Table of Contents


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   SEPTEMBER 30, 2011
 
Commission File Number: 1-1463
 
UNION CARBIDE CORPORATION
(Exact name of registrant as specified in its charter)

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

1254 Enclave Parkway, Houston, Texas  77077
(Address of principal executive offices)          (Zip Code)
 
Registrant's telephone number, including area code:  281-966-2727

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
                                                                                                                                                                                                                   R Yes     o No

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o Yes     R No

At September 30, 2011 , 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.

Table of Contents


Union Carbide Corporation
TABLE OF CONTENTS

 
PAGE
PART I - FINANCIAL INFORMATION
 
 
  3

  3

  4
 
  5
 
 
  7
 
  8
 
  18
 
  18
 
  18
 
 
  23
 
 
PART II - OTHER INFORMATION
 
 
  23
 
  23
 
  25
 
  26
 
  27


2
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PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements.

Union Carbide Corporation and Subsidiaries
Consolidated Statements of Income

 
Three Months Ended
 
Nine Months Ended
In millions     (Unaudited)
Sep 30,
2011

 
Sep 30,
2010

 
Sep 30,
2011

 
Sep 30,
2010

Net trade sales
$
43

 
$
40

 
$
140

 
$
131

Net sales to related companies
1,794

 
1,663

 
5,340

 
4,781

Total Net Sales
1,837

 
1,703

 
5,480

 
4,912

Cost of sales
1,807

 
1,453

 
5,052

 
4,518

Research and development expenses
12

 
10

 
38

 
33

Selling, general and administrative expenses
2

 
3

 
9

 
10

Restructuring charges
—

 
—

 
—

 
5

Equity in earnings of nonconsolidated affiliates
15

 
7

 
50

 
27

Sundry income (expense) - net
(19
)
 
6

 
(73
)
 
2

Interest income
7

 
12

 
28

 
43

Interest expense and amortization of debt discount
9

 
6

 
27

 
28

Income Before Income Taxes
10

 
256

 
359

 
390

Provision (Credit) for income taxes
(12
)
 
95

 
104

 
93

Net Income Attributable to Union Carbide Corporation
$
22

 
$
161

 
$
255

 
$
297

 
 
 
 
 
 
 
 
Depreciation
$
57

 
$
59

 
$
179

 
$
185

Capital Expenditures
$
29

 
$
38

 
$
96

 
$
81

See Notes to the Consolidated Financial Statements.


3
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Union Carbide Corporation and Subsidiaries
Consolidated Balance Sheets

In millions     (Unaudited)
Sep 30,
2011

 
Dec 31,
2010

Assets
Current Assets
 
 
 
Cash and cash equivalents
$
23

 
$
22

Accounts receivable:


 


Trade (net of allowance for doubtful receivables - 2011: $1; 2010: $1)
28

 
27

Related companies
408

 
403

Other
114

 
159

Notes receivable from related companies
3,753

 
4,335

Inventories
224

 
194

Other current assets and deferred income taxes
85

 
87

Total current assets
4,635

 
5,227

Investments
 

 
 

Investments in related companies
972

 
972

Investments in nonconsolidated affiliates
135

 
131

Other investments
11

 
10

Noncurrent receivables
45

 
46

Noncurrent receivables from related companies
126

 
125

Total investments
1,289

 
1,284

Property
 

 
 

Property
7,042

 
7,080

Less accumulated depreciation
5,695

 
5,640

Net property
1,347

 
1,440

Other Assets
 

 
 

Intangible assets (net of accumulated amortization 2011: $140; 2010: $140)
8

 
7

Deferred income tax assets - noncurrent
606

 
579

Asbestos-related insurance receivables - noncurrent
206

 
220

Deferred charges and other assets
52

 
67

Total other assets
872

 
873

Total Assets
$
8,143

 
$
8,824

Liabilities and Equity
Current Liabilities
 

 
 

Notes payable - related companies
$
14

 
$
3

Long-term debt due within one year
37

 
—

Accounts payable:


 


Trade
235

 
267

Related companies
485

 
527

Other
31

 
30

Income taxes payable
60

 
140

Asbestos-related liabilities - current
68

 
78

Accrued and other current liabilities
194

 
185

Total current liabilities
1,124

 
1,230

Long-Term Debt
470

 
571

Other Noncurrent Liabilities
 

 
 

Pension and other postretirement benefits - noncurrent
820

 
894

Asbestos-related liabilities - noncurrent
635

 
663

Other noncurrent obligations
189

 
188

Total other noncurrent liabilities
1,644

 
1,745

Stockholder's Equity
 

 
 

Common stock (authorized and issued: 1,000 shares of $0.01 par value each)
—

 
—

Additional paid-in capital
312

 
312

Retained earnings
5,570

 
5,990

Accumulated other comprehensive loss
(979
)
 
(1,026
)
Union Carbide Corporation's stockholder's equity
4,903

 
5,276

Noncontrolling interests
2

 
2

Total equity
4,905

 
5,278

Total Liabilities and Equity
$
8,143

 
$
8,824

See Notes to the Consolidated Financial Statements.

4
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Union Carbide Corporation and Subsidiaries
Consolidated Statements of Cash Flows

 
Nine Months Ended
In millions     (Unaudited)
Sep 30,
2011

 
Sep 30,
2010

Operating Activities
 
 
 
Net Income
$
255

 
$
297

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
202

 
205

Credit for deferred income tax
(48
)
 
(51
)
Earnings of nonconsolidated affiliates less than dividends received
1

 
—

Net gain on sales of property
(5
)
 
(2
)
Restructuring charges
—

 
5

Pension contributions
(47
)
 
(1
)
Net loss on early extinguishment of debt
6

 
—

Other gains, net
—

 
(1
)
Changes in assets and liabilities:
 
 
 
Accounts and notes receivable
(10
)
 
(10
)
Related company receivables
577

 
(239
)
Inventories
(30
)
 
(18
)
Accounts payable
(17
)
 
—

Related company payables
(30
)
 
112

Other assets and liabilities
(33
)
 
265

Cash provided by operating activities
821

 
562

Investing Activities
 

 
 

Capital expenditures
(96
)
 
(81
)
Change in noncurrent receivable from related company
(1
)
 
(25
)
Proceeds from sales of property
19

 
2

Purchases of investments
(11
)
 
(22
)
Proceeds from sales of investments
13

 
17

Cash used in investing activities
(76
)
 
(109
)
Financing Activities
 

 
 

Dividends paid to stockholder
(675
)
 
(450
)
Payments on long-term debt
(69
)
 
—

Cash used in financing activities
(744
)
 
(450
)
Summary
 

 
 

Increase in cash and cash equivalents
1

 
3

Cash and cash equivalents at beginning of year
22

 
22

Cash and cash equivalents at end of period
$
23

 
$
25

See Notes to the Consolidated Financial Statements.


