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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

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

FOR THE YEAR ENDED DECEMBER 31, 2001

Commission file number 1-1463

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

Registrant's telephone number, including area code: 203-794-2000

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

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

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

        At March 19, 2002, 1,000 shares of common stock were outstanding, all of which were held by the registrant's parent, The Dow Chemical Company.

        The registrant meets the conditions set forth in General Instructions I(1)(a) and (b) for Form 10-K and is therefore filing this form with a reduced disclosure format.

Documents Incorporated by Reference
None

Union Carbide Corporation

ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended December 31, 2001

TABLE OF CONTENTS

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PART I

ITEM 1. BUSINESS

        Union Carbide Corporation (the "Corporation" or "UCC") is a worldwide chemicals and polymers company. In addition to its consolidated operations, the Corporation participates in partnerships and joint ventures (together, "nonconsolidated affiliates"). On February 6, 2001, after receiving clearance from the U.S. Federal Trade Commission, the Canadian Competition Bureau and other jurisdictions around the world, the Corporation merged with a subsidiary of The Dow Chemical Company ("Dow"), and the Corporation became a wholly owned subsidiary of Dow (with regard to the merger, the "Dow Merger").

        The Corporation's business activities are no longer operated as separate business units. Dow conducts its worldwide operations through global businesses. This results in the Corporation's business activities comprising components of Dow's global businesses rather than stand-alone operations. Prior to the Dow Merger, the Corporation was managed as two separate business segments—Specialties and Intermediates, and Basic Chemicals and Polymers, as well as a nonoperating segment ("Other"). The following is a description of the Corporation's principal products.

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

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

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

        Organic Intermediates, Solvents, & Monomers—include oxo aldehydes, acids and alcohols, used as chemical intermediates and industrial solvents and in herbicides, plasticizers, paint dryers, jet-turbine lubricants, lube oil additives, perfumes and food and feed preservatives; esters, which serve as solvents in industrial coatings and printing inks and in the manufacturing processes for pharmaceuticals and polymers.

        Wire and Cable—polyolefin-based compounds for high-performance insulation, semiconductives and jacketing systems for power distribution, telecommunications and flame-retardant wire and cable. Other products are used in adhesives, laminating film and flexible hose and tubing.

        UCAR Emulsion Systems—water-based emulsions used as key components in decorative and industrial paints, adhesives, textile products and construction products, such as caulks and sealants.

        Polyethylene—linear low-, medium- and high-density polyethylenes, used in high-volume applications such as housewares; milk, water, bleach and detergent bottles; grocery sacks; trash bags;

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packaging; water and gas pipe, and FLEXOMER very low-density polyethylene resins, used as impact modifiers in other polymers and to produce flexible hose and tubing, frozen-food bags and stretch wrap.

        Technology Licensing and Catalysts—includes licensing of UNIPOL polypropylene process, as well as licensing of new polyethylene technologies, which are handled through Univation Technologies, LLC, a 50:50 joint venture, as well as licensing of technologies for the production of ethylene oxide, ethylene glycol and oxo alcohols. Products also include process-related catalysts.

        Water Soluble Polymers—polymers used in a wide range of applications for their unique properties in aqueous systems. Key product lines include CELLOSIZE hydroxyethyl cellulose, POLYOX water soluble resins and a variety of cellulose-, glucose- and lanolin-based materials supplied to the personal care industry. Key applications include paints, pharmaceuticals, oil-field drilling fluids, paper, construction materials and industrial adhesives and binders.

Competition

        The chemical industry has been historically competitive and this condition is expected to continue. The chemical divisions of the major international oil companies also provide substantial competition both in the United States and abroad. The Corporation competes worldwide on the basis of quality, price and customer service.

Research and Development

        The Corporation is engaged in a continuous program of basic and applied research to develop new products and processes, to improve and refine existing products and processes and to develop new applications for existing products. Research and Development expenses were $134 million in 2001 compared with $227 million in 2000. Certain of the Corporation's nonconsolidated affiliates conduct research and development within their business fields.

Patents, Licenses and Trademarks

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

Principal Partly Owned Companies

        UCC's principal nonconsolidated affiliates for 2001 and the Corporation's ownership interest in each are listed below:

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EQUATE Petrochemical Company K.S.C. ("EQUATE")—45 percent—a Kuwait-based company that manufactures ethylene, polyethylene and ethylene glycol.



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UOP LLC—50 percent—a U.S. company that supplies process technology, catalysts, molecular sieves and adsorbents to the petrochemical and gas-processing industries worldwide.



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Nippon Unicar Company Limited—50 percent—a Japan-based manufacturer of polyethylene and specialty polyethylene compounds and specialty silicone products.



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The OPTIMAL Group [consisting of OPTIMAL Chemicals (Malaysia) Sdn Bhd—50 percent; OPTIMAL Glycols (Malaysia) Sdn Bhd—50 percent; and OPTIMAL Olefins (Malaysia) Sdn Bhd—24 percent]—Malaysian companies constructing an ethane/propane cracker, an ethylene

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glycol facility and a production facility for ethylene and propylene derivatives within a world-scale, integrated chemical complex located in Kerteh, Terengganu, Malaysia. Manufacturing will begin in 2002.

