##### 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, 2007
 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
    
    76-0502785(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)333 Clay Street, Suite 3600
    
    (713-650-3700)Houston, Texas 77002-4109
    
    (Registrants telephone number,(Address of principal executive offices)
    
    including area code)
 Securities registered pursuant to Section 12(b) of the Act: None
 Securities registered pursuant to Section 12(g) of the Act:
   o þ
 o þ
 þ o
 o
  Large accelerated filer: o
    
    Accelerated filer: o
    
    Non-accelerated filer:
o
    
    Smaller reporting company:
þ
  o þ




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##### Table of Contents



IMPORTANT INFORMATION REGARDING THIS FORM 10-K
  Explanatory Note
  
    
    Paid-in-kind dividends on our Series A Preferred Stock were incorrectly recorded as
4% of the Series A Preferred Stocks liquidation value versus the fair value of the
dividends. As a result of this error, redeemable preferred stock was understated and
additional paid-in capital was overstated by approximately $32 million, $29 million and
$27 million as of September 30, June 30, and March 31 2007, respectively, and by
approximately $26 million, $22 million, $12 million, and $5 million as of December 31,
2006, 2005, 2004 and 2003, respectively, and preferred stock dividends and net loss
attributable to common shareholders was understated by approximately $3 million, $2
million and $1 million for the three months ended September 30, 2007, June 30, 2007
and March 31, 2007, respectively, and by $4 million,
$10 million, $8 million and $5
million for the fiscal years ended December 31, 2006, 2005, 2004 and 2003,
respectively.
    
    Disputed revenues were inappropriately recognized resulting in a gross up of the
consolidated statements of operations for the fiscal year ended December 31, 2006 and
for the quarterly periods ended September 30, June 30, and March 31 2007. Revenues and
selling, general and administrative expenses were overstated by $1.0 million, $1.0
million, $1.0 million and $1.6 million for the three months ended September 30, 2007,
June 30, 2007, March 31, 2007 and the fiscal year ended December 31, 2006,
respectively. Accounts receivable and allowance for doubtful accounts were both
overstated by approximately $2.3 million, $1.8 million, $1.3 million and $1.6 million as
of September 30, 2007, June 30, 2007, March 31, 2007 and December 31, 2006,
respectively.
    
    The current and non-current liabilities of our pension and postretirement benefit
plans were incorrectly recorded in the consolidated balance sheet as of December 31,
2006 and September 30, June 30 and March 31, 2007.
Current liabilities were overstated and non-current liabilities were understated by
$2.7 million, $8.0 million, $7.8 million and $6.6 million as of September 30, 2007,
June 30, 2007, March 31, 2007 and December 31, 2006, respectively.
    
    Operating segments were not properly disclosed in accordance with SFAS
No. 131 Disclosure about Segments of an Enterprise and Related
Information. Historically we believed our operations constituted one operating segment,
however, after further analysis we believe we have three operating segments and have
disclosed the required segment information in Note 10.
  
  Forward-Looking Statements
  1




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##### Table of Contents




    
    the cyclicality of the petrochemicals industry;
    
    current and future 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;
    
    our environmental management programs and safety initiatives;
    
    our market sensitive financial instruments;
    
    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 or dividends;
    
    budgets for capital and other expenditures;
    
    plans and objectives of management;
    
    outcomes of legal proceedings;
    
    compliance with applicable laws;
    
    our reliance on marketing partners;
    
    adequacy of insurance coverage or indemnification rights;
    
    the timing and extent of changes in commodity prices for our products or raw
materials;
    
    petrochemicals industry production capacity or operating rates;
    
    costs associated with the shut down and decommissioning of our styrene facility;
    
    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;
    
    changes in foreign, political, social or economic conditions;
    
    risks of war, military operations, other armed hostilities, terrorist acts or
embargoes;
    
    changes in technology, which 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.
  2




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##### Table of Contents



Document Summaries
  3




---



##### 



TABLE OF CONTENTS
 PagePART IItem 1.
    
    Business
    
    
    5Item 1A.
    
    Risk Factors
    
    
    12Item 2.
    
    Properties
    
    
    17Item 3.
    
    Legal Proceedings
    
    
    17Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    19PART IIItem 5.
    
    Market for Registrants Common Equity and Related Stockholder Matters
    
    
    20Item 6.
    
    Selected Financial Data
    
    
    22Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results
of Operations
    
    
    24Item 7A.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    37Item 8.
    
    Financial Statements and Supplementary Data
    
    
    38Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
    
    
    71Item 9A (T).
    
    Controls and Procedures
    
    
    71PART IIIItem 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    73Item 11.
    
    Executive Compensation
    
    
    73Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
    
    
    73Item 13.
    
    Certain Relationships and Related Transactions
    
    
    73Item 14.
    
    Principal Accountant Fees and Services
    
    
    73PART IVItem 15.
    
    Exhibits and Consolidated Financial Statement Schedules
    
    
    74First Amendment to Third Amended and Restated Severance Pay PlanThird Amendment to the Amended and Restated Salaried Employees' Pension PlanFourth Amendment to the Amended and Restated Salaried Employees' Pension PlanFirst Amendment to the Amended and Restated Hourly Paid Employees' Pension PlanSecond Amendment to the Seventh Amended and Restated Savings and Investment PlanComputation of Ratio of Earnings (Losses) to Fixed ChargesSubsidiariesConsent 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
  4




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##### Table of Contents



PART I
 
 Item 1. Business
      2007
    
    2006
    
    2005Revenues
    
    $
    681,513
    
    
    $
    524,664
    
    
    $
    513,788Gross loss
    
    
    (16,468
    )
    
    
    (15,510
    )
    
    
    (30,277
    )
 5




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##### Table of Contents



Business Strategy
 Grow Our Business.
    Improve Organization Efficiency and Cost Structure.
 Industry Overview
 Acetic Acid.
  6




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##### Table of Contents



Plasticizers.
 Styrene.
  7
    Table of Contents    Product Summary
  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
CompanyPlasticizers
(200 million pounds of
esters)
    
    Flexible polyvinyl
chloride, or 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
 Plasticizers. Plasticizers-BASF
 Styrene.
 8    Table of Contents  Sales and Marketing
  
    
    optimize our capacity utilization rates;
    
    lower our selling, general and administrative expenses;
    
    reduce our working capital requirements;
    
    insulate the financial results from 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
    Table of Contents  Raw Materials and Energy Resources
  Acetic Acid.
 Plasticizers.
 Technology and Licensing
    Competition
  Environmental, Health and Safety Matters
  10
    Table of Contents  11
    Table of Contents  Employees
  Insurance
   Access to Filings
  
 Item 1A. Risk Factors
  Risks Related to Our Business
 Each of our products is sold to only one customer.
  12
    Table of Contents  Our ability to expand the capacity of our acetic acid production facility is limited by the current
inability to obtain sufficient quantities of carbon monoxide.
  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.
  13
    Table of Contents  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.
  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.
   14
    Table of Contents  Approximately 38% of our employees are covered by a collective bargaining agreement that expires on
May 1, 2012. Disputes with the Union representing these employees or other labor relations issues
may negatively affect our business.
  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.
  15
    Table of Contents  Risks Relating to Our Indebtedness
 Our leverage and debt service obligations may adversely affect our cash flow and our ability to
make payments on our indebtedness.
 1 4
 
    
    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 limit
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 certain payments or investments, sell assets,
make strategic acquisitions, engage in mergers or other fundamental changes and exploit
business opportunities; 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.
  Any failure to meet our debt obligations could harm our business, financial condition, results of
operations or cash flows.
  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.
  16
    Table of Contents  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
     
 Item 3. Legal Proceedings
  17
    Table of Contents  18
    Table of Contents  th
  
 Item 4. Submission of Matters to a Vote of Security Holders
  19
    Table of Contents  PART II
 
 Item 5. Market for Registrants Common Equity and Related Stockholder Matters
  First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    Quarter2007 High
    
    $
    12.75
    
    
    $
    26.00
    
    
    $
    24.75
    
    
    $
    23.00Low
    
    $
    8.55
    
    
    $
    10.98
    
    
    $
    17.25
    
    
    $
    17.002006 High
    
    $
    11.50
    
    
    $
    15.00
    
    
    $
    14.90
    
    
    $
    15.00Low
    
    $
    10.00
    
    
    $
    10.25
    
    
    $
    13.10
    
    
    $
    12.48
  Dividend Policy
  Equity Compensation Plan
  20
    Table of Contents  Number of securitiesremaining available forNumber of securities to
    
    
    Weighted-average
    
    
    future issuance under equitybe issued upon exercise
    
    
    exercise price of
    
    
    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)
    
    
    245,500
    
    
    $
    31.60
    
    
    
    118,414Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    245,500
    
    
    $
    31.60
    
    
    
    118,414
 
 (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 5 YEAR CUMULATIVE TOTAL RETURN*
 
  ©
 21
    Table of Contents  Item 6. Selected Financial Data
  Year ended
    
    Year ended
    
    Year ended
    
    Year endedYear ended
    
    December 31,
    
    December 31,
    
    December 31,
    
    December 31,December 31,
    
    2006
    
    2005
    
    2004
    
    20032007
    
    (1)
    
    (1)
    
    (1)
    
    (1)(In Thousands, Except Per Share Data)Operating Data(2):Revenues
    
    $
    811,326
    
    
    $
    665,923
    
    
    $
    641,886
    
    
    $
    655,353
    
    
    $
    518,772Gross profit (loss)
    
    
    9,574
    
    
    
    11,205
    
    
    
    (11,248
    )
    
    
    22,344
    
    
    
    23,790Income (loss) from continuing
operations(3)
    
    
    (16,535
    )
    
    
    (104,662
    )
    
    
    (18,508
    )
    
    
    (39,881
    )
    
    
    1,270Loss from discontinued
operations(4)
    
    
    (2,393
    )
    
    
    (997
    )
    
    
    (11,060
    )
    
    
    (22,763
    )
    
    
    (15,469
    )Per Share Data:Net loss attributable to common
stockholders
    
    $
    (12.90
    )
    
    $
    (41.52
    )
    
    $
    (16.46
    )
    
    $
    (27.08
    )
    
    $
    (8.38
    )Net loss from continuing operations
attributable to common stockholders
    
    
    (12.05
    )
    
    
    (41.17
    )
    
    
    (12.55
    )
    
    
    (19.02
    )
    
    
    (2.90
    )Cash dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Ratio of earnings to fixed
charges(5)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.1Balance Sheet Data:Working capital(6)
    
