##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


Form 10-Q/A


(Amendment No. 2)


|   |  |                                                                                             
|-- |  | --------------------------------------------------------------------------------------------
|þ  |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934 
|  
|   |  | For the quarterly period ended June 30, 2005                                                
|  
|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(Address of principal executive offices) |  | (713) 650-3700(Registrants telephone number,
    including area code)

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


None


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


Common Stock, par value $.01 per share


(Title of class)


þ o


o þ


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


þ o












---



##### Table of Contents



EXPLANATORY NOTE










---



##### Table of Contents



IMPORTANT INFORMATION REGARDING THIS FORM 10-Q/ A






Forward-Looking Statements






| |   |                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the cyclicality of the petrochemicals industry;                                                                                                       
|
| |  | current and future industry conditions;                                                                                                               
|
| |  | the extent and timing of expansions of production capacity of
    our products, by us or by our competitors;                                          
|
| |  | the potential effects of market and industry conditions and
    cyclicality on our business strategy, results of operations or
    financial position;
|
| |  | the level of expected savings from our cost reduction
    initiatives;                                                                                
|
| |  | the adequacy of our liquidity;                                                                                                                        
|
| |  | our environmental management programs and safety initiatives;                                                                                         
|
| |  | our market sensitive financial instruments;                                                                                                           
|
| |  | future uses of and requirements for financial resources;                                                                                              
|
| |  | future contractual obligations;                                                                                                                       
|
| |  | future amendments or renewals of existing contractual
    relationships;                                                                              
|
| |  | 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;                                                                                                                        

i



---



##### Table of Contents





| |   |                                          
| | - | -----------------------------------------
| |  | compliance with applicable laws; and     
|
| |  | adequacy of insurance or indemnification.





| |   |                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.                                                                                 



ii



---



##### Table of Contents



Subsequent Events




Document Summaries




Access to Filings




iii



---










STERLING CHEMICALS, INC.


INDEX


|                                  |  |                                                                                           |  |      |    | 
|--------------------------------- |  | ----------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                  |  |                                                                                           |  | Page |   
|                                  |  |                                                                                           |  |      |   
|PART I. FINANCIAL
    INFORMATION
|Item 1.                           |  | Financial Statements                                                                      |  |      | 4  | 
|Item 2.                           |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations |  |      | 16 | 
|Item 3.                           |  | Quantitative and Qualitative Disclosures
    about Market Risk                            |  |      | 25 | 
|Item 4.                           |  | Controls and Procedures                                                                   |  |      | 25 | 
|                                 
|PART II. OTHER INFORMATION       
|Item 1.                           |  | Legal Proceedings                                                                         |  |      | 26 | 
|Item 4.                           |  | Submission of Matters to a Vote of Security
    Holders                                   |  |      | 26 | 
|Item 6.                           |  | Exhibits                                                                                  |  |      | 28 | 
|Rule 13a-14a Certification of CEO
|Rule 13a-14a Certification of CFO
|Section 1350 Certification of CEO
|Section 1350 Certification of CFO



3



---



##### Table of Contents






PART I.


FINANCIAL INFORMATION







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

STERLING CHEMICALS, INC.


