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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 ~~June~~September 30, 2005

Commission file number1-1463

UNION CARBIDE CORPORATION

(Exact name of registrant as specified in its charter)

New York	13-1421730
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)		~~13-1421730~~ ~~(I.R.S. Employer~~ ~~Identification No.)~~
~~400 West Sam Houston Parkway South, Houston, Texas 77042~~ ~~(Address of principal executive offices) (Zip Code)~~
~~Registrant's telephone number, including area code:713-978-2016~~
~~Not applicable~~ ~~(Former name, former address and former fiscal year, if changed since last report)~~

400 West Sam Houston Parkway South, Houston, Texas 77042

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: 713-978-2016

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

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 Exchange Act). Yes o No ý.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No ý.

At ~~June~~September 30, 2005, 1,000 shares of common stock were outstanding, all of which were held by the ~~registrant's~~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~~
TABLE OF CONTENTS

PAGE
~~PART I—FINANCIAL INFORMATION~~
PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

3

Consolidated Statements of Income

3

Consolidated Balance Sheets

4

Consolidated Statements of Cash Flows

6
5

Consolidated Statements of Comprehensive Income

6
5

Notes to the Consolidated Financial Statements

7
6

Item 2. ~~Management's~~Management’s Discussion and Analysis of Financial Condition and Results of Operations.

15
14

Disclosure Regarding Forward-Looking Information

15
14

Results of Operations

15
14

~~Other Matters~~

16
Other Matters

15
Item 3. Quantitative and Qualitative Disclosures About Market Risk.

19
18

Item 4. Controls and Procedures.

19
18

~~PART II—OTHER INFORMATION~~

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

19
18

Item 6. Exhibits.

19
18

~~SIGNATURES~~

20

SIGNATURES
19
EXHIBIT INDEX

21
20
2

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Union Carbide Corporation and Subsidiaries
Consolidated Statements of Income

Three Months Ended

Nine Months Ended

Three Months Ended
Six Months Ended

Sept. 30,

Sept. 30,

Sept. 30,

Sept. 30,

In millions (Unaudited)
In millions (Unaudited)
June 30,
2005
June 30,
2004
June 30,
2005
June 30,
2004

2005

2004

2005

2004

Net trade sales $ 73 $ 84 $ 145 $ 163
Net sales to related companies 1,511 1,275 3,123 2,507

Net trade sales

$
73

$
75

$
218

$
238

Net sales to related companies

1,392

1,427

4,515

3,934

Total Net Sales Total Net Sales 1,584 1,359 3,268 2,670

1,465

1,502

4,733

4,172

Cost of sales 1,383 1,237 2,824 2,401
Research and development expenses 18 23 39 47
Selling, general and administrative expenses 5 4 10 10
Amortization of intangibles — 1 — 2
Restructuring charges — 48 — 48
Equity in earnings of nonconsolidated affiliates 98 209 251 294
Sundry income (expense) — net 1 (17 ) 53 (55 )
Interest income 6 2 10 3
Interest expense and amortization of debt discount 19 23 42 46

Cost of sales

1,321

1,331

4,145

3,732

Research and development expenses

19

21

58

68

Selling, general and administrative expenses

4

5

14

15

Amortization of intangibles

—

1

—

3

Restructuring charges

—

—

—

48

Equity in earnings of nonconsolidated affiliates

105

133

356

427

Sundry income (expense) - net

(2
)
(23
)
51

(78
)
Interest income

6

2

16

5

Interest expense and amortization of debt discount

15

24

57

70

Income before Income Taxes Income before Income Taxes 264 217 667 358

215

232

882

590

Provision for income taxes 74 79 197 129

Provision for income taxes

31

64

228

193

Net Income Available for Common Stockholder Net Income Available for Common Stockholder $ 190 $ 138 $ 470 $ 229

$
184

$
168

$
654

$
397

Depreciation Depreciation $ 68 $ 82 $ 135 $ 160

$
66

$
81

$
201

$
241

Capital Expenditures Capital Expenditures $ 51 $ 33 $ 94 $ 59

$
45

$
32

$
139

$
91

See Notes to the Consolidated Financial Statements.
3

Union Carbide Corporation and Subsidiaries
Consolidated Balance Sheets

Sept. 30,

Dec. 31,

In millions (Unaudited)
In millions (Unaudited)
June 30,
2005
Dec. 31,
2004

2005

2004

Assets Assets

Current Assets Current Assets

Cash and cash equivalents $ 26 $ 22
Accounts receivable:
Trade (net of allowance for doubtful receivables — 2005: $3; 2004: $4) 45 58
Related companies 309 504
Other 175 191
Notes receivable from related companies 365 53
Inventories 195 186
Deferred income tax assets — current 37 71
Asbestos-related insurance receivables — current 148 175

Total current assets 1,300 1,260

Cash and cash equivalents

$
44

$
22

Accounts receivable:

Trade (net of allowance for doubtful receivables - 2005: $3; 2004: $4)

43

58

Related companies

286

504

Other

176

191

Notes receivable from related companies

505

53

Inventories

207

186

Deferred income tax assets - current

80

71

Asbestos-related insurance receivables - current

115

175

Total current assets

1,456

1,260

Investments Investments

Investments in related companies 462 462
Investments in nonconsolidated affiliates 939 1,041
Other investments 24 23
Noncurrent receivables 7 13
Noncurrent receivable from related company 209 222

Total investments 1,641 1,761

Investments in related companies

462

462

Investments in nonconsolidated affiliates

962

1,041

Other investments

24

23

Noncurrent receivables

10

13

Noncurrent receivable from related company

209

222

Total investments

1,667

1,761

Property Property

Property 7,347 7,304
Less accumulated depreciation 5,313 5,227

Net property 2,034 2,077

Property

7,331

7,304

Less accumulated depreciation

5,311

5,227

Net property

2,020

2,077

Other Assets Other Assets

Goodwill 26 26
Other intangible assets (net of accumulated amortization — 2005: $122; 2004: $124) 20 20
Deferred income tax assets — noncurrent 283 452
Asbestos-related insurance receivables — noncurrent 901 1,028
Prepaid pension expense 708 655
Deferred charges and other assets 52 52

Total other assets 1,990 2,233

Goodwill

26

26

Other intangible assets (net of accumulated amortization - 2005: $119; 2004: $124)

21

20

Deferred income tax assets - noncurrent

224

452

Asbestos-related insurance receivables - noncurrent

854

1,028

Prepaid pension expense

732

655

Deferred charges and other assets

45

52

Total other assets

1,902

2,233

Total Assets Total Assets $ 6,965 $ 7,331

$
7,045

$
7,331

Liabilities and Stockholder’s Equity

Current Liabilities

Notes payable:

Related companies

$
7

$
139

Other

3

4

Long-term debt due within one year

3

266

Accounts payable:

Trade

204

260

Related companies

197

270

Other

57

40

Income taxes payable

125

116

Asbestos-related liabilities - current

94

92

Accrued and other current liabilities

250

360

Total current liabilities

940

1,547

Long-Term Debt

834

1,006

Other Noncurrent Liabilities

Pension and other postretirement benefits - noncurrent

464

470

Asbestos-related liabilities - noncurrent

1,426

1,549

Other noncurrent obligations

406

433

Total other noncurrent liabilities

2,296

2,452

Minority Interest in Subsidiaries

4

4

Stockholder’s Equity

Common stock (1,000 shares authorized and issued)

—

—

Additional paid-in capital

—

—

Retained earnings

3,087

2,433

Accumulated other comprehensive loss

(116
)
(111
)
Net stockholder’s equity

2,971

2,322

Total Liabilities and Stockholder’s Equity

$
7,045

$
7,331

See Notes to the Consolidated Financial Statements.
4

Union Carbide Corporation and Subsidiaries
Consolidated ~~Balance Sheets~~Statements of Cash Flows
In millions (Unaudited)
June 30,
2005
Dec. 31,
2004

Liabilities and Stockholder's Equity
Current Liabilities
Notes payable:
Related companies $ 6 $ 139
Other 4 4
Long-term debt due within one year 96 266
Accounts payable:
Trade 240 260
Related companies 200 270
Other 43 40
Income taxes payable 124 116
Asbestos-related liabilities — current 92 92
Accrued and other current liabilities 219 360

Total current liabilities 1,024 1,547

Long-Term Debt 832 1,006

Other Noncurrent Liabilities
Pension and other postretirement benefits — noncurrent 465 470
Asbestos-related liabilities — noncurrent 1,452 1,549
Other noncurrent obligations 400 433

