-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Oz2mOhApz8XI2RL10/CJadV70YS92zQNDjci15OUZRuaqYUKA01BWllRKYvpOcOT LdJw6cEWdXY38anhE8Frfw== 0001047469-03-034827.txt : 20031030 0001047469-03-034827.hdr.sgml : 20031030 20031030100850 ACCESSION NUMBER: 0001047469-03-034827 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031030 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNION CARBIDE CORP /NEW/ CENTRAL INDEX KEY: 0000100790 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL ORGANIC CHEMICALS [2860] IRS NUMBER: 131421730 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-01463 FILM NUMBER: 03965373 BUSINESS ADDRESS: STREET 1: 39 OLD RIDGEBURY RD CITY: DANBURY STATE: CT ZIP: 06817-0001 BUSINESS PHONE: 2037942000 MAIL ADDRESS: STREET 1: 39 OLD RIDGEBURY RD CITY: DANBURY STATE: CT ZIP: 06817-0001 FORMER COMPANY: FORMER CONFORMED NAME: UNION CARBIDE CHEMICALS & PLASTICS CO INC DATE OF NAME CHANGE: 19940502 FORMER COMPANY: FORMER CONFORMED NAME: UNION CARBIDE CORP DATE OF NAME CHANGE: 19890806 FORMER COMPANY: FORMER CONFORMED NAME: UNION CARBIDE & CARBON CORP DATE OF NAME CHANGE: 19710317 10-Q 1 a2121258z10-q.htm 10-Q
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

FOR THE QUARTER ENDED September 30, 2003

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.)
39 OLD RIDGEBURY ROAD, DANBURY, CONNECTICUT 06817-0001 (Address of principal executive offices) (Zip Code)
203-794-2000 (Registrant's telephone number, including area code:)
Not applicable (Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes o No ý.

At September 30, 2003, 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.

Union Carbide Corporation
Table of Contents

			PAGE
PART I—FINANCIAL INFORMATION
	Item 1. Financial Statements		3
		Consolidated Statements of Income	3
		Consolidated Balance Sheets	4
		Consolidated Statements of Cash Flows	5
		Consolidated Statements of Comprehensive Income	5
		Notes to the Consolidated Financial Statements	6
	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		14
		Disclosure Regarding Forward-Looking Information	14
		Results of Operations	14
		Other Matters	17
	Item 3. Quantitative and Qualitative Disclosures About Market Risk		19
	Item 4. Controls and Procedures		19
PART II—OTHER INFORMATION
	Item 1. Legal Proceedings		20
	Item 6. Exhibits and Reports on Form 8-K		20
SIGNATURES			21
EXHIBIT INDEX			22

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)		Sept. 30, 2003		Sept. 30, 2002			Sept. 30, 2003		Sept. 30, 2002
	Net trade sales	$	79	$	96		$	270	$	329
	Net sales to related companies		1,185		1,083			3,556		3,116

Total Net Sales			1,264		1,179			3,826		3,445

	Cost of sales		1,147		1,036			3,636		3,060
	Research and development expenses		24		26			72		88
	Selling, general and administrative expenses		3		10			23		37
	Amortization of intangibles		1		1			3		3
	Merger-related expenses and restructuring		—		13			—		13
	Equity in earnings of nonconsolidated affiliates		61		17			132		19
	Sundry income (expense)—net		35		(16	)		11		14
	Interest income		4		4			9		31
	Interest expense and amortization of debt discount		27		33			89		99

Income before Income Taxes and Minority Interests			162		65			155		209

	Provision for income taxes		41		32			39		81
	Minority interests' share in income		—		—			—		1

Net Income Available for Common Stockholder		$	121	$	33		$	116	$	127

Depreciation		$	77	$	77		$	233	$	230

Capital Expenditures		$	32	$	27		$	76	$	56

See Notes to the Consolidated Financial Statements.

Union Carbide Corporation and Subsidiaries
Consolidated Balance Sheets

In millions (Unaudited)			Sept. 30, 2003			Dec. 31, 2002
Assets
Current Assets
	Cash and cash equivalents		$	22		$	25
	Accounts and notes receivable:
		Trade (net of allowance for doubtful receivables—2003: $4; 2002: $7)		60			72
		Related companies		318			756
		Other		135			134
	Inventories			197			219
	Deferred income tax assets—current			146			134
	Asbestos-related insurance receivables—current			125			80

	Total current assets			1,003			1,420

Investments
	Investments in related companies			461			461
	Investments in nonconsolidated affiliates			629			539
	Other investments			36			39
	Noncurrent receivables			19			28
	Noncurrent receivables from related companies			—			17

	Total investments			1,145			1,084

Property
	Property			7,388			7,567
	Less accumulated depreciation			5,083			5,022

	Net property			2,305			2,545

Other Assets
	Goodwill			26			26
	Other intangible assets (net of accumulated amortization—2003: $117; 2002: $114)			24			23
	Deferred income tax assets—noncurrent			725			756
	Asbestos-related insurance receivables—noncurrent			1,300			1,489
	Deferred charges and other assets			152			71

	Total other assets			2,227			2,365

Total Assets			$	6,680		$	7,414

Liabilities and Stockholder's Equity
Current Liabilities
	Notes payable:
		Related companies	$	113		$	310
		Other		6			6
	Long-term debt due within one year			16			380
	Accounts payable:
		Trade		243			285
		Related companies		300			297
		Other		39			33
	Income taxes payable			64			67
	Asbestos-related liabilities—current			103			124
	Accrued and other current liabilities			259			226

	Total current liabilities			1,143			1,728

Long-Term Debt				1,272			1,288

Other Noncurrent Liabilities
	Pension and other postretirement benefits—noncurrent			621			636
	Asbestos-related liabilities—noncurrent			1,923			2,072
	Other noncurrent obligations			498			597

	Total other noncurrent liabilities			3,042			3,305

Minority Interest in Subsidiaries				3			4

Stockholder's Equity
	Common stock (1,000 shares authorized and issued)			—			—
	Additional paid-in capital			—			—
	Retained earnings			1,549			1,433
	Accumulated other comprehensive loss			(329	)		(344	)

	Net stockholder's equity			1,220			1,089

Total Liabilities and Stockholder's Equity			$	6,680		$	7,414

See Notes to the Consolidated Financial Statements.

Union Carbide Corporation and Subsidiaries
Consolidated Statements of Cash Flows

		Nine Months Ended
In millions (Unaudited)		Sept. 30, 2003			Sept. 30, 2002
Operating Activities	Net Income Available for Common Stockholder	$	116		$	127
	Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization		250			246
	Provision (Credit) for deferred income tax		(2	)		91
	Earnings/losses of nonconsolidated affiliates less than (in excess of) dividends received		(69	)		35
	Minority interests' share in income		—			1
	Net loss on sales of consolidated companies		—			2
	Net gain on sales of nonconsolidated affiliates		(20	)		—
	Net gain on sales of property		(35	)		(17	)
	Other net (gain) loss		1			(30	)
	Changes in assets and liabilities that provided (used) cash:
	Accounts and notes receivable		(61	)		137
	Related company receivables		438			828
	Inventories		17			1
	Accounts payable		(35	)		(155	)
	Related company payables		3			(976	)
	Other assets and liabilities		(99	)		(218	)

	Cash provided by operating activities		504			72

Investing Activities	Capital expenditures		(76	)		(56	)
	Proceeds from sales of property		87			29
	Proceeds from sales of consolidated companies		1			20
	Investments in nonconsolidated affiliates		(13	)		(18	)
	Collection of noncurrent notes receivable from related companies		17			483
	Proceeds from sales of nonconsolidated affiliates		27			—
	Purchases of investments		(1	)		(28	)
	Proceeds from sales of investments		29			28

	Cash provided by investing activities		71			458

Financing Activities	Changes in short-term notes payable		—			(5	)
	Changes in notes payable to related companies		(197	)		(194	)
	Payments on long-term debt		(380	)		(76	)
	Distributions to minority interests		(1	)		(3	)
	Dividends paid to stockholder		—			(257	)

	Cash used in financing activities		(578	)		(535	)

Effect of Exchange Rate Changes on Cash			—			—

Summary	Decrease in cash and cash equivalents		(3	)		(5	)
	Cash and cash equivalents at beginning of year		25			35

	Cash and cash equivalents at end of period	$	22		$	30

See Notes to the Consolidated Financial Statements.

