<PAGE>   1
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                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

                               -----------------


[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 

         FOR THE QUARTERLY PERIOD ENDED March 31, 1999

                                       OR

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 

         FOR THE TRANSITION PERIOD FROM _____ TO _____

COMMISSION FILE NUMBER 1-10059

                        STERLING CHEMICALS HOLDINGS, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

             DELAWARE                                      76-0185186
  (STATE OR OTHER JURISDICTION                          (I.R.S. EMPLOYER 
OF INCORPORATION OR ORGANIZATION)                      IDENTIFICATION NO.)

      1200 SMITH STREET, SUITE 1900                      (713) 650-3700
        HOUSTON, TEXAS 77002-4312                (REGISTRANT'S TELEPHONE NUMBER,
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)               INCLUDING AREA CODE)

        SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                     COMMON STOCK, PAR VALUE $.01 PER SHARE

COMMISSION FILE NUMBER 333-04343-01

                            STERLING CHEMICALS, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

            DELAWARE                                       76-0502785
  (STATE OR OTHER JURISDICTION                          (I.R.S. EMPLOYER 
OF INCORPORATION OR ORGANIZATION)                      IDENTIFICATION NO.)


     1200 SMITH STREET, SUITE 1900                       (713) 650-3700
       HOUSTON, TEXAS 77002-4312                 (REGISTRANT'S TELEPHONE NUMBER,
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)               INCLUDING AREA CODE)


        SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
        SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE

        Sterling Chemicals, Inc. meets the conditions set forth in General
Instruction H(1)(a) and (b) of Form 10-Q, and is therefore filing this form with
the reduced disclosure format provided for by General Instruction H(2) of Form
10-Q.

                               -----------------


        Indicate by check mark whether each of the registrants (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.    Yes  X       No
                                                -----        -----

        As of April 30, 1999, Sterling Chemicals Holdings, Inc. had 12,722,196
shares of common stock outstanding. As of April 30, 1999, all outstanding equity
securities of Sterling Chemicals, Inc. were owned by Sterling Chemicals
Holdings, Inc.

================================================================================


<PAGE>   2
                 IMPORTANT INFORMATION REGARDING THIS FORM 10-Q

Readers should consider the following information as they review this Form 10-Q.

FORWARD-LOOKING STATEMENTS

        This Form 10-Q includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The forward-looking statements
include all statements contained in this Form 10-Q (other than statements of
historical facts) regarding the cyclicality of the industries in which the
Company (as defined herein) is engaged, current and future industry conditions,
the cost of remediating Year 2000 issues and the effect of any unremediated or
undiscovered Year 2000 issues on the Company's operations, and the potential
effects of such matters on the Company's business strategy, results of
operations, and financial position, including without limitation the statements
under "Business" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations". Although the Company believes that the
expectations reflected in the forward-looking statements contained herein are
reasonable, no assurance can be given that such expectations will prove to have
been correct. Certain important factors that could cause actual results to
differ materially from expectations ("Cautionary Statements") are stated herein
in conjunction with the forward-looking statements or are included elsewhere in
this Form 10-Q or Holdings' and Chemicals' combined Annual Report on Form 10-K
for the fiscal year ended September 30, 1998 (the "Annual Report"). See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Certain Known Events, Trends, Uncertainties, and Risk Factors"
contained in the Annual Report. All subsequent written and oral forward-looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by the Cautionary Statements.

SUBSEQUENT EVENTS, ETC.

        All statements contained in this Form 10-Q, including the
forward-looking statements discussed above, are made as of May 13, 1999, except
for those statements that are expressly made as of another date. The Company
disclaims any responsibility for the correctness of any information contained in
this Form 10-Q to the extent such information is affected or impacted by events,
circumstances, or developments occurring after May 13, 1999, or by the passage
of time after such date and, except as required by applicable securities laws,
the Company does not intend to update such information.


                                       2
<PAGE>   3

        This combined Form 10-Q is separately filed by Holdings and Chemicals
(each as defined herein). Information contained herein relating to Chemicals is
filed by Holdings and separately by Chemicals on its own behalf. Certain
capitalized terms used in this Form 10-Q are defined in the Notes to
Consolidated Financial Statements included herein.


PART I.--FINANCIAL INFORMATION

ITEM 1.--FINANCIAL STATEMENTS


                                       3
<PAGE>   4

                        STERLING CHEMICALS HOLDINGS, INC.
                           CONSOLIDATED BALANCE SHEETS
                    (AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                         MARCH 31,         SEPTEMBER 30,
                                                                            1999                 1998
                                                                         ----------        -------------
<S>                                                                      <C>               <C>       
ASSETS
Current assets:
   Cash and cash equivalents ....................................        $    4,608         $   11,168
   Accounts receivable ..........................................            95,683            114,571
   Inventories ..................................................            71,635             73,225
   Prepaid expenses .............................................             9,665             15,571
   Deferred income tax benefit ..................................             7,960              5,140
                                                                         ----------         ----------
     Total current assets .......................................           189,551            219,675

Property, plant and equipment, net ..............................           437,486            450,315
Deferred income tax benefit .....................................             3,352               --
Other assets ....................................................            98,068             95,966
                                                                         ----------         ----------

     Total assets ...............................................        $  728,457         $  765,956
                                                                         ==========         ==========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS)
Current liabilities:
   Accounts payable .............................................        $   46,759         $   46,983
   Accrued liabilities ..........................................            65,364             71,873
   Current portion of long-term debt ............................             6,734              8,909
                                                                         ----------         ----------
     Total current liabilities ..................................           118,857            127,765

Long-term debt ..................................................           893,219            873,616
Deferred income tax liability ...................................              --               11,123
Deferred credits and other liabilities ..........................            79,301             80,289
Common stock held by ESOP .......................................             2,946              5,938
Less:  unearned compensation ....................................            (1,105)            (2,845)
Redeemable preferred stock ......................................            19,553             18,249
Commitments and contingencies (Note 4) ..........................              --                 --
Stockholders' equity (deficiency in assets):
   Common stock, $.01 par value, 20,000,000 shares authorized,
     12,273,000 shares issued and 12,068,000 outstanding at
     March 31, 1999, and 12,273,000 shares issued and
     12,073,000 outstanding at September 30, 1998 ...............               123                123
   Additional paid-in capital ...................................          (542,712)          (542,701)
   Retained earnings ............................................           191,975            229,590
   Pension adjustment ...........................................              (121)              (121)
   Accumulated translation adjustment ...........................           (31,059)           (32,559)
   Deferred compensation ........................................               (79)              (111)
                                                                         ----------         ----------
                                                                           (381,873)          (345,779)
   Treasury stock, at cost, 205,000 and 200,000 shares at
     March 31, 1999 and September 30, 1998, respectively ........            (2,441)            (2,400)
                                                                         ----------         ----------

       Total stockholders' equity (deficiency in assets) ........          (384,314)          (348,179)
                                                                         ----------         ----------

         Total liabilities and stockholders' equity (deficiency
           in assets) ...........................................        $  728,457         $  765,956
                                                                         ==========         ==========
</TABLE>

         The accompanying notes are an integral part of the consolidated
                             financial statements.

                                       4
<PAGE>   5

                        STERLING CHEMICALS HOLDINGS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  (AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED MARCH 31,   SIX MONTHS ENDED MARCH 31,
                                                              ----------------------------   --------------------------
                                                                  1999           1998           1999           1998
                                                               ----------     ----------     ----------     ----------
<S>                                                            <C>            <C>            <C>            <C>       
Revenues ..................................................    $  152,472     $  204,504     $  324,401     $  434,740
Cost of goods sold ........................................       148,160        193,145        303,372        404,082
                                                               ----------     ----------     ----------     ----------
Gross profit ..............................................         4,312         11,359         21,029         30,658

Selling, general and administrative expenses ..............         8,801          8,935         18,457         17,453
Other expense .............................................         6,782          2,940          9,076          2,940
Interest and debt related expenses, net of interest 
 income ...................................................        24,492         24,970         49,951         50,273
                                                               ----------     ----------     ----------     ----------
Loss before income taxes ..................................       (35,763)       (25,486)       (56,455)       (40,008)
Benefit for income taxes ..................................       (10,943)        (9,198)       (18,535)       (13,575)
                                                               ----------     ----------     ----------     ----------

Net loss ..................................................       (24,820)       (16,288)       (37,920)       (26,433)
Preferred stock dividends .................................           658            591          1,303          1,219
                                                               ----------     ----------     ----------     ----------

Net loss attributable to common stockholders ..............    $  (25,478)    $  (16,879)    $  (39,223)    $  (27,652)
                                                               ==========     ==========     ==========     ========== 

Net loss per common share (Note 5) ........................    $    (1.96)    $    (1.37)    $    (3.07)    $    (2.28)
                                                               ==========     ==========     ==========     ========== 

Weighted average shares outstanding .......................        12,466         11,984         12,446         11,918
                                                               ==========     ==========     ==========     ========== 
</TABLE>


         The accompanying notes are an integral part of the consolidated
                             financial statements.

