ucc-2012-3Q10Q

10-Q 1 ucc-2012x3q10q.htm 10-Q ucc-2012-3Q10Q

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

R QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended SEPTEMBER 30, 2012

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________to___________

Commission File Number: 1-1463

UNION CARBIDE CORPORATION

(Exact name of registrant as specified in its charter)



New York (State or other jurisdiction of incorporation or organization)		13-1421730 (I.R.S. Employer Identification No.)

1254 ENCLAVE PARKWAY, HOUSTON, TEXAS 77077

(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: 281-966-2727

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.

R Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

R Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer o	Accelerated filer o
Non-accelerated filer R	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes R No

At September 30, 2012, 1,000 shares of common stock were outstanding, all of which were held by the registrant’s parent, The Dow Chemical Company.

The registrant meets the conditions set forth in General Instructions H(1)(a) and (b) for Form 10-Q and is therefore filing this form with a reduced disclosure format.

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Union Carbide Corporation

QUARTERLY REPORT ON FORM 10-Q

For the quarterly period ended September 30, 2012

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		PAGE

PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements.	3

	Consolidated Statements of Income	3

	Consolidated Statements of Comprehensive Income	4

	Consolidated Balance Sheets	5

	Consolidated Statements of Cash Flows	6

	Consolidated Statements of Equity	7

	Notes to the Consolidated Financial Statements	8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	20

	Disclosure Regarding Forward-Looking Information	20

	Results of Operations	20

	Other Matters	22

Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	26

Item 4.	Controls and Procedures.	26

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings.	26

Item 1A.	Risk Factors.	26

Item 4.	Mine Safety Disclosures.	26

Item 6.	Exhibits.	26

SIGNATURES		27

EXHIBIT INDEX		28

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PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements.

Union Carbide Corporation and Subsidiaries

Consolidated Statements of Income



	Three Months Ended						Nine Months Ended
In millions (Unaudited)	Sep 30, 2012			Sep 30, 2011			Sep 30, 2012			Sep 30, 2011
Net trade sales	$	35		$	43		$	135		$	140
Net sales to related companies	1,465			1,794			4,514			5,340
Total Net Sales	1,500			1,837			4,649			5,480
Cost of sales	1,448			1,807			4,562			5,052
Research and development expenses	8			12			27			38
Selling, general and administrative expenses	2			2			7			9
Restructuring charges	—			—			3			—
Equity in earnings of nonconsolidated affiliates	16			15			48			50
Sundry income (expense) - net	(20		)	(19		)	(42		)	(73		)
Interest income	3			7			11			28
Interest expense and amortization of debt discount	7			9			22			27
Income Before Income Taxes	34			10			45			359
Provision (Credit) for income taxes	9			(12		)	12			104
Net Income Attributable to Union Carbide Corporation	$	25		$	22		$	33		$	255

Depreciation	$	51		$	57		$	166		$	179
Capital Expenditures	$	47		$	29		$	129		$	96

See Notes to the Consolidated Financial Statements.

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Union Carbide Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income



	Three Months Ended				Nine Months Ended
In millions (Unaudited)	Sep 30, 2012		Sep 30, 2011		Sep 30, 2012		Sep 30, 2011
Net Income Attributable to Union Carbide Corporation	$	25	$	22	$	33	$	255
Other Comprehensive Income, Net of Tax
Cumulative translation adjustments	2		1		1		3
Pension and other postretirement benefit plans adjustments	10		15		30		44
Total other comprehensive income	12		16		31		47
Comprehensive Income Attributable to Union Carbide Corporation	$	37	$	38	$	64	$	302

See Notes to the Consolidated Financial Statements.

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Union Carbide Corporation and Subsidiaries

Consolidated Balance Sheets



In millions (Unaudited)	Sep 30, 2012			Dec 31, 2011
Assets
Current Assets
Cash and cash equivalents	$	19		$	26
Accounts receivable:
Trade (net of allowance for doubtful receivables - 2012: $1; 2011: $1)	33			23
Related companies	366			385
Other	125			158
Notes receivable from related companies	2,187			3,261
Inventories	406			207
Other current assets and deferred income taxes	87			93
Total current assets	3,223			4,153
Investments
Investments in related companies	979			971
Investments in nonconsolidated affiliates	137			132
Other investments	8			6
Noncurrent receivables	45			45
Noncurrent receivables from related companies	152			136
Total investments	1,321			1,290
Property
Property	7,118			7,099
Less accumulated depreciation	5,805			5,745
Net property	1,313			1,354
Other Assets
Intangible assets (net of accumulated amortization 2012: $72; 2011: $141)	8			8
Deferred income tax assets - noncurrent	676			675
Asbestos-related insurance receivables - noncurrent	156			172
Deferred charges and other assets	49			53
Total other assets	889			908
Total Assets	$	6,746		$	7,705
Liabilities and Equity
Current Liabilities
Notes payable - related companies	$	33		$	15
Long-term debt due within one year	—			37
Accounts payable:
Trade	247			256
Related companies	365			382
Other	19			31
Income taxes payable	10			—
Asbestos-related liabilities - current	85			73
Accrued and other current liabilities	187			157
Total current liabilities	946			951
Long-Term Debt	471			470
Other Noncurrent Liabilities
Pension and other postretirement benefits - noncurrent	881			1,062
Asbestos-related liabilities - noncurrent	549			608
Other noncurrent obligations	176			179
Total other noncurrent liabilities	1,606			1,849
Stockholder's Equity
Common stock (authorized and issued: 1,000 shares of $0.01 par value each)	—			—
Additional paid-in capital	312			312
Retained earnings	4,510			5,253
Accumulated other comprehensive loss	(1,101		)	(1,132		)
Union Carbide Corporation's stockholder's equity	3,721			4,433
Noncontrolling interests	2			2
Total equity	3,723			4,435
Total Liabilities and Equity	$	6,746		$	7,705

See Notes to the Consolidated Financial Statements.

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Union Carbide Corporation and Subsidiaries

Consolidated Statements of Cash Flows



	Nine Months Ended
In millions (Unaudited)	Sep 30, 2012			Sep 30, 2011
Operating Activities
Net Income	$	33		$	255
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	179			202
Provision (credit) for deferred income tax	(20		)	(48		)
Earnings of nonconsolidated affiliates less than (in excess of) dividends received	(6		)	1
Net gain on sales of property	(4		)	(5		)
Restructuring charges	3			—
Pension contributions	(157		)	(47		)
Net loss on early extinguishment of debt	—			6
Other gains, net	(1		)	—
Changes in assets and liabilities:
Accounts and notes receivable	3			(10		)
Related company receivables	1,093			577
Inventories	(199		)	(30		)
Accounts payable	(9		)	(17		)
Related company payables	1			(30		)
Other assets and liabilities	36			(33		)
Cash provided by operating activities	952			821
Investing Activities
Capital expenditures	(129		)	(96		)
Change in noncurrent receivable from related company	(15		)	(1		)
Proceeds from sale of property	7			19
Purchase of related company receivables	(8		)	—
Purchases of investments	(2		)	(11		)
Proceeds from sales of investments	—			13
Cash used in investing activities	(147		)	(76		)
Financing Activities
Dividends paid to stockholder	(775		)	(675		)
Payments on long-term debt	(37		)	(69		)
Cash used in financing activities	(812		)	(744		)
Summary
Increase (decrease) in cash and cash equivalents	(7		)	1
Cash and cash equivalents at beginning of year	26			22
Cash and cash equivalents at end of period	$	19		$	23

See Notes to the Consolidated Financial Statements.