Union Carbide Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income

		Three Months Ended				Nine Months Ended
In millions (Unaudited)		Sept. 30, 2003		Sept. 30, 2002		Sept. 30, 2003		Sept. 30, 2002
Net Income Available for Common Stockholder		$	121	$	33	$	116	$	127

Other Comprehensive Income, Net of Tax
	Unrealized gains (losses) on investments		—		—		3		(5	)
	Translation adjustments		6		—		12		10

	Total other comprehensive income		6		—		15		5

Comprehensive Income		$	127	$	33	$	131	$	132

See Notes to the Consolidated Financial Statements.

Union Carbide Corporation and Subsidiaries
Notes to the Consolidated Financial Statements

(Unaudited)

NOTE A CONSOLIDATED FINANCIAL STATEMENTS

Except as otherwise indicated by the context, the terms "Corporation" and "UCC" as used herein mean Union Carbide Corporation and its consolidated subsidiaries. The unaudited interim consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) which, in the opinion of management, are considered necessary for a fair presentation of the results for the periods covered. The accompanying consolidated financial statements of the Corporation include the assets, liabilities, revenues and expenses of all majority-owned subsidiaries over which the Corporation exercises control. Intercompany transactions and balances are eliminated in consolidation. Investments in nonconsolidated affiliates (20-50 percent owned companies) are accounted for on the equity basis.

Since February 6, 2001, the Corporation has been a wholly owned subsidiary of The Dow Chemical Company ("Dow") as a consequence of the Corporation merging with a wholly owned subsidiary of Dow effective that date (the "merger" or "Dow merger"). Transactions with the Corporation's parent company, Dow, or other Dow subsidiaries have been reflected as related company transactions in the consolidated financial statements. See Note G for further discussion. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 128, "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. The Corporation sells its products to Dow at market-based prices, in accordance with Dow's long-standing intercompany pricing policy, in order to simplify the customer interface process. Dow conducts its worldwide operations through global businesses. Because there are no separable reportable business segments for UCC under SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," 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.

Certain reclassifications of prior year's amounts have been made to conform to the presentation adopted for 2003. 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 for the year ended December 31, 2002.

NOTE B ACCOUNTING CHANGES

In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 142, "Goodwill and Other Intangible Assets," which replaced Accounting Principles Board ("APB") Opinion No. 17, "Intangible Assets," and established new accounting and reporting requirements for goodwill and other intangible assets, effective for fiscal years beginning after December 15, 2001. Under this statement, goodwill and intangible assets deemed to have indefinite useful lives are not amortized, but are subject to impairment testing. Impairment testing was required at adoption and at least annually thereafter. On an ongoing basis (absent any impairment indicators), the annual impairment test is performed during the fourth quarter of each year, in conjunction with the annual budgeting process. Effective January 1, 2002 UCC ceased all amortization of goodwill, which is its only intangible asset with an indefinite useful life, and tested recorded goodwill for impairment by comparing the fair value of each reporting unit, determined using a discounted cash flow method, with its carrying value. The results of the Corporation's goodwill impairment test indicated no impairment. As required by SFAS No. 142, the Corporation also reassessed the useful lives and the classification of its identifiable intangible assets and determined them to be appropriate. See Note E for disclosures related to other intangible assets.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations," which requires an entity to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred and a corresponding increase in the related long-lived asset. The liability is adjusted to its present value each period and the asset is depreciated over its useful life. A gain or loss may be incurred upon settlement of the liability. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. The adoption of SFAS No. 143 did not have a material impact on the Corporation's consolidated financial statements.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which nullifies Emerging Issues Task Force Issue 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity." This statement, which was effective for exit or disposal activities initiated after December 31, 2002, will change the measurement and timing of costs associated with exit and disposal activities undertaken by the Corporation in the future.

In the first quarter of 2003, Dow adopted the fair value provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," for new grants of equity instruments to employees. The Corporation is allocated the portion of expense

relating to its employees who receive stock-based compensation. This allocation was not material to the consolidated financial statements for the third quarter or first nine months of 2003.

In November 2002, the FASB issued FASB Interpretation ("FIN") No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." FIN No. 45 clarifies the requirements of SFAS No. 5, "Accounting for Contingencies," relating to the guarantor's accounting for and disclosures of certain guarantees issued. The initial recognition and measurement provisions of the interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor's fiscal year-end. The disclosure requirements of the interpretation were effective for financial statements of interim or annual periods ending after December 15, 2002. The Corporation's disclosures related to guarantees can be found in Note F.

In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest Entities." FIN No. 46 clarifies the application of Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to certain entities in which equity investors do not have the characteristics of a controlling financial interest or in which equity investors do not bear the residual economic risks. The interpretation was immediately applicable to variable interest entities ("VIEs") created after January 31, 2003, and to VIEs in which an enterprise obtains an interest after that date. As originally issued, it applied in the fiscal year or interim period beginning after June 15, 2003, to VIEs in which an enterprise holds a variable interest that was acquired before February 1, 2003. In October 2003, the FASB issued FASB Staff Position No. 46-6 which defers the effective date for FIN No. 46 to the first interim or annual period ending after December 15, 2003 for VIEs created before February 1, 2003. During the second quarter of 2003, the Corporation's only VIE was eliminated when the related operating lease agreement was assigned to Dow; therefore, adoption of FIN No. 46 in the fourth quarter of 2003 will not impact the consolidated financial statements. See Note G for additional information regarding assignment of the lease agreement.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." This statement requires the classification of certain financial instruments that embody obligations for the issuer as liabilities (or assets in some circumstances). This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Corporation does not have financial instruments within the scope of SFAS No. 150; therefore, adoption of this statement on July 1, 2003 did not impact the consolidated financial statements.

NOTE C MERGER-RELATED EXPENSES AND RESTRUCTURING

Merger-related Expenses and Restructuring

Following the completion of the Dow merger in February 2001, management made certain decisions relative to employment levels, duplicate assets and facilities and excess capacity resulting from the merger. These decisions resulted in a pretax special charge in the first quarter of 2001 of $1,275 million. The planned merger-related program for workforce reductions was substantially completed in the third quarter of 2002. Complete disclosures related to the program and the activity in the merger-related special charge reserve can be found in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2002.

During the third quarter of 2002, merger-related severance of $13 million was paid to approximately 130 former employees.

During the fourth quarter of 2002, an additional charge of $34 million was recorded for merger-related severance. Under this revised severance program, $55 million was paid to 668 former employees in the first quarter of 2003.

Other Restructuring

In the first quarter of 2003, certain studies regarding non-strategic or under-performing assets (initiated following the appointment of a new CEO at Dow in late 2002) were completed and management made decisions relative to certain assets. These decisions resulted in the write-down of the net book value of three manufacturing facilities totaling $24 million (the largest of which was $16 million associated with the impairment and shut down of the ethylene production facilities in Seadrift, Texas, in the third quarter of 2003) and the impairment of a chemical transport vessel (sold in the second quarter of 2003) of $11 million.

NOTE D INVENTORIES

The following table provides a breakdown of inventories at September 30, 2003 and December 31, 2002:

Inventories (in millions)	Sept. 30, 2003		Dec. 31, 2002
Finished goods	$	58	$	96
Work in process		33		28
Raw materials		29		24
Supplies		77		71

Total inventories	$	197	$	219

The reserves reducing inventories from the first-in, first-out ("FIFO") basis to the last-in, first-out ("LIFO") basis amounted to $103 million at September 30, 2003 and $81 million at December 31, 2002.

