##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2006
 or
 o
    
    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 000-50132
 Sterling Chemicals, Inc.
 (Exact name of registrant as specified in its charter)
 Delaware(State or other jurisdiction of 
incorporation or organization)
    
    76-0502785(I.R.S. Employer Identification No.)333 Clay Street, Suite 3600
Houston, Texas 77002-4109(Address of principal executive offices)
    
    (713-650-3700)(Registrants telephone number,
including area code)
 Securities registered pursuant to Section 12(b) of the Act: None
 Securities registered pursuant to Section 12(g) of the Act:
 
 o þ
 o þ
 þ o
 o
  o o þ
  APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
 þ o
 o þ




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IMPORTANT INFORMATION REGARDING THIS FORM 10-K
   Forward-Looking Statements
  
    
    the cyclicality of the petrochemicals industry;
    
    current and future market and industry conditions and their effect on our
results of operations or financial position;
    
    the extent, timing and impact of expansions of production capacity of our
products, by us or by our competitors;
    
    the potential effects of market and industry conditions and cyclicality on our
competitiveness, business strategy, results of operations or financial position;
    
    the adequacy of our liquidity and availability of financing;
    
    our environmental management programs and safety initiatives;
    
    future uses of, and requirements for, financial resources;
    
    future contractual obligations;
    
    future amendments, renewals or terminations of existing contractual relationships;
    
    business strategies;
    
    growth opportunities;
    
    competitive position;
    
    expected financial position;
    
    future cash flows, dividends or financing plans;
    
    budgets for capital and other expenditures;
    
    plans and objectives of management;
    
    outcomes of legal proceedings;
    
    our ability to renew our collective bargaining agreement;
    
    compliance with applicable laws;
    
    our reliance on marketing partners;
    
    adequacy of insurance coverage or indemnification rights;
    
    the timing or extent of changes in commodity prices for our products or raw materials;
    
    petrochemicals industry production capacity or operating rates;
    
    increases in the cost of, or our ability to obtain, raw materials or energy;
    
    regulatory initiatives and compliance with governmental laws or regulations,
including environmental laws or regulations;
    
    customer preferences;
    
    our ability to attract or retain high quality employees;
    
    operating hazards attendant to the petrochemicals industry;
    
    casualty losses, including those resulting from weather related events;
 1




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
    
    changes in foreign, political, social or economic conditions;
    
    risks of war, military operations, other armed hostilities, terrorist acts or embargoes;
    
    changes in technology that could require significant capital expenditures in
order to maintain competitiveness or could cause existing manufacturing processes
to become obsolete;
    
    effects of litigation;
    
    cost, availability or adequacy of insurance; and
    
    various other matters, many of which are beyond our control.
  Document Summaries
  Fiscal Year
  2




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##### 



TABLE OF CONTENTS
 PagePART IItem 1. Business
    
    
    4Item 1A. Risk Factors
    
    
    13Item 2. Properties
    
    
    21Item 3. Legal Proceedings
    
    
    22Item 4. Submission of Matters to a Vote of Security Holders
    
    
    23PART IIItem 5. Market for Registrants Common Equity and Related Stockholder Matters
    
    
    24Item 6. Selected Financial Data
    
    
    26Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    28Item 7A. Quantitative and Qualitative Disclosures about Market Risk
    
    
    38Item 8. Financial Statements and Supplementary Data
    
    
    39Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    66Item 9A. Controls and Procedures
    
    
    66Item 9B. Other Information
    
    
    67PART IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    68Item 11. Executive Compensation
    
    
    68Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    68Item 13. Certain Relationships and Related Transactions
    
    
    68Item 14. Principal Accountant Fees and Services
    
    
    68PART IVItem 15. Exhibits and Consolidated Financial Statement Schedules
    
    
    69First Amendment to Amended Salaried Employees' Pension PlanFirst Amendment to Seventh Amended Savings and Investment PlanAmendment to Second Amended Production AgreementSubsidiariesConsent of Deloitte & Touche LLPCertification of CEO Pursuant to Rule 13a-14(a)Certification of CFO Pursuant to Rule 13a-14(a)Certification of CEO Pursuant to Section 1350Certification of CFO Pursuant to Section 1350
  3




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PART I
 
 Item 1. Business
        4




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Business Strategy
 Grow Our Business.
     5




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Improve Organization Efficiency and Cost Structure.
 Industry Overview
 Acetic Acid.
     Styrene.
 6




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Plasticizers.
 Product Summary
  7




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Sterling Product
    
    Intermediate(Capacity)
    
    Products
    
    Primary End Products
    
    Raw Materials
    
    Major CompetitorsAcetic Acid
(1.1 billion
pounds per year)
    
    Vinyl acetate monomer,
terephthalic acid,
and acetate solvents
    
    Adhesives, PET bottles,
fibers and surface coatings
    
    Methanol and Carbon
Monoxide
    
    Celanese AG, Eastman
Chemical Company and
Lyondell Chemical CompanyStyrene
(1.7 billion
pounds per year)
    
    Polystyrene,
ABS/SAN resins,
styrene butadiene
latex and
unsaturated
polyester resins
    
    Building products, boat and
automotive components,
disposable cups and trays,
packaging and containers,
housewares, tires, audio and
video cassettes, luggage,
childrens toys, paper
coating, appliance parts and
carpet backing
    
    Benzene and Ethylene
    
    Lyondell Chemical
Company, Ineos, PLC,
Chevron Phillips Chemical
Company, Shell , Cos-Mar
(a joint venture of
General
Electric Company and
FINA Inc.), Nova
Corporation, SABIC,
Samsung Corporation and
Mitsubishi CorporationPlasticizers
(200 million
pounds of esters and 130
million pounds of phthalic
anhydride per year)
    
    Flexible polyvinyl
chloride
(PVC)
    
    Flexible plastics, such as
shower curtains and liners,
floor coverings, cable
insulation, upholstery and
plastic molding
    
    Oxo-Alcohols
and Orthoxylene
    
    ExxonMobil Corporation,
Eastman Chemical
Company and BASF
Corporation
 Products
 Acetic Acid. Acetic Acid-BP Chemicals
 Styrene.
 Plasticizers. Plasticizers-BASF
 Sales and Marketing
  8




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
    
    multi-year contracts;
    
    conversion agreements; and
    
    spot transactions in both the domestic and export markets.
  
    
    optimize our capacity utilization rates;

· lower our selling, general and administrative expenses;
    
    reduce our working capital requirements;
    
    insulate our plasticizers operations from the effects of declining markets
and changes in raw materials prices; and
    
    in some cases, gain access to certain improvements in manufacturing
process technology.
   Contracts
  Acetic Acid-BP Chemicals
  Plasticizers-BASF
  9




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Raw Materials and Energy Resources
  Acetic Acid.
 Styrene.
 Plasticizers.
 Technology and Licensing
    Competition
  10




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Environmental, Health and Safety Matters
     11




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Employees
  Insurance
  12




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Access to Filings
  
 Item 1A. Risk Factors
  Risks Relating to Our Indebtedness
 We have a significant amount of outstanding indebtedness which exposes us to a greater risk of
default. Additionally, restrictions contained in the agreements governing such indebtedness limit
our ability to react to changes in our business and to engage in certain corporate transactions.
  
    
    require us to dedicate a substantial portion of our cash flow from operations to service
our existing debt service obligations, thereby reducing the availability of our cash flow
to fund working capital, capital expenditures and other general corporate expenditures;
    
    increase our vulnerability to adverse general economic or industry conditions and limits
our flexibility in planning for, or reacting to, competition or changes in our business or
our industry;
    
    limit our ability to obtain additional financing;
    
    place restrictions on our ability to make strategic acquisitions, engage in mergers or
other fundamental changes, make capital expenditures, introduce new products or services or
exploit business opportunities;
    
    make certain payments or investments, sale of assets, capital expenditures, engaging in
certain mergers and acquisitions and refinancing existing indebtedness more difficult; and
    
    place us at a competitive disadvantage relative to competitors with lower levels of
indebtedness in relation to their overall size or less restrictive terms governing their
indebtedness.
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The indebtedness represented by our Secured Notes, as well as the loans outstanding under our
revolving credit facility mature in 2007. We may not be able to refinance this indebtedness or
obtain a new revolving capital facility on terms and conditions as favorable to us as those of our
existing indebtedness or at all.
  Any failure to meet our debt obligations could harm our business, financial condition, results of
operations or cash flows.
  Risks Related to Our Business
 Cyclicality in the styrene markets has in the past and may in the future result in reduced
operating margins or operating losses.
  Certain of our products are sold to only one customer.
  14




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A large portion of our styrene capacity is sold in the spot markets, rather than pursuant to
long-term contracts, which may result in lower profitability during periods of excess domestic or
global supply.
  We may not be able to increase the price of our products to compensate for increases in natural gas
prices which may, in turn, decrease the competitiveness of our products in certain markets.
  We may be unable to obtain raw materials at reasonable prices, on acceptable terms or at all.
   15




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We may be unable to compete successfully with integrated and larger competitors.
  Our industry is highly competitive and our results are significantly impacted by manufacturing
costs.
  The worsening of conditions in the styrene industry could cause us to generate losses significant
enough to warrant a shut down of our styrene plant.
  Our ability to realize increases in our acetic acid production capacity made possible through
capacity expansions is limited by the current inability to obtain sufficient quantities of carbon
monoxide.
  16




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The styrene industry has experienced several years of depressed conditions and some of our current
or potential styrene customers may be in troubled financial condition.
  Our styrene technology is widely available and could become obsolete.
  We sell a significant portion of styrene to international customers. Reliance on overseas markets
subjects us to significant risks inherent in operating internationally.
  
    
    political and economic instability and disruptions;
    
    the inability to collect amounts owed;
    
    the inability to secure adequate shipping space for our products at acceptable prices,
which could adversely affect our competitiveness relative to producers located in close
proximity to our foreign customers;
    
    terrorism, civil uprisings, riots and war, which can make it unsafe to continue operations;
    
    the imposition of duties and tariffs, import and export controls;
    
    decrees, laws, regulations, interpretations and court decisions under legal systems,
such as in the Peoples Republic of China, which are not always fully developed and which
may be retroactively applied and cause us to incur unanticipated or unrecoverable costs, as
well as delays which may result in real or opportunity costs; and
    
    transportation delays and interruptions.
   17




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We depend upon the continued operation of a single site for all of our production.
  Our operations involve risks that may increase our operating costs, which could reduce our
profitability.
  
    
    pipeline or storage tank leaks and ruptures, explosions and fires;
    
    severe weather and natural disasters;
    
    mechanical failures, unscheduled downtimes, labor difficulties and transportation interruptions;
    
    environmental remediation complications and
    
    chemical spills and discharges or releases of toxic or hazardous substances or gases.
  Our operations are subject to operating hazards and unforeseen interruptions for which we may not
be adequately insured.
   Terrorist attacks, the current military action in Iraq, general instability in various OPEC member
nations and other attacks or acts of war in the United States and abroad may adversely affect the
markets in which we operate.
  18




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New regulations concerning the transportation of hazardous chemicals and the security of chemical
manufacturing facilities could result in higher operating costs.
  We are subject to many environmental and safety regulations that may result in significant
unanticipated costs or liabilities or cause interruptions in our operations.
   Approximately 37% of our employees are covered by a collective bargaining agreement that expires on
May 1, 2007. Disputes with the union representing these employees or our inability to conclude a
favorable renewal of the collective bargaining agreement may negatively affect our business.
  19




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A failure to retain our key employees could adversely affect our business.
  Transactions consummated pursuant to our plan of reorganization could result in the imposition of
material tax liabilities.
  We may not successfully implement our acquisition strategy, and acquisitions that we pursue may
present unforeseen integration obstacles or costs, increase our leverage or negatively impact our
performance.
  
    
    potential disruption of our ongoing business and distraction of management;
    
    unexpected loss of key employees or customers of an acquired business;
    
    conforming an acquired business standards, processes, procedures or controls with our operations;
    
    coordinating new product and process development;
    
    hiring additional management or other critical personnel;
    
    encountering unknown contingent liabilities which could be material; and
    
    increasing the scope, geographic diversity and complexity of our operations.
  20




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Risks Relating to the Ownership of our Common Stock
 Our common stock is thinly traded. There is no active trading market for our common stock and an
active trading market may not develop.
  We have a significant stockholder which has the ability to control our actions.
  Our preferred stock pays a quarterly stock dividend that is dilutive to the holders of our common
stock.
  The existence of our preferred stock and limited liquidity of our common stock may limit our
ability to utilize our equity to pursue strategic initiatives that may otherwise exist.
  
