UNION CARBIDE CORP /NEW/ - FORM 10-K

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EX-32.1 - UNION CARBIDE CORP /NEW/	ex32_1.htm
EX-23 - UNION CARBIDE CORP /NEW/	ex23.htm
EX-31.2 - UNION CARBIDE CORP /NEW/	ex31_2.htm
EX-32.2 - UNION CARBIDE CORP /NEW/	ex32_2.htm
EX-31.1 - UNION CARBIDE CORP /NEW/	ex31_1.htm
EX-10.5 - UNION CARBIDE CORP /NEW/	ex10_5.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended DECEMBER 31, 2009 Commission file number: 1-1463 UNION CARBIDE CORPORATION (Exact name of registrant as specified in its charter)
New York (State or other jurisdiction of incorporation or organization)				13-1421730 (I.R.S. Employer Identification No.)
1254 Enclave Parkway, Houston, Texas 77077 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 281-966-2727
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None

	Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
						o Yes þ No

	Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
						o Yes þ No

	Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
						þ Yes o No
	Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
						o Yes oNo
	Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.:
	Large accelerated filer o	Accelerated filer o	Non-accelerated filer þ		Smaller reporting company o

	Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
						o Yes þ No
	At February 18, 2010, 1,000 shares of common stock were outstanding, all of which were held by the registrant’s parent, The Dow Chemical Company. The registrant meets the conditions set forth in General Instructions I(1)(a) and (b) of Form 10-K and is therefore filing this Form with the reduced disclosure format.
Documents Incorporated by Reference None

Union Carbide Corporation

ANNUAL REPORT ON FORM 10-K

For the Fiscal Year Ended December 31, 2009

TABLE OF CONTENTS

PART I

		PAGE
Item 1.	Business.	3
Item 1A.	Risk Factors.	5
Item 1B.	Unresolved Staff Comments.	7
Item 2.	Properties.	7
Item 3.	Legal Proceedings.	8
Item 4.	Submission of Matters to a Vote of Security Holders.	11

PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.	11
Item 6.	Selected Financial Data.	11
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	12
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk.	24
Item 8.	Financial Statements and Supplementary Data.	25
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.	57
Item 9A.	Controls and Procedures.	57
Item 9B.	Other Information.	58

PART III
Item 10.	Directors, Executive Officers and Corporate Governance.	58
Item 11.	Executive Compensation.	58
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.	58
Item 13.	Certain Relationships and Related Transactions, and Director Independence.	58
Item 14.	Principal Accounting Fees and Services.	58

PART IV
Item 15.	Exhibits, Financial Statement Schedules.	59

SIGNATURES		88

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PART I

ITEM 1. BUSINESS.

Union Carbide Corporation (the “Corporation” or “UCC”) is a chemicals and polymers company. In addition to its consolidated operations, the Corporation participates in partnerships and joint ventures (together, “nonconsolidated affiliates”). The Corporation is a wholly owned subsidiary of The Dow Chemical Company (“Dow”). Except as otherwise indicated by the context, the terms “Corporation” or “UCC” as used herein mean Union Carbide Corporation and its consolidated subsidiaries.

Dow conducts its worldwide operations through global businesses. The Corporation’s business activities comprise components of Dow’s global businesses rather than stand-alone operations. Because there are no separable reportable business segments for UCC and no detailed business information is provided to a chief operating decision maker regarding the Corporation’s stand-alone operations, the Corporation’s results are reported as a single operating segment. In order to simplify the customer interface process, the Corporation sells its products to Dow. Products are sold to Dow at market-based prices, in accordance with the terms of Dow’s long-standing intercompany pricing policies.

The following is a description of the Corporation’s principal products.

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

Industrial Chemicals and Polymers—broad range of products for specialty applications, including pharmaceutical, animal food supplements, personal care, industrial and household cleaning, coatings for beverage and food cans, industrial coatings and many other industrial uses. Product lines include acrolein and derivatives, CARBOWAX™ and CARBOWAX™ SENTRY™ polyethylene glycols and methoxypolyethylene glycols, TERGITOL™ and TRITON™ surfactants, UCAR™ deicing fluids, UCARTHERM™ heat transfer fluids and UCON™ fluids.

Latex—water-based emulsions, including EVOCAR™ vinyl acetate ethylene, NEOCAR™ branched vinyl ester latexes, UCAR™ POLYPHOBE™ rheology modifiers, and UCAR™ all-acrylic, styrene-acrylic and vinyl-acrylic latexes used as key components in decorative and industrial paints, adhesives, textile products, and construction products, such as caulks and sealants. See Note S to the Consolidated Financial Statements for information regarding a 2010 divestiture.

Polyethylene—includes FLEXOMER™ very low density polyethylene resins used as impact modifiers in other polymers and to produce flexible hose and tubing, frozen-food bags and stretch wrap; TUFLIN™ linear low density and UNIVAL™ high density polyethylene resins used in high-volume applications such as housewares; milk, water, bleach and detergent bottles; grocery sacks; trash bags; packaging; water and gas pipe.

Polypropylene—end-use applications include upholstery; hygiene articles; packaging films; thin wall food containers and serviceware; industrial containers; housewares and appliances; heavy-duty tapes and ropes; and automobile interior panels and trim.

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

Technology Licensing and Catalysts—includes licensing and supply of related catalysts for the UNIPOL™ polypropylene process, catalysts supply for the METEOR™ process for EO/EG and the LP OXO™ process for oxo alcohols; licensing of the UNIPOL™ polyethylene process and sale of related catalysts (including metallocene catalysts) through Univation Technologies, LLC, a 50:50 joint venture with ExxonMobil; and licensing of the METEOR™ process for EO/EG and the LP OXO™ process for oxo alcohols through Dow Technology Investments LLC, a 50:50 joint venture with Dow Global Technologies Inc., a Dow subsidiary.

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Vinyl Acetate Monomer—a building block for the manufacture of a variety of polymers used in water-based emulsion paints, adhesives, paper coatings, textiles, safety glass and acrylic fibers.

Water Soluble Polymers—polymers used to enhance the physical and sensory properties of end-use products in a wide range of applications including food, paints and coatings, pharmaceuticals, oil and gas, personal care, building and construction, and other specialty applications. Key product lines include CELLOSIZE™ hydroxyethyl cellulose, POLYOX™ water-soluble resins, and products for hair and skin manufactured by Amerchol Corporation, a wholly owned subsidiary.

Wire and Cable—polyolefin-based compounds for high-performance insulation, semiconductives and jacketing systems for power distribution, telecommunications, and flame-retardant wire and cable. Key product lines include: REDI-LINK™ polyethylene-based wire and cable compounds, SI-LINK™ polyethylene-based low voltage insulation compounds, UNIGARD™ HP high-performance flame-retardant compounds, UNIGARD™ RE reduced emissions flame-retardant compounds, and UNIPURGE™ purging compounds.

Competition

The chemical industry has been historically competitive and this competitive environment is expected to continue. The chemical divisions of the major international oil companies also provide substantial competition both in the United States and abroad.

Research and Development

The Corporation is engaged in a continuous program of basic and applied research to develop new products and processes, to improve and refine existing products and processes and to develop new applications for existing products. Research and development expenses were $48 million in 2009, $68 million in 2008 and $70 million in 2007. In addition, certain of the Corporation's nonconsolidated affiliates conduct research and development within their business fields.

Patents, Licenses and Trademarks

The Corporation owns approximately 1,200 U.S. and foreign patents that relate to a wide variety of products and processes, has a substantial number of pending patent applications throughout the world and is licensed under a number of patents. These patents expire at various times over the next 20 years. The Corporation also has a large number of trademarks. Although the Corporation considers that its patents, licenses and trademarks in the aggregate constitute a valuable asset, it does not regard its business as being materially dependent upon any single patent, license or trademark.

Principal Partly Owned Companies

UCC's principal nonconsolidated affiliates at December 31, 2009 and the Corporation's ownership interest in each are listed below:

·	Nippon Unicar Company Limited – 50 percent – a Japan-based manufacturer of polyethylene and specialty polyethylene compounds.

·	Univation Technologies, LLC – 50 percent – a U.S. company that develops, markets and licenses polyethylene process technology and related catalysts.

Financial Information about Foreign and Domestic Operations and Export Sales

In 2009, the Corporation derived 41 percent of its trade sales from customers outside the United States and had 1 percent of its property investment located outside the United States. See Note R to the Consolidated Financial Statements for information on sales to external customers and long-lived assets by geographic area.

Protection of the Environment

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

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ITEM 1A. RISK FACTORS.

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

Volatility in purchased feedstock and energy costs impacts UCC’s operating costs and adds variability to earnings.

Purchased feedstock and energy costs account for a substantial portion of the Corporation’s total production costs and operating expenses. When these costs increase, the Corporation is not always able to immediately raise selling prices and, ultimately, the ability to pass on underlying cost increases is greatly dependent on market conditions. Conversely, when these costs decline, selling prices decline as well. As a result, volatility in these costs could negatively impact the Corporation’s results of operations.

Issues involving The Dow Chemical Company, the Corporation’s parent company, could have a liquidity impact on the Corporation.

Because Dow is a service provider, material debtor, and the major customer of the Corporation, certain events and situations affecting Dow’s acquisition of Rohm and Haas Company (“Rohm and Haas”), as noted below, could potentially impact sources of liquidity for the Corporation.

Dow’s integration of Rohm and Haas, which was acquired on April 1, 2009, could present significant challenges to Dow. The integration is requiring the attention of Dow management and employees, which could lessen time spent on services and administrative functions provided to the Corporation pursuant to negotiated agreements. In addition, Dow’s integration and implementation could result in higher expenses, and/or the use of more cash and other financial resources than Dow had expected. Moreover, if the integration is not completed as planned, it could negatively impact Dow’s financial condition and results of operations.

In 2009, Dow issued preferred equity securities, debt securities and common equity securities to partially finance the $15.7 billion acquisition of Rohm and Haas on April 1, 2009. This requires Dow to make additional interest and dividend payments and thus may reduce Dow’s flexibility to respond to changing business and economic conditions or fund capital expenditures or working capital needs. This may also increase Dow’s vulnerability to adverse economic conditions.

Dow’s credit rating is currently investment grade. Dow’s long-term and short-tem credit ratings were downgraded by Fitch, Standard and Poor’s, and Moody’s in the first half of 2009. If Dow’s credit-ratings are further downgraded, borrowing costs will increase on certain indebtedness and it could have a negative impact on Dow’s ability to access credit markets and therefore, the Corporation’s liquidity.

The value of investments is influenced by economic and market conditions.

The economic environment impacts the fair value of pension assets, which could trigger increased future funding requirements of the pension trust.

Adverse conditions in the global economy and disruption of financial markets could continue to negatively impact UCC’s results of operations.

The continuing economic downturn in the United States and globally could further reduce demand for the Corporation’s products, resulting in a continued decrease in sales volume that could have a negative impact on UCC’s results of operations.

Actual or alleged violations of environmental laws or permit requirements could result in restrictions or prohibitions on plant operations, substantial civil or criminal sanctions, as well as the assessment of strict liability and/or joint and several liability.

The Corporation is subject to extensive federal, state, local and foreign laws, regulations, rules and ordinances relating to pollution, protection of the environment and the generation, storage, handling, transportation, treatment, disposal and remediation of hazardous substances and waste materials. At December 31, 2009, the Corporation had accrued obligations of $84 million ($67 million at December 31, 2008) for environmental remediation and restoration costs, including $21 million ($18 million at December 31, 2008) for the remediation of Superfund sites. This is management’s best estimate of the costs for remediation and restoration with respect to environmental matters for which the Corporation has accrued liabilities, although the ultimate cost with respect to these particular matters could range up to approximately twice that amount. Costs and capital expenditures relating to environmental, health or safety matters are subject to evolving regulatory requirements

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and will depend on the timing of the promulgation and enforcement of specific standards which impose the requirements. Moreover, changes in environmental regulations could inhibit or interrupt the Corporation’s operations, or require modifications to its facilities. Accordingly, environmental, health or safety regulatory matters may result in significant unanticipated costs or liabilities.

The Corporation is party to a number of claims and lawsuits arising out of the normal course of business with respect to commercial matters, including product liability, governmental regulation and other actions.

The Corporation is involved in a number of legal proceedings and claims with both private and governmental parties. These cover a wide range of matters, including, but not limited to: product liability; trade regulation; governmental regulatory proceedings; health, safety and environmental matters; employment; patents; contracts; taxes; and commercial disputes. With the exception of the possible effect of the asbestos-related liability described below, it is the opinion of the Corporation’s management that the possibility is remote that the aggregate of all such claims and lawsuits will have a material adverse impact on the Corporation’s consolidated financial statements.

The Corporation is and has been involved in a large number of asbestos-related suits filed primarily in state courts during the past three decades. At December 31, 2009, the Corporation’s asbestos-related liability for pending and future claims was $839 million ($934 million at December 31, 2008) and the Corporation’s receivable for insurance recoveries related to its asbestos liability was $84 million ($403 million at December 31, 2008). At December 31, 2009, the Corporation also had receivables of $448 million ($272 million at December 31, 2008) for insurance recoveries for defense and resolution costs. Management believes that it is reasonably possible that the cost of disposing of the Corporation’s asbestos-related claims, including future defense costs, could have a material adverse impact on the Corporation’s consolidated financial statements.

Local, state and federal governments have begun a regulatory process that could lead to new regulations impacting the security of chemical plant locations and the transportation of hazardous chemicals.

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

Increased concerns regarding the safety of chemicals in commerce and their potential impact on the environment could lead to new regulations.

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

Weather-related matters could impact the Corporation’s results of operations.

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

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ITEM 1B. UNRESOLVED STAFF COMMENTS.

None.

ITEM 2. PROPERTIES.

The Corporation operates 12 manufacturing sites in four countries. The Corporation considers that its properties are in good operating condition and that its machinery and equipment have been well maintained. The following are the major production sites:

United States:

Hahnville, Louisiana; Texas City and Seadrift, Texas; South Charleston, West Virginia

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

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

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ITEM 3. LEGAL PROCEEDINGS.

Asbestos-Related Matters

Introduction

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

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

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

	2009			2008			2007
Claims unresolved at January 1		75,706			90,322			111,887
Claims filed		8,455			10,922			10,157
Claims settled, dismissed or otherwise resolved		(9,131	)		(25,538	)		(31,722	)
Claims unresolved at December 31		75,030			75,706			90,322
Claimants with claims against both UCC and Amchem		24,146			24,213			28,937
Individual claimants at December 31		50,884			51,493			61,385

Plaintiffs’ lawyers often sue dozens or even hundreds of defendants in individual lawsuits on behalf of hundreds or even thousands of claimants. As a result, the damages alleged are not expressly identified as to UCC, Amchem or any other particular defendant, even when specific damages are alleged with respect to a specific disease or injury. In fact, there are no personal injury cases in which only the Corporation and/or Amchem are the sole named defendants. For these reasons and based upon the Corporation’s litigation and settlement experience, the Corporation does not consider the damages alleged against it and Amchem to be a meaningful factor in its determination of any potential asbestos-related liability.

Estimating the Liability

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

In November 2007, the Corporation requested ARPC to review the Corporation’s 2007 asbestos claim and resolution activity and determine the appropriateness of updating its December 2006 study. In response to that request, ARPC reviewed and analyzed data through October 31, 2007. In December 2007, ARPC stated that an update of its study would not provide a more likely estimate of future events than the estimate reflected in its study of the previous year and, therefore, the estimate in that study remained applicable. Based on the Corporation’s own review of the asbestos claim and resolution activity and ARPC’s response, the Corporation determined that no change to the accrual was required. At December 31, 2007, the Corporation’s asbestos-related liability for pending and future claims was $1.1 billion.

In November 2008, the Corporation requested ARPC to review the Corporation’s historical asbestos claim and resolution activity and determine the appropriateness of updating its December 2006 study. In response to that request, ARPC reviewed and analyzed data through October 31, 2008. The resulting study, completed by ARPC in December 2008, stated that the undiscounted cost of resolving pending and future asbestos-related claims against UCC and Amchem, excluding future defense and processing costs, through 2023 was estimated to be between $952 million and $1.2 billion. As in its earlier

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studies, ARPC provided estimates for a longer period of time in its December 2008 study, but also reaffirmed its prior advice that forecasts for shorter periods of time are more accurate than those for longer periods of time.

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

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

At December 31, 2009, approximately 23 percent of the recorded liability related to pending claims and approximately 77 percent related to future claims. At December 31, 2008, approximately 21 percent of the recorded liability related to pending claims and approximately 79 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							Aggregate Costs
In millions	2009		2008		2007		to Date as of Dec. 31, 2009
Defense costs	$	62	$	60	$	84	$	687
Resolution costs	$	94	$	116	$	88	$	1,480

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

The Corporation expenses defense costs as incurred. The pretax impact for defense and resolution costs, net of insurance, was $58 million in 2009, $53 million in 2008 and $84 million in 2007, and was reflected in “Cost of sales” in the consolidated statements of income.

Insurance Receivables

At December 31, 2002, the Corporation increased the receivable for insurance recoveries related to its asbestos liability to $1.35 billion, substantially exhausting its asbestos product liability coverage. The insurance receivable related to the asbestos liability was determined after a thorough review of applicable insurance policies and the 1985 Wellington Agreement, to which the Corporation and many of its liability insurers are signatory parties, as well as other insurance settlements, with due consideration given to applicable deductibles, retentions and policy limits, and taking into account the solvency and historical payment experience of various insurance carriers. The Wellington Agreement and other agreements with insurers are designed to facilitate an orderly resolution and collection of the Corporation’s insurance policies and to resolve issues that the insurance carriers may raise.

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

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The Corporation’s receivable for insurance recoveries related to its asbestos liability was $84 million at December 31, 2009 and $403 million at December 31, 2008. The decrease in the receivable was principally due to settlements reached in the fourth quarter of 2009 with two significant carriers involved in the Insurance Litigation. At December 31, 2009 and 2008, all of the receivable for insurance recoveries was related to insurers that are not signatories to the Wellington Agreement and/or do not otherwise have agreements in place regarding their asbestos-related insurance coverage.

In addition to the receivable for insurance recoveries related to the asbestos-related liability, the Corporation had receivables for defense and resolution costs submitted to insurance carriers that have settlement agreements in place regarding their asbestos-related insurance coverage. The balance of these receivables increased in 2009 principally as a result of settlements reached in the fourth quarter of 2009 with two significant carriers involved in the Insurance Litigation.

Receivables for Costs Submitted to Insurance Carriers with Settlement Agreements
at December 31 In millions	2009		2008
Receivables for defense costs	$	91	$	28
Receivables for resolution costs		357		244
Total	$	448	$	272

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

Summary

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

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

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

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

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

The Corporation is a wholly owned subsidiary of Dow; therefore, there is no public trading market for the Corporation’s common stock.

ITEM 6. SELECTED FINANCIAL DATA.

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

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Union Carbide Corporation and Subsidiaries

Item 7. Management’s Discussion and Analysis of Financial Condition

and Results of Operations.

Pursuant to General Instruction I of Form 10-K “Omission of Information by Certain Wholly-Owned Subsidiaries,” this section includes only management's narrative analysis of the results of operations for the year ended December 31, 2009, the most recent fiscal year, compared with the year ended December 31, 2008, the fiscal year immediately preceding it.

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

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

Forward-Looking Information

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

Results of Operations

Total net sales of $5,064 million for 2009 were down compared with $7,326 million in 2008. Net sales to related companies were $4,899 million for 2009 compared with $7,107 million for 2008, a decrease of 31 percent. Selling prices to Dow, which are based on market prices for the related products, were lower in 2009 for all major products except ethyleneamines compared with 2008, as prices reflected declines in feedstock, energy and raw material costs. Ethylene glycol (“EG”) and vinyl acetate monomer experienced the most significant price declines. In 2009, volume decreased from 2008 for several products, with the largest declines in EG and wire and cable, reflecting the decline in the global economy which began in 2008 and extended into 2009. These decreases were partially offset by increased demand for vinyl acetate monomer, ethyleneamines and oxo products as these markets began to recover in the second half of 2009.

Cost of sales decreased 38 percent from $7,194 million in 2008 to $4,457 million in 2009 due principally to lower feedstock, energy and raw material costs, lower sales volume and cost control measures.

Research and development (“R&D”) expense was $48 million in 2009 compared with $68 million in 2008. The decrease of $20 million or 29 percent was due to cost savings initiatives.

In 2008, UCC recorded a $26 million goodwill impairment loss associated with polypropylene assets. For additional information, see Note H to the Consolidated Financial Statements.

On June 30, 2009, the Board of Directors of UCC approved a restructuring plan to improve the cost effectiveness of the Corporation’s global operations. As a result, the Corporation recorded restructuring charges of $162 million in the second quarter of 2009, which included the shutdown of certain facilities that produce ethylene as well as ethylene oxide/ethylene glycol ($38 million) and certain related capital project write-offs ($7 million). Also included in the restructuring charge was severance of $3 million and an impairment charge of $114 million related to the expected loss arising from the U.S. Federal Trade Commission (“FTC”) required divestiture of certain specialty latex assets resulting from Dow’s acquisition of Rohm and Haas Company. The Corporation recorded the following adjustments to its restructuring plans during 2009: $4 million increase in severance costs related to the 2008 restructuring plan and $5 million adjustment to reduce severance costs related to the 2007 restructuring plan. See Note C to the Consolidated Financial Statements for information on the Corporation’s restructuring activities.

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quarter of 2008, which included the write-off of the net book value of certain assets in Texas and Xiaolan, China, and a workforce reduction.

