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EX-23 - UNION CARBIDE CORP /NEW/ucc1q11ex23.htm
EX-31.2 - UNION CARBIDE CORP /NEW/ucc1q11ex31_2.htm
EX-31.1 - UNION CARBIDE CORP /NEW/ucc1q11ex31_1.htm
EX-32.2 - UNION CARBIDE CORP /NEW/ucc1q11ex32_2.htm
EX-32.1 - UNION CARBIDE CORP /NEW/ucc1q11ex32_1.htm
EX-10.1.4 - UNION CARBIDE CORP /NEW/ucc1q11ex101_4.htm
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended MARCH 31, 2011
 
Commission File Number: 1-1463
 
UNION CARBIDE CORPORATION
(Exact name of registrant as specified in its charter)
 
New York
(State or other jurisdiction of
     incorporation or organization)
13-1421730
(I.R.S. Employer Identification No.)
 
1254 Enclave Parkway, Houston, Texas  77077
(Address of principal executive offices)          (Zip Code)
 
Registrant's telephone number, including area code:  281-966-2727
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.       þ Yes    o No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).                                                                                                                                                                                                                                o Yes    o No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer o
Accelerated filer o
Non-accelerated filer   þ
Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
       o Yes    þ No
   
At March 31, 2011, 1,000 shares of common stock were outstanding, all of which were held by the registrant’s parent, The Dow Chemical Company.
 
The registrant meets the conditions set forth in General Instructions H(1)(a) and (b) for Form 10-Q and is therefore filing this form with a reduced disclosure format.

 
 

 

Union Carbide Corporation




 
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Union Carbide Corporation and Subsidiaries
             
   
Three Months Ended
   
March 31,
   
March 31,
 
In millions     (Unaudited)
 
2011
   
2010
 
Net trade sales
  $ 45     $ 48  
Net sales to related companies
    1,566       1,556  
Total Net Sales
    1,611       1,604  
Cost of sales
    1,429       1,563  
Research and development expenses
    10       11  
Selling, general and administrative expenses
    2       3  
Restructuring charges
    -       5  
Equity in earnings of nonconsolidated affiliates
    17       9  
Sundry income (expense) - net
    (30 )     6  
Interest income
    11       18  
Interest expense and amortization of debt discount
    9       10  
Income before Income Taxes
    159       45  
Provision (Credit) for income taxes
    53       (17 )
Net Income Attributable to Union Carbide Corporation
  $ 106     $ 62  
                 
                 
                 
Depreciation
  $ 62     $ 63  
Capital Expenditures
  $ 28     $ 18  
See Notes to the Consolidated Financial Statements.
               

 
Union Carbide Corporation and Subsidiaries
             
   
March 31,
   
Dec. 31,
 
In millions     (Unaudited)
 
2011
   
2010
 
Assets
Current Assets
           
Cash and cash equivalents
  $ 24     $ 22  
Accounts receivable:
               
     Trade (net of allowance for doubtful receivables - 2011: $1; 2010: $1)
    22       27  
     Related companies
    432       403  
     Other
    144       159  
Notes receivable from related companies
    4,267       4,335  
Inventories
    248       194  
Other current assets and deferred income taxes
    87       87  
Total current assets
    5,224       5,227  
Investments
               
Investments in related companies
    972       972  
Investments in nonconsolidated affiliates
    131       131  
Other investments
    8       10  
Noncurrent receivables
    46       46  
Noncurrent receivables from related companies
    125       125  
Total investments
    1,282       1,284  
Property
               
Property
    7,098       7,080  
Less accumulated depreciation
    5,697       5,640  
Net property
    1,401       1,440  
Other Assets
               
Intangible assets (net of accumulated amortization 2011: $141; 2010: $140)
    7       7  
Deferred income tax assets - noncurrent
    596       579  
Asbestos-related insurance receivables - noncurrent
    217       220  
Deferred charges and other assets
    54       67  
Total other assets
    874       873  
Total Assets
  $ 8,781     $ 8,824  
Liabilities and Equity
Current Liabilities
               
Notes payable - related companies
  $ 3     $ 3  
Long-term debt due within one year
    37       -  
Accounts payable:
               
