<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
----------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED December 31, 1997
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 HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0185186
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1200 SMITH STREET, SUITE 1900
HOUSTON, TEXAS 77002-4312 (713) 650-3700
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (REGISTRANT'S TELEPHONE NUMBER,
INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK,
PAR VALUE $.01 PER SHARE
COMMISSION FILE NUMBER 333-04343-01
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)
1200 SMITH STREET, SUITE 1900
HOUSTON, TEXAS 77002-4312 (713) 650-3700
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (REGISTRANT'S TELEPHONE NUMBER,
INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Sterling Chemicals, Inc. meets the conditions set forth in General
Instruction H(1)(a) and (b) of Form 10-Q, and is therefore filing this form with
the reduced disclosure format provided for by General Instruction H(2) of Form
10-Q.
----------------
Indicate by check mark whether each of the registrants (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 31, 1998, Sterling Chemicals Holdings, Inc. had 12,370,799
shares of common stock outstanding. As of January 31, 1998, all outstanding
equity securities of Sterling Chemicals, Inc. were owned by Sterling Chemicals
Holdings, Inc.
<PAGE> 2
This combined Form 10-Q is separately filed by Holdings and Chemicals (each
as defined herein). Information contained herein relating to Chemicals is filed
by Holdings and separately by Chemicals on its own behalf. Certain capitalized
terms used in this Form 10-Q are defined in the Notes to Condensed Consolidated
Financial Statements, included herein.
PART I. - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
2
<PAGE> 3
STERLING CHEMICALS HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1997
------------ ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ................................................................... $ 4,593 $ 7,958
Accounts receivable ......................................................................... 149,503 167,248
Inventories ................................................................................. 106,997 87,870
Prepaid expenses ............................................................................ 11,759 10,956
Deferred income taxes ....................................................................... 9,977 10,005
--------- ---------
Total current assets ........................................................................ 282,829 284,037
Property, plant and equipment, net ............................................................. 478,413 492,036
Other assets ................................................................................... 97,882 102,898
--------- ---------
Total assets ............................................................................. $ 859,124 $ 878,971
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS)
Current liabilities:
Accounts payable ............................................................................ $ 92,648 $ 80,658
Accrued liabilities ......................................................................... 75,120 77,565
Current portion of long-term debt ........................................................... 5,616 5,710
--------- ---------
Total current liabilities ................................................................ 173,384 163,933
Long-term debt ................................................................................. 869,167 876,281
Deferred income taxes .......................................................................... 31,746 36,038
Deferred credits and other liabilities ......................................................... 70,331 73,336
Common stock held by ESOP ...................................................................... 7,688 7,688
Less: unearned compensation .................................................................... (5,022) (5,570)
Redeemable preferred stock ..................................................................... 16,422 15,793
Commitments and contingencies
Stockholders' equity (deficiency in assets):
Common stock, $.01 par value, 20,000,000 shares authorized, 11,938,000 shares
issued and 11,710,000 outstanding at December 31, 1997; and 11,942,000
shares issued and 11,714,000 shares outstanding at September 30, 1997 ..................... 120 120
Additional paid-in capital .................................................................. (542,485) (542,485)
Retained earnings ........................................................................... 266,918 277,691
Pension Adjustment .......................................................................... (31) (31)
Accumulated translation adjustment .......................................................... (26,384) (21,093)
--------- ---------
(301,862) (285,798)
Treasury stock, at cost, 228,000 shares at December 31, 1997 and September 30, 1997 ......... (2,730) (2,730)
--------- ---------
Total stockholders' equity (deficiency in assets) ...................................... (304,592) (288,528)
--------- ---------
Total liabilities and stockholders' equity (deficiency in assets) ................. $ 859,124 $ 878,971
========= =========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
<PAGE> 4
STERLING CHEMICALS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
------------------------
1997 1996
--------- ----------
<S> <C> <C>
Revenues ................................................................ $ 230,236 $ 186,926
Cost of goods sold ...................................................... 207,739 171,843
--------- ---------
Gross profit ............................................................ 22,497 15,083
Selling, general, and administrative expenses ........................... 11,716 6,435
Other (income) expense .................................................. -- (309)
Interest and debt related expenses, net of interest income .............. 25,303 18,624
--------- ---------
Loss before income taxes ................................................ (14,522) (9,667)
Benefit for income taxes ................................................ (4,377) (2,469)
--------- ---------
Net loss ................................................................ (10,145) (7,198)
Preferred stock dividend and accretion .................................. 628 --
--------- ---------
Net loss attributable to common stockholders ............................ $ (10,773) $ (7,198)
========= =========
Net loss per common share ............................................... $ (0.91) $ (0.68)
========= =========
Weighted average shares outstanding ..................................... 11,877 10,608
========= =========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
<PAGE> 5
STERLING CHEMICALS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
------------------------------
1997 1996
---------- -----------
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers ................................................ $ 260,282 $ 205,361
Miscellaneous cash receipts ................................................. 552 6,590
Cash paid to suppliers and employees ........................................ (231,600) (192,576)
Interest paid ............................................................... (16,148) (5,754)
Interest received ........................................................... 44 100
Income taxes paid ........................................................... (108) (793)
--------- ---------
Net cash provided by operating activities ...................................... 13,022 12,928
--------- ---------
Cash flows from investing activities:
Capital expenditures ........................................................ (5,027) (18,456)
--------- ---------
Cash flows from financing activities:
Proceeds from long-term debt ................................................ 9,495 9,600
Repayment of long-term debt ................................................. (20,740) (9,506)
Issuance of common stock .................................................... -- 3,000
Purchase of treasury stock .................................................. -- (527)
Other ....................................................................... 35 --
--------- ---------
Net cash provided by (used in) financing activities ........................... (11,210) 2,567
--------- ---------
Effect of exchange rate on cash ................................................ (150) (50)
--------- ---------
Net decrease in cash and cash equivalents ...................................... (3,365) (3,011)
Cash and cash equivalents--beginning of period .................................. 7,958 5,609
--------- ---------
Cash and cash equivalents--end of period ........................................ $ 4,593 $ 2,598
========= =========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
<PAGE> 6
STERLING CHEMICALS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
(UNAUDITED)
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
-------------------------
1997 1996
---------- ----------
<S> <C> <C>
Net loss ....................................................................................... $(10,145) $ (7,198)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization ............................................................... 14,006 10,356
Debt fee amortization ....................................................................... 1,094 1,146
Loss on disposal of assets .................................................................. 242 --
Deferred tax expense ........................................................................ (3,482) 919
Unearned compensation ....................................................................... 280 406
Discount note amortization .................................................................. 4,169 3,745
Change in:
Accounts receivable ......................................................................... 16,625 (1,410)
Inventories ................................................................................. (19,463) (14,129)
Prepaid expenses ............................................................................ 343 (1,507)
Other assets ................................................................................ 1,776 (6,087)
Accounts payable ............................................................................ 10,153 6,571
Accrued liabilities ......................................................................... (6,862) 3,764
Interest payable ............................................................................ 5,750 6,006
Taxes payable ............................................................................... (950) (925)
Other liabilities ........................................................................... (514) 11,271
-------- --------
Net cash provided by operating activities ...................................................... $ 13,022 $ 12,928
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed
financial statements.
6
<PAGE> 7
STERLING CHEMICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1997
------------ ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ................................................................... $ 4,549 $ 7,958
Accounts receivable ......................................................................... 150,435 167,898
Inventories ................................................................................. 106,997 87,870
Prepaid expenses ............................................................................ 10,798 10,031
Deferred income tax benefit ................................................................. 9,977 10,005
-------- --------
Total current assets ..................................................................... 282,756 283,762
Property, plant and equipment, net ............................................................. 478,413 492,036
Other assets ................................................................................... 94,630 99,519
-------- --------
Total assets ........................................................................... $855,799 $875,317
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIENCY IN ASSETS)
Current liabilities:
Accounts payable ............................................................................ $ 92,648 $ 80,658
Accrued liabilities ......................................................................... 75,120 77,565
Current portion of long-term debt ........................................................... 5,616 5,710
-------- --------
Total current liabilities ................................................................ 173,384 163,933
Long-term debt ................................................................................. 757,432 768,870
Deferred income tax liability .................................................................. 39,731 42,646
Deferred credits and other liabilities ......................................................... 70,332 73,337
Common stock held by ESOP ...................................................................... 7,688 7,688
Less: unearned compensation .................................................................... (5,022) (5,570)
Commitments and contingencies
Stockholder's equity (deficiency in assets):
Common stock, $.01 par value ................................................................ -- --
Additional paid-in capital .................................................................. (139,786) (139,786)
Retained earnings (deficit) ................................................................. (21,548) (14,677)
Pension adjustment .......................................................................... (31) (31)
Accumulated translation adjustment .......................................................... (26,381) (21,093)
-------- --------
Total stockholder's equity (deficiency in assets) ........................................ (187,746) (175,587)
-------- --------
Total liabilities and stockholder's equity (deficiency in assets) ...................... $855,799 $875,317
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
7
<PAGE> 8
STERLING CHEMICALS, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
-----------------------
1997 1996
--------- ----------
<S> <C> <C>
Revenues ......................................................................... $230,236 $186,926
Cost of goods sold ............................................................... 207,739 171,843
-------- --------
Gross profit ..................................................................... 22,497 15,083
Selling, general and administrative expenses ..................................... 11,435 6,080
Other (income) expense ........................................................... -- (309)
Interest and debt related expenses ............................................... 20,897 14,801
Interest income from parent ...................................................... -- (1,788)
-------- --------
Loss before income taxes ......................................................... (9,835) (3,701)
Benefit for income taxes ......................................................... (2,964) (523)
-------- --------
Net loss ......................................................................... $ (6,871) $ (3,178)
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
8
<PAGE> 9
STERLING CHEMICALS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
------------------------
1997 1996
--------- ----------
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers ................................................................ $260,282 $205,361
Miscellaneous cash receipts ................................................................. 516 6,501
Cash paid to suppliers and employees ........................................................ (231,600) (193,100)
Interest paid ............................................................................... (16,148) (5,754)
Interest received ........................................................................... 36 100
Income taxes paid ........................................................................... (108) (793)
-------- --------
Net cash provided by operating activities ...................................................... 12,978 12,315
-------- --------
Cash flows from investing activities:
Capital expenditures ........................................................................ (5,027) (18,456)
-------- --------
Cash flows from financing activities:
Proceeds from long-term debt ................................................................ 9,495 9,600
Repayment of long-term debt ................................................................. (19,635) (9,506)
Repayment of amounts due parent ............................................................. (1,105) --
Contributions from parent ................................................................... -- 3,000
Other ....................................................................................... 35 --
-------- --------
Net cash provided by (used in) financing activities ............................................ (11,210) 3,094
-------- --------
Effect of exchange rate on cash ................................................................ (150) (50)
-------- --------
Net decrease in cash and cash equivalents ...................................................... (3,409) (3,097)
Cash and cash equivalents--beginning of period .................................................. 7,958 5,581
-------- --------
Cash and cash equivalents--end of period ........................................................ $ 4,549 $ 2,484
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
9
<PAGE> 10
STERLING CHEMICALS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
(UNAUDITED)
RECONCILIATION OF NET LOSS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
--------------------------
1997 1996
---------- ------------
<S> <C> <C>
Net loss ....................................................................................... $ (6,871) $ (3,178)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization ............................................................... 14,006 10,356
Debt fee amortization ....................................................................... 848 1,066
Loss on disposal of assets .................................................................. 242 --
Deferred tax expense ........................................................................ (2,105) 2,265
Unearned compensation ....................................................................... 280 406
Change in:
Accounts receivable ......................................................................... 16,589 (3,637)
Inventories ................................................................................. (19,463) (14,129)
Prepaid expenses ............................................................................ 379 935
Other assets ................................................................................ 1,776 (6,614)
Accounts payable ............................................................................ 9,871 6,571
Accrued liabilities ......................................................................... (6,861) 3,764
Interest payable ............................................................................ 5,750 6,006
Taxes payable ............................................................................... (950) (2,767)
Other liabilities ........................................................................... (513) 11,271
-------- --------
Net cash provided by operating activities ...................................................... $ 12,978 $ 12,315
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
10
<PAGE> 11
STERLING CHEMICALS HOLDINGS, INC.