                                       5
<PAGE>   6

                        STERLING CHEMICALS HOLDINGS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (AMOUNTS IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                           SIX MONTHS ENDED MARCH 31,
                                                                         -----------------------------
                                                                            1999               1998
                                                                         ----------         ----------
<S>                                                                      <C>                <C>        
Cash flows from operating activities:
     Net loss ...................................................        $  (37,920)        $  (26,433)
     Adjustments to reconcile net loss to net cash provided by
       operating activities:
        Depreciation and amortization ...........................            28,028             28,014
        Interest amortization ...................................             1,688              2,198
        Loss on disposal/write off of assets ....................                52                256
        Deferred tax benefit ....................................           (14,645)           (10,496)
        Discount notes amortization .............................             9,197              8,118
        Early retirement programs and benefit changes ...........             6,782               --
        Other ...................................................               669                923
     Change in assets/liabilities:
        Accounts receivable .....................................            23,608             26,968
        Inventories .............................................             1,755            (12,658)
        Prepaid expenses ........................................            (2,460)             4,210
        Other assets ............................................           (12,521)               598
        Accounts payable ........................................             6,696             (8,740)
        Accrued liabilities .....................................           (11,082)             1,067
        Other liabilities .......................................             1,383                223
                                                                         ----------         ----------

Net cash provided by operating activities .......................             1,230             14,248
                                                                         ----------         ----------

Cash flows from investing activities:
     Capital expenditures .......................................           (12,186)           (13,303)
                                                                         ----------         ----------

Cash flows from financing activities:
     Proceeds from long-term debt ...............................           139,982             48,562
     Repayment of long-term debt ................................          (135,616)           (48,508)
     Other ......................................................               (45)               (25)
                                                                         ----------         ----------
Net cash provided by financing activities .......................             4,321                 29
                                                                         ----------         ----------
Effect of United States /Canadian exchange rate on cash .........                75                (91)
                                                                         ----------         ----------
Net increase (decrease) in cash and cash equivalents ............            (6,560)               883
Cash and cash equivalents - beginning of year ...................            11,168              7,958
                                                                         ----------         ----------
Cash and cash equivalents - end of period .......................        $    4,608         $    8,841
                                                                         ==========         ==========
Supplement disclosures of cash flow information:
     Interest paid, net of interest income received .............        $  (39,406)        $  (39,746)
     Income tax refunds received ................................             5,441              6,864
</TABLE>

         The accompanying notes are an integral part of the consolidated
                             financial statements.

                                       6
<PAGE>   7

                            STERLING CHEMICALS, INC.
                           CONSOLIDATED BALANCE SHEETS
                    (AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                              MARCH 31,         SEPTEMBER 30,
                                                                                 1999               1998
                                                                              ----------        -------------
<S>                                                                           <C>                <C>       
ASSETS
Current assets:
   Cash and cash equivalents .........................................        $    4,591         $   11,159
   Accounts receivable ...............................................            97,767            116,398
   Inventories .......................................................            71,635             73,225
   Prepaid expenses ..................................................             7,099             13,632
   Deferred income tax benefit .......................................             7,959              5,140
                                                                              ----------         ----------
     Total current assets ............................................           189,051            219,554

Property, plant and equipment, net ...................................           437,486            450,315
Other assets .........................................................            98,337             92,634
                                                                              ----------         ----------
     Total assets ....................................................        $  724,874         $  762,503
                                                                              ==========         ==========

LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIENCY IN ASSETS)
Current liabilities:
   Accounts payable ..................................................        $   46,759         $   46,764
   Accrued liabilities ...............................................            65,371             71,884
   Current portion of long-term debt .................................             6,734              8,909
                                                                              ----------         ----------
   Total current liabilities .........................................           118,864            127,557

Long-term debt .......................................................           755,805            745,709
Deferred income tax liability ........................................            15,204             23,301
Deferred credits and other liabilities ...............................            82,301             83,288
Common stock held by ESOP ............................................             2,946              5,938
Less:  unearned compensation .........................................            (1,105)            (2,845)
Commitments and contingencies (Note 4) ...............................              --                 --
Stockholder's equity (deficiency in assets):
   Common stock, $.01 par value ......................................              --                 --
   Additional paid-in capital ........................................          (140,013)          (139,786)
   Accumulated deficit ...............................................           (77,869)           (47,868)
   Pension adjustment ................................................              (121)              (121)
   Accumulated translation adjustment ................................           (31,059)           (32,559)
   Deferred compensation .............................................               (79)              (111)
                                                                              ----------         ----------
   Total stockholder's equity (deficiency in assets) .................          (249,141)          (220,445)
                                                                              ----------         ----------
   Total liabilities and stockholder's equity (deficiency in
     assets) .........................................................        $  724,874         $  762,503
                                                                              ==========         ==========
</TABLE>

               The accompanying notes are an integral part of the consolidated
                             financial statements.

                                       7
<PAGE>   8

                            STERLING CHEMICALS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                             (AMOUNTS IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                  THREE MONTHS ENDED MARCH 31,    SIX MONTHS ENDED MARCH 31,
                                                                  ----------------------------    --------------------------
                                                                       1999           1998           1999           1998
                                                                    ----------     ----------     ----------     ----------
<S>                                                                 <C>            <C>            <C>            <C>       
Revenues .......................................................    $  152,472     $  204,504     $  324,401     $  434,740
Cost of goods sold .............................................       148,160        193,145        303,372        404,082
                                                                    ----------     ----------     ----------     ----------
Gross profit ...................................................         4,312         11,359         21,029         30,658

Selling, general and administrative expenses ...................         8,663          8,437         18,201         16,673
Other expense ..................................................         6,782          2,940          9,076          2,940
Interest and debt related expenses, net of interest income .....        19,601         20,782         40,241         41,679
                                                                    ----------     ----------     ----------     ----------

Loss before income taxes .......................................       (30,734)       (20,800)       (46,489)       (30,634)
Benefit for income taxes .......................................        (9,099)        (7,228)       (14,880)       (10,192)
                                                                    ----------     ----------     ----------     ----------

Net loss .......................................................    $  (21,635)    $  (13,572)    $  (31,609)    $  (20,442)
                                                                    ==========     ==========     ==========     ==========
</TABLE>


         The accompanying notes are an integral part of the consolidated
                             financial statements.

                                       8
<PAGE>   9

                            STERLING CHEMICALS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (AMOUNTS IN THOUSANDS)
                                   (UNAUDITED

<TABLE>
<CAPTION>
                                                                          SIX MONTHS ENDED MARCH 31,
                                                                         -----------------------------
                                                                            1999               1998
                                                                         ----------         ----------
<S>                                                                      <C>                <C>        
Cash flows from operating activities:
     Net loss ...................................................        $  (31,609)        $  (20,442)
     Adjustments to reconcile net loss to net
       cash provided by operating activities:
        Depreciation and amortization ...........................            28,028             28,014
        Debt fee amortization ...................................             1,415              1,706
        Deferred tax benefit ....................................           (14,645)            (7,813)
        Early retirement programs and benefit changes ...........             6,782               --
        Other ...................................................               474              1,179
     Change in assets/liabilities:
        Accounts receivable .....................................            23,507             26,930
        Inventories .............................................             1,755            (12,658)
        Prepaid expenses ........................................            (1,438)             4,910
        Other assets ............................................            (9,920)               562
        Accounts payable ........................................             6,556             (9,479)
        Accrued liabilities .....................................           (11,074)             1,067
        Other liabilities .......................................             1,391                224
                                                                         ----------         ----------
Net cash provided by operating activities .......................             1,222             14,200
                                                                         ----------         ----------
Cash flows from investing activities:
   Capital expenditures .........................................           (12,186)           (13,303)
                                                                         ----------         ----------
Cash flows from financing activities:
   Proceeds from long-term debt .................................           139,982             48,361
   Repayment of long-term debt ..................................          (135,616)           (47,202)
   Repayments of amounts due parent .............................              --               (1,105)
   Other ........................................................               (45)               (25)
                                                                         ----------         ----------
Net cash provided by financing activities .......................             4,321                 29
                                                                         ----------         ----------
Effect of United States /Canadian exchange rate on cash .........                75                (91)
                                                                         ----------         ----------
Net increase (decrease) in cash and cash equivalents ............            (6,568)               835
Cash and cash equivalents - beginning of year ...................            11,159              7,958
                                                                         ----------         ----------
Cash and cash equivalents - end of period .......................        $    4,591         $    8,793
                                                                         ==========         ==========

Supplement disclosures of cash flow information:
   Interest paid, net of interest income received ...............        $  (39,415)        $  (39,761)
   Income tax refunds received ..................................             5,441              6,864
</TABLE>

         The accompanying notes are an integral part of the consolidated
                             financial statements.

