-----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, GP4YSMBL4rfSCdJ7jEkAcANkbFyf+0X4yVlLjyYilBVkVSzv/QVHkhkIpwB2zcSY bAavycoi8dgvS8dn8EUXNQ== 0001047469-04-005080.txt : 20040220 0001047469-04-005080.hdr.sgml : 20040220 20040220142149 ACCESSION NUMBER: 0001047469-04-005080 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20040220 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-01463 FILM NUMBER: 04618905 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-K 1 a2128959z10-k.htm 10-K
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

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

FOR THE YEAR ENDED DECEMBER 31, 2003

Commission file number 1-1463

UNION CARBIDE CORPORATION
(Exact name of registrant as specified in its charter)

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

400 West Sam Houston Parkway South, Houston, Texas 77042
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: 713-978-2016

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

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 February 20, 2004, 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 I(1)(a) and (b) for Form 10-K and is therefore filing this form with a reduced disclosure format.

Documents Incorporated by Reference

None

Union Carbide Corporation

ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended December 31, 2003

TABLE OF CONTENTS

PART I

		Page
Item 1.	Business	3
Item 2.	Properties	5
Item 3.	Legal Proceedings	5
Item 4.	Submission of Matters to a Vote of Security Holders	8
PART II
Item 5.	Market for Registrant's Common Equity and Related Stockholder Matters	9
Item 6.	Selected Financial Data	9
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	10
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	19
Item 8.	Financial Statements and Supplementary Data	20
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	51
Item 9A.	Controls and Procedures	51
PART III
Item 10.	Directors and Executive Officers of the Registrant	51
Item 11.	Executive Compensation	51
Item 12.	Security Ownership of Certain Beneficial Owners and Management	51
Item 13.	Certain Relationships and Related Transactions	51
Item 14.	Principal Accountant Fees and Services	51
PART IV
Item 15.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K	52
SIGNATURES		71

PART I

ITEM 1. BUSINESS

Union Carbide Corporation (the "Corporation" or "UCC") is a chemicals and polymers company. In addition to its consolidated operations, the Corporation participates in partnerships and joint ventures (together, "nonconsolidated affiliates"). 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"). Except as otherwise indicated by the context, the terms "Corporation" or "UCC" as used herein mean Union Carbide Corporation and its consolidated subsidiaries.

The Corporation's business activities comprise components of Dow's global businesses rather than stand-alone operations. The Corporation sells its products to Dow at market-based prices, in accordance with Dow's longstanding intercompany pricing policy, in order to simplify the customer interface process. Dow conducts its worldwide operations through global businesses. The following is a description of the Corporation's principal products.

Ethylene Oxide/Ethylene Glycol—ethylene oxide is a chemical intermediate primarily used in the manufacture of ethylene glycol, polyethylene glycol, glycol ethers, ethanolamines, surfactants and other performance chemicals and polymers; di- and triethylene glycol, used in a variety of applications, including boat construction, shoe manufacturing, natural gas-drying and other moisture-removing applications and plasticizers for safety glasses; and tetraethylene glycol, used predominantly in the production of plasticizers for automotive windows. Ethylene glycol is used extensively in the production of polyester fiber, resin and film, automotive antifreeze and engine coolants, and aircraft anti-icing and deicing fluids.

Polyethylene—includes TUFLIN linear low density and UNIVAL high density polyethylene resins used in high-volume applications such as housewares; milk, water, bleach and detergent bottles; grocery sacks; trash bags; packaging; water and gas pipe, and FLEXOMER very low density polyethylene resins used as impact modifiers in other polymers and to produce flexible hose and tubing, frozen-food bags and stretch wrap.

Specialty Polymers—end-use applications include: coatings for beverage and food cans, bottle caps and closures; maintenance coatings on bridges, storage tanks and oceangoing vessels; printing inks for vinyl shower curtains, wallpaper, furniture and magnetic recording tape; fabric coatings; orthopedic cast and splint materials; automotive primers and topcoats; and biodegradable bags for compostable materials. Also included are: acrolein and derivatives, important in a range of products from biocides to animal feed supplements; and specialty ketones, used as solvents and intermediates in herbicide, drug and vitamin manufacture.

Polypropylene—end-use applications include: carpeting and upholstery; apparel; packaging films; food containers, such as dairy-products cups; housewares and appliances; heavy-duty tapes and ropes, and automobile interior panels and trim.

Organic Intermediates, Solvents, & Monomers—include oxo aldehydes, acids and alcohols, used as chemical intermediates and industrial solvents and in herbicides, plasticizers, paint dryers, jet-turbine lubricants, lube oil additives, perfumes, and food and feed preservatives; esters, which serve as solvents in industrial coatings and printing inks and in the manufacturing processes for pharmaceuticals and polymers; vinyl acetate monomer, a building block for the manufacture of a variety of polymers used in water-based emulsion paints, adhesives, paper coatings, textiles, safety glass and acrylic fibers.

Wire and Cable—polyolefin-based compounds for high-performance insulation, semiconductives and jacketing systems for power distribution, telecommunications and flame-retardant wire and cable. Key product lines include REDI-LINK polyethylene, SI-LINK crosslinkable polyethylene, UNIGARD high-performance flame-retardant compounds, UNIGARD reduced emissions flame-retardant compounds, and UNIPURGE purging compounds.

UCAR Emulsion Systems—water-based emulsions, including NEOCAR branched vinyl ester latexes, POLYPHOBE rheology modifiers, and UCAR all-acrylic, styrene acrylic and vinyl-acrylic latexes used as key components in decorative and industrial paints, adhesives, textile products, and construction products such as caulks and sealants.

Industrial Chemicals—broad range of ethylene oxide derivatives and formulated glycol products for specialty applications, including pharmaceutical, personal care, industrial and household cleaning, and many other industrial uses. Product lines include CARBOWAX polyethylene glycols and methoxypolyethylene glycols, TERGITOL and TRITON surfactants, UCARTHERM heat transfer fluids, UCAR deicing fluids, and UCON fluids.

Technology Licensing and Catalysts—includes licensing and supply of related catalysts for the UNIPOL polypropylene process, the METEOR process for EO/EG, and the LP OXO process for oxo alcohols, as well as licensing of the UNIPOL polyethylene process and related catalysts (including metallocene catalysts) through Univation Technologies, LLC, a 50:50 joint venture with ExxonMobil. UOP LLC, a 50:50 joint venture with Honeywell International, Inc., supplies process technology, catalysts, molecular sieves and adsorbents to the petroleum refining, petrochemical and gas processing industries.

Water Soluble Polymers—polymers used to enhance the physical and sensory properties of end products in a wide range of applications including paints and coatings, pharmaceuticals, oilfield, personal care, building and construction materials, and other specialty applications. Key product lines include CELLOSIZE hydroxyethyl cellulose, POLYOX water soluble resins and products for hair and skin from Amerchol Corporation, a wholly owned subsidiary.

Competition

The chemical industry has been historically competitive and this competitive environment is expected to continue. The chemical divisions of the major international oil companies also provide substantial competition both in the United States and abroad.

Research and Development

The Corporation is engaged in a continuous program of basic and applied research to develop new products and processes, to improve and refine existing products and processes and to develop new applications for existing products. Research and Development expenses were $96 million in 2003 compared with $119 million in 2002. Certain of the Corporation's nonconsolidated affiliates conduct research and development within their business fields.

Patents, Licenses and Trademarks

The Corporation owns over 2,200 United States and foreign patents that relate to a wide variety of products and processes, has a substantial number of pending patent applications throughout the world and is licensed under a number of patents. These patents expire at various times over the next 20 years. In the aggregate, such patents and patent applications are material to the Corporation's competitive position. No one patent is considered to be material. The Corporation also has a large number of trademarks. The trademark UNIPOL is material; no other single trademark is material.

Principal Partly Owned Companies

UCC's principal nonconsolidated affiliates for 2003 and the Corporation's ownership interest in each are listed below:

•: EQUATE Petrochemical Company K.S.C. ("EQUATE")—45 percent—a Kuwait-based company that manufactures ethylene, polyethylene and ethylene glycol.
•: Nippon Unicar Company Limited—50 percent—a Japan-based manufacturer of polyethylene and specialty polyethylene compounds and specialty silicone products.
•: The OPTIMAL Group 24 percent; OPTIMAL Glycols (Malaysia) Sdn Bhd—50 percent; OPTIMAL Chemicals (Malaysia) Sdn Bhd—50 percent]—Malaysian companies operating an ethane/propane cracker, an ethylene glycol facility and a production facility for ethylene and propylene derivatives within a world-scale, integrated chemical complex located in Kerteh, Terengganu, Malaysia. Manufacturing began in 2002.
•: Univation Technologies, LLC—50 percent—a U.S. company that develops, markets and licenses polyethylene process technology and related catalysts.
•: UOP LLC—50 percent—a U.S. company that supplies process technology, catalysts, molecular sieves and adsorbents to the petroleum refining, petrochemical and gas-processing industries worldwide.

Financial Information About Foreign and Domestic Operations and Export Sales

In 2003, the Corporation derived 48 percent of its trade sales from customers outside the United States and had 1 percent of its property investment outside the United States. Due to the exchange of ownership interests in the majority of the Corporation's significant foreign subsidiaries with Dow in 2001 (see Note C to the Consolidated Financial Statements), the amount of assets outside the United States is no longer material to the Corporation. See Note S to the Consolidated Financial Statements for information on sales to external customers and long-lived assets by geographic area.

Protection of the Environment

Matters pertaining to the environment are discussed in Management's Discussion and Analysis of Financial Condition and Results of Operations, and Notes A and J to the Consolidated Financial Statements.

ITEM 2. PROPERTIES

The Corporation operates 19 manufacturing sites in seven countries. The Corporation considers that its properties are in good operating condition and that its machinery and equipment have been well maintained. The following are the major production sites:

United States: Taft, Louisiana; Texas City and Seadrift, Texas; South Charleston, West Virginia

All of UCC's plants are owned or leased, subject to certain easements of other persons which, in the opinion of management, do not substantially interfere with the continued use of such properties or materially affect their value.

A summary of properties, classified by type, is contained in Note E to the Consolidated Financial Statements.

ITEM 3. LEGAL PROCEEDINGS

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. 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.

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

The table below provides information regarding asbestos-related claims filed against the Corporation and Amchem:

	2003		2002		2001
Claims unresolved at January 1	200,882		126,564		57,025
Claims filed	122,586		121,916		73,806
Claims settled, dismissed or otherwise resolved	(129,577	)	(47,598	)	(4,267	)

Claims unresolved at December 31	193,891		200,882		126,564

Claimants with claims against both UCC and Amchem	66,656		66,008		41,657

Individual Claimants at December 31	127,235		134,874		84,907

In more than 98 percent of the cases filed against the Corporation and Amchem no specific amount of damages is alleged or, if an amount is alleged, it merely represents jurisdictional amounts or amounts to be proven at trial. This percentage has been increasing with more recently filed cases. Even in those situations where specific damages are alleged, the claims frequently seek the same amount of damages, irrespective of the disease or injury. Plaintiffs' lawyers often sue dozens or even hundreds of defendants in individual lawsuits on behalf of hundreds or even thousands of claimants. As a result, even when specific damages are alleged with respect to a specific disease or injury, those damages are not expressly identified as to UCC, Amchem or any other particular defendant. In fact, there are no cases in which only the Corporation and/or Amchem are the sole named defendants. For these reasons and based upon the Corporation's litigation and settlement experience, the Corporation does not consider the damages alleged against it and Amchem to be a meaningful factor in its determination of any potential asbestos liability.

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 Union Carbide 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 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 the Corporation and Amchem.

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 ARPC'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 would be at a level consistent with the levels experienced immediately 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 Union Carbide 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. In each instance, ARPC's projections specifically assumed the following:

•: In the near term, the number of future claims to be filed against UCC and Amchem will be at a level consistent with levels experienced immediately prior to 2001.
•: The number of future claims to be filed against UCC and Amchem will decline at a fairly constant rate each year from 2003.
•: The percentage of claims settled by UCC and Amchem out of the total claims resolved (whether by settlement or dismissal) will be consistent with the percentage for 2001 and 2002.
•: The average settlement value for pending and future claims will be equivalent to those experienced during 2001 and 2002.

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 was the reasonable time period for projecting the cost of disposing of its future asbestos-related claims. The Corporation concluded that it was probable that the undiscounted cost of disposing of asbestos-related pending and future claims ranged from $2.2 billion to $2.4 billion, which was 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 December 31, 2002, approximately 28 percent of the recorded liability related to pending claims and approximately 72 percent related to future claims.

At each balance sheet date, the Corporation compares current asbestos claim and resolution activity to the assumptions in the ARPC study to determine whether the accrual continues to be appropriate. In addition, in November 2003, the Corporation requested ARPC to review the asbestos claim and resolution activity during 2003 and determine the appropriateness of updating its study. In its response to that request, ARPC reviewed and analyzed data through November 25, 2003 to determine the number of asbestos-related filings and costs associated with 2003 activity. In January 2004, ARPC stated that an update at this time would not provide a more likely estimate of future events than that reflected in its study of the previous year and, therefore, the estimate in that study remains applicable. Based on the Corporation's own review of the current asbestos claim and resolution activity and ARPC's response, the Corporation determined that no change to the accrual was required at this time. Management noted, however, that the total number of claims filed in 2003 did exceed the number of claims assumed to be filed in the ARPC study. After consultation with outside counsel and other consultants, management believes this fact was strongly influenced by the pending national legislation and tort reform initiatives in key states.

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

At December 31, 2003, the asbestos-related liability for pending and future claims was $1.9 billion. At December 31, 2003, approximately 33 percent of the recorded liability related to pending claims and approximately 67 percent related to future claims.

At December 31, 2002, the Corporation increased the receivable for insurance recoveries related to its asbestos liability to $1.35 billion, substantially exhausting its asbestos product liability coverage. Combined with the previously mentioned increase in the asbestos-related liability at December 31, 2002, this resulted in a net income statement impact of $828 million, $522 million on an after-tax basis, in the fourth quarter of 2002. 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. At December 31, 2003, the receivable for insurance recoveries related to asbestos liability was $1.0 billion.

In addition, the Corporation had receivables for defense and resolution costs submitted to insurance carriers for reimbursement as follows:

Receivables for Costs Submitted to Insurance Carriers at December 31

	2003		2002
Receivables for defense costs	$	94	$	77
Receivables for resolution costs		255		142

Total	$	349	$	219

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

Defense and Resolution Costs at December 31

	2003		2002		2001
Defense costs for the year	$	110	$	92	$	14
Aggregate defense costs to date		258		148		56
Resolution costs for the year		293		155		39
Aggregate resolution costs to date		626		333		178

The Corporation's insurance policies generally provide coverage for asbestos liability costs, including coverage for both resolution and defense costs. As previously noted, the Corporation increased its receivable for insurance recoveries related to its asbestos liability at December 31, 2002, thereby recording the full favorable income statement impact of its insurance coverage in 2002. Accordingly, defense and resolution costs recovered from insurers reduce the insurance receivable. Prior to increasing the insurance receivable related to the asbestos liability at December 31, 2002, the impact on results of operations for defense costs was the amount of those costs not covered by insurance. Since the Corporation expenses defense costs as incurred, defense costs for asbestos-related litigation (net of insurance) have impacted, and will continue to impact results of operations. The pretax impact for defense and resolution costs, net of insurance, was $94 million in 2003, $9 million in 2002 and $9 million in 2001, and was reflected in "Cost of sales."

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. The Corporation reached this conclusion 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 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.

Because of the uncertainties described above, management cannot estimate the full range of the cost of resolving pending and future asbestos-related claims facing the Corporation and Amchem. Management believes that it is reasonably possible that the cost of disposing of the Corporation's asbestos-related claims, including future defense costs, could have a material 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.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Omitted pursuant to General Instruction I of Form 10-K.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Corporation is a wholly owned subsidiary of Dow; consequently there is no public trading market for the Corporation's common stock.

ITEM 6. SELECTED FINANCIAL DATA

Omitted pursuant to General Instruction I of Form 10-K.

Union Carbide Corporation and Subsidiaries
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations

Pursuant to General Instruction I of Form 10-K "Omission of Information by Certain Wholly-Owned Subsidiaries," this section includes only management's narrative analysis of the results of operations for the year ended December 31, 2003, the most recent fiscal year, compared with the year ended December 31, 2002, the fiscal year immediately preceding it.

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.

Introductory Notes to Readers

In order to realize synergies of the merger, the Corporation and/or certain of its subsidiaries entered into several agreements with Dow and/or its subsidiaries to combine legal entities in Europe, Latin America and Canada. In exchange for the contribution of ownership interests, the Corporation directly or indirectly received shares of stock in each acquiring company in proportion to the relative fair market values of the combined assets. The resulting investments were recorded at the book value of the net assets the Corporation contributed, in accordance with accounting principles generally accepted in the United States of America ("GAAP"). See Note C to the Consolidated Financial Statements.

Results of Operations

The Corporation reported net income of $313 million for 2003, compared with a net loss of $510 million for 2002. The results for 2003 were favorably impacted by higher selling prices, a significant increase in earnings from nonconsolidated affiliates, gains on the sale of non-strategic assets, and lower operating expenses. The results for 2002 were reduced by the impact of several items: a charge of $828 million ($522 million after tax) for the estimated cost of disposing of pending and potential future asbestos-related claims (net of related insurance receivables), merger-related severance of $55 million, and an asset write-down of $44 million related to restructuring activities undertaken late in 2002.

Total net sales for 2003 increased 8 percent to $5.2 billion from $4.8 billion in 2002. Sales to Dow in 2003 were $4.8 billion compared with $4.4 billion in 2002. Selling prices to Dow are based on market prices for the related products. Increases in average selling prices occurred for most products in 2003 compared with 2002, led by substantial increases in ethylene glycol ("EG") and polyethylene. EG volume also was up substantially compared with 2002. Technology licensing and catalyst sales in 2003 were down compared with 2002, as increased volume in licensing was more than offset by lower catalyst volume. The decline in catalyst sales was primarily due to a change in the sourcing of polyethylene catalyst sales. Beginning in 2003, polyethylene catalysts previously sold by UCC were sourced through Univation Technologies LLC ("Univation"), a 50:50 joint venture of the Corporation.

Gross margin as a percent of sales for 2003 was 7.8 percent compared with 10.4 percent in 2002. While higher selling prices in 2003 more than offset the impact of higher feedstock and energy costs, gross margin was negatively impacted by approximately $140 million related to asset write-downs and asbestos defense costs. Excluding these items, gross margin as a percent of sales was comparable with 2002.

Research and development expenses for 2003 declined $23 million from 2002. Selling, general and administrative expenses declined $15 million compared with 2002. These operating expenses continued to decline as the Corporation remained focused on reducing expenses.

Equity in earnings of nonconsolidated affiliates increased from $67 million in 2002 to $220 million in 2003. The increase was driven by substantially stronger results at EQUATE Petrochemical Company K.S.C., the OPTIMAL Group and Univation. All of the Corporation's joint ventures reported positive earnings in 2003.

Sundry income (expense)—net includes a variety of income and expense items such as the gain or loss on foreign currency exchange, commissions, charges for management services provided by Dow, and gains and losses on sales of investments and assets. Sundry income for 2003 was net income of $25 million, compared with net expense of $3 million in 2002. Sundry income increased in 2003 principally due to net gains associated with the sale of assets, including approximately $35 million for certain product lines of Amerchol Corporation, a wholly owned subsidiary, and approximately $17 million for sales of other non-strategic assets.

Interest income for 2003 decreased $26 million compared with 2002 due to a decline in average interest rates. In addition, interest income for 2002 included $18 million related to a note receivable repaid in the second quarter of 2002.

Interest expense and amortization of debt discount for 2003 decreased $18 million compared with 2002, reflecting reduced debt levels and a continuing decline in average interest rates.

The provision for income taxes was $100 million in 2003 versus a credit of $124 million in 2002. UCC's overall effective tax rate was 24.2 percent for 2003, compared with 19.6 percent for 2002. The underlying factors affecting UCC's overall effective tax rates are summarized in Note R to the Consolidated Financial Statements.

In September 2003, Moody's Investor Services lowered the Corporation's long-term debt rating from "Baa2" to "B1". In December 2003, Standard & Poor's Ratings Services lowered UCC's corporate credit and senior unsecured ratings from "A-" to "BBB-". The Corporation does not expect these changes to affect its main borrowing facility, although the Corporation may incur higher borrowing costs.

OTHER MATTERS

Accounting Changes

See Note A 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 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 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 actuarial 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 J to the Consolidated Financial Statements.

Asbestos-Related Matters

The Corporation, and a former subsidiary, Amchem Products, Inc. ("Amchem"), are and have been involved in a large number of asbestos-related suits filed primarily in state courts during the past thee decades. A liability for resolving both pending and future asbestos-related claims through 2017 has been estimated and recorded. The liability was estimated by Analysis, Research & Planning Corporation ("ARPC"), a consulting firm with broad experience in estimating resolution costs associated with mass tort litigation, including asbestos. The estimate was based on the following four assumptions:

•: In the near term, the number of future claims to be filed against UCC and Amchem will be at a level consistent with levels experienced immediately prior to 2001.
•: The number of future claims to be filed against UCC and Amchem will decline at a fairly constant rate each year from 2003.

•: The percentage of claims settled by UCC and Amchem out of the total claims resolved (whether by settlement or dismissal) will be consistent with the percentage for 2001 and 2002.
•: The average settlement values for pending and future claims will be equivalent to those experienced during 2001 and 2002.

Based on the estimate provided by ARPC, the Corporation increased its asbestos-related liability for pending and future claims at December 31, 2002 to $2.2 billion. At December 31, 2003, the Corporation's asbestos-related liability for pending and future claims was $1.9 billion. The Corporation also increased the receivable for insurance recoveries related to its asbestos liability to $1.35 billion at December 31, 2002. At December 31, 2003, the Corporation's receivable for insurance recoveries related to its asbestos liability was $1.0 billion. In addition, the Corporation had receivables for insurance recoveries for defense and resolution costs of $349 million at December 31, 2003 and $219 million at December 31, 2002.

At each balance sheet date, the Corporation compares current asbestos claim and resolution activity to the assumptions used in the ARPC study to determine whether the accrual continues to be appropriate. Based on the Corporation's review of 2003 activity and ARPC's review and analysis of 2003 claims activity, the Corporation determined that no change to the accrual was required at December 31, 2003.

The amounts recorded by the Corporation for the asbestos-related liability and related insurance receivable 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 claims, coverage issues among insurers, and the continuing solvency of various insurance companies, as well as the numerous uncertainties surrounding asbestos litigation in the United States, could cause the actual costs and insurance recoveries for the Corporation to be higher or lower than those projected or those recorded.

For additional information, see Legal Proceedings, Asbestos-Related Matters in Management's Discussion and Analysis of Financial Condition and Results of Operations and Note J 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 December 31, 2003, the Corporation had accrued obligations of $109 million for environmental remediation and restoration costs, including $33 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 Environmental Matters in Management's Discussion and Analysis of Financial Condition and Results of Operations and Note J to the Consolidated Financial Statements.

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, 2003, 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 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 2003 was 9 percent. This assumption was maintained at 9 percent for determining 2004 net periodic pension expense. The actual rate of return in 2003 was 17

percent. 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, 2003, $492 million of net losses remain to be recognized in the calculation of the market-related value of plan assets. These net losses will result in increases in future pension expense as they are recognized in the market-related value of assets. The increase or decrease in the market-related value of assets due to the recognition of prior gains and losses is presented in the following table:

Increase (Decrease) in Market-Related Asset Value
due to Recognition of Prior Asset Gains and Losses

In millions
2004	$	(231	)
2005		(218	)
2006		(85	)
2007		42

Total	$	(492	)

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 6.75 percent at December 31, 2002, to 6.25 percent at December 31, 2003.

For 2004, the Corporation decreased its assumption for the long-term rate of increase in compensation levels from 5 percent for 2003 to 4.5 percent.

Based on the revised pension assumptions and changes in the market-related value of assets due to the recognition of prior asset gains and losses, the Corporation expects to record $1 million less in income for pension and other postretirement benefits in 2004 than it did in 2003.

The value of the qualified plan assets increased from $3.4 billion at December 31, 2002, to $3.7 billion at December 31, 2003. The investment performance increased the funded status of the qualified plans, net of benefit obligations, by $148 million from December 31, 2002 to December 31, 2003. This increase was somewhat mitigated by a decline in the discount rate assumption. For 2004, the Corporation expects to make cash contributions of approximately $57 million for the pension and other postretirement benefit plans.

Income Taxes

Deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and tax bases of assets and liabilities, applying enacted tax rates expected to be in effect for the year in which the differences are expected to reverse. Based on the evaluation of available evidence, both positive and negative, the Corporation recognizes future tax benefits, such as net operating loss carryforwards and tax credit carryforwards, to the extent that realizing these benefits is considered more likely than not.

At December 31, 2003, the Corporation had a net deferred tax asset balance of $839 million and no valuation allowance. In evaluating the ability to realize its deferred tax assets, the Corporation relied principally on forecasted taxable income using historical and projected future operating results, the reversal of existing temporary differences and the availability of tax planning strategies.

