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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
R QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended   MARCH 31, 2013

or
 
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________to___________

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 March 31, 2013 , 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.

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Union Carbide Corporation

QUARTERLY REPORT ON FORM 10-Q
For the quarterly period ended March 31, 2013

TABLE OF CONTENTS

 
 
PAGE
 
 
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
 
 
 
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 4.
 
 
 
Item 6.
 
 
 
 
 


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Union Carbide Corporation and Subsidiaries

FORWARD-LOOKING STATEMENTS

Certain statements in this report, other than purely historical information, including estimates, projections, statements relating to business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may appear throughout this report, including without limitation, the following sections: “Management's Discussion and Analysis,” and “Risk Factors.” These forward-looking statements are generally identified by the words “believe,” “project”, “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. A detailed discussion of principal risks and uncertainties which may cause actual results and events to differ materially from such forward-looking statements is included in the section titled “Risk Factors” (Part 1, Item 1A of the Corporation's Annual Report on Form 10-K for the year ended December 31, 2012). Union Carbide Corporation undertakes no obligation to update or revise publicly any forward-looking statements whether because of new information, future events, or otherwise, except as required by securities and other applicable laws.


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PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements

Union Carbide Corporation and Subsidiaries
Consolidated Statements of Income

 
Three Months Ended
In millions (Unaudited)
Mar 31,
2013

 
Mar 31,
2012

Net trade sales
$
40

 
$
54

Net sales to related companies
1,675

 
1,674

Total Net Sales
1,715

 
1,728

Cost of sales
1,572

 
1,658

Research and development expenses
8

 
10

Selling, general and administrative expenses
3

 
3

Restructuring charges
—

 
3

Equity in earnings of nonconsolidated affiliates
32

 
17

Sundry income (expense) - net
(16
)
 
(13
)
Interest income
3

 
5

Interest expense and amortization of debt discount
7

 
7

Income Before Income Taxes
144

 
56

Provision (Credit) for income taxes
92

 
19

Net Income Attributable to Union Carbide Corporation
$
52

 
$
37

 
 
 
 
Depreciation
$
51

 
$
58

Capital Expenditures
$
18

 
$
37

See Notes to the Consolidated Financial Statements.


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Union Carbide Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income

 
Three Months Ended
In millions (Unaudited)
Mar 31,
2013

 
Mar 31,
2012

Net Income Attributable to Union Carbide Corporation
$
52

 
$
37

Other Comprehensive Income (Loss), Net of Tax
 

 
 

Translation adjustments
—

 
(2
)
Pension and other postretirement benefit plans adjustments
14

 
9

Total other comprehensive income
14

 
7

Comprehensive Income Attributable to Union Carbide Corporation
$
66

 
$
44

See Notes to the Consolidated Financial Statements.


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Union Carbide Corporation and Subsidiaries
Consolidated Balance Sheets

In millions (Unaudited)
Mar 31,
2013

 
Dec 31,
2012

Assets
Current Assets
 
 
 
Cash and cash equivalents
$
18

 
$
18

Accounts receivable:


 


Trade (net of allowance for doubtful receivables 2013: $-; 2012: $-)
26

 
35

Related companies
444

 
330

Other
90

 
86

Notes receivable from related companies
2,169

 
2,346

Inventories
444

 
420

Deferred income taxes and other current assets
85

 
95

Total current assets
3,276

 
3,330

Investments
 

 
 

Investments in related companies
839

 
840

Investments in nonconsolidated affiliates
135

 
106

Other investments
8

 
8

Noncurrent receivables
54

 
45

Noncurrent receivables from related companies
172

 
189

Total investments
1,208

 
1,188

Property
 

 
 

Property
7,227

 
7,211

Less accumulated depreciation
5,927

 
5,877

Net property
1,300

 
1,334

Other Assets
 

 
 

Intangible assets (net of accumulated amortization 2013: $73; 2012: $72)
7

 
7

Deferred income tax assets - noncurrent
819

 
775

Asbestos-related insurance receivables - noncurrent
153

 
155

Deferred charges and other assets
50

 
49

Total other assets
1,029

 
986

Total Assets
$
6,813

 
$
6,838

Liabilities and Equity
Current Liabilities
 

 
 

Notes payable - related companies
$
45

 
$
40

Accounts payable:


 


Trade
251

 
299

Related companies
384

 
411

Other
13

 
15

Income taxes payable
293

 
59

Asbestos-related liabilities - current
86

 
85

Accrued and other current liabilities
168

 
146

Total current liabilities
1,240

 
1,055

Long-Term Debt
471

 
471

Other Noncurrent Liabilities
 

 
 

Pension and other postretirement benefits - noncurrent
1,215

 
1,270

Asbestos-related liabilities - noncurrent
516

 
530

Other noncurrent obligations
81

 
188

Total other noncurrent liabilities
1,812

 
1,988

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
4,307

 
4,355

Accumulated other comprehensive loss
(1,331
)
 
(1,345
)
Union Carbide Corporation's stockholder's equity
3,288

 
3,322

Noncontrolling interests
2

 
2

Total equity
3,290

 
3,324

Total Liabilities and Equity
$
6,813

 
$
6,838

See Notes to the Consolidated Financial Statements.