NOTE E OTHER INTANGIBLE ASSETS

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

		At September 30, 2003							At December 31, 2002
(in millions)		Gross Carrying Amount		Accumulated Amortization			Net		Gross Carrying Amount		Accumulated Amortization			Net
Intangible assets with finite lives:
	Licenses and intellectual property	$	36	$	(31	)	$	5	$	36	$	(28	)	$	8
	Patents		5		(3	)		2		5		(3	)		2
	Software		99		(82	)		17		95		(82	)		13
	Other		1		(1	)		—		1		(1	)		—

Total		$	141	$	(117	)	$	24	$	137	$	(114	)	$	23

Amortization expense for other intangible assets (not including software) was $1 million in the third quarter of 2003, compared with $1 million for the same period last year. Year to date, amortization expense for other intangible assets (not including software) was $3 million, compared with $3 million for the nine months ended September 30, 2002. Amortization expense for software, which is included in cost of sales, totaled $0.4 million in the third quarter of 2003, compared with $1 million last year. For the first nine months of this year, amortization expense for software was $1.2 million, down from $3 million for the same period last year. Total estimated amortization expense for 2003 and the next five fiscal years is as follows:

(in millions)	Estimated Amortization Expense
2003	$	5.6
2004		5.5
2005		2.3
2006		2.0
2007		1.8
2008		1.8

NOTE F COMMITMENTS AND CONTINGENT LIABILITIES

Environmental

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. The Corporation had accrued obligations of $130 million at December 31, 2002 for environmental remediation and restoration costs, including $35 million for the remediation of Superfund sites. At September 30, 2003, the Corporation had accrued obligations of $116 million for environmental remediation and restoration costs, including $30 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 the ultimate cost with respect to these particular matters could range up to twice that amount. Inherent uncertainties exist in these estimates primarily due to unknown conditions, changing governmental regulations and legal standards regarding liability, and evolving technologies for handling site remediation and restoration. It is the opinion of the Corporation's management that the possibility is remote that costs in excess of those accrued or disclosed will have a material adverse impact on the Corporation's consolidated financial statements.

Litigation

The Corporation and its subsidiaries are 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. In some of these legal proceedings and claims, the cost of remedies that may be sought or damages claimed is substantial.

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, often in very large amounts. 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 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.

The rate at which plaintiffs filed asbestos-related suits against various companies, including the Corporation and Amchem, increased in both 2001 and 2002, influenced by the bankruptcy filings of numerous defendants in asbestos-related litigation. The Corporation expects more asbestos-related suits to be filed against it and Amchem in the future. The Corporation will aggressively defend or reasonably resolve, as appropriate, both pending and future claims.

Typically, the Corporation is only one of many named defendants, many of which, including UCC and Amchem, were members of the Center for Claims Resolution ("CCR"), an entity that defended and resolved asbestos cases on behalf of its members. As members of the CCR, the Corporation's and Amchem's strategy was to resolve the claims against them at the relatively small percentage allocated to them pursuant to the CCR's collective defense. The CCR ceased operating in February 2001, except to administer certain settlements. The Corporation then began using Peterson Asbestos Claims Enterprise, but only for claims processing and insurance invoicing.

The Corporation is a wholly owned subsidiary of Dow, and certain members of Dow's legal department and certain Dow management personnel have been retained to provide their experience in mass tort litigation to assist the Corporation in responding to asbestos-related matters. In early 2002, the Corporation hired new outside counsel to serve as national trial counsel. In connection with these actions, aggressive defense strategies were designed to reduce the cost of resolving all asbestos-related claims, including the elimination of claims that lack demonstrated illness or causality.

At the end of 2001 through the third quarter of 2002, the Corporation had concluded it was not possible to estimate its cost of disposing of asbestos-related claims that might be filed against it and Amchem in the future due to a number of reasons, including its lack of sufficient comparable loss history from which to assess either the number or value of future asbestos-related claims. During the third and fourth quarters of 2002, the Corporation worked with Analysis, Research & Planning Corporation ("ARPC"), a consulting firm with broad experience in estimating resolution costs associated with mass tort litigation, including asbestos, to explore whether it would be possible to estimate the cost of disposing of pending and future asbestos-related claims that have been, and could reasonably be expected to be, filed against the Corporation and Amchem.

litigation of those claims. These uncertainties, which hindered the Corporation's ability to project future claim volumes and resolution costs, included the following:

•: Until a series of bankruptcies led to the CCR ceasing operations in early 2001, UCC and Amchem generally settled claims filed against CCR members according to a sharing formula that would not necessarily reflect the cost of resolving those claims had they been separately litigated against UCC or Amchem.
•: The bankruptcies in the years 2000 to 2002 of other companies facing large asbestos liability were a likely contributing cause of a sharp increase in filings against many defendants, including UCC and Amchem.
•: It was not until the CCR ceased operating in early 2001 that UCC took direct responsibility for the defense of claims against itself and Amchem.
•: New defense counsel for UCC and Amchem implemented more aggressive defense strategies in mid-2002.

Despite its inability to estimate the full range of the cost of resolving future asbestos-related claims, ARPC advised the Corporation that it would be possible to determine an estimate of a reasonable forecast of the cost of resolving pending and future asbestos-related claims likely to face the Corporation and Amchem, if certain assumptions were made. Specifically, ARPC advised the Corporation that for purposes of determining an estimate it is reasonable to assume that in the near term asbestos-related claims filed against UCC and Amchem are unlikely to return to levels below those experienced prior to 2001—when the recent spike in filings commenced—and that average claim values are unlikely to return to levels below those experienced in 2001-2002, the years immediately following CCR's cessation of operations. ARPC advised the Corporation that, by assuming that future filings were unlikely to exceed the levels experienced prior to 2001 and extrapolating from 2001 and 2002 average claim values, ARPC could make a reasonable forecast of the cost of resolving asbestos-related claims facing UCC and Amchem. ARPC also advised that forecasts of resolution costs for a 10 to 15 year period from the date of the forecast are likely to be more accurate than forecasts for longer periods of time.

In projecting the resolution costs for future asbestos-related claims, ARPC applied two methodologies that have been widely used for forecasting purposes. Applying these methodologies, ARPC forecast the number and allocation by disease category of those potential future claims on a year-by-year basis through 2049. ARPC then calculated the percentage of claims in each disease category that had been closed with payments in 2001 and 2002. Using those percentages, ARPC calculated the number of future claims by disease category that would likely require payment by UCC and Amchem and multiplied the number of such claims by the mean values paid by UCC and Amchem, respectively, to dispose of such claims in 2001 and 2002. In estimating the cost of resolving pending claims, ARPC used a process similar to that used for calculating the cost of resolving future claims.

As of December 31, 2002, ARPC estimated the undiscounted cost of resolving pending and future asbestos-related claims against UCC and Amchem, excluding future defense and processing costs, for the 15-year period from the present through 2017 to be between approximately $2.2 billion and $2.4 billion, depending on which of the two accepted methodologies was used.

Although ARPC provided estimates for a longer period of time, based on ARPC's advice that forecasts for shorter periods of time are more accurate and in light of the uncertainties inherent in making long-term projections, the Corporation determined that the 15-year period through 2017 is the reasonable time period for projecting the cost of disposing of its future asbestos-related claims. The Corporation concluded that it is probable that the undiscounted cost of disposing of its asbestos-related pending and future claims ranges from $2.2 billion to $2.4 billion, which is the range for the 15-year period ending in 2017 as estimated by ARPC using both methodologies. Accordingly, the Corporation increased its asbestos-related liability for pending and future claims at December 31, 2002 to $2.2 billion, excluding future defense and processing costs. At September 30, 2003, the asbestos-related liability for pending and future claims was $2.0 billion.

