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UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549


Form 10-Q

|   |  |                                                                                             
|-- |  | --------------------------------------------------------------------------------------------
|þ  |  | QUARTERLY REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|  
|   |  | For the quarterly period ended
    September 30, 2004                                       
|  
|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
    incorporation or organization) |  | (IRS Employer
    Identification No.)                   
|                                                                  
|333 Clay Street, Suite 3600
    Houston, Texas 77002-4109          |  | (713) 650-3700                                          
|(Address of principal executive
    offices)                       |  | (Registrants telephone number, including
    area code)

Securities registered pursuant to
Section 12(b) of the Act:

None


Securities registered pursuant to
Section 12(g) of the Act:

Common Stock, par value $.01 per
share

(Title of class)


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

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Rule 12b-2 of the
Exchange
Act).     Yes o          No þ.

APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE
YEARS:

Indicate by check mark whether the registrant has
filed all documents and reports required to be filed by
Section 12, 13 or 15(d) of the Securities Exchange Act of
1934 subsequent to the distribution of securities under a plan
confirmed by a
court.     Yes þ          No o.

As of October 31, 2004, Sterling Chemicals,
Inc. had 2,825,000 shares of common stock outstanding.



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IMPORTANT INFORMATION REGARDING THIS FORM
10-Q

Unless otherwise indicated, references to
we, us, our and
ours in this Form 10-Q refer collectively to
Sterling Chemicals, Inc. and its wholly-owned subsidiaries.

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

Forward-Looking Statements

Certain written and oral statements made or
incorporated by reference from time to time by us or our
representatives are forward-looking statements
within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended (the Exchange Act).
All statements other than statements of historical fact are, or
may be deemed to be, forward-looking statements. Forward-looking
statements include, without limitation, any statement that may
project, indicate or imply future results, events, performance
or achievements, and may contain or be identified by the words
expect, intend, plan,
predict, anticipate,
estimate, believe, should,
could, may, might,
will, will be, will
continue, will likely result,
project, forecast, budget
and similar expressions. Statements in this report that contain
forward-looking statements include, but are not limited to,
information concerning our possible or assumed future results of
operations and statements about the following subjects:



| |   |                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the cyclicality of the petrochemicals industry;                                                                                                       
|
| |  | current and future industry conditions;                                                                                                               
|
| |  | the potential effects of market and industry
    conditions and cyclicality on our 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;                                                                                                                       
|
| |  | business strategy;                                                                                                                                    
|
| |  | growth opportunities;                                                                                                                                 
|
| |  | competitive position;                                                                                                                                 
|
| |  | expected financial position;                                                                                                                          
|
| |  | future cash flows;                                                                                                                                    
|
| |  | future dividends;                                                                                                                                     
|
| |  | financing plans;                                                                                                                                      
|
| |  | budgets for capital and other expenditures;                                                                                                           
|
| |  | plans and objectives of management;                                                                                                                   
|
| |  | outcomes of legal proceedings;                                                                                                                        
|
| |  | compliance with applicable laws; and                                                                                                                  
|
| |  | adequacy of insurance or indemnification.                                                                                                             

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Such statements are based upon current
information and expectations and inherently are subject to a
variety of risks and uncertainties that could cause actual
results to differ materially from those expected or expressed in
forward-looking statements. Such risks and uncertainties
include, among others, the following:



| |   |                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------
| |  | the timing and extent of changes in commodity
    prices;                                                                                    
|
| |  | petrochemicals industry production capacity and
    operating rates;                                                                         
|
| |  | market conditions in the petrochemicals industry,
    including the supply-demand balance for our products;                                  
|
| |  | competition, including competitive products and
    pricing pressures;                                                                       
|
| |  | obsolescence of product lines;                                                                                                               
|
| |  | the timing and extent of changes in global
    economic and business conditions;                                                             
|
| |  | increases in raw materials and energy costs,
    including the cost of natural gas;                                                          
|
| |  | our ability to obtain raw materials, energy and
    ocean-going vessels at acceptable prices, in a timely manner and
    on acceptable terms;
|
| |  | regulatory initiatives and compliance with
    governmental regulations;                                                                     
|
| |  | compliance with environmental laws and
    regulations;                                                                                      
|
| |  | customer preferences;                                                                                                                        
|
| |  | our ability to attract or retain high quality
    employees;                                                                                 
|
| |  | operating hazards attendant to the petrochemicals
    industry;                                                                              
|
| |  | casualty losses;                                                                                                                             
|
| |  | changes in foreign, political, social and
    economic conditions;                                                                           
|
| |  | risks of war, military operations, other armed
    hostilities, terrorist acts and embargoes;                                                
|
| |  | changes in technology, which could require
    significant capital expenditures in order to maintain
    competitiveness;                    
|
| |  | effects of litigation;                                                                                                                       
|
| |  | cost, availability and adequacy of insurance;                                                                                                
|
| |  | adequacy of our sources of liquidity; and                                                                                                    
|
| |  | various other matters, many of which are beyond
    our control.                                                                             

The risks included here are not exhaustive. Other
sections of this report and our other filings with the
Securities and Exchange Commission, including, without
limitation, our Annual Report on Form 10-K for the fiscal
year ended December 31, 2003 (our Annual
Report), include additional factors that could adversely
affect our business, results of operations and financial
condition and performance. See Managements
Discussion and Analysis of Financial Condition and Results of
Operations  Certain Known Events, Trends,
Uncertainties and Risk Factors contained in our Annual
Report. Given these risks and uncertainties, investors should
not place undue reliance on forward-looking statements.
Forward-looking statements included in this Form 10-Q speak
only as of the date of this Form 10-Q and are not
guarantees of future performance. Although we believe that the
expectations reflected in the forward-looking statements are
reasonable, no assurances can be given that such expectations
will prove to have been correct.

Subsequent Events

All statements contained in this Form 10-Q,
including the forward-looking statements discussed above, are
made as of November 8, 2004, unless those statements are
expressly made as of another date. We disclaim

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any responsibility for the accuracy of any
information contained in this Form 10-Q to the extent such
information is affected or impacted by events, circumstances or
developments occurring after November 8, 2004 or by the
passage of time after such date and, except as required by
applicable securities laws, we do not intend to update such
information. All subsequent written and oral forward-looking
statements attributable to us or persons acting on our behalf
are expressly qualified in their entirety by these cautionary
statements.


Document Summaries

Descriptions of documents and agreements
contained in this Form 10-Q are provided in summary form
only, and such summaries are qualified in their entirety by
reference to the actual documents and agreements filed as
exhibits to our Annual Report, other periodic reports we file
with the Securities and Exchange Commission or this
Form 10-Q.

Access to Filings

Access to our annual reports on Form 10-K,
quarterly reports on Form 10-Q and current reports on
Form 8-K, and amendments to those reports, filed with or
furnished to the Securities and Exchange Commission pursuant to
Section 13(a) of the Exchange Act, as well as reports filed
electronically pursuant to Section 16(a) of the Exchange
Act, may be obtained through our website
(http://www.sterlingchemicals.com). Our website provides a
hyperlink to a third-party website where these reports may be
viewed and printed at no cost as soon as reasonably practicable
after we have electronically filed such material with the
Securities and Exchange Commission. The contents of our website
are not, and shall not be deemed to be, incorporated into this
report.

iii



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STERLING CHEMICALS, INC.

INDEX

|                                                   |  |                                                                                               |  |      |    | 
|-------------------------------------------------- |  | --------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                   |  |                                                                                               |  | Page
|                                                   |  |                                                                                               |  |     
|PART I. FINANCIAL
    INFORMATION                 
|Item 1.                                            |  | Financial
    Statements                                                                      |  |      | 2  | 
|Item 2.                                            |  | Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations |  |      | 15 | 
|Item 3.                                            |  | Quantitative
    and Qualitative Disclosures About Market Risk                                |  |      | 22 | 
|Item 4.                                            |  | Controls
    and Procedures                                                                   |  |      | 23 | 
|PART II. OTHER
    INFORMATION                    
|Item 1.                                            |  | Legal
    Proceedings                                                                         |  |      | 24 | 
|Item 6.                                            |  | Exhibits                                                                                      |  |      | 24 | 
|6th Amend.to 6th Amended Savings & Investment Plan
|Letter of Deloitte & Touche LLP                   
|Certification of CEO Pursuant to Rule 13a-14(a)   
|Certification of CFO Pursuant to Rule 13a-14(a)   
|Certification of CEO Pursuant to Section 1350     
|Certification of CFO Pursuant to Section 1350     



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##### Table of Contents






PART I.

FINANCIAL INFORMATION






|        |                     
|------- | --------------------
|Item 1. | Financial Statements

STERLING CHEMICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                                                   |         |                                           |         |                   |  |      |         |           |  |   |         |           |   |   |         |           |  
|---------------------------------------------------------------------------------- | ------- | ----------------------------------------- | ------- | ----------------- |  | ---- | ------- | --------- |  | - | ------- | --------- | - | - | ------- | --------- | -
|                                                                                   |         |                                           |         |                  
|                                                                                   |         | Three Months Ended                        |         | Nine Months Ended
|                                                                                   |         | September 30,                             |         | September 30,    
|                                                                                   |         |                                           |         |                  
|                                                                                   |         | 2004                                      |         | 2003              |  | 2004 |         | 2003     
|                                                                                   |         |                                           |         |                   |  |      |         |          
|                                                                                   |         |                                          
|                                                                                   |         | (Unaudited)                              
|                                                                                   |         | (Dollars in thousands, except share data)
|Revenues                                                                           |         | $                                         | 250,982 |                   |  | $    | 160,110 |           |  | $ | 583,259 |           |   | $ | 403,088 |          
|Cost of goods sold                                                                 |         |                                           | 236,546 |                   |  |      | 153,050 |           |  |   | 576,017 |           |   |   | 407,452 |          
|                                                                                   |         |                                           |         |                   |  |      |         |           |  |   |         |           |   |   |         |          
|Gross profit (loss)                                                                |         |                                           | 14,436  |                   |  |      | 7,060   |           |  |   | 7,242   |           |   |   | (4,364  | )        
|Selling, general and administrative expenses                                       |         |                                           | 3,569   |                   |  |      | 3,373   |           |  |   | 9,854   |           |   |   | 11,966  |          
|Impairment of goodwill                                                             |         |                                           |        |                   |  |      |        |           |  |   | 48,463  |           |   |   |        |          
|Other expense (income)                                                             |         |                                           |        |                   |  |      | 1       |           |  |   |        |           |   |   | (3,520  | )        
|Interest and debt related expenses, net of
    interest income                     |         |                                           | 2,602   |                   |  |      | 2,225   |           |  |   | 7,724   |           |   |   | 6,069   |          
|                                                                                   |         |                                           |         |                   |  |      |         |           |  |   |         |           |   |   |         |          
|Income (loss) from continuing operations before
    income tax                     |         |                                           | 8,265   |                   |  |      | 1,461   |           |  |   | (58,799 | )         |   |   | (18,879 | )        
|Provision (benefit) for income taxes                                               |         |                                           | 2,736   |                   |  |      | (74     | )         |  |   | (3,884  | )         |   |   | (7,099  | )        
|                                                                                   |         |                                           |         |                   |  |      |         |           |  |   |         |           |   |   |         |          
|Income (loss) from continuing operations                                           |         |                                           | 5,529   |                   |  |      | 1,535   |           |  |   | (54,915 | )         |   |   | (11,780 | )        
|Loss from discontinued operations, net of tax
    expense                          |         |                                           |        |                   |  |      |        |           |  |   |        |           |   |   | (976    | )        
|                                                                                   |         |                                           |         |                   |  |      |         |           |  |   |         |           |   |   |         |          
|Net income (loss)                                                                  |         | $                                         | 5,529   |                   |  | $    | 1,535   |           |  | $ | (54,915 | )         |   | $ | (12,756 | )        
|Preferred stock dividends                                                          |         |                                           | 1,527   |                   |  |      | 1,305   |           |  |   | 4,407   |           |   |   | 3,767   |          
|                                                                                   |         |                                           |         |                   |  |      |         |           |  |   |         |           |   |   |         |          
|Net income (loss) attributable to common
    stockholders                          |         | $                                         | 4,002   |                   |  | $    | 230     |           |  | $ | (59,322 | )         |   | $ | (16,523 | )        
|                                                                                   |         |                                           |         |                   |  |      |         |           |  |   |         |           |   |   |         |          
|Income (loss) from continuing operations per
    share of common stock:            |         |                                           |         |                   |  |      |         |           |  |   |         |           |   |   |         |          
|                                                                                   | Basic   |                                           | $       | 1.42              |  |      | $       | 0.08      |  |   | $       | (21.00    | ) |   | $       | (5.50     | )
|                                                                                   | Diluted |                                           |         | 0.99              |  |      |         | 0.08      |  |   |         | (21.00    | ) |   |         | (5.50     | )
|Loss from discontinued operations per share of
    common stock, basic and diluted |         | $                                         |        |                   |  | $    |        |           |  | $ |        |           |   | $ | (0.35   | )        
|Weighted average shares outstanding:                                               |         |                                           |         |                   |  |      |         |           |  |   |         |           |   |   |         |          
|                                                                                   | Basic   |                                           |         | 2,825,000         |  |      |         | 2,825,000 |  |   |         | 2,825,000 |   |   |         | 2,825,000 |  
|                                                                                   | Diluted |                                           |         | 5,592,626         |  |      |         | 2,825,000 |  |   |         | 2,825,000 |   |   |         | 2,825,000 |  

