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 MARCH 31,JUNE 30, 2009
 
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.                                                                                     0;&# 160;        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
Smaller reporting company  o
Non-accelerated filer   þ
Accelerated filer  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 March 31,June 30, 2009, 1,000 shares of common stock were outstanding, all of which were held by the registrant’s parent, The Dow Chemical Company.
 
The registrant meets the conditions set forth in General Instructions H(1)(a) and (b) for Form 10-Q and is therefore filing this form with a reduced disclosure format.

 
 
 


Union Carbide Corporation

TABLE OF CONTENTS



 PAGE
PART I - FINANCIAL INFORMATION
 
 
Item 1.  Financial Statements.
 
3
 
Consolidated Statements of Income
 
3
 
Consolidated Balance Sheets
 
4
 
Consolidated Statements of Cash Flows
 
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.
 
1518
 
Disclosure Regarding Forward-Looking Information
 
1518
 
Results of Operations
 
1518
 
Other Matters
 
1619
 
Item 3.  Quantitative and Qualitative Disclosures About Market Risk.
 
1822
 
Item 4T.  Controls and Procedures.
1822
 
PART II - OTHER INFORMATION
 
 
Item 1.  Legal Proceedings.
 
1922
 
Item 1A.  Risk Factors.
 
1922
 
Item 6.  Exhibits.
 
2024
 
SIGNATURES
 
2125
 
EXHIBIT INDEX
 
2226




2

PART I - FINANCIAL INFORMATION
          
             
ITEM 1. FINANCIAL STATEMENTS
          
             
Union Carbide Corporation and Subsidiaries
Consolidated Statements of Income
             
  Three Months Ended Six Months Ended
  June 30,  June 30,  June 30,  June 30, 
In millions     (Unaudited) 2009  2008  2009  2008 
Net trade sales $43  $50  $78  $96 
Net sales to related companies  1,248   1,905   2,251   3,894 
Total Net Sales $1,291  $1,955  $2,329  $3,990 
Cost of sales  1,060   1,882   2,079   3,843 
Research and development expenses  13   19   27   38 
Selling, general and administrative expenses  3   3   6   6 
Restructuring charges  162   -   166   - 
Equity in earnings of nonconsolidated affiliates  4   63   6   117 
Sundry income (expense) - net  5   (14)  2   56 
Interest income  4   26   10   58 
Interest expense and amortization of debt discount  10   13   24   25 
Income before Income Taxes $56  $113  $45  $309 
Provision (credit) for income taxes  (1)  68   (39)  109 
Net Income Attributable to Union Carbide Corporation $57  $45  $84  $200 
Depreciation $70  $66  $138  $131 
Capital Expenditures $20  $59  $41  $99 
See Notes to the Consolidated Financial Statements.         

PART I - FINANCIAL INFORMATION      
       
ITEM 1. Financial Statements.
      
       
Union Carbide Corporation and Subsidiaries
Consolidated Statements of Income
       
  Three Months Ended 
  March 31,  March 31, 
In millions     (Unaudited) 2009  2008 
Net trade sales $35  $46 
Net sales to related companies  1,003   1,989 
Total Net Sales  1,038   2,035 
Cost of sales  1,019   1,961 
Research and development expenses  14   19 
Selling, general and administrative expenses  3   3 
Restructuring charges  4   - 
Equity in earnings of nonconsolidated affiliates  2   54 
Sundry income (expense) - net  (3)  70 
Interest income  6   32 
Interest expense and amortization of debt discount  14   12 
Income (Loss) before Income Taxes  (11)  196 
Provision (Credit) for income taxes  (38)  41 
Net Income Attributable to Union Carbide Corporation $27  $155 
Depreciation $68  $65 
Capital Expenditures $21  $40 
See Notes to the Consolidated Financial Statements.        

3

Union Carbide Corporation and Subsidiaries
Consolidated Balance Sheets
       
  June 30,  Dec. 31, 
In millions     (Unaudited) 2009  2008 
Assets      
Current Assets      
Cash and cash equivalents $19  $24 
Accounts receivable:        
     Trade (net of allowance for doubtful receivables - 2009: $1; 2008: $1)  20   21 
     Related companies  311   128 
     Other  89   90 
Notes receivable from related companies  3,648   3,934 
Inventories  199   187 
Other current assets and deferred income taxes  89   64 
Total current assets  4,375   4,448 
Investments        
Investments in related companies  972   972 
Investments in nonconsolidated affiliates  404   427 
Other investments  21   19 
Noncurrent receivables  46   46 
Noncurrent receivables from related companies  190   187 
Total investments  1,633   1,651 
Property        
Property  7,567   7,630 
Less accumulated depreciation  5,941   5,744 
Net property  1,626   1,886 
Other Assets        
Other intangible assets (net of accumulated amortization 2009: $138; 2008: $135)  12   17 
Deferred income tax assets - noncurrent  410   439 
Asbestos-related insurance receivables - noncurrent  627   658 
Deferred charges and other assets  79   79 
Total other assets  1,128   1,193 
Total Assets $8,762  $9,178 
Liabilities and Equity        
Current Liabilities        
Notes payable - related companies $11  $12 
Long-term debt due within one year  -   249 
Accounts payable:        
     Trade  176   170 
     Related companies  233   299 
     Other  29   35 
Income taxes payable  104   176 
Asbestos-related liabilities - current  110   120 
Accrued and other current liabilities  187   198 
Total current liabilities  850   1,259 
Long-Term Debt  571   571 
Other Noncurrent Liabilities        
Pension and other postretirement benefits - noncurrent  627   662 
Asbestos-related liabilities - noncurrent  793   824 
Other noncurrent obligations  278   298 
Total other noncurrent liabilities  1,698   1,784 
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  6,178   6,094 
Accumulated other comprehensive loss  (848)  (844)
Union Carbide Corporation's stockholder's equity  5,642   5,562 
Noncontrolling interests  1   2 
Total equity  5,643   5,564 
Total Liabilities and Equity $8,762  $9,178 
See Notes to the Consolidated Financial Statements.        
 

Union Carbide Corporation and Subsidiaries
Consolidated Balance Sheets
       
  March 31,  Dec. 31, 
In millions     (Unaudited) 2009  2008 
Assets      
Current Assets      
Cash and cash equivalents $20  $24 
Accounts receivable:        
     Trade (net of allowance for doubtful receivables - 2009: $1; 2008: $1)  27   21 
     Related companies  114   128 
     Other  79   90 
Notes receivable from related companies  3,799   3,934 
Inventories  190   187 
Other current assets and deferred income taxes  38   64 
Total current assets  4,267   4,448 
Investments        
Investments in related companies  972   972 
Investments in nonconsolidated affiliates  402   427 
Other investments  22   19 
Noncurrent receivables  46   46 
Noncurrent receivables from related companies  211   187 
Total investments  1,653   1,651 
Property        
Property  7,634   7,630 
Less accumulated depreciation  5,797   5,744 
Net property  1,837   1,886 
Other Assets        
Other intangible assets (net of accumulated amortization 2009: $136; 2008: $135)  16   17 
Deferred income tax assets - noncurrent  421   439 
Asbestos-related insurance receivables - noncurrent  657   658 
Deferred charges and other assets  81   79 
Total other assets  1,175   1,193 
Total Assets $8,932  $9,178 
Liabilities and Equity        
Current Liabilities        
Notes payable - related companies $11  $12 
Long-term debt due within one year  249   249 
Accounts payable:        
     Trade  172   170 
     Related companies  193   299 
     Other  28   35 
Income taxes payable  69   176 
Asbestos-related liabilities - current  123   120 
Accrued and other current liabilities  203   198 
Total current liabilities  1,048   1,259 
Long-Term Debt  571   571 
Other Noncurrent Liabilities        
Pension and other postretirement benefits - noncurrent  646   662 
Asbestos-related liabilities - noncurrent  800   824 
Other noncurrent obligations  284   298 
Total other noncurrent liabilities  1,730   1,784 
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  6,122   6,094 
Accumulated other comprehensive loss  (852)  (844)
Union Carbide Corporation's stockholder's equity  5,582   5,562 
Noncontrolling interests  1   2 
Total equity  5,583   5,564 
Total Liabilities and Equity $8,932  $9,178 
See Notes to the Consolidated Financial Statements.        