The Corporation also increased the receivable for insurance recoveries related to its asbestos liability to $1.35 billion at December 31, 2002, substantially exhausting its asbestos product liability coverage. This resulted in a net income statement impact of $828 million, $522 million on an after-tax basis, in the fourth quarter of 2002. At September 30, 2003, the receivable for insurance recoveries related to the Corporation's asbestos liability was $1.2 billion. The insurance receivable related to the asbestos liability was determined 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. In addition, the Corporation had receivables for defense and resolution costs submitted to insurance carriers for reimbursement of $219 million at December 31, 2002 and $267 million at September 30, 2003.

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.

In September 2003, the Corporation filed a comprehensive insurance coverage case in the Circuit Court for Kanawha County in Charleston, West Virginia, seeking to confirm its rights to insurance for various asbestos claims. Although the Corporation already has settlements in place concerning coverage for asbestos claims with many of its insurers, including those covered by the 1985 Wellington Agreement, this lawsuit 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. The Corporation continues to believe that its recorded receivable for insurance recoveries from all insurance carriers is collectible. This conclusion was reached after a further 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 expenses defense and processing costs as incurred. Accordingly, defense and processing costs incurred in the future for asbestos-related litigation, net of insurance, will impact results of operations in future periods.

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 and processing costs, could have a material adverse impact on the 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 consolidated 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.

Purchase Commitments

The Corporation has purchase agreements, including one major agreement in 2002 and 2001 (two in 2000), for the purchase of ethylene-related products in the United States. Total purchases under these agreements were $62 million in 2002, $63 million in 2001 and $171 million in 2000. The fixed and determinable portion of obligations under these purchase commitments at December 31, 2002 are presented in the following table:

Fixed and Determinable Portion of Take or Pay and Throughput Obligations at December 31, 2002 (in millions)
2003	$	14.9
2004		5.3
2005		0.3
2006 through expiration of contracts		0.3

Total	$	20.8

Guarantees

The Corporation provides a variety of guarantees, which are described more fully below.

Guarantees

The Corporation has undertaken obligations to guarantee the performance of a nonconsolidated affiliate and a former subsidiary of the Corporation (via delivery of cash or other assets) if specified triggering events occur. Non-performance under a contract for commercial obligations by the guaranteed party triggers the obligation of the Corporation.

Residual Value Guarantee

The Corporation provided a guarantee related to leased assets specifying the residual value that will be available to the lessor at lease termination through sale of the assets to the lessee or third parties. During the second quarter of 2003, this lease agreement was assigned to Dow; therefore the Corporation no longer has a residual value guarantee to the lessor. See Note G for additional information regarding assignment of the lease agreement.

The following tables provide a summary of the aggregate terms, maximum future payments, and associated liability reflected in the consolidated balance sheet for each type of guarantee.

Guarantees at September 30, 2003 (in millions)		Final Expiration		Maximum Future Payments			Recorded Liability
Guarantees		2007		$	11		—

Guarantees at December 31, 2002 (in millions)	Final Expiration	Maximum Future Payments		Recorded Liability
Guarantees	2007	$	17	—
Residual Value Guarantee	2005		82	—

Total		$	99	—

NOTE G RELATED PARTY TRANSACTIONS

The Corporation sells products to Dow to simplify the customer interface process. Products are sold to and purchased from Dow in accordance with the terms of Dow's long-standing intercompany pricing policies. The application of these policies results in products being sold to and purchased from Dow at market-based prices. 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 approximately $414 million during the third quarter of 2003 ($289 million during the third quarter of 2002) and $1,297 million during the first nine months of 2003 ($801 million during the first nine months of 2002).

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, for general administrative and overhead type services that Dow routinely allocates to various businesses, UCC is charged the cost of those services based on the Corporation's and Dow's relative manufacturing conversion costs. This arrangement results in a quarterly charge of approximately $5 million (included in "Sundry income (expense)—net").

For services that Dow routinely charges based on effort, UCC is charged the cost of such services on a fully absorbed basis, which includes direct and indirect costs. Additionally, certain Dow employees are contracted to UCC and Dow is reimbursed for all direct employment costs of such employees. 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, foreign currency and equity price 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 LIBOR-based interest rates with varying maturities. On March 24, 2003, the revolving loan agreement with Dow that allowed the Corporation to borrow up to $1.5 billion was terminated and replaced with a new revolving loan agreement with Dow that allows the Corporation to borrow up to $1 billion. The new revolving loan agreement is secured, pursuant to a collateral agreement, by various assets, including UCC's deposit accounts, intercompany obligations, and equity interests in various subsidiaries and joint ventures. The maturity date of the new revolving loan agreement is March 25, 2004; however, Dow may demand repayment with a 30-day written notice to the Corporation. The outstanding balance of the revolving loan agreement was $87 million at September 30, 2003.

In April 2002, the Corporation sold its ownership interest in a subsidiary in China to a Dow subsidiary also located in China for approximately $20 million. Accordingly, the consolidated balance sheet at December 31, 2002 does not include the assets and liabilities of the subsidiary, and the consolidated statements of income include the subsidiary's results of operations from January 1, 2002 through March 31, 2002.

UCC entered into a lease agreement for railcars in April 2000. After the Dow merger, UCC entered into various agreements with Dow regarding the purchase of UCC products and the distribution of products manufactured by Dow resulting, in part, with UCC no longer needing the railcars subject to this lease agreement. As a result, UCC assigned all of its rights and obligations under the lease agreement to Dow, as provided for in the agreement, in June 2003.

On June 30, 2003, UCC and Dow entered into an Amended and Restated Tax Sharing Agreement effective as of February 7, 2001. This revised tax sharing agreement allows UCC and its subsidiaries to consolidate their various tax obligations rather than being required to make separate payments to Dow and requires any payments to be made to or from Dow at the time that estimated tax payments are due. Accordingly, on June 30, 2003, Dow refunded to UCC certain payments made under the original Tax Sharing Agreement.

Union Carbide Corporation and Subsidiaries

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 and nine month periods ended September 30, 2003, the most recent periods, compared with the three and nine month periods ended September 30, 2002, the corresponding periods in the preceding fiscal year.

References below to "Dow" refer to The Dow Chemical Company and its consolidated subsidiaries.

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 Union Carbide Corporation (the "Corporation" or "UCC"). 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 (SEC). 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

The Corporation reported net income of $121 million for the third quarter of 2003 compared with $33 million for the third quarter of 2002. Substantially higher earnings from the Corporation's joint ventures and income from the sale of certain non-strategic assets favorably impacted the third quarter results compared with the same period last year. Year to date, net income declined to $116 million from $127 million in 2002. The favorable impact of increased sales, lower operating expenses, and increased earnings from the Corporation's joint ventures was more than offset by an increase in feedstocks and energy costs compared with last year.

Total net sales for the third quarter of 2003 were $1,264 million compared with $1,179 million for the third quarter of 2002, an increase of 7 percent. Year to date, total net sales increased 11 percent to $3,826 million from $3,445 million for 2002. Selling prices to Dow are based on market prices for the related products. In addition to volume growth, average selling prices were higher for most products in the third quarter and first nine months of 2003 compared with the same periods last year, led by ethylene glycol and polyethylene, the Corporation's principal products.

Cost of sales increased $111 million (11 percent) in the third quarter of 2003 compared with the third quarter of 2002 and year to date, cost of sales increased $576 million (19 percent) compared with 2002. Cost of sales for the third quarter of 2003 and year to date was negatively impacted by the significant increase in overall costs for feedstocks and energy compared with the same periods last year. Gross margin declined in the third quarter of 2003 and on a year-to-date basis, as the increase in raw material costs more than offset the higher selling prices and volume growth.