                                       9
<PAGE>   10

                        STERLING CHEMICALS HOLDINGS, INC.
                            STERLING CHEMICALS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


1.   BASIS OF PRESENTATION

     In the opinion of management, the accompanying unaudited consolidated
financial statements reflect all adjustments necessary to present fairly the
consolidated financial position of Sterling Chemicals Holdings, Inc.
("Holdings") and its subsidiaries (Holdings and its subsidiaries collectively,
the "Company") and Sterling Chemicals, Inc. and its subsidiaries (Chemicals and
its subsidiaries collectively, "Chemicals") as of March 31, 1999 and their
consolidated results of operations and cash flows for the applicable three month
and six month periods ended March 31, 1999 and 1998. All such adjustments are of
a normal and recurring nature. The results of operations for the periods
presented are not necessarily indicative of the results to be expected for the
full year. The accompanying unaudited consolidated financial statements should
be, and are assumed to have been, read in conjunction with the consolidated
financial statements and notes included in Holdings' and Chemicals' combined
Annual Report on Form 10-K for the fiscal year ended September 30, 1998 (the
"Annual Report"). The accompanying consolidated balance sheets as of September
30, 1998, have been derived from the audited consolidated balance sheets as of
September 30, 1998, included in the Annual Report. The accompanying consolidated
financial statements as of and for the three month and six month periods ended
March 31, 1999, have been reviewed by Deloitte & Touche LLP, the Company's
independent public accountants, whose reports are included herein.

     Certain amounts reported in the financial statements for the prior periods
have been reclassified to conform with the current financial statement
presentation with no effect on net loss or stockholders' equity (deficiency in
assets).


2.   INVENTORIES

<TABLE>
<CAPTION>
                                                                         MARCH 31,         SEPTEMBER 30,
                                                                            1999               1998
                                                                         ----------        -------------
<S>                                                                      <C>               <C>       
Inventories consisted of the following (in thousands):

Finished products ...............................................        $   41,627         $   42,436

Raw materials ...................................................            10,305              8,089

Inventories under exchange agreements ...........................             1,896              3,031

Stores and supplies .............................................            17,807             19,669
                                                                         ----------         ----------
                                                                         $   71,635         $   73,225
                                                                         ==========         ==========
</TABLE>


3. LONG-TERM DEBT

<TABLE>
<CAPTION>
                                                                          MARCH 31,        SEPTEMBER 30,
                                                                            1999               1998
                                                                         ----------        ------------
<S>                                                                      <C>                <C>       
Long-term debt consisted of the following (in thousands):
                                                                                           
Revolving credit facility .......................................        $   14,100         $     --
Term loans ......................................................           273,333            274,000
Saskatoon term loans ............................................            45,017             49,552
ESOP term loan ..................................................             2,438              3,250
11 1/4% Notes ...................................................           152,651            152,816
11 3/4% Notes ...................................................           275,000            275,000
                                                                         ----------         ----------
     Total Chemicals' debt outstanding ..........................           762,539            754,618


13 1/2% Notes ...................................................           137,414            127,907
                                                                         ----------         ----------
        Total Holdings' debt outstanding ........................           899,953            882,525

Less:
     Current maturities .........................................            (6,734)            (8,909)
                                                                         ----------         ----------
Total long-term debt ............................................        $  893,219         $  873,616
                                                                         ==========         ==========
</TABLE>


                                       10
<PAGE>   11

4.   COMMITMENTS AND CONTINGENCIES

Product Contracts

     The Company has certain long-term agreements, which provide for the
dedication of 100% of the Company's production of acetic acid, plasticizers,
tertiary butylamine, sodium cyanide, and calcium hypochlorite, each to one
customer. The Company also has various sales and conversion agreements which
dedicate significant portions of the Company's production of styrene,
acrylonitrile, and methanol to various customers. Some of these agreements
generally provide for cost recovery plus an agreed margin or element of profit
based upon market price.

Environmental Regulations

     The Company's operations involve the handling, production, transportation,
treatment, and disposal of materials that are classified as hazardous or toxic
waste and that are extensively regulated by environmental and health and safety
laws and regulations. Environmental permits required for the Company's
operations are subject to periodic renewal and can be revoked or modified for
cause or when new or revised environmental laws or permit requirements are
implemented. Changing and increasingly strict environmental laws, regulations,
and permit requirements can affect the manufacturing, handling, processing,
distribution, and use of the Company's chemical products and the raw materials
used to produce such products and, if so, the Company's business and operations
may be materially and adversely affected. In addition, changes in applicable
laws, regulations, and permit requirements can cause the Company to incur
substantial costs in upgrading or redesigning its facilities and processes,
including waste treatment, storage, disposal, and other waste handling practices
and equipment.

     While the Company believes that its business operations and facilities
generally are operated in compliance with all material aspects of applicable
environmental and health and safety laws, regulations, and disclosure
requirements, there can be no assurance that past practices and future
operations will not result in material claims or regulatory action, require
material environmental expenditures, or result in exposure or injury claims by
employees, contract employees or the public. Some risk of environmental costs
and liabilities is inherent in the operations and products of the Company, as it
is with other companies engaged in similar businesses. In addition, a
catastrophic event at any of the Company's facilities could result in
liabilities to the Company substantially in excess of its insurance coverages.

Legal Proceedings

     Ammonia Release. A description of the ammonia release lawsuits is found
under "Legal Proceedings" in Note 7 of the "Notes to Consolidated Financial
Statements" of the Annual Report and is incorporated herein by reference. As
discussed therein, the Company continues to vigorously defend against the claims
of the approximately 200 remaining plaintiffs. The Company has settled the
claims of a majority of the original plaintiffs and is engaged in on-going
settlement discussions with the remaining plaintiffs. The Company believes all
or substantially all of its future out-of-pocket costs and expenses (including
settlement payments and judgements) relating to these lawsuits will be covered
by the Company's liability insurance policies.

     Nickel Carbonyl Release. A description of the nickel carbonyl lawsuit is
found under "Legal Proceedings" in Note 7 of the "Notes to Consolidated
Financial Statements" of the Annual Report and is incorporated herein by
reference. As discussed therein, a total of eighteen contractor employees
allegedly exposed to nickel carbonyl have filed a lawsuit against Chemicals
seeking unspecified damages for personal injuries. Additional litigation against
Chemicals asserting similar claims may ensue. The Company believes all or
substantially all of its future out-of-pocket costs and expenses relating to
such lawsuits will be covered by the Company's liability insurance policies
and/or indemnification from third parties.

     Ethylbenzene Release. A description of this release is found under "Legal
Proceedings" in Note 7 of the "Notes to Consolidated Financial Statements" of
the Annual Report and is incorporated herein by reference. There is no lawsuit
pending against the Company based on this release, but the Company has received,
and in some instances resolved, claims from individuals for personal injuries
alledgedly suffered as a result of this incident. The Company believes that its
liability insurance coverage is sufficient to cover all out-of-pocket costs and
expenses stemming from this incident in excess of its $1 million deductible.

     Other Lawsuits. The Company is subject to various other claims and legal
actions that arise in the ordinary course of its business.

Litigation Contingency

     The Company has made estimates of the reasonably possible range of
liability with regard to its outstanding litigation for 


                                       11
<PAGE>   12

which it may incur any liability. These estimates are based on the Company's
judgments using currently available information as well as consultation with the
Company's insurance carriers and outside legal counsel. A number of the claims
in these litigation matters are covered by the Company's insurance policies or
by contractual indemnification obligations of third parties to the benefit of
the Company. The Company, therefore, has also made estimates of its probable
recoveries under insurance policies or from third-party indemnitors based on its
understanding of its insurance policies and indemnification arrangements,
discussions with its insurers and indemnitors, and consultation with outside
legal counsel, in addition to the Company's judgments. Based on the foregoing,
as of March 31, 1999, the Company has accrued approximately $9.9 million as its
estimate of its aggregate contingent liability for these matters and has also
recorded aggregate receivables from its insurers and third-party indemnitors of
approximately $8.8 million. At March 31, 1999, management estimates that the
aggregate reasonably possible range of loss for all litigation combined, in
addition to the amount accrued, is between zero and $12 million. The Company
believes that this additional reasonably possible loss would be substantially
covered by insurance or indemnification.

