-----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, T+2BBhFMRERmehS9PIkzhX0rIeU1MCqeEjcLz0SbTI1aPXGCrOsIxFXIbFrMHuLk WE+Pli/QV8583f1pfbg5Hg== 0001047469-05-020470.txt : 20050802 0001047469-05-020470.hdr.sgml : 20050802 20050802112356 ACCESSION NUMBER: 0001047469-05-020470 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20050630 FILED AS OF DATE: 20050802 DATE AS OF CHANGE: 20050802 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: 05990543 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 a2161506z10-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 QUARTERLY PERIOD ENDED June 30, 2005

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 June 30, 2005, 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	6
		Notes to the Consolidated Financial Statements	7
	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.		15
		Disclosure Regarding Forward-Looking Information	15
		Results of Operations	15
		Other Matters	16
	Item 3. Quantitative and Qualitative Disclosures About Market Risk.		19
	Item 4. Controls and Procedures.		19
PART II—OTHER INFORMATION
	Item 1. Legal Proceedings.		19
	Item 6. Exhibits.		19
SIGNATURES			20
EXHIBIT INDEX			21

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

Union Carbide Corporation and Subsidiaries
Consolidated Statements of Income

		Three Months Ended					Six Months Ended
In millions (Unaudited)		June 30, 2005		June 30, 2004			June 30, 2005		June 30, 2004
	Net trade sales	$	73	$	84		$	145	$	163
	Net sales to related companies		1,511		1,275			3,123		2,507

Total Net Sales			1,584		1,359			3,268		2,670

	Cost of sales		1,383		1,237			2,824		2,401
	Research and development expenses		18		23			39		47
	Selling, general and administrative expenses		5		4			10		10
	Amortization of intangibles		—		1			—		2
	Restructuring charges		—		48			—		48
	Equity in earnings of nonconsolidated affiliates		98		209			251		294
	Sundry income (expense) — net		1		(17	)		53		(55	)
	Interest income		6		2			10		3
	Interest expense and amortization of debt discount		19		23			42		46

Income before Income Taxes			264		217			667		358

	Provision for income taxes		74		79			197		129

Net Income Available for Common Stockholder		$	190	$	138		$	470	$	229

Depreciation		$	68	$	82		$	135	$	160

Capital Expenditures		$	51	$	33		$	94	$	59

See Notes to the Consolidated Financial Statements.

Union Carbide Corporation and Subsidiaries
Consolidated Balance Sheets

In millions (Unaudited)			June 30, 2005		Dec. 31, 2004
Assets
Current Assets
	Cash and cash equivalents		$	26	$	22
	Accounts receivable:
		Trade (net of allowance for doubtful receivables — 2005: $3; 2004: $4)		45		58
		Related companies		309		504
		Other		175		191
	Notes receivable from related companies			365		53
	Inventories			195		186
	Deferred income tax assets — current			37		71
	Asbestos-related insurance receivables — current			148		175

	Total current assets			1,300		1,260

Investments
	Investments in related companies			462		462
	Investments in nonconsolidated affiliates			939		1,041
	Other investments			24		23
	Noncurrent receivables			7		13
	Noncurrent receivable from related company			209		222

	Total investments			1,641		1,761

Property
	Property			7,347		7,304
	Less accumulated depreciation			5,313		5,227

	Net property			2,034		2,077

Other Assets
	Goodwill			26		26
	Other intangible assets (net of accumulated amortization — 2005: $122; 2004: $124)			20		20
	Deferred income tax assets — noncurrent			283		452
	Asbestos-related insurance receivables — noncurrent			901		1,028
	Prepaid pension expense			708		655
	Deferred charges and other assets			52		52

	Total other assets			1,990		2,233

Total Assets			$	6,965	$	7,331

See Notes to the Consolidated Financial Statements.

Union Carbide Corporation and Subsidiaries
Consolidated Balance Sheets

In millions (Unaudited)			June 30, 2005			Dec. 31, 2004
Liabilities and Stockholder's Equity
Current Liabilities
	Notes payable:
		Related companies	$	6		$	139
		Other		4			4
	Long-term debt due within one year			96			266
	Accounts payable:
		Trade		240			260
		Related companies		200			270
		Other		43			40
	Income taxes payable			124			116
	Asbestos-related liabilities — current			92			92
	Accrued and other current liabilities			219			360

	Total current liabilities			1,024			1,547

Long-Term Debt				832			1,006

Other Noncurrent Liabilities
	Pension and other postretirement benefits — noncurrent			465			470
	Asbestos-related liabilities — noncurrent			1,452			1,549
	Other noncurrent obligations			400			433

	Total other noncurrent liabilities			2,317			2,452

Minority Interest in Subsidiaries				4			4

Stockholder's Equity
	Common stock (1,000 shares authorized and issued)			—			—
	Additional paid-in capital			—			—
	Retained earnings			2,903			2,433
	Accumulated other comprehensive loss			(115	)		(111	)

	Net stockholder's equity			2,788			2,322

Total Liabilities and Stockholder's Equity			$	6,965		$	7,331

See Notes to the Consolidated Financial Statements.

Union Carbide Corporation and Subsidiaries
Consolidated Statements of Cash Flows

		Six Months Ended
In millions (Unaudited)		June 30, 2005			June 30, 2004
Operating Activities
	Net Income Available for Common Stockholder	$	470		$	229
	Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization		148			170
	Provision for deferred income tax		186			106
	Earnings/losses of nonconsolidated affiliates less than (in excess of) dividends received		25			(169	)
	Gain on sales of property, net		—			(6	)
	Other (gain) loss, net		(1	)		1
	Gain on sale of ownership interest in nonconsolidated affiliate		(70	)		(1	)
	Restructuring charges		—			44
	Changes in assets and liabilities that provided (used) cash:
	Accounts and notes receivable		27			35
	Related company receivables		(117	)		75
	Inventories		(9	)		(23	)
	Accounts payable		2			23
	Related company payables		(203	)		10
	Other assets and liabilities		(68	)		(251	)

	Cash provided by operating activities		390			243

Investing Activities
	Capital expenditures		(94	)		(59	)
	Proceeds from sales of property		—			7
	Investments in nonconsolidated affiliates		—			(1	)
	Distributions from nonconsolidated affiliates		41			—
	Changes in noncurrent receivable from related company		13			(195	)
	Purchases of investments		(1	)		—
	Proceeds from sales of nonconsolidated affiliates		—			1
	Proceeds from sales of investments		—			3

	Cash used in investing activities		(41	)		(244	)

Financing Activities
	Changes in short-term notes payable		—			2
	Payments on long-term debt		(345	)		—

	Cash provided by (used in) financing activities		(345	)		2

Summary
	Increase in cash and cash equivalents		4			1
	Cash and cash equivalents at beginning of year		22			21

	Cash and cash equivalents at end of period	$	26		$	22

See Notes to the Consolidated Financial Statements.

Union Carbide Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income

		Three Months Ended						Six Months Ended
In millions (Unaudited)		June 30, 2005			June 30, 2004			June 30, 2005			June 30, 2004
Net Income Available for Common Stockholder		$	190		$	138		$	470		$	229

Other Comprehensive Income (Loss), Net of Tax
	Translation adjustments		(6	)		(4	)		(10	)		(1	)
	Minimum pension liability adjustment		(1	)		—			6			—
	Net gain (loss) on cash flow hedging derivative instruments		(2	)		1			—			1

	Total other comprehensive loss		(9	)		(3	)		(4	)		—

Comprehensive Income		$	181		$	135		$	466		$	229

See Notes to the Consolidated Financial Statements.

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 (including normal recurring accruals) which, in the opinion of management, are considered necessary for the fair presentation of the results for the periods presented.

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

Certain reclassifications of prior year's amounts have been made to conform to the presentation adopted for 2005. 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, 2004.

NOTE B ACCOUNTING CHANGES

In November 2004, the Financial Accounting Standards Board ("FASB") issued SFAS No. 151, "Inventory Costs—an amendment of ARB No. 43, Chapter 4," which clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage) and also requires that the allocation of fixed production overhead be based on the normal capacity of the production facilities. SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Corporation is currently evaluating the impact of adopting this statement.

In December 2004, the FASB issued revised SFAS No. 123 ("SFAS No. 123R"), "Share-Based Payment" which replaces SFAS No. 123, "Accounting for Stock-Based Compensation" and supersedes Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." This statement, which requires that the cost of all share-based payment transactions be recognized in the financial statements, establishes fair value as the measurement objective and requires entities to apply a fair-value-based measurement method in accounting for share-based payment transactions. As issued, the statement applies to all awards granted, modified, repurchased or cancelled after July 1, 2005. In March 2005, the U.S. Securities and Exchange Commission (the "SEC") issued Staff Accounting Bulletin ("SAB") No. 107, which expresses views of the SEC staff regarding the interaction between SFAS No. 123R and certain SEC rules and regulations, and provides the staff's views regarding the valuation of share-based payment arrangements for public companies. Dow will consider the guidance of this SAB as it adopts SFAS No. 123R. On April 14, 2005, the SEC announced the adoption of a new rule that amends the compliance date for SFAS No. 123R, allowing companies to implement the statement at the beginning of their next fiscal year that begins after June 15, 2005, which is January 1, 2006 for Dow. The Corporation will continue to be allocated the portion of expense relating to its employees who receive stock-based compensation.

