-----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, WQXfEp/ff9OQVI89eJBUSYBRNW3ODJ2PpeAYHZYGjVK5rFzC3929ZE36g+Ii6Yb7 UYRpLFdOR25xuDKfcdeMdw== 0001047469-04-032473.txt : 20041029 0001047469-04-032473.hdr.sgml : 20041029 20041029110003 ACCESSION NUMBER: 0001047469-04-032473 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20040930 FILED AS OF DATE: 20041029 DATE AS OF CHANGE: 20041029 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNION CARBIDE CORP /NEW/ CENTRAL INDEX KEY: 0000100790 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL ORGANIC CHEMICALS [2860] IRS NUMBER: 131421730 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-01463 FILM NUMBER: 041104722 BUSINESS ADDRESS: STREET 1: 39 OLD RIDGEBURY RD CITY: DANBURY STATE: CT ZIP: 06817-0001 BUSINESS PHONE: 2037942000 MAIL ADDRESS: STREET 1: 39 OLD RIDGEBURY RD CITY: DANBURY STATE: CT ZIP: 06817-0001 FORMER COMPANY: FORMER CONFORMED NAME: UNION CARBIDE CHEMICALS & PLASTICS CO INC DATE OF NAME CHANGE: 19940502 FORMER COMPANY: FORMER CONFORMED NAME: UNION CARBIDE CORP DATE OF NAME CHANGE: 19890806 FORMER COMPANY: FORMER CONFORMED NAME: UNION CARBIDE & CARBON CORP DATE OF NAME CHANGE: 19710317 10-Q 1 a2145609z10-q.htm 10-Q
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

FOR THE QUARTER ENDED September 30, 2004

Commission file number 1-1463

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

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

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

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

 

 

 

 

 

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

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

At September 30, 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 H(1)(a) and (b) for Form 10-Q and is therefore filing this form with a reduced disclosure format.





Union Carbide Corporation
Table of Contents

 
  PAGE
PART I—FINANCIAL INFORMATION    
 
Item 1.    Financial Statements

 

3
   
Consolidated Statements of Income

 

3
   
Consolidated Balance Sheets

 

4
   
Consolidated Statements of Cash Flows

 

6
   
Consolidated Statements of Comprehensive Income

 

7
   
Notes to the Consolidated Financial Statements

 

8
 
Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations

 

16
   
Disclosure Regarding Forward-Looking Information

 

16
   
Results of Operations

 

16
   
Other Matters

 

17
 
Item 3.    Quantitative and Qualitative Disclosures About Market Risk

 

22
 
Item 4.    Controls and Procedures

 

22

PART II—OTHER INFORMATION

 

 
 
Item 1.    Legal Proceedings

 

23
 
Item 6.    Exhibits and Reports on Form 8-K

 

23

SIGNATURES

 

24

EXHIBIT INDEX

 

25

2


PART I.    FINANCIAL INFORMATION


ITEM 1.    FINANCIAL STATEMENTS

Union Carbide Corporation and Subsidiaries
Consolidated Statements of Income

 
  Three Months Ended
  Nine Months Ended
In millions (Unaudited)

  Sept. 30,
2004

  Sept. 30,
2003

  Sept. 30,
2004

  Sept. 30,
2003

  Net trade sales   $ 75   $ 79   $ 238   $ 270
  Net sales to related companies     1,427     1,185     3,934     3,556
   
 
 
 
Total Net Sales     1,502     1,264     4,172     3,826
   
 
 
 
  Cost of sales     1,331     1,147     3,732     3,636
  Research and development expenses     21     24     68     72
  Selling, general and administrative expenses     5     3     15     23
  Amortization of intangibles     1     1     3     3
  Restructuring charges             48    
  Equity in earnings of nonconsolidated affiliates     133     61     427     132
  Sundry income (expense)—net     (23 )   35     (78 )   11
  Interest income     2     4     5     9
  Interest expense and amortization of debt discount     24     27     70     89
   
 
 
 
Income before Income Taxes and Minority Interests     232     162     590     155
   
 
 
 
  Provision for income taxes     64     41     193     39
   
 
 
 
Net Income Available for Common Stockholder   $ 168   $ 121   $ 397   $ 116
   
 
 
 
Depreciation   $ 81   $ 77   $ 241   $ 233
   
 
 
 
Capital Expenditures   $ 32   $ 32   $ 91   $ 76
   
 
 
 

See Notes to the Consolidated Financial Statements.

3



Union Carbide Corporation and Subsidiaries
Consolidated Balance Sheets

In millions (Unaudited)

  Sept. 30,
2004

  Dec. 31,
2003

Assets            
Current Assets            
  Cash and cash equivalents   $ 23   $ 21
  Accounts receivable:            
    Trade (net of allowance for doubtful receivables—2004: $4; 2003: $4)     54     59
    Related companies     341     279
    Other     193     120
  Notes receivable from related companies     46     124
  Inventories     190     182
  Deferred income tax assets—current     46     56
  Asbestos-related insurance receivables—current     150     200
   
 
  Total current assets     1,043     1,041
   
 
Investments            
  Investments in related companies     461     461
  Investments in nonconsolidated affiliates     907     626
  Other investments     23     35
  Noncurrent receivables     14     17
  Noncurrent receivable from related company     195    
   
 
  Total investments     1,600     1,139
   
 
Property            
  Property     7,294     7,375
  Less accumulated depreciation     5,193     5,132
   
 
  Net property     2,101     2,243
   
 
Other Assets            
  Goodwill     26     26
  Other intangible assets (net of accumulated amortization—2004: $122; 2003: $118)     14     23
  Deferred income tax assets—noncurrent     674     783
  Asbestos-related insurance receivables—noncurrent     1,145     1,176
  Deferred charges and other assets     144     73
   
 
  Total other assets     2,003     2,081
   
 
Total Assets   $ 6,747   $ 6,504
   
 

See Notes to the Consolidated Financial Statements.

4



Union Carbide Corporation and Subsidiaries
Consolidated Balance Sheets

In millions (Unaudited)

  Sept. 30,
2004

  Dec. 31,
2003

 
Liabilities and Stockholder's Equity  
Current Liabilities              
  Notes payable:              
    Related companies   $ 87   $ 23  
    Other     4     2  
  Long-term debt due within one year     15     16  
  Accounts payable:              
    Trade     226     245  
    Related companies     232     287  
    Other     34     32  
  Income taxes payable     185     77  
  Asbestos-related liabilities—current     109     122  
  Accrued and other current liabilities     279     245  
   
 
 
  Total current liabilities     1,171     1,049  
   
 
 
Long-Term Debt     1,257     1,272  
   
 
 
Other Noncurrent Liabilities              
  Pension and other postretirement benefits—noncurrent     512     524  
  Asbestos-related liabilities—noncurrent     1,586     1,791  
  Other noncurrent obligations     439     477  
   
 
 
  Total other noncurrent liabilities     2,537     2,792  
   
 
 
Minority Interest in Subsidiaries     3     3  
   
 
 
Stockholder's Equity              
  Common stock (1,000 shares authorized and issued)          
  Additional paid-in capital          
  Retained earnings     2,143     1,746  
  Accumulated other comprehensive loss     (364 )   (358 )
   
 
 
  Net stockholder's equity     1,779     1,388  
   
 
 
Total Liabilities and Stockholder's Equity   $ 6,747   $ 6,504  
   
 
 

See Notes to the Consolidated Financial Statements.

5



Union Carbide Corporation and Subsidiaries
Consolidated Statements of Cash Flows

 
   
  Nine Months Ended
 
In millions (Unaudited)

  Sept. 30,
2004

  Sept. 30,
2003

 
Operating Activities                  
    Net Income Available for Common Stockholder   $ 397   $ 116  
    Adjustments to reconcile net income to net cash provided by
operating activities:
             
            Depreciation and amortization     258     250  
            Provision (Credit) for deferred income tax     177     (2 )
            Earnings/losses of nonconsolidated affiliates in excess of
                dividends received
    (285 )   (69 )
            Net gain on sales of investments     (1 )    
            Net gain on sales of property     (7 )   (35 )
            Other net loss     1     1  
            Net gain on sales of nonconsolidated affiliates     (1 )   (20 )
            Restructuring charges     37      
    Changes in assets and liabilities that provided (used) cash:              
            Accounts and notes receivable     5     (61 )
            Related company receivables     16     438  
            Inventories     (8 )   17  
            Accounts payable     4     (35 )
            Related company payables     9     (194 )
            Other assets and liabilities     (319 )   (99 )
       
 
 
    Cash provided by operating activities     283     307  
       
 
 
Investing Activities                  
    Capital expenditures     (91 )   (76 )
    Proceeds from sales of property     10     87  
    Proceeds from sale of consolidated company         1  
    Investments in nonconsolidated affiliates     (1 )   (13 )
    Increase in noncurrent receivable from related company     (195 )    
    Collection of noncurrent notes receivable from related company         17  
    Proceeds from sales of nonconsolidated affiliates     1     27  
    Purchases of investments         (1 )
    Proceeds from sales of investments     9     29  
       
 
 
    Cash provided by (used in) investing activities     (267 )   71  
       
 
 
Financing Activities                  
    Changes in short-term notes payable     2      
    Payments on long-term debt     (16 )   (380 )
    Distributions to minority interests         (1 )
       
 
 
    Cash used in financing activities     (14 )   (381 )
       
 
 
Summary                  
    Increase (Decrease) in cash and cash equivalents     2     (3 )
    Cash and cash equivalents at beginning of year     21     25  
       
 
 
    Cash and cash equivalents at end of period   $ 23   $ 22  
       
 
 

See Notes to the Consolidated Financial Statements.

6



Union Carbide Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income

 
  Three Months Ended
  Nine Months Ended
In millions (Unaudited)

  Sept. 30,
2004

  Sept. 30,
2003

  Sept. 30,
2004

  Sept. 30,
2003

Net Income Available for Common Stockholder   $ 168   $ 121   $ 397   $ 116
   
 
 
 
Other Comprehensive Income (Loss), Net of Tax                        
  Unrealized gains on investments                 3
  Translation adjustments     (7 )   6     (8 )   12
  Net gain on cash flow hedging derivative instruments     1         2    
   
 
 
 
  Total other comprehensive income (loss)     (6 )   6     (6 )   15
   
 
 
 
Comprehensive Income   $ 162   $ 127   $ 391   $ 131
   
 
 
 

See Notes to the Consolidated Financial Statements.

7


Union Carbide Corporation and Subsidiaries
Notes to the Consolidated Financial Statements

(Unaudited)

NOTE A    CONSOLIDATED FINANCIAL STATEMENTS

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

        The Corporation is a wholly owned subsidiary of The Dow Chemical Company ("Dow"). In accordance with 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. 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.

        Intercompany transactions and balances are eliminated in consolidation. 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 I for further discussion.

        Certain reclassifications of prior year's amounts have been made to conform to the presentation adopted for 2004. These statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2003.

NOTE B    ACCOUNTING CHANGES

        In December 2003, the Financial Accounting Standards Board ("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 was 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 H for the required disclosures.