5
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Union Carbide Corporation and Subsidiaries
Consolidated Statements of Equity

 
Nine Months Ended
In millions     (Unaudited)
Sep 30,
2011

 
Sep 30,
2010

Common Stock
 
 
 
Balance at beginning of year and end of period
$
—

 
$
—

Additional Paid-in Capital
 

 
 

Balance at beginning of year and end of period
312

 
312

Retained Earnings
 

 
 

Balance at beginning of year
5,990

 
6,131

Net income
255

 
297

Dividends declared
(675
)
 
(450
)
Balance at end of period
5,570

 
5,978

Accumulated Other Comprehensive Loss, Net of Tax
 

 
 

Cumulative Translation Adjustments at beginning of year
(55
)
 
(61
)
Translation Adjustments
3

 
5

Balance at end of period
(52
)
 
(56
)
Pension and Other Postretirement Benefit Plans at beginning of year
(971
)
 
(950
)
Adjustments to Pension and Other Postretirement Benefit Plans
44

 
31

Balance at end of period
(927
)
 
(919
)
Accumulated Investment Gain at beginning of year and end of period
—

 
1

Total accumulated other comprehensive loss
(979
)
 
(974
)
Union Carbide Corporation's Stockholder's Equity
4,903

 
5,316

Noncontrolling Interests
2

 
2

Total Equity
$
4,905

 
$
5,318

See Notes to the Consolidated Financial Statements.


6
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Union Carbide Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income

 
Three Months Ended
 
Nine Months Ended
In millions     (Unaudited)
Sep 30,
2011

 
Sep 30,
2010

 
Sep 30,
2011

 
Sep 30,
2010

Net Income Attributable to Union Carbide Corporation
$
22

 
$
161

 
$
255

 
$
297

Other Comprehensive Income, Net of Tax
 

 
 

 
 

 
 

Cumulative translation adjustments
1

 
3

 
3

 
5

Pension and other postretirement benefit plans adjustments
15

 
10

 
44

 
31

Total other comprehensive income
16

 
13

 
47

 
36

Comprehensive Income Attributable to Union Carbide Corporation
$
38

 
$
174

 
$
302

 
$
333

See Notes to the Consolidated Financial Statements.


7
Table of Contents
  Union Carbide Corporation and Subsidiaries
  Notes to the Consolidated Financial Statements
(Unaudited)

Table of Contents

 
Note
 
Page
 
A
 
B
 
C
 
D
 
E
 
F
 
G
 
H
 
I
 
J
 
K

NOTE A - CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

These statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2010 .

NOTE B - RECENT ACCOUNTING GUIDANCE

Recently Adopted Accounting Guidance
On January 1, 2011, the Corporation adopted Accounting Standard Update (“ASU”) 2009-13, “Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements – a consensus of the FASB Emerging Issues Task Force.” This ASU amended the criteria for when to evaluate individual delivered items in a multiple deliverable arrangement and how to allocate consideration received. The adoption of this guidance did not have a material impact on the Corporation’s consolidated financial statements.
Accounting Guidance Issued But Not Adopted as of September 30, 2011
In May 2011, the FASB issued ASU 2011-04, "Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS," which provides common requirements for measuring fair value and disclosing information about fair value measurements in accordance with U.S. GAAP and International Financial Reporting Standards ("IFRS"). This ASU is effective for fiscal years beginning on or after December 15, 2011. The Corporation is currently evaluating the impact of adopting the guidance.


8
Table of Contents
  Union Carbide Corporation and Subsidiaries
  Notes to the Consolidated Financial Statements
(Unaudited)

In June 2011, the FASB issued ASU 2011-05, "Comprehensive Income (Topic 220): Presentation of Comprehensive Income," which improves the comparability, consistency and transparency of financial reporting and increases the prominence of items reported in other comprehensive income. This ASU is effective for fiscal years beginning on or after December 15, 2011 and early adoption is permitted. The Corporation is currently evaluating the impact of adopting the guidance.

NOTE C - DIVESTITURE

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

Assets Divested
In millions
Sep 30,
2011

Inventories
$
2

Net property
12

Total assets divested
$
14


The Corporation recognized a pretax gain of $5 million on the sale in the third quarter of 2011, included in "Sundry income (expense) - net."

NOTE D - INVENTORIES

The following table provides a breakdown of inventories:

Inventories
In millions
Sep 30,
2011

 
Dec 31,
2010

Finished goods
$
80

 
$
60

Work in process
6

 
9

Raw materials
55

 
41

Supplies
83

 
84

Total inventories
$
224

 
$
194


The reserves reducing inventories from the first-in, first-out (“FIFO”) basis to the last-in, first-out (“LIFO”) basis amounted to $182 million at September 30, 2011 and $144 million at December 31, 2010 .

NOTE E - INTANGIBLE ASSETS

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

Intangible Assets
At September 30, 2011
 
At December 31, 2010
In millions
Gross
Carrying Amount

 
Accumulated Amortization

 
Net

 
Gross
Carrying Amount

 
Accumulated Amortization

 
Net

Intangible assets with finite lives:
 
 
 
 
 
 
 
 
 
 
 
Licenses and intellectual property
$
33

 
$
(33
)
 
$
—

 
$
33

 
$
(33
)
 
$
—

Patents
—

 
—

 
—

 
2

 
(2
)
 
—

Software
115

 
(107
)
 
8

 
112

 
(105
)
 
7

Total intangible assets
$
148

 
$
(140
)
 
$
8

 
$
147

 
$
(140
)
 
$
7



9
Table of Contents
  Union Carbide Corporation and Subsidiaries
  Notes to the Consolidated Financial Statements
(Unaudited)


Amortization expense for software, which is included in “Cost of sales,” was $1 million in the third quarter of 2011 and less than $1 million in the third quarter of 2010. Amortization expense for software was $3 million for the nine months ended September 30, 2011 and $3 million for the nine months ended September 30, 2010. Amortization expense for intangible assets (not including software) was immaterial in the third quarters of 2011 and 2010, as well as year-to-date for 2011 and 2010.

Total estimated amortization expense for 2011 and the five succeeding fiscal years is as follows:

Estimated Amortization Expense
In millions
2011
$
4

2012
$
2

2013
$
1

2014
$
1

2015
$
—

2016
$
—


NOTE F - FINANCIAL INSTRUMENTS

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

Investing Results
Nine Months Ended
In millions
Sep 30, 2011

 
Sep 30, 2010

Proceeds from sales of available-for-sale securities
$
5

 
$
8


Portfolio managers regularly review all of the Corporation’s holdings to determine if any investments are other-than-temporarily impaired. The analysis includes reviewing the amount of temporary impairment, as well as the length of time it has been impaired. In addition, specific guidelines for each instrument type are followed to determine if an other-than-temporary impairment has occurred. At September 30, 2011 and December 31, 2010 , there were no impairment indicators or circumstances that would result in a material adjustment of these investments.

The Corporation’s investments in debt securities had contractual maturities of less than 10 years at September 30, 2011 .

Fair Value of Financial Instruments:
 
At September 30, 2011
 
At December 31, 2010
In millions
Cost

 
Gain

 
Loss

 
Fair Value

 
Cost

 
Gain

 
Loss

 
Fair Value

Marketable securities (1) :
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt securities
$
7

 
$
—

 
$
—

 
$
7

 
$
5

 
$
—

 
$
—

 
$
5

Total marketable securities
$
7

 
$
—

 
$
—

 
$
7

 
$
5

 
$
—

 
$
—

 
$
5

Long-term debt including debt due within one year
$
(507
)
 
$
—

 
$
(106
)
 
$
(613
)
 
$
(571
)
 
$
—

 
$
(23
)
 
$
(594
)
(1)
Included in “Other investments” in the consolidated balance sheets.

Cost approximates fair value for all other financial instruments.