STERLING CHEMICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 Holdings, Inc.
("Holdings") and its subsidiaries (Holdings and its subsidiaries collectively,
the "Company") and Sterling Chemicals, Inc. and its subsidiaries (collectively,
"Chemicals") as of December 31, 1997 and their consolidated results of
operations and cash flows for the applicable three months ended December 31,
1997 and 1996. 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 Holdings' and Chemicals' combined Annual Report on Form 10-K for the
fiscal year ended September 30, 1997 (the "Annual Report"). The accompanying
condensed consolidated balance sheets as of September 30, 1997, have been
derived from the audited consolidated balance sheets as of September 30, 1997,
included in the Annual Report. The accompanying condensed consolidated financial
statements as of and for the three months ended December 31, 1997, have been
subjected to a review by Deloitte & Touche LLP, the Company's independent public
accountants, whose reports are included herein.
Certain amounts reported in the financial statements for the prior periods
have been reclassified to conform with the current financial statement
presentation with no effect on net loss or stockholders' equity (deficiency in
assets).
2. INVENTORIES:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1997
------------ ------------
<S> <C> <C>
Inventories consisted of the following (in thousands):
Finished products...................................................................... $ 61,829 $ 47,572
Raw materials.......................................................................... 14,862 17,800
Inventories under exchange agreements.................................................. 10,097 2,179
Stores and supplies.................................................................... 20,209 20,319
---------- --------
$ 106,997 $ 87,870
=========== ========
</TABLE>
3. LONG-TERM DEBT:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1997
------------ -------------
<S> <C> <C>
Long-term debt consisted of the following (in thousands):
Revolving credit facility ............................................................. $ -- $ 9,400
Term loans ............................................................................ 275,000 275,334
Saskatoon term loans .................................................................. 52,513 53,822
ESOP term loan ........................................................................ 4,469 4,875
11 1/4% Notes ......................................................................... 153,064 153,148
11 3/4% Notes ......................................................................... 275,000 275,000
13 1/2% Notes ........................................................................ 114,737 110,412
-------- --------
Total debt outstanding ............................................................. 874,783 881,991
Less:
Current maturities ................................................................. (5,616) (5,710)
-------- --------
Total long-term debt .................................................................. $869,167 $876,281
======== ========
</TABLE>
11
<PAGE> 12
The Company's ability to comply with the covenants and other terms of its
various debt agreements, meet its debt service obligations, and repay principal
when due will depend on the future performance of the Company. The future
performance of the Company is subject to a number of uncertainties. The Company
was in compliance with the financial covenants in effect as of December 31,
1997. However, if weak market conditions (particularly in various countries in
the Far East) continue to negatively impact the sales prices, margins, and
volumes of the Company's products (particularly styrene, acrylonitrile, and
acrylic fibers), the Company may have difficulty remaining in compliance with
several of the financial covenants under certain of its debt agreements. If the
Company fails to remain in compliance with any financial covenants, the Company
believes it can obtain curative amendments or waivers for the non-compliance to
its current debt agreements; however, no assurances can be given that these
amendments or waivers will be obtained. In the event amendments or waivers are
not obtained, debt holders may pursue remedies available to them under the
relevant debt agreements.
4. COMMITMENTS AND CONTINGENCIES:
Product Contracts
The Company has certain long-term agreements that provide for the
dedication of 100% of the Company's production of acetic acid, plasticizers,
tertiary butylamine, and sodium cyanide, each to one customer. The Company also
has various sales and conversion agreements that dedicate significant portions
of the Company's production of styrene monomer, acrylonitrile, and methanol, the
Company's major petrochemical products, to various customers. These agreements
generally provide for cost recovery plus an agreed margin or element of profit
based upon market price.
Environmental Regulations
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
which are required for the Company's operations are subject to periodic renewal
and may be revoked or modified for cause. New laws or permit requirements and
conditions may affect the Company's operations, products, or waste disposal.
