Please note that a few non-material typographical misprints occurred in our web site version of the NOVA Chemicals 4Q 1998 news release. If you downloaded or printed a copy of the news release from our web site between noon MST February 3 and 9 a.m. MST on February 4, you may wish to download or reprint the revised version that now appears on our web site.
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FOR IMMEDIATE RELEASE
February 3, 1999 Calgary, Canada All financial information is in U.S. dollars unless otherwise indicated. |
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Fourth Quarter 1998 In Review -- NOVA Chemicals Corporation (NOVA Chemicals) reported:
- Earnings from operated businesses of $2 million, compared to $8 million for the previous quarter, with lower feedstock costs and increased sales volumes partially offsetting the impact of lower product prices;
- Equity earnings down $5 million from the third quarter to zero; and
- Consolidated earnings of $2 million (0 cents per share after preferred dividends), compared to third quarter earnings of $13 million (14 cents per share), and earnings of $20 million (22 cents per share) during the fourth quarter of 1997, before a write-down of Dynegy Inc. (Dynegy) of $39 million (43 cents per share).
- Completing the purchase of the major portion of Huntsman Corporation's (Huntsman) styrenics business;
- Successfully starting-up a planned 350 million pound styrene expansion at Sarnia, Ontario;
- Achieving record-setting production and safety performance in the olefins and polyolefins business for 1998; and
- Changing its name to NOVA Chemicals Corporation effective January 1, 1999.
Full Year 1998 In Review
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"In the midst of a tough market, we were very successful at strategically positioning ourselves as a strong, independent commodity chemicals company. As a result, we are poised to deliver improved results in 1999," said NOVA Chemicals president and chief executive officer, Jeff Lipton.
1999 Objectives -- NOVA Chemicals is targeting to:
- Sell NOVA Chemicals' interest in Dynegy;
- Advance construction of the new ethylene, polyethylene and co-generation plants at Joffre, Alberta on-time and on-budget;
- Achieve targeted $75 million of mainly non-market related net income improvements, primarily through contract and business arrangement changes and improved styrenics costs; and
- Continue reducing fixed costs and quickly capture synergies from the styrenics acquisition.
Note: On July 2, 1998, NOVA Chemicals was split off as an independent, publicly traded commodity chemicals company following the merger of the former NOVA Corporation and TransCanada PipeLines Limited (TransCanada). All financial information from prior periods presented for comparative purposes are the results from NOVA Chemicals Ltd., which, following the split off, accounted for approximately 99 percent of the ongoing assets and revenues of NOVA Chemicals Corporation. Beginning with the third quarter of 1998, NOVA Chemicals reports its financial results in U.S. dollars while continuing to follow Canadian Generally Accepted Accounting Principles. All prior periods have been restated in U.S. dollars using an exchange rate of $1.00 Canadian = $0.68 U.S. NOVA Chemicals acquired Huntsman's styrenics business on December 31, 1998. Accordingly, NOVA Chemicals' consolidated balance sheet as at December 31, 1998 includes the Huntsman acquisition and is subject to change pending receipt of the audited balance sheet of Huntsman Group. NOVA Chemicals' consolidated statement of income for the year ended December 31, 1998 does not include any amounts with respect to the Huntsman acquisition.
