##### Table of Contents



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, 2009
 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 oAccelerated filer oNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company þ o þ




---



##### Table of Contents



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




---



##### 



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
    
    
    16Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    22Item 4T. Controls and Procedures
    
    
    22PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    23Item 6. Exhibits
    
    
    24EX-3.1EX-10.1EX-10.3EX-15.1EX-31.1EX-31.2EX-32.1EX-32.2
  2




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
      
 3




---



##### Table of Contents



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 31,2009
    
    
    2008Revenues
    
    $
    31,377
    
    
    $
    38,258Cost of goods sold
    
    
    25,809
    
    
    
    33,885Gross profit
    
    
    5,568
    
    
    
    4,373Selling, general and administrative expenses
    
    
    3,883
    
    
    
    2,418Interest and debt related expenses
    
    
    4,003
    
    
    
    4,213Interest income
    
    
    (384
    )
    
    
    (1,326
    )Other income
    
    
    (1,145
    )
    
    
    Loss from continuing operations before income tax
    
    
    (789
    )
    
    
    (932
    )Benefit for income taxes
    
    
    (195
    )
    
    
    Loss from continuing operations
    
    $
    (594
    )
    
    $
    (932
    )Income
(loss) from discontinued operations, net of tax of $869 and zero
    
    
    1,622
    
    
    
    (6,254
    )Net income (loss)
    
    $
    1,028
    
    
    $
    (7,186
    )Preferred stock dividends
    
    
    4,147
    
    
    
    4,271Net loss attributable to common stockholders
    
    $
    (3,119
    )
    
    $
    (11,457
    )Income (loss) per share of common stock attributable to common
stockholders, basic and diluted:Loss from continuing operations
    
    $
    (1.67
    )
    
    $
    (1.84
    )Income (loss) from discontinued operations, net of tax
    
    
    0.57
    
    
    
    (2.21
    )Basic and diluted loss per share
    
    $
    (1.10
    )
    
    $
    (4.05
    )Weighted average shares outstanding:Basic and diluted
    
    
    2,828,460
    
    
    
    2,828,460
  4




---



##### Table of Contents



STERLING CHEMICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in Thousands, Except Share Data)
 March 31,
    
    
    December 31,2009
    
    
    2008ASSETSCurrent assets:Cash and cash equivalents
    
    $
    163,065
    
    
    $
    156,126Accounts and other receivables, net of allowance of $18 and $18
    
    
    17,777
    
    
    
    23,163Inventories, net
    
    
    5,410
    
    
    
    5,221Prepaid expenses and other current assets
    
    
    2,017
    
    
    
    2,704Assets of discontinued operations
    
    
    146
    
    
    
    166Total current assets
    
    
    188,415
    
    
    
    187,380Property, plant and equipment, net
    
    
    68,151
    
    
    
    67,811Other assets, net
    
    
    7,476
    
    
    
    7,838Total assets
    
    $
    264,042
    
    
    $
    263,029LIABILITIES AND STOCKHOLDERS DEFICIENCY IN ASSETSCurrent liabilities:Accounts payable
    
    $
    10,094
    
    
    $
    8,915Accrued liabilities
    
    
    21,844
    
    
    
    20,008Liabilities of discontinued operations
    
    
    12,407
    
    
    
    12,444Total current liabilities
    
    
    44,345
    
    
    
    41,367Long-term debt
    
    
    150,000
    
    
    
    150,000Deferred credits and other liabilities
    
    
    59,111
    
    
    
    59,103Long-term liabilities of discontinued operations
    
    
    32,297
    
    
    
    35,394Commitments and contingencies (Note 4)Redeemable preferred stock
    
    
    121,754
    
    
    
    117,607Stockholders equity:Common stock, $.01 par value (shares authorized 20,000,000;
shares issued and outstanding 2,828,460)
    
    
    28
    
    
    
    28Additional paid-in capital
    
    
    119,689
    
    
    
    123,740Accumulated deficit
    
    
    (238,795
    )
    
    
    (239,823
    )Accumulated other comprehensive loss
    
    
    (24,387
    )
    
    
    (24,387
    )Total stockholders deficiency in assets
    
    
    (143,465
    )
    
    
    (140,442
    )Total liabilities and stockholders deficiency in assets
    
    $
    264,042
    
    
    $
    263,029
  5




---



##### Table of Contents



STERLING CHEMICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
 Three months ended March 31,2009
    