Following the December 2008 completion of a study to review its asbestos claim and resolution activity, the Corporation decreased its asbestos-related liability for pending and future claims (excluding future defense and processing costs) by $54 million in the fourth quarter of 2008. The reduction was shown as “Asbestos-related credit” in the consolidated statements of income, (see Note L to the Consolidated Financial Statements).

Equity in earnings of nonconsolidated affiliates was $45 million in 2009, down from $166 million in 2008 as the Corporation’s joint ventures were also impacted by the global economic downturn. In addition, equity earnings in 2009 were reduced as a result of the sale of the Corporation’s ownership interest in the OPTIMAL Group of Companies (“OPTIMAL”) in the third quarter of 2009, (see Note D to the Consolidated Financial Statements).

Sundry income – net includes a variety of income and expense items such as dividend income, the gain or loss on foreign currency exchange, commissions, charges for management services provided by Dow and gains and losses on sales of investments and assets. Sundry income – net for 2009 was $479 million compared with $243 million in 2008. Sundry income – net for 2009 was favorably impacted by a pretax gain of $339 million on the sale of the Corporation’s ownership interest in OPTIMAL. Sundry income – net for 2008 was favorably impacted by dividend income of $297 million from related parties, including $204 million from Dow International Holding Company (“DIHC”) and $82 million from Modeland International Holdings Inc.

Interest income for 2009 was $65 million compared with $110 million in 2008, reflecting a decrease in interest rates. Interest expense and amortization of debt discount for 2009 was $42 million compared with $48 million for 2008.

The provision for income taxes was $239 million in 2009 compared with $118 million in 2008. The Corporation’s overall effective tax rate was 25.6 percent for 2009 compared with 26.5 percent for 2008. The Corporation’s effective tax rate fluctuates based on, among other factors, where income is earned, the level of after-tax income from joint ventures, dividends received from investments in related companies and the level of income relative to tax credits available. The underlying factors affecting UCC’s overall effective tax rates are summarized in Note Q to the Consolidated Financial Statements.

The Corporation reported net income of $696 million in 2009 compared with $327 million for 2008. In addition to the pretax gain from the Corporation’s sale of its ownership interest in OPTIMAL, the results for 2009 reflected the impact of lower raw material costs significantly offset by lower demand, which continued to put downward pressure on prices reflecting the economic downturn.

SUBSEQUENT EVENT

On July 31, 2009, Dow entered into a definitive agreement that included the sale of certain specialty latex assets of the Corporation, located in the United States, Canada, Puerto Rico and Mexico, as required by the U.S. Federal Trade Commission (“FTC”) for the approval of Dow’s acquisition of Rohm and Haas. An impairment charge of $114 million for these assets was recognized in the second quarter of 2009 restructuring charge (see Note C to the Consolidated Financial Statements). The divestiture of these assets was completed on January 25, 2010. The impact of this sale on the Corporation’s consolidated financial statements is not expected to be material.

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OTHER MATTERS

Recent Accounting Guidance

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

Critical Accounting Policies

The preparation of financial statements and related disclosures in accordance with accounting principles generally accepted in the United States of America (“U.S. 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 describes the significant accounting policies and methods used in preparation of the Consolidated Financial Statements. Following are the Corporation’s critical accounting policies impacted by judgments, assumptions and estimates:

Litigation

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

Asbestos-Related Matters

The Corporation and a former subsidiary, Amchem Products, Inc. (“Amchem”), are and have been involved in a large number of asbestos-related suits filed primarily in state courts during the past three decades. Based on a study completed by Analysis, Research & Planning Corporation (“ARPC”) in January 2003, the Corporation increased its December 31, 2002 asbestos-related liability for pending and future claims for the 15-year period ending in 2017 to $2.2 billion, excluding future defense and processing costs. The Corporation also increased the receivable for insurance recoveries related to its asbestos liability to $1.35 billion at December 31, 2002. Since then, the Corporation has compared current asbestos claim and resolution activity to the results of the most recent ARPC study at each balance sheet date to determine whether the accrual continues to be appropriate. In addition, the Corporation has requested ARPC to review the Corporation’s historical asbestos claim and resolution activity each November since 2004 to determine the appropriateness of updating the most recent ARPC study.

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The Corporation’s receivable for insurance recoveries related to its asbestos liability was $84 million at December 31, 2009 and $403 million at December 31, 2008. The decrease in the receivable was principally due to settlements reached in the fourth quarter of 2009 with two significant carriers. In addition, the Corporation had receivables of $448 million at December 31, 2009 and $272 million at December 31, 2008 for defense and resolution costs submitted to insurance carriers that have settlement agreements in place regarding their asbestos related insurance coverage. The balance of these receivables increased in 2009 principally as a result of settlements reached in the fourth quarter of 2009 with two significant carriers.

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

For additional information, see Legal Proceedings and Note L to the Consolidated Financial Statements.

Environmental Matters

The Corporation determines the costs of environmental remediation of its facilities and formerly owned facilities based on evaluations of current law and existing technologies. Inherent uncertainties exist in such evaluations primarily due to unknown environmental conditions, changing governmental regulations and legal standards regarding liability and emerging remediation technologies. The recorded liabilities are adjusted periodically as remediation efforts progress or as additional technical or legal information becomes available. In the case of landfills and other active waste management facilities, UCC recognizes the costs over the useful life of the facility. At December 31, 2009, the Corporation had accrued obligations of $84 million for environmental remediation and restoration costs, including $21 million for the remediation of Superfund sites. This is management’s best estimate of the costs for remediation and restoration with respect to environmental matters for which the Corporation has accrued liabilities, although the ultimate cost with respect to these particular matters could range up to approximately twice that amount. At December 31, 2008, the Corporation had accrued obligations of $67 million for environmental remediation and restoration costs, including $18 million for the remediation of Superfund sites. For further discussion, see Environmental Matters in Notes A and L to the Consolidated Financial Statements.

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Pension and Other Postretirement Benefits

The amounts recognized in the consolidated financial statements related to pension and other postretirement benefits are determined from actuarial valuations. Inherent in these valuations are assumptions including expected return on plan assets, discount rates at which the liabilities could be settled at December 31, 2009, rate of increase in future compensation levels, mortality rates and health care cost trend rates. These assumptions are updated annually and are disclosed in Note N to the Consolidated Financial Statements. In accordance with U.S. GAAP, actual results that differ from the assumptions are accumulated and amortized over future periods and therefore affect expense recognized and obligations recorded in future periods.

The Corporation determines the expected long-term rate of return on plan assets by performing a detailed analysis of key economic and market factors driving historical returns for each asset class and formulating a projected return based on factors in the current environment. Factors considered include, but are not limited to, inflation, real economic growth, interest rate yield, interest rate spreads and other valuation measures and market metrics. The expected long-term rate for each asset class is then weighted based on the strategic asset allocation approved by the governing body for each plan. The Corporation’s historical experience with the pension fund asset performance is also considered. A similar process is followed in determining the expected long-term rate of return for assets held by the Corporation’s other post retirement benefit plan trust. The expected long-term rate of return is an assumption and not what is expected to be earned in any one particular year. The weighted-average long-term rate of return assumption used for determining net periodic pension expense for 2009 was 8 percent. This assumption was lowered to 7.4 percent for determining 2010 net periodic pension expense. Future actual pension income/expense will depend on future investment performance, changes in future discount rates and various other factors related to the population of participants in the Corporation’s pension plans.

The discount rates utilized to measure the pension and other postretirement benefit obligations are based on the yield on high-quality fixed income investments at the measurement date. Future expected actuarially determined cash flows of the plan are matched against the Citigroup Pension Discount Curve (Above Median) to arrive at a single discount rate by plan. The resulting discount rate decreased from 6.85 percent at December 31, 2008 to 5.85 percent at December 31, 2009.

The value of the qualified plan assets totaled $3.2 billion at December 31, 2009, which is unchanged compared with December 31, 2008. The funded status of the qualified plan, net of benefit obligations decreased by approximately $200 million at December 31, 2009 compared with December 31, 2008. The decrease was due to the lower discount rates partially offset by favorable impact of asset returns. For 2010, the Corporation does not expect to make cash contributions to its pension and other post retirement benefit plans.

The assumption for the long-term rate of increase in compensation levels is 4.25 percent for 2010 and 4.5 percent thereafter. Since 2002, the Corporation has used a generational mortality table to determine the duration of its pension and other postretirement obligations.

The Corporation bases the determination of pension expense or income on a market-related valuation of plan assets, which reduces year-to-year volatility. This market-related valuation recognizes investment gains or losses over a five-year period from the year in which they occur. Investment gains or losses for this purpose represent the difference between the expected return calculated using the market-related value of plan assets and the actual return based on the market value of plan assets. Since the market-related value of plan assets recognizes gains or losses over a five-year period, the future value of plan assets will be impacted when previously deferred gains or losses are recorded. Over the life of the plan, both gains and losses have been recognized and amortized. At December 31, 2009, $488 million of net losses remain to be recognized in the calculation of the market-related value of plan assets. These net losses will result in increases in future pension expense as they are recognized in the market-related value of assets and are a component of the total net loss of $1,416 million shown under “Pretax amounts recognized in AOCI at December 31” in the table entitled “Change in Projected Benefit Obligations, Plan Assets and Funded Status of all Significant Plans” included in Note N to the Consolidated Financial Statements. The remaining $928 million of net losses represents cumulative changes in plan experience and actuarial assumptions. The net decrease in the market-related value of assets due to the recognition of prior gains and losses is presented in the following table:

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Net Decrease (Increase) in Market-Related Asset Value due to Recognition of Prior Gains and Losses In millions
2010	$	147
2011		162
2012		191
2013		(12	)
Total	$	488

Based on the 2010 pension assumptions, a reduction in curtailment costs, and changes in the market-related value of assets due to the recognition of prior asset gains, the Corporation expects net periodic benefit costs to increase approximately $65 million for pension and other postretirement benefits in 2010 compared with 2009.

A 25 basis point adjustment in the long-term return on assets assumption would change total pension expense for 2010 by approximately $9 million. A 25 basis point adjustment in the discount rate assumption would change the total pension expense for 2010 by approximately $7 million.

Income Taxes

Deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and tax bases of assets and liabilities, applying enacted tax rates expected to be in effect for the year in which the differences are expected to reverse. Based on the evaluation of available evidence, both positive and negative, the Corporation recognizes future tax benefits, such as net operating loss carryforwards and tax credit carryforwards, to the extent that realizing these benefits is considered more likely than not.

At December 31, 2009, the Corporation had a net deferred tax asset balance of $584 million, including deferred tax assets for tax loss and tax credit carryforwards of $160 million, of which $14 million is subject to expiration in the years 2010-2014. In order to realize these deferred tax assets for tax loss and tax credit carryforwards, the Corporation needs taxable income of approximately $616 million across multiple jurisdictions. The taxable income needed to realize the deferred tax assets for tax loss and tax credit carryforwards that are subject to expiration between 2010-2014 is $167 million. In evaluating the ability to realize its deferred tax assets, the Corporation relied principally on the reversal of existing temporary differences, the availability of tax planning strategies and on forecasted taxable income using historical and projected future operating results.

The Corporation recognizes the financial statement effects of an uncertain tax position when it is more likely than not, based on the technical merits, that the position will be sustained. At December 31, 2009, the Corporation had uncertain tax positions of $208 million.

The Corporation accrues for non-income tax contingencies when it is probable that a liability to a taxing authority has been incurred and the amount of the contingency can be reasonably estimated. At December 31, 2009, the Corporation had a non-income tax contingency reserve of $25 million. For additional information, see Note Q to the Consolidated Financial Statements.

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Environmental Matters

Environmental Policies

The Corporation is committed to world-class environmental, health and safety (“EH&S”) performance, as demonstrated by a long-standing commitment to Responsible Care®, as well as a strong commitment to achieve the Corporation’s 2015 Sustainability Goals – goals that set the standard for sustainability in the chemical industry by focusing on improvements in UCC’s local corporate citizenship and product stewardship, and by actively pursuing methods to reduce the Corporation’s environmental impact.

The EH&S management system (“EMS”) defines the “who, what, when and how” needed for the businesses to achieve the policies, requirements, performance objectives, leadership expectations and public commitments. EMS is also designed to minimize the long-term cost of environmental protection and to comply with applicable laws and regulations. To ensure effective utilization, EMS is integrated into a company-wide management system for EH&S, Operations, Quality and Human Resources, including implementation of the global EH&S Work Process to improve EH&S performance and to ensure ongoing compliance worldwide.

UCC first works to eliminate or minimize the generation of waste and emissions at the source through research, process design, plant operations and maintenance. Next, UCC finds ways to reuse and recycle materials. Finally, unusable or non-recyclable hazardous waste is treated before disposal to eliminate or reduce the hazardous nature and volume of the waste. Treatment may include destruction by chemical, physical, biological or thermal means. Disposal of waste materials in landfills is considered only after all other options have been thoroughly evaluated. UCC has specific requirements for waste that is transferred to non-UCC facilities, including the periodic auditing of these facilities.

Chemical Security

Public and political attention continues to be placed on the protection of U.S. critical infrastructure, including the chemical industry, from security threats. Terrorist attacks and natural disasters have increased concern about the security of chemical production and distribution. The focus on security is not new to UCC. UCC continues to improve its security plans, placing emphasis on the safety of UCC communities and people by being prepared to meet risks at any level and to address both internal and external identifiable risks. UCC’s security plans are also developed to avert interruptions of normal business work operations which could have a material adverse impact on the Corporation's results of operations, liquidity and financial condition.

UCC is a Responsible Care® company and adheres to the Responsible Care® Security Code that requires all aspects of security – including facility, transportation, and cyberspace – be assessed and gaps addressed. Through global implementation of the Security Code, including voluntary security enhancements and upgrades made since 2002, UCC has permanently heightened the level of security – not just in the United States, but worldwide. In addition, UCC uses a risk-based approach employing the U.S. Government’s Sandia National Labs methodology to repeatedly assess the risks to sites, systems and processes. UCC has expanded its comprehensive Distribution Risk Review process that had been in place for decades to address potential threats in all modes of transportation across its supply chain. To reduce vulnerabilities, UCC maintains security measures that meet or exceed regulatory and industry security standards in all areas in which UCC operates. Assessment and improvement costs are not considered material to the Corporation's consolidated financial statements.

UCC continually works to strengthen partnerships with local responders, law enforcement, and security agencies, and to enhance confidence in the integrity of its security and risk management program as well as strengthen its preparedness and response capabilities. UCC also works closely with its supply chain partners and strives to educate lawmakers, regulators and communities about its resolve and actions to date which are mitigating security and crisis threats.

Climate Change

There is growing political and scientific consensus that emissions of greenhouse gases (“GHG”) due to human activities continue to alter the composition of the global atmosphere in ways that are affecting the climate. UCC takes global climate change very seriously and is committed to reducing its GHG intensity (pounds of GHG per pound of product), developing climate-friendly products and processes and, over the longer term, implementing technology solutions to achieve even greater climate change improvements.

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Environmental Remediation

UCC accrues the costs of remediation of its facilities and formerly owned facilities based on current law and existing technologies. The nature of such remediation includes, for example, the management of soil and groundwater contamination and the closure of contaminated landfills and other waste management facilities. In the case of landfills and other active waste management facilities, UCC recognizes the costs over the useful life of the facility. The policies adopted to properly reflect the monetary impacts of environmental matters are discussed in Note A to the Consolidated Financial Statements. To assess the impact on the consolidated financial statements, environmental experts review currently available facts to evaluate the probability and scope of potential liabilities. Inherent uncertainties exist in such evaluations primarily due to unknown environmental conditions, changing governmental regulations and legal standards regarding liability, and emerging remediation technologies. These liabilities are adjusted periodically as remediation efforts progress or as additional technical or legal information becomes available. The Corporation had an accrued liability of $63 million at December 31, 2009 and $49 million at December 31, 2008 related to the remediation of current or former UCC-owned sites.

In addition to current and former UCC-owned sites, under the Federal Comprehensive Environmental Response, Compensation and Liability Act and equivalent state laws (hereafter referred to collectively as “Superfund Law”), UCC is liable for remediation of other hazardous waste sites where UCC allegedly disposed of, or arranged for the treatment or disposal of, hazardous substances. Because Superfund Law imposes joint and several liability upon each party at a site, UCC has evaluated its potential liability in light of the number of other companies that also have been named potentially responsible parties (“PRPs”) at each site, the estimated apportionment of costs among all PRPs, and the financial ability and commitment of each to pay its expected share. Management’s estimate of the Corporation’s remaining liability for the remediation of Superfund sites was $21 million at December 31, 2009 and $18 million at December 31, 2008, which has been accrued, although the ultimate cost with respect to these sites could exceed that amount. The Corporation has not recorded any third-party recovery related to these sites as a receivable.

Information regarding environmental sites is provided below:

Environmental Sites	UCC-owned Sites (1)					Superfund Sites (2)
	2009		2008			2009		2008
Number of sites at January 1		31		32			56		62
Sites added during year		-		-			2		3
Sites closed during year		-		(1	)		-		(9	)
Number of sites at December 31		31		31			58		56

(1)	UCC-owned sites are sites currently or formerly owned by UCC, where remediation obligations are imposed (in the United States) by the Resource Conservation Recovery Act or analogous state law.
(2)	Superfund sites are sites, including sites not owned by UCC, where remediation obligations are imposed by Superfund Law.

In total, the Corporation’s accrued liability for probable environmental remediation and restoration costs was $84 million at December 31, 2009, compared with $67 million at December 31, 2008. This is management’s best estimate of the costs for remediation and restoration with respect to environmental matters for which the Corporation has accrued liabilities, although the ultimate cost with respect to these particular matters could range up to approximately twice that amount. It is the opinion of management that the possibility is remote that costs in excess of those disclosed will have a material adverse impact on the Corporation’s consolidated financial statements.

The amounts charged to income on a pretax basis related to environmental remediation totaled $49 million in 2009 and $29 million in 2008. Capital expenditures for environmental protection were $2 million in 2009 and $17 million in 2008.

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Asbestos-Related Matters

Introduction

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

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

	2009			2008			2007
Claims unresolved at January 1		75,706			90,322			111,887
Claims filed		8,455			10,922			10,157
Claims settled, dismissed or otherwise resolved		(9,131	)		(25,538	)		(31,722	)
Claims unresolved at December 31		75,030			75,706			90,322
Claimants with claims against both UCC and Amchem		24,146			24,213			28,937
Individual claimants at December 31		50,884			51,493			61,385

Estimating the Liability

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Defense and Resolution Costs

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

Defense and Resolution Costs							Aggregate Costs
In millions	2009		2008		2007		to Date as of Dec. 31, 2009
Defense costs	$	62	$	60	$	84	$	687
Resolution costs	$	94	$	116	$	88	$	1,480

Insurance Receivables

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UCC has reached settlements with several of the carriers involved in the Insurance Litigation, including settlements reached with two significant carriers in the fourth quarter of 2009, resulting in a shift between receivable balances further discussed below. The Insurance Litigation is ongoing.

Receivables for Costs Submitted to Insurance Carriers with Settlement Agreements
at December 31 In millions	2009		2008
Receivables for defense costs	$	91	$	28
Receivables for resolution costs		357		244
Total	$	448	$	272

Summary

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Matters Involving the Formation of K-Dow Petrochemicals

On December 13, 2007, Dow and Petrochemical Industries Company (K.S.C.) (“PIC”) of Kuwait, a wholly owned subsidiary of Kuwait Petroleum Corporation, announced plans to form a 50:50 global petrochemicals joint venture. The proposed joint venture, K-Dow Petrochemicals (“K-Dow”), was expected to have revenues of more than $11 billion and employ more than 5,000 people worldwide.

On November 28, 2008, Dow entered into a Joint Venture Formation Agreement (“JVFA”) with PIC that provided for the establishment of K-Dow. To form the joint venture, Dow would transfer by way of contribution and sale to K-Dow, assets used in the research, development, manufacture, distribution, marketing and sale of polyethylene, polypropylene, polycarbonate, polycarbonate compounds and blends, ethyleneamines, ethanolamines, and related licensing and catalyst technologies; and K-Dow would assume certain related liabilities. It was anticipated that a significant part (but not substantially all) of UCC’s U.S.-based manufacturing assets would be included in the new joint venture.

Failure to Close

On December 31, 2008, Dow received a written notice from PIC with respect to the JVFA advising Dow of PIC’s position that certain conditions to closing were not satisfied and, therefore, PIC was not obligated to close the transaction. On January 2, 2009, PIC refused to close the K-Dow transaction in accordance with the JVFA. Dow disagrees with the characterizations and conclusions expressed by PIC in the written notice and Dow has informed PIC that it breached the JVFA. On January 6, 2009, Dow announced that it would seek to fully enforce its rights under the terms of the JVFA and various related agreements. Currently, Dow continues in a process to consider alternatives for these businesses.

Arbitration

Dow’s claims against PIC are subject to an arbitration agreement between the parties, which provides for arbitration under the Rules of Arbitration of the International Chamber of Commerce. On February 18, 2009, Dow initiated arbitration proceedings against PIC alleging that PIC breached the JVFA by failing to close the transaction on January 2, 2009. Dow is seeking damages in excess of $2.5 billion in the arbitration proceeding.

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Union Carbide Corporation and Subsidiaries

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

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

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

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

UCC uses value at risk (“VAR”), stress testing and scenario analysis for risk measurement and control purposes. VAR estimates the maximum potential gain or loss in fair market values given a certain move in prices over a certain period of time, using specified confidence levels. The VAR methodology used by the Corporation is a historical simulation model which captures the co-movements in market rates across different instruments and market risk exposure categories. The historical simulation model uses a 97.5 percent confidence level and the historical scenario period includes at least six months of historical data. The 2009 and 2008 year-end and average daily VAR for the aggregate of all positions are shown below:

Total Daily VAR at December 31	2009				2008
In millions	Year-end		Average		Year-end		Average
Interest rate	$	20	$	30	$	46	$	28

The decline in year-end VAR was due to a decrease in total debt in 2009.