     Trade
    211       267  
     Related companies
    619       527  
     Other
    26       30  
Income taxes payable
    209       140  
Asbestos-related liabilities - current
    78       78  
Accrued and other current liabilities
    171       185  
Total current liabilities
    1,354       1,230  
Long-Term Debt
    470       571  
Other Noncurrent Liabilities
               
Pension and other postretirement benefits - noncurrent
    884       894  
Asbestos-related liabilities - noncurrent
    655       663  
Other noncurrent obligations
    194       188  
Total other noncurrent liabilities
    1,733       1,745  
Stockholder's Equity
               
Common stock (authorized and issued: 1,000 shares of $0.01 par value each)
    -       -  
Additional paid-in capital
    312       312  
Retained earnings
    5,921       5,990  
Accumulated other comprehensive loss
    (1,011 )     (1,026 )
Union Carbide Corporation's stockholder's equity
    5,222       5,276  
Noncontrolling interests
    2       2  
Total equity
    5,224       5,278  
Total Liabilities and Equity
  $ 8,781     $ 8,824  
See Notes to the Consolidated Financial Statements.
               

 
Union Carbide Corporation and Subsidiaries
   
Three Months Ended
   
March 31,
   
March 31,
 
In millions     (Unaudited)
 
2011
   
2010
 
Operating Activities
           
Net Income
  $ 106     $ 62  
Adjustments to reconcile net income to net cash provided by operating activities:
         
          Depreciation and amortization
    68       69  
          Provision (Credit) for deferred income tax
    (21 )     14  
          Earnings of nonconsolidated affiliates less than dividends received
    -       (1 )
          Restructuring charges
    -       5  
          Net loss on early extinguishment of debt
    6       -  
Changes in assets and liabilities:
               
          Accounts and notes receivable
    3       (16 )
          Related company receivables
    39       (179 )
          Inventories
    (54 )     12  
          Accounts payable
    (45 )     13  
          Related company payables
    93       188  
          Other assets and liabilities
    79       14  
Cash provided by operating activities
    274       181  
Investing Activities
               
Capital expenditures
    (28 )     (18 )
Change in noncurrent receivable from related company
    -       (19 )
Purchases of investments
    (5 )     (8 )
Proceeds from sales of investments
    5       8  
Cash used in investing activities
    (28 )     (37 )
Financing Activities
               
Dividends paid to stockholder
    (175 )     (150 )
Payments on long-term debt
    (69 )     -  
Cash used in financing activities
    (244 )     (150 )
Summary
               
Increase (Decrease) in cash and cash equivalents
    2       (6 )
Cash and cash equivalents at beginning of year
    22       22  
Cash and cash equivalents at end of period
  $ 24     $ 16  
See Notes to the Consolidated Financial Statements.
               

 
Union Carbide Corporation and Subsidiaries
   
Three Months Ended
   
March 31,
   
March 31,
 
In millions     (Unaudited)
 
2011
   
2010
 
Common Stock
           
Balance at beginning of year and end of period
    -       -  
Additional Paid-in Capital
               
Balance at beginning of year and end of period
  $ 312     $ 312  
Retained Earnings
               
Balance at beginning of year
    5,990       6,131  
Net income
    106       62  
Dividend declared
    (175 )     (150 )
Balance at end of period
    5,921       6,043  
Accumulated Other Comprehensive Loss, Net of Tax
               
Cumulative Translation Adjustments at beginning of year and end of period
    (55 )     (61 )
Pension and Other Postretirement Benefit Plans at beginning of year
    (971 )     (950 )
Net gain
    15       11  
Pension and Other Postretirement Benefit Plans at end of period
    (956 )     (939 )
Accumulated Investment Gain at beginning of year and end of period
    -       1  
Total accumulated other comprehensive loss
    (1,011 )     (999 )
Union Carbide Corporation's Stockholder's Equity
    5,222       5,356  
Noncontrolling Interests
    2       2  
Total Equity
  $ 5,224     $ 5,358  
See Notes to the Consolidated Financial Statements.
               