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Union Carbide Corporation and Subsidiaries
Consolidated Statements of Cash Flows

 
Three Months Ended
In millions (Unaudited)
Mar 31,
2013

 
Mar 31,
2012

Operating Activities
 
 
 
Net Income
$
52

 
$
37

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
56

 
66

Provision (credit) for deferred income tax
6

 
2

Earnings of nonconsolidated affiliates in excess of dividends received
(29
)
 
(14
)
Restructuring charges
—

 
3

Pension contributions
(40
)
 
(40
)
Other gains, net
(1
)
 
(1
)
Changes in assets and liabilities:
 
 
 
Accounts and notes receivable
2

 
(9
)
Related company receivables
64

 
208

Inventories
(25
)
 
(9
)
Accounts payable
(49
)
 
28

Related company payables
(18
)
 
66

Other assets and liabilities
84

 
3

Cash provided by operating activities
102

 
340

Investing Activities
 

 
 

Capital expenditures
(18
)
 
(37
)
Change in noncurrent receivable from related company
16

 
3

Cash used in investing activities
(2
)
 
(34
)
Financing Activities
 

 
 

Dividends paid to stockholder
(100
)
 
(275
)
Payments on long-term debt
—

 
(37
)
Cash used in financing activities
(100
)
 
(312
)
Summary
 

 
 

Decrease in cash and cash equivalents
—

 
(6
)
Cash and cash equivalents at beginning of year
18

 
26

Cash and cash equivalents at end of period
$
18

 
$
20

See Notes to the Consolidated Financial Statements.


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Union Carbide Corporation and Subsidiaries
Consolidated Statements of Equity

 
Three Months Ended
In millions (Unaudited)
Mar 31,
2013

 
Mar 31,
2012

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
4,355

 
5,253

Net income
52

 
37

Dividends declared
(100
)
 
(275
)
Other
—

 
1

Balance at end of period
4,307

 
5,016

Accumulated Other Comprehensive Loss, Net of Tax
 

 
 

Balance at beginning of year
(1,345
)
 
(1,132
)
Other comprehensive income
14

 
7

Balance at end of period
(1,331
)
 
(1,125
)
Union Carbide Corporation's Stockholder's Equity
3,288

 
4,203

Noncontrolling Interests
2

 
2

Total Equity
$
3,290

 
$
4,205

See Notes to the Consolidated Financial Statements.


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

Table of Contents

 
Note
 
Page
 
1
 
2
 
3
 
4
 
5
 
6
 
7
 
8
 
9
 
10
 
11
 
12


NOTE 1 - 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 (“U.S. 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 10 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, 2012 .


NOTE 2 - RECENT ACCOUNTING GUIDANCE

Recently Adopted Accounting Guidance
During the first quarter of 2013, the Corporation adopted Accounting Standards Update ("ASU") 2013-02, "Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income," which requires entities to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, entities are required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, entities are required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail on these amounts. See Note 12 for the disclosures related to this adoption.


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

Accounting Guidance Issued But Not Adopted as of March 31, 2013
In February 2013, the Financial Accounting Standards Board ("FASB") issued ASU 2013-04, "Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date," which defines how entities measure obligations from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date and for which no guidance exists, except for obligations addressed within existing guidance in U.S. GAAP. The guidance also requires entities to disclose the nature and amount of the obligation as well as other information about those obligations. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. Retrospective presentation for all comparative periods presented is required and early adoption is permitted. The Corporation is currently evaluating the impact of adopting this guidance.

In March 2013, the FASB issued ASU 2013-05, "Foreign Currency Matters (Topic 830): Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity," which defines the treatment of the release of cumulative translation adjustments upon derecognition of certain subsidiaries or groups of assets within a foreign entity or of an investment in a foreign entity. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. Early adoption is permitted and prior periods should not be adjusted. The Corporation does not expect the adoption of this guidance to have a material impact on the consolidated financial statements.


NOTE 3 - RESTRUCTURING

On October 22, 2012, the Board of Directors of the Corporation approved a restructuring plan to improve the cost effectiveness of the Corporation's global operations. The restructuring plan will affect approximately 100 positions and result in the shutdown of certain manufacturing facilities. These actions are expected to be completed during the next two years.

As a result of the restructuring activities, the Corporation recorded pretax restructuring charges of $71 million in the fourth quarter of 2012 consisting of costs associated with exit or disposal activities of $13 million , severance costs of $10 million and asset write-downs and write-offs of $48 million .

Severance
The restructuring charges in the fourth quarter of 2012 included severance of $10 million for the separation of approximately 100 employees under the terms of the Corporation's ongoing benefit arrangements, primarily over the next two years. At December 31, 2012, no severance had been paid and a liability of $10 million remained. In the first quarter of 2013, severance of $2 million was paid leaving a liability of $8 million for approximately 70 employees at March 31, 2013.