    $
    166,214
    
    
    $
    96,680
    
    
    $
    76,605
    
    
    $
    106,767
    
    
    $
    137,412Total assets
    
    
    306,444
    
    
    
    245,823
    
    
    
    386,594
    
    
    
    473,553
    
    
    
    550,503Long-term debt
    
    
    150,000
    
    
    
    100,579
    
    
    
    100,579
    
    
    
    100,579
    
    
    
    100,579Redeemable preferred stock(7)
    
    
    99,866
    
    
    
    82,316
    
    
    
    70,542
    
    
    
    53,559
    
    
    
    39,701Stockholders equity (deficiency in
assets)(8)
    
    
    (74,087
    )
    
    
    (48,575
    )
    
    
    58,045
    
    
    
    107,813
    
    
    
    185,029
 
 (1)
    
    We have restated our consolidated financial statements and selected financial data
for the fiscal years ended December 31, 2006, 2005, 2004 and 2003. For further information,
see Note 16 to the Consolidated Financial Statements found in Item 8. Financial Statements
and Supplementary Data.(2)
    
    On September 17, 2007, we entered into a long-term exclusive styrene supply
agreement and a related railcar purchase and sale agreement with NOVA. On November 13, 2007,
we announced that we were exiting the styrene business to pursue other strategic initiatives.
Due to the shut down of our styrene plant, we will report the operating results of our former
styrene business as discontinued operations in our consolidated financial statements in the
first quarter of 2008 when these operations have ceased. The revenues and gross losses from our styrene operations are summarized below: 22
    Table of Contents  2007
    
    2006
    
    2005
    
    2004
    
    2003Revenues
    
    $
    681,513
    
    
    $
    524,664
    
    
    $
    513,788
    
    
    $
    529,729
    
    
    $
    408,823Gross loss
    
    
    (16,468
    )
    
    
    (15,510
    )
    
    
    (30,277
    )
    
    
    136
    
    
    
    8,953
 
 (3)
    
    During 2006, we recorded a $127.7 million impairment charge to our styrene assets
and a related deferred tax benefit of $45 million. This tax benefit 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.(4)
    
    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. Loss from
discontinued operations during 2007 and 2006 reflects costs associated
with the dismantling of our acrylonitrile unit.(5)
    
    Additional pre-tax earnings needed to achieve a 1:1 ratio for the years ended
December 31, 2007, 2006, 2005 and 2004 were $22.4 million, $120.1 million, $30.2 million and
$33.6 million, respectively.(6)
    
    Working capital as of December 31, 2007, 2006, 2005, 2004 and 2003 includes net
assets (liabilities) of discontinued operations of $(0.3) million, $(0.2) million, $(2)
million, $55 million and $57 million, respectively.(7)
    
    Our Series A Preferred Stock is not currently redeemable or probable of
redemption. If our Series A Preferred Stock had been redeemed as of December 31, 2007, the
redemption amount would have been approximately $83.9 million. The liquidation value of our
Series A Preferred Stock as of December 31, 2007 is $66.1 million.(8)
    
    The balance as of December 31, 2006 includes a change in stockholders equity
(deficiency in assets) of $6.8 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. 23
    Table of Contents  Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Restatement
  Overview
 Business
     24
    Table of Contents  Acetic Acid.
    25
    Table of Contents  Plasticizers.
  Styrene.
   26
    Table of Contents  Recent Developments
   Discontinued Operations
   27
    Table of Contents  Results of Operations
  Year ended December 31,2007
    
    2006
    
    2005(Dollars in Thousands)Revenues
    
    $
    811,326
    
    
    $
    665,923
    
    
    $
    641,886Gross profit (loss)
    
    
    9,574
    
    
    
    11,205
    
    
    
    (11,248
    )Loss from continuing
operations
    
    
    (16,535
    )
    
    
    (104,662
    )
    
    
    (18,508
    )
 Comparison of 2007 to 2006
 Revenues and loss from continuing operations
     28
    Table of Contents  Selling, general & administrative expenses
  Impairment of long-lived assets
  Other expense (income)
  Interest and debt related expenses, net of interest income
  Provision (benefit) for income taxes
  29
    Table of Contents  Comparison of 2006 to 2005
 Revenues and loss from continuing operations
     Other expense (income)
  Provision (benefit) for income taxes
  Loss from discontinued operations, net of tax
  30
    Table of Contents  Liquidity and Capital Resources
  1 4
   31
    Table of Contents  Working Capital
  Cash Flow
   32
    Table of Contents  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
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    150,000
    
    
    $
    150,000Interest payments on debt(2)
    
    
    15,690
    
    
    
    46,638
    
    
    
    31,092
    
    
    
    23,319
    
    
    
    116,739Operating leases
    
    
    293
    
    
    
    879
    
    
    
    513
    
    
    
    
    
    
    
    1,685Purchase obligations(3)
    
    
    35,000
    
    
    
    70,000
    
    
    
    64,000
    
    
    
    117,000
    
    
    
    286,000Pension and other postretirement
benefits
    
    
    4,458
    
    
    
    2,346
    
    
    
    2,279
    
    
    
    4,959
    
    
    
    14,042Contractual obligations of
discontinued operations
    
    
    325
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    325Total(4)(5)
    
    $
    55,766
    
    
    $
    119,863
    
    
    $
    97,884
    
    
    $
    295,278
    
    
    $
    568,791
 
 (1)
    
    Payment obligations under our revolving credit facility are not presented because
there were no outstanding borrowings as of December 31, 2007, and interest payments fluctuate
depending on the interest rate and outstanding balance under our revolving credit facility at
any point in time.(2)
    
    On December 24, 2007, the interest rate on our Secured Notes increased by 0.25% per
annum because our registration statement to exchange our unregistered Secured Notes for
registered secured notes having the same terms and conditions had not been declared effective
by the SEC, and will increase by an additional 0.25% per annum on March 22, 2008 and at the
beginning of each subsequent 90-day period if such failure continues, subject to a maximum
increase of 1.0% per annum. As such, penalty interest is expected to be between $0.1 million
and $0.2 million depending upon the effectiveness date of the registration statement, of which
$0.1 million was accrued as of December 31, 2007. 33
    Table of Contents  (3)
    
    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
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.(4)
    
    Our Series A Preferred Stock is excluded from our contractual cash obligations as it
is not currently redeemable or probable of redemption. If the Series A Preferred Stock had
been redeemable as of December 31, 2007, the redemption amount would have been approximately
$83.9 million. The liquidation value of our Series A Preferred Stock as of December 31, 2007
is $66.1 million.(5)
    
    Unrecognized tax benefits are not included in the table due
to the high degree of uncertainty associated with the realization of
our net operating loss carryforward. Critical Accounting Policies, Use of Estimates and Assumptions
  Revenue Recognition
  Inventories
  Preferred stock dividends
  34
    Table of Contents  2007
    
    2006
    
    2005Risk-free interest rate
    
    
    3.5
    %
    
    
    4.7
    %
    
    
    4.4
    %Volatility
    
    
    55.5
    %
    
    
    46.2
    %
    
    
    50.3
    %Dividend yield
    
    
    
    
    
    
    
    
    
    
    Expected term
    
    
    5.0
    
    
    
    5.0
    
    
    
    5.0
 Long-Lived Assets
  Income Taxes
  Employee Benefit Plans
   35
    Table of Contents  Plant Turnaround Costs
  New Accounting Standards
      36
    Table of Contents  Item 7A. Quantitative and Qualitative Disclosures about Market Risk
  Expected Maturity DatesFair ValueDecember2008
    
    2009
    
    2010
    
    2011
    
    2012
    
    Thereafter
    
    Total
    
    31, 2007(Dollars in Thousands)LiabilitySecured Notes
    
    $
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    150,000
    
    
    $
    150,000
    
    
    $
    152,250
  37
    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, 2007, 2006
(Restated) and 2005 (Restated)
    
    
    39Consolidated Balance Sheets as of December 31, 2007 and 2006 (Restated)
    
    
    40Consolidated Statements of Changes in Stockholders Equity (Deficiency in Assets) for the
years ended December 31, 2007, 2006 (Restated) and 2005 (Restated)
    
    
    41Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2006 and 2005
    
    
    42Notes to Consolidated Financial Statements
    
    
    43Report of Independent Registered Public Accounting Firm
    
    
    69
 38
    Table of Contents  STERLING CHEMICALS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (Dollars in Thousands, Except Share Data)
 Year ended December 31,2006 (As Restated,
    
    
    2005 (As Restated,2007
    
    
    see Note 16)
    
    
    see Note 16)Revenues
    
    $
    811,326
    
    
    $
    665,923
    
    
    $
    641,886Cost of goods sold
    
    
    801,752
    
    
    
    654,718
    
    
    
    653,134Gross profit (loss)
    
    
    9,574
    
    
    
    11,205
    
    
    
    (11,248
    )Selling, general and administrative expenses
    
    
    11,843
    
    
    
    8,347
    
    
    
    7,811Impairment of long-lived assets
    
    
    4,288
    
    
    
    127,653
    
    
    
    Other income
    
    
    (225
    )
    
    
    (15,724
    )
    
    
    Interest and debt related expenses (net of
interest income of $1,607, $601 and $679,
respectively)
    
    
    15,706
    
    
    
    10,079
    
    
    
    10,090Loss from continuing operations before income tax
    
    
    (22,038
    )
    
    
    (119,150
    )
    
    
    (29,149
    )Benefit for income taxes
    
    
    (5,503
    )
    
    
    (14,488
    )
    
    
    (10,641
    )Loss from continuing operations
    
    
    (16,535
    )
    
    
    (104,662
    )
    
    
    (18,508
    )Loss from discontinued operations, net of tax
    
    
    (2,393
    )
    
    
    (997
    )
    
    
    (11,060
    )Net loss
    
    
    (18,928
    )
    
    
    (105,659
    )
    
    
    (29,568
    )Preferred stock dividends
    
    
    17,550
    
    
    
    11,774
    
    
    
    16,984Net loss attributable to common stockholders
    
    $
    (36,478
    )
    
    $
    (117,433
    )
    
    $
    (46,552
    )Loss per share of common stock attributable to
common stockholders, basic and diluted:Loss from continuing operations
    
    $
    (12.05
    )
    
    $
    (41.17
    )
    
    $
    (12.55
    )Loss from discontinued operations
    
    
    (0.85
    )
    
    
    (0.35
    )
    
    
    (3.91
    )Net loss per share, basic and diluted
    
    $
    (12.90
    )
    
    $
    (41.52
    )
    
    $
    (16.46
    )Weighted average shares outstanding:Basic and diluted
    
    
    2,828,460
    
    
    