 
Union Carbide Corporation and Subsidiaries
   
Three Months Ended
   
March 31,
   
March 31,
 
In millions     (Unaudited)
 
2011
   
2010
 
Net Income Attributable to Union Carbide Corporation
  $ 106     $ 62  
Other Comprehensive Income, Net of Tax
               
Pension and other postretirement benefit plans adjustment
  $ 15     $ 11  
Total other comprehensive income
    15       11  
Comprehensive Income Attributable to Union Carbide Corporation
  $ 121     $ 73  
See Notes to the Consolidated Financial Statements.
               

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

Note
 
Page
 
A
Consolidated Financial Statements
7
 
B
Recent Accounting Guidance
7
 
C
Inventories
8
 
D
Intangible Assets
8
 
E
Financial Instruments
9
 
F
Fair Value Measurements
10
 
G
Commitments and Contingent Liabilities
10
 
H
Notes Payable and Long-term Debt
14
 
I
Pension and Other Postretirement Benefits
15
 
J
Related Party Transactions
15


NOTE A     CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

These statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2010.


NOTE B       RECENT ACCOUNTING GUIDANCE

Recently Adopted Accounting Guidance
On January 1, 2011, the Corporation adopted Accounting Standard Update (“ASU”) 2009-13, “Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements – a consensus of the FASB Emerging Issues Task Force.” This ASU amended the criteria for when to evaluate individual delivered items in a multiple deliverable arrangement and how to allocate consideration received. The adoption of this guidance did not have a material impact on the Corporation’s consolidated financial statements.

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

The following table provides a breakdown of inventories:

Inventories
In millions
 
March 31,
2011
   
Dec. 31,
2010
 
Finished goods
  $ 110     $ 60  
Work in process
    4       9  
Raw materials
    49       41  
Supplies
    85       84  
Total inventories
  $ 248     $ 194  

The reserves reducing inventories from the first-in, first-out (“FIFO”) basis to the last-in, first-out (“LIFO”) basis amounted to $138 million at March 31, 2011 and $144 million at December 31, 2010.


NOTE D     INTANGIBLE ASSETS

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

Intangible Assets
 
At March 31, 2011
   
At December 31, 2010
 
In millions
 
Gross
Carrying Amount
   
Accumulated Amortization
   
Net
   
Gross
Carrying Amount
   
Accumulated Amortization
   
Net
 
Intangible assets with finite lives:
                                   
Licenses and intellectual property
  $ 33     $ (33 )     -     $ 33     $ (33 )     -  
Patents
    2       (2 )     -       2       (2 )     -  
Software
    113       (106 )   $ 7       112       (105 )   $ 7  
Total intangible assets
  $ 148     $ (141 )   $ 7     $ 147     $ (140 )   $ 7  

Amortization expense for software, which is included in “Cost of sales,” was $1 million in the first quarter of 2011 and $2 million in the first quarter of 2010. Amortization expense for intangible assets (not including software) was immaterial in the first quarters of 2011 and 2010. Total estimated amortization expense for 2011 and the five succeeding fiscal years is as follows:

Estimated Amortization Expense
In millions
 
2011
  $ 4  
2012
  $ 2  
2013
  $ 1  
2014
    -  
2015
    -  
2016
    -  
 
 
   Union Carbide Corporation and Subsidiaries
   Notes to the Consolidated Financial Statements
 
(Unaudited)
 
 
NOTE E     FINANCIAL INSTRUMENTS

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

Investing Results
 
Three months ended
 
In millions
 
March 31, 2011
   
March 31, 2010
 
Proceeds from sales of available-for-sale securities
  $ 3     $ 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 March 31, 2011 and December 31, 2010, 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 March 31, 2011.

Fair Value of Financial Instruments:
 
   
At March 31, 2011
   
At December 31, 2010
 
In millions
 
Cost
   
Gain
   
Loss
   
Fair Value
   
Cost
   
Gain
   
Loss
   
Fair Value
 
Marketable securities (1):
                                               
Debt securities
  $ 4       -       -     $ 4     $ 5       -       -     $ 5  
Total marketable securities
  $ 4       -       -     $ 4     $ 5       -       -     $ 5  
Long-term debt including debt due within one year
  $ (507 )     -     $ (37 )   $ (544 )   $ (571 )     -     $ (23 )   $ (594 )
(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 first quarter of 2011 and were immaterial. The Corporation did not designate any derivatives as hedges at March 31, 2011 or December 31, 2010.