The following table summarizes the activities related to the Corporation's restructuring reserve:
 
Restructuring Activities
 
Costs Associated with Exit or Disposal Activities

 
Severance Costs

 
 
In millions
 
 
 
Total

Reserve balance at December 31, 2012
 
$
13

 
$
10

 
$
23

Cash payments
 
—

 
(2
)
 
(2
)
Reserve balance at March 31, 2013
 
$
13

 
$
8

 
$
21


The reserve balance is included in the consolidated balance sheets as "Accrued and other current liabilities" and "Other noncurrent obligations."

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

The Corporation expects to incur additional costs in the future related to its restructuring activities, as UCC continually looks for ways to enhance the efficiency and cost effectiveness of its operations. Future costs are expected to include demolition costs related to closed facilities; these will be recognized as incurred. The Corporation also expects to incur additional employee-related costs, including involuntary termination benefits, related to its other optimization activities. These costs cannot be reasonably estimated at this time.

In the first quarter of 2012, the Corporation recorded restructuring charges totaling $3 million related to a workforce reduction of approximately 20 employees. In the third quarter of 2012, all severance related to this restructuring charge was paid.


NOTE 4 - INVENTORIES

The following table provides a breakdown of inventories:

Inventories
In millions
Mar 31,
2013

 
Dec 31,
2012

Finished goods
$
273

 
$
263

Work in process
31

 
33

Raw materials
59

 
46

Supplies
81

 
78

Total inventories
$
444

 
$
420


The reserves reducing inventories from the first-in, first-out (“FIFO”) basis to the last-in, first-out (“LIFO”) basis amounted to $134 million at March 31, 2013 and $150 million at December 31, 2012 .


NOTE 5 - NONCONSOLIDATED AFFILIATES

The table below presents summarized financial information for Univation Technologies, LLC, a significant nonconsolidated affiliate (at 100 percent):

Summarized Income Statement Information for Univation Technologies, LLC
Three Months Ended
In millions
Mar 31, 2013

 
Mar 31, 2012

Sales
$
103

 
$
74

Gross profit
$
75

 
$
50

Net income attributable to Univation Technologies, LLC
$
55

 
$
31


Divestiture
On January 31, 2013, UCC entered into a definitive agreement to sell its 50 percent ownership interest in Nippon Unicar Company, Limited to TonenGeneral Sekiyu K.K. for $13 million . This sale is expected to close in the third quarter of 2013 pending receipt of all required regulatory approvals.



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


NOTE 6 - INTANGIBLE ASSETS

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

Intangible Assets
At March 31, 2013
 
At December 31, 2012
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
)
 
$
—

Software
47

 
(40
)
 
7

 
46

 
(39
)
 
7

Total intangible assets
$
80

 
$
(73
)
 
$
7

 
$
79

 
$
(72
)
 
$
7


Amortization expense for software, which is included in "Cost of sales" in the consolidated statements of income, was less than $1 million in the first quarter of 2013 and $1 million in the first quarter of 2012 .

Total estimated amortization expense for 2013 and the five succeeding fiscal years is as follows:

Estimated Amortization Expense
In millions
2013
$
2

2014
$
2

2015
$
2

2016
$
1

2017
$
—

2018
$
—



NOTE 7 - FINANCIAL INSTRUMENTS

Investments
The Corporation's investments in marketable securities include debt securities which are classified as available-for-sale. At March 31, 2013, the Corporation held $5 million in debt securities ( $5 million at December 31, 2012), which had contractual maturities of less than 10 years . These securities are recorded at fair value, which approximates cost, and are included in “Other investments” in the consolidated balance sheets and classified as Level 2 measurements. There were no proceeds from sales of marketable securities for the three-month periods ended March 31, 2013 and March 31, 2012.

For securities frequently traded in less active markets, fair value is based on the closing price at the end of the period; where the security is less frequently traded, fair value is based on the price a dealer would pay for the security or similar securities, adjusted for any terms specific to that asset or liability, or by using observable market data points of similar, more liquid securities to imply the price. Market inputs are obtained from well-established and recognized vendors of market data and subjected to tolerance/quality checks.
Long-Term Debt
The Company has long-term debt of $471 million in the consolidated balance sheets at March 31, 2013 ( $471 million at December 31, 2012). At March 31, 2013, the fair value of this long-term debt was $584 million ( $587 million at December 31, 2012) and is classified as a Level 2 measurement. Fair value is determined in a manner similar to the methods described above for investments.
In the first quarter of 2012, the Corporation redeemed $37 million aggregate principal amount of pollution control/industrial revenue bonds that matured on January 1, 2012.
Cost approximates fair value for all other financial instruments.