     While the Company has based its estimates on its evaluation of available
information and the other matters described above, much of the litigation
remains in the discovery stage and it is impossible to predict with certainty
the ultimate outcome of such litigation. The Company will adjust its estimates
as necessary as additional information is developed and evaluated. However, the
Company believes that the final resolution of these contingencies will not have
a material adverse impact on the financial position, results of operations, or
cash flows of the Company.

     The timing of probable insurance and indemnity recoveries and payment of
liabilities, if any, are not expected to have a material adverse effect on the
financial position, results of operations, or cash flows of the Company.


5.   LOSS PER SHARE CALCULATION

     For purposes of computing net loss per common share, net loss has been
reduced by an amount equal to the fair market value of Released Shares (as
hereinafter defined) at the end of the period minus the sum of the amount
previously recognized as compensation expense with respect to Released Shares
and the amount of depreciation/appreciation in value of Released Shares in prior
periods. This reduction results from the Company being required, under certain
circumstances, to purchase for cash common stock distributed to participants by
Chemicals' employee stock ownership plan (the "ESOP"). "Released Shares" are
shares held by the ESOP but allocated to employees. The weighted average number
of outstanding shares and computation of the net loss per common share is as
follows (in thousands, except net loss per common share):

<TABLE>
<CAPTION>
                                                             THREE MONTHS ENDED MARCH 31,    SIX MONTHS ENDED MARCH 31,
                                                             ----------------------------    --------------------------
                                                                  1999           1998           1999           1998
                                                               ----------     ----------     ----------     ----------
<S>                                                            <C>            <C>            <C>            <C>        
Net loss attributable to common stockholders ..............    $  (25,478)    $  (16,879)    $  (39,223)    $  (27,652)

Plus depreciation in value of Released Shares .............         1,048            505          1,048            505
                                                               ----------     ----------     ----------     ----------

Net loss for purpose of computing loss per share ..........    $  (24,430)    $  (16,374)    $  (38,175)    $  (27,147)
                                                               ==========     ==========     ==========     ==========

Net loss per common share .................................    $    (1.96)    $    (1.37)    $    (3.07)    $    (2.28)
                                                               ==========     ==========     ==========     ==========

Weighted average shares outstanding .......................        12,466         11,984         12,446         11,918
                                                               ==========     ==========     ==========     ==========
</TABLE>


                                       12
<PAGE>   13

6.   CAPITAL STOCK

     In December 1998, the Company entered into separate Standby Purchase
Agreements (collectively, the "Standby Purchase Agreements") with each of Gordon
A. Cain, William A. McMinn, James Crane, Frank P. Diassi, Frank J. Hevrdejs and
Koch Capital Services, Inc. (collectively, the "Standby Purchasers"). Pursuant
to the terms of the Standby Purchase Agreements, the Standby Purchasers are
obligated to purchase up to an aggregate of 2.5 million shares of the common
stock, par value $0.01 per share, of Holdings ("Common Stock"), at a price of
$6.00 per share, if, as, and when requested by Holdings at any time or from time
to time prior to December 15, 2001. Under each of the Standby Purchase
Agreements, Holdings may only require the Standby Purchasers to purchase such
shares if it believes that the purchase price paid by the Standby Purchasers for
such shares is necessary to maintain, reestablish, or enhance the Company's
borrowing ability under its revolving credit facilities or to satisfy any
requirement thereunder to raise additional equity. To induce the Standby
Purchasers to enter into the Standby Purchase Agreements, Holdings issued
warrants to the Standby Purchasers that entitle them to purchase an aggregate of
300,000 shares of Common Stock at an exercise price of $6.00 per share. Pursuant
to the Standby Purchase Agreements, Holdings is obligated to issue additional
warrants to the Standby Purchasers that would entitle them to purchase 300,000
additional shares of Common Stock if, as, and when they purchase shares of
Common Stock under the Standby Purchase Agreements. Any shares of Common Stock
purchased under the Standby Purchase Agreements, any warrants issued pursuant to
the Standby Purchase Agreements and any shares of Common Stock issued pursuant
to such warrants will be subject to the terms of the Third Amended and Restated
Voting Agreement dated as of February 1, 1999, the Sterling Chemicals Holdings,
Inc. Stockholders Agreement dated effective as of August 21, 1996, as amended,
the Tag-Along Agreement dated as of August 21, 1996, and the Registration Rights
Agreement dated as of August 21, 1996.

7.   PENSION PLANS AND OTHER POST-RETIREMENT BENEFITS

     The Company recorded a net $6.8 million charge, included in Other Expense,
increasing its pension liability and other post-retirement benefits liability in
the second quarter of fiscal 1999, as a result of an early retirement program
for employees at the Texas City, Texas plant and certain benefit changes for all
U.S. employees. The early retirement program resulted in curtailment expense for
the pension plan and special termination benefits expenses for both the pension
and the other post-retirement benefits plans, partially offset by the
curtailment gain from the reduction of post-retirement life insurance benefits
for currently active U.S.
employees.

8.   NEW ACCOUNTING STANDARDS

     As of October 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income." SFAS
No. 130 establishes standards for the reporting and displaying of comprehensive
net income and its components. The components of comprehensive net loss, net of
tax, are as follows:

<TABLE>
<CAPTION>
                                                                  THREE MONTHS ENDED             SIX MONTHS ENDED
                                                                        MARCH 31,                    MARCH 31,
                                                               -------------------------     -------------------------
                                                                  1999           1998           1999           1998
                                                               ----------     ----------     ----------     ----------

<S>                                                            <C>            <C>            <C>            <C>        
Net loss attributable to common stockholders ..............    $  (25,478)    $  (16,879)    $  (39,223)    $  (27,652)

Depreciation in value of Released Shares ..................         1,048            505          1,048            505

Change in accumulated translation adjustment ..............         1,421          1,063          1,500         (4,228)
                                                               ----------     ----------     ----------     ----------

Comprehensive net loss ....................................    $  (23,009)    $  (15,311)    $  (36,675)    $  (31,375)
                                                               ==========     ==========     ==========     ==========
</TABLE>

     SFAS No. 131, "Disclosure About Segments of an Enterprise and Related
Information", establishes standards for the way that public business enterprises
report information about operating segments in interim and annual financial
statements. SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits", establishes revisions to employers' disclosures about
pension and other post retirement benefit plans. The Company adopted these
statements as of October 1, 1998, and the disclosures required thereby will be
included in Holdings' and Chemicals' combined Annual Report on Form 10-K for the
fiscal year ending September 30, 1999.

     SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. Management is currently evaluating the
accounting and disclosures required when this statement is adopted in the first
quarter of fiscal 2000.


                                       13
<PAGE>   14

                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
of Sterling Chemicals Holdings, Inc.

We have reviewed the accompanying consolidated balance sheet of Sterling
Chemicals Holdings, Inc. and subsidiaries (the "Company") as of March 31, 1999,
and the related consolidated statements of operations and cash flows for the
three month and six month periods ended March 31, 1999 and 1998. These financial
statements are the responsibility of the Company's management.

We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should
be made to such consolidated financial statements for them to be in conformity
with generally accepted accounting principles.

We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of the Company as of September 30,
1998, and the related consolidated statements of operations, stockholders'
equity (deficiency in assets), and cash flows for the year then ended (not
presented herein); and in our report dated December 4, 1998 (December 17, 1998
as to Notes 4, 11, and 12), we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying consolidated balance sheet as of September 30, 1998 is fairly
stated, in all material respects, in relation to the consolidated balance sheet
from which it has been derived.


DELOITTE & TOUCHE LLP

Houston, Texas
May 11, 1999


                                       14
<PAGE>   15

                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholder of Sterling Chemicals, Inc.

We have reviewed the accompanying consolidated balance sheet of Sterling
Chemicals, Inc. and subsidiaries ("Chemicals") as of March 31, 1999, and the
related consolidated statements of operations and cash flows for the three month
and six month periods ended March 31, 1999 and 1998. These financial statements
are the responsibility of Chemicals' management.

We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should
be made to such consolidated financial statements for them to be in conformity
with generally accepted accounting principles.