Past or future operations may result in claims or liabilities. Expenditures
could be required to upgrade waste water collection, pretreatment, or disposal
systems or for other matters related to handling, production, transportation,
and disposal of materials classified as hazardous or toxic. No assurances can be
given that the Company will not incur material environmental expenditures
associated with its facilities, operations, or products.
Legal Proceedings
Ammonia Release Lawsuits. A description of the ammonia release lawsuit is
found under "Legal Proceedings" in Note 7 of the "Notes To Consolidated
Financial Statements" of the Annual Report and is incorporated herein by
reference. As discussed therein, the Company continues to vigorously defend
against the claims of the approximately 1,600 remaining plaintiffs. The Company
has settled such lawsuits with certain of the original plaintiffs on an on-going
basis and anticipates that such practice will continue.
Nickel Carbonyl Lawsuit. A description of the nickel carbonyl lawsuit is
found under "Legal Proceedings" in Note 7 of the "Notes to Consolidated
Financial Statements" of the Annual Report and is incorporated herein by
reference. A total of twelve contract employees allegedly exposed to nickel
carbonyl have filed a lawsuit against Chemicals seeking unspecified damages for
personal injuries. Additional claims and litigation against Chemicals asserting
similar claims may ensue.
Other Lawsuits. The Company is subject to various other claims and legal
actions that arise in the ordinary course of its business.
12
<PAGE> 13
Litigation Contingency
The Company has made estimates of the reasonably possible range of its
liability with regard to outstanding litigation for which it may incur
liability. In addition, liabilities have been accrued based on the estimated
probable loss from such litigation. These estimates are based on management's
judgments using currently available information as well as consultation with the
Company's insurance carriers and outside legal counsel. A number of the claims
in these litigation matters are covered by the Company's insurance policies or
by third-party indemnification of the Company. The Company, therefore, has also
made estimates of its probable recoveries under these insurance policies or
third-party indemnitors based on its understanding of its insurance policies and
indemnifications, discussions with its insurers and indemnitors, and
consultation with outside legal counsel, in addition to the Company's judgments.
Based on the foregoing, as of December 31, 1997, the Company has accrued
approximately $6.5 million as its estimate of aggregate contingent liability for
these matters, and has also recorded aggregate receivables from its insurers and
third-party indemnitors of approximately $6.0 million. At December 31, 1997,
management estimates that the aggregate reasonably possible range of loss for
all litigation combined, in addition to the amount accrued, is from $0 to $11
million. The Company believes that this additional reasonably possible loss is
substantially covered by insurance.
While the Company has based its estimates on its evaluation of available
information to date and the other matters described above, much of the
litigation is in its early stages and it is impossible to predict with certainty
the ultimate outcome. The Company will adjust its estimates as necessary if and
when additional information is developed and evaluated. However, the Company
believes that the final resolution of these contingencies will not have a
material adverse impact on the financial position, results of operations, or
cash flows of the Company. The timing of probable insurance recoveries, and
additional accruals or payment of liabilities, if any, are not expected to have
a material adverse effect on the financial position, results of operations, or
cash flows of the Company.
5. NEW ACCOUNTING STANDARDS:
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share," establishes standards for computing and presenting earnings per share
("EPS") and replaces the presentation of primary EPS previously prescribed with
a presentation of basic EPS, which is computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding
for the period. The statement also requires presentation of diluted EPS. Diluted
EPS is computed similarly to fully diluted EPS pursuant to Accounting Principles
Board Opinion No. 15. The Company adopted SFAS No. 128 for fiscal 1998 and has
restated prior year amounts to reflect adoption of the new standard. As losses
were incurred for each of the three-month periods ended December 31, 1997 and
1996, basic and dilutive EPS are the same amount for these periods.
SFAS No. 130 "Reporting Comprehensive Income" establishes standards for
reporting and displaying of comprehensive income and its components. SFAS No.
131 "Disclosure About Segments of an Enterprise and Related Information"
establishes standards for the way that public business enterprises report
information about operating segments in interim and annual financial statements.
Management is currently evaluating the disclosures required when these two
statements are adopted in the first quarter of fiscal 1999.
6. BUSINESS ACQUISITIONS:
On January 31, 1997, the Company acquired the acrylic fibers business from
Cytec Industries Inc. (the "AFB Acquisition"). The acrylic fibers business, now
owned by two wholly owned subsidiaries of Chemicals (collectively "Sterling
Fibers"), recorded sales of approximately $92 million during the eight months of
operations in fiscal 1997 and consists of an acrylic fibers plant located near
Pensacola, Florida, and several associated marketing and research offices. The
Company used the purchase method to account for the AFB Acquisition and
operating results of Sterling Fibers beginning February 1, 1997 are included
with those of the Company.
On July 10, 1997, Sterling Pulp Chemicals (Sask) Ltd. ("Sterling Sask"), an
indirect wholly owned subsidiary of Holdings and Chemicals, acquired
substantially all of the assets of Saskatoon Chemicals Ltd. ("Saskatoon
Chemicals"), a subsidiary of Weyerhaeuser Canada Ltd. (the "Saskatoon
Acquisition"). The acquired assets include a manufacturing plant near Saskatoon,
Saskatchewan, and are used by Sterling Sask to manufacture sodium chlorate,
13
<PAGE> 14
caustic soda, calcium hypochlorite, chlorine, and hydrochloric acid. The Company
used the purchase method to account for the acquisition and operating results of
Sterling Sask beginning July 10, 1997 are included with those of the Company.