    2,828,460
    
    
    
    2,827,795
  39
    Table of Contents  STERLING CHEMICALS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 (Dollars in Thousands, Except Share Data)
 December 31,2006 (AsRestated,2007
    
    
    see Note 16)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    100,183
    
    
    $
    20,690Accounts receivable, net of allowance of $39 and $367, respectively
    
    
    85,152
    
    
    
    63,289Inventories, net
    
    
    20,753
    
    
    
    62,078Prepaid expenses and other current assets
    
    
    3,129
    
    
    
    3,215Deferred tax asset
    
    
    5,029
    
    
    
    3,044Assets of discontinued operations
    
    
    
    
    
    
    20Total current assets
    
    
    214,246
    
    
    
    152,336Property, plant and equipment, net
    
    
    77,677
    
    
    
    83,833Other assets, net
    
    
    14,521
    
    
    
    9,654Total assets
    
    $
    306,444
    
    
    $
    245,823LIABILITIES AND STOCKHOLDERS DEFICIENCY IN ASSETSCurrent liabilities:Accounts payable
    
    $
    17,078
    
    
    $
    39,123Accrued liabilities
    
    
    30,629
    
    
    
    16,316Liabilities of discontinued operations
    
    
    325
    
    
    
    217Total current liabilities
    
    
    48,032
    
    
    
    55,656Long-term debt
    
    
    150,000
    
    
    
    100,579Deferred income tax liability
    
    
    5,029
    
    
    
    Deferred credits and other liabilities
    
    
    77,604
    
    
    
    55,847Commitments and contingencies (Note 9)Redeemable preferred stock
    
    
    99,866
    
    
    
    82,316Stockholders equity:Common
stock, $.01 par value (shares authorized 20,000,000; shares issued
and outstanding 2,828,460)
    
    
    28
    
    
    
    28Additional paid-in capital
    
    
    141,174
    
    
    
    158,691Accumulated deficit
    
    
    (232,542
    )
    
    
    (213,614
    )Accumulated other comprehensive income
    
    
    17,253
    
    
    
    6,320Total stockholders deficiency in assets
    
    
    (74,087
    )
    
    
    (48,575
    )Total liabilities and stockholders deficiency in assets
    
    $
    306,444
    
    
    $
    245,823
  40
    Table of Contents  STERLING CHEMICALS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF
 CHANGES IN STOCKHOLDERS EQUITY (DEFICIENCY IN ASSETS)
 (Amounts in Thousands)
 AccumulatedAdditional
    
    
    
    
    
    
    OtherCommon Stock
    
    
    Paid-In
    
    
    Accumulated
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Income (Loss)
    
    
    TotalBalance,
December 31, 2004 (As reported)
    
    
    2,825
    
    
    $
    28
    
    
    $
    199,408
    
    
    $
    (78,387
    )
    
    $
    (966
    )
    
    $
    120,083Prior period adjustment (see Note 16)
    
    
    
    
    
    
    
    
    
    
    (12,270
    )
    
    
    
    
    
    
    
    
    
    
    (12,270
    )Balance,
January 1, 2005 (As restated,
see Note 16)
    
    
    2,825
    
    
    $
    28
    
    
    $
    187,138
    
    
    $
    (78,387
    )
    
    $
    (966
    )
    
    $
    107,813Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (29,568
    )
    
    
    Other comprehensive loss:Pension adjustment, net of tax of $(1,846)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,373
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (32,941
    )Preferred stock dividends (as restated,
see Note 16)
    
    
    
    
    
    
    
    
    
    
    (16,984
    )
    
    
    
    
    
    
    
    
    
    
    (16,984
    )Exercised stock options
    
    
    3
    
    
    
    
    
    
    
    157
    
    
    
    
    
    
    
    
    
    
    
    157Balance, December 31, 2005 (As restated,
see Note 16)
    
    
    2,828
    
    
    $
    28
    
    
    $
    170,311
    
    
    $
    (107,955
    )
    
    $
    (4,339
    )
    
    $
    58,045Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (105,659
    )
    
    
    Other comprehensive loss:Benefit adjustment, net of tax of $2,249
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,903Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (101,756
    )SFAS 158 adoption, net of tax of $3,719
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,756
    
    
    
    6,756Preferred stock dividends (as restated,
see Note 16)
    
    
    
    
    
    
    
    
    
    
    (11,774
    )
    
    
    
    
    
    
    
    
    
    
    (11,774
    )Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    154
    
    
    
    
    
    
    
    
    
    
    
    154Balance, December 31, 2006 (As restated,
see Note 16)
    
    
    2,828
    
    
    $
    28
    
    
    $
    158,691
    
    
    $
    (213,614
    )
    
    $
    6,320
    
    
    $
    (48,575
    )Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18,928
    )
    
    
    Other comprehensive loss:Benefit
adjustment, net of tax of $5,887
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,933Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,995
    )Preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    (17,550
    )
    
    
    
    
    
    
    
    
    
    
    (17,550
    )Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    33
    
    
    
    
    
    
    
    
    
    
    
    33Balance, December 31, 2007
    
    
    2,828
    
    
    $
    28
    
    
    $
    141,174
    
    
    $
    (232,542
    )
    
    $
    17,253
    
    
    $
    (74,087
    )
  41
    Table of Contents  STERLING CHEMICALS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
 Year ended December 31,2007
    
    
    2006
    
    
    2005Cash flows from operating activities:Net loss
    
    $
    (18,928
    )
    
    $
    (105,659
    )
    
    $
    (29,568
    )Adjustments to reconcile net loss to net cash provided by (used
in) operating activities:Bad debt benefit
    
    
    (213
    )
    
    
    (571
    )
    
    
    (2,133
    )Depreciation and amortization
    
    
    10,908
    
    
    
    30,476
    
    
    
    33,342Interest amortization
    
    
    933
    
    
    
    400
    
    
    
    400Unearned income amortization
    
    
    (1,064
    )
    
    
    
    
    
    
    Impairment of long-lived assets
    
    
    4,288
    
    
    
    127,653
    
    
    
    Lower-of-cost-or-market adjustment
    
    
    1,363
    
    
    
    
    
    
    
    2,738Deferred tax benefit
    
    
    
    
    
    
    (8,438
    )
    
    
    (18,905
    )Gain on disposal of property, plant and equipment
    
    
    (182
    )
    
    
    (4,917
    )
    
    
    Other
    
    
    1,066
    
    
    
    154
    
    
    
    156Change in assets/liabilities:Accounts receivable
    
    
    (21,630
    )
    
    
    (4,514
    )
    
    
    56,983Inventories
    
    
    39,933
    
    
    
    (22,608
    )
    
    
    45,772Prepaid expenses
    
    
    86
    
    
    
    1,673
    
    
    
    (690
    )Other assets
    
    
    (2,160
    )
    
    
    (2,105
    )
    
    
    (1,003
    )Accounts payable
    
    
    (21,933
    )
    
    
    (4,140
    )
    
    
    (23,348
    )Accrued liabilities
    
    
    18,106
    
    
    
    (10,314
    )
    
    
    4,396Other liabilities
    
    
    33,754
    
    
    
    (11,298
    )
    
    
    (33
    )Net cash provided by (used in) operating activities
    
    
    44,327
    
    
    
    (14,208
    )
    
    
    68,107Cash flows
used in investing activities:Capital expenditures for property, plant and equipment
    
    
    (6,411
    )
    
    
    (11,547
    )
    
    
    (9,460
    )Insurance proceeds relating to property, plant and equipment
    
    
    
    
    
    
    1,960
    
    
    
    Cash used for dismantling
    
    
    
    
    
    
    (669
    )
    
    
    (667
    )Net proceeds from the sale of property, plant and equipment
    
    
    182
    
    
    
    2,957
    
    
    
    Net cash used in investing activities
    
    
    (6,229
    )
    
    
    (7,299
    )
    
    
    (10,127
    )Cash flows
provided by (used in) financing activities:Repayment of Old Secured Notes
    
    
    (100,579
    )
    
    
    
    
    
    
    Proceeds from the issuance of Secured Notes
    
    
    150,000
    
    
    
    
    
    
    
    Debt issuance costs
    
    
    (8,026
    )
    
    
    
    
    
    
    Net repayments under the revolving credit facility
    
    
    
    
    
    
    
    
    
    
    (17,684
    )Net cash provided by (used in) financing activities
    
    
    41,395
    
    
    
    
    
    
    
    (17,684
    )Net increase (decrease) in cash and cash equivalents
    
    
    79,493
    
    
    
    (21,507
    )
    
    
    40,296Cash and
cash equivalents beginning of year
    
    
    20,690
    
    
    
    42,197
    
    
    
    1,901Cash and cash equivalents end of year
    
    $
    100,183
    
    
    $
    20,690
    
    
    $
    42,197Supplemental disclosures of cash flow information:Interest paid, net of interest income received
    
    $
    11,438
    
    
    $
    10,508
    
    
    $
    10,726Cash paid for income taxes
    
    
    299
    
    
    
    60
    
    
    
    59
  42
    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
  43
    Table of Contents  STERLING
CHEMICALS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
  Plant Turnaround Costs
  Long-Lived Assets
    Debt Issue Costs
  Income Taxes
  44
    Table of Contents  STERLING CHEMICALS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
  Environmental Costs
  Revenue Recognition
  Preferred stock dividends
  Earnings (Loss) Per Share
  Disclosures about Fair Value of Financial Instruments
  45
    Table of Contents  STERLING CHEMICALS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
  Accounting Estimates
  Reclassifications
  2. STOCK-BASED COMPENSATION PLAN
  ,
    December 31, 2007
    
    
    December 31, 2006
    
    
    December 31, 2005Weighted-
    
    
    
    
    
    
    Weighted-
    
    
    
    
    
    
    Weighted-average
    
    
    
    
    
    
    average
    
    
    
    
    
    
    averageShares
    
    
    exercise price
    
    
    Shares
    
    
    exercise price
    
    
    Shares
    
    
    exercise priceOutstanding at beginning
of year
    
    
    278,500
    
    
    $
    31.60
    
    
    
    278,500
    
    
    $
    31.60
    
    
    
    294,334
    
    
    $
    31.60Forfeited
    
    
    (33,000
    )
    
    
    31.60
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,834
    )
    
    
    31.60Outstanding at end of year
    
    
    245,500
    
    
    $
    31.60
    
    
    
    278,500
    
    
    $
    31.60
    
    
    
    278,500
    
    
    $
    31.60Options exercisable at end
of year
    
    
    245,500
    
    
    
    
    
    
    