At December 31, 2003, the Corporation had deferred tax assets for tax loss and tax credit carryforwards of $575 million, $39 million of which is subject to expiration in the years 2004-2008. In order to realize these deferred tax assets for tax loss and tax credit carryforwards, the Corporation needs taxable income of approximately $1.6 billion across multiple jurisdictions. The taxable income needed to realize the deferred tax assets for tax loss and tax credit carryforwards that are subject to expiration between 2004-2008 is approximately $110 million.

For additional information, see note R to the Consolidated Financial Statements.

Environmental Matters

Environmental Policies

Prior to the Dow merger, the Corporation and Dow both were RESPONSIBLE CARE companies, committed to the Guiding Principles of RESPONSIBLE CARE, to environmental, health and safety ("EH&S") performance improvement and to public accountability. Dow's EH&S management system ("EMS") and EH&S 2005 Goals were implemented at all UCC sites in order to minimize environmental risks and impacts, both past and future.

Dow's EH&S 2005 Goals, initiated in 1996, include reducing leaks, spills, fires, explosions, work-related injuries and transportation incidents by 90 percent, and reducing chemical emissions, waste and wastewater by 50 percent. Dow's EMS defines for the businesses the "who, what, when and how" needed to achieve the policies, requirements, performance objectives, leadership expectations and public commitments. EMS is also designed to minimize the long-term cost of environmental protection and to comply with applicable laws and regulations. Security aspects of EMS were strengthened to require site vulnerability assessments to ensure appropriate safeguards to protect employees and physical assets in a post-September 11^th world. Furthermore, EMS is integrated into a company-wide Management System for EH&S, Operations, Quality and Human Resources, including implementation of the global EH&S Work Process to improve EH&S performance and to ensure ongoing compliance worldwide.

UCC first works to eliminate or minimize the generation of waste and emissions at the source through research, process design, plant operations and maintenance. Next, UCC finds ways to reuse and recycle materials. Finally, unusable or non-recyclable hazardous waste is treated before disposal to eliminate or reduce the hazardous nature and volume of the waste. Treatment may include destruction by chemical, physical, biological or thermal means. Disposal of waste materials in landfills is considered only after all other options have been thoroughly evaluated. UCC has specific requirements for wastes that are transferred to non-UCC facilities, including the periodic auditing of these facilities.

Climate Change

There is growing political and scientific consensus that emissions of greenhouse gases ("GHG") due to human activities continue to alter the composition of the global atmosphere in ways that are affecting the climate. UCC takes global climate change very seriously and is committed to reducing its GHG intensity (lbs. of GHG per lb. of product), developing climate-friendly products and processes, and, over the longer term, implementing technology solutions to achieve even greater climate change improvements. Given the uncertainties regarding implementation of the Kyoto Protocol and related climate change policies, it is speculative to engage in an assessment of either the potential liability or benefit associated with climate change issues.

Environmental Remediation

UCC accrues the costs of remediation of its facilities and formerly owned facilities based on current law and existing technologies. The nature of such remediation includes, for example, the management of soil and groundwater contamination and the closure of contaminated landfills and other waste management facilities. In the case of landfills and other active waste management facilities, UCC recognizes the costs over the useful life of the facility. The policies adopted to properly reflect the monetary impacts of environmental matters are discussed in Note A to the Consolidated Financial Statements. To assess the impact on the financial statements, environmental experts review currently available facts to evaluate the probability and scope of potential liabilities. Inherent uncertainties exist in such evaluations primarily due to unknown conditions, changing governmental regulations and legal standards regarding liability, and evolving technologies. These liabilities are adjusted periodically as remediation efforts progress or as additional technical or legal information becomes available. The Corporation had an accrued liability of $76 million at December 31, 2003, compared with $95 million at December 31, 2002, related to the remediation of current or former UCC-owned sites. The Corporation has not recorded any third-party recovery related to these sites as a receivable.

In addition to current and former UCC-owned sites, under the Federal Comprehensive Environmental Response, Compensation and Liability Act and equivalent state laws (hereafter referred to collectively as "Superfund Law"), UCC is liable for remediation of other hazardous waste sites where UCC allegedly disposed of, or arranged for the treatment or disposal of, hazardous substances. UCC readily cooperates in the remediation of these sites where the Corporation's liability is clear, thereby minimizing legal and administrative costs. Because Superfund Law imposes joint and several liability upon each party at a site, UCC has evaluated its potential liability in light of the number of other companies that also have been named potentially responsible parties ("PRPs") at each site, the estimated apportionment of costs among all PRPs, and the financial ability and commitment of each to pay its expected share. Management's estimate of the Corporation's remaining liability for the remediation of Superfund sites was $33 million at December 31, 2003 and $35 million at December 31, 2002, which has been accrued, although the ultimate cost with respect to these sites could exceed that amount.

Information regarding environmental sites is provided below:

Environmental Sites	UCC-owned Sites		Superfund Sites
	2003	2002	2003		2002
Number of sites at January 1	30	30	51		51
Sites added during year	—	—	6		1
Sites closed during year	—	—	(1	)	(1	)

Number of sites at December 31	30	30	56		51

In total, the Corporation's accrued liability for probable environmental remediation and restoration costs was $109 million at December 31, 2003, compared with $130 million at the end of 2002. 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. It is the opinion of 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.

The amounts charged to income on a pretax basis related to environmental remediation totaled $2 million in 2003, $20 million in 2002 and $3 million in 2001. Capital expenditures for environmental protection were $20 million in 2003, $9 million in 2002 and $7 million in 2001.

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. 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 table below provides information regarding asbestos-related claims filed against the Corporation and Amchem:

	2003		2002		2001
Claims unresolved at January 1	200,882		126,564		57,025
Claims filed	122,586		121,916		73,806
Claims settled, dismissed or otherwise resolved	(129,577	)	(47,598	)	(4,267	)

Claims unresolved at December 31	193,891		200,882		126,564

Claimants with claims against both UCC and Amchem	66,656		66,008		41,657

Individual Claimants at December 31	127,235		134,874		84,907

Corporation does not consider the damages alleged against it and Amchem to be a meaningful factor in its determination of any potential asbestos liability.

As noted above, the Corporation is typically 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.

•: 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.

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. In each instance, ARPC's projections specifically assumed the following:

•: In the near term, the number of future claims to be filed against UCC and Amchem will be at a level consistent with levels experienced immediately prior to 2001.
•: The number of future claims to be filed against UCC and Amchem will decline at a fairly constant rate each year from 2003.
•: The percentage of claims settled by UCC and Amchem out of the total claims resolved (whether by settlement or dismissal) will be consistent with the percentage for 2001 and 2002.
•: The average settlement value for pending and future claims will be equivalent to those experienced during 2001 and 2002.

In addition, the Corporation had receivables for defense and resolution costs submitted to insurance carriers for reimbursement as follows:

Receivables for Costs Submitted to Insurance
Carriers at December 31

	2003		2002
Receivables for defense costs	$	94	$	77
Receivables for resolution costs		255		142

Total	$	349	$	219

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

Defense and Resolution Costs at December 31

	2003		2002		2001
Defense costs for the year	$	110	$	92	$	14
Aggregate defense costs to date		258		148		56
Resolution costs for the year		293		155		39
Aggregate resolution costs to date		626		333		178

The Corporation's insurance policies generally provide coverage for asbestos liability costs, including coverage for both resolution and defense costs. As previously noted, the Corporation increased its receivable for insurance recoveries related to its asbestos liability at December 31, 2002, thereby recording the full favorable income statement impact of its insurance coverage in 2002. Accordingly, defense and resolution costs recovered from insurers reduce the insurance receivable. Prior to increasing the insurance receivable related to the asbestos liability at December 31, 2002, the impact on results of operations for defense costs was the amount of those costs not covered by insurance. Since the Corporation expenses defense costs as incurred, defense costs for asbestos-related litigation (net of insurance) have impacted and will continue to impact results of operations. The pretax impact for defense and resolution costs, net of insurance, was $94 million in 2003, $9 million in 2002 and $9 million in 2001, and was reflected in "Cost of sales."

Union Carbide Corporation and Subsidiaries
Item 7A. Quantitative and Qualitative Disclosures About Market Risk

UCC's business operations give rise to market risk exposure due to changes in foreign exchange rates, interest rates, and equity prices. To manage such risks effectively, the Corporation can enter into hedging transactions, pursuant to established guidelines and policies, which enable it to mitigate the adverse effects of financial market risk. The Corporation does not hold derivative financial instruments for trading purposes.

As a result of investments, production facilities and other operations on a global basis, the Corporation has assets, liabilities and cash flows in currencies other than the U.S. dollar. The primary objective of the Corporation's foreign exchange risk management is to optimize the U.S. dollar value of net assets and cash flows, keeping the adverse impact of currency movements to a minimum. To achieve this objective, the Corporation will hedge, when appropriate, on a net exposure basis using foreign currency forward contracts, over-the-counter option contracts, cross-currency swaps and nonderivative instruments in foreign currencies. Main exposures are related to assets, liabilities and cash flows denominated in the currencies of Europe, Asia Pacific and Canada.

The main objective of interest rate risk management is to reduce the total funding cost to the Corporation and to alter the interest rate exposure to the desired risk profile. The Corporation's primary exposure is to the U.S. dollar yield curve. UCC will use interest rate swaps and "swaptions," when appropriate, to accomplish this objective.

UCC uses value at risk ("VAR"), stress testing and scenario analysis for risk measurement and control purposes. VAR estimates the potential gain or loss in fair market values, given a certain move in prices over a certain period of time, using specified confidence levels. On an ongoing basis, the Corporation estimates the maximum gain or loss that could arise in one day, given a two-standard-deviation move in the respective price levels. These amounts are relatively insignificant in comparison to the size of the equity of the Corporation. The VAR methodology used by UCC is based primarily on the variance/covariance statistical model. The year-end VAR and average quarterly VAR for 2003 and 2002 are shown below:

Total Daily VAR at December 31*

	2003				2002
In millions	2003				2002
In millions	Year-end		Average		Year-end		Average
Interest rate	$	20	$	21	$	21	$	20

*Using a 95 percent confidence level

See Notes H and O to the Consolidated Financial Statements for further disclosure regarding market risk.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Independent Auditors' Report
To the Board of Directors and Stockholder of Union Carbide Corporation:

We have audited the accompanying consolidated balance sheets of Union Carbide Corporation and its subsidiaries as of December 31, 2003 and 2002, and the related consolidated statements of income, stockholder's equity, comprehensive income and cash flows for each of the three years in the period ended December 31, 2003. Our audits also included the financial statement schedule listed at Item 15(a) 2. These financial statements and financial statement schedule are the responsibility of the Corporation's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Union Carbide Corporation and its subsidiaries as of December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Notes A and F to the consolidated financial statements, effective January 1, 2002, the Corporation changed its method of accounting for goodwill to conform to Statement of Financial Accounting Standards No. 142.

/s/ DELOITTE & TOUCHE LLP

DELOITTE & TOUCHE LLP
Midland, Michigan
January 29, 2004

Union Carbide Corporation and Subsidiaries
Consolidated Statements of Income

(In millions) For the years ended December 31		2003		2002			2001
	Net trade sales	$	353	$	415		$	3,876
	Net sales to related companies		4,813		4,372			1,531

Total Net Sales			5,166		4,787			5,407

	Cost of sales		4,761		4,291			5,104
	Research and development expenses		96		119			134
	Selling, general and administrative expenses		33		48			149
	Amortization of intangibles		4		4			11
	Merger-related expenses and restructuring		—		99			1,223
	Asbestos-related charge		—		828			—
	Equity in earnings of nonconsolidated affiliates		220		67			50
	Sundry income (expense)—net		25		(3	)		—
	Interest income		10		36			24
	Interest expense and amortization of debt discount		113		131			181

Income (Loss) before Income Taxes and Minority Interests			414		(633	)		(1,321	)

	Provision (Credit) for income taxes		100		(124	)		(626	)
	Minority interests' share in income		1		1			4

Net Income (Loss) Available for Common Stockholder		$	313	$	(510	)	$	(699	)

See Notes to the Consolidated Financial Statements.

Union Carbide Corporation and Subsidiaries
Consolidated Balance Sheets

(In millions) At December 31			2003		2002
Assets
Current Assets
	Cash and cash equivalents		$	21	$	25
	Accounts and notes receivable:
		Trade (net of allowance for doubtful receivables—2003: $4; 2002: $7)		59		72
		Related companies		403		756
		Other		120		134
	Inventories			182		219
	Deferred income tax assets—current			56		134
	Asbestos-related insurance receivables—current			200		80

	Total current assets			1,041		1,420

Investments
	Investments in related companies			461		461
	Investments in nonconsolidated affiliates			626		539
	Other investments			35		39
	Noncurrent receivables			17		28
	Noncurrent receivables from related companies			—		17

	Total investments			1,139		1,084

Property
	Property			7,375		7,567
	Less accumulated depreciation			5,132		5,022

	Net property			2,243		2,545

Other Assets
	Goodwill			26		26
	Other intangible assets (net of accumulated amortization—2003: $118; 2002: $114)			23		23
	Deferred income tax assets—noncurrent			783		756
	Asbestos-related insurance receivables—noncurrent			1,176		1,489
	Deferred charges and other assets			73		71

	Total other assets			2,081		2,365

Total Assets			$	6,504	$	7,414

See Notes to the Consolidated Financial Statements.

Union Carbide Corporation and Subsidiaries
Consolidated Balance Sheets

(In millions, except for share amounts) At December 31			2003			2002
Liabilities and Stockholder's Equity
Current Liabilities
	Notes payable:
		Related companies	$	23		$	310
		Other		2			6
	Long-term debt due within one year			16			380
	Accounts payable:
		Trade		253			285
		Related companies		287			297
		Other		32			33
	Income taxes payable			77			67
	Asbestos-related liabilities—current			122			124
	Accrued and other current liabilities			237			226

	Total current liabilities			1,049			1,728

Long-Term Debt				1,272			1,288

Other Noncurrent Liabilities
	Pension and other postretirement benefits—noncurrent			524			636
	Asbestos-related liabilities—noncurrent			1,791			2,072
	Other noncurrent obligations			477			597

	Total other noncurrent liabilities			2,792			3,305

Minority Interest in Subsidiaries				3			4

Stockholder's Equity
	Common stock (authorized and issued: 1,000 shares of $0.01 par value each)			—			—
	Additional paid-in capital			—			—
	Retained earnings			1,746			1,433
	Accumulated other comprehensive loss			(358	)		(344	)

	Net stockholder's equity			1,388			1,089

Total Liabilities and Stockholder's Equity			$	6,504		$	7,414

See Notes to the Consolidated Financial Statements.

Union Carbide Corporation and Subsidiaries
Consolidated Statements of Cash Flows

(In millions) For the years ended December 31			2003			2002			2001
Operating Activities
	Net Income (Loss) Available for Common Stockholder		$	313		$	(510	)	$	(699	)
	Adjustments to reconcile net income (loss) to net cash provided by operating activities:
		Depreciation and amortization		340			328			383
		Provision (Credit) for deferred income tax		34			(137	)		(606	)
		Earnings/losses of nonconsolidated affiliates in excess of dividends received		(151	)		(14	)		(42	)
		Minority interests' share in income		1			1			4
		Net loss on sales of consolidated companies		—			2			—
		Net gain on sales of nonconsolidated affiliates		(20	)		—			—
		Net gain on sales of property		(34	)		(18	)		(4	)
		Other net (gain) loss		1			(28	)		(24	)
		Merger-related expenses and restructuring		—			34			836
		Asbestos-related charge		—			828			—
		Tax benefit—nonqualified stock option exercises		—			—			4
	Changes in assets and liabilities that provided (used) cash:
		Accounts and notes receivable		198			206			264
		Related company receivables		353			568			(1,324	)
		Inventories		32			144			236
		Accounts payable		(34	)		(124	)		(140	)
		Related company payables		(10	)		(900	)		1,197
		Other assets and liabilities		(448	)		(404	)		105

	Cash provided by (used in) operating activities			575			(24	)		190

Investing Activities
	Capital expenditures			(109	)		(101	)		(78	)
	Proceeds from sales of property			99			46			4
	Proceeds from sales of consolidated companies			1			20			—
	Investments in nonconsolidated affiliates			(16	)		(23	)		(11	)
	Distribution from nonconsolidated affiliate			63			—			—
	Advances to nonconsolidated affiliates, net of cash received			—			—			203
	Collection of noncurrent notes receivable from related companies			17			483			—
	Proceeds from sales of nonconsolidated affiliates			27			—			180
	Purchases of investments			(5	)		(28	)		(166	)
	Proceeds from sales of investments			16			41			245

	Cash provided by investing activities			93			438			377

Financing Activities
	Changes in short-term notes payable			(4	)		(2	)		(959	)
	Changes in notes payable to related companies			(287	)		(87	)		396
	Payments on long-term debt			(380	)		(75	)		(7	)
	Proceeds from issuance of long-term debt			—			—			1
	Purchases of treasury stock			—			—			(1	)
	Proceeds from sales of common stock			—			—			6
	Distributions to minority interests			(1	)		(3	)		(3	)
	Dividends paid to stockholders			—			(257	)		(28	)

	Cash used in financing activities			(672	)		(424	)		(595	)

Summary
	Decrease in cash and cash equivalents			(4	)		(10	)		(28	)
	Cash and cash equivalents at beginning of year			25			35			63

	Cash and cash equivalents at end of year		$	21		$	25		$	35

See Notes to the Consolidated Financial Statements.

Union Carbide Corporation and Subsidiaries
Consolidated Statements of Stockholder's Equity

(In millions) For the years ended December 31			2003			2002			2001
Common stock
	Balance at beginning of year		$	—		$	—		$	159
	Retirement of shares pursuant to merger			—			—			(159	)

	Balance at end of year			—			—			—

Additional paid-in capital
	Balance at beginning of year			—			—			217
	Retirement of treasury shares pursuant to merger			—			—			(213	)
	Issuance of treasury stock at more than cost			—			—			(4	)

	Balance at end of year			—			—			—

Unearned ESOP shares
	Balance at beginning of year			—			—			(50	)
	Shares allocated to ESOP participants and other			—			—			2
	Transfer to note receivable—related company			—			—			48

	Balance at end of year			—			—			—

Retained earnings
	Balance at beginning of year			1,433			2,200			3,572
	Net income (loss)			313			(510	)		(699	)
	Effect of retirement of shares pursuant to merger			—			—			(645	)
	Common stock dividends declared			—			(257	)		(28	)

	Balance at end of year			1,746			1,433			2,200

Accumulated other comprehensive loss, net of tax
	Unrealized gains on investments at beginning of year			1			2			10
		Unrealized gains (losses)		4			(1	)		(8	)

		Balance at end of year		5			1			2

	Cumulative translation adjustments at beginning of year			(68	)		(85	)		(234	)
		Contribution of foreign subsidiaries		—			—			172
		Translation adjustments		19			17			(23	)

		Balance at end of year		(49	)		(68	)		(85	)

	Minimum pension liability at beginning of year			(271	)		—			—
		Adjustments		(40	)		(271	)		—

		Balance at end of year		(311	)		(271	)		—

	Accumulated derivative loss at beginning of year			(6	)		—			—
		Net hedging results		3			(6	)		—

		Balance at end of year		(3	)		(6	)		—

	Total accumulated other comprehensive loss			(358	)		(344	)		(83	)

Treasury stock
	Balance at beginning of year			—			—			(1,020	)
	Retirement of shares pursuant to merger			—			—			1,020

	Balance at end of year			—			—			—

Net Stockholder's Equity			$	1,388		$	1,089		$	2,117

See Notes to the Consolidated Financial Statements.

Union Carbide Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income

(In millions) For the years ended December 31			2003			2002			2001
Net Income (Loss) Available for Common Stockholder			$	313		$	(510	)	$	(699	)

Other Comprehensive Income (Loss), Net of Tax (tax amounts shown below for 2003, 2002, 2001)
	Unrealized gains (losses) on investments:
		Unrealized holding gains during the year (Net of Tax of $0, $0, $3)		3			—			6
		Less: Reclassification adjustments for net amounts included in net income (loss) (Net of Tax of $1, $0, $(7))		1			(1	)		(14	)
	Cumulative translation adjustments, including effect of contribution of foreign subsidiaries			19			17			149
	Minimum pension liability adjustment (Net of Tax of $(3), $(153))			(40	)		(271	)		—
	Net gain (loss) on cash flow hedging derivative instruments			3			(6	)		—

	Total other comprehensive income (loss)			(14	)		(261	)		141

Comprehensive Income (Loss)			$	299		$	(771	)	$	(558	)

See Notes to the Consolidated Financial Statements.

Union Carbide Corporation and Subsidiaries
Notes to the Consolidated Financial Statements

Dollars in millions, except as noted

A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING CHANGES

Principles of Consolidation and Basis of Presentation

Except as otherwise indicated by the context, the terms "Corporation" and "UCC" as used herein mean Union Carbide Corporation and its consolidated subsidiaries. The accompanying consolidated financial statements of the Corporation were prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP") and include the assets, liabilities, revenues and expenses of all majority-owned subsidiaries over which the Corporation exercises control and, when applicable, entities for which the Corporation has a controlling financial interest. Intercompany transactions and balances are eliminated in consolidation. Investments in nonconsolidated affiliates (20-50 percent owned companies, joint ventures and partnerships) 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"). 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 longstanding 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 years' amounts have been made to conform to the presentation adopted for 2003.

Related Companies

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 O for further discussion.

Use of Estimates in Financial Statement Preparation

The preparation of financial statements in conformity with GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The Corporation's consolidated financial statements include amounts that are based on management's best estimates and judgments. Actual results could differ from those estimates.

Foreign Currency Translation

The local currency has been primarily used as the functional currency throughout the world. Translation gains and losses of those operations that use local currency as the functional currency are included in the consolidated balance sheets in "Accumulated other comprehensive income (loss)" ("AOCI"). Where the U.S. dollar is used as the functional currency, foreign currency gains and losses are reflected in income.

Environmental Matters

Accruals for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, based on current law and existing technologies. These accruals are adjusted periodically as assessment and remediation efforts progress or as additional technical or legal information becomes available. Accruals for environmental liabilities are included in the consolidated balance sheets in "Other noncurrent obligations" at undiscounted amounts.

Environmental costs are capitalized if the costs extend the life of the property, increase its capacity, and/or mitigate or prevent contamination from future operations. Costs related to environmental contamination treatment and cleanup are charged to expense. Estimated future incremental operations, maintenance and management costs directly related to remediation are accrued when such costs are probable and estimable.

Cash and Cash Equivalents

Cash and cash equivalents include time deposits and readily marketable securities with original maturities of three months or less.

Financial Instruments

The Corporation calculates the fair value of financial instruments using quoted market prices whenever available. When quoted market prices are not available for various types of financial instruments (such as forwards, options and swaps), the Corporation uses standard pricing models with market-based inputs, which take into account the present value of estimated future cash flows.

The Corporation utilizes derivative instruments to manage exposures to currency exchange rates. The fair values of all derivative instruments are recognized as assets or liabilities at the balance sheet date. Changes in the fair value of these instruments are reported in income or AOCI, depending on the use of the derivative and whether it qualifies for hedge accounting treatment.

Inventories

Inventories are stated at the lower of cost or market. The method of determining cost is used consistently from year to year at each subsidiary and varies between last-in, first-out ("LIFO"); first-in, first-out ("FIFO"); and average cost.

Property

Land, buildings and equipment are carried at cost less accumulated depreciation. Depreciation is based on the estimated service lives of depreciable assets and is provided using the straight-line method. Beginning in mid-2001, the Corporation changed the estimated useful lives assigned to newly acquired assets to conform to the estimated useful lives assigned by Dow to similar assets. No change was made to the estimated lives of assets acquired prior to 2001. Fully depreciated assets are retained in property and accumulated depreciation accounts until they are removed from service. In the case of disposals, assets and related accumulated depreciation are removed from the accounts, and the net amounts, less proceeds from disposal, are included in income.

Long-Lived Assets

The Corporation evaluates long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When it is probable that undiscounted future cash flows will not be sufficient to recover an asset's carrying amount, the asset is written down to its fair value. Long-lived assets to be disposed of other than by sale are classified as held and used until they are disposed of. Long-lived assets to be disposed of by sale are classified as held for sale and are reported at the lower of carrying amount or fair value less cost to sell, and depreciation is ceased.

Investments

Investments in debt and marketable equity securities are classified as either trading, available-for-sale, or held-to-maturity. Investments classified as trading are reported at fair value with unrealized gains and losses included in income. Those classified as available-for-sale are reported at fair value with unrealized gains and losses recorded in AOCI. Those classified as held-to-maturity are recorded at amortized cost. The cost of investments sold is determined by specific identification.

The excess of the cost of investments in subsidiaries over the values assigned to assets and liabilities acquired through June 30, 2001 is shown as goodwill and was amortized on a straight-line basis over its estimated useful life (maximum 40 years) through December 31, 2001. There were no investments made after June 30, 2001 that resulted in the recording of goodwill. Effective January 1, 2002, goodwill is no longer amortized, but is subject to the impairment provisions of SFAS No. 142, "Goodwill and Other Intangible Assets." See Accounting Changes below for further discussion.