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Union Carbide Corporation and Subsidiaries

Consolidated Statements of Equity



	Nine Months Ended
In millions (Unaudited)	Sep 30, 2012			Sep 30, 2011
Common Stock
Balance at beginning of year and end of period	$	—		$	—
Additional Paid-in Capital
Balance at beginning of year and end of period	312			312
Retained Earnings
Balance at beginning of year	5,253			5,990
Net income	33			255
Dividends declared	(775		)	(675		)
Other	(1		)	—
Balance at end of period	4,510			5,570
Accumulated Other Comprehensive Loss, Net of Tax
Balance at beginning of year	(1,132		)	(1,026		)
Other comprehensive income	31			47
Balance at end of period	(1,101		)	(979		)
Union Carbide Corporation's Stockholder's Equity	3,721			4,903
Noncontrolling Interests	2			2
Total Equity	$	3,723		$	4,905

See Notes to the Consolidated Financial Statements.

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Union Carbide Corporation and Subsidiaries

Notes to the Consolidated Financial Statements



(Unaudited)

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Note		Page
A	Consolidated Financial Statements	8
B	Recent Accounting Guidance	8
C	Divestiture	9
D	Inventories	9
E	Nonconsolidated Affiliates	10
F	Intangible Assets	10
G	Financial Instruments	11
H	Fair Value Measurements	11
I	Commitments and Contingent Liabilities	12
J	Notes Payable and Long-term Debt	16
K	Pension and Other Postretirement Benefits	17
L	Related Party Transactions	17
M	Accumulated Other Comprehensive Income (Loss)	18
N	Subsequent Event	19

NOTE A - CONSOLIDATED FINANCIAL STATEMENTS

The unaudited interim consolidated financial statements of Union Carbide Corporation and its subsidiaries (the “Corporation” or “UCC”) were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and reflect all adjustments (including normal recurring accruals) which, in the opinion of management, are considered necessary for the fair presentation of the results for the periods presented.

The Corporation is a wholly owned subsidiary of The Dow Chemical Company (“Dow”). In accordance with the accounting guidance for earnings per share, the presentation of earnings per share is not required in financial statements of wholly owned subsidiaries.

The Corporation’s business activities comprise components of Dow’s global operations rather than stand-alone operations. Dow conducts its worldwide operations through global businesses. Because there are no separable reportable business segments for UCC under the accounting guidance related to segment reporting and no detailed business information is provided to a chief operating decision maker regarding the Corporation’s stand-alone operations, the Corporation’s results are reported as a single operating segment.

Intercompany transactions and balances are eliminated in consolidation. Transactions with the Corporation’s parent company, Dow, and other Dow subsidiaries have been reflected as related company transactions in the consolidated financial statements. See Note L for further discussion.

These statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Corporation’s Annual Report on Form 10-K/A for the year ended December 31, 2011.

NOTE B - RECENT ACCOUNTING GUIDANCE

Recently Adopted Accounting Guidance

On January 1, 2012, the Corporation adopted Accounting Standards Update ("ASU") 2011-05, "Comprehensive Income (Topic 220): Presentation of Comprehensive Income," as amended by ASU 2011-12, "Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05." This standard improves the comparability, consistency and transparency of financial reporting and increases the prominence of items reported in other comprehensive income. See the Consolidated Statements of Comprehensive Income and Note M for additional information.

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Union Carbide Corporation and Subsidiaries

Notes to the Consolidated Financial Statements



(Unaudited)

On January 1, 2012, the Corporation adopted ASU 2011-04, "Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS," which provides common requirements for measuring fair value and disclosing information about fair value measurements in accordance with U.S. GAAP and International Financial Reporting Standards ("IFRS"). See Note H for additional information about fair value measurements.

Accounting Guidance Issued But Not Adopted as of September 30, 2012

In December 2011, the Financial Accounting Standards Board ("FASB") issued ASU 2011-11, "Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities," which requires entities to disclose both gross and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting agreement. The objective of the disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of IFRS. This ASU is effective for fiscal years, and interim periods within those years, beginning on or after January 1, 2013. Retrospective presentation for all comparative periods presented is required. The Corporation is currently evaluating the impact of adopting this guidance.

NOTE C - DIVESTITURE

On July 27, 2011, Dow entered into a definitive agreement to sell Dow's global Polypropylene business to Braskem SA. The definitive agreement specified the assets included in the sale, which included the following assets of the Corporation: polypropylene manufacturing facility at Seadrift, Texas; railcars; inventory; business know-how; and certain product and process technology. The Corporation's Polypropylene Licensing and Catalyst business and related catalyst facilities were excluded from the scope of the transaction. On September 30, 2011, the sale was completed. The Corporation received $19 million for the sale of its assets, net of working capital adjustments and costs to sell, with proceeds subject to customary post-closing adjustments. The carrying amount of the assets divested on September 30, 2011 are noted below:



Assets Divested In millions	Sep 30, 2011
Inventories	$	2
Net property	12
Total assets divested	$	14

The Corporation recognized a pretax gain of $5 million on the sale in the third quarter of 2011 included in "Sundry income (expense) - net" in the consolidated statement of income. Post-closing adjustments of $1 million in the fourth quarter of 2011 reduced the pretax gain to $4 million.

NOTE D - INVENTORIES

The following table provides a breakdown of inventories:



Inventories In millions	Sep 30, 2012		Dec 31, 2011
Finished goods	$	248	$	71
Work in process	31		6
Raw materials	46		51
Supplies	81		79
Total inventories	$	406	$	207

The reserves reducing inventories from the first-in, first-out (“FIFO”) basis to the last-in, first-out (“LIFO”) basis amounted to $149 million at September 30, 2012 and $162 million at December 31, 2011.

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Union Carbide Corporation and Subsidiaries

Notes to the Consolidated Financial Statements



(Unaudited)

NOTE E - NONCONSOLIDATED AFFILIATES

The table below presents summarized financial information for Univation Technologies, LLC, a significant nonconsolidated affiliate (at 100 percent):



Summarized Income Statement Information for Univation Technologies, LLC	Three Months Ended				Nine Months Ended
In millions	Sep 30, 2012		Sep 30, 2011		Sep 30, 2012		Sep 30, 2011
Sales	$	79	$	75	$	232	$	214
Gross profit	$	53	$	58	$	155	$	155
Net income attributable to Univation Technologies, LLC	$	34	$	39	$	98	$	107

NOTE F - INTANGIBLE ASSETS

The following table provides information regarding the Corporation’s intangible assets:



Intangible Assets	At September 30, 2012							At December 31, 2011
In millions	Gross Carrying Amount		Accumulated Amortization			Net		Gross Carrying Amount		Accumulated Amortization			Net
Intangible assets with finite lives:
Licenses and intellectual property	$	33	$	(33	)	$	—	$	33	$	(33	)	$	—
Software	47		(39		)	8		116		(108		)	8
Total intangible assets	$	80	$	(72	)	$	8	$	149	$	(141	)	$	8

In the third quarter of 2012, the Corporation retired $71 million of fully amortized software.