    269,333
    
    
    
    
    
    
    
    176,500
  46
    Table of Contents  STERLING CHEMICALS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
  Net loss attributable to common stockholders
    
    $
    (46,552
    )Add: Stock-based employee compensation expense included in
reported net loss, net of related tax effects
    
    
    157Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards, net of
related tax effects
    
    
    (606
    )Pro forma net loss
    
    $
    (47,001
    )Loss per share attributable to common stockholders:As reported
    
    $
    (16.46
    )Pro forma
    
    
    (16.62
    )
 3. DISCONTINUED OPERATIONS
    Year ended December 31,2007
    
    2006(Dollars in Thousands)Assets of discontinued operations:Accounts receivable, net
    
    $
    
    
    
    $
    20Liabilities of discontinued operations:Accrued liabilities
    
    $
    325
    
    
    $
    217
  Year ended December 31,2007
    
    2006
    
    2005(Dollars in Thousands)Revenues
    
    $
    
    
    
    $
    258
    
    
    $
    43,374Loss before income taxes
    
    
    2,393
    
    
    
    1,134
    
    
    
    17,420
 47
    Table of Contents  STERLING CHEMICALS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
  Accrued as of
    
    
    
    
    
    Accrued as ofAccrued as of
    
    
    
    
    
    Cash
    
    December 31,
    
    Accrued in
    
    December 31,December 31, 2005
    
    Accrued in 2006
    
    payments
    
    2006
    
    2007
    
    2007Severance accrual
    
    $
    477
    
    
    $
    386
    
    
    $
    (646
    )
    
    $
    217
    
    
    $
    108
    
    
    $
    325DSIDA contractual
obligation
    
    
    2,853
    
    
    
    147
    
    
    
    (3,000
    )
    
    
    
    
    
    
    
    
    
    
    DSIDA dismantling costs
    
    
    496
    
    
    
    62
    
    
    
    (558
    )
    
    
    
    
    
    
    
    
    
    
    Totals
    
    $
    3,826
    
    
    $
    595
    
    
    $
    (4,204
    )
    
    $
    217
    
    
    $
    108
    
    
    $
    325
   2007
    
    2006
    
    2005Revenues
    
    $
    681,513
    
    
    $
    524,664
    
    
    $
    513,788Gross loss
    
    
    (16,468
    )
    
    
    (15,510
    )
    
    
    (30,277
    )
 48
    Table of Contents  STERLING CHEMICALS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
 December 31,2007
    
    
    2006(Dollars in Thousands)Inventories:Finished products
    
    $
    14,621
    
    
    $
    38,485Raw materials
    
    
    2,231
    
    
    
    17,841Inventories at lower-of-cost-or-market
    
    
    16,852
    
    
    
    56,326Inventories under exchange agreements
    
    
    (95
    )
    
    
    1,818Stores and supplies (net of obsolescence
reserve of $1,472 and $2,149,
respectively)
    
    
    3,996
    
    
    
    3,934$
    20,753
    
    
    $
    62,078Property, plant and equipment, net:Land
    
    $
    7,149
    
    
    $
    7,149Buildings
    
    
    4,809
    
    
    
    4,506Plant and equipment
    
    
    311,691
    
    
    
    306,352Construction in progress
    
    
    2,470
    
    
    
    1,761Less: accumulated depreciation
    
    
    (248,442
    )
    
    
    (235,935
    )$
    77,677
    
    
    $
    83,833Other assets, net:S&L Cogen joint venture
    
    $
    5,483
    
    
    $
    4,733Debt issuance costs
    
    
    7,673
    
    
    
    283Deferred catalyst
    
    
    50
    
    
    
    1,959Long-term deferred tax asset
    
    
    
    
    
    
    641Other
    
    
    1,315
    
    
    
    2,038$
    14,521
    
    
    $
    9,654Accrued liabilities:Employee compensation and benefits
    
    
    6,425
    
    
    $
    6,878Deferred
income
    
    
    11,219
    
    
    
    3,009Interest payable
    
    
    4,036
    
    
    
    470Property taxes
    
    
    3,089
    
    
    
    4,301Advances
from customers
    
    
    3,726
    
    
    
    Other
    
    
    2,134
    
    
    
    1,658$
    30,629
    
    
    $
    16,316Deferred credits and other liabilities:Accrued postretirement, pension and post employment benefits
    
    $
    16,067
    
    
    $
    42,152Deferred
income
    
    
    59,089
    
    
    
    7,000Advances
from customers
    
    
    1,000
    
    
    
    1,000Other
    
    
    1,448
    
    
    
    5,695$
    77,604
    
    
    $
    55,847
 49
    Table of Contents  STERLING CHEMICALS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 5. VALUATION AND QUALIFYING ACCOUNTS
  December 31,2007
    
    
    2006
    
    
    2005Allowance for doubtful accounts:Balance at beginning of year
    
    $
    (367
    )
    
    $
    (953
    )
    
    $
    (3,092
    )Add: bad
debt benefit
    
    
    213
    
    
    
    571
    
    
    
    2,133Deduct: written-off accounts
    
    
    115
    
    
    
    15
    
    
    
    6Balance at end of year
    
    $
    (39
    )
    
    $
    (367
    )
    
    $
    (953
    )
 December 31,2007
    
    
    2006
    
    
    2005Reserve for inventory obsolescence:Balance at beginning of year
    
    $
    2,149
    
    
    $
    2,573
    
    
    $
    1,938Add: obsolescence accrual
    
    
    163
    
    
    
    81
    
    
    
    1,492Deduct: disposal of inventory
    
    
    (840
    )
    
    
    (505
    )
    
    
    (857
    )Balance at end of year
    
    $
    1,472
    
    
    $
    2,149
    
    
    $
    2,573
 6. DEBT
  1 4
 50
    Table of Contents  STERLING CHEMICALS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
      51
    Table of Contents  STERLING CHEMICALS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 Debt Maturities
  7. INCOME TAXES
  Year Ended December 31,2007
    
    
    2006
    
    
    2005(Dollars in Thousands)Benefit for income taxes at statutory rates
    
    $
    (8,551
    )
    
    $
    (42,100
    )
    
    $
    (16,299
    )Non-deductible expenses
    
    
    23
    
    
    
    19
    
    
    
    19State income taxes
    
    
    13
    
    
    
    (1,262
    )
    
    
    (956
    )Change in valuation allowance
    
    
    3,021
    
    
    
    27,621
    
    
    
    Other
    
    
    (9
    )
    
    
    1,096
    
    
    
    235Effective tax benefit
    
    $
    (5,503
    )
    
    $
    (14,626
    )
    
    $
    (17,001
    )
  Year Ended December 31,2007
    
    
    2006
    
    
    2005(Dollars in Thousands)Tax benefit  continuing operations
    
    $
    (5,503
    )
    
    $
    (14,488
    )
    
    $
    (10,641
    )Tax benefit  discontinued
operations
    
    
    
    
    
    
    (138
    )
    
    
    (6,360
    )Total tax benefit
    
    $
    (5,503
    )
    
    $
    (14,626
    )
    
    $
    (17,001
    )
  Year Ended December 31,2007
    
    
    2006
    
    
    2005(Dollars in Thousands)Current federal
    
    $
    364
    
    
    $
    299
    
    
    $
    Deferred federal
    
    
    (5,887
    )
    
    
    (13,685
    )
    
    
    (16,066
    )Current and deferred state
    
    
    20
    
    
    
    (1,240
    )
    
    
    (935
    )Total tax benefit
    
    $
    (5,503)
    
    
    $
    (14,626
    )
    
    $
    (17,001
    )
  December 31,2007
    
    
    2006(Dollars in Thousands)Deferred tax assets:Accrued liabilities
    
    $
    1,496
    
    
    $
    1,292Accrued postretirement cost
    
    
    2,236
    
    
    
    7,518Accrued pension cost
    
    
    
    
    
    
    4,537Tax loss and credit carry forwards
    
    
    26,846
    
    
    
    32,506State deferred taxes
    
    
    98
    
    
    
    77Unearned revenue
    
    
    23,656
    
    
    
    2,450Other
    
    
    719
    
    
    
    1,347Total deferred tax assets
    
    $
    55,051
    
    
    $
    49,727
 52
    Table of Contents  STERLING CHEMICALS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 December 31,2007
    
    
    2006(Dollars in Thousands)Deferred tax liabilities:Property, plant and equipment
    
    $
    (17,609
    )
    
    $
    (16,458
    )Accrued
pension cost
    
    
    (1,277
    )
    
    
    Subtotal
    
    
    (18,886
    )
    
    
    (16,458
    )Less: valuation allowance
    
    
    (36,165
    )
    
    
    (29,584
    )Total deferred tax liabilities
    
    
    (55,051
    )
    
    
    (46,042
    )Net deferred tax assets
    
    $
    
    
    
    $
    3,685
      Balance, January 1, 2007
    
    $
    3,685Additions for tax positions of the current year
    
    
    Additions for tax positions of prior years
    
    
    Reductions for tax positions of prior years for
    
    
    Changes in judgment
    
    
    Settlements during the period
    
    
    Lapses of applicable statute of limitation
    
    
    Balance, December 31, 2007
    
    $
    3,685
 53
    Table of Contents  STERLING CHEMICALS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
  8. EMPLOYEE BENEFITS
  Retirement Benefit Plans
   As of December 31,2007
    
    2006Equities
    
    
    63
    %
    
    
    64
    %Bonds
    
    
    26
    %
    
    
    23
    %Other
    
    
    11
    %
    
    
    13
    %Total
    
    
    100
    %
    
    
    100
    %
  December 31,2007
    
    
    2006(Dollars in Thousands)Change in projected benefit obligation:Benefit obligation at beginning of year
    
    $
    126,135
    
    
    $
    125,694Service cost
    
    
    228
    
    
    
    593Interest cost
    
    
    7,096
    
    
    
    7,610Actuarial (gain) loss
    
    
    (2,196
    )
    
    
    820Curtailment gain
    
    
    (19
    )
    
    
    Benefits paid
    
    
    (8,079
    )
    
    
    (8,582
    )Benefit obligation at end of year
    
    $
    123,165
    
    
    $
    126,135
 54
    Table of Contents  STERLING CHEMICALS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 December 31,2007
    
    
    2006(Dollars in Thousands)Change in plan assets:Fair value at beginning of year
    
    $
    109,654
    
    
    $
    95,690Actual return on plan assets
    
    
    10,695
    
    
    
    14,684Employer contributions
    
    
    6,113
    
    
    
    7,862Benefits paid
    
    
    (8,079
    )
    