Revenue

Substantially all of the Corporation's revenues are from transactions with Dow. Sales are recognized when the revenue is realized or realizable, and has been earned, in accordance with the U.S. Securities and Exchange Commission's Staff Accounting Bulletin No. 104, "Revenue Recognition in Financial Statements." Approximately 96 percent of the Corporation's sales are related to sales of product, while 4 percent is related to the licensing of patents and technology. Revenue for product sales is recognized as risk and title to the product transfer to the customer, which for trade sales, usually occurs at the time shipment is made. Substantially all of the Corporation's trade sales are sold FOB ("free on board") shipping point or, with respect to countries other than the United States, an equivalent basis. Title to the product for trade sales passes when the product is delivered to the freight carrier. UCC's standard terms of delivery are included in its contracts of sale, order confirmation documents, and invoices. Freight costs and any directly related associated costs of transporting finished product are recorded as "Cost of sales."

Revenue for product sales to related companies is recognized as risk and title to the product transfer to the related company, which usually occurs at the time production is complete. Revenue related to the initial licensing of patents and technology is recognized when earned; revenue related to running royalties is recognized according to licensee production levels.

Legal Costs

The Corporation expenses legal costs, including those costs expected to be incurred in connection with a loss contingency, as incurred.

Income Taxes

The Corporation accounts for income taxes using the asset and liability method. Under this method deferred tax assets and liabilities are recognized for the future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities using enacted rates.

Annual tax provisions include amounts considered sufficient to pay assessments that may result from examinations of prior year tax returns; however, the amount ultimately paid upon resolution of issues raised may differ from the amounts accrued. Provision is made for taxes on undistributed earnings of foreign subsidiaries and related companies to the extent that such earnings are not deemed to be permanently invested.

Since February 7, 2001, the Corporation has been included in Dow's consolidated federal income tax group and consolidated income tax return. The Corporation uses the separate return method to account for its income taxes; accordingly, there is no difference between the method used to account for income taxes at the UCC level and the formula in the Dow-UCC Tax Sharing Agreement used to compute the amount due to Dow or UCC for UCC's share of taxable income and tax attributes on Dow's consolidated income tax return.

Accounting Changes

The Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," in June 1998. SFAS No. 133 requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The Corporation adopted SFAS No. 133, as amended and interpreted by the FASB and the Derivatives Implementation Group through "Statement 133 Implementation Issues," on January 1, 2001. Due to the Corporation's limited use of financial instruments to manage its exposure to market risks, primarily related to changes in foreign currency exchange rates, the adoption of SFAS No. 133 did not have a material impact on the Corporation's consolidated financial statements. In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." This statement, which was effective for contracts entered into or modified after June 30, 2003, codifies decisions made as part of the DIG process, in connection with other FASB projects on financial instruments, and in response to implementation issues in the application of the definition of a derivative. Adoption of this statement did not impact the consolidated financial statements.

In June 2001, the FASB issued SFAS No. 141, "Business Combinations," which replaces Accounting Principles Board ("APB") Opinion No. 16, "Business Combinations." Under SFAS No. 141, all business combinations initiated after June 30, 2001 are accounted for using the purchase method. The application of SFAS No. 141 did not result in the reclassification of any amounts previously recorded as goodwill or other intangible assets.

In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets," which replaces APB Opinion No. 17, "Intangible Assets," and establishes 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 that are deemed to have indefinite useful lives are not amortized, but are subject to impairment testing. Impairment testing is required to be performed at adoption and at least annually thereafter. On an ongoing basis (absent any impairment indicators), the annual impairment test will be 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 F for additional disclosures regarding the adoption of SFAS No. 142.

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 was effective for fiscal years beginning after June 15, 2002. Adoption of SFAS No. 143 had an immaterial impact on the 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 ("EITF") 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, changed the measurement and timing of costs associated with exit and disposal activities undertaken by the Corporation.

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 were 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 FIN No. 45 can be found in Note J.

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 will be allocated the portion of expense relating to its employees who receive stock-based compensation. See Note N for disclosures related to stock-based compensation.

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 ("FSP") No. 46-6 which deferred 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 did not impact the consolidated financial statements. See Note O 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.

In December 2003, the FASB revised SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." The revised standard requires new disclosures in addition to those required by the original standard about the assets, obligations, cash flows and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. As revised, SFAS No. 132 is effective for financial statements with fiscal years ending after December 15, 2003. The interim-period disclosures required by this standard are effective for interim periods beginning after December 15, 2003. See Note L for disclosures regarding the Corporation's pension plans and other postretirement benefits.

On January 12, 2004, the FASB issued FSP No. 106-1, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003." The FSP permits a sponsor of a postretirement health care plan that provides a prescription drug benefit to make a one-time election to defer accounting for the effects of the Medicare Prescription Drug, Improvement and Modernization Act of 2003. Regardless of whether a sponsor elects that deferral, the FSP requires certain disclosures pending further consideration of the underlying accounting issues. The Corporation has elected to defer financial recognition of this legislation. See Note L for the required disclosures.

B 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 were based on management's assessment of the actions necessary to achieve synergies as a result of the Dow merger. The economic effects of these decisions, combined with merger-related transaction costs and certain asset impairments, resulted in a pretax special charge in the first quarter of 2001 of $1,275 which was reduced by $52 in subsequent quarters.

The special charge included $41 for transaction costs, which consisted primarily of investment banking, legal and accounting fees. All of these costs had been paid at March 31, 2001.

The special charge included $605 for the write-down of duplicate assets and facilities directly related to the Dow merger. Included in the write-down were charges of $292 for assets and facilities that were rendered redundant as a result of the merger, $81 for lease abandonment reserves, $138 for asset impairments, and $94 for losses on divestitures required for regulatory approval of the merger. Duplicate assets consist principally of capitalized software costs, information technology equipment and research and development facilities and equipment, all of which were written off during the first quarter of 2001. The fair values of the impaired assets, which include production facilities and transportation equipment, were determined based on discounted cash flows and an appraisal, respectively. These components of the special charge will require limited future cash outlays, and will result in a decrease in annual depreciation of approximately $62. In November 2001, the decision to close a research and development facility in Bound Brook, New Jersey was reversed, in light of difficult economic conditions; the facility will now remain open until at least 2005. Consequently, $55 of the special charge was reversed during the fourth quarter of 2001.

The charge included $629 for employee-related costs, which consisted predominantly of provisions for employee severance, change of control obligations, medical and retirement benefits, and outplacement services. The charge was increased by $3 during 2001, as the original estimates of amounts expected to be paid were further refined. The integration plans included a workforce reduction of approximately 4,200 people. The charge for severance was based upon the severance plan provisions communicated to employees. According to the initial integration plans, the Corporation expected to expend approximately 66 percent of the employee-related costs within the first two years following the Dow merger, though the timing of severance payments was dependent upon employee elections. Expenditures with respect to employee-related costs associated with pension and postretirement benefit plans will occur over a much more extended period. As of December 31, 2001, severance of $327 had been paid to approximately 2,900 former employees. In the first three quarters of 2002, severance of $91 was paid to approximately 1,030 former employees, bringing the program-to-date amount to $418 paid to approximately 3,930 former employees. The severance provision was increased an additional $13 in the third quarter of 2002, and the planned merger-related program for workforce reductions was completed in the fourth quarter of 2002.

The following table summarizes the activity in the special charge reserve:

	Transaction Costs			Write-down of Duplicate Assets and Facilities			Labor-related Costs			Total
2001:
Special charge	$	41		$	605		$	629		$	1,275
Adjustments to reserve		—			(55	)		3			(52	)
Charges against reserve	$	(41	)		(473	)		(327	)		(841	)

Balance at Dec. 31, 2001		—		$	77		$	305		$	382

2002:
Charges against reserve		—		$	(12	)	$	(91	)	$	(103	)
Adjustments to reserve		—			—			13			13
Completion of program (1)		—			(65	)		(227	)		(292	)

Balance at Dec. 31, 2002		—			—			—			—

(1): Upon completion of the program, the outstanding merger-related reserve for employee-related costs associated with pension and postretirement benefit plans is considered part of the Corporation's regular pension and other postretirement obligations. The reserve for leased facilities is included in "Other noncurrent obligations."

During the fourth quarter of 2002, additional severance of $5 was recorded for merger-related severance and was paid to 48 former employees and an additional charge of $34 was recorded for merger-related severance. Under this revised severance program, which was completed in the first quarter of 2003, $55 was paid to 668 former employees.

Other Restructuring

In late 2002, following the appointment of a new CEO at Dow, all businesses and subsidiaries were asked to undertake a review of all underutilized or underperforming assets. Prior to the end of 2002, certain studies were completed and management made decisions relative to certain assets. The restructuring charge in 2002 included an asset write-down of $44, related to the shutdown of an ethylene manufacturing facility in Texas, which represented the net book value of the facility.

In the first quarter of 2003, certain studies regarding non-strategic or under-performing assets were completed and management made decisions relative to certain assets. These decisions resulted in the write-off of the net book value of three manufacturing facilities totaling $24 (the largest of which was $16 associated with the impairment and shut down of the ethylene production facilities in Seadrift, Texas, in the third quarter of 2003) included in cost of sales, and the impairment of a chemical transport vessel (sold in the second quarter of 2003) of $11 included in sundry income (expense).

C EXCHANGE OF OWNERSHIP INTERESTS WITH RELATED COMPANIES

Effective June 30, 2001, the Corporation contributed all of its ownership interests in several wholly owned entities in Europe and Latin America to wholly owned subsidiaries of Dow. In return for the contribution of interests, the Corporation received newly issued shares of stock in the acquiring companies.

Effective September 30, 2001, the Corporation contributed all of its ownership interests in several wholly owned entities in Latin America to a Brazilian subsidiary of Modeland International Holdings Inc. ("Modeland"), a wholly owned subsidiary of Dow, in exchange for newly issued shares of Modeland.

Effective October 1, 2001, the Corporation contributed all of its ownership interests in Union Carbide Canada, Inc. ("UCCI") to Dow Chemical Canada Inc. ("DCCI"), a wholly owned subsidiary of Dow, in exchange for newly issued shares of DCCI stock. The transaction included the contribution of UCCI's equity investments in Alberta & Orient Glycol Company Limited, and Petromont and Company, Limited Partnership ("Petromont").

Investments in the Dow subsidiaries have been accounted for using the cost method and have been included in "Investments in related companies" in the consolidated balance sheet at the book values of the net assets contributed. The shares of stock in each acquiring company received was in proportion to the relative fair market values of the combined assets.

The following tables present the combined summarized balance sheet and income statement data of the contributed entities at their respective contribution dates in 2001.

Summarized Balance Sheet Information

Current assets	$	816
Noncurrent assets		1,079

Total assets	$	1,895

Current liabilities	$	955
Noncurrent liabilities		632

Total liabilities	$	1,587

Cumulative translation adjustment	$	172

Net Assets	$	480

Summarized Income Statement Information

Sales	$	750
Income (Loss) before Income Taxes and Minority Interests		342
Net income		340

D INVENTORIES

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

Inventories at December 31	2003		2002
Finished goods	$	59	$	96
Work in process		25		28
Raw materials		25		24
Supplies		73		71

Total inventories	$	182	$	219

The reserves reducing inventories from the first-in, first-out ("FIFO") basis to the last-in, first-out ("LIFO") basis amounted to $96 at December 31, 2003 and $81 at December 31, 2002. The inventories that were valued on a LIFO basis, principally U.S. chemicals and plastics product inventories, represented 48 percent of the total inventories at December 31, 2003 and 52 percent of the total inventories at December 31, 2002.

A reduction of certain inventories resulted in the liquidation of some quantities of LIFO inventory, which increased pretax income by $2 in 2003, and reduced pretax loss $31 in 2002 and $53 in 2001.

E PROPERTY

Property at December 31	Estimated Useful Lives (Years)	2003		2002
Land	—	$	51	$	57
Land and waterway improvements	15-25		215		216
Buildings	5-55		567		573
Machinery and equipment	3-20		5,933		5,962
Utility and supply lines	5-20		60		53
Other	3-30		473		603
Construction in progress	—		76		103

Total property		$	7,375	$	7,567

	2003		2002		2001
Depreciation expense	$	317	$	307	$	378
Manufacturing maintenance and repair costs		194		204		241
Capitalized interest		4		3		13

F GOODWILL AND OTHER INTANGIBLE ASSETS

The Corporation ceased amortizing goodwill upon adoption of SFAS No. 142 on January 1, 2002 (see Note A). The following table provides pro forma results for the year ended December 31, 2001, as if the non-amortization provisions of SFAS No. 142 had been applied in 2001, compared with actual results for the years ended December 31, 2003 and 2002:

		2003		2002			2001
Reported net income (loss)		$	313	$	(510	)	$	(699	)
Add back:
	Goodwill amortization, net of tax		—		—			5
	Equity method goodwill amortization, net of tax		—		—			2

Adjusted net income (loss)		$	313	$	(510	)	$	(692	)

During the fourth quarter of 2003, impairment tests for goodwill were performed in conjunction with Dow's annual budgeting process. As a result of this review, it was determined that no goodwill impairments existed.

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

Other Intangible Assets at December 31		2003							2002
		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		(83	)		16		95		(82	)		13
	Other		1		(1	)		—		1		(1	)		—

	Total	$	141	$	(118	)	$	23	$	137	$	(114	)	$	23

Amortization expense for other intangible assets (not including software) was $4 in 2003 and 2002, and $5 in 2001. Amortization expense for software, which is included in cost of sales, totaled $2 in 2003 and $4 in 2002 and 2001. Total estimated amortization expense for the next five fiscal years is as follows:

	Estimated Amortization Expense
2004	$	5.5
2005		2.4
2006		2.0
2007		1.9
2008		1.8

G SIGNIFICANT NONCONSOLIDATED AFFILIATES

The Corporation's investments in related companies accounted for by the equity method ("nonconsolidated affiliates") were $626 at December 31, 2003 and $539 at December 31, 2002. At December 31, 2003, the Corporation's investment in EQUATE Petrochemical Company K.S.C. ("EQUATE") was $71 less than its proportionate share of the underlying net assets ($89 at December 31, 2002). This amount represents the difference between the value of certain EQUATE assets and the Corporation's related valuation on a U.S. GAAP basis and as such is being amortized over the remaining four-year useful life of the assets. Differences between the Corporation's investments in nonconsolidated affiliates and its share of the investees' net assets (except EQUATE) were $15 at December 31, 2003 and December 31, 2002. Prior to 2002, these amounts were being amortized over the estimated useful lives, which ranged from 5 to 40 years. Amortization ceased effective January 1, 2002, in accordance with SFAS No. 142, "Goodwill and Other Intangible Assets" (see Note F).

UCC's principal nonconsolidated affiliates and the Corporation's ownership interest for each at December 31, 2003, 2002 and 2001 are shown below:

Principal Nonconsolidated Affiliates at December 31
		Ownership Interest
		2003		2002		2001
EQUATE Petrochemical Company K.S.C.		45	%	45	%	45	%
Nippon Unicar Company Limited		50	%	50	%	50	%
The OPTIMAL Group:
	OPTIMAL Chemicals (Malaysia) Sdn Bhd	50	%	50	%	50	%
	OPTIMAL Glycols (Malaysia) Sdn Bhd	50	%	50	%	50	%
	OPTIMAL Olefins (Malaysia) Sdn Bhd	23.75	%	23.75	%	23.75	%
Univation Technologies, LLC		50	%	50	%	50	%
UOP LLC		50	%	50	%	50	%

The Corporation's investment in these companies was $618 at December 31, 2003 and $527 at December 31, 2002, and its equity in their earnings was $220 in 2003, $47 in 2002 and $44 in 2001. All of the nonconsolidated affiliates in which the Corporation has investments are privately held companies; therefore, quoted market prices are not available. The summarized financial information presented below represents the combined accounts (at 100 percent) of the principal nonconsolidated affiliates.

Summarized Balance Sheet Information at December 31	2003		2002
Current assets	$	1,287	$	1,089
Noncurrent assets		2,886		2,973

Total assets	$	4,173	$	4,062

Current liabilities	$	1,097	$	766
Noncurrent liabilities		1,794		1,962

Total liabilities	$	2,891	$	2,728

Summarized Income Statement Information	2003		2002		2001
Sales	$	2,690	$	2,199	$	1,657
Gross profit		977		776		630
Net income		456		39		11

During 2001, the Corporation, Petroliam Nasional Berhad (Petronas) and Polifin International Investments (PTY) Ltd. entered into agreements with the OPTIMAL Group to provide loans and drawing facilities to the OPTIMAL Group with terms expiring between September 2007 and September 2009. The loans and drawing facilities bear floating interest rates based on the six month London Interbank Offer Rate ("LIBOR") and are payable by the respective OPTIMAL Group members. Advances made by the Corporation to the OPTIMAL Group were converted into loans and sold to a third party. The loans amounted to $339 at December 31, 2003 and $405 at December 31, 2002.

Dividends received from nonconsolidated affiliates were $68 in 2003, $53 in 2002 and $10 in 2001. In December 2003, EQUATE reduced its share capital, resulting in a cash distribution of $63 received by the Corporation and a corresponding reduction in the Corporation's investment in EQUATE. The Corporation's percentage of ownership of EQUATE was not affected.

H FINANCIAL INSTRUMENTS

Investments

The Corporation's investments in marketable securities are primarily classified as available-for-sale. Maturities for 100 percent of the debt securities were less than five years at December 31, 2003.

Investing Results	2003			2002			2001
Proceeds from sales of available-for-sale securities	$	16		$	24		$	245
Gross realized gains		—			1			30
Gross realized losses		(3	)		(1	)		(9	)

Fair Value of Financial Instruments at December 31

		2003											2002
		Cost			Gain		Loss			Fair Value			Cost			Gain		Loss			Fair Value
Marketable securities:
	Debt securities	$	6			—		—		$	6		$	6			—		—		$	6
	Equity securities		3			—		—			3			15			—	$	(3	)		12

Total		$	9			—		—		$	9		$	21			—	$	(3	)	$	18

Long-term debt including debt due within one year		$	(1,288	)	$	71		—		$	(1,217	)	$	(1,668	)	$	43	$	(24	)	$	(1,649	)
Derivatives relating to foreign currency			—		$	1	$	(1	)		—			—			—	$	(1	)	$	(1	)

Cost approximates fair value for all other financial instruments.

The Corporation enters into foreign exchange forward contracts to hedge various currency exposures, primarily related to assets and liabilities denominated in foreign currencies. The primary business objective of the activity is to optimize the U.S. dollar value of the Corporation's assets and liabilities. Assets and liabilities denominated in the same foreign currency are netted, and only the net exposure is hedged.

The Corporation has forward contracts to buy, sell or exchange foreign currencies with expiration dates in the first quarter of the next year. At December 31, 2003, the Corporation did not designate any derivatives as hedges. However, a nonconsolidated affiliate of the Corporation has hedging activities that are accounted for as cash flow hedges in accordance with SFAS No. 133. The Corporation's proportionate share of the hedging results recorded in accumulated other comprehensive income by the nonconsolidated affiliate was reported as net hedging results in the Corporation's Consolidated Statements of Stockholder's Equity in accordance with SFAS No. 130, "Reporting Comprehensive Income."

I SUPPLEMENTARY INFORMATION

Accrued and Other Current Liabilities at December 31	2003		2002
Accrued payroll	$	20	$	19
Interest payable		21		23
Accrued miscellaneous taxes		29		33
Impairment of unused office space		29		29
Postretirement benefit obligation		58		50
Other		80		72

Total	$	237	$	226

Other Noncurrent Obligations at December 31	2003		2002
Environmental remediation costs	$	109	$	130
Impairment of unused office space		42		72
Deferred income		112		138
Other		214		257

Total	$	477	$	597

Sundry Income (Expense)—Net	2003			2002			2001
Net gain on sales of assets and securities (1)	$	54		$	12		$	29
Foreign exchange gain (loss)		(1	)		29			(2	)
Related company commissions, net		(40	)		(61	)		(40	)
Other—net		12			17			13

Total	$	25		$	(3	)	$	—

(1): 2003 included a gain of $35 on the sale of several product lines of Amerchol Corporation, a wholly owned subsidiary.

Other Supplementary Information	2003			2002			2001
Cash payments for interest	$	119		$	134		$	196
Cash payments (receipts) for income taxes		17			49			(32	)
Provision for doubtful receivables		(1	)		(1	)		9

Sales of Trade Accounts Receivables

The Corporation entered into an agreement in June 2001 to sell, without recourse, a participation in a pool of qualifying trade accounts receivables. As receivables in the pool were collected, new receivables were added. The agreement was amended in 2002 to reduce the maximum available accounts receivable from $300 to $250 and to include Dow trade accounts receivable in the pool. The Corporation sold its trade receivables through May 2002. Since then, there have been no further sales of UCC trade accounts receivable. The average monthly participation in the pool was $12 in 2002 and $281 in 2001 for the periods during which the Corporation sold trade accounts receivable. The net cash flow in any given period represented the discount on sales, which was recorded as interest expense. The average monthly discount was approximately $0.0 in 2002 and $0.8 in 2001.

J 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 at December 31, 2002 for environmental remediation and restoration costs, including $35 for the remediation of Superfund sites. At December 31, 2003, the Corporation had accrued obligations of $109 for environmental remediation and restoration costs, including $33 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.

The following table summarizes the activity in the Corporation's accrued obligations for environmental matters for the years ended December 31, 2003 and 2002:

Accrued Liability for Environmental Matters	2003			2002
Balance at beginning of year	$	130		$	147
Adjustments to reserve		2			20
Charges against reserve		(23	)		(37	)

Balance at end of year	$	109		$	130

The amounts charged to income on a pretax basis related to environmental remediation totaled $2 in 2003, $20 in 2002 and $3 in 2001. Capital expenditures for environmental protection were $20 in 2003, $9 in 2002 and $7 in 2001.

Litigation

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.

•: 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.

•: In the near term, the number of future claims to be filed against UCC and Amchem will be at a level consistent with levels experienced immediately prior to 2001.
•: The number of future claims to be filed against UCC and Amchem will decline at a fairly constant rate each year from 2003.
•: The percentage of claims settled by UCC and Amchem out of the total claims resolved (whether by settlement or dismissal) will be consistent with the percentage for 2001 and 2002.
•: The average settlement value for pending and future claims will be equivalent to those experienced during 2001 and 2002.

At December 31, 2002, the Corporation increased the receivable for insurance recoveries related to its asbestos liability to $1.35 billion, substantially exhausting its asbestos product liability coverage. Combined with the previously mentioned increase in the asbestos-related liability at December 31, 2002, this resulted in a net income statement impact of $828, $522 on an after-tax basis, in the fourth quarter of 2002. 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. At December 31, 2003, the receivable for insurance recoveries related to asbestos liability was $1.0 billion.

In addition, the Corporation had receivables for defense and resolution costs submitted to insurance carriers for reimbursement as follows:

Receivables for Costs Submitted to Insurance Carriers at December 31
	2003		2002
Receivables for defense costs	$	94	$	77
Receivables for resolution costs		255		142

Total	$	349	$	219

The Corporation's insurance policies generally provide coverage for asbestos liability costs, including coverage for both resolution and defense costs. As previously noted, the Corporation increased its receivable for insurance recoveries related to its asbestos liability at December 31, 2002, thereby recording the full favorable income statement impact of its insurance coverage in 2002. Accordingly, defense and resolution costs recovered from insurers reduce the insurance receivable. Prior to increasing the insurance receivable related to the asbestos liability at December 31, 2002, the impact on results of operations for defense costs was the amount of those costs not covered by insurance. Since the Corporation expenses defense costs as incurred, defense costs for asbestos-related litigation (net of insurance) have impacted, and will continue to impact results of operations. The pretax impact for defense and resolution costs, net of insurance, was $94 in 2003, $9 in 2002 and $9 in 2001, and was reflected in "Cost of sales."

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 various purchase agreements, including one major agreement for the purchase of ethylene-related products in Canada. In December 2003, the Corporation assigned its rights and obligations under this purchase agreement to a wholly owned subsidiary of Dow. Total purchases under the ethylene-related agreement were $93 in 2003, $62 in 2002 and $63 in 2001.

The fixed and determinable portion of obligations under purchase commitments at December 31, 2003 are presented in the following table:

Fixed and Determinable Portion of Take or Pay and Throughput Obligations at December 31, 2003
2004	$	17
2005		16
2006		16
2007		14
2008		14
2009 through expiration of contracts		45

Total	$	122

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 Guarantees

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

The following table provides 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 December 31, 2003		Final Expiration		Maximum Future Payments			Recorded Liability
Guarantees		2007		$	11		—

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

Total		$	99	—

K NOTES PAYABLE AND LONG-TERM DEBT

Notes payable consists primarily of revolving loan agreements with Dow.