        In March 2004, the FASB ratified the consensus reached by the Emerging Issues Task Force ("EITF") with respect to EITF Issue No. 03-16, "Accounting for Investments in Limited Liability Companies." According to EITF Issue No. 03-16, a limited liability company ("LLC") that maintains a "specific ownership account" for each investor should be viewed similar to a limited partnership for determining whether a noncontrolling investment in an LLC should be accounted for using the cost or equity method. The consensus applies to all investments in LLCs (except those required to be accounted for as debt securities) and is effective for reporting periods beginning after June 15, 2004. The Corporation has reviewed its investments in LLCs and has determined that UCC's current accounting treatment for these investments is consistent with the guidance in EITF Issue No. 03-16.

        In May 2004, the FASB issued FASB Staff Position ("FSP") No. 106-2, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003." The FSP provides accounting guidance for the effects of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the "Act") to a sponsor of a postretirement health care plan that has concluded that prescription drug benefits available under the plan are "actuarially equivalent" and thus qualify for a subsidy under the Act. The Corporation adopted the provisions of FSP No. 106-2 in the third quarter of 2004. See Note H regarding the impact of adoption in the third quarter of 2004 and the required disclosures.

        In July 2004, the FASB ratified the consensuses reached by the EITF with respect to EITF Issue No. 02-14, "Whether Investors Should Apply the Equity Method of Accounting to Investments Other Than Common Stock." According to EITF Issue No. 02-14, when an investor has the ability to exercise significant influence over the operating and financial policies of an investee, the equity method of accounting should be applied to investments in common stock and in-substance common stock. EITF Issue No. 02-14 addresses the determination of whether an investment is in-substance common stock and when to perform that evaluation, but does not address the determination of whether an investor has the ability to exercise significant influence over the operating and financial policies of the investee. The consensuses in this Issue apply to reporting periods beginning after September 15, 2004. The Corporation has reviewed its investments and has determined that its current accounting treatment for these investments is consistent with the guidance in EITF Issue No. 02-14.

8


NOTE C    IMPAIRMENT OF LONG-LIVED ASSETS

        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 million and included in "Cost of sales" (the largest of which was $16 million associated with the impairment of the ethylene production facilities in Seadrift, Texas, which was shut down in the third quarter of 2003), and the impairment of a chemical transport vessel (sold in the second quarter of 2003) of $11 million included in "Sundry income (expense)—net."

NOTE D    RESTRUCTURING

        In the second quarter of 2004, the Corporation recorded restructuring charges totaling $48 million resulting from decisions made by management in the second quarter relative to employment levels as Dow restructured its business organization and as the Corporation finalized plans for additional plant shutdowns and divestitures. The charges included severance of $21 million for a workforce reduction of approximately 360 people, most of whom were expected to end their employment with UCC by the end of the third quarter of 2004, and curtailment costs of $9 million associated with UCC's defined benefit plans. The charges also included asset impairments totaling $18 million related to the shutdown of a latex manufacturing facility ($8 million) and the pending sale of a marine terminal ($10 million).

        As of September 30, 2004, the Corporation's workforce had been reduced by 249 people due to this restructuring. Severance of $10 million was paid to 200 former employees; severance of $4 million was deferred until 2005 by 49 former employees. At September 30, 2004, an accrual of $7 million (excluding the deferred severance) remained for approximately 120 employees, most of whom will end their employment with UCC by the end of 2004.

NOTE E    INVENTORIES

        The following table provides a breakdown of inventories at September 30, 2004 and December 31, 2003:

Inventories
In millions

  Sept. 30,
2004

  Dec. 31,
2003

Finished goods   $ 67   $ 59
Work in process     22     25
Raw materials     32     25
Supplies     69     73
   
 
Total inventories   $ 190   $ 182
   
 

        The reserves reducing inventories from the first-in, first-out ("FIFO") basis to the last-in, first-out ("LIFO") basis amounted to $131 million at September 30, 2004 and $96 million at December 31, 2003.

NOTE F    OTHER INTANGIBLE ASSETS

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

 
  At September 30, 2004
  At December 31, 2003
In millions

  Gross
Carrying
Amount

  Accumulated
Amortization

  Net
  Gross
Carrying
Amount

  Accumulated
Amortization

  Net
Intangible assets with finite lives:                                    
  Licenses and intellectual property   $ 36   $ (34 ) $ 2   $ 36   $ (31 ) $ 5
  Patents     5     (3 )   2     5     (3 )   2
  Software     94     (84 )   10     99     (83 )   16
  Other     1     (1 )       1     (1 )  
   
 
 
 
 
 
  Total   $ 136   $ (122 ) $ 14   $ 141   $ (118 ) $ 23
   
 
 
 
 
 

9


        Amortization expense for other intangible assets (not including software) was $1 million in the third quarters of 2004 and 2003. Year to date, amortization expense for other intangible assets (not including software) was $3 million in 2004 and 2003. Amortization expense for software, which is included in "Cost of sales," totaled $0.5 million in the third quarter of 2004, compared with $0.4 million in the third quarter of last year. Year to date, amortization expense for software was $1.2 million in 2004 and 2003.

        Total estimated amortization expense for 2004 and the five succeeding fiscal years is as follows:

In millions

  Estimated
Amortization
Expense

2004   $ 5.5
2005     2.5
2006     2.1
2007     2.0
2008     2.0
2009     2.0

           

NOTE G    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 $109 million at December 31, 2003 for environmental remediation and restoration costs, including $33 million for the remediation of Superfund sites. At September 30, 2004, the Corporation had accrued obligations of $105 million for environmental remediation and restoration costs, including $28 million for the remediation of Superfund sites. This is management's best estimate of the costs for remediation and restoration with respect to environmental matters for which the Corporation has accrued liabilities, although the ultimate cost with respect to these particular matters could range up to twice that amount. Inherent uncertainties exist in these estimates primarily due to unknown conditions, changing governmental regulations and legal standards regarding liability, and evolving technologies for handling site remediation and restoration. It is the opinion of the Corporation's management that the possibility is remote that costs in excess of those accrued or disclosed will have a material adverse impact on the Corporation's consolidated financial statements.

Litigation

        The following disclosure should be read in conjunction with the Corporation's Annual Report on Form 10-K for the year ended December 31, 2003.

        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.

        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 and the first nine months of 2004. 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.

10


        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. 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. 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. 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 UCC and Amchem if the following assumptions were made:

    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.

        Based on the resulting study completed by ARPC in January 2003, the Corporation increased its December 31, 2002 asbestos-related liability for pending and future claims for the 15-year period ending in 2017 to $2.2 billion, excluding future defense and processing costs. 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 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 that 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 remained applicable. Based on the Corporation's own review of the asbestos claim and resolution activity and ARPC's response, the Corporation determined that no change to the accrual was required at that 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 total number of claims filed and received in the first nine months of 2004 was in line with the number of claims assumed to be filed in the ARPC study. Based on the Corporation's review of 2004 activity, the Corporation determined that no change to the accrual was required at September 30, 2004.

        The asbestos-related liability for pending and future claims was $1.7 billion at September 30, 2004 and $1.9 billion at December 31, 2003. At September 30, 2004, approximately 37 percent of the recorded liability related to pending claims and approximately 63 percent related to future claims. 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. The receivable for insurance recoveries related to asbestos liability was $749 million at September 30, 2004 and $1.0 billion at December 31, 2003. At September 30, 2004, $505 million of the receivable for insurance recoveries was due from insurers that are not signatories to the Wellington Agreement and/or do not otherwise have agreements in place regarding their asbestos-related insurance coverage.

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

11


Receivables for Costs Submitted to Insurance Carriers

   
In millions

  September 30,
2004

  December 31,
2003

Receivables for defense costs   $ 98   $ 94
Receivables for resolution costs     448     255
   
 
Total   $ 546   $ 349
   
 

        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 $19 million in the third quarter of 2004 ($30 million in the third quarter of 2003) and $92 million in the first nine months of 2004 ($78 million in the first nine months of 2003), 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 (the "West Virginia action"). 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. In early 2004, several of the defendant insurers in the West Virginia action filed a competing action in the Supreme Court of the State of New York, County of New York. As a result of motion practice, the West Virginia action was dismissed in August 2004 on the basis of forum non conveniens (i.e., West Virginia is an inconvenient location for the parties). The comprehensive insurance coverage litigation is now proceeding in the New York courts.

        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 and/or received each year, the average cost of disposing of each such claim, coverage issues among insurers, and the continuing solvency of various insurance companies, as well as the numerous uncertainties surrounding asbestos litigation in the United States, could cause the actual costs and insurance recoveries to be higher or lower than those projected or those recorded.

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

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

Purchase Commitments

        The Corporation has various purchase agreements. In December 2003, the Corporation assigned its rights and obligations under a purchase agreement for ethylene-related products to a wholly owned subsidiary of Dow. Total purchases under the ethylene-related agreement were $93 million in 2003.

12


        The fixed and determinable portion of obligations under take or pay and throughput agreements at December 31, 2003 is presented in the following table:

Fixed and Determinable Portion of Take or Pay
and Throughput Obligations at December 31, 2003
In millions
2004   $ 17
2005     16
2006     16
2007     14
2008     14
2009 through expiration of contracts     45
   
Total   $ 122
   

Guarantees

        The Corporation has undertaken obligations to guarantee the performance of nonconsolidated affiliates 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.

        The following table provides a summary of the aggregate terms, maximum future payments, and associated liability reflected in the consolidated balance sheet for these guarantees.

Guarantees at September 30, 2004

   
   
In millions

  Final
Expiration

  Maximum
Future
Payments

  Recorded
Liability

Guarantees   2014   $ 114   $ 2

           

Guarantees at December 31, 2003

In millions

  Final
Expiration

  Maximum Future
Payments

  Recorded
Liability

Guarantees   2007   $ 11  

           

NOTE H    PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS

Net Periodic Benefit Credit for All Significant Plans

   
   
   
 
 
  Defined Benefit Pension Plans
 
 
  Three Months Ended
  Nine Months Ended
 
In millions

  September 30,
2004

  September 30,
2003

  September 30,
2004

  September 30,
2003

 
Service cost   $ 6   $ 7   $ 20   $ 21  
Interest cost     56     58     168     174  
Expected return on plan assets     (89 )   (93 )   (265 )   (279 )
Amortization of prior service cost     1     1     3     3  
Special termination/curtailment cost             2      
   
 
 
 
 
Net periodic benefit credit   $ (26 ) $ (27 ) $ (72 ) $ (81 )
   
 
 
 
 

13


Net Periodic Benefit Cost for All Significant Plans

   
   
   
 
 
  Other Postretirement Benefits
 
 
  Three Months Ended
  Nine Months Ended
 
In millions

  September 30,
2004

  September 30,
2003

  September 30,
2004

  September 30,
2003

 
Service cost   $ 1   $ 3   $ 3   $ 9  
Interest cost     9     10     29     30  
Amortization of prior service credit     (1 )   (2 )   (5 )   (6 )
Amortization of net loss     1     1     3     3  
Special termination/curtailment cost             9      
   
 
 
 
 
Net periodic benefit cost   $ 10   $ 12   $ 39   $ 36  
   
 
 
 
 

Employer Contributions

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. As previously disclosed in the Corporation's financial statements for the year ended December 31, 2003, UCC does not expect to contribute assets to its qualified pension plan trust in 2004. No contributions were made in the first nine months of 2004. The Corporation also has a non-qualified supplemental pension plan. Benefit payments to retirees under this plan are expected to be $10 million in 2004. In the first nine months of 2004, benefit payments of $8 million were made.