We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Chemicals as of September 30, 1998,
and the related consolidated statement of operations, stockholder's equity
(deficiency in assets), and cash flows for the year then ended (not presented
herein); and in our report dated December 4, 1998 (December 17, 1998 as to Notes
4, 11, and 12), we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying consolidated balance sheet as of September 30, 1998 is fairly
stated, in all material respects, in relation to the consolidated balance sheet
from which it has been derived.

DELOITTE & TOUCHE LLP

Houston, Texas
May 11, 1999



                                       15
<PAGE>   16

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

Certain capitalized terms used but not defined in this Item 2 have the meanings
assigned to them in the Notes To Consolidated Financial Statements included in
this Form 10-Q or in the Notes to the Consolidated Financial Statements included
in Holdings' and Chemicals' combined Annual Report on Form 10-K for the fiscal
year ended September 30, 1998.

OVERVIEW

      Holdings is a holding company whose only material asset is its investment
in Chemicals. Holdings' only material liabilities are its obligation to repay
its outstanding 13 1/2% Senior Secured Discount Notes due 2008 (the "13 1/2%
Notes"), it's obligation to redeem its outstanding shares of preferred stock,
and certain contingent obligations. Chemicals directly or indirectly owns
substantially all of the consolidated operating assets, and is obligated for
substantially all remaining liabilities, of the Company. Other than the
additional interest expense associated with the 13 1/2% Notes, results of
operations for the Company are essentially the same as those for Chemicals.
Accordingly, the discussion that follows is applicable to both entities, except
as specifically noted. A separate discussion of the results of operations for
Chemicals would not, in the opinion of the Company, provide any additional
meaningful information.

RECENT DEVELOPMENTS

     During the second quarter of fiscal 1999, the Company's acetic acid unit at
its Texas City, Texas plant (the "Texas City Plant") was shutdown for
approximately one month for scheduled maintenance. During the shutdown, the
Company and BP Chemicals also completed a 25% capacity expansion of the acetic
acid unit, thereby increasing its annual capacity to approximately 1 billion
pounds.

     On February 25, 1999, the Company and Monsanto Company ("Monsanto")
announced plans to construct a new disodium iminodiacetate ("DSIDA") plant at
the Texas City Plant. The new plant will use hydrogen cyanide ("HCN"), a
by-product from the acrylonitrile manufacturing process, as its primary
feedstock. The plans call for the construction of a DSIDA plant, with production
expected to begin near the end of the second calendar quarter of 2000. The
project will require a multi-million dollar investment with Monsanto providing
capital for the construction of the DSIDA plant and the Company providing
capital currently budgeted for projects associated with its acrylonitrile plant
and the utilities which will support the DSIDA plant. The Company also uses HCN
for the production of sodium cyanide and tertiary butylamine, or TBA.. Following
the start-up of the new DSIDA plant, the acrylonitrile facility is expected to
use all of its HCN by-product for chemical value. The DSIDA project is subject
to the preparation and execution of mutually acceptable definitive documentation
as well as approval by the board of directors of Monsanto. The Company believes
the DSIDA project, if and when completed, could generate additional annual cash
flows to the Company of up to $8 million depending on operating rates and market
conditions. However, there can be no assurances that the DSIDA project will be
completed or, if so, that it will generate additional cash flows of any amount.

     On March 3, 1999, the Company announced a capital project to upgrade its
styrene monomer facility at the Texas City Plant. The phenylacetylene removal
project ("PAR project") will reduce phenylacetylene ("PA") in styrene monomer
produced by the Company through the employment of Raytheon/Fina technology and a
Criterion catalyst. The Company expects to invest approximately $7 to $8 million
in the PAR project, with the allocation of funds coming from its current capital
expenditure budget. During the scheduled maintenance shutdown of the styrene
unit that occurred during the second quarter of fiscal 1999, tie-ins for the PAR
project were made. If completed as planned, the PAR project would enable the
Company to produce lower PA styrene product by December 31, 1999.

     In April 1999, the Company restarted its methanol facility, which had been
shut down since August 1998 for economic reasons. A significant disparity
between domestic and foreign natural gas prices has put domestic methanol
producers such as the Company at a disadvantage to foreign competitors. The
Company continues to evaluate the best use for its methanol facility. One of the
primary uses of methanol is in the production of MTBE used in reformulated
gasolines. The State of California has recently announced that MTBE must be
phased out of reformulated gasoline used in the state by December 31, 2002.
Other states could implement similar initiatives, which could lead to a further
reduction of demand in the domestic methanol market.

     As previously announced, the Company negotiated a new three year labor
agreement for the Texas City Plant which is expected to save approximately $5 to
$6 million annually. In connection with this new agreement, the Company took a
one-time non-cash pretax charge of approximately $7 million relating to early
retirement programs and benefit changes during the second quarter of fiscal
1999.


                                       16
<PAGE>   17

     Effective as of February 1, 1999, William A. McMinn was elected to the
joint board of directors of Holdings and Chemicals, thereby increasing the size
of the board from nine to ten directors.

     The Company's styrene monomer unit at the Texas City Plant was shutdown for
approximately one month during the second quarter of fiscal 1999 for scheduled
maintenance. While the styrene unit was restarted on March 22, 1999, the restart
of the ethylbenzene unit, an important component, was delayed until April 30,
1999 so that unscheduled maintenance work could be performed on a process
vessel. During this delay, the Company purchased most of its ethylbenzene
requirements on the spot market. The unscheduled work on the process vessel and
the resulting delay in restarting the ethylbenzene unit is expected to
negatively impact pretax earnings for the third quarter of fiscal 1999 by
approximately $2 to $3 million.

     During the second quarter of fiscal 1999, the Company entered into three
new contracts to build its patented chlorine dioxide generators. In addition,
bid activity for the construction of more generators has increased with the
approaching implementation deadline for the Environmental Protection Agency's
enacted regulations that support substitution of chlorine dioxide for elemental
chlorine (commonly referred to as the "Cluster Rules").

RESULTS OF OPERATIONS

     Revenues for the second quarter of fiscal 1999 were $152 million compared
to revenues of $205 million for the second quarter of fiscal 1998, a decrease of
26%. Revenues for the six month period ended March 31, 1999, were $324 million
compared to $435 million in the prior year period, a decrease of 26%. The
decreases in revenues for the three and six month periods of fiscal 1999 as
compared to the corresponding periods for fiscal 1998 were primarily due to
lower styrene, acrylonitrile, methanol, and acrylic fibers sales volumes and
prices and lower sodium chlorate sales prices. A net loss attributable to common
stockholders of $25.5 million, or $1.96 per share, was recorded for the second
quarter of fiscal 1999 compared to a net loss attributable to common
stockholders of $16.9 million, or $1.37 per share, for the second quarter of
fiscal 1998. A net loss attributable to common stockholders of $39.2 million, or
$3.07 per share, was recorded for the six month period ended March 31, 1999
compared to a net loss attributable to common stockholders of $27.7 million, or
$2.28 per share, for the same period of fiscal 1998. The increases in net loss
for the three and six month periods of fiscal 1999 as compared to the
corresponding periods for fiscal 1998 were primarily due to: (i) shutdowns in
styrene for routine maintenance and acetic acid for expansion in the second
quarter of fiscal 1999, (ii) reduced acrylonitrile, methanol, and sodium
chlorate margins, (iii) weak markets in acrylic fibers, and (iv) costs
associated with the aforementioned one-time non-cash charge related to an early
retirement program and benefit changes, all partially offset by a modest
improvement in styrene margins.

Revenues, Cost of Goods Sold, and Gross Profit

     Petrochemicals and Fibers

     For the second quarter of fiscal 1999, the Company's revenues from its
petrochemical and fibers businesses decreased to $107 million, from $155 million
for the same period of fiscal 1998. For the first six months of fiscal 1999, the
Company's revenues from its petrochemical and fibers businesses decreased to
$233 million, from $332 million for the same period of fiscal 1998. The 31% and
30% decreases in revenues for the three and six month periods of fiscal 1999,
respectively, as compared to the corresponding periods for fiscal 1998, were
primarily due to reduced styrene, acrylonitrile, methanol, and acrylic fibers
sales prices and volumes. The styrene and acetic acid units were both shutdown
for approximately one month in the second quarter of fiscal 1999 for scheduled
maintenance, thereby reducing revenues and profitability for such quarter. The
economic conditions in Asia continued to negatively impact market conditions in
the fiscal 1999 periods, particularly for the Company's styrene, acrylonitrile,
and acrylic fibers products. The Company's petrochemicals and fibers businesses
recorded combined operating losses of $19 million and $21 million for the three
and six month periods of fiscal 1999, respectively, compared to an operating
loss of $9 million for each of the two comparable periods of fiscal 1998. The
increase in operating loss for both periods was primarily due to weaker
operational performance in acrylonitrile, methanol, and acrylic fibers and the
aforementioned one-time non-cash charge related to an early retirement program
and benefit changes, partially offset by a modest improvement in styrene
margins.