See Notes I and M to the Consolidated Financial Statements for further disclosure regarding market risk.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholder of

Union Carbide Corporation

We have audited the accompanying consolidated balance sheets of Union Carbide Corporation and subsidiaries (the "Corporation") as of December 31, 2009 and 2008, and the related consolidated statements of income, equity, comprehensive income, and cash flows for each of the three years in the period ended December 31, 2009. Our audits also included the financial statement schedule listed in the Index at Item 15 (a) 2. These financial statements and financial statement schedule are the responsibility of the Corporation's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Corporation is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Corporation's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Union Carbide Corporation and subsidiaries at December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2009, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP Midland, Michigan February 19, 2010

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Union Carbide Corporation and Subsidiaries
Consolidated Statements of Income

(In millions) For the years ended December 31	2009		2008		2007
Net trade sales	$	165	$	219	$	211
Net sales to related companies		4,899		7,107		7,282
Total Net Sales		5,064		7,326		7,493
Cost of sales		4,457		7,194		6,881
Research and development expenses		48		68		70
Selling, general and administrative expenses		10		13		19
Goodwill impairment loss		-		26		-
Restructuring charges		161		105		55
Asbestos-related credit		-		54		-
Equity in earnings of nonconsolidated affiliates		45		166		500
Sundry income - net		479		243		49
Interest income		65		110		173
Interest expense and amortization of debt discount		42		48		52
Income Before Income Taxes		935		445		1,138
Provision for income taxes		239		118		86
Net Income Attributable to Union Carbide Corporation	$	696	$	327	$	1,052
See Notes to the Consolidated Financial Statements.

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Union Carbide Corporation and Subsidiaries
Consolidated Balance Sheets

(In millions) At December 31	2009			2008
Assets
Current Assets
Cash and cash equivalents	$	22		$	24
Accounts receivable:
Trade (net of allowance for doubtful receivables - 2009: $1; 2008: $1)		20			21
Related companies		371			128
Other		254			90
Notes receivable from related companies		4,150			3,934
Inventories		207			187
Deferred income taxes and other current assets		109			64
Total current assets		5,133			4,448
Investments
Investments in related companies		972			972
Investments in nonconsolidated affiliates		116			427
Other investments		21			19
Noncurrent receivables		47			46
Noncurrent receivables from related companies		101			187
Total investments		1,257			1,651
Property
Property		7,533			7,630
Less accumulated depreciation		5,986			5,744
Net property		1,547			1,886
Other Assets
Other intangible assets (net of accumulated amortization - 2009: $140; 2008: $135)		10			17
Deferred income tax assets - noncurrent		498			439
Asbestos-related insurance receivables - noncurrent		330			658
Deferred charges and other assets		73			79
Total other assets		911			1,193
Total Assets	$	8,848		$	9,178
Liabilities and Equity
Current Liabilities
Notes payable - related companies	$	3		$	12
Long-term debt due within one year		-			249
Accounts payable:
Trade		225			170
Related companies		329			299
Other		28			35
Income taxes payable		119			176
Asbestos-related liabilities - current		115			120
Accrued and other current liabilities		195			198
Total current liabilities		1,014			1,259
Long-Term Debt		571			571
Other Noncurrent Liabilities
Pension and other postretirement benefits - noncurrent		855			662
Asbestos-related liabilities - noncurrent		734			824
Other noncurrent obligations		240			298
Total other noncurrent liabilities		1,829			1,784
Stockholder's Equity
Common stock (authorized and issued: 1,000 shares of $0.01 par value each)		-			-
Additional paid-in capital		312			312
Retained earnings		6,131			6,094
Accumulated other comprehensive loss		(1,010	)		(844	)
Union Carbide Corporation's stockholder's equity		5,433			5,562
Noncontrolling Interests		1			2
Total Equity		5,434			5,564
Total Liabilities and Equity	$	8,848		$	9,178
See Notes to the Consolidated Financial Statements.

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Union Carbide Corporation and Subsidiaries
Consolidated Statements of Cash Flows

(In millions) For the years ended December 31	2009			2008			2007
Operating Activities
Net Income Available for Common Stockholder	$	696		$	327		$	1,052
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		297			273			311
Provision (Credit) for deferred income tax		(69	)		60			(238	)
Earnings of nonconsolidated affiliates in excess of dividends received		(9	)		(34	)		(169	)
Net gain on sales of property		(3	)		(14	)		(10	)
Restructuring charges		159			105			55
Gain on sale of ownership interest in nonconsolidated affiliates		(339	)		-			(1	)
Other (gain) loss, net		-			-			(1	)
Asbestos-related credit		-			(54	)		-
Goodwill impairment loss		-			26			-
Pension contributions		(2	)		(2	)		(2	)
Changes in assets and liabilities:
Accounts and notes receivable		20			19			(6	)
Related company receivables		(459	)		(348	)		(825	)
Inventories		(20	)		(9	)		21
Accounts payable		48			(63	)		(64	)
Related company payables		21			(85	)		135
Other assets and liabilities		(94	)		(81	)		(50	)
Cash provided by operating activities		246			120			208
Investing Activities
Capital expenditures		(101	)		(252	)		(272	)
Proceeds from sale of ownership interest in nonconsolidated affiliates		671			-			-
Proceeds from sales of property		6			14			22
Distributions from nonconsolidated affiliates		-			-			7
Changes in noncurrent receivable from related company		85			119			(12	)
Purchases of investments		(30	)		(19	)		(7	)
Proceeds from sales of investments		30			20			6
Cash provided by (used in) investing activities		661			(118	)		(256	)
Financing Activities
Changes in short-term notes payable		-			-			(1	)
Dividends paid to stockholder		(660	)		-			-
Payments on long-term debt		(249	)		-			-
Cash used in financing activities		(909	)		-			(1	)
Summary
Increase (Decrease) in cash and cash equivalents		(2	)		2			(49	)
Cash and cash equivalents at beginning of year		24			22			71
Cash and cash equivalents at end of year	$	22		$	24		$	22
See Notes to the Consolidated Financial Statements.

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Union Carbide Corporation and Subsidiaries
Consolidated Statements of Equity

(In millions) For the years ended December 31	2009			2008			2007
Common stock
Balance at beginning and end of year		-			-			-
Additional paid-in capital
Balance at beginning of year	$	312		$	121		$	121
Capital contribution		-			191			-
Balance at end of year		312			312			121
Retained earnings
Balance at beginning of year		6,094			5,767			4,782
Cumulative effect of adopting FIN No. 48		-			-			(67	)
Dividends Declared		(660	)		-			-
Net income		696			327			1,052
Other		1			-			-
Balance at end of year		6,131			6,094			5,767
Accumulated other comprehensive loss, net of tax
Cumulative translation adjustments at beginning of year		(61	)		(69	)		(72	)
Translation adjustments		-			8			3
Balance at end of year		(61	)		(61	)		(69	)
Pension and Other Postretirement Benefit Plans at beginning of year		(783	)		(164	)		(411	)
Net prior service cost (credit)		3			7			(41	)
Net gain (loss)		(170	)		(626	)		288
Pension and Other Postretirement Benefit Plans at end of year		(950	)		(783	)		(164	)
Accumulated investment gain at beginning of year		1			-			-
Net investment results		-			1			-
Balance at end of year		1			1			-
Accumulated derivative loss at beginning of year		(1	)		-			-
Net hedging results		1			(1	)		-
Balance at end of year		-			(1	)		-
Total accumulated other comprehensive loss		(1,010	)		(844	)		(233	)
Union Carbide Corporation's Stockholder's Equity		5,433			5,562			5,655
Noncontolling Interests		1			2			2
Total Equity	$	5,434		$	5,564		$	5,657
See Notes to the Consolidated Financial Statements.


Consolidated Statements of Comprehensive Income

(In millions) For the years ended December 31		2009			2008			2007
Net Income Attributable to Union Carbide Corporation	$	696		$	327		$	1,052
Other Comprehensive Income (Loss), Net of Tax (tax amounts shown below for 2009, 2008, 2007)
Cumulative translation adjustments		-			8			3
Cumulative unrealized gains on investments		-			1			-
Defined benefit pension plans:
Prior service cost (credit) arising during period (net of tax of $-, $2, $(24))		-			4			(41	)
Net gain (loss) arising during period (net of tax of $(87), $(331), $160)		(172	)		(627	)		270
Less: Amortization of prior service cost included in net periodic pension costs (net of tax of $2, $2, $-)		3			3			-
Less: Amortization of net loss included in net periodic pension costs (net of tax of $-, $1, $11)		2			1			18
Net gain (loss) on cash flow hedging derivative instruments		1			(1	)		-
Total other comprehensive income (loss)		(166	)		(611	)		250
Comprehensive Income (Loss)	$	530		$	(284	)	$	1,302
See Notes to the Consolidated Financial Statements.

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Union Carbide Corporation and Subsidiaries

Notes to the Consolidated Financial Statements

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Note		Page
A	Summary of Significant Accounting Policies	30
B	Recent Accounting Guidance	33
C	Restructuring	35
D	Divestiture of Nonconsolidated Affiliate	37
E	Inventories	37
F	Property	38
G	Nonconsolidated Affiliates	38
H	Goodwill and Other Intangible Assets	39
I	Financial Instruments	40
J	Fair Value Measurements	41
K	Supplementary Information	42
L	Commitments and Contingent Liabilities	42
M	Notes Payable and Long-Term Debt	46
N	Pension and Other Postretirement Benefits	47
O	Leased Property	52
P	Related Party Transactions	52
Q	Income Taxes	54
R	Business and Geographic Areas	56
S	Subsequent Event	56

NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Basis of Presentation

Except as otherwise indicated by the context, the terms “Corporation” and “UCC” as used herein mean Union Carbide Corporation and its consolidated subsidiaries. The accompanying consolidated financial statements of the Corporation were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include the assets, liabilities, revenues and expenses of all majority-owned subsidiaries over which the Corporation exercises control and, when applicable, entities for which the Corporation has a controlling financial interest. Intercompany transactions and balances are eliminated in consolidation. Investments in nonconsolidated affiliates (20–50 percent owned companies, joint ventures and partnerships) are accounted for on the equity basis, except as noted.

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

Dow conducts its worldwide operations through global businesses. The Corporation’s business activities comprise components of Dow’s global operations rather than stand-alone operations. The Corporation sells its products to Dow at market-based prices, in accordance with Dow’s longstanding intercompany pricing policy, in order to simplify the customer interface process. Because there are no separable reportable business segments for UCC and no detailed business information is provided to a chief operating decision maker regarding the Corporation’s stand-alone operations, the Corporation’s results are reported as a single operating segment.

Related Companies

Transactions with the Corporation’s parent company, Dow, or other Dow subsidiaries have been reflected as related company transactions in the consolidated financial statements.

Use of Estimates in Financial Statement Preparation

The preparation of financial statements in accordance with U.S. GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The Corporation’s consolidated financial statements include amounts that are based on management’s best estimates and judgments. Actual results could differ from those estimates.

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Foreign Currency Translation

While the Corporation’s consolidated subsidiaries are primarily based in the United States, the Corporation has small subsidiaries in Asia Pacific. For those subsidiaries, the local currency has been primarily used as the functional currency. Translation gains and losses of those operations that use local currency as the functional currency are included in the consolidated balance sheets in “Accumulated other comprehensive income (loss)” (“AOCI”). Where the U.S. dollar is used as the functional currency, foreign currency gains and losses are reflected in income.

Environmental Matters

Accruals for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, based on current law and existing technologies. These accruals are adjusted periodically as assessment and remediation efforts progress or as additional technical or legal information becomes available. Accruals for environmental liabilities are included in the consolidated balance sheets in both “Accrued and other current liabilities” and “Other noncurrent obligations” at undiscounted amounts. Accruals for related insurance or other third-party recoveries for environmental liabilities are recorded when it is probable that a recovery will be realized and are included in the consolidated balance sheets as “Accounts receivable – Other.”

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

Cash and Cash Equivalents

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

Financial Instruments

The Corporation calculates the fair value of financial instruments using quoted market prices whenever available. When quoted market prices are not available for various types of financial instruments (such as forwards, options and swaps), the Corporation uses standard pricing models with market-based inputs that take into account the present value of estimated future cash flows.

The Corporation utilizes derivatives to manage exposures to currency exchange rates, commodity prices and interest rate risk. The fair values of all derivatives are recognized as assets or liabilities at the balance sheet date. Changes in the fair value of these instruments are reported in income or AOCI, depending on the use of the derivative and whether it qualifies for hedge accounting treatment.

Gains and losses on derivatives that are designated and qualify as cash flow hedging instruments are recorded in AOCI, to the extent the hedges are effective, until the underlying transactions are recognized in income. To the extent effective, gains and losses on derivative and nonderivative instruments used as hedges of the Corporation’s net investment in foreign operations are recorded in AOCI as part of the cumulative translation adjustment. The ineffective portions of cash flow hedges and hedges of net investment in foreign operations, if any, are recognized in income immediately.

Gains and losses on derivatives designated and qualifying as fair value hedging instruments, as well as the offsetting losses and gains on the hedged items, are reported in income in the same accounting period. Derivatives not designated as hedging instruments are marked-to-market at the end of each accounting period with the results included in income.

Inventories

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

Property

Land, buildings and equipment are carried at cost less accumulated depreciation. Depreciation is based on the estimated service lives of depreciable assets and is calculated using the straight-line method. Fully depreciated assets are retained in property and accumulated depreciation accounts until they are removed from service. In the case of disposals, assets and related accumulated depreciation are removed from the accounts, and the net amounts, less proceeds from disposal, are included in income.

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Impairment and Disposal of Long-Lived Assets

The Corporation evaluates long-lived assets and certain identifiable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When undiscounted future cash flows are not expected to be sufficient to recover an asset’s carrying amount, the asset is written down to its fair value.

Long-lived assets to be disposed of other than by sale are classified as held and used until they are disposed of. Long-lived assets to be disposed of by sale are classified as held for sale and are reported at the lower of carrying amount or fair value less cost to sell, and depreciation is ceased.

Asset Retirement Obligations

The Corporation records asset retirement obligations as incurred and reasonably estimable, including obligations for 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. The fair values of obligations are recorded as liabilities on a discounted basis and are accreted over time for the change in present value. Costs associated with the liabilities are capitalized and amortized over the estimated remaining useful life of the asset, generally for periods of 10 years or less.

Investments in Related Companies

Investments in related companies consist of the Corporation’s ownership interests in Dow subsidiaries located in North America, Europe and Latin America. Investments in the Dow subsidiaries have been accounted for using the cost method.

Investments

Investments in debt and marketable equity securities are classified as trading, available-for-sale or held-to-maturity. Investments classified as trading are reported at fair value with unrealized gains and losses included in income. Those classified as available-for-sale are reported at fair value with unrealized gains and losses recorded in AOCI. Those classified as held-to-maturity are recorded at amortized cost. The cost of investments sold is determined by specific identification. The Corporation routinely reviews available-for-sale and held-to-maturity securities for other-than-temporary declines in fair value below the cost basis, and when events or changes in circumstances indicate the carrying value of an asset may not be recoverable, the security is written down to fair value establishing a new cost basis.

Revenue

Substantially all of the Corporation’s revenues are from transactions with Dow. Approximately 96 percent of the Corporation’s sales are related to sales of product. The remaining 4 percent are related to the licensing of patents and technology.

Revenue for product sales to related companies is recognized as risk and title to the product transfer to the related company, which occurs either at the time production is complete or free on board (“FOB”) UCC’s manufacturing facility, in accordance with the sales agreement between the Corporation and Dow. Revenue related to the initial licensing of patents and technology is recognized when earned; revenue related to running royalties is recognized according to licensee production levels.

Revenue for product sales is recognized as risk and title to the product transfer to the customer, which for trade sales, usually occurs at the time shipment is made. Substantially all of the Corporation’s trade sales are sold FOB shipping point or, with respect to countries other than the United States, an equivalent basis. As such, title to the product passes when the product is delivered to the freight carrier. UCC’s standard terms of delivery are included in its contracts of sale, order confirmation documents, and invoices. Freight costs and any directly related costs of transporting finished product to customers are recorded as “Cost of sales.”

Legal Costs

The Corporation expenses legal costs, including those legal costs expected to be incurred in connection with a loss contingency, as incurred.

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Severance Costs

Management routinely reviews its operations around the world in an effort to ensure competitiveness across its businesses and geographic areas. When the reviews result in a workforce reduction related to the shutdown of facilities or other optimization activities, severance benefits are provided to employees primarily under ongoing benefit arrangements. These severance costs are accrued once management commits to a plan of termination including the number of employees to be terminated, their job classifications or functions, their locations and the expected completion date.

Income Taxes

The Corporation accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities using enacted rates. The effect of a change in tax rates on deferred tax assets is recognized in income in the period that includes the enactment date. The Corporation is included in Dow’s consolidated federal income tax group and consolidated income tax return. The Corporation uses the separate return method to account for its income taxes; accordingly, there is no difference between the method used to account for income taxes at the UCC level and the formula in the Dow-UCC Tax Sharing Agreement used to compute the amount due to Dow or UCC for UCC’s share of taxable income and tax attributes on Dow’s consolidated income tax return.

Annual tax provisions include amounts considered sufficient to pay assessments that may result from examinations of prior year tax returns; however, the amount ultimately paid upon resolution of issues raised may differ from the amounts accrued.

The Corporation recognizes the financial statement effects of an uncertain income tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. The Corporation accrues for non-income tax contingencies when it is probable that a liability to a taxing authority has been incurred and the amount of the contingency can be reasonably estimated. The current portion of uncertain income tax positions is included in “Income taxes payable” and the long-term portion is included in “Other noncurrent obligations” in the consolidated balance sheets.

Provision is made for taxes on undistributed earnings of foreign subsidiaries and related companies to the extent that such earnings are not deemed to be permanently invested.

NOTE B RECENT ACCOUNTING GUIDANCE

Accounting Standards Codification

On July 1, 2009, the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification™ (“Codification” or “ASC”) became the single source of authoritative U.S. GAAP (other than rules and interpretive releases of the U.S. Securities and Exchange Commission). The Codification is topically based with topics organized by ASC number and updated with Accounting Standards Updates (“ASUs”). ASUs replace accounting guidance that was historically issued as Statements of Financial Accounting Standards (“SFAS”), FASB Interpretations (“FIN”), FASB Staff Positions (“FSP”), Emerging Issue Task Force (“EITF”) Abstracts and other types of accounting standards. The Codification became effective September 30, 2009 for the Corporation, and disclosures within this Annual Report on Form 10-K have been updated to reflect the change.

Accounting for Noncontrolling Interests

SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51” (codified in ASC Topic 810, “Consolidation”), was effective January 1, 2009 for the Corporation and established accounting and reporting standards for noncontrolling interests in a subsidiary and for deconsolidation of a subsidiary. The retrospective presentation and disclosure requirements outlined by the consolidation guidance have been incorporated into this Annual Report on Form 10-K.

On December 31, 2009, the Corporation adopted ASU 2010-02, “Consolidation (Topic 810): Accounting and Reporting for Decreases in Ownership of a Subsidiary – a Scope Clarification,” which clarifies the decrease-in-ownership provisions of ASC Topic 810-10 and guidance applicability. In addition, the ASU expands the required disclosures upon deconsolidation of a subsidiary. The Corporation will apply this ASU, as applicable, to transactions in the future.

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Fair Value Measurements

On January 1, 2009, the Corporation adopted FSP No. FAS 157-2, “Effective Date of FASB Statement No. 157” (codified in ASC Topic 820, “Fair Value Measurements and Disclosures”), related to nonfinancial assets and nonfinancial liabilities that are not recognized or disclosed at fair value on the financial statements on a recurring basis. Since the Corporation’s fair value measurements for nonfinancial assets and nonfinancial liabilities were consistent with the guidance of the FSP, the adoption of the guidance did not have a material impact on the Corporation’s consolidated financial statements. The Corporation’s required disclosures are included in Note J.

On June 30, 2009, the Corporation adopted FSP No. FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (codified in ASC Topic 820). This FSP provided additional guidance for estimating the fair value when the market activity for an asset or liability has declined significantly. The adoption of this guidance did not have a material impact on the Corporation’s consolidated financial statements.

On October 1, 2009, the Corporation adopted ASU 2009-05, “Fair Value Measurements and Disclosure (Topic 820): Measuring Liabilities at Fair Value.” This ASU clarified the fair value measurements for a liability in an active market and the valuation techniques in the absence of a Level 1 measurement. The adoption of this ASU did not have a material impact on the Corporation’s consolidated financial statements.

On December 31, 2009, the Corporation adopted ASU 2009-12, “Fair Value Measurements and Disclosures (Topic 820): Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent),” which provided guidance within ASC Topic 820 on measuring the fair value of certain alternative investments in entities that calculate net asset values. The adoption of this ASU did not have a material impact on the Corporation’s consolidated financial statements.

Other Recently Adopted Accounting Guidance

On December 31, 2008, the Corporation early adopted SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities - an amendment of FASB Statement No. 133” (codified in ASC Topic 815, “Derivatives and Hedging”). This guidance required enhanced disclosures about an entity’s derivative and hedging activities. The Corporation’s required disclosures are included in Note I.