Notes Payable at December 31	2003			2002
Notes payable—other	$	2		$	6
Notes payable—related companies		23			310

Total	$	25		$	316

Year-end average interest rates		1.71	%		1.54	%

Long-Term Debt at December 31

		2003 Average Rate		2003			2002 Average Rate		2002
Promissory notes and debentures:
	6.25% Notes due 2003	—			—		6.25	%	$	250
	6.75% Notes due 2003	—			—		6.75	%		125
	6.70% Notes due 2009	6.70	%	$	250		6.70	%		250
	8.75% Debentures due 2022	8.75	%		117		8.75	%		117
	7.875% Debentures due 2023	7.875	%		175		7.875	%		175
	6.79% Debentures due 2025 (1)	6.79	%		250		6.79	%		250
	7.50% Debentures due 2025	7.50	%		150		7.50	%		150
	7.75% Debentures due 2096	7.75	%		200		7.75	%		200
Other facilities—various rates and maturities:
	Pollution control/industrial revenue bonds, varying maturities through 2023	6.60	%		152		6.37	%		157
	Unexpended construction funds	—			(2	)	—			(2	)
Unamortized debt discount		—			(4	)	—			(4	)
Long-term debt due within one year		—			(16	)	—			(380	)

Total		7.30	%	$	1,272		7.06	%	$	1,288

(1): Holders may request redemption on June 1, 2005.

Annual Installments on Long-Term Debt for the Next Five Years
2004	$	16
2005		16
2006		2
2007		8
2008		5

The Corporation's outstanding public debt has been issued under indentures which contain, among other provisions, covenants that the Corporation must comply with while the underlying notes are outstanding. Such covenants are typical based on the Corporation's size and financial position and include, subject to the exceptions and qualifications contained in the indentures, obligations not to (i) allow liens on principal U.S. manufacturing facilities, (ii) enter into sale and lease-back transactions with respect to principal U.S. manufacturing facilities, or (iii) merge into or consolidate with any other entity or sell or convey all or substantially all of its assets. Failure of the Corporation to comply with any of these covenants could, after the passage of any applicable grace period, result in a default under the applicable indenture which would allow the note holders to accelerate the due date of the outstanding principal and accrued interest on the subject notes. As of December 31, 2003, the Corporation was in compliance with all of the covenants and default provisions referred to above.

L PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS

Pension Plans

The Corporation has a defined benefit pension plan that covers substantially all employees in the United States. Benefits are based on length of service and the employee's three highest consecutive years of compensation.

The Corporation's funding policy is to contribute to the plan when pension laws and economics either require or encourage funding. In 2004, UCC does not expect to contribute assets to its qualified pension plan trust. The Corporation also has a non-qualified supplemental pension plan. Benefit payments to retirees under this plan are expected to be $5 in 2004.

The weighted-average assumptions used to determine pension plan obligations and net periodic benefit costs are provided below:

Pension Plan Assumptions

	Benefit Obligations at December 31				Net Periodic Costs for the Year
	2003		2002		2003		2002
Discount rate	6.25	%	6.75	%	6.75	%	7.00	%
Rate of increase in future compensation levels	4.50	%	5.00	%	5.00	%	5.00	%
Long-term rate of return on assets	—		—		9.00	%	9.25	%

The basis for determining the long-term rate of return is a combination of historical returns and prospective return assumptions derived from a combination of research and industry forecasts.

The accumulated benefit obligation for all defined benefit pension plans was $3.7 billion at December 31, 2003 and $3.5 billion at December 31, 2002.

Pension Plans with Accumulated Benefit Obligations in Excess of Plan Assets at December 31
	2003		2002
Projected benefit obligation	$	3,741	$	3,556
Accumulated benefit obligation		3,707		3,509
Fair value of plan assets		3,658		3,350

Other Postretirement Benefits

The Corporation provides certain health care and life insurance benefits to retired U.S. employees. The plan provides health care benefits, including hospital, physicians' services, drug and major medical expense coverage, and life insurance benefits. The Corporation and the retiree share the cost of these benefits, with the Corporation portion increasing as the retiree has increased years of credited service. There is a cap on the Corporation portion. The Corporation has the ability to change these benefits at any time.

The Corporation funds most of the cost of these health care and life insurance benefits as incurred. In 2004, UCC does not expect to contribute assets to its other postretirement benefit plans. Benefit payments to retirees under these plans are expected to be $52 in 2004.

On December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the "Act") was signed into law. The Act expanded Medicare to include, for the first time, coverage for prescription drugs. UCC sponsors retiree medical programs. The Corporation expects that this legislation will eventually reduce its costs for some of these programs.

At this point, the Corporation's analysis regarding the impact of the legislation is preliminary, as it awaits guidance from various governmental and regulatory agencies concerning the requirements that must be met to obtain these cost reductions, as well as the manner in which such savings should be measured. Based on this preliminary analysis, it appears that some of the Corporation's retiree medical plans may need to be modified in order to qualify for beneficial treatment under the Act.

Because of various uncertainties related to UCC's response to this legislation and the appropriate accounting methodology for this event, the Corporation has elected to defer financial recognition of this legislation until the FASB issues final accounting guidance. When issued, the final guidance could require the Corporation to change previously reported information. This deferral election is permitted under FSP No. 106-1, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003."

The weighted-average assumptions used to determine other postretirement benefit obligations and net periodic benefit costs for the plans are provided in the following table:

Plan Assumptions for Other Postretirement Benefits	Benefit Obligations at December 31				Net Periodic Costs for the Year
	2003		2002		2003		2002
Discount rate	6.25	%	6.75	%	6.75	%	7.00	%
5-year projected medical cost trend, remaining constant thereafter (1)	6.71 - 6.71	%	7.23 - 6.78	%	7.23 - 6.78	%	7.52 - 6.68	%

(1): Reflects the cap on the Corporation's portion of health care benefits

Increasing the assumed medical cost trend rate by 1 percentage point in each year would increase the accumulated postretirement benefit obligation at December 31, 2003 by $1 and the net periodic postretirement benefit cost for the year by $1. Decreasing the assumed medical cost trend rate by 1 percentage point in each year would decrease the accumulated postretirement benefit obligation at December 31, 2003 by $1 and the net periodic postretirement benefit cost for the year by $1.

Net Periodic Benefit Cost for all Significant Plans	Defined Benefit Pension Plans									Other Postretirement Benefits
	2003			2002			2001			2003			2002			2001
Service cost	$	27		$	28		$	43		$	10		$	9		$	11
Interest cost		233			236			228			40			40			36
Expected return on plan assets		(372	)		(385	)		(361	)		—			—			—
Amortization of transition obligation		—			—			(1	)		—			—			—
Amortization of prior service cost (credit)		3			—			3			(6	)		(6	)		(9	)
Amortization of unrecognized (gain) loss		1			(26	)		(30	)		5			3			3
Special termination/curtailment cost (credit) (1)		—			(4	)		141			—			(26	)		107

Net periodic benefit cost (credit)	$	(108	)	$	(151	)	$	23		$	49		$	20		$	148

(1): See Note B regarding a special charge for merger-related expenses and restructuring recorded during 2001.

Change in Projected Benefit Obligation, Plan Assets and Funded Status of all Significant Plans

	Defined Benefit Pension Plans						Other Postretirement Benefits
Change in projected benefit obligation	Defined Benefit Pension Plans						Other Postretirement Benefits
Change in projected benefit obligation	2003			2002			2003			2002
Benefit obligation at beginning of year	$	3,556		$	3,379		$	624		$	605
Service cost		27			28			10			9
Interest cost		233			236			40			40
Amendments		—			18			(29	)		—
Actuarial changes in assumptions and experience		208			217			25			36
Benefits paid		(281	)		(315	)		(46	)		(53	)
Special termination/curtailment credit		—			(7	)		—			(13	)

Benefit obligation at end of year	$	3,743		$	3,556		$	624		$	624

Change in plan assets
Market value of plan assets at beginning of year	$	3,350		$	3,828			—			—
Actual return on plan assets		581			(226	)		—			—
Employer contributions		8			63			—			—
Benefits paid		(281	)		(315	)		—			—

Market value of plan assets at end of year	$	3,658		$	3,350			—			—

Funded status and net amounts recognized
Plan assets less than benefit obligation	$	(85	)	$	(206	)	$	(624	)	$	(624	)
Unrecognized prior service cost (credit)		17			19			(33	)		(11	)
Unrecognized net loss		462			465			123			112

Net amounts recognized in the consolidated balance sheets	$	394		$	278		$	(534	)	$	(523	)

	Defined Benefit Pension Plans						Other Postretirement Benefits
Net amounts recognized in the consolidated balance sheets consist of:	Defined Benefit Pension Plans						Other Postretirement Benefits
	2003			2002			2003			2002
Accrued benefit liability	$	(51	)	$	(163	)	$	(534	)	$	(523	)
Prepaid benefit cost		—			2			—			—
Additional minimum liability—intangible asset		23			26			—			—
Other comprehensive income		422			413			—			—

Net amounts recognized in the consolidated balance sheets	$	394		$	278		$	(534	)	$	(523	)

The Corporation uses a December 31 measurement date for all of its plans.

Plan Assets

Plan assets consist mainly of equity and fixed income securities of U.S. and foreign issuers. At December 31, 2003, plan assets totaled $3.7 billion and included Dow common stock with a value of $148 (4 percent of total plan assets). At December 31, 2002, plan assets totaled $3.4 billion and included Dow common stock with a value of $105 (3 percent of total plan assets).

Weighted-Average Allocation of Plan Assets at
December 31

	Defined Benefit Pension Plans
	2003		2002
Equity securities	61	%	55	%
Debt securities	29	%	33	%
Other	10	%	12	%

Total	100	%	100	%

Investment Strategy and Risk Management for Plan Assets

The Corporation's investment strategy for the plan assets is to manage the assets in order to pay retirement benefits to plan participants while minimizing cash contributions from the Corporation over the life of the plans. This is accomplished by preserving capital through diversification in high-quality investments and earning an acceptable long-term rate of return consistent with an acceptable degree of risk, while considering the liquidity needs of the plans.

The plans are permitted to use derivative instruments for investment purposes, as well as for hedging the underlying asset exposure and re-balancing the asset allocation. The plans use value at risk to monitor risk in the portfolios.

An asset/liability study using the plans' projected total benefit obligation was conducted to determine the optimal strategic asset allocation to meet the plans' long-term investment strategy. The study was conducted by the Corporation's actuary and corroborated with other outside experts.

Strategic Target Allocation of Plan Assets
Asset Category	Target Allocation		Range
Equity securities	40	%	+/- 15%
Debt securities	40	%	+/- 10%
Real estate	5	%	+/- 2%
Other	15	%	+/- 6%

Total	100	%

M LEASED PROPERTY

The Corporation has operating leases primarily for facilities and distribution equipment. The future minimum rental payments under operating leases with remaining non-cancelable terms in excess of one year are:

Minimum Operating Lease Commitments at December 31, 2003
2004	$	64
2005		59
2006		52
2007		6
2008		1
2009 and thereafter		4

Total	$	186
Less: future sublease rentals		50

Net minimum rental commitments	$	136

The Corporation's Danbury, Connecticut, office building lease represents $87 of the net minimum rental commitment. Rental expenses under operating leases (net of sublease rental income of $16 in each of the last three years) were $74 for 2003, $75 for 2002 and $70 for 2001.

N STOCK COMPENSATION PLANS

As a result of the Dow merger, all outstanding UCC nonqualified stock option grants were converted to Dow common stock options using the exchange ratio of 1.611 (i.e., one Union Carbide option was converted to 1.611 Dow options) and UCC restricted stock immediately vested and was converted to Dow common stock.

Dow manages UCC's 1997 Long-Term Incentive Plans and 1997 Stock Option Plan for Non-Employee Directors. These plans maintain their respective terms and conditions. Before the merger, prior plans had options outstanding with terms generally similar to nonqualified stock options under the 1997 Plan. Since the merger, all new option grants were distributed from Dow's 1988 Award and Option Plan.

The 1997 Union Carbide Long-Term Incentive Plan for key employees provided for granting incentive and nonqualified stock options; exercise payment rights; grants of stock, including restricted stock, and performance awards. The number of shares granted or subject to options could not exceed 8.5 million under the plan. Option prices were equal to the closing price of the Corporation's common stock on the date of the grant, as listed on the New York Stock Exchange Composite Transactions. Options generally became exercisable two years after such date. Options did not have a duration of more than ten years. The option price may have been settled in cash, common shares of the Corporation currently owned by a participant, withholding stock shares from the exercise or a combination of these alternatives. Holders of restricted stock award shares were entitled to vote and dividends were credited to the holder's account, but these shares were generally nontransferable for varying periods of time after the grant date. Once the vesting conditions were met, the shares became fully transferable. Performance awards were paid in common stock, cash or other forms of property.

The following table summarizes the stock option activity of the Corporation's stock option plans:

Shares (in thousands)	2001
	Shares		Exercise Price*
Outstanding at beginning of year	13,781		$	36.34
Granted	—			n/a
Exercised	(309	)		9.55
Forfeited/Expired	(6	)		43.43
Converted pursuant to Dow Merger	(13,466	)		36.97

Outstanding at end of year	—			n/a

Exercisable at end of year	—			n/a
Fair value of options granted during the year				n/a

*: Weighted-average per share.

In January 2003, Dow began expensing stock-based compensation newly issued in 2003 to employees in accordance with the fair value based method of accounting set forth in SFAS No. 123, "Accounting for Stock-Based Compensation." The Corporation was allocated expense of approximately $1 relating to its employees who received stock-based compensation in 2003.

O 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 $1.5 billion in 2003, $1.1 billion in 2002 and $789 in 2001.

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 (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 or obtain credit enhancements up to an aggregate of $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. In an agreement effective January 1, 2004, the maturity date of the new revolving loan agreement was extended to March 25, 2005; however, Dow may demand repayment with a 30-day written notice to the Corporation. At December 31, 2003, there was $656 available under the revolving loan agreement. The Corporation had a note receivable of $100 from Dow under a separate revolving loan agreement at December 31, 2003.

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 or from Dow be made 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.

In April 2002, the Corporation sold its ownership interest in a subsidiary in The People's Republic of China to a Dow subsidiary also located in The People's Republic of China for approximately $20. 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.

The Corporation declared and paid a dividend of approximately $257 to its shareholder on April 15, 2002.

P STOCKHOLDER'S EQUITY

As a result of the Dow merger, the Corporation's total authorized shares of common stock were reduced from 500 million to 1,000 and all of the Corporation's common stock was retired, except for the 1,000 shares that remained outstanding and owned by Dow. Effective with the Dow merger, the Corporation had 1,000 common shares authorized, issued, and outstanding. The retirement of the common stock initially resulted in an increase in additional paid-in capital ("APIC") due to the capital restructuring. The shares held in treasury were then also retired in the same manner, which caused a reduction in APIC to zero, and because the cost of the treasury stock was in excess of the available APIC, the additional amount was recorded as a reduction to retained earnings.

Prior to the Dow merger, the Corporation issued 0.5 million treasury shares to employees under option and purchase programs in 2001.

Gross undistributed earnings of nonconsolidated affiliates included in retained earnings were $221 in 2003, $109 in 2002 and $91 in 2001.

Q EMPLOYEE STOCK OWNERSHIP PLAN

The Corporation established the Union Carbide Corporation Employee Stock Ownership Plan ("UCC ESOP") in 1990 as an integral part of the Union Carbide Savings and Investment Program. On December 27, 2001, the UCC ESOP and the Dow Employee Stock Ownership Plan were merged into one ESOP trust under The Dow Chemical Company Employees' Savings Plan ("the ESOP"). The Corporation is allocated a portion of expense relating to its employees who participate in the ESOP, which was not material in 2003 and 2002. Expense associated with the UCC ESOP was not material in 2001.

In 1990, the Corporation loaned the UCC ESOP $325 at 10 percent per annum with a maturity date of December 31, 2005. On December 27, 2001, subsequent to the merger of the two plans, the loan was restructured with a new maturity date of December 31, 2023, and a new interest rate of 6.96 percent. The outstanding balance of the restructured loan was $15 at December 31, 2003 and $32 at December 31, 2002, and is reported in "Accounts and notes receivable—related companies" in the consolidated balance sheet.

R INCOME TAXES

Operating loss carryforwards at December 31, 2003 amounted to $745 compared with $1,308 at the end of 2002. Of the operating loss carryforwards, $5 is subject to expiration in the years 2004 through 2008. The remaining balances expire in years beyond 2008 or have an indefinite carryforward period. Tax credit carryforwards at December 31, 2003 amounted to $315, of which $38 is subject to expiration in the years 2004 through 2008. The remaining tax credit carryforwards expire in years beyond 2008. Due to improved taxable income in the United States in 2003, in combination with the execution of new tax planning strategies, the Corporation now expects to be able to utilize foreign tax credits that might have otherwise expired unused; therefore, at year-end, the valuation allowance of $59 related to foreign tax credits was reversed.

Undistributed earnings of foreign subsidiaries and related companies that are deemed to be permanently invested amounted to $83 at December 31, 2003, $104 at December 31, 2002 and $136 at December 31, 2001. It is not practicable to calculate the unrecognized deferred tax liability on those earnings.

Domestic and Foreign Components of Income (Loss) Before Income Taxes and Minority Interests
	2003		2002			2001
Domestic	$	403	$	(702	)	$	(1,420	)
Foreign		11		69			99

Total	$	414	$	(633	)	$	(1,321	)

Reconciliation to U.S. Statutory Rate	2003			2002			2001
Taxes at U.S. statutory rate	$	145		$	(222	)	$	(462	)
Equity earnings effect		(21	)		6			(4	)
Foreign rates other than 35%		8			(7	)		(12	)
U.S. tax effect of foreign earnings and dividends (1)		(81	)		41			(26	)
U.S. business credits		(19	)		(3	)		(16	)
Other—net (2)		68			61			(106	)

Total tax provision (credit)	$	100		$	(124	)	$	(626	)

Effective tax rate		24.2	%		19.6	%		47.4	%

(1): Includes the effect of changes in the valuation allowance for U.S. foreign tax credits.
(2): The amount for 2001 is primarily the impact of reassessing tax contingencies based on U.S. tax audit settlements, new jurisprudence and developments in foreign jurisdictions.

Provision (Credit) for Income Taxes

	2003						2002									2001
	Current		Deferred		Total		Current			Deferred			Total			Current			Deferred			Total
Federal	$	43	$	29	$	72	$	(4	)	$	(132	)	$	(136	)	$	(55	)	$	(567	)	$	(622	)
State and local		11		4		15		5			(2	)		3			5			(32	)		(27	)
Foreign		12		1		13		12			(3	)		9			30			(7	)		23

Total	$	66	$	34	$	100	$	13		$	(137	)	$	(124	)	$	(20	)	$	(606	)	$	(626	)

Deferred Tax Balances at December 31	2003					2002
	Deferred Tax Assets		Deferred Tax Liabilities			Deferred Tax Assets			Deferred Tax Liabilities
Property	$	25	$	(485	)	$	1		$	(580	)
Tax loss and credit carryforwards		575		—			720			—
Postretirement benefit obligations		423		(143	)		314			(86	)
Other accruals and reserves		459		(63	)		497			—
Inventory		13		—			12			—
Investments		—		(1	)		—			(27	)
Other—net		49		(13	)		98			—

Subtotal	$	1,544	$	(705	)	$	1,642		$	(693	)
Valuation allowance		—		—			(59	)		—

Total	$	1,544	$	(705	)	$	1,583		$	(693	)

S BUSINESS AND GEOGRAPHIC SEGMENT INFORMATION

Since the merger, the Corporation's business activities comprise components of Dow's global businesses rather than stand-alone operations. The Corporation sells its products to Dow at market-based prices, in accordance with Dow's longstanding 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 the Corporation 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.

Sales are attributed to geographic areas based on customer location. Long-lived assets are attributed to geographic areas based on asset location. Net sales and long-lived assets by geographic area were as follows:

	United States		Asia Pacific		Rest of World		Total
*2003*
Sales to external customers	$	182	$	106	$	65	$	353
Long-lived assets		2,211		27		5		2,243

*2002*
Sales to external customers (1)	$	171	$	169	$	75	$	415
Long-lived assets		2,505		30		10		2,545

*2001*
Sales to external customers	$	2,557	$	400	$	919	$	3,876
Long-lived assets		2,788		38		12		2,838

(1): In 2002, sales to external customers in Thailand represented approximately 14 percent of total sales to external customers and were included in Asia Pacific.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

There has been no reported disagreement on any matter of accounting principles or procedures or financial statement disclosure in 2003 with the Independent Auditors.

ITEM 9A. CONTROLS AND PROCEDURES

As of the end of the period covered by this Annual Report on Form 10-K, 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(b); and whether any change has occurred in the Corporation's internal control over financial reporting pursuant to Exchange Act Rule 15d-15(d). 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; and that 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 III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Omitted pursuant to General Instruction I of Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION

Omitted pursuant to General Instruction I of Form 10-K.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Omitted pursuant to General Instruction I of Form 10-K.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Omitted pursuant to General Instruction I of Form 10-K.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Dow's Audit Committee pre-approves all auditing services and permitted non-audit services (including the fees and terms thereof) to be performed for Dow and its subsidiaries, including the Corporation, by its independent auditor, subject to the de minimus exception for non-audit services described in Section 10A(i)(1)(B) of the Exchange Act which are then approved by the Dow Audit Committee prior to the completion of the audit. The Corporation's management and its board of directors subscribe to these policies and procedures.

For the years ended December 31, 2003 and 2002, professional services were performed for the Corporation by Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu, and their respective affiliates (collectively, the "Deloitte Entities").

Audit and audit-related fees for the Corporation aggregated $1,479,000 and $1,838,000 for the years ended December 31, 2003 and 2002, respectively. Total fees paid to the Deloitte Entities were:

In thousands	2003		2002
Audit fees (a)	$	1,268	$	1,643
Audit-related fees (b)		211		195
Tax fees		9		3
All other fees		—		—

Total	$	1,488	$	1,841

(a): The aggregate fees billed for the audit of the Corporation's annual financial statements, the reviews of the financial statements in Forms 10-Q, statutory audits and other regulatory filings.
(b): Primarily for agreed-upon procedures engagements.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of this report:

1.: The Corporation's 2003 Consolidated Financial Statements and the Independent Auditors' Report are included in Item 8 of Part II.
2.: Financial Statement Schedules.

The following Financial Statement Schedule should be read in conjunction with the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K:

Schedule II Valuation and Qualifying Accounts

Schedules other than the one listed above are omitted because of the absence of the conditions under which they are required or because the information called for is included in the Consolidated Financial Statements or Notes thereto.

3.: The following financial statements of the Corporation's nonconsolidated affiliate, EQUATE Petrochemical Company K.S.C., are presented pursuant to Rule 3-09 of Regulation S-X:

		Independent Auditor's report
		Balance sheets at December 31, 2003 and 2002
		Statements of income for the years ended December 31, 2003, 2002 and 2001
		Statements of changes in shareholders' equity for the years ended December 31, 2003, 2002 and 2001
		Statements of cash flows for the years ended December 31, 2003, 2002 and 2001
		Notes to financial statements

4.: Exhibits—See the Exhibit Index on pages 73-76 of this Annual Report on Form 10-K for exhibits filed with this Annual Report on Form 10-K (see below) and for exhibits incorporated by reference.

The Corporation will provide a copy of any exhibit upon receipt of a written request for the particular exhibit or exhibits desired. All requests should be addressed to the Corporation's principal executive offices.

The following exhibits listed on the Exhibit Index are filed with this Annual Report on Form 10-K:

Exhibit No.		Description of Exhibit
10.24		Second Amended and Restated Sales Promotion Agreement, effective as of January 1, 2004, between the Corporation and The Dow Chemical Company.
10.28.2		First Amendment to Revolving Credit Agreement, effective as of March 25, 2003 between the Corporation and The Dow Chemical Company.
10.28.3		Second Amendment to Revolving Credit Agreement, dated as of January 1, 2004, between the Corporation and The Dow Chemical Company.
10.29.2		Second Amendment to Pledge and Security Agreement, effective as of January 1, 2004, between the Corporation and The Dow Chemical Company.
10.30		Amended and Restated Revolving Loan Agreement, effective as of December 1, 2001, between the Corporation and The Dow Chemical Company.
23		Analysis, Research and 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 fourth quarter of 2003.

