<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1994
OR
/ / 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 1-10059
STERLING CHEMICALS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 76-0185186
- - ------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number
1200 Smith Street, Suite 1900, Houston, Texas 77002-4312
- - --------------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes /x/ No / /
As of January 25, 1995, the number of shares of common stock outstanding
was 55,673,991.
Page 1 of 15
<PAGE> 2
Part I. - FINANCIAL INFORMATION
Item 1. - FINANCIAL STATEMENTS
STERLING CHEMICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In Thousands Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
December 31, September 30,
1994 1994
----------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 646 $ 2,013
Accounts receivable 144,666 127,705
Inventories 57,661 69,758
Prepaid expenses 3,758 2,700
Deferred income taxes 9,194 9,332
-------- --------
Total current assets 215,925 211,508
Property, plant and equipment, net 285,441 291,126
Other assets 71,878 72,456
-------- --------
Total assets $573,244 $575,090
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 75,842 $ 76,857
Accrued liabilities 64,626 80,071
Current portion of long-term debt 32,844 33,771
-------- --------
Total current liabilities 173,312 190,699
Long-term debt 184,203 186,786
Deferred income taxes 39,849 38,837
Deferred credits and other liabilities 69,021 69,034
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value
150,000 shares authorized,
60,327 and 60,325 shares issued
and 55,674 and 55,660 shares
outstanding, respectively 603 603
Additional paid-in capital 33,269 33,232
Retained earnings 147,263 125,003
Pension adjustment (950) (950)
Accumulated translation adjustment (22,493) (17,322)
Deferred compensation (219) (68)
-------- --------
157,473 140,498
Treasury stock at cost, 4,653
and 4,667 shares, respectively (50,614) (50,764)
-------- --------
Total stockholders' equity 106,859 89,734
-------- --------
Total liabilities and
stockholders' equity $573,244 $575,090
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
-2-
<PAGE> 3
STERLING CHEMICALS, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In Thousands Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended December 31,
-------------------------------
1994 1993
-------- --------
<S> <C> <C>
Revenues $240,622 $130,560
Cost of goods sold 192,268 127,589
-------- --------
Gross profit 48,354 2,971
Selling, general and
administrative expenses 8,739 5,201
Interest and debt related expenses,
net of interest income 5,532 5,212
Other income -- 2,606
-------- --------
Income before income taxes 34,083 (4,836)
Provision (benefit) for
income taxes 11,824 (1,347)
-------- --------
Net income (loss) $ 22,259 $ (3,489)
======== ========
Per share data:
Net income (loss) $ 0.40 $ (0.06)
======== ========
Weighted average
shares outstanding 55,669 55,501
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
-3-
<PAGE> 4
STERLING CHEMICALS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended December 31,
-------------------------------
1994 1993
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers $238,023 $132,439
Miscellaneous cash receipts 2,519 2,638
Cash paid to suppliers and
employees (217,021) (132,182)
Interest paid (4,799) (4,503)
Interest received 52 7
Income taxes paid (8,573) (578)
-------- --------
Net cash provided by operating
activities 10,201 (2,179)
Cash flows from investing activities:
Capital expenditures (7,272) (2,845)
Proceeds from sale of assets -- 2,606
-------- --------
Net cash used in investing activities (7,272) (239)
Cash flows from financing activities:
Net change in revolving debt 5,506 8,012
Payments on other long-term debt (9,767) (6,802)
Other -- (86)
-------- --------
Net cash used in financing activities (4,261) 1,124
Effect of exchange rate on cash (35) 10
-------- --------
Net decrease in cash
and cash equivalents (1,367) (1,284)
Cash and cash equivalents -
beginning of period 2,013 1,352
-------- --------
Cash and cash equivalents -
end of period $ 646 $ 68
======== ========
-4-
</TABLE>
<PAGE> 5
STERLING CHEMICALS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS, Continued
(In Thousands)
(Unaudited)
RECONCILIATION OF NET INCOME (LOSS) TO CASH
PROVIDED BY OPERATING ACTIVITIES
<TABLE>
<CAPTION>
Three Months Ended December 31,
-------------------------------
1994 1993
------- -------
<S> <C> <C>
Net income (loss) $22,259 $(3,489)
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities:
Depreciation and amortization 10,378 10,076
Loss (gain) on sale of assets 60 (2,606)
Deferred tax expense 1,143 3,209
Accrued compensation 1,594 39
Treasury stock issued to ESOP -- 422
Change in:
Accounts receivable (17,480) (16,865)
Inventories 11,867 6,313
Prepaid expenses (1,092) (2,737)
Other assets (2,141) 604
Accounts payable (12) 1,951
Accrued liabilities (16,683) (2,313)
Interest payable (2,183) 180
Taxes payable 1,994 464
Other liabilities 497 2,573
------- -------
Cash provided by operating
activities $10,201 $(2,179)
======= =======
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
-5-
<PAGE> 6
STERLING CHEMICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In Thousands Except Per Share Data)
1. Basis of Presentation:
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements reflect all adjustments necessary to present fairly the
consolidated financial position of Sterling Chemicals, Inc. and its
subsidiaries (the "Company") as of December 31, 1994 and the consolidated
results of their operations for the three month periods ended December 31, 1994
and 1993 and consolidated cash flows for the three months ended December 31,
1994 and 1993, and all such adjustments are of a normal and recurring nature.