On January 1, 2009, the Corporation adopted FSP No. FAS 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies” (codified in ASC Topic 805, “Business Combinations” and ASC Topic 820). This guidance states that assets acquired and liabilities assumed in a business combination that arise from contingencies should be recognized at fair value if the acquisition date fair value can be reasonably determined. If the acquisition date fair value cannot be reasonably determined, then the asset or liability should be recognized in accordance with ASC Topic 450, “Contingencies” (formerly SFAS No. 5, “Accounting for Contingencies,” and FIN No. 14, “Reasonable Estimation of the Amount of a Loss - an interpretation of FASB Statement No. 5”). The FSP also requires new disclosures for the assets and liabilities within the scope of this Topic. The Corporation will apply this guidance to future business combinations.

On June 30, 2009, the Corporation adopted FSP No. FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments” (codified in ASC Topic 320, “Investments - Debt and Equity Securities”). This guidance amends the other-than-temporary impairment guidance for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities. The adoption of this guidance did not have a material impact on the Corporation’s consolidated financial statements.

On June 30, 2009, the Corporation adopted SFAS No. 165, “Subsequent Events” (codified in ASC Topic 855, “Subsequent Events”). This guidance establishes the principles and requirements for evaluating and reporting subsequent events, including the period subject to evaluation for subsequent events, the circumstances requiring recognition of subsequent events in the financial statements, and the required disclosures. The Corporation has evaluated subsequent events in accordance with this guidance through the filing of this Annual Report on Form 10-K on February 19, 2010.

On December 31, 2009, the Corporation adopted FSP No. FAS 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets” (codified in ASC Topic 715, “Compensation - Retirement Benefits”). The FSP requires new disclosures on investment policies and strategies, categories of plan assets, fair value measurements of plan assets, and significant concentrations of risk. The required disclosures are included in Note N.

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Accounting Guidance Issued But Not Adopted as of December 31, 2009

In December 2009, the FASB issued ASU 2009-16, “Transfers and Servicing (Topic 860): Accounting for Transfers of Financial Assets.” This ASU is intended to improve the information provided in financial statements concerning transfers of financial assets, including the effects of transfers on financial position, financial performance and cash flows, and any continuing involvement of the transferor with the transferred financial assets. This ASU is effective for the first annual reporting period beginning after November 15, 2009, which is January 1, 2010 for the Corporation. The adoption of this ASU is not expected to have a material impact on the Corporation’s consolidated financial statements.

In December 2009, the FASB issued ASU 2009-17, “Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities,” which amended the consolidation guidance applicable to variable interest entities and required additional disclosures concerning an enterprise’s continuing involvement with variable interest entities. This ASU is effective for the first annual reporting period beginning after November 15, 2009, which is January 1, 2010 for the Corporation. The adoption of this ASU is not expected to have a material impact on the Corporation’s consolidated financial statements.

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

In January 2010, the FASB issued ASU 2010-06 “Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures About Fair Value Measurements,” which adds disclosure requirements about transfers in and out of Levels 1 and 2 and separate disclosures about activity relating to Level 3 measurements, and clarifies input and valuation techniques. This ASU is effective for the first reporting period beginning after December 15, 2009. The Corporation is currently evaluating the impact of adopting the guidance and will include any required new disclosure in its report for the interim period ended March 31, 2010, as appropriate.

NOTE C RESTRUCTURING

2009 Restructuring

On June 30, 2009, the Board of Directors of UCC approved a restructuring plan to improve the cost effectiveness of the Corporation’s global operations. As a result, the Corporation recorded restructuring charges of $162 million in the second quarter of 2009, which included the shutdown of certain facilities that produced ethylene as well as ethylene oxide/ethylene glycol in Hahnville, Louisiana ($38 million) and certain related capital project write-offs ($7 million). In addition, due to the expected loss arising from the United States Federal Trade Commission (“FTC”) required divestiture of certain specialty latex assets resulting from Dow’s acquisition of Rohm and Haas Company, the Corporation recognized an impairment charge in the second quarter of 2009 ($114 million). Also, included in the second quarter restructuring charge was severance of approximately $3 million for 41 people related to the plant shutdowns and corporate workforce reductions. During 2009, severance of $2 million was paid, leaving a liability at December 31, 2009 of $1 million for approximately 16 employees. The workforce reduction is expected to be completed by the end of 2010.

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

2009 Restructuring Activities In millions	Impairment of Long-Lived Assets and Other Assets			Severance Costs			Total
Restructuring charges recognized in the second quarter of 2009	$	159		$	3		$	162
Charges against the reserve		(159	)		-			(159	)
Cash payments		-			(2	)		(2	)
Reserve balance at December 31, 2009		-		$	1		$	1

2008 Restructuring

On December 5, 2008, the Board of Directors of UCC approved a restructuring plan to improve the cost effectiveness of the Corporation’s global operations. As a result, the Corporation recorded restructuring charges of $105 million in the fourth quarter of 2008, which included the write-off of the net book value of certain assets in Texas and Xiaolan, China, and a workforce reduction to improve the cost effectiveness and to enhance the efficiency of the Corporation’s operations. The charges included a $57 million write-off of the net book value associated with the shutdown of a facility that manufactures NORDELTM hydrocarbon rubber in Seadrift, Texas, the solution vinyl resins facility in Texas City, Texas and the emulsion systems facility in Xiaolan, China; severance of $24 million for a workforce reduction of 399 people; and curtailment costs of $24 million associated with the Corporation’s defined benefit pension plans. During the first quarter of 2009, the Corporation identified an additional 50 employees to be separated under the 2008 restructuring plan, resulting in the recognition of an additional $4 million of severance cost. During 2009, severance of $23 million was paid, leaving a liability at December 31, 2009 of $5 million for approximately 59 employees. The workforce reduction is expected to be completed by the end of 2010.

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

2008 Restructuring Activities In millions	Impairment of Long-Lived Assets			Costs associated with Exit or Disposal Activities		Severance Costs			Total
Restructuring charges recognized in the fourth quarter of 2008	$	57		$	24	$	24		$	105
Charges against the reserve		(57	)		-		-			(57	)
Reserve balance at December 31, 2008		-		$	24	$	24		$	48
Adjustment to the reserve		-			-		4			4
Cash payments		-			-		(23	)		(23	)
Reserve balance at December 31, 2009		-		$	24	$	5		$	29

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2007 Restructuring

On November 30, 2007, the Board of Directors of UCC approved a plan to shut down certain assets and make organizational changes to enhance the efficiency and cost effectiveness of the Corporation's operations. As a result, based on decisions made by management, the Corporation recorded restructuring charges of $55 million in the fourth quarter of 2007. The charges included a $26 million write-off of the net book value of the polypropylene manufacturing facility at St. Charles Operations in Hahnville, Louisiana, which was shut down at the end of 2007; severance of $17 million for a workforce reduction of 231 people; and curtailment costs of $12 million associated with the Corporation’s defined benefit pension plans. At December 31, 2008, severance of $2 million had been paid and a liability of $15 million remained for approximately 187 employees. In the fourth quarter of 2009, the Corporation reduced the reserve by $5 million related to severance costs, as redeployment opportunities for affected employees were identified. During 2009, severance of $7 million was paid, leaving a liability at December 31, 2009 of $3 million for approximately 35 employees. The remaining workforce reduction is expected to be completed in 2010.

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

2007 Restructuring Activities In millions	Impairment of Long-Lived Assets			Costs associated with Exit or Disposal Activities		Severance Costs			Total
Restructuring charges recognized in the fourth quarter of 2007	$	26		$	12	$	17		$	55
Charges against the reserve		(26	)		-		-			(26	)
Reserve balance at December 31, 2007		-		$	12	$	17		$	29
Cash payments		-			-		(2	)		(2	)
Reserve balance at December 31, 2008		-		$	12	$	15		$	27
Adjustment to the reserve		-			-		(5	)		(5	)
Cash payments		-			-		(7	)		(7	)
Reserve balance at December 31, 2009		-		$	12	$	3		$	15

NOTE D DIVESTITURE OF NONCONSOLIDATED AFFILIATE

On September 30, 2009, the Corporation completed the sale of its ownership interest in the OPTIMAL Group of Companies (“OPTIMAL”), nonconsolidated affiliates, for net proceeds of $660 million to Petroliam Nasional Berhad. This sale resulted in a pretax gain of $339 million included in “Sundry income - net.”

NOTE E INVENTORIES

The following table provides a breakdown of inventories:

Inventories at December 31 In millions	2009		2008
Finished goods	$	70	$	48
Work in process		10		10
Raw materials		49		55
Supplies		78		74
Total inventories	$	207	$	187

The reserves reducing inventories from a FIFO basis to a LIFO basis amounted to $126 million at December 31, 2009 and $115 million at December 31, 2008. The inventories that were valued on a LIFO basis, principally U.S. chemicals and plastics product inventories, represented 54 percent of the total inventories at December 31, 2009 and 51 percent of the total inventories at December 31, 2008.

A reduction of certain inventories resulted in the liquidation of some of the Corporation’s LIFO inventory layers, which had an immaterial impact on pretax income in 2009, 2008 and 2007.

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NOTE F PROPERTY

Property at December 31	Estimated
In millions	Useful Lives (Years)		2009		2008
Land		-	$	50	$	51
Land and waterway improvements		15-25		226		225
Buildings		5-55		481		505
Machinery and equipment		3-20		6,174		6,071
Utility and supply lines		5-20		135		85
Other property		3-30		381		379
Construction in progress		-		86		314
Total property			$	7,533	$	7,630

In millions	2009		2008		2007
Depreciation expense	$	272	$	271	$	270
Manufacturing maintenance and repair costs	$	218	$	211	$	223
Capitalized interest	$	4	$	15	$	13

NOTE G NONCONSOLIDATED AFFILIATES

The Corporation’s investments in related companies accounted for by the equity method (“nonconsolidated affiliates”) were $116 million at December 31, 2009 and $427 million at December 31, 2008. Dividends received from nonconsolidated affiliates were $36 million in 2009, $132 million in 2008 and $331 million in 2007. Undistributed earnings of nonconsolidated affiliates included in retained earnings were $26 million at December 31, 2009 and $245 million at December 31, 2008.

In late fourth quarter 2007, the Corporation, through a series of noncash transactions, contributed its share of EQUATE Petrochemical Company K.S.C. (“EQUATE”) for an increased share in Dow International Holdings Company (“DIHC”). As a result, the Corporation has an ownership interest in DIHC which is accounted for using the cost method. In accordance with the terms of the contribution agreement, Dow made a capital contribution to UCC in the amount of $191 million in the first quarter of 2008. The Corporation had a 19.13 percent ownership interest in DIHC at December 31, 2009 and 2008. See Note P for additional information.

All of the nonconsolidated affiliates in which the Corporation has investments are privately held companies; therefore, quoted market prices are not available.

Principal Nonconsolidated Affiliates

The Corporation’s principal nonconsolidated affiliates and the Corporation’s ownership interest for each at December 31, 2009, 2008 and 2007 are shown below:

Principal Nonconsolidated Affiliates at December 31	Ownership Interest
	2009	2008	2007
Nippon Unicar Company Limited	50%	50%	50%
The OPTIMAL Group of Companies (1) :
OPTIMAL Chemicals (Malaysia) Sdn. Bhd.	-	50%	50%
OPTIMAL Glycols (Malaysia) Sdn. Bhd.	-	50%	50%
OPTIMAL Olefins (Malaysia) Sdn. Bhd.	-	23.75%	23.75%
Univation Technologies, LLC	50%	50%	50%

(1)	On September 30, 2009, the Corporation completed the sale of its ownership interest in OPTIMAL. See Note D.

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The Corporation’s investment in the principal nonconsolidated affiliates was $108 million at December 31, 2009 and $420 million at December 31, 2008, and its equity in earnings was $45 million in 2009, $167 million in 2008 and $495 million in 2007. The summarized financial information presented below represents the combined accounts (at 100 percent) of the principal nonconsolidated affiliates.

Summarized Balance Sheet Information at December 31
In millions	2009		2008
Current assets	$	292	$	840
Noncurrent assets		136		1,038
Total assets	$	428	$	1,878
Current liabilities	$	149	$	416
Noncurrent liabilities		72		399
Total liabilities	$	221	$	815

Summarized Income Statement Information
In millions	2009 (1)		2008 (1)		2007 (1)
Sales	$	1,239	$	2,410	$	3,278
Gross profit	$	181	$	798	$	1,478
Net income	$	83	$	515	$	1,223

(1)	The summarized income statement information for 2007 includes the results for EQUATE. The summarized income statement information includes the results for OPTIMAL for 2008 and 2007 and for the first nine months of 2009.

NOTE H GOODWILL AND OTHER INTANGIBLE ASSETS

During the fourth quarter of 2008, the Corporation performed its annual impairment tests for goodwill. As a result of this review, it was determined that the goodwill associated with polypropylene assets was impaired. Management’s impairment review determined that discounted cash flows did not support the carrying value of the goodwill. This was due to the demand decline in North America and Western Europe, significant new industry capacity that came on stream in 2008 and additional industry capacity that came on stream in 2009. As a result, the Corporation recognized an impairment loss of $26 million in the fourth quarter of 2008 which reduced the Corporation’s goodwill balance to zero at December 31, 2008.

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

Other Intangible Assets at December 31
	2009								2008
In millions		Gross Carrying Amount		Accumulated Amortization			Net		Gross Carrying Amount		Accumulated Amortization			Net
Intangible assets with finite lives:
Licenses and intellectual property		$	33	$	(33	)		-	$	33	$	(33	)		-
Patents			2		(1	)	$	1		2		(1	)	$	1
Software			115		(106	)		9		117		(101	)		16
Total other intangible assets		$	150	$	(140	)	$	10	$	152	$	(135	)	$	17

The following table provides information regarding amortization expense:

Amortization Expense In millions		2009				2008				2007
Software, included in “Cost of sales”		$	5			$	7			$	6

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Total estimated amortization expense for the next five fiscal years is as follows:

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

NOTE I FINANCIAL INSTRUMENTS

Investments

The Corporation’s investments in marketable securities are classified as available-for-sale.

Investing Results
In millions	2009		2008		2007
Proceeds from sales of available-for-sale securities	$	10	$	13	$	2

Portfolio managers regularly review all of the Corporation’s holdings to determine if any investments are other-than-temporarily impaired. The analysis includes reviewing the amount of temporary impairment, as well as the length of time it has been impaired. In addition, specific guidelines for each instrument type are followed to determine if an other-than-temporary impairment has occurred. At December 31, 2009 and December 31, 2008 there were no impairment indicators or circumstances that would result in a material adjustment of these investments.

The Corporation’s investments in debt securities had contractual maturities of less than 10 years at December 31, 2009.

Fair Value of Financial Instruments:
	At December 31, 2009										At December 31, 2008
In millions	Cost			Gain		Loss		Fair Value			Cost			Gain		Loss		Fair Value
Marketable securities (1):
Debt securities	$	16		$	1		-	$	17		$	13		$	1		-	$	14
Equity securities		1			-		-		1			-			-		-		-
Total marketable securities	$	17		$	1		-	$	18		$	13		$	1		-	$	14
Long-term debt including debt due within one year	$	(571	)	$	73		-	$	(498	)	$	(820	)	$	145		-	$	(675	)

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

Cost approximates fair value for all other financial instruments.

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

During 2009, 2008 and 2007, nonconsolidated affiliates of the Corporation had hedging activities that were accounted for as cash flow hedges in accordance with the accounting guidance for derivatives and hedging. The Corporation’s proportionate share of the hedging results recorded in accumulated other comprehensive income by the nonconsolidated affiliates is reported as net hedging results in the Corporation’s consolidated statements of equity in accordance with the accounting guidance for reporting comprehensive income.

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NOTE J FAIR VALUE MEASUREMENTS

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

Basis of Fair Value Measurements on a Recurring Basis at December 31	Significant Other Observable Inputs (Level 2)		Significant Other Observable Inputs (Level 2)
In millions	2009		2008
Assets at fair value:
Debt securities (1)	$	17	$	14

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

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

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

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

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

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

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NOTE K SUPPLEMENTARY INFORMATION

Sundry Income – Net
In millions	2009			2008			2007
Net gain on sales of assets and securities	$	3		$	14		$	10
Net gain on sale of ownership interest in OPTIMAL		339			-			-
Foreign exchange gain		1			-			1
Related company commissions - net		(32	)		(33	)		(37	)
Dividend income - related companies		193			297			109
Other - net		(25	)		(35	)		(34	)
Total sundry income - net	$	479		$	243		$	49

Other Supplementary Information
In millions	2009		2008		2007
Cash payments for interest	$	53	$	59	$	66
Cash payments for income taxes	$	373	$	40	$	233
Provision for doubtful receivables (1)		-		-	$	4
(1) Included in “Selling, general and administrative expenses” in the consolidated statements of income.

NOTE L COMMITMENTS AND CONTINGENT LIABILITIES

Environmental Matters

At December 31, 2009, the Corporation had accrued obligations of $84 million for environmental remediation and restoration costs, including $21 million for the remediation of Superfund sites. This is management’s best estimate of the costs for remediation and restoration with respect to environmental matters for which the Corporation has accrued liabilities, although the ultimate cost with respect to these particular matters could range up to approximately twice that amount. Inherent uncertainties exist in these estimates primarily due to unknown environmental conditions, changing governmental regulations and legal standards regarding liability, and emerging remediation technologies for handling site remediation and restoration.

At December 31, 2008, the Corporation had accrued obligations of $67 million for environmental remediation and restoration costs, including $18 million for the remediation of Superfund sites. It is the opinion of the Corporation’s management that the possibility is remote that costs in excess of those disclosed will have a material adverse impact on the Corporation’s consolidated financial statements.

The following table summarizes the activity in the Corporation’s accrued obligations for environmental matters for the years ended December 31, 2009 and 2008:

Accrued Liability for Environmental Matters
In millions	2009			2008
Balance at January 1	$	67		$	75
Additional accruals		49			30
Charges against reserve		(32	)		(38	)
Balance at December 31	$	84		$	67

The amounts charged to income on a pretax basis related to environmental remediation totaled $49 million in 2009, $29 million in 2008 and $33 million in 2007. Capital expenditures for environmental protection were $2 million in 2009, $17 million in 2008 and $15 million in 2007.

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Litigation

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

Estimating the Liability

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

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

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

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Insurance Receivables

At December 31, 2002, the Corporation increased the receivable for insurance recoveries related to its asbestos liability to $1.35 billion, substantially exhausting its asbestos product liability coverage. The insurance receivable related to the asbestos liability was determined by the Corporation after a thorough review of applicable insurance policies and the 1985 Wellington Agreement, to which the Corporation and many of its liability insurers are signatory parties, as well as other insurance settlements, with due consideration given to applicable deductibles, retentions and policy limits, and taking into account the solvency and historical payment experience of various insurance carriers. The Wellington Agreement and other agreements with insurers are designed to facilitate an orderly resolution and collection of the Corporation’s insurance policies and to resolve issues that the insurance carriers may raise.

Receivables for Costs Submitted to Insurance Carriers with Settlement Agreements
December 31 In millions	2009		2008
Receivables for defense costs	$	91	$	28
Receivables for resolution costs		357		244
Total	$	448	$	272

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

Summary

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

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

While it is not possible at this time to determine with certainty the ultimate outcome of any of the legal proceedings and claims referred to in this filing, management believes that adequate provisions have been made for probable losses with respect to pending claims and proceedings, and that, except for the asbestos-related matters described above, the ultimate outcome of all known and future claims, after provisions for insurance, will not have a material adverse impact on the results of operations, cash flows and financial position of the Corporation. Should any losses be sustained in connection with any of such legal proceedings and claims in excess of provisions provided and available insurance, they will be charged to income when determinable.

Purchase Commitments

At December 31, 2009, the Corporation had various outstanding commitments for take-or-pay agreements, with terms extending from one to fifteen years. Such commitments were not in excess of current market prices. The fixed and determinable portion of obligations under purchase commitments at December 31, 2009 is presented in the following table:

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

Guarantees

During the third quarter of 2009, the nonperformance guarantees undertaken by the Corporation for its nonconsolidated affiliate Nippon Unicar Company Limited expired. In addition, during the third quarter of 2009, the Corporation sold its ownership interest in OPTIMAL, thereby eliminating all outstanding nonperformance guarantees (see Note D). The Corporation had no outstanding guarantee obligations at December 31, 2009.

The Corporation had undertaken obligations to guarantee the performance of certain nonconsolidated affiliates (including OPTIMAL and Nippon Unicar Company Limited) if specified triggering events occurred. Non-performance under a contract for commercial and/or financial obligations by the guaranteed party would have triggered the obligation of the Corporation to make payments to the beneficiary of the guarantees. Financial obligations included debt and lease arrangements.

The following table provides a summary of the final expiration, maximum future payments, and recorded liability reflected in the consolidated balance sheets for these guarantees at December 31, 2008.

Guarantees at December 31, 2008 In millions	Final Expiration		Maximum Future Payments				Recorded Liability
Guarantees	2014		$	72			$	1

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Conditional Asset Retirement Obligations

The Corporation has recognized conditional asset retirement obligations related to asbestos encapsulation as a result of planned demolition and remediation activities at manufacturing and administrative sites in the United States. The aggregate carrying amount of conditional asset retirement obligations was $9 million at December 31, 2009 and 2008. The discount rate used to calculate the Corporation’s asset retirement obligations was 2.45 percent (7.13 percent at December 31, 2008). These obligations are included in the consolidated balance sheets as “Accrued and other current liabilities.”