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

2



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STERLING CHEMICALS, INC.

CONDENSED CONSOLIDATED BALANCE
SHEETS

|                                         |                                      |                                            |         |                   |         |  |         |         |         | 
|---------------------------------------- | ------------------------------------ | ------------------------------------------ | ------- | ----------------- | ------- |  | ------- | ------- | ------- | 
|                                         |                                      | September 30, 2004                         |         | December 31, 2003
|                                         |                                      |                                            |         |                  
|                                         |                                      |                                           
|                                         |                                      | (Unaudited)                               
|                                         |                                      | (Dollars in thousands)                    
|ASSETS                                  
|Current assets:                          |                                      |                                            |         |                   |         |  |         |        
|                                         | Cash and cash equivalents            |                                            | $       | 28,032            |         |  | $       | 42,384  |        
|                                         | Accounts receivable, net             |                                            |         | 109,830           |         |  |         | 87,565  |        
|                                         | Inventories                          |                                            |         | 64,828            |         |  |         | 61,583  |        
|                                         | Prepaid expenses                     |                                            |         | 4,997             |         |  |         | 6,430   |        
|                                         | Deferred tax asset                   |                                            |         | 9,085             |         |  |         | 9,081   |        
|                                         |                                      |                                            |         |                   |         |  |         |        
|                                         |                                      | Total current assets                       |         |                   | 216,772 |  |         |         | 207,043 | 
|Property, plant and equipment, net       |                                      |                                            | 268,176 |                   |         |  | 277,613 |        
|Goodwill                                 |                                      |                                            |        |                   |         |  | 48,463  |        
|Other assets, net                        |                                      |                                            | 18,458  |                   |         |  | 17,384  |        
|                                         |                                      |                                            |         |                   |         |  |         |        
|                                         |                                      | Total assets                               |         | $                 | 503,406 |  |         | $       | 550,503 | 
|                                         |                                      |                                            |         |                   |         |  |         |        
|                                        
|LIABILITIES AND STOCKHOLDERS
    EQUITY
|Current liabilities:                     |                                      |                                            |         |                   |         |  |         |        
|                                         | Accounts payable                     |                                            | $       | 74,402            |         |  | $       | 64,833  |        
|                                         | Accrued liabilities                  |                                            |         | 27,852            |         |  |         | 24,045  |        
|                                         |                                      |                                            |         |                   |         |  |         |        
|                                         |                                      | Total current liabilities                  |         |                   | 102,254 |  |         |         | 88,878  | 
|Long-term debt                           |                                      |                                            | 100,579 |                   |         |  | 100,579 |        
|Deferred tax liability                   |                                      |                                            | 45,730  |                   |         |  | 49,909  |        
|Deferred credits and other liabilities   |                                      |                                            | 85,026  |                   |         |  | 86,407  |        
|Redeemable preferred stock               |                                      |                                            | 39,701  |                   |         |  | 35,294  |        
|Commitments and contingencies (Note 7)   |                                      |                                            |         |                   |         |  |         |        
|Stockholders equity:                    |                                      |                                            |         |                   |         |  |         |        
|                                         | Common stock, $.01 par value         |                                            |         | 28                |         |  |         | 28      |        
|                                         | Additional paid-in capital           |                                            |         | 200,996           |         |  |         | 205,402 |        
|                                         | Accumulated deficit                  |                                            |         | (70,657           | )       |  |         | (15,743 | )      
|                                         | Accumulated other comprehensive loss |                                            |         | (251              | )       |  |         | (251    | )      
|                                         |                                      |                                            |         |                   |         |  |         |        
|                                         |                                      | Total stockholders equity                 |         |                   | 130,116 |  |         |         | 189,436 | 
|                                         |                                      |                                            |         |                   |         |  |         |        
|                                         |                                      | Total liabilities and stockholders equity |         | $                 | 503,406 |  |         | $       | 550,503 | 
|                                         |                                      |                                            |         |                   |         |  |         |        

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

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##### Table of Contents



STERLING CHEMICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                                                |                                     |                        |         |         |   |   |         |         |  
|------------------------------------------------------------------------------- | ----------------------------------- | ---------------------- | ------- | ------- | - | - | ------- | ------- | -
|                                                                                |                                     |                       
|                                                                                |                                     | Nine Months Ended     
|                                                                                |                                     | September 30,         
|                                                                                |                                     |                       
|                                                                                |                                     | 2004                   |         | 2003   
|                                                                                |                                     |                        |         |        
|                                                                                |                                     |                       
|                                                                                |                                     | (Unaudited)           
|                                                                                |                                     | (Dollars in thousands)
|Cash flows from operating activities:                                           |                                     |                        |         |         |   |   |         |        
|                                                                                | Net loss from continuing operations |                        | $       | (54,915 | ) |   | $       | (11,780 | )
|Adjustments to reconcile net loss to net cash
    used in operating activities: |                                     |                        |         |         |   |   |         |        
|                                                                                | Depreciation and amortization       |                        |         | 21,464  |   |   |         | 20,224  |  
|                                                                                | Impairment of goodwill              |                        |         | 48,463  |   |   |         |        |  
|                                                                                | Interest amortization               |                        |         | 298     |   |   |         | 281     |  
|                                                                                | Deferred tax benefit                |                        |         | (4,183  | ) |   |         | (7,144  | )
|                                                                                | Other                               |                        |         | 1       |   |   |         |        |  
|Change in assets/liabilities:                                                   |                                     |                        |         |         |   |   |         |        
|                                                                                | Accounts receivable                 |                        |         | (22,265 | ) |   |         | (42,262 | )
|                                                                                | Inventories                         |                        |         | (3,245  | ) |   |         | (19,804 | )
|                                                                                | Prepaid expenses                    |                        |         | 1,433   |   |   |         | 643     |  
|                                                                                | Other assets                        |                        |         | (3,783  | ) |   |         | (537    | )
|                                                                                | Accounts payable                    |                        |         | 9,570   |   |   |         | 13,310  |  
|                                                                                | Accrued liabilities                 |                        |         | 3,807   |   |   |         | (3,728  | )
|                                                                                | Other liabilities                   |                        |         | (1,381  | ) |   |         | 945     |  
|                                                                                |                                     |                        |         |         |   |   |         |        
|Net cash used in operating activities                                           |                                     |                        | (4,736  | )       |   |   | (49,852 | )      
|                                                                                |                                     |                        |         |         |   |   |         |        
|Cash flows used in investing activities:                                        |                                     |                        |         |         |   |   |         |        
|                                                                                | Capital expenditures                |                        |         | (9,616  | ) |   |         | (10,634 | )
|                                                                                |                                     |                        |         |         |   |   |         |        
|Cash flows from financing activities:                                           |                                     |                        |         |         |   |   |         |        
|                                                                                | Net borrowings under the Revolver   |                        |         |        |   |   |         |        |  
|                                                                                |                                     |                        |         |         |   |   |         |        
|Net decrease in cash and cash equivalents from
    continuing operations        |                                     |                        | (14,352 | )       |   |   | (60,486 | )      
|Net decrease in cash and cash equivalents from
    discontinued operations      |                                     |                        |        |         |   |   | (976    | )      
|Cash and cash equivalents  beginning
    of year                               |                                     |                        | 42,384  |         |   |   | 99,818  |        
|                                                                                |                                     |                        |         |         |   |   |         |        
|Cash and cash equivalents  end of
    period                                   |                                     | $                      | 28,032  |         |   | $ | 38,356  |        
|                                                                                |                                     |                        |         |         |   |   |         |        
|Supplemental disclosures of cash flow information:                              |                                     |                        |         |         |   |   |         |        
|                                                                                | Net interest paid                   |                        | $       | 5,511   |   |   | $       | 3,744   |  
|                                                                                | Cash paid for reorganization items  |                        |         |        |   |   |         | 13,115  |  

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

4



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##### Table of Contents



STERLING CHEMICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS

(Unaudited)




|   |                      
|-- | ---------------------
|1. | Basis of Presentation



| |                                   
| | ----------------------------------
| | Interim Financial
    Information:

In our opinion, the accompanying unaudited
condensed consolidated financial statements reflect all
adjustments necessary to present fairly our consolidated
financial position and consolidated results of operations and
cash flows for the applicable three and nine-month periods ended
September 30, 2004 and September 30, 2003. All such
adjustments are of a normal and recurring nature. The results of
operations and cash flows for the periods presented are not
necessarily indicative of the results to be expected for the
full year.

The accompanying unaudited condensed consolidated
financial statements should be, and are assumed to have been,
read in conjunction with the consolidated financial statements
and notes included in our Annual Report on Form 10-K for
the fiscal year ended December 31, 2003 (our Annual
Report). The accompanying condensed consolidated balance
sheet as of December 31, 2003 has been derived from the
audited consolidated balance sheet as of December 31, 2003
included in our Annual Report. The accompanying condensed
consolidated financial statements, as of September 30, 2004
and for the three and nine-month periods ended
September 30, 2004 and 2003, have been reviewed by
Deloitte & Touche LLP, our independent registered
public accounting firm, whose report is included herein.



| |                     
| | --------------------
| | Recent Developments:

During the third quarter of 2004, we began
developing an organizational efficiency project involving the
design, development and implementation of uniform and
standardized systems, processes and policies to improve our
production, maintenance, process efficiency, logistics and
materials management and procurement functions. Over the course
of developing this project, we have analyzed our organizational
structure, selected an optimum workforce design and staffing
model and identified various production and process efficiency
measures. On November 5, 2004, our Board of Directors
authorized us to implement the project.