NOVA Chemicals Highlights
| (unaudited; millions of U.S. dollars except per share amounts and as noted) | Three Months Ended | Year Ended | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net income (loss) | Dec. 31 1998 |
Sept. 30 1998 |
Dec. 31 1997 |
Dec. 31 1998 |
Dec. 31 1997 |
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| Olefins/polyolefins | $ | 6 | $ | 13 | $ | 23 | $ | 61 | $ | 145 | ||||||
| Styrenics | (4) | (6) | (9) | (35) | (38) | |||||||||||
| Corporate and other | - | 1 | (5) | 3 | (14) | |||||||||||
| NOVA Chemicals operated | 2 | 8 | 9 | 29 | 93 | |||||||||||
| Methanex | (8) | (6) | 6 | (25) | 39 | |||||||||||
| Dynegy | 8 | 11 | 5 | 26 | 18 | |||||||||||
| Styrenics restructuring charge | - | - | - | (12) | - | |||||||||||
| Dynegy restructuring charge | - | - | (39) | - | (39) | |||||||||||
| Net income (loss) | $ | 2 | $ | 13 | $ | (19) | $ | 18 | $ | 111 | ||||||
| ===== | ===== | ===== | ===== | ===== | ||||||||||||
| Net income (loss) per share(1) | ||||||||||||||||
| - before restructuring charges | $ | - | $ | 0.14 | $ | 0.22 | $ | 0.30 | $ | 1.63 | ||||||
| - after restructuring charges | $ | - | $ | 0.14 | $ | (0.21) | $ | 0.17 | $ | 1.21 | ||||||
| Common shares outstanding (millions) | 92 | 92 | 92 | 92 | 92 | |||||||||||
| Revenue | $ | 495 | $ | 500 | $ | 560 | $ | 2,075 | $ | 2,285 | ||||||
| EBITDA(2) | $ | 53 | $ | 66 | $ | 74 | $ | 254 | $ | 389 | ||||||
| Depreciation | $ | 37 | $ | 37 | $ | 42 | $ | 151 | $ | 160 | ||||||
| Funds from operations | $ | 38 | $ | 58 | $ | 58 | $ | 170 | $ | 254 | ||||||
| Capital expenditures | $ | 80 | $ | 82 | $ | 94 | $ | 367 | $ | 223 | ||||||
| Capital employed(3) | $ | 1,815 | $ | 1,857 | $ | 2,053 | $ | 1,815 | $ | 2,053 | ||||||
| After-tax return on capital employed(4) | 0.9% | 4.1% | (1.8)% | 3.3% | 7.6% | |||||||||||
| Return on average common equity | - | 4.2% | (5.6)% | 1.4% | 8.3% | |||||||||||
(1) Earnings per share calculation for comparative purposes assumes 92 million common shares outstanding. Preferred dividends (net of tax recovery) of $2 million were paid in the fourth quarter of 1998 on the 9.5% preferred securities issued October 22, 1998. (2) Earnings before interest, taxes, depreciation and amortization. (3) Capital employed equals plant, property and equipment, working capital and investments, and excludes capital under construction and amounts related to the Huntsman acquisition. (4) Equals net income plus after-tax interest expense divided by capital employed.
OLEFINS/POLYOLEFINS BUSINESS
Financial Highlights
| (unaudited; millions of U.S. dollars except as noted) | Three Months Ended | Year Ended | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Dec. 31 1998 |
Sept. 30 1998 |
Dec. 31 1997 |
Dec. 31 1998 |
Dec. 31 1997 |
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| Revenue | $ | 370 | $ | 385 | $ | 438 | $ | 1,614 | $ | 1,806 | ||||||
| EBITDA(1) | $ | 51 | $ | 65 | $ | 83 | $ | 280 | $ | 416 | ||||||
| Depreciation | $ | 31 | $ | 31 | $ | 34 | $ | 122 | $ | 128 | ||||||
| Operating income | $ | 20 | $ | 34 | $ | 49 | $ | 158 | $ | 288 | ||||||
| Net income | $ | 6 | $ | 13 | $ | 23 | $ | 61 | $ | 145 | ||||||
| Capital expenditures | ||||||||||||||||
| - strategic | $ | 51 | $ | 54 | $ | 10 | $ | 230 | $ | 28 | ||||||
| - maintenance | 13 | 5 | 58 | 63 | 135 | |||||||||||
| Total capital expenditures | $ | 64 | $ | 59 | $ | 68 | $ | 293 | $ | 163 | ||||||
| Capital employed(2) | $ | 852 | $ | 823 | $ | 922 | $ | 852 | $ | 922 | ||||||
| After-tax return on capital employed(3) | 4.2% | 8.1% | 12.6% | 9.5% | 18.1% | |||||||||||
(1) Earnings before interest, taxes, depreciation and amortization (2) Capital employed equals plant, property and equipment, working capital and investments, and excludes capital under construction. (3) Equals net income plus after-tax interest expense divided by capital employed.