 
   Union Carbide Corporation and Subsidiaries
   Notes to the Consolidated Financial Statements
 
(Unaudited)
 
 
NOTE F     FAIR VALUE MEASUREMENTS

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

Basis of Fair Value Measurements
on a Recurring Basis
 
 
Significant Other Observable Inputs
 (Level 2)
   
Significant Other Observable Inputs
 (Level 2)
 
 
In millions
 
March 31,
 2011
   
Dec. 31,
 2010
 
Assets at fair value:
           
    Debt securities (1)
  $ 4     $ 5  
(1)
Included in “Other investments” in the consolidated balance sheets.

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

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.

NOTE G     COMMITMENTS AND CONTINGENT LIABILITIES

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

At March 31, 2011, the Corporation had accrued obligations of $102 million for environmental remediation and restoration costs, including $20 million for the remediation of Superfund sites. This is management’s best estimate of the costs for remediation and restoration with respect to environmental matters for which the Corporation has accrued liabilities, although the ultimate cost with respect to these particular matters could range up to approximately twice that amount. Consequently, it is reasonably possible that environmental remediation and restoration costs in excess of amounts accrued could have a material adverse impact on the Corporation’s results of operations, financial condition and cash flows. It is the opinion of the Corporation’s management, however that the possibility is remote that costs in excess of the range disclosed will have a material adverse impact on the Corporation’s results of operations, financial condition and cash flows. Inherent uncertainties exist in these estimates primarily due to unknown environmental conditions, changing governmental regulations and legal standards regarding liability, and emerging remediation technologies for handling site remediation and restoration. At December 31, 2010, the Corporation had accrued obligations of $95 million for environmental remediation and restoration costs, including $20 million for the remediation of Superfund sites.

Litigation
The Corporation is involved in a number of legal proceedings and claims with both private and governmental parties. These cover a wide range of matters, including, but not limited to: product liability; trade regulation; governmental regulatory proceedings; health, safety and environmental matters; employment; patents; contracts; taxes; and commercial disputes.

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


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

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

In November 2009, the Corporation requested ARPC to review the Corporation’s 2009 asbestos claim and resolution activity and determine the appropriateness of updating its then most recent study completed in December 2008. 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.

In November 2010, the Corporation requested ARPC to review the Corporation’s historical 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, 2010. The resulting study, completed by ARPC in December 2010, stated that the undiscounted cost of resolving pending and future asbestos related claims against UCC and Amchem, excluding future defense and processing costs, through 2025 was estimated to be between $744 million and $835 million. As in its earlier studies, ARPC provided estimates for a longer period of time in its December 2010 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 2010, based on ARPC’s December 2010 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 $744 million, which covered the 15-year period ending 2025, excluding future defense and processing costs. The reduction was $54 million and was shown as “Asbestos-related credits” in the consolidated statements of income. At December 31, 2010, the asbestos-related liability for pending and future claims was $728 million. At December 31, 2010, approximately 21 percent of the recorded liability related to pending claims and approximately 79 percent related to future claims.

Based on the Corporation’s review of 2011 activity, it was determined that no adjustment to the accrual was required at March 31, 2011. The Corporation’s asbestos-related liability for pending and future claims was $720 million at March 31, 2011. Approximately 20 percent of the recorded liability related to pending claims and approximately 80 percent related to future claims.


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

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

The Corporation’s receivable for insurance recoveries related to its asbestos liability was $50 million at March 31, 2011 and December 31, 2010. At March 31, 2011 and December 31, 2010, all of the receivable for insurance recoveries was related to insurers that are not signatories to the Wellington Agreement and/or do not otherwise have agreements in place regarding their asbestos-related insurance coverage.

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

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

Receivables for Asbestos-Related Costs
In millions
 
March 31,
 2011
   
Dec. 31,
 2010
 
Receivables for defense costs - carriers with settlement agreements
  $ 25     $ 12  
Receivables for resolution costs - carriers with settlement agreements
    204       236  
Receivables for insurance recoveries - carriers without settlement agreements
    50       50  
Total
  $ 279     $ 298  

The Corporation expenses defense costs as incurred. The pretax impact for defense and resolution costs, net of insurance, was $13 million for the first quarter of 2011 ($14 million in the first quarter of 2010), and was reflected in “Cost of sales.”

