UNION CARBIDE CORP /NEW/ - FORM 10-Q

Attached files

file	filename
EX-23 - UNION CARBIDE CORP /NEW/	ucc3q10ex23.htm
EX-32.1 - UNION CARBIDE CORP /NEW/	ucc3q10ex32_1.htm
EX-32.2 - UNION CARBIDE CORP /NEW/	ucc3q10ex32_2.htm
EX-31.2 - UNION CARBIDE CORP /NEW/	ucc3q10ex31_2.htm
EX-31.1 - UNION CARBIDE CORP /NEW/	ucc3q10ex31_1.htm
EX-10.5.8 - UNION CARBIDE CORP /NEW/	ucc3q10ex105_8.htm
EX-10.7.4 - UNION CARBIDE CORP /NEW/	ucc3q10ex107_4.htm
EX-10.7.3 - UNION CARBIDE CORP /NEW/	ucc3q10ex107_3.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended SEPTEMBER 30, 2010 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. þ 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). o 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 þ	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 þ No

At September 30, 2010, 1,000 shares of common stock were outstanding, all of which were held by the registrant’s parent, The Dow Chemical Company. The registrant meets the conditions set forth in General Instructions H(1)(a) and (b) for Form 10-Q and is therefore filing this form with a reduced disclosure format.

Union Carbide Corporation

QUARTERLY REPORT ON FORM 10-Q

For the quarterly period ended September 30, 2010

TABLE OF CONTENTS

	PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.	3
Consolidated Statements of Income	3
Consolidated Balance Sheets	4
Consolidated Statements of Cash Flows	5
Consolidated Statements of Equity	6
Consolidated Statements of Comprehensive Income	6
Notes to the Consolidated Financial Statements	7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.	17
Disclosure Regarding Forward-Looking Information	17
Results of Operations	17
Other Matters	19
Item 3. Quantitative and Qualitative Disclosures About Market Risk.	22
Item 4. Controls and Procedures.	22
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.	22
Item 1A. Risk Factors.	22
Item 6. Exhibits.	22
SIGNATURES	23
EXHIBIT INDEX	24

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements.

Union Carbide Corporation and Subsidiaries
Consolidated Statements of Income

	Three Months Ended				Nine Months Ended
	Sept. 30,		Sept. 30,		Sept. 30,		Sept. 30,
In millions (Unaudited)	2010		2009		2010		2009
Net trade sales	$	40	$	35	$	131	$	113
Net sales to related companies		1,663		1,322		4,781		3,573
Total Net Sales	$	1,703	$	1,357	$	4,912	$	3,686
Cost of sales		1,453		1,145		4,518		3,224
Research and development expenses		10		10		33		37
Selling, general and administrative expenses		3		1		10		7
Restructuring charges		-		-		5		166
Equity in earnings of nonconsolidated affiliates		7		14		27		20
Sundry income - net		6		320		2		322
Interest income		12		21		43		31
Interest expense and amortization of debt discount		6		8		28		32
Income before Income Taxes	$	256	$	548	$	390	$	593
Provision for income taxes		95		222		93		183
Net Income Attributable to Union Carbide Corporation	$	161	$	326	$	297	$	410



Depreciation	$	59	$	63	$	185	$	201
Capital Expenditures	$	38	$	21	$	81	$	62
See Notes to the Consolidated Financial Statements.

Table of Contents

Union Carbide Corporation and Subsidiaries
Consolidated Balance Sheets

	Sept. 30,			Dec. 31,
In millions (Unaudited)	2010			2009
Assets
Current Assets
Cash and cash equivalents	$	25		$	22
Accounts receivable:
Trade (net of allowance for doubtful receivables - 2010: $1; 2009: $1)		22			20
Related companies		383			371
Other		155			254
Notes receivable from related companies		4,377			4,150
Inventories		225			207
Other current assets and deferred income taxes		70			109
Total current assets		5,257			5,133
Investments
Investments in related companies		972			972
Investments in nonconsolidated affiliates		121			116
Other investments		26			21
Noncurrent receivables		46			47
Noncurrent receivables from related companies		126			101
Total investments		1,291			1,257
Property
Property		7,096			7,533
Less accumulated depreciation		5,669			5,986
Net property		1,427			1,547
Other Assets
Other intangible assets (net of accumulated amortization 2010: $139; 2009: $140)		7			10
Deferred income tax assets - noncurrent		573			498
Asbestos-related insurance receivables - noncurrent		250			330
Deferred charges and other assets		66			73
Total other assets		896			911
Total Assets	$	8,871		$	8,848
Liabilities and Equity
Current Liabilities
Notes payable - related companies	$	3		$	3
Accounts payable:
Trade		212			225
Related companies		441			329
Other		27			28
Income taxes payable		260			119
Asbestos-related liabilities - current		78			115
Accrued and other current liabilities		227			195
Total current liabilities		1,248			1,014
Long-Term Debt		571			571
Other Noncurrent Liabilities
Pension and other postretirement benefits - noncurrent		817			855
Asbestos-related liabilities - noncurrent		735			734
Other noncurrent obligations		182			240
Total other noncurrent liabilities		1,734			1,829
Stockholder's Equity
Common stock (authorized and issued: 1,000 shares of $0.01 par value each)		-			-
Additional paid-in capital		312			312
Retained earnings		5,978			6,131
Accumulated other comprehensive loss		(974	)		(1,010	)
Union Carbide Corporation's stockholder's equity		5,316			5,433
Noncontrolling interests		2			1
Total equity		5,318			5,434
Total Liabilities and Equity	$	8,871		$	8,848
See Notes to the Consolidated Financial Statements.