    
    2008Cash flows from operating activities:Net income (loss)
    
    $
    1,028
    
    
    $
    (7,186
    )Adjustments to reconcile net income (loss) to net cash
provided by operating activities:Stock compensation expense
    
    
    96
    
    
    
    Depreciation and amortization
    
    
    2,245
    
    
    
    2,635Interest amortization
    
    
    277
    
    
    
    279Unearned income amortization
    
    
    (3,637
    )
    
    
    (2,125
    )Gain on disposal of property, plant and equipment
    
    
    (83
    )
    
    
    Other
    
    
    
    
    
    
    10Change in assets/liabilities:Accounts and
other receivables
    
    
    5,406
    
    
    
    72,321Inventories
    
    
    (189
    )
    
    
    14,900Prepaid expenses and other current assets
    
    
    687
    
    
    
    1,102Other assets
    
    
    (119
    )
    
    
    (164
    )Accounts payable
    
    
    1,240
    
    
    
    (4,303
    )Accrued liabilities
    
    
    1,799
    
    
    
    (4,905
    )Other liabilities
    
    
    548
    
    
    
    (251
    )Net cash provided by operating activities
    
    
    9,298
    
    
    
    72,313Cash flows used in investing activities:Capital expenditures for property, plant and equipment
    
    
    (2,442
    )
    
    
    (2,037
    )Net proceeds from the sale of property, plant and equipment
    
    
    83
    
    
    
    Net cash used in investing activities
    
    
    (2,359
    )
    
    
    (2,037
    )Cash flows provided by financing activities:Net cash provided by financing activities
    
    
    
    
    
    
    Net increase in cash:
    
    
    6,939
    
    
    
    70,276Cash and cash equivalents  beginning of year
    
    
    156,126
    
    
    
    100,183Cash and cash equivalents  end of period
    
    $
    163,065
    
    
    $
    170,459Supplemental disclosures of cash flow information:Interest paid
    
    $
    (70
    )
    
    $
    (128
    )Interest income received
    
    
    384
    
    
    
    1,326Cash paid for income taxes
    
    
    
    
    
    
    404
  6




---



##### Table of Contents



STERLING CHEMICALS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 1. Basis of Presentation
  Reclassifications
and Revisions:
   Three Months EndedMarch 31, 2008(Dollars in Thousands)PreviouslyReported
    
    As RevisedStatement of Operations:Revenues
    
    
    38,199
    
    
    
    38,258Cost of goods sold
    
    
    33,799
    
    
    
    33,885Gross profit
    
    
    4,400
    
    
    
    4,373Loss from continuing operations before income tax
    
    
    (905
    )
    
    
    (932
    )Loss from continuing operations
    
    
    (905
    )
    
    
    (932
    )Loss from discontinued operations, net of tax
    
    
    (6,224
    )
    
    
    (6,254
    )Net loss
    
    
    (7,129
    )
    
    
    (7,186
    )Net loss attributable to common stockholders
    
    
    (11,400
    )
    
    
    (11,457
    )Loss per share of common stock attributable to
common stockholders, basic and diluted:Loss from continuing operations
    
    
    (1.83
    )
    
    
    (1.84
    )Loss from discontinued operations, net of tax
    
    
    (2.20
    )
    
    
    (2.21
    )Basic and diluted loss per share
    
    
    (4.03
    )
    
    
    (4.05
    )Statement of Cash Flows:Net loss
    
    
    (7,129
    )
    
    
    (7,186
    )Change in accounts and other receivables
    
    
    72,264
    
    
    
    72,321
 As of December 31, 2008(Dollars in Thousands)PreviouslyReported
    
    As RevisedBalance Sheet:Accounts and other receivables, net of allowance
    
    
    22,080
    
    
    
    23,163Total current assets
    
    
    186,297
    
    
    
    187,380Total assets
    
    
    261,946
    
    
    
    263,029Accumulated deficit
    
    
    (240,906
    )
    
    
    (239,823
    )Total stockholders deficiency in assets
    
    
    (141,525
    )
    
    
    (140,442
    )Total liabilities and stockholders deficiency in assets
    
    
    261,946
    
    
    
    263,029
  2. Discontinued Operations
    March 31,
    
    
    December 31,2009
    
    
    2008(Dollars in Thousands)Assets of discontinued operations:Accounts receivable, net
    