Total other noncurrent liabilities 2,317 2,452

Minority Interest in Subsidiaries 4 4

Stockholder's Equity
Common stock (1,000 shares authorized and issued) — —
Additional paid-in capital — —
Retained earnings 2,903 2,433
Accumulated other comprehensive loss (115 ) (111 )

Net stockholder's equity 2,788 2,322

Total Liabilities and Stockholder's Equity $ 6,965 $ 7,331

Nine Months Ended

Sept. 30,

Sept. 30,

In millions (Unaudited)

2005

2004

Operating Activities

Net Income Available for Common Stockholder

$
654

$
397

Adjustments to reconcile net income to net cash provided by

operating activities:

Depreciation and amortization

222

258

Provision for deferred income tax

208

177

Earnings/losses of nonconsolidated affiliates less than (in excess of) dividends received

1

(285
)

Gain on sales of investments, net

(9
)
(1
)

Gain on sales of property, net

(3
)
(7
)

Other (gain) loss, net

(1
)
1

Gain on sale of ownership interest in nonconsolidated affiliates

(70
)
(1
)

Restructuring charges

—

37

Changes in assets and liabilities that provided (used) cash:

Accounts and notes receivable

29

5

Related company receivables

(234
)
16

Inventories

(21
)
(8
)

Accounts payable

(9
)
4

Related company payables

(205
)
9

Other assets and liabilities

(24
)
(319
)

Cash provided by operating activities

538

283

Investing Activities

Capital expenditures

(139
)
(91
)

Proceeds from sales of property

7

10

Investments in nonconsolidated affiliates

—

(1
)

Distributions from nonconsolidated affiliates

41

—

Changes in noncurrent receivable from related company

13

(195
)

Purchases of investments

(1
)
—

Proceeds from sales of nonconsolidated affiliates

—

1

Proceeds from sales of investments

—

9

Cash used in investing activities

(79
)
(267
)
Financing Activities

Changes in short-term notes payable

(1
)
2

Payments on long-term debt

(436
)
(16
)

Cash used in financing activities

(437
)
(14
)
Summary

Increase in cash and cash equivalents

22

2

Cash and cash equivalents at beginning of year

22

21

Cash and cash equivalents at end of period

$
44

$
23

See Notes to the Consolidated Financial Statements.

Union Carbide Corporation and Subsidiaries
Consolidated Statements of ~~Cash Flows~~
Comprehensive Income

Six Months Ended

In millions (Unaudited)
June 30,
2005
June 30,
2004

Operating Activities
Net Income Available for Common Stockholder $ 470 $ 229
Adjustments to reconcile net income to net cash provided by operating activities:
        Depreciation and amortization 148 170
        Provision for deferred income tax 186 106
        Earnings/losses of nonconsolidated affiliates less than
            (in excess of) dividends received 25 (169 )
        Gain on sales of property, net — (6 )
        Other (gain) loss, net (1 ) 1
        Gain on sale of ownership interest in nonconsolidated affiliate (70 ) (1 )
        Restructuring charges — 44
Changes in assets and liabilities that provided (used) cash:
        Accounts and notes receivable 27 35
        Related company receivables (117 ) 75
        Inventories (9 ) (23 )
        Accounts payable 2 23
        Related company payables (203 ) 10
        Other assets and liabilities (68 ) (251 )

Cash provided by operating activities 390 243

Investing Activities
Capital expenditures (94 ) (59 )
Proceeds from sales of property — 7
Investments in nonconsolidated affiliates — (1 )
Distributions from nonconsolidated affiliates 41 —
Changes in noncurrent receivable from related company 13 (195 )
Purchases of investments (1 ) —
Proceeds from sales of nonconsolidated affiliates — 1
Proceeds from sales of investments — 3

Cash used in investing activities (41 ) (244 )

Financing Activities
Changes in short-term notes payable — 2
Payments on long-term debt (345 ) —

Cash provided by (used in) financing activities (345 ) 2

Summary
Increase in cash and cash equivalents 4 1
Cash and cash equivalents at beginning of year 22 21

Cash and cash equivalents at end of period $ 26 $ 22

Three Months Ended

Nine Months Ended

Sept. 30,

Sept. 30,

Sept. 30,

Sept. 30,

In millions (Unaudited)

2005

2004

2005

2004

Net Income Available for Common Stockholder

$
184

$
168

$
654

$
397

Other Comprehensive Income (Loss), Net of Tax

Translation adjustments

(2
)
(7
)
(12
)
(8
)
Minimum pension liability adjustment

—

—

6

—

Net gain on cash flow hedging derivative instruments

1

1

1

2

Total other comprehensive loss

(1
)
(6
)
(5
)
(6
)
Comprehensive Income

$
183

$
162

$
649

$
391

See Notes to the Consolidated Financial Statements.
5

Union Carbide Corporation and Subsidiaries
~~Consolidated Statements of Comprehensive Income~~

Three Months Ended
Six Months Ended

In millions (Unaudited)
June 30,
2005
June 30,
2004
June 30,
2005
June 30,
2004

Net Income Available for Common Stockholder $ 190 $ 138 $ 470 $ 229

Other Comprehensive Income (Loss), Net of Tax
Translation adjustments (6 ) (4 ) (10 ) (1 )
Minimum pension liability adjustment (1 ) — 6 —
Net gain (loss) on cash flow hedging derivative instruments (2 ) 1 — 1

Total other comprehensive loss (9 ) (3 ) (4 ) —

Comprehensive Income $ 181 $ 135 $ 466 $ 229

~~See 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"~~“Corporation” or ~~"UCC"~~“UCC”) were prepared in accordance with accounting principles generally accepted in the United States of America ~~("GAAP"~~(“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"~~(“Dow”). In accordance with Statement of Financial Accounting Standards ~~("SFAS"~~(“SFAS”) No. 128, ~~"Earnings~~“Earnings Per Share,"” the presentation of earnings per share is not required in financial statements of wholly owned subsidiaries.

The ~~Corporation's~~Corporation’s business activities comprise components of ~~Dow's~~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~~“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~~Corporation’s stand-alone operations, the ~~Corporation's~~Corporation’s results are reported as a single operating segment.

Intercompany transactions and balances are eliminated in consolidation. Transactions with the ~~Corporation's~~Corporation’s parent company, Dow, or other Dow subsidiaries have been reflected as related company transactions in the consolidated financial statements. See Note H for further discussion.
~~Certain reclassifications of prior year's amounts have been made to conform to the presentation adopted for 2005.~~
These statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the ~~Corporation's~~Corporation’s Annual Report on Form 10-K for the year ended December 31, 2004.
NOTE B     ACCOUNTING CHANGES

In November 2004, the Financial Accounting Standards Board ~~("FASB"~~(“FASB”) issued SFAS No. 151, ~~"Inventory Costs—~~“Inventory Costs – an amendment of ARB No. 43, Chapter 4,"” which clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage) and also requires that the allocation of fixed production overhead be based on the normal capacity of the production facilities. SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. ~~The~~Because the Corporation ~~is currently evaluating~~uses nameplate capacity to calculate product costs, UCC expects to record an immaterial favorable impact on the ~~impact~~Corporation’s consolidated financial statements in the period of ~~adopting this statement.~~adoption.

In December 2004, the FASB issued revised SFAS No. 123 ("(“SFAS No. ~~123R"~~123R”), ~~"Share-Based Payment"~~“Share-Based Payment” which replaces SFAS No. 123, ~~"Accounting~~“Accounting for Stock-Based ~~Compensation"~~Compensation” and supersedes Accounting Principles Board ~~("APB"~~(“APB”) Opinion No. 25, ~~"Accounting~~“Accounting for Stock Issued to Employees."” This statement, which requires that the cost of all share-based payment transactions be recognized in the financial statements, establishes fair value as the measurement objective and requires entities to apply a fair-value-based measurement method in accounting for share-based payment transactions. As issued, the statement applies to all awards granted, modified, repurchased or cancelled after July 1, 2005. In March 2005, the U.S. Securities and Exchange Commission (the ~~"SEC"~~“SEC”) issued Staff Accounting Bulletin ~~("SAB"~~(“SAB”) No. 107, which expresses views of the SEC staff regarding the interaction between SFAS No. 123R and certain SEC rules and regulations, and provides the ~~staff's~~staff’s views regarding the valuation of share-based payment arrangements for public companies. Dow will consider the guidance of this SAB as it adopts SFAS No. 123R. On April 14, 2005, the SEC announced the adoption of a new rule that amends the compliance date for SFAS No. 123R, allowing companies to implement the statement at the beginning of their next fiscal year that begins after June 15, 2005, which is January 1, 2006 for Dow. The Corporation will continue to be allocated the portion of expense relating to its employees who receive stock-based compensation.