The following table presents the unaudited pro forma results of operations
of the Company as if the AFB Acquisition and the Saskatoon Acquisition had
occurred on October 1, 1996. The pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of what would have
occurred had the AFB Acquisition and the Saskatoon Acquisition been made at the
beginning of fiscal year 1997 or of results which may occur in the future (in
thousands, except per share amounts).
<TABLE>
<CAPTION>
Pro Forma
Three Months
Ended
December 31,
1996
-----------
<S> <C>
Revenues................................................... $230,100
Net loss before extraordinary items........................ (9,200)
Net loss attributable to common stockholders............... (9,700)
Net loss per common share.................................. $ ( 0.81)
</TABLE>
14
<PAGE> 15
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Sterling Chemicals Holdings, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of
Sterling Chemicals Holdings, Inc. and subsidiaries (the "Company") as of
December 31, 1997, and the related condensed consolidated statements of
operations and cash flows for the three-month period then ended. 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 of the Company as of September 30,
1997, and the related consolidated statements of operations, stockholders'
equity (deficiency in assets), and cash flows for the year then ended (not
presented herein); and in our report dated December 3, 1997, 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, 1997 is fairly stated in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
DELOITTE & TOUCHE LLP
Houston, Texas
February 12, 1998
15
<PAGE> 16
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholder of Sterling Chemicals, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of
Sterling Chemicals, Inc. and subsidiaries ("Chemicals") as of December 31, 1997,
and the related condensed consolidated statements of operations and cash flows
for the three-month period then ended. These financial statements are the
responsibility of Chemicals' 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 of Chemicals as of September 30, 1997,
and the related consolidated statement of operations, stockholder's equity
(deficiency in assets), and cash flows for the year then ended (not presented
herein); and in our report dated December 3, 1997, 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, 1997 is fairly stated in all material respects, in relation
to the consolidated balance sheet from which it has been derived.
DELOITTE & TOUCHE LLP
Houston, Texas
February 12, 1998
16
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain capitalized terms used herein but not defined have the meanings assigned
to them in the Notes To Condensed Consolidated Financial Statements or in the
Notes to the Consolidated Financial Statements included in the Company's Annual
Report on Form 10-K.
OVERVIEW
Holdings is a holding company whose only material asset is its investment
in Chemicals. Holdings' only material liabilities are its obligation to repay
the 13 1/2% Senior Secured Discount Notes due 2008 (the "13 1/2% Notes"), redeem
its outstanding preferred stock, and certain other contingent obligations.
Chemicals owns substantially all of the consolidated operating assets and is
obligated for substantially all remaining liabilities of the Company. Other than
the additional interest expense associated with the 13 1/2% Notes, the results
of operations for the Company are essentially the same as those for Chemicals.
Accordingly, the discussion that follows is applicable to both entities, except
as specifically noted. A separate discussion of the results of operations for
Chemicals, would not, in the opinion of the Company, provide any additional
meaningful information.
RECENT DEVELOPMENTS
On January 28, 1998, one of the Company's suppliers experienced a fire in
the Partial Oxidation Unit used by the supplier to provide carbon monoxide and
hydrogen to the Company's Texas City petrochemical plant. As a result of this
incident, the Company estimates it will be forced to shutdown its acetic acid
unit and a portion of its plasticizers unit at the Texas City plant for a
portion of the second quarter of fiscal 1998. The Company believes that the
aforementioned incident will not have a material adverse impact on the financial
position, results of operations, or cash flows of the Company.
During January 1998, 64 Company employees took early retirement under a
voluntary severance program established by the Company at its facility in Texas
City, Texas. The Company expects to record a pre-tax charge of approximately
$3.0 million in the second quarter of fiscal 1998 for costs associated with the
workforce reduction. The Company anticipates annual savings from such workforce
reduction of approximately $3.0 million.
Effective January 1, 1998, the Company extended, for a period of at least
ten years, the plasticizers product sales agreement with BASF Corporation.
On November 14, 1997, the Environmental Protection Agency issued the
combined air and water "Cluster Rule" setting new air and water quality
standards for the pulp and paper industry. The new standards support
substitution of chlorine dioxide, which is produced from sodium chlorate (a
product of the Company), for elemental chlorine in the pulp bleaching process.
RESULTS OF OPERATIONS
Revenues for the first quarter of fiscal 1998 were $230 million compared to
revenues of $187 million for the first quarter of fiscal 1997, an increase of
23%. The AFB Acquisition, the Saskatoon Acquisition, and the increase in
methanol unit and acrylonitrile sales volumes had a positive impact on revenues
in the first quarter of fiscal 1998, partially offset by reduced styrene sales
volumes and acrylonitrile sales prices. Revenues excluding the impact of the AFB
Acquisition and the Saskatoon Acquisition would have been $193 million. A net
loss of $10.8 million, or $0.91 per share, was recorded for the first quarter of
fiscal 1998 compared to a net loss of $7.2 million, or $0.68 per share, for the
first quarter of fiscal 1997. The increase in net loss is primarily due to: (i)
reduced acrylonitrile and styrene margins; (ii) weak markets in acrylic fibers;
and (iii) increased interest expense resulting from financings related to the
AFB Acquisition and the Saskatoon Acquisition and the issuance of $150,000,000
of 11 1/4% Senior Subordinated Notes due 2007 (the "11 1/4% Notes").