    
    (8,582
    )Fair value at end of year
    
    $
    118,383
    
    
    $
    109,654Funded status
    
    $
    (4,782
    )
    
    $
    (16,481
    )
 December 31,2007
    
    
    2006Amounts recognized in the balance sheet consist of:Current liabilities
    
    $
    (163
    )
    
    $
    (201
    )Non-current liabilities
    
    
    (4,619
    )
    
    
    (16,280
    )Net amount recognized in financial position
    
    $
    (4,782
    )
    
    $
    (16,481
    )
 December 31,2007
    
    2006Amount recognized in accumulated other comprehensive
income (loss) consists of (pre-tax):Net gain (loss)
    
    $
    3,895
    
    
    $
    (764
    )Net amount recognized in accumulated other
comprehensive income (loss)
    
    $
    3,895
    
    
    $
    (764
    )
 December 31,2007
    
    2006Weighted-average assumptions to determine
benefit obligations:Discount Rate
    
    
    6.00
    %
    
    
    5.75
    %Rates of increase in salary compensation
level
    
    
    
    
    
    
    3.50
    %
   55
    Table of Contents  STERLING CHEMICALS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
  Year ended December 31,2007
    
    2006
    
    2005(Dollars In Thousands)Components of net pension costs:Service cost-benefits earned during the year
    
    $
    228
    
    
    $
    593
    
    
    $
    622Interest on prior years projected benefit
obligation
    
    
    7,096
    
    
    
    7,610
    
    
    
    6,993Expected return on plan assets
    
    
    (8,246
    )
    
    
    (7,767
    )
    
    
    (6,641
    )Net amortization of actuarial loss
    
    
    13
    
    
    
    13
    
    
    
    8Curtailment gain
    
    
    (19
    )
    
    
    
    
    
    
    Net pension (benefit) costs
    
    $
    (928
    )
    
    $
    449
    
    
    $
    982
 December 31,2007
    
    2006Changes in plan assets and benefit obligations
recognized in accumulated other comprehensive income
(pre-tax):Net gain
    
    $
    4,645
    
    
    $
    6,153Amortization of loss
    
    
    13
    
    
    
    Total
    
    $
    4,658
    
    
    $
    6,153
 December 31,2007
    
    2006
    
    2005Weighted-average assumptions to
determine net periodic benefit cost:Discount Rate
    
    
    5.50
    %
    
    
    5.75
    %
    
    
    5.75
    %Rates of increase in salary
compensation level
    
    
    
    
    
    
    
    
    
    
    Expected long-term rate of return
on plan assets
    
    
    7.50
    %
    
    
    7.50
    %
    
    
    7.50
    %
 Postretirement Benefits Other than Pensions
     56
    Table of Contents  STERLING CHEMICALS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
   December 31,2007
    
    
    2006(Dollars in Thousands)Change in projected benefit obligation:Benefit obligation at beginning of year
    
    $
    25,942
    
    
    $
    27,834Service cost
    
    
    119
    
    
    
    174Interest cost
    
    
    1,198
    
    
    
    1,463Plan amendments
    
    
    (13,291
    )
    
    
    Actuarial gain
    
    
    (487
    )
    
    
    (1,728
    )Benefits paid
    
    
    (2,462
    )
    
    
    (1,801
    )Benefit obligation at end of year
    
    $
    11,019
    
    
    $
    25,942Plan assets
    
    $
    3⁄4
    
    
    $
    3⁄4Funded status
    
    $
    (11,019
    )
    
    $
    (25,942
    )
 December 31,2007
    
    
    2006Amounts recognized in the balance sheet consist of:Current liabilities
    
    $
    (1,294
    )
    
    $
    (1,275
    )Non-current liabilities
    
    
    (9,725
    )
    
    
    (24,667
    )Net amount recognized in financial position
    
    $
    (11,019
    )
    
    $
    (25,942
    )
 December 31,2007
    
    
    2006Amounts recognized in accumulated other
comprehensive income (loss) consist of (pre-tax):Net loss
    
    $
    (2,128
    )
    
    $
    (3,695
    )Plan amendment/prior service costs
    
    
    24,852
    
    
    
    14,257Net amount recognized in accumulated other
comprehensive income
    
    $
    22,724
    
    
    $
    10,562
 Year ended December 31,2007
    
    2006Discount rate used to determine benefit obligations
    
    
    6.00
    %
    
    
    5.75
    %
 57
    Table of Contents  STERLING CHEMICALS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
  Year ended December 31,2007
    
    2006
    
    2005(Dollars in Thousands)Components of net plan costs:Service cost
    
    $
    119
    
    
    $
    174
    
    
    $
    208Interest cost
    
    
    1,198
    
    
    
    1,463
    
    
    
    1,558Net amortization:Actuarial loss
    
    
    1
    
    
    
    99
    
    
    
    333Plan amendment/prior service costs
    
    
    (1,617
    )
    
    
    (1,434
    )
    
    
    (1,485
    )Curtailment and special termination
benefits
    
    
    
    
    
    
    
    
    
    
    (1,727
    )Net plan (benefit) costs
    
    $
    (299
    )
    
    $
    302
    
    
    $
    (1,113
    )Discount rate used to determine
periodic cost
    
    
    5.75
    %
    
    
    5.75
    %
    
    
    5.75
    %
 December 31,2007
    
    2006Changes in benefit obligations
recognized in accumulated other comprehensive income
(pre-tax):Net gain
    
    $
    1,567
    
    
    $
    2,353Amortization
of prior service cost
    
    
    (1,617
    )
    
    
    (1,434
    )Plan
amendment
    
    
    12,212
    
    
    
    Total
    
    $
    12,162
    
    
    $
    919
  1% Increase
    
    1% Decrease(Dollars in Thousands)Effect on total of service and interest cost components
    
    $
    30
    
    
    $
    (27
    )Effect on post-retirement benefit obligation
    
    
    501
    
    
    
    (446
    )
  58
    Table of Contents  STERLING CHEMICALS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 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-
    
    Pensions-
    
    postretirementhourly
    
    salaried
    
    other
    
    benefits
    
    Total2008
    
    $
    3,411
    
    
    $
    4,369
    
    
    $
    164
    
    
    $
    1,294
    
    
    $
    9,2382009
    
    
    3,298
    
    
    
    4,498
    
    
    
    195
    
    
    
    1,208
    
    
    
    9,1992010
    
    
    3,060
    
    
    
    4,597
    
    
    
    187
    
    
    
    1,139
    
    
    
    8,9832011
    
    
    2,982
    
    
    
    4,724
    
    
    
    180
    
    
    
    1,171
    
    
    
    9,0572012
    
    
    2,978
    
    
    
    4,943
    
    
    
    173
    
    
    
    1,108
    
    
    
    9,2022013-2017
    
    
    15,729
    
    
    
    26,314
    
    
    
    800
    
    
    
    4,959
    
    
    
    47,802Total
    
    $
    31,458
    
    
    $
    49,445
    
    
    $
    1,699
    
    
    $
    10,879
    
    
    $
    93,481
 Savings and Investment Plan
  Bonus Plan and Gain Sharing Plan
  59
    Table of Contents  STERLING CHEMICALS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 Key Employee Protection Plan
      60
    Table of Contents  STERLING CHEMICALS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 Severance Pay Plan
     9. COMMITMENTS AND CONTINGENCIES
 Product Contracts
  Lease Commitments
  Environmental, Health and Safety
  61
    Table of Contents  STERLING CHEMICALS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
       Legal Proceedings
  62
    Table of Contents  STERLING CHEMICALS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
    63
    Table of Contents  STERLING CHEMICALS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 th
  10. OPERATING SEGMENT AND SALES INFORMATION
  Year Ended December 312007
    
    
    2006
    
    
    2005(Dollars in Thousands)Revenues:Acetic acid
    
    $
    100,772
    
    
    $
    96,724
    
    
    $
    86,125Plasticizers
    
    
    28,133
    
    
    
    44,535
    
    
    
    41,973Styrene
    
    
    681,513
    
    
    
    524,664
    
    
    
    513,788Other
    
    
    908
    
    
    
    
    
    
    
    Total
    
    $
    811,326
    
    
    $
    665,923
    
    
    $
    641,886Segment gross profit (loss):Acetic acid
    
    $
    23,441
    
    
    $
    25,976
    
    
    $
    20,930Plasticizers
    
    
    840
    
    
    
    (847
    )
    
    
    (1,415
    )Styrene
    
    
    (16,468
    )
    
    
    (15,510
    )
    
    
    (30,277
    )Other (1)
    
    
    1,761
    
    
    
    1,586
    
    
    
    (486
    )Gross profit (loss):
    
    
    9,574
    
    
    
    11,205
    
    
    
    (11,248
    )Selling, general and administrative expenses
    
    
    11,843
    
    
    
    8,347
    
    
    
    7,811Impairment of long-lived assets
    
    
    4,288
    
    
    
    127,653
    
    
    
    Other income
    
    
    (225
    )
    
    
    (15,724
    )
    
    
    Interest and debt related expenses (net of
interest income)
    
    
    15,706
    
    
    
    10,079
    
    
    
    10,090Loss from continuing operations before income tax
    
    $
    (22,038
    )
    
    $
    (119,150
    )
    
    $
    (29,149
    )Depreciation and amortization expenses:Acetic acid
    
    $
    5,319
    
    
    $
    6,108
    
    
    $
    5,133Plasticizers
    
    
    1,990
    
    
    
    4,328
    
    
    
    2,535Styrene
    
    
    2,490
    
    
    
    19,076
    
    
    
    18,399Other(2)
    
    
    1,109
    
    
    
    964
    
    
    
    7,275Total
    
    $
    10,908
    
    
    $
    30,476
    
    
    $
    33,342Capital expenditures:Acetic acid
    
    $
    1,220
    
    
    $
    771
    
    
    $
    498Plasticizers
    
    
    
    
    
    
    
    
    
    
    Styrene
    
    
    2,638
    
    
    
    6,584
    
    
    
    4,633Other-plant infrastructure
    
    
    2,553
    
    
    
    4,192
    
    
    
    4,329Total
    
    $
    6,411
    
    
    $
    11,547
    
    
    $
    9,460
 Year Ended December 312007
    
    
    2006Total assets:Acetic acid
    
    $
    53,769
    
    
    $
    44,243Plasticizers
    
    
    13,216
    
    
    
    14,000Styrene
    
    
    71,754
    
    
    
    110,773Other(3)
    
    
    167,705
    
    
    
    76,807Total
    
    $
    306,444
    
    
    $
    245,823
 
 (1)
    