In December 2004, the FASB issued SFAS No. 153, ~~"Exchanges~~“Exchanges of Nonmonetary ~~Assets—~~Assets – an amendment of APB Opinion No. 29."” The statement addresses the measurement of exchanges of nonmonetary assets and eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets and replaces it with an exception for exchanges that do not have commercial substance. SFAS No. 153 is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The Corporation has determined that its practices are consistent with the guidance of this statement; therefore, the adoption of SFAS No. 153 on July 1, 2005, ~~will have~~had no impact on the ~~Corporation's~~Corporation’s consolidated financial statements.

In December 2004, the FASB issued FASB Staff Position ~~("FSP"~~(“FSP”) No. FAS 109-1, ~~"Application~~“Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004,"” indicating that this deduction should be accounted for as a special deduction in accordance with the provisions of SFAS No. 109. Beginning in 2005, the Corporation recognizes the allowable deductions as qualifying activity occurs.

6

In December 2004, the FASB issued FSP No. FAS 109-2, ~~"Accounting~~“Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004,"” which provides a practical exception to the SFAS No. 109 requirement to reflect the effect of a new tax law in the period of enactment by allowing additional time beyond the financial reporting period to evaluate the effects on plans for reinvestment or repatriation of unremitted foreign earnings. The American Jobs Creation Act of 2004 (the ~~"Act"~~“Act”) introduced a special one-time dividends received deduction on the repatriation of certain foreign earnings to a U.S. taxpayer, provided certain criteria are met. In May 2005, tax authorities released the clarifying language necessary to enable Dow to complete its determination regarding the repatriation and reinvestment of foreign earnings. Dow intends to repatriate funds from a foreign entity that is partially owned by the Corporation. Since the Corporation is included in ~~Dow's~~Dow’s consolidated federal income tax group and consolidated tax return, as the foreign entity repatriates its earnings, the Corporation will recognize dividend income and its share of the related tax impact of the repatriation provision of the Act, in accordance with the terms of the Dow-UCC Tax Sharing Agreement.
In March 2005, the FASB issued FASB Interpretation ~~("FIN"~~(“FIN”) No. 47, ~~"Accounting~~“Accounting for Conditional Asset Retirement Obligations,"” which clarifies the termconditional asset retirement obligation as used in SFAS No. 143, ~~"Accounting~~“Accounting for Asset Retirement Obligations,"” as a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the Corporation. FIN No. 47 is effective no later than the end of fiscal years ending after December 15, ~~2005. The~~2005..The Corporation ~~is currently evaluating~~expects the adoption of FIN No. 47 on December 31, 2005 to have an immaterial impact ~~of adopting this interpretation.~~on the Corporation’s consolidated financial statements.
In May 2005, the FASB issued SFAS No. 154, ~~"Accounting~~“Accounting Changes and Error Corrections,"” which replaces APB Opinion No. 20, ~~"Accounting~~“Accounting Changes,"” and SFAS No. 3, ~~"Reporting~~“Reporting Accounting Changes in Interim Financial Statements,"” and provides guidance on the accounting for and reporting of accounting changes and error corrections. SFAS No. 154 applies to all voluntary changes in accounting principle and requiresretrospective application (a term defined by the statement) to prior ~~periods'~~periods’ financial statements, unless it is impracticable to determine the effect of a change. It also applies to changes required by an accounting pronouncement that does not include specific transition provisions. In addition, SFAS No. 154 redefinesrestatement~~restatement~~ as the revising of previously issued financial statements to reflect the correction of an error. The statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Corporation will adopt SFAS No. 154 beginning January 1, 2006.
NOTE C     RESTRUCTURING
2004 Restructuring

In the second quarter of 2004, the Corporation recorded restructuring charges totaling $48 million resulting from decisions made by management in the second quarter relative to employment levels as Dow restructured its business organization and as the Corporation finalized plans for additional plant shutdowns and divestitures. The charges included severance of $21 million for a workforce reduction of approximately 360 people, most of whom ended their employment with UCC by the end of the third quarter of 2004, and curtailment costs of $9 million associated with ~~UCC's~~UCC’s defined benefit plans.
~~As of June 30, 2005, the Corporation's workforce had been reduced by 340 people due to this restructuring and severance of $18 million had been paid.~~
In the second quarter of 2005, the estimated workforce reduction was revised to reflect employee redeployment and the severance accrual was reduced by $2 million (reflected in ~~"Cost~~“Cost of ~~sales"~~sales”), ~~leaving an accrual of $1 million for employees who will end their employment with UCC in the second half of 2005, and~~ bringing the 2004 employee-related restructuring program to a close. As of September 30, 2005, the Corporation’s workforce had been reduced by 348 people due to this restructuring and severance of $19 million had been paid.
7

NOTE D     INVENTORIES

The following table provides a breakdown of inventories at ~~June~~September 30, 2005 and December 31, 2004:
Inventories
In millions
June 30,
2005
Dec. 31,
2004
Finished goods $ 54 $ 60
Work in process 27 25
Raw materials 34 32
Supplies 80 69

Total inventories $ 195 $ 186

Inventories
In millions

Sept. 30,
2005

Dec. 31,
2004

Finished goods

$
65

$
60

Work in process

22

25

Raw materials

40

32

Supplies

80

69

Total inventories

$
207

$
186

The reserves reducing inventories from the first-in, first-out ~~("FIFO"~~(“FIFO”) basis to the last-in, first-out ~~("LIFO"~~(“LIFO”) basis amounted to ~~$142~~$174 million at ~~June~~September 30, 2005 and $139 million at December 31, 2004.
NOTE E     OTHER INTANGIBLE ASSETS

The following table provides information regarding the ~~Corporation's~~Corporation’s other intangible assets:
Other Intangible Assets
At June 30, 2005
At December 31, 2004
In millions
Gross
Carrying
Amount
Accumulated
Amortization
Net
Gross
Carrying
Amount
Accumulated
Amortization
Net
Intangible assets with finite lives:
Licenses and intellectual property $ 36 $ (35 ) $ 1 $ 36 $ (35 ) $ 1
Patents 4 (2 ) 2 4 (2 ) 2
Software 101 (84 ) 17 103 (86 ) 17
Other 1 (1 ) — 1 (1 ) —

Total $ 142 $ (122 ) $ 20 $ 144 $ (124 ) $ 20

Other Intangible Assets

At September 30, 2005

At December 31, 2004

In millions

Gross
Carrying
Amount

Accumulated
Amortization

Net

Gross
Carrying
Amount

Accumulated
Amortization

Net

Intangible assets with finite lives:

Licenses and intellectual property

$
33

$
(32
)
$
1

$
36

$
(35
)
$
1

Patents

4

(2
)
2

4

(2
)
2

Software

102

(84
)
18

103

(86
)
17

Other

1

(1
)
—

1

(1
)
—

Total

$
140

$
(119
)
$
21

$
144

$
(124
)
$
20

Total estimated amortization expense for 2005 and the next five fiscal years is as follows:
Estimated Amortization Expense
for Next Five Years
In millions
2005 $ 4
2006 4
2007 4
2008 4
2009 4
2010 —

Estimated Amortization Expense
for Next Five Years
In millions

2005

$
4

2006

4

2007

4

2008

4

2009

4

2010

4

NOTE F    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. The Corporation had accrued obligations of $104 million at December 31, 2004 for environmental remediation and restoration costs, including $39 million for the remediation of Superfund sites. At ~~June~~September 30, 2005, the Corporation had accrued obligations of ~~$98~~$94 million for environmental remediation and restoration costs, including ~~$36~~$35 million for the remediation of Superfund sites. This is ~~management's~~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
8

regulations and legal standards regarding liability, and evolving technologies for handling site remediation and restoration. It is the opinion of the ~~Corporation's~~Corporation’s management that the possibility is remote that costs in excess of those disclosed will have a material adverse impact on the ~~Corporation's~~Corporation’s consolidated financial statements.
Litigation

The following disclosure should be read in conjunction with the ~~Corporation's~~Corporation’s Annual Report on Form 10-K for the year ended December 31, 2004.

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.

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~~UCC’s premises, and ~~UCC's~~UCC’s responsibility for asbestos suits filed against a former subsidiary, Amchem Products, Inc. ~~("Amchem"~~(“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~~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"~~(“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. At each balance sheet date, the Corporation compares current asbestos claim and resolution activity to the assumptions in the most recent ARPC study to determine whether the accrual continues to be appropriate.

