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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 March 31, 2010
 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
    
    (IRS Employer Identification No.)Incorporation or organization)333 Clay Street, Suite 3600
    
    (713) 650-3700Houston, Texas 77002-4109
    
    (Registrants telephone number,(Address of principal executive offices)
    
    including area code)
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ




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IMPORTANT INFORMATION REGARDING THIS FORM 10-Q
   Forward-Looking Statements
   Document Summaries
  Access to Filings
 http://www.sterlingchemicals.com
 1




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STERLING CHEMICALS, INC.
 INDEX
 PagePART I. FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 4T. Controls and Procedures
    
    
    18PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    19Item 6. Exhibits
    
    
    19EX-15.1EX-31.1EX-31.2EX-32.1EX-32.2
  2




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
       
 3




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PART I.
FINANCIAL INFORMATION
 
 Item 1.
    
    Financial Statements
 STERLING CHEMICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in Thousands, Except Share Data)
 Three months ended March 31,2010
    
    
    2009Revenues
    
    $
    33,109
    
    
    $
    31,377Cost of goods sold
    
    
    27,910
    
    
    
    25,809Gross profit
    
    
    5,199
    
    
    
    5,568Selling, general and administrative expenses
    
    
    2,894
    
    
    
    3,883Impairment of long-lived assets
    
    
    290
    
    
    
    Interest and debt related expenses
    
    
    3,607
    
    
    
    4,003Interest income
    
    
    (49
    )
    
    
    (384
    )Other income
    
    
    (76
    )
    
    
    (1,145
    )Loss from continuing operations before income tax
    
    
    (1,467
    )
    
    
    (789
    )Benefit for income taxes
    
    
    
    
    
    
    (195
    )Loss from continuing operations
    
    $
    (1,467
    )
    
    $
    (594
    )Income from discontinued operations, net of tax
expense of zero and $869, respectively
    
    
    2,979
    
    
    
    1,622Net income
    
    $
    1,512
    
    
    $
    1,028Preferred stock dividends
    
    
    4,455
    
    
    
    4,147Net loss attributable to common stockholders
    
    $
    (2,943
    )
    
    $
    (3,119
    )(Loss) income per share of common stock attributable to
common stockholders, basic and diluted:Loss from continuing operations
    
    $
    (2.09
    )
    
    $
    (1.67
    )Income from discontinued operations,
net of tax
    
    
    1.05
    
    
    
    0.57Basic and diluted loss per share
    
    $
    (1.04
    )
    
    $
    (1.10
    )Weighted average shares outstanding:Basic and diluted
    
    
    2,828,460
    
    
    
    2,828,460
  4




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STERLING CHEMICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in Thousands)
 March 31,
    
    
    December 31,2010
    
    
    2009ASSETSCurrent assets:Cash and cash equivalents
    
    $
    121,188
    
    
    $
    123,778Accounts receivable, net of allowance of $58 and $58, respectively
    
    
    13,779
    
    
    
    14,614Inventories, net
    
    
    5,229
    
    
    
    5,268Prepaid expenses and other current assets
    
    
    1,685
    
    
    
    2,539Assets of discontinued operations
    
    
    
    
    
    
    24Total current assets
    
    
    141,881
    
    
    
    146,223Property, plant and equipment, net
    
    
    65,585
    
    
    
    68,182Other assets, net
    
    
    5,311
    
    
    
    5,760Total assets
    
    $
    212,777
    
    
    $
    220,165LIABILITIES AND STOCKHOLDERS DEFICIENCY IN ASSETSCurrent liabilities:Accounts payable
    
    $
    8,503
    
    
    $
    11,703Accrued liabilities
    
    
    23,479
    
    
    
    24,416Liabilities of discontinued operations
    
    
    12,383
    
    
    
    12,384Total current liabilities
    
    
    44,365
    
    
    
    48,503Long-term debt
    
    
    123,000
    
    
    
    125,000Long-term liabilities
    
    
    41,553
    
    
    
    41,084Long-term liabilities of discontinued operations
    
    
    19,915
    
    
    