Table of Contents

Union Carbide Corporation and Subsidiaries
Consolidated Statements of Cash Flows
	Nine Months Ended
	Sept. 30,			Sept. 30,
In millions (Unaudited)	2010			2009
Operating Activities
Net Income	$	297		$	410
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		205			219
Credit for deferred income tax		(51	)		(9	)
Earnings of nonconsolidated affiliates less than dividends received		-			7
Net gain on sale of property		(2	)		(3	)
Restructuring charges		5			166
Pension contributions		(1	)		(1	)
Gain on sale of ownership interest in nonconsolidated affiliates		-			(328	)
Other gains, net		(1	)		(4	)
Changes in assets and liabilities:
Accounts and notes receivable		(10	)		(41	)
Related company receivables		(239	)		(784	)
Inventories		(18	)		(6	)
Accounts payable		-			36
Related company payables		112			(70	)
Other assets and liabilities		265			47
Cash provided by (used in) operating activities		562			(361	)
Investing Activities
Capital expenditures		(81	)		(62	)
Change in noncurrent receivable from related company		(25	)		(5	)
Proceeds from sale of ownership interest in nonconsolidated affiliates		-			660
Proceeds from sales of property		2			6
Purchases of investments		(22	)		(17	)
Proceeds from sales of investments		17			19
Cash provided by (used in) investing activities		(109	)		601
Financing Activities
Dividends paid to stockholder		(450	)		-
Payments on long-term debt		-			(249	)
Cash used in financing activities		(450	)		(249	)
Summary
Increase (decrease) in cash and cash equivalents		3			(9	)
Cash and cash equivalents at beginning of year		22			24
Cash and cash equivalents at end of period	$	25		$	15
See Notes to the Consolidated Financial Statements.

Table of Contents

Union Carbide Corporation and Subsidiaries
Consolidated Statements of Equity
	Nine Months Ended
	Sept. 30,			Sept. 30,
In millions (Unaudited)	2010			2009
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		6,131			6,094
Net income		297			410
Dividends declared		(450	)		-
Balance at end of period		5,978			6,504
Accumulated Other Comprehensive Loss, Net of Tax
Cumulative Translation Adjustments at beginning of year		(61	)		(61	)
Translation adjustments		5			1
Balance at end of period		(56	)		(60	)
Pension and Other Postretirement Benefit Plans at beginning of year		(950	)		(783	)
Adjustments to pension and other postretirement benefit plans		31			-
Balance at end of period		(919	)		(783	)
Accumulated Investment Gain at beginning of year and end of period		1			1
Accumulated Derivative Loss at beginning of year		-			(1	)
Net hedging results		-			1
Balance at end of period		-			-
Total accumulated other comprehensive loss		(974	)		(842	)
Union Carbide Corporation's Stockholder's Equity		5,316			5,974
Noncontrolling Interests		2			1
Total Equity	$	5,318		$	5,975
See Notes to the Consolidated Financial Statements.


Union Carbide Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
	Three Months Ended						Nine Months Ended
	Sept. 30,			Sept. 30,			Sept. 30,		Sept. 30,
In millions (Unaudited)		2010			2009			2010		2009
Net Income Attributable to Union Carbide Corporation	$	161		$	326		$	297	$	410
Other Comprehensive Income, Net of Tax
Cumulative translation adjustment	$	3		$	4		$	5	$	1
Pension and other postretirement benefit plans adjustment		10			1			31		-
Net gain on cash flow hedging derivative instruments		-			1			-		1
Total other comprehensive income		13			6			36		2
Comprehensive Income Attributable to Union Carbide Corporation	$	174		$	332		$	333	$	412
See Notes to the Consolidated Financial Statements.

Table of Contents

Union Carbide Corporation and Subsidiaries

Notes to the Consolidated Financial Statements

(Unaudited)

Table of Contents

Note			Page
	A	Consolidated Financial Statements	7
	B	Recent Accounting Guidance	7
	C	Restructuring	8
	D	Divestitures	9
	E	Inventories	9
	F	Other Intangible Assets	10
	G	Financial Instruments	10
	H	Fair Value Measurements	11
	I	Commitments and Contingent Liabilities	12
	J	Pension and Other Postretirement Benefits	15
	K	Related Party Transactions	16

NOTE A CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

These statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2009.

NOTE B RECENT ACCOUNTING GUIDANCE

Recently Adopted Accounting Guidance

On January 1, 2010, the Corporation adopted Accounting Standard Update (“ASU”) 2009-16, “Transfers and Servicing (Topic 860): Accounting for Transfers of Financial Assets.” This ASU is intended to improve the information provided in financial statements concerning transfers of financial assets, including the effects of transfers on financial position, financial performance and cash flows, and any continuing involvement of the transferor with the transferred financial assets. The Corporation does not have a program to transfer financial assets; therefore, this ASU had no impact on the Corporation’s consolidated financial statements.