In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets—an amendment of APB Opinion No. 29." The statement addresses the measurement of exchanges of nonmonetary assets and eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets and replaces it with an exception for exchanges that do not have commercial substance. SFAS No. 153 is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The Corporation has determined that its practices are consistent with the guidance of this statement; therefore, the adoption of SFAS No. 153 on July 1, 2005, will have no impact on the Corporation's consolidated financial statements.

In December 2004, the FASB issued FASB Staff Position ("FSP") No. FAS 109-1, "Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004," indicating that this deduction should be accounted for as a special deduction in accordance with the provisions of SFAS No. 109. Beginning in 2005, the Corporation recognizes the allowable deductions as qualifying activity occurs.

In December 2004, the FASB issued FSP No. FAS 109-2, "Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004," which provides a practical exception to the SFAS No. 109 requirement to reflect the effect of a new tax law in the period of enactment by allowing additional time beyond the financial reporting period to evaluate the effects on plans for reinvestment or repatriation of unremitted foreign earnings. The American Jobs Creation Act of 2004 (the "Act") introduced a special one-time dividends received deduction on the repatriation of certain foreign earnings to a U.S. taxpayer, provided certain criteria are met. In May 2005, tax authorities released the clarifying language necessary to enable Dow to complete its determination regarding the repatriation and reinvestment of foreign earnings. Dow intends to repatriate funds from a foreign entity that is partially owned by the Corporation. Since the Corporation is included in Dow's consolidated federal income tax group and consolidated tax return, as the foreign entity repatriates its earnings, the Corporation will recognize dividend income and its share of the related tax impact of the repatriation provision of the Act, in accordance with the terms of the Dow-UCC Tax Sharing Agreement.

In March 2005, the FASB issued FASB Interpretation ("FIN") No. 47, "Accounting for Conditional Asset Retirement Obligations," which clarifies the term conditional asset retirement obligation as used in SFAS No. 143, "Accounting for Asset Retirement Obligations," as a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the Corporation. FIN No. 47 is effective no later than the end of fiscal years ending after December 15, 2005. The Corporation is currently evaluating the impact of adopting this interpretation.

In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections," which replaces APB Opinion No. 20, "Accounting Changes," and SFAS No. 3, "Reporting Accounting Changes in Interim Financial Statements," and provides guidance on the accounting for and reporting of accounting changes and error corrections. SFAS No. 154 applies to all voluntary changes in accounting principle and requires retrospective application (a term defined by the statement) to prior periods' financial statements, unless it is impracticable to determine the effect of a change. It also applies to changes required by an accounting pronouncement that does not include specific transition provisions. In addition, SFAS No. 154 redefines restatement as the revising of previously issued financial statements to reflect the correction of an error. The statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Corporation will adopt SFAS No. 154 beginning January 1, 2006.

NOTE C RESTRUCTURING

2004 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 ended 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.

As of June 30, 2005, the Corporation's workforce had been reduced by 340 people due to this restructuring and severance of $18 million had been paid. In the second quarter of 2005, the estimated workforce reduction was revised to reflect employee redeployment and the severance accrual was reduced by $2 million (reflected in "Cost of sales"), leaving an accrual of $1 million for employees who will end their employment with UCC in the second half of 2005, and bringing the 2004 employee-related restructuring program to a close.

NOTE D INVENTORIES

The following table provides a breakdown of inventories at June 30, 2005 and December 31, 2004:

Inventories In millions	June 30, 2005		Dec. 31, 2004
Finished goods	$	54	$	60
Work in process		27		25
Raw materials		34		32
Supplies		80		69

Total inventories	$	195	$	186

The reserves reducing inventories from the first-in, first-out ("FIFO") basis to the last-in, first-out ("LIFO") basis amounted to $142 million at June 30, 2005 and $139 million at December 31, 2004.

NOTE E OTHER INTANGIBLE ASSETS

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

Other Intangible Assets		At June 30, 2005							At December 31, 2004
In millions		Gross Carrying Amount		Accumulated Amortization			Net		Gross Carrying Amount		Accumulated Amortization			Net
Intangible assets with finite lives:
	Licenses and intellectual property	$	36	$	(35	)	$	1	$	36	$	(35	)	$	1
	Patents		4		(2	)		2		4		(2	)		2
	Software		101		(84	)		17		103		(86	)		17
	Other		1		(1	)		—		1		(1	)		—

	Total	$	142	$	(122	)	$	20	$	144	$	(124	)	$	20

Total estimated amortization expense for 2005 and the next five fiscal years is as follows:

Estimated Amortization Expense for Next Five Years In millions
2005	$	4
2006		4
2007		4
2008		4
2009		4
2010		—

NOTE F COMMITMENTS AND CONTINGENT LIABILITIES

Environmental Matters

Accruals for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, based on current law and existing technologies. The Corporation had accrued obligations of $104 million at December 31, 2004 for environmental remediation and restoration costs, including $39 million for the remediation of Superfund sites. At June 30, 2005, the Corporation had accrued obligations of $98 million for environmental remediation and restoration costs, including $36 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 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, 2004.

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. Since then, the rate of filing has significantly abated. The Corporation expects more asbestos-related suits to be filed against it and Amchem in the future, and will aggressively defend or reasonably resolve, as appropriate, both pending and future claims.

In November 2004, the Corporation requested ARPC to review the Corporation's historical asbestos claim and resolution activity and determine the appropriateness of updating its January 2003 study. In response to this request, ARPC reviewed and analyzed data through November 14, 2004, and again 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. ARPC did advise, however, that it was reasonable and feasible to construct a new estimate of the cost of resolving current and future asbestos-related claims using the same two widely used forecasting methodologies used by ARPC in its January 2003 study, if certain assumptions were made. As a result, the following assumptions were made and then used by ARPC:

•: The number of future claims to be filed annually against UCC and Amchem is unlikely to exceed the level of claims experienced during 2004.
•: The number of claims filed against UCC and Amchem annually from 2001 to 2003 is considered anomalous for the purpose of estimating future filings.
•: The number of future claims to be filed against UCC and Amchem will decline at a fairly constant rate each year from 2005.
•: The average resolution value for pending and future claims will be equivalent to those experienced during 2003 and 2004 (excluding settlements from closed claims filed in Madison County, Illinois with respect to future claims, as changes in the judicial environment in Madison County caused the historical experience of claims in that jurisdiction to not be predictive of results for future claims).

The resulting study completed by ARPC in January 2005 stated that the undiscounted cost of resolving pending and future asbestos-related claims against UCC and Amchem, excluding future defense and processing costs, through 2017 was estimated to be between approximately $1.5 billion and $2.0 billion, depending on which of two accepted methodologies was used. At December 31, 2004, the recorded asbestos-related liability for pending and future claims was $1.6 billion. Based on the low end of the range in the January 2005 study, the recorded asbestos-related liability for pending and future claims at December 31, 2004 would be sufficient to resolve asbestos-related claims against UCC and Amchem into 2019. As in its January 2003 study, ARPC did provide estimates for a longer period of time in its January 2005 study, but also reaffirmed its prior advice that forecasts for shorter periods of time are more accurate than those for longer periods of time. Based on ARPC's studies, the Corporation's recent asbestos litigation experience, and the uncertainties surrounding asbestos litigation and legislative reform efforts, management determined that no change to the accrual was required at December 31, 2004.

Based on the Corporation's review of 2005 activity, the Corporation determined that no change to the accrual was required at June 30, 2005.

The asbestos-related liability for pending and future claims was $1.5 billion at June 30, 2005 and $1.6 billion at December 31, 2004. At June 30, 2005, approximately 39 percent of the recorded liability related to pending claims and approximately 61 percent related to future claims. At December 31, 2004, approximately 37 percent of the recorded liability related to pending claims and approximately 63 percent related to future claims.

Agreement, to which the Corporation and many of its liability insurers are signatory parties, as well as other insurance settlements, with due consideration given to applicable deductibles, retentions and policy limits, and taking into account the solvency and historical payment experience of various insurance carriers. The Wellington Agreement and other agreements with insurers are designed to facilitate an orderly resolution and collection of the Corporation's insurance policies and to resolve issues that the insurance carriers may raise.