•

World Ethanol Company—50 percent—a U.S. based company that supplies ethanol worldwide.

Financial Information About Foreign and Domestic Operations and Export Sales

        In 2001, the Corporation derived 34 percent of its sales to external customers and had 2 percent of its property investment outside the United States. Due to the exchange of ownership interests in the majority of the Corporation's significant foreign subsidiaries with Dow (see Note C to the Consolidated Financial Statements), the amount of sales to external customers and assets outside the United States will not be material to the Corporation beginning in 2002, except for certain foreign-based nonconsolidated affiliates. See Note R to the Consolidated Financial Statements for information on sales to external customers and long-lived assets by geographic area.

Protection of the Environment

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

ITEM 2. PROPERTIES

        The Corporation operates 22 manufacturing sites in seven countries. The Corporation considers that its properties are in good operating condition and that its machinery and equipment have been well maintained. The following are the major production sites:

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

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

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

ITEM 3. LEGAL PROCEEDINGS

        The Corporation and its subsidiaries are involved in a number of legal proceedings and claims with both private and governmental parties. These cover a wide range of matters, including, but not limited to: product liability; trade regulation; governmental regulatory proceedings; health, safety and environmental matters; employment; patents; contracts; taxes; and commercial disputes. In some of these legal proceedings and claims, the cost of remedies that may be sought or damages claimed is substantial.

        Separately, the Corporation is involved in a large number of asbestos-related suits filed, for the most part, in various state courts at various times over the past three decades. These suits principally allege personal injury resulting from exposure to asbestos-containing products and frequently seek both general and punitive damages, often in very large amounts. 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 divested subsidiary—Amchem Products, Inc. ("Amchem").

        Typically, the Corporation is only one of many named defendants, many of which, including UCC and Amchem, were members of the Center for Claims Resolution ("CCR") which sought to resolve

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asbestos cases on behalf of its members. The CCR has ceased operating in this manner although it still administers certain settlements. The Corporation now utilizes Peterson Asbestos Claims Enterprise for claims processing and insurance invoicing.

        During the third quarter of 2001, plaintiffs filed asbestos-related suits against the Corporation and Amchem at a rate greater than the historical average, but filings returned to a lower rate during the fourth quarter. This third quarter increase in claims against UCC and Amchem was influenced by the bankruptcy filings of several former CCR members. The Corporation expects more asbestos-related suits to be filed against it and Amchem in the future. The Corporation cannot estimate the range of liability that will result from these future cases. The Corporation will aggressively defend or reasonably resolve, as appropriate, both pending and future cases. To date, substantially all of the amounts paid by the Corporation to resolve asbestos-related suits have been covered by third-party insurance.

        For pending cases, the Corporation had asbestos-related litigation accruals of $233 million and $118 million at December 31, 2001 and 2000, respectively, and related insurance recovery receivables of $223 million and $108 million at December 31, 2001 and 2000, respectively. Defense and resolution costs for asbestos-related litigation were $53 million, $53 million and $44 million for 2001, 2000 and 1999, respectively, of which $51 million, $50 million and $43 million were reimbursed by insurance carriers. In addition, at December 31, 2001, the Corporation had other litigation accruals, unrelated to environmental or asbestos litigation, of $15 million and related insurance recovery receivables of $15 million.

        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 the ultimate outcome of all known and future claims, after provisions for insurance, will not have a material adverse effect on the consolidated financial position of the Corporation, but could have a material effect on consolidated results of operations in a given quarter or year. Should any losses be sustained in connection with any of such legal proceedings and claims in excess of provisions provided and available insurance, they will be charged to income when determinable.

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

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

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PART II

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

        Prior to the Dow Merger on February 6, 2001, the principal market for the Corporation's common stock was the New York Stock Exchange, under the symbol "UK." The stock was also listed on the Chicago and Pacific stock exchanges in the United States. Effective upon the Dow Merger, there is no longer a public trading market for the Corporation's common stock, as the Corporation became a wholly owned subsidiary of Dow.

ITEM 6. SELECTED FINANCIAL DATA

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

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        Pursuant to General Instruction I of Form 10-K, this section includes only management's narrative analysis of the results of operations for the year ended December 31, 2001, the most recent fiscal year, compared with the year ended December 31, 2000, the fiscal year immediately preceding it.

Forward-Looking Information

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

Introductory Notes to Readers

        On February 6, 2001, the Corporation merged with a wholly owned subsidiary of The Dow Chemical Company ("Dow", and with regard to the merger, the "Dow Merger"). As a result of the Dow Merger, each share of the Corporation's common stock outstanding immediately prior to the Dow Merger was exchanged for 1.611 shares of Dow common stock and the Corporation became a wholly owned subsidiary of Dow. The Dow Merger received clearance from the U.S. Federal Trade Commission, the European Commission and the Canadian Competition Bureau, subject to the divestiture of certain assets and the contribution of UNIPOL polyethylene technology licensing and polyethylene conventional catalyst businesses of the Corporation to one of its joint ventures, Univation Technologies, LLC. The transaction is intended to qualify as a tax-free reorganization for U.S. federal income tax purposes.