TRADEMARKS

The following trademarks of Union Carbide Corporation or its subsidiaries appear in this report:

CARBOWAX, CELLOSIZE, FLEXOMER, LP OXO, METEOR, NEOCAR, POLYOX, POLYPHOBE, REDI-LINK, SI-LINK, TERGITOL, TRITON, TUFLIN, UCAR, UCARTHERM, UCON, UNIGARD, UNIPOL, UNIPURGE, UNIVAL

The following trademark of American Chemistry Council appears in this report: RESPONSIBLE CARE

SCHEDULE II

Union Carbide Corporation and Subsidiaries
Valuation and Qualifying Accounts

(In millions) For the Years Ended December 31
COLUMN A Description		COLUMN B Balance at Beginning of Year	COLUMN C Additions to Reserves	COLUMN D Deductions from Reserves		COLUMN E Balance at End of Year
*2003*
RESERVES DEDUCTED FROM ASSETS TO WHICH THEY APPLY:
	For doubtful receivables	$7	$1	$4	(a)	$4

*2002*
RESERVES DEDUCTED FROM ASSETS TO WHICH THEY APPLY:
	For doubtful receivables	$8	$5	$6	(a)	$7

*2001*
RESERVES DEDUCTED FROM ASSETS TO WHICH THEY APPLY:
	For doubtful receivables	$11	$10	$13	(a)	$8

		2003	2002	2001
(a)	Deductions represent:
	Notes and accounts receivable written off	$1	—	—
	Credits to profit and loss	3	$1	$3
	Miscellaneous other	—	5	10

		$4	$6	$13

INDEPENDENT AUDITOR'S REPORT

To the Board of Directors and Shareholders
EQUATE Petrochemical Company KSC (Closed)

We have audited the accompanying balance sheet of EQUATE Petrochemical Company KSC (Closed) ("the Company"), a venture between Union Carbide Corporation, Petrochemical Industries Company and Boubyan Petrochemical Company, as of December 31, 2003 and 2002, and related statements of income, cash flows and changes in shareholders' equity for each of the three years in the period ended December 31, 2003. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

In our opinion, the financial statements present fairly, in all material respects, the financial position of EQUATE Petrochemical Company KSC (Closed) as of December 31, 2003 and 2002, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2003 in conformity with International Financial Reporting Standards ("IFRS").

The accounting principles reflected in the above mentioned financial statements prepared in conformity with IFRS vary in certain respects from accounting principles generally accepted in the United States of America ("U.S. GAAP"). A description of these differences and adjustments required to conform net income for each of the three years in the period ended December 31, 2003 and shareholders' equity as of December 31, 2003 and 2002 to U.S. GAAP are set forth in Note 16 to the financial statements.

/s/ JASSIM AHMAD AL-FAHAD
Jassim Ahmad Al-Fahad
Al-Fahad & Co., Deloitte & Touche
License No. 53-A

February 10, 2004
Kuwait

EQUATE Petrochemical Company KSC (Closed)
Balance Sheets

(In thousands) At December 31	Note	2003		2002
ASSETS
Current assets
Bank balances and deposits	3	$	110,164	$	65,575
Trade receivables			105,789		63,585
Inventories	4		43,911		57,537
Prepayments and other assets			9,083		4,714

			268,947		191,411

Non-current assets
Property, plant and equipment, net	5		1,121,854		1,193,636
Intangible assets, net	6		153,745		164,788
Deferred expenditure	7		4,394		5,657
Prepaid assets			—		124

			1,279,993		1,364,205

		$	1,548,940	$	1,555,616

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable		$	19,766	$	27,951
Accruals and other liabilities	8		39,382		22,067
Current portion of finance lease	10		20,000		20,000
Current portion of syndicated bank loan	11		40,000		40,000

			119,148		110,018

Non-current liabilities
Provision for staff indemnity			13,634		8,427
Finance lease	10		140,000		160,000
Syndicated bank loan	11		280,000		320,000

			433,634		488,427

Commitments and contingencies	18
Shareholders' equity
Share capital	12		700,000		840,525
Retained earnings	13		296,158		117,245
Accumulated other comprehensive loss			—		(599	)

			996,158		957,171

		$	1,548,940	$	1,555,616

The accompanying notes form an integral part of these financial statements.

EQUATE Petrochemical Company KSC (Closed)
Statements of Income

(In thousands) For the years ended December 31	Note	2003			2002			2001
Sales		$	643,242		$	453,266		$	501,513
Cost of sales	14		(228,128	)		(195,475	)		(206,869	)

Gross profit			415,114			257,791			294,644
Polypropylene plant management fee			1,000			1,000			1,000
General, administrative and selling expenses	14		(35,432	)		(31,159	)		(27,495	)
Depreciation	5		(79,990	)		(90,010	)		(90,367	)
Amortisation	6		(11,043	)		(11,035	)		(11,039	)

Operating income			289,649			126,587			166,743
Finance costs			(14,372	)		(20,722	)		(57,513	)
Interest income			927			522			4,020
Foreign exchange (loss) /gain			(44	)		286			(3,836	)
Other income			372			513			842

Net income before contribution to Kuwait Foundation for Advancement of Sciences ("KFAS") and Directors' fees			276,532			107,186			110,256
Contribution to KFAS			(2,488	)		(963	)		(1,968	)
Director's fees			(131	)		(146	)		(120	)

Net income for the year		$	273,913		$	106,077		$	108,168

The accompanying notes form an integral part of these financial statements.

EQUATE Petrochemical Company KSC (Closed)
Statements of Changes in Shareholders' Equity

(In thousands)	Note	Share capital			(Accumulated deficit) / retained earnings			Accumulated other comprehensive loss			Total
Balance at December 31, 2000		$	1,006,860		$	(166,335	)		—		$	840,525
Reduction of share capital	12		(166,335	)		166,335			—			—
Net income for the year			—			108,168			—			108,168

Balance at December 31, 2001		$	840,525		$	108,168			—		$	948,693
Dividends paid			—			(97,000	)		—			(97,000	)
Net income for the year			—			106,077			—			106,077
Change in fair value reserve			—			—		$	(599	)		(599	)

Balance at December 31, 2002		$	840,525		$	117,245		$	(599	)	$	957,171
Reduction of share capital	12		(140,525	)		—			—			(140,525	)
Dividends paid	12		—			(95,000	)		—			(95,000	)
Net income for the year			—			273,913			—			273,913
Net realised loss transferred to statement of income			—			—			599			599

Balance at December 31, 2003		$	700,000		$	296,158			—		$	996,158

The accompanying notes form an integral part of these financial statements.

EQUATE Petrochemical Company KSC (Closed)
Statements of Cash Flows

(In thousands) For the years ended December 31		Note	2003			2002			2001
CASH FLOWS FROM OPERATING ACTIVITIES
Net income for the year			$	273,913		$	106,077		$	108,168
Adjustments:
	Depreciation			79,990			90,010			90,367
	Amortisation			12,306			12,391			11,195
	Provision for staff indemnity			5,207			2,098			1,874
	Loss on sale of property, plant and equipment			—			144			—

Operating income before working capital changes				371,416			210,720			211,604
	Trade receivables			(42,204	)		22,599			3,332
	Inventories			13,626			(3,881	)		9,261
	Prepayments and other assets			(1,881	)		7,276			13,865
	Accounts payable			(8,185	)		1,908			4,237
	Accruals and other liabilities			15,550			1,226			(3,965	)

Net cash from operating activities				348,322			239,848			238,334

CASH FLOWS FROM INVESTING ACTIVITIES
	Purchase of property, plant and equipment			(8,208	)		(10,265	)		(8,065	)
	Proceeds from sale of property, plant and equipment			—			2,746			—
	Acquisition of intangible assets			—			—			(7,169	)

Net cash used in investing activities				(8,208	)		(7,519	)		(15,234	)

CASH FLOWS FROM FINANCING ACTIVITIES
	Net drawings on revolving loan	9		—			(70,000	)		66,856
	Repayment of working capital loan			—			—			(35,575	)
	Repayment of finance lease			(20,000	)		(20,000	)		(132,500	)
	Repayment of syndicated bank loan			(40,000	)		(40,000	)		(655,000	)
	Repayment of shareholders subordinated loans			—			—			(77,500	)
	Finance lease			—			—			200,000
	Syndicated bank loan			—			—			400,000
	Reduction of share capital			(140,525	)		—			—
	Dividends paid			(95,000	)		(97,000	)		—

Net cash used in financing activities				(295,525	)		(227,000	)		(233,719	)

Net increase / (decrease) in bank balances and deposits				44,589			5,329			(10,619	)
Bank balances and deposits at beginning of the year				65,575			60,246			70,865

Bank balances and deposits at end of the year		3	$	110,164		$	65,575		$	60,246

The accompanying notes form an integral part of these financial statements.

EQUATE Petrochemical Company KSC (Closed)
Notes to Financial Statements

Dollars in thousands, except as noted

1. INCORPORATION AND ACTIVITIES

EQUATE Petrochemical Company K.S.C. (Closed) ("the Company") is a closed shareholding company incorporated in the State of Kuwait on 20 November 1995 as a joint venture between Union Carbide Corporation ("UCC"), and Petrochemical Industries Company ("PIC") and Boubyan Petrochemical Company ("BPC").

The ownership percentages of the shareholders are as follows:

Shareholder's name	% of ownership
Union Carbide Corporation ("UCC")	45	%
Petrochemical Industries Company ("PIC")	45	%
Boubyan Petrochemical Company ("BPC")	10	%

The Company is engaged in the manufacture and sale of ethylene glycol and polyethylene. The Company also operates and maintains a polypropylene plant on behalf of PIC.

During 2001, UCC merged with a subsidiary of The Dow Chemical Company ("DOW"). As a result UCC is now a wholly owned subsidiary of DOW.

The financial statements were authorised for issue by the board of directors on 10 February 2004.

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The financial statements have been prepared in conformity with International Financial Reporting Standard ("IFRS"). These financial statements have been prepared under the historical cost convention, except for the measurement at fair value of certain financial instruments. The preparation of financial statements in accordance with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Due to the inherent uncertainty in making those estimates, actual results to be reported in future periods could differ from those estimates.

Bank balances and deposits

Bank balances and deposits include demand accounts and fixed deposits with an original maturity of three months or less.

Trade and other receivables

The Company establishes an allowance for doubtful receivables to reduce receivables to their net realizable value. Management determines the adequacy of the allowance for doubtful receivables based upon reviews of individual customers, current economic conditions, past experience and other pertinent factors. The allowance for doubtful receivables was not significant at December 31, 2003 and 2002.

Inventories

Work in progress and finished goods are stated at the lower of weighted average cost or net realisable value. The cost of finished products includes direct materials, direct labour and fixed and variable manufacturing overhead and other costs incurred in bringing inventories to their present location and condition.

All other inventory items are valued at the lower of purchased cost or net realisable value using the weighted average method after making provision for any slow moving and obsolete stocks. Purchase cost includes the purchase price, import duties, transportation, handling and other direct costs.

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses. Depreciation is calculated based on the estimated useful lives of the applicable assets on a straight-line basis commencing when the asset is put into use. Maintenance and repairs, replacements and improvements of minor importance are expensed as incurred. Significant improvements and replacements of assets are capitalised. Gains and losses on retirement or disposal of assets are included in the statement of income in the period in which they occur.

Intangible assets

Intangible assets consist of technology and licences for the manufacture of ethylene, ethylene glycol and polyethylene. Union Carbide Corporation ("UCC") contributed the technology and licences, except for the olefin technology.

Intangibles are carried at cost less accumulated amortisation and any accumulated impairment losses. The intangible assets are amortised from the date of commencement of commercial production on a straight-line basis over twenty years, except for the olefin technology, which is amortised over five years.

Deferred expenditure

Deferred expenditure consists of origination fees relating to the long-term loan facility, finance lease, working capital facility and the revolving loan facility. The origination fees are amortised over the life of the related borrowings based on the effective interest rate method. The amortisation charge is included under finance costs.

Finance leases

Leases, which transfer substantially all the risks and rewards of ownership, are classified as finance leases. Assets held under finance leases are recognised as assets of the Company at their fair value at the date of acquisition. The corresponding liability to the lessor is included in the balance sheet as obligations under finance lease. The difference between the total leasing commitments and the fair value of the assets acquired is charged to the income statement as finance costs over the term of the relevant lease so as to produce a constant periodic rate of finance charge on the remaining balance of the obligations for each accounting period.

Provision for staff indemnity

Provision is made for staff indemnity which is payable on completion of employment. The provision is calculated in accordance with Kuwait Labour Law based on employees' salaries and accumulated periods of service or on the basis of employment contracts, where such contracts provide extra benefits. The provision, which is unfunded, is determined as the liability that would arise as a result of the involuntary termination of staff at the balance sheet date.

Revenue recognition

Sales, net of applicable discounts, are recognised when the revenue is realized or realizable, and has been earned and collectibility is reasonably assured. Revenue is recognised as risk and title transfer to the customer, which usually occurs at the time shipment is made. The Company uses third party contractors for delivery to customers. Substantially all of the Company's products are sold with cost and freight paid by the Company at its shipping port, at which point title passes to customers. The Company's terms of delivery are included in its contracts of sale, order confirmation documents, and invoices. Freight costs are recorded as "Cost of Sales". Interest income is recognised on an accrual basis.

Finance costs

Finance costs on borrowings are calculated on the accrual basis and are recognised in the statement of income in the period in which they are incurred.

Translation of foreign currencies

The functional currency of the Company is United States dollars ("US$") and accordingly, the financial statements are presented in US$, rounded to the nearest thousand. The functional currency is different from the currency of the country in which the Company is domiciled since the majority of the Company's revenue and expenses, and all of the Company's borrowings, are denominated in US$.

Transactions denominated in foreign currencies are translated into US$ at rates of exchange prevailing at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated into US$ at rates of exchange prevailing at the balance sheet date. The resultant exchange differences are taken to the statement of income.

Impairment

At each balance sheet date, the Company reviews the carrying amounts of its financial assets, property, plant and equipment and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any), and provision is recognised in the statement of income.

Derivatives

Interest rate swap agreements are used to exchange floating rate payments on certain loans and other borrowings for fixed interest rates. Such contracts are treated as cash flow hedges as defined in IAS 39 and changes in the fair values of the contracts are accounted for in the fair value reserve in equity (accumulated other comprehensive loss). The interest rate differential to be paid or received on interest rate swaps is recognised as an adjustment to finance costs over the period of the swap agreement.

Foreign exchange swaps and forward contracts are treated as trading instruments and are stated at fair value with gains or losses included in the statement of income in foreign exchange gain / (loss) the period they occur.

Income Taxes

The Company, a closed shareholding company incorporated in the State of Kuwait, is not subject to income taxes.

Contribution to Kuwait Foundation for the Advancement of Sciences

The Company is legally required to contribute to the Kuwait Foundation for the Advancement of Sciences ("KFAS"). The Company's contributions to KFAS are generally recognized as an expense in the period during which the Company's contribution is legally required, however in certain situations the Company is allowed to deduct previous contributions from required future contributions. The Company recognizes as an asset contributions to KFAS that are eligible for deduction from required future contributions, to the extent that it is probable that the Company will be able to fully utilise those deductions.

Other Supplementary Information

The Company paid finance costs of $14,565, $21,367 and $69,123 for the years ended December 31, 2003, 2002 and 2001 respectively.

3. BANK BALANCES AND DEPOSITS

	2003		2002
Bank balances	$	8,708	$	12,528
Time deposits		101,456		53,047

	$	110,164	$	65,575

All bank accounts of the Company are assigned as security for the Company's obligations under various loan agreements (see notes 9 to 11). Time deposits yield interest at an effective weighted average rate of 0.97% per annum (2002: 1.5% per annum).

4. INVENTORIES

	2003		2002
Finished goods	$	12,142	$	14,093
Raw materials		8,004		20,968
Spare parts (MRO items)		23,765		22,476

	$	43,911	$	57,537

5. PROPERTY, PLANT AND EQUIPMENT

	Buildings and roads		Plant and equipment		Office furniture and equipment		Assets under construction			Total
Cost
As at January 1, 2003	$	34,841	$	1,544,564	$	74,444	$	12,457		$	1,666,306
Additions		—		—		—		8,208			8,208
Transfers		61		2,862		958		(3,881	)		—

As at December 31, 2003	$	34,902	$	1,547,426	$	75,402	$	16,784		$	1,674,514

Accumulated depreciation
As at January 1, 2003	$	12,558	$	399,715	$	60,397		—		$	472,670
Charge for the year		1,494		77,244		1,252		—			79,990

As at December 31, 2003	$	14,052	$	476,959	$	61,649		—		$	552,660

Net book value
As at December 31, 2003	$	20,850	$	1,070,467	$	13,753	$	16,784		$	1,121,854

As at December 31, 2002	$	22,283	$	1,144,849	$	14,047	$	12,457		$	1,193,636

Annual depreciation rates		5 to 20%		3.33 to 20%		3.33 to 20%

The Company's property plant and equipment have been assigned as security for the finance lease and syndicated bank loan (Notes 10 and 11).

6. INTANGIBLE ASSETS

	2003		2002
Cost
Technology contributed by UCC	$	220,000	$	220,000
Olefin technology		195		195

As at 31 December	$	220,195	$	220,195

Accumulated amortisation
As at 1 January	$	55,407	$	44,372
Charge for the year		11,043		11,035

As at 31 December		66,450		55,407

Net book value	$	153,745	$	164,788

7. DEFERRED EXPENDITURE

	2003		2002
Cost
As at 1 January	$	7,169	$	7,169

As at 31 December	$	7,169	$	7,169

Accumulated amortisation
As at 1 January	$	1,512	$	156
Charge for the year		1,263		1,356

As at 31 December	$	2,775	$	1,512

Net book value	$	4,394	$	5,657

8. ACCRUALS AND OTHER LIABILITIES

	2003		2002
Accrued billing for ethane supply	$	9,847		—
Sales commission		7,982	$	8,436
Ocean freight		5,856		5,243
Staff incentive		4,950		3,230
Staff leave		1,029		1,174
Interest on long term debt		1,102		1,295
Other accruals		8,616		2,689

	$	39,382	$	22,067

Accrued billing for ethane supply represents the amount payable to Kuwait National Petroleum Company ("KNPC") for a contract for the supply of ethane to the Company.

9. REVOLVING LOAN

This represents the Company's borrowings under a US$ 300 million (2002: US$ 300 million) revolving loan facility from a syndication of banks with a final maturity of November 2006. Amounts drawn under this facility have to be repaid within one to six months and carry annual interest rate of 0.8% over London Inter Bank Offer Rate ("LIBOR").

During 2001 the Company undertook a series of transactions whereby the outstanding syndicated loans were repaid and new syndicated loan agreements were negotiated. The refinancing allowed the Company to benefit from less restrictive loan covenants, and extended maturities. The subordinated loan to shareholders and the working capital facility were repaid in full. The revolving loan facility and the finance lease (see note 10) were increased, and the syndicated bank loan (see note 11) was reduced. Accumulated losses were cancelled against share capital (see note 12).

10. FINANCE LEASE

	2003		2002
Current portion	$	20,000	$	20,000
Non-current portion		140,000		160,000

	$	160,000	$	180,000

The finance lease is to be repaid in twenty semi-annual instalments which began on 29 May 2002. The instalments due in 2004 are shown as current liabilities.

The interest rate implicit in the lease is the same as the interest rate on the syndicated bank loan (see note 11). The value of the assets held in respect of the finance lease at the balance sheet date are equal to the outstanding amount under the lease facility and is included in property, plant and equipment.

The finance lease agreement contains similar affirmative and negative covenants as those contained in the syndicated bank loan (see note 11).

11. SYNDICATED BANK LOAN

	2003		2002
Current portion	$	40,000	$	40,000
Non-current portion		280,000		320,000

	$	320,000	$	360,000

The repayment of the loan is to be made in twenty semi-annual instalments which began on 29 May 2002. The instalments due in 2004 are shown as current liabilities. The borrowings are secured by a mortgage over the Company's property, plant and equipment (see note 5) and bank balances (see note 3) and carry an annual interest rate of 0.8% over LIBOR.

The syndicated term facility agreements contain affirmative and negative covenants including restrictions on additional borrowings, the sales of property, plant and equipment and purchase of the Company's shares, a requirement to maintain insurance arrangements and limitations on capital expenditure and operating lease commitments. At the balance sheet date the Company was in compliance with all significant debt covenants.

12. SHARE CAPITAL

At an Extraordinary General Assembly held on 12 December 2001 the shareholders voted to reduce the share capital of the Company by US $166,335 by offsetting the accumulated losses against share capital. Furthermore, at an Extraordinary General Assembly held on 22 December 2003 the shareholders voted to reduce the share capital of the company by US$ 140,525 (KD 41,705 thousand) by returning capital to the shareholders. After the reduction, share capital consists of 2,160 million (2002: 2,577.1 million) authorised, issued and fully paid shares of Fils 100 each. The Articles and Memorandums of Association of the Company have been amended to reflect the latest reduction in share capital.

The ownership percentage of the shareholders are as follows:

Shareholder's name		% of ownership
Union Carbide Corporation ("UCC")		45%
Petrochemical Industries Company ("PIC")		45%
Boubyan Petrochemical Company ("BPC")		10%

13. PROPOSED DIVIDEND

The directors propose a cash dividend of US$ 246 million for the year ended December 31 2003 (2002: US$ 95 million) which is subject to the approval of shareholders at the annual General Assembly. This dividend has not been recorded in the accompanying financial statements, and will be recorded only once it has been approved by the shareholders.

14. STAFF COSTS

Staff and related costs incurred are included in the statement of income under the following categories:

	2003		2002		2001
Cost of sales	$	44,032	$	40,642	$	36,226
General, administrative and selling expenses		16,648		14,340		12,812

	$	60,680	$	54,982	$	49,038

15. RELATED PARTY TRANSACTIONS

The Company has dealings in the normal course of business with its shareholders PIC, UCC and BPC. Additionally EQUATE Marketing Company EC, Bahrain ("EMC"), which is owned by PIC and UCC, is the exclusive sales agent in certain territories for the marketing of ethylene glycol and polyethylene produced by the Company. All transactions with related parties are carried out on a negotiated contract basis.

The following is a description of significant related party agreements and transactions:

a): Supply by UCC of technology and licences relating to manufacture of polyethylene and ethylene glycol;
b): Supply by PIC to the Company of certain minimum quantities of feed gas and fuel gas on a priority basis;
c): Supply by UCC and UNIVATION to the Company of certain catalysts;
d): Secondment of certain staff to the Company by UCC;
e): Supply by the Company of certain materials and services required by PIC to operate and maintain the polypropylene plant;

Included in the income statement are the following significant related party transactions.

		2003			2002
a) Revenues
	Polypropylene plant management fees from PIC	$	1,000		$	1,000
	Sales to UCC		856			18,720
b) Purchases and expenses
	Feed gas and fuel gas purchased from PIC	$	78,727		$	61,367
	Catalyst purchased from UCC		1,813			3,238
	Catalyst purchased from UNIVATION		4,289			7,329
	Operating cost reimbursed by PIC for running of polypropylene plant		(19,481	)		(19,645	)
	Operating costs reimbursed to EMC		1,580			2,325
	Staff secondment costs reimbursed to UCC		996			1,554

Included in the balance sheet are the balances due to /from related parties.

		2003		2002
c) Due to related parties
	Due to UCC	$	987	$	8,569
	Due to PIC		10,516		4,302

		$	11,503	$	12,871

d) Due from related parties
	Due from PIC	$	2,230	$	1,226
	Due from UCC		186		1,997

		$	2,416	$	3,223

16. RECONCILIATION TO GENERALLY ACCEPTED ACCOUNTED PRINCIPLES IN THE UNITED STATES

The financial statements of EQUATE Petrochemical Company K.S.C. (Closed) are prepared in accordance with IFRS which differ in certain respects from accounting principles generally accepted in the United States of America ("US GAAP"). The significant differences and their effect on the net income and shareholders' equity are set out below:

(i) Net income

		Years ended December 31
		2003			2002			2001
Net income as reported in the statement of income		$	273,913		$	106,077		$	108,168
Items increasing / (decreasing) reported net income:
(a)	Reversal of amortisation of intangibles		11,000			11,000			11,000
(b)	Capitalization of finance costs related to new assets under construction		419			373			472
(b)	Depreciation of capitalised finance costs		(59	)		(41	)		(17	)

Net income in accordance with U.S. GAAP		$	285,273		$	117,409		$	119,623

The Company's comprehensive income in accordance with US GAAP for the years ended December 31, 2003, 2002 and 2001 was $285,872, $116,810 and $119,623 respectively.

(ii) Shareholders' equity

		Years ended December 31
		2003			2002
Shareholders' equity as reported in the balance sheets		$	996,158		$	957,171
Items increasing / (decreasing) reported shareholders equity
(a)	Elimination of intangible asset for UCC technology		(220,000	)		(220,000	)
(a)	Reversal of amortisation of intangibles		66,271			55,271
(b)	Capitalization of finance costs net of depreciation relating to assets capitalized		1,482			1,122

Shareholders' equity in accordance with U.S. GAAP		$	843,911		$	793,564

(a): In 1996, UCC contributed technology valued at approximately $220 million to the Company in exchange for subordinated debt due from Equate to UCC. In June 1999, Equate converted this subordinated debt, as well as other subordinated debt due from Equate to PIC and from Equate to BPC, as well accrued interest on such notes, to equity. Under U.S. GAAP, the intangible asset is recognized at UCC's historical cost, which was zero. These U.S. GAAP adjustments eliminate the intangible asset and accumulated amortisation on the intangible asset, from the Company's balance sheet, and eliminate amortisation expense on the intangible asset from the Company's statement of income.
(b): For U.S. GAAP purposes the company capitalizes finance costs associated with new assets under construction and such costs are depreciated on a straight line basis over the estimated useful lives of 20 years.