    $
    146
    
    
    $
    166Liabilities of discontinued operations:Accrued liabilities (1)
    
    $
    12,407
    
    
    $
    12,444Deferred credits and other liabilities (1)
    
    
    32,297
    
    
    
    35,394Total
    
    $
    44,704
    
    
    $
    47,838
 
 (1)
    
    As of March 31, 2009, represents deferred income for the
NOVA supply agreement that is being amortized over the
contractual non-compete period of five years using the
straight-line method. Accrued liabilities include the
current portion of $12.4 million and deferred credits and
other liabilities include the long-term portion of the
deferred income of $32.3 million. 7




---



##### Table of Contents



STERLING CHEMICALS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
  Three months ended March 31,2009
    
    2008(Dollars in Thousands)Revenues
    
    $
    3,096
    
    
    $
    14,597Income (loss) before income taxes
    
    
    2,491
    
    
    
    (6,254
    )
 3. Long-Term Debt
 1 4 1 4
    8




---



##### Table of Contents



STERLING CHEMICALS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
    4. Commitments and Contingencies
 Product Contracts:
  Environmental Regulations:
    9




---



##### Table of Contents



STERLING CHEMICALS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
      Legal Proceedings:
  10




---



##### Table of Contents



STERLING CHEMICALS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
        11




---



##### Table of Contents



STERLING CHEMICALS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
  5. Income Taxes
  6. Pension Plans and Other Postretirement Benefits
  Three months ended March 31,2009
    
    
    2008(Dollars in Thousands)Interest cost
    
    $
    1,828
    
    
    $
    1,788Expected return on plan assets
    
    
    (1,513
    )
    
    
    (2,148
    )Amortization
    
    
    864
    
    
    
    2Net pension cost (benefit)
    
    $
    1,179
    
    
    $
    (358
    )
  Three months ended March 31,2009
    
    
    2008(Dollars in Thousands)Service cost
    
    $
    11
    
    
    $
    3Interest cost
    
    
    121
    
    
    
    28Amortization of unrecognized costs
    
    
    (541
    )
    
    
    (106
    )Net plan benefit
    
    $
    (409
    )
    
    $
    (75
    )
 7. Operating Segment and Sales Information
  Three months ended March 31,2009
    
    
    2008(Dollars in Thousands)Revenues:Acetic acid
    
    $
    23,838
    
    
    $
    28,977Plasticizers
    
    
    7,284
    
    
    
    9,011Other
    
    
    255
    
    
    
    270Total
    
    $
    31,377
    
    
    $
    38,258Segment gross profit:Acetic acid
    
    $
    4,574
    
    
    $
    3,944Plasticizers
    
    
    1,323
    
    
    
    1,908Other(1)
    
    
    (329
    )
    
    
    (1,479
    )Gross profit
    
    
    5,568
    
    
    
    4,373
 12




---



##### Table of Contents



STERLING CHEMICALS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 Three months ended March 31,2009
    
    
    2008(Dollars in Thousands)Selling, general and administrative expenses
    
    
    3,883
    
    
    
    2,418Interest and debt related expenses
    
    
    4,003
    
    
    
    4,213Interest income
    
    
    (384
    )
    
    
    (1,326
    )Other income
    
    
    (1,145
    )
    
    
    Loss from continuing operations before income tax
    
    $
    (789
    )
    
    $
    (932
    )Depreciation and amortization expenses:Acetic acid
    
    $
    1,643
    
    
    $
    1,512Plasticizers
    
    
    312
    
    
    
    532Other(2)
    
    
    290
    
    
    
    591Total
    
    $
    2,245
    
    
    $
    2,635Capital expenditures:Acetic acid
    
    $
    1,455
    
    
    $
    800Plasticizers
    
    
    
    
    
    
    Otherplant infrastructure
    
    
    987
    
    
    
    1,237Total
    
    $
    2,442
    
    
    $
    2,037
 
 (1)
    
    Gross loss for Other includes various unallocated corporate charges and credits.(2)
    
    Includes depreciation and amortization expense of less than $0.1 million and
$0.3 million for discontinued operations for the three months ended March 31,
2009 and 2008, respectively. March 31, 2009
    
    
    December 31, 2008(Dollars in Thousands)Total assets:Acetic acid
    
    $
    33,140
    
    
    $
    40,707Plasticizers
    
    
    6,425
    
    
    