In addition to the organizational efficiency
project, during the first three quarters of 2004 we implemented,
and we are continuing to implement, other cost savings
initiatives. We expect the combined annual cost savings of the
organizational efficiency project and these other initiatives to
be approximately $20 million, with approximately 20% to 40%
of these savings accruing to the benefit of some of our
customers under the cost reimbursement provisions of our
production agreements. We cannot give any assurances, however,
as to the actual level of savings that will be achieved as a
result of these cost savings initiatives, which can be
influenced by a variety of factors, including operating rates
and sales volume of our various production units. As part of
these projects, we will have incurred approximately
$3.9 million for related employee severance and benefit
costs, of which $2.5 million will be incurred during the
fourth quarter of 2004. Excluding employee severance and benefit
costs, the total cost of these projects will be approximately
$2 million.

On April 2, 2004, we entered into a Purchase
and Sale Agreement with Sigma Investment Holdings, L.L.C.
(Sigma) that governs the possible sale of our idled
methanol plant. The closing of the sale was originally scheduled
to occur on or before April 30, 2004. However, we and Sigma
have extended the closing date, and we now expect the closing to
occur during the fourth quarter of 2004, although no assurances
can be given to that effect. Pursuant to the terms of the
Purchase and Sale Agreement, as of October 15, 2004, Sigma
has made a $4.8 million non-refundable good faith deposit
towards the purchase price, of which $4.4 million had been
received as of September 30, 2004. If the sale is
consummated, the methanol plant will be dismantled and the
purchaser has informed us that they intend to reassemble the
methanol plant in Asia. Under our Methanol Production Agreement
with BP Amoco Chemical Company (BP Chemicals),
BP Chemicals is entitled to a portion of the net proceeds
from any sale of our methanol plant (or the good faith deposit
if the sale is not ultimately consummated). After taking into
account sales commissions and various costs and expenses we
expect to incur in connection with preparing the methanol plant
for dismantling,

5



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##### Table of Contents



STERLING CHEMICALS, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)

as well as the distribution to BP Chemicals, we
expect to retain approximately $3 million from any sale of
our methanol plant to Sigma. The assets comprising the methanol
plant were not ascribed any value upon our application of
fresh-start accounting in 2002. As a result, no assets have been
recorded as held for sale in our financial
statements.



| |                           
| | --------------------------
| | Bankruptcy Reorganization:

On July 16, 2001, Sterling Chemicals
Holdings, Inc., Sterling Chemicals, Inc. and most of their
U.S. subsidiaries (collectively, the Debtors)
filed voluntary petitions for reorganization under
Chapter 11 of the United States Bankruptcy Code (the
Bankruptcy Code) in the U.S. Bankruptcy Court
for the Southern District of Texas (the Bankruptcy
Court). The Debtors filed a plan of reorganization with
the Bankruptcy Court on May 14, 2002 which, after several
amendments, was confirmed on November 20, 2002 (as
confirmed, the Plan of Reorganization). On
December 19, 2002, the Plan of Reorganization became
effective and the Debtors emerged from bankruptcy pursuant to
the terms of the Plan of Reorganization. Due to the
Debtors emergence from bankruptcy and the implementation
of fresh-start accounting, we refer to ourselves as
Predecessor Sterling for periods on or before
December 19, 2002 and Reorganized Sterling for
periods after December 19, 2002.



|   |                         
|-- | ------------------------
|2. | Stock-Based Compensation

In connection with the implementation of the Plan
of Reorganization, we adopted our 2002 Stock Plan and reserved
379,747 shares of our common stock for issuance under our
2002 Stock Plan (subject to adjustment). Under our 2002 Stock
Plan, officers and key employees, as designated by our Board of
Directors, may be issued stock options, stock awards, stock
appreciation rights or stock units. On February 11, 2003,
we granted options to purchase a total of 348,500 shares of
our common stock to certain of our officers and key employees at
an exercise price of $31.60 per share.

We account for our stock-based compensation
arrangements using the intrinsic value method in accordance with
the provisions of Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to
Employees (APB 25), and related
interpretations. Under APB 25, if the exercise price of
employee stock options equals or exceeds the market price of the
underlying stock on the date of grant, no compensation expense
is recognized. All stock options issued under our 2002 Stock
Plan were granted with exercise prices at estimated fair value
at the time of grant. Therefore, no compensation expense has
been recognized under APB 25.

6



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##### Table of Contents



STERLING CHEMICALS, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)

The following table illustrates the effect on our
net income (loss) and income (loss) per share attributable to
common stockholders if compensation costs for stock options
issued under our 2002 Stock Plan had been determined using the
estimated market value at the grant dates amortized on a pro
rata basis over the vesting period, calculated pursuant to
Statement of Accounting Financial Standards (SFAS)
No. 123, Accounting for Stock-Based
Compensation, for the three and nine-month periods ended
September 30, 2004 and, 2003. There were no options
outstanding under our 2002 Stock Plan prior to February 11,
2003.

|                                                                                                                                                    |             |                                           |       |                   |  |      |      |       |   |   |         |        |   |   |         |       |  
|--------------------------------------------------------------------------------------------------------------------------------------------------- | ----------- | ----------------------------------------- | ----- | ----------------- |  | ---- | ---- | ----- | - | - | ------- | ------ | - | - | ------- | ----- | -
|                                                                                                                                                    |             |                                           |       |                  
|                                                                                                                                                    |             | Three Months Ended                        |       | Nine Months Ended
|                                                                                                                                                    |             | September 30,                             |       | September 30,    
|                                                                                                                                                    |             |                                           |       |                  
|                                                                                                                                                    |             | 2004                                      |       | 2003              |  | 2004 |      | 2003 
|                                                                                                                                                    |             |                                           |       |                   |  |      |      |      
|                                                                                                                                                    |             |                                          
|                                                                                                                                                    |             | (Dollars in thousands, except share data)
|Net income (loss) attributable to common
    stockholders, as reported                                                                              |             | $                                         | 4,002 |                   |  | $    | 230  |       |   | $ | (59,322 | )      |   | $ | (16,523 | )    
|Add: Stock-based employee compensation expense
    included in reported net income (loss), net of related tax
    effects                           |             |                                           |      |                   |  |      |     |       |   |   |        |        |   |   |        |      
|Deduct: Total stock-based employee compensation
    expense determined under fair value based method for all awards,
    net of related tax effects |             |                                           | 270   |                   |  |      | 594  |       |   |   | 972     |        |   |   | 1,484   |      
|                                                                                                                                                    |             |                                           |       |                   |  |      |      |       |   |   |         |        |   |   |         |      
|Pro forma net income (loss)                                                                                                                         |             | $                                         | 3,732 |                   |  | $    | (364 | )     |   | $ | (60,294 | )      |   | $ | (18,007 | )    
|                                                                                                                                                    |             |                                           |       |                   |  |      |      |       |   |   |         |        |   |   |         |      
|Basic income (loss) per share attributable to
    common stockholders:                                                                              |             |                                           |       |                   |  |      |      |       |   |   |         |        |   |   |         |      
|                                                                                                                                                    | As reported |                                           | $     | 1.42              |  |      | $    | 0.08  |   |   | $       | (21.00 | ) |   | $       | (5.85 | )
|                                                                                                                                                    | Pro forma   |                                           |       | 1.32              |  |      |      | (0.13 | ) |   |         | (21.34 | ) |   |         | (6.37 | )
|Diluted income (loss) per share attributable to
    common stockholders:                                                                            |             |                                           |       |                   |  |      |      |       |   |   |         |        |   |   |         |      
|                                                                                                                                                    | As reported |                                           | $     | 0.99              |  |      | $    | 0.08  |   |   | $       | (21.00 | ) |   | $       | (5.85 | )
|                                                                                                                                                    | Pro forma   |                                           |       | 0.94              |  |      |      | (0.13 | ) |   |         | (21.34 | ) |   |         | (6.37 | )



|   |            
|-- | -----------
|3. | Inventories

|                                      |  |                        |        |                   |  |   |        | 
|------------------------------------- |  | ---------------------- | ------ | ----------------- |  | - | ------ | 
|                                      |  | September 30, 2004     |        | December 31, 2003
|                                      |  |                        |        |                  
|                                      |  |                       
|                                      |  | (Dollars in thousands)
|Finished products                     |  | $                      | 40,324 |                   |  | $ | 37,944 | 
|Raw materials                         |  |                        | 14,153 |                   |  |   | 16,480 | 
|Inventories under exchange agreements |  |                        | 5,262  |                   |  |   | 1,325  | 
|Stores and supplies                   |  |                        | 5,089  |                   |  |   | 5,834  | 
|                                      |  |                        |        |                   |  |   |        | 
|                                      |  | $                      | 64,828 |                   |  | $ | 61,583 | 
|                                      |  |                        |        |                   |  |   |        | 

7



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##### Table of Contents



STERLING CHEMICALS, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)



|   |                   
|-- | ------------------
|4. | Earnings Per Share

Basic earnings (loss) per share (EPS)
is calculated by dividing net income (loss) attributable to
common shareholders by the weighted average number of common
shares outstanding for the period. Diluted EPS is calculated by
dividing net income (loss) by the weighted average number of
common shares outstanding, plus the assumed exercise of all
dilutive securities using the treasury stock method or the
if converted method, as appropriate. The following
table provides a reconciliation of basic and diluted EPS:

|                                                                                 |  |                                           |           |                   |  |      |           |      |  |   |           |   |  |   |           |  
|-------------------------------------------------------------------------------- |  | ----------------------------------------- | --------- | ----------------- |  | ---- | --------- | ---- |  | - | --------- | - |  | - | --------- | -
|                                                                                 |  |                                           |           |                  
|                                                                                 |  | Three Months Ended                        |           | Nine Months Ended
|                                                                                 |  | September 30,                             |           | September 30,    
|                                                                                 |  |                                           |           |                  
|                                                                                 |  | 2004                                      |           | 2003              |  | 2004 |           | 2003
|                                                                                 |  |                                           |           |                   |  |      |           |     
|                                                                                 |  |                                          
|                                                                                 |  | (Dollars in thousands, except share data)
|Basic income (loss) per share:                                                   |  |                                           |           |                   |  |      |           |      |  |   |           |   |  |   |           |  
|Income (loss) from continuing operations
    attributable to common shareholders |  | $                                         | 4,002     |                   |  | $    | 230       |      |  | $ | (59,322   | ) |  | $ | (15,547   | )
|Loss from discontinued operations                                                |  |                                           |          |                   |  |      |          |      |  |   |          |   |  |   | 976       |  
|                                                                                 |  |                                           |           |                   |  |      |           |      |  |   |           |   |  |   |           |  
|Net income (loss), net of tax                                                    |  | $                                         | 4,002     |                   |  | $    | 230       |      |  | $ | (59,322   | ) |  | $ | (16,523   | )
|                                                                                 |  |                                           |           |                   |  |      |           |      |  |   |           |   |  |   |           |  
|Weighted average shares outstanding                                              |  |                                           | 2,825,000 |                   |  |      | 2,825,000 |      |  |   | 2,825,000 |   |  |   | 2,825,000 |  
|Earnings per common share:                                                       |  |                                           |           |                   |  |      |           |      |  |   |           |   |  |   |           |  
|Income (loss) from continuing operations
    attributable to common shareholders |  | $                                         | 1.42      |                   |  | $    | 0.08      |      |  | $ | (21.00    | ) |  | $ | (5.50     | )
|Loss from discontinued operations                                                |  |                                           |          |                   |  |      |          |      |  |   |          |   |  |   | (0.35     | )
|                                                                                 |  |                                           |           |                   |  |      |           |      |  |   |           |   |  |   |           |  
|Net income (loss)                                                                |  | $                                         | 1.42      |                   |  | $    | 0.08      |      |  | $ | (21.00    | ) |  | $ | (5.85     | )
|                                                                                 |  |                                           |           |                   |  |      |           |      |  |   |           |   |  |   |           |  
|Diluted income (loss) per share:                                                 |  |                                           |           |                   |  |      |           |      |  |   |           |   |  |   |           |  
|Income (loss) from continuing operations
    attributable to common shareholders |  | $                                         | 4,002     |                   |  | $    | 230       |      |  | $ | (59,322   | ) |  | $ | (15,547   | )
|Loss from discontinued operations                                                |  |                                           |          |                   |  |      |          |      |  |   |          |   |  |   | 976       |  
|                                                                                 |  |                                           |           |                   |  |      |           |      |  |   |           |   |  |   |           |  
|Net income (loss), net of tax                                                    |  |                                           | 4,002     |                   |  |      | 230       |      |  |   | (59,322   | ) |  |   | (16,523   | )
|Add: preferred stock dividends                                                   |  |                                           | 1,527     |                   |  |      |          |      |  |   |          |   |  |   |          |  
|                                                                                 |  |                                           |           |                   |  |      |           |      |  |   |           |   |  |   |           |  
|Income (loss) for purposes of computing diluted
    earnings per share           |  | $                                         | 5,529     |                   |  | $    | 230       |      |  | $ | (59,322   | ) |  | $ | (16,523   | )
|                                                                                 |  |                                           |           |                   |  |      |           |      |  |   |           |   |  |   |           |  
|Weighted average common shares outstanding                                       |  |                                           | 2,825,000 |                   |  |      | 2,825,000 |      |  |   | 2,825,000 |   |  |   | 2,825,000 |  
|Dilutive impact of preferred stock, if converted                                 |  |                                           | 2,767,626 |                   |  |      |          |      |  |   |          |   |  |   |          |  
|                                                                                 |  |                                           |           |                   |  |      |           |      |  |   |           |   |  |   |           |  
|Weighted average common shares outstanding
    assuming dilution                 |  |                                           | 5,592,626 |                   |  |      | 2,825,000 |      |  |   | 2,825,000 |   |  |   | 2,825,000 |  
|                                                                                 |  |                                           |           |                   |  |      |           |      |  |   |           |   |  |   |           |  
|Earnings per common share assuming dilution:                                     |  |                                           |           |                   |  |      |           |      |  |   |           |   |  |   |           |  
|Income (loss) from continuing operations
    attributable to common shareholders |  | $                                         | 0.99      |                   |  | $    | 0.08      |      |  | $ | (21.00    | ) |  | $ | (5.50     | )
|Loss from discontinued operations                                                |  |                                           |          |                   |  |      |          |      |  |   |          |   |  |   | (0.35     | )
|                                                                                 |  |                                           |           |                   |  |      |           |      |  |   |           |   |  |   |           |  
|Net income (loss)                                                                |  | $                                         | 0.99      |                   |  | $    | 0.08      |      |  | $ | (21.00    | ) |  | $ | (5.85     | )
|                                                                                 |  |                                           |           |                   |  |      |           |      |  |   |           |   |  |   |           |  

For the three months ended September 30,
2003 and the nine months ended September 30, 2004 and 2003,
outstanding stock options and warrants and conversion of
preferred stock are excluded from the computation as they were
anti-dilutive.

8



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##### Table of Contents



STERLING CHEMICALS, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)



|   |                                                 
|-- | ------------------------------------------------
|5. | Long-Lived Assets and Impairment of
    Goodwill

As part of our review of financial results for
the quarter ended June 30, 2004, we performed an assessment
of the carrying value of our long-lived assets to be held and
used, including goodwill. This assessment was performed because
of negative industry and economic trends that were affecting
both our existing operations and expected future margins,
primarily driven by high raw materials and energy prices. At the
conclusion of this assessment, we recorded a non-cash impairment
of goodwill charge of $48.5 million for the quarter ended
June 30, 2004. Recoverability was determined by comparing
the estimated fair value, utilizing the present value of
expected net cash flows, to the carrying value. This present
value model requires management to estimate future net cash
flows, the timing of these cash flows and a discount rate
representing the time value of money and the inherent risk of
uncertainty of the future cash flows. The discount rate,
adjusted for inflation, was based on independently calculated
risks for a composite group of commodity chemical companies, our
target capital mix and an estimated market risk premium. The
assumptions used in estimating future cash flows were consistent
with our internal planning.

During our assessment of our long-lived assets
other than goodwill, we analyzed recoverability based on our
projected undiscounted net future cash flows over the remaining
life of the assets. Based on this analysis, no impairment loss
was required, as these projected cash flows were greater than
the carrying amount.



|   |               
|-- | --------------
|6. | Long-Term Debt

Pursuant to the Plan of Reorganization, on
December 19, 2002, we issued $94.3 million in original
principal amount of our 10% Senior Secured Notes due 2007
(our Secured Notes) to the holders of Predecessor
Sterlings 12 3/8% Senior Secured Notes due 2006.
Our Secured Notes are senior secured obligations and rank
equally in right of payment with all of our other existing and
future senior indebtedness, and senior in right of payment to
all of our existing and future subordinated indebtedness. Our
Secured Notes are guaranteed by Sterling Chemicals Energy, Inc.
(Sterling Energy), one of our wholly owned
subsidiaries. Sterling Energys guaranty ranks equally in
right of payment with all of its existing and future senior
indebtedness, and senior in right of payment to all of its
existing and future subordinated indebtedness. Our Secured Notes
and Sterling Energys guaranty are secured by a first
priority lien on all of our production facilities and related
assets.

Our Secured Notes bear interest at an annual rate
of 10%, payable semi-annually on June 15 and
December 15 of each year. Under certain circumstances, for
any interest period ending on or before December 19, 2004,
we may elect to pay interest on our Secured Notes through the
issuance of additional Secured Notes rather than the payment of
cash. However, if we pay interest through the issuance of
additional Secured Notes rather than the payment of cash, the
interest rate for the relevant period is increased to
13 3/8%. In December 2003, we made an interest payment on
our Secured Notes at the higher rate through the issuance of
$6.3 million in original principal amount of Secured Notes,
increasing the aggregate principal amount of outstanding Secured
Notes to $100.6 million. All other interest payments on our
Secured Notes have been made in cash. Subject to compliance with
the terms of our Revolving Credit Agreement dated
December 19, 2002, with The CIT Group/ Business Credit,
Inc., as administrative agent and a lender, and certain other
lenders (our Revolver), we may redeem our Secured
Notes at any time at a redemption price of 100% of the
outstanding principal amount thereof plus accrued and unpaid
interest. In addition, in the event of a specified change of
control or the sale of our facility in Texas City, Texas, we are
required to offer to repurchase our Secured Notes at 101% of the
outstanding principal amount thereof plus accrued and unpaid
interest. Under certain circumstances, we are also required to
use the proceeds of other asset sales to repurchase any of our
Secured Notes tendered by the holders of our Secured Notes at a
price equal to 100% of the outstanding principal amount thereof
plus accrued and unpaid interest.

The indenture governing our Secured Notes
contains numerous covenants and conditions, including, but not
limited to, restrictions on our ability to incur indebtedness,
create liens, sell assets, make investments,

9



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##### Table of Contents



STERLING CHEMICALS, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)

make capital expenditures, engage in mergers and
acquisitions and pay dividends. The indenture also includes
various circumstances and conditions that would, upon their
occurrence and subject in certain cases to notice and grace
periods, create an event of default thereunder. However, the
indenture does not require us to satisfy any financial ratios or
maintenance tests.

On December 19, 2002, we established the
Revolver, which provides up to $100 million in revolving
credit loans. The Revolver has an initial term ending on
September 19, 2007. Under the Revolver, we and Sterling
Energy are co-borrowers and are jointly and severally liable for
any indebtedness thereunder. The Revolver is secured by first
priority liens on all of our accounts receivable, inventory and
other specified assets, as well as all of the issued and
outstanding capital stock of Sterling Energy.

Borrowings under the Revolver bear interest, at
our option, at an annual rate of either the Alternate Base Rate
plus 0.75% or the LIBO Rate (as defined in the
Revolver) plus 2.75%. The Alternate Base Rate is
equal to the greater of the Base Rate as announced
from time to time by JPMorgan Chase Bank in New York, New York
or 0.50% per annum above the latest Federal Funds
Rate (as defined in the Revolver). The borrowing rate
under the Revolver for the three and nine-month periods ended
September 30, 2004 was 5.2% and 5.1%, respectively. Under
the Revolver, we are also required to pay an aggregate
commitment fee of 0.50% per year (payable monthly) on any
unused portion of the Revolver. Available credit under the
Revolver is subject to a monthly borrowing base of 85% of
eligible accounts receivable plus the lesser of $50 million
and 65% of eligible inventory. In addition, the borrowing base
for the Revolver must exceed outstanding borrowings thereunder
by $8 million at all times. As of September 30, 2004,
total credit available under the Revolver was limited to
$71 million due to these borrowing base limitations. As of
September 30, 2004, there were no loans outstanding under
the Revolver, although we had $1 million in outstanding
letters of credit issued pursuant to the Revolver.

The Revolver contains numerous covenants and
conditions, including, but not limited to, restrictions on our
ability to incur indebtedness, create liens, sell assets, make
investments, make capital expenditures, engage in mergers and
acquisitions and pay dividends. The Revolver also contains a
covenant that requires us to earn a specified amount of earnings
before interest, income taxes, depreciation and amortization (as
defined in the Revolver) on a monthly basis if, for
15 consecutive days, unused availability under the Revolver
plus cash on hand is less than $20 million. The Revolver
includes various circumstances and conditions that would, upon
their occurrence and subject in certain cases to notice and
grace periods, create an event of default thereunder.



|   |                              
|-- | -----------------------------
|7. | Commitments and Contingencies



| |                   
| | ------------------
| | Product Contracts:

We have certain long-term agreements that provide
for the dedication of 100% of our production of acetic acid,
plasticizers, sodium cyanide and disodium iminodiacetic acid, or
DSIDA, each to one customer. We also have various sales and
conversion agreements that dedicate significant portions of our
production of styrene and acrylonitrile to certain customers.
Some of these agreements provide for cost recovery plus an
agreed profit margin based upon market prices.



| |                           
| | --------------------------
| | Environmental Regulations:

Our operations involve the handling, production,
transportation, treatment and disposal of materials that are
classified as hazardous or toxic waste and that are extensively
regulated by environmental and health and safety laws,
regulations and permit requirements. Environmental permits
required for our operations are subject to periodic renewal and
can be revoked or modified for cause or when new or revised
environmental requirements are implemented. Changing and
increasingly strict environmental requirements can affect the
manufacture, handling, processing, distribution and use of our
chemical products and, if so affected, our business and
operations may be materially and adversely affected. In
addition, changes in environmental

10



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##### Table of Contents



STERLING CHEMICALS, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)

requirements can cause us to incur substantial
costs in upgrading or redesigning our facilities and processes,
including our waste treatment, storage, disposal and other waste
handling practices and equipment.

A business risk inherent in chemical operations
is the potential for personal injury and property damage claims
from employees, contractors and their employees and nearby
landowners and occupants. While we believe our business
operations and facilities generally are operated in compliance
with all applicable environmental and health and safety
requirements in all material respects, we cannot be sure that
past practices or future operations will not result in material
claims or regulatory action, require material environmental
expenditures or result in exposure or injury claims by
employees, contractors and their employees and the public. Some
risk of environmental costs and liabilities is inherent in our
operations and products, as it is with other companies engaged
in similar businesses.

We have incurred, and may continue to incur,
liability for investigation and cleanup of waste or
contamination at our own facilities or at facilities operated by
third parties where we have disposed of waste. We continually
review all estimates of potential environmental liabilities but
can give no assurances that all potential liabilities arising
out of our past or present operations have been identified or
fully assessed, or that the amount necessary to investigate and
remediate such conditions will not be significant to us.