The Corporation's receivable for insurance recoveries related to its asbestos liability was $590 million at June 30, 2005 and $712 million at December 31, 2004. At June 30, 2005, $453 million ($543 million at December 31, 2004) of the receivable for insurance recoveries was related to insurers that are not signatories to the Wellington Agreement and/or do not otherwise have agreements in place regarding their asbestos-related insurance coverage.

In addition, 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	June 30, 2005		December 31, 2004
Receivables for defense costs	$	91	$	85
Receivables for resolution costs		368		406

Total	$	459	$	491

The Corporation expenses defense costs as incurred. The pretax impact for defense and resolution costs, net of insurance, was $14 million in the second quarter of 2005 ($48 million in the second quarter of 2004) and $32 million in the first six months of 2005 ($73 million in the first six months of 2004), 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") and to facilitate an orderly and timely collection of insurance proceeds. 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, in order to facilitate an orderly resolution and collection of such insurance policies and to resolve issues that the insurance carriers may raise. 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 "New York action"). Through the second quarter of 2005, the Corporation reached settlements with several of the carriers involved in the New York action. After a further review of its insurance policies, with due consideration given to applicable deductibles, retentions and policy limits, after taking into account the solvency and historical payment experience of various insurance carriers; existing insurance settlements; and the advice of outside counsel with respect to the applicable insurance coverage law relating to the terms and conditions of its insurance policies, the Corporation continues to believe that its recorded receivable for insurance recoveries from all insurance carriers is probable of collection.

The amounts recorded for the asbestos-related liability and related insurance receivable described above were based upon current, 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

At December 31, 2004, the Corporation had various outstanding commitments for take or pay agreements, with terms extending from one to six years. Such commitments were not in excess of current market prices. The fixed and determinable portion of obligations under purchase commitments at December 31, 2004 is presented in the following table:

Fixed and Determinable Portion of Take or Pay Obligations at December 31, 2004 In millions
2005	$	10
2006		10
2007		10
2008		8
2009		5
2010 through expiration of contracts		5

Total	$	48

Guarantees

The Corporation has undertaken obligations to guarantee the performance of certain nonconsolidated affiliates (including the OPTIMAL Group and Nippon Unicar Company Limited) 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 and/or financial obligations by the guaranteed party would trigger the obligation of the Corporation to make payments to the beneficiary of the guarantees. Financial obligations include debt and lease arrangements.

The following table provides a summary of the final expiration, maximum future payments, and recorded liability reflected in the consolidated balance sheet for these guarantees.

Guarantees In millions	Final Expiration	Maximum Future Payments		Recorded Liability
Guarantees at June 30, 2005	2014	$	112	$	2
Guarantees at December 31, 2004	2014	$	114	$	2

NOTE G PENSION AND OTHER POSTRETIREMENT BENEFITS

Net Periodic Benefit Cost (Credit) for All Significant Plans		Three Months Ended						Six Months Ended
In millions		June 30, 2005			June 30, 2004			June 30, 2005			June 30, 2004
Defined Benefit Pension Plans:
	Service cost	$	6		$	7		$	13		$	14
	Interest cost		55			56			109			112
	Expected return on plan assets		(86	)		(88	)		(171	)		(176	)
	Amortization of prior service cost		1			1			1			2
	Amortization of net loss		—			—			1			—
	Special termination/curtailment cost		—			2			—			2

	Net periodic benefit credit	$	(24	)	$	(22	)	$	(47	)	$	(46	)

Other Postretirement Benefits:
	Service cost	$	1		$	1		$	2		$	2
	Interest cost		8			10			17			20
	Amortization of prior service credit		—			(2	)		(1	)		(4	)
	Amortization of net loss		2			1			3			2
	Special termination/curtailment cost		—			9			—			9

	Net periodic benefit cost	$	11		$	19		$	21		$	29

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 Annual Report on Form 10-K for the year ended December 31, 2004, UCC does not expect to contribute assets to its qualified pension plan trust in 2005. Consistent with that expectation, no contributions were made in the first half of 2005. The Corporation also has a non-qualified supplemental pension plan. Benefit payments to retirees under this plan are expected to be $6 million in 2005. In the first six months of 2005, benefit payments of $1 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 Annual Report on Form 10-K for the year ended December 31, 2004, UCC does not expect to contribute assets to its other postretirement benefit plans in 2005. Consistent with that expectation, no contributions were made in the first half of 2005. Benefit payments to retirees under these plans are expected to be $63 million in 2005. In the first six months of 2005, benefit payments of $25 million were made.

NOTE H RELATED PARTY TRANSACTIONS

The Corporation sells products to Dow to simplify the customer interface process. Products are sold to and purchased from Dow in accordance with the terms of Dow's long-standing intercompany pricing policies. The application of these policies results in products being sold to and purchased from Dow at market-based prices. The Corporation also procures certain commodities and raw materials through a Dow subsidiary and pays a commission to that Dow subsidiary based on the volume and type of commodities and raw materials purchased. The commission expense is included in "Sundry income (expense)—net" in the consolidated statements of income. Purchases from that Dow subsidiary were approximately $572 million in the second quarter of 2005 ($446 million in the second quarter of 2004) and $1,175 million in the first half of 2005 ($889 million in the first half of 2004).

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 $4 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 and foreign currency risks, which are based on Dow's risk management philosophy, are provided as a service to UCC.

As part of Dow's cash management process, UCC is a party to revolving loans with Dow that have LIBOR-based interest rates with varying maturities. At June 30, 2005, the Corporation had a note receivable of $328 million from Dow under a revolving loan agreement. The Corporation also has a separate revolving credit agreement with Dow that allows the Corporation to borrow or obtain credit enhancements up to an aggregate of $1 billion that matures December 30, 2005, however, Dow may demand repayment with a 30-day written notice to the Corporation, subject to certain restrictions. A related collateral agreement provides for the replacement of certain existing pledged assets, primarily equity interests in various subsidiaries and joint ventures, with cash collateral. At June 30, 2005, $802 million was available under the revolving

credit agreement. The cash collateral was reported as "Noncurrent receivable from related company" in the consolidated balance sheets.

In June 2005, the Corporation received a cash dividend of approximately $29 million from Dow Chemical Canada Inc. ("Dow Canada") which was included in "Sundry income (expense)—net". The Corporation accounts for its 11.2 percent ownership interest in Dow Canada using the cost method.

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 six-month periods ended June 30, 2005, the most recent periods, compared with the three- and six-month periods ended June 30, 2004, the corresponding periods in the preceding fiscal year.

References below to "Dow" refer to The Dow Chemical Company and its consolidated subsidiaries, except as the context otherwise requires.

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 $190 million for the second quarter of 2005, compared with $138 million for the second quarter of 2004. The results for the second quarter of 2004 were negatively impacted by a restructuring charge of $48 million. Net income for the first half of 2005 was $470 million, compared with $229 million for the first half of 2004. The significant improvement was due to higher selling prices, improved operating margins and a gain on the sale of a portion of the Corporation's ownership interest in EQUATE Petrochemical Company K.S.C ("EQUATE").

Total net sales for the second quarter of 2005 were $1,584 million compared with $1,359 million for the second quarter of 2004, an increase of 17 percent. Year to date, total net sales were $3,268 million, an increase of 22 percent from $2,670 million for the first half of 2004. Selling prices to Dow are based on market prices for the related products. Average selling prices for all products were substantially higher in the second quarter of 2005 and on a year-to-date basis compared with the same periods of last year due to improved industry fundamentals and the continuing increase in feedstock and energy costs. In the second quarter of 2005, volume gains for wire and cable products, polypropylene and glycol ethers were more than offset by lower demand for the Corporation's other products. Polyethylene and ethylene glycol ("EG") volume decreased as end-use customers reduced inventories in anticipation of lower product prices. Lower ethanol sales volume resulted from the Corporation's exit of the industrial ethanol business in the second quarter of 2004. Sales volume for vinyl acetate monomer was reduced by an unplanned outage at the Corporation's manufacturing facility in Texas. On a year-to-date basis, volume was also impacted by a decline in EG volume due to scheduled plant turnarounds in the first quarter of 2005.

Cost of sales increased 12 percent in the second quarter of 2005 compared with the second quarter of 2004 principally due to higher raw material costs. Cost of sales for the first half of 2005 increased 18 percent compared with the same period last year. However, gross margins improved in the second quarter of 2005 and on a year-to-date basis, as higher selling prices more than offset the unfavorable impact of higher feedstock and energy costs and lower volumes.

Equity in earnings of nonconsolidated affiliates decreased to $98 million in the second quarter of 2005 from $209 million in the second quarter of 2004. Equity earnings were impacted by unplanned outages and EQUATE and the OPTIMAL Group during the second quarter of 2005. Equity earnings in the second quarter of 2004 were favorably impacted by the recognition of investment tax allowances by one of the Corporation's joint ventures. Despite strong results reported by EQUATE and

UOP LLC for the first half of 2005, equity earnings were $43 million lower than in the first half of 2004 due to the benefit of the investment tax allowances in 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 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.