     Styrene revenues decreased 18% to $46 million in the second quarter of
fiscal 1999 and 19% to $101 million for the first six months of fiscal 1999,
compared to the same periods in fiscal 1998. Styrene sales prices decreased 5%
and 10% for the second quarter and first six months of fiscal 1999,
respectively, compared to the prior fiscal year periods. The decrease in sales
prices was primarily due to continued weak market conditions, particularly in
Asia. Styrene sales volumes decreased 15% and 9% for the second quarter and
first six months of fiscal 1999, respectively, compared to the prior fiscal year
periods. The decrease in sales volumes was primarily due to the month-long
maintenance shutdown of the styrene unit during the second quarter of fiscal
1999. The major raw materials for styrene are benzene and ethylene. The price of
benzene remained constant in the second quarter of fiscal 1999 and decreased 22%
in the first six months of fiscal 1999, compared to the same periods of fiscal
1998. The price of ethylene decreased 7% and 31% in the second quarter of fiscal
1999 and the first six months of fiscal 1999, respectively, compared


                                       17
<PAGE>   18

to the same periods of fiscal 1998. Styrene margins increased in the second
quarter and first six months of fiscal 1999, compared to the same periods of
fiscal 1998, as significantly lower raw materials costs and lower fixed
manufacturing costs more than offset the lower sales prices.

     Acrylonitrile revenues decreased 41% to $17 million in the second quarter
of fiscal 1999 and 42% to $36 million for the first six months of fiscal 1999,
compared to the same periods in fiscal 1998. Acrylonitrile sales prices
decreased 33% and 32% for the second quarter and first six months of fiscal
1999, respectively, compared to the prior fiscal year periods. In addition,
acrylonitrile sales volumes decreased 13% and 15% for the second quarter and
first six months of fiscal 1999, respectively, compared to the prior fiscal year
periods. The lower sales prices and volumes were primarily due to weaker market
conditions, primarily in Asia. The major raw materials for acrylonitrile are
propylene and ammonia. The price of propylene decreased 33% and 35% in the
second quarter of fiscal 1999 and the first six months of fiscal 1999,
respectively, compared to the same periods of fiscal 1998. The price of ammonia
decreased 10% and 16% in the second quarter of fiscal 1999 and the first six
months of fiscal 1999, respectively, compared to the same periods of fiscal
1998. Acrylonitrile margins decreased in the second quarter and first six months
of fiscal 1999, compared to the same periods of fiscal 1998, as significantly
lower sales prices more than offset lower raw materials costs and lower fixed
manufacturing COSTS.

     The acrylic fibers business revenues decreased 37% to $16 million in the
second quarter of fiscal 1999 and 40% to $31 million for the first six months of
fiscal 1999, compared to the same periods in fiscal 1998. Acrylic fibers sales
volumes decreased 27% and 36% for the second quarter and first six months of
fiscal 1999, respectively, compared to the prior fiscal year periods. The
performance of the Company's acrylic fibers business in the second quarter and
first six months of fiscal 1999 continued to be negatively impacted by weak
market conditions and imports from foreign suppliers.

     Revenues from the Company's acetic acid, methanol and plasticizers ("AMP")
products and other petrochemicals decreased 36% to $29 million in the second
quarter of fiscal 1999 and 32% to $66 million for the first six months of fiscal
1999, compared to the same periods in fiscal 1998. The decreases in revenues for
the second quarter and first six months of fiscal 1999 were primarily due to a
44% and 46% decrease in methanol sales prices, respectively, and a 33% and 27%
decrease in methanol sales volumes, respectively, compared to the prior fiscal
year periods. The decrease in methanol revenues and sales volumes was primarily
a result of continued overcapacity in the global methanol market. The Company's
AMP products reported a decrease in operating earnings in the second quarter and
first six months of fiscal 1999 compared to the prior periods of fiscal 1998.
These decreases in operating earnings were primarily due to the aforementioned
weak methanol market conditions and acetic acid shutdown for expansion.

     Pulp Chemicals

     Revenues from the Company's pulp chemicals business decreased 9% to $45
million in the second quarter of fiscal 1999 and 11% to $92 million in the first
six months of fiscal 1999, compared to the same periods in fiscal 1998. This
decrease in revenues was primarily due to a decrease in average sodium chlorate
sales prices compared to the prior periods of fiscal 1998. The decline in sodium
chlorate sales prices was primarily due to decreased demand as a result of lower
pulp mill operating rates. The Company's pulp chemicals business recorded
operating earnings of $8 million and $15 million for the three and six month
periods of fiscal 1999, respectively, compared to operating earnings of $8
million and $20 million for the same periods of fiscal 1998. This reduction in
operating earnings was primarily due to reduced sodium chlorate sales prices.

Selling, General, and Administrative ("SG&A") Expenses

     SG&A expenses were $9 million and $18 million for the second quarter and
first six months of fiscal 1999, respectively, compared to $9 million and $17
million for the same periods of fiscal 1998. An increase due to costs associated
with upgrades of certain of the Company's information technology systems, which
include Year 2000 compliance activities, was mostly offset by the favorable
impact of cost reduction programs.

Other Expense

     Other expense was $7 million and $9 million for the second quarter and six
months of fiscal 1999, respectively, compared to $3 million for the same periods
of fiscal 1998. The fiscal 1999 amounts relate to the aforementioned one-time
non-cash charge related to early retirement programs and benefit changes and
workforce reductions in the petrochemical business and Saskatoon, Saskatchewan,
Canada plant. The fiscal 1998 amounts relate to voluntary severance programs in
the petrochemical business.

Interest and Debt Related Expenses

     Interest and debt related expense was $25 million for the second quarters
of 1999 and 1998 and $50 million for the first six months of fiscal 1999 and
1998.



                                       18
<PAGE>   19

Benefit for Income Taxes

     Benefit for income taxes for the second quarter and first six months of
fiscal 1999 were $11 million (effective tax rate of 31%) and $19 million
(effective tax rate of 33%), respectively, compared to $9 million (effective tax
rate of 36%) and $14 million (effective tax rate of 34%) for the comparable
periods of fiscal 1998. The increase in the benefit was primarily the result of
the increase in the Company's pre-tax losses in the fiscal 1999 periods.

LIQUIDITY AND CAPITAL RESOURCES

     As of March 31, 1999, the Company's long-term debt (including current
maturities) totaled approximately $900 million and consisted of: (i) three term
loans under the Credit Agreement (defined below); (ii) loans under the Revolver
(defined below); (iii) two term loans under the Sask Credit Agreement (defined
below); (iv) Chemicals' 11 1/4% Senior Subordinated Notes due 2007 (the "11 1/4%
Notes"); (v) Chemicals' 11 3/4% Senior Subordinated Notes due 2006 (the "11 3/4%
Notes"); and (vi) the 13 1/2% Notes.

     In July 1997, Chemicals entered into an Amended and Restated Credit
Agreement (as amended, the "Credit Agreement") with Chase Bank of Texas,
National Association, individually and as administrative agent, Credit Suisse
First Boston, individually and as documentation agent, and certain other
financial institutions. The Credit Agreement establishes a revolving credit
facility (the "Revolver") under which Chemicals may borrow, repay and reborrow
funds for general corporate purposes. The Revolver automatically terminates on
March 31, 2003, at which time all amounts owing thereunder will be due and
payable. As of March 31, 1999, Chemicals had drawn approximately $14 million and
had approximately $4 million in letters of credit outstanding under the
Revolver.

     Availability of credit under the Revolver (not to exceed $125 million) is
subject to a monthly borrowing base consisting of 85% of eligible accounts
receivable and 65% of eligible inventory with an inventory cap of 50% of the
borrowing base. At March 31, 1999, and after deducting approximately $4 million
on account of outstanding letters of credit, the borrowing base limited the
total credit available under the Revolver to a maximum of $87 million, down from
$118 million at September 30, 1998 and $108 million at December 31, 1998. A
review of the borrowing base is currently being performed on behalf of the
lenders and it is possible that this review could lead to a reduction in the
borrowing base, although the Company does not believe that such a reduction
would be warranted. As discussed below, availability of credit under the
Revolver is also subject to Chemicals being in compliance with numerous
operational and financial covenants, including covenants that obligate Chemicals
to maintain certain financial ratios. Even if the Company remains compliant with
all covenants, the amount of debt that the Company may incur in the future
(including extensions of credit under the Revolver) is limited by the covenants
contained in the Credit Agreement as well as those contained in various other
debt agreements of the Company.