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

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

 
   Union Carbide Corporation and Subsidiaries
   Notes to the Consolidated Financial Statements
 
(Unaudited)
 
 
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, 2010, 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, 2010 is presented in the table below. There have been no material changes to purchase commitments since December 31, 2010.

Fixed and Determinable Portion of Take-or-Pay Obligations
at December 31, 2010
In millions
 
2011
  $ 5  
2012
    6  
2013
    6  
2014
    6  
2015
    6  
2016 and beyond
    15  
Total
  $ 44  

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 March 31, 2011 and December 31, 2010. The discount rate used to calculate the Corporation’s asset retirement obligations was 1.78 percent at March 31, 2011 and December 31, 2010. These obligations are included in the consolidated balance sheets as “Other noncurrent obligations.”

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



 
   Union Carbide Corporation and Subsidiaries
   Notes to the Consolidated Financial Statements
 
(Unaudited)
 
 
NOTE H    NOTES PAYABLE AND LONG-TERM DEBT

Notes Payable
In millions
 
Mar. 31,
2011
   
Dec. 31, 2010
 
Notes payable – related companies
  $ 3     $ 3  
Period-end average interest rates
    1.35 %     1.35 %


 Long-Term Debt  
2011
         
2010
       
   
Average
   
Mar. 31,
   
Average
   
Dec. 31,
 
 In millions  
Rate
   
2011
   
Rate
   
2010
 
Promissory notes and debentures:
                       
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 %     135       7.75 %     200  
Other facilities:
                               
Pollution control/industrial revenue bonds, maturity 2012
    5.09 %     37       5.09 %     37  
Unamortized debt discount
    -       (2 )     -       (3 )
Long term debt due within one year
    -       (37 )     -       -  
Total long-term debt
    -     $ 470       -     $ 571  


Annual Installments on Long-Term Debt
For Next Five Years at Mar. 31, 2011
In millions
 
2011
    -  
2012
  $ 37  
2013
    -  
2014
    -  
2015
    -  
2016
    -  

On March 22, 2011 the Corporation concluded a cash tender offer for $65 million aggregate principal amount of certain notes issued by the Corporation.  As a result of the tender offer, the Corporation redeemed $65 million of the notes and recognized a $6 million pretax loss on early extinguishment of debt, included in “Sundry income (expense) – net” in the consolidated statement of income.

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 March 31, 2011.

 
   Union Carbide Corporation and Subsidiaries
   Notes to the Consolidated Financial Statements
 
(Unaudited)
 
 
NOTE I     PENSION AND OTHER POSTRETIREMENT BENEFITS

Net Periodic Benefit Cost for All Significant Plans
 
Three Months Ended
In millions
 
March 31,
2011
   
March 31,
2010
 
Defined Benefit Pension Plans:
           
Service cost
  $ 6     $ 4  
Interest cost
    50       52  
Expected return on plan assets
    (63 )     (66 )
Amortization of prior service cost
    2       2  
Amortization of net loss
    21       15  
Net periodic benefit cost
  $ 16     $ 7  
 
Other Postretirement Benefits:
               
Interest cost
  $ 5     $ 6  
Net periodic benefit cost
  $ 5     $ 6  


NOTE J     RELATED PARTY TRANSACTIONS

The Corporation sells its products to Dow to simplify the customer interface process. Products are sold to and purchased from Dow at market-based prices in accordance with the terms of Dow’s long-standing intercompany pricing policies. The Corporation also procures certain commodities and raw materials through a Dow subsidiary and pays a commission to that Dow subsidiary based on the volume and type of commodities and raw materials purchased. The commission expense is included in “Sundry income (expense) – net” in the consolidated statements of income. Purchases from that Dow subsidiary were $771 million in the first quarter of 2011 and $876 million in the first quarter of 2010.

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, general administrative and overhead type services that Dow routinely allocates to various businesses are charged to UCC.