The Corporation enters into foreign exchange forward contracts to hedge various currency exposures, primarily related to assets and liabilities denominated in foreign currencies. The primary business objective of the activity is to optimize the U.S. dollar value of the Corporation’s assets and liabilities. Assets and liabilities denominated in the same foreign currency are netted, and only the net exposure is hedged. The Corporation had forward contracts to buy, sell or exchange foreign currencies that expired in the third quarter of 2011 and were immaterial. The Corporation did not designate any derivatives as hedges at September 30, 2011 or December 31, 2010 .


10
Table of Contents
  Union Carbide Corporation and Subsidiaries
  Notes to the Consolidated Financial Statements
(Unaudited)

NOTE G - FAIR VALUE MEASUREMENTS

The following table summarizes the basis used to measure certain assets at fair value on a recurring basis in the consolidated balance sheets:

Basis of Fair Value Measurements
on a Recurring Basis
 
Significant Other Observable Inputs
 (Level 2)

 
Significant Other Observable Inputs
 (Level 2)

 
In millions
Sep 30,
2011

 
Dec 31,
2010

Assets at fair value:
 
 
 
    Debt securities (1)
$
7

 
$
5

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

For assets and liabilities classified as Level 2 measurements, the fair value is based on the price a dealer would pay for the security or similar securities. Market inputs are obtained from well-established and recognized vendors of market data and subjected to tolerance/quality checks.

Assets that are measured using significant other observable inputs are primarily valued by reference to quoted prices of similar assets in active markets, adjusted for any terms specific to that asset. For all other assets for which observable inputs are used, fair value is derived through the use of fair value models, such as a discounted cash flow model or other standard pricing models.

NOTE H - COMMITMENTS AND CONTINGENT LIABILITIES

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

At September 30, 2011 , the Corporation had accrued obligations of $97 million for probable environmental remediation and restoration costs, including $19 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 approximately twice that amount. Consequently, it is reasonably possible that environmental remediation and restoration costs in excess of amounts accrued could have a material adverse impact on the Corporation’s results of operations, financial condition and cash flows. It is the opinion of the Corporation’s management, however that the possibility is remote that costs in excess of the range disclosed will have a material adverse impact on the Corporation’s results of operations, financial condition and cash flows. Inherent uncertainties exist in these estimates primarily due to unknown conditions, changing governmental regulations and legal standards regarding liability, and emerging remediation technologies for handling site remediation and restoration. At December 31, 2010 , the Corporation had accrued obligations of $95 million for probable environmental remediation and restoration costs, including $20 million for the remediation of Superfund sites.

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

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


11
Table of Contents
  Union Carbide Corporation and Subsidiaries
  Notes to the Consolidated Financial Statements
(Unaudited)

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.

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

In November 2009, the Corporation requested ARPC to review the Corporation’s 2009 asbestos claim and resolution activity and determine the appropriateness of updating its then most recent study completed in December 2008. In response to that request, ARPC reviewed and analyzed data through October 31, 2009. In December 2009, ARPC stated that an update of its study would not provide a more likely estimate of future events than the estimate reflected in its study of the previous year and, therefore, the estimate in that study remained applicable. Based on the Corporation’s own review of the asbestos claim and resolution activity and ARPC’s response, the Corporation determined that no change to the accrual was required. At December 31, 2009 , the Corporation’s asbestos-related liability for pending and future claims was $839 million .

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

In December 2010, based on ARPC’s December 2010 study and the Corporation’s own review of the asbestos claim and resolution activity, the Corporation decreased its asbestos-related liability for pending and future claims to $744 million , which covered the 15-year period ending 2025, excluding future defense and processing costs. The reduction was $54 million and was shown as “Asbestos-related credits” in the consolidated statements of income. At December 31, 2010 , the asbestos-related liability for pending and future claims was $728 million . At December 31, 2010 , approximately 21 percent of the recorded liability related to pending claims and approximately 79 percent related to future claims.

Based on the Corporation’s review of 2011 activity, it was determined that no adjustment to the accrual was required at September 30, 2011 . The Corporation’s asbestos-related liability for pending and future claims was $690 million at September 30, 2011 . Approximately 18 percent of the recorded liability related to pending claims and approximately 82 percent related to future claims.

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 by the Corporation after a thorough review of applicable insurance policies and the 1985 Wellington Agreement, to which the Corporation and many of its liability insurers are signatory parties, as well as other insurance settlements, with due consideration given to applicable deductibles, retentions and policy limits, and taking into account the solvency and historical payment experience of various insurance carriers. The Wellington Agreement and other agreements with insurers are designed to facilitate an orderly resolution and collection of the Corporation’s insurance policies and to resolve issues that the insurance carriers may raise.


12
Table of Contents
  Union Carbide Corporation and Subsidiaries
  Notes to the Consolidated Financial Statements
(Unaudited)

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

The Corporation’s receivable for insurance recoveries related to its asbestos liability was $50 million at September 30, 2011 and $50 million at December 31, 2010 . At September 30, 2011 and December 31, 2010 , all of the receivable for insurance recoveries was related to insurers that are not signatories to the Wellington Agreement and/or do not otherwise have agreements in place regarding their asbestos-related insurance coverage.

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

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

Receivables for Asbestos-Related Costs
In millions
Sep 30,
2011

 
Dec 31,
2010

Receivables for defense costs – carriers with settlement agreements
$
20

 
$
12

Receivables for resolution costs - carriers with settlement agreements
166

 
236

Receivables for insurance recoveries - carriers without settlement agreements
50

 
50

Total
$
236

 
$
298


The Corporation expenses defense costs as incurred. The pretax impact for defense and resolution costs, net of insurance, was $30 million for the third quarter of 2011 ( $22 million in the third quarter of 2010 ) and $58 million in the first nine months of 2011 ( $58 million in the first nine months of 2010 ) and was reflected in “Cost of sales.”

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

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

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

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  Union Carbide Corporation and Subsidiaries
  Notes to the Consolidated Financial Statements
(Unaudited)

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

Purchase Commitments
At December 31, 2010 , the Corporation had various outstanding commitments for take-or-pay agreements, with terms extending from one to fifteen years. Such commitments were not in excess of current market prices. The fixed and determinable portion of obligations under purchase commitments at December 31, 2010 is presented in the table below. There have been no material changes to purchase commitments since December 31, 2010 .

Fixed and Determinable Portion of Take-or-Pay Obligations
at December 31, 2010
In millions
2011
$
5

2012
6

2013
6

2014
6

2015
6

2016 and beyond
15

Total
$
44


Conditional Asset Retirement Obligations
The Corporation has recognized conditional asset retirement obligations related to asbestos encapsulation as a result of planned demolition and remediation activities at manufacturing and administrative sites in the United States. The aggregate carrying amount of conditional asset retirement obligations was $9 million at September 30, 2011 and $9 million at December 31, 2010 . The discount rate used to calculate the Corporation’s asset retirement obligations was 1.78 percent at September 30, 2011 and 1.78 percent at December 31, 2010 . These obligations are included in the consolidated balance sheets as “Other noncurrent obligations.”