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

NOTE 8 - 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 March 31, 2013 , the Corporation had accrued obligations of $100 million for probable environmental remediation and restoration costs, including $22 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 it is reasonably possible that the ultimate cost with respect to these particular matters could range up to approximately two and a half times that amount. Consequently, it is reasonably possible that environmental remediation and restoration costs in excess of amounts accrued could have a material 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 impact on the Corporation’s results of operations, financial condition and cash flows. Inherent uncertainties exist in these estimates primarily due to unknown environmental conditions, changing governmental regulations and legal standards regarding liability, and emerging remediation technologies for handling site remediation and restoration. At December 31, 2012 , the Corporation had accrued obligations of $95 million for probable environmental remediation and restoration costs, including $21 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.

Asbestos-Related Matters
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.

The Corporation expects more asbestos-related suits to be filed against UCC 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 year to determine the appropriateness of updating the most recent ARPC study.

In November 2011, the Corporation requested ARPC to review the Corporation's 2011 asbestos claim and resolution activity and determine the appropriateness of updating its then most recent study completed in December 2010. In response to that request, ARPC reviewed and analyzed data through October 31, 2011. In January 2012, ARPC stated that an update of its study would not provide a more likely estimate of future events than the estimate reflected in its December 2010 study 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, 2011, the Corporation's asbestos-related liability for pending and future claims was $668 million .

In October 2012, the Corporation requested ARPC to review the Corporation's historical asbestos claim and resolution activity and determine the appropriateness of updating its December 2010 study. In response to that request, ARPC reviewed and analyzed data through September 30, 2012. In December, 2012, based upon ARPC's December 2012 study and the

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

Corporation's own review of the asbestos claim and resolution activity for 2012, it was determined that no adjustment to the accrual was required at December 31, 2012. The Corporation's asbestos-related liability for pending and future claims was $602 million at December 31, 2012. At December 31, 2012, approximately 18 percent of the recorded liability related to pending claims and approximately 82 percent related to future claims.

Based on the Corporation’s review of 2013 activity, it was determined that no adjustment to the accrual was required at March 31, 2013 . The Corporation’s asbestos-related liability for pending and future claims was $583 million at March 31, 2013 . Approximately 16 percent of the recorded liability related to pending claims and approximately 84 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.

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 were 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, the Corporation has reached settlements with most 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 $25 million at March 31, 2013 and $25 million at December 31, 2012 . At March 31, 2013 and December 31, 2012 , 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 its asbestos 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
Mar 31,
2013

 
Dec 31,
2012

Receivables for defense costs – carriers with settlement agreements
$
17

 
$
17

Receivables for resolution costs - carriers with settlement agreements
136

 
137

Receivables for insurance recoveries - carriers without settlement agreements
25

 
25

Total
$
178

 
$
179


The Corporation expenses defense costs as incurred. The pretax impact for defense and resolution costs, net of insurance, was $22 million for the first quarter of 2013 ( $25 million in the first quarter of 2012 ) and was reflected in “Cost of sales” in the consolidated statements of income.


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  Notes to the Consolidated Financial Statements
(Unaudited)

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 by the Corporation 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 for the Corporation to be higher or lower than those projected or those recorded.

Because of the uncertainties described above, the Corporation's management cannot estimate the full range of the cost of resolving pending and future asbestos-related claims facing UCC and Amchem. The Corporation's 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 impact on the Corporation's results of operations and cash flows for a particular period and on the consolidated financial position of the Corporation.

While it is not possible at this time to determine with certainty the ultimate outcome of any of the legal proceedings and claims referred to in this filing, management believes that adequate provisions have been made for probable losses with respect to pending claims and proceedings, and that, except for the asbestos-related matters described above, the ultimate outcome of all known and future claims, after provisions for insurance, will not have a material adverse impact on the results of operations, cash flows and 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, 2012 , the Corporation had various outstanding commitments for take-or-pay agreements, with remaining terms extending from two to thirteen years. Such commitments were not in excess of current market prices. The fixed and determinable portion of obligations under purchase commitments at December 31, 2012 is presented in the table below. There have been no material changes to purchase commitments since December 31, 2012 .

Fixed and Determinable Portion of Take-or-Pay Obligations
at December 31, 2012
In millions
2013
$
11

2014
11

2015
8

2016
6

2017
6

2018 and beyond
10

Total
$
52


Asset Retirement Obligations
The Corporation has recognized asset retirement obligations related to capping activities at landfill sites in the United States. The aggregate carrying amount of these asset retirement obligations was $4 million at March 31, 2013 and $4 million at December 31, 2012 . The Corporation also 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 $7 million at March 31, 2013 and $7 million at December 31, 2012 . The discount rate used to calculate the Corporation’s asset retirement obligations and conditional asset retirement obligations was 0.87 percent at March 31, 2013 and 0.87 percent at December 31, 2012 . These obligations are included in the consolidated balance sheets as "Accrued and other current liabilities" and "Other noncurrent obligations."


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  Notes to the Consolidated Financial Statements
(Unaudited)

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 impact on the Corporation’s consolidated financial statements based on current costs.