On December 13, 2002, the Texas Commission
for Environmental Quality adopted a revised State Implementation
Plan (SIP) for compliance with the ozone provisions
of the Clean Air Act. The SIP is currently being reviewed by the
Environmental Protection Agency, which is expected to make
further revisions to these rules. Under the current SIP, we
would be required to reduce emissions of nitrogen oxide at our
Texas City, Texas facility by approximately 80% by the end of
2007. The current rule also requires monitoring of emissions of
highly reactive volatile organic carbons (HRVOCs),
such as ethylene and propylene, by the end of 2005, and imposes
a site-wide cap on emissions of HRVOCs in 2006. We believe that
we will need to make between $20 million and
$25 million in capital improvements in order to comply with
all of these new regulations. We anticipate that the majority of
these capital expenditures and other expenses will be incurred
over the four-year period that began on January 1, 2004.
Under certain of our production agreements, we should be able to
recover a small portion of these costs from the other parties to
these agreements. We have identified several alternative
methods, and are currently evaluating additional alternative
methods, of reducing nitrogen oxide emissions at our Texas City,
Texas facility that would either require less capital
expenditures or result in energy savings that would, over a
period of years, offset some of the initial capital
expenditures. However, we cannot give any assurances that any
such alternative methods will be available to us or that, even
if available, these alternative methods would reduce the net
amount of capital expenditures required to be made by a
meaningful amount.



| |                   
| | ------------------
| | Legal Proceedings:

As previously discussed, the Debtors filed
voluntary petitions for reorganization under Chapter 11 of
the Bankruptcy Code on July 16, 2001. As a result of the
commencement of the Chapter 11 cases, an automatic stay was
imposed against the commencement or continuation of legal
proceedings against the Debtors outside of the Bankruptcy Court.
Claimants with alleged claims against the Debtors were required
to assert their claims in the Chapter 11 cases by timely
filing a proof of claim, to which the Debtors were allowed to
file an objection and seek a determination from the Bankruptcy
Court as to whether such claims were allowable. Claims and legal
actions against the Debtors that existed as of the
Chapter 11 filing date are subject to the discharge
injunction provided for in the Plan of Reorganization, and
recoveries sought thereon from assets of the Debtors are subject
to the terms of the Plan of Reorganization. As a general rule,
all claims against the Debtors that sought a recovery from
assets of the Debtors estates have been addressed in the
Chapter 11 cases and have been or will be paid only
pursuant to the terms of the Plan of Reorganization or
negotiated settlements.

11



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##### Table of Contents



STERLING CHEMICALS, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)

Very few issues remain outstanding before the
Bankruptcy Court, all of which relate to the allowability or
amount of certain claims. We do not believe that the outcome of
any of these issues will have a material adverse effect on our
business, financial position, results of operations or cash
flows, although we cannot give any assurances to that effect.

We are subject to various other claims and legal
actions that arise in the ordinary course of our business. We do
not believe that any of these claims and actions, separately or
in the aggregate, would be expected to have a material adverse
effect on any results of operations or financial position.



|   |                                                    
|-- | ---------------------------------------------------
|8. | Pension Plans and Other Postretirement
    Benefits

Effective December 31, 2003, we adopted
SFAS No. 132 (as revised in December 2003),
Employers Disclosures about Pensions and Other
Postretirement Benefits. This standard requires the
disclosure of the components of net periodic benefit cost
recognized during interim periods.

Net periodic pension costs consisted of the
following components:

|                               |  |                        |        |                        |  |      |        |      |  |   |        |   |  |   |        |  
|------------------------------ |  | ---------------------- | ------ | ---------------------- |  | ---- | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                               |  |                        |        |                       
|                               |  | Three Months Ended     |        | Nine Months Ended     
|                               |  | September 30,          |        | September 30,         
|                               |  |                        |        |                       
|                               |  | 2004                   |        | 2003                   |  | 2004 |        | 2003
|                               |  |                        |        |                        |  |      |        |     
|                               |  |                        |        |                       
|                               |  | (Dollars in thousands) |        | (Dollars in thousands)
|Service cost                   |  | $                      | 866    |                        |  | $    | 828    |      |  | $ | 2,598  |   |  | $ | 2,484  |  
|Interest cost                  |  |                        | 1,886  |                        |  |      | 1,908  |      |  |   | 5,656  |   |  |   | 5,725  |  
|Expected return on plan assets |  |                        | (1,478 | )                      |  |      | (1,301 | )    |  |   | (4,434 | ) |  |   | (3,903 | )
|                               |  |                        |        |                        |  |      |        |      |  |   |        |   |  |   |        |  
|Net pension costs              |  | $                      | 1,274  |                        |  | $    | 1,435  |      |  | $ | 3,820  |   |  | $ | 4,306  |  
|                               |  |                        |        |                        |  |      |        |      |  |   |        |   |  |   |        |  

Other postretirement benefits costs consisted of
the following components:

|                                   |  |                    |      |                   |  |      |      |      |  |   |        |   |  |   |       |  
|---------------------------------- |  | ------------------ | ---- | ----------------- |  | ---- | ---- | ---- |  | - | ------ | - |  | - | ----- | -
|                                   |  |                    |      |                  
|                                   |  | Three Months Ended |      | Nine Months Ended
|                                   |  | September 30,      |      | September 30,    
|                                   |  |                    |      |                  
|                                   |  | 2004               |      | 2003              |  | 2004 |      | 2003
|                                   |  |                    |      |                   |  |      |      |     
|                                   |  |                    |      |                  
|                                   |  | (Dollars in        |      | (Dollars in      
|                                   |  | thousands)         |      | thousands)       
|Service cost                       |  | $                  | 51   |                   |  | $    | 115  |      |  | $ | 259    |   |  | $ | 345   |  
|Interest cost                      |  |                    | 382  |                   |  |      | 584  |      |  |   | 1,489  |   |  |   | 1,752 |  
|Curtailment gain                   |  |                    |     |                   |  |      |     |      |  |   | (1,418 | ) |  |   |      |  
|Amortization of unrecognized costs |  |                    | (430 | )                 |  |      | (119 | )    |  |   | (772   | ) |  |   | (357  | )
|                                   |  |                    |      |                   |  |      |      |      |  |   |        |   |  |   |       |  
|Net plan costs                     |  | $                  | 3    |                   |  | $    | 580  |      |  | $ | (442   | ) |  | $ | 1,740 |  
|                                   |  |                    |      |                   |  |      |      |      |  |   |        |   |  |   |       |  

In June 2004, we had a reduction in force at our
Texas City, Texas plant. This reduction in force led to a
curtailment of our postretirement benefit plan resulting in a
$1.4 million curtailment gain, with $1.3 million of
the gain reflected in cost of goods sold and $0.1 million
reflected in selling, general and administrative expenses during
the quarter ended June 30, 2004. In addition, our plan was
amended as of June 1, 2004 as follows: employees hired
after this date are not eligible for retiree medical benefits,
our contribution rates for retiree medical coverage are frozen
at the 2004 level and prescription drug co-pays were increased
5%. This amendment reduced the accumulated postretirement
benefit obligation by $9.2 million, which is being
amortized over the average remaining service period to full
eligibility of the active plan participants (which is
8.5 years).

On November 5, 2004, our Board of Directors
approved an amendment to our salaried pension plans, which will
freeze accruals under these plans. These changes to our salaried
pension plans are effective

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STERLING CHEMICALS, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)

January 1, 2005. On the effective date of
the amendment, a one-time plan curtailment gain of between
$10 million and $15 million will be realized.



|   |                         
|-- | ------------------------
|9. | New Accounting Standards

In December 2003, the Financial Accounting
Standards Board (FASB) issued FASB Interpretation
Number (FIN) 46-R, Consolidation of Variable
Interest Entities. FIN 46-R, which modifies certain
provisions and effective dates of FIN 46, sets forth
criteria to be used in determining whether an investment in a
variable interest entity should be consolidated. These
provisions are based on the general premise that if a company
controls another entity through interests other than voting
interests, that company should consolidate the controlled
entity. We do not believe that any of our investments or any
other arrangements that come within the definition of a variable
interest entity are required to be consolidated under
FIN 46-R.

In January 2004, the FASB issued FASB Staff
Position No. FAS 106-1, Accounting and
Disclosure Requirements Related to the Medicare Prescription
Drug Improvement and Modernization Act of 2003, which is
effective for interim or annual financial statements for fiscal
years ending after December 7, 2003, and permits a one-time
election to defer accounting for the effects of the Medicare
Prescription Drug, Improvement and Modernization Act of 2003
(the Act). In May 2004, the FASB issued FASB Staff
Position No. 106-2, Accounting and Disclosure
Requirements Related to the Medicare Prescription Drug,
Improvement and Modernization Act of 2003
(FAS 106-2) which supercedes FAS 106-1.
FAS 106-2 provides guidance on the accounting for the
effects of the Act for employers that sponsor postretirement
heath care plans that provide prescription drug benefits, and
requires those employers to provide certain disclosures
regarding the effect of the federal subsidy provided under the
Act. FAS 106-2 applies to us for all interim and annual
periods commencing on or after July 1, 2004. We performed a
measurement of the effects of the Act on our accumulated
postretirement benefit obligation and determined that, based on
the regulatory guidance currently available, benefits provided
by our postretirement plan are at least actuarially equivalent
to Medicare Part D, and accordingly, we expect to be entitled to
the federal subsidy in the years 2006 through 2009. We estimate
that this subsidy will be approximately 20% of the net benefits
under our plan, or $0.2 million annually.

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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

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

We have reviewed the accompanying condensed
consolidated balance sheet of Sterling Chemicals, Inc. and
subsidiaries (the Company) as of September 30,
2004, and the related condensed consolidated statements of
operations for the three and nine-month periods ended
September 30, 2004 and 2003, and cash flows for the
nine-month periods ended September 30, 2004 and 2003. These
financial statements are the responsibility of the
Companys management.

We conducted our review in accordance with
standards of the Public Company Accounting Oversight Board
(United States). A review of interim financial information
consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for
financial and accounting matters. It is substantially less in
scope than an audit conducted in accordance with standards of
the Public Company Accounting Oversight Board (United States),
the objective of which is the expression of an opinion regarding
the financial statements taken as a whole. Accordingly, we do
not express such an opinion.

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

We have previously audited, in accordance with
auditing standards generally accepted in the United States of
America, the consolidated balance sheet of the Company as of
December 31, 2003, and the related consolidated statements
of operations, stockholders equity, and cash flows for the
year then ended (not presented herein); and in our report dated
March 19, 2004, we expressed an unqualified opinion on
those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated
balance sheet as of December 31, 2003 is fairly stated, in
all material respects, in relation to the consolidated balance
sheet from which it has been derived.



| |                      
| | ---------------------
| | DELOITTE & TOUCHE LLP

Houston, Texas

November 8, 2004


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##### Table of Contents








|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 2. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

The following discussion should be read in
conjunction with our condensed consolidated financial statements
(including the Notes thereto) included in Item 1,
Part I of this report.

Recent Developments

During the third quarter of 2004, we began
developing an organizational efficiency project involving the
design, development and implementation of uniform and
standardized systems, processes and policies to improve our
production, maintenance, process efficiency, logistics and
materials management and procurement functions. Over the course
of developing this project, we have analyzed our organizational
structure, selected an optimum workforce design and staffing
model and identified various production and process efficiency
measures. On November 5, 2004, our Board of Directors
authorized us to implement the project.