Operating Highlights - Olefins/Polyolefins
| Average Benchmark Prices on the U.S. Gulf Coast(1) | ||||||||||||||||
| (U.S. dollars per pound) | Three Months Ended | Year Ended | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Dec. 31 1998 |
Sept. 30 1998 |
Dec. 31 1997 |
Dec. 31 1998 |
Dec. 31 1997 |
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| Ethylene | $ | 0.16 | $ | 0.17 | $ | 0.24 | $ | 0.18 | $ | 0.25 | ||||||
| Polyethylene - linear low-density | $ | 0.26 | $ | 0.28 | $ | 0.36 | $ | 0.30 | $ | 0.37 | ||||||
| Weighted average polyethylene(2) | $ | 0.29 | $ | 0.31 | $ | 0.39 | $ | 0.33 | $ | 0.42 | ||||||
(1) Average benchmark prices are not intended to be actual prices realized by NOVA Chemicals or any other petrochemical company. (2) Benchmark prices weighted according to NOVA Chemicals' product mix. Source: Phillip Townsend and Associates.
| Sales Volumes (millions of pounds) |
Three Months Ended | Year Ended | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Polyethylene | Dec. 31 1998 |
Sept. 30 1998 |
Dec. 31 1997 |
Dec. 31 1998 |
Dec. 31 1997 |
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| Linear low-density polyethylene | 294 | 242 | 313 | 1,143 | 1,192 | |||||||||||
| Low-density polyethylene | 79 | 72 | 58 | 296 | 253 | |||||||||||
| High-density polyethylene | 128 | 113 | 103 | 457 | 444 | |||||||||||
| SCLAIR® polyethylene | 132 | 154 | 130 | 562 | 531 | |||||||||||
| Total | 633 | 581 | 604 | 2,458 | 2,420 | |||||||||||
SCLAIR® is a registered trademark of NOVA Chemicals
Review of Operations - Olefins/Polyolefins
Fourth Quarter 1998Olefins and polyolefins net income was $6 million during the fourth quarter, down from the $13 million contributed during the third quarter of 1998. Lower feedstock costs and increased sales volumes partially compensated for lower polyethylene, energy and chemical co-product prices.
Prices for many of our polyethylene products reached historic lows by the end of December 1998. NOVA Chemicals is currently implementing a 3 cents per pound increase in all product lines. The supply/demand balance in many grades is very tight, lending support to this increase; however, success will depend on continuing strength in the polyethylene market.
NOVA Chemicals sold near record sales volumes of polyethylene in the quarter, largely due to international sales of linear low-density polyethylene strengthening in Asia.
Full Year 1998
Income for the olefins and polyolefins business was $61 million, down $84 million from 1997, primarily as a result of average benchmark polyethylene prices being down 9 cents per pound from 1997. Partially offsetting these lower product prices were lower feedstock costs and higher sales volumes. The business accomplished record sales volumes of 2,458 million pounds of polyethylene, a 2 percent increase from 1997 levels of 2,420 million pounds. Importantly, the business entered 1999 with 18 consecutive months of injury-free safety performance.
Strategic Initiatives
Olefins/Polyolefins
Construction of the new ethylene, polyethylene and co-generation plants at Joffre, Alberta is proceeding on-budget, with start-up of these facilities expected in mid-2000. Favorable weather in Alberta during the fourth quarter allowed construction to proceed slightly ahead of plan.