Operating expenses (research and development, and selling, general and administrative expenses) were $27 million in the third quarter of 2003, down 25 percent, from $36 million in the third quarter of last year. Year to date, operating expenses totaled $95 million, down 24 percent from $125 million for the same period last year. These declines reflect the continued focus on cost control begun in late 2002, as well as the impact of workforce reductions.

Equity in earnings of nonconsolidated affiliates increased to $61 million in the third quarter of 2003 from $17 million in the third quarter of 2002. Year to date, equity earnings increased $113 million in 2003 compared with 2002. The increase in third quarter and year-to-date results was due primarily to strong earnings reported by EQUATE Petrochemical Company K.S.C. and the OPTIMAL Group.

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) for the third quarter of 2003 was income of $35 million, compared with expense of $16 million for the third quarter last year. Results for the third quarter of 2003 included gains associated with the sale of assets, including approximately $35 million for certain product lines of Amerchol Corporation, a wholly owned subsidiary, and approximately $33 million for sales of other non-strategic assets. Year to date,

sundry income (expense) was income of $11 million in 2003 compared with $14 million last year. Year-to-date results for 2003 also included expense associated with the impairment and subsequent sale of a chemical transport vessel.

Interest income for the third quarters of 2003 and 2002 was $4 million. Year to date, interest income decreased to $9 million from $31 million in 2002. The year-to-date results for 2002 reflected higher average interest rates earned on interest-bearing assets, and also included $18 million related to a note receivable that was repaid in the second quarter of 2002.

Interest expense and amortization of debt discount for the third quarter of 2003 was $27 million compared with $33 million in the third quarter of last year. Year to date, interest expense and amortization of debt discount decreased to $89 million from $99 million in 2002, reflecting reduced debt levels and a continuing decline in average interest rates.

The effective tax rate for the third quarter of 2003 was 25.3 percent compared with 49.2 percent for the same quarter last year. Year to date, the effective tax rate was 25.2 percent versus 38.7 percent last year. The effective tax rate fluctuates based on, among other factors, where income is earned, the level of after-tax income from joint ventures, and the level of income relative to tax credits available.

In September 2003, Moody's Investor Services lowered the Corporation's long-term debt rating from "Baa2" to "B1". The Corporation does not expect this change to affect its main borrowing facility, although the Corporation may incur higher borrowing costs.

Asbestos-Related Matters

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, often in very large amounts. 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 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.

The Corporation provided ARPC with all relevant data regarding asbestos-related claims filed against UCC and Amchem through November 6, 2002. ARPC concluded that it was not possible to estimate the full range of the cost of resolving future asbestos-related claims against UCC and Amchem, because of various uncertainties associated with the litigation of those claims. These uncertainties, which hindered the Corporation's ability to project future claim volumes and resolution costs, included the following:

•: Until a series of bankruptcies led to the CCR ceasing operations in early 2001, UCC and Amchem generally settled claims filed against CCR members according to a sharing formula that would not necessarily reflect the cost of resolving those claims had they been separately litigated against UCC or Amchem.

•: The bankruptcies in the years 2000 to 2002 of other companies facing large asbestos liability were a likely contributing cause of a sharp increase in filings against many defendants, including UCC and Amchem.
•: It was not until the CCR ceased operating in early 2001 that UCC took direct responsibility for the defense of claims against itself and Amchem.
•: New defense counsel for UCC and Amchem implemented more aggressive defense strategies in mid-2002.

Despite its inability to estimate the full range of the cost of resolving future asbestos-related claims, ARPC advised the Corporation that it would be possible to determine an estimate of a reasonable forecast of the cost of resolving pending and future asbestos-related claims likely to face the Corporation and Amchem, if certain assumptions were made. Specifically, ARPC advised the Corporation that for purposes of determining an estimate it is reasonable to assume that in the near term asbestos-related claims filed against UCC and Amchem are unlikely to return to levels below those experienced prior to 2001 - when the recent spike in filings commenced - and that average claim values are unlikely to return to levels below those experienced in 2001-2002, the years immediately following CCR's cessation of operations. ARPC advised the Corporation that, by assuming that future filings were unlikely to exceed the levels experienced prior to 2001 and extrapolating from 2001 and 2002 average claim values, ARPC could make a reasonable forecast of the cost of resolving asbestos-related claims facing UCC and Amchem. ARPC also advised that forecasts of resolution costs for a 10 to 15 year period from the date of the forecast are likely to be more accurate than forecasts for longer periods of time.

The amounts recorded for the asbestos-related liability and related insurance receivable described above were based upon currently known facts. However, projecting future events, such as the number of new claims to be filed 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.

those covered by the 1985 Wellington Agreement, this lawsuit 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. The Corporation continues to believe that its recorded receivable for insurance recoveries from all insurance carriers is collectible. This conclusion was reached after a further 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.

OTHER MATTERS

Accounting Changes

See Note B to the Consolidated Financial Statements for a discussion of accounting changes and recently issued accounting pronouncements.

Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America ("GAAP") 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 for the year ended December 31, 2002, describes the significant accounting policies and methods used in the preparation of the Consolidated Financial Statements. Following are the Corporation's critical accounting policies impacted by judgments, assumptions and estimates:

Litigation

The Corporation is subject to legal proceedings and claims arising out of the normal course of business. The Corporation routinely assesses the likelihood of any adverse judgments or outcomes to these matters, as well as ranges of probable losses. A determination of the amount of the reserves required, if any, for these contingencies is made after thoughtful analysis of each known issue and an analysis of historical claims experience for incurred but not reported matters. The Corporation has an active risk management program consisting of numerous insurance policies secured from many carriers. These policies provide coverage that is utilized to minimize the impact, if any, of the legal proceedings. The required reserves may change in the future due to new developments in each matter. For further discussion, see Note F to the Consolidated Financial Statements.

Asbestos-Related Matters

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. At the end of 2001 and through the third quarter of 2002, the Corporation had concluded it was not possible to estimate its cost of disposing of asbestos-related claims that might be filed against it and Amchem in the future due to a number of reasons, including its lack of sufficient comparable loss history from which to assess either the number or value of future asbestos-related claims. During the third and fourth quarters of 2002, the Corporation worked with Analysis, Research & Planning Corporation ("ARPC"), a consulting firm with broad experience in estimating resolution costs associated with mass tort litigation, including asbestos, to explore whether it would be possible to estimate the cost of disposing of pending and future asbestos-related claims that have been, and could reasonably be expected to be, filed against UCC and Amchem.

In projecting the Corporation's resolution costs for future asbestos-related claims, ARPC applied two methodologies that have been widely used for forecasting purposes. As of December 31, 2002, ARPC estimated the undiscounted cost of resolving pending and future asbestos-related claims against UCC and Amchem, excluding future defense and processing costs, for the 15-year period from the present through 2017 to be between approximately $2.2 billion and $2.4 billion, depending on which of the two accepted methodologies was used.

Corporation determined that the 15-year period through 2017 is the reasonable time period for projecting the cost of disposing of its future asbestos-related claims. The Corporation concluded that it is probable that the undiscounted cost of disposing of its asbestos-related pending and future claims ranges from $2.2 billion to $2.4 billion, which is the range for the 15-year period ending in 2017 as estimated by ARPC using both methodologies. Accordingly, the Corporation increased its asbestos-related liability for pending and future claims at December 31, 2002 to $2.2 billion, excluding future defense and processing costs. At September 30, 2003, the asbestos-related liability for pending and future claims was $2.0 billion.

The Corporation also increased the receivable for insurance recoveries related to its asbestos liability to $1.35 billion at December 31, 2002. At September 30, 2003, the receivable for insurance recoveries related to the Corporation's asbestos liability was $1.2 billion. In addition, the Corporation had receivables for defense and resolution costs submitted to insurance carriers for reimbursement of $219 million at December 31, 2002 and $267 million at September 30, 2003. The amounts recorded for the asbestos-related liability and related insurance receivable described above were based upon currently known facts. However, projecting future events, such as the number of new claims to be filed 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. The Corporation expenses defense and processing costs as incurred. Accordingly, defense and processing costs incurred in the future for asbestos-related litigation, net of insurance, will impact results of operations in future periods. For additional information, see Asbestos-Related Matters in Management's Discussion and Analysis of Financial Condition and Results of Operations and Note F to the Consolidated Financial Statements.