Sundry income (expense)—net includes a variety of income and expense items such as the gain or loss on foreign currency exchange, dividends from investments, commissions, charges for management services provided by Dow, and gains and losses on sales of investments and assets. Sundry income (expense)—net for the second quarter of 2005 was net income of $1 million compared with net expense of $17 million for the second quarter last year. Net sundry income for the second quarter of 2005 included dividend income of $29 million from Dow Chemical Canada Inc. ("Dow Canada") and a loss of $8 million associated with the early extinguishment of $345 million of debt. Year to date, sundry income (expense) was net income of $53 million compared with net expense of $55 million last year. Net sundry income for the first six months of this year also included a $70 million pretax gain on the sale of a portion of the Corporation's interest in EQUATE in the first quarter of 2005. In November 2004, the Corporation sold a 2.5 percent interest in EQUATE to National Bank of Kuwait for $104 million. In March 2005, these shares were sold to private Kuwaiti investors thereby completing the restricted transfer, which resulted in the first quarter gain and reduced the Corporation's ownership interest from 45 percent to 42.5 percent.

The effective tax rate for the second quarter of 2005 was 28 percent compared with 36.4 percent for the same quarter last year. Year to date, the effective tax rate was 29.5 percent versus 36.0 percent last year. The effective tax rate fluctuates based on, among other factors, where income is earned, the level of after-tax income from joint ventures, and the level of income relative to tax credits available. In addition, the effective tax rate for 2005 reflects the favorable impact of $29 million of dividend income from Dow Canada, which was based on previously taxed income.

OTHER MATTERS

Accounting Changes

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

Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with 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, 2004 ("2004 10-K") describes the significant accounting policies and methods used in the preparation of the Consolidated Financial Statements. The Corporation's critical accounting policies that are impacted by judgments, assumptions and estimates are described in Management's Discussion and Analysis of Financial Condition and Results of Operations in the Corporation's 2004 10-K. Since December 31, 2004, there have been no material changes in the Corporation's critical accounting policies.

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, 2004.

Introduction

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

The table below provides information regarding asbestos-related claims filed against the Corporation and Amchem for the six months ended June 30, 2005 and 2004:

	2005		2004
Claims unresolved at January 1	203,416		193,891
Claims filed	20,456		34,013
Claims settled, dismissed or otherwise resolved	(25,402	)	(24,389	)

Claims unresolved at June 30	198,470		203,515
Claimants with claims against both UCC and Amchem	64,682		69,647

Individual claimants at June 30	133,788		133,868

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, those damages are not expressly identified as to UCC, Amchem or any other particular defendant, even when specific damages are alleged with respect to a specific disease or injury. In fact, there are no personal injury cases in which only the Corporation and/or Amchem are the sole named defendants. For these reasons and based upon the Corporation's litigation and settlement experience, the Corporation does not consider the damages alleged against it and Amchem to be a meaningful factor in its determination of any potential asbestos liability.

Estimating the Liability

Based on a study completed by Analysis, Research & Planning Corporation ("ARPC") in January 2003, the Corporation increased its December 31, 2002 asbestos-related liability for pending and future claims for the 15-year period ending in 2017 to $2.2 billion, excluding future defense and processing costs. At each balance sheet date, the Corporation compares current asbestos claim and resolution activity to the assumptions in the most recent ARPC study to determine whether the accrual continues to be appropriate. In November 2004, the Corporation requested ARPC to review the Corporation's historical asbestos claim and resolution activity and determine the appropriateness of updating its January 2003 study. In January 2005, ARPC provided the Corporation with a report summarizing the results of its study. Based on ARPC's studies, the Corporation's recent asbestos litigation experience, and the uncertainties surrounding asbestos litigation and legislative reform efforts, management determined that no change to the accrual was required at December 31, 2004.

Based on the Corporation's review of 2005 activity, the Corporation determined that no change to the accrual was required at June 30, 2005.

Defense and Resolution Costs

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

Defense and Resolution Costs	Six Months Ended				Aggregate Costs
In millions	June 30, 2005		June 30, 2004		to Date as of June 30, 2005
Defense costs	$	32	$	47	$	376
Resolution costs		98		148		1,024

The average resolution payment per asbestos claimant and the rate of new claim filings has fluctuated both up and down since the beginning of 2001. 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.

Insurance Receivables

At December 31, 2002, the Corporation increased the receivable for insurance recoveries related to its asbestos liability to $1.35 billion, substantially exhausting its asbestos product liability coverage. The insurance receivable related to the asbestos liability was determined after a thorough review of applicable insurance policies and the 1985 Wellington Agreement, to which the Corporation and many of its liability insurers are signatory parties, as well as other insurance settlements, with due consideration given to applicable deductibles, retentions and policy limits, and taking into account the solvency and historical

payment experience of various insurance carriers. The Wellington Agreement and other agreements with insurers are designed to facilitate an orderly resolution and collection of the Corporation's insurance policies and to resolve issues that the insurance carriers may raise.

In 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	June 30, 2005		December 31, 2004
Receivables for defense costs	$	91	$	85
Receivables for resolution costs		368		406

Total	$	459	$	491

Summary

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(b); and whether any change has occurred in the Corporation's internal control over financial reporting pursuant to Exchange Act Rule 15d-15(d). Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Corporation's disclosure controls and procedures are effective and that no change in the Corporation's internal control over financial reporting occurred during the Corporation's most recent fiscal quarter that materially affected, or is reasonably likely to materially affect, the Corporation's internal control over financial reporting.

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

No material developments in any legal proceedings, including asbestos-related matters, occurred during the second quarter of 2005. For a summary of the history and current status of legal proceedings, including asbestos-related matters, see Management's Discussion and Analysis of Financial Condition and Results of Operations, Asbestos-Related Matters; and Note F to the Consolidated Financial Statements.

ITEM 6. EXHIBITS.

(a): Exhibits.

Exhibit No.		Exhibit Description
10.3		Second Amended and Restated Agreement (to Provide Materials and Services), dated as of April 1, 2005, between the Corporation and Dow Hydrocarbons and Resources Inc.
23		Analysis, Research & Planning Corporation's Consent.
31.1		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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: August 2, 2005

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

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

Union Carbide Corporation and Subsidiaries

EXHIBIT NO.		DESCRIPTION
10.3		Second Amended and Restated Agreement (to Provide Materials and Services), dated as of April 1, 2005, between the Corporation and Dow Hydrocarbons and Resources Inc.
23		Analysis, Research & Planning Corporation's Consent.
31.1		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

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

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

ITEM 4. CONTROLS AND PROCEDURES.

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

ITEM 6. EXHIBITS.

Union Carbide Corporation and Subsidiaries Signatures
EX-10.3 2 a2161506zex-10_3.htm EXHIBIT 10.3
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EXHIBIT 10.3

Second Amended and Restated Agreement

(to Provide Materials and Services)

This SECOND AMENDED AND RESTATED AGREEMENT ("Agreement"), entered into as of April 1, 2005, between Union Carbide Corporation ("UCC"), a New York corporation, and Dow Hydrocarbons and Resources Inc. ("DHRI"), a Delaware corporation, amends and restates that certain agreement of February 6, 2001, as amended and restated as of July 1, 2003 (the "First Amended Agreement"). DHRI agrees to supply the UCC Group (as defined below) with certain products and services under the terms and conditions set forth below.

1. TERM

The term of this Agreement shall commence on the Effective Date and shall extend until December 31, 2005, and shall continue from year-to-year thereafter, unless earlier terminated in accordance with the provisions of this Agreement (the "Term"). Either UCC or DHRI may elect at any time to terminate this Agreement by providing the other with at least six (6) months' advance written notice of termination.

2. DEFINITIONS

As used in this Agreement:

(a): An "Affiliate" with respect to any entity means any other entity directly or indirectly controlling, controlled by or under common control with, such entity, where "control" of an entity (including, with correlative meaning, the terms "controlling, "controlled by" and "under common control with") shall mean the possession, directly or indirectly, of the power to direct or cause the direction of management and policies of such entity, whether through the ownership of voting securities, by contract or otherwise.
(b): "Arranged Sales" has the meaning given to it in Section 8(B)(2)(b).
(c): "Arranged Supply" has the meaning given to it in Section 8(B)(2)(a).
(d): "Delivery Point" means the point at which product supplied by DHRI to a UCC Member under this Agreement is received (1) into the facilities of such UCC Member or its designee (including without limitation storage facilities operated by such UCC Member or its designee), or (2) into Intermediary Equipment directly connected to the facilities of such UCC Member or its designee, or (3) into the facilities of a third party, or a designee of such UCC Member or such third party, in fulfillment of an obligation of such UCC Member to deliver product to or on behalf of such third party; for avoidance of doubt, (A) when received into any truck or tank car, the Delivery Point is the point at which the product enters the receiving truck or car; (B) when received into any pipeline, the Delivery Point is the point at which the product passes the connection between the delivering pipeline and receiving pipeline; (C) when received into storage, the Delivery Point is the point at which the product enters a storage tank or cavern; (D) when received by "in-line" transfer or "in-storage" transfer, receipt at the Delivery Point occurs immediately upon such transfer; or (E) when received by or into any vessel, the Delivery Point is at the flange between the vessel's permanent hose connection and the shore line.
(e): "Effective Date" means April 1, 2005.
(f): "GAAP" means generally accepted accounting principles.
(g): "Intermediary Equipment" means, with respect to a UCC Member or its designee, intermediary systems or equipment, owned or controlled by a third party, used to deliver products to such UCC Member's or designee's facilities pursuant to a Separate Contract. For avoidance of doubt, the Burnel line connected to UCC's Seadrift Operations is Intermediary Equipment.