    Gross profit (loss) for Other includes various unallocated
corporate charges and credits.(2)
    
    Includes depreciation and amortization expense of $6.5 million for discontinued
operations in 2005.(3)
    
    Components of Other are presented in the table below: Year Ended December 312007
    
    
    2006Total assets:Corporate:Cash
    
    $
    100,183
    
    
    $
    20,690Other
    
    
    27,998
    
    
    
    15,955Plant infrastructure:Property, plant and equipment, net
    
    
    39,524
    
    
    
    40,162Total
    
    $
    167,705
    
    
    $
    76,807
  Year ended December 31,2007
    
    
    2006
    
    
    2005(Dollars in Thousands)Major customers:BP Chemicals
    
    $
    100,772
    
    
    $
    96,724
    
    
    $
    86,125Customer A
    
    
    *
    
    
    
    111,075
    
    
    
    93,752Customer B
    
    
    131,670
    
    
    
    144,278
    
    
    
    124,149Customer C
    
    
    *
    
    
    
    67,802
    
    
    
    77,570Export sales:Export revenues
    
    $
    359,918
    
    
    $
    69,926
    
    
    $
    143,448Percentage of total revenues
    
    
    44
    %
    
    
    11
    %
    
    
    22
    %Exports to China
    
    
    14
    %
    
    
    *
    
    
    
    *Exports to Brazil
    
    
    11
    %
    
    
    *
    
    
    
    *
 
 *
    
    Does not comprise more than 10% of total revenue for the
periods indicated, therefore not presented. 11. FINANCIAL INSTRUMENTS
 Concentrations of Risk
   64
    Table of Contents  STERLING CHEMICALS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 Fair Value of Financial Instruments
  12. CAPITAL STOCK
  13. SERIES A CONVERTIBLE PREFERRED 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 our Series A Preferred Stock were convertible
immediately prior to such merger or consolidation had such shares of our 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 our Series A Preferred Stock were
convertible immediately prior to such change of control had such shares of our Series A
Preferred Stock been converted prior thereto (plus accrued and unpaid dividends).
 65
    Table of Contents  STERLING CHEMICALS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
   2007
    
    2006
    
    2005Risk-free interest rate
    
    
    3.5
    %
    
    
    4.7
    %
    
    
    4.4
    %Volatility
    
    
    55.5
    %
    
    
    46.2
    %
    
    
    50.3
    %Dividend yield
    
    
    
    
    
    
    
    
    
    
    Expected term
    
    
    5.0
    
    
    
    5.0
    
    
    
    5.0
  14. RELATED PARTY TRANSACTIONS
  15. NEW ACCOUNTING STANDARDS
  66
    Table of Contents  STERLING CHEMICALS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
     16. RESTATEMENT OF FINANCIAL INFORMATION
  
    
    Paid-in-kind dividends on our Series A Preferred Stock were incorrectly recorded as
4% of the Series A Preferred Stocks liquidation value versus the fair value of the
dividends. As a result of this error, redeemable preferred stock was understated and
additional paid-in capital was overstated by approximately $26 million and $22 million
as of December 31, 2006 and 2005, respectively, and preferred stock dividends and net
loss attributable to common shareholders was understated by $4 million, $10 million and
$8 million for the fiscal years ended December 31, 2006, 2005 and 2004, respectively.
    
    Disputed revenues were inappropriately recognized resulting in a gross up of the
consolidated statements of operations for the fiscal year ended December 31, 2006.
Revenues and selling, general and administrative expenses were overstated by $1.6 million for the fiscal year
ended December 31, 2006. Accounts receivable and allowance for doubtful accounts were both overstated by
$1.6 million as of December 31, 2006.
    
    The current and non-current liabilities of our pension and postretirement benefit
plans were incorrectly recorded in the consolidated balance sheet as of December 31,
2006. Current liabilities were overstated and non-current liabilities were understated
by $6.6 million as of December 31, 2006.
    
    Operating segments were not properly disclosed in accordance with SFAS
No. 131 Disclosure about Segments of an Enterprise and Related
Information. Historically we believed our operations constituted one operating segment,
however, after further analysis we believe we have three operating segments and have
disclosed the required segment information in Note 10.
 67
    Table of Contents  STERLING CHEMICALS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
  CONSOLIDATED STATEMENTS OF OPERATIONS
 (Dollars in Thousands, Except Share Data)
 Year ended December 31,2006
    
    2005Previously
    
    Restatement
    
    
    
    
    
    Previously
    
    Restatementreported
    
    Adjustment
    
    As Restated
    
    reported
    
    Adjustment
    
    As RestatedRevenues
    
    $
    667,544
    
    
    $
    (1,621
    )
    
    $
    665,923Gross profit (loss)
    
    
    12,826
    
    
    
    (1,621
    )
    
    
    11,205Selling, general and
administrative expenses
    
    
    9,968
    
    
    
    (1,621
    )
    
    
    8,347Preferred stock dividends
    
    
    8,205
    
    
    
    3,569
    
    
    
    11,774
    
    
    $
    7,014
    
    
    $
    9,970
    
    
    $
    16,984Net loss attributable to
common stockholders
    
    
    (113,864
    )
    
    
    (3,569
    )
    
    
    (117,433
    )
    
    
    (36,582
    )
    
    
    (9,970
    )
    
    
    (46,552
    )Per share:Loss from continuing operations
    
    
    (39.91
    )
    
    
    (1.26
    )
    
    
    (41.17
    )
    
    
    (9.03
    )
    
    
    (3.52
    )
    
    
    (12.55
    )Net loss per
share attributable to common stockholders, basic and diluted
    
    
    (40.26
    )
    
    
    (1.26
    )
    
    
    (41.52
    )
    
    
    (12.94
    )
    
    
    (3.52
    )
    
    
    (16.46
    )
 CONSOLIDATED BALANCE SHEET
 (Dollars in Thousands)
 December 31, 2006Previously
    
    Restatement
    
    Asreported
    
    Adjustment
    
    RestatedAccrued liabilities
    
    $
    22,872
    
    
    $
    (6,556
    )
    
    $
    16,316Total current liabilities
    
    
    62,212
    
    
    
    (6,556
    )
    
    
    55,656Deferred credits and other liabilities
    
    
    49,291
    
    
    
    6,556
    
    
    
    55,847Redeemable preferred stock
    
    
    56,507
    
    
    
    25,809
    
    
    
    82,316Stockholders equity:Additional paid-in capital
    
    
    184,500
    
    
    
    (25,809
    )
    
    
    158,691Total stockholders deficiency in assets
    
    
    (22,766
    )
    
    
    (25,809
    )
    
    
    (48,575
    )
 CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS EQUITY (DEFICIENCY IN ASSETS)
 Year ended December 31,2006
    
    2005Previously
    
    Restatement
    
    
    
    
    
    Previously
    
    Restatementreported
    
    Adjustment
    
    As Restated
    
    reported
    
    Adjustment
    
    As RestatedStockholders deficiency in assets:Preferred stock dividends
    
    $
    (8,205
    )
    
    $
    (3,569
    )
    
    $
    (11,774
    )
    
    $
    (7,014
    )
    
    $
    (9,970
    )
    
    $
    (16,984
    )
  68
    Table of Contents  REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
      /s/ DELOITTE & TOUCHE LLP 
 69
    Table of Contents  STERLING CHEMICALS, INC. AND SUBSIDIARIES
 SUPPLEMENTAL FINANCIAL INFORMATION
 QUARTERLY FINANCIAL DATA (unaudited)
 First
    
    Second
    
    Third
    
    FourthYear
    
    Quarter
    
    Quarter
    
    Quarter
    
    Quarter(Dollars in Thousands, Except Per Share Data)Revenues (as previously reported)
    
    
    2007
    
    
    $
    197,120
    
    
    $
    253,484
    
    
    $
    208,830
    
    
    $
    154,896Restatement adjustment
    
    
    
    
    
    
    (1,006
    )
    
    
    (1,032
    )
    
    
    (966
    )
    
    
    Revenues (as restated)
    
    
    2007
    
    
    $
    196,114
    
    
    $
    252,452
    
    
    $
    207,864
    
    
    $
    154,896Revenues (as previously reported)
    
    
    2006
    
    
    $
    136,670
    
    
    $
    150,385
    
    
    $
    189,916
    
    
    $
    190,573Restatement adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (646
    )
    
    
    (975
    )Revenues (as restated)
    
    
    2006
    
    
    $
    136,670
    
    
    $
    150,385
    
    
    $
    189,270
    
    
    $
    189,598Gross profit (loss) (as previously reported)
    
    
    2007
    
    
    $
    10,164
    
    
    $
    9,479
    
    
    $
    3,048
    
    
    $
    (10,113
    )Restatement adjustment
    
    
    
    
    
    
    (1,006
    )
    
    
    (1,032
    )
    
    
    (966
    )
    
    
    Gross profit (loss) (as restated)
    
    
    2007
    
    
    $
    9,158
    
    
    $
    8,447
    
    
    $
    2,082
    
    
    $
    (10,113
    )Gross profit (loss) (as previously reported)
    
    
    2006
    
    
    $
    (11,853
    )
    
    $
    5,482
    
    
    $
    13,334
    
    
    $
    5,863Restatement adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (646
    )
    
    
    (975
    )Gross profit (loss) (as restated)
    
    
    2006
    
    
    $
    (11,853
    )
    
    $
    5,482
    
    
    $
    12,688
    
    
    $
    4,888Income
(loss) from continuing operations (as previously reported)
    
    
    2007
    
    
    
    3,223
    
    
    
    441
    
    
    
    (4,489
    )
    
    
    (21,584
    )Other
comprehensive income adjustment
    
    
    
    
    
    
    
    
    
    
    973
    
    
    
    4,901
    
    
    
    Income
(loss) from continuing operations (as restated)
    
    
    
    
    
    $
    3,223
    
    
    $
    1,414
    
    
    $
    412
    
    
    $
    (21,584
    )Income
(loss) from continuing operations (1)
    
    
    2006
    
    
    
    (9,135
    )
    
    
    2,137
    
    
    
    9,949
    
    
    
    (107,613
    )Income (loss) from discontinued operations, net of tax
    
    
    2007
    
    
    
    (554
    )
    
    
    (887
    )
    
    
    (395
    )
    
    
    (557
    )2006
    
    
    
    (1,254
    )
    
    
    (496
    )
    
    
    625
    
    
    
    128Net income (loss) attributable to common stockholders
(as previously reported)
    
    
    2007
    
    
    $
    409
    
    
    $
    (2,797
    )
    