4

Union Carbide Corporation and Subsidiaries
Consolidated Statements of Cash Flows
  Six Months Ended
  June 30,  June 30, 
In millions     (Unaudited) 2009  2008 
Operating Activities        
 Net Income $84  $200 
Adjustments to reconcile net income to net cash provided by operating activities: 
Depreciation and amortization  132   157 
Charge (credit) for deferred income tax  (42)  100 
Earnings of nonconsolidated affiliates less than (in excess of) dividends received  16   (86)
Net gain on sales of property  (3)  (7)
Restructuring charges  166   - 
Pension contributions  (1)  (1)
Other gains, net  (1)  - 
Changes in assets and liabilities:        
Accounts and notes receivable  (32)  7 
Related company receivables  103   (473)
Inventories  (12)  (48)
Accounts payable  27   69 
Related company payables  (68)  142 
Other assets and liabilities  (86)  10 
 Cash provided by operating activities  283   70 
Investing Activities          
 Capital expenditures  (41)  (99)
 Changes in noncurrent receivable from related company  (3)  23 
 Proceeds from sales of property  6   6 
 Purchases of investments  (13)  (4)
 Proceeds from sales of investments  12   7 
 Cash used in investing activities  (39)  (67)
Financing Activities           
 Payments on long-term debt  (249)  - 
 Cash used in financing activities  (249)  - 
Summary        
 Increase (decrease) in cash and cash equivalents  (5)  3 
 Cash and cash equivalents at beginning of year  24   22 
 Cash and cash equivalents at end of period $19  $25 
See Notes to the Consolidated Financial Statements.        

Union Carbide Corporation and Subsidiaries 
Consolidated Statements of Cash Flows
 
  Three Months Ended 
  March 31,  March 31, 
In millions     (Unaudited) 2009  2008 
Operating Activities      
Net Income $27  $155 
Adjustments to reconcile net income to net cash provided by operating activities: 
          Depreciation and amortization  75   81 
          Provision (credit) for deferred income tax  (8)  60 
          Earnings of nonconsolidated affiliates in excess of (less than) dividends received  16   (42)
          Net gain on sales of property  -   (7)
          Other gain, net  -   (1)
          Restructuring charges  4   - 
          Pension contributions  (1)  (1)
Changes in assets and liabilities:        
          Accounts and notes receivable  -   11 
          Related company receivables  149   (436)
          Inventories  (3)  (13)
          Accounts payable  23   47 
          Related company payables  (107)  131 
          Other assets and liabilities  (134)  44 
Cash provided by operating activities  41   29 
Investing Activities        
Capital expenditures  (21)  (40)
Change in noncurrent receivable from related company  (24)  7 
Proceeds from sales of property  -   6 
Purchases of investments  (8)  (2)
Proceeds from sales of investments  8   2 
Cash used in investing activities  (45)  (27)
Summary        
Increase (Decrease) in cash and cash equivalents  (4)  2 
Cash and cash equivalents at beginning of year  24   22 
Cash and cash equivalents at end of period $20  $24 
See Notes to the Consolidated Financial Statements.        

5

 
Union Carbide Corporation and Subsidiaries
Consolidated Statements of Equity
  Six Months Ended
  June 30,  June 30, 
In millions     (Unaudited) 2009  2008 
Common Stock      
Balance at beginning of year and end of period  -   - 
Additional Paid-in Capital        
Balance at beginning of year $312  $121 
Capital contribution  -   191 
Balance at end of period  312   312 
Retained Earnings        
Balance at beginning of year  6,094   5,767 
Net income  84   200 
Balance at end of period  6,178   5,967 
Accumulated Other Comprehensive Loss, Net of Tax        
Cumulative Translation Adjustments at beginning of year  (61)  (69)
Translation adjustments  (3)  2 
Balance at end of period  (64)  (67)
Pension and Other Postretirement Benefit Plans at beginning of year  (783)  (164)
Adjustments to pension and other postretirement benefit plans  (1)  3 
Pension and Other Postretirement Benefit Plans at end of period  (784)  (161)
Accumulated Investment Gain at beginning of year and end of period  1   - 
Accumulated Derivative Gain at beginning of year  (1)  - 
Net hedging results  -   (1)
Balance at end of period  (1)  (1)
Total accumulated other comprehensive loss  (848)  (229)
Union Carbide Corporation's Stockholder's Equity  5,642   6,050 
Noncontrolling Interests  1   2 
Total Equity $5,643  $6,052 
See Notes to the Consolidated Financial Statements.        


Union Carbide Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
             
  Three Months Ended Six Months Ended
  June 30,  June 30,  June 30,  June 30, 
In millions     (Unaudited) 2009  2008  2009  2008 
Net Income Attributable to Union Carbide Corporation $57  $45  $84  $200 
Other Comprehensive Income (Loss), Net of Tax                
Net unrealized gain on investments $1   -   -   - 
Translation adjustments  2  $(4) $(3) $2 
Adjustments to pension and other postretirement benefit plans  1   2   (1)  3 
Net loss on cash flow hedging derivative instruments  -   -   -   (1)
Total other comprehensive income (loss)  4   (2)  (4)  4 
Comprehensive Income $61  $43  $80  $204 
See Notes to the Consolidated Financial Statements.                

Union Carbide Corporation and Subsidiaries 
Consolidated Statements of Equity
 
  Three Months Ended 
  March 31,  March 31, 
In millions     (Unaudited) 2009  2008 
Common Stock      
Balance at beginning of year and end of period  -   - 
Additional Paid-in Capital        
Balance at beginning of year $312  $121 
Capital contribution  -   191 
Balance at end of period  312   312 
Retained Earnings        
Balance at beginning of year  6,094   5,767 
Net income  27   155 
Other  1   - 
Balance at end of period  6,122   5,922 
Accumulated Other Comprehensive Loss, Net of Tax        
Cumulative Translation Adjustments at beginning of year  (61)  (69)
Translation adjustments  (5)  6 
Balance at end of period  (66)  (63)
Pension and Other Postretirement Benefit Plans at beginning of year  (783)  (164)
Net gain (loss)  (2)  1 
Pension and Other Postretirement Benefit Plans at end of period  (785)  (163)
Accumulated Investment Gain at beginning of year  1   - 
Net investment results  (1)  - 
Balance at end of period  -   - 
Accumulated Derivative Gain at beginning of year  (1)  - 
Net hedging results  -   (1)
Balance at end of period  (1)  (1)
Total accumulated other comprehensive loss  (852)  (227)
Union Carbide Corporation's Stockholder's Equity  5,582   6,007 
Noncontrolling Interests  1   2 
Total Equity $5,583  $6,009 
See Notes to the Consolidated Financial Statements.        

Union Carbide Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
  Three Months Ended 
  March 31,  March 31, 
In millions     (Unaudited) 2009  2008 
Net Income Attributable to Union Carbide Corporation $27  $155 
Other Comprehensive Income (Loss), Net of Tax        
Cumulative translation adjustment $(5) $6 
Pension and other postretirement benefit plans adjustment  (2)  1 
Net unrealized losses on investments  (1)  - 
Net loss on cash flow hedging derivative instruments  -   (1)
Total other comprehensive income (loss)  (8)  6 
Comprehensive Income Attributable to Union Carbide Corporation $19  $161 
See Notes to the Consolidated Financial Statements.        

6

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


NOTE A     CONSOLIDATED FINANCIAL STATEMENTS

The unaudited interim consolidated financial statements of Union Carbide Corporation and its subsidiaries (the “Corporation” or “UCC”) were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and reflect all adjustments (including normal recurring accruals) which, in the opinion of management, are considered necessary for the fair presentation of the results for the periods presented.
 
The Corporation is a wholly owned subsidiary of The Dow Chemical Company (“Dow”). In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 128, “Earnings Per Share,” the presentation of earnings per share is not required in financial statements of wholly owned subsidiaries.
 