Environmental Matters

The Corporation determines the costs of environmental remediation of its facilities and formerly owned facilities based on evaluations of current law and existing technologies. Inherent uncertainties exist in such evaluations primarily due to unknown conditions, changing governmental regulations and legal standards regarding liability, and evolving technologies. The recorded liabilities are adjusted periodically as remediation efforts progress or as additional technical or legal information becomes available. The Corporation had accrued obligations of $130 million at December 31, 2002, for environmental remediation and restoration costs, including $35 million for the remediation of Superfund sites. At September 30, 2003, the Corporation had accrued obligations of $116 million for environmental remediation and restoration costs, including $30 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 the ultimate cost with respect to these particular matters could range up to twice that amount. For further discussion, see Note F to the Consolidated Financial Statements in this filing and Environmental Matters in Management's Discussion and Analysis of Financial Condition and Results of Operations in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2002.

Pension and Other Postretirement Benefits

The amounts recognized in the consolidated financial statements related to pension and other postretirement benefits are determined from actuarial valuations. Inherent in these valuations are assumptions including expected return on plan assets, discount rates at which the liabilities could be settled at December 31, 2002, rate of increase in future compensation levels, mortality rates and health care cost trend rates. These assumptions are updated annually and are disclosed in Note L to the Consolidated Financial Statements in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2002. In accordance with GAAP, actual results that differ from the assumptions are accumulated and amortized over future periods and, therefore, affect expense recognized and obligations recorded in future periods.

The expected long-term rate of return on assets is developed with input from the Corporation's actuarial firm, which includes the actuary's review of the asset class return expectations of several respected consultants and economists, based on broad equity and bond indices. The Corporation's historical experience with the pension fund asset performance and comparisons to expected returns of peer companies with similar fund assets is also considered. The long-term rate of return assumption used for determining net periodic pension expense for 2002 was 9.25 percent. This assumption was reduced to 9 percent for determining 2003 net periodic pension expense. Lowering the expected long-term rate of return of the U.S. qualified plan assets by 0.25 percent (from 9.25 percent to 9 percent) would have reduced the pension income of the U.S. qualified plans for 2002 by approximately $10 million. Future actual pension income will depend on future investment performance, changes in future discount rates and various other factors related to the population of participants in the Corporation's pension plans.

The Corporation bases the determination of pension expense or income on a market-related valuation of plan assets, which reduces year-to-year volatility. This market-related valuation recognizes investment gains or losses over a five-year period from the year in which they occur. Investment gains or losses for this purpose represent the difference between the expected return calculated using the market-related value of plan assets and the actual return based on the market value of plan assets. Since the market-related value of plan assets recognizes gains or losses over a five-year period, the future value of plan assets will be impacted when previously deferred gains or losses are recorded. Over the life of the plan, both gains and losses have been recognized and amortized. For the year ending December 31, 2002, $460 million of losses remain to be recognized in the calculation of the market-related value of plan assets. These losses will result in decreases in future pension income as they are recognized.

The discount rate utilized for determining future pension obligations is based on long-term bonds receiving an AA- or better rating by a recognized rating agency. The resulting discount rate decreased from 7 percent at December 31, 2001, to 6.75 percent at December 31, 2002.

For 2003, the Corporation left its assumption for the long-term rate of increase in compensation levels unchanged at 5 percent.

Based on the revised pension assumptions and the actual investment performance of the plan assets in 2002, the Corporation expects to record approximately $40 million less in income for pension and other postretirement benefits in 2003 than it did in 2002.

The value of the U.S. qualified plan assets decreased from $3.8 billion at December 31, 2001, to $3.4 billion at December 31, 2002. The investment performance and declining discount rates reduced the funded status of the U.S. qualified plans, net of benefit obligations, by $690 million from December 31, 2001 to December 31, 2002. The Corporation does not expect significant cash contributions to be required for the U.S. qualified plans in 2003.

Income Taxes

Deferred tax assets and liabilities are determined using enacted tax rates for the effects of net operating losses and temporary differences between the book and tax bases of assets and liabilities. The Corporation records a valuation allowance on deferred tax assets when appropriate to reflect the expected future tax benefits to be realized. In determining the appropriate valuation allowance, certain judgments are made relating to recoverability of deferred tax assets, use of tax loss carryforwards, level of expected future taxable income and available tax planning strategies. These judgments are routinely reviewed by management. At September 30, 2003, the Corporation had deferred tax assets, net of deferred tax liabilities, of $871 million, net of valuation allowances of $59 million. For further discussion, see Note R to the Consolidated Financial Statements in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2002.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4. 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 Exchange Act Rule 15d-15(e). Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Corporation's disclosure controls and procedures are effective in timely alerting them to material information relating to the Corporation (including its consolidated subsidiaries) required to be included in the Corporation's periodic SEC filings. No change in the Corporation's internal control over financial reporting occurred during the Corporation's most recent fiscal quarter that materially affected, or is 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 any legal proceedings, including asbestos-related matters, occurred during the third quarter of 2003. For a summary of the history and current status of legal proceedings, including asbestos-related matters, see Management's Discussion and Analysis of Financial Condition and Results of Operations, Asbestos-Related Matters; and Note F to the Consolidated Financial Statements.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a): Exhibits.

Exhibit No.		Exhibit Description
10.25		Amended and Restated Agreement (to Provide Materials and Services), effective as of July 1, 2003, between the Corporation and Dow Hydrocarbons and Resources Inc.
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.

(b): Reports on Form 8-K.

No Current Reports on Form 8-K were filed by the Corporation during the third quarter of 2003.

Union Carbide Corporation and Subsidiaries
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, 2003

	By:	/s/ FRANK H. BROD Frank H. Brod, Vice President and Controller The Dow Chemical Company Authorized Representative of Union Carbide Corporation

	By:	/s/ EDWARD W. RICH Edward W. Rich, Vice President, Treasurer and Chief Financial Officer

Union Carbide Corporation and Subsidiaries
Exhibit Index

EXHIBIT NO.		DESCRIPTION
10.25		Amended and Restated Agreement (to Provide Materials and Services), effective as of July 1, 2003, between the Corporation and Dow Hydrocarbons and Resources Inc.
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.

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Table of Contents
PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Union Carbide Corporation and Subsidiaries Consolidated Statements of Income
Union Carbide Corporation and Subsidiaries Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Comprehensive Income
Notes to the Consolidated Financial Statements
Union Carbide Corporation and Subsidiaries

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 4. CONTROLS AND PROCEDURES

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

Union Carbide Corporation and Subsidiaries Signatures
Union Carbide Corporation and Subsidiaries Exhibit Index
EX-10.25 3 a2121258zex-10_25.htm EX-10.25
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EXHIBIT 10.25

Agreement (to Provide Materials and Services)

This AGREEMENT, entered into as of February 6, 2001 between Union Carbide Corporation ("UCC") and Dow Hydrocarbons and Resources Inc. ("DHRI"), under which DHRI agrees to provide UCC with feedstocks, monomers, fuels, logistics and other services as follows, is amended and restated as of July 1, 2003 ("Restatement Date"):

1.: TERM

February 6, 2001, through December 31, 2001 and year to year thereafter unless terminated by either party upon 6 months notice prior to the end of the given term. Any termination notice must be in writing.