Amortization expense for software, which is included in “Cost of sales” in the consolidated statements of income was $1 million in the third quarter of 2012 and $1 million in the third quarter of 2011. Amortization expense for software was $2 million for the nine months ended September 30, 2012 and $3 million for the nine months ended September 30, 2011. Amortization expense for intangible assets (not including software) was immaterial in the third quarters of 2012 and 2011, as well as year-to-date for 2012 and 2011.

Total estimated amortization expense for 2012 and the five succeeding fiscal years is as follows:



Estimated Amortization Expense In millions
2012	$	3
2013	$	3
2014	$	1
2015	$	1
2016	$	—
2017	$	—

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Union Carbide Corporation and Subsidiaries

Notes to the Consolidated Financial Statements



(Unaudited)

NOTE G - FINANCIAL INSTRUMENTS

Investments

The Corporation’s investments in marketable securities are classified as available-for-sale.



Investing Results	Nine Months Ended
In millions	Sep 30, 2012		Sep 30, 2011
Proceeds from sales of available-for-sale securities	$	—	$	5

Portfolio managers regularly review all of the Corporation’s holdings to determine if any investments are other-than-temporarily impaired. The analysis includes reviewing the amount of the impairment, as well as the length of time it has been impaired. In addition, specific guidelines for each instrument type are followed to determine if an other-than-temporary impairment has occurred. At September 30, 2012 and December 31, 2011, there were no impairment indicators or circumstances that would result in a material adjustment of these investments.

The Corporation’s investments in debt securities had contractual maturities of less than 10 years at September 30, 2012.



Fair Value of Financial Instruments
	At September 30, 2012											At December 31, 2011
In millions	Cost			Gain		Loss			Fair Value			Cost			Gain		Loss			Fair Value
Marketable securities - Debt securities (1)	$	5		$	—	$	—		$	5		$	3		$	—	$	—		$	3
Long-term debt including debt due within one year	$	(471	)	$	—	$	(119	)	$	(590	)	$	(507	)	$	—	$	(148	)	$	(655	)


(1)	Included in “Other investments” in the consolidated balance sheets.

Cost approximates fair value for all other financial instruments.

NOTE H - FAIR VALUE MEASUREMENTS

The following table summarizes the basis used to measure certain assets and liabilities at fair value on a recurring basis:



Basis of Fair Value Measurements on a Recurring Basis	Significant Other Observable Inputs (Level 2)		Significant Other Observable Inputs (Level 2)
In millions	Sep 30, 2012		Dec 31, 2011
Assets at fair value:
Debt securities (1)	$	5	$	3
Liabilities at fair value:
Long-term debt (2)	$	590	$	655


(1)	Included in “Other investments” in the consolidated balance sheets.


(2)	See Note G for information on fair value adjustments to long-term debt included at cost in the consolidated balance sheets.

For assets and liabilities classified as Level 2 measurements, where the security is frequently traded in less active markets, fair value is based on the closing price at the end of the period; where the security is less frequently traded, fair value is based on the price a dealer would pay for the security or similar securities, adjusted for any terms specific to that asset or liability, or by using observable market data points of similar, more liquid securities to imply the price. Market inputs are obtained from well-established and recognized vendors of market data and subjected to tolerance/quality checks.

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Union Carbide Corporation and Subsidiaries

Notes to the Consolidated Financial Statements



(Unaudited)

Assets that are measured using significant other observable inputs are primarily valued by reference to quoted prices of similar assets in active markets, adjusted for any terms specific to that asset. For all other assets for which observable inputs are used, fair value is derived through the use of fair value models, such as a discounted cash flow model or other standard pricing models. There were no transfers between Levels 1 and 2 in the nine months ended September 30, 2012, or the year ended December 31, 2011.

NOTE I - COMMITMENTS AND CONTINGENT LIABILITIES

Environmental Matters

Accruals for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, based on current law and existing technologies.

At September 30, 2012, the Corporation had accrued obligations of $102 million for probable environmental remediation and restoration costs, including $20 million for the remediation of Superfund sites. This is management’s best estimate of the costs for remediation and restoration with respect to environmental matters for which the Corporation has accrued liabilities, although it is reasonably possible that the ultimate cost with respect to these particular matters could range up to approximately twice that amount. Consequently, it is reasonably possible that environmental remediation and restoration costs in excess of amounts accrued could have a material impact on the Corporation’s results of operations, financial condition and cash flows. It is the opinion of the Corporation’s management, however, that the possibility is remote that costs in excess of the range disclosed will have a material impact on the Corporation’s results of operations, financial condition and cash flows. Inherent uncertainties exist in these estimates primarily due to unknown environmental conditions, changing governmental regulations and legal standards regarding liability, and emerging remediation technologies for handling site remediation and restoration. At December 31, 2011, the Corporation had accrued obligations of $101 million for probable environmental remediation and restoration costs, including $21 million for the remediation of Superfund sites.

Litigation

The Corporation is involved in a number of legal proceedings and claims with both private and governmental parties. These cover a wide range of matters, including, but not limited to: product liability; trade regulation; governmental regulatory proceedings; health, safety and environmental matters; employment; patents; contracts; taxes; and commercial disputes.

Separately, the Corporation is and has been involved in a large number of asbestos-related suits filed primarily in state courts during the past three decades. These suits principally allege personal injury resulting from exposure to asbestos-containing products and frequently seek both actual and punitive damages. The alleged claims primarily relate to products that UCC sold in the past, alleged exposure to asbestos-containing products located on UCC’s premises, and UCC’s responsibility for asbestos suits filed against a former UCC subsidiary, Amchem Products, Inc. (“Amchem”). In many cases, plaintiffs are unable to demonstrate that they have suffered any compensable loss as a result of such exposure, or that injuries incurred in fact resulted from exposure to the Corporation’s products.

Influenced by the bankruptcy filings of numerous defendants in asbestos-related litigation and the prospects of various forms of state and national legislative reform, the rate at which plaintiffs filed asbestos-related suits against various companies, including UCC and Amchem, increased in 2001, 2002 and the first half of 2003. Since then, the rate of filing has significantly abated. The Corporation expects more asbestos-related suits to be filed against it and Amchem in the future, and will aggressively defend or reasonably resolve, as appropriate, both pending and future claims.

Based on a study completed by Analysis, Research & Planning Corporation (“ARPC”) in January 2003, the Corporation increased its December 31, 2002 asbestos-related liability for pending and future claims for the 15-year period ending in 2017 to $2.2 billion, excluding future defense and processing costs. Since then, the Corporation has compared current asbestos claim and resolution activity to the results of the most recent ARPC study at each balance sheet date to determine whether the accrual continues to be appropriate. In addition, the Corporation has requested ARPC to review the Corporation’s historical asbestos claim and resolution activity each November since 2004 to determine the appropriateness of updating the most recent ARPC study.

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Union Carbide Corporation and Subsidiaries

Notes to the Consolidated Financial Statements



(Unaudited)

2010, stated that the undiscounted cost of resolving pending and future asbestos related claims against UCC and Amchem, excluding future defense and processing costs, through 2025 was estimated to be between $744 million and $835 million. As in its earlier studies, ARPC provided estimates for a longer period of time in its December 2010 study, but also reaffirmed its prior advice that forecasts for shorter periods of time are more accurate than those for longer periods of time.