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


|                                                           |  |                                           |           |   |                  |   |           |      |  |   |           |   |  |   |           |  
|---------------------------------------------------------- |  | ----------------------------------------- | --------- | - | ---------------- | - | --------- | ---- |  | - | --------- | - |  | - | --------- | -
|                                                           |  | Three Months Ended                        |           |   | Six Months Ended |  
|                                                           |  | June 30,                                  |           |   | June 30,         |  
|                                                           |  |                                           |           |   |                  |  
|                                                           |  | 2005                                      |           |   | 2004             |   |           | 2005 |  |   | 2004      |  
|                                                           |  |                                           |           |   |                  |   |           |      |  |   |           |  
|                                                           |  | (Unaudited)                               |          
|                                                           |  | (Dollars in thousands, except share data) |          
|Revenues                                                   |  | $                                         | 164,193   |   |                  | $ | 184,905   |      |  | $ | 379,686   |   |  | $ | 331,007   |  
|Cost of goods sold                                         |  |                                           | 185,935   |   |                  |   | 181,770   |      |  |   | 395,094   |   |  |   | 339,471   |  
|                                                           |  |                                           |           |   |                  |   |           |      |  |   |           |  
|Gross profit (loss)                                        |  |                                           | (21,742   | ) |                  |   | 3,135     |      |  |   | (15,408   | ) |  |   | (8,464    | )
|Selling, general and administrative expenses               |  |                                           | 773       |   |                  |   | 3,104     |      |  |   | 3,946     |   |  |   | 6,285     |  
|Impairment of goodwill                                     |  |                                           |          |   |                  |   | 48,463    |      |  |   |          |   |  |   | 48,463    |  
|Equity (income) loss from joint venture                    |  |                                           | (2,492    | ) |                  |   | 530       |      |  |   | (5,156    | ) |  |   | (1,270    | )
|Other income                                               |  |                                           | (700      | ) |                  |   |          |      |  |   | (700      | ) |  |   |          |  
|Interest and debt related expenses, net of interest income |  |                                           | 2,515     |   |                  |   | 2,593     |      |  |   | 5,498     |   |  |   | 5,122     |  
|                                                           |  |                                           |           |   |                  |   |           |      |  |   |           |  
|Loss from continuing operations before income tax          |  |                                           | (21,838   | ) |                  |   | (51,555   | )    |  |   | (18,996   | ) |  |   | (67,064   | )
|Benefit for income taxes                                   |  |                                           | (7,987    | ) |                  |   | (971      | )    |  |   | (6,951    | ) |  |   | (6,620    | )
|                                                           |  |                                           |           |   |                  |   |           |      |  |   |           |  
|Net loss                                                   |  | $                                         | (13,851   | ) |                  | $ | (50,584   | )    |  | $ | (12,045   | ) |  | $ | (60,444   | )
|Preferred stock dividends                                  |  |                                           | 1,718     |   |                  |   | 1,468     |      |  |   | 3,370     |   |  |   | 2,880     |  
|                                                           |  |                                           |           |   |                  |   |           |      |  |   |           |  
|Net loss attributable to common stockholders               |  | $                                         | (15,569   | ) |                  | $ | (52,052   | )    |  | $ | (15,415   | ) |  | $ | (63,324   | )
|                                                           |  |                                           |           |   |                  |   |           |      |  |   |           |  
|Loss per share of common stock, basic and diluted          |  | $                                         | (5.50     | ) |                  | $ | (18.43    | )    |  | $ | (5.45     | ) |  | $ | (22.42    | )
|Weighted average shares outstanding:                       |  |                                           |           |   |                  |   |           |      |  |   |           |   |  |   |           |  
|Basic and diluted                                          |  |                                           | 2,828,474 |   |                  |   | 2,825,000 |      |  |   | 2,827,104 |   |  |   | 2,825,000 |  



4



---



##### Table of Contents



STERLING CHEMICALS, INC.