Under U.S. GAAP, the Company's contribution to KFAS and directors' fees are considered part of operating income, as follows

	Years ended December 31
	2003			2002			2001
Operating income in accordance with IFRS	$	289,649		$	126,587		$	166,743
Items increasing / (decreasing) reported operating income:
U.S. GAAP adjustments to operating income from above		10,941			10,959			10,983
Contributions to KFAS		(2,488	)		(963	)		(1,968	)
Director's' fees		(131	)		(146	)		(120	)

Operating income in accordance with U.S. GAAP	$	297,971		$	136,437		$	175,638

17. FINANCIAL INSTRUMENTS—FAIR VALUE AND RISK MANAGEMENT

Financial instruments consist of contractual claims on financial assets. Financial instruments include both primary instruments, such as trade accounts receivable and payable, investments, and financial commitments, including the finance lease and the syndicated bank loan, and derivative financial instruments, which are used to hedge risks arising from changes in foreign exchange rates and interest rates. The Company, in the normal course of business, uses certain derivative financial instruments for hedging operating and financing transactions, subject to appropriate guidelines and internal controls.

Information on fair value and risk management of these financial instruments is set out below:

Primary financial instruments are reflected in the balance sheet. Those on the asset side are recognised at nominal (historical) value less any provisions for impairment, financial instruments constituting liabilities are carried at nominal (historical) or redemption value, whichever is higher.

Fair values of the financial assets and liabilities are determined using generally accepted methods. Because no quoted market prices are available for a significant part of the Company's financial assets and liabilities, the fair values of such items have been derived based on managements' assumptions with respect to future economic conditions, the amount and timing of future cash flows and estimated discount rates. Management believes that the carrying value of all its financial instrument assets and liabilities on the balance sheet is not materially different from their fair values.

a): Interest rate risk

Interest rate risk—the possibility that the value of a financial instrument will change due to movements in market rates of interest—applies mainly to receivables and payables with maturities of over one year.

The Company is exposed to interest rate risk on all interest bearing borrowings and deposits. The interest rate and terms of repayment of loans are disclosed in notes 9 to 11. The interest rate and maturity of bank deposits is disclosed in notes 2 and 3.

The Company's total borrowings at the balance sheet date were US$ 480 million (2002: US$ 540 million). All borrowings carry a floating rate of interest. The Company uses interest rate swap agreements to manage this risk. There were no interest rate swaps outstanding at December 31, 2003.

b): Credit risk

The Company is exposed to credit risk if counterparties fail to perform as contracted.

In respect of the recognised financial assets, the Company's maximum exposure to credit risk is equal to the carrying amount of assets in the balance sheet. In the case of interest rate swaps or currency contracts, the Company's exposure is the cost of replacing contracts at current market rates should the counterparty default prior to the settlement date.

The Company's credit risk is considered to be low as it does not have significant exposure to any individual customer or counterparty. Cash is placed with banks with high credit ratings. Policies and procedures are in place to perform ongoing credit evaluations of the financial condition of counterparties and customers.

c): Foreign exchange risk

The Company is exposed to the following foreign exchange risks:

i.: Transaction risk—the risk of the Company's commercial cash flows being adversely affected by a change in exchange rates for foreign currencies against US dollars; and
ii.: Balance sheet risk—the risk of net monetary assets in foreign currencies acquiring a lower value when translated into US dollars as a result of currency movements.

The Company's exposure to transaction risk is limited since a substantial part of the Company's sales and expenses are in US dollars. The Company uses forward exchange contracts to partially hedge its foreign currency risk in respect of trade receivables. At the balance sheet date the Company has forward exchange contracts to buy and sell foreign currencies amounting to US$ 22.1 million (2002: US$ 35.5 million). The fair value of these forward exchange contracts was insignificant at both December 31, 2003 and 2002.

The Company's exposure to balance sheet risk is insignificant since all significant assets and liabilities are denominated in US$.

d): Market risk

The markets for the Company's products are highly competitive which effects the prices received for its products. Prices are affected by industry cycles as well as fluctuations in demand. To address these risks management aims to diversify its customer base geographically, differentiate its products through consistent quality, and by achieving a cost leadership position.

18. COMMITMENTS AND CONTINGENCIES

The Company has a fixed gas purchase commitment with KNPC of approximately US$ 20 per day until the agreement is cancelled in writing by both parties.

The Company had the following letters of credit outstanding at 31 December:

	2003		2002
Debt service reserve	$	32,438	$	36,038
General, administrative and selling expenses		1,932		997

	$	34,370	$	37,035

19. COMPARATIVE AMOUNTS

Certain comparative figures have been reclassified to conform to the current year's presentation.

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, on the 20th day of February, 2004.

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

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed on the 20th day of February, 2004 by the following persons in the capacities indicated:

/s/ JOHN R. DEARBORN		/s/ LUCIANO RESPINI
John R. Dearborn, Director President and Chief Executive Officer		Luciano Respini, Director
/s/ EDWARD W. RICH		/s/ ENRIQUE LARROUCAU
Edward W. Rich, Vice President, Treasurer and Chief Financial Officer		Enrique Larroucau, Director
/s/ FRANK H. BROD		/s/ GLENN J. MORAN
Frank H. Brod, Vice President and Controller The Dow Chemical Company Authorized Representative of Union Carbide Corporation		Glenn J. Moran, Director

Supplemental Information to be Furnished With Reports Filed Pursuant to Section 15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to Section 12 of the Act

The Corporation, which is a wholly owned subsidiary of Dow, does not send an annual report to security holders or proxy material with respect to any annual or other meeting of security holders, to Dow or any other security holders.

Union Carbide Corporation and Subsidiaries
Exhibit Index

EXHIBIT NO.		DESCRIPTION
2.1		Agreement and Plan of Merger dated as of August 3, 1999 among Union Carbide Corporation, The Dow Chemical Company and Transition Sub Inc. (See Exhibit 2 of the Corporation's Current Report on Form 8-K dated August 3, 1999).
3.1.1		Amended and Restated Certificate of Incorporation of Union Carbide Corporation as filed June 25, 1998 (See Exhibit 3 of the Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998).
3.1.2		Certificate of Merger of Transition Sub Inc. into Union Carbide Corporation under Section 904 of the Business Corporation Law effective February 6, 2001 (See Exhibit 3.1.2 of the Corporation's 2000 Form 10-K).
3.1.3		Certificate of Change of Union Carbide Corporation under Section 805-A of the Business Corporate Law, dated April 27, 2001 and filed on May 3, 2001 (See Exhibit 3.1 of the Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001).
3.2		Amended and Restated Bylaws of Union Carbide Corporation, amended as of November 15, 2001 (See Exhibit 3.2 of the Corporation's 2001 Form 10-K).
4.1		Indenture dated as of June 1, 1995, between the Corporation and the Chase Manhattan Bank (formerly Chemical Bank), Trustee (See Exhibit 4.1.2 to the Corporation's Form S-3 effective October 13, 1995, Reg. No. 33-60705).
4.2		The Corporation will furnish to the Commission upon request any other debt instrument referred to in Item 601(b)(4)(iii)(A) of Regulation S-K.
10.2.1		1988 Union Carbide Long-Term Incentive Plan (See Exhibit 10.2.1 of the Corporation's 1998 Form 10-K).
10.2.2		Amendment to the 1988 Union Carbide Long-Term Incentive Plan effective June 1, 1989 (See Exhibit 10.2.2 of the Corporation's 1999 Form 10-K).
10.2.3		Amendment to the 1988 Union Carbide Long-Term Incentive Plan effective August 1, 1989 (See Exhibit 10.2.3 of the Corporation's 1999 Form 10-K).
10.2.4		Resolutions adopted by the Board of Directors of the Corporation on February 26, 1992, with respect to stock options granted under the 1988 Union Carbide Long-Term Incentive Plan (See Exhibit 10.2.4 of the Corporation's 1997 Form 10-K).
10.2.5		Resolutions adopted by the Compensation and Management Development Committee of the Board of Directors of the Corporation on June 30, 1992, with respect to the 1988 Union Carbide Long-Term Incentive Plan (See Exhibit 10.2.5 of the Corporation's 1997 Form 10-K).
10.2.6		Amendment to the 1988 Union Carbide Long-Term Incentive Plan effective October 1, 1997 (See Exhibit 10.2.6 of the Corporation's 1997 Form 10-K).
10.3.1		1983 Union Carbide Bonus Deferral Program (See Exhibit 10.4.1 of the Corporation's 1996 Form 10-K).
10.3.2		Amendment to the 1983 Union Carbide Bonus Deferral Program effective January 1, 1992 (See Exhibit 10.3.2 of the Corporation's 1997 Form 10-K).
10.4.1		1984 Union Carbide Cash Bonus Deferral Program (See Exhibit 10.5.1 of the Corporation's 1996 Form 10-K).
10.4.2		Amendment to the 1984 Union Carbide Cash Bonus Deferral Program effective January 1, 1986 (See Exhibit 10.5.2 of the Corporation's 1996 Form 10-K).

10.4.3		Amendment to the 1984 Union Carbide Cash Bonus Deferral Program effective January 1, 1992 (See Exhibit 10.4.3 of the Corporation's 1997 Form 10-K).
10.5.1		Union Carbide Corporation Equalization Benefit Plan, Amended and Restated effective January 1, 1998 (See Exhibit 10.5 of the Corporation's 1999 Form 10-K).
10.5.2		First Amendment to the Union Carbide Corporation Equalization Benefit Plan effective as of January 1, 2001 (See Exhibit 10.5.2 of the Corporation's 2000 Form 10-K).
10.6.1		Union Carbide Corporation Supplemental Retirement Income Plan, Amended and Restated January 1, 1998 (See Exhibit 10.6 of the Corporation's 1999 Form 10-K).
10.6.2		First Amendment to the Union Carbide Corporation Supplemental Retirement Income Plan effective as of January 1, 2001 (See Exhibit 10.6.2 of the Corporation's 2000 Form 10-K).
10.7		Union Carbide Non-Employee Director's Compensation Deferral Program, Amended and Restated effective as of February 6, 2001 (See Exhibit 10.7 of the Corporation's 2000 Form 10-K).
10.9		Resolution adopted by the Board of Directors of the Corporation on November 30, 1988, with respect to an executive life insurance program for officers and certain other employees (See Exhibit 10.9 of the Corporation's 1998 Form 10-K).
10.11.1		Union Carbide Corporation Benefits Protection Trust, amended and restated effective August 29, 1997 (See Exhibit 10.11.1 of the Corporation's 1997 Form 10-K).
10.11.2		Amendment to the Union Carbide Corporation Benefits Protection Trust effective November 1, 1997 (See Exhibit 10.11.2 of the Corporation's 1997 Form 10-K).
10.11.3		Second Amendment to the Union Carbide Corporation Benefits Protection Trust effective February 1, 2001 (See Exhibit 10.11.3 of the Corporation's 2000 Form 10-K).
10.12		Resolutions adopted by the Board of Directors of the Corporation on February 24, 1988, with respect to the purchase of annuities to cover liabilities of the Corporation under the Equalization Benefit Plan for Participants of the Retirement Program Plan for Employees of Union Carbide Corporation and its Participating Subsidiary Companies and the Supplemental Retirement Income Plan (See Exhibit 10.12 of the Corporation's 1999 Form 10-K).
10.13		Resolutions adopted by the Board of Directors of the Corporation on June 28, 1989, with respect to the purchase of annuities to cover liabilities of the Corporation under the Supplemental Retirement Income Plan (See Exhibit 10.13 of the Corporation's 1999 Form 10-K).
10.14.1		Union Carbide Corporation Enhanced Retirement Income Plan, effective January 1, 1998 (See Exhibit 10.14 of the Corporation's 1999 Form 10-K).
10.14.2		First Amendment to the Union Carbide Corporation Enhanced Retirement Income Plan effective as of January 1, 2001 (See Exhibit 10.14.2 of the Corporation's 2000 Form 10-K).
10.15.1		1994 Union Carbide Long-Term Incentive Plan (See Exhibit 10.15.1 of the Corporation's 1999 Form 10-K).
10.15.2		Amendment to the 1994 Union Carbide Long-Term Incentive Plan effective October 1, 1997 (See Exhibit 10.15.2 of the Corporation's 1997 Form 10-K).

10.17		Excess Long-Term Disability Plan effective January 1, 1994 (See Exhibit 10.17 of the Corporation's 1999 Form 10-K).
10.19.1		1997 Union Carbide Long-Term Incentive Plan (See Appendix A of the Corporation's proxy statement filed with the Commission March 12, 1997, file number: 001-01463).
10.19.2		Amendment to the 1997 Union Carbide Long-Term Incentive Plan effective April 23, 1997 (See Exhibit 10.19.2 of the Corporation's 1997 Form 10-K).
10.19.3		Resolutions adopted by the Board of Directors of the Corporation on February 23, 2000 with respect to the number of shares authorized for awards under the 1997 Union Carbide Long-Term Incentive Plan (See Exhibit 10.19.3 of the Corporation's 2000 Form 10-K).
10.20		1997 Stock Option Plan for Non-Employee Directors of Union Carbide Corporation (See Appendix B of the Corporation's proxy statement filed with the Commission March 12, 1997, file number: 001-01463).
10.22		The Mid-Career Hire Plan for Employees of Union Carbide Corporation and Its Participating Subsidiary Companies, effective December 3, 1996 (See Exhibit 10.22 of the Corporation's 1997 Form 10-K).
10.23		Amended and Restated Service Agreement, effective as of July 1, 2002, between the Corporation and The Dow Chemical Company (See Exhibit 10.23 of the Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 2002).
10.23.1		Service Addendum No. 1 to the Service Agreement, effective as of February 6, 2001, between the Corporation and The Dow Chemical Company (See Exhibit 10.23.1 of the Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 2002).
10.23.2		Service Addendum No. 2 to the Service Agreement, effective as of August 1, 2001, between the Corporation and The Dow Chemical Company (See Exhibit 10.23.2 of the Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 2002).
10.23.3		Restated Service Addendum No. 1 to the Service Agreement, effective as of February 6, 2001, between the Corporation and The Dow Chemical Company (See Exhibit 10.23.3 of the Corporation's 2002 Form 10-K).
10.24		Second Amended and Restated Sales Promotion Agreement, effective January 1, 2004, between the Corporation and The Dow Chemical Company.
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. (See Exhibit 10.25 of the Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 2003).
10.26		Revolving Loan Agreement, effective as of February 6, 2001, between the Corporation and The Dow Chemical Company (See Exhibit 10.26 of the Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 2002).
10.26.1		Revolving Loan Amendment No. 1, effective as of July 1, 2002, between the Corporation and The Dow Chemical Company (See Exhibit 10.26.1 of the Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 2002).
10.27		Amended and Restated Tax Sharing Agreement, effective as of February 7, 2001, between the Corporation and The Dow Chemical Company (See Exhibit 10.27 of the Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 2003).

10.28		Revolving Credit Agreement, dated as of March 25, 2003, between the Corporation and The Dow Chemical Company (See Exhibit 10.28 of the Corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 2003).
10.28.1		Exhibit C-1 to the Revolving Credit Agreement, dated as of March 25, 2003, between the Corporation and The Dow Chemical Company (See Exhibit 10.28.1 of the Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 2003).
10.28.2		First Amendment to Revolving Credit Agreement, effective as of March 25, 2003, between the Corporation and The Dow Chemical Company.
10.28.3		Second Amendment to Revolving Credit Agreement, dated as of January 1, 2004, between the Corporation and The Dow Chemical Company.
10.29		Pledge and Security Agreement, dated as of March 25, 2003, between the Corporation and The Dow Chemical Company (See Exhibit 10.29 of the Corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 2003).
10.29.1		First Amendment to Pledge and Security Agreement, effective as of March 25, 2003, between the Corporation and The Dow Chemical Company (See Exhibit 10.29.1 of the Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 2003).
10.29.2		Second Amendment to Pledge and Security Agreement, effective as of January 1, 2004, between the Corporation and The Dow Chemical Company.
10.30		Amended and Restated Revolving Loan Agreement, effective as of December 1, 2001, between the Corporation and The Dow Chemical Company.
21		Omitted pursuant to General Instruction I of Form 10-K.
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.

Wherever an exhibit listed above refers to another exhibit or document (e.g., "See Exhibit 6 of. .."), that exhibit or document is incorporated herein by such reference.

A copy of any exhibit listed above may be obtained on written request to the Secretary's Department, Union Carbide Corporation, 400 West Sam Houston Parkway South, Houston, TX 77042.

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Union Carbide Corporation ANNUAL REPORT ON FORM 10-K For the Fiscal Year Ended December 31, 2003 TABLE OF CONTENTS
PART I

ITEM 1. BUSINESS

ITEM 2. PROPERTIES

ITEM 3. LEGAL PROCEEDINGS

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

ITEM 6. SELECTED FINANCIAL DATA

Union Carbide Corporation and Subsidiaries Item 7A. Quantitative and Qualitative Disclosures About Market Risk

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

ITEM 9A. CONTROLS AND PROCEDURES

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

SCHEDULE II

Union Carbide Corporation and Subsidiaries Valuation and Qualifying Accounts
EQUATE Petrochemical Company KSC (Closed) Balance Sheets
EQUATE Petrochemical Company KSC (Closed) Statements of Income
EQUATE Petrochemical Company KSC (Closed) Statements of Changes in Shareholders' Equity
EQUATE Petrochemical Company KSC (Closed) Statements of Cash Flows
EQUATE Petrochemical Company KSC (Closed) Notes to Financial Statements
Signatures
Union Carbide Corporation and Subsidiaries Exhibit Index
EX-10.24 3 a2128959zex-10_24.htm EXHIBIT 10.24
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EXHIBIT 10.24

Second Amended and Restated Sales Promotion Agreement

This Second Amended and Restated Sales Promotion Agreement ("Agreement") by and between Union Carbide Corporation, a corporation duly organized and existing under the laws of the State of New York, having its principal place of business at 39 Old Ridgebury Road, Danbury, Connecticut 06817 (hereinafter referred to as "UCC") and The Dow Chemical Company, a corporation duly organized and existing under the laws of the State of Delaware, having its principal offices at 2030 Dow Center, Midland, Michigan (hereinafter referred to as "TDCC"). UCC and TDCC may be referred to hereinafter collectively as the "Parties" or individually as a "Party."

RECITALS

WHEREAS, TDCC, UCC and their respective affiliates are engaged in the manufacture of a variety of chemical, plastic and other products; and

WHEREAS, in order to fully realize the synergies among their respective companies, TDCC, UCC and their affiliates have adopted a business model pursuant to which TDCC and its affiliates sell products to the external market on behalf of both TDCC and its affiliates and UCC and its affiliates and, pursuant to this model, TDCC and its affiliates purchase finished products from UCC and its affiliates and resell them to third party customers; and

WHEREAS, in addition, TDCC and its affiliates sell certain raw materials to UCC and its affiliates for their use in manufacturing certain products for TDCC and its affiliates (and under certain circumstances as outlined in this Agreement, UCC and its affiliates may employ such raw materials supplied by TDCC and its affiliates to manufacture certain products that are sold directly to third parties), and UCC and its affiliates sell certain products to TDCC and its affiliates for their use in manufacturing certain products; and

WHEREAS, UCC wishes to supply (and to cause its affiliates to supply) TDCC and its affiliates with raw materials and with finished products for resale to third party customers, to the extent consistent with the production capacity and economic interests of UCC and its affiliates, and TDCC wishes to purchase (and to cause its affiliates to purchase) such raw materials and finished products from UCC and its affiliates in accordance with the principles set forth in this Agreement.

NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:

1. Definitions

The following defined terms and the capitalized terms expressly defined elsewhere in this Agreement shall apply throughout this Agreement. All definitions appearing in the singular form shall apply to the plural form of the same term. Likewise, all definitions appearing in the plural form shall apply to the singular form of the same term.

"Annual Requirements" means, as to a UCC Product, the total amount of such UCC Product required by TDCC and TDCC Affiliates in a given calendar year.

"Average Margin" for a given year equals the difference between total net sales of UCC and UCC Affiliates (taken together) for such year and cost of sales of UCC and UCC Affiliates (taken together) for such year, divided by the total net sales of UCC and UCC Affiliates (taken together) for such year. Average Margin shall be deemed to be zero if total net sales of UCC and UCC Affiliates (taken together) for such year is less than the cost of sales of UCC and UCC Affiliates (taken together) for such year.

"Change of Control" means (x) any direct or indirect transfer or change of ownership interest in UCC that results in TDCC owning, directly or indirectly, less than eighty percent (80%) of the voting rights and economic interest of UCC, or (y) control of UCC is removed from UCC's board of directors or an entity other than TDCC or a TDCC Affiliate replaces a majority of the directors that constitute UCC's board of directors.

"Effective Date" means January 1, 2004.

"Enterprise Utilization Rate" for a given product means the average utilization (measured as a percentage) in a given year of the capacity of the plants (located in the United States of America) of TDCC, TDCC Affiliates, UCC and UCC Affiliates (taken together) to produce such product provided that utilization shall be measured without taking into account

any period during which capacity at a given plant is unavailable or unusable due to operational reliability issues, major maintenance turnarounds, force majeure events, labor work shortages and any similar stoppages.

"Finished Product" means a UCC Product purchased by TDCC or TDCC Affiliate(s) to be resold to a Third Party Customer without chemical or physical modification thereof.

"Inter-Company Pricing Policy" means the written policy for computing arm's-length prices chargeable for transfers of tangible goods between TDCC, TDCC Affiliates, UCC and UCC Affiliates, as amended from time to time.

"Lost Sales" means the net sales price (as determined by the Inter-Company Pricing Policy) of UCC Products which, but for the failure of TDCC and TDCC Affiliates to correctly apply the principles set forth in Paragraph 2(a) of this Agreement would have been realized by UCC and UCC Affiliates during a given calendar year, provided, however that, any purchases of UCC Product by TDCC and TDCC Affiliates from UCC and UCC Affiliates that were not required to be made pursuant to the principles set forth in Paragraph 2(a) of this Agreement shall be creditable by TDCC and TDCC Affiliates against Lost Sales for such calendar year or, to the extent not used in such calendar year, for the subsequent calendar year.

"Lowest Cost Provider" means, as to a UCC Product, an entity that is able to deliver the UCC Product to the Purchaser (in the case of UCC Products that are not Finished Products) or the Third Party Customer (in the case of Finished Products) at the lowest per-unit cost to Purchaser among the various sources available to Purchaser for such product.

"Polyethylene" means ethylene homopolymers and copolymers of ethylene with 1-butene, 1-hexene or 1-octene.

"Purchaser" means, in the case of TDCC Raw Materials, UCC and UCC Affiliates, and, in the case of UCC Products, TDCC and TDCC Affiliates.

"Supplier" means, in the case of TDCC Raw Materials, TDCC and TDCC Affiliates, and, in the case of UCC Products, UCC and UCC Affiliates.

"TDCC Affiliate" means an entity (other than UCC or a UCC Affiliate) owned or controlled by TDCC, as evidenced by the direct or indirect ownership or control of one hundred percent (100%) of the voting interest thereof.

"TDCC Raw Material" means a product required by UCC or UCC Affiliate(s) that is manufactured by TDCC or TDCC Affiliate(s).

"Third Party Customer" means an entity other than TDCC, TDCC Affiliates, UCC and UCC Affiliates, that purchases from TDCC or a TDCC Affiliate a Finished Product or a product produced by TDCC or TDCC Affiliate(s) from a UCC Product.

"UCC Affiliate" means an entity owned or controlled by UCC, as evidenced by the direct or indirect ownership or control of one hundred percent (100%) of the voting interest thereof.

"UCC Product" means a chemical, plastic or other product required by TDCC or TDCC Affiliate(s) that is available from UCC or UCC Affiliates.

"UCC Utilization Rate" for a given product means the average utilization (measured as a percentage) in a given year of the capacity of the plants (located in the United States of America) of UCC and UCC Affiliates (taken together) to produce such product provided that utilization shall be measured without taking into account any period during which capacity at a given plant is unavailable or unusable due to operational reliability issues, major maintenance turnarounds, force majeure events, labor work shortages and any similar stoppages.

2. Purchase of TDCC's and TDCC Affiliates' Requirements for UCC Products

(a) TDCC shall purchase and shall cause TDCC Affiliates to purchase (in each case as Purchaser) from UCC and UCC Affiliates (in each case as Supplier), and UCC shall supply and shall cause UCC Affiliates to supply (in each case as Supplier) the Annual Requirements of TDCC and TDCC Affiliates for UCC Products (or in lieu thereof make any payment required by Paragraph 8 hereof), provided:

(i): Supplier, selling under the Inter-Company Pricing Policy, is the Lowest Cost Provider of the UCC Product to Purchaser;
(ii): Supplier can supply the UCC Product in a manner complying with all applicable environmental, health and safety standards; and
(iii): Supplier can supply the UCC Product in a manner that meets the requirements of Purchaser and Third Party Customers, including product specifications, volume and timing for delivery.

The assessment of whether or not the criteria of (i)—(iii) are met will be made in accordance with a financial sourcing model or process that neither favors nor disfavors an entity based on whether such entity is TDCC or a TDCC Affiliate, on the one hand, or UCC or a UCC Affiliate, on the other hand.