In December 2010, based on ARPC’s December 2010 study and the Corporation’s own review of the asbestos claim and resolution activity, the Corporation decreased its asbestos-related liability for pending and future claims to $744 million, which covered the 15-year period ending 2025, excluding future defense and processing costs. The reduction was $54 million and was shown as “Asbestos-related credit” in the consolidated statements of income. At December 31, 2010, the asbestos-related liability for pending and future claims was $728 million.

In November 2011, the Corporation requested ARPC to review the Corporation's 2011 asbestos claim and resolution activity and determine the appropriateness of updating its December 2010 study. In response to that request, ARPC reviewed and analyzed data through October 31, 2011. In January 2012, ARPC stated that an update of its study would not provide a more likely estimate of future events than the estimate reflected in its December 2010 study and, therefore, the estimate in that study remained applicable. Based on the Corporation's own review of the asbestos claim and resolution activity and ARPC's response, the Corporation determined that no change to the accrual was required. At December 31, 2011, the Corporation's asbestos-related liability for pending and future claims was $668 million. At December 31, 2011, approximately 18 percent of the recorded liability related to pending claims and approximately 82 percent related to future claims.

Based on the Corporation’s review of 2012 activity, it was determined that no adjustment to the accrual was required at September 30, 2012. The Corporation’s asbestos-related liability for pending and future claims was $617 million at September 30, 2012. Approximately 21 percent of the recorded liability related to pending claims and approximately 79 percent related to future claims.

At December 31, 2002, the Corporation increased the receivable for insurance recoveries related to its asbestos liability to $1.35 billion, substantially exhausting its asbestos product liability coverage. The insurance receivable related to the asbestos liability was determined by the Corporation after a thorough review of applicable insurance policies and the 1985 Wellington Agreement, to which the Corporation and many of its liability insurers are signatory parties, as well as other insurance settlements, with due consideration given to applicable deductibles, retentions and policy limits, and taking into account the solvency and historical payment experience of various insurance carriers. The Wellington Agreement and other agreements with insurers are designed to facilitate an orderly resolution and collection of the Corporation’s insurance policies and to resolve issues that the insurance carriers may raise.

In September 2003, the Corporation filed a comprehensive insurance coverage case, now proceeding in the Supreme Court of the State of New York, County of New York, seeking to confirm its rights to insurance for various asbestos claims and to facilitate an orderly and timely collection of insurance proceeds (the “Insurance Litigation”). The Insurance Litigation was filed against insurers that were not signatories to the Wellington Agreement and/or do not otherwise have agreements in place with the Corporation regarding their asbestos-related insurance coverage, in order to facilitate an orderly resolution and collection of such insurance policies and to resolve issues that the insurance carriers may raise. Since the filing of the case, the Corporation has reached settlements with most of the carriers involved in the Insurance Litigation, including settlements reached with two significant carriers in the fourth quarter of 2009. The Insurance Litigation is ongoing.

The Corporation’s receivable for insurance recoveries related to its asbestos liability was $25 million at September 30, 2012 and $40 million at December 31, 2011. At September 30, 2012 and December 31, 2011, all of the receivable for insurance recoveries was related to insurers that are not signatories to the Wellington Agreement and/or do not otherwise have agreements in place regarding their asbestos-related insurance coverage.

In addition to the receivable for insurance recoveries related to its asbestos liability, the Corporation had receivables for defense and resolution costs submitted to insurance carriers that have settlement agreements in place regarding their asbestos-related insurance coverage.

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Union Carbide Corporation and Subsidiaries

Notes to the Consolidated Financial Statements



(Unaudited)

The following table summarizes the Corporation’s receivables related to its asbestos-related liability:



Receivables for Asbestos-Related Costs In millions	Sep 30, 2012		Dec 31, 2011
Receivables for defense costs – carriers with settlement agreements	$	19	$	20
Receivables for resolution costs - carriers with settlement agreements	158		158
Receivables for insurance recoveries - carriers without settlement agreements	25		40
Total	$	202	$	218

The Corporation expenses defense costs as incurred. The pretax impact for defense and resolution costs, net of insurance, was $25 million for the third quarter of 2012 ($30 million in the third quarter of 2011) and $73 million in the first nine months of 2012 ($58 million in the first nine months of 2011) and was reflected in “Cost of sales” in the consolidated statements of income.

After a review of its insurance policies, with due consideration given to applicable deductibles, retentions and policy limits, and after taking into account the solvency and historical payment experience of various insurance carriers; existing insurance settlements; and the advice of outside counsel with respect to the applicable insurance coverage law relating to the terms and conditions of its insurance policies, the Corporation continues to believe that its recorded receivable for insurance recoveries from all insurance carriers is probable of collection.

Summary

The amounts recorded by the Corporation for the asbestos-related liability and related insurance receivable described above were based upon current, known facts. However, future events, such as the number of new claims to be filed and/or received each year, the average cost of disposing of each such claim, coverage issues among insurers and the continuing solvency of various insurance companies, as well as the numerous uncertainties surrounding asbestos litigation in the United States, could cause the actual costs and insurance recoveries for the Corporation to be higher or lower than those projected or those recorded.

Because of the uncertainties described above, the Corporation's management cannot estimate the full range of the cost of resolving pending and future asbestos-related claims facing UCC and Amchem. The Corporation's management believes that it is reasonably possible that the cost of disposing of the Corporation’s asbestos-related claims, including future defense costs, could have a material impact on the Corporation's results of operations and cash flows for a particular period and on the consolidated financial position of the Corporation.

While it is not possible at this time to determine with certainty the ultimate outcome of any of the legal proceedings and claims referred to in this filing, management believes that adequate provisions have been made for probable losses with respect to pending claims and proceedings, and that, except for the asbestos-related matters described above, the ultimate outcome of all known and future claims, after provisions for insurance, will not have a material adverse impact on the results of operations, cash flows and financial position of the Corporation. Should any losses be sustained in connection with any of such legal proceedings and claims in excess of provisions provided and available insurance, they will be charged to income when determinable.

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Union Carbide Corporation and Subsidiaries

Notes to the Consolidated Financial Statements



(Unaudited)

Purchase Commitments

At December 31, 2011, the Corporation had various outstanding commitments for take-or-pay agreements, with terms extending from one to fifteen years. Such commitments were not in excess of current market prices. The fixed and determinable portion of obligations under purchase commitments at December 31, 2011 is presented in the table below. There have been no material changes to purchase commitments since December 31, 2011.



Fixed and Determinable Portion of Take-or-Pay Obligations at December 31, 2011 In millions
2012	$	11
2013	11
2014	11
2015	8
2016	6
2017 and beyond	16
Total	$	63

Asset Retirement Obligations

The Corporation has recognized asset retirement obligations related to capping activities at landfill sites in the United States. The aggregate carrying amount of these asset retirement obligations was $4 million at September 30, 2012 and $4 million at December 31, 2011. The Corporation also has recognized conditional asset retirement obligations related to asbestos encapsulation as a result of planned demolition and remediation activities at manufacturing and administrative sites in the United States. The aggregate carrying amount of conditional asset retirement obligations was $9 million at September 30, 2012 and $10 million at December 31, 2011. The discount rate used to calculate the Corporation’s asset retirement obligations and conditional asset retirement obligations was 1.96 percent at September 30, 2012 and 1.96 percent at December 31, 2011. These obligations are included in the consolidated balance sheets as "Accrued and other current liabilities" and "Other noncurrent obligations."