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. These benefits are subject to change at any time.

        The Corporation funds most of the cost of these health care and life insurance benefits as incurred. As previously disclosed in the Corporation's financial statements for the year ended December 31, 2003, UCC does not expect to contribute assets to its other postretirement benefit plans in 2004. Consistent with that expectation, no contributions were made in the first nine months of 2004. Benefit payments to retirees under these plans are expected to be $72 million in 2004. In the first nine months of 2004, benefit payments of $62 million were made.

Impact of Remeasurement in the Third Quarter of 2004

        In the third quarter of 2004, an expense remeasurement of the Corporation's pension and other postretirement benefit plans was completed as of June 30, 2004, due to a curtailment as defined in SFAS No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits," related to a workforce reduction (see Note D). The remeasurement resulted in a $3 million increase in net periodic postretirement benefit cost for 2004 and a $3 million decrease in net periodic pension expense for 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. The Act also provides for a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. Based on newly issued regulations, in the third quarter of 2004, the Corporation determined that the benefits provided by its retiree medical plans are actuarially equivalent to Medicare Part D under the Act. In the third quarter of 2004, the Corporation's net periodic cost for other postretirement benefit plans was remeasured for the effect of the Act. The impact of this remeasurement was a reduction of $12.5 million in the accumulated postretirement benefit obligation as of January 1, 2004, for actuarial purposes only, and a reduction in net periodic postretirement benefit cost of $1 million for the third quarter of 2004.

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NOTE I    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 longstanding 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 $570 million in the third quarter of 2004 ($381 million in the third quarter of 2003) and $1,459 million in the first nine months of 2004 ($1,182 million in the first nine months of 2003).

        The Corporation has a master services agreement with Dow whereby Dow provides services, including, but not limited to, accounting, legal, treasury (investments, cash management, risk management, insurance), procurement, human resources, environmental, health and safety, and business management for UCC. Under the master services agreement with Dow, for general administrative and overhead type services that Dow routinely allocates to various businesses, UCC is charged the cost of those services based on the Corporation's and Dow's relative manufacturing conversion costs. This arrangement results in a quarterly charge of approximately $5 million (included in "Sundry income (expense)—net").

        For services that Dow routinely charges based on effort, UCC is charged the cost of such services on a fully absorbed basis, which includes direct and indirect costs. Additionally, certain Dow employees are contracted to UCC and Dow is reimbursed for all direct employment costs of such employees. Management believes the method used for determining expenses charged by Dow is reasonable. Dow provides these services by leveraging its centralized functional service centers to provide services at a cost that management believes provides an advantage to the Corporation.

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

        As part of Dow's cash management process, UCC is a party to revolving loans with Dow that have LIBOR-based interest rates with varying maturities. The Corporation had a note receivable of $100 million from Dow under a revolving loan agreement at December 31, 2003. A separate revolving loan agreement with Dow that allows the Corporation to borrow or obtain credit enhancements up to an aggregate of $1 billion was amended and restated on May 28, 2004 to include cash collateral provisions and to extend the maturity date to May 28, 2005; however, Dow may demand repayment with a 30-day written notice to the Corporation. The related collateral agreement was also amended and restated on May 28, 2004 to provide for the replacement of certain existing pledged assets, primarily equity interests in various subsidiaries and joint ventures, with cash collateral. At September 30, 2004, there was $512 million available under the revolving loan agreement. The cash collateral was reported as "Noncurrent receivable from related company" in the consolidated balance sheets at September 30, 2004.

15


Union Carbide Corporation and Subsidiaries

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

        Pursuant to General Instruction H of Form 10-Q "Omission of Information by Certain Wholly Owned Subsidiaries," this section includes only management's narrative analysis of the results of operations for the three and nine month periods ended September 30, 2004, the most recent periods, compared with the three and nine month periods ended September 30, 2003, the corresponding periods in the preceding fiscal year.

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

DISCLOSURE REGARDING FORWARD-LOOKING INFORMATION

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

RESULTS OF OPERATIONS

        The Corporation reported net income of $168 million for the third quarter of 2004 compared with $121 million for the third quarter of 2003. Net income for the first nine months of 2004 was $397 million compared with $116 million for the first nine months of 2003. Year to date, a significant increase in earnings from the Corporation's joint ventures, improved operating rates and improved operating margins more than offset higher feedstock and energy costs and a restructuring charge of $48 million recorded in the second quarter of 2004.

        Total net sales for the third quarter of 2004 were $1,502 million compared with $1,264 million for the third quarter of 2003, an increase of 19 percent. Selling prices to Dow are based on market prices for the related products. Average selling prices were substantially higher in the third quarter of 2004 compared with last year (led by ethylene glycol, polyethylene and polypropylene), reflecting efforts to offset the impact of higher feedstock costs, and improving supply/demand balances. Volume overall was up modestly in the third quarter of 2004 compared with last year, with strong volume growth for most products partially offset by reduced ethanol sales volume. Year to date, total net sales increased 9 percent to $4,172 million from $3,826 million for the first nine months of 2003 as strong price increases (led by ethylene glycol and oxo products) and volume growth more than offset the impact of restructured ethylene glycol contracts in Canada and the loss of by-product sales related to ethylene crackers shut down in 2003.

        Cost of sales increased $184 million (16 percent) in the third quarter of 2004 compared with the third quarter of 2003 due to improved volumes and higher feedstock and energy costs. Year to date, cost of sales increased $96 million (3 percent) compared with 2003. However, gross margin improved in the third quarter of 2004 and on a year-to-date basis, as higher selling prices and volume growth more than offset the increase in feedstock and energy costs.

        Operating expenses (research and development, and selling, general and administrative expenses) were $26 million in the third quarter of 2004 compared with $27 million in the third quarter of last year. For the first nine months of 2004, operating expenses were $83 million, down 13 percent from $95 million for the same period of last year. The decline in third quarter and year-to-date operating expenses reflects a sustained effort to reduce expenses.

        UCC's share of the earnings of nonconsolidated affiliates was $133 million in the third quarter of 2004 compared with $61 million in the third quarter of 2003. Year to date, equity earnings increased to $427 million from $132 million for the first nine months of 2003. Equity earnings increased due to strong results reported by EQUATE Petrochemical Company K.S.C., UOP LLC, Univation and the OPTIMAL Group. Equity earnings this year also included the favorable impact of the recognition of investment tax allowances by one of the Corporation's joint ventures in the second quarter of 2004.

        In the second quarter of 2004, the Corporation recorded a restructuring charge totaling $48 million. The charge included severance of $21 million for a workforce reduction of approximately 360 people, curtailment costs of $9 million associated with UCC's defined benefit plans, an asset write off of $8 million associated with the shutdown of a latex manufacturing facility and a write-down of the net book value of a marine terminal (sold in the third quarter of 2004) of $10 million.

16


        Sundry income (expense)—net includes a variety of income and expense items such as the gain or loss on foreign currency exchange, dividends from investments, commissions, charges for management services provided by Dow, and gains and losses on sales of investments and assets. Sundry income (expense) for the third quarter of 2004 was net expense of $23 million compared with net income of $35 million for the third quarter of 2003. Sundry income for the third quarter of 2003 included gains of $68 million associated with sales of non-strategic assets, including certain product lines of Amerchol Corporation, a wholly owned subsidiary. Year to date, sundry income (expense) was net expense of $78 million compared with net income of $11 million last year. Sundry income (expense) for 2004 was lower than last year primarily due to an unfavorable litigation settlement related to one of the Corporation's joint ventures in the first quarter of 2004, higher commission expense on feedstock purchases due to commission rate changes implemented in the second half of 2003, and last year's net gains of approximately $57 million associated with the sales of non-strategic assets, including those noted above.

        Interest income for the third quarter of 2004 was $2 million compared with $4 million for the third quarter of last year. Interest income for the first nine months of 2004 was $5 million compared with $9 million in the first nine months of last year.

        Interest expense and amortization of debt discount for the third quarter of 2004 was $24 million compared with $27 million in the third quarter of last year. Year to date, interest expense and amortization of debt discount decreased 21 percent from $89 million to $70 million. Compared with last year, interest expense declined primarily due to a reduction in total debt.

        The effective tax rate for the third quarter of 2004 was 27.6 percent compared with 25.3 percent for the same quarter of last year. Year to date, the effective tax rate was 32.7 percent versus 25.2 percent last year. The effective tax rate fluctuates based on, among other factors, where income is earned, the level of after-tax income from joint ventures, and the level of income relative to tax credits available.

OTHER MATTERS

Asbestos-Related Matters

        The following disclosure should be read in conjunction with the Corporation's Annual Report on Form 10-K for the year ended December 31, 2003.

        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 and the first nine months of 2004. 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:

 
  Nine Months Ended
September 30, 2004

  Twelve Months Ended
December 31, 2003

 
Claims unresolved at beginning of period   193,891   200,882  
Claims filed   45,324   122,586  
Claims settled, dismissed or otherwise resolved   (37,110 ) (129,577 )
   
 
 
Claims unresolved at end of period   202,105   193,891  
   
 
 
Claimants with claims against both Union Carbide and Amchem   72,302   66,656  
   
 
 
Individual claimants at end of period   129,803   127,235  
   
 
 

        A review of a representative sample of cases outstanding at December 31, 2003, showed that 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 increased with the more recently filed cases included in the review. Even in those situations where specific damages are alleged, the claims frequently seek the

17


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 personal injury cases in which only the Corporation and/or Amchem are the sole named defendants. For these reasons and based upon the Corporation's litigation and settlement experience, the Corporation does not consider the damages alleged against it and Amchem to be a meaningful factor in its determination of any potential asbestos liability.

        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. 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. 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. 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 UCC and Amchem if the following assumptions were made:

    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.

        Based on the resulting study completed by ARPC in January 2003, the Corporation increased its December 31, 2002 asbestos-related liability for pending and future claims for the 15-year period ending in 2017 to $2.2 billion, excluding future defense and processing costs. 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 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 that 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 remained applicable. Based on the Corporation's own review of the asbestos claim and resolution activity and ARPC's response, the Corporation determined that no change to the accrual was required at that 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 total number of claims filed and received in the first nine months of 2004 was in line with the number of claims assumed to be filed in the ARPC study. Based on the Corporation's review of 2004 activity, the Corporation determined that no change to the accrual was required at September 30, 2004.

        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.

        The asbestos-related liability for pending and future claims was $1.7 billion at September 30, 2004 and $1.9 billion at December 31, 2003. At September 30, 2004, approximately 37 percent of the recorded liability related to pending claims and approximately 63 percent related to future claims. 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

18


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. Union Carbide's receivable for insurance recoveries related to its asbestos liability was $749 million at September 30, 2004 and $1.0 billion at December 31, 2003. At September 30, 2004, $505 million of the receivable for insurance recoveries is due from insurers that are not signatories to the Wellington Agreement and/or do not otherwise have agreements in place regarding their asbestos-related insurance.

