disclosure and presentation matters only. CICA 3865
harmonizes Canadian GAAP with U.S. GAAP FAS 133 by establishing standards for
when and how hedge accounting may be applied and recorded, further
restricting which hedging relationships qualify for hedge accounting.  CICA 1530,
Comprehensive Income,is
applicable for interim and annual periods relating to fiscal years beginning on
or after October 1, 2006. This standard harmonizes Canadian and U.S. GAAP
and IFRS. This statement defines the presentation of comprehensive income and
its components. Comprehensive income includes all changes in equity during the
period including items that are not recognized in net income (loss).  CICA 1506,
Changes in Accounting Policies and Estimates and Errors,is effective Jan. 1, 2007 and 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 financial statements.  U.S. GAAP SFAS 158,
Employers Accounting for Defined Benefit Pension and Other Post-retirement
Plans,requires
recognition of the overfunded or underfunded status of pension and other post-retirement
benefit plans on the balance sheet, effective for fiscal years ending after Dec. 15,
2006. In addition, SFAS 158 requires the measurement date, which is the date at
which the benefit obligation and plan assets are measured, to be a companys
fiscal year-end. This provision is effective for fiscal years ending after Dec. 15,
2008.  FIN 48,
Accounting for Uncertainty in Income Taxes,clarifies accounting for income taxes by
prescribing a minimum recognition threshold that a tax position is required to
meet before being recognized. An enterprise would be 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. FIN 48 is effective for fiscal years beginning after December 15,
2006. NOVA Chemicals has not yet determined the effect of adopting this
standard.  NOVA Chemicals is currently
evaluating the effects of adopting these Canadian and U.S. GAAP standards.  114   Notes to Consolidated Financial Statements