2.: PRODUCTS AND SERVICES TO BE PROVIDED BY DHRI TO UCC

The following products and services will be provided to UCC in connection with its U.S. operations unless otherwise agreed by the parties. The term "UCC" shall be deemed to include UCC direct or indirect majority owned U.S. subsidiaries. UCC shall cause such entities to accept the terms of this Agreement.

a): Supply of feedstocks, or arrange the acquisition of such on behalf of UCC.
b): Supply of fuels, primarily natural gas, or arrange the acquisition of such on behalf of UCC; provided, however, that UCC will remain responsible for pre-existing arrangements needed for pipeline transportation in connection with fuels supplied to the power plant at Seadrift, TX through the Burnel/Greenlake line, and that UCC and DHRI intend to reconsider whether UCC or DHRI will make such arrangements once the existing lease (as such may be extended or renewed) for that pipeline segment terminates.
c): Supply of monomers and aromatics, or arrange the acquisition of such (including providing or arranging to provide transportation and/or storage services) on behalf of UCC, to supplement UCC's production. Monomers and aromatics may be supplied to UCC through The Dow Chemical Company ("TDCC").
d): Sale of UCC's surplus monomers and aromatics and surplus hydrocarbons co-products and by-products, or arrange the sale of such on behalf of UCC (including providing or arranging to provide transportation and/or storage services).
e): Arrange the acquisition or sale of electricity, steam and any other utilities on behalf of UCC.
f): Management of UCC's hydrocarbon and energy asset base and of UCC's hydrocarbon and energy business matters including communications with UCC's internal derivative businesses and UCC's external customers as required, monitoring of UCC and industry supply/demand, and the recommendation of and implementation of both short and long term strategic positions.
g): Where applicable as mutually determined by the parties, provision of accounting and computer systems to manage the above services.

The parties acknowledge and agree that a reasonable amount of time will be required for a smooth transition from UCC providing the above-described products and services to DHRI providing the same. The parties agree to provide such time and to fully cooperate with each other to make this transition as smooth as possible.

3.

QUANTITIES OF PRODUCTS AND SERVICES TO BE MANAGED OR PROVIDED BY DHRI TO UCC

a): 100% of UCC's outside requirements of feedstocks.
b): 100% of UCC's outside requirements of fuels.
c): 100% of UCC's outside requirements of Monomers and Aromatics.
d): 100% of UCC's outside sales of Monomers, Aromatics, and surplus co-products and by-products.

e): Arrange 100% of UCC's outside requirements and outside sales of electricity, steam and other utilities.
f): Sales and purchases between Union Carbide Corporation and its other affiliates by mutual agreement.

Exceptions to the above may be made by agreement of the parties. The quantities listed above are subject to preexisting agreements that UCC has with third parties. Furthermore, the parties acknowledge and agree that a reasonable amount of time will be required for a smooth transition from UCC providing the above to DHRI providing the same. The parties agree to provide such time and to fully cooperate with each other to make this transition as smooth as possible.

4.

PRICING

a): Feedstocks—DHRI net supply cost plus $1.26/bbl delivered to UCC's plant systems.
b): Fuels—DHRI net supply cost plus $0.21/mm btu delivered to UCC's plant systems. However, this Paragraph is subject to Paragraph 4 e).
c): Monomers and Aromatics—DHRI service fee of purchase cost times 3.75%. Included in this service fee are charges for pipeline transportation and storage services in Texas- or Louisiana-based assets owned by DHRI or other wholly-owned direct or indirect subsidiaries of The Dow Chemical Company, subject to an annual credit of $460,000.00 from DHRI to UCC (the "Credit") for the lease, of a ten mile (approximately) pipeline segment of that certain pipeline commonly known as the Riverside six inch (6") pipeline system located in Assumption, Ascension and Iberville Parishes, Louisiana, from UCC to a third party ("Third-Party Lease"); the Credit (or a pro-rated portion thereof if the term of this Agreement or the Third-Party Lease expires on a day other than a day which is one day prior to an anniversary of the commencement of the Third-Party Lease term) will be issued in arrears on or around each July 1, with a final, potentially pro-rated, annual credit issued on or around July 1 following the earlier of the termination of this Agreement or the Third-Party Lease.
d): Marketing—DHRI service fee of 2.5% of product sales prices for which DHRI will market UCC's surplus products, co-products, and by-products. Included in this service fee are charges for pipeline transportation and storage services in Texas- or Louisiana-based assets owned by DHRI or other wholly-owned direct or indirect subsidiaries of The Dow Chemical Company. DHRI will use its best efforts to obtain the maximum value for UCC's material.
e): Energy Services—For small sites, DHRI will arrange the acquisition or sale of fuels (including natural gas), electricity, steam and any other utilities for a fee of $2,000 per site per year. For other sites, DHRI will arrange the acquisition or sale of electricity, steam and any other utilities for $.001/kwh for electricity and an annual fee of $100,000 for steam and utilities plus UCC will reimburse any acquisition costs that DHRI may incur.
f): Management Services and Accounting & Computer Systems—$1,500,000.00 per calendar year unless otherwise agreed between the parties. Partial calendar years will be prorated.
g): Adjustment of Fees—Fees in Paragraphs 4 a), b), e), and f) above will be adjusted annually with changes in the GDP deflator from a 1Q, 2000 Base with adjustments beginning January 1, 2001.
h): Renegotiation of Fees—Either UCC or DHRI may request a re-negotiation of fees upon 6 months prior written notice and the parties shall promptly negotiate in good faith to establish such new fees.

5.

PRODUCT SPECIFICATIONS

DHRI warrants that all product sold hereunder shall meet the specifications in Exhibit A. DHRI MAKES NO OTHER WARRANTY, EXPRESS OR IMPLIED WITH RESPECT TO THE PRODUCT SOLD OR SERVICES PROVIDED HEREUNDER WHETHER RELATING TO MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR OTHERWISE.

6.: TERMS OF PAYMENT

UCC shall make payments to DHRI for product purchased or services rendered hereunder net ten (10) days from date of invoice. Invoices shall be issued once monthly as soon as possible after the end of the sales month.

7.: DELIVERY POINTS

Delivery of product shall be deemed to have been made at the following points: (a) When into any truck or tank car, as the product enters the receiving equipment; (b) When into any pipeline, as the product passes the connection between DHRI's (or its designee's) pipeline to that of UCC (or its designee); (c) When into storage, as the product enters a storage tank or cavern; (d) When by "in-line" transfer or "in-storage" transfer, immediately upon such transfer; (e) When by or into any vessel, at the flange between the vessel's permanent hose connection and the shore line; or (f) For electricity as set forth in the applicable transaction documents or otherwise determined by the parties.

Title to and risk of loss for product sold hereunder shall pass at the delivery point.

8.: MEASUREMENT

The determination of quantity and quality of product delivered hereunder shall be made in accordance with the customary procedures and practices of the industry.

9.: CLAIMS

IF ANY PRODUCT DELIVERED TO UCC DOES NOT MEET SPECIFICATIONS, DHRI SHALL HAVE THE RIGHT IN ITS DISCRETION, AS UCC'S SOLE REMEDY, EITHER TO REPLACE IT OR REFUND THE APPLICABLE PORTION OF THE PURCHASE PRICE. HOWEVER, IN ANY EVENT, DHRI'S LIABILITY FOR DAMAGES IN RESPECT OF ANY CLAMS WHATSOEVER HEREUNDER ARISING WITH RESPECT TO PRODUCT DELIVERED OR SERVICES PROVIDED TO UCC UNDER THIS AGREEMENT SHALL NOT EXCEED THE PURCHASE PRICE OF THE PRODUCT OR SERVICES FOR WHICH SUCH DAMAGES ARE CLAIMED. IN NO EVENT SHALL DHRI BE LIABLE FOR PROSPECTIVE PROFITS OR SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES. NO CLAIM SHALL BE MADE BY UCC BASED ON ANY QUALITY ANALYSIS MADE AFTER THE PRODUCT PURCHASED HAS BEEN MIXED WITH ANOTHER PRODUCT OR PROCESSED IN ANY MANNER BY UCC.

