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 QUARTER ENDED March 31,September 30, 2003

Commission file number 1-1463

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

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes o No ý.

At March 31,September 30, 2003, 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

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PART I.    FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

Union Carbide Corporation and Subsidiaries
Consolidated Statements of OperationsIncome

See Notes to the Consolidated Financial Statements.

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Union Carbide Corporation and Subsidiaries
Consolidated Balance Sheets

See Notes to the Consolidated Financial Statements.

4

Union Carbide Corporation and Subsidiaries
Consolidated Statements of Cash Flows

See Notes to the Consolidated Financial Statements.

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Union Carbide Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income

See Notes to the Consolidated Financial Statements.

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Union Carbide Corporation and Subsidiaries
Notes to the Consolidated Financial Statements

(Unaudited)

NOTE A    CONSOLIDATED FINANCIAL STATEMENTS

        Except as otherwise indicated by the context, the terms "Corporation" and "UCC" as used herein mean Union Carbide Corporation and its consolidated subsidiaries. The unaudited interim consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) which, in the opinion of management, are considered necessary for a fair presentation of the results for the periods covered. The accompanying consolidated financial statements of the Corporation include the assets, liabilities, revenues and expenses of all majority-owned subsidiaries over which the Corporation exercises control. Intercompany transactions and balances are eliminated in consolidation. Investments in nonconsolidated affiliates (20-50 percent owned companies) are accounted for on the equity basis.

        Since February 6, 2001, the Corporation has been a wholly owned subsidiary of The Dow Chemical Company ("Dow") as a consequence of the Corporation merging with a wholly owned subsidiary of Dow effective that date (the "merger" or "Dow merger"). Transactions with the Corporation's parent company, Dow, or other Dow subsidiaries have been reflected as related company transactions in the consolidated financial statements. See Note HG for further discussion. 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. The Corporation sells its products to Dow at market-based prices, in accordance with Dow's longstandinglong-standing intercompany pricing policy, in order to simplify the customer interface process. 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.

        Certain reclassifications of prior year's amounts have been made to conform to the presentation adopted for 2003. 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, 2002.

NOTE B    ACCOUNTING CHANGES

        In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 142, "Goodwill and Other Intangible Assets," which replaced Accounting Principles Board ("APB") Opinion No. 17, "Intangible Assets," and established new accounting and reporting requirements for goodwill and other intangible assets, effective for fiscal years beginning after December 15, 2001. Under this statement, goodwill and intangible assets deemed to have indefinite useful lives are not amortized, but are subject to impairment testing. Impairment testing was required at adoption and at least annually thereafter. On an ongoing basis (absent any impairment indicators), the annual impairment test is performed during the fourth quarter of each year, in conjunction with the annual budgeting process. Effective January 1, 2002 UCC ceased all amortization of goodwill, which is its only intangible asset with an indefinite useful life, and tested recorded goodwill for impairment by comparing the fair value of each reporting unit, determined using a discounted cash flow method, with its carrying value. The results of the Corporation's goodwill impairment test indicated no impairment. As required by SFAS No. 142, the Corporation also reassessed the useful lives and the classification of its identifiable intangible assets and determined them to be appropriate. See Note E for disclosures related to other intangible assets.

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        In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations," which requires an entity to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred and a corresponding increase in the related long-lived asset. The liability is adjusted to its present value each period and the asset is depreciated over its useful life. A gain or loss may be incurred upon settlement of the liability. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. The adoption of SFAS No. 143 did not have a material impact on the Corporation's consolidated financial statements.

        In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which nullifies Emerging Issues Task Force Issue 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity." This statement, which was effective for exit or disposal activities initiated after December 31, 2002, changeswill change the measurement and timing of costs associated with exit and disposal activities undertaken by the Corporation in the future.

        In the first quarter of 2003, Dow adopted the fair value provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," for new grants of equity instruments to employees. The Corporation is allocated the portion of expense

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relating to its employees who receive stock-based compensation. This allocation was not material to the consolidated financial statements for the third quarter or first quarternine months of 2003.

        In November 2002, the FASB issued FASB Interpretation ("FIN") No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." FIN No. 45 clarifies the requirements of SFAS No. 5, "Accounting for Contingencies," relating to the guarantor's accounting for and disclosures of certain guarantees issued. The initial recognition and measurement provisions of the interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor's fiscal year-end. The disclosure requirements of the interpretation arewere effective for financial statements of interim or annual periods ending after December 15, 2002. The Corporation's disclosures related to guarantees can be found in Note F.

        In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest Entities." FIN No. 46 clarifies the application of Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to certain entities in which equity investors do not have the characteristics of a controlling financial interest or in which equity investors do not bear the residual economic risks. The interpretation applieswas immediately applicable to variable interest entities ("VIEs") created after January 31, 2003, and to VIEs in which an enterprise obtains an interest after that date. It appliesAs originally issued, it applied in the fiscal year or interim period beginning after June 15, 2003, to VIEs in which an enterprise holds a variable interest that was acquired before February 1, 2003. In October 2003, the FASB issued FASB Staff Position No. 46-6 which defers the effective date for FIN No. 46 to the first interim or annual period ending after December 15, 2003 for VIEs created before February 1, 2003. During the second quarter of 2003, the Corporation's only VIE was eliminated when the related operating lease agreement was assigned to Dow; therefore, adoption of FIN No. 46 in the fourth quarter of 2003 will not impact the consolidated financial statements. See Note G for disclosuresadditional information regarding assignment of the Corporation's VIElease agreement.

        In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." This statement requires the expectedclassification of certain financial instruments that embody obligations for the issuer as liabilities (or assets in some circumstances). This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Corporation does not have financial instruments within the scope of SFAS No. 150; therefore, adoption of this statement on July 1, 2003 did not impact of adoption in the third quarter of 2003.consolidated financial statements.