        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

   
In millions

  September 30,
2004

  December 31,
2003

Receivables for defense costs   $ 98   $ 94
Receivables for resolution costs     448     255
   
 
Total   $ 546   $ 349
   
 

        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

   
In millions

  Nine Months Ended
September 30, 2004

  Twelve Months Ended
December 31, 2003

Defense costs for the period   $ 66   $ 110
Aggregate defense costs to date     324     258
Resolution costs for the period     250     293
Aggregate resolution costs to date     876     626
   
 

        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 $19 million in the third quarter of 2004 ($30 million in the third quarter of 2003) and $92 million in the first nine months of 2004 ($78 million in the first nine months of 2003), 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 (the "West Virginia action"). 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. In early 2004, several of the defendant insurers in the West Virginia action filed a competing action in the Supreme Court of the State of New York, County of New York. As a result of motion practice, the West Virginia action was dismissed in August 2004 on the basis of forum non conveniens (i.e., West Virginia is an inconvenient location for the parties). The comprehensive insurance coverage litigation is now proceeding in the New York courts.

        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 and/or received each year, the average cost of disposing of each such claim, coverage issues among insurers, and the continuing solvency of various insurance companies, as well as the numerous uncertainties surrounding asbestos litigation in the United States, could cause the actual costs and insurance recoveries to be higher or lower than those projected or those recorded.

19


        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.

Accounting Changes

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

Critical Accounting Policies

        The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make judgments, assumptions and estimates that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Note A to the Consolidated Financial Statements in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2003, 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 G 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 three decades. Based on a study completed by Analysis, Research & Planning Corporation ("ARPC") in January 2003, the Corporation increased its December 31, 2002 asbestos-related liability for pending and future claims for the 15-year period ending in 2017 to $2.2 billion, excluding future defense and processing costs. The Corporation also increased the receivable for insurance recoveries related to its asbestos liability to $1.35 billion 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 2004 activity, the Corporation determined that no change to the accrual was required at September 30, 2004.

            The Corporation's asbestos-related liability for pending and future claims was $1.7 billion at September 30, 2004 and $1.9 billion at December 31, 2003. The Corporation's receivable for insurance recoveries related to its asbestos liability was $749 million at September 30, 2004 and $1.0 billion at December 31, 2003. In addition, the Corporation had receivables of $546 million at September 30, 2004 and $349 million at December 31, 2003 for insurance recoveries for defense and resolution costs.

            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 and/or received each year, the average cost of disposing of each such claim, coverage issues among insurers, and the continuing solvency of various insurance companies, as well as the numerous uncertainties surrounding asbestos litigation in the United States, could cause the actual costs and insurance recoveries for the Corporation to be higher or lower than those projected or those recorded.

            For additional information, see Asbestos-Related Matters in Management's Discussion and Analysis of Financial Condition and Results of Operations and Note G to the Consolidated Financial Statements.

20


    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 $109 million at December 31, 2003, for environmental remediation and restoration costs, including $33 million for the remediation of Superfund sites. At September 30, 2004, the Corporation had accrued obligations of $105 million for environmental remediation and restoration costs, including $28 million for the remediation of Superfund sites. This is management's best estimate of the costs for remediation and restoration with respect to environmental matters for which the Corporation has accrued liabilities, although the ultimate cost with respect to these particular matters could range up to twice that amount. For further discussion, see Note G to the Consolidated Financial Statements in this filing and Environmental Matters in Management's Discussion and Analysis of Financial Condition and Results of Operations in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2003.

    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 the Corporation's Annual Report on Form 10-K for the year ended December 31, 2003. 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 ended 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.

21


            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 more 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 $82 million for the pension and other postretirement benefit plans.

            In the third quarter of 2004, an expense remeasurement of the Corporation's other postretirement benefit plans was completed due to a curtailment related to a workforce reduction. The effect of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 was included in this remeasurement. For additional information, see Note H to the Consolidated Financial Statements.

    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 September 30, 2004, the Corporation had a net deferred tax asset balance of $720 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 in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2003.

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4.    CONTROLS AND PROCEDURES

        As of the end of the period covered by this Quarterly Report on Form 10-Q, the Corporation carried out an evaluation, under the supervision and with the participation of the Corporation's Disclosure Committee and the Corporation's management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Corporation's disclosure controls and procedures pursuant to Exchange Act Rule 15d-15(e). Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Corporation's disclosure controls and procedures are effective in timely alerting them to material information relating to the Corporation (including its consolidated subsidiaries) required to be included in the Corporation's periodic SEC filings. No change in the Corporation's internal control over financial reporting occurred during the Corporation's most recent fiscal quarter that materially affected, or is reasonably likely to materially affect, the Corporation's internal control over financial reporting.

22


PART II—OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

        No material developments in any legal proceedings, including asbestos-related matters, occurred during the third quarter of 2004. For a summary of the history and current status of legal proceedings, including asbestos-related matters, see Management's Discussion and Analysis of Financial Condition and Results of Operations, Asbestos-Related Matters; and Note G to the Consolidated Financial Statements.

Environmental Matters

        Effective September 16, 2004, the Corporation entered into a Consent Agreement and Final Order (the "CA/FO") with the United States Environmental Protection Agency to resolve violations of the Resource Conservation and Recovery Act alleged to have occurred over the five-year period ended on July 1, 2004, relative to management of accumulated process solvent residue in tanker trailers at its catalyst plant in Norco, Louisiana. Under the CA/FO, UCC will pay a civil penalty of $49,323 and will fund and complete a Supplemental Environmental Project costing no less than $174,617.

ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K

    (a)
    Exhibits.
    Exhibit No.
  Exhibit Description
    10.3.3   Amendment dated September 10, 2004, to the 1983 Cash Bonus Deferral Program and the 1984 Cash Bonus Deferral Program.
    10.4.4   Amendment dated September 10, 2004, to the 1983 Cash Bonus Deferral Program and the 1984 Cash Bonus Deferral Program.
    10.31   Union Carbide Corporation Executives' Supplemental Retirement Plan, effective as of March 1, 2004, amending, combining, restating and renaming the Union Carbide Corporation Equalization Benefit Plan, as amended (Exhibits 10.5.1 and 10.5.2); the Union Carbide Corporation Supplemental Retirement Income Plan, as amended (Exhibits 10.6.1 and 10.6.2); and the Union Carbide Corporation Enhanced Retirement Income Plan, as amended (Exhibits 10.14.1 and 10.14.2).
    23   Analysis, Research & Planning Corporation's Consent.
    31.1   Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
    31.2   Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
    32.1   Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
    32.2   Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
    (b)
    Reports on Form 8-K.

            No Current Reports on Form 8-K were filed by the Corporation during the third quarter of 2004.

23


Union Carbide Corporation and Subsidiaries
Signatures

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


 

 

UNION CARBIDE CORPORATION

Registrant

Date: October 29, 2004

 

 

 

 

        

 

 

 

 

 

 

By:

 

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


        

 

 

 

 

 

 

By:

 

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

24



Union Carbide Corporation and Subsidiaries
Exhibit Index

EXHIBIT NO.

  DESCRIPTION

10.3.3   Amendment dated September 10, 2004, to the 1983 Cash Bonus Deferral Program and the 1984 Cash Bonus Deferral Program.

10.4.4

 

Amendment dated September 10, 2004, to the 1983 Cash Bonus Deferral Program and the 1984 Cash Bonus Deferral Program.

10.31

 

Union Carbide Corporation Executives' Supplemental Retirement Plan, effective as of March 1, 2004, amending, combining, restating and renaming the Union Carbide Corporation Equalization Benefit Plan, as amended (Exhibits 10.5.1 and 10.5.2); the Union Carbide Corporation Supplemental Retirement Income Plan, as amended (Exhibits 10.6.1 and 10.6.2); and the Union Carbide Corporation Enhanced Retirement Income Plan, as amended (Exhibits 10.14.1 and 10.14.2).

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.

25




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Table of Contents
Union Carbide Corporation and Subsidiaries Consolidated Balance Sheets
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 Comprehensive Income
Union Carbide Corporation and Subsidiaries Exhibit Index
EX-10.3.3 2 a2145609zex-10_33.htm EXHIBIT 10.3.3
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EXHIBIT 10.3.3

Amendment to 1983 Cash Bonus Deferral Program and
1984 Cash Bonus Deferral Program

        By authority of the resolution adopted by unanimous consent of the Board of Directors of Union Carbide Corporation as of August 30, 2004, the following amendment to the 1983 Cash Bonus Deferral Program and 1984 Cash Bonus Deferral Program is made.

        Effective August 30, 2004 Section 7 Beneficiaries is amended and restated in its entirety as follows:

    Section 7: Beneficiaries

    A Participant may at any time and from time to time prior to death designate one or more Beneficiaries to receive payments to be made following the Participant's death. If no such designation is on file with the Corporation at the time of the Participant's death, the Participant's Beneficiary shall be the beneficiary or beneficiaries named in the beneficiary designation most recently filed by the Participant with the Corporation under "The Dow Chemical Company Employees' Savings Plan" ("Dow Savings Plan"). If no designation from that plan has been made, then the Program will use the beneficiary designation from the "Savings Plan for Employees of Union Carbide Corporation and Participating Subsidiary Companies" (which plan was merged into the Dow Savings Plan on February 27, 2001). If no designation from that plan has been made, then the beneficiary shall be the estate of the deceased.


 

 

        /s/  
EDWARD W. RICH      
Edward W. Rich
Chief Financial Officer and Treasurer

 

 

Reviewed by Plan Administrator

 

 

        /s/  
KATHY RASSETTE      
Kathy Rassette

 

 

Reviewed by Legal Department

 

 

        /s/  
KAREN BECKWITH      
K. L. Beckwith

Dated: September 10, 2004

26




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EX-10.4.4 3 a2145609zex-10_44.htm EXHIBIT 10.4.4
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EXHIBIT 10.4.4

Amendment to 1983 Cash Bonus Deferral Program and
1984 Cash Bonus Deferral Program

        By authority of the resolution adopted by unanimous consent of the Board of Directors of Union Carbide Corporation as of August 30, 2004, the following amendment to the 1983 Cash Bonus Deferral Program and 1984 Cash Bonus Deferral Program is made.

        Effective August 30, 2004 Section 7 Beneficiaries is amended and restated in its entirety as follows:

    Section 7: Beneficiaries

    A Participant may at any time and from time to time prior to death designate one or more Beneficiaries to receive payments to be made following the Participant's death. If no such designation is on file with the Corporation at the time of the Participant's death, the Participant's Beneficiary shall be the beneficiary or beneficiaries named in the beneficiary designation most recently filed by the Participant with the Corporation under "The Dow Chemical Company Employees' Savings Plan" ("Dow Savings Plan"). If no designation from that plan has been made, then the Program will use the beneficiary designation from the "Savings Plan for Employees of Union Carbide Corporation and Participating Subsidiary Companies" (which plan was merged into the Dow Savings Plan on February 27, 2001). If no designation from that plan has been made, then the beneficiary shall be the estate of the deceased.