 Item 2. Properties
  21




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Item 3. Legal Proceedings
     22




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Item 4. Submission of Matters to a Vote of Security Holders
  23




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PART II
 
 Item 5. Market for Registrants Common Equity and Related Stockholder Matters
  First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    Quarter2006 High
    
    $
    11.50
    
    
    $
    15.00
    
    
    $
    14.90
    
    
    $
    15.00Low
    
    $
    10.00
    
    
    $
    10.25
    
    
    $
    13.10
    
    
    $
    12.482005 High
    
    $
    46.50
    
    
    $
    41.00
    
    
    $
    37.00
    
    
    $
    25.50Low
    
    $
    35.05
    
    
    $
    26.00
    
    
    $
    22.00
    
    
    $
    11.77
  Dividend Policy
  Equity Compensation Plan
  24




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Number of securitiesremaining available forNumber of securities to
    
    Weighted-average
    
    future issuance underbe issued upon exercise
    
    exercise price of
    
    equity compensation plansof outstanding options,
    
    outstanding options,
    
    (excluding securitiesPlan Category
    
    warrants and rights
    
    warrants and rights
    
    reflected in first columnEquity
compensation plans
approved by
security
holders(1)
    
    
    278,500
    
    
    $
    31.60
    
    
    
    85,414Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    278,500
    
    
    $
    31.60
    
    
    
    85,414
 
 (1)
    
    Our 2002 Stock Plan was authorized and established under our Plan of Reorganization,
which became effective on December 19, 2002. Our Plan of Reorganization provided that,
without any further act or authorization, confirmation of our Plan of Reorganization and entry
of the confirmation order was deemed to satisfy all applicable federal and state law
requirements and all listing standards of any securities exchange for approval by the board of
directors or the stockholders of our 2002 Stock Plan. No additional stockholder approval of
our 2002 Stock Plan has been obtained. Performance Graph
  COMPARISON
OF 4 YEAR CUMULATIVE TOTAL RETURN*
 
 
 *
    
    $100 invested on 1/3/03 in stock or on 12/31/02 in
index-including reinvestment of dividends.
Fiscal year ending December 31.Copyright © 2007, Standard & Poors, a division of The McGraw-Hill Companies, Inc. All rights reserved. www.researchdatagroup.com/S&P.htm 25




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Item 6. Selected Financial Data
    Reorganized Sterling
    
    
    Predecessor SterlingYear ended
    
    Year ended
    
    Year ended
    
    Year ended
    
    December 20 to
    
    
    October 1 to
    
    Fiscal Year EndedDecember 31,
    
    December 31,
    
    December 31,
    
    December 31,
    
    December 31,
    
    
    December 19,
    
    September 30,2006
    
    2005
    
    2004
    
    2003
    
    2002
    
    
    2002
    
    2002(In Thousands, Except Per Share Data)Operating Data:Revenues
    
    $
    667,544
    
    
    $
    641,886
    
    
    $
    655,353
    
    
    $
    518,772
    
    
    $
    12,211
    
    
    
    $
    98,575
    
    
    $
    375,095Gross profit (loss)
    
    
    12,826
    
    
    
    (11,248
    )
    
    
    22,344
    
    
    
    23,790
    
    
    
    1,494
    
    
    
    
    6,471
    
    
    
    47,530Income (loss) from continuing
operations(1)
    
    
    (104,622
    )
    
    
    (18,508
    )
    
    
    (39,881
    )
    
    
    1,270
    
    
    
    (553
    )
    
    
    
    230,145
    
    
    
    (32,685
    )Income (loss) from discontinued
operations(2)
    
    
    (997
    )
    
    
    (11,060
    )
    
    
    (22,763
    )
    
    
    (15,469
    )
    
    
    (991
    )
    
    
    
    188,466
    
    
    
    (3,301
    )Per Share Data:Net loss attributable to common
stockholders
    
    $
    (40.26
    )
    
    $
    (12.94
    )
    
    $
    (24.30
    )
    
    $
    (6.84
    )
    
    $
    (0.61
    )
    
    
    $
    
    
    
    $
    Net loss from continuing
operations attributable to
common stockholders
    
    
    (39.91
    )
    
    
    (9.03
    )
    
    
    (16.24
    )
    
    
    (1.36
    )
    
    
    (0.26
    )
    
    
    
    
    
    
    
    Cash dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 26




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Reorganized Sterling
    
    
    Predecessor SterlingYear ended
    
    Year ended
    
    Year ended
    
    Year ended
    
    December 20 to
    
    
    October 1 to
    
    Fiscal Year EndedDecember 31,
    
    December 31,
    
    December 31,
    
    December 31,
    
    December 31,
    
    
    December 19,
    
    September 30,2006
    
    2005
    
    2004
    
    2003
    
    2002
    
    
    2002
    
    2002(Dollars in Thousands)Balance Sheet Data:Working capital(3)(6)
    
    $
    90,124
    
    
    $
    76,605
    
    
    $
    106,767
    
    
    $
    137,412
    
    
    $
    149,518
    
    
    
    $
    163,638
    
    
    $
    154,988Total assets
    
    
    245,823
    
    
    
    386,594
    
    
    
    473,553
    
    
    
    550,503
    
    
    
    547,170
    
    
    
    
    546,014
    
    
    
    489,648Long-term debt (excluding
current portion of long-term
debt)(4)(6)
    
    
    100,579
    
    
    
    100,579
    
    
    
    100,579
    
    
    
    100,579
    
    
    
    94,275
    
    
    
    
    94,275
    
    
    
    Stockholders equity
(deficiency in assets)(5)
    
    
    (22,766
    )
    
    
    80,285
    
    
    
    120,083
    
    
    
    189,436
    
    
    
    209,011
    
    
    
    
    210,725
    
    
    
    (611,477
    )
 
 (1)
    
    During 2006, we recorded a $127.7 million impairment charge to our styrene assets.
There was a deferred tax benefit of $45 million in connection with this impairment, which was
offset by deferred tax expense of $28 million in connection with the recording of a valuation
allowance against our deferred tax assets. During 2004, we recorded a $48.5 million goodwill
impairment charge. Also during 2004, we recorded a pension curtailment gain of $13 million.
The period from October 1, 2002 through December 19, 2002 includes a net loss on fresh-start
adjustments of $203 million, along with a net gain on debt restructuring of $458 million.
Duringfiscal year ended September 30, 2002, we recorded $56.8 million of deferred
tax expense to reflect a full valuation allowance on our U.S. deferred tax assets.(2)
    
    During 2005, we announced that we were exiting the acrylonitrile business and
related derivatives operations. During 2004, we recorded a $22 million pre-tax impairment
charge related to our acrylonitrile long-lived assets. On December 19, 2002, pursuant to our
plan of reorganization, we sold our pulp chemicals business to Superior Propane,
Inc. for approximately $373 million and our acrylic fibers business to local
management of that business for nominal consideration. The operating results of these
businesses have been reported as discontinued operations in the consolidated statement of
operations and cash flows, and the assets and liabilities of these businesses have been
presented separately as assets and liabilities related to discontinued operations in our
consolidated balance sheet.(3)
    
    Working capital as of December 31, 2006, 2005, 2004, 2003, 2002 and September 30,
2002 includes net assets (liabilities) of discontinued operations of $(0.2) million, $(2)
million, $55 million, $57 million, $27 million and $164 million, respectively. Working
capital as of September 30, 2002 excludes pre-petition liabilities.(4)
    
    The balance as of September 30, 2002 excludes long-term debt of $418.4 million and
$295.0 million, classified as pre-petition liabilities  subject to compromise and
pre-petition liabilities  not subject to compromise, respectively.(5)
    
    The balance as of December 31, 2006 includes an increase in Stockholders equity of
$6.7 million (net of tax) due to the adoption of Statement of Financial Accounting Standards
No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans
(SFAS No. 158).(6)
    
    As of December 31, 2006, we reclassified $101 million of debt due in December
2007 to long-term based on our ability and intent to refinance the debt on a long-term basis. 27




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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Overview
 Business
       Percent ofTotal NorthRated Annual
    
    American
    
    North American
    
    GlobalProduct
    
    Production Capacity
    
    Capacity
    
    Market Position
    
    Production CapacityAcetic Acid
    
    1.1 billion pounds
    
    17%
    
    3
    
    24 billion poundsStyrene
    
    1.7 billion pounds
    
    11%
    
    4
    
    63 billion pounds
 28




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Acetic Acid.
     Styrene.
 29




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vice versa. vice versa,
   30




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Plasticizers.
  Discontinued Operations
  31




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Results of Operations
  Year ended December 31,2006
    
    2005
    
    2004(Dollars in Thousands)Revenues
    
    $
    667,544
    
    
    $
    641,886
    
    
    $
    655,353Gross profit (loss)
    
    
    12,826
    
    
    
    (11,248
    )
    
    
    22,344Loss from continuing
operations
    
    
    (104,662
    )
    
    
    (18,508
    )
    
    
    (39,881
    )
 Comparison of 2006 to 2005
 Revenues and Loss from continuing operations
    Selling, general & administrative expenses
  32




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Other expense (income)
  Provision (benefit) for income taxes
  Loss from discontinued operations, net of tax
  Comparison of 2005 to 2004
 Revenues and Loss from continuing operations
    33




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Selling, general & administrative expenses
  Organizational efficiency project
  Provision (benefit) for income taxes
  Loss from discontinued operations, net of tax
  Liquidity and Capital Resources
     34




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Working Capital
  Cash Flow
    Capital Expenditures
   Contractual Cash Obligations
  Less than 1
    
    
    
    
    
    
    
    
    
    More thanyear(1)
    
    1-3 years
    
    4-5 years
    
    5 years
    
    Total(Dollars in Thousands)Secured Notes
    
    $
    100,579
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    100,579Interest payments on debt
    
    
    10,170
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,170Operating leases
    
    
    293
    
    
    
    879
    
    
    
    586
    
    
    
    220
    
    
    
    1,978Purchase obligations (2)
    
    
    72,000
    
    
    
    117,000
    
    
    
    65,000
    
    
    
    120,000
    
    
    
    374,000Pension and other postretirement
benefits
    
    
    9,675
    
    
    
    16,717
    
    
    
    7,230
    
    
    
    31,113
    
    
    