The Corporation’s business activities comprise components of Dow’s global operations rather than stand-alone operations. Dow conducts its worldwide operations through global businesses. Because there are no separable reportable business segments for UCC under SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” and no detailed business information is provided to a chief operating decision maker regarding the Corporation’s stand-alone operations, the Corporation’s results are reported as a single operating segment.
 
Intercompany transactions and balances are eliminated in consolidation. Transactions with the Corporation’s parent company, Dow, and other Dow subsidiaries have been reflected as related company transactions in the consolidated financial statements. See Note JK 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, 2008.


NOTE B     RECENT ACCOUNTING PRONOUNCEMENTS

In December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements - an amendment of ARB No. 51.” The Statement established accounting and reporting standards for noncontrolling interests in a subsidiary and for the deconsolidation of a subsidiary. The Statement was effective January 1, 2009 for the Corporation. The retrospective presentation and disclosure requirements outlined by SFAS No. 160 have been incorporated in this Quarterly Report on Form 10-Q for the interim period ended March 31,June 30, 2009.
 
In February 2008, the FASB issued FASB Staff Position (“FSP”) No. FAS 157-2, “Effective Date of FASB Statement No. 157,” which delayed the effective date of SFAS No. 157, “Fair Value Measurements,” for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis, to fiscal years beginning after November 15, 2008. On January 1, 2009, the Corporation adopted SFAS No. 157 for these assets and liabilities. Since theThe Corporation’s existingprevious fair value measurements for nonfinancial assets and nonfinancial liabilities arewere consistent with the Statement,guidance of the Statement; therefore, adoption of the Statement did not have a material impact on the Corporation’s consolidated financial statements.  The required disclosures are included in Note H.
 
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities - an amendment of SFASFASB Statement No. 133.” The Statement requires enhanced disclosures about an entity’s derivative and hedging activities. The Statement is effective for fiscal years and interim periods beginning after November 15, 2008, which was January 1, 2009 for the Corporation. The Corporation’s enhanced disclosures are included in Note F.G.
 
In April 2009, the FASB issued FSP No. FAS 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies.” The FSP requires that assets acquired and liabilities assumed in a business combination that arise from contingencies be recognized at fair value per SFAS No. 157, if the acquisition-date fair value can be reasonably determined. If the fair value cannot be reasonably determined, then the asset or liability should be recognized in accordance with SFAS No. 5, “Accounting for Contingencies,” and FASB Interpretation No. 14, “Reasonable Estimation of the Amount of a Loss – an interpretation of FASB Statement No. 5.” The FSP also requires new disclosures for the assets and liabilities within the scope of the FSP. The Corporation will apply the guidance of the FSP to future business combinations completedcombinations.
In April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments.” The FSP amends SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," and APB Opinion No. 28, “Interim Financial Reporting,” to require disclosures about the fair value of financial instruments during all interim reporting periods. The FSP was effective for interim and annual periods ending after June 15, 2009, which was June 30, 2009 for the Corporation. The Corporation’s enhanced disclosures are included in Note G.
In April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments.” The FSP amends the other-than-temporary impairment guidance for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities. The FSP was effective for interim and annual periods ending after June 15, 2009, which was June 30, 2009

7

for the Corporation. The adoption of the FSP did not have a material impact on the Corporation’s consolidated financial statements.
In April 2009, the FASB issued FSP No. FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.” The FSP provides additional guidance for estimating fair value when the market activity for an asset or liability has declined significantly. The FSP was effective for interim and annual periods ending after January 1,June 15, 2009, which was June 30, 2009 for the Corporation. The adoption of the FSP did not have a material impact on the Corporation’s consolidated financial statements.
In May 2009, the FASB issued SFAS No. 165, “Subsequent Events.” The Statement establishes the principles and requirements for evaluating and reporting subsequent events, including the period subject to evaluation for subsequent events, the circumstances requiring recognition of subsequent events in the financial statements, and the required disclosures. The Statement was effective for interim and annual periods ending after June 15, 2009, which was June 30, 2009 for the Corporation. The Corporation has evaluated subsequent events in accordance with the Statement through the filing of this Quarterly Report on Form 10-Q on August 3, 2009.

Accounting Standards Issued But Not Yet Adopted
In December 2008, the FASB issued FSP No. FAS 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets.” The FSP requires new disclosures on investment policies and strategies, categories of plan assets, fair value measurements of plan assets, and significant concentrations of risk, and is effective for fiscal years ending after December 15, 2009, with earlier application permitted. The provisions of the FSP are not required for earlier periods that are presented for comparative purposes. The Corporation will include the required disclosures in the Corporation’s Annual Report on Form 10-K for the annual period ending December 31, 2009.
 
In AprilJune 2009, the FASB issued FSPSFAS No. FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value166, “Accounting for Transfers of Financial Instruments.Assets – an amendment of FASB Statement No. 140.” The FSPStatement amends SFAS No. 107, "Disclosures about Fair Value140 to improve the information provided in financial statements concerning transfers of Financial Instruments,"financial assets, including the effects of transfers on financial position, financial performance and APB Opinion

7
the transferor with the transferred financial assets. The Statement is effective for annual periods beginning after November 15, 2009, which is January 1, 2010 for the Corporation, and for interim periods within that annual reporting period. The Corporation is currently evaluating the impact of adopting the Statement on January 1, 2010.
 
In June 2009, the FASB issued SFAS No. 28, “Interim Financial Reporting,167, “Amendments to FASB Interpretation No. 46(R),” which amends the consolidation guidance applicable to requirevariable interest entities and requires additional disclosures aboutconcerning an enterprise’s continuing involvement with variable interest entities. The Statement is effective for annual periods beginning after November 15, 2009, which is January 1, 2010 for the fair valueCorporation, and for interim periods within that annual reporting period. The Corporation is currently evaluating the impact of financial instruments during all interim reporting periods.adopting the Statement on January 1, 2010.
In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles - a replacement of FASB Statement No. 162.” The FSP Statement establishes the FASB Accounting Standards Codification, along with rules and interpretive releases of the U.S. Securities and Exchange Commission under authority of federal securities laws, as the source of authoritative GAAP in the United States. The Statement is effective for interim and annual reporting periods ending after JuneSeptember 15, 2009, which is JuneSeptember 30, 2009 for the Corporation. The Corporation will includeconform to the required disclosuresFASB Accounting Standards Codification in the Corporation’s Quarterly Report on Form 10-Q for the interim period ending JuneSeptember 30, 2009.
In April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments.” The FSP amends the other-than-temporary impairment guidance for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities. The FSP is effective for interim and annual periods ending after June 15, 2009, which is June 30, 2009 for the Corporation. The FSP is not anticipated to have a material impact on the Corporation’s consolidated financial statements.
In April 2009, the FASB issued FSP No. FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.” The FSP provides additional guidance for estimating fair value when the market activity for an asset or liability has declined significantly. The FSP is effective for interim and annual periods ending after June 15, 2009, which is June 30, 2009 for the Corporation. The FSP is not anticipated to have a material impact on the Corporation’s consolidated financial statements.


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 second quarter of 2009 shutdown of certain facilities that produce ethylene as well as ethylene oxide/ethylene glycol in Hahnville, Louisiana ($38 million) and certain related capital project write-offs ($7 million). In addition, due to the expected loss on the United States Federal Trade Commission 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). Included in the second quarter restructuring charge is severance of approximately $3 million for 41 people related to the plant shutdowns and corporate workforce reductions. At June 30, 2009, a severance liability of $3 million remained for 40 people.