CONDENSED CONSOLIDATED BALANCE SHEETS


|                                           |                                                                              |                        |         |         |              |   |         |         |         | 
|------------------------------------------ | ---------------------------------------------------------------------------- | ---------------------- | ------- | ------- | ------------ | - | ------- | ------- | ------- | 
|                                           |                                                                              | June 30,               |         |         | December 31, |  
|                                           |                                                                              | 2005                   |         |         | 2004         |  
|                                           |                                                                              |                        |         |         |              |  
|                                           |                                                                              | (Unaudited)            |        
|                                           |                                                                              | (Dollars in thousands, |        
|                                           |                                                                              | except share data)     |        
|ASSETS                                    
|Current assets:                            |                                                                              |                        |         |         |              |   |         |        
|                                           | Cash and cash equivalents                                                    |                        | $       | 24,970  |              |   | $       | 1,901   |        
|                                           | Accounts receivable, net of allowance of $1,307 and $3,092,
    respectively |                        |         | 66,168  |              |   |         | 113,074 |        
|                                           | Inventories, net                                                             |                        |         | 49,813  |              |   |         | 87,980  |        
|                                           | Prepaid expenses                                                             |                        |         | 1,128   |              |   |         | 4,198   |        
|                                           | Deferred tax asset                                                           |                        |         | 3,561   |              |   |         | 4,108   |        
|                                           |                                                                              |                        |         |         |              |  
|                                           |                                                                              | Total current assets   |         |         | 145,640      |   |         |         | 211,261 | 
|Property, plant and equipment, net         |                                                                              |                        | 240,254 |         |              |   | 248,598 |        
|Other assets, net                          |                                                                              |                        | 13,099  |         |              |   | 13,694  |        
|                                           |                                                                              |                        |         |         |              |  
|                                           |                                                                              | Total assets           |         | $       | 398,993      |   |         | $       | 473,553 | 
|                                           |                                                                              |                        |         |         |              |  
|                                          
|LIABILITIES AND STOCKHOLDERS EQUITY      
|Current liabilities:                       |                                                                              |                        |         |         |              |   |         |        
|                                           | Accounts payable                                                             |                        | $       | 37,803  |              |   | $       | 67,260  |        
|                                           | Accrued liabilities                                                          |                        |         | 20,153  |              |   |         | 23,787  |        
|Current portion of long-term debt          |                                                                              |                        |        |         |              |   | 17,684  |        
|                                           |                                                                              |                        |         |         |              |  
|                                           | Total current liabilities                                                    |                        |         | 57,956  |              |   |         | 108,731 |        
|Long-term debt                             |                                                                              |                        | 100,579 |         |              |   | 100,579 |        
|Deferred tax liability                     |                                                                              |                        | 20,855  |         |              |   | 28,407  |        
|Deferred credits and other liabilities     |                                                                              |                        | 70,119  |         |              |   | 74,464  |        
|Redeemable preferred stock                 |                                                                              |                        | 44,658  |         |              |   | 41,289  |        
|Commitments and contingencies (Note 5)     |                                                                              |                        |         |         |              |   |         |        
|Stockholders equity:                      |                                                                              |                        |         |         |              |   |         |        
|                                           | Common stock, $.01 par value                                                 |                        |         | 28      |              |   |         | 28      |        
|                                           | Additional paid-in capital                                                   |                        |         | 196,195 |              |   |         | 199,408 |        
|                                           | Accumulated deficit                                                          |                        |         | (90,431 | )            |   |         | (78,387 | )      
|                                           | Accumulated other comprehensive loss                                         |                        |         | (966    | )            |   |         | (966    | )      
|                                           |                                                                              |                        |         |         |              |  
|                                           | Total stockholders equity                                                   |                        |         | 104,826 |              |   |         | 120,083 |        
|                                           |                                                                              |                        |         |         |              |  
|Total liabilities and stockholders equity |                                                                              | $                      | 398,993 |         |              | $ | 473,553 |        
|                                           |                                                                              |                        |         |         |              |  



5



---



##### Table of Contents



STERLING CHEMICALS, INC.