(h): "Major Sites" means the following four sites: UCC's West Virginia Operations in the vicinity of South Charleston, WV; UCC's St. Charles Operations, in the vicinity of Hahnville, LA; UCC's Texas City Operations in Texas City, TX; and UCC's Seadrift Operations in the vicinity of Seadrift, TX.
(i): "Net Supply Cost" means the following costs, to be determined in accordance with the then-current cost accounting practices applied by DHRI consistent with GAAP: (1) for fuels, on a site specific basis, the cost of purchases of such fuel (and transportation and storage thereof, except as provided otherwise by the delivery terms of Section 4(b)(2)) under Third-Party Contracts, net of related sales and exchanges, (2) for hydrocarbon feedstocks, the cost of purchases of such hydrocarbon feedstocks (and transportation and storage thereof, except as provided otherwise by the delivery terms of Section 4(b)(2)) under Third-Party Contracts, using the weighted average cost of DHRI's U.S. Gulf Coast pooled inventory and purchases, net of related sales and exchanges, (3) for monomers and aromatics, the cost of purchases of such monomers and aromatics (and transportation and storage thereof, except as provided otherwise by the delivery terms of Section 4(b)(2)), using the weighted average price for such monomers and aromatics under U.S. Gulf Coast Third-Party Contracts, and (4) for electricity, on a site specific basis, the cost (including without limitation applicable fees charged by non-Affiliate third parties) of purchases of such electricity (and transmission thereof), based on market prices, Third-Party Contract prices, or a combination thereof, as applicable, net of related sales of electricity.
(j): "Separate Contract" means an agreement, which pre-exists the Effective Date, between one or more third parties and one or more UCC Members, including without limitation any such agreement (1) for supply, delivery, storage or transportation of products to UCC or its designee, and/or (2) for the swap or exchange of any products.
(k): "Small Sites" means the UCC Group's locations other than the Major Sites.
(l): "TDCC" means The Dow Chemical Company.
(m): "Term" has the meaning given to it in Section 1.
(n): "Third-Party Contracts" means contracts between the purchaser (i.e., DHRI or a DHRI Affiliate) and a third party that is not an Affiliate of such purchaser.
(o): "UCC Group" means UCC and the UCC Subsidiaries, collectively.
(p): "UCC Member" means a member of the UCC Group.
(q): "UCC Subsidiary" means a direct or indirect wholly-owned U.S. subsidiary of UCC (such as, but not limited to, Amerchol Corporation, Seadrift Pipeline Corporation, UCAR Pipeline Incorporated, and UCAR Louisiana Pipeline Company).

3. PRODUCTS AND SERVICES TO BE SUPPLIED BY DHRI TO UCC

(a)

The following products and services will be supplied by DHRI to the UCC Group, as described below, in connection with the UCC Group's U.S. locations except to the extent otherwise agreed to by DHRI and UCC:

(1)

Products: 100% of the UCC Group's procurement requirements for

(A): fuels, primarily natural gas,
(B): hydrocarbon feedstocks,
(C): monomers and aromatics (to supplement the UCC Group's production of monomers and aromatics), and
(D): electricity,

except to the extent supply of such products is arranged in accordance with Sections 3(a)(2) or 3(c), below, or is procured by a UCC Member pursuant to a Separate Contract.

(2): Services. DHRI shall provide: management of the UCC Group's hydrocarbon and energy asset base, and management of the UCC Group's hydrocarbon and energy business matters, including without limitation: (i) management of hydrocarbon and energy contracts (including without limitation Separate Contracts); (ii) communications, as required, with the UCC Group's management and authorized representatives, as well as with any of the UCC Group's external customers, in connection with such hydrocarbon and energy business matters; (iii) monitoring of the UCC Group's and industry supply/demand balances of hydrocarbon and energy products; (iv) the implementation of both short and long term strategic positions in hydrocarbon and energy products; and (v) as mutually determined by UCC and DHRI, provision to the UCC Group of applicable accounting and computer systems to manage the other services supplied to the UCC Group under this Agreement. To the extent a UCC Member elects to separately arrange the supply of any one or more of the foregoing services, in whole or in part, such supply is outside the scope of this Agreement.

Except to the extent supplied by DHRI pursuant to Section 3(a)(1) above, or procured by a UCC Member pursuant to a Separate Contract, and subject to Section 3(c), below, DHRI shall also arrange the supply and sales of fuels, feedstocks, monomers, aromatics, electricity, steam and utilities, as described below:

(A): Arrange the supply to the UCC Group of 100% of the UCC Group's procurement requirements for fuels (such as natural gas and coal) and hydrocarbon feedstocks, and arrange any storage or transportation needed to effectuate such supply.
(B): Arrange (1) the supply to the UCC Group of 100% of the UCC Group's procurement requirements for monomers and aromatics, to supplement the UCC Group's production of monomers and aromatics, (2) the sale of 100% of the UCC Group's surplus monomers, aromatics, and hydrocarbon co-products and by-products, and (3) any storage or transportation needed to effectuate such supply or sales.
(C): Arrange (1) the supply to the UCC Group of 100% of the UCC Group's procurement requirements for electricity, steam and other utilities, (2) the sale of 100% of the UCC Group's surplus electricity, steam and other utilities, and (3) any transportation needed to effectuate such supply or sales; however, to the extent UCC or any other UCC Member elects to separately arrange the supply, sale, or transportation of a UCC Member's procurement requirements for electricity, steam or other utilities, such supply or sales are outside the scope of this Agreement.

(b): Where DHRI arranges product to be supplied to a UCC Member by TDCC or a TDCC Affiliate, TDCC or such TDCC Affiliate shall (and TDCC shall cause such Affiliate to) supply such product at Net Supply Cost.
(c): With respect to any one or more of the Small Sites, DHRI may elect to not supply or, to discontinue (at any time) supply of, any one or more of the products or services described in Section 3(a), above; in the event DHRI elects to discontinue supply of any one or more of such products or services (other than pursuant to other provisions of this Agreement which expressly provide for termination of this Agreement), DHRI will reasonably cooperate with UCC to effect a transition to another supplier of such service or product. For any UCC Group location where DHRI does not supply a product or service as described in Section 3(a), above, then upon request of a UCC Member, DHRI may, at its option, consult with a UCC Member regarding the member's procurement of such product or service from third parties.
(d): A representative list of products to be supplied to the UCC Group in connection with this Agreement is set forth in Exhibit A, attached to and hereby made part of this Agreement ("Exhibit A").
(e): The parties' respective obligations under Section 3(a) of this Agreement are subject to Separate Contracts; for the avoidance of doubt, a UCC Member shall remain responsible for the payment of any charges payable by such UCC Member under a Separate Contract.

(f)

DHRI is authorized to act as a UCC Member's delegate with respect to performance of any such UCC Member's rights or obligations under Separate Contracts; provided that, as a delegate of such UCC Member, DHRI will not provide or receive products without corresponding compensation (for example, in the form of payment, in-kind product, or a combination thereof) from or to, respectively, such UCC Member or its designee. DHRI is not liable for Claims (as defined in Section 8(E), below) made by third parties with respect to the acts or omissions of DHRI when acting as delegate for a UCC Member, except to the extent such Claims arise as a result of DHRI's gross negligence or willful misconduct.

(g)

UCC shall cause the UCC Subsidiaries to fully accept, abide by, and comply with, the terms and conditions of this Agreement.

(h)

Appointment as agent.