The Corporation has not recognized conditional asset retirement obligations for which a fair value cannot be reasonably estimated in its consolidated financial statements. It is the opinion of management that the possibility is remote that such conditional asset retirement obligations, when estimable, will have a material impact on the Corporation’s consolidated financial statements based on current costs.

Gain Contingency

Matters Involving the Formation of K-Dow Petrochemicals

Introduction

On December 13, 2007, Dow and Petrochemical Industries Company (K.S.C.) (“PIC”) of Kuwait, a wholly owned subsidiary of Kuwait Petroleum Corporation, announced plans to form a 50:50 global petrochemicals joint venture. The proposed joint venture, K-Dow Petrochemicals (“K-Dow”), was expected to have revenues of more than $11 billion and employ more than 5,000 people worldwide.

On November 28, 2008, Dow entered into a Joint Venture Formation Agreement (“JVFA”) with PIC that provided for the establishment of K-Dow. To form the joint venture, Dow would transfer, by way of contribution and sale to K-Dow, assets used in the research, development, manufacture, distribution, marketing and sale of polyethylene, polypropylene, polycarbonate, polycarbonate compounds and blends, ethyleneamines, ethanolamines, and related licensing and catalyst technologies; and K-Dow would assume certain related liabilities. It was anticipated that a significant part (but not substantially all) of UCC's U.S.-based manufacturing assets would be included in the new joint venture.

Failure to Close

On December 31, 2008, Dow received a written notice from PIC with respect to the JVFA advising Dow of PIC's position that certain conditions to closing were not satisfied and, therefore, PIC was not obligated to close the transaction. On January 2, 2009, PIC refused to close the K-Dow transaction in accordance with the JVFA. Dow disagreed with the characterizations and conclusions expressed by PIC in the written notice and Dow informed PIC that it breached the JVFA. On January 6, 2009, Dow announced that it would seek to fully enforce its rights under the terms of the JVFA and various related agreements.

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Notes to the Consolidated Financial Statements



(Unaudited)

Arbitration

Dow's claims against PIC were subject to an agreement between the parties to arbitrate under the Rules of Arbitration of the International Court of Arbitration of the International Chamber of Commerce (“ICC”). On February 18, 2009, Dow initiated arbitration proceedings against PIC alleging that PIC breached the JVFA by failing to close the transaction on January 2, 2009, and as a result, Dow suffered substantial damages.

On May 24, 2012, the ICC released to the parties a unanimous Partial Award in favor of Dow on both liability and damages. A three-member arbitration Tribunal found that PIC breached the JVFA by not closing K-Dow on January 2, 2009, and awarded Dow $2.16 billion in damages, not including interest and arbitration costs.

On June 15, 2012, PIC filed an application for remand under the English Arbitration Act of 1996 (“Remand Application”) in the High Court of Justice in London (“High Court”). In its Remand Application, PIC does not challenge the Tribunal's finding of liability but it requested that the High Court to remand the case back to the Tribunal for further consideration of Dow's claim for consequential damages. On October 11, 2012, the High Court ruled in favor of Dow and dismissed PIC's Remand Application; and on October 19, 2012, the High Court denied PIC's request for leave to appeal its ruling, bringing an end to PIC's Remand Application.

The ICC is expected to issue a Final Award covering Dow's substantial claim for pre- and post-award interest and arbitration costs in the fourth quarter of 2012.

To the extent - if any - the Partial Award or Final Award allocate damages to the Corporation, the Corporation may record a gain when the uncertainty regarding the timing of collection and the amount to be realized has been resolved.

NOTE J - NOTES PAYABLE AND LONG-TERM DEBT



Notes Payable In millions	Sep 30, 2012			Dec 31, 2011
Notes payable – related companies	$	33		$	15
Period-end average interest rates	0.88		%	0.95		%



Long-Term Debt
In millions	2012 Average Rate		Sep 30, 2012			2011 Average Rate		Dec 31, 2011
Promissory notes and debentures:
Debentures due 2023	7.875	%	$	175		7.875	%	$	175
Debentures due 2025	6.79	%	12			6.79	%	12
Debentures due 2025	7.50	%	150			7.50	%	150
Debentures due 2096	7.75	%	135			7.75	%	135
Other facilities:
Pollution control/industrial revenue bonds, maturity 2012	—	%	—			5.09	%	37
Unamortized debt discount			(1		)			(2		)
Long term debt due within one year			—					(37		)
Long-term debt			$	471				$	470

The Corporation does not have any maturities related to long-term debt during the next five years.

In the first quarter of 2012, the Corporation redeemed $37 million aggregate principal amount of pollution control/industrial revenue bonds that matured on January 1, 2012.

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Union Carbide Corporation and Subsidiaries

Notes to the Consolidated Financial Statements



(Unaudited)

On March 22, 2011, the Corporation concluded a cash tender offer for $65 million aggregate principal amount of certain notes issued by the Corporation. As a result of the tender offer, the Corporation redeemed $65 million of the notes and recognized a $6 million pretax loss on early extinguishment of debt, included in “Sundry income (expense) – net” in the consolidated statements of income.

The Corporation’s outstanding public debt has been issued under indentures which contain, among other provisions, covenants that the Corporation must comply with while the underlying notes are outstanding. Such covenants are typically based on the Corporation’s size and financial position and include, subject to the exceptions and qualifications contained in the indentures, obligations not to (i) allow liens on principal U.S. manufacturing facilities, (ii) enter into sale and lease-back transactions with respect to principal U.S. manufacturing facilities, or (iii) merge into or consolidate with any other entity or sell or convey all or substantially all of its assets. Failure of the Corporation to comply with any of these covenants could, after the passage of any applicable grace period, result in a default under the applicable indenture which would allow the note holders to accelerate the due date of the outstanding principal and accrued interest on the subject notes. Management believes the Corporation was in compliance with the covenants referred to above at September 30, 2012.

NOTE K - PENSION AND OTHER POSTRETIREMENT BENEFITS



Net Periodic Benefit Cost for All Significant Plans	Three Months Ended						Nine Months Ended
In millions	Sep 30, 2012			Sep 30, 2011			Sep 30, 2012			Sep 30, 2011
Defined Benefit Pension Plans:
Service cost	$	7		$	6		$	21		$	18
Interest cost	47			50			141			150
Expected return on plan assets	(59		)	(64		)	(177		)	(190		)
Amortization of prior service cost	2			2			6			6
Amortization of net loss	15			21			45			63
Net periodic benefit cost	$	12		$	15		$	36		$	47
Other Postretirement Benefits:
Interest cost	$	4		$	5		$	12		$	15
Net periodic benefit cost	$	4		$	5		$	12		$	15

NOTE L - RELATED PARTY TRANSACTIONS

The Corporation sells its products to Dow to simplify the customer interface process. Products are sold to and purchased from Dow at market-based prices in accordance with the terms of Dow’s long-standing intercompany pricing policies. The Corporation also procures certain commodities and raw materials through a Dow subsidiary and pays a commission to that Dow subsidiary based on the volume and type of commodities and raw materials purchased. The commission expense is included in “Sundry income (expense) - net” in the consolidated statements of income. Purchases from that Dow subsidiary were $685 million in the third quarter of 2012 ($963 million in the third quarter of 2011) and $2,375 million during the nine-month period ended September 30, 2012 ($2,777 million during the nine-month period ended September 30, 2011).