 

 

        /s/  
EDWARD W. RICH      
Edward W. Rich
Chief Financial Officer and Treasurer

 

 

Reviewed by Plan Administrator

 

 

        /s/  
KATHY RASSETTE      
Kathy Rassette

 

 

Reviewed by Legal Department

 

 

        /s/  
KAREN BECKWITH      
K. L. Beckwith

Dated: September 10, 2004

27




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EX-10.31 4 a2145609zex-10_31.htm EXHIBIT 10.31
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EXHIBIT 10.31

Union Carbide Corporation Executives' Supplemental Retirement Plan


Effective as of March 1, 2004
(except as may be otherwise provided herein)

PREAMBLES

ESTABLISHMENT OF PLAN

The Union Carbide Corporation maintained a non-qualified pension plan program comprising of the Equalization Benefit Plan, the Supplemental Retirement Income Plan and the Enhanced Retirement Income Plan. As of March 1, 2004, this program and the aforementioned plans are amended and restated in their entirety as set forth herein and renamed the Union Carbide Corporation Executives' Supplemental Retirement Plan (the "Plan"). This is an unfunded program of deferred compensation for executives, which includes Part A for Non-U.S. Service, Non-Controlled Group Service and/or Non-Covered Controlled Group Service and Part B for a Select Group of Management or Highly Compensated Employees, Board Members, and Employees whose Benefits are Statutorily Limited. The terms of this Plan supersede the terms of the former Union Carbide non-qualified pension plan program in effect prior to the effective date of this Plan with regards to active Participants and Participants who terminated employment prior to the effective date but have not commenced benefits prior to the effective date.

PURPOSE

The Company desires (a) to provide certain of its executives and a select group of management employees with supplemental retirement benefits that might otherwise be provided by the Union Carbide Employees' Pension Plan ("UCEPP"), but for (i) restrictions of the exclusive benefit rule under Section 401(a) of the Internal Revenue Code (the "Code"), (ii) the inability to grant past service, under UCEPP, to highly compensated Employees without meeting the non-discrimination requirements of Section 401(a)(4) of the Code, and/or (iii) the inability to credit service to Employees while employed by a controlled group member not covered by the UCEPP, and (b) to restore benefits which are reduced under UCEPP and The Dow Chemical Company Employees' Savings Plan ("ESP") due to current and/or future statutory limitations and which are not otherwise provided by any other plan maintained by the Company.

INTERPRETATION AND GOVERNING LAW

This Plan is intended to constitute an unfunded program maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated Employees consistent with the requirements of Sections 201(2), 301(a)(3) and 401(a)(1) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). In the event ERISA does not preempt state law, the state law of Michigan applies.

28


PART A

FOR NON-U.S. SERVICE,
NON-CONTROLLED GROUP SERVICE,
AND/OR NON-COVERED CONTROLLED
GROUP SERVICE


ARTICLE I
DEFINITIONS

1.01
BENEFICIARY shall mean that person or persons designated by the Participant to receive a distribution of any amounts payable under this Plan due to the death of the Participant. The beneficiary of a Participant shall be deemed to be such Participant's spouse, if married, or their domestic partner, if in a domestic partner relationship as approved by the Company, unless such spouse agrees in writing to waive this right (such waiver does not apply to a domestic partner). If the Participant is not married or in an approved domestic partner relationship and fails to designate a Beneficiary, the amounts payable under this Plan due to the death of the Participant shall be paid in the following order: (a) to the children of the Participant; (b) to the beneficiary of the Company Paid Life Insurance of the Participant; (c) to the beneficiary of the Union Carbide Executive Life Insurance of the Participant; (d) to the beneficiary of any Company-sponsored life insurance policy for which the Company pays all or part of the premium of the Participant; or (e) to the deceased Participant's estate.

1.02
COMPANY shall mean Union Carbide Corporation and any other entity authorized to participate under the Plan.

1.03
EMPLOYEE shall mean someone who is employed by the Company to perform personal services in an employer-employee relationship who receives compensation from the Company other than a retirement benefit, severance pay, retainer, or fee under contract.

1.04
PARTICIPANT shall mean an Employee who is entitled to a Restricted Benefit under this Plan as determined by the Plan Administrator and any former Employee who is entitled to a Restricted Benefit under this Plan.

1.05
PLAN YEAR shall mean the twelve (12) month period beginning January 1 and ending December 31.

1.06
RESTRICTED BENEFIT shall mean benefits restricted under the exclusive benefit rule, the inability to grant past service under UCEPP to highly compensated Employees without meeting the non-discrimination requirements of the Code, and/or the inability to credit service to Employees while employed by a controlled group member not covered by UCEPP as more specifically described in Article III.

1.07
RETIREMENT shall mean the date which the Participant commences to receive benefits under UCEPP.

Additional definitions appear in the Preamble of the Plan.

ARTICLE II
PARTICIPATION

2.01
ELIGIBILITY AND PARTICIPATION

    Each Employee who is participating in UCEPP and is specifically named by the Plan Administrator shall be eligible to participate in the Plan. Each named Employee shall furnish such information and perform such acts as the Company may require in order to maintain such eligibility.

2.02
MEANING OF PARTICIPATION

    A Participant in the Plan shall be entitled to receive a Restricted Benefit as provided in Article III.

29


2.03
TERMINATION OF PARTICIPATION

    An otherwise eligible Employee shall cease to actively participate in the Plan upon the earlier of the Participant's Retirement, death, termination of employment, receipt of written notification that he or she is no longer eligible to participate in the Plan or transfer to an entity covered under The Dow Chemical Company Executives' Supplemental Retirement Plan. Upon such transfer, the liability for benefits hereunder shall be transferred to The Dow Chemical Company Executives' Supplemental Retirement Plan. Thereafter, participation shall continue only for the purpose of receiving a distribution of those Restricted Benefits accrued and vested as of the date the Participant ceased to actively participate in the Plan unless the liability for such benefits has been transferred as set forth above.

ARTICLE III
RESTRICTED BENEFITS

3.01
RESTRICTION DUE TO INABILITY TO GRANT PAST SERVICE UNDER UCEPP TO HIGHLY COMPENSATED EMPLOYEES WITHOUT MEETING THE NON-DISCRIMINATION REQUIREMENTS OF §401(a)(4) OF THE CODE

(a)
The amount of retirement benefits payable under UCEPP to certain Employees who transfer from a foreign entity to a U.S. entity covered by the UCEPP may not include benefits for service rendered while a non-U.S. Employee. The intent of this Section 3.01 is to provide these Employees, as named by the Plan Administrator, benefits additional to the Employee's UCEPP benefits, the benefits being equal to the value of such Employees' accrued benefits under the foreign plans at the time of transfer, subject to the restrictions in Section 3.01(b).

(b)
The Restricted Benefits payable under Subsection (a) above are subject to the following:

(i)
Restricted Benefits shall be calculated under the terms of UCEPP in effect on the earlier of (A) termination, (B) Retirement, or (C) death, with the exception of credited service. Credited service shall be determined according to a method determined by the Plan Administrator.

(ii)
If legally permissible, Participants hereunder shall be required to waive any retirement benefits payable under any foreign plan. If such a waiver is not legally permissible, the value of any retirement benefits received under the foreign plans shall be deducted from any Restricted Benefits payable hereunder. Such value shall be calculated according to a method determined by the Plan Administrator.

(iii)
A Participant's vested interest in his or her Restricted Benefit calculated under this Section 3.01 (i.e., vesting percentage) shall be determined in accordance with the vesting schedule in their current foreign plan. Such vested interest shall be determined by aggregating service earned under the foreign plan and UCEPP. In the event a Participant forfeits by waiving all or a portion of his or her Restricted Benefit due to the provisions of this Section 3.01, no other Participant shall acquire any right to such forfeited amount except as the Company in its discretion shall provide.

3.02
RESTRICTION DUE TO THE EXCLUSIVE BENEFIT RULE UNDER §401(a) OF THE CODE

(a)
The amount of credited service and compensation used to calculate retirement benefits under UCEPP is limited to the credited service and compensation earned while an Employee of the Company (including all members of the controlled group that have adopted UCEPP). The Company, however, transfers Employees to entities that are not members of the controlled group but with which it is affiliated. The Company also hires persons from entities that are not affiliated with the Company. The intent of this Section 3.02 is to provide Employees, as named by the Plan Administrator, with additional benefits equal to the benefits such Employee would have earned under UCEPP for his or her full period of employment with controlled group and non-controlled group entities and, if applicable, any such service with a non-affiliated company as may be determined by the Plan Administrator, subject to Section 3.02(b).

(b)
The Restricted Benefits payable under Subsection (a) above are subject to the following:

30


      (i)
      Restricted Benefits shall be calculated under the UCEPP formula in effect on the earlier of (A) termination or (B) Retirement or (C) death, using the aggregated credited service and compensation earned while an Employee at both controlled and non-controlled group entities and, if applicable, a non-affiliated company as determined by the Plan Administrator. This amount shall be reduced by both the benefit payable under UCEPP and the value of any retirement benefits payable under any plan of a non-controlled group employer and, if applicable, a non-affiliated company as determined by the Plan Administrator.

      (ii)
      The value of any retirement benefits payable under any plan of a non-controlled group employer and, if applicable, a non-affiliated company as determined by the Plan Administrator shall be calculated according to a method determined by the Plan Administrator.

3.03
RESTRICTION DUE TO EMPLOYMENT BY A MEMBER OF THE CONTROLLED GROUP NOT COVERED BY UCEPP

(a)
The amount of credited service and compensation used to calculate retirement benefits under UCEPP is limited to the credited service and compensation earned while an Employee of the Company (including all members of the controlled group that have adopted UCEPP). However, Employees may be transferred to entities that are members of the controlled group not covered by UCEPP. The intent of this Section 3.03 is to provide such Employees, as named by the Plan Administrator, with additional benefits equal to the benefits such Employee would have earned under UCEPP for his or her full period of employment with both the Company and the member of the controlled group not covered by UCEPP, subject to the restrictions in Section 3.03(b).

(b)
The Restricted Benefits payable under Subsection (a) above are subject to the following:

(i)
Restricted Benefits shall be calculated under the UCEPP formula in effect on the earlier of (A) termination, (B) Retirement, or (C) death, using the aggregated credited service and compensation earned while an Employee at both the Company and the member of the controlled group not covered by UCEPP. This amount shall be reduced by both the benefit payable under UCEPP and the value of any retirement benefits payable under any plan of the member of the controlled group not covered by UCEPP.

(ii)
The value of any retirement benefits payable under any plan of the controlled group member not covered by UCEPP shall be calculated according to a method determined by the Plan Administrator.

ARTICLE IV
DISTRIBUTION OF RESTRICTED BENEFITS

4.01
PAYMENT OF RESTRICTED BENEFITS

(a)
Form of Payment

      Benefits under the Plan are payable in any of the following forms, as elected by the Participant:

      (i)
      Standard Option

        The Participant's benefit under the Standard Option is payable in the same optional form as the Participant's UCEPP benefit other than the grandfathered qualified joint and survivor annuity of the former Non-Contributory Pension Plan for Employees of Union Carbide Corporation and its Participating Subsidiary Companies. If such grandfathered option is elected under UCEPP, the benefit payable hereunder shall be paid as a life only annuity as set forth in UCEPP. The Standard Option benefit is determined and paid pursuant to the provisions of UCEPP.