NOTE C    MERGER-RELATED EXPENSES AND RESTRUCTURING

Merger-related Expenses and Restructuring

        Following the completion of the Dow merger in February 2001, management made certain decisions relative to employment levels, duplicate assets and facilities and excess capacity resulting from the merger. These decisions resulted in a pretax special charge in the first quarter of 2001 of $1,275 million. The planned merger-related program for workforce reductions was substantially completed in the third quarter of 2002. Complete disclosures related to the program and the activity in the merger-related special charge reserve can be found in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2002.

8        During the third quarter of 2002, merger-related severance of $13 million was paid to approximately 130 former employees.

        During the fourth quarter of 2002, an additional charge of $34 million was recorded for merger-related severance. Under this revised severance program, $55 million was paid to 668 former employees in the first quarter of 2003.

        Additional reductions in headcount may continue as the Corporation continues its restructuring efforts. The Corporation will account for future workforce reductions as they occur.

Other Restructuring

        In the first quarter of 2003, certain studies regarding non-strategic or under-performing assets (initiated following the appointment of a new CEO at Dow in late 2002) were completed and management made decisions relative to certain assets. These decisions resulted in the write-down of the net book value of three manufacturing facilities totaling $24 million (the largest of which was $16 million associated with the impairment and shutdownshut down of the ethylene production facilities in Seadrift, Texas, by year-endin the third quarter of 2003) and the impairment of a chemical transport vessel (to be sold(sold in the second quarter of 2003) of $11 million.

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NOTE D    INVENTORIES

        The following table provides a breakdown of inventories at March 31,September 30, 2003 and December 31, 2002:

        The reserves reducing inventories from the first-in, first-out ("FIFO") basis to the last-in, first-out ("LIFO") basis amounted to $150$103 million at March 31,September 30, 2003 and $81 million at December 31, 2002.

NOTE E    OTHER INTANGIBLE ASSETS

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

        Amortization expense for other intangible assets (not including software) was $1 million in the firstthird quarter of 2003, compared with $1 million for the same period last year. Year to date, amortization expense for other intangible assets (not including software) was $3 million, compared with $3 million for the nine months ended September 30, 2002. Amortization expense for

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software, which is included in cost of sales, totaled $1$0.4 million in the third quarter of 2003, compared with $1 million last year. For the first quartersnine months of both 2003 and 2002.this year, amortization expense for software was $1.2 million, down from $3 million for the same period last year. Total estimated amortization expense for 2003 and the next five fiscal years is as follows:

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NOTE F    COMMITMENTS AND CONTINGENT LIABILITIES

Environmental

        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. The Corporation had accrued obligations of $130 million at December 31, 2002 for environmental remediation and restoration costs, including $35 million for the remediation of Superfund sites. At March 31,September 30, 2003, the Corporation had accrued obligations of $125$116 million for environmental remediation and restoration costs, including $34$30 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 twice that amount. Inherent uncertainties exist in these estimates primarily due to unknown conditions, changing governmental regulations and legal standards regarding liability, and evolving technologies for handling site remediation and restoration. It is the opinion of the Corporation's management that the possibility is remote that costs in excess of those accrued or disclosed will have a material adverse impact on the Corporation's consolidated financial statements.

Litigation

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

        Separately, the Corporation is 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, often in very large amounts. The alleged claims primarily relate to products that UCC sold in the past, alleged exposure to asbestos-containing products located on UCC's premises, and UCC's responsibility for asbestos suits filed against a 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.

        The rate at which plaintiffs filed asbestos-related suits against various companies, including the Corporation and Amchem, increased in both 2001 and 2002, influenced by the bankruptcy filings of

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numerous defendants in asbestos-related litigation. The Corporation expects more asbestos-related suits to be filed against it and Amchem in the future. The Corporation will aggressively defend or reasonably resolve, as appropriate, both pending and future claims.

        Typically, the Corporation is only one of many named defendants, many of which, including UCC and Amchem, were members of the Center for Claims Resolution ("CCR"), an entity that defended and resolved asbestos cases on behalf of its members. As members of the CCR, the Corporation's and Amchem's strategy was to resolve the claims against them at the relatively small percentage allocated to them pursuant to the CCR's collective defense. The CCR ceased operating in February 2001, except to administer certain settlements. The Corporation then began using Peterson Asbestos Claims Enterprise, but only for claims processing and insurance invoicing.

        The Corporation is a wholly owned subsidiary of Dow, and certain members of Dow's legal department and certain Dow management personnel have been retained to provide their experience in mass tort litigation to assist the Corporation in responding to asbestos-related matters. In early 2002, the Corporation hired new outside counsel to serve as national trial counsel. In connection with these actions, aggressive defense strategies were designed to reduce the cost of resolving all asbestos-related claims, including the elimination of claims that lack demonstrated illness or causality.

        At the end of 2001 through the third quarter of 2002, the Corporation had concluded it was not possible to estimate its cost of disposing of asbestos-related claims that might be filed against it and Amchem in the future due to a number of reasons, including its lack of sufficient comparable loss history from which to assess either the number or value of future asbestos-related claims. During the third and fourth quarters of 2002, the Corporation worked with Analysis, Research & Planning Corporation ("ARPC"), a consulting firm with broad experience in estimating resolution costs associated with mass tort litigation, including asbestos, to explore whether it would be possible to estimate the cost of disposing of pending and future asbestos-related claims that have been, and could reasonably be expected to be, filed against the Corporation and Amchem.