        In order to realize synergies of the Dow Merger, the Corporation and/or certain subsidiaries entered into several agreements with Dow and/or subsidiaries to combine legal entities in Europe, Latin America and Canada. In exchange for the contribution of ownership interests, the Corporation directly or indirectly received stock in each acquiring company equal to the book value of the net assets the Corporation contributed. See Note C to the Consolidated Financial Statements.

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Results of Operations

        The Corporation reported a net loss of $699 million for 2001, compared with net income of $162 million for 2000. The results for 2001 were impacted by a special charge of $1.2 billion ($770 million after tax) related to the Dow Merger (see Note B to the Consolidated Financial Statements).

        Like other companies in the chemical industry, UCC experienced the most difficult industry conditions that have existed in many years. The tragic events that occurred on September 11 further eroded consumer confidence and dampened the outlook for the global economy. The Corporation's results for the year reflect the significant negative impact of these macroeconomic and industry conditions.

        Total net sales for 2001 decreased 17 percent to $5.4 billion from $6.5 billion in 2000. Net trade sales for 2001 declined 41 percent to $3.9 billion from $6.5 billion in 2000. In the second quarter of 2001, the Corporation commenced selling product to its parent company, Dow. Sales to Dow in 2001 were $1.5 billion. The effect of the related company sales accounted for a portion of the decline in trade sales for the year. Further declines in net trade sales resulted from a decline in average selling prices while volume remained relatively flat. Declines in average selling prices occurred for almost all products in 2001, as compared with 2000. Eroding average selling prices reflect the market's response to declines in raw materials and energy costs, coupled with declines due to competitive market pressures. Volume declines were most significant in oxide derivatives, licensing, and ethylene oxide/ethylene glycol ("EO/EG"). While most of these declines related to market demand, especially in EO/EG and organic intermediates, solvents and monomers, other declines reflected the Corporation's decision to forego lower margin sales.

        Cost of sales declined $774 million (13 percent) in 2001 compared with 2000. The cost of oil and natural gas-related raw materials and energy continued to drop throughout the year from the high levels experienced in 2000 and the beginning of 2001. Competitive pressures in the beginning of 2001, for most products, prevented the Corporation from raising average selling prices enough to totally offset the increase in raw material costs the Corporation experienced throughout 2000 and the beginning of 2001.

        Earnings before interest, taxes, and minority interests ("EBIT") was a loss of $1.2 billion in 2001, compared with income of $316 million in 2000. EBIT for 2001 declined primarily as a result of merger-related expenses and restructuring charges of $1.2 billion (see Note B to the Consolidated Financial Statements) and lower profit margins.

        In 2001, research and development expenses declined $93 million, and selling, general and administrative expenses declined $94 million compared with 2000. These declines were primarily the result of realizing cost synergies associated with the Dow Merger.

        Insurance and finance company operations, pretax income (loss) declined from pretax income of $17 million in 2000 to a pretax loss of $4 million in 2001. The decline is primarily attributable to a reduction in investment income related to poor economic conditions coupled with a decline in policy income as the Corporation's insurance subsidiary continues to novate its policies to an insurance subsidiary of Dow.

        Equity in earnings of nonconsolidated affiliates decreased from $83 million in 2000 to $50 million in 2001. The decline was primarily due to the absence of earnings from Polimeri Europa S.r.l., which was required to be divested in April 2001 as part of the merger clearance from the European Union, and a decrease in earnings at EQUATE which resulted from weaker market conditions, primarily reflected in declines in selling prices for ethylene derivatives as compared with last year.

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        Sundry income includes a variety of income and expense items such as gains and losses on sales of investments and assets, commissions, and dividends from investments. Sundry income for 2001 was a net of $0, compared with $43 million in 2000. The decline in 2001 relates primarily to the impact of related company commission expense of $40 million associated with the procurement of certain raw materials and feedstocks from a Dow subsidiary.

        Interest income for 2001 remained relatively flat compared with 2000. Interest expense and amortization of debt discount for 2001 increased $23 million compared with 2000. The majority of this increase related to a decline of $38 million in capitalized interest in 2001. Capitalized interest for 2000 related primarily to the Corporation's olefins and polyethylene projects in Canada, both of which were completed in the second half of 2000.

        The credit for income taxes was $626 million in 2001 versus a provision of $16 million in 2000. UCC's overall effective tax rate was 47.4% for 2001, compared with 8.6% for 2000. The underlying factors affecting UCC's overall effective tax rates are summarized in Note D to the Consolidated Financial Statements.