The results of operations for the periods presented are not necessarily
indicative of the results to be expected for the full year. The accompanying
unaudited condensed consolidated financial statements should be and are assumed
to have been read in conjunction with the consolidated financial statements and
notes included in the Company's Annual Report for the fiscal year ended
September 30, 1994. The condensed consolidated financial statements included
herein have been subjected to a review by Coopers & Lybrand L.L.P., the
Company's independent accountants, whose report is included herein.
2. Inventories:
Inventories consisted of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1994 1994
------------ -------------
<S> <C> <C>
Inventories:
Finished products $27,584 $42,431
Work in process 5,414 6,758
Raw materials 14,874 21,761
------- -------
Inventories at FIFO cost 47,872 70,950
Inventories under
exchange agreements (1,315) (12,350)
Stores and supplies 11,104 11,158
------- -------
$57,661 $69,758
======= =======
</TABLE>
3. Commitments and Contingencies
Product Contracts
The Company has certain long-term agreements which provide for the dedication
of 100% of the Company's production of acetic acid, plasticizers, tertiary
butylamine (TBA) and sodium cyanide, each to one customer. The Company also
has various sales and conversion agreements which dedicate significant portions
of the Company's production of styrene monomer and acrylonitrile, the Company's
largest products, to various customers.
Environmental Regulations
The Company's operations are subject to extensive federal, state, provincial
and local environmental regulations. The Company may incur significant
expenditures in order to comply with environmental regulations.
-6-
<PAGE> 7
Legal Proceedings
Petrochemicals
In May 1994, an ammonia release occurred at the Company's Texas City facility
while a reactor in the acrylonitrile unit was being restarted after a shutdown
for routine maintenance. The Company estimates that approximately three
thousand pounds of ammonia were emitted into the atmosphere.
As of January 31, 1995, approximately nine thousand individuals have filed
claims directly with the Company alleging personal injury and/or property
damage as a result of exposure to the ammonia. The Company and its insurance
carrier are in the process of evaluating these claims. Approximately two
thousand of these claims have been settled and three thousand have been denied
by the Company. As of January 31, 1995, five lawsuits involving approximately
two thousand plaintiffs have been filed against the Company seeking unspecified
damages for personal injuries and property damage as a result of the release.
The Company anticipates that additional claims and litigation against the
Company asserting similar claims will ensue. The Company believes that its
general liability insurance coverage is sufficient to cover all costs and
expenses and has accrued and reflected in expense its deductible under this
coverage. Accordingly, the Company believes that final resolution of this
matter will not have a material adverse effect on the financial position,
liquidity or results of operations of the Company.
On April 27, 1994, approximately one thousand plaintiffs sued the Company and
eighteen other corporate defendants in the Texas City area. The plaintiffs
seek an unspecified amount of damages for claimed personal injury and property
damages arising from alleged chemical releases. Discovery is proceeding and
the Company is vigorously defending this lawsuit.
On May 9, 1991, a lawsuit was filed against the Company and several other
petrochemical companies operating in the Texas City area. The plaintiffs in
the lawsuit assert personal injury and property damage claims arising from
alleged chemical releases. The plaintiffs seek an unspecified amount of
damages. Although the court dismissed a number of the plaintiffs for failure
to comply with discovery, over three hundred plaintiffs remain. The Company is
vigorously defending the lawsuit.