        The Corporation provided ARPC with all relevant data regarding asbestos-related claims filed against UCC and Amchem through November 6, 2002. ARPC concluded that it was not possible to estimate the full range of the cost of resolving future asbestos-related claims against UCC and Amchem, because of various uncertainties associated with the

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litigation of those claims. These uncertainties, which hindered the Corporation's ability to project future claim volumes and resolution costs, included the following:

•

Until a series of bankruptcies led to the CCR ceasing operations in early 2001, UCC and Amchem generally settled claims filed against CCR members according to a sharing formula that would not necessarily reflect the cost of resolving those claims had they been separately litigated against UCC or Amchem.



•

The bankruptcies in the years 2000 to 2002 of other companies facing large asbestos liability were a likely contributing cause of a sharp increase in filings against many defendants, including UCC and Amchem.



•

It was not until the CCR ceased operating in early 2001 that UCC took direct responsibility for the defense of claims against itself and Amchem.



•

New defense counsel for UCC and Amchem implemented more aggressive defense strategies in mid-2002.

        Despite its inability to estimate the full range of the cost of resolving future asbestos-related claims, ARPC advised the Corporation that it would be possible to determine an estimate of a reasonable forecast of the cost of resolving pending and future asbestos-related claims likely to face the Corporation and Amchem, if certain assumptions were made. Specifically, ARPC advised the

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Corporation that for purposes of determining an estimate it is reasonable to assume that in the near term asbestos-related claims filed against UCC and Amchem are unlikely to return to levels below those experienced prior to 2001—when the recent spike in filings commenced—and that average claim values are unlikely to return to levels below those experienced in 2001-2002, the years immediately following CCR's cessation of operations. ARPC advised the Corporation that, by assuming that future filings were unlikely to exceed the levels experienced prior to 2001 and extrapolating from 2001 and 2002 average claim values, ARPC could make a reasonable forecast of the cost of resolving asbestos-related claims facing UCC and Amchem. ARPC also advised that forecasts of resolution costs for a 10 to 15 year period from the date of the forecast are likely to be more accurate than forecasts for longer periods of time.

        In projecting the resolution costs for future asbestos-related claims, ARPC applied two methodologies that have been widely used for forecasting purposes. Applying these methodologies, ARPC forecast the number and allocation by disease category of those potential future claims on a year-by-year basis through 2049. ARPC then calculated the percentage of claims in each disease category that had been closed with payments in 2001 and 2002. Using those percentages, ARPC calculated the number of future claims by disease category that would likely require payment by UCC and Amchem and multiplied the number of such claims by the mean values paid by UCC and Amchem, respectively, to dispose of such claims in 2001 and 2002. In estimating the cost of resolving pending claims, ARPC used a process similar to that used for calculating the cost of resolving future claims.

        As of December 31, 2002, ARPC estimated the undiscounted cost of resolving pending and future asbestos-related claims against UCC and Amchem, excluding future defense and processing costs, for the 15-year period from the present through 2017 to be between approximately $2.2 billion and $2.4 billion, depending on which of the two accepted methodologies was used.

        Although ARPC provided estimates for a longer period of time, based on ARPC's advice that forecasts for shorter periods of time are more accurate and in light of the uncertainties inherent in making long-term projections, the Corporation determined that the 15-year period through 2017 is the reasonable time period for projecting the cost of disposing of its future asbestos-related claims. The Corporation concluded that it is probable that the undiscounted cost of disposing of its asbestos-related pending and future claims ranges from $2.2 billion to $2.4 billion, which is the range for the 15-year period ending in 2017 as estimated by ARPC using both methodologies. Accordingly, the Corporation increased its asbestos-related liability for pending and future claims at December 31, 2002 to $2.2 billion, excluding future defense and processing costs. At March 31,September 30, 2003, the asbestos-related liability for pending and future claims was $2.1$2.0 billion.

        The Corporation also increased the receivable for insurance recoveries related to its asbestos liability to $1.35 billion at December 31, 2002, substantially exhausting its asbestos product liability coverage. This resulted in a net income statement impact of $828 million, $522 million on an after-tax basis, in the fourth quarter of 2002. At March 31,September 30, 2003, the receivable for insurance recoveries related to the Corporation's asbestos liability was $1.3$1.2 billion. 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. In addition, the Corporation had receivables for insurance recoveries for defense and resolution costs submitted to insurance carriers for reimbursement of $219 million at December 31, 2002 and $249$267 million at March 31,September 30, 2003.

        The amounts recorded for the asbestos-related liability and related insurance receivable described above were based upon currently known facts. However, projecting future events, such as the number of new claims to be filed each year, the

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average cost of disposing of each such claim, coverage issues

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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.

        In September 2003, the Corporation filed a comprehensive insurance coverage case in the Circuit Court for Kanawha County in Charleston, West Virginia, seeking to confirm its rights to insurance for various asbestos claims. Although the Corporation already has settlements in place concerning coverage for asbestos claims with many of its insurers, including those covered by the 1985 Wellington Agreement, 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. The Corporation continues to believe that its recorded receivable for insurance recoveries from all insurance carriers is collectible. This conclusion was reached after a further 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 expenses defense and processing costs as incurred. Accordingly, defense and processing costs incurred in the future for asbestos-related litigation, net of insurance, will impact results of operations in future periods.

        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 and processing 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.

Purchase Commitments

        The Corporation has purchase agreements, including one major agreement in 2002 and 2001 (two in 2000), for the purchase of ethylene-related products in the United States. Total purchases under these agreements were $62 million in 2002, $63 million in 2001 and $171 million in 2000. The fixed and determinable portion of obligations under these purchase commitments at December 31, 2002 are presented in the following table:

Guarantees

        The Corporation provides a variety of guarantees, which are described more fully below.

Guarantees

        The Corporation has undertaken obligations to guarantee the performance of a nonconsolidated affiliate and a former subsidiary of the Corporation (via delivery of cash or other assets) if specified triggering events occur. Non-performance under a contract for commercial obligations by the guaranteed party triggers the obligation of the Corporation.