17
<PAGE> 18
Petrochemicals and Fibers
For the first quarter of fiscal 1998, revenues from the petrochemical and
fibers businesses increased 23% to $177 million as compared to $144 million in
the prior year period. The increase in revenues was primarily due to revenues
from the AFB Acquisition, increased methanol sales volumes, and increased
acrylonitrile sales volumes. These increases were partially offset by decreased
acrylonitrile and styrene sales prices and reduced styrene volumes. The economic
conditions in Asia negatively impacted market conditions, particularly for the
Company's styrene, acrylonitrile, and acrylic fibers products. The Company's
petrochemical and fibers businesses recorded an operating loss of $0.5 million
for the first three months of fiscal 1998 compared to an operating loss of $2.5
million for the same period of fiscal 1997. The decrease in operating loss is a
result of stronger operational performance in methanol and increased
profitability in acetic acid, which offset declines in acrylonitrile
performance.
Styrene. Styrene revenues decreased 12% to $68 million in the first quarter
of fiscal 1998 compared to the same period in fiscal 1997. Styrene sales prices
decreased 5% from the same fiscal 1997 period and sales volumes decreased 11%
primarily due to weaker market conditions, particularly in the Far East export
market. The prices of styrene's major raw materials, benzene and ethylene, were
approximately 3% and 4% lower, respectively, during the first quarter of fiscal
1998 compared to the same period in fiscal 1997. As a result, styrene margins
were slightly lower in the first quarter of fiscal 1998 compared to the first
quarter of fiscal 1997.
Acrylonitrile. Acrylonitrile revenues increased 23% to $32 million in the
first quarter of fiscal 1998 compared to the same period in fiscal 1997. The
increased revenues were primarily due to increased volumes of 41% for the first
three months of fiscal 1998 as compared to the same period of fiscal 1997,
partially offset by a 12% decrease in sales prices. The 41% increase in volume
was primarily due to increased facility utilization. The 12% decrease in sales
prices was primarily due to weaker market conditions, primarily in the Far East
export market. The prices of acrylonitrile's major raw materials, propylene and
ammonia, were approximately 7% and 22% lower, respectively, in the first quarter
of fiscal 1998 than for the corresponding period in fiscal 1997. Acrylonitrile
margins decreased in the first quarter of fiscal 1998 compared to the same
period of fiscal 1997, as significantly lower sales prices more than offset the
lower raw material costs.
Methanol. Methanol revenues for the first quarter of fiscal 1998 were $21
million as compared to $14 million in the corresponding period of fiscal 1997.
The 50% increase in revenues was primarily due to increased sales volumes and
increased sales prices. The increase in volumes was primarily due to a
three-week shutdown in October 1996 to repair problems discovered in the
methanol unit's initial demonstration period. Margins improved in the first
quarter of fiscal 1998 as compared to the prior fiscal year period due to
increased sales prices and lower raw materials cost. In addition, the methanol
unit benefited from operating at 109% of capacity in the first quarter of fiscal
1998 as compared to operating at 76% of capacity in the prior fiscal year period
as a result of the aforementioned shutdown.
Fibers. Sterling Fibers recorded revenues of $26 million during the first
quarter of fiscal 1998. Sterling Fibers was acquired during the second quarter
of fiscal 1997, and therefore had no revenues in the comparable first quarter of
fiscal 1997. Sterling Fibers performance was negatively impacted by weak market
conditions, particularly in the Far East export market.
Other Petrochemical Products. Revenues from the Company's other
petrochemical products (including acetic acid, plasticizers, tertiary
butylamine, and sodium cyanide) in the first quarter of fiscal 1998 were $30
million, an increase of 10% when compared to the same period last fiscal year.
The Company's other petrochemical products also had an increase in operating
earnings in the first quarter of fiscal 1998 as compared to the first quarter of
fiscal 1997. The increase in revenues and operating earnings was primarily due
to better operating performance in acetic acid.
Pulp Chemicals
Revenues from the Company's pulp chemical business increased 24% to $54
million for the first quarter of fiscal 1998, when compared to the same period
last fiscal year. The increase in revenues was primarily due to an increase in
sales volumes of sodium chlorate of 46% when compared to the corresponding
three-month period of fiscal 1997. The increase in sales volumes was primarily
due to the startup of the Valdosta Plant in December 1996 and the additional
volumes from the recent Saskatoon Acquisition. Average sales prices for sodium
chlorate declined 9% in the first quarter of fiscal 1998 compared to the
corresponding period in fiscal 1997. The 9% decline was primarily
18
<PAGE> 19
due to weaker market conditions resulting, in part, from the economic
environment in various countries in the Far East. Revenues from the sale of
generators and royalty income decreased 36% in the first quarter of fiscal 1998
compared to the corresponding period of fiscal 1997. This decrease in revenues
was primarily due to reduced project work related to generators. With the recent
passage of the Cluster Rule, the Company anticipates increased generator sales
activity as the mandatory implementation date approaches.
Selling, General, and Administrative Expenses
Selling, general, and administrative ("SG&A") expense increased to $12
million during the first quarter of fiscal 1998 as compared to $7 million in the
comparable period of fiscal 1997. The increase was primarily due to SG&A expense
related to the new fibers business and the new Saskatoon chemical business.
Interest and Debt Related Expense
Interest and debt related expenses for the first quarter of fiscal 1998
were $25 million compared to $19 million for the corresponding period in fiscal
1997. This increase is primarily due to the additional debt incurred in
connection with the AFB Acquisition and Saskatoon Acquisition.