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

2009 Restructuring Activities
 
In millions
 Impairment of Long-Lived Assets and Other Assets  
Severance
Costs
  
 
Total
 
Restructuring charges recognized in the second quarter of 2009 $159  $3  $162 
Charges against reserve  (159)  -   (159)
Reserve balance at June 30, 2009  -  $3  $3 

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 in Texas and Xiaolan, China, and a workforce reduction to improve the cost effectiveness and to enhance the efficiency of the Corporation’s operations. The charges included a $57 million write-off of the net book value associated with the shutdown of a facility that manufactures NORDELTM hydrocarbon rubber in Seadrift, Texas, the solution vinyl resins facility in Texas City, Texas and the emulsion systems facility in Xiaolan, China; severance of $24 million for a workforce reduction of 399 people; and curtailment costs of $24 million associated with the Corporation’s defined benefit 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. At March 31,During the first half of 2009, severance of $8$18 million had beenwas paid, to 131 employees. At March 31, 2009leaving a liability at June 30, 2009 of $20$10 million remained for approximately 318163 employees. The workforce reduction is expected to be completed by the end of 2010.
The following table summarizes the 2009 activities related to the Corporation’s 2008 restructuring reserve:

2009 Activities Related to 2008 Restructuring
In millions
 
Costs associated
with Exit or
Disposal Activities
  
Severance
 Costs
  Total  
Costs associated
with Exit or
Disposal Activities
  
Severance
Costs
  Total 
Reserve balance at December 31, 2008 $24  $24  $48  $24  $24  $48 
Adjustment to the reserve  -   4   4   -   4   4 
Cash payments  -   (8)  (8)  -   (8)  (8)
Reserve balance at March 31, 2009 $24  $20  $44  $24  $20  $44 
Cash payments  -   (10)  (10)
Reserve balance at June 30, 2009 $24  $10  $34 

2007 Restructuring
On November 30, 2007, the Board of Directors of UCC approved a plan to shut down certain assets and make organizational changes to enhance the efficiency and cost effectiveness of the Corporation's operations. As a result, based on decisions made by management, the Corporation recorded restructuring charges of $55 million in the fourth quarter of 2007. The charges included a $26 million write-off of the net book value of the polypropylene manufacturing facility at St. Charles Operations in Hahnville, Louisiana, which was shut down at the end of 2007,2007; severance of $17 million for a workforce reduction of 231 peoplepeople; and curtailment costs of $12 million associated with the Corporation’s defined benefit plans. At December 31, 2008, severance of $2 million had been paid to 44 employees, and a liability of $15 million remained for 187 employees. In the first quarterhalf of 2009, severance of $2$3 million was paid, to 21 employees, leaving a liability at June 30, 2009 of $13$12 million for 166 employees at March 31, 2009.approximately 122 employees. The workforce reduction is expected to be completed by December 31, 2009.

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The following table summarizes the 2009 activities related to the Corporation’s 2007 restructuring reserve:

2009 Activities Related to 2007 Restructuring
In millions
 Costs associated with Exit or Disposal Activities  Severance Costs  Total  
Costs associated with Exit or
Disposal Activities
  
Severance
Costs
  Total 
Reserve balance at December 31, 2008 $12  $15  $27  $12  $15  $27 
Cash payments  -   (2)  (2)  -   (2)  (2)
Reserve balance at March 31, 2009 $12  $13  $25  $12  $13  $25 
Cash payments  -   (1)  (1)
Reserve balance at June 30, 2009 $12  $12  $24 


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NOTE D     INVENTORIES

The following table provides a breakdown of inventories:

Inventories
In millions
 
March 31,
2009
  
Dec. 31,
2008
  
June 30,
2009
  
Dec. 31,
2008
 
Finished goods $48  $48  $58  $48 
Work in process  5   10   12   10 
Raw materials  47   55   49   55 
Supplies  90   74   80   74 
Total inventories $190  $187  $199  $187 

The reserves reducing inventories from the first-in, first-out (“FIFO”) basis to the last-in, first-out (“LIFO”) basis amounted to $95$90 million at March 31,June 30, 2009 and $115 million at December 31, 2008.


NOTE E     NONCONSOLIDATED AFFILIATES

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

Summarized Income Statement Information Six Months Ended 
In millions 
June 30,
2009
  
June 30,
2008
 
Sales $90  $123 
Gross profit $58  $91 
Net Income $29  $64 


NOTE F     OTHER INTANGIBLE ASSETS

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

Other Intangible Assets At March 31, 2009  At December 31, 2008  At June 30, 2009  At December 31, 2008 
In millions Gross Carrying Amount  Accumulated Amortization  Net  Gross Carrying Amount  Accumulated Amortization  Net  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)  -  $33  $(33)  -  $33  $(33)  - 
Patents  2   (1) $1   2   (1) $1   2   (1) $1   2   (1) $1 
Software  117   (102)  15   117   (101)  16   115   (104)  11   117   (101)  16 
Total other intangible assets $152  $(136) $16  $152  $(135) $17  $150  $(138) $12  $152  $(135) $17 


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Amortization expense for software, which is included in “Cost of sales,” was $2 million in the second quarter of 2009 and $1 million in the firstsecond quarter of 2008. Amortization expense for software was $3 million for the six months ended June 30, 2009 and $2 million in the first quarter ofJune 30, 2008. Amortization expense for other intangible assets (not including software) was immaterial in the first quartersecond quarters of 2009 and the first quarter of2008 as well as year to date for 2009 and 2008. Total estimated amortization expense for 2009 and the five succeeding fiscal years is as follows:

Estimated Amortization Expense
In millions
Estimated Amortization Expense
In millions
Estimated Amortization Expense
In millions
 
2009$6 $5 
2010$5 $4 
2011$4 $3 
2012$2 $2 
2013-  - 
2014-  - 


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NOTE FG     FINANCIAL INSTRUMENTS

The Corporation’s investments in marketable securities are classified as available-for-sale.
Investing Results Six Months Ended 
In millions June 30, 2009 
Proceeds from sales of available-for-sale securities $5 
The Corporation’s investments in debt securities had contractual maturities of less than 10 years.

Fair Value of Financial Instruments: 
  At June 30, 2009  At December 31, 2008 
In millions Cost  Gain  Loss  Fair Value  Cost  Gain  Loss  Fair Value 
Marketable securities (1):
                        
Debt securities $16  $1   -  $17  $13  $1   -  $14 
Equity securities  1   -   -   1   -   -   -   - 
Total marketable securities $17  $1   -  $18  $13  $1   -  $14 
Long-term debt including debt due within one year $(571) $180   -  $(391) $(820) $145   -  $(675)
(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. At March 31,June 30, 2009, the Corporation had forward contracts to buy, sell or exchange foreign currencies with expiration datesthat expire in the secondthird quarter of 2009, and which were immaterial. The Corporation did not designate any derivatives as hedges at March 31,June 30, 2009 or December 31, 2008.
 
At March 31,June 30, 2009 and December 31, 2008, nonconsolidated affiliates of the Corporation had hedging activities that were accounted for as cash flow hedges in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended and interpreted. 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 SFAS No. 130, “Reporting Comprehensive Income.”


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NOTE GH     FAIR VALUE MEASUREMENTS

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

Basis of Fair Value Measurements
at March 31, 2009
In millions
Significant Other Observable Inputs (Level 2)
Assets at fair value:
    Debt securities (1)
$18
Basis of Fair Value Measurements
On a Recurring Basis at June 30, 2009
In millions
 Significant Other Observable Inputs (Level 2) 
Assets at fair value:   
    Debt securities (1)
 $17 
(1)
Included in “Other investments” in the consolidated balance sheets.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.
 
The prices for Level 2 items (significant other observable inputs) are based on the price a dealer would pay for the security or similar securities. Market inputs are obtained from well establishedwell-established and recognized vendors of market data and placed through tolerance/quality checks.

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 June 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 will 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.

NOTE HI     COMMITMENTS AND CONTINGENT LIABILITIES

Environmental Matters
Accruals for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, based on current law and existing technologies. At March 31,June 30, 2009, the Corporation had accrued obligations of $67$66 million for environmental remediation and restoration costs, including $16 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. 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, 2008, the Corporation had accrued obligations of $67 million for environmental remediation and restoration costs, including $18 million for the remediation of Superfund sites. It is the opinion of the Corporation’s management that the possibility is

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remote that costs in excess of those disclosed will have a material adverse impact on the Corporation’s consolidated financial statements.

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.