Gain Contingency
Matters Involving the Formation of K-Dow Petrochemicals
Introduction
On December 13, 2007, Dow and Petrochemical Industries Company (K.S.C.) (“PIC”) of Kuwait, a wholly owned subsidiary of Kuwait Petroleum Corporation, announced plans to form a 50:50 global petrochemicals joint venture. The proposed joint venture, K-Dow Petrochemicals (“K-Dow”), was expected to have revenues of more than $11 billion and employ more than 5,000 people worldwide.

On November 28, 2008, Dow entered into a Joint Venture Formation Agreement (the “JVFA”) with PIC that provided for the establishment of K-Dow. To form the joint venture, Dow would transfer, by way of contribution and sale to K-Dow, assets used in the research, development, manufacture, distribution, marketing and sale of polyethylene, polypropylene, polycarbonate, polycarbonate compounds and blends, ethyleneamines, ethanolamines, and related licensing and catalyst technologies; and K-Dow would assume certain related liabilities. It was anticipated that a significant part (but not substantially all) of UCC's U.S.-based manufacturing assets would be included in the new joint venture.

Failure to Close
On December 31, 2008, Dow received a written notice from PIC with respect to the JVFA advising Dow of PIC's position that certain conditions to closing were not satisfied and, therefore, PIC was not obligated to close the transaction. On January 2, 2009, PIC refused to close the K-Dow transaction in accordance with the JVFA. Dow disagreed with the characterizations and conclusions expressed by PIC in the written notice and Dow informed PIC that it breached the JVFA. On January 6, 2009, Dow announced that it would seek to fully enforce its rights under the terms of the JVFA and various related agreements.

Arbitration
Dow's claims against PIC were subject to an agreement between the parties to arbitrate under the Rules of Arbitration of the International Court of Arbitration of the International Chamber of Commerce (“ICC”). On February 18, 2009, Dow initiated arbitration proceedings against PIC alleging that PIC breached the JVFA by failing to close the transaction on January 2, 2009, and as a result, Dow suffered substantial damages.

On May 24, 2012, the ICC released to the parties a unanimous Partial Award in favor of Dow on both liability and damages. A three-member arbitration Tribunal found that PIC breached the JVFA by not closing K-Dow on January 2, 2009, and awarded Dow $2.16 billion in damages, not including pre- and post-award interest and arbitration costs.

On June 15, 2012, PIC filed an application for remand under the English Arbitration Act of 1996 (“Remand Application”) in the High Court of Justice in London (“High Court”). In its Remand Application, PIC did not challenge the Tribunal's finding of liability but it requested that the High Court remand the case back to the Tribunal for further consideration of Dow's claim for consequential damages. On October 11, 2012, the High Court ruled in favor of Dow and dismissed PIC's Remand Application; and on October 19, 2012, the High Court denied PIC's request for leave to appeal its ruling, bringing an end to PIC's Remand Application.

On March 4, 2013, the ICC released the Final Award covering Dow's claim for pre- and post-award interest and arbitration costs. The final interest and costs awarded to Dow total $318 million , as of February 28, 2013, and is in addition to the Partial Award of $2.16 billion announced in May 2012. This is the last step in the arbitration process, bringing the proceeding to a close. Both awards (Partial and Final) are binding and non-appealable. Post-award interest will continue to accrue at the U.S. Prime rate until the Partial and Final Awards have been paid in full.

No portion of the damages have been awarded to the Corporation; therefore it is anticipated that the Corporation will not record a gain even when the uncertainty regarding the timing of collection and the amount to be realized have been resolved.



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  Notes to the Consolidated Financial Statements
(Unaudited)

NOTE 9 - PENSION AND OTHER POSTRETIREMENT BENEFITS

Net Periodic Benefit Cost for All Significant Plans
Three Months Ended
In millions
Mar 31,
2013

 
Mar 31,
2012

Defined Benefit Pension Plans:
 
 
 
Service cost
$
8

 
$
7

Interest cost
41

 
47

Expected return on plan assets
(58
)
 
(59
)
Amortization of prior service cost
2

 
2

Amortization of net loss
22

 
15

Net periodic benefit cost
$
15

 
$
12

 
Other Postretirement Benefits :
 
 
 
Interest cost
$
4

 
$
4

Net periodic benefit cost
$
4

 
$
4



NOTE 10 - 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 intercompany pricing policies. Beginning in 2013, after each quarter the Corporation and Dow analyze the pricing used for the sales in that quarter and reach agreement on any necessary adjustments, at which point the prices are final. 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 $782 million in the first quarter of 2013 ( $840 million in the first quarter of 2012 ).

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. The master services agreement cost allocation basis is headcount and includes a 10 percent service fee. 

This agreement resulted in expense of approximately $7 million in the first quarter of 2013 ( $8 million in the first quarter of 2012), for general administrative and overhead type services and the 10 percent service fee, included in “Sundry income (expense) - net” in the consolidated statements of income. The remaining activity-based costs were approximately $11 million in the first quarter of 2013 ( $12 million in the first quarter of 2012) and were included in “Cost of sales” in the consolidated statements of income.