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Residual Value GuaranteesGuarantee

        The Corporation providesprovided a guarantee related to leased assets specifying the residual value that will be available to the lessor at lease termination through sale of the assets to the lessee or third parties. During the second quarter of 2003, this lease agreement was assigned to Dow; therefore the Corporation no longer has a residual value guarantee to the lessor. See Note G for additional information regarding assignment of the lease agreement.

        The following tables provide a summary of the aggregate terms, maximum future payments, and associated liability reflected in the consolidated balance sheet for each type of guarantee.

NOTE G    VARIABLE INTEREST ENTITIES

        UCC has an operating lease with a special purpose entity that qualifies as a variable interest entity ("VIE") under FIN No. 46, "Consolidation of Variable Interest Entities." Based on the current terms of the lease agreement and the residual value guarantee UCC provides to the lessor, the Corporation expects to be the primary beneficiary of the VIE. As a result, if the facts and circumstances remain the same, UCC will be required to consolidate the assets and liabilities held by the VIE in the third quarter of 2003.

        The VIE, established in 2000, is a U.S. trust that leases railcars to UCC for use in the United States. The lease expires in 2005. The value of the leased railcars and corresponding approximate amount of debt of the VIE was $100 million at March 31, 2003 and December 31, 2002. The Corporation has not determined the carrying amount of the assets that will be included in the consolidated balance sheet upon consolidation of the VIE. Accordingly, the Corporation has not determined the cumulative effect adjustment that will be required upon adoption of FIN No. 46.

        Upon termination or expiration of the lease, UCC may return the assets to the lessor, renew the lease, or purchase the assets for an amount based on a fair market value determination. UCC has provided a residual value guarantee of $82 million at March 31, 2003 and December 31, 2002 to the lessor. Given the productive nature of the assets, it is probable they will have continuing value to UCC or another company in excess of the residual value guarantees.

NOTE H    RELATED PARTY TRANSACTIONS

        The Corporation sells products to Dow to simplify the customer interface process. Products are sold to and purchased from Dow in accordance with the terms of Dow's longstandinglong-standing intercompany pricing policies. The application of these policies results in products being sold to and purchased from Dow at market-based prices. 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 operations.income. Purchases from that Dow subsidiary were approximately $489$414 million during the third quarter of 2003 ($289 million during the third quarter of 2002) and $1,297 million during the first quarternine months of 2003 and $236($801 million during the first quarternine months of 2002.2002).

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

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

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

        As part of Dow's cash management process, UCC is a party to revolving loans with Dow that have LIBOR-based interest rates with varying maturities. On March 24, 2003, the revolving loan agreement with Dow that allowed the Corporation to borrow up to $1.5 billion was terminated and replaced on March 25, 2003 with a one-year note payable of approximately $65 million for the outstanding balance on the terminated revolving loan agreement, and a new revolving loan agreement with Dow that allows the Corporation to borrow up to $1.0$1 billion. The new revolving loan agreement is secured, pursuant to a collateral agreement, by various assets, including UCC's deposit accounts, intercompany obligations, and equity interests in various subsidiaries and joint ventures. The maturity date of the new revolving loan agreement is March 25, 2004; however, Dow may demand repayment with 30 daysa 30-day written notice to the Corporation. The outstanding balance of the revolving loan agreement was $87 million at September 30, 2003.

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        In April 2002, the Corporation sold its ownership interest in a subsidiary in China to a Dow subsidiary also located in China for approximately $20 million. Accordingly, the consolidated balance sheet at December 31, 2002 does not include the assets and liabilities of the subsidiary, and the consolidated statements of operationsincome include the subsidiary's results of operations from January 1, 2002 through March 31, 2002.

        UCC entered into a lease agreement for railcars in April 2000. After the Dow merger, UCC entered into various agreements with Dow regarding the purchase of UCC products and the distribution of products manufactured by Dow resulting, in part, with UCC no longer needing the railcars subject to this lease agreement. As a result, UCC assigned all of its rights and obligations under the lease agreement to Dow, as provided for in the agreement, in June 2003.

        On June 30, 2003, UCC and Dow entered into an Amended and Restated Tax Sharing Agreement effective as of February 7, 2001. This revised tax sharing agreement allows UCC and its subsidiaries to consolidate their various tax obligations rather than being required to make separate payments to Dow and requires any payments to be made to or from Dow at the time that estimated tax payments are due. Accordingly, on June 30, 2003, Dow refunded to UCC certain payments made under the original Tax Sharing Agreement.

Union Carbide Corporation and Subsidiaries

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

        Pursuant to General Instruction H of Form 10-Q "Omission of Information by Certain Wholly-Owned Subsidiaries," this section includes only management's narrative analysis of the results of operations for the three and nine month periodperiods ended March 31,September 30, 2003, the most recent period,periods, compared with the three and nine month periodperiods ended March 31,September 30, 2002, the corresponding periodperiods in the preceding fiscal year.

        References below to "Dow" refer to The Dow Chemical Company and its consolidated subsidiaries.

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

RESULTS OF OPERATIONS

        The Corporation reported a net lossincome of $59$121 million for the firstthird quarter of 2003 compared with net income of $37$33 million for the firstthird quarter of 2002. Substantially higher earnings from the Corporation's joint ventures and income from the sale of certain non-strategic assets favorably impacted the third quarter results compared with the same period last year. Year to date, net income declined to $116 million from $127 million in 2002. The results forfavorable impact of increased sales, lower operating expenses, and increased earnings from the first quarter of 2003 were negatively impactedCorporation's joint ventures was more than offset by significantly higher hydrocarbonan increase in feedstocks and energy costs in addition to asset write-downs and impairments of $35 million related to restructuring activities in the first quarter 2003.compared with last year.