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Separately, the Corporation is and has been involved in a large number of asbestos-related suits filed primarily in state courts during the past three decades. These suits principally allege personal injury resulting from exposure to asbestos-containing products and frequently seek both actual and punitive damages. The alleged claims primarily relate to products that UCC sold in the past, alleged exposure to asbestos-containing products located on UCC’s premises, and UCC’s responsibility for asbestos suits filed against a former subsidiary, Amchem Products, Inc. (“Amchem”). In many cases, plaintiffs are unable to demonstrate that they have suffered any compensable loss as a result of such exposure, or that injuries incurred in fact resulted from exposure to the Corporation’s products.
 
Influenced by the bankruptcy filings of numerous defendants in asbestos-related litigation and the prospects of various forms of state and national legislative reform, the rate at which plaintiffs filed asbestos-related suits against various companies, including the Corporation and Amchem, increased in 2001, 2002 and the first half of 2003. Since then, the rate of filing has significantly abated. The Corporation expects more asbestos-related suits to be filed against it and Amchem in the future, and will aggressively defend or reasonably resolve, as appropriate, both pending and future claims.
 
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.
 
Based on ARPC’s December 2006 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 for the 15-year period ending in 2021 to $1.2 billion at December 31, 2006.
 
In November 2008, the Corporation requested ARPC to review the Corporation’s historical asbestos claim and resolution activity and determine the appropriateness of updating ARPC’s December 2006 study. 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 by $54 million to $952 million, which covered the 15-year period ending in 2023, excluding future defense and processing costs. At December 31, 2008, the asbestos-related liability for pending and future claims was $934 million. At December 31, 2008, approximately 21 percent of the recorded liability related to pending claims and approximately 79 percent related to future claims.
 
Based on the Corporation’s review of 2009 activity, the Corporation determined that no adjustment to the accrual was required at March 31,June 30, 2009. The Corporation’s asbestos-related liability for pending and future claims was $910$893 million at March 31,June 30, 2009. Approximately 2223 percent of the recorded liability related to pending claims and approximately 7877 percent related to future claims.
 
At December 31, 2002, the Corporation increased the receivable for insurance recoveries related to its asbestos liability to $1.35 billion, substantially exhausting its asbestos product liability coverage. The insurance receivable related to the asbestos liability was determined by the Corporation after a thorough review of applicable insurance policies and the 1985 Wellington Agreement, to which the Corporation and many of its liability insurers are signatory parties, as well as other insurance settlements, with due consideration given to applicable deductibles, retentions and policy limits, and taking into account the solvency and historical payment experience of various insurance carriers. The Wellington Agreement and other agreements with insurers are designed to facilitate an orderly resolution and collection of the Corporation’s insurance policies and to resolve issues that the insurance carriers may raise.
 
In September 2003, the Corporation filed a comprehensive insurance coverage case, now proceeding in the Supreme Court of the State of New York, County of New York, seeking to confirm its rights to insurance for various asbestos claims and to facilitate an orderly and timely collection of insurance proceeds. This lawsuit was filed against insurers that are not signatories to the Wellington Agreement and/or do not otherwise have agreements in place with the Corporation regarding their asbestos-related insurance coverage, in order to facilitate an orderly resolution and collection of such insurance policies

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and to resolve issues that the insurance carriers may raise. Although the lawsuit is continuing, through the end of the firstsecond quarter of 2009, the Corporation had reached settlements with several of the carriers involved in this litigation.
 
The Corporation’s receivable for insurance recoveries related to its asbestos liability was $403 million at March 31,June 30, 2009 and December 31, 2008. At March 31,June 30, 2009 and December 31, 2008, all of the receivable for insurance recoveries was

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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 for reimbursement as follows:

Receivables for Costs Submitted to Insurance CarriersReceivables for Costs Submitted to Insurance Carriers Receivables for Costs Submitted to Insurance Carriers 
In millions 
March 31,
2009
  
Dec. 31,
2008
  
June 30, 
2009
  
Dec. 31,
2008
 
Receivables for defense costs $26  $28  $23  $28 
Receivables for resolution costs  245   244   239   244 
Total $271  $272  $262  $272 

The Corporation expenses defense costs as incurred. The pretax impact for defense and resolution costs, net of insurance, was $11$9 million in the second quarter of 2009 ($2 million in the second quarter of 2008) and $20 million in the first quartersix months of 2009 and $14($16 million in the first quartersix months of 20082008), 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, after taking into account the solvency and historical payment experience of various insurance carriers; existing insurance settlements; and the advice of outside counsel with respect to the applicable insurance coverage law relating to the terms and conditions of its insurance policies, the Corporation continues to believe that its recorded receivable for insurance recoveries from all insurance carriers is probable of collection.
 
The amounts recorded for the asbestos-related liability and related insurance receivable described above were based upon current, known facts. However, future events, such as the number of new claims to be filed and/or received each year, the average cost of disposing of each such claim, coverage issues among insurers and the continuing solvency of various insurance companies, as well as the numerous uncertainties surrounding asbestos litigation in the United States, could cause the actual costs and insurance recoveries to be higher or lower than those projected or those recorded.
 
Because of the uncertainties described above, management cannot estimate the full range of the cost of resolving pending and future asbestos-related claims facing the Corporation and Amchem. Management believes that it is reasonably possible that the cost of disposing of the Corporation’s asbestos-related claims, including future defense costs, could have a material adverse impact on the results of operations and cash flows for a particular period and on the consolidated financial position of the Corporation.
 
While it is not possible at this time to determine with certainty the ultimate outcome of any of the legal proceedings and claims referred to in this filing, management believes that adequate provisions have been made for probable losses with respect to pending claims and proceedings, and that, except for the asbestos-related matters described above, the ultimate outcome of all known and future claims, after provisions for insurance, will not have a material adverse impact on the results of operations, cash flows and consolidated financial position of the Corporation. Should any losses be sustained in connection with any of such legal proceedings and claims in excess of provisions provided and available insurance, they will be charged to income when determinable.

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Purchase Commitments
At December 31, 2008, 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, 2008 is presented in the following table:

Fixed and Determinable Portion of Take-or-Pay Obligations
at December 31, 2008
In millions
 
2009 $13 
2010  14 
2011  6 
2012  4 
2013  4 
2014 and beyond  14 
Total $55 


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Guarantees
The Corporation has undertaken obligations to guarantee the performance of certain nonconsolidated affiliates (including The OPTIMAL Group of Companies and Nippon Unicar Company Limited) if specified triggering events occur. Non-performance under a contract for commercial and/or financial obligations by the guaranteed party would trigger the obligation of the Corporation to make payments to the beneficiary of the guarantees. Financial obligations include debt and lease arrangements.
 
The following table provides a summary of the final expiration, maximum future payments and recorded liability reflected in the consolidated balance sheets for these guarantees.

Guarantees
In millions
Final
Expiration
Maximum Future
 Payments
Recorded
Liability
Final
 Expiration
 Maximum Future Payments  Recorded Liability 
Guarantees at March 31, 20092014$68$1
Guarantees at June 30, 20092014 $69  $1 
Guarantees at December 31, 20082014$72$12014 $72  $1 

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 $8 million at June 30, 2009 and $9 million at March 31, 2009 and December 31, 2008. The discount rate used to calculate the Corporation’s asset retirement obligations was 7.13 percent, unchanged from December 31, 2008. These obligations are included in the consolidated balance sheets as “Accrued and other current liabilities.”
 
The Corporation has not recognized conditional asset retirement obligations for which a fair value cannot be reasonably estimated in its consolidated financial statements. It is the opinion of management that the possibility is remote that such conditional asset retirement obligations, when estimable, will have a material adverse impact on the Corporation’s consolidated financial statements based on current costs.