LIQUIDITY AND CAPITAL RESOURCES
Debt Structure
As of December 31, 1997, the Company's debt structure consisted of: (i)
term loans due March 31, 2003 and September 30, 2004 (the "Term Loans"); (ii)
Saskatoon Term Loans due June 30, 2002 and June 30, 2005; (iii) the 11 3/4%
Notes; (iv) a series of 11 3/4% Senior Subordinated Notes due 2006 (the "11 3/4%
Notes"); (v) the 13 1/2% Notes; (vi) an ESOP Term Loan due September 30, 2000;
and (vii) a revolving credit facility providing up to $125 million (subject to a
monthly borrowing base calculation) in revolving loans (the "Revolver") (see
Note 3 to the Notes to Condensed Financial Statements). At December 31, 1997,
the Company's long-term debt (including current maturities) totaled $874.8
million.
The Company intends to meet its liquidity needs for operating activities
and capital expenditures (other than acquisitions) through internally generated
funds and, to the extent necessary, borrowings under the Revolver. As of
December 31, 1997, the Company had no amounts drawn and approximately $2.3
million in letters of credit outstanding under the Revolver, thereby decreasing
the available commitments under the Revolver at such time to $122.7 million
(compared to an available commitment thereunder as of September 30, 1997, of
$113.0 million). Available credit under the Revolver for loans and letters of
credit is subject to a monthly borrowing base consisting of 85% of eligible
accounts receivable and 65% of eligible inventory with an inventory cap of 50%
of the borrowing base. At December 31, 1997, the borrowing base did not limit
such available credit. The Revolver matures on March 31, 2003. The Company
believes its internally generated funds and the undrawn amount of the Revolver
will be sufficient to meet its liquidity needs during fiscal 1998.
The Company's ability to obtain additional financing in the future for
working capital, capital expenditures, acquisitions and general corporate
purposes, should it need to do so, will be affected by the covenants in its
various debt agreements and by cash requirements for debt service. The credit
agreement governing the Revolver (the "Credit Agreement") and the indentures
governing the 11 1/4% Notes, 11 3/4% Notes, and 13 1/2% Notes (the "Indentures")
contain numerous financial and operational covenants, including, without
limitation, restrictions on the Company's ability to incur indebtedness, pay
dividends, create liens, sell assets, engage in mergers and acquisitions, and
refinance existing indebtedness, as well as the obligation of the Company to
maintain certain financial ratios. Based on the Company's pro forma results of
operations for the four quarters ended December 31, 1997, these restrictions
currently operate to prevent the Company from incurring any additional debt
other than debt incurred under the Revolver or pursuant to certain limited
"baskets" and other exceptions. Under limited circumstances, the Company may,
however, consummate additional acquisitions under the Credit Agreement and the
Indentures (i) through the incurrence of debt in Unrestricted Subsidiaries (as
defined in the Indentures and the Credit Agreement) or (ii) if the pro forma
effect of such acquisition has a sufficient positive impact on certain financial
ratios. The Company generally will not have access to the cash flows of
Unrestricted Subsidiaries, as in the case of Sterling Sask. The Credit Agreement
also requires that certain amounts of Excess Cash Flow (as defined therein) be
used to prepay amounts outstanding under
19
<PAGE> 20
the Term Loans. No such mandatory prepayment is required in fiscal 1998.
The Company's ability to comply with the covenants and other terms of its
various debt agreements, meet its debt service obligations, and repay principal
when due will depend on the future performance of the Company. The future
performance of the Company is subject to a number of uncertainties. The Company
was in compliance with the financial covenants in effect as of December 31,
1997. However, if weak market conditions (particularly in various countries in
the Far East) continue to negatively impact the sales prices, margins, and
volumes of the Company's products (particularly styrene, acrylonitrile, and
acrylic fibers), the Company may have difficulty remaining in compliance with
several of the financial covenants under certain of its debt agreements. If the
Company fails to remain in compliance with any financial covenants, the Company
believes it can obtain curative amendments or waivers for the non-compliance to
its current debt agreements; however, no assurances can be given that these
amendments or waivers will be obtained. In the event amendments or waivers are
not obtained, debt holders may pursue remedies available to them under the
relevant debt agreements.
The Credit Agreement and the Indentures contain provisions which restrict
the payment of advances, loans and dividends from Chemicals to Holdings. The
most restrictive of those covenants limits such payments during fiscal 1998 to
approximately $2.0 million plus any amounts due to Holdings from Chemicals under
the intercompany tax sharing agreement. Such restriction is not expected to
limit Holdings' ability to meet its obligations in fiscal 1998.
Working Capital
Working capital of the Company was $109 million at December 31, 1997, down
from $120 million at September 30, 1997. The $11 million decrease in working
capital was primarily due to lower receivables.
Cash Flow
Net cash provided by operations was $13 million for both the first quarter
of fiscal 1998 and fiscal 1997.
Capital Expenditures
The Company's capital expenditures for the first three months of fiscal
1998 were $5 million compared to $18 million in the same period in fiscal 1997.
The capital expenditures in the first three months of fiscal 1998 were primarily
related to routine safety, environmental, and replacement capital. The capital
expenditures in the first three months of fiscal 1997 were primarily related to
the construction of the Valdosta, Georgia sodium chlorate plant, along with a
distributive control system installation at the Company's acrylonitrile unit.