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                                                         |                                        |                        |        |         |      |   |         |         |  
|---------------------------------------------------------------------------------------- | -------------------------------------- | ---------------------- | ------ | ------- | ---- | - | ------- | ------- | -
|                                                                                         |                                        | Six Months Ended       |       
|                                                                                         |                                        | June 30,               |       
|                                                                                         |                                        |                        |       
|                                                                                         |                                        | 2005                   |        |         | 2004 |  
|                                                                                         |                                        |                        |        |         |      |  
|                                                                                         |                                        | (Unaudited)            |       
|                                                                                         |                                        | (Dollars in thousands) |       
|Cash flows from operating activities:                                                    |                                        |                        |        |         |      |   |         |        
|                                                                                         | Net income (loss)                      |                        | $      | (12,045 | )    |   | $       | (60,444 | )
|Adjustments to reconcile net income (loss) to net cash used in
    operating activities: |                                        |                        |        |         |      |   |         |        
|                                                                                         | Depreciation and amortization          |                        |        | 13,284  |      |   |         | 14,196  |  
|                                                                                         | Impairment of goodwill                 |                        |        |        |      |   |         | 48,463  |  
|                                                                                         | Interest amortization                  |                        |        | 200     |      |   |         | 199     |  
|                                                                                         | Lower-of-cost-or-market adjustment     |                        |        | 215     |      |   |         | 2,739   |  
|                                                                                         | Other inventory write-downs            |                        |        | 1,258   |      |   |         |        |  
|                                                                                         | Gain on sale of joint venture          |                        |        | (700    | )    |   |         |        |  
|                                                                                         | Deferred tax benefit                   |                        |        | (7,005  | )    |   |         | (6,887  | )
|                                                                                         | Other                                  |                        |        | 156     |      |   |         |        |  
|Change in assets/liabilities:                                                            |                                        |                        |        |         |      |   |         |        
|                                                                                         | Accounts receivable                    |                        |        | 46,906  |      |   |         | 12,145  |  
|                                                                                         | Inventories                            |                        |        | 36,694  |      |   |         | (12,112 | )
|                                                                                         | Prepaid expenses                       |                        |        | 3,070   |      |   |         | 3,479   |  
|                                                                                         | Other assets                           |                        |        | (1,031  | )    |   |         | (3,393  | )
|                                                                                         | Accounts payable                       |                        |        | (29,456 | )    |   |         | (14,521 | )
|                                                                                         | Accrued liabilities                    |                        |        | (3,217  | )    |   |         | (1,983  | )
|                                                                                         | Other liabilities                      |                        |        | (4,345  | )    |   |         | (269    | )
|                                                                                         |                                        |                        |        |         |      |  
|Net cash provided by (used in) operating activities                                      |                                        |                        | 43,984 |         |      |   | (18,388 | )      
|                                                                                         |                                        |                        |        |         |      |  
|Cash flows used in investing activities:                                                 |                                        |                        |        |         |      |   |         |        
|                                                                                         | Capital expenditures                   |                        |        | (3,514  | )    |   |         | (6,093  | )
|                                                                                         | Cash provided by sale of joint venture |                        |        | 700     |      |   |         |        |  
|                                                                                         | Cash used for methanol dismantling     |                        |        | (417    | )    |   |         |        |  
|                                                                                         |                                        |                        |        |         |      |  
|Net cash used in investing activities                                                    |                                        |                        | (3,231 | )       |      |   | (6,093  | )      
|                                                                                         |                                        |                        |        |         |      |  
|Cash flows from financing activities:                                                    |                                        |                        |        |         |      |   |         |        
|                                                                                         | Net repayments on the Revolver         |                        |        | (17,684 | )    |   |         |        |  
|                                                                                         |                                        |                        |        |         |      |  
|Net decrease in cash and cash equivalents                                                |                                        |                        | 23,069 |         |      |   | (24,481 | )      
|Cash and cash equivalents  beginning of year                                            |                                        |                        | 1,901  |         |      |   | 42,384  |        
|                                                                                         |                                        |                        |        |         |      |  
|Cash and cash equivalents  end of period                                                |                                        | $                      | 24,970 |         |      | $ | 17,903  |        
|                                                                                         |                                        |                        |        |         |      |  
|Supplemental disclosures of cash flow information:                                       |                                        |                        |        |         |      |   |         |        
|                                                                                         | Net interest paid                      |                        | $      | 5,903   |      |   | $       | 5,187   |  
|                                                                                         | Cash paid for income taxes             |                        |        | 55      |      |   |         |        |  