Table of Contents

Union Carbide Corporation and Subsidiaries

Notes to the Consolidated Financial Statements

(Unaudited)

On January 1, 2010, the Corporation adopted ASU 2009-17, “Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities,” which amended the consolidation guidance applicable to variable interest entities and required additional disclosures concerning an enterprise’s continuing involvement with variable interest entities. The Corporation does not have variable interest entities; therefore, this ASU had no impact on the Corporation’s consolidated financial statements.

On January 1, 2010, the Corporation adopted ASU 2010-06, “Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements,” which added disclosure requirements about transfers in and out of Levels 1 and 2 and separate disclosures about activity relating to Level 3 measurements and clarifies existing disclosure requirements related to the level of disaggregation and input and valuation techniques. The adoption of this guidance did not have a material impact on the Corporation’s consolidated financial statements or the related disclosures included in Note H.

Accounting Guidance Issued But Not Adopted as of September 30, 2010

In October 2009, the FASB issued ASU 2009-13, “Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements – a consensus of the FASB Emerging Issues Task Force,” which amends the criteria for when to evaluate individual delivered items in a multiple deliverable arrangement and how to allocate consideration received. This ASU is effective for fiscal years beginning on or after June 15, 2010, which is January 1, 2011 for the Corporation. The Corporation is currently evaluating the impact of adopting the guidance.

NOTE C RESTRUCTURING

2009 Restructuring

On June 30, 2009, the Board of Directors of UCC approved a restructuring plan to improve the cost effectiveness of the Corporation’s global operations. As a result, the Corporation recorded restructuring charges of $162 million in the second quarter of 2009, which included the shutdown of certain facilities and certain related capital project write-offs. In addition, due to the expected loss arising from the United States Federal Trade Commission (“FTC”) required divestiture of certain specialty latex assets resulting from Dow’s acquisition of Rohm and Haas Company, the Corporation recognized an impairment charge in the second quarter of 2009 ($114 million). Also, included in the second quarter of 2009 restructuring charge was severance of approximately $3 million for 41 people related to the plant shutdowns and corporate workforce reductions. During 2009, severance of $2 million was paid, leaving a liability at December 31, 2009 of $1 million for approximately 16 employees.

In the first quarter of 2010, the Corporation recorded an additional $5 million impairment charge related to the FTC required divestiture of the specialty latex assets due to the completion of the divestiture (see Note D for additional information on this divestiture), and paid $1 million in severance, bringing the 2009 restructuring plan to a close. The impact of the impairment charge is shown as “Restructuring charges” in the consolidated statements of income.

The following table summarizes the 2010 activities related to the Corporation’s 2009 restructuring reserve:

2010 Activities related to 2009 Restructuring In millions	Impairment of Long-lived Assets			Severance Costs			Total
Reserve balance at December 31, 2009		-		$	1		$	1
Adjustment to reserve	$	5			-			5
Charges against the reserve		(5	)		-			(5	)
Cash payments		-			(1	)		(1	)
Reserve balance at March 31, 2010		-			-			-

Table of Contents

Union Carbide Corporation and Subsidiaries

Notes to the Consolidated Financial Statements

(Unaudited)

2008 Restructuring

On December 5, 2008, the Board of Directors of UCC approved a restructuring plan to improve the cost effectiveness of the Corporation’s global operations. As a result, the Corporation recorded restructuring charges of $105 million in the fourth quarter of 2008, which included the write-off of the net book value of certain assets of $57 million and a workforce reduction to improve the cost effectiveness and to enhance the efficiency of the Corporation’s operations. The severance component of the 2008 restructuring charge was $24 million for 399 people; and costs associated with exit or disposal activities related to curtailment costs of $24 million associated with the Corporation’s defined benefit pension plans. During the first quarter of 2009, the Corporation identified an additional 50 employees to be separated under the 2008 restructuring plan, resulting in the recognition of an additional $4 million of severance cost. During 2009, severance of $23 million was paid, leaving a liability at December 31, 2009 of $5 million for approximately 59 employees.

In the nine-month period ended September 30, 2010, severance of $2 million was paid, leaving a liability of $3 million for 19 employees. The workforce reduction is expected to be completed by the end of 2010.

The following table summarizes the 2010 activities related to the Corporation’s 2008 restructuring reserve:

2010 Activities related to 2008 Restructuring In millions	Costs associated with Exit or Disposal Activities		Severance Costs			Total
Reserve balance at December 31, 2009	$	24	$	5		$	29
Cash payments		-		(2	)		(2	)
Reserve balance at September 30, 2010	$	24	$	3		$	27

NOTE D DIVESTITURES

On July 31, 2009, Dow entered into a definitive agreement that included the sale of certain specialty latex assets of the Corporation, located in the United States, Canada, Puerto Rico and Mexico, as required by the FTC for the approval of Dow’s acquisition of the Rohm and Haas Company. An impairment charge of $114 million for these assets was recognized in the second quarter of 2009 restructuring charge. The divestiture of these assets was completed on January 25, 2010. The impact of this sale on the Corporation’s consolidated financial statements was a loss of approximately $5 million related to additional impairments of these assets, which is shown as “Restructuring charges” in the consolidated statements of income (see Note C).