Pulp chemicals
The Company's primary competitor in the supply of patented technology for
generators which convert sodium chlorate into chlorine dioxide is Akzo Nobel
(formerly Eka Nobel) and its affiliates. The Company is engaged with Akzo
Nobel in numerous patent disputes throughout the world in which the Company and
Akzo Nobel are challenging certain patents of the other and attempting to
restrict the other's operating range. If either party is successful in these
disputes, the other party may have to make adjustments and modifications in its
commercial operations or obtain a license from the prevailing party. The
Company's management believes that any potential costs for such adjustments or
modifications would be immaterial. The Company believes it is entitled to
certain indemnities from Tenneco Canada with respect to the acquired
technology.
-7-
<PAGE> 8
Report of Independent Accountants'
Review of Interim Financial Information
To the Board of Directors and Stockholders
Sterling Chemicals, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of
Sterling Chemicals, Inc. as of December 31, 1994, and the condensed
consolidated statement of operations for the three month periods ended December
31, 1994 and 1993 and the condensed consolidated statement of cash flows for
the three months ended December 31, 1994 and 1993. These financial statements
are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above
for them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of September 30, 1994, and the
related consolidated statements of operations, changes in stockholders' equity,
and cash flows for the year then ended (not presented herein); and in our
report dated November 11, 1994, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth
in the accompanying condensed consolidated balance sheet as of September 30,
1994 is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
COOPERS & LYBRAND L.L.P.
Houston, Texas
January 25, 1995
-8-
<PAGE> 9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- - ---------------------
Revenues for the first quarter of fiscal 1995 were $241 million compared to
revenues of $131 million for the first quarter of fiscal 1994, an increase of
84%. Net income for the first quarter of fiscal 1995 was $22.3 million ($0.40
per share) compared to a net loss of $3.5 million ($0.06 per share) for the
first quarter of fiscal 1994.
For the first quarter of fiscal 1995, the Company's revenues from its
petrochemical operations increased 99% to $209 million when compared to the
first quarter of fiscal 1994. This increase in revenues resulted primarily
from the increased sales volume of styrene and acrylonitrile as well as higher
sales prices for both products. Pulp chemicals revenues for the first quarter
of fiscal 1995 increased 23% to $32 million compared to the first quarter of
fiscal 1994. The increase in revenues for the pulp chemicals business resulted
primarily from substantially higher sodium chlorate sales volume.
STYRENE: Styrene revenues in the first quarter of fiscal 1995 more than
doubled to $108 million compared to the first quarter of fiscal 1994. Styrene
sales prices and margins increased substantially as a result of improved
worldwide demand. Demand for styrene has improved due to continuing market
growth for styrene and its derivatives based on global economic expansion.
Even though some incremental capacity additions are anticipated over the next
few years, demand growth is expected to absorb the capacity additions during
that period. Sales volume increased approximately 15% in the first quarter
over the same quarter last year, despite a shutdown for scheduled maintenance
and catalyst replacement. If the scheduled shutdown had not occurred, earnings
for styrene would have been significantly higher, both because of higher
styrene sales volume and the resulting lower fixed costs for each pound of
styrene produced. In the first quarter of fiscal 1994, styrene sales volume
was depressed as the Company was in the process of replacing its largest
previous styrene customer whose contract expired in August, 1993.
The Company's styrene unit operated at approximately 90% of capacity for the
first three months of fiscal 1995, compared to 84% for the first quarter of
fiscal 1994. The styrene unit was shutdown during the first quarter of fiscal
1995 for scheduled maintenance and catalyst replacement. If the unit had not
been shutdown the operating rate would have been significantly higher.
The price of styrene's two major raw materials, benzene and ethylene, were
substantially higher in the first quarter of fiscal 1995 compared to the same
period in fiscal 1994. Benzene prices were approximately one-third higher
while ethylene prices were over 50% higher. However, the Company was able to
pay these increased prices and still improve margins for styrene. The Company
anticipates that prices for these raw materials will remain at these increased
levels or increase slightly in the second quarter of fiscal 1995.
While it is difficult to predict the duration of the improved market conditions
for styrene, the Company expects styrene earnings to continue improving in the
second quarter of fiscal 1995.