In the first quarter of 2011, the master services agreement was amended to change the basis of cost allocations for general administrative and overhead type services from conversion costs to headcount and to include a 10 percent service fee.  The new allocation basis includes certain costs that were previously charged to UCC based on the activities’ cost including employee costs, as well as direct and indirect costs. This arrangement resulted in a quarterly charge of approximately $12 million in the first quarter of 2011 for general administrative and overhead type services and the 10 percent service fee, included in “Sundry income (expense) – net.” The remaining activity-based costs were approximately $4 million and were included in “Cost of sales.”

Under the master services agreement in place for 2010, costs related to general administrative and overhead services were allocated to UCC based on the Corporation’s and Dow’s relative manufacturing conversion costs. This arrangement resulted in a quarterly charge of approximately $5 million in the first quarter of 2010, included in “Sundry income (expense) – net.”

Additionally, for services that Dow routinely charged based on effort, UCC was charged the cost of such services on a fully absorbed basis in 2010, which included direct and indirect costs. Certain Dow employees were contracted to UCC and Dow was reimbursed for all direct employment costs of such employees. These activity-based costs resulted in a quarterly charge of approximately $13 million in the first quarter of 2010, which was included in “Cost of sales.”

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.


 
   Union Carbide Corporation and Subsidiaries
   Notes to the Consolidated Financial Statements
 
(Unaudited)
 
 
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 March 31, 2011, the Corporation had a note receivable of $4.2 billion ($4.3 billion at December 31, 2010) from Dow under a revolving loan agreement. The Corporation may draw from this note receivable in support of its daily working capital requirements and, as such, the net effect of cash inflows and outflows under this revolving loan agreement is presented in the consolidated statements of cash flows as an operating activity.

The Corporation also has a separate revolving credit agreement with Dow that allows the Corporation to borrow or obtain credit enhancements up to an aggregate of $1 billion that matures December 30, 2011. Dow may demand repayment with a 30-day written notice to the Corporation, subject to certain restrictions. A related collateral agreement provides for the replacement of certain existing pledged assets, primarily equity interests in various subsidiaries and joint ventures, with cash collateral. At March 31, 2011, $880 million ($881 million at December 31, 2010) was available under the revolving credit agreement. The cash collateral is reported as “Noncurrent receivables from related companies” in the consolidated balance sheets.

In March 2011, the Corporation declared and paid a dividend of $175 million to Dow. In March 2010, the Corporation declared and paid a dividend of $150 million.

The Corporation received cash dividends from its related company investments of $20 million in the first quarter of 2010. These dividends are included in “Sundry income (expense) – net.” No dividends were received in the first quarter of 2011.
 
 
 Union Carbide Corporation and Subsidiaries
 
 

Pursuant to General Instruction H of Form 10-Q “Omission of Information by Certain Wholly-Owned Subsidiaries,” this section includes only management's narrative analysis of the results of operations for the three-month period ended March 31, 2011, the most recent period, compared with the three-month period ended March 31, 2010, the corresponding period in the preceding fiscal year.

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

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

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


 
 Union Carbide Corporation and Subsidiaries
 
 
Total net sales for the first quarter of 2011 were $1,611 million compared with $1,604 million for the first quarter of 2010.

Net sales to related companies for the first quarter of 2011 were $1,566 million and essentially flat compared with $1,556 million for the first quarter of 2010. Selling prices to Dow are based on market prices for the related products. Average selling prices for most products were higher in the first quarter of 2011 compared with the first quarter of 2010, driven by higher feedstock and energy costs with vinyl acetate monomers and surfactants having the most significant price increases. Volume declined due to planned and unplanned outages including an unplanned site outage at the St. Charles operations in Hahnville, Louisiana, combined with the completion of a project that increased production of purified ethylene oxide and eliminated the lower margin monoethylene glycol and diethylene glycol sales.

Cost of sales decreased 9 percent from $1,563 million in the first quarter of 2010 to $1,429 million in the first quarter of 2011 principally due to the decline in volume related to planned and unplanned outages and the shift in product mix partially offset by higher feedstock and energy costs.

Research and development expenses were $10 million in the first quarter of 2011 compared with $11 million in the first quarter of 2010. The decrease of $1 million or 9 percent was due to cost savings initiatives.