On September 30, 2009, the Corporation completed the sale of its ownership interest in the OPTIMAL Group of Companies (“OPTIMAL”), nonconsolidated affiliates, for $660 million. This resulted in a pretax net gain of $328 million included in “Sundry income – net.”

NOTE E INVENTORIES

The following table provides a breakdown of inventories:

Inventories In millions	Sept. 30, 2010		Dec. 31, 2009
Finished goods	$	83	$	70
Work in process		9		10
Raw materials		53		49
Supplies		80		78
Total inventories	$	225	$	207

The reserves reducing inventories from the first-in, first-out (“FIFO”) basis to the last-in, first-out (“LIFO”) basis amounted to $117 million at September 30, 2010 and $126 million at December 31, 2009.

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Union Carbide Corporation and Subsidiaries

Notes to the Consolidated Financial Statements

(Unaudited)

NOTE F OTHER INTANGIBLE ASSETS

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

Other Intangible Assets	September 30, 2010							December 31, 2009
In millions	Gross Carrying Amount		Accumulated Amortization			Net		Gross Carrying Amount		Accumulated Amortization			Net
Intangible assets with finite lives:
Licenses and intellectual property	$	33	$	(33	)		-	$	33	$	(33	)		-
Patents		2		(2	)		-		2		(1	)	$	1
Software		111		(104	)	$	7		115		(106	)		9
Total other intangible assets	$	146	$	(139	)	$	7	$	150	$	(140	)	$	10

Amortization expense for software, which is included in “Cost of sales,” was less than $1 million in the third quarter of 2010 and $1 million in the third quarter of 2009. Amortization expense for software was $3 million for the nine months ended September 30, 2010 and $4 million for the nine months ended September 30, 2009. Amortization expense for other intangible assets (not including software) was immaterial in the third quarters of 2010 and 2009 as well as for the first nine months of 2010 and 2009. Total estimated amortization expense for 2010 and the five succeeding fiscal years is as follows:

Estimated Amortization Expense for Next Five Years In millions
2010	$	4
2011	$	2
2012	$	1
2013		-
2014		-
2015		-

NOTE G FINANCIAL INSTRUMENTS

Investments

The Corporation’s investments in marketable securities, which are included in “Other investments” in the consolidated balance sheets, are classified as available-for-sale.

Investing Results In millions		Nine months ended September 30, 2010
Proceeds from sales of available-for-sale securities			$8

Portfolio managers regularly review all of the Corporation’s holdings to determine if any investments are other-than-temporarily impaired. The analysis includes reviewing the amount of temporary impairment, as well as the length of time it has been impaired. In addition, specific guidelines for each instrument type are followed to determine if an other-than-temporary impairment has occurred. At September 30, 2010 and December 31, 2009, there were no impairment indicators or circumstances that would result in a material adjustment of these investments.

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Union Carbide Corporation and Subsidiaries

Notes to the Consolidated Financial Statements

(Unaudited)

The Corporation’s investments in debt securities had contractual maturities of less than 10 years at September 30, 2010.

Fair Value of Financial Instruments
	September 30, 2010											December 31, 2009
In millions	Cost			Gain		Loss			Fair Value			Cost			Gain		Loss		Fair Value
Marketable securities (1):
Debt securities	$	21		$	1		-		$	22		$	16		$	1		-	$	17
Equity securities		1			-		-			1			1			-		-		1
Total marketable securities	$	22		$	1		-		$	23		$	17		$	1		-	$	18
Long-term debt including debt due within one year	$	(571	)	$	18	$	(20	)	$	(573	)	$	(571	)	$	73		-	$	(498	)

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

Cost approximates fair value for all other financial instruments.

The Corporation enters into foreign exchange forward contracts to hedge various currency exposures, primarily related to assets and liabilities denominated in foreign currencies. The primary business objective of the activity is to optimize the U.S. dollar value of the Corporation’s assets and liabilities. Assets and liabilities denominated in the same foreign currency are netted, and only the net exposure is hedged. The Corporation had forward contracts to buy, sell or exchange foreign currencies, the majority of which expired in the third quarter of 2010 and were immaterial. The Corporation did not designate any derivatives as hedges at September 30, 2010 or December 31, 2009.

At September 30, 2010 and December 31, 2009, nonconsolidated affiliates of the Corporation had hedging activities that were accounted for as cash flow hedges in accordance with the accounting guidance for derivatives and hedging. The Corporation’s proportionate share of the hedging results recorded in accumulated other comprehensive income by the nonconsolidated affiliates is reported as net hedging results in the Corporation’s consolidated statements of equity in accordance with the accounting guidance for reporting comprehensive income.