Management believes the method used for determining expenses charged by Dow is reasonable. Dow provides these services by leveraging its centralized functional service centers to provide services at a cost that management believes provides an advantage to the Corporation.

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

As part of Dow’s cash management process, UCC is a party to revolving loans with Dow that have interest rates based on LIBOR (London Interbank Offered Rate) with varying maturities. At March 31, 2013 , the Corporation had a note receivable of $2.1 billion ( $2.3 billion at December 31, 2012 ) 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.


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  Notes to the Consolidated Financial Statements
(Unaudited)

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, 2013. 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 March 31, 2013 , $836 million ( $820 million at December 31, 2012 ) was available under the revolving credit agreement. The cash collateral is reported as “Noncurrent receivables from related companies” in the consolidated balance sheets.

In the first quarter of 2013, the Corporation declared and paid a dividend of $100 million to Dow. In the first quarter of 2012, the Corporation declared and paid a dividend of $275 million to Dow.

The Corporation received no cash dividends from its related company investments in the first quarter of 2013 ( $7 million in the first quarter of 2012). These dividends are included in “Sundry income (expense) – net” in the consolidated statements of income.


NOTE 11 - INCOME TAXES

During the first quarter of 2013, the U.S. Supreme Court denied certiorari in UCC's research tax credit case. Through the denial of certiorari, the U.S. Court of Appeals decision denying UCC's tax credit claim for supplies used in process-related research and development at its manufacturing facilities became final. As a result of this ruling, UCC reversed the uncertain tax positions related to this matter, which resulted in a decrease to "Other noncurrent obligations" and an increase to "Income taxes payable" in the consolidated balance sheets in accordance with the Tax Sharing Agreement between the Corporation and Dow. In addition, UCC recognized a tax charge of $41 million in the first quarter of 2013 included in "Provision (Credit) for income taxes" in the consolidated statements of income.

Following is a reconciliation of the Corporation's unrecognized tax benefits for the periods ended March 31, 2013 and December 31, 2012:

Total Gross Unrecognized Tax Benefits
Mar 31, 2013

Dec 31, 2012

In millions
Balance at January 1
$
166

$
161

Increases related to positions taken in current year
—

8

Settlement of uncertain tax positions with tax authorities
(154
)
—

Decreases due to expiration of statutes of limitations
—

(3
)
Balance at end of period
$
12

$
166


At March 31, 2013, the total amount of unrecognized tax benefits was $12 million ( $166 million at December 31, 2012), of which $10 million ( $158 million at December 31, 2012) would impact the effective tax rate, if recognized.

The Corporation's accrual for interest and penalties was a liability of $5 million at March 31, 2013 (receivable of $4 million at December 31, 2012). For the three months ended March 31, 2013 and March 31, 2012, insignificant interest and penalties associated with uncertain tax positions were recognized as components of "Provision (Credit) for income taxes" in the consolidated statements of income.



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  Notes to the Consolidated Financial Statements
(Unaudited)

NOTE 12 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table provides an analysis of the changes in accumulated other comprehensive income (loss) for the three -month periods ended March 31, 2013 and 2012 :

Accumulated Other Comprehensive Income (Loss)
Three Months Ended
In millions
Mar 31, 2013

 
Mar 31, 2012

Cumulative Translation Adjustments at beginning of year
$
(56
)
 
$
(52
)
Translation adjustments
—

 
(2
)
Cumulative Translation Adjustments at end of period
$
(56
)
 
$
(54
)
Pension and Other Postretirement Benefit Plans at beginning of year
$
(1,289
)
 
$
(1,080
)
Adjustments to pension and other postretirement benefit plans (net of tax of $9, $6) (1) (2)
14

 
9

Pension and Other Postretirement Benefit Plans at end of period
$
(1,275
)
 
$
(1,071
)
Total Accumulated Other Comprehensive Loss
$
(1,331
)
 
$
(1,125
)
(1)
Included in net periodic pension cost. See Note 9 for additional information.
(2)
Tax amounts are included in "Provision for income taxes" in the consolidated statements of income.



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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 -month period ended March 31, 2013 , the most recent period, compared with the three -month period ended March 31, 2012 , the corresponding period 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.


RESULTS OF OPERATIONS
Total net sales for the first quarter of 2013 were $1,715 million compared with $1,728 million for the first quarter of 2012, a decrease of 1 percent. Net sales to related companies, principally to Dow based on market prices for the related products, for the first quarter of 2013 were $1,675 million, essentially flat when compared with $1,674 million for the first quarter of 2012.

Average selling prices for most products decreased in the first quarter of 2013 compared with the first quarter of 2012. This decrease was driven by competitive pricing pressure and in response to lower feedstock and other raw material costs. Sales volumes increased in the first quarter of 2013 compared with the first quarter of 2012 primarily driven by higher demand for ethylene glycols, vinyl acetate monomers and aromatics. Improved operating rates at the St. Charles manufacturing facility also contributed to the increase in volume.