(1): UCC hereby makes, constitutes and appoints DHRI as its true and lawful attorney-in-fact and empowers DHRI to act for UCC as UCC's agent during the term of this Agreement in matters connected with the services (for example, arranging the supply or sale of products or utilities, including but not limited to arrangements between UCC and DHRI or UCC and DHRI Affiliates) and products supplied under this Agreement. Specifically, DHRI has the authority to issue and execute those business documents and contracts in the name of UCC which are necessarily issued in conjunction with the services and products being provided by DHRI to UCC under this Agreement. DHRI accepts such appointment and grant. To the extent applicable, UCC shall cause each UCC Subsidiary to make a similar appointment and grant, and DHRI hereby accepts such appointment and grant. DHRI is not liable for Claims (as defined in Section 8(E), below) made by third parties with respect to the acts or omissions of DHRI when acting as agent for a UCC Member, except to the extent such Claims arise as a result of DHRI's gross negligence or willful misconduct.
(2): (A) For DHRI to provide electricity-related services to UCC Members in an efficient manner, DHRI may from time to time enter energy related agreements in DHRI's name and/or in a UCC Member's name that affect, or otherwise relate to, such UCC Member's electricity matters ("Power Agreements").
: (B) UCC, for itself and on behalf of the UCC Subsidiaries, hereby authorizes and gives consent to DHRI to enter Power Agreements in DHRI's and/or a UCC Member's name. The Power Agreements provide for electricity-related matters applicable to one or more UCC Members which may include, without limitation, commitments regarding a QSE, REP, scheduling, pooling, ancillary services and marketing services.
: (C) UCC, for itself and on behalf of the UCC Subsidiaries, hereby (i) authorizes and consents to DHRI taking actions for a UCC Member with respect to Power Agreements regarding such UCC Member's electricity matters, (ii) agrees to comply with Power Agreements and with DHRI's requests related thereto, and (iii) acknowledges and agrees that DHRI is entering Power Agreements and providing, coordinating or arranging for electricity-related services under Power Agreements within the scope of the services contemplated under this Agreement.
: (D) UCC, for itself and on behalf of the UCC Subsidiaries, hereby acknowledges that any prior Power Agreements entered into by DHRI, and related actions by DHRI of the nature described in this Agreement that are applicable to a UCC Member's electricity matters, are fully ratified, authorized and accepted by UCC, the UCC Subsidiaries, and DHRI.
: (E) Notwithstanding the termination, expiration or cancellation of this Agreement, it is hereby agreed that, with respect to any UCC Group locations, (i) as long as any Power Agreement has not yet fully expired, been fully cancelled, or been otherwise fully terminated, the provisions of Section 3(h)(2)(C) above shall remain in full force and effect, and shall not expire, be cancelled or otherwise be terminated, and (ii) for the time period any Power Agreement extends beyond the termination, expiration or cancellation of this Agreement, UCC will reimburse, or cause the applicable UCC Member to reimburse, DHRI for any third party costs incurred by DHRI with respect to such Power Agreement and the products and services provided to UCC Group thereunder.

4. COMPENSATION and DELIVERY TERMS

(a)

As compensation for the products and services supplied by DHRI under this Agreement, UCC (subject to Section 4(e), below) shall pay Product Charges and a Service Commission, as follows:

(1)

Product Charges

(A)

For hydrocarbon feedstocks supplied by DHRI under this Agreement, UCC shall pay to DHRI the Net Supply Cost thereof.

(B)

For fuels supplied by DHRI under this Agreement, UCC shall pay to DHRI the Net Supply Cost thereof.

(C)

For monomers and aromatics supplied by DHRI under this Agreement, UCC shall pay to DHRI the Net Supply Cost thereof.

(D)

For electricity supplied by DHRI under this Agreement, UCC shall pay to DHRI the Net Supply Cost thereof.

(2)

Service Commission—For all of the services supplied under Section 3(a)(2) of this Agreement, UCC shall pay a commission to DHRI, which shall be calculated as follows:

(A): 0.65 cents per pound ($6.50 per thousand pounds) of ethylene and propylene consumed by UCC at the Major Sites; plus
(B): 3.0 cents per million BTUs of natural gas consumed by UCC at the Major Sites; plus
(C): $1.00 per megawatt hour of electricity procured for or sold for the Major Sites (including without limitation electricity supplied to a UCC Member by DHRI or purchased from a UCC Member by DHRI).

(b)

Delivery terms: (1) Product Charges include delivery of products supplied by DHRI to the applicable Delivery Point, and title to and risk of loss for product supplied by DHRI hereunder shall pass at the applicable Delivery Point. (2) The UCC Group shall not pay separate charges for pipeline transportation or storage in Texas- or Louisiana-based assets of DHRI or DHRI Affiliates.

(c)

Riverside. As part of the consideration for the products and services received hereunder, UCC hereby acknowledges that it has received full, complete and adequate compensation with respect to UCC's lease to a third party (pre-existing the Effective Date) of a certain ten-mile segment of six-inch pipeline (the so-called Riverside pipeline) in Assumption, Ascension and Iberville Parishes, Louisiana ("Riverside Lease"), and no further compensation from DHRI or DHRI Affiliates is due to UCC in connection with the Riverside Lease.

(d)

Renegotiation of Product Charges or Service Commission—Either UCC or DHRI may request a re-negotiation of Product Charges and/or the Service Commission upon thirty (30) days prior written notice, and the parties shall promptly negotiate in good faith to establish such new Product Charges and/or a new Service Commission.

(e)

Notwithstanding any other provision of this Agreement, DHRI shall accept payment from any UCC Subsidiary for some or all of any amount due to DHRI under this Agreement, but UCC shall remain fully responsible and liable for any unpaid amounts due to DHRI under this Agreement.

5. PRODUCT SPECIFICATIONS; LIMITED WARRANTY; ASSUMPTION OF RISK

DHRI warrants that all product purchased from DHRI by a UCC Member hereunder shall meet the specifications set forth in Exhibit A. THE FOREGOING IS DHRI'S SOLE WARRANTY REGARDING PRODUCTS AND SERVICES SUPPLIED UNDER THIS AGREEMENT, AND IS MADE EXPRESSLY IN LIEU OF AND EXCLUDES ANY AND ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, AND ALL OTHER EXPRESS OR IMPLIED WARRANTIES INCLUDING WITHOUT LIMITATION THOSE PROVIDED BY STATUTE OR COMMON LAW. DHRI MAKES NO OTHER WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE PRODUCTS OR SERVICES SUPPLIED HEREUNDER. EACH UCC MEMBER, WITH RESPECT TO ANY PRODUCT RECEIVED BY SUCH UCC MEMBER HEREUNDER, ASSUMES ALL RISK, RESPONSIBILITY AND LIABILITY RESULTING FROM THE USE OR APPLICATION OF SUCH PRODUCT, AND DHRI SHALL HAVE NO LIABILITY OR RESPONSIBILITY WHATSOEVER FOR THE USE OR APPLICATION OF ANY SUCH PRODUCT.

6. TERMS OF PAYMENT

(a): Estimated Monthly Invoice—At the beginning of each calendar month DHRI shall submit to UCC an estimated invoice, or set of estimated invoices, covering the products and services that it is anticipated DHRI will supply under this Agreement during such month (the "Estimated Invoice(s)"). The Estimated Invoice(s) shall be based on DHRI's projection of the volume of, and compensation payable for, products and services to be supplied by DHRI under this Agreement during such month. If fully and timely paid in accordance with the terms and provisions of Section 6(b), below, the amount payable on each Estimated Invoice shall be subject to a prepayment discount ("Discount") based upon a discount rate determined in accordance with Section 6(d), below (the "Discount Rate"), applied for a forty (40) day time period.
(b): Payment—UCC shall pay each Estimated Invoice within five (5) business days of its receipt by UCC.
(c): Invoice Adjustment—Promptly after the end of each calendar month, DHRI shall prepare a final statement (the "Final Statement") setting forth the difference between (x) the amount of each Estimated Invoice issued in respect of such month (without taking into account the available Discount or any credit or debit resulting from the application of the last sentence of this Section 6 (c)) and (y) the actual volume of and compensation for, determined in accordance with Section 4 of this Agreement, products and services supplied by DHRI under this Agreement during such month. If the Final Statement for any month evidences an overcharge by DHRI pursuant to an Estimated Invoice for such month, the amount of such difference shall be credited to UCC. If the Final Statement for any month evidences an undercharge by DHRI pursuant to an Estimated Invoice for such month, the amount of such difference shall be debited to UCC. Any such credit or debit shall either be invoiced separately or applied against, or included on, the next applicable Estimated Invoice(s) submitted by DHRI to UCC.
(d): Discount Rate—The Discount Rate applicable with respect to the full and timely payment of an Estimated Invoice shall be the London interbank rate ("LIBOR") plus two and one-half percent (2.5%) per annum. LIBOR shall be determined as the rate for deposits in U.S. Dollars for a period of one month which appears on the Telerate page 3750 as of 11.00 a.m., London time, on the date that is the last business day of the calendar month immediately preceding the month to which the Estimated Invoice applies.

7. MEASUREMENT

The determination of quantity and quality of product purchased by a UCC Member from DHRI hereunder shall be made in accordance with the customary procedures and practices of the industry.