    64,735Contractual obligations of
discontinued operations
    
    
    217
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    217Total
    
    $
    192,934
    
    
    $
    134,596
    
    
    $
    72,816
    
    
    $
    151,333
    
    
    $
    551,679
 
 (1)
    
    Payment obligations under our revolving credit facility are not presented
because there were no outstanding borrowings as of December 31, 2006, and interest payments
fluctuate depending on the interest rate and outstanding balance under our revolving credit
facility at any point in time. As discussed above, we have started the process of refinancing
the indebtedness under our Secured Notes and our revolving credit facility prior to their
stated maturities.(2)
    
    For the purposes of this table, we have considered contractual obligations
for the purchase of goods or services as agreements involving more than $1 million that are
enforceable and legally binding and that specify all significant terms, including: fixed or
minimum quantities to be purchased, fixed, minimum or variable price provisions and the 36




---



##### Table of Contents



approximate timing of the transaction. Most of the purchase obligations identified include
variable pricing provisions. We have estimated the future prices of these items, utilizing
forward curves where available. The pricing estimated for use in this table is subject to market
risk. Critical Accounting Policies, Use of Estimates and Assumptions
  Revenue Recognition
  Inventories
  Long-Lived Assets
  Income Taxes
  37




---



##### Table of Contents



Employee Benefit Plans
  Plant Turnaround Costs
  New Accounting Standards
  
 Item 7A. Quantitative and Qualitative Disclosures about Market Risk
  Fair ValueDecember 31,Expected Maturity Dates
    
    2007
    
    2008
    
    2009
    
    2010
    
    2011
    
    Thereafter
    
    Total
    
    2006(Dollars in Thousands)Secured Notes
    
    $
    100,579
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    100,579
    
    
    $
    96,125
  38




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##### Table of Contents



Item 8. Financial Statements and Supplementary Data
 INDEX TO FINANCIAL STATEMENTS
 Sterling Chemicals, Inc.Consolidated Statements of Operations for the years ended December 31, 2006, 2005 and 2004
    
    
    40Consolidated Balance Sheets as of December 31, 2006 and 2005
    
    
    41Consolidated Statements of Changes in Stockholders Equity (Deficiency in Assets) for the
years ended December 31, 2006, 2005 and 2004
    
    
    42Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2005 and 2004
    
    
    43Notes to Consolidated Financial Statements
    
    
    44Report of Independent Registered Public Accounting Firm
    
    
    65
 39




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##### Table of Contents



STERLING CHEMICALS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Year ended December 31,2006
    
    2005
    
    2004(Dollars in Thousands, Except Share Data)Revenues
    
    $
    667,544
    
    
    $
    641,886
    
    
    $
    655,353Cost of goods sold
    
    
    654,718
    
    
    
    653,134
    
    
    
    633,009Gross profit (loss)
    
    
    12,826
    
    
    
    (11,248
    )
    
    
    22,344Selling, general and administrative expenses
    
    
    9,968
    
    
    
    7,811
    
    
    
    11,413Impairment of long-lived assets
    
    
    127,653
    
    
    
    
    
    
    
    48,463Gain on pension curtailment
    
    
    
    
    
    
    
    
    
    
    (12,944
    )Gain on sale of methanol plant
    
    
    
    
    
    
    
    
    
    
    (2,396
    )Other expense (income)
    
    
    (15,724
    )
    
    
    
    
    
    
    Interest and debt related expenses, net of
interest income
    
    
    10,079
    
    
    
    10,090
    
    
    
    10,427Loss from continuing operations before
income tax
    
    
    (119,150
    )
    
    
    (29,149
    )
    
    
    (32,619
    )Provision (benefit) for income taxes
    
    
    (14,488
    )
    
    
    (10,641
    )
    
    
    7,262Loss from continuing operations
    
    
    (104,662
    )
    
    
    (18,508
    )
    
    
    (39,881
    )Loss from discontinued operations, net of tax
    
    
    (997
    )
    
    
    (11,060
    )
    
    
    (22,763
    )Net loss
    
    
    (105,659
    )
    
    
    (29,568
    )
    
    
    (62,644
    )Preferred stock dividends
    
    
    8,205
    
    
    
    7,014
    
    
    
    5,994Net loss attributable to common stockholders
    
    $
    (113,864
    )
    
    $
    (36,582
    )
    
    $
    (68,638
    )Loss per share of common stock, basic and
diluted:Loss from continuing operations
    
    $
    (39.91
    )
    
    $
    (9.03
    )
    
    $
    (16.24
    )Loss from discontinued operations
    
    
    (0.35
    )
    
    
    (3.91
    )
    
    
    (8.06
    )Net loss per share, basic and diluted
    
    $
    (40.26
    )
    
    $
    (12.94
    )
    
    $
    (24.30
    )Weighted average shares outstanding:Basic and diluted
    
    
    2,828,460
    
    
    
    2,827,795
    
    
    
    2,825,000
  40




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##### Table of Contents



STERLING CHEMICALS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 December 31,2006
    
    
    2005(Dollars in Thousands)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    20,690
    
    
    $
    42,197Accounts receivable, net of allowance of $1,987 and $953, respectively
    
    
    63,289
    
    
    
    57,261Inventories, net
    
    
    62,078
    
    
    
    39,094Prepaid expenses and other current assets
    
    
    3,215
    
    
    
    4,888Deferred tax asset
    
    
    3,044
    
    
    
    2,802Assets of discontinued operations
    
    
    20
    
    
    
    1,791Total current assets
    
    
    152,336
    
    
    
    148,033Property, plant and equipment, net
    
    
    83,833
    
    
    
    230,018Other assets, net
    
    
    9,654
    
    
    
    8,543Total assets
    
    $
    245,823
    
    
    $
    386,594LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIENCY IN ASSETS)Current liabilities:Accounts payable
    
    $
    39,123
    
    
    $
    43,912Accrued liabilities
    
    
    22,872
    
    
    
    23,690Current portion of long-term debt
    
    
    
    
    
    
    Liabilities of discontinued operations
    
    
    217
    
    
    
    3,826Total current liabilities
    
    
    62,212
    
    
    
    71,428Long-term debt
    
    
    100,579
    
    
    
    100,579Deferred income tax liability
    
    
    
    
    
    
    8,196Deferred credits and other liabilities
    
    
    49,291
    
    
    
    77,804Redeemable preferred stock
    
    
    56,507
    
    
    
    48,302Commitments and contingencies (Note 9)Stockholders equity:Common stock, $.01 par value
    
    
    28
    
    
    
    28Additional paid-in capital
    
    
    184,500
    
    
    
    192,551Accumulated deficit
    
    
    (213,614
    )
    
    
    (107,955
    )Accumulated other comprehensive income (loss)
    
    
    6,320
    
    
    
    (4,339
    )Total stockholders equity (deficiency in assets)
    
    
    (22,766
    )
    
    
    80,285Total liabilities and stockholders equity (deficiency in assets)
    
    $
    245,823
    
    
    $
    386,594
  41




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##### Table of Contents



STERLING CHEMICALS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF
 CHANGES IN STOCKHOLDERS EQUITY (DEFICIENCY IN ASSETS)
 AccumulatedAdditional
    
    
    
    
    
    
    OtherCommon Stock
    
    
    Paid-In
    
    
    Accumulated
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Income (Loss)
    
    
    Total(Amounts in Thousands)Balance, December 31, 2003
    
    
    2,825
    
    
    $
    28
    
    
    $
    205,402
    
    
    $
    (15,743
    )
    
    $
    (251
    )
    
    $
    189,436Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (62,644
    )
    
    
    Other comprehensive loss:Pension adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (715
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (63,359
    )Preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    (5,994
    )
    
    
    
    
    
    
    
    
    
    
    (5,994
    )Balance, December 31, 2004
    
    
    2,825
    
    
    $
    28
    
    
    $
    199,408
    
    
    $
    (78,387
    )
    
    $
    (966
    )
    
    $
    120,083Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (29,568
    )
    
    
    Other comprehensive loss:Pension adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,373
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (32,941
    )Preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    (7,014
    )
    
    
    
    
    
    
    
    
    
    
    (7,014
    )Exercised stock options
    
    
    3
    
    
    
    
    
    
    
    157
    
    
    
    
    
    
    
    
    
    
    
    157Balance, December 31, 2005
    
    
    2,828
    
    
    $
    28
    
    
    $
    192,551
    
    
    $
    (107,955
    )
    
    $
    (4,339
    )
    
    $
    80,285Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (105,659
    )
    
    
    Other comprehensive loss:Pension adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,903Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (101,756
    )SFAS 158 adoption
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,756
    
    
    
    6,756Preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    (8,205
    )
    
    
    
    
    
    
    
    
    
    
    (8,205
    )Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    154
    
    
    
    
    
    
    
    
    
    
    
    154Balance, December 31, 2006
    
    
    2,828
    
    
    $
    28
    
    
    $
    184,500
    
    
    $
    (213,614
    )
    
    $
    6,320
    
    
    $
    (22,766
    )
  42




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##### Table of Contents



STERLING CHEMICALS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Year ended December 31,2006
    
    2005
    
    2004(Dollars in Thousands)Cash flows from operating activities:Net loss
    
    $
    (105,659
    )
    
    $
    (29,568
    )
    
    $
    (62,644
    )Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:Depreciation and amortization
    
    
    30,476
    
    
    
    33,342
    
    
    
    28,693Interest amortization
    
    
    400
    
    
    
    400
    
    
    
    398Impairment of long-lived assets
    
    
    127,653
    
    
    
    
    
    
    
    70,498Gain on pension curtailment
    
    
    
    
    
    
    
    
    
    
    (12,944
    )Lower-of-cost-or-market adjustment
    
    
    
    
    
    
    2,738
    
    
    
    16,407Deferred tax benefit
    
    
    (8,438
    )
    
    
    (18,905
    )
    
    
    (16,529
    )Gain on disposal of property, plant
and equipment
    
    
    (4,917
    )
    
    
    
    
    
    
    (2,396
    )Other
    
    
    154
    
    
    
    156
    
    
    
    1Change in assets/liabilities:Accounts receivable
    
    
    (5,085
    )
    
    
    54,850
    
    
    
    (25,509
    )Inventories
    
    
    (22,608
    )
    
    
    45,772
    
    
    
    (42,804
    )Prepaid expenses
    
    
    1,673
    
    
    
    (690
    )
    
    
    2,232Other assets
    
    
    (2,105
    )
    
    
    (1,003
    )
    
    
    (3,650
    )Accounts payable
    
    
    (4,140
    )
    
    
    (23,348
    )
    
    
    2,427Accrued liabilities
    
    
    (3,758
    )
    
    
    4,396
    
    
    
    (1,879
    )Other liabilities
    
    
    (17,854
    )
    
    
    (33
    )
    
    
    286Net cash provided by (used in) operating
activities
    
    
    (14,208
    )
    
    
    68,107
    
    
    
    (47,413
    )Cash flows from investing activities:Capital expenditures
    
    
    (11,547
    )
    
    
    (9,460
    )
    
    
    (14,771
    )Insurance proceeds relating to
property, plant and equipment
    
    
    1,960
    
    
    
    
    
    
    
    Cash used for dismantling
    
    
    (669
    )
    
    
    (667
    )
    
    
    Net proceeds from the sale of fixed
assets assets
    
    
    2,957
    
    
    
    
    
    
    
    4,017Net cash used in investing activities
    
    
    (7,299
    )
    