Environmental Matters

Environmental Policies
        Prior to the Dow Merger, the Corporation and Dow both were RESPONSIBLE CARE companies, committed to the Guiding Principles of RESPONSIBLE CARE, to environmental, health and safety ("EH&S") performance improvement and to public accountability. Looking forward, this commitment will become only stronger as UCC participates in Dow's programs. Dow's EH&S management system ("EMS") and EH&S 2005 Goals will be implemented at all UCC sites in order to minimize environmental risks and impacts, both past and future.

        Dow's EH&S 2005 Goals include reducing leaks, spills, fires, explosions, work-related injuries and transportation incidents by 90 percent, and reducing chemical emissions, waste and wastewater by 50 percent. Dow's EMS defines for the businesses the "who, what, when and how" needed to achieve the policies, requirements, performance objectives, leadership expectations and public commitments. EMS is also designed to minimize the long-term cost of environmental protection and to comply with these laws and regulations. Furthermore, EMS is integrated into a company-wide Management System for EH&S, Operations, Quality and Human Resources, including implementation of the global EH&S Work Process to improve EH&S performance and to ensure ongoing compliance worldwide. It is EH&S policy that all global operations and products meet Dow's requirements or their country's laws and regulations, whichever are more stringent.

Environmental Remediation
        UCC accrues the costs of remediation of its facilities and formerly owned facilities based on current law and existing technologies. The nature of such remediation includes, for example, the management of soil and groundwater contamination and the closure of contaminated landfills and other waste management facilities. In the case of landfills and other active waste management facilities, UCC recognizes the costs over the useful life of the facility. The policies adopted to properly reflect the monetary impacts of environmental matters are discussed in Note A to the Consolidated Financial Statements. To assess the impact on the consolidated financial statements, environmental experts review currently available facts to evaluate the probability and scope of potential liabilities. Inherent uncertainties exist in such evaluations primarily due to unknown conditions, changing governmental regulations and legal standards regarding liability, and evolving technologies. These liabilities are adjusted periodically as remediation efforts progress or as additional technical or legal information becomes available. The Corporation had an accrued liability of $108 million at December 31, 2001 related to the remediation of current or former UCC-owned sites.

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        In addition to current and former UCC-owned sites, under the Federal Comprehensive Environmental Response, Compensation and Liability Act and equivalent state laws (hereafter referred to collectively as "Superfund Law"), UCC is liable for remediation of other hazardous waste sites where UCC allegedly disposed of, or arranged for the treatment or disposal of, hazardous substances. UCC readily cooperates in the remediation of these sites where the Corporation's liability is clear, thereby minimizing legal and administrative costs. Because Superfund Law imposes joint and several liability upon each party at a site, UCC has evaluated its potential liability in light of the number of other companies that also have been named potentially responsible parties ("PRPs") at each site, the estimated apportionment of costs among all PRPs, and the financial ability and commitment of each to pay its expected share. Management's estimate of the Corporation's remaining liability for the remediation of Superfund sites at December 31, 2001 was $39 million, which has been accrued, although the ultimate cost with respect to these sites could exceed that amount.

        In total, the Corporation's accrued liability for probable environmental remediation and restoration costs was $147 million at December 31, 2001, compared with $183 million at the end of 2000. This is management's best estimate of the costs for remediation and restoration with respect to environmental matters for which the Corporation has accrued liabilities, although the ultimate cost with respect to these particular matters could range up to twice that amount. It is the opinion of management that the possibility is remote that costs in excess of those accrued or disclosed will have a material adverse impact on the Corporation's consolidated financial statements.

        The amounts charged to income on a pretax basis related to environmental remediation totaled $3 million in 2001 and $18 million in 2000. Capital expenditures for environmental protection were $7 million in 2001 and $34 million in 2000.

Asbestos Related Matters

        The Corporation and its subsidiaries are involved in a number of legal proceedings and claims with both private and governmental parties. These cover a wide range of matters, including, but not limited to: product liability; trade regulation; governmental regulatory proceedings; health, safety and environmental matters; employment; patents; contracts; taxes; and commercial disputes. In some of these legal proceedings and claims, the cost of remedies that may be sought or damages claimed is substantial.

        Separately, the Corporation is involved in a large number of asbestos-related suits filed, for the most part, in various state courts at various times over the past three decades. These suits principally allege personal injury resulting from exposure to asbestos-containing products and frequently seek both general and punitive damages, often in very large amounts. 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 divested subsidiary—Amchem Products, Inc. ("Amchem").

        Typically, the Corporation is only one of many named defendants, many of which, including UCC and Amchem, were members of the Center for Claims Resolution ("CCR") which sought to resolve asbestos cases on behalf of its members. As members of the CCR, the Corporation's and Amchem's strategy was to settle claims as two relatively small (percentage wise) members of the CCR group. The CCR has ceased operating in this manner although it still administers certain settlements. The Corporation now utilizes Peterson Asbestos Claims Enterprise for claims processing and insurance invoicing.

        During the third quarter of 2001, plaintiffs filed asbestos-related suits against the Corporation and Amchem at a rate greater than the historical average, but filings returned to a lower rate during the fourth quarter. This third quarter increase in claims against UCC and Amchem was influenced by the bankruptcy filings of several former CCR members. More recently filed cases against the Corporation

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and Amchem contain a greater percentage of claims that do not allege a particular injury ("Non-Specific Claims").