    23,010Commitments and contingencies (Note 4)Redeemable preferred stock
    
    
    138,983
    
    
    
    134,528Stockholders
deficiency in assets:Common stock, $.01 par value (shares authorized 100,000,000;
shares issued
and outstanding 2,828,460)
    
    
    28
    
    
    
    28Additional paid-in capital
    
    
    102,517
    
    
    
    106,948Accumulated deficit
    
    
    (239,268
    )
    
    
    (240,780
    )Accumulated other comprehensive loss
    
    
    (18,316
    )
    
    
    (18,156
    )Total stockholders deficiency in assets
    
    
    (155,039
    )
    
    
    (151,960
    )Total liabilities and stockholders deficiency in assets
    
    $
    212,777
    
    
    $
    220,165
  5




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STERLING CHEMICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
 Three months ended March 31,2010
    
    
    2009Cash flows from operating activities:Net income
    
    $
    1,512
    
    
    $
    1,028Adjustments to reconcile net income to net cash (used in)
provided by operating activities:Stock compensation expense
    
    
    24
    
    
    
    96Bad debt expense
    
    
    21
    
    
    
    Benefit plan curtailment gain
    
    
    (115
    )
    
    
    Depreciation and amortization
    
    
    3,041
    
    
    
    2,245Interest amortization
    
    
    432
    
    
    
    277Unearned income amortization
    
    
    (4,280
    )
    
    
    (3,637
    )Impairment of long-lived assets
    
    
    290
    
    
    
    Gain on disposal of property, plant and equipment
    
    
    (15
    )
    
    
    (83
    )Gain on purchase of Senior Secured Notes
    
    
    (6
    )
    
    
    Other
    
    
    13
    
    
    
    Change in assets/liabilities:Accounts and other receivables
    
    
    838
    
    
    
    5,406Inventories
    
    
    (21
    )
    
    
    (189
    )Prepaid expenses and other current assets
    
    
    854
    
    
    
    687Other assets
    
    
    (52
    )
    
    
    (119
    )Accounts payable
    
    
    (3,310
    )
    
    
    1,240Accrued liabilities
    
    
    (938
    )
    
    
    1,799Long-term liabilities
    
    
    1,609
    
    
    
    548Net cash (used in) provided by operating activities
    
    $
    (103
    )
    
    $
    9,298Cash flows used in investing activities:Capital expenditures for property, plant and equipment
    
    
    (577
    )
    
    
    (2,442
    )Net proceeds from the sale of property, plant and equipment
    
    
    15
    
    
    
    83Net cash used in investing activities
    
    
    (562
    )
    
    
    (2,359
    )Cash flows used in financing activities:Purchase of Senior Secured Notes
    
    
    (1,925
    )
    
    
    Net cash used in financing activities
    
    
    (1,925
    )
    
    
    Net (decrease) increase in cash
    
    
    (2,590
    )
    
    
    6,939Cash and cash equivalents  beginning of year
    
    
    123,778
    
    
    
    156,126Cash and cash equivalents  end of period
    
    $
    121,188
    
    
    $
    163,065Supplemental disclosures of cash flow information:Interest paid
    
    $
    129
    
    
    $
    70Interest income received
    
    
    49
    
    
    
    384Cash paid for income taxes
    
    
    (598
    )
    
    
    
  6




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STERLING CHEMICALS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 1.
Basis of Presentation and Accounting Policies
  Property
Plant and Equipment Impairment
  2. Discontinued Operations
   March 31,
    
    
    December 31,2010
    
    
    2009(Dollars in Thousands)Assets of discontinued operations:Accounts receivable, net of allowance of $44 and $23 respectively
    
    $
    
    
    
    $
    24Liabilities of discontinued operations:(1)Accrued liabilities
    
    $
    12,383
    
    
    $
    12,384Deferred credits and other liabilities
    
    
    19,915
    
    
    
    23,010Total
    
    $
    32,298
    
    
    $
    35,394
 
 (1)
    