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

NOTE M NOTES PAYABLE AND LONG-TERM DEBT

Notes Payable at December 31 In millions	2009			2008
Notes payable – related companies	$	3		$	12
Year-end average interest rates		0.05	%		2.70	%

Long-Term Debt at December 31	2009						2008
	Average						Average
In millions	Rate			2009			Rate			2008
Promissory notes and debentures:
Notes due 2009		-			-			6.70	%	$	249
Debentures due 2023		7.875	%	$	175			7.875	%		175
Debentures due 2025		6.79	%		12			6.79	%		12
Debentures due 2025		7.50	%		150			7.50	%		150
Debentures due 2096		7.75	%		200			7.75	%		200
Other facilities:
Pollution control/industrial revenue bonds, maturity 2012		5.09	%		37			5.09	%		37
Unamortized debt discount		-			(3	)		-			(3	)
Long-term debt due within one year		-			-			-			(249	)
Total long-term debt		-		$	571			-		$	571

Annual Installments on Long-Term Debt for the Next Five Years In millions
2010		-
2011		-
2012	$	37
2013		-
2014		-

The Corporation’s outstanding public debt has been issued under indentures which contain, among other provisions, covenants that the Corporation must comply with while the underlying notes are outstanding. Such covenants are typically based on the Corporation’s size and financial position and include, subject to the exceptions and qualifications contained in the indentures, obligations not to (i) allow liens on principal U.S. manufacturing facilities, (ii) enter into sale and lease-back transactions with respect to principal U.S. manufacturing facilities, or (iii) merge into or consolidate with any other entity or sell or convey all or substantially all of its assets. Failure of the Corporation to comply with any of these covenants could, after the passage of any applicable grace period, result in a default under the applicable indenture which would allow the note holders to accelerate the due date of the outstanding principal and accrued interest on the subject notes. Management believes the Corporation was in compliance with the covenants referred to above at December 31, 2009.

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NOTE N PENSION AND OTHER POSTRETIREMENT BENEFITS

Pension Plans

The Corporation currently 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 three highest consecutive years of compensation. Employees hired on or after January 1, 2008 earn benefits that are based on a set percentage of annual pay, plus interest. The Corporation also has a nonqualified supplemental pension plan.

The Corporation’s funding policy is to contribute to the plan when pension laws or economics either require or encourage funding. In 2009, UCC did not make any contributions to its qualified pension plan. UCC does not expect to contribute assets to its qualified pension plan in 2010.

The weighted-average assumptions used to determine pension plan obligations and net periodic benefit costs are provided below:

Pension Plan Assumptions	Benefit Obligations at December 31						Net Periodic Costs for the Year
	2009			2008			2009			2008
Discount rate		5.85	%		6.85	%		6.85	%		6.65	%
Rate of increase in future compensation levels		4.50	%		4.50	%		4.50	%		4.50	%
Long-term rate of return on assets		-			-			8.00	%		8.00	%

The Corporation determines the expected long-term rate of return on assets by performing a detailed analysis of historical and expected returns based on the strategic asset allocation and the underlying return fundamentals of each asset class. The Corporation’s historical experience with the pension fund asset performance is also considered. The discount rates utilized to measure the pension and other postretirement benefit obligations are based on the yield on high quality fixed income investments at the measurement date. Future expected actuarially determined cash flows of the plans are matched against the Citigroup Pension Discount Curve (Above Median) to arrive at a single discount rate by plan.

The accumulated benefit obligation for all defined benefit pension plans was $3.7 billion at December 31, 2009 and $3.4 billion at December 31, 2008.

Pension Plans with Accumulated Benefit Obligations in Excess of Plan Assets at December 31
In millions	2009		2008
Projected benefit obligation	$	3,691	$	3,419
Accumulated benefit obligation	$	3,656	$	3,392
Fair value of plan assets	$	3,240	$	3,181

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’ 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, although there is a cap on the Corporation portion. The Corporation has the ability to change these benefits at any time. Employees hired after January 1, 2008 are not covered under this plan.

The Corporation funds most of the cost of these health care and life insurance benefits as incurred. No contributions were made to the plan trust in 2009 and UCC does not expect to contribute assets to its other postretirement benefit plan trust in 2010.

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The weighted-average assumptions used to determine other postretirement benefit obligations and net periodic benefit costs for the plan are provided in the following table:

Plan Assumptions for Other Postretirement Benefits	Benefit Obligations at December 31						Net Periodic Costs for the Year
	2009			2008			2009			2008
Discount rate		5.60	%		6.95	%		6.95	%		6.50	%
Initial health care cost trend rate		9.17	%		9.79	%		9.79	%		10.43	%
Ultimate health care cost trend rate		5.00	%		6.00	%		6.00	%		6.00	%
Year ultimate trend rate to be reached		2019			2018			2018			2014

Increasing or decreasing the assumed medical cost trend rate by one percentage point in each year would have a $5 million impact on the accumulated postretirement benefit obligation at December 31, 2009 and an immaterial impact on the net periodic postretirement benefit cost for the year.

Net Periodic Benefit Cost (Credit) for all Significant Plans
	Defined Benefit Pension Plans									Other Postretirement Benefits
In millions	2009			2008			2007			2009			2008			2007
Service cost	$	15		$	18		$	22		$	2		$	2		$	3
Interest cost		223			225			214			31			30			30
Expected return on plan assets		(299	)		(310	)		(317	)		-			-			-
Amortization of prior service cost (credit)		7			7			2			(2	)		(2	)		(2	)
Amortization of net loss		3			2			27			-			-			2
Termination/curtailment cost (1)		-			16			5			-			8			6
Net periodic benefit cost (credit)	$	(51	)	$	(42	)	$	(47	)	$	31		$	38		$	39

(1)	See Note C for information regarding curtailment costs recorded in 2008 and 2007.

Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income for all Significant Plans
	Defined Benefit Pension Plans									Other Postretirement Benefits
In millions	2009			2008			2007			2009			2008			2007
Net (gain) loss	$	276		$	978		$	(375	)	$	(20	)	$	(20	)	$	(55	)
Prior service (credit) cost		-			(6	)		64			-			-			1
Amortization of prior service (cost) credit		(7	)		(7	)		(2	)		2			2			2
Amortization of net loss		(3	)		(2	)		(27	)		-			-			(2	)
Total recognized in other comprehensive (income) loss	$	266		$	963		$	(340	)	$	(18	)	$	(18	)	$	(54	)
Total recognized in net periodic benefit cost and other comprehensive (income) loss	$	215		$	921		$	(387	)	$	13		$	20		$	(15	)

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Change in Projected Benefit Obligations, Plan Assets and Funded Status of all Significant Plans
	Defined Benefit Pension Plans						Other Postretirement Benefits
In millions	2009			2008			2009			2008
Change in projected benefit obligation:
Benefit obligation at beginning of year	$	3,419		$	3,500		$	469		$	490
Service cost		15			18			2			2
Interest cost		223			225			30			30
Actuarial changes in assumptions and experience		339			(39	)		(20	)		(21	)
Benefits paid		(294	)		(285	)		(37	)		(41	)
Termination/curtailment cost		-			9			-			9
Other		(11	)		(9	)		-			-
Benefit obligation at end of year	$	3,691		$	3,419		$	444		$	469

Change in plan assets:
Fair value of plan assets at beginning of year	$	3,181		$	4,180			-			-
Actual return (loss) on plan assets		359			(709	)		-			-
Employer contributions		2			2			-			-
Asset transfer		(8	)		(7	)		-			-
Benefits paid		(294	)		(285	)		-			-
Fair value of plan assets at end of year	$	3,240		$	3,181			-			-


Funded status at end of year	$	(451	)	$	(238	)	$	(444	)	$	(469	)

Net amounts recognized in the consolidated balance sheets at December 31:
Current liabilities	$	(2	)	$	(2	)	$	(46	)	$	(50	)
Noncurrent liabilities		(449	)		(236	)		(398	)		(419	)
Net amounts recognized in the consolidated balance sheets	$	(451	)	$	(238	)	$	(444	)	$	(469	)

Pretax amounts recognized in AOCI at December 31:
Net loss	$	1,416		$	1,143		$	(10	)	$	10
Prior service cost (credit)		54			61			(8	)		(10	)
Pretax balance in AOCI at end of year	$	1,470		$	1,204		$	(18	)		-

In 2010, an estimated net loss of $54 million and prior service cost of $7 million for the defined benefit pension plans will be amortized from AOCI to net periodic benefit cost. In 2010, an estimated prior service credit of $2 million for the other postretirement benefit plan will be amortized from AOCI to net periodic benefit cost.

Estimated Future Benefit Payments

The estimated future benefit payments, reflecting expected future service, as appropriate, are presented in the following table:

Estimated Future Benefit Payments at December 31, 2009
In millions	Defined Benefit Pension Plans		Other Postretirement Benefits
2010	$	281	$	47
2011		279		47
2012		275		46
2013		272		43
2014		269		40
2015 through 2019		1,311		176
Total	$	2,687	$	399

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Plan Assets

Plan assets consist mainly of equity and fixed income securities of U.S. and foreign issuers, and may include alternative investments such as real estate, private equity and other absolute return strategies. At December 31, 2009 and 2008, plan assets totaled $3.2 billion and included no Dow common stock.

Investment Strategy and Risk Management for Plan Assets

The Corporation’s investment strategy for the plan assets is to manage the assets in order to pay retirement benefits to plan participants while minimizing cash contributions from the Corporation over the life of the plans. This is accomplished by diversifying investments in various asset classes and earning an acceptable long-term rate of return consistent with an acceptable degree of risk, while considering the liquidity needs of the plan.

The plan is permitted to use derivative instruments for investment purposes, as well as for hedging the underlying asset and liability exposure and rebalancing the asset allocation. The plan uses value at risk, stress testing, scenario analysis and Monte Carlo simulation to monitor and manage risk in the portfolios.

Equity securities include investments in companies located in the United States, developed non-U.S. markets, and emerging markets. Fixed income securities are primarily invested in investment grade corporate bonds of companies from diversified industries, and U.S. treasuries. Alternative investments primarily include investments in real estate, private equity funds and absolute return strategies. Other significant investment types include insurance contracts and interest rate, equity and foreign derivative investments and hedges.

Strategic Target Allocation of Plan Assets
Asset Category	Target Allocation
Equity securities		40	%
Debt securities		43	%
Alternative investments		17	%
Total		100	%

Concentration of Risk

The Corporation mitigates the credit risk of investments by establishing guidelines with the investment managers that limit investment in any single issue or issuer to an amount that is not material to the portfolio being managed. These guidelines are monitored for compliance both by the Corporation and the external managers. Credit risk for hedging activity is mitigated by utilizing multiple counterparties and through collateral support agreements.

The JP Morgan Federal Agency money market fund is utilized as the sweep vehicle for the U.S. plan, which from time to time can represent a significant investment. For this plan, approximately half of the plan is covered by a participating group annuity issued by Prudential Insurance Company.

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The following table summarizes the bases used to measure the Company’s pension plan assets at fair value:

Basis of Fair Value Measurements at December 31, 2009 In millions	Quoted Prices in Active Markets for Identical Items (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Total
Cash and cash equivalents	$	11	$	331			-	$	342
Equity securities:
U.S. equity	$	160	$	2			-	$	162
Non - U.S. equity – developed countries		153		99			-		252
Emerging market		144		148			-		292
Equity derivatives		-		9			-		9
Total equity securities	$	457	$	258			-	$	715
Fixed income securities:
U.S. government and municipalities		-	$	576			-	$	576
U.S. agency mortgage backed securities		-		82			-		82
Corporates – investment grade		-		720			-		720
Non-U.S. governments – developed countries		-		24			-		24
Non-U.S. corporates – developed countries		-		113			-		113
Emerging market debt		-		3			-		3
Other asset-backed securities		-		39			-		39
Convertible bonds	$	19		134			-		153
High yield bonds		-		5		$	10		15
Total fixed income securities	$	19	$	1,696		$	10	$	1,725
Alternative investments:
Real estate		-	$	9		$	98	$	107
Private equity		-		-			231		231
Absolute return		-		100			-		100
Total alternative investments		-	$	109		$	329	$	438
Other securities:
Foreign exchange derivatives		-	$	(1	)		-	$	(1	)
Insurance contracts		-		-		$	21		21
Total other securities		-	$	(1	)	$	21	$	20
Total assets at fair value	$	487	$	2,393		$	360	$	3,240

For assets classified as Level 1 (measured using quoted prices in active markets), the total fair value is either the price of the most recent trade at the time of the market close or the official close price as defined by the exchange in which the asset is most actively traded on the last trading day of the period, multiplied by the number of units held without consideration of transaction costs.

For assets classified as Level 2, the fair value is based on the price a dealer would pay for the security or similar securities, adjusted for any terms specific to that asset or liability. Market inputs are obtained from well established and recognized vendors of market data and placed through tolerance/quality checks. For derivative assets and liabilities, the fair value is calculated using standard industry models used to calculate the fair value of the various financial instruments based on significant observable market inputs such as foreign exchange rates, commodity prices, swap rates, interest rates, and implied volatilities obtained from various market sources.

For all other assets for which observable inputs are used, fair value is derived through the use of fair value models, such as a discounted cash flow model or other standard pricing models.

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For assets classified as Level 3, the total fair value is based on significant unobservable inputs including assumptions where there is little, if any, market activity for the investment. Investment managers or fund managers provide valuations of the investment on a monthly or quarterly basis. These valuations are reviewed for reasonableness based on applicable sector, benchmark and company performance. Adjustments to valuations are made where appropriate. Where available, audited financial statements are obtained and reviewed for the investments as support for the manager’s investment valuation.

The following table summarizes the changes in fair value of Level 3 pension plan assets for the year ended December 31, 2009:

Fair Value Measurement of Level 3 Pension Plan Assets In millions	Equity Securities			Fixed Income Securities		Alternative Investments			Other Securities		Total
Balance at January 1, 2009	$	1		$	7	$	353		$	20	$	381
Actual return on plan assets:
Relating to assets held at Dec. 31, 2009		4			3		(18	)		-		(11	)
Relating to assets sold during 2009		(4	)		-		(18	)		-		(22	)
Purchases, sales and settlements		(1	)		-		12			1		12
Balance at December 31, 2009		-		$	10	$	329		$	21	$	360

NOTE O LEASED PROPERTY

The Corporation has operating leases primarily for facilities and distribution equipment. The future minimum rental payments under operating leases with remaining noncancelable terms in excess of one year are as follows:

Minimum Operating Lease Commitments at December 31, 2009 In millions
2010	$	4
2011		3
2012		2
2013		1
2014		-
2015 and thereafter		-
Total	$	10

Rental expenses under operating leases were $23 million in 2009, $30 million in 2008 and $36 million in 2007.

NOTE P RELATED PARTY TRANSACTIONS

The Corporation sells products to Dow to simplify the customer interface process. Products are sold to and purchased from Dow at market-based prices in accordance with the terms of Dow’s long-standing intercompany pricing policies. The Corporation also procures certain commodities and raw materials through a Dow subsidiary and pays a commission to that Dow subsidiary based on the volume and type of commodities and raw materials purchased. The commission expense is included in “Sundry income – net” in the consolidated statements of income. Purchases from that Dow subsidiary were approximately $1.9 billion in 2009, $3.9 billion in 2008 and $3.3 billion in 2007.

The Corporation has a master services agreement with Dow whereby Dow provides services, including, but not limited to, accounting, legal, treasury (investments, cash management, risk management, insurance), procurement, human resources, environmental, health and safety, and business management for UCC. Under the master services agreement with Dow, for general administrative and overhead type services that Dow routinely allocates to various businesses, UCC is charged the cost of those services based on the Corporation’s and Dow’s relative manufacturing conversion costs. This arrangement resulted in an average quarterly charge of approximately $5 million in 2009 ($6 million in 2008 and 2007) and is included in “Sundry income – net.”

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

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

As part of Dow’s cash management process, UCC is a party to revolving loans with Dow that have interest rates based on LIBOR (London Interbank Offered Rate) with varying maturities. At December 31, 2009, the Corporation had a note receivable of $4.1 billion ($3.9 billion at December 31, 2008) from Dow under a revolving loan agreement. The Corporation may draw from this note receivable in support of its daily working capital requirements and, as such, the net effect of cash inflows and outflows under this revolving loan agreement is presented in the consolidated statements of cash flows as an operating activity.

The Corporation also has a separate revolving credit agreement with Dow that allows the Corporation to borrow or obtain credit enhancements up to an aggregate of $1 billion that matures December 30, 2010, pursuant to an amendment effective as of September 30, 2009. Dow may demand repayment with a 30-day written notice to the Corporation, subject to certain restrictions. A related collateral agreement provides for the replacement of certain existing pledged assets, primarily equity interests in various subsidiaries and joint ventures, with cash collateral. At December 31, 2009, $891 million ($826 million at December 31, 2008) was available under the revolving credit agreement. The cash collateral was reported as “Noncurrent receivables from related companies” in the consolidated balance sheets.

In December 2009, the Corporation declared and paid a dividend of $660 million to Dow.

At December 31, 2008, the Corporation had an insurance receivable of $47 million from its insurer (an affiliate of Dow) for losses incurred from Hurricane Katrina in 2005 and Hurricanes Gustav and Ike in 2008. The insurance receivable was reported in “Accounts receivable – Related companies” in the consolidated balance sheets. During 2009, the Corporation received $2 million in insurance payments and settled and collected the remaining balance of $45 million with its insurers for $43 million with the balance charged to “Cost of sales” in the consolidated statements of income.

The Corporation received cash dividends from its investments in related companies of $193 million in 2009, including $158 million from Dow International Holding Company (“DIHC”) and $32 million from Dow Technology Investment LLC. In 2008, dividends from its investments in related companies were $297 million (including $204 million from DIHC and $82 million from Modeland). These dividends were included in “Sundry income – net.”

In December 2007, under the terms of a contribution agreement among UCC, Dow and DIHC, the Corporation contributed its 42.5 percent ownership interest in EQUATE Petrochemical Company K.S.C. (“EQUATE”) to UC Investment B.V. (“UCIBV”), a newly formed Dutch limited liability company in which the Corporation was the sole shareholder. The Corporation then contributed its ownership interest in UCIBV to DIHC in exchange for an increased ownership interest in DIHC. The Corporation has the right to sell its shares in DIHC to Dow anytime during the period January 1, 2009 through December 31, 2011 for an amount calculated using a formula in the agreement which intends to approximate fair value. In accordance with the terms of the contribution agreement, Dow made a capital contribution to UCC in the amount of $191 million in the first quarter of 2008. At December 31, 2009 and 2008, the Corporation had a 19.13 percent ownership interest in DIHC, which the Corporation accounts for using the cost method.

In accordance with the Amended and Restated Tax Sharing Agreement between the Corporation and Dow, the Corporation made payments of $289 million to Dow in 2009 to cover the Corporation’s estimated federal tax liability for 2009; payments were $33 million in 2008 and $287 million in 2007.

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NOTE Q INCOME TAXES

Operating loss carryforwards at December 31, 2009 amounted to $511 million compared with $607 million at the end of 2008. Such amounts included U.S. state and local operating loss carryforwards determined more likely than not to be utilized. At December 31, 2009, $167 million of the operating loss carryforwards was subject to expiration in the years 2010 through 2014. The remaining balances expire in years beyond 2014 or have an indefinite carryforward period. Tax credit carryforwards amounted to $39 million at December 31, 2009 and 2008, all of which expire in years beyond 2014.

Undistributed earnings of foreign subsidiaries and related companies that are deemed to be permanently invested amounted to $58 million at December 31, 2009, $60 million at December 31, 2008 and $72 million at December 31, 2007. It is not practicable to calculate the unrecognized deferred tax liability on those earnings.

The Corporation had valuation allowances, which were primarily related to the realization of recorded tax benefits on tax loss carryforwards from operations in the United States of $122 million at December 31, 2009 and $111 million at December 31, 2008.

The tax rate for 2009 was positively impacted by dividends received from investments in related companies accounted for using the cost method. This positive impact was partially offset by the tax effect of the Corporation’s sale of its ownership interest in OPTIMAL. These events resulted in an effective tax rate for 2009 that was lower than the U.S. statutory rate. UCC’s reported effective tax rate for 2009 was 25.6 percent.

The tax rate for 2008 was positively impacted by after-tax income from joint ventures and dividends received from investments in related companies accounted for using the cost method. The Corporation determined during 2008 that it was more likely than not that certain tax loss carryforwards in the United States would not be utilized due to lower forecasted earnings and deteriorating market conditions, offsetting the positive impacts, resulting in net increases to the Corporation’s valuation allowances of $46 million. These events resulted in an effective tax rate for 2008 that was lower than the U.S. statutory rate. UCC’s reported effective tax rate for 2008 was 26.5 percent.

In 2007, the Corporation, through a series of noncash transactions, contributed its investment in EQUATE to DIHC, resulting in a favorable impact to the “Provision for income taxes” of $195 million in the fourth quarter of 2007. See Notes G and P for further information. These events, combined with lower earnings from certain of the Corporation’s joint ventures, resulted in an effective tax rate for 2007 that was lower than the U.S. statutory rate. UCC’s reported effective tax rate for 2007 was 7.6 percent.