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 Federal Trade Commission for the approval of Dow’s acquisition of the Rohm and Haas Company. An impairment charge of $114 million for these assets was recognized in the second quarter of 2009 restructuring charge. The divestiture of these assets was completed on January 25, 2010. In the first quarter of 2010, the impact of this sale on the Corporation’s consolidated financial statements was a loss of $5 million related to additional impairments of these assets, which was shown as “Restructuring charges” in the consolidated statements of income.

Equity in earnings of nonconsolidated affiliates was $17 million in the first quarter of 2011 compared with $9 million in the first quarter of 2010, reflecting increased earnings from Univation Technologies, LLC.

Sundry income (expense) – net includes a variety of income and expense items such as the gain or loss on foreign currency exchange, dividends from investments, commissions, charges for management services provided by Dow and gains and losses on sales of investments and assets. Sundry income (expense) – net for the first quarter of 2011 was expense of $30 million compared with income of $6 million for the first quarter of 2010.  The decrease was primarily due to the combination of lower related party dividends received in 2011 compared with 2010 and a loss of $6 million related to the early extinguishment of debt in the current quarter. See Notes H and J to the Consolidated Financial Statements for additional information.

Interest income was $11 million in the first quarter of 2011 compared with $18 million in the first quarter of 2010, primarily due to lower interest rates in the current quarter. Interest expense and amortization of debt discount was $9 million in the first quarter of 2011 compared with $10 million in the first quarter of 2010.

The provision for income taxes was $53 million in the first quarter of 2011, which resulted in an effective tax rate of 33.3 percent. This compared with a tax benefit of $17 million reported in the first quarter of 2010, primarily due to the reduction of a state tax liability in the United States. The effective tax rate fluctuates based on, among other factors, where income is earned, the level of after-tax income from joint ventures, dividends received from investments in related companies and the level of income relative to tax credits available.

The Corporation reported net income of $106 million for the first quarter of 2011, compared with $62 million for the first quarter of 2010. The results for the first quarter of 2011 reflected management’s focus on restoring margins which more than offset the higher feedstock and energy costs.

 
 
 Union Carbide Corporation and Subsidiaries
 
 

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

Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Note A to the Consolidated Financial Statements in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2010 (“2010 10-K”) describes the significant accounting policies and methods used in the preparation of the Consolidated Financial Statements. The Corporation’s critical accounting policies that are impacted by judgments, assumptions and estimates are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Corporation’s 2010 10-K. Since December 31, 2010, there have been no material changes in the Corporation’s critical accounting policies.

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

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:

 
2011
2010
Claims unresolved at January 1
62,582
75,030
Claims filed
2,039
2,029
Claims settled, dismissed or otherwise resolved
(3,372)
(2,220)
Claims unresolved at March 31
61,249
74,839
Claimants with claims against both UCC and Amchem
18,475
23,877
Individual claimants at March 31
42,774
50,962

Plaintiffs’ lawyers often sue numerous defendants in individual lawsuits or on behalf of numerous 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.

 
 Union Carbide Corporation and Subsidiaries
 
 
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 then most recent study completed in December 2008. 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.

In November 2010, the Corporation requested ARPC to review the Corporation’s historical 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, 2010. The resulting study, completed by ARPC in December 2010, stated that the undiscounted cost of resolving pending and future asbestos related claims against UCC and Amchem, excluding future defense and processing costs, through 2025 was estimated to be between $744 million and $835 million. As in its earlier studies, ARPC provided estimates for a longer period of time in its December 2010 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 2010, based on ARPC’s December 2010 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 $744 million, which covered the 15-year period ending 2025, excluding future defense and processing costs. The reduction was $54 million and was shown as “Asbestos-related credits” in the consolidated statements of income. At December 31, 2010, the asbestos-related liability for pending and future claims was $728 million. At December 31, 2010, approximately 21 percent of the recorded liability related to pending claims and approximately 79 percent related to future claims.