Late in 1998, NOVA Chemicals began producing polyethylene resins at the St. Clair River Site with enhanced capabilities using portions of the company's new Advanced SCLAIRTECHTM process and catalyst technology. About 70 million pounds of this resin is scheduled to be available to customers in 1999. This is the next step in pre-marketing Advanced SCLAIRTECH technology which will be used at Joffre's expanded facilities in 2000.
In 1999, the olefins and polyolefins business is targeting to improve earnings by $45 million. These earnings will come from a reduction in depreciation related to the E1 plant; contract renewals associated with the end of the E1 cost-of-service sales contracts on December 31, 1998; and the expiry of polyethylene royalty obligations mid-year. In addition, the business will continue to lower fixed costs and will target efficiencies in supply management, logistics and information technology.
Advanced SCLAIRTECH™ is a trademark of NOVA Chemicals.
| Strategic capital spending | |||||||||
| Capacity | Total Budgeted Capital | Capital Expenditures | Expected Start-up | ||||||
|---|---|---|---|---|---|---|---|---|---|
| 1998 | Total to-date | ||||||||
| (millions of pounds) | (U.S. $millions) | (U.S. $millions) | |||||||
| E3 | 2,800(1) | $ 375(2) | $ 110 | $ 141 | mid-2000 | ||||
| PE2 | 850 | 280 | 69 | 92 | mid-2000 | ||||
| Joffre co-generation | 420 MW(3) | 45 | 20 | 26 | early 2000 | ||||
(1) To be shared between NOVA Chemicals and its E3 joint venture partner, Union Carbide Canada Inc. (2) NOVA Chemicals' share (3) Megawatts (MW) of total capacity. Budgeted capital reflects NOVA Chemicals' 20 percent interest in this project.
STYRENICS BUSINESS
Financial Highlights - Styrenics
| (unaudited; millions of U.S. dollars except as noted) | Three Months Ended | Year Ended | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Dec. 31 1998 |
Sept. 30 1998 |
Dec. 31 1997 |
Dec. 31 1998 |
Dec. 31 1997 |
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| Revenue | $ | 137 | $ | 139 | $ | 141 | $ | 542 | $ | 564 | ||||||
| EBITDA(1) | $ | 2 | $ | 1 | $ | (5) | $ | (8) | $ | (16) | ||||||
| Depreciation | $ | 6 | $ | 6 | $ | 10 | $ | 29 | $ | 32 | ||||||
| Operating loss | $ | (4) | $ | (5) | $ | (15) | $ | (37) | $ | (48) | ||||||
| Net loss | $ | (4) | $ | (6) | $ | (9) | $ | (35) | $ | (38) | ||||||
| Capital expenditures | ||||||||||||||||
| - strategic | $ | 16 | $ | 22 | $ | 9 | $ | 66 | $ | 23 | ||||||
| - maintenance | $ | 1 | $ | 1 | $ | 16 | $ | 9 | $ | 36 | ||||||
| Total capital expenditures | $ | 17 | $ | 23 | $ | 25 | $ | 75 | $ | 59 | ||||||
| Capital employed(2) | $ | 465 | $ | 476 | $ | 512 | $ | 465 | $ | 512 | ||||||
| After-tax return on capital employed(3) | (2.6)% | (3.0)% | (3.9)% | (5.4)% | (5.5)% | |||||||||||
(1) Earnings before interest, taxes, depreciation and amortization. (2) Capital employed equals plant, property and equipment, working capital and investments and excludes capital under construction. (3) Equals net income plus after-tax interest expense divided by capital employed.
Operating Highlights - Styrenics
| Average Benchmark Prices on the U.S. Gulf Coast(1) | ||||||||||||||||
| (U.S. dollars per pound) | Three Months Ended | Year Ended | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Dec. 31 1998 |
Sept. 30 1998 |
Dec. 31 1997 |
Dec. 31 1998 |
Dec. 31 1997 |
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| Styrene | $ | 0.25 | $ | 0.25 | $ | 0.28 | $ | 0.26 | $ | 0.29 | ||||||
| Weighted average polystyrene(2) | $ | 0.38 | $ | 0.40 | $ | 0.42 | $ | 0.40 | $ | 0.44 | ||||||
DYLARK® is a registered trademark of NOVA Chemicals Inc.