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


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  Union Carbide Corporation and Subsidiaries
  Notes to the Consolidated Financial Statements
(Unaudited)

NOTE I - NOTES PAYABLE AND LONG-TERM DEBT

Notes Payable
In millions
Sep 30,
2011

 
Dec 31,
2010

Notes payable – related companies
$
14

 
$
3

Period-end average interest rates
1.35
%
 
1.35
%

  Long-Term Debt
 
 
 
 
 
 
 
  In millions
2011
Average
Rate

 
Sep 30,
2011

 
2010
Average
Rate

 
Dec 31,
2010

Promissory notes and debentures:
 
 
 
 
 
 
 
Debentures due 2023
7.875
%
 
$
175

 
7.875
%
 
$
175

Debentures due 2025
6.79
%
 
12

 
6.79
%
 
12

Debentures due 2025
7.50
%
 
150

 
7.50
%
 
150

Debentures due 2096
7.75
%
 
135

 
7.75
%
 
200

Other facilities:


 


 


 


Pollution control/industrial revenue bonds, maturity 2012
5.09
%
 
37

 
5.09
%
 
37

Unamortized debt discount
—

 
(2
)
 
—

 
(3
)
Long term debt due within one year
—

 
(37
)
 
—

 
—

Total long-term debt
—

 
$
470

 
—

 
$
571


Annual Installments on Long-Term Debt
For Next Five Years at September 30, 2011
In millions
2011
$
—

2012
$
37

2013
$
—

2014
$
—

2015
$
—

2016
$
—


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

The Corporation’s outstanding public debt has been issued under indentures which contain, among other provisions, covenants that the Corporation must comply with while the underlying notes are outstanding. Such covenants are typically based on the Corporation’s size and financial position and include, subject to the exceptions and qualifications contained in the indentures, obligations not to (i) allow liens on principal U.S. manufacturing facilities, (ii) enter into sale and lease-back transactions with respect to principal U.S. manufacturing facilities, or (iii) merge into or consolidate with any other entity or sell or convey all or substantially all of its assets. Failure of the Corporation to comply with any of these covenants could, after the passage of any applicable grace period, result in a default under the applicable indenture which would allow the note holders to accelerate the due date of the outstanding principal and accrued interest on the subject notes. At September 30, 2011 , management believes the Corporation was in compliance with all of the covenants referred to above.


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  Notes to the Consolidated Financial Statements
(Unaudited)

NOTE J - PENSION AND OTHER POSTRETIREMENT BENEFITS

Net Periodic Benefit Cost for All Significant Plans
Three Months Ended
 
Nine Months Ended
In millions
Sep 30,
2011

 
Sep 30,
2010

 
Sep 30,
2011

 
Sep 30,
2010

Defined Benefit Pension Plans:
 
 
 
 
 
 
 
Service cost
$
6

 
$
4

 
$
18

 
$
12

Interest cost
50

 
52

 
150

 
156

Expected return on plan assets
(64
)
 
(66
)
 
(190
)
 
(198
)
Amortization of prior service cost
2

 
2

 
6

 
6

Amortization of net loss
21

 
15

 
63

 
45

Net periodic benefit cost
$
15

 
$
7

 
$
47

 
$
21

 
Other Postretirement Benefits :


 


 


 


Interest cost
$
5

 
$
6

 
$
15

 
$
18

Net periodic benefit cost
$
5

 
$
6

 
$
15

 
$
18


NOTE K - RELATED PARTY TRANSACTIONS

The Corporation sells its products to Dow to simplify the customer interface process. Products are sold to and purchased from Dow at market-based prices in accordance with the terms of Dow’s long-standing intercompany pricing policies. The Corporation also procures certain commodities and raw materials through a Dow subsidiary and pays a commission to that Dow subsidiary based on the volume and type of commodities and raw materials purchased. The commission expense is included in “Sundry income (expense) – net” in the consolidated statements of income. Purchases from that Dow subsidiary were $963 million in the third quarter of 2011 ( $758 million in the third quarter of 2010 ) and $ 2,777 million during the nine -month period ended September 30, 2011 ( $2,366 million during the nine -month period ended September 30, 2010 ).

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

In the first quarter of 2011, the master services agreement was amended to change the basis of cost allocation for general administrative and overhead type services from conversion costs to headcount and to include a 10 percent service fee. The new allocation basis includes certain costs that were previously charged to UCC based on the activities’ cost, including employee costs, as well as direct and indirect costs. This arrangement resulted in expense of approximately $12 million in the third quarter of 2011 and $ 37 million for the first nine months of 2011, for general administrative and overhead type services and the 10 percent service fee, included in “Sundry income (expense) – net.” The remaining activity-based costs were approximately $9 million for the third quarter of 2011 and $ 26 million for the first nine months of 2011 and were included in “Cost of sales.”

Under the master services agreement in place for 2010, costs related to general administrative and overhead services were allocated to UCC based on the Corporation’s and Dow’s relative manufacturing conversion costs. This arrangement resulted in an average quarterly charge of approximately $5 million in the first nine months of 2010 , included in “Sundry income (expense) – net.”

Additionally, for services that Dow routinely charged based on effort, UCC was charged the cost of such services on a fully absorbed basis in 2010, which included direct and indirect costs. Certain Dow employees were contracted to UCC and Dow was reimbursed for all direct employment costs of such employees. These activity-based costs resulted in a quarterly charge of approximately $15 million in the third quarter of 2010 and $ 40 million for the first nine months of 2010, which were included in “Cost of sales.”

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.


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  Notes to the Consolidated Financial Statements
(Unaudited)

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

As part of Dow’s cash management process, UCC is a party to revolving loans with Dow that have interest rates based on LIBOR (London Interbank Offered Rate) with varying maturities. At September 30, 2011 , the Corporation had a note receivable of $3.7 billion ( $4.3 billion at December 31, 2010 ) from Dow under a revolving loan agreement. The Corporation may draw from this note receivable in support of its daily working capital requirements and, as such, the net effect of cash inflows and outflows under this revolving loan agreement is presented in the consolidated statements of cash flows as an operating activity.

The Corporation also has a separate revolving credit agreement with Dow that allows the Corporation to borrow or obtain credit enhancements up to an aggregate of $1 billion that matures December 31, 2012. Dow may demand repayment with a 30-day written notice to the Corporation, subject to certain restrictions. A related collateral agreement provides for the replacement of certain existing pledged assets, primarily equity interests in various subsidiaries and joint ventures, with cash collateral. At September 30, 2011 , $881 million ( $881 million at December 31, 2010 ) was available under the revolving credit agreement. The cash collateral is reported as “Noncurrent receivables from related companies” in the consolidated balance sheets.

In September 2011, the Corporation declared and paid a dividend of $275 million to Dow; dividends to Dow totaled $ 675 million for the nine months ended September 30, 2011. In September 2010, the Corporation declared and paid a dividend of $ 150 million to Dow; dividends to Dow totaled $ 450 million for the nine months ended September 30, 2010.

The Corporation received cash dividends from its related company investments of $2 million in the third quarter of 2011 and $3 million during the nine-month period ended September 30, 2011. The Corporation received cash dividends from its related company investments of $19 million in the third quarter of 2010 and $ 39 million during the nine -month period ended September 30, 2010 . These dividends are included in “Sundry income (expense) – net.”



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

Pursuant to General Instruction H of Form 10-Q “Omission of Information by Certain Wholly-Owned Subsidiaries,” this section includes only management's narrative analysis of the results of operations for the three- and nine-month periods ended September 30, 2011, the most recent periods, compared with the three- and nine-month periods ended September 30, 2010, the corresponding periods in the preceding fiscal year.