     In December 1998, Chemicals obtained certain amendments to the financial
covenants contained in the Credit Agreement which made the financial covenants
less restrictive through December 31, 1999. Chemicals was in compliance with the
covenants at all times, but requested the amendments based on its revised
financial projections. Beginning March 31, 2000, certain of these financial
covenants become more restrictive. For example, the interest coverage ratio
increases from 0.80 at March 31, 1999, to 2.50 beginning with the rolling four
quarters ending March 31, 2000. Consequently, Chemicals will be required to have
significantly increased cash flows and operating results (or obtain further
amendments or waivers) in order to maintain compliance. While Chemicals is
currently compliant with all covenants contained in the Credit Agreement, no
assurances can be given that its cash flows and operating results will be
sufficient to maintain compliance in the future, particularly at and after March
31, 2000. Chemicals' ability to comply with these covenants, as well as the
Company's overall ability to meet its debt service obligations and repay
principal when due, will depend on the future performance of the Company, which
is subject to a number of risks and uncertainties. If weak market conditions
continue to negatively impact the sales prices, margins and/or volumes of the
Company's primary products (including styrene, acrylonitrile, methanol, sodium
chlorate, and acrylic fibers), Chemicals may have difficulty prior to March 31,
2000 and will have difficulty at and after March 31, 2000 remaining in
compliance with the existing financial covenants in the Credit Agreement. Should
Chemicals fail to maintain covenant compliance and be unable to obtain
appropriate amendments or waivers, it would not be entitled to obtain additional
credit under the Revolver and the Revolver could be terminated by the lenders
with all amounts outstanding being immediately due and payable, although the
lenders could elect, at their discretion, to leave amounts drawn under the
Revolver outstanding and/or extend additional credit to Chemicals under the
Revolver. If Chemicals is unable to borrow additional funds under the Revolver,
the Company may not have sufficient funds to make future scheduled interest
payments or to pay other obligations as they become due. In that event or in the
event the Company fails, without obtaining appropriate amendments or waivers, to
remain in compliance with any financial covenants contained in any of its debt
agreements, debt holders could pursue remedies available to them under the
relevant debt agreements, including, under certain conditions, accelerating the
maturity of outstanding indebtedness. The indebtedness under the Credit
Agreement is secured by substantially all of the assets of Chemicals. In
addition, the indebtedness under the Credit Agreement, along with the 13 1/2%
Notes, are secured by a pledge of the outstanding 


                                       19
<PAGE>   20

common stock of Chemicals.

     In connection with the Credit Agreement amendments described above,
Holdings entered into the Standby Purchase Agreements with the Standby
Purchasers. Pursuant to the terms of the Standby Purchase Agreements, the
Standby Purchasers are obligated to purchase up to an aggregate of 2.5 million
shares of Common Stock, at a price of $6.00 per share, if, as and when requested
by Holdings at any time or from time to time prior to December 15, 2001. Under
each of the Standby Purchase Agreements, Holdings may only require the Standby
Purchasers to purchase such shares if it believes that the purchase price paid
by the Standby Purchasers for such shares is necessary to maintain, reestablish,
or enhance the Company's borrowing ability under its revolving credit facilities
or to satisfy any requirement thereunder to raise additional equity. To induce
the Standby Purchasers to enter into the Standby Purchase Agreements, Holdings
issued to them warrants to purchase an aggregate of 300,000 shares of Common
Stock at an exercise price of $6.00 per share. Pursuant to the Standby Purchase
Agreements, Holdings is obligated to issue to the Standby Purchasers additional
warrants to purchase 300,000 additional shares of Common Stock if, as, and when
they purchase shares of Common Stock under the Standby Purchase Agreements.

     The Company is exploring various external actions designed to increase its
liquidity and capital resources. Actions currently under consideration include
pursuing further amendments to the Credit Agreement and/or one or more new
external financing arrangements. No assurances can be given that any of these
alternatives will be available to the Company or, if so, on terms that are
acceptable to the Company.

     The Company's debt agreements contain provisions which restrict the payment
of advances, loans, and dividends from its subsidiaries (including Chemicals) to
Holdings. The most restrictive of those covenants limits such payments during
fiscal 1999 to approximately $2 million plus any amounts due to Holdings from
Chemicals under the intercompany tax sharing agreement. These restrictions are
not expected to limit Holdings' ability to meet its obligations in fiscal 1999.

     Because Sterling Sask is designated as an "Unrestricted Subsidiary" under
the Credit Agreement and the indentures governing the 13 1/2% Notes, the 11 3/4%
Notes and the 11 1/4% Notes, Sterling Sask is generally not subject to, nor are
its results considered in determining Chemicals' compliance with, the
restrictive covenants contained therein. In July 1997, Sterling Sask entered
into a Credit Agreement (the "Sask Credit Agreement") with The Chase Manhattan
Bank of Canada, individually and as administrative agent, and certain other
financial institutions. The Sask Credit Agreement requires that certain amounts
of Excess Cash Flow (as defined therein) be used to prepay amounts outstanding
under the Sask Term Loans. A mandatory prepayment in the amount of approximately
Cdn. $5 million was made in the first quarter of fiscal 1999 pursuant to such
obligation. The Sask Credit Agreement provides for a revolving credit facility
of Cdn. $8 million to be used by Sterling Sask solely for its general corporate
purposes (the "Saskatoon Revolver"). No borrowings were outstanding under the
Sask Revolver as of March 31, 1999. Because of restrictions in the Sask Credit
Agreement, the Company will generally not have access to the cash flows of
Sterling Sask. The Saskatoon Credit Agreement contains provisions which restrict
the payment of advances, loans, and dividends from Sterling Sask to Chemicals or
Holdings. The most restrictive of the covenants limits such payments during
fiscal 1999 to less than $1 million, plus any amounts due to Chemicals or
Holdings from Sterling Sask under the intercompany tax sharing agreement. The
indebtedness under the Sask Credit Agreement is secured by substantially all the
assets of Sterling Sask.

Working Capital

     Working capital of the Company was $71 million at March 31, 1999, down from
$92 million at September 30, 1998. This $21 million decrease in working capital
was primarily due to a decrease in accounts receivable as a result of lower
sales prices and volumes, partly attributable to the scheduled styrene and
acetic acid maintenance shutdowns during the second quarter of fiscal 1999.

Cash Flow

     Net cash provided by operations was $1 million for the six months ended
March 31, 1999 and $14 million for the six months ended March 31, 1998. This $13
million decrease in net cash provided by operations was primarily due to the
increase in net loss resulting from the factors discussed previously.

Capital Expenditures

     The Company's capital expenditures for the first six months of fiscal 1999
were $12 million compared to $13 million in the same period in fiscal 1998. The
capital expenditures in the first six months of fiscal 1999 were primarily
related to the acetic acid expansion, the PAR project, the DSIDA project, and
routine safety, environmental, and replacement capital. During the remainder of
fiscal 1999, the Company expects to spend approximately $15 million to $20
million on the PAR project and routine safety, environmental, and replacement
capital. The Company expects to fund its remaining fiscal 1999 capital
expenditures from operating cash flow, plus borrowings under the Revolver, if
needed.



                                       20
<PAGE>   21

Year 2000 Issue

     Certain computer systems and other equipment with computer chips store
dates as two digits rather than four to define the applicable year (e.g. 97 for
1997). Any clock or date recording mechanism (including date sensitive software)
which uses only two digits to represent the year may interpret the digits "00"
as the Year 1900 rather than the Year 2000. This could result in a system
failure or miscalculations causing serious disruption of operations. As is the
case with most companies, the Company is in the process, using both internal and
external resources, of addressing the Year 2000 issue. The Company is currently
engaged in a comprehensive project intended to upgrade its information
technology (IT) systems (such as computer systems and software) and non-IT
systems (such as process control systems and other equipment that utilize
embedded chips to control various functions) to systems that will consistently
and properly recognize the Year 2000 and subsequent years.