    As of March 31, 2010, represents deferred income from the NOVA supply agreement
that is being amortized over the contractual non-compete period of five years using the
straight-line method. Accrued liabilities represents the current portion of $12.4 million,
and deferred credits and other liabilities represents the long-term portion of the deferred
income of $19.9 million.  7




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STERLING CHEMICALS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
 Three months ended March 31,2010
    
    2009(Dollars in Thousands)Revenues
    
    $
    3,096
    
    
    $
    3,096Income before income taxes
    
    
    2,979
    
    
    
    2,491
 3. Long-Term Debt
 1 4
     8




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STERLING CHEMICALS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
  Debt Maturities
  4. Commitments and Contingencies
 Product Contracts:
  Legal Proceedings:
    9




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STERLING CHEMICALS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
  5. Income Taxes
  6. Employee Benefits
  Three months ended March 31,2010
    
    
    2009(Dollars in Thousands)Interest cost
    
    $
    1,745
    
    
    $
    1,828Expected return on plan assets
    
    
    (1,160
    )
    
    
    (1,513
    )Amortization
    
    
    191
    
    
    
    864Net pension cost
    
    $
    776
    
    
    $
    1,179
  Three months ended March 31,2010
    
    
    2009(Dollars in Thousands)Service cost
    
    $
    10
    
    
    $
    11Interest cost
    
    
    95
    
    
    
    121Amortization of unrecognized costs
    
    
    (544
    )
    
    
    (541
    )Curtailment gain
    
    
    (115
    )
    
    
    Net plan benefit
    
    $
    (554
    )
    
    $
    (409
    )
  7. Operating Segment and Sales Information
  10




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STERLING CHEMICALS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
 Three months ended March 31,2010
    
    
    2009(Dollars in Thousands)Revenues:Acetic acid
    
    $
    26,427
    
    
    $
    23,838Plasticizers
    
    
    6,427
    
    
    
    7,284Other
    
    
    255
    
    
    
    255Total
    
    $
    33,109
    
    
    $
    31,377Segment gross profit (loss):Acetic acid
    
    $
    3,683
    
    
    $
    4,574Plasticizers
    
    
    1,545
    
    
    
    1,323Other
    
    
    (29
    )
    
    
    (329
    )Total
    
    
    5,199
    
    
    
    5,568Selling, general and administrative expenses
    
    
    2,894
    
    
    
    3,883Impairment of long-lived assets
    
    
    290
    
    
    
    Interest and debt related expenses
    
    
    3,607
    
    
    
    4,003Interest income
    
    
    (49
    )
    
    
    (384
    )Other income
    
    
    (76
    )
    
    
    (1,145
    )Loss from continuing operations before income tax
    
    $
    (1,467
    )
    
    $
    (789
    )Depreciation and amortization expenses:Acetic acid
    
    $
    1,962
    
    
    $
    1,643Plasticizers
    
    
    795
    
    
    
    312Other(1)
    
    
    284
    
    
    
    290Total
    
    $
    3,041
    
    
    $
    2,245Capital expenditures:Acetic acid
    
    $
    134
    
    
    $
    1,455Other  plant infrastructure
    
    
    443
    
    
    
    987Total
    
    $
    577
    
    
    $
    2,442
 
 (1)
    
    Includes depreciation and amortization expenses for discontinued operations of
less than $0.1 million for each of the three-month periods ended March 31, 2010 and 2009,
respectively. As of
    
    
    As ofMarch 31, 2010
    
    
    December 31, 2009(Dollars in Thousands)Total assets:Acetic acid
    
    $
    36,500
    
    
    $
    35,362Plasticizers
    
    
    4,741
    
    
    
    5,412Other(1)
    
    
    171,536
    
    
    
    179,391Total
    
    $
    212,777
    
    
    $
    220,165
 
 (1)
    
    Components of Other are presented in the table below: 11




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STERLING CHEMICALS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
 As of
    
    
    As ofMarch 31, 2010
    
    
    December 31, 2009(Dollars in Thousands)Other:Corporate:Cash
    
    $
    121,188
    
    
    $
    123,778Other
    
    
    13,078
    
    
    