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

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

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

RESULTS OF OPERATIONS
Total net sales for the third quarter of 2011 were $1,837 million compared with $1,703 million for the third quarter of 2010, an increase of 8 percent. Total net sales were $5,480 million for the first nine months of 2011 compared with $4,912 million for the first nine months 2010, an increase of 12 percent.

Net sales to related companies, principally to Dow based on market prices for the related products, for the third quarter of 2011 were $1,794 million compared with $1,663 million for the third quarter of 2010, an increase of 8 percent. Net sales to related companies were $5,340 million for the first nine months of 2011 compared with $4,781 million for the first nine months of 2010, an increase of 12 percent. Average selling prices for all products increased in the third quarter of 2011 compared with the third quarter of 2010, in response to significantly higher feedstock and energy costs. Sales volume decreased significantly for most products in the third quarter of 2011 compared to the third quarter of 2010, reflecting the stalled economic recovery and the Corporation's strategic decision to reduce monoethylene glycol and diethylene glycol production. In the third quarter of 2011, a planned maintenance turnaround at the Corporation's St. Charles, Louisiana polyethylene manufacturing facility also contributed to the decline in volume.

For the first nine months of 2011, average selling prices for all products were higher compared with the first nine months of 2010 in response to higher feedstock and energy and other raw material costs, with vinyl acetate monomers and polypropylene products reporting the most significant price increases. Sales volume decreased for most products in the first nine months of 2011 compared with the first nine months of 2010, reflecting the stalled U.S. economy and significant decrease in demand in the third quarter, planned maintenance turnarounds, and the strategic reduction in the manufacture of certain products.

Cost of sales increased 24 percent from $1,453 million in the third quarter of 2010 to $1,807 million in the third quarter of 2011, principally due to higher feedstock and energy and other raw material costs, increased turnaround costs and an overall unfavorable shift in product mix. On a year-to-date basis, cost of sales increased 12 percent from $4,518 million in the first nine months of 2010 to $5,052 million in the first nine months of 2011, principally due to higher feedstock and energy and other raw material costs, and increased turnaround costs.


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Research and development expenses were $12 million in the third quarter of 2011 compared with $10 million in the third quarter of 2010, an increase of 20 percent. Research and development expenses were $38 million in the first nine months of 2011 compared with $33 million in the first nine months of 2010, an increase of 15 percent. These increases were due to increased costs related to a strategic realignment of research and development resources.

On July 31, 2009, Dow entered into a definitive agreement that included the sale of certain specialty latex assets of the Corporation, located in the United States, Canada, Puerto Rico and Mexico, as required by the Federal Trade Commission for the approval of Dow’s acquisition of Rohm and Haas Company. The divestiture of these assets was completed on January 25, 2010. In the first quarter of 2010, the impact of this sale on the Corporation’s consolidated financial statements was a loss of $5 million related to additional impairments of these assets, which was shown as “Restructuring charges” in the consolidated statements of income.

Equity in earnings of nonconsolidated affiliates was $15 million in the third quarter of 2011 compared with $7 million in the third quarter of 2010. In the first nine months of 2011, equity in earnings of nonconsolidated affiliates was $50 million compared with $27 million for the first nine months of 2010. These increases were driven by improved earnings at Univation Technologies, LLC.
  
Sundry income (expense) – net includes a variety of income and expense items such as the gain or loss on foreign currency exchange, dividends from investments, commissions, charges for management services provided by Dow and gains and losses on sales of investments and assets. Sundry income (expense) – net for the third quarter of 2011 was expense of $19 million compared with income of $6 million for the third quarter of 2010.  For the first nine months of 2011, Sundry income (expense) - net was expense of $73 million compared with income of $2 million in the first nine months of 2010. The increase in expense was primarily due to the impact of a change in cost allocation in a new master services agreement with Dow and a loss of $6 million related to the early extinguishment of debt in the first quarter of 2011. The master services agreement was amended to change the basis of cost allocation for general administrative and overhead type services from conversion costs to headcount and to include a 10 percent service fee. See Notes I and K to the Consolidated Financial Statements for additional information.

On July 27, 2011, Dow entered into a definitive agreement to sell Dow's global Polypropylene business to Braskem SA. The definitive agreement specified the assets and liabilities included in the sale which included the following Corporation assets: polypropylene manufacturing facility at Seadrift, Texas; railcars; inventory; business know-how; and certain product and process technology. The Corporation recognized a pretax gain of $5 million on the sale in the third quarter of 2011, included in "Sundry income (expense) - net." The Corporation's Polypropylene Licensing and Catalyst business and related catalyst facilities were excluded from the scope of the transaction. See Note C to the Consolidated Financial Statements for additional information.

Interest income was $7 million in the third quarter of 2011 compared with $12 million in the third quarter of 2010 and $28 million for the first nine months of 2011 compared with $43 million for the first nine months of 2010. These decreases were primarily due to lower interest rates in the current quarter and the first nine months of 2011.

Interest expense and amortization of debt discount was $9 million in the third quarter of 2011 compared with $6 million in the third quarter of 2010. For the nine months ended September 30, 2011, interest expense and amortization of debt discount was $27 million compared with $28 million in the first nine months of 2010. This decrease was primarily due to a reduction in long-term debt, which resulted from the early extinguishment of debt in the first quarter of 2011. See Note I to the Consolidated Financial Statements for additional information.

The Corporation reported a tax benefit of $12 million in the third quarter of 2011 due primarily to a carryover period extension of state investment tax credits. This compared with a tax provision of $95 million in the third quarter of 2010, which resulted in an effective tax rate of 37.1 percent. For the first nine months of 2011, the Corporation reported a tax provision of $104 million, which resulted in an effective tax rate of 29.0 percent. This compared with a tax provision of $93 million in the first nine months of 2010, which resulted in a lower effective tax rate of 23.8 percent primarily due to the reduction of a state tax liability during the first quarter of 2010. The effective tax rate fluctuates based on, among other factors, where income is earned, the level of after-tax income from joint ventures, dividends received from investments in related companies and the level of income relative to tax credits available.


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The Corporation reported net income of $22 million for the third quarter of 2011 compared with $161 million for the third quarter of 2010, and net income of $255 million for the first nine months of 2011 compared with $297 million for the first nine months of 2010. Net income for the three- and nine-month periods ending September 30, 2011 reflected margin compression caused by a significant increase in feedstock and energy and other raw material costs combined with a softening of demand amidst the stall in the economic recovery and an increase in supply, as off-line industry capacity returned to operations. An unfavorable product mix further reduced net income.


OTHER MATTERS

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

Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Note A to the Consolidated Financial Statements in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2010 (“2010 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 2010 10-K. Since December 31, 2010, there have been no material changes in the Corporation’s critical accounting policies.