    
    (10,127
    )
    
    
    (10,754
    )Net cash provided by (used in) financing
activities  net borrowings (repayments)
under the revolving credit facility
    
    
    
    
    
    
    (17,684
    )
    
    
    17,684Net increase (decrease) in cash
    
    
    (21,507
    )
    
    
    40,296
    
    
    
    (40,483
    )Cash and cash equivalents beginning of
period
    
    
    42,197
    
    
    
    1,901
    
    
    
    42,384Cash and cash equivalents end of year
    
    $
    20,690
    
    
    $
    42,197
    
    
    $
    1,901Supplement disclosures of cash flow
information:Interest paid, net of interest income
received
    
    $
    10,508
    
    
    $
    10,726
    
    
    $
    10,957Cash paid for income taxes
    
    
    60
    
    
    
    59
    
    
    
    50
  43




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##### Table of Contents



STERLING CHEMICALS, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  Principles of Consolidation
  Cash and Cash Equivalents
  Allowance for Doubtful Accounts
  Inventories
  Property, Plant and Equipment
  Plant Turnaround Costs
  44




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##### Table of Contents



STERLING CHEMICALS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
  Long-Lived Assets
  Debt Issue Costs
  Income Taxes
  Environmental Costs
  Revenue Recognition
  Earnings (Loss) Per Share
  45




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##### Table of Contents



STERLING CHEMICALS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 Disclosures about Fair Value of Financial Instruments
  Accounting Estimates
  2. STOCK-BASED COMPENSATION PLAN
  ,
   46




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##### Table of Contents



STERLING CHEMICALS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
  December 31, 2006
    
    
    December 31, 2005
    
    
    December 31, 2004Weighted-
    
    
    
    
    
    
    Weighted-
    
    
    
    
    
    
    Weighted-average
    
    
    
    
    
    
    average
    
    
    
    
    
    
    averageShares
    
    
    exercise price
    
    
    Shares
    
    
    exercise price
    
    
    Shares
    
    
    exercise priceOutstanding at
beginning of year
    
    
    278,500
    
    
    $
    31.60
    
    
    
    294,334
    
    
    $
    31.60
    
    
    
    326,000
    
    
    $
    31.60Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,500
    
    
    
    31.60Exercised
    
    
    
    
    
    
    
    
    
    
    (15,834
    )
    
    
    31.60
    
    
    
    (59,166
    )
    
    
    31.60Outstanding at end
of year
    
    
    278,500
    
    
    $
    31.60
    
    
    
    278,500
    
    
    $
    31.60
    
    
    
    294,334
    
    
    $
    31.60Options exercisable
at end of year
    
    
    269,333
    
    
    
    
    
    
    
    176,500
    
    
    
    
    
    
    
    99,500
  2004Expected life (years)
    
    
    10.0Expected volatility
    
    
    42.0
    %Expected dividend yield
    
    
    Risk-free interest rate
    
    
    3.85
    %Weighted-average fair value of options granted during the year
    
    $
    12.95
  For the Year Ended December 31,2005
    
    
    2004(Dollars in Thousands, Except Share Data)Net loss attributable to common stockholders, as reported
    
    $
    (36,582
    )
    
    $
    (68,638
    )Add: Stock-based employee compensation expense included in
reported net loss, net of related tax effects
    
    
    157
    
    
    
    Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax effects
    
    
    (606
    )
    
    
    (1,147
    )Pro forma net loss
    
    $
    (37,031
    )
    
    $
    (69,785
    )Loss per share attributable to common stockholders:As reported
    
    $
    (12.94
    )
    
    $
    (24.30
    )Pro forma
    
    
    (13.10
    )
    
    
    (24.70
    )
 3. DISCONTINUED OPERATIONS
  47




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STERLING CHEMICALS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
    Year ended December 31,2006
    
    
    2005(Dollars in Thousands)Assets of discontinued operations:Accounts receivable, net
    
    $
    20
    
    
    $
    963Inventories
    
    
    
    
    
    
    376Other assets
    
    
    
    
    
    
    452Total
    
    $
    20
    
    
    $
    1,791Liabilities of discontinued operations:Accrued liabilities
    
    $
    217
    
    
    $
    3,826
  Year ended December 31,2006
    
    2005
    
    2004(Dollars in Thousands)Revenues
    
    $
    258
    
    
    $
    43,374
    
    
    $
    196,309Loss before income taxes
    
    
    1,135
    
    
    
    17,420
    
    
    
    42,025
  Accrued as of
    
    
    
    
    
    
    
    
    
    Accrued as ofDecember 31,
    
    
    
    
    
    Cash
    
    December 31,Accrued in 2005
    
    Cash Payments
    
    2005
    
    Accrued in 2006
    
    payments
    
    2006Severance accrual
    
    $
    568
    
    
    $
    (91
    )
    
    $
    477
    
    
    $
    386
    
    
    $
    (646
    )
    
    $
    217DSIDA contractual
obligation
    
    
    2,853
    
    
    
    
    
    
    
    2,853
    
    
    
    147
    
    
    
    (3,000
    )
    
    
    DSIDA dismantling costs
    
    
    496
    
    
    
    
    
    
    
    496
    
    
    
    62
    
    
    
    (558
    )
    
    
    Totals
    
    $
    3,917
    
    
    $
    (91
    )
    
    $
    3,826
    
    
    $
    595
    
    
    $
    (4,204
    )
    
    $
    217
  
    
    a prior force majeure dispute among the parties was settled;
    
    most of the acrylonitrile-related agreements between the parties were terminated as of
May 31, 2005, including the Amended and Restated Production Agreement dated March 31, 1998,
the Joint Venture Agreement dated March 31, 1998, the Acrylonitrile Expanded Relationship
and Master Modification Agreement dated June 19, 2003 and the European Distribution
Agreement dated March 31, 1998;
    
    we assigned our interest in ANEXCO, LLC to Innovene Chemicals; and
    
    we and Innovene Chemicals entered into amended and restated versions of our acrylonitrile License
Agreement and Catalyst Sales Contract.
 48




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##### Table of Contents



STERLING CHEMICALS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
  4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
 December 31,2006
    
    
    2005(Dollars in Thousands)Inventories:Finished products
    
    $
    38,485
    
    
    $
    30,162Raw materials
    
    
    17,841
    
    
    
    7,974Inventories at lower-of-cost-or-market
    
    
    56,326
    
    
    
    38,136Inventories under exchange agreements
    
    
    1,818
    
    
    
    (2,807
    )Stores and supplies (net of
obsolescence reserve of $2,149 and
$2,573, respectively)
    
    
    3,934
    
    
    
    3,765$
    62,078
    
    
    $
    39,094Property, plant and equipment, net:Land
    
    $
    7,149
    
    
    $
    7,149Buildings
    
    
    4,506
    
    
    
    4,497Plant and equipment
    
    
    306,352
    
    
    
    286,049Construction in progress
    
    
    1,761
    
    
    
    12,993Less: accumulated depreciation
    
    
    (235,935
    )
    
    
    (80,670
    )$
    83,833
    
    
    $
    230,018Other assets, net:S&L Cogen joint venture
    
    $
    4,733
    
    
    $
    3,567Deferred catalyst
    
    
    1,959
    
    
    
    2,156Long-term deferred tax asset
    
    
    641
    
    
    
    Other
    
    
    2,321
    
    
    
    2,820$
    9,654
    
    
    $
    8,543Accrued liabilities:Employee compensation and benefits
    
    $
    13,434
    
    
    $
    12,164Property taxes
    
    
    4,301
    
    
    
    5,236Other
    
    
    5,137
    
    
    
    6,290$
    22,872
    
    
    $
    23,690Deferred credits and other liabilities:Accrued postretirement, pension and post employment benefits
    
    $
    35,596
    
    
    $
    62,885Deferred revenue
    
    
    8,000
    
    
    
    9,000Other
    
    
    5,695
    
    
    
    5,919$
    49,291
    
    
    $
    77,804
 5. VALUATION AND QUALIFYING ACCOUNTS
  49




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STERLING CHEMICALS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 December 31,2006
    
    
    2005
    
    
    2004Allowance for doubtful accounts:Balance at beginning of year
    
    $
    953
    
    
    $
    3,092
    
    
    $
    2,592Add: bad debt expense/(credit)
    
    
    1,049
    
    
    
    (2,133
    )
    
    
    500Deduct: written-off accounts
    
    
    (15
    )
    
    
    (6
    )
    
    
    Balance at end of year
    
    $
    1,987
    
    
    $
    953
    
    
    $
    3,092Reserve for inventory obsolescence:Balance at beginning of year
    
    $
    2,573
    
    
    $
    1,938
    
    
    $
    1,370Add: obsolescence accrual
    
    
    81
    
    
    
    1,492
    
    
    
    969Deduct: disposal of inventory
    
    
    (505
    )
    
    
    (857
    )
    
    
    (401
    )Balance at end of year
    
    $
    2,149
    
    
    $
    2,573
    
    
    $
    1,938
 6. DEBT
      50




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STERLING CHEMICALS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
      Debt Maturities
  51




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STERLING CHEMICALS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 7. INCOME TAXES
  Year Ended December 31,2006
    
    
    2005
    
    
    2004(Dollars in Thousands)Benefit for income taxes at statutory rates
    
    $
    (42,100
    )
    
    $
    (16,299
    )
    
    $
    (26,125
    )Non-deductible expenses
    
    
    19
    
    
    
    19
    
    
    
    26Non-deductible goodwill impairment
    
    
    
    
    
    
    
    
    
    
    16,962State income taxes
    
    
    (1,262
    )
    
    
    (956
    )
    
    
    (1,933
    )Change in valuation allowance
    
    
    27,621
    
    
    
    
    
    
    
    Other
    
    
    1,096
    
    
    
    235
    
    
    
    (930
    )Effective tax benefit
    
    $
    (14,626
    )
    
    $
    (17,001
    )
    
    $
    (12,000
    )
  Year Ended December 31,2006
    
    
    2005
    
    
    2004(Dollars in Thousands)Tax expense  continuing operations
    
    $
    (14,488
    )
    
    $
    (10,641
    )
    
    $
    7,262Tax expense  discontinued operations
    
    
    (138
    )
    
    
    (6,360
    )
    
    
    (19,262
    )Total tax benefit
    
    $
    (14,626
    )
    
    $
    (17,001
    )
    
    $
    (12,000
    )
  Year Ended December 31,2006
    
    
    2005
    
    
    2004(Dollars in Thousands)Current federal
    
    $
    299
    
    
    $
    
    
    
    $
    Deferred federal
    
    
    (13,685
    )
    
    
    (16,066
    )
    
    
    (10,105
    )State income taxes
    
    
    (1,240
    )
    
    
    (935
    )
    
    
    (1,895
    )Total tax benefit
    
    $
    (14,626
    )
    
    $
    (17,001
    )
    
    $
    (12,000
    )
  December 31,2006
    
    
    2005(Dollars in Thousands)Deferred tax assets:Accrued liabilities
    
    $
    1,292
    
    
    $
    787Accrued postretirement cost
    
    
    7,518
    
    
    
    12,552Accrued pension cost
    
    
    4,537
    
    
    
    10,770Tax loss and credit carry forwards
    
    
    32,506
    
    
    
    46,734State deferred taxes
    
    
    77
    
    
    
    Other
    
    
    3,797
    
    
    
    2,385Total deferred tax assets
    
    $
    49,727
    
    
    $
    73,228Deferred tax liabilities:Property, plant and equipment
    
    $
    (16,458
    )
    