        Dow now owns 100 percent of the Corporation and has been retained to provide its experience in mass tort litigation to manage the Corporation's response to asbestos-related liability. The Corporation has hired new outside counsel to serve as national trial counsel to aggressively defend or reasonably resolve, as appropriate, both pending and future cases. The Corporation expects more asbestos-related suits to be filed against it and Amchem in the future. The Corporation cannot estimate the range of liability that will result from these future cases. As a consequence of all of the above-stated facts, the Corporation lacks any remotely comparable loss history from which to assess either the number of or the value of future claims. To date, substantially all of the amounts paid by the Corporation to resolve asbestos-related suits have been covered by third-party insurance.

        For pending cases, the Corporation had asbestos-related litigation accruals of $233 million and $118 million at December 31, 2001 and 2000, respectively, and related insurance recovery receivables of $223 million and $108 million at December 31, 2001 and 2000, respectively. The litigation accrual at December 31, 2001, was determined by considering the number of pending claims filed against the Corporation and Amchem, taking into account claims administration records indicating the severity of the alleged injury. Because many of the pending claims are Non-Specific Claims, the Corporation has calculated several probable liability outcomes based on estimates and historic distributions of personal injury claim types and settlement and resolution amounts. The liability estimates ranged from a low of $158 million to a high of $277 million. Upon review by management, it was determined that the most reasonable estimate was $233 million, which is well within the estimable range. The Corporation's asbestos litigation accrual at December 31, 2001, increased compared with the end of 2000 principally as a result of the higher level of claims that were filed during the third quarter of 2001.

        The insurance receivable for asbestos-related liability at December 31, 2001, was determined after a thorough review of applicable insurance policies and the 1985 Wellington Agreement, to which the Corporation and many of its liability insurers are signatory parties, as well as other insurance settlements, with due consideration given to applicable deductibles, retentions, and policy limits, and taking into account the solvency and historical payment experience of various insurance carriers. The insurance receivable associated with the most reasonable probable liability outcome for pending claims is $223 million and has been recorded. This resulted in a net income statement impact to the Corporation of $2 million for asbestos-related expense in 2001. In all of the probable outcomes for pending claims, sufficient insurance coverage exists to provide a similar percentage of coverage for the accrued liability. If the maximum probable outcome were in fact to materialize, the impact would be an additional charge of $2 million to income, which is not material to the financial statements. In addition, insurance is available for future claims.

        The amounts recorded for the litigation accrual and related insurance receivable are based upon currently known facts. If the number of claims and the cost to resolve such claims differ from the current assumptions used by management in arriving at its estimates for the recorded amounts, this may impact management's future assessments of the ultimate outcome of asbestos-related legal proceedings.

        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 the ultimate outcome of all known and future claims, after provisions for insurance, will not have a material adverse effect on the consolidated financial position of the Corporation, but could have a material effect on consolidated results of operations in a given quarter or year. 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.

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Accounting Changes

        See Note A to the Consolidated Financial Statements for a discussion of accounting changes.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

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

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

        See Notes J and K to the Consolidated Financial Statements for further disclosure regarding market risk.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Independent Auditors' Report

To the Board of Directors and Stockholder of Union Carbide Corporation:

        We have audited the accompanying consolidated balance sheet of Union Carbide Corporation and subsidiaries as of December 31, 2001, and the related consolidated statements of operations, stockholders' equity, comprehensive income and cash flows for the year then ended. Our audit also included the financial statement schedule listed at Item 14(a) 2 for the year ended December 31, 2001. These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audit. The financial statements and financial statement schedule of the Company for the two years ended December 31, 2000, were audited by other auditors whose report, dated January 22, 2001, except as to Note 17, which was as of February 6, 2001, expressed an unqualified opinion on those statements.

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

        In our opinion, the 2001 consolidated financial statements present fairly, in all material respects, the financial position of the Company and its subsidiaries at December 31, 2001, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule for 2001, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

    /s/ DELOITTE & TOUCHE LLP    
DELOITTE & TOUCHE LLP
Midland, Michigan
February 13, 2002

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA—CONTINUED

Independent Auditors' Report

To the Board of Directors of Union Carbide Corporation:

        We have audited the consolidated balance sheet of Union Carbide Corporation and subsidiaries as of December 31, 2000, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the years in the two-year period ended December 31, 2000. Our audit also included the financial statement schedule listed at Item 14(a) 2 for the each of the years in the two-year period ended December 31, 2000. These consolidated financial statements and the financial statement schedule are the responsibility of the company's management. Our responsibility is to express an opinion on these consolidated financial statements and the financial statement schedule based on our audits.

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

        In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Union Carbide Corporation and subsidiaries at December 31, 2000, and the results of their operations and their cash flows for each of the years in the two-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule for each of the years in the two-year period ended December 31, 2000, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

    /s/ KPMG LLP    
KPMG LLP
Stamford, CT
January 22, 2001, except as to Note 17, which is as of February 6, 2001

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Union Carbide Corporation and Subsidiaries
Consolidated Statements of Operations

See Notes to the Consolidated Financial Statements.