NOTE H FAIR VALUE MEASUREMENTS

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

Basis of Fair Value Measurements on a Recurring Basis	Significant Other Observable Inputs (Level 2)		Significant Other Observable Inputs (Level 2)
In millions	Sept. 30, 2010		Dec. 31, 2009
Assets at fair value:
Debt securities (1)		$22		$17

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

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

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

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Union Carbide Corporation and Subsidiaries

Notes to the Consolidated Financial Statements

(Unaudited)

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

Basis of Fair Value Measurements on a Nonrecurring Basis at September 30, 2009 In millions	Significant Other Unobservable Inputs (Level 3)		Total Losses
Assets at fair value:
Long-lived assets		-		$(159	)
Total assets at fair value		-		$(159	)

As part of the restructuring plan that was approved on June 30, 2009, the Corporation shut down certain manufacturing facilities and planned to divest certain specialty latex assets resulting from Dow’s acquisition of Rohm and Haas Company as required by the United States Federal Trade Commission. As a result, long-lived assets with a carrying value of $159 million were written down to fair value, less cost to sell, of zero, resulting in an impairment charge of $159 million, which was included in the second quarter of 2009 restructuring charge (see Note C). The long-lived assets were valued based on bids received from third parties and using discounted cash flow analysis based on assumptions that market participants would use. Key inputs included anticipated revenues, associated manufacturing costs, capital expenditures and discount, growth and tax rates. This divestiture was completed on January 25, 2010 (see Note D).

NOTE I COMMITMENTS AND CONTINGENT LIABILITIES

Environmental Matters

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

At September 30, 2010, the Corporation had accrued obligations of $87 million for environmental remediation and restoration costs, including $21 million for the remediation of Superfund sites. This is management’s best estimate of the costs for remediation and restoration with respect to environmental matters for which the Corporation has accrued liabilities, although the ultimate cost with respect to these particular matters could range up to approximately twice that amount. Consequently, it is reasonably possible that environmental remediation and restoration costs in excess of amounts accrued could have a material adverse impact on the Corporation’s results of operations, financial condition and cash flows. It is the opinion of the Corporation’s management, however, that the possibility is remote that costs in excess of the range disclosed will have a material adverse impact on the Corporation’s results of operations, financial condition and cash flows. Inherent uncertainties exist in these estimates primarily due to unknown environmental conditions, changing governmental regulations and legal standards regarding liability, and emerging remediation technologies for handling site remediation and restoration. At December 31, 2009, the Corporation had accrued obligations of $84 million for 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.

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.

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Notes to the Consolidated Financial Statements

(Unaudited)

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

Estimating the Liability

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

In November 2008, the Corporation requested ARPC to review the Corporation’s historical asbestos claim and resolution activity and determine the appropriateness of updating its then most recent study completed in December 2006. In response to that request, ARPC reviewed and analyzed data through October 31, 2008. The resulting study, completed by ARPC in December 2008, stated that the undiscounted cost of resolving pending and future asbestos-related claims against UCC and Amchem, excluding future defense and processing costs, through 2023 was estimated to be between $952 million and $1.2 billion. As in its earlier studies, ARPC provided estimates for a longer period of time in its December 2008 study, but also reaffirmed its prior advice that forecasts for shorter periods of time are more accurate than those for longer periods of time.

In December 2008, based on ARPC’s December 2008 study and the Corporation’s own review of the asbestos claim and resolution activity, the Corporation decreased the asbestos-related liability for pending and future claims to $952 million, which covered the 15-year period ending in 2023, excluding future defense and processing costs. The reduction was $54 million and was shown as “Asbestos-related credit” in the consolidated statements of income. At December 31, 2008, the asbestos-related liability for pending and future claims was $934 million.

In November 2009, the Corporation requested ARPC to review the Corporation’s 2009 asbestos claim and resolution activity and determine the appropriateness of updating its December 2008 study. In response to that request, ARPC reviewed and analyzed data through October 31, 2009. In December 2009, ARPC stated that an update of its study would not provide a more likely estimate of future events than the estimate reflected in its study of the previous year and, therefore, the estimate in that study remained applicable. Based on the Corporation’s own review of the asbestos claim and resolution activity and ARPC’s response, the Corporation determined that no change to the accrual was required. At December 31, 2009, the Corporation’s asbestos-related liability for pending and future claims was $839 million. At December 31, 2009, approximately 23 percent of the recorded liability related to pending claims and approximately 77 percent related to future claims.

Based on the Corporation’s review of 2010 activity, it was determined that no adjustment to the accrual was required at September 30, 2010. The Corporation’s asbestos-related liability for pending and future claims was $800 million at September 30, 2010. Approximately 21 percent of the recorded liability related to pending claims and approximately 79 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.

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Notes to the Consolidated Financial Statements

(Unaudited)

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

The Corporation’s receivable for insurance recoveries related to its asbestos liability was $84 million at September 30, 2010 and December 31, 2009. At September 30, 2010 and December 31, 2009, all of the receivable for insurance recoveries was related to insurers that are not signatories to the Wellington Agreement and/or do not otherwise have agreements in place regarding their asbestos-related insurance coverage.