-9-
<PAGE> 10
ACRYLONITRILE: Acrylonitrile revenues in the first quarter of fiscal 1995
totaled over $50 million and were more than double those of the first quarter
of fiscal 1994. This increase was a result of nearly a 100% increase in export
sales prices and 50% increase in total sales volume due to the improved demand
for acrylic fibers, the largest derivatives of acrylonitrile. Demand for
acrylic fibers has improved in the last year because of favorable economic
conditions worldwide and poor cotton crops in parts of the world. This has led
to increased demand for all synthetic fibers, including acrylic fibers. Export
sales margins improved throughout the first quarter of fiscal 1995, and have
reached historic levels, as sales prices increased more rapidly than rising raw
material costs. The Company expects acrylonitrile margins to remain at their
improved levels in the second quarter of fiscal 1995.
The Company's acrylonitrile unit operated at approximately 85% of its rated
capacity during the first three months of fiscal 1995 compared to approximately
60% of its rated capacity during the same period a year ago. The improved
operating rate was achieved even though the unit was shutdown for scheduled
maintenance for a significant period during the first quarter of fiscal 1995.
If the scheduled shutdown had not occurred, earnings for acrylonitrile would
have been significantly higher, both because of higher acrylonitrile sales
volume and the resulting lower fixed costs for each pound of acrylonitrile
produced.
The prices of the major raw materials used to make acrylonitrile, propylene and
ammonia, were significantly higher in the quarter just ended than in the first
quarter of fiscal 1994. Propylene prices were nearly 70% higher and ammonia
prices were up by almost 90%. Although the demand for these raw materials is
expected to remain strong, applying upward pressure on prices, the Company
anticipates that it will be able to secure sufficient supplies to meet its
needs.
PULP CHEMICALS: Pulp chemicals revenues for the first quarter of fiscal 1995
increased 23% to $32 million compared to the corresponding period a year ago.
The increase in revenues was due primarily to higher sodium chlorate sales
volume. Improved sales and production volume have resulted in improved
earnings for sodium chlorate despite slightly lower average sales prices than
in the first quarter of fiscal 1994. Royalties from installed generator
technology also increased in the first quarter of fiscal 1995 as a result of
higher customer operating rates and an increase in our licensees' total
capacity. However, net earnings for the business were lower because last
year's results included a one-time gain from the sale of the Company's rights
to a portion of the power from a hydroelectric plant owned by a third-party,
which provided a portion of the power requirements to the Buckingham, Quebec
plant.
The Company's sodium chlorate plants operated near capacity during the first
three months of fiscal 1995 compared to approximately 70% of capacity for the
same period in fiscal 1994.
The Company anticipates that sodium chlorate margins will continue to improve
during the second quarter of fiscal 1995 as recent price increases become
effective and operating rates remain high.
-10-
<PAGE> 11
OTHER PRODUCTS: The performance of the Company's other products in the first
quarter of fiscal 1995 remained approximately the same as in the first quarter
of fiscal 1994. Revenues during the first quarter of fiscal 1995 from acetic
acid, plasticizers, lactic acid, tertiary butylamine and sodium cyanide
increased approximately 43% compared to the first quarter of fiscal 1994. This
increase was the result of higher prices for the acetic acid raw material
methanol, which the Company's passes on to its contract partner with no effect
on acetic acid margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and
administrative ("SG&A") expenses for the first quarter of fiscal 1995 were $8.7
million, a 70% increase over the first quarter of fiscal 1994. The primary
reason for this increase was the expense related to the stock appreciation
rights program ("SARs"). The Company recognized expense of $1.6 million or
$.02 per share in the first quarter of fiscal 1995 for the SARs. Additionally
the expense for employee profit sharing included in SG&A was $.9 million during
the quarter just ended. In the first quarter of fiscal 1994, there was no
expense for the SARs or employee profit sharing. These expenses for the first
quarter of fiscal 1995 have resulted because of the increased earnings of the
Company and the increase in the Company's stock price.
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
Working capital increased to $43 million at December 31, 1994 from $21 million
at September 30, 1994. The increase in working capital was primarily
attributable to a $16 million decrease in accrued liabilities resulting from
significant expenditures for the scheduled maintenance shutdowns of the styrene
and acrylonitrile units, which reduced accrued repairs, as well as from an $8.3
million payment in October 1994 under the Company's Omnibus Stock and Incentive
Plan for SARs, which reduced accrued compensation. Accounts receivable
increased by $17 million as styrene and acrylonitrile sales prices increased
from September 1994, and sales volume increased. The increase in accounts
receivable was partially offset by a $12 million decrease in inventories
resulting from the increased sales volume combined with reduced operating rates
due to the maintenance shutdowns in the styrene and acrylonitrile units.