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

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

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

 
2011

 
2010

Claims unresolved at January 1
62,582

 
75,030

Claims filed
6,050

 
5,525

Claims settled, dismissed or otherwise resolved
(14,321
)
 
(17,083
)
Claims unresolved at September 30
54,311

 
63,472

Claimants with claims against both UCC and Amchem
16,761

 
19,844

Individual claimants at September 30
37,550

 
43,628


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

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

In November 2009, the Corporation requested ARPC to review the Corporation’s 2009 asbestos claim and resolution activity and determine the appropriateness of updating its then most recent study completed in December 2008. In response to that request, ARPC reviewed and analyzed data through October 31, 2009. In December 2009, ARPC stated that an update of its study would not provide a more likely estimate of future events than the estimate reflected in its study of the previous year and, therefore, the estimate in that study remained applicable. Based on the Corporation’s own review of the asbestos claim and resolution activity and ARPC’s response, the Corporation determined that no change to the accrual was required. At December 31, 2009, the Corporation’s asbestos-related liability for pending and future claims was $839 million.

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

In December 2010, based on ARPC’s December 2010 study and the Corporation’s own review of the asbestos claim and resolution activity, the Corporation decreased its asbestos-related liability for pending and future claims to $744 million, which covered the 15-year period ending 2025, excluding future defense and processing costs. The reduction was $54 million and was shown as “Asbestos-related credits” in the consolidated statements of income. At December 31, 2010, the asbestos-related liability for pending and future claims was $728 million. At December 31, 2010, approximately 21 percent of the recorded liability related to pending claims and approximately 79 percent related to future claims.

Based on the Corporation’s review of 2011 activity, it was determined that no adjustment to the accrual was required at September 30, 2011 . The Corporation’s asbestos-related liability for pending and future claims was $690 million at September 30, 2011 . Approximately 18 percent of the recorded liability related to pending claims and approximately 82 percent related to future claims.

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

Defense and Resolution Costs
Nine Months Ended
 
Aggregate Costs to

In millions
Sep 30,
2011

 
Sep 30,
2010

 
Date as of
Sep 30, 2011

Defense costs
$
58

 
$
58

 
$
832

Resolution costs
$
38

 
$
40

 
$
1,561


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

The Corporation expenses defense costs as incurred. The pretax impact for defense and resolution costs, net of insurance, was $30 million in the third quarter of 2011 ( $22 million in the third quarter of 2010), and $58 million in the first nine months of 2011 ( $58 million in the first nine months of 2010) and was reflected in “Cost of sales” in the consolidated statements of income.

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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 by the Corporation after a thorough review of applicable insurance policies and the 1985 Wellington Agreement, to which the Corporation and many of its liability insurers are signatory parties, as well as other insurance settlements, with due consideration given to applicable deductibles, retentions and policy limits, and taking into account the solvency and historical payment experience of various insurance carriers. The Wellington Agreement and other agreements with insurers are designed to facilitate an orderly resolution and collection of the Corporation’s insurance policies and to resolve issues that the insurance carriers may raise.

In September 2003, the Corporation filed a comprehensive insurance coverage case, now proceeding in the Supreme Court of the State of New York, County of New York, seeking to confirm its rights to insurance for various asbestos claims and to facilitate an orderly and timely collection of insurance proceeds (the “Insurance Litigation”). The Insurance Litigation was filed against insurers that are not signatories to the Wellington Agreement and/or do not otherwise have agreements in place with the Corporation regarding their asbestos-related insurance coverage, in order to facilitate an orderly resolution and collection of such insurance policies and to resolve issues that the insurance carriers may raise. Since the filing of the case, UCC has reached settlements with several of the carriers involved in the Insurance Litigation, including settlements reached with two significant carriers in the fourth quarter of 2009. The Insurance Litigation is ongoing.
 
The Corporation’s receivable for insurance recoveries related to its asbestos liability was $50 million at September 30, 2011 and $50 million at December 31, 2010. At September 30, 2011 and December 31, 2010, all of the receivable for insurance recoveries was related to insurers that are not signatories to the Wellington Agreement and/or do not otherwise have agreements in place regarding their asbestos-related insurance coverage.
 
In addition to the receivable for insurance recoveries related to the asbestos-related liability, the Corporation had receivables for defense and resolution costs submitted to insurance carriers that have settlement agreements in place regarding their asbestos-related insurance coverage.

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

Receivables for Asbestos-Related Costs
In millions
Sep 30,
2011

 
Dec 31,
2010

Receivables for defense costs - carriers with settlement agreements
$
20

 
$
12

Receivables for resolution costs - carriers with settlement agreements
166

 
236

Receivable for insurance recoveries - carriers without settlement agreements
50

 
50

Total
$
236

 
$
298


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

Summary
The amounts recorded for the asbestos-related liability and related insurance receivable described above were based upon current, known facts. However, future events, such as the number of new claims to be filed and/or received each year, the average cost of disposing of each such claim, coverage issues among insurers, and the continuing solvency of various insurance companies, as well as the numerous uncertainties surrounding asbestos litigation in the United States, could cause the actual costs and insurance recoveries to be higher or lower than those projected or those recorded.
 
Because of the uncertainties described above, management cannot estimate the full range of the cost of resolving pending and future asbestos-related claims facing the Corporation and Amchem. Management believes that it is reasonably possible that the cost of disposing of the Corporation’s asbestos-related claims, including future defense costs, could have a material adverse impact on the Corporation’s results of operations and cash flows for a particular period and on the consolidated financial position of the Corporation.

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Union Carbide Corporation and Subsidiaries


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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


ITEM 4.  CONTROLS AND PROCEDURES.

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

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

PART II – OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

No material developments in asbestos-related matters occurred during the third quarter of 2011. For a summary of the history and current status of asbestos-related matters, see Management’s Discussion and Analysis of Financial Condition and Results of Operations, Asbestos-Related Matters; and Note H to the Consolidated Financial Statements.

ITEM 1A.  RISK FACTORS.

The factors described below represent the Corporation's principal risks.

Global Economic Conditions: The Corporation operates in a global, competitive environment, which gives rise to operating and market risk.
The Corporation sells substantially all of its products to Dow, which operates in a competitive, global environment, and competes worldwide for sales. Increased levels of competition could result in lower prices or lower sales volumes, which could have a negative impact on the Corporation's operations.

Economic conditions around the world and in certain industries in which the Corporation does business also impact sales price and volume. As a result, an economic downturn in the geographic areas or industries in which UCC sells its products could reduce demand for these products and result in decreased sales volume, which could have a negative impact on UCC's results of operations.

In addition, the economic environment impacts the fair value of pension assets, which could trigger increased future funding requirements of the pension trust.

Raw Materials: Volatility in purchased feedstock and energy costs impacts the Corporation's operating costs and adds variability to earnings.
Purchased feedstock and energy costs account for a substantial portion of the Corporation's total production costs and operating expenses. When these costs increase the Corporation is not always able to immediately raise selling prices; and ultimately, the ability to pass on underlying cost increases is greatly dependent on market conditions. Conversely, when these costs decline, selling prices decline as well. As a result, volatility in these costs could negatively impact the Corporation's results of operations.


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Union Carbide Corporation and Subsidiaries

Supply/Demand Balance: Earnings generated by the Corporation vary based in part on the balance of supply relative to demand within the industry.
The balance of supply relative to demand within the industry may be significantly impacted by the addition of new capacity, especially for basic commodities where capacity is generally added in large increments as world-scale facilities are built. This may disrupt industry balances and result in downward pressure on prices due to the increase in supply, which could negatively impact the Corporation's results of operations.