(b) Notwithstanding the foregoing, it is recognized that to some extent the purchase of UCC Product pursuant to the above criteria may not always be practical or consistent with the goal of maximizing the long-term profitability of the Parties. Because of this and to accommodate purchasing decisions that represent a good faith effort to maximize the long term profitability of the Parties, the Parties have agreed that no payment pursuant to Paragraph 8 shall be payable as a result of the failure to comply with the principles set forth in Paragraph 2(a) in any given year unless and to the extent that UCC and UCC Affiliates collectively shall have lost sales as a result of such failure with an aggregate sales price in excess of five percent (5%) of the total amount invoiced by UCC and UCC Affiliates collectively for sale of UCC Products to TDCC and TDCC Affiliates during such year (the "Lost Sales Threshold").

3. Direct Sales by UCC and UCC Affiliates

(a) Notwithstanding anything to the contrary in this Agreement or in the business model adopted by TDCC and UCC pursuant to which TDCC and TDCC Affiliates sell Finished Product to third party customers, TDCC and UCC may agree, from time to time, that it is in their best interests to have UCC and UCC Affiliates sell certain products to third party customers directly. No sales made pursuant to such an agreement will be deemed to result in a breach of this Agreement. The products subject to such sales shall not be included in the Annual Requirements of TDCC and TDCC Affiliates but shall be included in both the Enterprise Utilization Rate and the UCC Utilization Rate.

(b) If in a given calendar year (the "Base Year") the Enterprise Utilization Rate for ethylene glycol or Polyethylene is greater than the UCC Utilization Rate for such product by more than fifteen percent (15%), then in the following calendar year (the "Current Year") UCC and UCC Affiliates may manufacture and sell directly to third party customers (irrespective of the restrictions outlined in Paragraphs 3(d) and 4 and without the necessity of an agreement of the type referenced in Paragraph 3(a)) an amount of ethylene glycol or Polyethylene (as the case may be) up to an amount such that, if such amount had been produced by UCC and UCC Affiliates in the Base Year, the difference between the Enterprise Utilization Rate and the UCC Utilization Rate for such product in the Base Year would have been equal to fifteen percent (15%); provided, however, that such direct sales to third party customers shall not be permitted if: (i) UCC and UCC Affiliates are not able to supply such product in a manner complying with all applicable environment, health and safety standards; or (ii) UCC and UCC Affiliates are not able to fulfill the requirement to supply TDCC and TDCC Affiliates with their Annual Requirements in the Current Year in accordance with Paragraph 2 of this Agreement. UCC and UCC Affiliates shall not utilize any trademarks or service marks owned by TDCC (including but not limited to the Dow Diamond) in conjunction with such sales without the prior and express written consent of TDCC.

(c) Prior to any sale to third parties permitted under Paragraph 3(b) of this Agreement, UCC and UCC Affiliates shall first offer the product(s) for sale to TDCC and TDCC Affiliates on the same terms and conditions to be offered to third parties. TDCC and the TDCC Affiliate must notify UCC as to whether or not they wish to purchase the offered product(s) on those terms and conditions within three (3) business days of receiving notice of the offer.

(d) Within thirty (30) days of the written request of UCC, TDCC shall disclose to UCC the Enterprise Utilization Rate for the previous calendar year. Within thirty (30) days of the written request of TDCC, UCC shall disclose to TDCC the UCC Utilization Rate for the previous calendar year.

(e) Except as provided in Paragraph 3(a), (b), and (c) of this Agreement, UCC shall sell and shall cause UCC Affiliates to sell UCC Products solely to TDCC and TDCC Affiliates.

4. Purchases by UCC and UCC Affiliates

UCC shall purchase and shall cause UCC Affiliates to purchase (in each case, as Purchaser) from TDCC or TDCC Affiliates (in each case as Supplier), and TDCC shall sell and shall cause TDCC Affiliates to sell (in each case as Supplier), TDCC Raw Materials solely to the extent necessary for the manufacture of UCC Products for sale to TDCC, TDCC Affiliates, and to third party customers pursuant to Paragraph 3 of this Agreement.

5. Transfer of Title and Risk of Loss

Subject to the Supply Chain Optimization Agreement between the Parties, title and risk of loss will transfer F.O.B. Supplier's manufacturing facility.

6. Payment Terms

Purchaser shall pay Supplier for products sold by Supplier to Purchaser in accordance with the terms identified in the Inter-Company Pricing Policy then in effect. Supplier will invoice Purchaser on at least a monthly basis for Products sold to Purchaser during the previous calendar month. Purchaser shall remit the payment as soon as practical, but in no event later than sixty (60) days of the receipt by Purchaser of each such invoice.

7. Auditing

Beginning one (1) year from the Effective Date and no more than once every calendar year, TDCC shall permit an independent financial advisor selected by UCC to whom TDCC has no reasonable objection, upon reasonable notice and at UCC's own expense, to inspect in confidence TDCC's records during TDCC's normal business hours, to verify TDCC's compliance with the terms and conditions of Paragraph 2 of this Agreement for the immediately preceding calendar year. The financial advisor will be required to execute a reasonable confidentiality agreement provided by TDCC requiring that the financial advisor may only disclose its conclusions to UCC, without sharing the underlying data used to reach such conclusions. Notwithstanding the foregoing, the financial advisor shall be permitted to inform UCC of: (i) the amount of sales (in terms of products, purchase price and volume) lost by UCC and UCC Affiliates as a result of failure to comply with the principles set forth in Paragraph 2(a); (ii) the amount of purchases (in terms of products, purchase price and volume) by TDCC and TDCC Affiliates of UCC Products from UCC and UCC Affiliates that were not required pursuant to the principles set forth in Paragraph 2(a); and (iii) the payment due under Paragraph 8 (if any). This Paragraph 7 shall survive for twelve (12) months following the termination of this Agreement, and during such period UCC may exercise its unexpired rights hereunder in respect of the calendar year occurring immediately prior to the termination of the Agreement and the calendar year in which the Agreement is terminated.

8. Remedy for Non-Compliance

Should an audit pursuant to Paragraph 7 establish that UCC and UCC Affiliates suffered a loss of sales in excess of the Lost Sales Threshold then TDCC shall reimburse (or cause the applicable TDCC Affiliate to reimburse) UCC and UCC Affiliates for any additional margin that would have been earned if such Lost Sales Threshold had not been exceeded. For purposes of this calculation, the additional margin payable shall be the product of Average Margin multiplied by the amount of Lost Sales in excess of the Lost Sales Threshold. Notwithstanding anything to the contrary herein, payment shall be due under this Paragraph 8 only if and to the extent the Lost Sales that would have been realized by UCC and UCC Affiliates (taken together) during the calendar year covered by the audit (applying any available credits thereto) exceeds the Lost Sales Threshold (as defined in Paragraph 2(b)) and UCC and UCC Affiliates request such payment within thirty (30) days of the completion of the audit pursuant to Paragraph 7.

9. Impaired Performance of UCC and UCC Affiliates

In the event UCC or a UCC Affiliate is experiencing one or more operational reliability issues, such as mechanical or process events, maintenance shut-downs, force majeure events, or work stoppages, notwithstanding the fact that the entity experiencing such operational reliability issues may otherwise be the Low Cost Provider for a product, TDCC and TDCC

Affiliates shall be free to purchase all or a part of their requirements for such product from alternate sources, until such time as the operational reliability issues are favorably resolved, without any loss of sales by UCC or UCC Affiliates as the result of such alternate purchase being counted against the Lost Sales Threshold pursuant to Paragraph 2.

10. Availability of Set-Offs

TDCC and UCC each have an unrestricted right of set-off against each other for amounts owing under this Agreement or as a result of any other transaction between TDCC and UCC. UCC acknowledges that TDCC and TDCC Affiliates have a right of set-off against UCC and UCC Affiliates for any amounts that UCC and UCC Affiliates may owe TDCC or a TDCC Affiliate, and TDCC acknowledges that UCC and UCC Affiliates have a right of set-off against TDCC and TDCC Affiliates for any amounts that TDCC and TDCC Affiliates may owe UCC or a UCC Affiliate. Such rights of set-off may be exercised at any time for all amounts owed under this Agreement, or any other transaction between TDCC and UCC or one or more UCC Affiliates or between UCC and TDCC or one or more TDCC Affiliates, even if such amounts are not then due. Any party exercising a right of set-off shall promptly notify the other party after making such set-off, provided that failure to give such notice shall not affect the validity of the set-off.

11. Supplier's Representations and Undertakings

All products, when shipped, will be fit for the ordinary uses of such products and will be manufactured according to the specifications for such products. Supplier will convey the products with good title, free from any lien or encumbrance. If suit is brought against Purchaser alleging that the manufacture or sale of any staple commodity of commerce sold hereunder infringes third party patent rights, then Supplier will defend Purchaser (if the staple commodity of commerce is a TDCC Raw Material or a UCC Product that is not a Finished Product) and will defend Purchaser and Purchaser's Third Party Customer (if the staple commodity of commerce is a Finished Product) and pay any awards against Purchaser and Purchaser's Third Party Customer for such infringement, provided the accused Purchaser or Third Party Customer gives Supplier prompt written notice of the suit, permits Supplier to defend, and makes its employees and pertinent records available to Supplier to provide information for the defense.

12. Exclusion and Disclaimer of Other Warranties

THE LIMITED WARRANTIES CONTAINED IN PARAGRAPH 11 ABOVE ARE SUPPLIER'S SOLE WARRANTIES WITH RESPECT TO PRODUCTS AND ARE MADE EXPRESSLY IN LIEU OF AND EXCLUDE ANY IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE AND ALL OTHER EXPRESS OR IMPLIED REPRESENTATIONS AND WARRANTIES.

13. Limitation of Remedies and Liability

NEITHER PARTY WILL BE LIABLE TO THE OTHER OR TO AFFILIATES OF THE OTHER FOR CONSEQUENTIAL, PUNITIVE, SPECIAL, EXEMPLARY OR INCIDENTAL DAMAGES. EACH PURCHASER'S EXCLUSIVE REMEDY FOR CLAIMS (INCLUDING BREACH OF WARRANTY, NEGLIGENCE AND STRICT LIABILITY) BASED ON SUPPLY OF PRODUCTS THAT DO NOT MEET SPECIFICATIONS IS LIMITED TO PURCHASER HAVING THE OPTION OF REPLACEMENT OR REPAYMENT OF THE PURCHASE PRICE PAID FOR THE PRODUCTS THAT ARE THE SUBJECT OF THE CLAIM. THE PROVISIONS OF THIS PARAGRAPH 13 SHALL IN NO WAY LIMIT A PARTY'S RIGHTS UNDER PARAGRAPHS 7 AND 8 OF THIS AGREEMENT.

14. Notice of Claims

UNLESS A PURCHASER INFORMS THE SUPPLIER, IN WRITING, OF ANY CLAIM BASED ON A PRODUCT'S FAILURE TO MEET PURCHASER'S PRODUCT SPECIFICATIONS WITHIN SIXTY (60) DAYS AFTER THE PURCHASER LEARNS, OR SHOULD REASONABLY HAVE LEARNED, OF THE CLAIM, THE CLAIM SHALL BE DEEMED TO HAVE BEEN WAIVED.

15. Choice of Law/Jurisdiction

This Agreement shall be governed by and construed in accordance with the laws of the State of Michigan, including the Uniform Commercial Code as in effect in Michigan, except as the provisions of such code are herein modified. TDCC

consents (and shall cause TDCC Affiliates to consent) and UCC consents (and shall cause UCC Affiliates to consent) to the exclusive jurisdiction and forum of the courts of Midland County in the State of Michigan or the United States District Court for the Eastern District of Michigan to resolve any litigation between the Parties pertaining to this Agreement.

16. General Provisions

A. Failure of either Party to exercise any of its rights under this Agreement upon one or more occasions shall not waive its right to exercise the same on another such occasion.

B. If any provision of this Agreement is held invalid, such invalidity shall not affect other provisions or application of the Agreement which can be given effect without the invalid provision or application, and to this end the provisions of this Agreement are declared to be severable. If such invalidity becomes known or apparent to the Parties, the Parties agree to negotiate promptly in good faith in an attempt to make appropriate changes and adjustments to achieve as closely as possible, consistent with applicable law, the intent and spirit of such invalid provision.

C. The rights and duties of this Agreement are not assignable or transferable by either Party without the other's prior written consent.

D. To the extent that this Agreement inures to the benefit of TDCC Affiliates or UCC Affiliates not signatories hereto, they shall be deemed to be intended beneficiaries and this Agreement is hereby declared to be made in and for their respective benefits and uses; provided, however, there shall not be any other third party beneficiary under this Agreement and nothing in this contract shall be construed as creating any direct or beneficial right in or on behalf of any other third party.

E. This Agreement may be modified only by a written amendment, expressly stated as such, that is signed by both Parties.

17. Term and Termination

This Agreement shall be effective as of the Effective Date. This Agreement will remain in effect until December 31, 2004 and it will automatically renew from year to year thereafter. Should either Party wish to not renew this Agreement, it shall provide prior written notice to the other Party no later than twelve (12) months prior to the date on which the Agreement will otherwise automatically renew. This Agreement is personal to the Parties, and, in case of receivership, expropriation or nationalization of a Party by any government or any representative or agency of any government, bankruptcy or dissolution of a Party or forced assignment of this Agreement by a Party then the other Party shall have the right to terminate this Agreement at its election immediately upon written notice (with such notice being given to the extent permitted by applicable law) to the party undergoing such receivership, expropriation, nationalization, bankruptcy, dissolution or forced assignment. In the event of a Change of Control of UCC, TDCC may terminate this Agreement upon sixty (60) days prior notice to UCC. Termination of this Agreement shall in no way relieve a party from liability for any breach occurring prior to such termination.

18. Relationship of this Agreement to the Amended and Restated Sales Promotion Agreement

As of the Effective Date, this Agreement shall supersede the Amended and Restated Sales Promotion Agreement that was effective as of September 13, 2002.

IN WITNESS WHEREOF, the Parties hereto have caused this instrument to be signed by their duly authorized officers or representatives on the dates indicated below, but effective as of the Effective Date.

AGREED TO AND ACCEPTED:		AGREED TO AND ACCEPTED:
UNION CARBIDE CORPORATION		THE DOW CHEMICAL COMPANY
By:	/s/ JOHN R. DEARBORN	By:	/s/ J. P. REINHARD
Name:	John R. Dearborn	Name:	J. P. Reinhard
Title:	President and Chief Executive Officer	Title:	Executive Vice President and Chief Financial Officer
Date:	JANUARY 27, 2004	Date:	JANUARY 27, 2004

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EXHIBIT 10.24

Second Amended and Restated Sales Promotion Agreement
EX-10.28.2 4 a2128959zex-10_282.htm EXHIBIT 10.28.2
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EXHIBIT 10.28.2

First Amendment to Revolving Credit Agreement

This First Amendment to the Revolving Credit Agreement (the "Amendment") is effective as of March 25, 2003, is entered into by and between UNION CARBIDE CORPORATION, a New York corporation ("Borrower"), and THE DOW CHEMICAL COMPANY, a Delaware corporation ("Lender"), and is made with reference to that certain Revolving Credit Agreement dated March 25, 2003 (the "Credit Agreement") between Borrower and Lender. Capitalized terms used herein without definition will have the same meanings herein as set forth in the Credit Agreement.

WHEREAS Lender and Borrower desire to amend Subsection 3.2(e) of the Credit Agreement as set forth below;

NOW, THEREFORE, in consideration of the premises, agreements, provisions, and covenants contained herein and the Credit Agreement, the parties hereto agree as follows:

1.: Amendment to Subsection 3.2(e). Subsection 3.2(e) of the Credit Agreement is hereby amended by replacing the subsection in its entirety with the following language:

"With respect to each Loan and Credit Enhancement to be provided on or after July 30, 2003, the Borrower shall have obtained all of the consents specified in Schedule 2."

2.: No Other Amendment or Waiver. Notwithstanding the agreement of Lender to the terms and provisions of this Amendment, Borrower acknowledges and expressly agrees that this Amendment is limited to the extent expressly set forth in this Amendment and will not constitute a modification of the Credit Agreement or any other Loan Document or a course of dealing at variance with the terms of the Credit Agreement or any other Loan Document (other than as expressly set forth above) so as to require further notice by Lender of its intent to require strict adherence to the terms of the Credit Agreement and the other Loan Documents in the future. All of the terms, conditions, provisions, and covenants of the Credit Agreement and the other Loan Documents will remain unaltered and in full force and effect except as expressly modified by this Amendment. The Credit Agreement and each other Loan Document will be deemed modified by this Amendment solely to the extent necessary to effect the waivers and amendments contemplated by this Amendment.
3.: Execution in Counterparts. This Amendment may be executed in any number of counterparts and by different parties in separate counterparts, each of which when so executed will be deemed to be an original and all of which taken together will constitute one and the same agreement. Signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are attached to the same document.
4.: Governing Law. This Amendment and the rights and obligations of the parties to this Amendment will be governed by, and construed and interpreted in accordance with, the law of the State of New York.

The parties agree that this Amendment is effective as of March 25, 2003, and they have caused their authorized representatives to execute this Amendment as dated below.

BORROWER:		LENDER:
UNION CARBIDE CORPORATION		THE DOW CHEMICAL COMPANY
By:	/s/ EDWARD W. RICH	By:	/s/ J. P. REINHARD
Name:	Edward W. Rich	Name:	J.P. Reinhard
Title:	Chief Financial Officer, Vice President, and Treasurer	Title:	Executive Vice President and Chief Financial Officer
Date:	JUNE 16, 2003	Date:	JUNE 16, 2003

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EXHIBIT 10.28.2

EX-10.28.3 5 a2128959zex-10_283.htm EXHIBIT 10.28.3
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EXHIBIT 10.28.3

Second Amendment to Revolving Credit Agreement

This Second Amendment to the Revolving Credit Agreement (the "Credit Agreement"), dated as of March 25, 2003 between Union Carbide Corporation, as Borrower ("Borrower") and The Dow Chemical Company, as Lender ("Lender") is effective as of January 1, 2004 (this "Amendment"). Capitalized terms used but not otherwise defined herein shall have the meanings given such terms in the Credit Agreement.

W I T N E S S E T H:

WHEREAS, Borrower and Lender have entered into the Credit Agreement;

WHEREAS, the parties wish to extend the term of the Credit Agreement;

WHEREAS, Borrower's wholly-owned subsidiary, Union Carbide Subsidiary C, Inc. ("UCSC") is a member of Univation Technologies, LLC ("Univation"), a limited liability company formed pursuant to a Limited Liability Company Agreement dated April 10, 1997 between Exxon Chemical Licensing Company ("Exxon Chemical") and UCSC;

WHEREAS, Borrower is a party to a number of agreements relating to the Univation entity and has a number of obligations running to Univation, Exxon Chemical and certain other affiliates of Exxon Chemical (Exxon Chemical and such affiliates, the "Exxon Parties") under such agreements, including obligations to provide funding to UCSC and to provide certain services to Univation and certain of the Exxon Parties;

WHEREAS, Lender entered into the Univation Reorganization Agreement, dated December 4, 2000, among Exxon Chemical, ExxonMobil Chemical Company ("ExxonMobil"), Lender, Borrower, UCSC, and Univation (the "Reorganization Agreement"), pursuant to which, among other things, the Lender agreed to be responsible for Borrower's obligations under the Formation Agreements (as such term is defined in the Reorganization Agreement) and under agreements and documents entered by Borrower after the date of the Reorganization Agreement in connection with Univation (the Formation Agreements and such other agreements, collectively, the "Univation Agreements");

WHEREAS, the parties acknowledge that Borrower may use the proceeds of the Credit Agreement for its normal operations, including events such as meeting its obligations under the Univation Agreements and that, in addition, Univation or the Exxon Parties may come directly to Lender for performance of such obligations in accordance with the Reorganization Agreement;

WHEREAS, the parties wish to formalize their intention, existing at the time of the Reorganization Agreement, that, should Lender provide funds, services or other items of value to UCSC, Univation or the Exxon Parties pursuant to Lender's undertakings in the Reorganization Agreement, Borrower will reimburse Lender, and to this end the parties executed the Univation Reimbursement Agreement, effective as of January 1, 2004, which provided for such reimbursement (the "Univation Reimbursement Obligation"); and

WHEREAS, the parties wish for the Univation Reimbursement Obligation to be secured under the Pledge and Security Agreement between the Borrower and the Lender, dated as of March 25, 2003 (the "Security Agreement").

NOW THEREFORE, in consideration of the premises and the mutual agreements and covenants hereinafter set forth, Borrower and Lender hereby agree as follows:

1): The Credit Agreement is amended as follows:

(i) The definition of "Change of Control", "Loan Availability", "Reimbursement Obligations" and "Scheduled Termination Date" are amended to read in their entirety as follows:

"Change of Control" means (x) any direct or indirect transfer or change of ownership interest in Borrower that results in Lender owning, directly or indirectly, less than eighty percent (80%) of the voting rights and economic interest of Borrower, or (y) control of Borrower is removed from Lender's board of directors or an entity other than Lender or a Lender Affiliate replaces a majority of the directors that constitute Borrower's board of directors.

"Loan Availability" means, as of any time, the Commitment in effect at such time less the sum of (a) the aggregate principal amount of Loans outstanding at such time, (b) the aggregate amount of Credit Enhancement Obligations (other than Credit Enhancement Obligations that have become Loans pursuant to Section 2.4(f)) outstanding as of such time, and (c) the unused Univation Commitment.

"Reimbursement Obligations" means, at any time with respect to any Credit Enhancement or the Univation Reimbursement Obligation, all matured reimbursement or repayment obligations of Borrower to Lender then owing under the Reimbursement Agreement or the Univation Reimbursement Agreement relating to such Credit Enhancement or the Univation Undertaking, as applicable, as a result of Lender having advanced funds (or in the case of the Univation Undertaking, advanced funds or provided services or other items of value) to the beneficiary of such Credit Enhancement or the Univation Undertaking.

"Scheduled Termination Date" means March 25, 2005.

(ii) New definitions of "Reorganization Agreement", "UCSC Loan Agreement", "Univation Commitment", "Univation Reimbursement Agreement" "Univation Reimbursement Obligation" and "Univation Undertaking" are added to Section 1.1, reading in their entirety as follows:

"Reorganization Agreement" means the Univation Reorganization Agreement dated as of December 4, 2000, among Exxon Chemical Licensing Company, ExxonMobil Chemical Company, Lender, Borrower, Union Carbide Subsidiary C, Inc. and Univation Technologies, LLC.

"UCSC Loan Agreement" means, the Loan Agreement, effective as of January 1, 2004, between the Lender and Union Carbide Subsidiary C, Inc, a Delaware corporation and wholly-owned subsidiary of the Borrower.

"Univation Commitment" has the meaning specified in the UCSC Loan Agreement.

"Univation Reimbursement Agreement" has the meaning specified in Section 2.4(e)(ii).

"Univation Reimbursement Obligation" has the meaning specified in Section 2.4(e)(ii).

"Univation Undertaking" means, the undertakings and agreements made by Lender in Article 2 of the Reorganization Agreement.

(iii) The definition of "Voting Stock" is hereby deleted in its entirety.

(iv) A new sentence is to be added to the end of Section 2.1, reading in its entirety as follows:

"Notwithstanding the foregoing, if at any time the Lender is required to make a payment with respect to the Univation Undertaking, the Commitment will be increased by the amount of that payment even if the Commitment has been otherwise terminated under Section 2.3 hereof. If the Commitment has been increased pursuant to the foregoing and any repayment is made by the Borrower with respect to the Univation Undertaking, the Commitment will be reduced by the repayment amount but, subject to the Lender's rights under Section 2.3, will not be reduced below the original Commitment (it being understood that the Commitment may be increased again in respect of subsequent payments required to be made with respect to the Univation Undertaking)."

(v) Section 2.4(e) is hereby amended to be called 2.4(e)(i).

(vi) A new Section 2.4(e)(ii) is added, reading in its entirety as follows:

(e)(ii) In addition to the Reimbursement Agreements contemplated by Section 2.4(e)(i), Borrower and Lender are entering into a Reimbursement Agreement (the "Univation Reimbursement Agreement") pursuant to which Borrower has a reimbursement obligation (the "Univation Reimbursement Obligation") for any funds, services or other goods provided to Exxon Chemical Licensing Company, ExxonMobil Chemical Company, Union Carbide Subsidiary C, Inc. or Univation Technologies, LLC pursuant to the Univation Undertaking.

Notwithstanding that the parties are entering into the Univation Reimbursement Agreement, the Univation Undertaking shall not be treated as a Credit Enhancement under this Agreement, including, without limitation, for the purposes of Section 2.10 (Fees).

(vii) Section 2.4(f) is hereby amended by adding the words "or the Univation Undertaking" after the words "Credit Enhancement" in each place they appear.

(viii) Section 2.4(g) is hereby amended by adding the words "or the Univation Undertaking" after the words "Credit Enhancement" in each place they appear.

(ix) Section 2.11(c) is hereby amended by adding the words "and the unused Univation Commitment" after the words "Credit Enhancement Contingent Liabilities" in each place they appear.

(x) Section 2.11(d)(iv) is hereby amended by adding the words "and the unused Univation Commitment" after the words "Credit Enhancement Contingent Liabilities".