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

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

Receivables for Asbestos-Related Costs In millions	Sept. 30, 2010		Dec. 31, 2009
Receivables for defense costs - carriers with settlement agreements	$	7	$	91
Receivables for resolution costs - carriers with settlement agreements		235		357
Receivables for insurance recoveries - carriers without settlement agreements		84		84
Total	$	326	$	532

The Corporation expenses defense costs as incurred. The pretax impact for defense and resolution costs, net of insurance, was $22 million in the third quarter of 2010 ($20 million in the third quarter of 2009) and $58 million in the first nine months of 2010 ($40 million in the first nine months of 2009), and was reflected in “Cost of sales.”

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

Summary

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

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

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.

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Notes to the Consolidated Financial Statements

(Unaudited)

Purchase Commitments

At December 31, 2009, the Corporation had various outstanding commitments for take-or-pay agreements, with terms extending from one to fifteen years. Such commitments were not in excess of current market prices. The fixed and determinable portion of obligations under purchase commitments at December 31, 2009 is presented in the table below. There have been no material changes to purchase commitments since December 31, 2009.

Fixed and Determinable Portion of Take-or-Pay Obligations at December 31, 2009 In millions
2010	$	14
2011		6
2012		4
2013		4
2014		4
2015 and beyond		10
Total	$	42

Conditional Asset Retirement Obligations

The Corporation has recognized conditional asset retirement obligations related to asbestos encapsulation as a result of planned demolition and remediation activities at manufacturing and administrative sites in the United States. The aggregate carrying amount of conditional asset retirement obligations was $9 million at September 30, 2010 and December 31, 2009. The discount rate used to calculate the Corporation’s asset retirement obligations was 2.45 percent at September 30, 2010 and December 31, 2009. These obligations are included in the consolidated balance sheets as “Other noncurrent obligations.”

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

NOTE J PENSION AND OTHER POSTRETIREMENT BENEFITS

Net Periodic Benefit Cost (Credit) for All Significant Plans	Three Months Ended						Nine Months Ended
In millions	Sept. 30, 2010			Sept. 30, 2009			Sept. 30, 2010			Sept. 30, 2009
Defined Benefit Pension Plans:
Service cost	$	4		$	4		$	12		$	12
Interest cost		52			56			156			168
Expected return on plan assets		(66	)		(75	)		(198	)		(225	)
Amortization of prior service cost		2			2			6			4
Amortization of net loss		15			-			45			2
Net periodic benefit cost (credit)	$	7		$	(13	)	$	21		$	(39	)
Other Postretirement Benefits:
Interest cost	$	6		$	8		$	18		$	24
Net periodic benefit cost	$	6		$	8		$	18		$	24

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Notes to the Consolidated Financial Statements

(Unaudited)

NOTE K RELATED PARTY TRANSACTIONS

The Corporation sells its products to Dow to simplify the customer interface process. Products are sold to and purchased from Dow at market-based prices in accordance with the terms of Dow’s long-standing intercompany pricing policies. The Corporation also procures certain commodities and raw materials through a Dow subsidiary and pays a commission to that Dow subsidiary based on the volume and type of commodities and raw materials purchased. The commission expense is included in “Sundry income – net” in the consolidated statements of income. Purchases from that Dow subsidiary were $758 million in the third quarter of 2010 ($516 million in the third quarter of 2009) and $1.9 billion in the first nine months of 2010 ($1.3 billion in the first nine months of 2009).

The Corporation has a master services agreement with Dow whereby Dow provides services including, but not limited to, accounting, legal, treasury (investments, cash management, risk management, insurance), procurement, human resources, environmental, health and safety, and business management for UCC. Under the master services agreement with Dow, for general administrative and overhead type services that Dow routinely allocates to various businesses, UCC is charged the cost of those services based on the Corporation’s and Dow’s relative manufacturing conversion costs. This arrangement resulted in an average quarterly charge of approximately $5 million in the first nine months of 2010 and 2009 (included in “Sundry income – net”).

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

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

As part of Dow’s cash management process, UCC is a party to revolving loans with Dow that have interest rates based on LIBOR (London Interbank Offered Rate) with varying maturities. At September 30, 2010 the Corporation had a note receivable of $4.3 billion ($4.1 billion at December 31, 2009) from Dow under a revolving loan agreement. The Corporation may draw from this note receivable in support of its daily working capital requirements and, as such, the net effect of cash inflows and outflows under this revolving loan agreement is presented in the consolidated statements of cash flows as an operating activity.

The Corporation also has a separate revolving credit agreement with Dow that allows the Corporation to borrow or obtain credit enhancements up to an aggregate of $1 billion that matures December 30, 2011. Dow may demand repayment with a 30-day written notice to the Corporation, subject to certain restrictions. A related collateral agreement provides for the replacement of certain existing pledged assets, primarily equity interests in various subsidiaries and joint ventures, with cash collateral. At September 30, 2010, $881 million ($891 million at December 31, 2009) 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 third quarter of 2010 the Corporation declared and paid a dividend of $150 million to Dow; dividends to Dow totaled $450 million for the nine months ended September 30, 2010. No dividends were paid to Dow during the nine months ended September 30, 2009.

The Corporation received cash dividends from its related company investments of $19 million in the third quarter of 2010, and $39 million in the first nine months of 2010, compared with $5 million in the third quarter of 2009, and $31 million for the first nine months of 2009. These dividends are included in “Sundry income – net.”