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NOTE IJ     PENSION AND OTHER POSTRETIREMENT BENEFITS

Net Periodic Benefit Cost (Credit) for All Significant PlansNet Periodic Benefit Cost (Credit) for All Significant Plans  Three Months Ended  Six Months Ended 
 Defined Benefit Pension Plans  Other Postretirement Benefits 
 Three Months Ended Three Months Ended
In millions 
March 31,
2009
  
March 31,
2008
  
March 31,
2009
  
March 31,
2008
  
June 30,
2009
  
June 30,
2008
  
June 30,
2009
  
June 30,
2008
 
Defined Benefit Pension Plans:            
Service cost $4  $5   -  $1  $4  $5  $8  $10 
Interest cost  56   56  $8   7   56   56   112   112 
Expected return on plan assets  (75)  (78)  -   -   (75)  (78)  (150)  (156)
Amortization of prior service cost (credit)  1   2   -   (1)
Amortization of prior service cost  1   2   2   4 
Amortization of net loss  1   1   -   -   1   -   2   1 
Net periodic benefit cost (credit) $(13) $(14) $8  $7 
Net periodic benefit credit $(13) $(15) $(26) $(29)
Other Postretirement Benefits:                
Service cost  -  $1   -  $2 
Interest cost $8   7  $16   14 
Amortization of prior service credit  -   -   -   (1)
Net periodic benefit cost $8  $8  $16  $15 


NOTE JK     RELATED PARTY TRANSACTIONS

The Corporation sells its products to Dow to simplify the customer interface process. Products are sold to and purchased from Dow at market-based prices in accordance with the terms of Dow’s long-standing intercompany pricing policies. The Corporation also procures certain commodities and raw materials through a Dow subsidiary and pays a commission to that Dow subsidiary based on the volume and type of commodities and raw materials purchased. The commission expense is included in “Sundry income (expense) – net” in the consolidated statements of income. Purchases from that Dow subsidiary were approximately $373$426 million in the second quarter of 2009 ($1.1 billion in the second quarter of 2008) and $799 million in the first quarterhalf of 2009 and $1.0($2.1 billion in the first quarterhalf of 2008.2008).
 
The Corporation has a master services agreement with Dow whereby Dow provides services includingthat include but are 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

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resulted in a quarterly charge of $5 million inFor the first quartersix months of 2009, this charge was approximately $11 million (included in “Sundry income (expense) – net”), compared with $6 million in the first quarter of 2008..
 
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 loansloan agreements with Dow that have LIBOR-based interest rates with varying maturities. At March 31,June 30, 2009, the Corporation had a note receivable of $3.7$3.6 billion ($3.9 billion at December 31, 2008) from Dow underpursuant to 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, 2009, pursuant to an amendment effective as of September 30, 2008. Dow may demand repayment with a 30-day written notice to the Corporation, subject to certain restrictions. A related collateral agreement provides for the replacement of certain existing pledged assets, primarily equity interests in various subsidiaries and joint ventures, with cash collateral. At March 31,June 30, 2009, $830$818 million ($826 million at December 31, 2008) was available under the revolving credit agreement. The cash collateral is reported as “Noncurrent receivables from related companies” in the consolidated balance sheets.
 
TheAt December 31, 2008, the Corporation hashad an insurance receivable of $47 million reported in “Accounts receivable – Related companies” in the consolidated balance sheets from its insurer (an affiliate of Dow) for losses incurred from Hurricane

16

Hurricanes Katrina, in 2005 and HurricanesRita, Gustav and Ike in 2008. At March 31,Ike. During the second quarter 2009, the insurance receivable wasCorporation settled the remaining balance of $45 million of which $15the receivable with its insurer for $43 million was reported in “Accounts receivable – Related companies” and $30 million was reported in “Noncurrent receivables from related companies” inwith the consolidated balance sheets. At December 31, 2008, the insurance receivable was $47 million and was reported in “Accounts receivable – Related companies” in the consolidated balance sheets.charged to “Cost of sales.”
 
The Corporation received cash dividends from its related company investments of $10$16 million in the second quarter of 2009, $26 million for the first half of 2009 compared with $5 million in the second quarter of 2008 and $82 million in the first quarter of 2009, compared with $77 million in the first quarterhalf of 2008, which included a dividend of $75 million from Dow International Holdings Company (“DIHC”). These dividends are included in “Sundry income (expense) – net.”


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Union Carbide Corporation and Subsidiaries
 
 Union Carbide Corporation and Subsidiaries
ITEM 2. MANAGEMENT’S2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIALFINANICAL CONDITION AND RESULTS OF OPERATIONS.OPERATIONS.

Pursuant to General Instruction H of Form 10-Q “Omission of Information by Certain Wholly-Owned Subsidiaries,” this section includes only management's narrative analysis of the results of operations for the three-month periodthree- and six-month periods ended March 31,June 30, 2009, the most recent period,periods, compared with the three-month periodthree- and six-month periods ended March 31,June 30, 2008, the corresponding periodperiods in the preceding fiscal year.

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

Union Carbide Corporation’s (the “Corporation” or “UCC”) 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 Statement of Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information,” and no detailed business information is provided to a chief operating decision maker regarding the Corporation’s stand-alone operations, the Corporation’s results are reported as a single operating segment.

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 firstsecond quarter of 2009 were $1,038$1,291 million compared with $2,035$1,955 million for the firstsecond quarter of 2008, a decrease of 4934 percent. Total net sales were $2,329 million for the first half of 2009 compared with $3,990 million for the first half of 2008, a decrease of 42 percent.
 
Net sales to related companies for the firstsecond quarter of 2009 were $1,003$1,248 million compared with $1,989$1,905 million for the firstsecond quarter of 2008, a decrease of 5034 percent. Net sales to related companies were $2,251 million for the first half of 2009 compared with $3,894 million for the first half of 2008, a decrease of 42 percent. Selling prices to Dow, which are based on market prices for the related products. Average selling pricesproducts, were lower for most products were lower in the firstsecond quarter of 2009 compared with the firstsecond quarter of 2008 as prices declined with ethylene glycol and polypropylene having thefalling raw material costs. The most significant declines.declines were reported in vinyl acetate monomer, ethylene glycols, propylene products and polyethylene. Ethyleneamines polyglycols and surfactants were the only products with higher selling prices compared with the firstsecond quarter of 2008. Sales volume was lower for allmost products in the firstsecond quarter of 2009 compared with the firstsecond quarter of 2008 reflecting the impact of the global economic recession. Ethylene glycols experienced the most significant decline while ethyleneamines and vinyl acetate monomer products experienced volume gains. Gains in ethyleneamines were due to the business strategy to revitalize this product line. Prices for most products were also lower for the first half of 2009 compared with the first half of 2008. The lower prices on a year-to-date basis compared with the prior year are also a reflection of price declines in raw material costs. Vinyl acetate monomer, ethylene glycols, propylene products and polyethylene experienced the most significant price declines. Sales volume for all product lines with the exception of ethyleneamines was also lower for the first six months of 2009 compared with the first six months of 2008.
 
Cost of sales decreased 4844 percent from $1,961$1,882 million in the firstsecond quarter of 2008 to $1,019$1,060 million in the firstsecond quarter of 2009 principally due to lower feedstock and energy costs, lower sales volume and cost control measures. On a year-to-date basis, cost of sales decreased 46 percent from $3,843 million in the first half of 2008 to $2,079 million in the first half of 2009, again reflecting lower feedstock and energy costs and lower sales volume.
 
Equity in earnings of nonconsolidated affiliates was $2$4 million in the firstsecond quarter of 2009 compared with $54$63 million in the second quarter of 2008. The OPTIMAL Group of Companies (“OPTIMAL”) and Univation Technologies, LLC reported significant declines in earnings in the second quarter of 2009 compared with the second quarter of 2008. For the first quartersix months of 2009 equity earnings of nonconsolidated affiliates were $6 million compared with $117 million for the first six months of 2008 as the Corporation’s joint ventures were also impacted by the severe recessionary environment. Equity earnings fromOn July 30, 2009, the Corporation reached an agreement to sell its ownership stake in OPTIMAL Groupfor $660 million. The formal signing and exchange of Companies and Univation Technologies decreased significantly compared withthe related definitive agreements is expected to take place during the first week of August. The transaction remains subject to customary conditions and approvals and is expected to close by the end of the third quarter of 2008.2009.