        Total net sales for the firstthird quarter of 2003 were $1,289$1,264 million compared with $1,119$1,179 million for the firstthird quarter of 2002, an increase of 7 percent. Year to date, total net sales increased 11 percent to $3,826 million from $3,445 million for 2002. Selling prices to Dow are based on market prices for the related products. Increases inIn addition to volume growth, average selling prices occurredwere higher for most products in the third quarter and first nine months of 2003 compared with the same periods last year, led by ethylene glycol and polyethylene, the Corporation's principal products.

        Cost of sales increased $111 million (11 percent) in the third quarter of 2003 compared with the firstthird quarter of 2002 led by polyethylene and ethylene glycol ("EG"), the Corporation's principal products. The Corporation also reported substantial volume gains for EG, vinyl acetate monomer, and oxo products.

        Costyear to date, cost of sales increased $301$576 million (30(19 percent) in the first quarter of 2003 compared with the first quarter of 2002, due primarily to a $250 million increase in hydrocarbon feedstock and energy costs, reflecting a 65 percent increase in costs of these raw materials over the first quarter of 2002. In addition, asset write-downs and impairments of $24 million related to restructuring activities were included in costCost of sales for the firstthird quarter of 2003.2003 and year to date was negatively impacted by the significant increase in overall costs for feedstocks and energy compared with the same periods last year. Gross margin declined in the firstthird quarter of 2003 and on a year-to-date basis, as the substantial increase in raw material costs were not entirely recovered bymore than offset the higher selling prices.prices and volume growth.

        ResearchOperating expenses (research and development, expenses declined $7and selling, general and administrative expenses) were $27 million in the firstthird quarter of 2003, compared with the same quarter last year. Selling, general and administrative expenses declined $4down 25 percent, from $36 million in the firstthird quarter of 2003 compared withlast year. Year to date, operating expenses totaled $95 million, down 24 percent from $125 million for the same quarterperiod last year. These declines are attributable toreflect the continued focus on cost containment effortscontrol begun in late 2002, as well as the impact of workforce reductions that occurred during 2002.reductions.

        Equity in earnings of nonconsolidated affiliates increased to $10$61 million in the firstthird quarter of 2003 from $3$17 million in the firstthird quarter of 2002, reflecting a2002. Year to date, equity earnings increased $113 million in 2003 compared with 2002. The increase in third quarter and year-to-date results was due primarily to strong performanceearnings reported by EQUATE Petrochemical

16

Company K.S.C., a Kuwait-based joint venture, that was partially offset by increased losses at and the Corporation's joint ventures in Malaysia due to a scheduled plant turnaround.OPTIMAL Group.

        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) for the firstthird quarter of 2003 was expenseincome of $15$35 million, compared with expense of $3$16 million for the firstthird quarter last year. Results for the firstthird quarter of 2003 included expensegains associated with the sale of assets, including approximately $35 million for certain product lines of Amerchol Corporation, a wholly owned subsidiary, and approximately $33 million for sales of other non-strategic assets. Year to date,

14

sundry income (expense) was income of $11 million in 2003 compared with $14 million last year. Year-to-date results for 2003 also included expense associated with the impairment and subsequent sale of a chemical transport vessel to be sold in the second quarter of 2003.vessel.

        Interest income for the first quarterthird quarters of 2003 declinedand 2002 was $4 million. Year to $2date, interest income decreased to $9 million from $15$31 million in the first quarter of last year. Interest income in the first quarter of2002. The year-to-date results for 2002 reflected higher average interest rates earned on interest-bearing assets, and also included $9$18 million related to a $483 million related company note receivable that was repaid in the second quarter of 2002.

        Interest expense and amortization of debt discount for the firstthird quarter of 2003 was $34$27 million compared with $33 million in the firstthird quarter of last year. Year to date, interest expense and amortization of debt discount decreased to $89 million from $99 million in 2002, reflecting reduced debt levels and a continuing decline in average interest rates.

        The effective tax rate for the firstthird quarter of 2003 was 35.825.3 percent compared with 19.649.2 percent for the same quarter last year. Year to date, the effective tax rate was 25.2 percent versus 38.7 percent last year. The effective tax rate fluctuates based on, among other factors, where income is earned, the level of after-tax income from joint ventures, and the level of income relative to tax credits available.

        In September 2003, Moody's Investor Services lowered the Corporation's long-term debt rating from "Baa2" to "B1". The Corporation does not expect this change to affect its main borrowing facility, although the Corporation may incur higher borrowing costs.

Asbestos-Related Matters

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

        The rate at which plaintiffs filed asbestos-related suits against various companies, including the Corporation and Amchem, increased in both 2001 and 2002, influenced by the bankruptcy filings of numerous defendants in asbestos-related litigation. The Corporation expects more asbestos-related suits to be filed against it and Amchem in the future. The Corporation will aggressively defend or reasonably resolve, as appropriate, both pending and future claims.

        Typically, the Corporation is only one of many named defendants, many of which, including UCC and Amchem, were members of the Center for Claims Resolution ("CCR"), an entity that defended and resolved asbestos cases on behalf of its members. As members of the CCR, the Corporation's and Amchem's strategy was to resolve the claims against them at the relatively small percentage allocated to them pursuant to the CCR's collective defense. The CCR ceased operating in February 2001, except to administer certain settlements. The Corporation then began using Peterson Asbestos Claims Enterprise, but only for claims processing and insurance invoicing.

        The Corporation is a wholly owned subsidiary of Dow, and certain members of Dow's legal department and certain Dow management personnel have been retained to provide their experience in mass tort litigation to assist the Corporation in responding to asbestos-related matters. In early 2002, the Corporation hired new outside counsel to serve as national trial counsel. In connection with these actions, aggressive defense strategies were designed to reduce the cost of resolving all asbestos-related claims, including the elimination of claims that lack demonstrated illness or causality.