    $
    (66,571
    )State deferred taxes
    
    
    
    
    
    
    (3,219
    )Subtotal
    
    
    (16,458
    )
    
    
    (69,790
    )Less: valuation allowance
    
    
    (29,584
    )
    
    
    (8,832
    )Total deferred tax liabilities
    
    
    (46,042
    )
    
    
    (78,622
    )Net deferred tax assets (liabilities)
    
    $
    3,685
    
    
    $
    (5,394
    )
 52




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STERLING CHEMICALS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
  8. EMPLOYEE BENEFITS
  Retirement Benefit Plans
   As of December 31,2006
    
    
    2005Equities
    
    
    64
    %
    
    
    57
    %Bonds
    
    
    23
    %
    
    
    38
    %Other
    
    
    13
    %
    
    
    5
    %Total
    
    
    100
    %
    
    
    100
    %
  53




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STERLING CHEMICALS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 December 31,2006
    
    
    2005(Dollars in Thousands)Change in projected benefit obligation:Benefit obligation at beginning of year
    
    $
    125,694
    
    
    $
    119,682Service cost
    
    
    593
    
    
    
    622Interest cost
    
    
    7,610
    
    
    
    6,993Actuarial loss
    
    
    820
    
    
    
    6,259Benefits paid
    
    
    (8,582
    )
    
    
    (7,862
    )Benefit obligation at end of year
    
    $
    126,135
    
    
    $
    125,694
 December 31,2006
    
    
    2005(Dollars in Thousands)Change in plan assets:Fair value at beginning of year
    
    $
    95,690
    
    
    $
    89,250Actual return on plan assets
    
    
    14,684
    
    
    
    7,643Employer contributions
    
    
    7,862
    
    
    
    6,659Benefits paid
    
    
    (8,582
    )
    
    
    (7,862
    )Fair value at end of year
    
    $
    109,654
    
    
    $
    95,690Reconciliation of amounts recognized:Funded status
    
    $
    (16,481
    )
    
    $
    (30,004
    )Unrecognized actuarial loss
    
    
    
    
    
    
    6,874Net amount recognized
    
    $
    (16,481
    )
    
    $
    (23,130
    )
 December 31,2006
    
    
    2005Amounts recognized in the balance sheet consist of:Current liabilities
    
    $
    (8,270
    )
    
    $
    (7,602
    )Non-current liabilities
    
    
    (8,211
    )
    
    
    (22,357
    )Accumulated other comprehensive income
    
    
    
    
    
    
    6,829Net amount recognized in financial position
    
    $
    (16,481
    )
    
    $
    (23,130
    )
 December 31,2006Amount recognized in accumulated other comprehensive
loss consists of (pre-tax):Net loss
    
    $
    (764
    )Prior service costs
    
    
    Net amount recognized in accumulated other comprehensive
loss
    
    $
    (764
    )
   54




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STERLING CHEMICALS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
  Year ended December 31,2006
    
    2005
    
    2004(Dollars In Thousands)Components of net pension costs:Service cost-benefits earned during the year
    
    $
    593
    
    
    $
    622
    
    
    $
    3,466Interest on
prior years projected benefit obligation
    
    
    7,610
    
    
    
    6,993
    
    
    
    7,561Expected return on plan assets
    
    
    (7,767
    )
    
    
    (6,641
    )
    
    
    (5,934
    )Net amortization of actuarial loss (gain)
    
    
    13
    
    
    
    8
    
    
    
    Settlement/curtailment
    
    
    
    
    
    
    
    
    
    
    (12,944
    )Net pension costs
    
    $
    449
    
    
    $
    982
    
    
    $
    (7,851
    )Weighted-average assumptions:Discount Rate
    
    
    5.75
    %
    
    
    5.75
    %
    
    
    6.25
    %Rates of increase in salary compensation level
    
    
    3.50
    %
    
    
    5.00
    %
    
    
    5.00
    %Expected long-term rate of return on plan assets
    
    
    7.50
    %
    
    
    7.50
    %
    
    
    7.50
    %
 Postretirement Benefits Other than Pensions
       55




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STERLING CHEMICALS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 December 31,2006
    
    
    2005(Dollars in Thousands)Change in projected benefit obligation:Benefit obligation at beginning of year
    
    $
    27,834
    
    
    $
    27,745Service cost
    
    
    174
    
    
    
    208Interest cost
    
    
    1,463
    
    
    
    1,558Plan amendments
    
    
    
    
    
    
    46Actuarial loss (gain)
    
    
    (1,728
    )
    
    
    1,392Benefits paid
    
    
    (1,801
    )
    
    
    (3,115
    )Benefit obligation at end of year
    
    $
    25,942
    
    
    $
    27,834Funded plan assets
    
    $
    
    
    
    $
    Funded status at end of year
    
    $
    (25,942
    )
    
    $
    (27,834
    )Unrecognized cost:Actuarial loss
    
    
    
    
    
    
    6,048Plan amendment/prior service cost
    
    
    
    
    
    
    (15,691
    )Accrued benefit cost
    
    $
    (25,942
    )
    
    $
    (37,477
    )
 December 31,2006Amounts recognized in accumulated other
comprehensive income (loss) consist of
(pre-tax):Net loss
    
    $
    (3,695
    )Plan amendment/prior service costs
    
    
    14,257Net amount recognized in accumulated
other comprehensive income (loss)
    
    $
    (10,562
    )
  Year ended December 31,2006
    
    2005
    
    2004(Dollars in Thousands)Components of net plan costs:Service cost
    
    $
    174
    
    
    $
    208
    
    
    $
    310Interest cost
    
    
    1,463
    
    
    
    1,558
    
    
    
    1,864Net amortization:Actuarial loss
    
    
    99
    
    
    
    333
    
    
    
    21Plan amendment/prior service costs
    
    
    (1,434
    )
    
    
    (1,485
    )
    
    
    (1,223
    )Curtailment and special termination
benefits
    
    
    
    
    
    
    (1,727
    )
    
    
    (1,418
    )Net plan costs (benefit)
    
    $
    302
    
    
    $
    (1,113
    )
    
    $
    (446
    )Weighted-average assumptions:Discount rate
    
    
    5.75
    %
    
    
    5.75
    %
    
    
    5.75
    %
  56




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STERLING CHEMICALS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 1% Increase
    
    1% Decrease(Dollars in Thousands)Effect on total of service and interest cost components
    
    $
    34
    
    
    $
    (30
    )Effect on post-retirement benefit obligation
    
    
    619
    
    
    
    (547
    )
  OtherPension
    
    postretirementplan
    
    benefits planIncrease (decrease) in liabilities
    
    $
    87
    
    
    $
    (10,562
    )Increase (decrease) in accumulated other
comprehensive income
    
    
    (56
    )
    
    
    6,812Increase (decrease) in deferred income
tax liabilities
    
    
    (31
    )
    
    
    3,750
 Estimated Future Benefits Payable
  OtherPensions-
    
    Pensions-
    
    postretirementhourly
    
    salaried
    
    benefits
    
    Total2007
    
    $
    3,414
    
    
    $
    4,299
    
    
    $
    1,275
    
    
    $
    8,9882008
    
    
    3,270
    
    
    
    4,327
    
    
    
    1,214
    
    
    
    8,8112009
    
    
    3,158
    
    
    
    4,449
    
    
    
    1,178
    
    
    
    8,7852010
    
    
    2,952
    
    
    
    4,570
    
    
    
    2,225
    
    
    
    9,6472011
    
    
    2,941
    
    
    
    4,755
    
    
    
    2,179
    
    
    
    9,8752012-2016
    
    
    16,361
    
    
    
    26,204
    
    
    
    10,567
    
    
    
    53,132Total
    
    $
    32,096
    
    
    $
    48,604
    
    
    $
    18,638
    
    
    $
    99,238
 Savings and Investment Plan
  57




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STERLING CHEMICALS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 Bonus Plan and Gain Sharing Plan
   Key Employee Protection Plan
    58




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STERLING CHEMICALS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
    Severance Pay Plan
     59




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STERLING CHEMICALS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 9. COMMITMENTS AND CONTINGENCIES
 Product Contracts
  Lease Commitments
  Environmental, Health and Safety
     60




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STERLING CHEMICALS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
   Legal Proceedings
   61




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STERLING CHEMICALS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
    10. SALES INFORMATION
  Year ended December 31,2006
    
    2005
    
    2004(Dollars in Thousands)Sales by product:Acetic acid
    
    $
    98,344
    
    
    $
    86,125
    
    
    $
    81,069Styrene
    
    
    524,665
    
    
    
    513,788
    
    
    
    529,729Plasticizers
    
    
    44,535
    
    
    
    41,973
    
    
    
    44,555Major customers:BP Chemicals
    
    $
    98,344
    
    
    $
    86,125
    
    
    $
    81,069Customer A
    
    
    111,075
    
    
    
    93,752
    
    
    
    127,956Customer B
    
    
    144,278
    
    
    
    124,149
    
    
    
    116,912Customer C
    
    
    67,802
    
    
    
    77,570
    
    
    
    *Export sales:Export revenues
    
    $
    69,926
    
    
    $
    143,448
    
    
    $
    152,211Percentage of total revenues
    
    
    10
    %
    
    
    22
    %
    
    
    23
    %
 
 *
    
    Does not comprise more than 10% of total revenue for the periods indicated, therefore not
presented. 11. FINANCIAL INSTRUMENTS
 Concentrations of Risk
  62




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STERLING CHEMICALS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
  Fair Value of Financial Instruments
  12. CAPITAL STOCK
    
    
    the liquidation preference for such shares (plus accrued and unpaid dividends);
    
    in the event of a merger or consolidation, the fair market value of the consideration
that would have been received in such merger or consolidation in respect of the shares of
our common stock into which such shares of Series A Preferred Stock were convertible
immediately prior to such merger or consolidation had such shares of Series A Preferred
Stock been converted prior thereto; or
    
    in the event of some other specified change of control, the current market value of the shares of our common stock into which such shares of Series A Preferred Stock were
convertible immediately prior to such change of control had such shares of Series A
Preferred Stock been converted prior thereto (plus accrued and unpaid dividends).
  63




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STERLING CHEMICALS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 13. RELATED PARTY TRANSACTIONS
  14. NEW ACCOUNTING STANDARDS
  64




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
      DELOITTE & TOUCHE LLPHouston, TexasMarch 15, 2007
 65




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STERLING CHEMICALS, INC.
SUPPLEMENTAL FINANCIAL INFORMATION
 QUARTERLY FINANCIAL DATA (unaudited)
 First
    
    Second
    
    Third
    
    FourthYear
    
    Quarter
    
    Quarter
    
    Quarter
    
    Quarter(Dollars in Thousands, Except Per Share Data)Revenues
    
    
    2006
    
    
    $
    136,670
    
    
    $
    150,385
    
    
    $
    189,916
    
    
    $
    190,5732005
    
    
    
    180,207
    
    
    
    163,515
    
    
    
    148,733
    
    
    
    149,431Gross profit (loss)
    
    
    2006
    
    
    
    (11,853
    )
    
    
    5,482
    
    
    
    13,334
    
    
    
    5,8632005
    
    
    
    14,370
    
    
    
    (17,124
    )
    
    
    4,854
    
    
    
    (13,348
    )Income (loss) from continuing operations (1)
    
    
    2006
    
    
    
    (9,135
    )
    