31


      (ii)
      Mandatory Lump Sum Form of Benefit Payment

        The Lump Sum Form of Benefit Payment is mandatory for Participants with a Restricted Benefit whose present value, as determined under Section 4.01(a)(ii), is equal to or less than twenty-five thousand dollars ($25,000). Under this Mandatory Lump Sum Form of Benefit Payment, the Participant's benefit hereunder is payable in a single lump sum payment. On or before January 1, 2006, Participants may roll over such single lump sum payment to The Dow Chemical Company Elective Deferral Plan. After January 1, 2006, such rollovers will not be permitted unless the Participant terminated employment prior to March 1, 2004 and has not commenced benefits prior to March 1, 2004. The amount of the Mandatory Lump Sum Form of Benefit Payment benefit shall be calculated pursuant to (A) or (B) below.

        (A)
        For Lump Sum Form of Benefit Payments on or before January 1, 2006, the present value of the Restricted Benefit if paid immediately using the mortality table specified by the Commissioner of the Internal Revenue Service in Revenue Ruling 2001-62 and a discount rate equal to the average of the 10 and 20 year Aaa municipal bonds as published by Moody's or a similar rating service for the third month prior to the month payments commence

        (B)
        For Lump Sum Form of Benefit Payments after January 1, 2006, the greater of (1) or (2) below:

        (1)
        the present value of the Restricted Benefit if paid immediately using the G83U mortality table and an interest rate of eight percent (8%); or

        (2)
        the present value of the Restricted Benefit deferred to age sixty-five (65) using the mortality table specified by the Commissioner of the Internal Revenue Service in Revenue Ruling 2001-62 and an interest rate equal to the yield rate for thirty (30) year Treasury constant maturity securities in the Federal Reserve Statistical Release effective for the August prior to the Plan Year of distribution.

    (b)
    Date of Payment

    (i)
    Standard Option

        Under the Standard Option, the Participant's benefit hereunder is payable in the same month as the Participant's UCEPP benefit.

      (ii)
      Mandatory Lump Sum Form of Benefit Payment

        Under the Mandatory Lump Sum Form of Benefit Payment, the Participant's benefit hereunder is payable as soon as administratively possible following the Participant's termination.

    (c)
    Benefit Payments Payable Upon Death

    (i)
    Death Before Retirement

        Under the Standard Option, the survivor benefit hereunder is determined and paid pursuant to the provisions of UCEPP. If such Participant was subject to the Mandatory Lump Sum, such lump sum benefit shall be paid to the Participant's Beneficiary pursuant to (b) above.

      (ii)
      Death After Retirement

        In the event the Participant dies after the Participant has started to receive benefit payments under this Plan, the type and amount of survivor benefits will vary depending upon the form of benefit election made by the Participant under Subsection 4.01(a) of the Plan.

32


        (A)
        Standard Option

          Under the Standard Option, the survivor benefit hereunder is determined and paid pursuant to the provisions of UCEPP.

        (B)
        Mandatory Lump Sum Form of Benefit Payment

          Under the Mandatory Lump Sum Form of Benefit Payment, if the Participant has received the single lump sum payment, no other benefits are payable hereunder. If the Participant dies prior to receiving such single lump sum payment, the single lump sum payment will be made to the Participant's Beneficiary.

4.02
CHANGE IN CONTROL

    Change in Control shall mean a change in control of the Company of a nature that would be required to be reported in response to Item 5(f) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the Company is then subject to such reporting requirement, provided that, without limitation, a Change in Control shall be deemed to have occurred if:

    (a)
    any individual, partnership, firm, corporation, association, trust, unincorporated organization or other entity, or any syndicate or group deemed to be a person under Section 14(d)(2) of the Exchange Act, is or becomes the "beneficial owner" (as defined in Rule 13d-3 of the General Rules and Regulations under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities entitled to vote in the election of directors of the Company; or

    (b)
    during any period of two (2) consecutive years (not including any period prior to the execution of this Plan), individuals who at the beginning of such period constitute the Board of Directors and any new directors, whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least three quarters (3/4) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof. A change in control shall not be deemed to be a Change in Control for purposes of this Plan if the Board of Directors has approved such change in control prior to either:

    (i)
    the occurrence of any of the events described in the foregoing clauses (a) and (b), or

    (ii)
    the commencement by any person other than the Company of a tender offer for the Common Stock.

    In the event of such Change in Control, the vested Restricted Benefits under Sections 3.01, 3.02 and 3.03 shall become payable immediately and shall be paid as a single lump sum payment within ninety (90) days of the Change in Control. The value of such single lump sum payment shall be the present value of the monthly Restricted Benefit as of the date of Change in Control calculated pursuant to Section 4.01(a)(ii)(A).

ARTICLE V
RESTRICTED BENEFITS FUND

5.01
FINANCING OF RESTRICTED BENEFITS

    The entire cost of providing benefits under the Plan shall be paid by the Company out of its current operating budget, and the Company shall not be required under any circumstances to fund its obligations under the Plan. Notwithstanding the foregoing, the Company may, at its sole option, informally fund its obligations under the Plan in whole or in part by the creation of book reserves, the establishment of a grantor trust, the purchase of insurance and other assets, or by other means. In no event shall any Participant or Beneficiary have any incidents of ownership to any such insurance contracts or other assets. In addition, no Participant or Beneficiary shall be named a beneficiary under any such insurance contract. If the Company informally funds the Plan, in whole or in part, the manner of such

33


    informal funding and the continuance or discontinuance of such informal funding shall be the sole decision of the Company.

5.02
GENERAL CREDITOR

    The Participant, and/or Beneficiary, shall be regarded as an unsecured general creditor of the Company with respect to any rights derived by the Participant, and/or Beneficiary, from the existence of this Plan. Title to and beneficial ownership of any Company assets (including any assets that may be held in trust) which may be used to satisfy the Company's obligation for payment of Restricted Benefits shall remain solely the property of the Company.

5.03
LIABILITY OF COMPANY

    Nothing in this Plan shall constitute the creation of a trust or other fiduciary relationship between the Company, its agents, representatives or other Employees dealing with the Plan and the Participant, Beneficiary or any other person. The obligations of the Company under the Plan shall be an unfunded and unsecured promise to pay.

5.04
ASSIGNMENT

    No rights under this Plan may be assigned, transferred, pledged or encumbered by any Participant or Beneficiary. The obligations and rights of the Company under this Plan may be encumbered in the event of the Company's insolvency.

ARTICLE VI
MISCELLANEOUS

6.01
PLAN IS BINDING

    This Plan shall be binding upon and inure to the benefit of the Company, participating Employees and their respective successors, assigns, heirs, personal representatives, executors, administrators, Beneficiaries, and legatees.

6.02
ENTIRE PLAN

    This document constitutes the entire Plan and no representations or other actions by a Company Employee or representative may modify the rights and obligations set forth in the Plan.

6.03
NO GUARANTEE OF EMPLOYMENT

    Nothing in this Plan shall be construed as an employment contract or as a guarantee of employment for any period of time.

6.04
GOVERNING LAW

    In the event that ERISA does not preempt state law, the state law of Michigan applies.

6.05
TERMINATION

    The Company reserves the right to terminate the Plan completely subject to the conditions set forth below. Such termination shall have prospective application only and shall not reduce or impair a Participant's right to Restricted Benefits accrued and vested as of the date of termination. Each Participant shall receive written note of the termination of the Plan describing the action taken in detail.

6.06
WITHHOLDING TAXES

    The Company shall have the right to withhold taxes from any payments made pursuant to the Plan, or make such other provisions as it deems necessary or appropriate to satisfy its obligations to withhold federal, state, local or foreign income or other taxes incurred by reason of payments pursuant to the Plan. In lieu thereof, the Company shall have the

34


    right, to the extent permitted by law, to withhold the amount of such taxes from any other sums due or to become due from the Company to the Participant or any Beneficiary upon such terms and conditions as the Company may prescribe.

6.07
OVERPAYMENTS

    If any overpayment of benefits is made under this Plan, the amount of the overpayment may be set-off against future amounts payable to or on account of the person who received the overpayment until the overpayment has been recovered. The foregoing remedy is not intended to be exclusive.

ARTICLE VII
PLAN ADMINISTRATION

7.01
ADMINISTRATION

    This Plan is administered by the Board of Directors of the Company who may delegate any or all of its responsibilities to a Plan Administrator. The Plan Administrator is authorized to amend the Plan, construe and interpret all Plan provisions, to adopt rules concerning the implementation of Plan provisions, and to make any determinations necessary or appropriate hereunder which shall be binding and conclusive on all parties except as otherwise provided by the Plan Administrator. Any amendment shall have prospective application only and shall not reduce or impair a Participant's right to Restricted Benefits accrued and vested as of the date such amendment is made. Each Participant shall receive written notice of the amendment or termination of the Plan describing the action taken in detail.

7.02
CLAIMS SUBMISSION AND REVIEW PROCEDURE

    Any disputed claim for benefits must be submitted in writing to the Company. In the event that any claim for benefits hereunder is denied (in whole or in part), the claimant shall receive from the Company, within 90 days after its receipt of the benefit claim, a written notice setting forth the specific reasons for denial, with specific reference to pertinent provisions of this Plan, unless special circumstances require an extension of time for processing the claim. The notice shall be written in a manner calculated to be understood by the claimant. If an extension of time is required, written notice of the extension shall be furnished to the claimant prior to the termination of the initial 90-day period. In no event shall such extension exceed a period of 90 days from the end of the initial period. The claimant may make a written request for review of any such denial by the Company within 60 days following the date of such denial. The claimant shall be entitled to submit such issues or comments, in writing, as he or she shall consider relevant to a determination of the claim. The Plan Administrator shall notify the claimant of its decision in writing no later than 60 days following receipt of the claimant's request, unless specific circumstances require an extension of time for processing, in which case the Plan Administrator's decision shall be rendered no later than 120 days after receipt of such request for review. The interpretations and construction of the Plan by the Plan Administrator shall be binding and conclusive on all persons and for all purposes. Notwithstanding the above, any disagreement may be submitted to the Board of Directors or the Plan Administrator for resolution provided that all interested parties agree to be bound by the decision. No member of the Board of Directors, Company management or the Plan Administrator shall be liable to any person for any action taken hereunder except for those actions undertaken with lack of good faith.

35


PART B

FOR A SELECT GROUP OF MANAGEMENT OR
HIGHLY COMPENSATED EMPLOYEES, BOARD MEMBERS,
AND EMPLOYEES WHOSE BENEFITS ARE STATUTORILY LIMITED


ARTICLE I
DEFINITIONS

1.01
AVERAGE COMPENSATION for purposes of the Supplemental Retirement Benefit of a Participant who was in the Union Carbide Compensation Deferral Program on February 6, 2001 and who shall attain at least age 50 and have at least 10 years of Eligibility Service, as defined under UCEPP, as of or before December 31, 2005 and Participants who terminated employment prior to March 1, 2004 and after February 6, 2003 and had not commenced benefits as of March 1, 2004, shall equal the highest three year average compensation (HC3A) as defined in UCEPP but using Compensation as defined in Section 1.04 without regard to incentive compensation plus the highest three year average, as defined in the former Enhanced Retirement Income Plan (attached as Exhibit I), of incentive compensation averaged separately. Incentive compensation for calendar years prior to 2004 shall have the same meaning as defined in the former Enhanced Retirement Income Plan, and for calendar years 2004 and 2005, incentive compensation shall mean Compensation as defined in Section 1.04 without regard to either deferred or paid base compensation. This Average Compensation shall be used to calculate benefits as specified under Section 3.01.