        At the end of 2001 through the third quarter of 2002, the Corporation had concluded it was not possible to estimate its cost of disposing of asbestos-related claims that might be filed against it and

17

Amchem in the future due to a number of reasons, including its lack of sufficient comparable loss history from which to assess either the number or value of future asbestos-related claims. During the third and fourth quarters of 2002, the Corporation worked with Analysis, Research & Planning Corporation ("ARPC"), a consulting firm with broad experience in estimating resolution costs associated with mass tort litigation, including asbestos, to explore whether it would be possible to estimate the cost of disposing of pending and future asbestos-related claims that have been, and could reasonably be expected to be, filed against the Corporation and Amchem.

        The Corporation provided ARPC with all relevant data regarding asbestos-related claims filed against UCC and Amchem through November 6, 2002. ARPC concluded that it was not possible to estimate the full range of the cost of resolving future asbestos-related claims against UCC and Amchem, because of various uncertainties associated with the litigation of those claims. These uncertainties, which hindered the Corporation's ability to project future claim volumes and resolution costs, included the following:

•

Until a series of bankruptcies led to the CCR ceasing operations in early 2001, UCC and Amchem generally settled claims filed against CCR members according to a sharing formula that would not necessarily reflect the cost of resolving those claims had they been separately litigated against UCC or Amchem.

15

•

The bankruptcies in the years 2000 to 2002 of other companies facing large asbestos liability were a likely contributing cause of a sharp increase in filings against many defendants, including UCC and Amchem.



•

It was not until the CCR ceased operating in early 2001 that UCC took direct responsibility for the defense of claims against itself and Amchem.



•

New defense counsel for UCC and Amchem implemented more aggressive defense strategies in mid-2002.

        Despite its inability to estimate the full range of the cost of resolving future asbestos-related claims, ARPC advised the Corporation that it would be possible to determine an estimate of a reasonable forecast of the cost of resolving pending and future asbestos-related claims likely to face the Corporation and Amchem, if certain assumptions were made. Specifically, ARPC advised the Corporation that for purposes of determining an estimate it is reasonable to assume that in the near term asbestos-related claims filed against UCC and Amchem are unlikely to return to levels below those experienced prior to 2001—2001 - when the recent spike in filings commenced—commenced - and that average claim values are unlikely to return to levels below those experienced in 2001-2002, the years immediately following CCR's cessation of operations. ARPC advised the Corporation that, by assuming that future filings were unlikely to exceed the levels experienced prior to 2001 and extrapolating from 2001 and 2002 average claim values, ARPC could make a reasonable forecast of the cost of resolving asbestos-related claims facing UCC and Amchem. ARPC also advised that forecasts of resolution costs for a 10 to 15 year period from the date of the forecast are likely to be more accurate than forecasts for longer periods of time.

        In projecting the resolution costs for future asbestos-related claims, ARPC applied two methodologies that have been widely used for forecasting purposes. Applying these methodologies, ARPC forecast the number and allocation by disease category of those potential future claims on a year-by-year basis through 2049. ARPC then calculated the percentage of claims in each disease category that had been closed with payments in 2001 and 2002. Using those percentages, ARPC calculated the number of future claims by disease category that would likely require payment by UCC and Amchem and multiplied the number of such claims by the mean values paid by UCC and Amchem, respectively, to dispose of such claims in 2001 and 2002. In estimating the cost of resolving

18

pending claims, ARPC used a process similar to that used for calculating the cost of resolving future claims.

        As of December 31, 2002, ARPC estimated the undiscounted cost of resolving pending and future asbestos-related claims against UCC and Amchem, excluding future defense and processing costs, for the 15-year period from the present through 2017 to be between approximately $2.2 billion and $2.4 billion, depending on which of the two accepted methodologies was used.

        Although ARPC provided estimates for a longer period of time, based on ARPC's advice that forecasts for shorter periods of time are more accurate and in light of the uncertainties inherent in making long-term projections, the Corporation determined that the 15-year period through 2017 is the reasonable time period for projecting the cost of disposing of its future asbestos-related claims. The Corporation concluded that it is probable that the undiscounted cost of disposing of its asbestos-related pending and future claims ranges from $2.2 billion to $2.4 billion, which is the range for the 15-year period ending in 2017 as estimated by ARPC using both methodologies. Accordingly, the Corporation increased its asbestos-related liability for pending and future claims at December 31, 2002 to $2.2 billion, excluding future defense and processing costs. At March 31,September 30, 2003, the asbestos-related liability for pending and future claims was $2.1$2.0 billion.

        The Corporation also increased the receivable for insurance recoveries related to its asbestos liability to $1.35 billion at December 31, 2002, substantially exhausting its asbestos product liability coverage. This resulted in a net income statement impact of $828 million, $522 million on an after-tax basis, in the fourth quarter of 2002. At March 31,September 30, 2003, the receivable for insurance recoveries related to the Corporation's asbestos liability was $1.3$1.2 billion. 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. In addition, the Corporation had receivables for insurance recoveries for defense and resolution costs submitted to insurance carriers for reimbursement of $219 million at December 31, 2002 and $249$267 million at March 31,September 30, 2003.

        The amounts recorded for the asbestos-related liability and related insurance receivable described above were based upon currently known facts. However, projecting future events, such as the number of new claims to be filed 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.

        In September 2003, the Corporation filed a comprehensive insurance coverage case in the Circuit Court for Kanawha County in Charleston, West Virginia, seeking to confirm its rights to insurance for various asbestos claims. Although the Corporation already has settlements in place concerning coverage for asbestos claims with many of its insurers, including

16

those covered by the 1985 Wellington Agreement, 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. The Corporation continues to believe that its recorded receivable for insurance recoveries from all insurance carriers is collectible. This conclusion was reached after a further 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 expenses defense and processing costs as incurred. Accordingly, defense and processing costs incurred in the future for asbestos-related litigation, net of insurance, will impact results of operations in future periods.