Domestic and Foreign Components of Income Before Income Taxes
In millions	2009		2008			2007
Domestic	$	933	$	447		$	1,141
Foreign		2		(2	)		(3	)
Total	$	935	$	445		$	1,138

Reconciliation to U.S. Statutory Rate
In millions	2009			2008			2007
Taxes at U.S. statutory rate	$	327		$	156		$	399
Equity earnings effect		26			(70	)		(121	)
Change in EQUATE legal ownership structure		-			-			(195	)
Foreign income taxed at rates other than 35%		-			1			1
U.S. tax effect of foreign earnings and dividends		-			14			86
U.S. business credits		-			(4	)		(9	)
Benefit of dividend income from investments in related companies		(67	)		(58	)		(34	)
Unrecognized tax benefits		(5	)		16			34
U.S. Federal Audit Settlement		(28	)		-			-
Federal tax accrual adjustments		(18	)		-			-
State and local tax impact		7			56			(24	)
Other – net		(3	)		7			(51	)
Total tax provision	$	239		$	118		$	86
Effective tax rate		25.6	%		26.5	%		7.6	%

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Provision for Income Taxes
	2009								2008										2007
In millions		Current		Deferred			Total			Current			Deferred			Total				Current		Deferred			Total
Federal		$	293	$	(68	)	$	225		$	63		$	62		$	125			$	300	$	(239	)	$	61
State and local			10		(2	)		8			(13	)		(2	)		(15	)			17		1			18
Foreign			5		1			6			9			(1	)		8				7		-			7
Total		$	308	$	(69	)	$	239		$	59		$	59		$	118			$	324	$	(238	)	$	86

Deferred Tax Balances at December 31	2009					2008
In millions	Deferred Tax Assets			Deferred Tax Liabilities		Deferred Tax Assets			Deferred Tax Liabilities
Property		-		$	285	$	1		$	292
Tax loss and credit carryforwards	$	160			-		161			-
Postretirement benefit obligations		712			380		662			360
Other accruals and reserves		526			-		470			41
Inventory		7			-		8			-
Long-term debt		-			1		-			1
Investments		-			1		-			1
Other – net		45			77		56			75
Subtotal	$	1,450		$	744	$	1,358		$	770
Valuation allowance		(122	)		-		(111	)		-
Total	$	1,328		$	744	$	1,247		$	770

Uncertain Tax Positions

On January 1, 2007, the Corporation adopted the provisions of FIN No. 48, “Accounting for Uncertainty in Income Taxes.” The cumulative effect of adoption was a $67 million reduction of retained earnings. At December 31, 2009, the total amount of unrecognized tax benefits was $208 million ($265 million at December 31, 2008), of which $190 million ($247 million at December 31, 2008) would impact the effective tax rate, if recognized.

Interest income and penalties associated with unrecognized tax benefits are recognized as components of the “Provision for income taxes” and were $13 million in 2009 and $20 million in 2008. Interest expense and penalties associated with unrecognized tax benefits are recognized as components of the “Provision for income taxes” and were $22 million in 2007. The Corporation’s accrual for interest and penalties was $18 million at December 31, 2009 and $35 million at December 31, 2008.

Total Gross Unrecognized Tax Benefits
In millions	2009			2008
Balance at January 1	$	265		$	269
Increases related to positions taken on items from prior years		6			15
Decreases related to positions taken on items from prior years		(5	)		(8	)
Increases related to positions taken in current year		-			11
Settlement of uncertain tax positions with tax authorities		(58	)		(22	)
Balance at December 31	$	208		$	265

The Corporation is included in Dow’s consolidated federal income tax group and consolidated tax return. Current and deferred tax expenses are calculated for the Corporation as a stand-alone group and are allocated to the group from the consolidated totals. UCC is currently under examination in a number of tax jurisdictions, including the U.S. federal, various state and foreign jurisdictions. It is reasonably possible that these examinations may be resolved within twelve months. As a result, it is reasonably possible that the total gross unrecognized tax benefits of the Corporation at December 31, 2009, will be reduced by approximately $5 million ($70 million at December 31, 2008). The amount of the settlement remains uncertain and it is reasonably possible that before settlement, the amount of gross unrecognized tax benefits may increase or decrease by approximately $1 million. The impact on the Corporation’s results of operations is expected to be immaterial.

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Tax years that remain subject to examination for the Corporation’s tax jurisdictions are shown below:

Tax Years Subject to Examination by Major Tax Jurisdiction at December 31
Jurisdiction	Earliest Open Year
Jurisdiction	2009	2008
United States:
Federal income tax	2004	2001
State and local income tax	1996	1996

The reserve for non-income tax contingencies related to issues in the United States was $25 million at December 31, 2009 and $29 million at December 31, 2008. This is management’s best estimate of the potential liability for non-income tax contingencies. Inherent uncertainties exist in estimates of tax contingencies due to changes in tax law, both legislated and concluded through the various jurisdictions’ tax court systems. It is the opinion of the Corporation’s management that the possibility is remote that costs in excess of those accrued will have a material adverse impact on the Corporation’s consolidated financial statements.

NOTE R BUSINESS AND GEOGRAPHIC AREAS

Dow conducts its worldwide operations through global businesses. The Corporation’s business activities comprise components of Dow’s global businesses rather than stand-alone operations. The Corporation sells its products to Dow in order to simplify the customer interface process. The products are sold to Dow at market-based prices in accordance with Dow’s long-standing intercompany pricing policy. Because there are no separable reportable business segments for the Corporation and no detailed business information is provided to a chief operating decision maker regarding the Corporation's stand-alone operations, the Corporation’s results are reported as a single operating segment.

Sales are attributed to geographic areas based on customer location; long-lived assets are attributed to geographic areas based on asset location. Sales to external customers and long-lived assets by geographic area were as follows:

In millions	United States		Asia Pacific		Rest of World		Total
2009
Sales to external customers (1)	$	98	$	29	$	38	$	165
Long-lived assets	$	1,534	$	8	$	5	$	1,547
2008
Sales to external customers (1)	$	94	$	58	$	67	$	219
Long-lived assets	$	1,872	$	9	$	5	$	1,886
2007
Sales to external customers (1)	$	101	$	71	$	39	$	211
Long-lived assets	$	1,945	$	12	$	5	$	1,962

(1)

Of the total sales to external customers, China represented approximately 5 percent in 2009, 14 percent in 2008 and 19 percent in 2007, and is included in Asia Pacific.

NOTE S SUBSEQUENT EVENT

$114 million for these assets was recognized in the second quarter of 2009 restructuring charge (see Note C). The divestiture of these assets was completed on January 25, 2010. The impact of this sale on the Corporation’s consolidated financial statements is not expected to be material.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 9A. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Control Over Financial Reporting

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

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting. The Corporation’s internal control framework and processes are designed to provide reasonable assurance to management and the Board of Directors regarding the reliability of financial reporting and the preparation of the Corporation’s consolidated financial statements in accordance with accounting principles generally accepted in the United States of America.

The Corporation’s internal control over financial reporting includes those policies and procedures that:

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Corporation;

provide reasonable assurance that transactions are recorded properly to allow for the preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Corporation are being made only in accordance with authorizations of management and Directors of the Corporation;

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Corporation’s assets that could have a material effect on the consolidated financial statements; and

provide reasonable assurance as to the detection of fraud.

Because of its inherent limitations, any system of internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements.

Management assessed the effectiveness of the Corporation’s internal control over financial reporting and concluded that, as of December 31, 2009, such internal control is effective. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control—Integrated Framework.

Management’s internal control report was not subject to attestation by the Corporation’s independent registered public accounting firm, Deloitte & Touche LLP, pursuant to temporary rules of the Securities and Exchange Commission that permit the Corporation to provide only management’s report. Therefore, this annual report does not include an attestation report regarding internal control over financial reporting from Deloitte & Touche LLP.

/s/ PATRICK E. GOTTSCHALK		/s/ EUDIO GIL
Patrick E. Gottschalk President and Chief Executive Officer		Eudio Gil Vice President, Treasurer and Chief Financial Officer

/s/ RONALD C. EDMONDS
Ronald C. Edmonds, Vice President and Controller The Dow Chemical Company Authorized Representative of Union Carbide Corporation

February 19, 2010

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ITEM 9B. OTHER INFORMATION.

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

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

ITEM 11. EXECUTIVE COMPENSATION.

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

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

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

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

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

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.

Dow’s Audit Committee pre-approves all auditing services and permitted non-audit services (including the fees and terms thereof) to be performed for Dow and its subsidiaries (including the Corporation) by its independent auditor, subject to the de minimus exception for non-audit services described in Section 10A(i)(1)(B) of the Exchange Act which are approved by Dow’s Audit Committee prior to the completion of the audit. The Corporation’s management and its Board of Directors subscribe to these policies and procedures. For the years ended December 31, 2009 and 2008, professional services were performed for the Corporation by Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu, and their respective affiliates (collectively, the “Deloitte Entities”).

Total fees paid to the Deloitte Entities were:

In thousands	2009		2008
Audit fees (1)	$	1,751	$	1,747
Audit-related fees (2)		239		434
Tax fees		-		4
Total	$	1,990	$	2,185

(1)	The aggregate fees billed for the audit of the Corporation’s annual financial statements, the reviews of the financial statements in Quarterly Reports on Form 10-Q, statutory audits and other regulatory filings.
(2)	Primarily for agreed-upon procedure engagements and audits of employee benefit plan financial statements.

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PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

(a) The following documents are filed as part of this report:

1.	The Corporation’s 2009 Consolidated Financial Statements and the Report of Independent Registered Public Accounting Firm are included in Item 8 of this Annual Report on Form 10-K.

2.	Financial Statement Schedules.

The following Financial Statement Schedule should be read in conjunction with the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K:

Schedule II

Valuation and Qualifying Accounts

Schedules other than the one listed above are omitted because of the absence of the conditions under which they are required or because the information called for is included in the Consolidated Financial Statements or Notes thereto.

3.	The following financial statements of the Corporation’s former nonconsolidated affiliate (see Note P to the Consolidated Financial Statements), EQUATE Petrochemical Company K.S.C., are presented pursuant to Rule 3-09 of Regulation S-X:

Independent Auditor’s report

Balance sheets at December 31, 2007 and 2006

Statements of income for the years ended December 31, 2007, 2006 and 2005

Statements of changes in equity for the years ended December 31, 2007, 2006 and 2005

Statements of cash flows for the years ended December 31, 2007, 2006 and 2005

Notes to financial statements

4.	Exhibits – See the Exhibit Index on pages 90-91 of this Annual Report on Form 10-K for exhibits filed with this Annual Report on Form 10-K (see below) and for exhibits incorporated by reference.

The Corporation will provide a copy of any exhibit upon receipt of a written request for the particular exhibit or exhibits desired. All requests should be addressed to the Corporation’s principal executive offices (address provided at the end of the Exhibit Index).

The following exhibits listed on the Exhibit Index are filed with this Annual Report on Form 10-K:

Exhibit No.	Description of Exhibit
10.5	Amended and Restated Revolving Credit Agreement dated as of May 28, 2004, among the Corporation, The Dow Chemical Company and certain Subsidiary Guarantors.
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.

TRADEMARKS

The following trademarks of Union Carbide Corporation or its subsidiaries appear in this report:

CARBOWAX, CELLOSIZE, EVOCAR, FLEXOMER, LP OXO, METEOR, NEOCAR, NORDEL, POLYOX, POLYPHOBE, REDI-LINK, SI-LINK, SENTRY, TERGITOL, TRITON, TUFLIN, UCAR, UCARTHERM, UCON, UNIGARD, UNIPOL, UNIPURGE, UNIVAL

The following registered service mark of American Chemistry Council appears in this report: Responsible Care

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

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	Union Carbide Corporation	Schedule II
	Valuation and Qualifying Accounts
In millions	For the Years Ended December 31

COLUMN A	COLUMN B		COLUMN C		COLUMN D			COLUMN E
Description	Balance at Beginning of Year		Additions to Reserves		Deductions from Reserves			Balance at End of Year
2009
RESERVES DEDUCTED FROM ASSETS TO WHICH THEY APPLY:
For doubtful receivables	$	1		-		-		$	1

2008
RESERVES DEDUCTED FROM ASSETS TO WHICH THEY APPLY:
For doubtful receivables	$	2		-	$	1	(1)	$	1

2007
RESERVES DEDUCTED FROM ASSETS TO WHICH THEY APPLY:
For doubtful receivables	$	2		-		-		$	2

	2009		2008		2007
(1) Deductions represent:
Notes and accounts receivable written off		-	$	1		-

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INDEPENDENT AUDITOR’S REPORT

To the Board of Directors and Shareholders of

EQUATE Petrochemical Company KSC (Closed)

We have audited the accompanying balance sheet of EQUATE Petrochemical Company KSC (Closed) (“the Company”), a venture between Union Carbide Corporation, Petrochemical Industries Company, Boubyan Petrochemical Company and Al Qurain Petrochemical Industries Company as at December 31, 2007 and 2006, and the related statements of income, changes in equity and cash flows for each of the three years ended December 31, 2007, 2006 and 2005. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2007 and 2006, and the results of its operations and its cash flows for each of the three years ended December 31, 2007, 2006 and 2005 in conformity with International Financial Reporting Standards (“IFRS”) as issued by International Accounting Standards Board (“IASB”).

The accounting principles reflected in the above mentioned financial statements prepared in conformity with IFRS as issued by IASB vary in certain significant respects from accounting principles generally accepted in the United States of America (“US GAAP”). The application of US GAAP would have affected the determination of net income for each of the three years ended December 31, 2007, 2006 and 2005 and the determination of equity as of December 31, 2007 and 2006 to the extent summarized in Note 19 to the financial statements.

Jassim Ahmad Al-Fahad

Al-Fahad & Co., Deloitte & Touche

License No. 53 - A

February 14, 2008

Kuwait

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EQUATE Petrochemical Company KSC (Closed)

Balance Sheets

		As at December 31,
		2007 US$’000	2006 US$’000
	Notes
ASSETS
Current assets
Cash and bank balances	5	416,706	151,465
Trade receivables, net	6	145,458	122,773
Prepayments and other assets		25,904	16,593
Due from related parties	14	159,684	149,052
Inventories, net	7	43,016	42,080
		790,768	481,963
Non-current assets
Property, plant and equipment, net	8	1,660,689	1,413,782
Intangible assets, net	9	121,651	132,507
Long-term loans to related parties	14	1,469,770	719,770
		3,252,110	2,266,059
		4,042,878	2,748,022
LIABILITIES AND EQUITY
Current liabilities
Accounts payable		26,920	26,804
Accruals and other liabilities	10	104,434	68,284
Due to related parties	14	28,421	18,158
		159,775	113,246
Non-current liabilities
Long-term debt	15	1,639,820	879,568
Retirement benefit obligation	16	31,192	26,342
Long term incentives		3,102	1,417
Deferred income	11	510,521	288,303
		2,184,635	1,195,630

Commitments and contingencies	21

Capital and reserves
Share capital	12	700,000	700,000
Retained earnings		998,468	739,146
		1,698,468	1,439,146
		4,042,878	2,748,022

The accompanying notes form an integral part of these financial statements.

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EQUATE Petrochemical Company KSC (Closed)

Statements of Income

			For the years ended December 31,
				2007 US$’000		2006 US$’000		2005 US$’000
	Notes
Sales		14		1,205,713		986,213		961,453
Cost of sales		17		(388,075	)	(367,977	)	(313,545	)
Gross profit				817,638		618,236		647,908
Polypropylene plant management fee		14		1,000		1,000		1,000
General, administrative and selling expenses		17		(51,895	)	(52,434	)	(51,351	)
Operating income				766,743		566,802		597,557
Interest income		14		71,819		29,282		5,754
Foreign exchange loss				(1,363	)	(521	)	(341	)
Other income				1,817		229		1,199
Finance costs		18		(62,276	)	(24,199	)	(10,472	)
Net income before contribution to Kuwait Foundation for Advancement of Sciences (“KFAS”) and Directors’ fees				776,740		571,593		593,697
Contribution to KFAS				(7,270	)	(5,143	)	(5,336	)
Directors’ fees				(148	)	(136	)	(302	)
Net income for the year				769,322		566,314		588,059

The accompanying notes form an integral part of these financial statements.

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EQUATE Petrochemical Company KSC (Closed)

Statements of Changes in Equity

			Share capital US$’000		Retained earnings US$’000			Total US$’000
	Note
Balance as at January 1, 2005				700,000		672,773			1,372,773
Dividends paid				-		(558,000	)		(558,000	)
Net income for the year				-		588,059			588,059
Balance as at December 31, 2005				700,000		702,832			1,402,832
Dividends paid				-		(530,000	)		(530,000	)
Net income for the year				-		566,314			566,314
Balance as at December 31, 2006				700,000		739,146			1,439,146
Dividends paid		13		-		(510,000	)		(510,000	)
Net income for the year				-		769,322			769,322
Balance as at December 31, 2007				700,000		998,468			1,698,468

The accompanying notes form an integral part of these financial statements.

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EQUATE Petrochemical Company KSC (Closed)

Statements of Cash flows

	For the years ended December 31,
		2007 US$’000		2006 US$’000		2005 US$’000

OPERATING ACTIVITIES
Net income for the year		769,322		566,314		588,059
Adjustments for:
Depreciation and amortisation		111,248		105,478		101,551
Finance costs		62,276		24,199		10,472
Interest income		(71,819	)	(29,282	)	(5,754	)
Allowance for obsolete and slow moving spare parts		300		13,641		500
Loss on disposal of property, plant and equipment		-		3,732		-
Provision for retirement benefit obligation and long term incentives net of payments		6,535		6,955		4,567
		877,862		691,037		699,395
Trade receivables		(22,685	)	(6,418	)	59,064
Prepayments and other assets		(9,307	)	4,390		(12,709	)
Due from related parties		213,917		130,678		20,942
Inventories		(1,236	)	(2,880	)	(5,514	)
Accounts payable		116		13,694		2,434
Accruals and other liabilities		(1,090	)	10,011		(15,024	)
Due to related parties		10,263		(27,194	)	19,150
Net cash generated by operating activities		1,067,840		813,318		767,738
INVESTING ACTIVITIES
Purchases of property, plant and equipment		(296,084	)	(360,016	)	(128,112	)
Purchases of intangible assets		-		-		(528	)
Long-term loans advanced to related parties		(750,000	)	(719,770	)	-
Short-term loan repaid by / (advanced to) related party		-		100,000		(100,000	)
Interest received		69,340		25,624		4,796
Net cash used in investing activities		(976,744	)	(954,162	)	(223,844	)
FINANCING ACTIVITIES
Proceeds from term debt		760,000		885,000		-
Loan origination fees paid		(159	)	(5,664	)	(211	)
Finance costs paid		(75,696	)	(40,207	)	(11,589	)
Dividends paid		(510,000	)	(530,000	)	(558,000	)
Repayment of finance lease		-		(99,898	)	-
Repayment of syndicated bank loan		-		(99,897	)	-
Net cash generated by / (used in) financing activities		174,145		109,334		(569,800	)
Net increase / (decrease) in cash and bank balances		265,241		(31,510	)	(25,906	)
Cash and bank balances at beginning of the year		151,465		182,975		208,881
Cash and bank balances at end of the year		416,706		151,465		182,975
NON-CASH TRANSACTIONS
Purchase of property, plant and equipment		(37,788	)	(32,967	)	-

The accompanying notes form an integral part of these financial statements.

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EQUATE Petrochemical Company KSC (Closed)

Notes to Financial Statements

INCORPORATION AND ACTIVITIES

EQUATE Petrochemical Company K.S.C. (Closed) (“the Company”) is a closed shareholding company incorporated in the State of Kuwait on November 20, 1995 as a joint venture between Union Carbide Corporation (“UCC”), Petrochemical Industries Company (“PIC”) and Boubyan Petrochemical Company (“BPC”).

The Company is engaged in the manufacture and sale of ethylene glycol (“EG”) and polyethylene (“PE”). The Company also operates and maintains a polypropylene plant on behalf of PIC.

UCC is a wholly owned subsidiary of The Dow Chemical Company (“DOW”).

The address of the Company’s registered office is at National Bank of Kuwait building, Block 8, Plot 4A/5A/6A, Jleeb Al-Shuwaikh, P. O. Box 4733 Safat 13048, Kuwait.

The financial statements were approved by the board of directors and authorised for issue on February 14, 2008.

2	ADOPTION OF NEW AND REVISED STANDARDS
	Standards and Interpretations effective in the current period
	In the current year, the Company has adopted IFRS 7 “Financial Instruments: Disclosures” which is effective for annual reporting periods beginning on or after January 1, 2007, and the consequential amendments to IAS 1 “Presentation of Financial Statements”. The impact of the adoption of IFRS 7 and the changes to IAS 1 has been to expand the disclosures provided in these financial statements regarding the Company’s financial instruments and management of capital (see note 20). Four Interpretations issued by the International Financial Reporting Interpretations Committee are effective for the current period. These are: IFRIC 7 Applying the Restatement Approach under IAS 29, Financial Reporting in Hyperinflationary Economies; IFRIC 8 Scope of IFRS 2; IFRIC 9 Reassessment of Embedded Derivatives; and IFRIC 10 Interim Financial Reporting and Impairment. The adoption of these Interpretations has not led to any changes in the Company’s accounting policies.
	Standards and Interpretations in issue not yet adopted At the date of authorisation of these financial statements, the following Standards and Interpretations were issued but not yet effective:
	· IAS 1(Revised) Presentation of Financial Statements	Effective for annual periods beginning on or after 1 January 2009
	· IAS 23 (Revised) Borrowing Costs	Effective for annual periods beginning on or after January 1, 2009
	· IFRS 8 Operating Segments	Effective for annual periods beginning on or after January 1, 2009
	· IFRIC 11 IFRS 2: Group and Treasury Share Transactions	Effective for annual periods beginning on or after March 1, 2007
	· IFRIC 12 Service Concession Arrangements	Effective for annual periods beginning on or after January 1, 2008
	· IFRIC 13 Customer Loyalty Programmes	Effective for annual periods beginning on or after July 1, 2008
	· IFRIC 14 IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction	Effective for annual periods beginning on or after January 1, 2008

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Standards and Interpretations in issue not yet adopted

The revisions to IAS 23 will have no impact on the Company’s accounting policies. The principal change to the Standard, which was to eliminate the previously available option to expense all borrowing costs when incurred, will have no impact on the financial statements because it has always been the Company’s accounting policy to capitalise borrowing costs incurred on qualifying assets.

The directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material financial impact on the financial statements of the Company in the period of initial application

3	SIGNIFICANT ACCOUNTING POLICIES

	Statement of compliance
	The financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by International Accounting Standards Board (“IASB”).

	Basis of preparation
	The financial statements have been prepared on the historical cost basis except for the revaluation of certain financial instruments. The principal accounting policies are set out below.

	Financial instruments
	Financial assets and financial liabilities are recognized on the Company’s balance sheet when the Company becomes a party to the contractual provisions of the instrument.

	Cash and bank balances
	Cash and bank balances consist of cash on hand, bank current accounts and short term deposits with an original maturity of three months or less when purchased.

	Trade receivables
	Trade receivables are measured at initial recognition at fair value, and are subsequently measured at amortised cost using the effective interest rate method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial. Appropriate allowances for estimated irrecoverable amounts are recognised in the statement of income when there is objective evidence that the asset is impaired. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than 60 days overdue) are considered indicators that the trade receivable is impaired. The allowance recognised is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition.

	Effective interest rate method
	The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset, or, where appropriate, a shorter period.

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	Trade payables
	Trade payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method.

	Inventories
	Raw materials and finished goods are stated at the lower of weighted average cost or net realisable value. The cost of finished products includes direct materials, direct labour and fixed and variable manufacturing overhead and other costs incurred in bringing inventories to their present location and condition. Spare parts are not intended for resale and are valued at the lower of purchased cost or net realisable value using the weighted average method after making allowance for any obsolete and slow moving and obsolete items. Purchase cost includes the purchase price, import duties, transportation, handling and other direct costs. Net realisable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale.

	Property, plant and equipment
	Property, plant and equipment are carried at cost less accumulated depreciation and any accumulated impairment losses. Depreciation is calculated based on the estimated useful lives of the applicable assets on a straight-line basis commencing when the assets are ready for their intended use, at the following annual rates: Buildings and roads 5% Plant and equipment 5% - 20% Office furniture and equipment 20% The estimated useful lives, residual values and depreciation methods are reviewed at each year end, with the effect of any changes in estimate accounted for on prospective basis. Expenditure incurred to replace a component of an item of property, plant and equipment that is accounted for separately, is capitalised with the carrying amount of the property, plant and equipment being replaced. Other subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the item of fixed asset. All other expenditure is recognised in the statement of income when the expense is incurred. Maintenance and repairs, replacements and improvements of minor importance are expensed as incurred. Significant improvements and replacements of assets are capitalised. Properties in the course of construction for production, rental or administrative purposes, or for purposes not yet determined, are carried at cost, less any recognised impairment loss. Cost includes professional fees and, for qualifying assets, borrowing costs capitalised in accordance with the Company’s accounting policy (see below). Depreciation of these assets, on the same basis as other property, plant and equipment, commences when the assets are ready for their intended use. The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the statement of income.

	Intangible assets
	Intangible assets consist of technology and licences for the manufacture of ethylene, EG and PE. Intangibles are carried at cost less accumulated amortisation and any accumulated impairment losses. The intangible assets are amortised from the date of commencement of commercial production on a straight-line basis over twenty years, except for the olefin technology, which is amortised over five years. The estimated useful life and amortisation method are reviewed at the end of each annual reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.

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	Retirement benefit cost
	The Company accounts for retirement benefits under IAS 19 “Employee Benefits” and, is payable to employees on completion of employment in accordance with the Kuwaiti Labour Law. The cost of providing retirement benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at each balance sheet date. Actuarial gains and losses that exceed 10 per cent of the present value of the Company’s defined benefit obligation at the end of the prior year are amortised over the expected average remaining working lives of the employees. Past service cost is recognised immediately to the extent that the benefits are already vested, and otherwise is amortised on a straight-line basis over the average period until the benefits become vested. The liability is not externally funded. The retirement benefit obligation recognised in the balance sheet represents the present value of the defined benefit obligation as adjusted for unrecognised actuarial gains and losses and unrecognised past service costs.

	Revenue recognition
	Sales net of applicable discounts, are recognised when the revenue is realized or realizable, has been earned, and collectibility is reasonably assured. Revenue is recognised as risk and title transfer to the customer, which usually occurs at the time shipment is made. PE production is sold with freight paid by the Company and EG production is sold FOB (“free on board”) shipping point. Title to the product passes when the product is delivered to the freight carrier. The Company’s terms of sale are included in its contracts of sale, order confirmation documents, and invoices. Freight costs are recorded as “Cost of Sales”. Interest income is accrued on a time basis with reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount.

	Borrowing costs
	Borrowing costs directly attributable to the construction of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use are added to the cost of those assets by applying a capitalisation rate on the expenditure on such assets, until such time as the assets are substantially ready for their intended use. The capitalisation rate used by the Company is the weighted average of the borrowing costs applicable to the outstanding borrowings during the period. The remaining borrowing costs are recognised in the statement of income in the period in which they are incurred.

	Translation of foreign currencies
	The functional currency of the Company is United States Dollars (“US$”) and accordingly, the financial statements are presented in US$, rounded to the nearest thousand. The functional currency is different from the currency of the country in which the Company is domiciled since the majority of the Company’s revenue and expenses, and all of the Company’s borrowings, are denominated in US$. Transactions denominated in foreign currencies are translated into US$ at rates of exchange prevailing at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are retranslated into US$ at rates of exchange prevailing at the balance sheet date. The resultant exchange differences are recorded in the statement of income

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	Term debt
	Interest bearing debts are measured initially at fair value and are subsequently measured at amortised cost, using the effective interest rate method. Any difference between the proceeds (net of transaction costs) and the settlement or redemption of borrowings is recognised over the term of borrowings in accordance with the Company’s accounting policy for borrowing costs (see above).

	Impairment of tangible and intangible assets
	At each balance sheet date, the Company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in the statement of income. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in the statement of income.

	Income Taxes
	The Company, a closed shareholding company incorporated in the State of Kuwait, is not subject to income taxes.

	Derivatives
	Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at each balance sheet date. The resulting gain or loss is recognised in the statement of income immediately. Foreign exchange forward contracts are treated as trading instruments and are stated at fair market value with gains or losses included in the statement of income in foreign exchange gain / (loss) in the period they occur.

	Contribution to Kuwait Foundation for the Advancement of Sciences
	The Company is legally required to contribute to the Kuwait Foundation for the Advancement of Sciences (“KFAS”). The Company’s contributions to KFAS are recognized as an expense in the period during which the Company’s contribution is legally required.

4	CRITICAL JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
	In the application of the Company’s accounting policies, which are described in note 3, management is required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.
	Critical judgements in applying accounting policies The following are the critical judgements, apart from those involving estimations (see below), that management has made in the process of applying the entity’s accounting policies and that have the most significant effect on the amounts recognised in financial statements. Borrowing costs As described in notes 3 and 8, the Company’s management has considered it appropriate to capitalise borrowing costs directly attributable to the qualifying assets under construction. Impairment of loans and receivables The Company’s management reviews periodically items classified as loans and receivables to assess whether an allowance for impairment should be recorded in the statement of income. Management estimates the amount and timing of future cash flows when determining the level of allowance required. Such estimates are necessarily based on assumptions about several factors involving varying degrees of judgement and uncertainty. Retirement Benefit Obligation The cost of providing retirement benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at each balance sheet date. Actuarial valuations are based on a number of assumptions and require significant judgements made by the management. The management believes that the assumptions used in determining the retirement benefit obligation using actuarial valuation method are reasonable. Key sources of estimation uncertainty The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date are discussed below: Impairment of tangible and intangible assets and useful lives The Company’s management tests annually whether tangible and intangible assets have suffered impairment in accordance with accounting policies stated in note 3, the recoverable amount of an asset is determined based on value-in-use method. This method uses estimated cash flow projections over the estimated useful life of the asset discounted using market rates. During the year the Company reviewed the estimated useful life over which its tangible assets are depreciated and intangible assets are amortised. The Company’s management is satisfied that the estimates of useful life are appropriate. The depreciation and amortisation charged for the year will change significantly if actual life is different than the estimated useful life.

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5	CASH AND BANK BALANCES
		As at December 31,
			2007 US$’000	2006 US$’000

	Cash and bank balances		19,853	28,822
	Time deposits		396,853	122,643
			416,706	151,465
	All bank accounts of the Company are assigned as security for the Company’s obligations under the term debt facility agreement (see note 15). The effective interest rate on time deposits as at December 31, 2007 was 5.21% (2006: 4.93%) per annum.

6	TRADE RECEIVABLES, NET
		As at December 31,
			2007 US$’000		2006 US$’000

	Trade receivables		145,560		122,875
	Less: allowance for doubtful debts		(102	)	(102	)
			145,458		122,733
	The average credit period on sales is 60 days. The average age of these receivables is 26 days (2006: 22 days).The Company has provided fully for all receivables over 120 days because historical experience is that, such receivables are past due beyond 120 days are generally not recoverable. Trade receivables between 60 days and 120 days are provided for based on estimated irrecoverable amounts from the sale of goods, determined by reference to past default experience. As at December 31, 2007, trade receivables of US$ 143.3 million (2006: US$ 121.7 million) were fully performing. Included in the Company’s trade receivables balance are debtors with a carrying amount of US$ 2.28 million (2006: US$ 1.46 million) which are past due at the reporting date for which the Company has not provided as there has not been a significant change in credit quality and the amounts are still considered recoverable. The Company may hold collateral over some of these balances. Ageing of past due but not impaired
		As at December 31,
			2007 US$’000		2006 US$’000
	60 – 90 days		1,617		-
	90 – 120 days		665		1,460
	Total		2,282		1,460

	There was no movement in the allowance for doubtful debts during 2007 and 2006.
		In determining the recoverability of a trade receivable, the Company considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. The concentration of credit risk is limited due to the customer base being large and unrelated. Accordingly, the management believe that there is no further credit provision required in excess of the allowance for doubtful debts.

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7	INVENTORIES
		As at December 31,
			2007 US$’000		2006 US$’000
	Raw materials		16,292		20,233
	Finished goods		13,725		9,820
	Spare parts		13,299		26,168
			43,316		56,221
	Allowance for obsolete and slow moving spare parts		(300	)	(14,141	)
			43,016		42,080
Movement in the allowance for obsolete and slow moving spare parts:
		For the years ended December 31,
			2007 US$’000		2006 US$’000
	Balance at beginning of the year		14,141		500
	Increase in allowance recognized in the statement of income		300		13,641
	Amounts written off during the year		(14,141	)	-
			300		14,141
	During the year, the Company recognised inventories of US$ 196,045 thousand (2006:US$ 156,902 thousand) as expenses in the statement of income and is included in cost of sales. Amounts written off during the year relate to obsolete spare parts which were fully provided for in 2006.

8	PROPERTY, PLANT AND EQUIPMENT
		Buildings and roads			Plant and equipment			Office furniture and equipment			Assets under construction			Total
		US$’000			US$’000			US$’000			US$’000			US$’000
	Cost
	As at January 1, 2006		35,535			1,559,823			88,984			141,841			1,826,183
	Additions		-			53,949			-			356,097			410,046
	Disposals		-			(6,786	)		-			-			(6,786	)
	Transfers		2,530			59,611			6,861			(69,002	)		-
	As at January 1, 2007		38,065			1,666,597			95,845			428,936			2,229,443
	Additions		-			-			-			347,155			347,155
	Disposals		(5,865	)		(28,055	)		(1,156	)		-			(35,076	)
	Transfers		29,056			31,121			(24,816	)		(35,361	)		-
	As at December 31, 2007		61,256			1,669,663			69,873			740,730			2,541,522
	Accumulated depreciation
	As at January 1, 2006		17,136			641,156			65,945			-			724,237
	Charge for the year		1,657			88,678			4,143			-			94,478
	Disposals		-			(3,054	)		-			-			(3,054	)
	As at January 1, 2007		18,793			726,780			70,088			-			815,661
	Charge for the year		1,757			96,811			1,680			-			100,248
	Disposals		(5,865	)		(28,055	)		(1,156	)		-			(35,076	)
	Transfers		15,588			-			(15,588	)		-			-
	As at December 31, 2007		30,273			795,536			55,024			-			880,833
	Carrying amount
	As at December 31, 2007		30,983			874,127			14,849			740,730			1,660,689
	As at December 31, 2006		19,272			939,817			25,757			428,936			1,413,782

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Assets under construction mainly consist of capital construction costs incurred on new utilities and infrastructure facilities and EQUATE expansion project under the Olefins II projects (see note 14). The related commitments are reported in note 21.

In 2007, borrowing costs amounting to US$ 13 million (2006: US$ 17 million) on qualifying assets was added to the cost of those assets.

The Company’s property, plant and equipment have been assigned as security for the term debt facility granted to the Company (see note 15).

9	INTANGIBLE ASSETS
		As at December 31,
			2007 US$’000	2006 US$’000
	Cost
	Technology and licence contributed by UCC		220,000	220,000
	Licence fee paid to Parsons E&C Europe Ltd		216	72
	Licence fees paid to UCC		11,706	11,706
	Olefin technology		195	195
	As at December 31		232,117	231,973

	For the years ended December 31,
		2007 US$’000	2006 US$’000
Accumulated amortisation
As at 1 January		99,466	88,466
Charge for the year		11,000	11,000
As at December 31		110,466	99,466
Carrying amount		121,651	132,507
In 1996, UCC contributed the technology and licences concerned in consideration for US$ 220 million. During 2004 and 2005, the Company paid licence fees of US$ 11.25 million and US$ 0.528 million respectively to UCC for PE expansion.

10	ACCRUALS AND OTHER LIABILITIES
		As at December 31,
			2007 US$’000	2006 US$’000
	Sales commission		674	849
	Ocean freight		3,004	3,642
	Staff incentive		8,882	6,481
	Staff saving schemes		2,725	-
	Staff leave and other employee benefits		7,314	3,053
	Interest on term debt		336	884
	Accrual for KFAS		12,413	5,103
	Accrual for new utilities and infrastructure facilities (see note 8)		37,788	32,967
	Other capital project accrual		3,034	8,848
	Feed gas supply		22,187	2,687
	Others		6,077	3,770
			104,434	68,284

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11	DEFERRED INCOME
	Deferred income represents reservation right fees accrued to the extent of construction cost incurred by the Company during 2006 and 2007. Such fees are receivable from the Olefins II project entities (see note 14).

12	SHARE CAPITAL
		The share capital of the Company comprises 2,160 million authorised, issued and fully paid up shares of Fils 100 each (December 31, 2006: 2,160 million authorised, issued and fully paid up shares of Fils 100 each) (1000 Fils equals 1 Kuwaiti Dinar).
		The ownership percentages of the shareholders at December 31, 2007 are as follows:
		Shareholder’s name	% of ownership
		Union Carbide Corporation (“UCC”)	42.5%
		Petrochemical Industries Company (“PIC”)	42.5%
		Boubyan Petrochemical Company (“BPC”)	9%
		Al Qurain Petrochemical Industries Company (“QPIC”)	6%
		On December 20, 2007, UCC contributed its 42.5% ownership interest in EQUATE to Union Carbide Investment B.V, a limited liability company incorporated in Netherlands and owned by Dow Europe Holding B.V. However, the regulatory procedures in Kuwait relating to the contribution of ownership were not completed before December 31, 2007. Therefore, Union Carbide Corporation will remain as a shareholder as at the balance sheet date from Kuwaiti regulatory aspects.

13	PROPOSED DIVIDEND
	The directors proposed a cash dividend of US$ 692 million for the year ended December 31, 2007 (2006: US$ 510 million) which is subject to the approval of shareholders at the annual General Assembly. This dividend has not been recorded in the accompanying financial statements, and will be recorded only once it has been approved by the shareholders.

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14	RELATED PARTY TRANSACTIONS
	In the normal course of business the Company enters into transactions with its shareholders PIC, UCC, BPC, QPIC and UCC’s parent company DOW and its affiliates. EQUATE Marketing Company EC, Bahrain (“EMC”), which is owned by PIC and UCC, is the exclusive sales agent in certain territories for the marketing of PE produced by the Company. On February 1, 2005, the Company signed a distribution agreement with MEGlobal International FZE Dubai (“MEG International FZE”) as distributor for EG produced by the Company. MEG International FZE is 50:50 joint ventures of PIC and DOW. During 2004, DOW and PIC initiated a number of joint venture petrochemical projects (“Olefins II projects”) in Kuwait to manufacture polyethylene, ethylene glycol and styrene monomer. The Olefins II projects consist of the Equate expansion project, and the incorporation and development of The Kuwait Olefins Company (“TKOC”), The Kuwait Styrene Company (“TKSC”), and Kuwait Aromatics Company (“KARO”). TKOC is a joint venture of DOW Europe Holding B.V (“DEH”) (42.5%), PIC (42.5%), BPC (9%) and QPIC (6%). TKSC is joint venture of DEH (42.5%) and KARO (57.5%). KARO is owned by PIC (40%), KNPC (40%) and QPIC (20%). The Olefins II projects are expected to be operational by the third quarter of 2008. On December 2, 2004, the Company signed a Materials and Utility Supply Agreement (“MUSA”) with TKOC, TKSC, KARO and PIC. Under the terms of the MUSA the Company will receive a reservation right fee from the above entities that will equal the total capital construction costs that would be incurred by the Company on the new utilities and infrastructure facilities under the Olefins II projects (see note 11). During 2006, services agreements were signed between DOW, PIC and the Company with TKOC, TKSC, KARO and PIC for the provision of various services to the Olefins II projects. An agreement to amend the MUSA and Service Agreements (“primary agreements”) was signed between the parties to the primary agreements on February 8, 2006 releasing KARO from its obligations and liabilities under the primary agreements and appointing Kuwait Paraxylene Production Company K.S.C. (“KPPC”) in place of KARO to assume and perform all obligations of KARO as if KPPC were and had been a party to the primary agreements. KPPC is a 100% owned subsidiary of KARO. On May 31, 2006, the Company signed term loan agreements with TKOC and TKSC, under which the Company will provide a US$ 1.5 billion term loan to TKOC and US$ 497 million term loan to TKSC respectively. The term loans are repayable over a period of 11 years in biannual instalments starting from December 15, 2009 and carry annual interest rates ranging from 0.625% to 0.825% over LIBOR. All transactions with related parties are carried out on a negotiated contract basis. The following is a description of significant related party agreements and transactions: a) Supply by UCC of technology and licences relating to manufacture of polyethylene and ethylene glycol; b) Supply by PIC to the Company of certain minimum quantities of feed gas and fuel gas on a priority basis; c) Supply by UCC, DOW and UNIVATION of certain catalysts to the Company; d) Secondment of certain staff to the Company by UCC; e) Supply by the Company of certain materials and services required by PIC to operate and maintain polypropylene plant; f) Provision of various services by the Company to TKOC, TKSC, KARO and PIC under Olefins II projects.

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Details of significant related party transactions are disclosed below:
	For the years ended December 31,
		2007 US$’000		2006 US$’000		2005 US$’000
a) Revenues
Polypropylene plant management fees from PIC		1,000		1,000		1,000
Sales of EG to MEG International FZE		533,773		391,514		329,283
Interest income on short-term loan to TKOC		-		-		872
Interest income on long-term loans to TKOC and TKSC		63,973		23,950		-

b) Purchases and expenses
Feed gas and fuel gas purchased from PIC		143,981		103,666		73,150
Catalyst purchased from DOW		1,857		9,637		2,281
Catalyst purchased from UNIVATION		2,441		4,865		10,038
Operating cost reimbursed by PIC for running of polypropylene plant		(26,890	)	(24,271	)	(22,732	)
Expenses reimbursed by PIC and DOW for Olefins II projects		-		-		(6,535	)
Operating costs reimbursed to EMC		2,607		2,223		2,512
Staff secondment costs reimbursed to UCC		3,360		3,351		3,089

c) Key management compensation
Salaries and other short term benefits		2,818		2,321		2,253
Terminal benefits		48		47		112

	As at December 31,
		2007 US$’000	2006 US$’000
d) Due from related parties
Due from PIC		9,154	10,221
Due from DOW		55	133
Due from TKOC		36,880	24,402
Due from TKSC		13,411	25,659
Due from KARO		-	44,890
Due from KPPC		20,822	426
Due from KPC		191	-
Due from Kuwait National Petroleum Company (“KNPC”)		6,229	5,451
Due from MEG International FZE		72,942	26,521
Due from MEG Europe		-	11,349
		159,684	149,052

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	As at December 31,
		2007 US$’000	2006 US$’000
e) Long-term loans to related parties
TKOC		1,142,570	597,570
TKSC		327,200	122,200
		1,469,770	719,770

f) Due to related parties
Due to PIC	24,053	12,327
Due to DOW	-	700
Due to UCC	522	1,889
Due to EMC	-	172
Due to TKOC	-	2,409
Due to TKSC	-	661
Advance from MEG International FZE	3,846	-
	28,421	18,158
g) Deferred income
Reservation right fees accrued and receivable from TKOC, TKSC, KPPC and PIC (see note 11)	510,521	288,303

15	LONG-TERM DEBT

	As at December 31,
		2007 US$’000	2006 US$’000

Term debt		1,639,820	879,568
On May 19, 2006, the Company signed a US$ 2.5 billion term debt facility agreement with a consortium of banks which includes a term loan facility of US$ 2.2 billion and a revolving loan facility of US$ 300 million. The term loan is repayable over a period of 11 years in biannual instalments starting from December 15, 2009. The interest rate on this facility is LIBOR + 0.5%. The effective interest rate on the outstanding loan balance as at December 31, 2007 was 5.71% (2006: 5.82%) per annum. The facility is secured by a charge over the Company’s property, plant and equipment and bank balances. During 2007, the Company had obtained the revolving loan and was repaid during the year. The effective interest rate on the revolving loan was 5.82% (2006: 5.81%) per annum. As at December 31, 2007, the Company had available US$ 855 million (2006: US$ 1.6 billion) of undrawn committed borrowing facilities in respect of which all conditions precedent had been met.