15

Union Carbide Corporation and Subsidiaries
Consolidated Balance Sheets

See Notes to the Consolidated Financial Statements.

16

Union Carbide Corporation and Subsidiaries
Consolidated Balance Sheets

See Notes to the Consolidated Financial Statements.

17

Union Carbide Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity

See Notes to the Consolidated Financial Statements.

18

Union Carbide Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)

See Notes to the Consolidated Financial Statements.

19

Union Carbide Corporation and Subsidiaries
Consolidated Statements of Cash Flows

See Notes to the Consolidated Financial Statements.

20

Union Carbide Corporation and Subsidiaries

Notes to Consolidated Financial Statements

Dollars in millions, except as noted

A    Summary of Significant Accounting Policies and Accounting Changes

Principles of Consolidation and Basis of Presentation

        Except as otherwise indicated by the context, the terms "Corporation" and "UCC" as used herein mean Union Carbide Corporation and its consolidated subsidiaries. On February 6, 2001, Union Carbide Corporation merged with a wholly owned subsidiary of The Dow Chemical Company ("Dow" and, with regard to the merger, the "Dow Merger"). As a result of the Dow Merger, each share of the Corporation's common stock was exchanged for 1.611 shares of Dow common stock and UCC became a wholly owned subsidiary of Dow.

        The accompanying consolidated financial statements of the Corporation include the assets, liabilities, revenues and expenses of all majority-owned subsidiaries over which the Corporation exercises control and for which control is other than temporary. Intercompany transactions and balances are eliminated in consolidation. Investments in nonconsolidated affiliates (20-50 percent owned companies) are accounted for on the equity basis.

        Certain reclassifications of prior years' amounts have been made to conform to the presentation adopted for 2001.

        In accordance with Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share," the presentation of earnings per share is not required in financial statements of wholly owned subsidiaries.

Related Companies

        Transactions with the Corporation's parent company, Dow, or other Dow subsidiaries have been reflected as related company transactions in the consolidated financial statements. See Note K for further discussion.

Use of Estimates in Financial Statement Preparation

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

Foreign Currency Translation

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

Environmental Matters

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

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technologies. These accruals are adjusted periodically as assessment and remediation efforts progress or as additional technical or legal information becomes available. Accruals for environmental liabilities are included in the consolidated balance sheets in "Other noncurrent obligations" at undiscounted amounts.

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

Cash and Cash Equivalents

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

Financial Instruments

        The Corporation calculates the fair value of financial instruments using quoted market prices whenever available. When quoted market prices are not available for various types of financial instruments (such as forwards, options and swaps), the Corporation uses standard pricing models, which take into account the present value of estimated future cash flows. Derivative instruments not designated as hedges are marked-to-market at the end of each accounting period with the results included in income.

Inventories

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

Property

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

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

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Investments

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

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

Revenue

        Sales are recognized when the revenue is realized or realizable, and has been earned. In general, revenue is recognized as risk and title to the product transfers to the customer, which usually occurs at the time shipment is made; as services are rendered; or in relation to licensee production levels.

Income Taxes

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

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

Accounting Changes

        In 1998, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," which requires capitalization of certain internal-use computer software costs. SOP 98-1 was adopted by the Corporation on January 1, 1999. The adoption of SOP 98-1 did not have a material impact on the Corporation's consolidated financial statements.

        In 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-Up Activities," which provides guidance on the financial reporting of start-up costs and organization costs, requiring those costs to be expensed as incurred. The Corporation's previous accounting policy regarding the treatment of these costs was substantially consistent with SOP 98-5, with the exception of certain nonconsolidated affiliates, which capitalized the cost of start-up activities. Therefore, adoption of this standard on January 1, 1999 resulted in a charge of $27 ($20 after tax) as a cumulative effect of change in accounting principle.

        In December 1999, the U.S. Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") 101, "Revenue Recognition in Financial Statements," which summarizes the SEC's

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views in applying generally accepted accounting principles to revenue recognition. The Corporation adopted the provisions of SAB 101 on October 1, 2000, the effect of which was not material to the Corporation's consolidated financial statements.

        In May 2000, the Emerging Issues Task Force ("EITF") of the Financial Accounting Standards Board ("FASB") reached a consensus with respect to EITF Issue 00-10, "Accounting for Shipping and Handling Fees and Costs." EITF 00-10 recognizes the inconsistencies in practice with regard to the recording of shipping and handling costs incurred by most companies that sell goods. The Corporation's previous accounting policy regarding the treatment of these costs was consistent with EITF 00-10; therefore adoption of this consensus did not have a material impact on the Corporation's consolidated financial statements.