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

Pursuant to General Instruction H of Form 10-Q “Omission of Information by Certain Wholly-Owned Subsidiaries,” this section includes only management's narrative analysis of the results of operations for the three- and nine-month periods ended September 30, 2010, the most recent periods, compared with the three- and nine-month periods ended September 30, 2009, the corresponding periods in the preceding fiscal year.

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

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

DISCLOSURE REGARDING FORWARD-LOOKING INFORMATION

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

RESULTS OF OPERATIONS

Total net sales for the third quarter of 2010 were $1,703 million compared with $1,357 million for the third quarter of 2009, an increase of 25 percent. Total net sales were $4,912 million for the first nine months of 2010 compared with $3,686 million for the first nine months of 2009, an increase of 33 percent.

Net sales to related companies, principally to Dow, for the third quarter of 2010 were $1,663 million compared with $1,322 million for the third quarter of 2009, an increase of 26 percent. Net sales to related companies were $4,781 million for the first nine months of 2010 compared with $3,573 million for the first nine months of 2009, an increase of 34 percent. Selling prices to Dow are based on market prices for the related products.

At the end of 2008, concerns about the global economy and an unprecedented decline in feedstock costs led to significant price declines across all geographic areas and product lines. The weakness in demand and pricing continued into the first half of 2009. During the second half of 2009, economic conditions began to improve and this momentum continued into the first nine months of 2010. Improved demand put upward pressure on feedstock costs and in turn sales prices. Average selling prices for all products were higher in the third quarter of 2010 compared with the third quarter of 2009, driven by price increases in oxo alcohols, vinyl acetate monomer, oxo acids and oxo products.

Sales volume increased in the third quarter of 2010 compared with the third quarter of 2009, reflecting the impact of the improving global economy. Ethyleneamines, glycol ethers and ethanolamines experienced double-digit volume increases in the third quarter of 2010 compared with the same period in 2009. For the first nine months of 2010, all product lines had higher volume and increased price compared with the same period in 2009.

Cost of sales increased 27 percent from $1,145 million in the third quarter of 2009 to $1,453 million in the third quarter of 2010 principally due to higher feedstock and energy costs and higher demand. On a year-to-date basis, cost of sales increased 40 percent from $3,224 million in the first nine months of 2009 to $4,518 million in the first nine months of 2010. Cost of sales increased due to the higher cost of raw materials and feedstocks compared with the same period in 2009. Raw material prices have been driven upward by increased demand as the global economy has improved compared with the first nine months of 2009.

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Research and development expenses of $10 million in the third quarter of 2010 were flat compared with the same period in the prior year. Research and development expenses were $33 million for the first nine months of 2010 and $37 million for the first nine months of 2009. The decrease of $4 million was due to cost saving initiatives.

On June 30, 2009, the Board of Directors of UCC approved a restructuring plan to improve the cost effectiveness of the Corporation’s global operations. As a result, the Corporation recorded restructuring charges of $162 million in the second quarter of 2009, which included the shutdown of certain facilities that produce ethylene as well as ethylene oxide/ethylene glycol ($38 million) and certain related capital project write-offs ($7 million). Also included in the restructuring charge was severance of $3 million and an impairment charge of $114 million related to the expected loss arising from the U.S. Federal Trade Commission (“FTC”) required divestiture of certain specialty latex assets resulting from Dow’s acquisition of Rohm and Haas Company. In the first quarter of 2009, the Corporation recorded $4 million in additional severance related to the 2008 restructuring plan.

In the first quarter of 2010, the Corporation recorded an additional $5 million asset impairment related to the completion of the divestiture of certain assets under the 2009 restructuring plan. See Notes C and D to the Consolidated Financial Statements for additional information.

Equity in earnings of nonconsolidated affiliates was $7 million in the third quarter of 2010 compared with $14 million in the third quarter of 2009. Equity earnings in 2010 were lower as a result of the sale of the Corporation’s ownership interest in the OPTIMAL Group of Companies (“OPTIMAL”) in the third quarter of 2009 (see Note D to the Consolidated Financial Statements). For the first nine months of 2010, equity earnings were $27 million compared with $20 million for the same period of 2009 as improved earnings at Univation Technologies, LLC were partially offset by the absence of earnings from OPTIMAL due to the sale of the joint venture.

Sundry income – 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 – net for the third quarter of 2010 was $6 million compared with $320 million for the third quarter of 2009. Sundry income – net in the third quarter of 2009 reflected a pretax net gain of $328 million on the sale of the Corporation’s ownership interest in OPTIMAL on September 30, 2009. For the first nine months of 2010, Sundry income - net was $2 million compared with $322 million for the first nine months of 2009. The year-to-date decline was also due to the sale of OPTIMAL as discussed above.

For the three months ended September 30, 2010, interest income was $12 million compared with $21 million for the three months ended September 30, 2009. For the nine months ended September 30, 2010, interest income was $43 million compared with $31 million for the nine months ended September 30, 2009. The changes in interest income from period to period were driven by fluctuations in the interest rate on the outstanding note receivable.