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16	RETIREMENT BENEFIT OBLIGATION
	The most recent actuarial valuation of the present value of the defined benefit obligation was carried out at December 31, 2007. The present value of the defined benefit obligation, and the related current service cost and past service cost, were measured using the Projected Unit Credit Method. The principal assumptions used for the purposes of the actuarial valuations were as follows:

			For the year ended December 31, 2007
	Discount rate		6.5%
	Expected rate of increase in
	- Basic Salary & Variable allowances including overtime and incentives		8.7% p.a in 2008 gradually reducing to 5.5% p.a over 5 years and level thereafter
	- Average annual & quarterly incentives		13.2% p.a
	Long-term inflation		2.5% p.a
	Mid-term real GDP Growth		4% p.a

	Demographic assumptions
	Retirement age
	- Kuwaiti employees		Age 50
	- Non-Kuwaiti employees		Age 55

The total charge for the year is US$ 5.63 million which has been included in the statement of income as follows:

	For the year ended December 31, 2007 US$’000
Cost of sales		4,733
General, administrative and selling expenses		901
		5,634
Movements in the present value of the defined benefit obligation in the current year were as follows:
	For the year ended December 31, 2007 US$’000
Balance as at January 1		26,342
Current service cost		5,634
Benefits paid		(784	)
Balance as at December 31		31,192

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17	STAFF COSTS, DEPRECIATION AND AMORTIZATION
	Staff costs, depreciation and amortisation charges are included in the statement of income under the following categories:
		For the years ended December 31,
			2007 US$’000	2006 US$’000	2005 US$’000
	Staff costs:
	Cost of sales		78,056	63,125	54,148
	General, administrative and selling expenses		24,416	26,375	21,843
			102,472	89,500	75,991

Depreciation and amortisation:
Cost of sales	97,054	87,621	84,095
General, administrative and selling expenses	14,194	17,857	17,456
	111,248	105,478	101,551

18	FINANCE COSTS
		For the years ended December 31,
			2007 US$’000		2006 US$’000		2005 US$’000
	Interest on short-term and long-term debts		75,559		41,262		11,650
	Less: Amounts included in cost of qualifying assets (see note 8)		(13,283	)	(17,063	)	(1,178	)
			62,276		24,199		10,472

19	RECONCILIATION TO GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES
	The financial statements of the Company are prepared in accordance with IFRS which differ in certain respects from accounting principles generally accepted in the United States of America (“US GAAP”). The significant differences and their effect on the net income for the years ended December 31, and equity as at December 31, are set out below:

	For the years ended December 31,
		2007 US$’000		2006 US$’000	2005 US$’000
Net income in accordance with IFRS		769,322		566,314	588,059
Items increasing / (decreasing) reported net income:
Difference in retirement benefits related to IAS – 19 “Employee benefits”		(5,163	)	-	-
Reversal of amortisation of intangibles		11,000		11,000	11,000
Net income in accordance with US GAAP		775,159		577,314	599,059
The Company’s comprehensive income in accordance with US GAAP for the years ended December 31, 2007, 2006 and 2005 was $ 775,159, $ 577,314 and $ 599,059 respectively.

	As at December 31,
		2007 US$’000		2006 US$’000
Equity in accordance with IFRS:		1,698,468		1,439,146
Items increasing / (decreasing) reported equity:
Difference in retirement benefits related to IAS – 19 “Employee benefits”		(5,163	)	-
Elimination of intangible assets for UCC technology and licences		(220,000	)	(220,000	)
Reversal of accumulated amortisation of intangible assets of UCC technology and licences		110,271		99,271
Equity in accordance with US GAAP		1,583,576		1,318,417

In 1996, UCC contributed technology and licences valued at US$ 220 million to the Company in exchange for subordinated debt. In June 1999, the Company converted this subordinated debt, as well as other subordinated debt due to PIC and BPC, as well as accrued interest on such notes, to equity. Under US GAAP, the intangible assets were recognized at UCC’s historical cost, which was zero. These US GAAP adjustments eliminate the intangible assets and accumulated amortisation on the intangible assets, from the Company’s balance sheet, and eliminate amortisation expense on the intangible assets from the Company’s statement of income. Under US GAAP, the end of service indemnity liability is calculated based on the Kuwaiti Labour Law which differs from the calculation under IAS – 19. The difference under both methods is considered as a reconciling item in computing the net income as per US GAAP.
Under US GAAP, the Company’s contribution to KFAS, and directors’ fees are considered part of operating income, as follows:
	For the years ended December 31,
		2007 US$’000		2006 US$’000		2005 US$’000
Operating income in accordance with IFRS		766,743		566,802		597,557
Items increasing / (decreasing) reported operating income:
U.S. GAAP adjustments to operating income related to amortisation		11,000		11,000		11,000
Difference in retirement benefits related to IAS – 19 “Employee benefits”		(5,163	)	-		-
Contributions to KFAS		(7,270	)	(5,143	)	(5,336	)
Directors’ fees		(148	)	(136	)	(302	)
Operating income in accordance with US GAAP		765,162		572,523		602,919

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FINANCIAL INSTRUMENTS

Capital risk management

The Company manages its capital to ensure that it will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance.

The capital structure of the Company consists of debt, which includes the borrowings disclosed in note 15, cash and cash equivalents and equity, comprising issued capital as disclosed in note 12, and retained earnings.

Gearing ratio

The gearing ratio as at December 31, was as follows:

	As at December 31,
		2007 US$’000		2006 US$’000
Debt (i)		170,050		159,798
Cash and bank balances		(416,706	)	(151,465	)
Net debt		(246,656	)	8,333
Equity		1,698,468		1,439,146
Net debt to equity ratio		(15	)%	0.58	%

(i) debt is defined as long-term debt, as detailed in note 15, less long term loans to related parties.

Significant accounting policies

Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset and financial liability are disclosed in note 3 to the financial statements.

Categories of financial instruments

	As at December 31,
		2007 US$’000	2006 US$’000
Financial assets
Cash and bank balances		416,706	151,465
Trade receivables, net		145,458	122,773
Due from related parties		159,684	149,052
Long-term loan to related parties		1,469,770	719,770
		2,191,618	1,143,060
Financial liabilities
Trade payables		26,920	26,804
Due to related parties		28,421	18,158
Long-term debt		1,639,820	879,568
		1,695,161	924,530

Financial risk management objectives

The Company’s Corporate Treasury function provides services to the business, co-ordinates access to domestic and international financial markets, monitors and manages the financial risks relating to the operations of the Company through internal risk reports which analyse exposures by degree and magnitude of risks. These risks include market risk (including currency risk and fair value interest rate risk), credit risk, liquidity risk and cash flow interest rate risk.

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Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Company’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.

The Company’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates.

Foreign currency risk management

The Company undertakes certain transactions denominated in foreign currencies. Hence, exposures to exchange rate fluctuations arise. Exchange rate exposures are managed within approved policy parameters utilising forward foreign exchange contracts.

The Company’s exposure to balance sheet risk is insignificant since all significant assets and liabilities are denominated in US$.

The carrying amounts of the Company’s foreign currency denominated monetary assets and monetary liabilities at the reporting date are as follows:

	As at December 31,			As at December 31,
	Liabilities			Assets
		2007 US$’000	2006 US$’000		2007 US$’000	2006 US$’000
Euro		8,326	11,265		52,940	48,137
Kuwaiti Dinar		59,445	23,980		23,756	11,187
Other		-	-		2,509	1,969

Foreign currency sensitivity analysis

As at December 31, 2007, if the US$ had weakened/strengthened by 5% against the Euro with all other variables held constant, profit for the year would have been US$ 2.27 million (2006: US$ 1.87 million, 2005: US$ $ 1.05 million) lower/higher, mainly as a result of foreign exchange gains/losses on translation of Euro denominated trade receivables, due from/to related parties and trade payable.

Interest rate risk management

The Company is exposed to interest rate risk as it borrows funds at floating interest rates. The risk is managed by the Company by maintaining at floating rate borrowings.

Interest rate sensitivity analysis

As at December 31, 2007, if interest rates on US$ denominated borrowings had been 0.1% higher/lower with all other variables held constant, profit for the year would have been US$ 0.173 million (2006: US$ 0.073 million, 2005: US$ 0.203 million) lower/higher, mainly as a result of higher/lower interest expense on floating rate borrowings.

The Company’s exposures to interest rates on financial assets and financial liabilities are detailed in the liquidity risk management section of this note.

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Credit risk management Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company. The Company has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral, where appropriate, as a means of mitigating the risk of financial loss from defaults. The Company only transacts with entities that are rated the equivalent of investment grade and above. This information is supplied by independent rating agencies where available and, if not available, the Company uses other publicly available financial information and its own trading records to rate its major customers. The Company’s exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties. Credit exposure is controlled by counterparty limits that are reviewed and approved by the management annually. Trade receivables consist of a large number of customers, spread across diverse industries and geographical areas. Ongoing credit evaluation is performed on the financial condition of accounts receivable. The Company has significant credit exposure to counterparties. The credit risk on liquid funds is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies. Exposure to credit risk The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:

	As at December 31,
		2007 US$’000	2006 US$’000
Trade receivables, net		145,458	122,773
Due from related parties		159,684	149,052
Long-term loans to related parties		1,469,770	719,770
		1,774,912	991,595

The maximum exposure to credit risk for trade receivables at the reporting date by geographic region was:
	As at December 31,
		2007 US$’000	2006 US$’000
Domestic & Gulf Cooperation Council countries (GCC)		18,608	15,706
Asia		71,922	60,705
Europe		14,082	11,886
Other regions		40,846	34,476
		145,458	122,773

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The table below shows the credit limit and balance of 5 major counterparties at the balance sheet date:

		As at December 31, 2007				As at December 31, 2006
Counterparty	Location	Credit limit		Carrying amount		Credit limit		Carrying amount
		US$’ 000		US$’ 000		US$’ 000		US$’ 000
MEGlobal International FZE	Dubai		100,000		72,942		50,000		26,521
Bee Lian Plastic Industries	Malaysia		11,230		10,106		6,680		6,186
Continental Industries Group Inc	Turkey		10,000		8,217		-		-
Obegi Chemicals Sal	Lebanon		9,250		1,947		-		-
Kassas & Al-Kurdi Company	Syria		5,100		3,932		-		-

Liquidity risk management

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation.

Ultimate responsibility for liquidity risk management rests with the board of directors, which has built an appropriate liquidity risk management framework for the management of the Company’s short, medium and long-term funding and liquidity management requirements. The Company manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Included in note 15 is a listing of additional undrawn facilities that the Company has at its disposal to further reduce liquidity risk.

The table below analyses the Company’s non-derivative financial liabilities based on the remaining period at the balance sheet to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances as the impact of discounting is not significant.

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As at December 31, 2007	Less than 1 year		Between 1 and 2 years		Between 2 and 5 years		Over 5 years
	US$’ 000		US$’ 000		US$’ 000		US$’ 000
Trade payables		26,920		-		-		-
Due to related parties		28,421		-		-		-
Long-term debt		-		55,426		365,844		1,218,550

As at December 31, 2006	Less than 1 year		Between 1 and 2 years		Between 2 and 5 years		Over 5 years
	US$’ 000		US$’ 000		US$’ 000		US$’ 000
Trade payables		26,804		-		-		-
Due to related parties		18,158		-		-		-
Long-term debt		-		-		157,003		722,565

Fair value of financial instruments The fair value of financial assets and financial liabilities (excluding derivative instruments) is determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable current market transactions and dealer quotes for similar instruments. Set out below is a comparison by category of carrying amounts and fair values of all of the Company’s financial instruments that are carried in the financial statements:
	As at December 31, 2007				As at December 31, 2006
	Carrying amount		Fair value		Carrying amount		Fair value
	US$’ 000		US$’ 000		US$’ 000		US$’ 000
Financial assets
Cash and bank balances		416,706		416,706		151,465		151,465
Trade receivables, net		145,458		145,458		122,773		122,773
Due from related parties		159,684		159,684		149,052		149,052
Long-term loans to related parties		1,469,770		1,469,770		719,770		719,770

	As at December 31, 2007				As at December 31, 2006
	Carrying amount		Fair value		Carrying amount		Fair value
	US$’ 000		US$’ 000		US$’ 000		US$’ 000
Financial liabilities
Trade payables		26,920		26,920		26,804		26,804
Due to related parties		28,421		28,421		18,158		18,158
Long-term debt		1,639,820		1,639,820		879,568		879,568

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21	COMMITMENTS AND CONTINGENT LIABILITIES
	The Company has a fixed gas purchase commitment with KNPC of approximately US$ 361,000 per day until the agreement is cancelled in writing by both parties.
	The Company had the following commitments and contingent liabilities outstanding as at December 31:
		2007 US$’000	2006 US$’000
	Letters of credit and letters of guarantee	4,176	3,677
	Purchase of capital assets	110,968	319,679
	Loan commitments to related parties	527,230	1,277,230

COMPARATIVE FIGURES

Reclassification have been made to present the long term incentives separately in the balance sheet. In addition, certain immaterial comparative figures have been reclassified to conform to the current year’s presentation.

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Union Carbide Corporation and Subsidiaries

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, on the 19th day of February 2010.

	UNION CARBIDE CORPORATION
	By:	/s/ RONALD C. EDMONDS
		Ronald C. Edmonds, Vice President and Controller The Dow Chemical Company Authorized Representative of Union Carbide Corporation

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed on the 19th day of February 2010 by the following persons in the capacities indicated:

/s/ PATRICK E. GOTTSCHALK		/s/ GLENN J. MORAN
Patrick E. Gottschalk, Director		Glenn J. Moran, Director
President and Chief Executive Officer


/s/ EUDIO GIL		/s/ DUNCAN A. STUART
Eudio Gil, Vice President, Treasurer and		Duncan A. Stuart, Director
Chief Financial Officer


/s/ RONALD C. EDMONDS
Ronald C. Edmonds, Vice President and Controller The Dow Chemical Company Authorized Representative of Union Carbide Corporation

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Union Carbide Corporation and Subsidiaries

Supplemental Information to be Furnished With Reports Filed Pursuant to Section 15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to Section 12 of the Act

The Corporation, which is a wholly owned subsidiary of Dow, does not send an annual report to security holders or proxy material with respect to any annual or other meeting of security holders, to Dow or any other security holders.

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Union Carbide Corporation and Subsidiaries

Exhibit Index

EXHIBIT NO.

DESCRIPTION

2.1	Agreement and Plan of Merger dated as of August 3, 1999 among Union Carbide Corporation, The Dow Chemical Company and Transition Sub Inc. (see Exhibit 2 of the Corporation’s Current Report on Form 8-K dated August 3, 1999).
2.2	Agreement for the Sale & Purchase of Shares, dated as of August 17, 2009, among Union Carbide Corporation, UCMG L.L.C. and Petroliam Nasional Berhad (see Exhibit 2.1 of the Corporation’s Current Report on Form 8-K dated September 30, 2009).
3.1	Restated Certificate of Incorporation of Union Carbide Corporation under Section 807 of the Business Corporation Law, as filed on May 13, 2008 (see Exhibit 3.1.4 of the Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2008).
3.2	Amended and Restated Bylaws of Union Carbide Corporation, amended as of April 22, 2004 (see Exhibit 3.2 of the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004).
4.1	Indenture dated as of June 1, 1995, between the Corporation and the Chase Manhattan Bank (formerly Chemical Bank), Trustee (see Exhibit 4.1.2 to the Corporation’s Form S-3 effective October 13, 1995, Reg. No. 33-60705).
4.2	The Corporation will furnish to the Commission upon request any other debt instrument referred to in Item 601(b)(4)(iii)(A) of Regulation S-K.
10.1	Amended and Restated Service Agreement, effective as of July 1, 2002, between the Corporation and The Dow Chemical Company (see Exhibit 10.23 of the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2002).
10.1.1	Service Addendum No. 2 to the Service Agreement, effective as of August 1, 2001, between the Corporation and The Dow Chemical Company (see Exhibit 10.23.2 of the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2002).
10.1.2	Restated Service Addendum No. 1 to the Service Agreement, effective as of February 6, 2001, between the Corporation and The Dow Chemical Company (see Exhibit 10.23.3 of the Corporation’s 2002 Form 10-K).
10.1.3	Service Addendum No. 3 to the Amended and Restated Service Agreement, effective as of January 1, 2005, between the Corporation and The Dow Chemical Company (see Exhibit 10.1.3 of the Corporation’s 2004 Form 10-K).
10.2	Second Amended and Restated Sales Promotion Agreement, effective January 1, 2004, between the Corporation and The Dow Chemical Company (see Exhibit 10.24 of the Corporation’s 2003 Form 10-K).
10.3	Third Amended and Restated Agreement (to Provide Materials and Services), dated as of March 1, 2008, between the Corporation and Dow Hydrocarbons and Resources LLC (see Exhibit 10.3 of the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008).
10.4	Amended and Restated Tax Sharing Agreement, effective as of February 7, 2001, between the Corporation and The Dow Chemical Company (see Exhibit 10.27 of the Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003).
10.5	Amended and Restated Revolving Credit Agreement dated as of May 28, 2004, among the Corporation, The Dow Chemical Company and certain Subsidiary Guarantors.
10.5.1	First Amendment dated October 29, 2004 to the Amended and Restated Revolving Credit Agreement, dated as of May 28, 2004, among the Corporation, The Dow Chemical Company and certain Subsidiary Guarantors (see Exhibit 10.5.1 of the Corporation’s 2004 Form 10-K).
10.5.2	Second Amendment to the Amended and Restated Revolving Credit Agreement, effective as of December 30, 2004, among the Corporation, The Dow Chemical Company and certain Subsidiary Guarantors (see Exhibit 10.5.2 of the Corporation’s 2004 Form 10-K).

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10.5.3	Third Amendment to the Amended and Restated Revolving Credit Agreement, dated as of September 30, 2005, among the Corporation, The Dow Chemical Company and certain Subsidiary Guarantors (see Exhibit 10.5.3 of the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005).
10.5.4	Fourth Amendment to the Amended and Restated Revolving Credit Agreement, dated as of September 30, 2006, among the Corporation, The Dow Chemical Company and certain Subsidiary Guarantors (see Exhibit 10.5.4 of the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006).
10.5.5	Fifth Amendment to the Amended and Restated Revolving Credit Agreement, dated as of September 30, 2007, among the Corporation, The Dow Chemical Company and certain Subsidiary Guarantors (see Exhibit 10.5.5 of the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007).
10.5.6	Sixth Amendment to the Amended and Restated Revolving Credit Agreement, effective as of September 30, 2008, among the Corporation, The Dow Chemical Company and certain Subsidiary Guarantors (see Exhibit 10.5.6 of the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008).
10.5.7	Seventh Amendment to the Amended and Restated Revolving Credit Agreement, effective as of September 30, 2009, among the Corporation, The Dow Chemical Company and certain Subsidiary Guarantors (see Exhibit 10.5.7 of the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009).
10.6	Amended and Restated Pledge and Security Agreement dated as of May 28, 2004, between the Corporation and The Dow Chemical Company (see Exhibit 10.29 of the Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004).
10.7	Second Amended and Restated Revolving Loan Agreement, effective as of November 1, 2005, between the Corporation and The Dow Chemical Company (see Exhibit 10.7 of the Corporation’s 2005 Annual Report on Form 10-K).
10.7.1	First Amendment to Second Amended and Restated Revolving Loan Agreement, effective as of December 31, 2007, between the Corporation and The Dow Chemical Company (see Exhibit 10.7.1 of the Corporation’s 2007 Annual Report on Form 10-K).
10.7.2	Second Amendment to Second Amended and Restated Revolving Loan Agreement, effective as of August 1, 2009, between the Corporation and The Dow Chemical Company (see Exhibit 10.7.2 of the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009).
10.8	Purchase and Sale Agreement dated as of September 30, 2005, between Catalysts, Adsorbents and Process Systems, Inc. and Honeywell Specialty Materials LLC (see Exhibit 10.8 of the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005).
10.9	Contribution Agreement dated as of December 21, 2007, among the Corporation, Dow International Holdings Company and The Dow Chemical Company (see Exhibit 10.9 of the Corporation’s 2007 Annual Report on Form 10-K).
21	Omitted pursuant to General Instruction I of Form 10-K.
23	Analysis, Research & Planning Corporation’s Consent.
31.1	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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Union Carbide Corporation and Subsidiaries

Exhibit Index

Wherever an exhibit listed above refers to another exhibit or document (e.g., "see Exhibit 6 of . . ."), that exhibit or document is incorporated herein by such reference.

A copy of any exhibit listed above may be obtained on written request to the Secretary's Office, Union Carbide Corporation, 1254 Enclave Parkway, Houston, Texas 77077

Attached files

UNION CARBIDE CORP /NEW/ Reports

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