10.: FORCE MAJEURE

Failure (in whole or in part) or delay on the part of either DHRI or UCC in performance of any of the obligations imposed upon the other shall be excused and such party shall not be liable for damages or otherwise when such failure or delay is beyond the control of either party hereto. Such events include, but are not limited to, the following: labor difficulties, total or partial loss or shortage of raw component material or products ordinarily required by DHRI; breakdown, either total or partial, of either party's equipment, or act of God. However, the settlement of strikes or lockouts shall be entirely within the discretion of the party having the difficulty. Each party agrees to give written notice to the other of its incurring a force majeure event as soon as practicable.

Upon cessation of the cause or causes for any such failure or delay, performance hereof shall be resumed as soon as practicable. Such failure or delay shall not operate to extend the duration of this Agreement nor obligate either party to make up deliveries or receipts of product. If, by reason of any such circumstances, DHRI's supply of product shall be insufficient to meet all of its requirements, DHRI shall apportion among any and all existing contract purchases, including its affiliated divisions and companies, in an equitable manner so that all parties share the product in proportion to their take prior to the circumstance reducing availability.

11.: PATENTS

DHRI does not assume patent responsibility for the use by UCC of product delivered hereunder. The use of product may or may not constitute an infringement of patents. The election of the use to which the product is put is solely UCC's and UCC agrees to indemnify DHRI and hold it harmless from any claims arising from such UCC use.

12.: TAXES

In addition to the purchase price of the product, UCC shall assume liability for, and pay all taxes associated with the sale, use, or delivery of product, including all new or increase in existing taxes, excise taxes (including Superfund taxes), or other charges (but excluding taxes based in whole or part upon net income, including the Michigan single business tax, and other similar taxes, excess profits, or corporate franchise taxes) imposed by any governmental authority.

13.: WAIVER

No claim or right arising out of a breach of this agreement can be discharged in whole or in part unless agreed to in writing executed by both parties. Any such waiver shall not be deemed to be a waiver of any subsequent breach.

14.: ASSIGNABILITY

No right or interest in this Agreement shall be assigned by either party without prior written consent of the other party.

15.: APPLICABLE LAW

This Agreement shall be governed by the laws of the State of Texas.

16.: ENTIRETY OF AGREEMENT

This Agreement merges all prior understandings between DHRI and UCC regarding the subject matter. No prior dealings between the parties and no usage of the trade shall be relevant to supplement or explain any term used herein. All obligations, agreements, and understanding are expressly set forth herein and are not enforceable unless embodied herein.

To the degree that either or both of the parties hereto find it convenient to employ their standard forms of purchase order or acknowledgement of order in administering their terms of this Agreement, it or they may do so but none of the terms and conditions printed or otherwise appearing on such form shall be applicable except to the extent that it specifies information required to be furnished by either party hereunder.

17.: NOTICE

All notices provided herein shall be in writing and shall be considered as properly given if sent by telecommunication or Certified or Registered U.S. Mail duly addressed to the parties shown below:

DHRI				UCC
Dow Hydrocarbons and Resources Inc. Houston Dow Center 400 Sam Houston Parkway South Houston, Texas 77253 Attn: Executive Vice President				Union Carbide Corporation 39 Old Ridgebury Rd. Danbury, CT 06817-0001 Attn: Treasurer

18.: APPOINTMENT AS AGENT

UCC hereby makes, constitutes and appoints DHRI as its true and lawful attorney-in-fact and empowers DHRI to act for UCC as UCC's Agent during the term of this Agreement in matters connected with the services and products provided under this Agreement. Specifically, DHRI has the authority to issue and execute those business documents and contracts in the name of UCC which are necessarily issued in conjunction with the services and products being provided by DHRI to UCC under this Agreement. DHRI accepts such appointment. DHRI is not liable for claims made by third parties for the acts or omissions of DHRI made when acting as agent for UCC and UCC shall indemnify, defend and hold harmless DHRI from all claims, loss, liability and expense (including, without limitation, reasonable attorney fees) arising out of the appointment of DHRI as UCC's agent, unless the claim, loss, liability and expense is caused by DHRI's sole negligence or willful misconduct.

IN WITNESS WHEREOF, the parties hereto have executed this Amended and Restated Agreement effective as of the Restatement Date.

UCC:	UNION CARBIDE CORPORATION	DHRI:	DOW HYDROCARBONS AND RESOURCES INC.
By:	/s/ E. W. Rich	By:	/s/ C. E. Gann
Title:	CFO, VP, Treasurer	Title:	Executive Vice President

EXHIBIT A

DHRI shall make the following products available to UCC:

B-P Mix		Hydrocarbon Residual
Benzene		Mixed Butanes
Butadiene		N-butane
Coal		Naphtha
Condensate		Natural Gas
Crude Butadiene		Propane
Cumene		Propylene
E-P Mix		Pyrolsis Gasoline
Ethane		Styrene
Ethylene		Toluene
Fuel Oil		Utilities
Other miscellaneous feedstocks, fuels & monomers

All feedstocks, fuels and monomers purchased will be in accordance with either the then current DHRI product specification or by mutual agreement.

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Agreement (to Provide Materials and Services)
EX-23 4 a2121258zex-23.htm EX-23
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EXHIBIT 23

Analysis, Research & Planning Corporation's Consent

Union Carbide Corporation:

Analysis, Research & Planning Corporation ("ARPC") hereby consents to the use of ARPC's name and the reference to ARPC's report dated January 9, 2003, appearing in this Quarterly Report on Form 10-Q of Union Carbide Corporation for the quarter ended September 30, 2003.

/s/ B. THOMAS FLORENCE

B. Thomas Florence
President
Analysis, Research & Planning Corporation
October 27, 2003

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Analysis, Research & Planning Corporation's Consent
EX-31.1 5 a2121258zex-31_1.htm EX-31.1
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EXHIBIT 31.1

Union Carbide Corporation and Subsidiaries

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

I, John R. Dearborn, President and Chief Executive Officer of Union Carbide Corporation, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of Union Carbide Corporation;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a): designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b): evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c): disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a): all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b): any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: October 30, 2003
		/s/ JOHN R. DEARBORN John R. Dearborn President and Chief Executive Officer

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Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
EX-31.2 6 a2121258zex-31_2.htm EX-31.2
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EXHIBIT 31.2

Union Carbide Corporation and Subsidiaries

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

I, Edward W. Rich, Vice President, Treasurer and Chief Financial Officer of Union Carbide Corporation, certify that:

1.

I have reviewed this report on Form 10-Q of Union Carbide Corporation;

2.

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

a): designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b): evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c): disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

a): all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b): any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: October 30, 2003
		/s/ EDWARD W. RICH Edward W. Rich Vice President, Treasurer and Chief Financial Officer

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Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
EX-32.1 7 a2121258zex-32_1.htm EX-32.1
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EXHIBIT 32.1

Union Carbide Corporation and Subsidiaries

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

I, John R. Dearborn, President and Chief Executive Officer of Union Carbide Corporation (the "Corporation"), certify that:

1.: the Quarterly Report on Form 10-Q of the Corporation for the quarterly period ended September 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.: the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

A signed original of this written statement required by Section 906 has been provided to Union Carbide Corporation and will be retained by Union Carbide Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

/s/ JOHN R. DEARBORN

John R. Dearborn
President and Chief Executive Officer
October 30, 2003

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Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
EX-32.2 8 a2121258zex-32_2.htm EX-32.2
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EXHIBIT 32.2

Union Carbide Corporation and Subsidiaries

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

I, Edward W. Rich, Vice President, Treasurer and Chief Financial Officer of Union Carbide Corporation (the "Corporation"), certify that:

1.: the Quarterly Report on Form 10-Q of the Corporation for the quarterly period ended September 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.: the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

/s/ EDWARD W. RICH

Edward W. Rich
Vice President, Treasurer and Chief Financial Officer
October 30, 2003

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