     The Company has conducted an inventory of its hardware and software and
made a preliminary assessment of the Year 2000 compliance of its business and
process control systems. This preliminary assessment determined which of the
Company's business and process control systems are critical to its business.
Those systems deemed to be critical were assigned a higher priority in the Year
2000 remediation effort as compared to other non-critical systems. In this phase
of the project, the Company discovered certain Year 2000 deficiencies in its
business systems and initiated plans to rectify such issues in the remediation
and replacement phase of the project. The preliminary assessment of the
Company's process control systems did not detect any material Year 2000
difficulties. The Company then engaged a nationally recognized independent
consultant to perform a more detailed survey of all of its business and process
control systems (both critical and non-critical) to confirm the absence of any
additional material Year 2000 deficiencies. This survey has been completed and
did not reveal any additional material Year 2000 deficiencies.

     In the second phase of the Company's Year 2000 project, the Company
believes it is taking the necessary steps to rectify all material Year 2000
deficiencies. A major component of this effort involves the replacement of all
critical business systems which may not be Year 2000 compliant with new business
systems intended to be Year 2000 compliant. All of such projects are scheduled
to be completed by mid-year 1999. If the Company determines that any additional
systems under review have material Year 2000 deficiencies, the Company plans to
take appropriate remedial action. At this time, the instrumentation in the
laboratory requires significant remediation or replacement. However, that
instrumentation can be successfully operated in its current state with minimal
manual intervention. Even without remediation or replacement, this
instrumentation does not jeopardize the successful operation of the facility or
the business.

     The final phase of the Company's Year 2000 project involves testing all
critical systems to confirm that such systems will react properly to the advent
of the Year 2000. The Company is in the process of conducting tests on all of
its current IT and non-IT systems that were not identified as having Year 2000
deficiencies and anticipates that all such testing will be completed by June 30,
1999. Once the remediation and replacement phase is completed, the Company will
conduct tests on all newly installed and updated systems to determine if they
are Year 2000 compliant. Such testing is scheduled to be completed by mid-year
1999.

     The total estimated expense for the Company's Year 2000 compliance projects
is approximately $11 to $13 million, of which the Company has incurred
approximately $5 million through March 31, 1999. Such expense has been and will
continue to be funded by the Company out of its operating cash flow and/or
borrowings under its credit facilities.

     Irrespective of the efforts of the Company, certain Year 2000 problems,
such as processing failures, error messages, or incorrect data may still occur
in some of its computer systems if the Company receives programs and/or data
from third parties who are not Year 2000 compliant. Moreover, the Company's
business may be disrupted in other ways by Year 2000 problems of third parties,
which may affect, for example, the Company's ability to obtain needed materials
or deliver its products. The Company is in the process of determining whether
vendors, customers, and others with whom it deals are Year 2000 compliant and
has requested that such persons (other than those that the Company believes do
not have a material impact on the business of the Company or its operations)
complete and return surveys with respect to their Year 2000 issues. The Company
has not received any survey response which indicates that any of such persons
has any specific Year 2000 problems. However, no assurances can be given that a
Year 2000 problem will not occur for the Company as a result of a Year 2000
problem of a vendor or customer of the Company or some other person with whom
the Company deals.

     While the Company's Year 2000 projects are scheduled to be completed around
mid-year 1999, it is possible that one or more of such projects may not be
completed or that compliance efforts may be ineffective. A failure to properly
and timely correct any Year 2000 deficiencies would affect the Company on
several levels. If the Company's Year 2000 remediation efforts were to prove
unsuccessful, the Company might be unable to take orders, sell products, operate
one or more of its manufacturing facilities, or otherwise generally conduct its
business. Since the Company's business is characterized by large volume sales to
a relatively limited number of customers, the Company believes that, with the
engagement of additional personnel, orders could be processed and deliveries
completed through manual means. In preparation for such a scenario, the Company
has outlined a contingency plan to guide the hiring and training of additional
personnel and the processing of paperwork by manual means.



                                       21
<PAGE>   22

     Although the Company believes that it is taking the appropriate courses of
action to ensure that it is Year 2000 compliant, there can be no assurance that
the actions discussed herein will have the anticipated results or that Year 2000
problems will not have a material adverse effect on the Company's financial
condition or results of operations. Specific factors which might affect the
success of the Company's Year 2000 efforts and the occurrence of Year 2000
disruption or expense include failure of the Company or its consultant to
properly identify deficient systems, the failure of the selected remedial action
to adequately address the deficiencies, the failure of the Company's consultant
to complete the remediation in a timely manner (due to shortages of qualified
labor or other factors), unforeseen expenses related to the remediation of
existing systems or the transition to replacement systems, and the failure of
third parties to become compliant or to adequately notify the Company of
potential noncompliance.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company's market risk disclosures set forth in the Annual Report have
not changed significantly through the period ended March 31, 1999.


                                       22
<PAGE>   23

PART II--OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS

     The information under "Legal Proceedings" in Note 4 of the Notes to
Consolidated Financial Statements herein is hereby incorporated by reference.
See also "Item 3. Legal Proceedings" in the Annual Report.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     The Holdings' Annual Meeting of Stockholders was held on January 27, 1999,
at which time Holding's nine incumbent directors were re-elected and the
appointment of Deloitte & Touche LLP as the Company's independent accountants
for the fiscal year ending September 30, 1999 was ratified.

     The voting results for the re-election of the nine incumbent directors are
as set forth below:

<TABLE>
<CAPTION>
                                                                           FOR                  WITHHELD
                                                                        ---------               --------
<S>                                                                     <C>                      <C>   
       Frank P. Diassi...........................................       9,807,863                33,843
       Peter W. De Leeuw.........................................       9,807,887                33,819
       Robert W. Roten...........................................       9,828,969                12,737
       Allan R. Dragone..........................................       9,828,460                13,246
       John L. Garcia............................................       9,829,099                12,607
       Frank J. Hevrdejs.........................................       9,827,683                14,023
       Hunter Nelson.............................................       9,827,514                14,192
       George J. Damiris.........................................       9,829,099                12,607
       Rolf H. Towe..............................................       9,829,099                12,607
</TABLE>

     The voting results for the appointment of Deloitte & Touche LLP as the
independent accountants of the Company for the fiscal year ending September 30,
1999 are as follows:

<TABLE>
<CAPTION>
               FOR                   AGAINST             ABSTAIN
            ---------                -------             -------
            <S>                      <C>                 <C>
            9,809,908                14,010               17,788
</TABLE>

     There were no broker non-votes for the election of directors or for the
ratification and approval of the appointment of Deloitte & Touche LLP as the
independent accountants for the Company for the fiscal year ending September 30,
1999.


                                       23
<PAGE>   24

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

     (a) Exhibits: The following exhibits are filed as part of this Form 10-Q.


 EXHIBIT
  NUMBER                           DESCRIPTION OF EXHIBIT
  ------                           ----------------------

   4.1     --Third Amended and Restated Voting Agreement dated as of February 1,
             1999.

  11.1     --Earnings Per Share Calculation.

  15.1     --Letter of Deloitte & Touche LLP regarding unaudited interim
             financial information.

  27.1     --Financial Data Schedule of Sterling Chemicals Holdings, Inc.

  27.2     --Financial Data Schedule of Sterling Chemicals, Inc.


     (b) Reports on Form 8-K.

         On March 4, 1999, the Company filed a Current Report on Form 8-K,
reporting under Items 5 and 7.


                                       24
<PAGE>   25
                                   SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrants have duly caused this report to be signed on their
behalf by the undersigned thereunto duly authorized.


                                  STERLING CHEMICALS HOLDINGS, INC.
                                  STERLING CHEMICALS, INC.
                                  (Registrants)



Date:  May 13, 1999               /s/ PETER W. DE LEEUW
                                  ---------------------------------------------
                                  Peter W. De Leeuw
                                  President and Chief Executive Officer
                                  (Principal Executive Officer)



Date:  May 13, 1999               /s/ GARY M. SPITZ
                                  ---------------------------------------------
                                  Gary M. Spitz
                                  Vice President-Finance and Chief Financial
                                  Officer
                                  (Principal Financial Officer)


                                       25
<PAGE>   26
                               INDEX TO EXHIBITS


<TABLE>
<CAPTION>
 EXHIBIT
  NUMBER                           DESCRIPTION OF EXHIBIT
  ------                           ----------------------

<S>        <C>
   4.1     --Third Amended and Restated Voting Agreement dated as of February 1,
             1999.

  11.1     --Earnings Per Share Calculation.

  15.1     --Letter of Deloitte & Touche LLP regarding unaudited interim
             financial information.

  27.1     --Financial Data Schedule of Sterling Chemicals Holdings, Inc.

  27.2     --Financial Data Schedule of Sterling Chemicals, Inc.
</TABLE>