(1) Average benchmark prices are not intended to be actual prices realized by NOVA Chemicals or any other petrochemical company. (2) Average benchmark prices and NOVA Chemicals' actual realized prices, weighted according to NOVA Chemicals' polystyrene product mix, including expandable polystyrene but excluding specialty, DYLARK® and other. Source for benchmark prices is Phillip Townsend and Associates.
| Sales Volumes (millions of pounds) |
Three Months Ended | Year Ended | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Dec. 31 1998 |
Sept. 30 1998 |
Dec. 31 1997 |
Dec. 31 1998 |
Dec. 31 1997 |
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| Solid and expandable polystyrene | 274 | 272 | 268 | 1,055 | 1,059 | |||||||||||
| Specialty, DYLARK and other styrenics | 41 | 36 | 37 | 155 | 157 | |||||||||||
| Total | 315 | 308 | 305 | 1,210 | 1,216 | |||||||||||
Review of Operations - Styrenics
Fourth Quarter 1998Despite an 18 percent improvement in the fixed unit cost structure over 1997 and new product introductions, the styrenics business recorded a net loss of $4 million during the fourth quarter of 1998, compared to a $6 million net loss in the prior quarter. Record low polystyrene prices, 7 cents per pound below the last trough, had a significant negative impact on the business.
NOVA Chemicals is currently implementing a price increase of 4 cents per pound for solid polystyrene. Present indications are that this increase is gaining acceptance from customers; however, ultimate success will depend on supply/demand balance. Expandable polystyrene prices continue to be under pressure from low-priced Asian imports into North America and Europe.
The Sarnia styrene plant restarted in January of 1999 after a shutdown allowing for the conversion to a new ethylbenzene processing technology. This technology has reduced styrene production costs, increased styrene production capacity from 600 million to 950 million pounds, and improved environmental performance. The project budget of $88 million was overspent by 14 percent because of additional piping and instrumentation work, and modifications during the start-up phase. As a result of this shutdown, production in the fourth quarter was 116 million pounds, as compared to 154 million pounds in the third quarter. The business purchased replacement feedstock for polystyrene production from external sources, increasing feedstock costs slightly from third quarter levels.
Full Year 1998
The styrenics business' net loss for 1998 was $35 million, similar to the 1997 loss of $38 million. The severe decline in polystyrene prices overshadowed the significant progress in reducing controllable costs. In the first half of 1998, the styrenics business lost $25 million, compared to only $10 million in the second half, despite lower prices. The absence of significant supply additions is expected to increase operating rates, improving prices and margins in 1999 and 2000.
Strategic Initiatives
Styrenics
On December 31, 1998, the purchase of the major portion of Huntsman Corporation's styrenics business was completed. The revised purchase price of U.S. $637 million, plus working capital, reflects, among other things, an agreement to exclude Huntsman's North American expandable polystyrene business including plants at Mansonville, Quebec and Peru, Illinois.
NOVA Chemicals' total styrene production capacity increased by 1.25 billion pounds to a total of 3 billion pounds (number one in North America and number three globally), while polystyrene production capacity increased by 1.8 billion pounds to a total of 3.1 billion pounds (number one in North America and number three globally).
The exclusion of Huntsman's North American expandable polystyrene business does not affect NOVA Chemicals' original target to achieve annual cost savings and business improvements of $105 million by the third year. As part of these efforts, on January 4, 1999, NOVA Chemicals announced plans to close and dismantle the Peru, Illinois solid polystyrene production assets in the third quarter of 1999. The solid polystyrene production assets at Peru are owned by NOVA Chemicals. The plant is operated by Huntsman, which also remains the owner of the plant site and the employer of all on-site manufacturing personnel.