Financial Flexibility: Market conditions could reduce Dow's financial flexibility, which could impact the financial flexibility of the Corporation.
Dow's interest and dividend payments could increase Dow's vulnerability to adverse economic conditions and reduce Dow's flexibility to respond to changing business and economic conditions. In addition, the economic environment could result in a contraction in the availability of credit in the marketplace and reduce sources of liquidity for Dow. Since Dow is a service provider, material debtor, and the major customer of the Corporation, reduced financial flexibility for Dow could potentially impact the financial flexibility of the Corporation.

Environmental Compliance: Actual or alleged violations of environmental laws or permit requirements could result in restrictions or prohibitions on plant operations, substantial civil or criminal sanctions, as well as the assessment of strict liability and/or joint and several liability.
The Corporation is subject to extensive federal, state, local and foreign laws, regulations, rules and ordinances relating to pollution, protection of the environment and the generation, storage, handling, transportation, treatment, disposal and remediation of hazardous substances and waste materials. At September 30, 2011, the Corporation had accrued obligations of $97 million ($95 million at December 31, 2010) for probable environmental remediation and restoration costs, including $19 million ($20 million at December 31, 2010) 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 approximately twice that amount. Costs and capital expenditures relating to environmental, health or safety matters are subject to evolving regulatory requirements and will depend on the timing of the promulgation and enforcement of specific standards which impose the requirements. Moreover, changes in environmental regulations could inhibit or interrupt the Corporation's operations, or require modifications to its facilities. Accordingly, environmental, health or safety regulatory matters could result in significant unanticipated costs or liabilities.

Litigation: The Company is party to a number of claims and lawsuits arising out of the normal course of business with respect to commercial matters, including product liability, governmental regulation and other actions.
The Corporation is involved in a number of legal proceedings and claims with both private and governmental parties. These cover a wide range of matters, including, but not limited to: product liability; trade regulation; governmental regulatory proceedings; health, safety and environmental matters; employment; patents; contracts; taxes; and commercial disputes. With the exception of the possible effect of the asbestos‑related liability described below, it is the opinion of the Corporation's management that the possibility is remote that the aggregate of all such claims and lawsuits will have a material adverse impact on the Corporation's consolidated financial statements.

The Corporation is and has been involved in a large number of asbestos‑related suits filed primarily in state courts during the past three decades. At September 30, 2011, the Corporation's asbestos‑related liability for pending and future claims was $690 million ($728 million at December 31, 2010) and the Corporation's receivable for insurance recoveries related to its asbestos liability was $50 million ($50 million at December 31, 2010). At September 30, 2011, the Corporation also had receivables of $186 million ($248 million at December 31, 2010) for insurance recoveries for defense and resolution costs.
 
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 Corporation's consolidated financial statements.


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Union Carbide Corporation and Subsidiaries

Chemical Safety: Increased concerns regarding the safety of chemicals in commerce and their potential impact on the environment have resulted in more restrictive regulations from local, state and federal governments and could lead to new regulations.
Concerns regarding the safe use of chemicals in commerce and their potential impact on health and the environment reflect a growing trend in societal demands for increasing levels of product safety and environmental protection. These concerns could manifest themselves in stockholder proposals, preferred purchasing and continued pressure for more stringent regulatory intervention. These concerns could also influence public perceptions, the viability of the Corporation's products, the Corporation's reputation and the cost to comply with regulations. In addition, terrorist attacks and natural disasters have increased concerns about the security and safety of chemical production and distribution. These concerns could have a negative impact on the Corporation's results of operations.

Operational Event: A significant operational event could negatively impact the Corporation's results of operations.
As a diversified chemical manufacturing company, the Corporation's operations, the transportation of products or severe weather conditions and other natural phenomena (such as drought, hurricanes, earthquakes, tsunamis, floods, etc.) could result in an unplanned event that could be significant in scale and could negatively impact operations, neighbors or the public at large, which could have a negative impact on the Corporation's results of operations.

In the past, major hurricanes have caused significant disruption in UCC's operations on the U.S. Gulf Coast, logistics across the region, and the supply of certain raw materials, which had an adverse impact on volume and cost for some of UCC's products. Due to the Corporation's substantial presence on the U.S. Gulf Coast, similar severe weather conditions or other natural phenomena in the future could negatively affect UCC's results of operations.

Implementation of ERP system: Dow's implementation of an enterprise resource planning (“ERP”) system may adversely affect the Corporation's business and results of operations or the effectiveness of internal control over financial reporting.
During the first quarter of 2011, Dow began implementing a new ERP system that will deliver a new generation of information systems and work processes. Through the master services agreement, Dow provides accounting, treasury and procurement services to the Corporation. ERP implementations are complex and very time-consuming projects that involve substantial expenditures on system software and implementation activities that take several years. If Dow does not effectively implement the ERP system or if the system does not operate as intended, it could adversely affect financial reporting systems, the Corporation's ability to produce financial reports, and/or the effectiveness of internal control over financial reporting.

ITEM 6.  EXHIBITS.

See the Exhibit Index on page 27 of this Quarterly Report on Form 10-Q for exhibits filed with this report.


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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: November 1, 2011
 
 
 
By:
/s/ RONALD C. EDMONDS
 
 
Ronald C. Edmonds
 
 
Vice President and Controller
 
 
The Dow Chemical Company
 
 
Authorized Representative of
 
 
Union Carbide Corporation
 
 
 
 
 
 
 
By:
/s/ EUDIO GIL
 
 
Eudio Gil
 
 
Vice President, Treasurer and
 
 
Chief Financial Officer


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Table of Contents


  Union Carbide Corporation and Subsidiaries
Exhibit Index
 
 
EXHIBIT NO.
 
DESCRIPTION
 
 
 
10.5.9
 
Ninth Amendment to the Amended and Restated Revolving Credit Agreement, effective as of September 30, 2011, among the Corporation, The Dow Chemical Company and certain Subsidiary Guarantors.
 
 
 
10.7.5
 
Fifth Amendment to Second Amended and Restated Revolving Loan Agreement, effective as of August 1, 2011, between the Corporation and The Dow Chemical Company.
 
 
 
23
 
Analysis, Research & Planning Corporation’s Consent.
 
 
 
31.1
 
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
31.2
 
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
32.1
 
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
32.2
 
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
101.INS
 
XBRL Instance Document (1)
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema Document (1)
 
 
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document (1)
 
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document (1)
 
 
 
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document (1)
 
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document (1)

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

27


  EXHIBIT 10.5.9
Union Carbide Corporation and Subsidiaries
 
        
NINTH AMENDMENT TO THE
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT


This Ninth Amendment to the Amended and Restated Revolving Credit Agreement (this “Amendment”) is made effective as of September 30, 2011 and is entered into among Union Carbide Corporation, as Borrower (“Borrower”), The Dow Chemical Company, as Lender (“Lender”) and Union Carbide Subsidiary C, Inc. (formerly known as K-Dow Petro-Chemicals UC Sub C, Inc.) and Union Carbide Chemicals & Plastics Technology LLC as the Subsidiary Guarantors (the “ Subsidiary Guarantors ”) (together, the “ Parties ”).