    $
    (7,329
    )
    
    $
    (26,530
    )Restatement
adjustments
    
    
    
    
    
    
    (789
    )
    
    
    (1,653
    )
    
    
    2,211
    
    
    
    Net income (loss) attributable to common stockholders
(as restated)
    
    
    2007
    
    
    $
    (380
    )
    
    $
    (4,450
    )
    
    $
    (5,118
    )
    
    $
    (26,530
    )Net income (loss) attributable to common stockholders
(as previously reported)
    
    
    2006
    
    
    $
    (12,321
    )
    
    $
    (368
    )
    
    $
    8,484
    
    
    $
    (109,659
    )Restatement
adjustments
    
    
    
    
    
    
    (599
    )
    
    
    (1,146
    )
    
    
    (939
    )
    
    
    (885
    )Net income (loss) attributable to common stockholders
(as restated)
    
    
    2006
    
    
    $
    (12,920
    )
    
    $
    (1,514
    )
    
    $
    7,545
    
    
    $
    (110,544
    )Net income (loss) per share of common stock:Basic and diluted (as previously reported)
    
    
    2007
    
    
    $
    0.14
    
    
    $
    (0.99
    )
    
    $
    (2.59
    )
    
    $
    (9.38
    )Restatement
adjustments
    
    
    
    
    
    
    (0.28
    )
    
    
    (0.58
    )
    
    
    0.78
    
    
    
    Basic and diluted (as restated)
    
    
    2007
    
    
    $
    (0.14
    )
    
    $
    (1.57
    )
    
    $
    (1.81
    )
    
    $
    (9.38
    )Basic (as previously reported)
    
    
    2006
    
    
    $
    (4.36
    )
    
    $
    (0.13
    )
    
    $
    3.00
    
    
    $
    (38.77
    )Restatement
adjustments
    
    
    
    
    
    
    (0.21
    )
    
    
    (0.41
    )
    
    
    (0.33
    )
    
    
    (0.31
    )Basic (as restated)
    
    
    2006
    
    
    $
    (4.57
    )
    
    $
    (0.54
    )
    
    $
    2.67
    
    
    $
    (39.08
    )Diluted (as previously reported)
    
    
    2006
    
    
    $
    (4.36
    )
    
    $
    (0.13
    )
    
    $
    1.60
    
    
    $
    (38.77
    )Restatement
adjustments
    
    
    
    
    
    
    (0.21
    )
    
    
    (0.41
    )
    
    
    
    
    
    
    (0.31
    )Diluted (as restated)
    
    
    2006
    
    
    $
    (4.57
    )
    
    $
    (0.54
    )
    
    $
    1.60
    
    
    $
    (39.08
    )
 70
    Table of Contents  
    
    Paid-in-kind dividends on our Series A Preferred Stock were incorrectly recorded as
4% of the Series A Preferred Stocks liquidation value versus the fair value of the
dividends. As a result of this error, redeemable preferred stock was understated and
additional paid-in capital was overstated by approximately $32 million, $29 million,
$27 million, $26 million, $25 million, $24 million and $23 million as of September 30,
2007, June 30, 2007, March 31 2007, December 31, 2006, September 30, 2006, June 30,
2006 and March 31, 2006, respectively. Preferred stock dividends and net loss
attributable to common shareholders was understated by approximately $3 million, $2
million and $1 million for the three months ended September 30, 2007, June 30, 2007 and
March 31 2007, respectively, and approximately $1 million for each of the three months
ended December 31, 2006, September 30, 2006, June 30, 2006 and March 31, 2006.
    
    Disputed revenues were inappropriately recognized resulting in a gross up of the
consolidated statements of operations for quarterly periods ended September 30, June
30, March 31 2007, December 31, 2006 and September 30, 2006. Revenues and selling,
general and administrative expenses were overstated by $1.0 million, $1.0 million, $1.0
million, $1.0 million and $0.6 million for the three months ended September 30, 2007,
June 30, 2007, March 31 2007, December 31, 2006, and September 30, 2006, respectively.
    
    Deferred taxes were not recognized on benefit adjustments to
other comprehensive income, or OCI, for the quarterly periods ended
September 30 and June 30, 2007. OCI was overstated and
benefit for income taxes was understated by $4.9 million and
$1.0 million as of September 30 and June 30, 2007,
respectively.
 
 (1)
 
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
  Item 9A(T). Controls and Procedures
    
    
    pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of our assets;
    
    provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting
principles, and that our receipts and expenditures are being made only in accordance with
authorizations of our management and directors; and
    
    provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material effect on the
financial statements.
    71
    Table of Contents  Remediation and Changes in Internal Controls
  
    
    A Corporate Controller and Chief Accounting Officer was hired, effective December
3, 2007. This position was open for the majority of 2007 due to changes in our
financial personnel. We believe this addition will improve our internal control over
financial reporting by adding an additional layer of review with respect to
significant, complex accounting matters.
    
    We have implemented a process that ensures the timely review and approval of
complex accounting guidance by qualified accounting personnel and will utilize
external subject matter experts, where appropriate.
    72    Table of Contents  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
  73
    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 March 31, 2007).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).
 74
    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).4.7
    
    
    
    Supplemental Indenture dated March 15, 2007 to the Indenture dated December 19, 2002
by and among Sterling Chemicals, Inc., Sterling Chemicals Energy, Inc. and U. S. Bank
National Association, successor to National City Bank, as Trustee (incorporated by
reference from Exhibit 10.1 to our Form 8-K filed on March 16, 2007).4.8
    
    
    
    Indenture dated March 29, 2007 by and among Sterling Chemicals, Inc., as Issuer,
Sterling Chemicals Energy, Inc., as Guarantor, and U. S. Bank National Association, as
Trustee and Collateral Agent, governing the 101/4% Senior Secured Notes due 2015 of
Sterling Chemicals, Inc. (incorporated herein by reference from Exhibit 4.2 to our
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2007).4.9
    
    
    
    Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing
dated March 29, 2007 made by Sterling Chemicals, Inc., Trustor, to Stanley Keeton, an
Individual Trustee, for the benefit of U. S. Bank National Association, as Collateral
Agent, Beneficiary. (incorporated herein by reference from Exhibit 4.3 to our
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2007).4.10
    
    
    
    Security Agreement dated as of March 29, 2007 by and among Sterling Chemicals, Inc.
and Sterling Chemicals Energy, Inc., as Assignors, U. S. Bank National Association, as
Collateral Agent, and U. S. Bank National Association, as Indenture Trustee for the
benefit of the holders the 101/4% Senior Secured Notes due 2015 of Sterling Chemicals,
Inc. (incorporated herein by reference from Exhibit 4.4 to our Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 2007).4.11
    
    
    
    Pledge Agreement dated as of March 29, 2007 by Sterling Chemicals, Inc. and Sterling
Chemicals Energy, Inc. in favor of U. S. Bank National Association, as Collateral
Agent for the Secured Parties (incorporated herein by reference from Exhibit 4.5 to
our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2007).4.12
    
    
    
    Registration Rights Agreement dated as of March 29, 2007 by and among Sterling
Chemicals, Inc., as the Company, Sterling Chemicals Energy, Inc., as Guarantor, and
Jefferies & Company, Inc. and CIBC World Markets Corp., as the Initial Purchasers of
the 101/4% Senior Secured Notes due 2015 of Sterling Chemicals, Inc. (incorporated
herein by reference from Exhibit 4.6 to our Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2007).10.1
    
    
    
    Amended and Restated Revolving Credit Agreement dated as of March 29, 2007 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, and Wachovia Bank, National Association, as Documentation Agent
(incorporated herein by reference from Exhibit 10.1 to our Quarterly Report on Form
10-Q for the quarterly period ended March 31, 2007).10.2
    
    
    
    Amended and Restated Security Agreement dated as of March 29, 2007 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 10.2 to our Quarterly Report on Form
10-Q for the quarterly period ended March 31, 2007).10.3
    
    
    
    Amended and Restated Pledge Agreement dated as of March 29, 2007 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 10.3 to our Quarterly Report on Form
10-Q for the quarterly period ended March 31, 2007).
 75
    Table of Contents  ExhibitNumber
    
    
    
    Description of Exhibit10.4
    
    
    
    Intercreditor Agreement dated as of March 29, 2007 among Sterling Chemicals, Inc.
and Sterling Chemicals Energy, Inc., as Borrowers, The CIT Group/Business Credit,
Inc., as First Lien Collateral Agent, and U. S. Bank National Association, as Second
Lien Collateral Agent (incorporated herein by reference from Exhibit 10.4 to our
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2007).10.5*
    
    
    
    Sterling Chemicals, Inc. Amended and Restated 2002 Stock Plan (incorporated herein
by reference from Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 2006).10.6*
    
    
    
    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).10.7*
    
    
    
    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(a)*
    
    
    
    First Amendment to Third Amended and Restated Severance Pay Plan.10.8*
    
    
    
    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).10.8(a)*
    
    
    
    First Amendment to the Sterling Chemicals, Inc. Amended and Restated Salaried
Employees Pension Plan (incorporated herein by reference from Exhibit 10.7(a) to our
Annual Report on Form 10-K for the fiscal year ended December 31, 2006).10.8(b)*
    
    
    
    Second Amendment to the Sterling Chemicals, Inc. Amended and Restated Salaried
Employees Pension Plan (incorporated herein by reference from Exhibit 10.1 to our
Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2007).**10.8(c)*
    
    
    
    Third Amendment to the Sterling Chemicals, Inc. Amended and Restated Salaried
Employees Pension Plan.**10.8(d)*
    
    
    
    Fourth Amendment to the Sterling Chemicals, Inc. Amended and Restated Salaried
Employees Pension Plan.10.9*
    
    
    
    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)).10.9(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).10.10*
    
    
    
    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)).10.10(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).10.11
    
    
    
    Sterling Chemicals, Inc. Amended and Restated Hourly Paid Employees Pension Plan
(Effective as of January 1, 2007) (incorporated herein by reference from Exhibit 10.2
to our Quarterly Report on Form 10-Q for the quarterly period ended September 30,
2007).**10.11(a)
    
    
    
    First Amendment to the Sterling Chemicals, Inc. Amended and Restated Hourly Paid
Employees Pension Plan (Effective as of January 1, 2007).10.12*
    
    
    
    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).10.12(a)*
    
    
    
    First Amendment to the Seventh Amended and Restated Savings and Investment Plan
(incorporated herein by reference from Exhibit 10.11(a) to our Annual Report on Form
10-K for the fiscal year ended December 31, 2006).**10.12(b)*
    