In November 2004, the Corporation requested ARPC to review the ~~Corporation's~~Corporation’s historical asbestos claim and resolution activity and determine the appropriateness of updating its January 2003 study. In response to this request, ARPC reviewed and analyzed data through November 14, 2004, and again 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. ARPC did advise, however, that it was reasonable and feasible to construct a new estimate of the cost of resolving current and future asbestos-related claims using the same two widely used forecasting methodologies used by ARPC in its January 2003 study, if certain assumptions were made. As a result, the following assumptions were made and then used by ARPC:
•
The number of future claims to be filed annually against UCC and Amchem is unlikely to exceed the level of claims experienced during 2004.

•
The number of claims filed against UCC and Amchem annually from 2001 to 2003 is considered anomalous for the purpose of estimating future filings.

•
The number of future claims to be filed against UCC and Amchem will decline at a fairly constant rate each year from 2005.

•
The average resolution value for pending and future claims will be equivalent to those experienced during 2003 and 2004 (excluding settlements from closed claims filed in Madison County, Illinois with respect to future claims, as changes in the judicial environment in Madison County caused the historical experience of claims in that jurisdiction to not be predictive of results for future claims).

The resulting study completed by ARPC in January 2005 stated that the undiscounted cost of resolving pending and future asbestos-related claims against UCC and Amchem, excluding future defense and processing costs, through 2017 was estimated to be between approximately $1.5 billion and $2.0 billion, depending on which of two accepted methodologies was used. At December 31, 2004, the recorded asbestos-related liability for pending and future claims was $1.6 billion. Based on the low end of the range in the January 2005 study, the recorded asbestos-related liability for pending and future claims at December 31, 2004 would be sufficient to resolve asbestos-related claims against UCC and Amchem into 2019. As in its January 2003 study, ARPC did provide estimates for a longer period of time in its January 2005 study, but also reaffirmed its prior advice that forecasts for shorter periods of time are more accurate than those for longer periods of time. Based on ~~ARPC's~~
9

ARPC’s studies, the ~~Corporation's~~Corporation’s recent asbestos litigation experience, and the uncertainties surrounding asbestos litigation and legislative reform efforts, management determined that no change to the accrual was required at December 31, 2004.

Based on the ~~Corporation's~~Corporation’s review of 2005 activity, the Corporation determined that no change to the accrual was required at ~~June~~September 30, 2005.

The asbestos-related liability for pending and future claims was $1.5 billion at ~~June~~September 30, 2005 and $1.6 billion at December 31, 2004. At ~~June~~September 30, 2005, approximately 3936 percent of the recorded liability related to pending claims and approximately 6164 percent related to future claims. At December 31, 2004, approximately 37 percent of the recorded liability related to pending claims and approximately 63 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 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~~Corporation’s insurance policies and to resolve issues that the insurance carriers may raise.

The ~~Corporation's~~Corporation’s receivable for insurance recoveries related to its asbestos liability was ~~$590~~$550 million at ~~June~~September 30, 2005 and $712 million at December 31, 2004. At ~~June~~September 30, 2005, ~~$453~~$443 million ($543 million at December 31, 2004) 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, the Corporation had receivables for defense and resolution costs submitted to insurance carriers for reimbursement as follows:
Receivables for Costs Submitted to Insurance Carriers
In millions
June 30,
2005
December 31,
2004
Receivables for defense costs $ 91 $ 85
Receivables for resolution costs 368 406

Total $ 459 $ 491

Receivables for Costs Submitted to Insurance Carriers
In millions

September 30,
2005

December 31,
2004

Receivables for defense costs

$
86

$
85

Receivables for resolution costs

333

406

Total

$
419

$
491

The Corporation expenses defense costs as incurred. The pretax impact for defense and resolution costs, net of insurance, was ~~$14~~$24 million in the ~~second~~third quarter of 2005 ($4819 million in the ~~second~~third quarter of 2004) and ~~$32~~$56 million in the first ~~six~~nine months of 2005 ($7392 million in the first ~~six~~nine months of 2004), and was reflected in ~~"Cost~~“Cost of sales."”
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 (the ~~"West~~“West Virginia ~~action"~~action”) and to facilitate an orderly and timely collection of insurance proceeds. 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, in order to facilitate an orderly resolution and collection of such insurance policies and to resolve issues that the insurance carriers may raise. In early 2004, several of the defendant insurers in the West Virginia action filed a competing action in the Supreme Court of the State of New York, County of New York. As a result of motion practice, the West Virginia action was dismissed in August 2004 on the basis offorum non conveniens ~~(i.e.~~(i.e., West Virginia is an inconvenient location for the parties). The comprehensive insurance coverage litigation is now proceeding in the New York courts (the ~~"New~~“New York ~~action"~~action”). Through the ~~second~~third quarter of 2005, the Corporation reached settlements with several of the carriers involved in the New York action. 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 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, projecting 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.

10

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~~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.

Purchase Commitments

At December 31, 2004, the Corporation had various outstanding commitments for take or pay agreements, with terms extending from one to six years. Such commitments were not in excess of current market prices. The fixed and determinable portion of obligations under purchase commitments at December 31, 2004 is presented in the following table:
Fixed and Determinable Portion of Take or Pay Obligations
at December 31, 2004
In millions
2005 $ 10
2006 10
2007 10
2008 8
2009 5
2010 through expiration of contracts 5

Total $ 48

Fixed and Determinable Portion of Take or Pay Obligations
at December 31, 2004
In millions

2005

$
10

2006

10

2007

10

2008

8

2009

5

2010 through expiration of contracts

5

Total

$
48

Guarantees

The Corporation has undertaken obligations to guarantee the performance of certain nonconsolidated affiliates (including the OPTIMAL Group and Nippon Unicar Company Limited) 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 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 sheet for these guarantees.
Guarantees

In millions
Final
Expiration
Maximum Future
Payments
Recorded
Liability
Guarantees at June 30, 2005 2014 $ 112 $ 2
Guarantees at December 31, 2004 2014 $ 114 $ 2



Guarantees
In millions

Final
Expiration

Maximum Future
Payments

Recorded
Liability

Guarantees at September 30, 2005

2014

$
94

$
2

Guarantees at December 31, 2004

2014

$
114

$
2

11

NOTE G     PENSION AND OTHER POSTRETIREMENT BENEFITS
Net Periodic Benefit Cost (Credit) for All Significant Plans
Three Months Ended
Six Months Ended

In millions
June 30,
2005
June 30,
2004
June 30,
2005
June 30,
2004

Defined Benefit Pension Plans:
Service cost $ 6 $ 7 $ 13 $ 14
Interest cost 55 56 109 112
Expected return on plan assets (86 ) (88 ) (171 ) (176 )
Amortization of prior service cost 1 1 1 2
Amortization of net loss — — 1 —
Special termination/curtailment cost — 2 — 2

Net periodic benefit credit $ (24 ) $ (22 ) $ (47 ) $ (46 )

Other Postretirement Benefits:

Service cost $ 1 $ 1 $ 2 $ 2
Interest cost 8 10 17 20
Amortization of prior service credit — (2 ) (1 ) (4 )
Amortization of net loss 2 1 3 2
Special termination/curtailment cost — 9 — 9

Net periodic benefit cost $ 11 $ 19 $ 21 $ 29

Net Periodic Benefit Cost (Credit) for All Significant Plans

Three Months Ended

Nine Months Ended

In millions

September 30,
2005

September 30,
2004

September 30,
2005

September 30,
2004

Defined Benefit Pension Plans:

Service cost

$
7

$
6

$
20

$
20

Interest cost

54

56

163

168

Expected return on plan assets

(85
)
(89
)
(256
)
(265
)
Amortization of prior service cost

—

1

1

3

Amortization of net loss

1

—

2

—

Special termination/curtailment cost (1)

—

—

—

2

Net periodic benefit credit

$
(23
)
$
(26
)
$
(70
)
$
(72
)

Other Postretirement Benefits:

Service cost

$
1

$
1

$
3

$
3

Interest cost

9

9

26

29

Amortization of prior service credit

—

(1
)
(1
)
(5
)
Amortization of net loss

1

1

4

3

Special termination/curtailment cost (1)

—

—

—

7

Net periodic benefit cost

$
11

$
10

$
32

$
37

(1) See Note C for information regarding curtailment costs recorded in the second quarter of 2004.
Employer Contributions
Pension Plans

The Corporation has a defined benefit pension plan that covers substantially all employees in the United States. Benefits are based on length of service and the ~~employee's~~employee’s three highest consecutive years of compensation.