Interest expense and amortization of debt discount was $6 million for the third quarter of 2010 compared with $8 million in the third quarter of 2009. For the nine months ended September 30, 2010, interest expense and amortization of debt discount was $28 million compared with $32 million for the same period in the prior year.

The Corporation reported a tax provision of $95 million in the third quarter of 2010, which resulted in an effective tax rate for the quarter of 37.1 percent. This compared with a tax provision of $222 million in the third quarter of 2009, which resulted in an effective tax rate of 40.5 percent, which was higher due to the sale of the Corporation’s ownership interest in OPTIMAL. For the first nine months of 2010, the Corporation reported a tax provision of $93 million, which resulted in an effective tax rate of 23.8 percent reflecting a reduction of a state tax liability in the United States during the first quarter of 2010. This compared with a tax provision of $183 million reported in the first nine months of 2009, which resulted in an effective tax rate for the period of 30.9 percent due to the impact of restructuring charges, audit settlements in the United States and the sale of the Corporation’s ownership interest in OPTIMAL. The effective tax rate fluctuates based on, among other factors, where income is earned, the level of after-tax income from joint ventures, dividends received from investments in related companies and the level of income relative to tax credits available. The Patient Protection and Affordable Care Act, signed on March 23, 2010, eliminated the tax deduction related to Medicare Part D subsidy. The impact of this legislation was immaterial to the Corporation’s Consolidated Financial Statements.

The Corporation reported net income of $161 million for the third quarter of 2010 compared with $326 million for the third quarter of 2009, and net income of $297 million for the first nine months of 2010 compared with $410 million for the first nine months of 2009.

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OTHER MATTERS

Recent Accounting Guidance

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

Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Note A to the Consolidated Financial Statements in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2009 (“2009 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 2009 10-K. Since December 31, 2009, there have been no material changes in the Corporation’s critical accounting policies.

Asbestos-Related Matters

Introduction

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

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

	2010			2009
Claims unresolved at January 1		75,030			75,706
Claims filed		5,525			6,379
Claims settled, dismissed or otherwise resolved		(17,083	)		(6,728	)
Claims unresolved at September 30		63,472			75,357
Claimants with claims against both UCC and Amchem		19,844			24,328
Individual claimants at September 30		43,628			51,029

Plaintiffs’ lawyers often sue dozens or even hundreds of defendants in individual lawsuits on behalf of hundreds or even thousands of claimants. As a result, 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.

Estimating the Liability

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

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In December 2008, based on ARPC’s December 2008 study and the Corporation’s own review of the asbestos claim and resolution activity, the Corporation decreased its asbestos-related liability for pending and future claims to $952 million, which covered the 15-year period ending 2023, excluding future defense and processing costs. The reduction was $54 million and was shown as “Asbestos-related credit” in the consolidated statements of income. At December 31, 2008, the asbestos-related liability for pending and future claims was $934 million.

Defense and Resolution Costs

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

Defense and Resolution Costs	Nine Months Ended				Aggregate Costs to
In millions	Sept. 30, 2010		Sept. 30, 2009		Date as of Sept. 30, 2010
Defense costs	$	58	$	40	$	745
Resolution costs	$	40	$	77	$	1,520

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

Insurance Receivables

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

Receivables for Asbestos-Related Costs In millions	Sept. 30, 2010		Dec. 31, 2009
Receivables for defense costs - carriers with settlement agreements	$	7	$	91
Receivables for resolution costs - carriers with settlement agreements		235		357
Receivable for insurance recoveries - carriers without settlement agreements		84		84
Total	$	326	$	532

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

Summary

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

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

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Control Over Financial Reporting

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

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

No material developments in asbestos-related matters occurred during the third quarter of 2010. For a summary of the history and current status of asbestos-related matters, see Management’s Discussion and Analysis of Financial Condition and Results of Operations, Asbestos-Related Matters; and Note I to the Consolidated Financial Statements.

ITEM 1A. RISK FACTORS.

There were no material changes in the Corporation’s risk factors in the third quarter of 2010.

ITEM 6. EXHIBITS.

See the Exhibit Index on page 24 of this Quarterly Report on Form 10-Q for exhibits filed with this report.

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Signatures

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

		UNION CARBIDE CORPORATION
		Registrant


Date: November 3, 2010
	By:	/s/ RONALD C. EDMONDS
		Ronald C. Edmonds
		Vice President and Controller
		The Dow Chemical Company
		Authorized Representative of
		Union Carbide Corporation




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

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Exhibit Index

EXHIBIT NO.	DESCRIPTION
10.5.8	Eighth Amendment to the Amended and Restated Revolving Credit Agreement, effective as of September 30, 2010, among the Corporation, The Dow Chemical Company and certain Subsidiary Guarantors.
10.7.3	Third Amendment to Second Amended and Restated Revolving Loan Agreement, effective as of February 1, 2010, between the Corporation and The Dow Chemical Company.
10.7.4	Fourth Amendment to Second Amended and Restated Revolving Loan Agreement, effective as of August 1, 2010, 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.

UNION CARBIDE CORP /NEW/ - FORM 10-Q - November 3, 2010

Attached files

UNION CARBIDE CORP /NEW/ Reports