    6,311Other(3)
    
    
    224,477
    
    
    
    216,011Total
    
    $
    264,042
    
    
    $
    263,029
 
 (3)
    
    Components of Other
are presented in
the table below: March 31, 2009
    
    
    December 31, 2008(Dollars in Thousands)Other:Corporate:Cash
    
    $
    163,065
    
    
    $
    156,126Other
    
    
    17,895
    
    
    
    17,989Plant infrastructure:Property, plant and equipment, net
    
    
    43,371
    
    
    
    41,730Assets of discontinued operations
    
    
    146
    
    
    
    166Total
    
    $
    224,477
    
    
    $
    216,011
 13




---



##### Table of Contents



STERLING CHEMICALS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
  Three months ended March 31,2009
    
    2008(Dollars in Thousands)Major customers:BP Chemicals
    
    $
    23,838
    
    
    $
    28,977BASF Corporation
    
    
    7,284
    
    
    
    9,011
 8. New Accounting Standards
 Adoption of Accounting Standards:
      14




---



##### Table of Contents



STERLING CHEMICALS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
 Future Adoption of Accounting Standards:
    15




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Business Overview
       16




---



##### Table of Contents



Results of Operations
 Three Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2008
 Revenues and net loss from continuing operations
    Selling, general and administrative expenses
  Other income expense
 17




---



##### Table of Contents



Interest income
  Benefit for income taxes
  Income (loss) from discontinued operations
  Liquidity and Capital Resources
 1 4 1 4
  18




---



##### Table of Contents



i.e.
  19




---



##### Table of Contents



Working Capital
  Cash Flow
  Capital Expenditures
  Contractual Cash Obligations
  Critical Accounting Policies, Use of Estimates and Assumptions
  New Accounting Standards
 Adoption of Accounting Standards:
  20




---



##### Table of Contents



Future Adoption of Accounting Standards:
  21




---



##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk
 1 4
 
 Item 4T. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures.
   Changes in Internal Control over Financial Reporting.
 22




---



##### Table of Contents



PART II.
OTHER INFORMATION
 
 Item 1. Legal Proceedings
  23




---



##### Table of Contents



Item 6. Exhibits
  ExhibitNumber
    
    
    
    Description of Exhibit*3.1
    
    
    
    Certificate of Amendment to the Second Amended and Restated Certificate of
Incorporation of Sterling Chemicals, Inc.+*10.1
    
    
    
    Second Amended and Restated 2002 Stock Plan.+10.2
    
    
    
    2009 Bonus Plan (incorporated by reference to Exhibit 10.1 to our current
report on Form 8-K filed January 15, 2009).+*10.3
    
    
    
    Sterling Chemicals, Inc. Eighth
Amended and Restated Savings and Investment Plan.*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 Chief Financial Officer.*32.1
    
    
    
    Section 1350 Certification of the Chief Executive Officer.*32.2
    
    
    
    Section 1350 Certification of the Chief Financial Officer.
 
 *
    
    Filed or furnished herewith+
    
    Management contract or compensatory plan or arrangement 24




---



##### Table of Contents



SIGNATURES
  STERLING CHEMICALS, INC.
(Registrant)Date: May 15, 2009
    By
    /s/ JOHN V. GENOVAJohn V. GenovaPresident and Chief Executive OfficerDate: May  15, 2009
    By
    /s/ JOHN R. BEAVERJohn R. BeaverSenior Vice President-Finance and
Chief Financial Officer
(Principal Financial Officer) 25




---



##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    
    
    Description of Exhibit*3.1
    
    
    
    Certificate of Amendment to the Second Amended and Restated Certificate of
Incorporation of Sterling Chemicals, Inc.+*10.1
    
    
    
    Second Amended and Restated 2002 Stock Plan.+10.2
    
    
    
    2009 Bonus Plan (incorporated by reference to Exhibit 10.1 to our current
report on Form 8-K filed January 15, 2009).+*10.3
    
    
    
    Sterling Chemicals, Inc. Eighth
Amended and Restated Savings and Investment Plan.*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 Chief Financial Officer.*32.1
    
    
    
    Section 1350 Certification of the Chief Executive Officer.*32.2
    
    
    
    Section 1350 Certification of the Chief Financial Officer.
 
 *
    
    Filed or furnished herewith+
    
    Management contract or compensatory plan or arrangement 26