Based on the Corporation’s review of 2011 activity, it was determined that no adjustment to the accrual was required at March 31, 2011. The Corporation’s asbestos-related liability for pending and future claims was $720 million at March 31, 2011. Approximately 20 percent of the recorded liability related to pending claims and approximately 80 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
 
Three Months Ended
   
Aggregate Costs to
 
In millions
 
March 31,
2011
   
March 31,
2010
   
Date as of
March 31, 2011
 
Defense costs
  $ 13     $ 14     $ 787  
Resolution costs
  $ 9     $ 12     $ 1,532  

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 $13 million in the first quarter of 2011 ($14 million in the first quarter of 2010), 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 by the Corporation after a thorough review of applicable insurance policies and the 1985 Wellington Agreement, to which the Corporation and many of its liability insurers are signatory parties, as well as other insurance settlements, with due consideration given to applicable deductibles, retentions and policy limits, and taking into account the solvency and historical payment experience of various insurance carriers. The Wellington Agreement and other agreements with insurers are designed to facilitate an orderly resolution and collection of the Corporation’s insurance policies and to resolve issues that the insurance carriers may raise.
 
In September 2003, the Corporation filed a comprehensive insurance coverage case, now proceeding in the Supreme Court of the State of New York, County of New York, seeking to confirm its rights to insurance for various asbestos claims

 
 Union Carbide Corporation and Subsidiaries
 
 
and to facilitate an orderly and timely collection of insurance proceeds (the “Insurance Litigation”). The Insurance Litigation was filed against insurers that are not signatories to the Wellington Agreement and/or do not otherwise have agreements in place with the Corporation regarding their asbestos-related insurance coverage, in order to facilitate an orderly resolution and collection of such insurance policies and to resolve issues that the insurance carriers may raise. Since the filing of the case, UCC has reached settlements with several of the carriers involved in the Insurance Litigation, including settlements reached with two significant carriers in the fourth quarter of 2009. The Insurance Litigation is ongoing.
 
The Corporation’s receivable for insurance recoveries related to its asbestos liability was $50 million at March 31, 2011 and December 31, 2010. At March 31, 2011 and December 31, 2010, all of the receivable for insurance recoveries was related to insurers that are not signatories to the Wellington Agreement and/or do not otherwise have agreements in place regarding their asbestos-related insurance coverage.
 
In addition to the receivable for insurance recoveries related to the asbestos-related liability, the Corporation had receivables for defense and resolution costs submitted to insurance carriers that have settlement agreements in place regarding their asbestos-related insurance coverage.

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

Receivables for Asbestos-Related Costs
In millions
 
March 31,
 2011
   
Dec. 31,
 2010
 
Receivables for defense costs - carriers with settlement agreements
  $ 25     $ 12  
Receivables for resolution costs - carriers with settlement agreements
    204       236  
Receivable for insurance recoveries - carriers without settlement agreements
    50       50  
Total
  $ 279     $ 298  

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.
 
 
 Union Carbide Corporation and Subsidiaries
 

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



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

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




 
 Union Carbide Corporation and Subsidiaries
 
 


No material developments in asbestos-related matters occurred during the first quarter of 2011. For a summary of the history and current status of asbestos-related matters, see Management’s Discussion and Analysis of Financial Condition and Results of Operations, Asbestos-Related Matters; and Note G to the Consolidated Financial Statements.



There were no material changes in the Corporation’s risk factors in the first quarter of 2011.



See the Exhibit Index on page 25 of this Quarterly Report on Form 10-Q for exhibits filed with this report.




 
 
Union Carbide Corporation and Subsidiaries
 


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


   
UNION CARBIDE CORPORATION
   
Registrant
     
     
Date:  May 4, 2011
   
 
By:
/s/ RONALD C. EDMONDS
   
Ronald C. Edmonds
   
Vice President and Controller
   
The Dow Chemical Company
   
Authorized Representative of
   
Union Carbide Corporation
     
     
     
     
 
By:
/s/ EUDIO GIL
   
Eudio Gil
   
Vice President, Treasurer and
   
Chief Financial Officer



 
 Union Carbide Corporation and Subsidiaries
 
 
 
EXHIBIT NO.
DESCRIPTION
 
 
First Amendment to Amended and Restated Service Agreement, effective as of January 1, 2011, between the Corporation and The Dow Chemical Company.
 
Analysis, Research & Planning Corporation’s Consent.
 
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
25