The ~~Corporation's~~Corporation’s funding policy is to contribute to the plan when pension laws and economics either require or encourage funding. As previously disclosed in the ~~Corporation's~~Corporation’s Annual Report on Form 10-K for the year ended December 31, 2004, UCC does not expect to contribute assets to its qualified pension plan trust in 2005. Consistent with that expectation, no contributions were made in the first ~~half~~nine months of 2005. The Corporation also has a non-qualified supplemental pension plan. Benefit payments to retirees under this plan are expected to be $6 million in 2005. In the first ~~six~~nine months of 2005, benefit payments of $1$3 million were made.
Other Postretirement Benefits

The Corporation provides certain health care and life insurance benefits to retired U.S. employees. The plan provides health care benefits, including hospital, ~~physicians'~~physicians’ services, drug and major medical expense coverage, and life insurance benefits. The Corporation and the retiree share the cost of these benefits, with the Corporation portion increasing as the retiree has increased years of credited service. There is a cap on the Corporation portion. These benefits are subject to change at any time.

The Corporation funds most of the cost of these health care and life insurance benefits as incurred. As previously disclosed in the ~~Corporation's~~Corporation’s Annual Report on Form 10-K for the year ended December 31, 2004, UCC does not expect to contribute assets to its other postretirement benefit plans in 2005. Consistent with that expectation, no contributions were made in the first ~~half~~nine months of 2005. Benefit payments to retirees under these plans are expected to be $63 million in 2005. In the first ~~six~~nine months of 2005, benefit payments of ~~$25~~$36 million were made.
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~~Dow’s long-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~~“Sundry income
12

(expense)~~—net"~~ – net” in the consolidated statements of income. Purchases from that Dow subsidiary were approximately ~~$572~~$550 million in the ~~second~~third quarter of 2005 ($~~446~~570 million in the ~~second~~third quarter of 2004) and ~~$1,175~~$1,725 million in the first ~~half~~nine months of 2005 ($~~889~~1,459 million in the first ~~half~~nine months of 2004).

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~~Corporation’s and ~~Dow's~~Dow’s relative manufacturing conversion costs. This arrangement results in a quarterly charge of approximately $4 million (included in ~~"Sundry~~“Sundry income (expense)~~—net"~~ – net”).

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

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

As part of ~~Dow's~~Dow’s cash management process, UCC is a party to revolving loans with Dow that have LIBOR-based interest rates with varying maturities. At ~~June~~September 30, 2005, the Corporation had a note receivable of ~~$328~~$472 million from Dow under a revolving loan agreement. 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, ~~2005,~~2006, however, Dow may demand repayment with a 30-day written notice to the Corporation, subject to certain restrictions. In the third quarter of 2005, the revolving credit agreement was amended to extend the maturity date from December 30, 2005 to December 30, 2006. 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 ~~June~~September 30, 2005, ~~$802~~$805 million was available under the revolving

credit agreement. The cash collateral was reported as ~~"Noncurrent~~“Noncurrent receivable from related ~~company"~~company” in the consolidated balance sheets.

In June 2005, the Corporation received a cash dividend of approximately $29 million from Dow Chemical Canada Inc. ("(“Dow ~~Canada"~~Canada”) which was included in ~~"Sundry~~“Sundry income (expense)~~—net".~~ – net.” The Corporation accounts for its 11.2 percent ownership interest in Dow Canada using the cost method.

NOTE I     SUBSEQUENT EVENT
On October 3, 2005, the Corporation filed a Form 8-K disclosing its wholly owned subsidiary, Catalysts, Adsorbents and Process Systems Inc., had signed a definitive agreement on September 30, 2005, to sell its 50 percent interest in UOP LLC (“UOP”) to Honeywell Specialty Materials LLC (which currently owns the remaining 50 percent interest in UOP) for a purchase price of $825 million plus or minus 50 percent of UOP’s net cash at closing. The transaction, which is subject to regulatory review, is expected to be completed in the fourth quarter of 2005 and result in the recording of a gain.
13

Union Carbide Corporation and Subsidiaries
ITEM 2. ~~MANAGEMENT'S~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Pursuant to General Instruction H of Form 10-Q ~~"Omission~~“Omission of Information by Certain Wholly-Owned Subsidiaries,"” this section includes only ~~management's~~management’s narrative analysis of the results of operations for the three- and ~~six-month~~nine-month periods ended ~~June~~September 30, 2005, the most recent periods, compared with the three- and ~~six-month~~nine-month periods ended ~~June~~September 30, 2004, the corresponding periods in the preceding fiscal year.

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

The ~~Corporation's~~Corporation’s business activities comprise components of ~~Dow's~~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~~“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~~Corporation’s stand-alone operations, the ~~Corporation's~~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"~~“safe harbor” for forward-looking statements made by or on behalf of Union Carbide Corporation (the ~~"Corporation"~~“Corporation” or ~~"UCC"~~“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~~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~~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 net income of ~~$190~~$184 million for the ~~second~~third quarter of 2005, compared with ~~$138~~$168 million for the ~~second~~third quarter of 2004. ~~The results for the second quarter of 2004 were negatively impacted by a restructuring charge of $48 million.~~ Net income for the first ~~half~~nine months of 2005 was ~~$470~~$654 million, compared with ~~$229~~$397 million for the first ~~half~~nine months of 2004. The significant improvement in year-to-date net income was due to higher selling prices, improved operating margins, and a gain on the sale of a portion of the ~~Corporation's~~Corporation’s ownership interest in EQUATE Petrochemical Company K.S.C ~~("EQUATE"~~(“EQUATE”). which more than offset a decline in volume.

Total net sales for the ~~second~~third quarter of 2005 were ~~$1,584~~$1,465 million compared with ~~$1,359~~$1,502 million for the ~~second~~third quarter of 2004, ~~an increase~~a decrease of 172 percent. ~~Year to date, total net sales were $3,268 million, an increase of 22 percent from $2,670 million for the first half of 2004.~~ Selling prices to Dow are based on market prices for the related products. ~~Average~~Increases in average selling prices for ~~all~~most products ~~were substantially higher~~ in the ~~second~~third quarter of 2005, ~~and on a year-to-date basis~~ compared with the same ~~periods~~period of last year, due to improved industry fundamentals and the continuing increase in feedstock and energy costs. In the second quarter of 2005, volume gains for wire and cable products, polypropylene and glycol ethers were more than offset by lower ~~demand~~sales volume for all products. The decline in sales volume was primarily due to disruptions in production and distribution caused by two hurricanes affecting the U.S. Gulf Coast late in the third quarter. Year to date, total net sales were $4,733 million, an increase of 13 percent from $4,172 million for the ~~Corporation's other products. Polyethylene~~first nine months of 2004. Significant increases in average selling prices, led by polyethylene, polypropylene, glycol ethers and UCAR^TM Emulsion Systems, more than offset an overall decline in volume. Price and volume for ethylene glycol ~~("EG")~~were somewhat lower than the very high levels of 2004. On a year-to-date basis, volume ~~decreased as end-use customers reduced inventories~~was also impacted by a decline in ~~anticipation~~ethylene glycol volume due to scheduled plant turnarounds in the first quarter of 2005 and lower ~~product prices. Lower~~ ethanol sales volume ~~resulted~~resulting from the ~~Corporation's~~Corporation’s exit of the industrial ethanol business in the second quarter of 2004. ~~Sales volume~~
Gross margin for ~~vinyl acetate monomer was reduced by an unplanned outage at~~ the ~~Corporation's manufacturing facility in Texas. On a year-to-date basis, volume was also impacted by a decline in EG volume due to scheduled plant turnarounds in the first quarter of 2005.~~
        ~~Cost of sales increased 12 percent in the second~~third quarter of 2005 was $144 million compared with $171 million for the ~~second~~third quarter of ~~2004~~2004. The decline in gross margin was principally due to higher ~~raw material costs. Cost~~feedstock and energy costs and the negative impact of ~~sales~~lower operating rates resulting from plant outages caused by the hurricanes. The Corporation’s two ethylene crackers at its St. Charles facility in Hahnville, Louisiana were not restarted following the shutdown for Hurricane Katrina in late August because of plant turnarounds already scheduled for late in the third quarter of 2005. The scheduled turnarounds are expected to extend through much of the fourth quarter of 2005. Year to date, gross margin was $588 million compared with $440 million for the first ~~half~~nine months of ~~2005 increased 18 percent compared with the same period last year. However,~~2004. Year-to-date gross ~~margins~~margin improved ~~in the second quarter of 2005 and on a year-to-date basis,~~ as ~~higher~~increases in selling prices more than offset ~~the unfavorable impact of~~ higher feedstock and energy costs and lower volumes.