(xi) Section 9.3 is hereby amended and reads in its entirety:

Upon the Termination Date, the Borrower shall pay to Lender in immediately available funds at Lender's office referred to in Section 10.6, for deposit in a cash collateral account (the "Cash Collateral Account") to be maintained in the name of Lender at such place as shall be designated by Lender, an amount equal to (a) 110% of the sum of all outstanding Credit Enhancement Contingent Liabilities which are denominated in U.S. dollars and the current unused Univation Commitment (b) 125% of the sum of all outstanding Credit Enhancement Contingent Liabilities (if any) which are denominated in currencies other than U.S. dollars. Any amount in the Cash Collateral Account shall bear interest for the benefit of the Borrower at a rate per annum of LIBOR plus 0.125%. Lender may, from time to time after funds are deposited in the Cash Collateral Account, apply funds then held in the Cash Collateral Account to the payment of any amounts, in accordance with Section 2.11(d)(iii) and (iv), as shall have become or shall become due and payable by Borrower to Lender in respect of such Credit Enhancement Contingent Liabilities or the Univation Commitment. Lender shall promptly give written notice of any such application; provided, however, that the failure to give such written notice shall not invalidate any such application. At the end of each calendar quarter following the establishment of the Cash Collateral Account, Lender shall determine the aggregate amount of all Credit Enhancement Contingent Liabilities and the unused Univation Commitment outstanding at the end of such calendar quarter (the "Remaining Contingent Liabilities") and, if the cash then on deposit in the Cash Collateral Account exceeds an amount equal to the sum of (a) 110% of the sum of all Remaining Contingent Liabilities which are denominated in U.S. dollars and (b) 125% of the sum of all Remaining Contingent Liabilities (if any) which are denominated in currencies other than U.S. dollars, Lender shall release such excess to Borrower within 30 days of the end of such calendar quarter. Except as provided in the foregoing sentence, neither Borrower nor any Person claiming on behalf of or through Borrower shall have any right to withdraw any of the funds held in the Cash Collateral Account at any time prior to the termination of all outstanding Credit Enhancements, the drawing of the entire Univation Commitment and the payment in full of all then outstanding and payable monetary Obligations, but thereafter any amounts remaining in the Cash Collateral Account shall be for the sole account of Borrower. Any determination of Remaining Contingent Liabilities hereunder shall be conclusive and binding for all purposes, absent manifest error.

(xii) Section 10.5 is hereby amended and reads in its entirety:

Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all funds at any time held and other indebtedness or other amounts at any time owing by Lender or such Affiliates to or for the credit or the account of Borrower (or any Subsidiary Guarantor) against any and all of the Obligations now or hereafter existing whether or not Lender shall have made any demand under this Agreement or any other Loan Document and although such Obligations may be unmatured. Lender agrees promptly to notify Borrower (and, if applicable, such Subsidiary Guarantor) after any such set-off and application is made by Lender; provided, however, that the failure to give such notice shall not affect the validity of such set-off and application. The rights of Lender under this Section 10.5 are in addition to the other rights and remedies (including other rights of set-off under Section 2.10 (a) of the Amended and Restated Revolving Loan Agreement between Borrower and Lender effective as of January 1, 2004, and any other rights of set-off) which Lender may have. In the event any amount is set-off against any unmatured Credit

Enhancement Obligation or the unused Univation Commitment, the amount set-off against such unmatured Credit Enhancement Obligation or the unused Univation Commitment shall be used to cash collateralize such Credit Enhancement Obligation or the unused Univation Commitment in accordance with Section 9.3.

2) Security. For the avoidance of doubt, the parties agree that, without duplication, the Univation Reimbursement Obligation is one of the Obligations as defined under the Security Agreement.

3) Authorization. Each Party hereto represents to the others that (a) such Party has all necessary power and authority to enter into this Amendment; (b) the execution and delivery by such Party of this Amendment has been duly authorized by all requisite corporate or other action on the part of such Party; and (c) this Amendment has been duly executed and delivered by such Party.

4) Credit Agreement Remains in Effect. Except as expressly amended by this Amendment, the Credit Agreement remains in full force and effect and nothing in this Amendment shall otherwise affect any other provision of the Credit Agreement or the rights and obligations of the Parties thereto.

5) Counterparts. This Amendment may be executed in one or more counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same instrument.

6) Governing Law. This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to its provisions concerning conflicts of laws.

IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment as of the date first above written.

		UNION CARBIDE CORPORATION
		By:	/s/ EDWARD W. RICH
		Name:	Edward W. Rich
		Title:	Chief Financial Officer, Vice President and Treasurer
		THE DOW CHEMICAL COMPANY
		By:	/s/ J. P. REINHARD
		Name:	J. P. Reinhard
		Title:	Executive Vice President and Chief Financial Officer

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EXHIBIT 10.28.3

Second Amendment to Revolving Credit Agreement
EX-10.29.2 6 a2128959zex-10_292.htm EXHIBIT 10.29.2
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EXHIBIT 10.29.2

Second Amendment to Pledge and Security Agreement

This Second Amendment to the Pledge and Security Agreement (this "Amendment"), is effective as of January 1, 2004, and is entered into by and between Union Carbide Corporation, a New York corporation ("Grantor"), and The Dow Chemical Company, a Delaware corporation ("TDCC"), and is made with reference to that certain Pledge and Security Agreement dated March 25, 2003 (the "Security Agreement"), between Grantor and TDCC. Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Security Agreement.

WHEREAS TDCC and Grantor desire to make an amendment to the Security Agreement as set forth below;

NOW, THEREFORE, in consideration of the premises and agreements, provisions and covenants contained herein and the Security Agreement, the parties hereto agree as follows:

1.: The definition of "Obligations" is hereby amended by replacing the definition in its entirety with the following language:

"Obligations" means all advances, debts, liabilities, obligations, covenants and duties owing by Grantor to Lender of every type and description, arising under (i) the Credit Agreement or under any other Loan Document, including all Loans, Credit Enhancement Obligations and the Univation Reimbursement Obligation and all fees and expenses and all interest, charges, expenses, fees, attorneys' fees and disbursements and other sums chargeable to Grantor under the Credit Agreement or any other Loan Document, or (ii) any other transaction, arrangement, agreement, guarantee, indemnity or extension or enhancement of credit entered into or provided by Lender to or on behalf of Grantor from and after the date hereof, in each case whether direct or indirect, absolute or contingent, or due or to become due.

2.: Authorization. Each party hereto represents to the others that (a) such party has all necessary power and authority to enter into this Amendment; (b) the execution and delivery by such party of this Amendment has been duly authorized by all requisite corporate or other action on the part of such party; and (c) this Amendment has been duly executed and delivered by such party.
3.: Security Agreement Remains in Effect. Except as expressly amended by this Amendment, the Security Agreement remains in full force and effect and nothing in this Amendment shall otherwise affect any other provision of the Security Agreement or the rights and obligations of the parties thereto.
4.: Counterparts. This Amendment may be executed in one or more counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same instrument.
5.: Governing Law. This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to its provisions concerning conflicts of laws.

IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed by their duly authorized representatives.

BORROWER:		LENDER:
UNION CARBIDE CORPORATION		THE DOW CHEMICAL COMPANY
By:	/s/ EDWARD W. RICH	By:	/s/ J. P. REINHARD
Name:	Edward W. Rich	Name:	J. P. Reinhard
Title:	Chief Financial Officer, Vice President and Treasurer	Title:	Executive Vice President and Chief Financial Officer

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EXHIBIT 10.29.2

Second Amendment to Pledge and Security Agreement
EX-10.30 7 a2128959zex-10_30.htm EXHIBIT 10.30
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EXHIBIT 10.30

Amended and Restated Revolving Loan Agreement

The Revolving Loan Agreement, dated as of December 1, 2001, (the "Effective Date") between The Dow Chemical Company, a Delaware corporation (the "Borrower"), and Union Carbide Corporation, a New York corporation (the "Lender"), amended by the Revolving Loan Amendment Number 1 dated July 1, 2002, is hereby amended and restated effective as of January 1, 2004, as follows:

1. DEFINITIONS

1.1 "Advance(s)" has the meaning stated in Section 2.1.

1.2 "Agreement" means this Revolving Loan Agreement.

1.3 "Borrower" has the meaning stated in the preamble.

1.4 "Business Day" means a day of the year on which banks are open for business in Midland, Michigan, and not required or authorized to close in New York City, New York.

1.5 "Commitment" has the meaning stated in Section 2.1.

1.6 "Control" has the meaning stated in Section 7.10.

1.7 "Effective Date" has the meaning stated in the preamble.

1.8 "Event(s) of Default" has the meaning stated in Section 6.1.

1.9 "Interest Period" means the period commencing on the first Business Day of each calendar month and ending on the day immediately preceding the first Business Day of the succeeding calendar month.

1.10 "Interest Rate" has the meaning stated in section 2.3.

1.11 "Lender" has the meaning stated in the preamble.

1.12 "LIBOR" means the rate for deposits in U.S. Dollars for a period of one month which appears on the Telerate Page 3750 as of 11:00 a.m., London time, on the date that is two Business Days prior to the first day of the applicable Interest Period.

1.13 "Loan" has the meaning stated in Section 2.1.

1.14 "Maturity Date" means April 30, 2012.

2. AMOUNTS AND TERMS OF THE ADVANCES

2.1 Advances.

The Lender agrees, on the terms and conditions stated in this Agreement, to make advances to the Borrower (the "Advance(s)") in an aggregate outstanding amount not to exceed $1,000,000,000 (One Billion U.S. Dollars) (the "Commitment") during the period from the Effective Date to the Maturity Date. The amount of Advances outstanding from time to time under this Agreement is referred to as the "Loan." The amount of Advances repaid pursuant to Section 2.4(d) below prior to the Maturity Date, may be reborrowed subject to the limitations contained in this Agreement.

2.2 Making the Advances.

Each Advance shall be made in accordance with the intercompany cash management program then in effect between the Borrower and the Lender.

2.3 Interest.

(a) The Loan bears interest from day to day at an interest rate per annum (the "Interest Rate") equal to the lesser of:

(i) LIBOR plus ¹/8 percent; and

(ii) the maximum rate allowable by law.

Interest accrues on the unpaid principal amount of each Advance from the date each Advance is made and is payable in accordance with Section 2.4.

(b) The Interest Rate for each Interest Period is calculated by Lender prior to each Interest Period. Such calculation is conclusive and binding absent manifest error.

2.4 Repayment and Prepayment.

(a) The unpaid principal amount of the Loan is due and payable on the Maturity Date.

(b) Interest on the unpaid principal amount of the Loan will be capitalized and added to the unpaid principal amount of the Loan on the first Business Day of each calendar month. Notwithstanding the foregoing, all accrued and unpaid interest is due and payable on the Maturity Date.

(c) All amounts owing by Borrower to Lender pursuant to the terms and conditions of this Agreement (the "Obligations") are due and payable on the Maturity Date. Notwithstanding the immediately preceding sentence Lender may demand payment from Borrower of all or any part of the Obligations, at any time and from time to time, along with accrued but unpaid interest on the principal amount to be repaid; provided that the repayment date with respect to any such amounts shall be at least 30 days after Borrower's receipt of written notice from Lender.

(d) Borrower may prepay in whole or in part, without premium or penalty, all amounts advanced under the Loan, at any time or from time to time, along with accrued but unpaid interest on the principal amount being repaid.

2.5 Interest on Overdue Principal.

(a) All past due principal, and to the extent permitted by law, interest on all past due principal, bears interest from the date such unpaid amount is due until the date such unpaid amount is paid in full, payable on demand, at an interest rate per annum equal to the lesser of:

(i) one percent per annum above the Interest Rate; and

(ii) the maximum rate allowed by law.

(b) Without prejudice to the rights of the Lender pursuant to Section 2.5(a), the Borrower indemnifies the Lender against any actual loss or expense which it may sustain or incur as a result of the failure by the Borrower to pay when due any principal or interest pursuant to Section 2.4 and 2.5. A certificate signed by an officer of the Lender setting forth the basis for the determination of the amounts necessary to indemnify the Lender in respect of any loss or expense, submitted to the Borrower by the Lender, is conclusive and binding for all purposes absent manifest error.

2.6 Commitment Fee.

No commitment fee is payable under this Agreement.

2.7 Payments.

(a) The Borrower agrees to make each payment with respect to this Agreement in the same currency in which the Advance was made. Each payment will be made to the Lender's account at a bank to be designated by the Lender.

(b) Whenever any payment to be made under this Agreement is stated to be due on a day other than a Business Day, such payment shall be made on the immediately succeeding Business Day.

2.8 Cancellation or Reduction of Unused Commitment.

Either party may by prior written notice at any time and from time to time, wholly cancel or permanently reduce the Lender's unused Commitment under this Agreement.

2.9 Evidence of Debt.

The Lender maintains in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower resulting from each Advance made from time to time and the amounts of principal and interest payable and paid from time to time under this Agreement. In any legal action or proceeding in respect of this Agreement, the entries made in such account or accounts are, in the absence of manifest error, conclusive evidence of the existence and amounts of the obligations of the Borrower.

2.10 Right of Set-off

(a) On March 25, 2003 Lender and Borrower entered into a Revolving Credit Agreement as amended by the First Amendment to Revolving Credit Agreement effective as of March 25, 2003 and the Second Amendment to Revolving Credit Agreement effective as of January 1, 2004 (the "Credit Agreement"), whereby Borrower agreed to provide Lender with, among other things, access to Credit Enhancements and the Univation Undertaking (each as defined in the Credit Agreement). Borrower is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all funds at any time held and other indebtedness or other amounts at any time owing by Borrower or its affiliates (other than Lender and its subsidiaries) to or for the credit or the account of Lender or its subsidiaries, including any Loans under this Agreement, against any and all amounts owing by Lender to Borrower as a result of payments made by the Borrower with respect to a Credit Enhancement or the Univation Undertaking now or in the future, whether or not Borrower shall have made any demand under the Credit Agreement or this Agreement. Such set-off shall be immediate and automatic. Borrower agrees promptly to notify Lender after any such set-off is made by Borrower; provided, however, that the failure to give such notice shall not affect the validity of such set-off. The rights of Borrower under this Section 2.10 (a) are in addition to the other rights and remedies (including other rights of set-off under Section 10.5 of the Credit Agreement and any other rights of set-off) which Borrower may have.

(b) Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all funds at any time held and other indebtedness or other amounts at any time owing by Lender or its subsidiaries to or for the credit or the account of Borrower or its affiliates (other than Lender and its subsidiaries), including any Loans under the Credit Agreement, against the Obligations, whether or not Lender shall have made any demand under this Agreement or otherwise. Such set-off shall be immediate and automatic. Lender agrees promptly to notify Borrower after any such set-off is made by Lender; provided, however, that the failure to give such notice shall not affect the validity of such set-off. The rights of Lender under this Section 2.10 (b) are in addition to the other rights and remedies (including any other rights of set-off) which Lender may have.

3. CONDITIONS OF LENDING

The obligation of the Lender to make any Advance under this Agreement is subject to the conditions precedent that on the date this Agreement is executed and the date of such Advance:

3.1 The following statements are true (and the acceptance by the Borrower of the proceeds of any Advance or the benefits of any Advance constitutes a representation and warranty by the Borrower that on the date of such Advance such statements are true):

(a) The representations and warranties contained in Section 4.1 are correct; and

(b) No event has occurred and is continuing, or would result from such Advance, which constitutes an Event of Default or would constitute an Event of Default but for the requirements that notice be given or time elapse or both; and

3.2 The Lender shall have received such other approvals, opinions, or documents as the Lender may reasonably request.

4. REPRESENTATIONS AND WARRANTIES OF BORROWER

The Borrower represents and warrants as follows:

4.1 The Borrower is a company duly organized, validly existing and in good standing under the laws of the state or country indicated in the preamble;

4.2 The execution, delivery and performance by the Borrower of this Agreement are within the Borrower's corporate powers, have been duly authorized by all necessary corporate action, and do not contravene:

(a) the Borrower's Articles of Incorporation or Bylaws; or

(b) any law or any judgment or contractual restriction binding on or affecting the Borrower;

4.3 No authorization or approval (including exchange control approval) or other action by, and no notice to or filing with, any governmental authority or regulatory body which has not already been obtained or made is required for the due execution, delivery and performance by the Borrower of this Agreement; and

4.4 This Agreement is the legal, valid and binding obligation of the Borrower enforceable against Borrower in accordance with its terms.

5. COVENANTS OF THE BORROWER

So long as any Advance remains unpaid or the Lender has any Commitment, the Borrower will, unless the Lender otherwise consents in writing, furnish to the Lender:

5.1 As soon as practicable and in any event within five Business Days after the occurrence of each Event of Default, or each event which with notice or lapse of time or both would become an Event of Default, which is continuing on the date of such statement, a statement of an authorized representative of the Borrower setting forth details of such Event of Default or event and the action which the Borrower proposes to take with respect to such Event of Default or event; and

5.2 Such other information respecting the business, properties or the condition or operations, financial or otherwise, of the Borrower as the Lender may from time to time reasonably request.

6. EVENTS OF DEFAULT

If any of the following events ("Event(s) of Default") occur and continue:

6.1 The Borrower fails to pay any installment of principal or interest on any Advance when due; or

6.2 Any representation or warranty made by the Borrower (or any of its authorized representatives) under or in connection with this Agreement proves to have been incorrect in any material respect when made; or

6.3 The Borrower fails to perform or observe any other term, covenant or agreement contained in this Agreement on its part to be performed or observed and any such failure shall remain unremedied for 15 days after written notice has been given to the Borrower by the Lender; or

6.4 The Borrower

(a) fails to pay any indebtedness (other than indebtedness resulting from the Advances) of the Borrower, or any interest or premium on any indebtedness, when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) and such failure continues after the applicable grace period, if any, specified in the agreement or instrument relating to such indebtedness; or

(b) fails to perform or observe any term, covenant or condition on its part to be performed or observed under any agreement or instrument relating to any such indebtedness, when required to be performed or observed, and such failure continues after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such failure to perform or observe is to accelerate, or to permit the acceleration of, the maturity of such indebtedness; or any such indebtedness shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), prior to the stated maturity of any such indebtedness; or

6.5 The Borrower is adjudicated a bankrupt or admits in writing its inability to pay its debts as they mature, or make an assignment for the benefit of creditors; or the Borrower applies for or consents to the appointment of any receiver, trustee, or similar officer for it or for all or any substantial part of its property, or such receiver, trustee or similar officer is appointed without the application or consent of the Borrower and such appointment continues undischarged for a period of 60 days; or the Borrower institutes (by petition, application, answer, consent or otherwise) any bankruptcy, insolvency, reorganization, arrangement, readjustment of debt, dissolution, liquidation or similar proceeding relating to it under the laws of any jurisdiction, or any such proceeding is instituted (by petition, application or otherwise) against the Borrower and remains undismissed for a period of 60 days; or any judgment, writ, warrant of attachment or execution or similar process is issued or levied against a substantial part of the property of the Borrower and such judgment, writ, or similar process is not released, vacated or fully bonded within 60 days after the final date for appeal or response to such judgment or other process, or in any event later than five days prior to the date of any proposed sale under such judgment, writ or similar process;

then, and in any such event, the Lender may by notice to the Borrower, (i) declare the Lender's obligation to make Advances terminated, whereupon the same shall terminate, and (ii) declare the Obligations immediately due and payable, without presentment, demand, protest or further notice of any kind, all of which are expressly waived by the Borrower.

7. MISCELLANEOUS

7.1 Priority

Any payments made by Lender to Borrower will be considered first to be payments made in accordance with the provisions of the Credit Agreement. Once all payments required to be made under such agreement have been made any additional payments will be considered to be Loans under this Agreement.

7.2 Amendments.

No amendment or modification of any provision of this Agreement or any instrument delivered under this Agreement is effective unless the same is in writing and signed by an authorized representative of the Lender.

7.3 Notices.

All written notices and other communications delivered by hand or sent by first class mail are effective when received, and when sent by Telex, e-mail or facsimile are effective when sent:

To the Borrower at:

The Dow Chemical Company

2030 Dow Center
Midland, MI 48674
Attention: Treasurer

and if to the Lender at:

Union Carbide Corporation
39 Old Ridgebury Road
Danbury, CT 06817-0001
Attention: Treasurer

or, as to each party, at such other address as designated by such party in a written notice to the other party.

7.4 No Waiver; Remedies.

No failure or delay on the part of the Lender to exercise any right under this Agreement operates as a waiver of this Agreement. Nor does any single or partial exercise of any right under this Agreement preclude any other or further exercise of any right under this Agreement or the exercise of any other right. The remedies provided in this Agreement are cumulative and not exclusive of any remedies provided by law.

7.5 Changes in Applicable Tax Laws.

If any time during the term of the Loan under this Agreement, any applicable tax law is changed in such a manner that it increases the Lender's cost of maintaining the Loan, the Borrower agrees to reimburse the Lender for all such additional costs; provided, however, that if the Borrower is prevented or unable for any reason to reimburse the Lender for such additional costs of maintaining the Loan, then the unpaid principal amount of the Loan, together with interest on the Loan, shall be repaid.

7.6 Costs and Expenses.

The Borrower agrees to pay on demand all losses and all costs and expenses, if any, in connection with the enforcement of this Agreement and any instruments or other documents delivered under this Agreement, including, without limitation, losses, costs and expenses sustained as a result of a default by the Borrower in the performance of its obligations contained in this Agreement or any instrument or document delivered under this Agreement.

7.7 Binding Effect; Assignment.

This Agreement is binding upon and inures to the benefit of the Borrower and the Lender. Neither the Borrower nor the Lender have the right to assign any of their respective rights under this Agreement or any interest in this Agreement without the prior written consent of the other party to this Agreement.

7.8 Governing Law.

This Agreement is governed by and construed in accordance with the laws of the State of New York, U.S.A., without regard to its provisions concerning conflicts of law.

7.9 Severability.

In the event that a court of competent jurisdiction determines that any portion of this Agreement is in violation of any statute or public policy, then only the portions of this Agreement that violate such statute or public policy are stricken. All portions of this Agreement that do not violate any statute or public policy continue in full force and effect. Any court order striking any portion of this Agreement modifies the stricken terms as narrowly as possible to give as much effect as possible to the intentions of the parties pursuant to this Agreement.

7.10 Change of Control Provision.

Notwithstanding paragraph 2.4 of this Agreement, after any change of Control (as defined below) of the Borrower, or any proposal, either public or private, that the Lender believes, in good faith, to be a bona fide proposal to effect any change of Control (as defined below) of the Borrower, the Lender may, at its option, upon notice to the Borrower declare the obligation of the Lender to make advances or loans under this Agreement to be terminated and declare all principal, interest, and other amounts payable under this Agreement to be immediately due and payable, whereupon the same shall become immediately due and payable. For purposes of this Agreement, "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of any individual, corporation, partnership, unincorporated association or other entity, whether through the ownership of voting stock, by contract or otherwise. A person or entity who is the owner of 20% or more of an entity's outstanding voting stock shall be deemed to have Control of such corporation.

IN WITNESS WHEREOF, the parties have caused this Amended and Restated Revolving Loan Agreement to be duly executed by their duly authorized representatives.

BORROWER:		LENDER:
The Dow Chemical Company		Union Carbide Corporation
By:	/s/ J. P. REINHARD	By:	/s/ EDWARD W. RICH
Name:	J. P. Reinhard	Name:	Edward W. Rich
Title:	Executive Vice President and Chief Financial Officer	Title:	Chief Financial Officer, Vice President and Treasurer

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EXHIBIT 10.30

Amended and Restated Revolving Loan Agreement
EX-23 8 a2128959zex-23.htm EXHIBIT 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 reports dated January 9, 2003 and January 26, 2004 appearing in this Annual Report on Form 10-K of Union Carbide Corporation for the year ended December 31, 2003.

/s/ B. THOMAS FLORENCE
B. Thomas Florence President Analysis, Research & Planning Corporation February 13, 2004

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EXHIBIT 23

Analysis, Research & Planning Corporation's Consent
EX-31.1 9 a2128959zex-31_1.htm EXHIBIT 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 annual report on Form 10-K 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 annual 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: February 20, 2004
		/s/ JOHN R. DEARBORN John R. Dearborn President and Chief Executive Officer

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EXHIBIT 31.1

Union Carbide Corporation and Subsidiaries Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
EX-31.2 10 a2128959zex-31_2.htm EXHIBIT 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 annual report on Form 10-K of Union Carbide Corporation;

2.

3.

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: February 20, 2004
		/s/ EDWARD W. RICH Edward W. Rich Vice President, Treasurer and Chief Financial Officer

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EXHIBIT 31.2

Union Carbide Corporation and Subsidiaries Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
EX-32.1 11 a2128959zex-32_1.htm EXHIBIT 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 Annual Report on Form 10-K of the Corporation for the year ended December 31, 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
February 20, 2004

100

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EXHIBIT 32.1

Union Carbide Corporation and Subsidiaries Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
EX-32.2 12 a2128959zex-32_2.htm EXHIBIT 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 Annual Report on Form 10-K of the Corporation for the year ended December 31, 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
February 20, 2004

101

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EXHIBIT 32.2

Union Carbide Corporation and Subsidiaries Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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