6



---



##### Table of Contents



STERLING CHEMICALS, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)




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







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





7



---



##### Table of Contents



STERLING CHEMICALS, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                                                                                                    |  |                                           |         |   |                  |   |         |      |  |   |         |   |  |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------- | ------- | - | ---------------- | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                                                                                                                                    |  | Three Months Ended                        |         |   | Six Months Ended |  
|                                                                                                                                                    |  | June 30,                                  |         |   | June 30,         |  
|                                                                                                                                                    |  |                                           |         |   |                  |  
|                                                                                                                                                    |  | 2005                                      |         |   | 2004             |   |         | 2005 |  |   | 2004    |  
|                                                                                                                                                    |  |                                           |         |   |                  |   |         |      |  |   |         |  
|                                                                                                                                                    |  | (Dollars in thousands, except share data) |        
|Net loss attributable to common stockholders, as reported                                                                                           |  | $                                         | (15,569 | ) |                  | $ | (52,052 | )    |  | $ | (15,415 | ) |  | $ | (63,324 | )
|Add: Stock-based employee compensation expense included in
    reported net loss, net of related tax effects                                        |  |                                           |        |   |                  |   |        |      |  |   | 128     |   |  |   |        |  
|Deduct: Total stock-based employee compensation expense
    determined under fair value based method for all awards, net of
    related tax effects |  |                                           | 110     |   |                  |   | 270     |      |  |   | 240     |   |  |   | 702     |  
|                                                                                                                                                    |  |                                           |         |   |                  |   |         |      |  |   |         |  
|Pro forma net loss                                                                                                                                  |  | $                                         | (15,679 | ) |                  | $ | (52,322 | )    |  | $ | (15,527 | ) |  | $ | (64,026 | )
|                                                                                                                                                    |  |                                           |         |   |                  |   |         |      |  |   |         |  
|Loss per share attributable to common stockholders:                                                                                                 |  |                                           |         |   |                  |   |         |      |  |   |         |   |  |   |         |  
|As reported                                                                                                                                         |  | $                                         | (5.50   | ) |                  | $ | (18.43  | )    |  | $ | (5.45   | ) |  | $ | (22.42  | )
|Pro forma                                                                                                                                           |  |                                           | (5.54   | ) |                  |   | (18.52  | )    |  |   | (5.49   | ) |  |   | (22.66  | )



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

|                                      |  |                        |        |  |                   |   |        | 
|------------------------------------- |  | ---------------------- | ------ |  | ----------------- | - | ------ | 
|                                      |  | June 30, 2005          |        |  | December 31, 2004 |  
|                                      |  |                        |        |  |                   |  
|                                      |  | (Dollars in thousands) |       
|Finished products                     |  | $                      | 24,598 |  |                   | $ | 63,841 | 
|Raw materials                         |  |                        | 14,224 |  |                   |   | 18,682 | 
|Inventories under exchange agreements |  |                        | 5,751  |  |                   |   | 330    | 
|Stores and supplies, net              |  |                        | 5,240  |  |                   |   | 5,127  | 
|                                      |  |                        |        |  |                   |  
|                                      |  | $                      | 49,813 |  |                   | $ | 87,980 | 
|                                      |  |                        |        |  |                   |  



|   |               
|-- | --------------
|4. | Long-Term Debt



3 8


8



---



##### Table of Contents



STERLING CHEMICALS, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)














9



---



##### Table of Contents



STERLING CHEMICALS, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                              
|-- | -----------------------------
|5. | Commitments and Contingencies