Cost of sales decreased 5 percent from $1,658 million in the first quarter of 2012 to $1,572 million in the first quarter of 2013. This decrease was principally due to lower feedstock and other raw material costs, lower turnaround costs and lower start-up costs related to the restart of an ethylene cracker in St. Charles, Louisiana, which restarted in December 2012.

Research and development expenses were $8 million in the first quarter of 2013 compared with $10 million in the first quarter of 2012, a decrease of 20 percent. The decrease was due to cost reduction initiatives.

In the first quarter of 2012, the Corporation recorded restructuring charges totaling $3 million related to a workforce reduction of approximately 20 employees.

Equity in earnings of nonconsolidated affiliates was $32 million in the first quarter of 2013 compared with $17 million in the first quarter of 2012, an increase of 88 percent due to increased 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 first quarter of 2013 was net expense of $16 million compared with net expense of $13 million for the first quarter of 2012. See Note 10 to the Consolidated Financial Statements for additional information.

Interest income was $3 million in the first quarter of 2013 compared with $5 million in the first quarter of 2012. The decrease was primarily due to a reduction in notes receivable from related companies.

Interest expense and amortization of debt discount of $7 million in the first quarter of 2013 was flat compared with $7 million in the first quarter of 2012.

The Corporation reported a tax provision of $92 million in the first quarter of 2013, which resulted in an effective tax rate of 63.9 percent. This compares with a tax provision of $19 million in the first quarter of 2012, which resulted in an effective tax rate of 33.9 percent. The Corporation's 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

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to tax credits available. The increase in the first quarter of 2013 tax rate compared with the first quarter of 2012 tax rate was primarily due to a $41 million tax charge related to a court ruling that resulted in the settlement of an uncertain tax position . See Note 11 to the Consolidated Financial Statements for additional information on this charge.

The Corporation reported net income of $52 million for the first quarter of 2013 compared with $37 million for the first quarter of 2012, reflecting margin expansion in certain products and reduced turnaround and start-up costs that were partially offset by the $41 million tax charge related to the settlement of an uncertain tax position.

Strategic Initiatives
On January 31, 2013, UCC entered into a definitive agreement to sell its 50 percent ownership interest in Nippon Unicar Company, Limited to TonenGeneral Sekiyu K.K. for $13 million . This sale is expected to close in the third quarter of 2013 pending receipt of all required regulatory approvals.

In the first quarter of 2013, UCC decided to market for divestment its Polypropylene Licensing and Catalyst business as part of its ongoing portfolio management.


OTHER MATTERS

Recent Accounting Guidance
See Note 2 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  1 to the Consolidated Financial Statements in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2012 (“2012 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 2012 10-K. Since December 31, 2012, there have been no material changes in the Corporation’s critical accounting policies.

Asbestos-Related Matters
The Corporation is and has been involved in a large number of asbestos-related suits filed primarily in state courts during the past three decades. These suits principally allege personal injury resulting from exposure to asbestos-containing products and frequently seek both actual and punitive damages. The alleged claims primarily relate to products that UCC sold in the past, alleged exposure to asbestos-containing products located on UCC’s premises, and UCC’s responsibility for asbestos suits filed against a former 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.

It is the opinion of UCC's management that it is reasonably possible that the costs of disposing of its asbestos-related claims, including future defense costs, could have a material 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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The table below provides information regarding asbestos-related claims pending against the Corporation and Amchem, based on criteria developed by Union Carbide and its external consultants:

 
2013

 
2012

Claims unresolved at January 1
33,449

 
53,225

Claims filed
2,868

 
1,896

Claims settled, dismissed or otherwise resolved
(2,940
)
 
(12,303
)
Claims unresolved at March 31
33,377

 
42,818

Claimants with claims against both UCC and Amchem
(9,744
)
 
(12,671
)
Individual claimants at March 31
23,633

 
30,147


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.

For additional information see Asbestos-Related Matters in Note 8 to the Consolidated Financial Statements and Part II, Item 1. Legal Proceedings.

Matters Involving the Formation of K-Dow Petrochemicals
In February 2009, Dow initiated arbitration proceedings against Petrochemical Industries Company (K.S.C.) ("PIC") alleging that PIC breached the Joint Venture Formation Agreement related to the establishment of K-Dow, a proposed 50:50 global petrochemicals joint venture with PIC, by failing to close the transaction. In May 2012, the International Court of Arbitration of the International Chamber of Commerce ("ICC") awarded the Company $2.16 billion in damages ("Partial Award"), not including pre- and post-award interest and damages. On March 4, 2013, the ICC released the Final Award amount in the arbitration case and awarded the Company final interest and costs of $318 million, as of February 28, 2013 and is in addition to the Partial Award of $2.16 billion announced in May 2012. Both awards (Partial and Final) are binding and non-appealable. Post award interest will continue to accrue at the U.S. Prime rate until the Partial and Final Awards have been paid in full.