    17,677Plant infrastructure:Property, plant and equipment, net
    
    
    37,270
    
    
    
    37,912Assets of discontinued operations
    
    
    
    
    
    
    24Total
    
    $
    171,536
    
    
    $
    179,391
 8. Fair Value Measurements
 Fair Value of Financial Instruments
  As of March 31, 2010
    
    
    As of December 31, 2009Carrying Value
    
    
    Fair Value
    
    
    Carrying Value
    
    
    Fair ValueSecured Notes
    
    $
    123,000
    
    
    $
    121,770
    
    
    $
    125,000
    
    
    $
    119,400
  Nonrecurring Fair Value Measurements
  9. New Accounting Standards
 Adoption of Accounting Standards:
  12




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STERLING CHEMICALS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
 
    
    a reporting entity to disclose separately the amounts of significant transfers in
and out of Level 1 and Level 2 fair value measurements and describe the reasons for the
transfers; and
    
    in the reconciliation for fair value measurements using significant unobservable
inputs, a reporting entity to present separately information about purchases, sales,
issuances and settlements.
  
    
    for purposes of reporting fair value measurement for each class of assets and
liabilities, a reporting entity needs to use judgment in determining the appropriate
classes of assets and liabilities; and
    
    a reporting entity should provide disclosures about the valuation techniques and
inputs used to measure fair value for both recurring and nonrecurring fair value
measurements.
  13




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Business Overview
      14




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Recent
Developments
  Results of Operations
 Three Months Ended March 31, 2010 Compared to Three Months Ended March 31, 2009
 Revenues and loss from continuing operations
   15




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Selling, general and administrative expenses
  Impairment of long-lived assets
  Interest and debt related expenses
 1 4
 Interest income
  Other income
  Benefit for income taxes
  16




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Income from discontinued operations, net of tax
  Liquidity and Capital Resources
 General
    Debt
    17




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Cash Flow
  Critical Accounting Policies, Use of Estimates and Assumptions
  
 Item 4T. Controls and Procedures
 18




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Evaluation of Disclosure Controls and Procedures.
      Changes in Internal Control over Financial Reporting.
 
 PART II.
OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 6. Exhibits
  19




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ExhibitNumber
    
    
    
    Description of Exhibit10.1
    
    
    
    $5,000,000 Revolving Line of Credit for letters of credit from JPMorgan Chase
Bank, N.A. dated January 31, 2010 (incorporated herein by reference from
Exhibit 10.7 to our Annual Report on Form 10-K for the fiscal year ended
December 31, 2009).*15.1
    
    
    
    Letter of Grant Thornton 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 Principal Financial Officer.*32.1
    
    
    
    Section 1350 Certification of the Chief Executive Officer.*32.2
    
    
    
    Section 1350 Certification of the Principal Financial Officer.
 
 *
    
    Filed or furnished herewith 20




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SIGNATURES
  STERLING CHEMICALS, INC.
(Registrant)Date:  May 12, 2010
  By
    /s/ JOHN V. GENOVAJohn V. GenovaPresident and Chief Executive OfficerDate:  May 12, 2010
  By
    /s/ DAVID J. COLLINSDavid J. CollinsSenior Vice President and Chief Financial Officer
(Principal Financial Officer) 21




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EXHIBIT INDEX
 ExhibitNumber
    
    
    
    Description of Exhibit10.1
    
    
    
    $5,000,000 Revolving Line of Credit for letters of credit from JPMorgan Chase
Bank, N.A. dated January 31, 2010 (incorporated herein by reference from
Exhibit 10.7 to our Annual Report on Form 10-K for the fiscal year ended
December 31, 2009).*15.1
    
    
    
    Letter of Grant Thornton 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 Principal Financial Officer.*32.1
    
    
    
    Section 1350 Certification of the Chief Executive Officer.*32.2
    
    
    
    Section 1350 Certification of the Principal Financial Officer.
 
 *
    
    Filed or furnished herewith 22