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





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









10



---



##### Table of Contents



STERLING CHEMICALS, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






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





11



---



##### Table of Contents



STERLING CHEMICALS, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the force majeure dispute among the parties was settled;                                                                                                                                                                                                                                                                                                                                                                
|
| |  | most of the acrylonitrile-related agreements between the parties
    were terminated as of May 31, 2005, including the Amended
    and Restated Production Agreement dated March 31, 1998, the
    Joint Venture Agreement dated March 31, 1998, the
    Acrylonitrile Expanded Relationship and Master Modification
    Agreement dated June 19, 2003 and the European Distribution
    Agreement dated March 31, 1998;
|
| |  | we assigned our interest in ANEXCO, LLC to Innovene
    Chemicals; and                                                                                                                                                                                                                                                                                                                                                  
|
| |  | we and Innovene Chemicals entered into amended and restated
    versions of our acrylonitrile License Agreement and Catalyst
    Sales Contract.                                                                                                                                                                                                                                                                        







12



---



##### Table of Contents



STERLING CHEMICALS, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                                                
|-- | -----------------------------------------------
|6. | Pension Plans and Other Postretirement Benefits



|                               |  |                    |        |                        |                  |   |        |      |  |   |        |   |  |   |        |  
|------------------------------ |  | ------------------ | ------ | ---------------------- | ---------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                               |  | Three Months Ended |        |                        | Six Months Ended |  
|                               |  | June 30,           |        |                        | June 30,         |  
|                               |  |                    |        |                        |                  |  
|                               |  | 2005               |        |                        | 2004             |   |        | 2005 |  |   | 2004   |  
|                               |  |                    |        |                        |                  |   |        |      |  |   |        |  
|                               |  |                    |        | (Dollars in thousands) |                  |   |       
|Service cost                   |  | $                  | 202    |                        |                  | $ | 904    |      |  | $ | 404    |   |  | $ | 1,732  |  
|Interest cost                  |  |                    | 1,669  |                        |                  |   | 1,861  |      |  |   | 3,338  |   |  |   | 3,770  |  
|Expected return on plan assets |  |                    | (1,667 | )                      |                  |   | (1,655 | )    |  |   | (3,334 | ) |  |   | (2,956 | )
|                               |  |                    |        |                        |                  |   |        |      |  |   |        |  
|Net pension costs              |  | $                  | 204    |                        |                  | $ | 1,110  |      |  | $ | 408    |   |  | $ | 2,546  |  
|                               |  |                    |        |                        |                  |   |        |      |  |   |        |  



|                               |  |                        |    |  |                  |   |        |      |  |   |      |  |  |   |        |  
|------------------------------ |  | ---------------------- | -- |  | ---------------- | - | ------ | ---- |  | - | ---- |  |  | - | ------ | -
|                               |  | Three Months Ended     |    |  | Six Months Ended |  
|                               |  | June 30,               |    |  | June 30,         |  
|                               |  |                        |    |  |                  |  
|                               |  | 2005                   |    |  | 2004             |   |        | 2005 |  |   | 2004 | 
|                               |  |                        |    |  |                  |   |        |      |  |   |      | 
|                               |  | (Dollars in thousands) |   
|Service cost                   |  | $                      | 99 |  |                  | $ | 79     |      |  | $ | 198  |  |  | $ | 156    |  
|Interest cost                  |  |                        |   |  |                  |   | 397    |      |  |   |     |  |  |   | 788    |  
|Curtailment gain               |  |                        |   |  |                  |   | (1,418 | )    |  |   |     |  |  |   | (1,418 | )
|Expected return on plan assets |  |                        |   |  |                  |   | (83    | )    |  |   |     |  |  |   | (164   | )
|                               |  |                        |    |  |                  |   |        |      |  |   |      | 
|Net plan costs                 |  | $                      | 99 |  |                  | $ | (1,025 | )    |  | $ | 198  |  |  | $ | (638   | )
|                               |  |                        |    |  |                  |   |        |      |  |   |      | 







|   |                         
|-- | ------------------------
|7. | New Accounting Standards