During the remainder of fiscal 1998, the Company expects to spend approximately
$20 million to $25 million on process modernization, routine safety,
environmental, and replacement capital. The Company expects to fund its
remaining fiscal 1998 capital expenditures from operating cash flow, plus
borrowings under the Revolver, if needed.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-Q includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements (other than
statements of historical facts) included in this Form 10-Q, including without
limitation the statements under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" regarding the cyclicality of the
Company's industry, current and future industry conditions and the potential
effects of such matters on the Company's business strategy, results of
operations and financial position, are forward-looking statements. Although the
Company believes that the expectations reflected in the forward-looking
statements contained herein are reasonable, no assurance can be given that such
expectations will prove to have been correct. Certain important factors that
could cause actual results to differ materially from expectations ("Cautionary
Statements") are stated herein in conjunction with the forward-looking
statements or are included elsewhere in this Form 10-Q. All subsequent written
and oral forward-looking statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by the Cautionary
Statements.
20
<PAGE> 21
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information under "Legal Proceedings" in the Notes to Condensed
Consolidated Financial Statements herein is hereby incorporated by reference.
See also "Item 3. Legal Proceedings" in the Company's Annual Report on Form
10-K.
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, 1997. However, the Company's Annual Meeting of
Stockholders was held on January 28, 1998, at which time the Company's nine
nominees for directors were elected, the appointment of Deloitte & Touche LLP as
the independent auditors of the financial statements of the Company for the
fiscal year ended September 30, 1998 was ratified, and the Sterling Chemicals
Holdings, Inc. Omnibus Stock Awards and Incentive Plan was approved.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: The following exhibits are filed as part of this Form 10-Q.
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
11.1 --Earnings Per Share Calculation.
27.1 --Financial Data Schedule of Sterling Chemicals Holdings, Inc.
27.2 --Financial Data Schedule of Sterling Chemicals, Inc.
(b) Reports on Form 8-K.
None.
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
STERLING CHEMICALS HOLDINGS, INC.
STERLING CHEMICALS, INC.
(Registrants)
Date: February 13, 1998 /s/ ROBERT W. ROTEN
-------------------------------
Robert W. Roten
President and Chief Executive Officer
(Principal Executive Officer)
Date: February 13, 1998 /s/ GARY M. SPITZ
-------------------------------
Gary M. Spitz
Vice President-Finance and Chief
Financial Officer
(Principal Financial Officer)
22
<PAGE> 23
INDEX TO EXHIBITS
11.1 --Earnings Per Share Calculation.
27.1 --Financial Data Schedule of Sterling Chemicals Holdings, Inc.
27.2 --Financial Data Schedule of Sterling Chemicals, Inc.
<PAGE> 1
STERLING CHEMICALS HOLDINGS, INC.
EXHIBIT 11.1
EARNINGS PER SHARE COMPUTATION
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
THREE THREE
MONTHS MONTHS
ENDED ENDED
12/31/97 12/31/96
-------- --------
BASIC EARNINGS PER SHARE
<S> <C> <C>
Weighted average of common stock outstanding 11,877 10,608
======== =======
Net Loss $(10,145) $(7,198)
Less: Preferred dividend requirements (628) --
-------- -------
Net loss used in basic loss per share $(10,773) $(7,198)
======== =======
Basic loss per share $ (0.91) $ (0.68)
======== =======
DILUTED EARNINGS PER SHARE
Weighted average of common stock outstanding 11,877 10,608
Total weighted average shares outstanding used in
diluted loss per share computation (1) 11,877 10,608
======== =======
Net loss $(10,145) $(7,198)
Less: Preferred dividend requirements (628) --
-------- -------
Net loss used in diluted earnings per share $(10,773) $(7,198)
======== =======
DILUTED LOSS PER SHARE (1) $ (0.91) $ (0.68)
======== =======
</TABLE>
(1) Due to losses resulting in anti-dilution, same as amount used in basic
computation.
23
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000795662
<NAME> STERLING CHEMICALS HOLDINGS, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 4,593
<SECURITIES> 0
<RECEIVABLES> 151,228
<ALLOWANCES> (1,725)
<INVENTORY> 106,997
<CURRENT-ASSETS> 282,829
<PP&E> 739,443
<DEPRECIATION> (261,030)
<TOTAL-ASSETS> 859,124
<CURRENT-LIABILITIES> 173,384
<BONDS> 869,167
16,422
0
<COMMON> 120
<OTHER-SE> (304,712)
<TOTAL-LIABILITY-AND-EQUITY> 859,124
<SALES> 230,236
<TOTAL-REVENUES> 230,236
<CGS> 207,739
<TOTAL-COSTS> 207,739
<OTHER-EXPENSES> 11,716
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,303
<INCOME-PRETAX> (14,522)
<INCOME-TAX> (4,377)
<INCOME-CONTINUING> (10,145)
<DISCONTINUED> 0
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<CHANGES> 0
<NET-INCOME> (10,145)
<EPS-PRIMARY> (0.91)
<EPS-DILUTED> (0.91)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001014669
<NAME> STERLING CHEMICALS, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 4,549
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<ALLOWANCES> (1,725)
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<DEPRECIATION> (261,030)
<TOTAL-ASSETS> 855,799
<CURRENT-LIABILITIES> 173,384
<BONDS> 757,432
0
0
<COMMON> 0
<OTHER-SE> (187,746)
<TOTAL-LIABILITY-AND-EQUITY> 855,799
<SALES> 230,236
<TOTAL-REVENUES> 230,236
<CGS> 207,739
<TOTAL-COSTS> 207,739
<OTHER-EXPENSES> 11,435
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,897
<INCOME-PRETAX> (9,835)
<INCOME-TAX> (2,964)
<INCOME-CONTINUING> (6,871)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,871)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