Equity in earnings of nonconsolidated affiliates decreased to ~~$98~~$105 million in the ~~second~~third quarter of 2005 from ~~$209~~$133 million in the ~~second~~third quarter of 2004. Equity earnings were impacted by an unplanned ~~outages and~~outage at EQUATE ~~and~~early in the ~~OPTIMAL Group during the second~~third quarter of 2005. ~~Equity earnings in the second quarter of 2004 were favorably impacted by the recognition of investment tax allowances by one of the Corporation's joint ventures.~~ Despite strong results reported by EQUATE and

UOP LLC for the first ~~half~~nine months of 2005, equity earnings were ~~$43~~
14

$71 million lower than in the first ~~half~~nine months of 2004 due principally to the benefit of ~~the~~ investment tax allowances at one of the Corporation’s joint ventures in ~~2004.~~
        In the second quarter of ~~2004, the~~2004.
The Corporation recorded a restructuring charge totaling $48 ~~million.~~million in the second quarter of 2004. The charge included severance of $21 million for a workforce reduction of 360 people, curtailment costs of $9 million associated with ~~UCC's~~UCC’s defined benefit plans, an asset write off of $8 million associated with the shutdown of a latex manufacturing facility and a write down of the net book value of a marine terminal (sold in the third quarter of 2004) of $10 million.

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 ~~second~~third quarter of 2005 was net ~~income~~expense of $1$2 million compared with net expense of ~~$17~~$23 million for the third quarter last year. Net sundry expense for the third quarter of 2005 included a gain of $9 million associated with the sale of investments, and reflected lower commission expense on feedstock purchases due to commission rate changes implemented in the second quarter of 2005. Year to date, sundry income (expense) was net income of $51 million compared with net expense of $78 million last year. Net sundry income for the ~~second quarter~~first nine months of ~~2005~~this year included dividend income of $29 million from Dow Chemical Canada Inc. ("(“Dow ~~Canada"~~Canada”) ~~and~~, a loss of $8$9 million associated with the early extinguishment of ~~$345~~$423 million of ~~debt. Year to date, sundry income (expense) was net income of $53 million compared with net expense of $55 million last year. Net sundry income for the first six months of this year also included~~debt, and a $70 million pretax gain on the sale of a portion of the ~~Corporation's~~Corporation’s interest in EQUATE in the first quarter of 2005. In November 2004, the Corporation sold a 2.5 percent interest in EQUATE to National Bank of Kuwait for $104 million. In March 2005, these shares were sold to private Kuwaiti investors thereby completing the restricted transfer, which resulted in the first quarter gain and reduced the ~~Corporation's~~Corporation’s ownership interest from 45 percent to 42.5 percent.
The effective tax rate for the second quarter of 2005 was 28 percent compared with 36.4 percent for the same quarter last year. Year to date, the effective tax rate was 29.5 percent versus 36.0 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 addition,~~The effective tax rate for the third quarter of 2005 was 14.4 percent compared with 27.6 percent for the same quarter last year. The effective tax rate for the third quarter of 2005 reflects the favorable impact of $21 million for adjustments resulting from the finalization of calculations following the closure of prior tax years. Management evaluated the significance of these adjustments to the third quarter and determined to record them in the current period. Year to date, the effective tax rate was 25.9 percent versus 32.7 percent last year. The effective tax rate for 2005 also reflects the favorable impact of $29 million of dividend income from Dow Canada, which was based on previously taxed income.
OTHER MATTERS
Accounting Changes

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

The preparation of financial statements and related disclosures in conformity with 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~~Corporation’s Annual Report on Form 10-K for the year ended December 31, 2004 ("(“2004 ~~10-K"~~10-K”) describes the significant accounting policies and methods used in the preparation of the Consolidated Financial Statements. The ~~Corporation's~~Corporation’s critical accounting policies that are impacted by judgments, assumptions and estimates are described in ~~Management's~~Management’s Discussion and Analysis of Financial Condition and Results of Operations in the ~~Corporation's~~Corporation’s 2004 10-K. Since December 31, 2004, there have been no material changes in the ~~Corporation's~~Corporation’s critical accounting policies.
Asbestos-Related Matters

The following disclosure should be read in conjunction with the ~~Corporation's~~Corporation’s Annual Report on Form 10-K for the year ended December 31, 2004.
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~~UCC’s premises, and ~~UCC's~~UCC’s responsibility for asbestos suits filed against a former subsidiary, Amchem Products, Inc. ~~("Amchem"~~(“Amchem”). In many cases, plaintiffs are unable to demonstrate
15

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~~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 for the ~~six~~nine months ended ~~June~~September 30, 2005 and 2004:

2005
2004

Claims unresolved at January 1 203,416 193,891
Claims filed 20,456 34,013
Claims settled, dismissed or otherwise resolved (25,402 ) (24,389 )

Claims unresolved at June 30 198,470 203,515
Claimants with claims against both UCC and Amchem 64,682 69,647

Individual claimants at June 30 133,788 133,868

~~Plaintiffs'~~

2005

2004

Claims unresolved at January 1

203,416

193,891

Claims filed

27,715

45,324

Claims settled, dismissed or otherwise resolved

(51,928
)
(37,110
)
Claims unresolved at September 30

179,203

202,105

Claimants with claims against both UCC and Amchem

61,524

72,302

Individual claimants at September 30

117,679

129,803

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, those damages 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~~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 liability.
Estimating the Liability

Based on a study completed by Analysis, Research & Planning Corporation ~~("ARPC"~~(“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. At each balance sheet date, the Corporation compares current asbestos claim and resolution activity to the assumptions in the most recent ARPC study to determine whether the accrual continues to be appropriate. In November 2004, the Corporation requested ARPC to review the ~~Corporation's~~Corporation’s historical asbestos claim and resolution activity and determine the appropriateness of updating its January 2003 study. In January 2005, ARPC provided the Corporation with a report summarizing the results of its study. Based on ~~ARPC's~~ARPC’s studies, the ~~Corporation's~~Corporation’s recent asbestos litigation experience, and the uncertainties surrounding asbestos litigation and legislative reform efforts, management determined that no change to the accrual was required at December 31, 2004.

Based on the ~~Corporation's~~Corporation’s review of 2005 activity, the Corporation determined that no change to the accrual was required at ~~June~~September 30, 2005.

The asbestos-related liability for pending and future claims was $1.5 billion at ~~June~~September 30, 2005 and $1.6 billion at December 31, 2004. At ~~June~~September 30, 2005, approximately 3936 percent of the recorded liability related to pending claims and approximately 6164 percent related to future claims. At December 31, 2004, approximately 37 percent of the recorded liability related to pending claims and approximately 63 percent related to future claims.
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
Six Months Ended
Aggregate Costs

In millions
June 30,
2005
June 30,
2004
to Date as of
June 30, 2005
Defense costs $ 32 $ 47 $ 376
Resolution costs 98 148 1,024

Defense and Resolution Costs

Nine Months Ended

Aggregate Costs

In millions

Sept. 30,
2005

Sept. 30,
2004

to Date as of
Sept. 30, 2005

Defense costs

$
55

$
66

$
399

Resolution costs

$
122

$
250

$
1,048

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. Union ~~Carbide's~~Carbide’s management expects such fluctuations to continue in the future based upon the
16

number and type of claims settled in a particular period, the jurisdictions in which such claims arose, and the extent to which any proposed legislative reform related to asbestos litigation is being considered.
Insurance Receivables

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~~Corporation’s insurance policies and to resolve issues that the insurance carriers may raise.