The Corporation has a master services agreement with Dow whereby Dow provides services including, but not limited to, accounting, legal, treasury (investments, cash management, risk management, insurance), procurement, human resources, environmental, health and safety, and business management for UCC. Under the master services agreement with Dow, general administrative and overhead type services that Dow routinely allocates to various businesses are charged to UCC. The master services agreement cost allocation basis is headcount and includes a 10 percent service fee.

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Union Carbide Corporation and Subsidiaries

Notes to the Consolidated Financial Statements



(Unaudited)

This agreement resulted in expense of approximately $8 million in the third quarter of 2012 ($12 million in the third quarter of 2011) and $24 million in the first nine months of 2012 ($37 million in the first nine months of 2011), for general administrative and overhead type services and the 10 percent service fee, included in “Sundry income (expense) - net” in the consolidated statements of income. The remaining activity-based costs were approximately $11 million in the third quarter of 2012 ($9 million in the third quarter of 2011) and $34 million in the first nine months of 2012 ($26 million in the first nine months of 2011) and were included in “Cost of sales” in the consolidated statements of income.

Management believes the method used for determining expenses charged by Dow is reasonable. Dow provides these services by leveraging its centralized functional service centers to provide services at a cost that management believes provides an advantage to the Corporation.

The monitoring and execution of risk management policies related to interest rate and foreign currency risks, which are based on Dow’s risk management philosophy, are provided as a service to UCC.

As part of Dow’s cash management process, UCC is a party to revolving loans with Dow that have interest rates based on LIBOR (London Interbank Offered Rate) with varying maturities. At September 30, 2012, the Corporation had a note receivable of $2.1 billion ($3.2 billion at December 31, 2011) from Dow under a revolving loan agreement. The Corporation may draw from this note receivable in support of its daily working capital requirements and, as such, the net effect of cash inflows and outflows under this revolving loan agreement is presented in the consolidated statements of cash flows as an operating activity.

The Corporation also has a separate revolving credit agreement with Dow that allows the Corporation to borrow or obtain credit enhancements up to an aggregate of $1 billion that matures December 31, 2012. Dow may demand repayment with a 30-day written notice to the Corporation, subject to certain restrictions. A related collateral agreement provides for the replacement of certain existing pledged assets, primarily equity interests in various subsidiaries and joint ventures, with cash collateral. At September 30, 2012, $856 million ($870 million at December 31, 2011) was available under the revolving credit agreement. The cash collateral is reported as “Noncurrent receivables from related companies” in the consolidated balance sheets.

In the third quarter of 2012, the Corporation declared and paid a dividend of $225 million to Dow; dividends to Dow totaled $775 million for the nine months ended September 30, 2012. In the third quarter of 2011, the Corporation declared and paid a dividend of $275 million to Dow; dividends to Dow totaled $675 million for the nine months ended September 30, 2011.

The Corporation received cash dividends from its related company investments of $2 million in the third quarter of 2012 and $19 million during the nine-month period ended September 30, 2012. The Corporation received cash dividends from its related company investments of $2 million in the third quarter of 2011 and $3 million during the nine-month period ended September 30, 2011. These dividends are included in “Sundry income (expense) – net” in the consolidated statements of income.

NOTE M - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table provides an analysis of the changes in accumulated other comprehensive income (loss) for the nine-month periods ended September 30, 2012 and 2011:



Accumulated Other Comprehensive Income (Loss)	Nine Months Ended
In millions	Sep 30, 2012			Sep 30, 2011
Cumulative Translation Adjustments at beginning of year	$	(52	)	$	(55	)
Translation adjustments	1			3
Cumulative Translation Adjustments at end of period	$	(51	)	$	(52	)
Pension and Other Postretirement Benefit Plans at beginning of year	$	(1,080	)	$	(971	)
Adjustments to pension and other postretirement benefit plans	30			44
Pension and Other Postretirement Benefit Plans at end of period	$	(1,050	)	$	(927	)
Total accumulated other comprehensive loss	$	(1,101	)	$	(979	)

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Union Carbide Corporation and Subsidiaries

Notes to the Consolidated Financial Statements



(Unaudited)

NOTE N - SUBSEQUENT EVENT

On October 22, 2012, the Board of Directors of the Corporation approved a restructuring plan to improve the effectiveness of the Corporation's global operations. The restructuring plan will affect approximately 100 positions. The restructuring plan also includes asset impairments related to the shutdown of 3 manufacturing facilities, contract cancellation fees and other associated costs. As a result of these activities, the Corporation will record a pre-tax charge in the fourth quarter of 2012 ranging from approximately $50 million to $90 million. These actions are expected to be completed primarily over the next two years.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Pursuant to General Instruction H of Form 10-Q “Omission of Information by Certain Wholly-Owned Subsidiaries,” this section includes only management's narrative analysis of the results of operations for the three-month and nine-month periods ended September 30, 2012, the most recent periods, compared with the three-month and nine-month periods ended September 30, 2011, the corresponding periods in the preceding fiscal year.

References below to “Dow” refer to The Dow Chemical Company and its consolidated subsidiaries, except as otherwise indicated by the context.

Dow conducts its worldwide operations through global businesses. Union Carbide Corporation’s (the “Corporation” or “UCC”) business activities comprise components of Dow’s global operations rather than stand-alone operations. Because there are no separable reportable business segments for UCC and no detailed business information is provided to a chief operating decision maker regarding the Corporation’s stand-alone operations, the Corporation’s results are reported as a single operating segment.

DISCLOSURE REGARDING FORWARD-LOOKING INFORMATION

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements made by or on behalf of the Corporation. This section covers the current performance and outlook of the Corporation. The forward-looking statements contained in this section and in other parts of this document involve risks and uncertainties that may affect the Corporation's operations, markets, products, services, prices and other factors as more fully discussed elsewhere and in filings with the U.S. Securities and Exchange Commission. These risks and uncertainties include, but are not limited to, economic, competitive, legal, governmental and technological factors. Accordingly, there is no assurance that the Corporation's expectations will be realized. The Corporation assumes no obligation to provide revisions to any forward-looking statements should circumstances change, except as otherwise required by securities and other applicable laws.

RESULTS OF OPERATIONS

Total net sales for the third quarter of 2012 were $1,500 million compared with $1,837 million for the third quarter of 2011, a decrease of 18 percent. Total net sales were $4,649 million for the first nine months of 2012 compared with

$5,480 million for the first nine months 2011, a decrease of 15 percent.

Net sales to related companies, principally to Dow based on market prices for the related products, for the third quarter of 2012 were $1,465 million compared with $1,794 million for the third quarter of 2011, a decrease of 18 percent. Net sales to related companies were $4,514 million for the first nine months of 2012 compared with $5,340 million for the first nine months of 2011, a decrease of 15 percent.

Average selling prices for most products decreased in the third quarter of 2012 compared with the third quarter of 2011. This decrease was driven by competitive pricing pressure and in response to lower feedstock and energy and raw material costs. In the United States, several U.S. Gulf Coast industry cracker turnarounds were completed in the first half of 2012 and ethylene supplies returned to normal levels which contributed to the decline in selling prices in the third quarter of 2012. Price increases in polyglycols and surfactants were more than offset by price declines in all other products. Volume declined due to the September 30, 2011 divestiture of the Polypropylene business and weak demand.