 
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Sundry income (expense) – net includes a variety of income and expense items such as the gain or loss on foreign currency exchange, dividends from investments, commissions, charges for management services provided by Dow, and gains and losses on sales of investments and assets. Sundry income (expense) – net for the firstsecond quarter of 2009 was income of $5 million compared with expense of $3$14 million for the second quarter of 2008. Sundry income (expense) - net was favorably impacted in the second quarter of 2009 by a dividend of $15 million from Dow Technology Investments LLC.  Year to date, sundry income (expense) - net was income of $2 million compared with income of $70$56 million for the first quartersix months of last year. Sundry income (expense) - net for the first six months of 2008 which includedwas favorably impacted by a dividend of $75 million from DIHC. SeeDIHC in the first quarter of 2008 (see Note JK to the Consolidated Financial Statements.Statements).
 
Interest income was $6$4 million in the firstsecond quarter of 2009 compared with $32$26 million in the second quarter of 2008. Year to date, interest income was $10 million, down from $58 million in the first quartersix months of 2008,2008. Interest income was lower in 2009 compared with the same periods of last year due to lower interest rates. Interest expense and amortization of debt discount was $14$10 million in the firstsecond quarter of 2009 compared with $12$13 million in the firstsecond quarter of 2008. The decline in interest expense from the second quarter of 2008 was due to the payment of the current portion of the long-term debt early in the second quarter of 2009. Year to date, interest expense and amortization of debt discount was $24 million, relatively unchanged from$25 million for the first half of 2008 as the payment on the current portion of the long-term debt was offset by a reduction in capitalized interest.
 
The Corporation reported a tax benefit of $38$1 million in the firstsecond quarter of 2009 due to audit settlements in the United States. This comparedrestructuring charges incurred during the quarter. In the second quarter of 2008, the Corporation recorded a $68 million provision for income taxes with tax expense of $41 million and an effective tax rate of 21 percent in the same quarter last year.60.2 percent. 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. For the first six months of 2009, the Corporation reported a tax benefit of $39 million due to the impact of restructuring charges and audit settlements in the United States compared with a $109 million provision for income taxes in the first six months of 2008 with an effective tax rate of 35.3 percent.


The Corporation reported net income of $27$57 million for the firstsecond quarter of 2009 compared with $155$45 million for the second quarter of 2008, and net income for the first half of 2009 of $84 million compared with $200 million for the first quarterhalf of 2008.last year. The results for the first quarterhalf of 2009 reflected the downturn of thecontinuing global economy,recession, as lower demand continued to put downward pressure on prices, which more than offset lower feedstock and energy costs, and resultedresulting in lower margins.

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 United States Federal Trade Commission, for the approval of Dow’s acquisition of Rohm and Haas Company (see Note C to the Consolidated Financial Statements). The transaction is subject to approval by the United States Federal Trade Commission and other customary closing conditions, and is expected to close in the second half of 2009.

OTHER MATTERS

Recent Accounting Pronouncements
See Note B to the Consolidated Financial Statements for a summary of recent accounting pronouncements. In addition, see Note GH to the Consolidated Financial Statements for the Corporation’s disclosures about fair value measurements. The sensitivity of fair value measurements is immaterial relative to the assets and liabilities measured at fair value, as well as to the total equity of the Corporation.

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, 2008 (“2008 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 2008 10-K. Since December 31, 2008, 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 subsidiary, Amchem Products, Inc. (“Amchem”). In many cases, plaintiffs are unable to demonstrate

19

that they have suffered any compensable loss as a result of such exposure, or that injuries incurred in fact resulted from exposure to the Corporation’s products.
 
Influenced by the bankruptcy filings of numerous defendants in asbestos-related litigation and the prospects of various forms of state and national legislative reform, the rate at which plaintiffs filed asbestos-related suits against various companies, including the Corporation and Amchem, increased in 2001, 2002 and the first half of 2003. Since then, the rate of filing has significantly abated. The Corporation expects more asbestos-related suits to be filed against it and Amchem in the future, and will aggressively defend or reasonably resolve, as appropriate, both pending and future claims.
 
The table below provides information regarding asbestos-related claims filed against the Corporation and Amchem:

 2009  2008  2009  2008 
Claims unresolved at January 1  75,706   90,322   75,706   90,322 
Claims filed  2,295   2,716   4,263   6,035 
Claims settled, dismissed or otherwise resolved  (3,199)  (2,854)  (5,012)  (7,663)
Claims unresolved at March 31  74,802   90,184 
Claims unresolved at June 30  74,957   88,694 
Claimants with claims against both UCC and Amchem  24,126   28,893   24,138   28,154 
Individual claimants at March 31  50,676   61,291 
Individual claimants at June 30  50,819   60,540 

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.

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Estimating the Liability
Based on a study completed by Analysis, Research & Planning Corporation (“ARPC”) in January 2003, the Corporation increased its December 31, 2002 asbestos-related liability for pending and future claims for the 15-year period ending in 2017 to $2.2 billion, excluding future defense and processing costs. Since then, the Corporation has compared current asbestos claim and resolution activity to the results of the most recent ARPC study at each balance sheet date to determine whether the accrual continues to be appropriate. In addition, the Corporation has requested ARPC to review the Corporation’s historical asbestos claim and resolution activity each November since 2004 to determine the appropriateness of updating the most recent ARPC study.
 
Based on ARPC’s December 2006 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 for the 15-year period ending in 2021 to $1.2 billion at December 31, 2006.
 
In November 2008, the Corporation requested ARPC to review the Corporation’s historical asbestos claim and resolution activity and determine the appropriateness of updating ARPC’s December 2006 study. 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 by $54 million to $952 million, which covered the 15-year period ending in 2023, excluding future defense and processing costs. At December 31, 2008, the asbestos-related liability for pending and future claims was $934 million. At December 31, 2008, approximately 21 percent of the recorded liability related to pending claims and approximately 79 percent related to future claims.
 
Based on the Corporation’s review of 2009 activity, the Corporation determined that no adjustment to the accrual was required at March 31,June 30, 2009. The Corporation’s asbestos-related liability for pending and future claims was $910$893 million at March 31,June 30, 2009. Approximately 2223 percent of the recorded liability related to pending claims and approximately 7877 percent related to future claims.

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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                           Three Months EndedAggregate Costs Six Months Ended
In millions
March 31,
2009
March 31,
2008
to Date as of
March 31, 2009
 
June 30,
2009
  
June 30,
2008
  
Aggregate Costs to Date as of
June 30, 2009
 
Defense costs$11$14$636 $20  $23  $645 
Resolution costs$24$42$1,410 $41  $68  $1,427 

The average resolution payment per asbestos claimant and the rate of new claim filings has fluctuated both up and down since the beginning of 2001. The Corporation’s management expects such fluctuations to continue in the future based upon a number of factors, including the number and type of claims settled in a particular period, the jurisdictions in which such claims arose and the extent to which any proposed legislative reform related to asbestos litigation is being considered.
 
The Corporation expenses defense costs as incurred. The pretax impact for defense and resolution costs, net of insurance, was $11$9 million in the second quarter of 2009 ($2 million in the second quarter of 2008) and $20 million in the first quartersix months of 2009 and $14($16 million in the first quartersix months of 20082008), and was reflected in “Cost of sales.”

Insurance Receivables
At December 31, 2002, the Corporation increased the receivable for insurance recoveries related to its asbestos liability to $1.35 billion, substantially exhausting its asbestos product liability coverage. The insurance receivable related to the asbestos liability was determined after a thorough review of applicable insurance policies and the 1985 Wellington Agreement, to which the Corporation and many of its liability insurers are signatory parties, as well as other insurance settlements, with due consideration given to applicable deductibles, retentions and policy limits, and taking into account the solvency and historical payment experience of various insurance carriers. The Wellington Agreement and other agreements with insurers are designed to facilitate an orderly resolution and collection of the Corporation’s insurance policies and to resolve issues that the insurance carriers may raise.
 
In 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. This lawsuit was filed against insurers that are not

17

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. Although the lawsuit is continuing, through the end of the firstsecond quarter of 2009, the Corporation had reached settlements with several of the carriers involved in this litigation.
 