In addition to the organizational efficiency
project, during the first three quarters of 2004 we implemented,
and we are continuing to implement, other cost savings
initiatives. We expect the combined annual cost savings of the
organizational efficiency project and these other initiatives to
be approximately $20 million, with approximately 20% to 40%
of these savings accruing to the benefit of some of our
customers under the cost reimbursement provisions of our
production agreements. We cannot give any assurances, however,
as to the actual level of savings that will be achieved as a
result of these cost savings initiatives, which can be
influenced by a variety of factors, including operating rates
and sales volume of our various production units. As part of
these projects, we will have incurred approximately
$3.9 million for related employee severance and benefit
costs, of which $2.5 million will be incurred during the
fourth quarter of 2004. Excluding employee severance and benefit
costs, the total cost of these projects will be approximately
$2 million.

On April 2, 2004, we entered into a Purchase
and Sale Agreement with Sigma Investment Holdings, L.L.C.
(Sigma) that governs the possible sale of our idled
methanol plant. The closing of the sale was originally scheduled
to occur on or before April 30, 2004. However, we and Sigma
have extended the closing date, and we now expect the closing to
occur during the fourth quarter of 2004, although no assurances
can be given to that effect. Pursuant to the terms of the
Purchase and Sale Agreement, as of October 15, 2004, Sigma
has made a $4.8 million non-refundable good faith deposit
towards the purchase price, of which $4.4 million had been
received as of September 30, 2004. If the sale is
consummated, the methanol plant will be dismantled and the
purchaser has informed us that they intend to reassemble the
methanol plant in Asia. Under our Methanol Production Agreement
with BP Amoco Chemical Company (BP Chemicals),
BP Chemicals is entitled to a portion of the net proceeds
from any sale of our methanol plant (or the good faith deposit
if the sale is not ultimately consummated). After taking into
account sales commissions and various costs and expenses we
expect to incur in connection with preparing the methanol plant
for dismantling, as well as the distribution to BP Chemicals, we
expect to retain approximately $3 million from any sale of
our methanol plant to Sigma. The assets comprising the methanol
plant were not ascribed any value upon our application of
fresh-start accounting in 2002. As a result, no assets have been
recorded as held for sale in our financial
statements.

Business Overview

We manufacture a variety of petrochemicals.
However, our financial performance is largely dependent on the
performance of our styrene and acrylonitrile operations, with
our styrene operations having the most influence on our results.
Styrene and acrylonitrile are commodities and exhibit wide
swings in prices and profit margins based upon current and
anticipated levels of supply and demand. Our other products,
while also commodities, tend to produce fairly consistent
results over time. Since our inception, our business strategy
has centered on an effort to take advantage of the high margins
that can be realized during the peaks in the market
cycles to generate significant amounts of net income, which we
believe will provide us greater average returns over time.
Consequently, a large portion of our styrene capacity is
uncommitted and available for sale in the spot markets. While
having available uncommitted capacity can lead to dramatically
improved financial performance during periods when the balance
of supply and demand favors producers, it also causes negative

15



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##### Table of Contents



market conditions to affect us more severely than
most of our competitors in terms of sales volumes and margins.


The financial performance of each of our products
is primarily a function of sales prices, the cost of raw
materials and energy and sales volumes. While changes in the
prices for our products may be tracked through a variety of
sources, a change in price does not necessarily result in a
corresponding change in our financial performance. When the
prices of our products increase or decrease, our overall
financial performance may improve, decline or stay roughly the
same depending upon the extent and direction of changes in our
costs for raw materials and energy and our production rates. For
most of our products, the combined cost of raw materials and
energy resources is far greater than all other costs of
production combined. We use significant amounts of natural gas
as fuel in the production of our products, and the producers of
most of our raw materials use significant amounts of natural gas
in their production. As a result, our production and raw
materials costs are significantly influenced by changes in the
price for natural gas.

Sales volumes influence our overall financial
performance in a variety of ways. As a general rule, increases
in sales volumes will result in an increase in overall revenues
and vice versa, although this is not necessarily the case since
the prices for some of our products can change dramatically from
month-to-month. More importantly, changes in production rates
impact the average cost per pound of the products produced. If
more pounds are produced, our fixed costs are spread over a
greater number of pounds resulting in a lower average cost to
produce each pound. In addition, our production rates influence
the overall efficiency of our manufacturing unit and affect our
raw materials conversion yields.

Styrene prices remained fairly high, from a
historical perspective, during the third quarter of 2004.
However, due to high energy costs and raw materials prices,
particularly benzene, in North America, most United States
styrene producers were unable to realize meaningful margin
improvements on their domestic styrene sales. As previously
mentioned, the combined cost of raw materials and energy
resources is far greater than all other costs of production
combined, with the cost of benzene having more effect on our
overall styrene manufacturing costs than any other raw material.
Costs for both benzene and ethylene continued to increase during
the third quarter of 2004 from those paid during 2003, primarily
due to the tight balance of demand and supply for benzene. In
early April, benzene costs escalated to historical highs for
both spot and contract volumes, and prices continued to rise
over the course of the second and third quarters of 2004. Prices
for benzene escalated in July 2004, with spot prices exceeding
$4 per gallon. Several industry experts are forecasting a
continuation of historically high benzene prices for the next
few years as a result of the tight supply and demand balance,
which could result in a reduction in demand for styrene or the
inability of styrene producers to completely pass on the
increased costs to styrene consumers, or both. Benzene prices
had a negative impact on the gross margins of our styrene
operations during the first nine months of 2004, and could
significantly reduce our earnings potential during any peak in
the styrene markets that may occur in the future. While many
industry experts expect a continued up cycle in the styrene
markets over the next few years, no assurances can be given that
such a trend in the styrene markets will in fact occur during
that time frame, or the magnitude of the impact that a
continuation of historically high benzene prices would have on
our financial performance.

In 2003, the world acrylonitrile market totaled
approximately 5.0 million tons, with world capacity
utilization rates estimated at 89%. Since 1990, acrylonitrile
demand growth worldwide has averaged 2.2% per year, most of
which has been concentrated in the Asia/ Far East region,
particularly in China. As most of our acrylonitrile is exported
to Asia, export pricing (and, more importantly, export margins)
is the principal economic driver for our acrylonitrile business.

Historically, producers of acrylonitrile in the
United States have enjoyed a significant cost advantage over
producers located in other parts of the world, primarily due to
low regional propylene and energy costs. This historical cost
advantage far exceeded the incremental shipping costs from the
United States to the Far East, which allowed United States
producers to sell acrylonitrile in the export markets on a
competitive basis. Since 2001 however, natural gas prices in the
United States have escalated sharply, eliminating much of the
domestic advantage in energy costs. In addition, over the last
few years, available supplies of propylene (the major raw
material used in the production of acrylonitrile) have not kept
pace with demand in the United

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##### Table of Contents



States, and United States propylene prices have
become more or less equivalent with propylene prices in other
parts of the world. The erosion of the historical production
cost advantage for United States producers has made it difficult
for us and other United States producers to achieve favorable
margins on acrylonitrile export sales.


Acrylonitrile sales in Asia are expected to
become even more competitive in the short term, with new
acrylonitrile capacity scheduled to come on-stream in Asia
during the first quarter of 2005 to service local markets. In
response to these difficult market conditions, we have focused
on increasing the revenue streams from our acrylonitrile
by-products and reducing our production costs. The cost savings
initiatives described above are intended, in part, to strengthen
the competitive position of our acrylonitrile business.
Additionally, we are currently having discussions with several
companies that, if productive, will increase our acrylonitrile
by-product revenue streams and we are exploring various
strategic alternatives that would further strengthen our
competitive position or reduce our reliance on sales in Asia.
Our contractual arrangements with Monsanto Company
(Monsanto) for the production of disodium
iminodiacetic acid (DSIDA) require Monsanto to
restart the DSIDA unit at our Texas City facility by mid-2007,
with the option on the part of Monsanto to restart the DSIDA
unit prior to that time. The acrylonitrile business has incurred
operating losses during 2004 and we can give no assurances that
improvements in market conditions or our success in developing a
strategic alternative will bring this business into
profitability in the future.

Results of Operations



| |                                                                                                
| | -----------------------------------------------------------------------------------------------
| | Three Months Ended September 30, 2004
    Compared to Three Months Ended September 30,
    2003



| |                                
| | -------------------------------
| | Revenues and Cost of Goods Sold

Our revenues were $251 million for the third
quarter of 2004, compared to $160 million in revenues for
the third quarter of 2003. This increase in revenues primarily
resulted from higher sales prices from both styrene and
acrylonitrile and higher sales volumes of acrylonitrile during
the third quarter of 2004.

Revenues from our styrene operations were
$160 million for the third quarter of 2004, an increase of
45% from the $110 million in revenues we received from
these operations for the third quarter of 2003. This increase in
revenues from our styrene operations resulted primarily from an
81% increase in direct sales prices, partially offset by a 14%
reduction in styrene sales volumes in the third quarter of 2004
compared to the third quarter of 2003. During the third quarter
of 2004, the prices we paid for benzene and ethylene, the two
primary raw materials required for styrene production, increased
155% and 33% respectively, from the prices we paid for these
materials during the third quarter of 2003. The average price we
paid for natural gas for the third quarter of 2004 increased 25%
compared to the average price we paid for natural gas during the
third quarter of 2003. Margins on our styrene sales for the
third quarter of 2004 increased from those realized during the
third quarter of 2003, as the increase in our sales prices for
styrene more than offset the increases in raw materials costs.

Revenues from our acrylonitrile operations were
$61 million in the third quarter of 2004, an increase of
188% from the $21 million in revenues we received from
these operations in the third quarter of 2003. This increase in
revenues from our acrylonitrile operations resulted from an
increase in acrylonitrile sales volumes and sales prices.
Additionally, in the third quarter of 2003 we experienced lower
sales volumes as we were replenishing acrylonitrile inventory
after the prolonged shutdown of our acrylonitrile production
facilities from February 2001 to June 2003. During the third
quarter of 2004, the prices we paid for propylene and ammonia,
the two primary raw materials required for acrylonitrile
production, increased 55% and 20% respectively, from the prices
we paid for these materials during the third quarter of 2003.
Operating losses on our acrylonitrile sales for the third
quarter of 2004 were lower than those realized during the third
quarter of 2003, primarily due to higher sales prices.

Revenues from our other petrochemicals
operations, primarily acetic acid, plasticizers and methanol,
were $30 million for the third quarter of 2004, an increase
of 4% from the $29 million in revenues received from these
operations during the third quarter of 2003. This increase in
revenues resulted primarily from an increase in acetic acid
sales volumes and sales prices in the third quarter of 2004
compared to those realized in

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the third quarter of 2003. This increase was
partially offset by the absence of revenues and gross profit
derived from our methanol contract with Methanex Corporation,
which expired on December 31, 2003.




| |                                     
| | ------------------------------------
| | Provision (Benefit) for Income Taxes

During the third quarter of 2004, we recorded a
$2.7 million provision for income taxes compared to a
$0.1 million benefit for income taxes for the same quarter
in 2003, primarily due to the increase in pre-tax income.



| |                                                                                              
| | ---------------------------------------------------------------------------------------------
| | Nine Months Ended September 30, 2004
    Compared to Nine Months Ended September 30,
    2003



| |                                
| | -------------------------------
| | Revenues and Cost of Goods Sold

Our revenues were $583 million for the nine
month period ended September 30, 2004, compared to the
$403 million in revenues we received during the nine month
period ended September 30, 2003. This increase in revenues
resulted primarily from higher sales prices for styrene during
the first three quarters of 2004, and increased revenues
realized from the production of acrylonitrile and sodium cyanide
in the first three quarters of 2004. In the first quarter of
2003, our acrylonitrile facility and related derivative
production facilities were shut down. In the second quarter of
2003, we began the process of restarting our acrylonitrile
facility and the sodium cyanide unit and did not complete that
process until the third quarter of 2003, resulting in
significantly reduced quantities of finished goods being
produced in the first three quarters of 2003 than would have
resulted had these facilities operated for the entire period.