Net cash provided by operations was $10.2 million during the first three months
of fiscal 1995 compared to $(2.2) million for the corresponding period in
fiscal 1994. The increase is attributed to the increased profitability of
styrene and acrylonitrile. Increases in accounts receivable and decreases in
accrued liabilities utilized a significant portion of the improved cash flow
during the quarter just ended.
The Company's long-term debt did not change significantly during the first
quarter of fiscal 1995 and consisted of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1994 1994
<S> <C> <C>
Revolving credit facilities $ 38,545 $ 32,940
Term loan 19,250 20,000
Project loan 14,188 16,134
Subsidiary term loan (pulp chemicals) 106,257 113,050
Subordinated note (pulp chemicals) 43,990 44,268
-------- --------
Total debt outstanding $222,230 $226,392
Less:
Current maturities 32,844 33,771
Unamortized debt issue costs 5,183 7,049
-------- --------
Total long-term debt $184,203 $186,786
======== ========
</TABLE>
-11-
<PAGE> 12
Under all of its credit agreements, the Company has, in aggregate, revolving
credit available of approximately $65 million at December 31, 1994. The
Company anticipates this amount of available credit to be sufficient to meet
its operating and capital needs for the coming year. However, the Company is
pursuing a refinancing of its existing indebtedness to improve financial
flexibility and lower its overall borrowing costs. The Company anticipates
that it will combine most of its outstanding debt under one global credit
agreement that should provide the company with more flexibility and lower
interest rates than its current credit agreements. The refinancing is expected
to be completed on or about March 31, 1995.
The Company's current credit agreements require an interest spread over the
LIBOR, the CD rate, the U.S. prime rate or the Federal Reserve rate, and
consequently the Company is subject to variation in these rates. The average
interest rate the Company is paying on its outstanding indebtedness at December
31, 1994 increased to approximately 9% from 8.1% at September 30, 1994 as a
result of increases in these rates.
Capital expenditures were $7.3 million in the first quarter of fiscal 1995,
substantially higher than the $2.8 million in the first quarter of fiscal
1994. The capital expenditures during the first quarter were primarily for
plant instrumentation modernization, process improvement and environmental
projects. During fiscal 1995, the Company expects to spend a total of $40-50
million on capital expenditures. These expenditures will be focused on
further plant instrumentation modernization and process improvements, the
planned acetic acid expansion, and various environmental and safety projects.
The Company expects to fund its fiscal 1995 capital expenditures from
operating cash flow and its revolving credit facilities as needed.
CERTAIN KNOWN EVENTS, TRENDS AND UNCERTAINTIES
- - ----------------------------------------------
PETROCHEMICAL RAW MATERIAL PRICES AND AVAILABILITY
For each of the Company's petrochemical products, the cost of raw materials and
utilities is far greater than all other costs of production combined.
Therefore, an adequate supply of raw materials at reasonable prices is critical
to the success of the Company's business. The Company does not produce any of
its major raw materials, benzene, ethylene, propylene and ammonia. There is
currently a high demand for ethylene and propylene and the prices of each have
recently risen significantly. The Company has several long-term arrangements
with ethylene suppliers that provide for the majority of its estimated
requirements for purchased ethylene. Although no assurances can be given,
management believes that the Company will continue to be able to secure
adequate supplies of all its raw materials at acceptable prices.
ENVIRONMENTAL AND SAFETY MATTERS
The Company's operations involve the handling, production, transportation and
disposal of materials classified as hazardous or toxic and are extensively
regulated under environmental and health and safety laws. Operating permits are
required for the Company's operations. They are subject to periodic renewal
and may be revoked or modified for cause.
-12-
<PAGE> 13
Increasingly strict new laws or permits might affect the Company's operations,
products or waste disposal. Past or future operations may result in claims or
liabilities. Also, expenditures could be required to upgrade wastewater
collection, pretreatment or disposal systems or other matters. Although no
assurances can be given, the Company does not anticipate any material
environmental costs or liabilities associated with its operations or products.
The Company's sodium chlorate market (pulp chemicals) is sensitive to potential
environmental regulation. Certain environmental groups are encouraging passage
of regulations which restrict the amount of Absorbable Organic Halides (AOX) in
pulp mill effluent. In general, environmental regulations support substitution
of chlorine dioxide, which is produced from sodium chlorate, for elemental
chlorine in the pulp bleaching process. As long as there is not an outright
ban on these compounds, such regulation favors the use of chlorine dioxide,
thus sodium chlorate.