8. CLAIMS, REMEDIES, LIMITATION OF DAMAGES and INDEMNIFICATION

(A)

IF ANY PRODUCT PURCHASED BY A UCC MEMBER FROM DHRI UNDER THIS AGREEMENT DOES NOT MEET APPLICABLE SPECIFICATIONS, DHRI SHALL HAVE THE RIGHT IN ITS DISCRETION, AS THE UCC MEMBER'S SOLE REMEDY, EITHER TO REPLACE IT OR REFUND THE PRODUCT CHARGE PAID TO DHRI FOR THE PRODUCT WHICH IS THE SUBJECT OF THE CLAIM.

(B)

HOWEVER, AND IN ANY EVENT, DHRI'S MAXIMUM LIABILITY FOR DAMAGES IN RESPECT OF ANY AND ALL CLAIMS WHATSOEVER ARISING HEREUNDER WITH RESPECT TO

(1)

PRODUCTS PURCHASED BY A UCC MEMBER FROM DHRI UNDER THIS AGREEMENT SHALL NOT EXCEED, IN THE AGGREGATE, THE PRODUCT CHARGE PAID TO DHRI FOR THE AMOUNT OF PRODUCT TO WHICH SUCH DAMAGES RELATE, AND

(2)

SERVICES SUPPLIED BY DHRI TO A UCC MEMBER UNDER THIS AGREEMENT SHALL NOT EXCEED, IN THE AGGREGATE, THE FOLLOWING AMOUNTS:

(a): WITH RESPECT TO ARRANGING THE SUPPLY OF FUELS, HYDROCARBON FEEDSTOCKS, MONOMERS, AROMATICS, ELECTRICITY, STEAM AND UTILITIES ("ARRANGED SUPPLY"), TWO PERCENT (2%) OF THE AMOUNT PAID BY THE UCC MEMBER FOR THE ARRANGED PURCHASES TO WHICH SUCH DAMAGES RELATE;
(b): WITH RESPECT TO ARRANGING THE SALE OF MONOMERS, AROMATICS, ELECTRICITY, STEAM AND UTILITIES ("ARRANGED SALES"), TWO PERCENT (2%) OF THE AMOUNT RECEIVED BY THE UCC MEMBER FOR THE ARRANGED SALES TO WHICH SUCH DAMAGES RELATE; AND
(c): FOR ALL OTHER SERVICES INVOLVED IN SUCH CLAIMS, ONE HUNDRED TWENTY-FIVE THOUSAND DOLLARS ($125,000.00) PER MONTH (A MINIMUM OF ONE MONTH) FOR EACH MONTH OF THE TERM FALLING WITHIN THE PERIOD TO WHICH SUCH DAMAGES RELATE.

(C)

NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, IN NO EVENT SHALL DHRI BE LIABLE FOR (1) PROSPECTIVE OR LOST PROFITS, (2) SPECIAL, INDIRECT, INCIDENTAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR (3) ANY CLAIM BASED ON PRODUCT QUALITY WITH RESPECT TO PRODUCT WHICH, FOLLOWING DELIVERY TO A UCC MEMBER, HAS BEEN MIXED WITH ANY OTHER MATERIAL OF ANY KIND (WHETHER OR NOT SUPPLIED IN CONNECTION WITH THIS AGREEMENT), OR HAS BEEN PROCESSED IN ANY MANNER.

(D)

WITHIN SIXTY (60) DAYS AFTER A UCC MEMBERS LEARNS, OR SHOULD REASONABLY HAVE LEARNED, OF ANY CLAIM WITH RESPECT TO THE PRODUCTS OR SERVICES SUPPLIED BY DHRI UNDER THIS AGREEMENT, UCC OR SUCH UCC MEMBER SHALL INFORM DHRI IN WRITING OF THE CLAIM OR THE CLAIM IS WAIVED.

(E)

(1) TO THE EXTENT PERMITTED BY APPLICABLE LAW, UCC ASSUMES THE ENTIRE RESPONSIBILITY AND LIABILITY FOR, AND SHALL PROTECT, DEFEND, INDEMNIFY, AND HOLD HARMLESS DHRI FROM AND AGAINST, ANY AND ALL CLAIMS WHICH ARE MADE, ASSERTED OR ALLEGED AGAINST DHRI BY ANY ONE OR MORE UCC MEMBERS OR ANY OTHER PERSON, OR WHICH ARISE IN FAVOR OF ANY ONE OR MORE UCC MEMBERS OR ANY OTHER PERSON, ORIGINATING FROM ANY SOURCE IN CONNECTION WITH (A) DHRI ACTING AS AN AGENT OR DELEGATE FOR ANY ONE OR MORE UCC MEMBERS, AND/OR (B) THE FAILURE OF A UCC SUBSIDIARY TO FULLY ACCEPT, ABIDE BY, OR COMPLY WITH, THE TERMS OF THIS AGREEMENT,

: AND/OR (c) ARRANGED PURCHASES AND/OR ARRANGED SALES, AND/OR (d) THE USE OR APPLICATION, by A UCC MEMBER OR ANY OTHER PERSON, OF ANY PRODUCT SUPPLIED UNDER THIS AGREEMENT.

IT IS DHRI AND UCC'S INTENT REGARDING SUCH CLAIMS THAT, SUBJECT TO SECTION 8(E)(2) BELOW, TO THE EXTENT PERMITTED BY APPLICABLE LAW, UCC SHALL PROTECT, DEFEND, INDEMNIFY AND HOLD HARMLESS DHRI AGAINST ALL OF THE CONSEQUENCES OF

(X): (I) THE NEGLIGENCE, FAULT, AND/OR STRICT LIABILITY OF DHRI OCCURRING JOINTLY, CONCURRENTLY, AND/OR COMPARATIVELY WITH THE NEGLIGENCE, FAULT, AND/OR STRICT LIABILITY OF A UCC MEMBER AND/OR ANY PERSON OTHER THAN DHRI, OTHER THAN THE SOLE NEGLIGENCE, IMPUTED SOLE NEGLIGENCE, SOLE FAULT AND/OR SOLE STRICT LIABILITY OF DHRI ADDRESSED IN SECTION 8(E)(2)(X)(II) BELOW; AND
(X): (II) THE SOLE NEGLIGENCE, IMPUTED SOLE NEGLIGENCE, SOLE FAULT, AND/OR SOLE STRICT LIABILITY OF DHRI, UNMIXED WITH NEGLIGENCE, GROSS NEGLIGENCE, FAULT, AND/OR STRICT LIABILITY OF A UCC MEMBER AND/OR ANY PERSON OTHER THAN DHRI; AND
(Y): THE NEGLIGENCE, GROSS NEGLIGENCE, FAULT, AND/OR STRICT LIABILITY OF A UCC MEMBER AND/OR ANY PERSON OTHER THAN DHRI, INCLUDING BUT NOT LIMITED TO JOINT, COMPARATIVE, AND/OR CONCURRENT NEGLIGENCE, FAULT, AND/OR STRICT LIABILITY OF SUCH UCC MEMBER AND/OR ANY PERSON OTHER THAN DHRI.

(2): NOTWITHSTANDING THE FOREGOING, (A) UCC'S OBLIGATIONS UNDER THE PROVISIONS OF SECTION 8(E)(1) SHALL NOT EXTEND TO ANY CLAIMS OF GROSS NEGLIGENCE, WILLFUL MISCONDUCT, OR BREACH OF THIS AGREEMENT WHICH ARE MADE, ASSERTED OR ALLEGED AGAINST DHRI BY ANY ONE OR MORE UCC MEMBERS, AND (B) UCC'S INDEMNITY AND HOLD HARMLESS OBLIGATIONS UNDER THE PROVISIONS OF SECTION 8(E)(1) SHALL NOT EXTEND TO ANY CLAIMS OF PERSONS OTHER THAN UCC MEMBERS WHICH ARISE AS A RESULT OF DHRI'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT (FOR THE AVOIDANCE OF DOUBT, UCC'S OBLIGATIONS TO PROTECT AND DEFEND SUCH CLAIMS ARE NOT EXCLUDED BY THIS SECTION 8(E)(2)(B)).
(3): DEFINITIONS—AS USED IN THIS SECTION 8(E):

(a) "BODILY INJURY" MEANS ANY BODILY INJURY OF ANY KIND OR CHARACTER, INCLUDING WITHOUT LIMITATION, ANY ONE OR MORE OF THE FOLLOWING, COLLECTIVELY AND INDIVIDUALLY: PHYSICAL PAIN AND SUFFERING, ILLNESS, SICKNESS, DISEASE, IMPAIRMENT OF PHYSICAL CONDITION OF THE BODY, OR DEATH, AS WELL AS ANY PERSONAL INJURY INCLUDING, BUT NOT LIMITED TO, ANY INVASION OF PERSONAL RIGHTS SUCH AS LIBEL OR SLANDER, CIVIL RIGHTS VIOLATION, INVASION OF PRIVACY, TORTIOUS INTERFERENCE WITH A CONTRACT, OR MENTAL SUFFERING OF ANY TYPE.