During the first quarter of 2004, we performed
maintenance turnarounds on our styrene and acrylonitrile
production facilities. As a part of normal recurring operations,
each of our manufacturing units is completely shut down from
time to time, for a period typically lasting two to four weeks,
to replace catalysts and perform major maintenance work required
to sustain long-term production. These periods are commonly
referred to as turnarounds or shutdowns.
While actual timing is subject to a number of variables,
turnarounds of our styrene unit typically occur every two to
three years and turnarounds of our acrylonitrile unit typically
occur every 18 to 24 months. We expense the costs of
turnarounds as the associated expenses are incurred. As expenses
for turnarounds can be significant, especially for our styrene
and acrylonitrile units, the impact of turnarounds can be
material for financial reporting periods during which the
turnarounds actually occur. During the first quarter of 2004, we
incurred $14 million of maintenance costs associated with
the above-mentioned turnarounds.

Revenues from our styrene operations were
$365 million for the nine month period ended
September 30, 2004, an increase of 26% from the
$289 million in revenues we received from these operations
for the nine month period ended September 30, 2003. This
increase in revenues from our styrene operations was primarily
due to a 42% increase in direct sales prices during the first
three quarters of 2004 compared to those experienced during the
first three quarters of 2003, which more than offset the
negative impact on overall revenues caused by the 12% reduction
in total styrene sales volumes between the two periods. This
reduction in total styrene sales volumes during the first three
quarters of 2004 was largely attributable to the shutdown of our
styrene unit that occurred during the first quarter of 2004.
During the first three quarters of 2004, prices for benzene and
ethylene, the two primary raw materials required for styrene
production, increased 72% and 23%, respectively, from the prices
we paid for these materials in the first three quarters of 2003.
The average price we paid for natural gas for the first three
quarters of 2004 increased 3% from the average price we paid for
natural gas during the first three quarters of 2003. Margins on
our styrene sales for the first three quarters of 2004 increased
from those realized during the first three quarters of 2003, as
the increase in our sales prices for styrene more than offset
the increases in our benzene and ethylene costs.

Revenues from our acrylonitrile operations
increased to $130 million during the first nine months of
2004 compared to the $26 million in revenues we received
from these operations in the first nine months of 2003,
primarily due to the increased revenues realized from production
of acrylonitrile and sodium cyanide in the first three quarters
of 2004. As previously discussed, during most of the first half
of 2003, our acrylonitrile facility and related derivative
production facilities were shut down. During the first three
quarters of 2004, the prices we paid for propylene and ammonia,
the two primary raw materials required for acrylonitrile
production,

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##### Table of Contents



increased 54% and decreased 15%, respectively,
from the prices we paid for these materials during the first
three quarters of 2003. Operating losses on our acrylonitrile
sales for the first three quarters of 2004 were lower than those
realized during the first three quarters of 2003, primarily due
to higher sales prices, which more than offset the higher
propylene costs.


Revenues from our other petrochemicals
operations, primarily acetic acid, plasticizers and methanol,
were $89 million for the nine month period ended
September 30, 2004, an increase of 1% from the
$88 million in revenues we received from these operations
during the nine month period ended September 30, 2003. This
1% increase in revenues primarily consisted of a 17% increase in
acetic acid revenues, which was mostly offset by the absence of
revenues and gross profit derived from our methanol contract
with Methanex Corporation, which expired on December 31,
2003.



| |                                                          
| | ---------------------------------------------------------
| | Selling, General and Administrative
    (SG&A) Expenses

Our SG&A expenses for the nine month period
ended September 30, 2004 were $10 million compared to
the $12 million in SG&A expenses we recorded for the
nine month period ended September 30, 2003. This decrease
was largely due to the absence of costs that were incurred in
the first three quarters of 2003 for bankruptcy related
professional fees and ongoing matters related to our emergence
from bankruptcy on December 19, 2002.



| |                       
| | ----------------------
| | Impairment of Goodwill

During the second quarter of 2004, we performed
an assessment of the carrying value of our long-lived assets to
be held and used, including goodwill. This assessment was
performed because of negative industry and economic trends
affecting both our existing operations and expected future
margins, primarily driven by high raw materials and energy
prices. At the conclusion of this assessment, we recorded a
non-cash impairment of goodwill charge of $48.5 million for
the quarter ended June 30, 2004. Recoverability was
determined by comparing the estimated fair value, utilizing the
present value of expected net cash flows, to the carrying value.
This present value model requires management to estimate future
net cash flows, the timing of these cash flows and a discount
rate representing the time value of money and the inherent risk
of uncertainty of the future cash flows. The discount rate,
adjusted for inflation, was based on independently calculated
risks for a composite group of commodity chemical companies, our
target capital mix and an estimated market risk premium. The
assumptions used in estimating future cash flows were consistent
with our internal planning.

During our assessment of our long-lived assets
other than goodwill, we analyzed recoverability based on our
projected undiscounted net future cash flows over the remaining
life of the assets. Based on this analysis, no impairment loss
was required as these projected cash flows were greater than the
carrying amount.



| |                       
| | ----------------------
| | Other Expense (Income)

We had no other income for the nine month period
ended September 30, 2004, compared to the $3.5 million
in other income we recorded for the nine month period ended
September 30, 2003, which consisted of a Texas sales tax
refund of $3.7 million reduced by other expense of
$0.2 million.

Liquidity and Capital Resources

On July 16, 2001, Sterling Chemicals
Holdings, Inc., Sterling Chemicals, Inc. and most of their
U.S. subsidiaries (collectively, the Debtors)
filed voluntary petitions for reorganization under
Chapter 11 of the United States Bankruptcy Code (the
Bankruptcy Code) in the U.S. Bankruptcy Court
for the Southern District of Texas (the Bankruptcy
Court). The Debtors filed a plan of reorganization with
the Bankruptcy Court on May 14, 2002 which, after several
amendments, was confirmed on November 20, 2002 (as
confirmed, the Plan of Reorganization). On
December 19, 2002, the Plan of Reorganization became
effective and the Debtors emerged from bankruptcy pursuant to
the terms of the Plan of Reorganization. During the period from
July 16, 2001 through December 19, 2002, the Debtors
operated their respective businesses as debtors-in-possession
pursuant to the Bankruptcy Code. Due to the Debtors
emergence from

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bankruptcy and the implementation of fresh-start
accounting, we refer to ourselves as Predecessor
Sterling for periods on or before December 19, 2002,
and Reorganized Sterling for periods after
December 19, 2002.


Pursuant to the Plan of Reorganization, on
December 19, 2002, we issued $94.3 million in original
principal amount of 10% Senior Secured Notes due 2007 (our
Secured Notes) to the holders of Predecessor
Sterlings 12 3/8% Senior Secured Notes. Our
Secured Notes are senior secured obligations and rank equally in
right of payment with all of our other existing and future
senior indebtedness, and senior in right of payment to all of
our existing and future subordinated indebtedness. Our Secured
Notes are guaranteed by Sterling Chemicals Energy, Inc.
(Sterling Energy), one of our wholly owned
subsidiaries. Sterling Energys guaranty ranks equally in
right of payment with all of its existing and future senior
indebtedness, and senior in right of payment to all of its
existing and future subordinated indebtedness. Our Secured Notes
and Sterling Energys guaranty are secured by a first
priority lien on all of our production facilities and related
assets.

Our Secured Notes bear interest at an annual rate
of 10%, payable semi-annually on June 15 and
December 15 of each year. Under certain circumstances, for
any interest period ending on or before December 19, 2004,
we may elect to pay interest on our Secured Notes through the
issuance of additional Secured Notes rather than the payment of
cash. However, if we pay interest through the issuance of
additional Secured Notes rather than the payment of cash, the
interest rate for the relevant period is increased to
13 3/8%. In December 2003, we made an interest payment on
our Secured Notes at the higher rate through the issuance of
$6.3 million in original principal amount of Secured Notes,
increasing the aggregate principal amount of outstanding Secured
Notes to $100.6 million. All other interest payments on our
Secured Notes have been made in cash. Subject to compliance with
the terms of the Revolver discussed below, we may redeem our
Secured Notes at any time at a redemption price of 100% of the
outstanding principal amount thereof plus accrued and unpaid
interest. In addition, in the event of a specified change of
control or the sale of our facility in Texas City, Texas, we are
required to offer to repurchase our Secured Notes at 101% of the
outstanding principal amount thereof plus accrued and unpaid
interest. Under certain circumstances, we are also required to
use the proceeds of other asset sales to repurchase any of our
Secured Notes tendered by the holders of our Secured Notes at a
price equal to 100% of the outstanding principal amount thereof
plus accrued and unpaid interest.

The indenture governing our Secured Notes
contains numerous covenants and conditions, including, but not
limited to, restrictions on our ability to incur indebtedness,
create liens, sell assets, make investments, make capital
expenditures, engage in mergers and acquisitions and pay
dividends. The indenture also includes various circumstances and
conditions that would, upon their occurrence and subject in
certain cases to notice and grace periods, create an event of
default thereunder. However, the indenture does not require us
to satisfy any financial ratios or maintenance tests.

On December 19, 2002, we established our
revolving credit facility (the Revolver) with The
CIT Group/ Business Credit, Inc., as administrative agent and a
lender, and certain other lenders, which provides up to
$100 million in revolving credit loans. The Revolver has an
initial term ending on September 19, 2007. Under the
Revolver, we and Sterling Energy are co-borrowers and are
jointly and severally liable for any indebtedness thereunder.
The Revolver is secured by first priority liens on all of our
accounts receivable, inventory and other specified assets, as
well as all of the issued and outstanding capital stock of
Sterling Energy.

Borrowings under the Revolver bear interest, at
our option, at an annual rate of either the Alternate Base Rate
plus 0.75% or the LIBO Rate (as defined in the
Revolver) plus 2.75%. The Alternate Base Rate is
equal to the greater of the Base Rate as announced
from time to time by JPMorgan Chase Bank in New York, New York
or 0.50% per annum above the latest Federal Funds
Rate (as defined in the Revolver). The borrowing rate
under the Revolver for the three and nine-month periods ended
September 30, 2004 was 5.2% and 5.1%, respectively. Under
the Revolver, we are also required to pay an aggregate
commitment fee of 0.50% per year (payable monthly) on any
unused portion of the Revolver. Available credit under the
Revolver is subject to a monthly borrowing base of 85% of
eligible accounts receivable plus the lesser of $50 million
and 65% of eligible inventory. In addition, the borrowing base
for the Revolver must exceed outstanding borrowings thereunder
by $8 million at all times. As of September 30, 2004,
total credit available under the

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Revolver was limited to $71 million due to
these borrowing base limitations. As of September 30, 2004,
there were no loans outstanding under the Revolver, although we
had $1 million in outstanding letters of credit issued
pursuant to the Revolver.


The Revolver contains numerous covenants and
conditions, including, but not limited to, restrictions on our
ability to incur indebtedness, create liens, sell assets, make
investments, make capital expenditures, engage in mergers and
acquisitions and pay dividends. The Revolver also contains a
covenant that requires us to earn a specified amount of earnings
before interest, income taxes, depreciation and amortization (as
defined in the Revolver) on a monthly basis if, for 15
consecutive days, unused availability under the Revolver plus
cash on hand is less than $20 million. The Revolver
includes various circumstances and conditions that would, upon
their occurrence and subject in certain cases to notice and
grace periods, create an event of default thereunder.