British Columbia has a regulation in place that would effectively eliminate the
use of chlorine dioxide in the bleaching process by the year 2002. The
industry is actively working to change this regulation on the basis that it is
not supported by sound science. The industry is becoming increasingly
optimistic of success. There are no other laws or regulations currently in
place which would be detrimental to the product. The Company believes that
bleaching methods that substitute chlorine dioxide for elemental chlorine
achieve all reasonable pollution reduction targets for air and water emissions,
and it believes that a conversion to totally chlorine-free bleaching will yield
no measurable environmental or public health benefits. The Company believes
its position is supported by the EPA's selection of chlorine dioxide as the
best available technology for pulp bleaching.
LEGAL PROCEEDINGS
In May 1994 approximately 3,000 pounds of ammonia were released into the
atmosphere at the Company's Texas City facility while a reactor in the
acrylonitrile unit was being restarted after a shutdown for routine
maintenance. As of January 31, 1995, approximately 9,000 individuals have filed
claims directly with the Company. About 2,000 of these claims have been
settled and 3,000 have been denied by the Company and its insurance carrier.
Five lawsuits involving approximately 2,000 plaintiffs have been filed against
the Company and the Company anticipates that additional litigation will ensue.
The Company believes that its general liability insurance coverage is
sufficient to cover all costs and expenses and has accrued and reflected in
expense its deductible under this coverage.
The Company is a defendant, together with other chemical company defendants, in
several lawsuits. In each case, a large number of plaintiffs have asserted
unspecified damages for alleged personal injury and property damage arising
from exposure to chemical releases. The Company believes there will be no
material adverse effect from these lawsuits on the financial position or
results of operations of the Company.
-13-
<PAGE> 14
Part II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
On May 8, 1994, an ammonia release occurred at the Company's Texas City
facility while a reactor in the acrylonitrile unit was being restarted after a
shutdown for routine maintenance. The Company estimates that approximately
3,000 pounds of ammonia were emitted into the atmosphere. As of January 31,
1995, approximately 9,000 individuals had filed claims directly with the
Company alleging personal injury and/or property damage as a result of exposure
to the ammonia. The Company and its insurance carrier are in the process of
evaluating the merits of these claims. Approximately 2,000 of these claims have
been settled and 3,000 have been denied by the Company. As of January 31, 1995
five lawsuits involving approximately 2,000 plaintiffs have been filed against
the Company seeking unspecified damages for personal injuries and property
damage as a result of the release. Otis Pointer, et al. v. Sterling Chemicals,
Inc., et al.; Cause No. 94-CV-0514; in the 56th Judicial District Court of
Galveston County, Texas; Bobbie J. Adams, et al. v. Sterling Chemicals, Inc.;
Cause No. 94-CV-0764; In the 56th Judicial District Court of Galveston County,
Texas; Courtney Adomond, et al. v. Sterling Chemicals, Inc.; Cause No.
94-CV-0947; In the 56th Judicial District Court of Galveston County, Texas;
Caroll Allen, et al. v. Sterling Chemicals, Inc.; Cause No. 94-CV-1147; In the
212th Judicial District Court of Galveston County, Texas; and Beverly O.
Mitchell, et al. v. Sterling Chemicals, Inc., et al.; Cause No. 94-CV-1312; In
the 202nd Judicial District Court of Galveston County, Texas. The Company
anticipates that additional claims and litigation against the Company asserting
similar claims will ensue. The Company believes that its general liability
insurance coverage is sufficient to cover anticipated costs and expenses and
has accrued its deductible under this coverage. The Company intends to
vigorously defend these claims and litigation.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the three
months ended December 31, 1994, however, the Annual Meeting of Stockholders was
held January 25, 1995, at which time the Company's nominees for directors were
elected.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K: No reports on Form 8-K were filed
during the three months ended December 31, 1994.
-14-
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STERLING CHEMICALS, INC.
(Registrant)
Date: February 13, 1995 _________________________________
J. Virgil Waggoner
President and Chief Executive
Officer (Principal Executive
Officer)
Date: February 13, 1995 __________________________________
Jim P. Wise
Vice President and Chief
Financial Officer
(Principal Financial Officer)
-15-
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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