        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 and processing 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.

OTHER MATTERS

Accounting Changes

        See Note B to the Consolidated Financial Statements for a discussion of accounting changes and recently issued accounting pronouncements.

19

Critical Accounting Policies

        The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America ("GAAP") 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, 2002, describes the significant accounting policies and methods used in the preparation of the Consolidated Financial Statements. Following are the Corporation's critical accounting policies impacted by judgments, assumptions and estimates:

Litigation

        The Corporation is subject to legal proceedings and claims arising out of the normal course of business. The Corporation routinely assesses the likelihood of any adverse judgments or outcomes to these matters, as well as ranges of probable losses. A determination of the amount of the reserves required, if any, for these contingencies is made after thoughtful analysis of each known issue and an analysis of historical claims experience for incurred but not reported matters. The Corporation has an active risk management program consisting of numerous insurance policies secured from many carriers. These policies provide coverage that is utilized to minimize the impact, if any, of the legal proceedings. The required reserves may change in the future due to new developments in each matter. For further discussion, see Note F to the Consolidated Financial Statements.

Asbestos-Related Matters

        The Corporation is and has been involved in a large number of asbestos-related suits filed primarily in state courts during the past three decades. At the end of 2001 and through the third quarter of 2002, the Corporation had concluded it was not possible to estimate its cost of disposing of asbestos-related claims that might be filed against it and Amchem in the future due to a number of reasons, including its lack of sufficient comparable loss history from which to assess either the number or value of future asbestos-related claims. During the third and fourth quarters of 2002, the Corporation worked with Analysis, Research & Planning Corporation ("ARPC"), a consulting firm with broad experience in estimating resolution costs associated with mass tort litigation, including asbestos, to explore whether it would be possible to estimate the cost of disposing of pending and future asbestos-related claims that have been, and could reasonably be expected to be, filed against UCC and Amchem.

        In projecting the Corporation's resolution costs for future asbestos-related claims, ARPC applied two methodologies that have been widely used for forecasting purposes. As of December 31, 2002, ARPC estimated the undiscounted cost of resolving pending and future asbestos-related claims against UCC and Amchem, excluding future defense and processing costs, for the 15-year period from the present through 2017 to be between approximately $2.2 billion and $2.4 billion, depending on which of the two accepted methodologies was used.

        Although ARPC provided estimates for a longer period of time, based on ARPC's advice that forecasts for shorter periods of time are more accurate and in light of the uncertainties inherent in making long-term projections, the

17

Corporation determined that the 15-year period through 2017 is the reasonable time period for projecting the cost of disposing of its future asbestos-related claims. The Corporation concluded that it is probable that the undiscounted cost of disposing of its asbestos-related pending and future claims ranges from $2.2 billion to $2.4 billion, which is the range for the 15-year period ending in 2017 as estimated by ARPC using both methodologies. Accordingly, the Corporation increased its asbestos-related liability for pending and future claims at December 31, 2002 to

20

---




$2.2 $2.2 billion, excluding future defense and processing costs. At March 31,September 30, 2003, the asbestos-related liability for pending and future claims was $2.1$2.0 billion.

        The Corporation also increased the receivable for insurance recoveries related to its asbestos liability to $1.35 billion at December 31, 2002. At March 31,September 30, 2003, the receivable for insurance recoveries related to the Corporation's asbestos liability was $1.3$1.2 billion. In addition, the Corporation had receivables for insurance recoveries for defense and resolution costs submitted to insurance carriers for reimbursement of $219 million at December 31, 2002 and $249$267 million at March 31,September 30, 2003. The amounts recorded for the asbestos-related liability and related insurance receivable described above were based upon currently known facts. However, projecting future events, such as the number of new claims to be filed 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. The Corporation expenses defense and processing costs as incurred. Accordingly, defense and processing costs incurred in the future for asbestos-related litigation, net of insurance, will impact results of operations in future periods. For additional information, see Asbestos-Related Matters in Management's Discussion and Analysis of Financial Condition and Results of Operations and Note F to the Consolidated Financial Statements.

Environmental Matters

        The Corporation determines the costs of environmental remediation of its facilities and formerly owned facilities based on evaluations of current law and existing technologies. Inherent uncertainties exist in such evaluations primarily due to unknown conditions, changing governmental regulations and legal standards regarding liability, and evolving technologies. The recorded liabilities are adjusted periodically as remediation efforts progress or as additional technical or legal information becomes available. The Corporation had accrued obligations of $130 million at December 31, 2002, for environmental remediation and restoration costs, including $35 million for the remediation of Superfund sites. At March 31,September 30, 2003, the Corporation had accrued obligations of $125$116 million for environmental remediation and restoration costs, including $34$30 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 twice that amount. For further discussion, see Note F to the Consolidated Financial Statements in this filing and Environmental Matters in Management's Discussion and Analysis of Financial Condition and Results of Operations in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2002.

Pension and Other Postretirement Benefits

        The amounts recognized in the consolidated financial statements related to pension and other postretirement benefits are determined from actuarial valuations. Inherent in these valuations are assumptions including expected return on plan assets, discount rates at which the liabilities could be settled at December 31, 2002, rate of increase in future compensation levels, mortality rates and health care cost trend rates. These assumptions are updated annually and are disclosed in Note L to the Consolidated Financial Statements in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2002. In accordance with GAAP, actual results that differ from the assumptions are accumulated and amortized over future periods and, therefore, affect expense recognized and obligations recorded in future periods.