The ~~Corporation's~~Corporation’s receivable for insurance recoveries related to its asbestos liability was ~~$590~~$550 million at ~~June~~September 30, 2005 and $712 million at December 31, 2004. At ~~June~~September 30, 2005, ~~$453~~$443 million ($543 million at December 31, 2004) 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, the Corporation had receivables for defense and resolution costs submitted to insurance carriers for reimbursement as follows:
Receivables for Costs Submitted to Insurance Carriers
In millions
June 30,
2005
December 31,
2004
Receivables for defense costs $ 91 $ 85
Receivables for resolution costs 368 406

Total $ 459 $ 491

Receivables for Costs Submitted to Insurance Carriers
In millions

September 30,
2005

December 31,
2004

Receivables for defense costs

$
86

$
85

Receivables for resolution costs

333

406

Total

$
419

$
491

The Corporation expenses defense costs as incurred. The pretax impact for defense and resolution costs, net of insurance, was ~~$14~~$24 million in the ~~second~~third quarter of 2005 ($4819 million in the ~~second~~third quarter of 2004) and ~~$32~~$56 million in the first ~~six~~nine months of 2005 ($7392 million in the first ~~six~~nine months of 2004), and was reflected in ~~"Cost~~“Cost of sales."”
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 (the ~~"West~~“West Virginia ~~action"~~action”) and to facilitate an orderly and timely collection of insurance proceeds. 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, in order to facilitate an orderly resolution and collection of such insurance policies and to resolve issues that the insurance carriers may raise. In early 2004, several of the defendant insurers in the West Virginia action filed a competing action in the Supreme Court of the State of New York, County of New York. As a result of motion practice, the West Virginia action was dismissed in August 2004 on the basis offorum non conveniens ~~(i.e.~~(i.e., West Virginia is an inconvenient location for the parties). The comprehensive insurance coverage litigation is now proceeding in the New York courts (the ~~"New~~“New York ~~action"~~action”). Through the ~~second~~third quarter of 2005, the Corporation reached settlements with several of the carriers involved in the New York action. 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 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, projecting 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~~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.
17

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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

ITEM 4. 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~~Corporation’s Disclosure Committee and the ~~Corporation's~~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~~Corporation’s disclosure controls and procedures pursuant to Exchange Act Rule 15d-15(b); and whether any change has occurred in the ~~Corporation's~~Corporation’s internal control over financial reporting pursuant to Exchange Act Rule 15d-15(d). Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the ~~Corporation's~~Corporation’s disclosure controls and procedures are effective and that no change in the ~~Corporation's~~Corporation’s internal control over financial reporting occurred during the ~~Corporation's~~Corporation’s most recent fiscal quarter that materially affected, or is reasonably likely to materially affect, the ~~Corporation's~~Corporation’s internal control over financial reporting.

PART ~~II—~~II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.

No material developments in any legal proceedings, including asbestos-related matters, occurred during the ~~second~~third quarter of 2005. For a summary of the history and current status of legal proceedings, including asbestos-related matters, see ~~Management's~~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.
See the Exhibit Index on page 20 of this Quarterly Report on Form 10-Q for exhibits filed with this report.
TRADEMARKS
~~(a)~~
~~Exhibits.~~
The following trademark of Union Carbide Corporation appears in this report: UCAR
18

~~Exhibit No.~~
~~Exhibit Description~~
~~10.3~~ ~~Second Amended and Restated Agreement (to Provide Materials and Services), dated as of April 1, 2005, between the Corporation and Dow Hydrocarbons and Resources Inc.~~
23 ~~Analysis, Research & Planning Corporation's Consent.~~
~~31.1~~ ~~Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~
~~31.2~~ ~~Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~
~~32.1~~ ~~Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~
~~32.2~~ ~~Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~

Union Carbide Corporation and Subsidiaries
Signatures

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

UNION CARBIDE CORPORATION
~~Registrant~~

~~Date: August 2, 2005~~

Registrant

Date: November 1, 2005

By:

~~By:~~

/s/ FRANK H. BROD
Frank H. Brod
Corporate Vice President and Controller
The Dow Chemical Company
Authorized Representative of
Union Carbide Corporation

~~By:~~

By:

/s/ EDWARD W. RICH
Edward W. Rich
Vice President, Treasurer and
Chief Financial Officer
19

Union Carbide Corporation and Subsidiaries
Exhibit Index
EXHIBIT NO.
DESCRIPTION

~~10.3~~
~~Second~~
10.5.3
Third Amendment to the Amended and Restated Revolving Credit Agreement, ~~(to Provide Materials and Services),~~ dated as of ~~April 1,~~September 30, 2005, among the Corporation, The Dow Chemical Company and certain Subsidary Guarantors.
10.8
Purchase and Sale Agreement dated as of September 30, 2005, between ~~the Corporation~~Catalysts, Adsorbents and ~~Dow Hydrocarbons~~Process Systems, Inc. and ~~Resources Inc.~~Honeywell Specialty Materials LLC.

23

23
Analysis, Research & Planning ~~Corporation's~~Corporation’s Consent.

~~31.1~~

31.1
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

~~31.2~~

31.2
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

~~32.1~~

32.1
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

~~32.2~~

32.2
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

20

~~QuickLinks~~
~~Table of Contents~~
~~PART I. FINANCIAL INFORMATION~~
~~ITEM 1. FINANCIAL STATEMENTS.~~
~~Union Carbide Corporation and Subsidiaries Consolidated Statements of Income~~
~~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~~
~~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.~~
~~Union Carbide Corporation and Subsidiaries Signatures~~

			PAGE
~~PART I—FINANCIAL INFORMATION~~
PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.	3

Consolidated Statements of Income	3

Consolidated Balance Sheets	4

Consolidated Statements of Cash Flows	6 5

Consolidated Statements of Comprehensive Income	6 5

Notes to the Consolidated Financial Statements	7 6

Item 2. ~~Management's~~Management’s Discussion and Analysis of Financial Condition and Results of Operations.	15 14

Disclosure Regarding Forward-Looking Information	15 14

Results of Operations	15 14
	~~Other Matters~~	16
Other Matters	15

Item 3. Quantitative and Qualitative Disclosures About Market Risk.	19 18

Item 4. Controls and Procedures.	19 18
~~PART II—OTHER INFORMATION~~
PART II - OTHER INFORMATION

Item 1. Legal Proceedings.	19 18

Item 6. Exhibits.	19 18
~~SIGNATURES~~	20
SIGNATURES	19

EXHIBIT INDEX	21 20

												Three Months Ended						Nine Months Ended
		Three Months Ended					Six Months Ended					Sept. 30,			Sept. 30,			Sept. 30,		Sept. 30,
In millions (Unaudited)	In millions (Unaudited)	June 30, 2005		June 30, 2004			June 30, 2005		June 30, 2004			2005			2004			2005		2004
	Net trade sales	$	73	$	84		$	145	$	163
	Net sales to related companies		1,511		1,275			3,123		2,507

Net trade sales												$	73		$	75		$	218	$	238
Net sales to related companies												1,392			1,427			4,515		3,934
Total Net Sales	Total Net Sales		1,584		1,359			3,268		2,670		1,465			1,502			4,733		4,172

	Cost of sales		1,383		1,237			2,824		2,401
	Research and development expenses		18		23			39		47
	Selling, general and administrative expenses		5		4			10		10
	Amortization of intangibles		—		1			—		2
	Restructuring charges		—		48			—		48
	Equity in earnings of nonconsolidated affiliates		98		209			251		294
	Sundry income (expense) — net		1		(17	)		53		(55	)
	Interest income		6		2			10		3
	Interest expense and amortization of debt discount		19		23			42		46

Cost of sales												1,321			1,331			4,145		3,732
Research and development expenses												19			21			58		68
Selling, general and administrative expenses												4			5			14		15
Amortization of intangibles												—			1			—		3
Restructuring charges												—			—			—		48
Equity in earnings of nonconsolidated affiliates												105			133			356		427
Sundry income (expense) - net												(2		)	(23		)	51		(78		)
Interest income												6			2			16		5
Interest expense and amortization of debt discount												15			24			57		70
Income before Income Taxes	Income before Income Taxes		264		217			667		358		215			232			882		590

	Provision for income taxes		74		79			197		129

Provision for income taxes												31			64			228		193
Net Income Available for Common Stockholder	Net Income Available for Common Stockholder	$	190	$	138		$	470	$	229		$	184		$	168		$	654	$	397

Depreciation	Depreciation	$	68	$	82		$	135	$	160		$	66		$	81		$	201	$	241

Capital Expenditures	Capital Expenditures	$	51	$	33		$	94	$	59		$	45		$	32		$	139	$	91

							Sept. 30,			Dec. 31,
In millions (Unaudited)	In millions (Unaudited)		June 30, 2005		Dec. 31, 2004		2005			2004
Assets	Assets
Current Assets	Current Assets
	Cash and cash equivalents		$	26	$	22
	Accounts receivable:
		Trade (net of allowance for doubtful receivables — 2005: $3; 2004: $4)		45		58
		Related companies		309		504
		Other		175		191
	Notes receivable from related companies			365		53
	Inventories			195		186
	Deferred income tax assets — current			37		71
	Asbestos-related insurance receivables — current			148		175