    
    2,137
    
    
    
    9,949
    
    
    
    (107,613
    )2005
    
    
    
    5,645
    
    
    
    (12,965
    )
    
    
    115
    
    
    
    (11,303
    )Income (loss) from discontinued operations, net of tax
    
    
    2006
    
    
    
    (1,254
    )
    
    
    (496
    )
    
    
    625
    
    
    
    1282005
    
    
    
    (3,839
    )
    
    
    (885
    )
    
    
    (9,164
    )
    
    
    2,828Net income (loss) attributable to common stockholders
    
    
    2006
    
    
    
    (12,321
    )
    
    
    (368
    )
    
    
    8,484
    
    
    
    (109,659
    )2005
    
    
    
    154
    
    
    
    (15,569
    )
    
    
    (10,835
    )
    
    
    (10,332
    )Net income (loss) per share of common stock:Basic
    
    
    2006
    
    
    
    (4.36
    )
    
    
    (0.13
    )
    
    
    3.00
    
    
    
    (38.77
    )2005
    
    
    
    0.05
    
    
    
    (5.50
    )
    
    
    (3.83
    )
    
    
    (3.66
    )Diluted
    
    
    2006
    
    
    
    (4.36
    )
    
    
    (0.13
    )
    
    
    1.60
    
    
    
    (38.77
    )2005
    
    
    
    0.05
    
    
    
    (5.50
    )
    
    
    (3.83
    )
    
    
    (3.66
    )
 
 (1)
    
    In the fourth quarter of 2006, we recorded a $128 million impairment charge to our
styrene assets. 
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A. Controls and Procedures
   66




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Item 9B. Other Information
  67




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PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance
  
 Item 11. Executive Compensation
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
  
 Item 13. Certain Relationships and Related Transactions
  
 Item 14. Principal Accountant Fees and Services
  68




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##### Table of Contents



PART IV
 
 Item 15. Exhibits and Consolidated Financial Statement Schedules
  1.
    
    Consolidated Financial Statements. See Item 8. Financial Statements and
Supplementary Data  Index to Financial Statements.2.
    
    Consolidated Financial Statement Schedules. All schedules for which
provision is made in Regulation S-X either are not required under the related
instruction or are inapplicable and, therefore, have been omitted.3.
    
    Exhibits. See the Exhibit Index for a list of those exhibits filed herewith,
which index also includes and identifies management contracts or compensatory plans or
arrangements required to be filed as exhibits to this Form 10-K by Item
601(b)(10)(iii) of Regulation S-K.
  ExhibitNumber
    
    
    
    Description of Exhibit2.1
    
    
    
    Certificate of Ownership and Merger merging Sterling Chemicals Holdings, Inc.
into Sterling Chemicals, Inc. (incorporated herein by reference from Exhibit 2.1
to our Annual Report on Form 10-K for the fiscal year ended September 30, 2002).2.2
    
    
    
    Joint Plan of Reorganization of Sterling Chemicals Holdings, Inc., et. al.,
Debtors, dated October 14, 2002 (incorporated herein by reference from Exhibit
2.1 to our Form 8-K filed on November 26, 2002).2.3
    
    
    
    First Modification to Joint Plan of Reorganization of Sterling Chemicals
Holdings, Inc., et. al., Debtors, dated November 18, 2002 (incorporated herein
by reference from Exhibit 2.2 to our Form 8-K filed on November 26, 2002).3.1
    
    
    
    Amended and Restated Certificate of Incorporation of Sterling Chemicals, Inc.
(conformed copy) (incorporated herein by reference from Exhibit 3.1 to our
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2005).3.2
    
    
    
    Restated Certificate of Designations, Preferences, Rights and Limitations of
Series A Convertible Preferred Stock of Sterling Chemicals, Inc. (incorporated
herein by reference from Exhibit 3.2 to our Annual Report on Form 10-K for the
fiscal year ended December 31, 2003).3.3
    
    
    
    Restated Bylaws of Sterling Chemicals, Inc. (conformed copy) (incorporated
herein by reference from Exhibit 3.3 to our Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 2003).4.1
    
    
    
    Warrant Agreement dated as of December 19, 2002 by and between Sterling
Chemicals, Inc., and Wells Fargo Bank Minnesota, N.A., as warrant agent
(incorporated herein by reference from Exhibit 5 to our Form 8-A filed on
December 19, 2002).4.2
    
    
    
    Registration Rights Agreement dated as of December 19, 2002 by and between
Sterling Chemicals, Inc. and Resurgence Asset Management, L.L.C. (incorporated
herein by reference from Exhibit 7 to our Form 8-A filed on December 19, 2002).4.3
    
    
    
    Tag Along Agreement dated as of December 19, 2002 by and among Sterling
Chemicals, Inc., Resurgence Asset Management, L.L.C. and the Official Committee
of the Unsecured Creditors (incorporated herein by reference from Exhibit 8 to
our Form 8-A filed on December 19, 2002).4.4
    
    
    
    Indenture dated December 19, 2002 by and among Sterling Chemicals, Inc., as
Issuer, Sterling Chemicals Energy, Inc., as Guarantor, and National City Bank,
as Trustee, governing the 10% Senior Secured Notes due 2007 of Sterling
Chemicals, Inc. (incorporated herein by reference from Exhibit T3-C to Amendment
No. 3 to our Form T-3 filed on December 19, 2002).
 69




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##### Table of Contents



ExhibitNumber
    
    
    
    Description of Exhibit4.5
    
    
    
    Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture
Filing dated December 19, 2002 made by Sterling Chemicals, Inc., as Trustor, to
Thomas S. Henderson, as Individual Trustee for the benefit of National City
Bank, in its capacity as described therein, as Beneficiary (incorporated herein
by reference from Exhibit 4.2 to our Transition Report on Form 10-Q for the
transition period ended December 31, 2002).4.6
    
    
    
    Security Agreement dated as of December 19, 2002 by and among Sterling
Chemicals, Inc. and Sterling Chemicals Energy, Inc., as Assignors, National City
Bank, as Collateral Agent, and National City Bank, as Indenture Trustee for the
benefit of the holders the 10% Senior Secured Notes due 2007 of Sterling
Chemicals, Inc. (incorporated herein by reference from Exhibit 4.3 to our
Transition Report on Form 10-Q for the transition period ended December 31,
2002).10.1
    
    
    
    Revolving Credit Agreement dated as of December 19, 2002 by and among Sterling
Chemicals, Inc. and Sterling Chemicals Energy, Inc., as Borrowers, the various
financial institutions as are or may become parties thereto from time to time,
as the Lenders, and The CIT Group/Business Credit, Inc., as the Administrative
Agent for the Lenders (incorporated herein by reference from Exhibit 4.4 to our
Transition Report on Form 10-Q for the transition period ended December 31,
2002).10.1(a)
    
    
    
    First Amendment to Revolving Credit Agreement dated as of February 12, 2003 by
and among Sterling Chemicals, Inc. and Sterling Chemicals Energy, Inc., as
Borrowers, the various financial institutions party thereto, as the Lenders, and
The CIT Group/Business Credit, Inc., as the Administrative Agent for the Lenders
(incorporated herein by reference from Exhibit 4.8 to our Transition Report on
Form 10-Q for the transition period ended December 31, 2002).10.2
    
    
    
    Security Agreement dated as of December 19, 2002 made by Sterling Chemicals,
Inc. and Sterling Chemicals Energy, Inc., as Grantors, in favor of The CIT
Group/Business Credit, Inc., as Administrative Agent for the Secured Parties
(incorporated herein by reference from Exhibit 4.5 to our Transition Report on
Form 10-Q for the transition period ended December 31, 2002).10.3
    
    
    
    Pledge Agreement dated as of December 19, 2002 made by Sterling Chemicals,
Inc. and Sterling Chemicals Energy, Inc., as Pledgors, in favor of The CIT
Group/Business Credit, Inc., as Administrative Agent for the Secured Parties
(incorporated herein by reference from Exhibit 4.6 to our Transition Report on
Form 10-Q for the transition period ended December 31, 2002).10.4*
    
    
    
    Sterling Chemicals, Inc. Amended and Restated 2002 Stock Plan (incorporated
herein by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 2006).10.5*
    
    
    
    Fifth Amended and Restated Key Employee Protection Plan (incorporated herein
by reference from Exhibit 10.2 to our Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 2006).10.6*
    
    
    
    Third Amended and Restated Severance Pay Plan (incorporated herein by
reference from Exhibit 10.7 to our Annual Report on Form 10-K for the fiscal
year ended December 31, 2003).10.7*
    
    
    
    Sterling Chemicals, Inc. Amended and Restated Salaried Employees Pension Plan
(incorporated herein by reference from Exhibit 10.3 to our Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 2006).**10.7(a)*
    
    
    
    First Amendment to the Sterling Chemicals, Inc. Amended and Restated Salaried
Employees Pension Plan.10.8*
    
    
    
    Sterling Chemicals, Inc. Pension Benefit Equalization Plan (incorporated
herein by reference from Exhibit 10.10 to our Registration Statement on Form S-1
(Registration No. 33-24020)).10.8(a)*
    
    
    
    First Amendment to Sterling Chemicals, Inc. Pension Benefit Equalization Plan
(incorporated herein by reference from Exhibit 10.9(a) to our Annual Report on
Form 10-K for the fiscal year ended December 31, 2004).10.9*
    
    
    
    Sterling Chemicals, Inc. Amended and Restated Supplemental Employee Retirement
Plan (incorporated herein by reference from Exhibit 10.34 to our Annual Report
on Form 10-K for the fiscal year ended September 30, 1989 (SEC File Number
1-10059)).10.9(a)*
    
    
    
    First Amendment to Sterling Chemicals, Inc. Amended and Restated Supplemental
Employee Retirement Plan (incorporated herein by reference from Exhibit 10.10(a)
to our Annual Report on Form 10-K for the fiscal year ended December 31, 2004).
 70




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##### Table of Contents



ExhibitNumber
    
    
    
    Description of Exhibit10.10
    
    
    
    Sterling Chemicals, Inc. Amended and Restated Hourly Paid Employees Pension
Plan (Effective as of May 1, 1996) (incorporated herein by reference from
Exhibit 10.3(c) to our Annual Report on Form 10-K for the fiscal year ended
September 30, 1996 (SEC File Number 333-04343-01)).10.10(a)
    
    
    
    First Amendment to the Sterling Chemicals, Inc. Amended and Restated Hourly
Paid Employees Pension Plan (Effective as of December 31, 1998) (incorporated
herein by reference from Exhibit 10.7(a) to our Annual Report on Form 10-K for
the fiscal year ended September 30, 2000).10.10(b)
    
    
    
    Second Amendment to the Sterling Chemicals, Inc. Amended and Restated Hourly
Paid Employees Pension Plan (Effective as of December 17, 1998) (incorporated
herein by reference from Exhibit 10.7(b) to our Annual Report on Form 10-K for
the fiscal year ended September 30, 2000).10.10(c)
    
    
    
    Third Amendment to the Sterling Chemicals, Inc. Amended and Restated Hourly
Paid Employees Pension Plan (Effective as of September 20, 1999) (incorporated
herein by reference from Exhibit 10.7(c) to our Annual Report on Form 10-K for
the fiscal year ended September 30, 2000).10.10(d)
    
    
    
    Fourth Amendment to the Sterling Chemicals, Inc. Amended and Restated Hourly
Paid Employees Pension Plan (incorporated herein by reference from Exhibit 10.4
to our Transition Report on Form 10-Q for the transition period ended December
31, 2002).10.10(e)
    