13



---



##### Table of Contents



STERLING CHEMICALS, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












14



---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM














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





15



---



##### Table of Contents








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



Business Overview








16



---



##### Table of Contents





vice versa. vice versa




17



---



##### Table of Contents














18



---



##### Table of Contents







| |   |                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the force majeure dispute among the parties was settled;                                                                                                                                                                                                                                                                                                                                                                
|
| |  | most of the acrylonitrile-related agreements between the parties
    were terminated as of May 31, 2005, including the Amended
    and Restated Production Agreement dated March 31, 1998, the
    Joint Venture Agreement dated March 31, 1998, the
    Acrylonitrile Expanded Relationship and Master Modification
    Agreement dated June 19, 2003 and the European Distribution
    Agreement dated March 31, 1998;
|
| |  | we assigned our interest in ANEXCO, LLC to Innovene
    Chemicals; and                                                                                                                                                                                                                                                                                                                                                  
|
| |  | we and Innovene Chemicals entered into amended and restated
    versions of our acrylonitrile License Agreement and Catalyst
    Sales Contract.                                                                                                                                                                                                                                                                        







19



---



##### Table of Contents





Results of Operations




| |                                                                                  
| | ---------------------------------------------------------------------------------
| | Three Months Ended June 30, 2005 Compared to Three
    Months Ended June 30, 2004



| |                               
| | ------------------------------
| | Revenues and Net Income (Loss)











20



---



##### Table of Contents







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





| |             
| | ------------
| | Other Income





| |                         
| | ------------------------
| | Benefit for Income Taxes





| |                                                                              
| | -----------------------------------------------------------------------------
| | Six Months Ended June 30, 2005 Compared to Six Months
    Ended June 30, 2004



| |                               
| | ------------------------------
| | Revenues and Net Income (Loss)







21



---



##### Table of Contents









| |              
| | -------------
| | SG&A Expenses





| |             
| | ------------
| | Other Income



Liquidity and Capital Resources




3 8






22



---



##### Table of Contents













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





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



23



---



##### Table of Contents





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



Contractual Cash Obligations




Critical Accounting Policies, Use of Estimates and
Assumptions




New Accounting Standards






24



---



##### Table of Contents














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








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





25



---



##### Table of Contents










PART II.


OTHER INFORMATION







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








|        |                                                    
|------- | ---------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security Holders





| |   |                                                                                                                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | eight of our incumbent directors were re-elected;                                                                                                                                                                                                                                                                      
|
| |  | the appointment of Deloitte & Touche LLP as our
    independent registered accounting firm for the fiscal year
    ending December 31, 2005 was ratified and approved; and                                                                                                                                             
|
| |  | an amendment to our Amended and Restated Certificate of
    Incorporation to increase the number of our total authorized
    shares of capital stock from 10,125,000 to 20,125,000 and to
    increase the number of our authorized shares of Common Stock
    from 10,000,000 to 20,000,000 was ratified and approved.





|                    |  |     |           |  |          |  |   | 
|------------------- |  | --- | --------- |  | -------- |  | - | 
|Director            |  | For |           |  | Withheld | 
|                    |  |     |           |  |          | 
|Byron J. Haney      |  |     | 2,993,464 |  |          |  | 0 | 
|Philip M. Sivin     |  |     | 2,993,464 |  |          |  | 0 | 
|Robert T. Symington |  |     | 2,993,464 |  |          |  | 0 | 
|Keith R. Whittaker  |  |     | 2,993,464 |  |          |  | 0 | 