	Total current assets			1,300		1,260

Cash and cash equivalents							$	44		$	22
Accounts receivable:
Trade (net of allowance for doubtful receivables - 2005: $3; 2004: $4)							43			58
Related companies							286			504
Other							176			191
Notes receivable from related companies							505			53
Inventories							207			186
Deferred income tax assets - current							80			71
Asbestos-related insurance receivables - current							115			175
Total current assets							1,456			1,260
Investments	Investments
	Investments in related companies			462		462
	Investments in nonconsolidated affiliates			939		1,041
	Other investments			24		23
	Noncurrent receivables			7		13
	Noncurrent receivable from related company			209		222

	Total investments			1,641		1,761

Investments in related companies							462			462
Investments in nonconsolidated affiliates							962			1,041
Other investments							24			23
Noncurrent receivables							10			13
Noncurrent receivable from related company							209			222
Total investments							1,667			1,761
Property	Property
	Property			7,347		7,304
	Less accumulated depreciation			5,313		5,227

	Net property			2,034		2,077

Property							7,331			7,304
Less accumulated depreciation							5,311			5,227
Net property							2,020			2,077
Other Assets	Other Assets
	Goodwill			26		26
	Other intangible assets (net of accumulated amortization — 2005: $122; 2004: $124)			20		20
	Deferred income tax assets — noncurrent			283		452
	Asbestos-related insurance receivables — noncurrent			901		1,028
	Prepaid pension expense			708		655
	Deferred charges and other assets			52		52

	Total other assets			1,990		2,233

Goodwill							26			26
Other intangible assets (net of accumulated amortization - 2005: $119; 2004: $124)							21			20
Deferred income tax assets - noncurrent							224			452
Asbestos-related insurance receivables - noncurrent							854			1,028
Prepaid pension expense							732			655
Deferred charges and other assets							45			52
Total other assets							1,902			2,233
Total Assets	Total Assets		$	6,965	$	7,331	$	7,045		$	7,331

Liabilities and Stockholder’s Equity
Current Liabilities
Notes payable:
Related companies							$	7		$	139
Other							3			4
Long-term debt due within one year							3			266
Accounts payable:
Trade							204			260
Related companies							197			270
Other							57			40
Income taxes payable							125			116
Asbestos-related liabilities - current							94			92
Accrued and other current liabilities							250			360
Total current liabilities							940			1,547
Long-Term Debt							834			1,006
Other Noncurrent Liabilities
Pension and other postretirement benefits - noncurrent							464			470
Asbestos-related liabilities - noncurrent							1,426			1,549
Other noncurrent obligations							406			433
Total other noncurrent liabilities							2,296			2,452
Minority Interest in Subsidiaries							4			4
Stockholder’s Equity
Common stock (1,000 shares authorized and issued)							—			—
Additional paid-in capital							—			—
Retained earnings							3,087			2,433
Accumulated other comprehensive loss							(116		)	(111		)
Net stockholder’s equity							2,971			2,322
Total Liabilities and Stockholder’s Equity							$	7,045		$	7,331

In millions (Unaudited)			June 30, 2005			Dec. 31, 2004
Liabilities and Stockholder's Equity
Current Liabilities
	Notes payable:
		Related companies	$	6		$	139
		Other		4			4
	Long-term debt due within one year			96			266
	Accounts payable:
		Trade		240			260
		Related companies		200			270
		Other		43			40
	Income taxes payable			124			116
	Asbestos-related liabilities — current			92			92
	Accrued and other current liabilities			219			360

	Total current liabilities			1,024			1,547

Long-Term Debt				832			1,006

Other Noncurrent Liabilities
	Pension and other postretirement benefits — noncurrent			465			470
	Asbestos-related liabilities — noncurrent			1,452			1,549
	Other noncurrent obligations			400			433

	Total other noncurrent liabilities			2,317			2,452

Minority Interest in Subsidiaries				4			4

Stockholder's Equity
	Common stock (1,000 shares authorized and issued)			—			—
	Additional paid-in capital			—			—
	Retained earnings			2,903			2,433
	Accumulated other comprehensive loss			(115	)		(111	)

	Net stockholder's equity			2,788			2,322

Total Liabilities and Stockholder's Equity			$	6,965		$	7,331

Inventories In millions	June 30, 2005		Dec. 31, 2004
Finished goods	$	54	$	60
Work in process		27		25
Raw materials		34		32
Supplies		80		69

Total inventories	$	195	$	186

Inventories In millions	Sept. 30, 2005		Dec. 31, 2004
Finished goods	$	65	$	60
Work in process	22		25
Raw materials	40		32
Supplies	80		69
Total inventories	$	207	$	186

Other Intangible Assets		At June 30, 2005							At December 31, 2004
In millions		Gross Carrying Amount		Accumulated Amortization			Net		Gross Carrying Amount		Accumulated Amortization			Net
Intangible assets with finite lives:
	Licenses and intellectual property	$	36	$	(35	)	$	1	$	36	$	(35	)	$	1
	Patents		4		(2	)		2		4		(2	)		2
	Software		101		(84	)		17		103		(86	)		17
	Other		1		(1	)		—		1		(1	)		—

	Total	$	142	$	(122	)	$	20	$	144	$	(124	)	$	20

Other Intangible Assets	At September 30, 2005							At December 31, 2004
In millions	Gross Carrying Amount		Accumulated Amortization			Net		Gross Carrying Amount		Accumulated Amortization			Net
Intangible assets with finite lives:
Licenses and intellectual property	$	33	$	(32	)	$	1	$	36	$	(35	)	$	1
Patents	4		(2		)	2		4		(2		)	2
Software	102		(84		)	18		103		(86		)	17
Other	1		(1		)	—		1		(1		)	—
Total	$	140	$	(119	)	$	21	$	144	$	(124	)	$	20

Estimated Amortization Expense for Next Five Years In millions
2005	$	4
2006	4
2007	4
2008	4
2009	4
2010	4

Receivables for Costs Submitted to Insurance Carriers In millions	June 30, 2005		December 31, 2004
Receivables for defense costs	$	91	$	85
Receivables for resolution costs		368		406

Total	$	459	$	491

In millions	September 30, 2005		December 31, 2004
Receivables for defense costs	$	86	$	85
Receivables for resolution costs	333		406
Total	$	419	$	491

Fixed and Determinable Portion of Take or Pay Obligations at December 31, 2004 In millions
2005	$	10
2006	10
2007	10
2008	8
2009	5
2010 through expiration of contracts	5
Total	$	48

Guarantees In millions	Final Expiration	Maximum Future Payments		Recorded Liability
Guarantees at June 30, 2005	2014	$	112	$	2
Guarantees at December 31, 2004	2014	$	114	$	2

	2005		2004
Claims unresolved at January 1	203,416		193,891
Claims filed	20,456		34,013
Claims settled, dismissed or otherwise resolved	(25,402	)	(24,389	)

Claims unresolved at June 30	198,470		203,515
Claimants with claims against both UCC and Amchem	64,682		69,647

Individual claimants at June 30	133,788		133,868

Defense and Resolution Costs	Nine Months Ended				Aggregate Costs
In millions	Sept. 30, 2005		Sept. 30, 2004		to Date as of Sept. 30, 2005
Defense costs	$	55	$	66	$	399
Resolution costs	$	122	$	250	$	1,048

~~Exhibit No.~~		~~Exhibit Description~~
~~10.3~~		~~Second Amended and Restated Agreement (to Provide Materials and Services), dated as of April 1, 2005, between the Corporation and Dow Hydrocarbons and Resources Inc.~~
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.~~

By:

	~~By:~~	/s/ FRANK H. BROD
	Frank H. Brod
	Corporate Vice President and Controller
	The Dow Chemical Company
	Authorized Representative of
	Union Carbide Corporation

	~~By:~~
By:	/s/ EDWARD W. RICH
	Edward W. Rich
	Vice President, Treasurer and
	Chief Financial Officer

	EXHIBIT NO.		DESCRIPTION
~~10.3~~		~~Second~~
10.5.3		Third Amendment to the Amended and Restated Revolving Credit Agreement, ~~(to Provide Materials and Services),~~ dated as of ~~April 1,~~September 30, 2005, among the Corporation, The Dow Chemical Company and certain Subsidary Guarantors.

10.8		Purchase and Sale Agreement dated as of September 30, 2005, between ~~the Corporation~~Catalysts, Adsorbents and ~~Dow Hydrocarbons~~Process Systems, Inc. and ~~Resources Inc.~~Honeywell Specialty Materials LLC.
23
23		Analysis, Research & Planning ~~Corporation's~~Corporation’s Consent.
~~31.1~~
31.1		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
~~31.2~~
31.2		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
~~32.1~~
32.1		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
~~32.2~~
32.2		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.