No portion of the damages have been awarded to the Corporation; therefore it is anticipated that the Corporation will not record a gain even when the uncertainty regarding the timing of collection and the amount to be realized have been resolved.

For additional information, see Gain Contingency-Matters Involving the Formation of K-Dow Petrochemicals in Note 8 to the Consolidated Financial Statements.

Debt Covenants and Default Provisions
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. Management believes the Corporation was in compliance with the covenants referred to above at March 31, 2013 .

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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 not effective solely as a result of the material weakness in internal control over financial reporting that was identified during the fourth quarter of fiscal year 2012 as described in Management's Report on Internal Control Over Financial Reporting contained in the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 2012.   

Changes in Internal Control Over Financial Reporting  
Other than with respect to the ongoing remediation of the material weakness referenced above in Evaluation of Disclosure Controls and Procedures, 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 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 first quarter of 2013. For a summary of the history and current status of asbestos-related matters, see Note 8 to the Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations, Asbestos-Related Matters.


ITEM 1A.  RISK FACTORS

There were no material changes in the Corporation's risk factors in the first quarter of 2013.


ITEM 4.  MINE SAFETY DISCLOSURES

Not applicable.


ITEM 6.  EXHIBITS

See the Exhibit Index 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: April 30, 2013
 
 
 
By:
/s/ RONALD C. EDMONDS
 
 
Ronald C. Edmonds
 
 
Vice President and Controller
 
 
The Dow Chemical Company
 
 
Authorized Representative of
 
 
Union Carbide Corporation
 
 
 
 
 
 
 
By:
/s/ IGNACIO MOLINA
 
 
Ignacio Molina
 
 
Vice President, Treasurer and
 
 
Chief Financial Officer


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  Union Carbide Corporation and Subsidiaries
Exhibit Index
 
 
EXHIBIT NO.
 
DESCRIPTION
 
 

10.2.1
 
First Amendment to Second Amended and Restated Sales Promotion Agreement, effective as of March 22, 2013, 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.

25


  EXHIBIT 10.2.1
  Union Carbide Corporation and Subsidiaries
 
 
FIRST AMENDMENT TO THE SECOND AMENDED AND RESTATED
SALES PROMOTION AGREEMENT

This First Amendment to the Second Amended and Restated Sales Promotion Agreement by and between Union Carbide Corporation (“UCC”) and The Dow Chemical Company (“TDCC”) dated January 1, 2004 (this “Amendment”) is made effective as of March 22, 2013 (the “Effective Date”).
BACKGROUND
The Parties have previously entered into the Second Amended and Restated Sales Promotion Agreement dated January 1, 2004 (the “Agreement”) and desire to amend the 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 Agreement.
Now therefore, the Parties agree as follows:

1.
A new Section 19 will be inserted into the Agreement as follows:

Section 19. Review and Resolution of Potential Errors

Given the complexity and large volume of transactions under the Agreement, the Parties have determined, through their own independent due diligence and economic decision making process, that all transactions recorded through December 31, 2012, are deemed to be appropriate and resolved.

Following the Effective Date of this Amendment, TDCC shall permit UCC to inspect TDCC’s records during TDCC’s normal business hours, and analyze the transactions that are incurred and recorded under the Agreement commencing January 1, 2013. The records will be inspected by UCC on a quarterly basis or, alternatively, on a different time period as agreed to by the Parties. At its discretion, UCC may engage third party advisors, to whom TDCC has no reasonable objection, to assist it in the inspection. TDCC will reimburse UCC for reasonable third party advisor expenses.

Following its review, UCC will present its findings to TDCC and both Parties agree that all pricing errors or financial adjustments will be corrected or implemented within 10 days of the presentation of the findings or as soon as administratively possible. The Parties agree that once the pricing errors are corrected and financial adjustments are implemented, all transactions for that current quarter will be final.

2.
Except as expressly amended by this Amendment, the Agreement remains in full force and effect and in accordance its terms.

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





The Parties agree that this Amendment is effective as of the Effective Date listed above, and they have caused their authorized representatives to execute this Amendment below.
THE DOW CHEMICAL COMPANY
 
UNION CARBIDE CORPORATION
 
 
 
 
 
 
 
 
 
By:  /s/ RONALD C. EDMONDS
 
By: /s/ IGNACIO MOLINA
 
 
 
Name: Ronald C. Edmonds
 
Name: Ignacio Molina
 
 
 
Title: Vice President and Controller
 
Title: Vice President, Chief Financial Officer 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 March 31, 2013.





/s/ B. THOMAS FLORENCE
 
 
B. Thomas Florence
President
Analysis, Research & Planning Corporation
April 26, 2013
 
 








  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 : April 30, 2013

/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, Ignacio Molina, 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 : April 30, 2013

/s/ IGNACIO MOLINA
Ignacio Molina
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 March 31, 2013 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: April 30, 2013





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

I, Ignacio Molina, 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 March 31, 2013 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/ IGNACIO MOLINA
Ignacio Molina
Vice President, Treasurer and
Chief Financial Officer
Date: April 30, 2013