1.02
BENEFICIARY shall mean that person or persons designated by the Participant to receive a distribution of any amounts payable under this Plan due to the death of the Participant. The beneficiary of a Participant shall be deemed to be such Participant's spouse, if married, or their domestic partner, if in a domestic partner relationship as approved by the Company, unless such spouse agrees in writing to waive this right (such waiver does not apply to a domestic partner). If the Participant is not married or in an approved domestic partner relationship and fails to designate a Beneficiary, the amounts payable under this Plan due to the death of the Participant shall be paid in the following order: (a) to the children of the Participant; (b) to the beneficiary of the Company Paid Life Insurance of the Participant; (c) to the beneficiary of the Union Carbide Executive Life Insurance of the Participant; (d) to the beneficiary of any Company-sponsored life insurance policy for which the Company pays all or part of the premium of the Participant; or (e) to the deceased Participant's estate.

1.03
COMPANY shall mean Union Carbide Corporation and any other entity authorized to participate under the Plan.

1.04
COMPENSATION shall mean:

(a)
compensation as defined under UCEPP without regard to Code limitations,

(b)
compensation, if any, granted by the Board of Directors of the Company recognized for supplemental pension purposes but excluded under UCEPP, which shall include deferred compensation, and/or

(c)
non-covered compensation, if any, as shall be deemed by the Board of Directors of the Company, such as deferred compensation, the value of deferred stock, dividend units, and/or restricted stock awarded under circumstances other than those described in Subsection (b) of this Section 1.04 and which do not constitute compensation for purposes of UCEPP.

1.05
EMPLOYEE shall mean someone who is employed by the Company.

1.06
PARTICIPANT shall mean an Employee:

(a)
who is a Board member who is an officer or Employee of the Company and who may relinquish line responsibility,

(b)
whose benefits under UCEPP are limited by the Employee Retirement Income Security Act of 1974 (ERISA), or

36


    (c)
    who is in a select group of management or is a highly compensated employee, as determined by the Plan Administrator, who receives forms of compensation that do not constitute compensation as defined in UCEPP.

    PARTICIPANT shall also mean a former participant in the program prior to this restatement who terminated prior to March 1, 2004 and had not commenced benefits as of March 1, 2004.

1.07
PLAN YEAR shall mean the twelve (12) month period beginning January 1 and ending December 31.

1.08
RETIREMENT shall mean the date which the Participant commences to receive benefits under UCEPP.

1.09
SUPPLEMENTAL RETIREMENT BENEFITS shall mean benefits which are reduced under UCEPP and ESP due to current and/or future statutory limitations and, if applicable, non-separate averaging of Compensation and which are not otherwise provided by any other plan maintained by the Company as more specifically set forth in Section 3.01.

        Additional definitions appear in the Preamble of the Plan.

ARTICLE II
PARTICIPATION

2.01
ELIGIBILITY AND PARTICIPATION

    Each Employee who is a member of a select group of management or a highly compensated employee, board members and/or an Employee whose benefits are statutorily limited shall be eligible to participate in the Plan. Each former participant in the program prior to restatement who terminated prior to March 1, 2004 and had not commenced benefits as of March 1, 2004 shall be a Participant hereunder. Each such Employee or Participant shall furnish such information and perform such acts as the Company may require in order to maintain such eligibility.

2.02
MEANING OF PARTICIPATION

    A Participant in the Plan shall be entitled to receive a Supplemental Retirement Benefit as provided in Article III.

2.03
TERMINATION OF PARTICIPATION

    An otherwise eligible Employee shall cease to actively participate in the Plan upon the earlier of the Participant's Retirement, death, termination of employment, receipt of written notification that he or she is no longer eligible to participate in the Plan or transfer to an entity covered under The Dow Chemical Company Executives' Supplemental Retirement Plan. Upon such transfer, the liability for benefits hereunder shall be transferred to The Dow Chemical Company Executives' Supplemental Retirement Plan. Thereafter, participation shall continue only for the purpose of receiving a distribution of those Supplemental Retirement Benefits accrued and vested as of the date the Participant ceased to actively participate in the Plan unless the liability for such benefits has been transferred as set forth above.

ARTICLE III
SUPPLEMENTAL RETIREMENT BENEFITS

3.01
SUPPLEMENTAL RETIREMENT BENEFITS

    The amount of Supplemental Retirement Benefits payable to a Participant under Part B of this Plan equals the benefit which would be payable to or on behalf of the Participant under UCEPP if Compensation as defined in Section 1.04 of the Plan were substituted for compensation as defined in UCEPP and the provisions of UCEPP providing for the limitation of benefits in accordance with Sections 415 and 401(a)(17) of the Internal Revenue Code were inapplicable, less the benefit actually payable to or on behalf of the Participant under UCEPP (and of the benefits under any other private retirement plan deducted therefrom pursuant to Section 9 of Article IV of UCEPP).

37


    The amount of Supplemental Retirement Benefits payable to a Participant who was in the Union Carbide Compensation Deferral Program on February 6, 2001 and who shall attain at least age 50 and have at least 10 years of Eligibility Service, as defined under UCEPP, as of or before December 31, 2005 and Participants who terminated employment prior to March 1, 2004 and after February 6, 2003 and had not commenced benefits as of March 1, 2004 equals the greater of the benefit calculated under the above paragraph or the benefit calculated as of the earlier of December 31, 2005 or termination which would be payable to or on behalf of the Participant under UCEPP if Average Compensation as defined in Section 1.01 of the Plan were substituted for compensation as defined in UCEPP under the formula of Section 4.1(a)(iii) or Section 4.5(c) of UCEPP, as applicable, and the provisions of UCEPP providing for the limitation of benefits in accordance with Sections 415 and 401(a)(17) of the Internal Revenue Code were inapplicable, less the benefit actually payable to or on behalf of the Participant under UCEPP (and of the benefits under any other private retirement plan deducted therefrom pursuant to Section 9 of Article IV of UCEPP).

    The amount of Supplemental Retirement Benefits payable to Participants who terminated employment prior to February 7, 2003 and had not commenced benefits as of March 1, 2004 are determined pursuant to the terms of the program in effect at termination.

    If a Participant in this Plan is not a Participant in UCEPP, but is covered by another retirement plan or plans maintained by the Company or a subsidiary, a Supplemental Retirement Benefit may be computed and paid based as near as practicable upon the principles set forth in this Section 3.01 as shall be determined by the Plan Administrator.

    A Participant's vested interest in his or her Supplemental Retirement Benefit calculated under this Section 3.01 (i.e., vesting percentage) shall be determined in accordance with the vesting schedule in UCEPP.

ARTICLE IV
DISTRIBUTION AND FORM OF
SUPPLEMENTAL RETIREMENT BENEFITS

4.01
PAYMENT OF SUPPLEMENTAL RETIREMENT BENEFITS

(a)
Form of Payment

      Benefits under the Plan are payable in any of the following forms, as elected by the Participant:

      (i)
      Standard Option

        The Participant's benefit under the Standard Option is payable in the same optional form as the Participant's UCEPP benefit other than the grandfathered qualified joint and survivor annuity of the former Non-Contributory Pension Plan for Employees of Union Carbide Corporation and its Participating Subsidiary Companies. If such grandfathered option is elected under UCEPP, the benefit payable hereunder shall be paid as a life only annuity as set forth in UCEPP. The Standard Option benefit is determined and paid pursuant to the provisions of UCEPP.

      (ii)
      Lump Sum Form of Benefit Payment

      (A)
      Mandatory Lump Sum

          Subject to Paragraph (d) of this Section 4.01, the Lump Sum Form of Benefit Payment is mandatory for Participants with a Supplemental Benefit whose present value, as determined under Section 4.01(a)(ii)(A), is equal to or less than twenty-five thousand dollars ($25,000). Under this Mandatory Lump Sum Form of Benefit Payment, the Participant's benefit hereunder is payable in a single lump sum payment. On or before January 1, 2006, Participants may roll over such single lump sum payment to The Dow Chemical Company Elective Deferral Plan. After January 1, 2006, such rollovers will not be permitted unless the Participant terminated employment prior to March 1, 2004 and has not commenced benefits prior to March 1, 2004. The amount of the Mandatory Lump Sum Form of Benefit Payment benefit shall be calculated pursuant to (1) or (2) below.

38


          (1)
          For Lump Sum Form of Benefit Payments on or before January 1, 2006, the present value of the Supplemental Benefit if paid immediately using the mortality table specified by the Commissioner of the Internal Revenue Service in Revenue Ruling 2001-62 and a discount rate equal to the average of the 10 and 20 year Aaa municipal bonds as published by Moody's or a similar rating service for the third month prior to the month payments commence.

          (2)
          For Lump Sum Form of Benefit Payments after January 1, 2006, the greater of a. or b. below:

  a. the present value of the Supplemental Benefit if paid immediately using the G83U mortality table and an interest rate of eight percent (8%); or

 

b.

the present value of the Restricted Benefit deferred to age sixty-five (65) using the mortality table specified by the Commissioner of the Internal Revenue Service in Revenue Ruling 2001-62 and an interest rate equal to the yield rate for thirty (30) year Treasury constant maturity securities in the Federal Reserve Statistical Release effective for the August prior to the Plan Year of distribution.
        (B)
        Optional Lump Sum

          Subject to Paragraph (d) of this Section 4.01, the Optional Lump Sum Form of Benefit Payment is available to Participants who were in the Union Carbide Compensation Deferral Program on February 6, 2001 and who shall attain at least age 50 and have at least 10 years of Eligibility Service, as defined under UCEPP, as of or before December 31, 2005 until January 1, 2006 and Participants who terminated employment prior to March 1, 2004 and have not commenced benefits prior to March 1, 2004. Under this Optional Lump Sum Form of Benefit Payment, the Participant's benefit hereunder is payable in a single lump sum payment. The amount of the Optional Lump Sum Form of Benefit Payment benefit shall be equal to the present value of the Supplemental Retirement Benefit if paid immediately using a discount rate equal to the average of 10 and 20 year Aaa municipal bonds as published by Moody's or a similar rating service for the third month prior to the month payments commence and the mortality table specified by the Commissioner of the Internal Revenue Service in Revenue Ruling 2001-62. On or before January 1, 2006, Participants, may roll over such single lump sum payment to The Dow Chemical Company Elective Deferral Plan. After January 1, 2006, such rollovers will not be permitted unless the Participant terminated employment prior to March 1, 2004 and has not commenced benefits prior to March 1, 2004.

    (b)
    Date of Payment

    (i)
    Standard Option

        Under the Standard Option, the Participant's benefit hereunder is payable in the same month as the Participant's UCEPP benefit.

      (ii)
      Lump Sum Form of Benefit Payment

      (A)
      Under the Mandatory Lump Sum Form of Benefit Payment, the Participant's benefit hereunder is payable as soon as administratively possible following the Participant's termination.