26



---



##### Table of Contents





|                      |  |     |           |  |          |  |     | 
|--------------------- |  | --- | --------- |  | -------- |  | --- | 
|Director              |  | For |           |  | Withheld | 
|                      |  |     |           |  |          | 
|Richard K. Crump      |  |     | 5,771,394 |  |          |  | 420 | 
|Marc S. Kirschner     |  |     | 5,771,337 |  |          |  | 477 | 
|Dr. Peter Ting Kai Wu |  |     | 5,771,301 |  |          |  | 513 | 



|               |  |     |            |  |          |  |   | 
|-------------- |  | --- | ---------- |  | -------- |  | - | 
|Director       |  | For |            |  | Withheld | 
|               |  |     |            |  |          | 
|John W. Gildea |  |     | 79,988,615 |  |          |  | 0 | 



|          |  |         |    |  |         |  |    | 
|--------- |  | ------- | -- |  | ------- |  | -- | 
|For       |  | Against |    |  | Abstain | 
|          |  |         |    |  |         | 
|5,771,677 |  |         | 94 |  |         |  | 43 | 



|          |  |         |       |  |         |  |     | 
|--------- |  | ------- | ----- |  | ------- |  | --- | 
|For       |  | Against |       |  | Abstain | 
|          |  |         |       |  |         | 
|5,770,548 |  |         | 1,142 |  |         |  | 124 | 



27



---



##### Table of Contents








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



|        |      |    |  |                        |  |                                                                                                                                                                                                                                                                                          
|------- | ---- | -- |  | ---------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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. (conformed copy) (incorporated by reference from
    Exhibit 3.1 to our Quarterly Report on Form 10-Q for
    the fiscal quarter ended March 31, 2005).                                                
|       
|        | 3    | .2 |  |                       |  | Restated Certificate of Designations, Preferences, Rights and
    Limitations of Series A Convertible Preferred Stock of
    Sterling Chemicals, Inc. (incorporated 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 |  |                       |  | Separation Agreement effective as of May 31, 2005 by and
    among Sterling Chemicals, Inc., O&D USA LLC (d/b/a Innovene
    Chemicals), ANEXCO, LLC and BP Amoco Chemical Company
    (incorporated by reference from Exhibit 10.1 to our
    Form 8-K filed on May 31, 2005).          
|       
|        | *10  | .2 |  |                       |  | Fifteenth Amendment to the Sterling Chemicals, Inc. Amended and
    Restated Salaried Employees Pension Plan.                                                                                                                                                                           
|       
|        | *10  | .3 |  |                       |  | Ninth Amendment to the Sterling Chemicals, Inc. Hourly Paid
    Employees Pension 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                                                                                                                                                                                                                                






|  |                                                                          
|- | -------------------------------------------------------------------------
|* | Previously filed with our Report on Form 10-Q filed on
    August 9, 2005



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

28



---



##### Table of Contents



SIGNATURES






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



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

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





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

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



29



---



##### Table of Contents



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. (conformed copy) (incorporated by reference from
    Exhibit 3.1 to our Quarterly Report on Form 10-Q for
    the fiscal quarter ended March 31, 2005).                                                
|       
|        | 3    | .2 |  |                       |  | Restated Certificate of Designations, Preferences, Rights and
    Limitations of Series A Convertible Preferred Stock of
    Sterling Chemicals, Inc. (incorporated 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 |  |                       |  | Separation Agreement effective as of May 31, 2005 by and
    among Sterling Chemicals, Inc., O&D USA LLC (d/b/a Innovene
    Chemicals), ANEXCO, LLC and BP Amoco Chemical Company
    (incorporated by reference from Exhibit 10.1 to our
    Form 8-K filed on May 31, 2005).          
|       
|        | *10  | .2 |  |                       |  | Fifteenth Amendment to the Sterling Chemicals, Inc. Amended and
    Restated Salaried Employees Pension Plan.                                                                                                                                                                           
|       
|        | *10  | .3 |  |                       |  | Ninth Amendment to the Sterling Chemicals, Inc. Hourly Paid
    Employees Pension 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                                                                                                                                                                                                                                






|  |                                                                          
|- | -------------------------------------------------------------------------
|* | Previously filed with our Report on Form 10-Q filed on
    August 9, 2005



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