        In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." This statement, which replaces SFAS No. 125, revises the standards for accounting for securitizations and other transfers of financial assets and collateral, and requires certain disclosures, but it carries over most of the provisions of SFAS No. 125 without reconsideration. SFAS No. 140 was effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. It is effective for recognition and reclassifications of collateral and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. The adoption of SFAS No. 140 did not have a material impact on the Corporation's consolidated financial statements. See Note Q regarding sales of certain qualifying accounts receivables.

        The FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," in June 1998. SFAS No. 133 requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities—Deferral of the Effective Date of FASB Statement No. 133." In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities," an amendment of SFAS No. 133. Effective January 1, 2001, the Corporation adopted SFAS No. 133, as amended by SFAS No. 137 and SFAS No. 138, and as interpreted by the FASB and the Derivatives Implementation Group through "Statement 133 Implementation Issues." Due to the Corporation's limited use of financial instruments to manage its exposure to market risks, primarily related to changes in foreign currency exchange rates, the adoption of SFAS No. 133 did not have a material impact on the Corporation's consolidated financial statements.

        In July 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." These statements replace Accounting Principles Board ("APB") Opinion No. 16, "Business Combinations," and APB Opinion No. 17, "Intangible Assets," respectively. Under SFAS No. 141 all business combinations initiated after June 30, 2001 are accounted for using only the purchase method. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. Under this statement, goodwill will not be amortized, but will be subject to impairment testing, with the exception of goodwill arising from investments in nonconsolidated affiliates, which will continue to be subject to the impairment provisions of APB No. 18, "The Equity Method of Accounting for Investments in Common Stock." Amortization of existing goodwill ($3 in 2001, $8 in 2000 and $8 in 1999) will cease upon adoption of SFAS No. 142 effective January 1, 2002. The results of the Corporation's goodwill impairment test indicated no impairment.

        In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations," which requires an entity to record the fair value of a liability for an asset retirement obligation in the

24

period in which it is incurred and a corresponding increase in the related long-lived asset. The liability is adjusted to its present value each period and the asset is depreciated over its useful life. A gain or loss may be incurred upon settlement of the liability. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. The Corporation is currently assessing the impact of adopting this statement.

        In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which replaces SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," and provisions of APB Opinion No. 30, "Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," for the disposal of segments of a business. The statement creates one accounting model, based on the framework established in SFAS No. 121, to be applied to all long-lived assets including discontinued operations. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. The Corporation determined that its current accounting policy for the impairment of long-lived assets is consistent with SFAS No. 144.

B    Merger-related Expenses and Restructuring

        On March 29, 2001, management made certain decisions relative to employment levels, duplicate assets and facilities and excess capacity resulting from the Dow Merger. These decisions were based on management's assessment of the actions necessary to achieve synergies as a result of the Dow Merger. The economic effects of these decisions, combined with merger-related transaction costs and certain asset impairments, resulted in a pretax special charge in the first quarter of 2001 of $1,275 which was reduced by $52 in subsequent quarters.

        The special charge included $629 for employee-related costs, which consisted predominantly of provisions for employee severance, change of control obligations, medical and retirement benefits, and outplacement services. The charge was increased by $3 during the year as the original estimates of amounts expected to be paid were further refined. The integration plans include a workforce reduction of approximately 4,200 people. The charge for severance was based upon the severance plan provisions communicated to employees. The Corporation expects that approximately 66 percent of the employee-related costs will be expended in cash within the first two years following the Dow Merger, though the timing of severance payments is dependent upon employee elections. Expenditures with respect to employee-related costs associated with pension and postretirement benefit plans will occur over a much more extended period that is not currently determinable. As of December 31, 2001, severance of approximately $327 had been paid to approximately 2,900 former employees.

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

        The special charge included $605 for the write-down of duplicate assets and facilities directly related to the Dow Merger, the loss on divestitures required to obtain regulatory approval for the Dow Merger, asset impairments and lease abandonment reserves. Duplicate assets consist principally of capitalized software costs, information technology equipment and research and development facilities and equipment, all of which were written off during the first quarter. The fair values of the impaired assets, which include production facilities and transportation equipment, were determined based on discounted cash flows and an appraisal, respectively. These components of the special charge will require limited future cash outlays, and will result in a decrease in annual depreciation of approximately $62. In November 2001, the decision to close a research and development facility in

25

Bound Brook, New Jersey was reversed, in light of difficult economic conditions; the facility will now remain open until at least 2005. Consequently, $55 of the special charge was reversed during the fourth quarter. At December 31, 2001, $77 of the reserve remained for the abandonment of leased facilities and demolition costs.

        The following table summarizes the activity in the special charge reserve for 2001:

C    Exchange of Ownership Interests with Related Companies

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

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

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

        Investments in the Dow subsidiaries have been accounted for using the cost method and have been included in "Investments in related companies" in the consolidated balance sheet at the book values of the net assets contributed.

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        The following table presents the combined summarized balance sheet and income statement data of the contributed entities at their respective contribution dates.