Huntsman became a major investor in NOVA Chemicals by taking $198 million in the form of preferred shares as part of the consideration for the transaction. The preferred shares are exchangeable into no more than 8.5 million NOVA Chemicals common shares after April 1, 2001, nine months later than the July 1, 2000 date in the original agreement. The initial dividend rate is 6.95 percent, which will reduce after April 1, 2001 to 5.95 percent and after April 1, 2002 to 2 percent on any shares not exchanged by that date.
The Huntsman acquisition is expected to be slightly dilutive to NOVA Chemicals' 1999 earnings.
Equity Investments
Methanex
| (unaudited; millions of U.S. dollars except as noted) | Three Months Ended | Year Ended | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Dec. 31 1998 |
Sept. 30 1998 |
Dec. 31 1997 |
Dec. 31 1998 |
Dec. 31 1997 |
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| Equity earnings (loss) | $ | (6) | $ | (4) | $ | 8 | $ | (18) | $ | 46 | ||||||
| Amortization of purchase differential | (2) | (2) | (2) | (7) | (7) | |||||||||||
| Net equity earnings contribution (loss) | $ | (8) | $ | (6) | $ | 6 | $ | (25) | $ | 39 | ||||||
| Investment in Methanex(1) | $ | 398 | ||||||||||||||
| Market value of investment(2) | $ | 230 | ||||||||||||||
| Number of shares held by NOVA Chemicals (millions) | 46.9 | |||||||||||||||
(1) Original investment of $265 million plus accumulated earnings of $133 million. (2) Based on February 2, 1999 closing price of Methanex shares on NASDAQ.
Methanex Review
NOVA Chemicals' investment in Methanex yielded a loss of $8 million, compared to a loss of $6 million during the prior quarter. The increase in Methanex's operating loss was due to a decrease in methanol prices. Excess methanol supply and volatile U.S. Gulf Coast natural gas prices continued to put pressure on methanol prices and margins. Despite the difficult environment, sales volumes remained relatively strong at levels similar to the third quarter. Methanex's realized price for methanol was 31 cents per gallon in the fourth quarter, down 1 cent per gallon from the prior quarter. Methanol prices have declined 25 cents per gallon from the fourth quarter of 1997.
Dynegy
| (unaudited; millions of U.S. dollars except as noted) | Three Months Ended | Year Ended | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Dec. 31 1998 |
Sept. 30 1998 |
Dec. 31 1997 |
Dec. 31 1998 |
Dec. 31 1997 |
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| Equity earnings (loss) | $ | 8 | $ | 12 | $ | (34) | $ | 28 | $ | (19) | ||||||
| Amortization of purchase differential | - | (1) | - | (2) | (2) | |||||||||||
| Net equity earnings contribution | $ | 8 | $ | 11 | $ | (34) | $ | 26 | $ | (21) | ||||||
| Investment in Dynegy(1) | $ | 307 | ||||||||||||||
| Market value of investment(2) | $ | 449 | ||||||||||||||
| Number of shares held by NOVA Chemicals (millions) | 38.8 | |||||||||||||||
(1) Original investment of $255 million plus accumulated earnings of $52 million. (2) Based on February 2, 1999 closing price of Dynegy shares on NYSE.
Dynegy Review
NOVA Chemicals' investment in Dynegy contributed earnings of $8 million, down $3 million from the prior quarter. Dynegy's energy convergence business (gas and electric power marketing and electric power generation) showed strong results for the quarter. These results were offset by weakness in natural gas liquids margins.
As announced on August 14, 1998, NOVA Chemicals intends to divest its 26 percent stake (38.8 million shares) in Dynegy during 1999.