For the first nine months of 2012, average selling prices for most products were lower compared with the first nine months of 2011 in response to decreasing feedstock and energy and raw material costs. Sales volume decreased due to turnarounds, including a planned maintenance turnaround at the St. Charles, Louisiana manufacturing facility, and the divestiture of the Polypropylene business.

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Union Carbide Corporation and Subsidiaries

Cost of sales decreased 20 percent from $1,807 million in the third quarter of 2011 to $1,448 million in the third quarter of 2012. On a year-to-date basis, cost of sales decreased 10 percent from $5,052 million in the first nine months of 2011 to $4,562 million in the first nine months of 2012. These decreases were principally due to the absence of costs related to the divested Polypropylene business, lower feedstock and energy and other raw material costs which were partially offset by increased turnaround costs and start-up costs related to the restart of an ethylene cracker in St. Charles, Louisiana, which is currently scheduled for the fourth quarter of 2012.

Research and development expenses were $8 million in the third quarter of 2012 compared with $12 million in the third quarter of 2011, a decrease of 33 percent. Research and development expenses were $27 million in the first nine months of 2012 compared with $38 million in the first nine months of 2011, a decrease of 29 percent. These decreases were due to a strategic realignment of research and development resources in 2011 combined with cost reduction initiatives.

In the first quarter of 2012, the Corporation recorded restructuring charges totaling $3 million related to a workforce reduction of approximately 20 employees.

Equity in earnings of nonconsolidated affiliates was $16 million in the third quarter of 2012 compared with $15 million in the third quarter of 2011, an increase of 7 percent due to increased earnings at Univation Technologies, LLC. In the first nine months of 2012, equity in earnings of nonconsolidated affiliates was $48 million compared with $50 million for the first nine months of 2011, a decrease of 4 percent driven by reduced earnings at two nonconsolidated affiliates partially offset by increased earnings at Univation Technologies, LLC.

Sundry income (expense) – net includes a variety of income and expense items such as the gain or loss on foreign currency exchange, dividends from investments, commissions, charges for management services provided by Dow and gains and losses on sales of investments and assets. Sundry income (expense) – net for the third quarter of 2012 was net expense of $20 million compared with net expense of $19 million for the third quarter of 2011. For the first nine months of 2012, sundry income (expense) - net was net expense of $42 million compared with net expense of $73 million in the first nine months of 2011. The decrease in net expense was primarily due to increased dividends from related company investments in the first nine months of 2012 and a loss of $6 million related to the early extinguishment of debt in the first quarter of 2011. See Notes C, J and L to the Consolidated Financial Statements for additional information.

Interest income was $3 million in the third quarter of 2012 compared with $7 million in the third quarter of 2011 and $11 million for the first nine months of 2012 compared with $28 million for the first nine months of 2011. These decreases were primarily due to a reduction in notes receivable from related companies and lower interest rates in the current quarter and the first nine months of 2012.

Interest expense and amortization of debt discount was $7 million in the third quarter of 2012 compared with $9 million in the third quarter of 2011. For the first nine months of 2012, interest expense and amortization of debt discount was

$22 million compared with $27 million in the first nine months of 2011. This decrease was primarily due to a reduction in long-term debt, which resulted from the early extinguishment of debt in the first quarter of 2011, and the redemption of debt in the first quarter of 2012. See Note J to the Consolidated Financial Statements for additional information.

The Corporation reported a tax provision of $9 million in the third quarter of 2012, which resulted in an effective tax rate of 26.5 percent compared to a tax benefit of $12 million in the third quarter of 2011. For the first nine months of 2012, the Corporation reported a tax provision of $12 million, which resulted in an effective tax rate of 26.7 percent compared with a tax provision of $104 million in the first nine months of 2011, which resulted in an effective tax rate of 29.0 percent. The effective tax rate fluctuates based on, among other factors, where income is earned, the level of after-tax income from joint ventures, dividends received from investments in related companies and the level of income relative to tax credits available.

The Corporation reported net income of $25 million for the third quarter of 2012 compared with $22 million for the third quarter of 2011. The Corporation reported net income of $33 million for the first nine months of 2012 compared with net income of $255 million for the first nine months of 2011. The reduced net income for 2012 reflected the impact of the divestiture of the Polypropylene business, as well as increased turnaround and start-up costs related to the restart of an ethylene cracker.

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Union Carbide Corporation and Subsidiaries

Subsequent Event

OTHER MATTERS

Recent Accounting Guidance

See Note B to the Consolidated Financial Statements for a summary of recent accounting guidance.

Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Note A to the Consolidated Financial Statements in the Corporation’s Annual Report on Form 10-K/A for the year ended December 31, 2011 (“2011 10-K/A”) describes the significant accounting policies and methods used in the preparation of the Consolidated Financial Statements. The Corporation’s critical accounting policies that are impacted by judgments, assumptions and estimates are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Corporation’s 2011 10-K/A. Since December 31, 2011, there have been no material changes in the Corporation’s critical accounting policies.

Asbestos-Related Matters

Introduction

The Corporation is and has been involved in a large number of asbestos-related suits filed primarily in state courts during the past three decades. These suits principally allege personal injury resulting from exposure to asbestos-containing products and frequently seek both actual and punitive damages. The alleged claims primarily relate to products that UCC sold in the past, alleged exposure to asbestos-containing products located on UCC’s premises, and UCC’s responsibility for asbestos suits filed against a former UCC subsidiary, Amchem Products, Inc. (“Amchem”). In many cases, plaintiffs are unable to demonstrate that they have suffered any compensable loss as a result of such exposure, or that injuries incurred in fact resulted from exposure to the Corporation’s products.

Influenced by the bankruptcy filings of numerous defendants in asbestos-related litigation and the prospects of various forms of state and national legislative reform, the rate at which plaintiffs filed asbestos-related suits against various companies, including the Corporation and Amchem, increased in 2001, 2002 and the first half of 2003. Since then, the rate of filing has significantly abated. The Corporation expects more asbestos-related suits to be filed against it and Amchem in the future, and will aggressively defend or reasonably resolve, as appropriate, both pending and future claims.

The table below provides information regarding asbestos-related claims pending against the Corporation and Amchem, based on criteria developed by Union Carbide and its external consultants:



	2012		2011
Claims unresolved at January 1	53,225		62,582
Claims filed	6,932		6,050
Claims settled, dismissed or otherwise resolved	(25,734	)	(14,321	)
Claims unresolved at September 30	34,423		54,311
Claimants with claims against both UCC and Amchem	(9,838	)	(16,761	)
Individual claimants at September 30	24,585		37,550

Plaintiffs’ lawyers often sue numerous defendants in individual lawsuits or on behalf of numerous claimants. As a result, the damages alleged are not expressly identified as to UCC, Amchem or any other particular defendant, even when specific damages are alleged with respect to a specific disease or injury. In fact, there are no personal injury cases in which only the Corporation and/or Amchem are the sole named defendants. For these reasons and based upon the Corporation’s litigation and settlement experience, the Corporation does not consider the damages alleged against it and Amchem to be a meaningful factor in its determination of any potential asbestos-related liability.