    
    
    Second Amendment to the Seventh Amended and Restated Savings and Investment Plan.
 76
    Table of Contents  ExhibitNumber
    
    
    
    Description of Exhibit10.13*
    
    
    
    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).10.14*
    
    
    
    Sterling Chemicals, Inc. Comprehensive Welfare Benefit Plan (incorporated herein by
reference from Exhibit 10.3 to our Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 2007).10.15
    
    
    
    Articles of Agreement between Sterling Chemicals, Inc., its successors and assigns,
and Texas City, Texas Metal Trades Council, AFL-CIO Texas City, Texas, May 1, 2007 to
May 1, 2012 (incorporated herein by reference from Exhibit 10.5 to our Quarterly
Report on Form 10-Q for the quarterly period ended March 31, 2007).10.16*
    
    
    
    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)).10.17
    
    
    
    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 herein by reference from Exhibit 10.1 to our Form 8-K filed on
May 31, 2005).+10.18
    
    
    
    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)).+10.18(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).+10.18(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.
(incorporated herein by reference from Exhibit 10.16(b) to our Annual Report on Form
10-K for the fiscal year ended December 31, 2006)+10.19
    
    
    
    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).10.20
    
    
    
    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)).+10.21
    
    
    
    Agreement for the Exclusive Supply of Styrene by and between Sterling Chemicals,
Inc. and NOVA Chemicals Inc., dated September 17, 2007 (incorporated by reference from
Exhibit 10.20 to Amendment No. 1 to our Form S-4 Registration Statement (Registration
No. 333-145803)).**12.1
    
    
    
    Computation of Ratio of Earnings (Losses) to Fixed Charges.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).
 77
    Table of Contents  ExhibitNumber
    
    
    
    Description of Exhibit99.2
    
    
    
    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. 78
    Table of Contents  SIGNATURES
  STERLING CHEMICALS, INC.(Registrant)By:
    
    /s/ RICHARD K. CRUMPRichard K. CrumpPresident, Chief Executive Officer and DirectorBy:
    
    /s/ JOHN R. BEAVERJohn R. BeaverSenior Vice President-Finance and Chief Financial Officer
   Signature
    
    Title
    
    DatePrincipal Executive Officer:/s/ RICHARD K. CRUMP
    
    President, Chief Executive Officer
    
    April 10, 2008Richard K. Crump
    
    and DirectorPrincipal Financial Officer:/s/ JOHN R. BEAVER
    
    Senior Vice President-Finance
    
    April 10, 2008John R. Beaver
    
    and Chief Financial OfficerPrincipal Accounting Officer:/s/ CARLA E. STUCKY

Carla E. Stucky
    
    Corporate Controller
    
    April 10, 2008/s/ STEVEN L. GIDUMAL

Steve L. Gidumal
    
    Director
    
    April 10, 2008/s/ JOHN W. GILDEA

John W. Gildea
    
    Director
    
    April 10, 2008/s/ BYRON J. HANEY

Byron J. Haney
    
    Director
    
    April 10, 2008/s/ KARL W. SCHWARZFELD

Karl W. Schwarzfeld
    
    Director
    
    April 10, 2008/s/ PHILIP M. SIVIN

Philip M. Sivin
    
    Director
    
    April 10, 2008/s/ DR. PETER TING KAI WU
    
    Director
    
    April 10, 2008Dr. Peter Ting Kai Wu
 79
    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 March 31, 2007).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).4.7
    
    
    
    Supplemental Indenture dated March 15, 2007 to the Indenture dated December 19, 2002
by and among Sterling Chemicals, Inc., Sterling Chemicals Energy, Inc. and U. S. Bank
National Association, successor to National City Bank, as Trustee (incorporated by
reference from Exhibit 10.1 to our Form 8-K filed on March 16, 2007).
 80
    Table of Contents  ExhibitNumber
    
    
    
    Description of Exhibit4.8
    
    
    
    Indenture dated March 29, 2007 by and among Sterling Chemicals, Inc., as Issuer,
Sterling Chemicals Energy, Inc., as Guarantor, and U. S. Bank National Association, as
Trustee and Collateral Agent, governing the 101/4% Senior Secured Notes due 2015 of
Sterling Chemicals, Inc. (incorporated herein by reference from Exhibit 4.2 to our
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2007).4.9
    
    
    
    Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing
dated March 29, 2007 made by Sterling Chemicals, Inc., Trustor, to Stanley Keeton, an
Individual Trustee, for the benefit of U. S. Bank National Association, as Collateral
Agent, Beneficiary. (incorporated herein by reference from Exhibit 4.3 to our
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2007).4.10
    
    
    
    Security Agreement dated as of March 29, 2007 by and among Sterling Chemicals, Inc.
and Sterling Chemicals Energy, Inc., as Assignors, U. S. Bank National Association, as
Collateral Agent, and U. S. Bank National Association, as Indenture Trustee for the
benefit of the holders the 101/4% Senior Secured Notes due 2015 of Sterling Chemicals,
Inc. (incorporated herein by reference from Exhibit 4.4 to our Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 2007).4.11
    
    
    
    Pledge Agreement dated as of March 29, 2007 by Sterling Chemicals, Inc. and Sterling
Chemicals Energy, Inc. in favor of U. S. Bank National Association, as Collateral
Agent for the Secured Parties (incorporated herein by reference from Exhibit 4.5 to
our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2007).4.12
    
    
    
    Registration Rights Agreement dated as of March 29, 2007 by and among Sterling
Chemicals, Inc., as the Company, Sterling Chemicals Energy, Inc., as Guarantor, and
Jefferies & Company, Inc. and CIBC World Markets Corp., as the Initial Purchasers of
the 101/4% Senior Secured Notes due 2015 of Sterling Chemicals, Inc. (incorporated
herein by reference from Exhibit 4.6 to our Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2007).10.1
    
    
    
    Amended and Restated Revolving Credit Agreement dated as of March 29, 2007 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, and Wachovia Bank, National Association, as Documentation Agent
(incorporated herein by reference from Exhibit 10.1 to our Quarterly Report on Form
10-Q for the quarterly period ended March 31, 2007).10.2
    
    
    
    Amended and Restated Security Agreement dated as of March 29, 2007 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 10.2 to our Quarterly Report on Form
10-Q for the quarterly period ended March 31, 2007).10.3
    
    
    
    Amended and Restated Pledge Agreement dated as of March 29, 2007 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 10.3 to our Quarterly Report on Form
10-Q for the quarterly period ended March 31, 2007).10.4
    
    
    
    Intercreditor Agreement dated as of March 29, 2007 among Sterling Chemicals, Inc.
and Sterling Chemicals Energy, Inc., as Borrowers, The CIT Group/Business Credit,
Inc., as First Lien Collateral Agent, and U. S. Bank National Association, as Second
Lien Collateral Agent (incorporated herein by reference from Exhibit 10.4 to our
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2007).10.5*
    
    
    
    Sterling Chemicals, Inc. Amended and Restated 2002 Stock Plan (incorporated herein
by reference from Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 2006).10.6*
    
    
    
    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).10.7*
    
    
    
    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(a)*
    
    
    
    First Amendment to Third Amended and Restated Severance Pay Plan.
 81
    Table of Contents  ExhibitNumber
    
    
    
    Description of Exhibit10.8*
    
    
    
    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).10.8(a)*
    
    
    
    First Amendment to the Sterling Chemicals, Inc. Amended and Restated Salaried
Employees Pension Plan (incorporated herein by reference from Exhibit 10.7(a) to our
Annual Report on Form 10-K for the fiscal year ended December 31, 2006).10.8(b)*
    
    
    
    Second Amendment to the Sterling Chemicals, Inc. Amended and Restated Salaried
Employees Pension Plan (incorporated herein by reference from Exhibit 10.1 to our
Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2007).**10.8(c)*
    
    
    
    Third Amendment to the Sterling Chemicals, Inc. Amended and Restated Salaried
Employees Pension Plan.**10.8(d)*
    
    
    
    Fourth Amendment to the Sterling Chemicals, Inc. Amended and Restated Salaried
Employees Pension Plan.10.9*
    
    
    
    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)).10.9(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).10.10*
    
    
    
    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)).10.10(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).10.11
    
    
    
    Sterling Chemicals, Inc. Amended and Restated Hourly Paid Employees Pension Plan
(Effective as of January 1, 2007) (incorporated herein by reference from Exhibit 10.2
to our Quarterly Report on Form 10-Q for the quarterly period ended September 30,
2007).**10.11(a)
    
    
    
    First Amendment to the Sterling Chemicals, Inc. Amended and Restated Hourly Paid
Employees Pension Plan (Effective as of January 1, 2007).10.12*
    
    
    
    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).10.12(a)*
    
    
    
    First Amendment to the Seventh Amended and Restated Savings and Investment Plan
(incorporated herein by reference from Exhibit 10.11(a) to our Annual Report on Form
10-K for the fiscal year ended December 31, 2006).**10.12(b)*
    
    
    
    Second Amendment to the Seventh Amended and Restated Savings and Investment Plan.10.13*
    
    
    
    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).10.14*
    
    
    
    Sterling Chemicals, Inc. Comprehensive Welfare Benefit Plan (incorporated herein by
reference from Exhibit 10.3 to our Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 2007).10.15
    
    
    
    Articles of Agreement between Sterling Chemicals, Inc., its successors and assigns,
and Texas City, Texas Metal Trades Council, AFL-CIO Texas City, Texas, May 1, 2007 to
May 1, 2012 (incorporated herein by reference from Exhibit 10.5 to our Quarterly
Report on Form 10-Q for the quarterly period ended March 31, 2007).10.16*
    
    
    
    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)).
 82
    Table of Contents  ExhibitNumber
    
    
    
    Description of Exhibit10.17
    
    
    
    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 herein by reference from Exhibit 10.1 to our Form 8-K filed on
May 31, 2005).+10.18
    
    
    
    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)).+10.18(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).+10.18(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.
(incorporated herein by reference from Exhibit 10.16(b) to our Annual Report on Form
10-K for the fiscal year ended December 31, 2006)+10.19
    
    
    
    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).10.20
    
    
    
    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)).+10.21
    
    
    
    Agreement for the Exclusive Supply of Styrene by and between Sterling Chemicals,
Inc. and NOVA Chemicals Inc., dated September 17, 2007 (incorporated by reference from
Exhibit 10.20 to Amendment No. 1 to our Form S-4 Registration Statement (Registration
No. 333-145803)).**12.1
    
    
    
    Computation of Ratio of Earnings (Losses) to Fixed Charges.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. 83