Our liquidity (i.e., cash and cash
equivalents plus total credit available under the Revolver,
subject to the conditions to borrowings under the Revolver) was
$98 million at September 30, 2004, a decrease of
$18 million compared to our liquidity at December 31,
2003. This decrease was primarily due to the completion of
maintenance turnarounds of our styrene and acrylonitrile units
during the first quarter of 2004. The total cost of these
turnarounds, including maintenance expense, catalyst
installation and capital projects, was $21 million. Our
liquidity of $98 million at September 30, 2004,
represents an increase of $18 million from our liquidity at
June 30, 2004. We believe that our cash on hand, together
with credit available under the Revolver, will be sufficient to
meet our short-term and long-term liquidity needs for the
reasonably foreseeable future, although we cannot give any
assurances to that effect.



| |                
| | ---------------
| | Working Capital

Our working capital on September 30, 2004
was $115 million, a decrease of $3 million from our
working capital of $118 million on December 31, 2003.
This decrease in working capital was primarily due to negative
cash flows from operations during the first nine months of 2004,
which were influenced by costs related to the maintenance
turnarounds described above. Working capital on
September 30, 2004 improved $11 million compared to
June 30, 2004, primarily due to stronger operating results
with increases in cash, accounts receivable, accounts payable
and accrued liabilities, which was slightly offset by a decrease
in inventories of finished products.



| |          
| | ---------
| | Cash Flow

Net cash used in our operations was
$5 million for the nine month period ended
September 30, 2004, whereas net cash used in our operations
during the nine month period ended September 30, 2003 was
$50 million. This change was primarily the result of a
decrease in working capital during the first nine months of 2004
from that experienced in the first nine months of 2003. Net cash
flow used in our investing activities was $10 million
during the first three quarters of 2004 compared to the
$11 million of net cash flow we used in our investing
activities during the first three quarters of 2003. The net cash
flow used in our investing activities during both periods was
for capital expenditures. We did not record any cash provided by
or used in financing activities during the first three quarters
of 2004 or the first three quarters of 2003, as borrowings under
the Revolver were equal to repayments during the first three
quarters of 2004, and there were no borrowings under the
Revolver during the first three quarters of 2003.



| |                     
| | --------------------
| | Capital Expenditures

Our capital expenditures were $10 million
during the nine month period ended September 30, 2004 and
$11 million during the nine month period ended
September 30, 2003. Capital expenditures are anticipated to
be approximately $6 million during the last quarter of
2004, primarily for projects required to comply with the State
Implementation Plan (as discussed in Note 6 of the Notes to
Condensed Consolidated Financial Statements), along with routine
safety, environmental and equipment replacement matters.

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Contractual Cash Obligations

We conducted a review of our contractual cash
obligations as of September 30, 2004 and there have been no
material changes from the significant contractual obligations
disclosed in our Form 10-K for the fiscal year ended
December 31, 2003.

Critical Accounting Policies, Use of Estimates
and Assumptions

The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the amounts reported in the condensed consolidated
financial statements and related notes. Actual results could
differ from those estimates. On an ongoing basis, management
reviews its estimates, including those related to the allowance
for doubtful accounts, recoverability of long-lived assets,
deferred tax asset valuation allowance, litigation,
environmental liabilities, pension and post-retirement benefits
and various other operating allowances and accruals, based on
currently available information. Changes in facts and
circumstances may alter such estimates and affect our results of
operations and financial position in future periods. Except for
the impairment of goodwill discussed above, there have been no
material changes or developments in our evaluation of the
accounting estimates and the underlying assumptions or
methodologies that we believe to be Critical Accounting Policies
disclosed in our Form 10-K for the fiscal year ended
December 31, 2003.

New Accounting Standards

In December 2003, the Financial Accounting
Standards Board (FASB) issued FASB Interpretation
Number (FIN) 46-R, Consolidation of Variable
Interest Entities. FIN 46-R, which modifies certain
provisions and effective dates of FIN 46, sets forth
criteria to be used in determining whether an investment in a
variable interest entity should be consolidated. These
provisions are based on the general premise that if a company
controls another entity through interests other than voting
interests, that company should consolidate the controlled
entity. We do not believe that any of our investments or any
other arrangements that come within the definition of a variable
interest entity are required to be consolidated under
FIN 46-R.

In January 2004, the FASB issued FASB Staff
Position No. FAS 106-1, Accounting and
Disclosure Requirements Related to the Medicare Prescription
Drug Improvement and Modernization Act of 2003, which is
effective for interim or annual financial statements for fiscal
years ending after December 7, 2003, and permits a one-time
election to defer accounting for the effects of the Medicare
Prescription Drug, Improvement and Modernization Act of 2003
(the Act). In May 2004, the FASB issued FASB Staff
Position No. 106-2, Accounting and Disclosure
Requirements Related to the Medicare Prescription Drug,
Improvement and Modernization Act of 2003
(FAS 106-2) which supercedes FAS 106-1.
FAS 106-2 provides guidance on the accounting for the
effects of the Act for employers that sponsor postretirement
heath care plans that provide prescription drug benefits, and
requires those employers to provide certain disclosures
regarding the effect of the federal subsidy provided under the
Act. FAS 106-2 applies to us for all interim and annual
periods commencing on or after July 1, 2004. We performed a
measurement of the effects of the Act on our accumulated
postretirement benefit obligation and determined that, based on
the regulatory guidance currently available, benefits provided
by our postretirement plan are at least actuarially equivalent
to Medicare Part D, and accordingly, we expect to be entitled to
the federal subsidy in the years 2006 through 2009. We estimate
that this subsidy will be approximately 20% of the net benefits
under our plan, or $0.2 million annually.






|        |                                                               
|------- | --------------------------------------------------------------
|Item 3. | Quantitative and Qualitative Disclosures
    About Market Risk

Our financial results can be affected by volatile
changes in raw materials, natural gas and finished product sales
prices. We do not currently have cash flow exposure to changing
U.S. interest rates, as there are no draws outstanding
under the Revolver. However, the fair value of our Secured Notes
may vary in response to changing interest rates. Our Secured
Notes bear interest at an annual rate of 10%, payable
semi-annually on June 15 and December 15 of each year.
Under certain circumstances, for any interest period ending on
or before December 19, 2004, we may elect to pay interest
on our Secured Notes through the issuance of

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additional Secured Notes rather than the payment
of cash. However, if we pay interest through the issuance of
additional Secured Notes rather than the payment of cash, the
interest rate for the relevant period is increased to
13 3/8%. In December 2003, we made an interest payment on
our Secured Notes at the higher rate through the issuance of
$6.3 million in original principal amount of Secured Notes,
increasing the aggregate principal amount of outstanding Secured
Notes to $100.6 million. All other interest payments on our
Secured Notes have been made in cash.







|        |                        
|------- | -----------------------
|Item 4. | Controls and Procedures

We maintain disclosure controls and procedures
that are designed to ensure that information required to be
disclosed in our Exchange Act reports is recorded, processed,
summarized and reported within the time periods specified in the
rules and forms of the Securities and Exchange Commission, and
that such information is accumulated and communicated to our
management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure. Management necessarily applied
its judgment in assessing the costs and benefits of such
controls and procedures which, by their nature, can provide only
reasonable assurance regarding managements control
objectives.

We carried out an evaluation, under the
supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures pursuant to Exchange Act
Rule 13a-15, as of the end of the fiscal period covered by
this report on Form 10-Q. Based upon that evaluation, our
Chief Executive Officer and our Chief Financial Officer
concluded that our disclosure controls and procedures are
effective in timely alerting them to material information
relating to us (including our consolidated subsidiaries)
required to be disclosed in our Exchange Act reports. In
connection with our evaluation, no change was identified in our
internal controls over financial reporting that occurred during
the third quarter of 2004 that has materially affected, or is
reasonably likely to materially affect, our internal controls
over financial reporting.

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##### Table of Contents






PART II.

OTHER INFORMATION






|        |                  
|------- | -----------------
|Item 1. | Legal Proceedings

The information under Legal
Proceedings in Note 7 to the consolidated financial
statements included in Item 1 of Part I of this report
is hereby incorporated by reference.






|        |         
|------- | --------
|Item 6. | Exhibits

The following are filed or furnished as part of
this Form 10-Q:

|        |      |    |  |                        |  |                                                                                                                                                                                                                                                                                          
|------- | ---- | -- |  | ---------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |    |  |                       
|Number  |      |    |  | Description of Exhibit
|        |      |    |  |                       
|        | 2    | .1 |  |                       |  | Certificate of Ownership and Merger merging
    Sterling Chemicals Holdings, Inc. into Sterling Chemicals, Inc.
    (incorporated 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., dated October 14,
    2002 (incorporated 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., dated November 18, 2002 (incorporated 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. (incorporated by reference from
    Exhibit 3.1 to our Annual Report on Form 10-K for the
    fiscal year ended September 30, 2002).                                                                   
|        | 3    | .2 |  |                       |  | Restated Certificate of Designations,
    Preferences, Rights and Limitations of Series A Convertible
    Preferred Stock of Sterling Chemicals, Inc. (incorporated 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 by reference from
    Exhibit 3.3 to our Quarterly Report on Form 10-Q for the
    fiscal quarter ended June 30, 2003).                                                                                   
|        | **10 | .1 |  |                       |  | Sixth Amendment to the Sixth Amended and Restated
    Savings and Investment Plan.                                                                                                                                                                                                       
|        | **15 | .1 |  |                       |  | Letter of Deloitte & Touche LLP
    regarding unaudited interim financial information.                                                                                                                                                                                                   
|        | **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 Officer                                                                                                                                                                                                                            



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|   |                            
|-- | ---------------------------
|** | Filed or furnished herewith

24



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##### Table of Contents



SIGNATURES

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



| |                         
| | ------------------------
| | STERLING CHEMICALS, INC.
| | (Registrant)            



| |    |                     
| | -- | --------------------
| | By | /s/ RICHARD K. CRUMP

| |                                          
| | -----------------------------------------
| |                                          
| | Richard K. Crump                         
| | President and Chief Executive
    Officer

Date: November 8, 2004



| |    |                        
| | -- | -----------------------
| | By | /s/ PAUL G. VANDERHOVEN

| |                                        
| | ---------------------------------------
| |                                        
| | Paul G. Vanderhoven                    
| | Senior Vice President  Finance
    and
| | Chief Financial Officer                
| | (Principal Financial Officer)          

Date: November 8, 2004

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EXHIBIT INDEX

|        |      |    |  |                        |  |                                                                                                                                                                                                                                                                                          
|------- | ---- | -- |  | ---------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |    |  |                       
|Number  |      |    |  | Description of Exhibit
|        |      |    |  |                       
|        | 2    | .1 |  |                       |  | Certificate of Ownership and Merger merging
    Sterling Chemicals Holdings, Inc. into Sterling Chemicals, Inc.
    (incorporated 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., dated October 14,
    2002 (incorporated 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., dated November 18, 2002 (incorporated 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. (incorporated by reference from
    Exhibit 3.1 to our Annual Report on Form 10-K for the
    fiscal year ended September 30, 2002).                                                                   
|        | 3    | .2 |  |                       |  | Restated Certificate of Designations,
    Preferences, Rights and Limitations of Series A Convertible
    Preferred Stock of Sterling Chemicals, Inc. (incorporated 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 by reference from
    Exhibit 3.3 to our Quarterly Report on Form 10-Q for the
    fiscal quarter ended June 30, 2003).                                                                                   
|        | **10 | .1 |  |                       |  | Sixth Amendment to the Sixth Amended and Restated
    Savings and Investment Plan.                                                                                                                                                                                                       
|        | **15 | .1 |  |                       |  | Letter of Deloitte & Touche LLP
    regarding unaudited interim financial information.                                                                                                                                                                                                   
|        | **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 Officer                                                                                                                                                                                                                            



---



|   |                            
|-- | ---------------------------
|** | Filed or furnished herewith