The Corporation’s receivable for insurance recoveries related to its asbestos liability was $403 million at March 31,June 30, 2009 and December 31, 2008. At March 31,June 30, 2009 and December 31, 2008, 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 for reimbursement as follows:

Receivables for Costs Submitted to Insurance CarriersReceivables for Costs Submitted to Insurance Carriers Receivables for Costs Submitted to Insurance Carriers 
In millions 
March 31,
2009
  
Dec. 31,
2008
  June 30, 2009  Dec. 31, 2008 
Receivables for defense costs $26  $28  $23  $28 
Receivables for resolution costs  245   244   239   244 
Total $271  $272  $262  $272 

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

21

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.


ITEM 3.3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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


ITEM 4T.4T.  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.


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PART II – OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGSPROCEEDINGS..

No material developments in asbestos-related matters occurred during the firstsecond quarter of 2009. 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 HI to the Consolidated Financial Statements.


ITEM 1A.  RISK FACTORS. FACTORS.

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

Volatility in purchased feedstock and energy costs impacts UCC’s operating costs and adds variability to earnings.
Purchased feedstock and energy costs are expected to remain volatile throughout 2009. When these costs increase, the Corporation is not always able to immediately raise selling prices and, ultimately, its ability to pass on underlying cost increases is greatly dependent on market conditions. Conversely, when these costs decline, selling prices decline as well. As a result, increases in these costs could negatively impact the Corporation’s results of operations.

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Issues involving the acquisition of Rohm and Haas Company by The Dow Chemical Company, the Corporation’s parent company, could have a liquidity impact on the Corporation.
Because Dow is a service provider, material debtor, and the major customer of the Corporation, certain events and situations affecting Dow’s acquisition of Rohm and Haas Company (“Rohm and Haas”), as noted below, could potentially impact sources of liquidity for the Corporation.
 
Dow’s integration of Rohm and Haas, Company, which was acquired on April 1, 2009, could present significant challenges to Dow. The integration will requireis requiring the attention of Dow management and employees, which could lessen time spent on services and administrative functions provided to the Corporation pursuant to negotiated agreements. Moreover, if the integration is not completed as planned, it could negatively impact Dow’s financial condition and results of operations.
 
To finance the acquisition,At June 30, 2009, Dow borrowed $9.2had outstanding borrowings of $4.1 billion pursuant to a Term Loan Agreement, additional debt securities of $6 billion and issued preferred equity securities in the amount of $7 billion.$4 billion largely to finance the April 1, 2009 acquisition of Rohm and Haas. This financing will requirerequires Dow to make additional interest and dividend payments and thus may reduce Dow’s flexibility to respond to changing business and economic conditions. Although Dow’s credit rating was reduced in 2009, Dow is currently investment grade. If Dow’s credit rating is reduced below investment grade, it could have a negative impact on Dow’s ability to access credit markets. Dow is focused on reducing its indebtedness and intends to pursuecontinue a strategy of divesting certain assets to achieve thatthis goal. If Dow is unable to successfully sell such assets, Dow could have difficulty reducing its indebtedness, which could result in further downgrades of its credit ratings, adversely affecting Dow'sDow’s financial condition and results of operations.

The value of investments are influenced by economic and market conditions.
The current economic environment is negatively impacting the fair value of pension assets, which could trigger increased future funding requirements of the pension trust.

Adverse conditions in the global economy and disruption of financial markets could continue to negatively impact UCC’s results of operations.
The continuing economic downturn in the United States and globally could further reduce demand for the Corporation’s products, resulting in a continued decrease in sales volume that could have a negative impact on UCC’s results of operations.

Actual or alleged violations of environmental laws or permit requirements could result in restrictions or prohibitions on plant operations, substantial civil or criminal sanctions, as well as the assessment of strict liability and/or joint and several liability.
The Corporation is subject to extensive federal, state, local and foreign laws, regulations, rules and ordinances relating to pollution, protection of the environment and the generation, storage, handling, transportation, treatment, disposal and remediation of hazardous substances and waste materials. At March 31,June 30, 2009, the Corporation had accrued obligations of $67$66 million for environmental remediation and restoration costs, including $16 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. Costs and capital expenditures relating to environmental, health or safety matters are subject to evolving regulatory requirements and will depend on the timing of the promulgation and enforcement of specific standards which impose the requirements. Moreover, changes in environmental regulations could inhibit or

19

interrupt the Corporation’s operations, or require modifications to its facilities. Accordingly, environmental, health or safety regulatory matters may result in significant unanticipated costs or liabilities.

The Corporation is party to a number of claims and lawsuits arising out of the normal course of business with respect to commercial matters, including product liability, governmental regulation and other actions.
The Corporation is involved in a number of legal proceedings and claims with both private and governmental parties. These cover a wide range of matters, including, but not limited to: product liability; trade regulation; governmental regulatory proceedings; health, safety and environmental matters; employment; patents; contracts; taxes; and commercial disputes. With the exception of the possible effect of the asbestos-related liability described below, it is the opinion of the Corporation’s management that the possibility is remote that the aggregate of all such claims and lawsuits will have a material adverse impact on the Corporation’s consolidated financial statements.
 
The Corporation is and has been involved in a large number of asbestos-related suits filed primarily in state courts during the past three decades. At March 31,June 30, 2009, the Corporation’s asbestos-related liability for pending and future claims was $910$893 million and the Corporation’s receivable for insurance recoveries related to its asbestos liability was $403 million. At March 31,June 30, 2009, the Corporation also had receivables of $271$262 million for insurance recoveries for defense and resolution costs. Management believes that it is reasonably possible that the cost of disposing of the Corporation’s asbestos-related claims, including future defense costs, could have a material adverse impact on the Corporation’s consolidated financial statements.

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Local, state and federal governments have begun a regulatory process that could lead to new regulations impacting the security of chemical plant locations and the transportation of hazardous chemicals.
Growing public and political attention has been placed on protecting critical infrastructure, including the chemical industry, from security threats. Terrorist attacks and natural disasters have increased concern regarding the security of chemical production and distribution. In addition, local, state and federal governments have begun a regulatory process that could lead to new regulations impacting the security of chemical plant locations and the transportation of hazardous chemicals, which could result in higher operating costs and interruptions in normal business operations.

Increased concerns regarding the safety of chemicals in commerce and their potential impact on the environment could lead to new regulations.
Concerns regarding the safety of chemicals in commerce and the potential impact on the environment reflect a growing trend in societal demands for increasing levels of product safety and environmental protection. These concerns could manifest into additional pressure for more stringent regulatory intervention. In addition, these concerns could influence public perceptions, the viability of the Corporation’s products, the Corporation’s reputation, the cost to comply with regulations, and the ability to attract and retain employees, which could have a negative impact on the Corporation’s results of operations.


Weather-related matters could impact the Corporation’s results of operations.
In 2005 and again in the third quarter of 2008, major hurricanes caused significant disruption in UCC’s operations on the U.S. Gulf Coast, logistics across the region and in the supply of certain raw materials which had an adverse impact on volume and cost for some of UCC’s products. If similar weather-related matters occur in the future, it could negatively affect UCC’s results of operations, due to the Corporation’s substantial presence on the U.S. Gulf Coast.


ITEMITEM 6.  EXHIBITS.EXHIBITS.

See the Exhibit Index on page 2226 of this Quarterly Report on Form 10-Q for exhibits filed with this report.

TRADEMARKS

The following trademark of the Financial Accounting Standards Board appears in this report:  FASB Accounting Standards Codification





2024

Union Carbide Corporation and Subsidiaries
 Union Carbide Corporation and Subsidiaries
SignaturesSignatures




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:  May 4,August 3, 2009  
 By:/s/ WILLIAM H. WEIDEMAN
  William H. Weideman
  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



Union Carbide Corporation and Subsidiaries
Exhibit Index

 Union Carbide Corporation and Subsidiaries
Exhibit Index



EXHIBIT NO.
                                                      DESCRIPTION
 
23
Analysis, Research & Planning Corporation’s Consent.
 
31.1
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
31.2
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
32.1
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
32.2
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.




 
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