    
    
    Fifth Amendment to the Sterling Chemicals, Inc. Amended and Restated Hourly
Paid Employees Pension Plan (incorporated herein by reference from Exhibit 10.5
to our Transition Report on Form 10-Q for the transition period ended December
31, 2002).10.10(f)
    
    
    
    Sixth Amendment to the Sterling Chemicals, Inc. Hourly Paid Employees Pension
Plan (incorporated herein by reference from Exhibit 10.3 to our Quarterly Report
on Form 10-Q for the quarterly period ended June 30, 2003).10.10(g)
    
    
    
    Seventh Amendment to the Sterling Chemicals, Inc. Hourly Paid Employees
Pension Plan (incorporated herein by reference from Exhibit 10.11(g) to our
Annual Report on Form 10-K for the fiscal year ended December 31, 2003).10.10(h)
    
    
    
    Eighth Amendment to the Sterling Chemicals, Inc. Hourly Paid Employees
Pension Plan (incorporated herein by reference from Exhibit 10.3 to our
Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2004).10.10(i)
    
    
    
    Ninth Amendment to the Sterling Chemicals, Inc. Hourly Paid Employees Pension
Plan (incorporated herein by reference from Exhibit 10.3 to our Quarterly Report
on Form 10-Q for the quarterly period ended June 30, 2005).10.11*
    
    
    
    Sterling Chemicals, Inc. Seventh Amended and Restated Savings and Investment
Plan (incorporated herein by reference from Exhibit 10.3 to our Quarterly Report
on Form 10-Q for the quarterly period ended June 30, 2006).**10.11(a)*
    
    
    
    First Amendment to the Seventh Amended and Restated Savings and Investment
Plan.*10.12*
    
    
    
    Bonus Plan (incorporated herein by reference from Exhibit 10.12 to our Annual
Report on Form 10-K for the fiscal year ended December 31, 2005).10.13
    
    
    
    Articles of Agreement between Sterling Chemicals, Inc., its successors and
assigns, and Texas City, Texas Metal Trades Council, AFL-CIO Texas City, Texas,
May 27, 2004 to May 1, 2007. (incorporated herein by reference from Exhibit 10.5
to our Quarterly Report on Form 10-Q for the quarterly period ended June 30,
2004).10.14*
    
    
    
    Form of Indemnity Agreement with each of its officers and directors
(incorporated herein by reference from Exhibit 10.17 to our Annual Report on
Form 10-K for the fiscal year ended September 30, 1996 (SEC File Number
333-04343-01)).10.15
    
    
    
    Separation Agreement effective as of May 31, 2005 by and among Sterling
Chemicals, Inc., O&D USA LLC (d/b/a Innovene Chemicals), ANEXCO, LLC and BP
Amoco Chemical Company (incorporated by reference from Exhibit 10.1 to our Form
8-K filed on May 31, 2005).+10.16
    
    
    
    Second Amended and Restated Production Agreement dated effective as of August
1, 1996 between BP Chemicals Inc. (predecessor in interest to BP Amoco Chemical
Company) and Sterling Chemicals, Inc. (incorporated herein by reference from
Exhibit 10.3 to our Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1998 (SEC File Number 333-04343-01)).
 71




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##### Table of Contents



ExhibitNumber
    
    
    
    Description of Exhibit+10.16(a)
    
    
    
    Amendment to Second Amended and Restated Production Agreement dated as of
March 1, 2001 between BP Chemicals Inc. (predecessor in interest to BP Amoco
Chemical Company) and Sterling Chemicals, Inc. (incorporated herein by reference
from Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 2001).++10.16(b)
    
    
    
    Amendment to Second Amended and Restated Production Agreement dated effective
as of April 1, 2005 between BP Amoco Chemical Company and Sterling Chemicals,
Inc.+10.17
    
    
    
    Second Amended and Restated Plasticizers Production Agreement dated effective
as of January 1, 2006 between BASF Corporation and Sterling Chemicals, Inc.
(incorporated herein by reference from Exhibit 10.19 to our Annual Report on
Form 10-K for the fiscal year ended December 31, 2005).10.18
    
    
    
    License Agreement dated August 1, 1986 between Monsanto Company and Sterling
Chemicals, Inc. (incorporated herein by reference from Exhibit 10.25 to our
Registration Statement on Form S-1 (Registration No. 33-24020)).14.1
    
    
    
    Sterling Chemicals, Inc. Code of Ethics for the Chief Executive Officer and
Senior Financial Officers (incorporated herein by reference from Exhibit 14.1 to
our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2003).**21.1
    
    
    
    Subsidiaries of Sterling Chemicals, Inc.**23.1
    
    
    
    Consent of Deloitte & Touche LLP.**31.1
    
    
    
    Rule 13a-14(a) Certification of the Chief Executive Officer**31.2
    
    
    
    Rule 13a-14(a) Certification of the Chief Financial Officer**32.1
    
    
    
    Section 1350 Certification of the Chief Executive Officer**32.2
    
    
    
    Section 1350 Certification of the Chief Financial Officer99.1
    
    
    
    Amended and Restated Audit Committee Charter of Sterling Chemicals, Inc.
(incorporated herein by reference from Exhibit 99.1 to our Annual Report on Form
10-K for the fiscal year ended December 31, 2005).99.2
    
    
    
    Amended and Restated Corporate Governance Committee Charter of Sterling
Chemicals, Inc. (incorporated herein by reference from Exhibit 99.1 to our
Quarterly Report on Form 10-Q for the quarterly period ended September 30,
2005).99.3
    
    
    
    Compensation Committee Charter of Sterling Chemicals, Inc. (incorporated
herein by reference from Exhibit 99.1 to our Quarterly Report on Form 10-Q for
the quarterly period ended September 30, 2006).
 
 *
    
    Management contracts or compensatory plans or arrangements.**
    
    Filed or furnished herewith.+
    
    Portions of the exhibit have been omitted and filed separately with
the Securities and Exchange Commission pursuant to a request for
confidential treatment.++
    
    Filed herewith. Portions of the exhibit have been omitted and filed
separately with the Securities and Exchange Commission pursuant to a
request for confidential treatment. 72




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##### Table of Contents



SIGNATURES
  STERLING CHEMICALS, INC.
(Registrant)By:
    /s/ RICHARD K. CRUMPRichard K. CrumpPresident, Chief Executive Officer and DirectorBy:
    /s/    PAUL G. VANDERHOVENPaul G. VanderhovenSenior Vice President-Finance and Chief Financial Officer   Signature
    
    Title
    
    DatePrincipal Executive Officer:/s/ RICHARD K. CRUMP
    
    President, Chief Executive Officer
    
    March 15, 2007Richard K. Crump
    
    and DirectorPrincipal Financial Officer:/s/ PAUL G. VANDERHOVEN
    
    Senior Vice President-Finance
    
    March 15, 2007Paul G. Vanderhoven
    
    and Chief Financial OfficerPrincipal Accounting Officer:/s/ JOHN R. BEAVER
    
    Vice President, Corporate Controller
    
    March 15, 2007John R. Beaver/s/ STEVEN L. GIDUMAL
    
    Director
    
    March 15, 2007Steve L. Gidumal/s/ JOHN W. GILDEA
    
    Director
    
    March 15, 2007John W. Gildea/s/ BYRON J. HANEY
    
    Director
    
    March 15, 2007Byron J. Haney/s/ KARL W. SCHWARZFELD
    
    Director
    
    March 15, 2007Karl W. Schwarzfeld/s/ PHILIP M. SIVIN
    
    Director
    
    March 15, 2007Philip M. Sivin/s/ DR. PETER TING KAI WU
    
    Director
    
    March 15, 2007Dr. Peter Ting Kai Wu
 73




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    
    
    Description of Exhibit2.1
    
    
    
    Certificate of Ownership and Merger merging Sterling Chemicals Holdings, Inc.
into Sterling Chemicals, Inc. (incorporated herein by reference from Exhibit 2.1
to our Annual Report on Form 10-K for the fiscal year ended September 30, 2002).2.2
    
    
    
    Joint Plan of Reorganization of Sterling Chemicals Holdings, Inc., et. al.,
Debtors, dated October 14, 2002 (incorporated herein by reference from Exhibit
2.1 to our Form 8-K filed on November 26, 2002).2.3
    
    
    
    First Modification to Joint Plan of Reorganization of Sterling Chemicals
Holdings, Inc., et. al., Debtors, dated November 18, 2002 (incorporated herein
by reference from Exhibit 2.2 to our Form 8-K filed on November 26, 2002).3.1
    
    
    
    Amended and Restated Certificate of Incorporation of Sterling Chemicals, Inc.
(conformed copy) (incorporated herein by reference from Exhibit 3.1 to our
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2005).3.2
    
    
    
    Restated Certificate of Designations, Preferences, Rights and Limitations of
Series A Convertible Preferred Stock of Sterling Chemicals, Inc. (incorporated
herein by reference from Exhibit 3.2 to our Annual Report on Form 10-K for the
fiscal year ended December 31, 2003).3.3
    
    
    
    Restated Bylaws of Sterling Chemicals, Inc. (conformed copy) (incorporated
herein by reference from Exhibit 3.3 to our Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 2003).4.1
    
    
    
    Warrant Agreement dated as of December 19, 2002 by and between Sterling
Chemicals, Inc., and Wells Fargo Bank Minnesota, N.A., as warrant agent
(incorporated herein by reference from Exhibit 5 to our Form 8-A filed on
December 19, 2002).4.2
    
    
    
    Registration Rights Agreement dated as of December 19, 2002 by and between
Sterling Chemicals, Inc. and Resurgence Asset Management, L.L.C. (incorporated
herein by reference from Exhibit 7 to our Form 8-A filed on December 19, 2002).4.3
    
    
    
    Tag Along Agreement dated as of December 19, 2002 by and among Sterling
Chemicals, Inc., Resurgence Asset Management, L.L.C. and the Official Committee
of the Unsecured Creditors (incorporated herein by reference from Exhibit 8 to
our Form 8-A filed on December 19, 2002).4.4
    
    
    
    Indenture dated December 19, 2002 by and among Sterling Chemicals, Inc., as
Issuer, Sterling Chemicals Energy, Inc., as Guarantor, and National City Bank,
as Trustee, governing the 10% Senior Secured Notes due 2007 of Sterling
Chemicals, Inc. (incorporated herein by reference from Exhibit T3-C to Amendment
No. 3 to our Form T-3 filed on December 19, 2002).4.5
    
    
    
    Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture
Filing dated December 19, 2002 made by Sterling Chemicals, Inc., as Trustor, to
Thomas S. Henderson, as Individual Trustee for the benefit of National City
Bank, in its capacity as described therein, as Beneficiary (incorporated herein
by reference from Exhibit 4.2 to our Transition Report on Form 10-Q for the
transition period ended December 31, 2002).4.6
    
    
    
    Security Agreement dated as of December 19, 2002 by and among Sterling
Chemicals, Inc. and Sterling Chemicals Energy, Inc., as Assignors, National City
Bank, as Collateral Agent, and National City Bank, as Indenture Trustee for the
benefit of the holders the 10% Senior Secured Notes due 2007 of Sterling
Chemicals, Inc. (incorporated herein by reference from Exhibit 4.3 to our
Transition Report on Form 10-Q for the transition period ended December 31,
2002).10.1
    
    
    