Summarized Balance Sheet Information

Summarized Income Statement Information

D    Income Taxes

        Operating loss carryforwards at December 31, 2001 amounted to $1,094 compared with no operating loss carryforwards at the end of 2000. Of the operating loss carryforwards, $4 is subject to expiration in the years 2002 through 2006. The remaining balances expire in years beyond 2006 or have an indefinite carryforward period. Tax credit carryforwards at December 31, 2001 amounted to $179, of which $86 is subject to expiration in the years 2002 through 2006. The remaining tax credit carryforwards expire in years beyond 2006.

        Undistributed earnings of foreign subsidiaries and related companies which are deemed to be permanently invested amounted to $136 at December 31, 2001, $498 at December 31, 2000 and $511 at December 31, 1999. It is not practicable to calculate the unrecognized deferred tax liability on those earnings.

Domestic and Foreign Components of Income (Loss) before Income Taxes and Minority Interests

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Reconciliation to U.S. Statutory Rate

(1)

2001 is primarily the impact of reassessing tax contingencies based on U.S. tax audit settlements, new jurisprudence and developments in foreign jurisdictions.
    

Provision (Credit) for Income Taxes

Deferred Tax Balances at December 31

E    Inventories

        The reserves required to adjust inventories from the first-in, first-out ("FIFO") basis to the last-in, first-out ("LIFO") basis amounted to a decrease of $198 at December 31, 2001 and a decrease of $338 at December 31, 2000. The inventories that were valued on a LIFO basis, principally U.S. chemicals and plastics product inventories, represented 37 percent of the total inventories at December 31, 2001 and 54 percent of the total inventories at December 31, 2000.

        A reduction of certain inventories resulted in the liquidation of some quantities of LIFO inventory, which reduced pretax loss $53 in 2001 and $0 in 2000 and 1999. The reduction was primarily due to the sale of warehouse and terminal inventories to Dow during the second quarter of 2001.

F    Significant Nonconsolidated Affiliates

        The Corporation's investments in related companies accounted for by the equity method ("nonconsolidated affiliates") were $565 at December 31, 2001 and $1,008 at December 31, 2000. At

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December 31, 2001, the Corporation's investment in EQUATE Petrochemical Company K.S.C. ("EQUATE") was $111 less than its proportionate share of the underlying net assets ($125 at December 31, 2000). The difference represents the adjustment to reflect the assets of EQUATE on a U.S. GAAP basis and as such is being amortized over the remaining six-year useful life of the assets. The Corporation's investment in nonconsolidated affiliates (except EQUATE) approximated its share of the underlying net assets of the investee. Any differences are considered goodwill and are amortized over the estimated useful lives.

        The summarized financial information below represents the combined accounts (at 100 percent) of the principal nonconsolidated affiliates: EQUATE; Petromont; Nippon Unicar Company Limited; UOP LLC; World Ethanol Company; the OPTIMAL Group [consisting of OPTIMAL Chemicals (Malaysia) Sdn Bhd, OPTIMAL Olefins (Malaysia) Sdn Bhd and OPTIMAL Glycols (Malaysia) Sdn Bhd]; and Polimeri Europa S.r.l. ("Polimeri Europa"). The Corporation's investment in these companies was $565 at December 31, 2001 and $1,006 at December 31, 2000 and its equity in their earnings was $63 in 2001, $96 in 2000 and $71 in 1999.

        In order to satisfy the European Commission's condition for approval of the Dow Merger, the Corporation divested its 50 percent interest in Polimeri Europa to EniChem S.p.A. in April 2001. The summarized balance sheet and income statement information for 2001 does not include the results of Polimeri Europa (see Note B).

        On October 1, 2001, the Corporation contributed all of its ownership interest in UCCI to DCCI (see Note C). This transaction included UCCI's equity investment in Petromont. As a result, the summarized balance sheet information for 2001 does not include Petromont. The summarized income statement information for 2001 includes Petromont's results through September 30, 2001.

Summarized Balance Sheet Information at December 31

Summarized Income Statement Information

        During the third quarter of 2001, the Corporation, Petroliam Nasional Berhad (Petronas) and Polifin International Investments (PTY) Ltd. entered into agreements with the OPTIMAL Group to provide loans and drawing facilities to the OPTIMAL Group with terms expiring between September 2007 and September 2009. The loans and drawing facilities bear floating interest rates based on the six month London Interbank Offer Rate ("LIBOR") and are payable by the respective

29

OPTIMAL Group members. During the third quarter of 2001, $313 of advances previously made by the Corporation to the OPTIMAL Group were converted into loans and reclassified from "Investments in nonconsolidated affiliates" to "Noncurrent receivables" in the consolidated balance sheet. During the fourth quarter of 2001, the loan amount increased to $341 and was sold to a third party.

        Dividends received from nonconsolidated affiliates were $10 in 2001, $42 in 2000 and $75 in 1999.

G    Property

Property at December 31

H    Leased Property

        Leases that meet any of the criteria for capitalization have been classified and accounted for as capital leases. Operating leases primarily involve facilities and distribution equipment.

30

        For operating leases, the future minimum rental payments under leases with remaining non-cancelable terms in excess of one year are:

Minimum Operating Lease Commitments at December 31, 2001