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Estimating the Liability

Based on a study completed by Analysis, Research & Planning Corporation (“ARPC”) in January 2003, the Corporation increased its December 31, 2002 asbestos-related liability for pending and future claims for the 15-year period ending in 2017 to $2.2 billion, excluding future defense and processing costs. Since then, the Corporation has compared current asbestos claim and resolution activity to the results of the most recent ARPC study at each balance sheet date to determine whether the accrual continues to be appropriate. In addition, the Corporation has requested ARPC to review Union Carbide’s historical asbestos claim and resolution activity each November since 2004 to determine the appropriateness of updating the most recent ARPC study.

In November 2010, the Corporation requested ARPC to review the Corporation’s historical asbestos claim and resolution activity and determine the appropriateness of updating its then most recent study completed in December 2008. In response to that request, ARPC reviewed and analyzed data through October 31, 2010. The resulting study, completed by ARPC in December 2010, stated that the undiscounted cost of resolving pending and future asbestos related claims against UCC and Amchem, excluding future defense and processing costs, through 2025 was estimated to be between $744 million and $835 million. As in its earlier studies, ARPC provided estimates for a longer period of time in its December 2010 study, but also reaffirmed its prior advice that forecasts for shorter periods of time are more accurate than those for longer periods of time.

Defense and Resolution Costs

The following table provides information regarding defense and resolution costs related to asbestos-related claims filed against the Corporation and Amchem:



Defense and Resolution Costs	Nine Months Ended				Aggregate Costs to
In millions	Sep 30, 2012		Sep 30, 2011		Date as of Sep 30, 2012
Defense costs	$	73	$	58	$	935
Resolution costs	$	51	$	38	$	1,634

The average resolution payment per asbestos claimant and the rate of new claim filings has fluctuated both up and down since the beginning of 2001. The Corporation’s management expects such fluctuations to continue in the future based upon a number of factors, including the number and type of claims settled in a particular period, the jurisdictions in which such claims arose, and the extent to which any proposed legislative reform related to asbestos litigation is being considered.

The Corporation expenses defense costs as incurred. The pretax impact for defense and resolution costs, net of insurance, was $25 million in the third quarter of 2012 ($30 million in the third quarter of 2011), and $73 million in the first nine months of 2012 ($58 million in the first nine months of 2011) and was reflected in “Cost of sales” in the consolidated statements of income.

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Insurance Receivables

In September 2003, the Corporation filed a comprehensive insurance coverage case, now proceeding in the Supreme Court of the State of New York, County of New York, seeking to confirm its rights to insurance for various asbestos claims and to facilitate an orderly and timely collection of insurance proceeds (the “Insurance Litigation”). The Insurance Litigation was filed against insurers that are not signatories to the Wellington Agreement and/or do not otherwise have agreements in place with the Corporation regarding their asbestos-related insurance coverage, in order to facilitate an orderly resolution and collection of such insurance policies and to resolve issues that the insurance carriers may raise. Since the filing of the case, UCC has reached settlements with most of the carriers involved in the Insurance Litigation, including settlements reached with two significant carriers in the fourth quarter of 2009. The Insurance Litigation is ongoing.

In addition to the receivable for insurance recoveries related to the asbestos-related liability, the Corporation had receivables for defense and resolution costs submitted to insurance carriers that have settlement agreements in place regarding their asbestos-related insurance coverage.

The following table summarizes the Corporation’s receivables related to its asbestos-related liability:



Receivables for Asbestos-Related Costs In millions	Sep 30, 2012		Dec 31, 2011
Receivables for defense costs - carriers with settlement agreements	$	19	$	20
Receivables for resolution costs - carriers with settlement agreements	158		158
Receivable for insurance recoveries - carriers without settlement agreements	25		40
Total	$	202	$	218

After a review of its insurance policies, with due consideration given to applicable deductibles, retentions and policy limits, after taking into account the solvency and historical payment experience of various insurance carriers; existing insurance settlements; and the advice of outside counsel with respect to the applicable insurance coverage law relating to the terms and conditions of its insurance policies, the Corporation continues to believe that its recorded receivable for insurance recoveries from all insurance carriers is probable of collection.

Summary

The amounts recorded for the asbestos-related liability and related insurance receivable described above were based upon current, known facts. However, future events, such as the number of new claims to be filed and/or received each year, the average cost of disposing of each such claim, coverage issues among insurers, and the continuing solvency of various insurance companies, as well as the numerous uncertainties surrounding asbestos litigation in the United States, could cause the actual costs and insurance recoveries to be higher or lower than those projected or those recorded.

Because of the uncertainties described above, management cannot estimate the full range of the cost of resolving pending and future asbestos-related claims facing the Corporation and Amchem. Management believes that it is reasonably possible that the cost of disposing of the Corporation’s asbestos-related claims, including future defense costs, could have a material impact on the Corporation’s results of operations and cash flows for a particular period and on the consolidated financial position of the Corporation.

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Union Carbide Corporation and Subsidiaries

Matters Involving the Formation of K-Dow Petrochemicals

Introduction

Failure to Close

Arbitration

The ICC is expected to issue a Final Award covering Dow's substantial claim for pre- and post-award interest and arbitration costs in the fourth quarter of 2012.

To the extent - if any - the Partial Award or Final Award allocate damages to the Corporation, the Corporation may record a going when the uncertainty regarding the timing of collection and the amount to be realized has been resolved.

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Union Carbide Corporation and Subsidiaries

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Omitted pursuant to General Instruction H of Form 10-Q.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, the Corporation carried out an evaluation, under the supervision and with the participation of the Corporation's Disclosure Committee and the Corporation's management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Corporation's disclosure controls and procedures pursuant to paragraph (b) of Exchange Act Rules 13a-15 or 15d-15. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Corporation's disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

There were no changes in the Corporation's internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that was conducted during the fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Corporation's internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

No material developments in asbestos-related matters occurred during the third quarter of 2012. For a summary of the history and current status of asbestos-related matters, see Management’s Discussion and Analysis of Financial Condition and Results of Operations, Asbestos-Related Matters; and Note I to the Consolidated Financial Statements.

ITEM 1A. RISK FACTORS.

There were no material changes in the Corporation's risk factors in the third quarter of 2012.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 6. EXHIBITS.

See the Exhibit Index of this Quarterly Report on Form 10-Q for exhibits filed with this report.

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		UNION CARBIDE CORPORATION
		Registrant

Date: October 30, 2012
	By:	/s/ RONALD C. EDMONDS
		Ronald C. Edmonds
		Vice President and Controller
		The Dow Chemical Company
		Authorized Representative of
		Union Carbide Corporation


	By:	/s/ IGNACIO MOLINA
		Ignacio Molina
		Vice President, Treasurer and
		Chief Financial Officer

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Union Carbide Corporation and Subsidiaries

Exhibit Index



EXHIBIT NO.		DESCRIPTION

10.7.6		Sixth Amendment to Second Amended and Restated Revolving Loan Agreement, effective as of April 1, 2012, between the Corporation and The Dow Chemical Company.

23		Analysis, Research & Planning Corporation’s Consent.

31.1		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document (1)

101.SCH		XBRL Taxonomy Extension Schema Document (1)

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document (1)

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document (1)

101.LAB		XBRL Taxonomy Extension Label Linkbase Document (1)

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document (1)

(1) Pursuant to Rule 406T of Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.