Liquidity and Capital Resources
| Capitalization | |||
| (millions of U.S. dollars) | |||
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Dec. 31 1998 |
Dec. 31 1997 |
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|---|---|---|---|
| Current bank loans(1) | $ 205 | $ 57 | |
| Long-term debt(2) | |||
| E2 unsecured facility | 77 | 101 | |
| 6-1/2% notes due September, 2000 | 150 | 150 | |
| 7% notes due September, 2005 | 100 | 100 | |
| 7-7/8% notes due September, 2025(3) | 100 | 100 | |
| 7% debentures due August, 2026 | 150 | 150 | |
| 7-1/4% debentures due August, 2028 | 125 | 125 | |
| Huntsman acquisition facility due March, 2000 | 390 | - | |
| Total long-term debt | 1092 | 726 | |
| Shareholders' equity | |||
| 9 1/2% preferred securities | 210 | - | |
| Common equity | |||
| "Huntsman" retractable preferred shares(4) | 198 | - | |
| Common share equity(5) | 1,104 | 1,173 | |
| Total common equity | 1,302 | 1,173 | |
| Total shareholders' equity | 1,512 | 1,173 | |
| Total capitalization | 2,809 | 1,956 | |
| ===== | ===== | ||
(1) Comprised of advances under bank facilities. (2) Includes current portion. (3) Callable at the corporation's option after September 15, 2005. (4) Preferred shares of a subsidiary which are exchangeable into NOVA Chemicals common shares. (5) 1997 figure is net of advances to parent and affiliates.
| Coverage Ratios | |||
| Twelve Months Ending | |||
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Pro Forma Dec. 31 1998(1) |
Dec. 31 1998 |
Dec. 31 1997 |
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|---|---|---|---|
| Debt to total capitalization | 39.9% | 46.2% | 40.0% |
| Interest coverage on long-term debt | 1.6x | 1.4x | 4.6x |
(1) Assumes the $172.5 million 9.04 percent preferred securities due 2048 (issued January 26, 1999) were issued on December 31, 1998 and current bank loans were reduced by available cash.
NOVA Chemicals has financed the Huntsman acquisition and has a 1999 budget of approximately $500 million for capital projects, reflecting continued high levels of activity related to the Joffre expansion projects.
Financing for the Huntsman acquisition was accomplished through:
- issuing $198 million of 6.95% preferred shares to Huntsman;
- two preferred securities issues. The first was a $210 million issue due 2047 at 9.5% (tax deductible) on October 22, 1998. The second was a $172.5 million issue due 2048 at 9.04% (tax deductible) on January 26, 1999; and
- an acquisition facility due March 31, 2000. The facility was originally for $600 million, but was reduced to $260 million by February 1, 1999, through the issuance of preferred securities.
- cash flow from operations;
- access to the capital markets;
- the unutilized portion of committed credit facilities of $285 million at December 31, 1998; and
- expected proceeds from the sale of Dynegy.
Financing Charges
| Three Months Ended | Year Ended | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Dec. 31 1998 |
Sept. 30 1998 |
Dec. 31 1997 |
Dec. 31 1998 |
Dec. 31 1997 |
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| Interest on long-term debt | $ | 12 | $ | 13 | $ | 13 | $ | 51 | $ | 51 | |||||
| Capitalized interest | (6) | (4) | - | (11) | - | ||||||||||
| Other interest expense (income) | (2) | 1 | 3 | 6 | 5 | ||||||||||
| $ | 4 | $ | 10 | $ | 16 | $ | 46 | $ | 56 | ||||||
Interest expense has been decreasing due to lower debt levels. Cash flow from operations, receipt of cash on the split off from TransCanada on July 2, 1998, and the issuance of preferred securities in October 1998 have reduced debt. Offsetting these decreases was an increase in debt related to major construction projects. Debt related to these projects totalled $350 million at December 31, 1998. Interest on this additional debt is capitalized as a cost of construction until the plants are put into service.
Income Taxes
| Three Months Ended | Year Ended | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Dec. 31 1998 |
Sept. 30 1998 |
Dec. 31 1997 |
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