(b) "CLAIMS" MEANS ALL CLAIMS OF ANY KIND OR CHARACTER, INCLUDING WITHOUT LIMITATION, ANY ONE OR MORE OF THE FOLLOWING, COLLECTIVELY AND INDIVIDUALLY: LOSSES, COSTS (INCLUDING, BUT NOT LIMITED TO, ATTORNEYS' FEES, COURT COSTS, AND OTHER COSTS OF SUIT), DEMANDS, DAMAGES, JUDGMENTS, PENALTIES, LIABILITIES, DEBTS, EXPENSES, LAWSUITS AND CAUSES OF ACTION OF WHATEVER NATURE AND CHARACTER, WHETHER ARISING OUT OF OR RELATED TO CONTRACT (INCLUDING, WITHOUT LIMITATION, RELATED TO DELAYED DELIVERY, NON-DELIVERY, PRODUCT QUALITY OR DEFECTIVE PRODUCT), TORT, STRICT LIABILITY, BREACH OF WARRANTY, PRODUCTS LIABILITY, MISREPRESENTATION, VIOLATION OF APPLICABLE LAW, AND/OR ANY SOURCE OR CAUSE WHATSOEVER, WITHOUT LIMIT AND WITHOUT REGARD TO THE CAUSE OR CAUSES

THEREOF, INCLUDING, WITHOUT LIMITATION, CLAIMS ARISING OUT OF OR ALLEGED TO ARISE OUT OF BODILY INJURY OR LOSS OF PROPERTY.

(c) "PERSON" MEANS ANY NATURAL PERSON, OR ANY COMPANY, CORPORATION, GENERAL OR LIMITED PARTNERSHIP, LIMITED LIABILITY COMPANY, JOINT VENTURE, ORGANIZATION, ASSOCIATION, OR OTHER ENTERPRISE OR ENTITY.

9. FORCE MAJEURE

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

Upon cessation of the cause or causes for any such failure or delay, performance hereof shall be resumed as soon as practicable. Such failure or delay shall not operate to extend the duration of this Agreement nor obligate either DHRI or any UCC Member to make up deliveries or receipts of product. If, by reason of any such circumstances, DHRI's supply of product shall be insufficient to meet all of its requirements, DHRI shall apportion among any and all existing contract purchasers, including without limitation its Affiliates, in an equitable manner so that all parties share the product in proportion to their take prior to the circumstance reducing availability.

10. PATENTS

DHRI does not assume patent responsibility for the use by a UCC Member of product delivered hereunder. The use of product may or may not constitute an infringement of patents. A UCC Member receiving product hereunder assumes full responsibility and liability for patent infringement in connection with any use of such product by such UCC Member.

11. TAXES

In addition to the amounts to be paid under Section 4, above, (a) with respect to products purchased by a UCC Member from DHRI under this Agreement, such UCC Member shall also pay all taxes and duties, other than taxes measured by DHRI's net income, that are increased or levied, now or in the future, in connection with the manufacture, sale, use, consumption, storage, transportation or disposal of such products, and (b) with respect to services supplied by DHRI to a UCC Member under this Agreement, such UCC Member shall also pay all taxes and duties, other than taxes measured by DHRI's net income, that are increased or levied, now or in the future, in connection with the supply of such services

12. WAIVER

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

13. ASSIGNMENT

No right or obligation under, or interest in, this Agreement shall be assigned without prior written consent of both DHRI and UCC; provided, however, that DHRI may assign any part of its interest in, or any of its rights or obligations under, this Agreement to any DHRI Affiliate at any time without prior written consent from UCC.

14. APPLICABLE LAW

This Agreement shall be governed by the laws of the State of Texas, without regard to the conflict of laws principles thereof.

15. ENTIRETY OF AGREEMENT; SEVERABILITY

(a): This Agreement merges all prior understandings between DHRI and UCC regarding the subject matter of this Agreement. No prior dealings between the parties and no usage of trade shall be relevant to supplement or explain any term used herein. All obligations, agreements, and understanding are expressly set forth herein and are not enforceable unless embodied herein. As of the Effective Date, (1) the First Amended Agreement is hereby amended and restated, and neither UCC nor DHRI shall have any further rights, duties or obligations under the First Amended Agreement; provided, however, that as promptly as possible and by no later than August 31, 2005, the invoice adjustment process described in Section 6(c) of the First Amended Agreement shall be completed for the estimated invoices issued under the First Amended Agreement, such that any credit or debit determined by such process shall either be invoiced separately or shall be applied against, or included on, the next applicable Estimated Invoice(s) submitted by DHRI to UCC under this Agreement, and (2) the Electricity Agreement and Acknowledgement entered into by UCC and DHRI effective January 1, 2003 (the "EAA"), is hereby terminated, and neither UCC nor DHRI shall have any further rights, duties or obligations under the EAA.
(b): To the degree that a party finds it convenient to employ their standard forms of purchase order or acknowledgement of order in administering their terms of this Agreement, such party may do so but none of the terms and conditions printed or otherwise appearing on such form shall be applicable except to the extent that it specifies information required to be furnished hereunder.
(c): Should any indemnification provisions set forth in this Agreement be limited by any law then applicable to this Agreement, this Agreement shall automatically be deemed amended to provide indemnification under this Agreement to the maximum extent permitted by such applicable law. However, and in any event, if any provision of this Agreement is held invalid, the invalidity shall not affect other provisions or application of the Agreement which can be given effect without the invalid provision or application, and to this end the provisions of this Agreement are declared to be severable.

16. NOTICE

All notices, demands, requests and other communications provided for in this Agreement shall be given in writing, delivered in person (including without limitation via commercial courier) or via Certified or Registered U.S. Mail, with return receipt, and addressed to the party to be notified as follows:

		DHRI		UCC
		Dow Hydrocarbons and Resources Inc. Houston Dow Center 400 West Sam Houston Parkway South Houston, Texas 77042 Attn: Legal Department		Union Carbide Corporation 400 West Sam Houston Parkway South Houston, Texas 77042 Attn: President

or, in the case of either UCC or DHRI, to such other address as such party may hereafter specify by written notice to the other. All such notices, requests and communications shall be effective upon receipt.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the Effective Date.

UNION CARBIDE CORPORATION		DOW HYDROCARBONS AND RESOURCES INC.
By:	/s/ E. W. RICH	By:	/s/ R. W. JEWELL
Title:	Chief Financial Officer, Vice President, and Treasurer	Title:	Vice President
ACKNOWLEDGED and AGREED as to Section 3(b):
THE DOW CHEMICAL COMPANY
By:	/s/ CRAIG B. BARRY
Title:	Authorized Representative

EXHIBIT A

1. Representative Products. The following is representative list of the products to be supplied to the UCC Group in connection with this Agreement (i.e., some or all of the following products, as well as products not listed, will be supplied to the UCC Group under this Agreement):

B-P Mix		Hydrocarbon Residual
Benzene		Mixed Butanes
Butadiene		N-butane
Coal		Naphtha
Condensate		Natural Gas
Crude Butadiene		Propane
Cumene		Propylene
E-P Mix		Pyrolysis Gasoline
Ethane		Styrene
Ethylene		Toluene
Fuel Oil		Electricity
Steam		Utilities

2. Specifications. All products purchased by a UCC Member from DHRI under this Agreement shall meet the then-current DHRI product specification or such specifications as DHRI reasonably determines (e.g., in connection with any of the services or consultation provided by DHRI under this Agreement) will meet such UCC Member's product quality requirements.

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EXHIBIT 10.3

EXHIBIT A
EX-23 3 a2161506zex-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 appearing in this Quarterly Report on Form 10-Q of Union Carbide Corporation for the quarter ended June 30, 2005.

/s/ B. THOMAS FLORENCE

B. Thomas Florence
President
Analysis, Research & Planning Corporation
July 29, 2005

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EXHIBIT 23

EX-31.1 4 a2161506zex-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: August 2, 2005

/s/ JOHN R. DEARBORN

John R. Dearborn
President and Chief Executive Officer

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EXHIBIT 31.1

EX-31.2 5 a2161506zex-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.

3.

4.

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

5.

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

Date: August 2, 2005

/s/ EDWARD W. RICH

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

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EXHIBIT 31.2

EX-32.1 6 a2161506zex-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 June 30, 2005 as filed with the Securities and Exchange Commission (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
August 2, 2005

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EXHIBIT 32.1

EX-32.2 7 a2161506zex-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 June 30, 2005 as filed with the Securities and Exchange Commission (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
August 2, 2005

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EXHIBIT 32.2

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