        The expected long-term rate of return on assets is developed with input from the Corporation's actuarial firm, which includes the actuary's review of the asset class return expectations of several respected consultants and economists, based on broad equity and bond indices. The Corporation's historical experience with the pension fund asset performance and comparisons to expected returns of

21

---




peer companies with similar fund assets is also considered. The long-term rate of return assumption used for determining net periodic pension expense for 2002 was 9.25 percent. This assumption was reduced to 9 percent for determining 2003 net periodic pension expense. Lowering the expected long-term rate of return of the U.S. qualified plan assets by 0.25 percent (from 9.25 percent to 9 percent) would have reduced the pension income of the U.S. qualified plans for 2002 by approximately $10 million. Future actual pension income will depend on future investment performance, changes in future discount rates and various other factors related to the population of participants in the Corporation's pension plans.

18

        The Corporation bases the determination of pension expense or income on a market-related valuation of plan assets, which reduces year-to-year volatility. This market-related valuation recognizes investment gains or losses over a five-year period from the year in which they occur. Investment gains or losses for this purpose represent the difference between the expected return calculated using the market-related value of plan assets and the actual return based on the market value of plan assets. Since the market-related value of plan assets recognizes gains or losses over a five-year period, the future value of plan assets will be impacted when previously deferred gains or losses are recorded. Over the life of the plan, both gains and losses have been recognized and amortized. For the year ending December 31, 2002, $460 million of losses remain to be recognized in the calculation of the market-related value of plan assets. These losses will result in decreases in future pension income as they are recognized.

        The discount rate utilized for determining future pension obligations is based on long-term bonds receiving an AA- or better rating by a recognized rating agency. The resulting discount rate decreased from 7 percent at December 31, 2001, to 6.75 percent at December 31, 2002.

        For 2003, the Corporation left its assumption for the long-term rate of increase in compensation levels unchanged at 5 percent.

        Based on the revised pension assumptions and the actual investment performance of the plan assets in 2002, the Corporation expects to record approximately $40 million less in income for pension and other postretirement benefits in 2003 than it did in 2002.

        The value of the U.S. qualified plan assets decreased from $3.8 billion at December 31, 2001, to $3.4 billion at December 31, 2002. The investment performance and declining discount rates reduced the funded status of the U.S. qualified plans, net of benefit obligations, by $690 million from December 31, 2001 to December 31, 2002. The Corporation does not expect significant cash contributions to be required for the U.S. qualified plans in 2003.

Income Taxes

        Deferred tax assets and liabilities are determined using enacted tax rates for the effects of net operating losses and temporary differences between the book and tax bases of assets and liabilities. The Corporation records a valuation allowance on deferred tax assets when appropriate to reflect the expected future tax benefits to be realized. In determining the appropriate valuation allowance, certain judgments are made relating to recoverability of deferred tax assets, use of tax loss carryforwards, level of expected future taxable income and available tax planning strategies. These judgments are routinely reviewed by management. At March 31,September 30, 2003, the Corporation had deferred tax assets, net of deferred tax liabilities, of $1.1 billion,$871 million, net of valuation allowances of $59 million. For further discussion, see Note R to the Consolidated Financial Statements in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2002.

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

22

ITEM 4.    CONTROLS AND PROCEDURES

        WithinAs of the 90 days prior toend of the date of filingperiod 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 President (ChiefChief Executive Officer)Officer and the Treasurer (ChiefChief Financial Officer),Officer, of the effectiveness of the design and operation of the Corporation's disclosure controls and procedures pursuant to Exchange Act Rule 15d-14.15d-15(e). Based upon that evaluation, the President (ChiefChief Executive Officer)Officer and the Treasurer (ChiefChief Financial Officer)Officer concluded that the Corporation's disclosure controls and procedures are effective in timely alerting them to material information relating to the Corporation (including its consolidated subsidiaries) required to be included in the Corporation's periodic SEC filings. Subsequent to the date of that evaluation, there have been no significant changesNo change in the Corporation's internal controlscontrol over financial reporting occurred during the Corporation's most recent fiscal quarter that materially affected, or in other factors that could significantlyis reasonably likely to materially affect, the Corporation's internal controls, nor were any corrective actions required with regard to significant deficiencies and material weaknesses.control over financial reporting.

PART II—OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

        No material developments in any legal proceedings, including asbestos-related matters, occurred during the firstthird quarter of 2003. For a summary of the history and current status of legal proceedings, including asbestos-related matters, see Management's Discussion and Analysis of Financial Condition and Results of Operations, Asbestos-Related Matters; and Note F to the Consolidated Financial Statements.

ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K

(a)

Exhibits.

(b)

Reports on Form 8-K.

No Current Reports on Form 8-K were filed by the Corporation during the firstthird quarter of 2003.

2320

Union Carbide Corporation and Subsidiaries
Signatures

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

2421

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

        I, John R. Dearborn, President (Chief Executive Officer) of Union Carbide Corporation, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of Union Carbide Corporation;

2.

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c)

presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.

The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

25

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

        I, Edward W. Rich, Vice President and Treasurer (Chief Financial Officer) of Union Carbide Corporation, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of Union Carbide Corporation;

2.

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c)

presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.

The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

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EXHIBIT INDEXExhibit Index

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Union Carbide Corporation and Subsidiaries Consolidated Statements of OperationsIncome
Union Carbide Corporation and Subsidiaries Consolidated Balance Sheets
Union Carbide Corporation and Subsidiaries Consolidated Statements of Cash Flows
Union Carbide Corporation and Subsidiaries Consolidated Statements of Comprehensive Income
Union Carbide Corporation and Subsidiaries Notes to the Consolidated Financial Statements
Union Carbide Corporation and Subsidiaries

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 4. CONTROLS AND PROCEDURES

PART II—OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

Union Carbide Corporation and Subsidiaries Signatures
Union Carbide Corporation and Subsidiaries Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002Exhibit Index
Union Carbide Corporation and Subsidiaries Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
EXHIBIT INDEX