    Revolving Credit Agreement dated as of December 19, 2002 by and among Sterling
Chemicals, Inc. and Sterling Chemicals Energy, Inc., as Borrowers, the various
financial institutions as are or may become parties thereto from time to time,
as the Lenders, and The CIT Group/Business Credit, Inc., as the Administrative
Agent for the Lenders (incorporated herein by reference from Exhibit 4.4 to our
Transition Report on Form 10-Q for the transition period ended December 31,
2002).
 74




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##### Table of Contents



ExhibitNumber
    
    
    
    Description of Exhibit10.1(a)
    
    
    
    First Amendment to Revolving Credit Agreement dated as of February 12, 2003 by
and among Sterling Chemicals, Inc. and Sterling Chemicals Energy, Inc., as
Borrowers, the various financial institutions party thereto, as the Lenders, and
The CIT Group/Business Credit, Inc., as the Administrative Agent for the Lenders
(incorporated herein by reference from Exhibit 4.8 to our Transition Report on
Form 10-Q for the transition period ended December 31, 2002).10.2
    
    
    
    Security Agreement dated as of December 19, 2002 made by Sterling Chemicals,
Inc. and Sterling Chemicals Energy, Inc., as Grantors, in favor of The CIT
Group/Business Credit, Inc., as Administrative Agent for the Secured Parties
(incorporated herein by reference from Exhibit 4.5 to our Transition Report on
Form 10-Q for the transition period ended December 31, 2002).10.3
    
    
    
    Pledge Agreement dated as of December 19, 2002 made by Sterling Chemicals,
Inc. and Sterling Chemicals Energy, Inc., as Pledgors, in favor of The CIT
Group/Business Credit, Inc., as Administrative Agent for the Secured Parties
(incorporated herein by reference from Exhibit 4.6 to our Transition Report on
Form 10-Q for the transition period ended December 31, 2002).10.4*
    
    
    
    Sterling Chemicals, Inc. Amended and Restated 2002 Stock Plan (incorporated
herein by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 2006).10.5*
    
    
    
    Fifth Amended and Restated Key Employee Protection Plan (incorporated herein
by reference from Exhibit 10.2 to our Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 2006).10.6*
    
    
    
    Third Amended and Restated Severance Pay Plan (incorporated herein by
reference from Exhibit 10.7 to our Annual Report on Form 10-K for the fiscal
year ended December 31, 2003).10.7*
    
    
    
    Sterling Chemicals, Inc. Amended and Restated Salaried Employees Pension Plan
(incorporated herein by reference from Exhibit 10.3 to our Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 2006).**10.7(a)*
    
    
    
    First Amendment to the Sterling Chemicals, Inc. Amended and Restated Salaried
Employees Pension Plan.10.8*
    
    
    
    Sterling Chemicals, Inc. Pension Benefit Equalization Plan (incorporated
herein by reference from Exhibit 10.10 to our Registration Statement on Form S-1
(Registration No. 33-24020)).10.8(a)*
    
    
    
    First Amendment to Sterling Chemicals, Inc. Pension Benefit Equalization Plan
(incorporated herein by reference from Exhibit 10.9(a) to our Annual Report on
Form 10-K for the fiscal year ended December 31, 2004).10.9*
    
    
    
    Sterling Chemicals, Inc. Amended and Restated Supplemental Employee Retirement
Plan (incorporated herein by reference from Exhibit 10.34 to our Annual Report
on Form 10-K for the fiscal year ended September 30, 1989 (SEC File Number
1-10059)).10.9(a)*
    
    
    
    First Amendment to Sterling Chemicals, Inc. Amended and Restated Supplemental
Employee Retirement Plan (incorporated herein by reference from Exhibit 10.10(a)
to our Annual Report on Form 10-K for the fiscal year ended December 31, 2004).10.10
    
    
    
    Sterling Chemicals, Inc. Amended and Restated Hourly Paid Employees Pension
Plan (Effective as of May 1, 1996) (incorporated herein by reference from
Exhibit 10.3(c) to our Annual Report on Form 10-K for the fiscal year ended
September 30, 1996 (SEC File Number 333-04343-01)).10.10(a)
    
    
    
    First Amendment to the Sterling Chemicals, Inc. Amended and Restated Hourly
Paid Employees Pension Plan (Effective as of December 31, 1998) (incorporated
herein by reference from Exhibit 10.7(a) to our Annual Report on Form 10-K for
the fiscal year ended September 30, 2000).10.10(b)
    
    
    
    Second Amendment to the Sterling Chemicals, Inc. Amended and Restated Hourly
Paid Employees Pension Plan (Effective as of December 17, 1998) (incorporated
herein by reference from Exhibit 10.7(b) to our Annual Report on Form 10-K for
the fiscal year ended September 30, 2000).10.10(c)
    
    
    
    Third Amendment to the Sterling Chemicals, Inc. Amended and Restated Hourly
Paid Employees Pension Plan (Effective as of September 20, 1999) (incorporated
herein by reference from Exhibit 10.7(c) to our Annual Report on Form 10-K for
the fiscal year ended September 30, 2000).
 75




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##### Table of Contents



ExhibitNumber
    
    
    
    Description of Exhibit10.10(d)
    
    
    
    Fourth Amendment to the Sterling Chemicals, Inc. Amended and Restated Hourly
Paid Employees Pension Plan (incorporated herein by reference from Exhibit 10.4
to our Transition Report on Form 10-Q for the transition period ended December
31, 2002).10.10(e)
    
    
    
    Fifth Amendment to the Sterling Chemicals, Inc. Amended and Restated Hourly
Paid Employees Pension Plan (incorporated herein by reference from Exhibit 10.5
to our Transition Report on Form 10-Q for the transition period ended December
31, 2002).10.10(f)
    
    
    
    Sixth Amendment to the Sterling Chemicals, Inc. Hourly Paid Employees Pension
Plan (incorporated herein by reference from Exhibit 10.3 to our Quarterly Report
on Form 10-Q for the quarterly period ended June 30, 2003).10.10(g)
    
    
    
    Seventh Amendment to the Sterling Chemicals, Inc. Hourly Paid Employees
Pension Plan (incorporated herein by reference from Exhibit 10.11(g) to our
Annual Report on Form 10-K for the fiscal year ended December 31, 2003).10.10(h)
    
    
    
    Eighth Amendment to the Sterling Chemicals, Inc. Hourly Paid Employees
Pension Plan (incorporated herein by reference from Exhibit 10.3 to our
Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2004).10.10(i)
    
    
    
    Ninth Amendment to the Sterling Chemicals, Inc. Hourly Paid Employees Pension
Plan (incorporated herein by reference from Exhibit 10.3 to our Quarterly Report
on Form 10-Q for the quarterly period ended June 30, 2005).10.11*
    
    
    
    Sterling Chemicals, Inc. Seventh Amended and Restated Savings and Investment
Plan (incorporated herein by reference from Exhibit 10.3 to our Quarterly Report
on Form 10-Q for the quarterly period ended June 30, 2006).**10.11(a)*
    
    
    
    First Amendment to the Seventh Amended and Restated Savings and Investment
Plan.*10.12*
    
    
    
    Bonus Plan (incorporated herein by reference from Exhibit 10.12 to our Annual
Report on Form 10-K for the fiscal year ended December 31, 2005).10.13
    
    
    
    Articles of Agreement between Sterling Chemicals, Inc., its successors and
assigns, and Texas City, Texas Metal Trades Council, AFL-CIO Texas City, Texas,
May 27, 2004 to May 1, 2007. (incorporated herein by reference from Exhibit 10.5
to our Quarterly Report on Form 10-Q for the quarterly period ended June 30,
2004).10.14*
    
    
    
    Form of Indemnity Agreement with each of its officers and directors
(incorporated herein by reference from Exhibit 10.17 to our Annual Report on
Form 10-K for the fiscal year ended September 30, 1996 (SEC File Number
333-04343-01)).10.15
    
    
    
    Separation Agreement effective as of May 31, 2005 by and among Sterling
Chemicals, Inc., O&D USA LLC (d/b/a Innovene Chemicals), ANEXCO, LLC and BP
Amoco Chemical Company (incorporated by reference from Exhibit 10.1 to our Form
8-K filed on May 31, 2005).+10.16
    
    
    
    Second Amended and Restated Production Agreement dated effective as of August
1, 1996 between BP Chemicals Inc. (predecessor in interest to BP Amoco Chemical
Company) and Sterling Chemicals, Inc. (incorporated herein by reference from
Exhibit 10.3 to our Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1998 (SEC File Number 333-04343-01)).+10.16(a)
    
    
    
    Amendment to Second Amended and Restated Production Agreement dated as of
March 1, 2001 between BP Chemicals Inc. (predecessor in interest to BP Amoco
Chemical Company) and Sterling Chemicals, Inc. (incorporated herein by reference
from Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 2001).++10.16(b)
    
    
    
    Amendment to Second Amended and Restated Production Agreement dated effective
as of April 1, 2005 between BP Amoco Chemical Company and Sterling Chemicals,
Inc.+10.17
    
    
    
    Second Amended and Restated Plasticizers Production Agreement dated effective
as of January 1, 2006 between BASF Corporation and Sterling Chemicals, Inc.
(incorporated herein by reference from Exhibit 10.19 to our Annual Report on
Form 10-K for the fiscal year ended December 31, 2005).10.18
    
    
    
    License Agreement dated August 1, 1986 between Monsanto Company and Sterling
Chemicals, Inc. (incorporated herein by reference from Exhibit 10.25 to our
Registration Statement on Form S-1 (Registration No. 33-24020)).
 76




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##### Table of Contents



ExhibitNumber
    
    
    
    Description of Exhibit14.1
    
    
    
    Sterling Chemicals, Inc. Code of Ethics for the Chief Executive Officer and
Senior Financial Officers (incorporated herein by reference from Exhibit 14.1 to
our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2003).**21.1
    
    
    
    Subsidiaries of Sterling Chemicals, Inc.**23.1
    
    
    
    Consent of Deloitte & Touche LLP.**31.1
    
    
    
    Rule 13a-14(a) Certification of the Chief Executive Officer**31.2
    
    
    
    Rule 13a-14(a) Certification of the Chief Financial Officer**32.1
    
    
    
    Section 1350 Certification of the Chief Executive Officer**32.2
    
    
    
    Section 1350 Certification of the Chief Financial Officer99.1
    
    
    
    Amended and Restated Audit Committee Charter of Sterling Chemicals, Inc.
(incorporated herein by reference from Exhibit 99.1 to our Annual Report on Form
10-K for the fiscal year ended December 31, 2005).99.2
    
    
    
    Amended and Restated Corporate Governance Committee Charter of Sterling
Chemicals, Inc. (incorporated herein by reference from Exhibit 99.1 to our
Quarterly Report on Form 10-Q for the quarterly period ended September 30,
2005).99.3
    
    
    
    Compensation Committee Charter of Sterling Chemicals, Inc. (incorporated
herein by reference from Exhibit 99.1 to our Quarterly Report on Form 10-Q for
the quarterly period ended September 30, 2006).
 
 *
    
    Management contracts or compensatory plans or arrangements.**
    
    Filed or furnished herewith.+
    
    Portions of the exhibit have been omitted and filed separately with
the Securities and Exchange Commission pursuant to a request for
confidential treatment.++
    
    Filed herewith. Portions of the exhibit have been omitted and filed
separately with the Securities and Exchange Commission pursuant to a
request for confidential treatment. 77