BACKGROUND

The Parties have entered into the Amended and Restated Revolving Credit Agreement dated as of May 28, 2004, as amended by the First Amendment to the Amended and Restated Revolving Credit Agreement dated October 29, 2004, the Second Amendment to the Amended and Restated Revolving Credit Agreement dated December 30, 2004, the Third Amendment to the Amended and Restated Revolving Credit Agreement dated September 30, 2005, the Fourth Amendment to the Amended and Restated Revolving Credit Agreement dated September 30, 2006, the Fifth Amendment to the Amended and Restated Revolving Credit Agreement dated September 30, 2007, the Sixth Amendment to the Amended and Restated Revolving Credit Agreement dated September 30, 2008, the Seventh Amendment to the Amended and Restated Revolving Credit Agreement dated September 30, 2009, and the Eighth Amendment to the Amended and Restated Revolving Credit Agreement dated September 30, 2010 (the “Credit Agreement”).

The Parties desire to amend the Credit Agreement according to the terms in this Amendment. Any capitalized terms used in this Amendment, but not otherwise defined in this Amendment, are as defined in the Credit Agreement.

THE AGREEMENT

1.
Amendment to Section 1.1. The Parties agree to amend Section 1.1 of the Credit Agreement by Replacing the definition of “Scheduled Termination Date” with the following definition:
 
 
 
“ Scheduled Termination Date ” means December 30, 2012.
 
 
2.
No Other Amendment or Waiver . Except as expressly amended by this Amendment, the Credit Agreement and all other Loan Documents remain in full force and effect in accordance with their terms, and the Parties ratify and confirm the Credit Agreement and all other Loan Documents in all respects.
 
 
3.
Execution in Counterparts . This amendment may be executed in any number of counterparts and and by different parties in separate counterparts, each of which when so executed will be deemed to be an original and all of which taken together will constitute one and the same agreement.     Signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are attached to the same document.
 
 
4.
Governing Law . This Amendment and the rights and obligation of the Parties to this Amendment will be governed by, and construed and interpreted in accordance with, the law of the State of New York.
 
 
5.
Subsidiary Guarantors . The Guarantors to this Agreement will only be bound by their guarantees if they remain a wholly owned subsidiary of the Borrower.


The Parties agree that this Amendment is effective as of September 30, 2011, and they have caused their authorized representatives to execute this Amendment below.





  EXHIBIT 10.5.9
Union Carbide Corporation and Subsidiaries
 
        
LENDER:
 
SUBSIDIARY GUARANTORS:
 
 
 
 
 
THE DOW CHEMICAL COMPANY:
 
UNION CARBIDE SUBSIDIARY C, INC.
 
 
 
 
 
 
 
 
 
 
By:
/s/ FERNANDO RUIZ
 
By:
/s/ PAULA RUHR
Name:
Fernando Ruiz
 
Name:
Paula Ruhr
Title:
Corporate Vice President and Treasurer
 
Title:
Secretary
 
 
 
 
 
 
 
 
 
 
BORROWER:
 
 
 
 
 
 
 
 
UNION CARBIDE CORPORATION
 
UNION CARBIDE CHEMICALS & PLASTICS TECHNOLOGY LLC
 
 
 
 
 
 
 
 
 
 
By:
/s/ EUDIO GIL
 
By:
/s/ MARK A. WHITEMAN
Name:
Eudio Gil
 
Name:
Mark A. Whiteman
Title:
Chief Financial Officer, Vice President and Treasurer
 
Title:
Vice President









  EXHIBIT 10.7.5
Union Carbide Corporation and Subsidiaries
 

Fifth Amendment to Second Amended and Restated Revolving Loan Agreement

This Fifth Amendment to the Second Amended and Restated Revolving Loan Agreement (the “ Amendment ”), dated as of August 1, 2011, is entered into by and between Union Carbide Corporation, a New York corporation (the “ Lender ”) and The Dow Chemical Company, a Delaware corporation (the “ Borrower ”).

WHEREAS, the Lender and the Borrower are parties to the Second Amended and Restated Revolving Loan Agreement dated as of November 1, 2005, amended by the First Amendment effective December 31, 2007, amended by the Second Amendment effective August 1, 2009, amended by the Third Amendment effective February 1, 2010, and amended by the Fourth Amendment effective August 1, 2010 (the “Loan Agreement”);

WHEREAS, the Lender and the Borrower wish to change a component of the Interest Rate, as defined in the Loan Agreement and as contemplated herein;

NOW, THEREFORE, in view of the following terms and conditions and for other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:

1.    Section 1.14 definition of “TDCC Reference Rate” in the Loan Agreement is deleted in its entirety and replaced with the following Section 1.14 definition of “TDCC Reference Rate”:

“TDCC Reference Rate” means the interest rate established for intercompany financing transactions by the Borrower's Corporate Treasury Department. This rate is set to LIBOR plus 40 base points as of the effective date of this Amendment, any future changes to this rate will be effective if agreed between the Lender and the Borrower in writing.

2.     No Other Amendment or Waiver . Except as expressly amended by this Amendment, the Loan Agreement remains in full force and effect in accordance with its terms.

3.     Execution in Counterparts . This Amendment may be executed in any number of counterparts, each of which when so executed will be deemed to be an original and all of which taken together will constitute one and the same agreement. Signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are attached to the same document.

4.     Governing Law . This Amendment and the rights and obligations of the parties to this Amendment will be governed by and construed and interpreted in accordance with the laws of the State of New York.

5.     Ratification . Lender and Borrower agree that this Amendment is effective as of August 1, 2011, and each party ratifies all action taken up to and in accordance with this Amendment.

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

THE DOW CHEMICAL COMPANY
 
UNION CARBIDE CORPORATION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
By:
 /s/ ANDREAS UNTERSTE
 
By:
 /s/ EUDIO GIL
Name:
Andreas Unterste
 
Name:
Eudio Gil
Title:
Director of Financial Operations Compliance and Technology
 
Title:
Chief Financial Officer Vice President and Treasurer






  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 September 30, 2011.





/s/ B. THOMAS FLORENCE
 
 
B. Thomas Florence
President
Analysis, Research & Planning Corporation
October 31, 2011
 
 








  EXHIBIT 31.1
  Union Carbide Corporation and Subsidiaries
 
 
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Patrick E. Gottschalk, 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
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
d)
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 : November 1, 2011

/s/ PATRICK E. GOTTSCHALK
Patrick E. Gottschalk
President and Chief Executive Officer





  EXHIBIT 31.2
  Union Carbide Corporation and Subsidiaries
 
 
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Eudio Gil, 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
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
d)
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 : November 1, 2011

/s/ EUDIO GIL
Eudio Gil
Vice President, Treasurer and
Chief Financial Officer





  EXHIBIT 32.1
  Union Carbide Corporation and Subsidiaries
 
 
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

I, Patrick E. Gottschalk, President and Chief Executive Officer of Union Carbide Corporation (the “Corporation”), certify that:

1.
the Quarterly Report on Form 10-Q of the Corporation for the quarter ended September 30, 2011 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/ PATRICK E. GOTTSCHALK
Patrick E. Gottschalk
President and Chief Executive Officer
Date: November 1, 2011





  EXHIBIT 32.2
  Union Carbide Corporation and Subsidiaries
 
 
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

I, Eudio Gil, Vice President, Treasurer and Chief Financial Officer of Union Carbide Corporation (the “Corporation”), certify that:

1.
the Quarterly Report on Form 10-Q of the Corporation for the quarter ended September 30, 2011 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/ Eudio Gil
Eudio Gil
Vice President, Treasurer and
Chief Financial Officer
Date: November 1, 2011