      (B)
      If the Optional Lump Sum Form of Benefit is elected by the Participant, the Participant's benefit hereunder is payable under the Standard Option beginning in the same month as the Participant's UCEPP benefit until the July of the year following the month payments commence, at which time the remaining value of the Lump Sum will be paid.

39


    (c)
    Benefit Payments Payable Upon Death

    (i)
    Death Before Retirement

        Under the Standard Option, the survivor benefit hereunder is determined and paid pursuant to the provisions of UCEPP. If such Participant was subject to the Mandatory Lump Sum, such lump sum benefit shall be paid to the Participant's Beneficiary pursuant to 4.01(b)(ii)(A) above.

      (ii)
      Death After Retirement

        In the event the Participant dies after the Participant has started to receive benefit payments under this Plan, the type and amount of survivor benefits will vary depending upon the form of benefit election made by the Participant under Subsection 4.01(a) of the Plan.

        (A)
        Standard Option

          Under the Standard Option, the survivor benefit hereunder is determined and paid pursuant to the provisions of UCEPP.

        (B)
        Mandatory Lump Sum Form of Benefit Payment

          Under the Mandatory Lump Sum Form of Benefit Payment, if the Participant has received the single lump sum payment, no other benefits are payable hereunder. If the Participant dies prior to receiving such single lump sum payment, the single lump sum payment will be made to the Participant's Beneficiary.

        (C)
        Optional Lump Sum Form of Benefit Payment

          Under the Optional Lump Sum Form of Benefit Payment, if the Participant has received the single lump sum payment, no other benefits are payable hereunder. If the Participant dies prior to the July of the year following the month payments commence, such Participant's benefit will continue to be paid as set forth in 4.01(b)(ii)(B); that is payable under the Standard Option beginning in the same month as the UCEPP benefit began until the July of the year following the month payments commence, at which time the remaining value of the Lump Sum will be paid to the Beneficiary.

    (d)
    Miscellaneous

    (i)
    No election

        Participants, entitled to make an election of the Optional Lump Sum Form of Benefit Payment under the Plan, who do not make an election of such Lump Sum Form of Benefit Payment in writing prior to termination from employment, Retirement, or death, shall be deemed to have elected the Standard Option.

      (ii)
      Small Benefits

        At the time of Retirement, if the present value of a Participant's Supplemental Retirement Benefits, as determined under this Section 4.01(a)(ii)(A) above, is equal to or less than twenty-five thousand dollars ($25,000), the benefits will be paid under the Mandatory Lump Sum Option.

40


4.02
CHANGE IN CONTROL

    Change in Control shall mean a change in control of the Company of a nature that would be required to be reported in response to Item 5(f) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the Company is then subject to such reporting requirement, provided that, without limitation, a Change in Control shall be deemed to have occurred if:

    (a)
    any individual, partnership, firm, corporation, association, trust, unincorporated organization or other entity, or any syndicate or group deemed to be a person under Section 14(d)(2) of the Exchange Act, is or becomes the "beneficial owner" (as defined in Rule 13d-3 of the General Rules and Regulations under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities entitled to vote in the election of directors of the Company; or

    (b)
    during any period of two (2) consecutive years (not including any period prior to the execution of this Plan), individuals who at the beginning of such period constitute the Board of Directors and any new directors, whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least three quarters (3/4) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof. A change in control shall not be deemed to be a Change in Control for purposes of this Plan if the Board of Directors has approved such change in control prior to either:

    (i)
    the occurrence of any of the events described in the foregoing clauses (a) and (b), or

    (ii)
    the commencement by any person other than the Company of a tender offer for the Common Stock.

    In the event of such Change in Control, the vested Supplemental Retirement Benefits under Section 3.01 shall become payable immediately and shall be paid as a single lump sum payment within ninety (90) days of the Change in Control. The value of such single lump sum payment shall be the present value of the monthly Supplemental Retirement Benefits as of the date of Change in Control calculated pursuant to Section 4.01(a)(ii)(A).

ARTICLE V
SUPPLEMENTAL RETIREMENT BENEFITS FUND

5.01
FINANCING OF SUPPLEMENTAL RETIREMENT BENEFITS

    The entire cost of providing benefits under the Plan shall be paid by the Company out of its current operating budget, and the Company shall not be required under any circumstances to fund its obligations under the Plan. Notwithstanding the foregoing, the Company may, at its sole option, informally fund its obligations under the Plan in whole or in part by the creation of book reserves, the establishment of grantor trust, the purchase of insurance and other assets, or by other means. In no event shall any Participant or Beneficiary have any incidents of ownership to any such insurance contracts or other assets. In addition, no Participant or Beneficiary shall be named a beneficiary under any such insurance contract. If the Company informally funds the Plan, in whole or in part, the manner of such informal funding and the continuance or discontinuance of such informal funding shall be the sole decision of the Company.

5.02
GENERAL CREDITOR

    The Participant, and/or Beneficiary, shall be regarded as an unsecured general creditor of the Company with respect to any rights derived by the Participant and/or Beneficiary, from the existence of this Plan. Title to and beneficial ownership of any Company assets (including any assets that may be held in trust) which may be used to satisfy the Company's obligation for payment of Supplemental Retirement Benefits shall remain solely the property of the Company.

41


5.03
LIABILITY OF COMPANY

    Nothing in this Plan shall constitute the creation of a trust or other fiduciary relationship between the Company, its agents, representatives or other Employees dealing with the Plan and the Participant, Beneficiary or any other person. The obligations of the Company under the Plan shall be an unfunded and unsecured promise to pay.

5.04
ASSIGNMENT

    No rights under this Plan may be assigned, transferred, pledged or encumbered by any Participant or Beneficiary. The obligations and rights of the Company under this Plan may be encumbered in the event of the Company's insolvency.

ARTICLE VI
MISCELLANEOUS

6.01
PLAN IS BINDING

    This Plan shall be binding upon and inure to the benefit of the Company, participating Employees and their respective successors, assigns, heirs, personal representatives, executors, administrators, Beneficiaries and legatees.

6.02
ENTIRE PLAN

    This document constitutes the entire Plan and no representations or other actions by a Company Employee or representative may modify the rights and obligations set forth in the Plan.

6.03
NO GUARANTEE OF EMPLOYMENT

    Nothing in this Plan shall be construed as an employment contract or as a guarantee of employment for any period of time.

6.04
GOVERNING LAW

    In the event that ERISA does not preempt state law, the state law of Michigan applies.

6.05
TERMINATION

    The Company reserves the right to terminate the Plan completely subject to the conditions set forth below. Such termination shall have prospective application only and shall not reduce or impair a Participant's right to Supplemental Retirement Benefits accrued and vested as of the date of termination. Each Participant shall receive written note of the termination of the Plan describing the action taken in detail.

6.06
WITHHOLDING TAXES

    The Company shall have the right to withhold taxes from any payments made pursuant to the Plan, or make such other provisions as it deems necessary or appropriate to satisfy its obligations to withhold federal, state, local or foreign income or other taxes incurred by reason of payments pursuant to the Plan. In lieu thereof, the Company shall have the right, to the extent permitted by law, to withhold the amount of such taxes from any other sums due or to become due from the Company to the Participant or any Beneficiary upon such terms and conditions as the Company may prescribe.

6.07
OVERPAYMENTS

    If any overpayment of benefits is made under this Plan, the amount of the overpayment may be set-off against future amounts payable to or on account of the person who received the overpayment until the overpayment has been recovered. The foregoing remedy is not intended to be exclusive.

42


ARTICLE VII
PLAN ADMINISTRATION

7.01
ADMINISTRATION AND AMENDMENT

    This Plan is administered by the Board of Directors of the Company who may delegate any or all of its responsibilities to a Plan Administrator. The Plan Administrator is authorized to amend the Plan, construe and interpret all Plan provisions, to adopt rules concerning the implementation of Plan provisions, and to make any determinations necessary or appropriate hereunder which shall be binding and conclusive on all parties except as otherwise provided by the Plan Administrator. Any amendment shall have prospective application only and shall not reduce or impair a Participant's right to Supplemental Retirement Benefits accrued and vested as of the date such amendment is made. Each Participant shall receive written notice of the amendment or termination of the Plan describing the action taken in detail.

7.02
CLAIMS SUBMISSION AND REVIEW PROCEDURE

    Any disputed claim for benefits must be submitted in writing to the Company. In the event that any claim for benefits hereunder is denied (in whole or in part), the claimant shall receive from the Company, within 90 days after its receipt of the benefit claim, a written notice setting forth the specific reasons for denial, with specific reference to pertinent provisions of this Plan, unless special circumstances require an extension of time for processing the claim. The notice shall be written in a manner calculated to be understood by the claimant. If an extension of time is required, written notice of the extension shall be furnished to the claimant prior to the termination of the initial 90-day period. In no event shall such extension exceed a period of 90 days from the end of the initial period. The claimant may make a written request for review of any such denial by the Company within 60 days following the date of such denial. The claimant shall be entitled to submit such issues or comments, in writing, as he or she shall consider relevant to a determination of the claim. The Plan Administrator shall notify the claimant of its decision in writing no later than 60 days following receipt of the claimant's request, unless specific circumstances require an extension of time for processing, in which case the Plan Administrator's decision shall be rendered no later than 120 days after receipt of such request for review. The interpretations and construction of the Plan by the Plan Administrator shall be binding and conclusive on all persons and for all purposes. Notwithstanding the above, any disagreement may be submitted to the Board of Directors or the Plan Administrator for resolution provided that all interested parties agree to be bound by the decision. No member of the Board of Directors, Company management, or the Plan Administrator shall be liable to any person for any action taken hereunder except for those actions undertaken with lack of good faith.

43




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Union Carbide Corporation Executives' Supplemental Retirement Plan
EX-23 5 a2145609zex-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 Quarterly Report on Form 10-Q of Union Carbide Corporation for the quarter ended September 30, 2004.


/s/  
B. THOMAS FLORENCE      
B. Thomas Florence
President
Analysis, Research & Planning Corporation
October 27, 2004

 

 

 

44




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Analysis, Research & Planning Corporation's Consent
EX-31.1 6 a2145609zex-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 quarterly report on Form 10-Q of Union Carbide Corporation;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c)
disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: October 29, 2004


 

 

/s/ JOHN R. DEARBORN

John R. Dearborn
President and Chief Executive Officer

45




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EX-31.2 7 a2145609zex-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 quarterly report on Form 10-Q of Union Carbide Corporation;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c)
disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: October 29, 2004


 

 

/s/ EDWARD W. RICH

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

46




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EX-32.1 8 a2145609zex-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 Quarterly Report on Form 10-Q of the Corporation for the quarter ended September 30, 2004 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/ JOHN R. DEARBORN

John R. Dearborn
President and Chief Executive Officer
October 29, 2004

 

 

47




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Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
EX-32.2 9 a2145609zex-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 Quarterly Report on Form 10-Q of the Corporation for the quarter ended September 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.


/s/ EDWARD W. RICH

Edward W. Rich
Vice President, Treasurer and Chief Financial Officer
October 29, 2004

 

 

48




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