Union Carbide 10K 2008 Annual report

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, 2008 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 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, 2009, 1,000 shares of common stock were outstanding, all of which were held by the registrant’s parent, The Dow Chemical Company. The registrant meets the conditions set forth in General Instructions I(1)(a) and (b) for Form 10-K and is therefore filing this form with a reduced disclosure format.
Documents Incorporated by Reference None

Union Carbide Corporation

ANNUAL REPORT ON FORM 10-K

For the Fiscal Year Ended December 31, 2008

TABLE OF CONTENTS

PART I

		PAGE
Item 1.	Business.	3
Item 1A.	Risk Factors.	4
Item 1B.	Unresolved Staff Comments.	6
Item 2.	Properties.	6
Item 3.	Legal Proceedings.	6
Item 4.	Submission of Matters to a Vote of Security Holders.	9

PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.	9
Item 6.	Selected Financial Data.	9
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	10
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk.	20
Item 8.	Financial Statements and Supplementary Data.	21
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.	48
Item 9A(T).	Controls and Procedures.	48
Item 9B.	Other Information.	49

PART III
Item 10.	Directors, Executive Officers and Corporate Governance.	49
Item 11.	Executive Compensation.	49
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.	49
Item 13.	Certain Relationships and Related Transactions, and Director Independence.	49
Item 14.	Principal Accounting Fees and Services.	49

PART IV
Item 15.	Exhibits, Financial Statement Schedules.	50

SIGNATURES		79

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.

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.

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.

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.

Table of Contents

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 $68 million in 2008, $70 million in 2007 and $71 million in 2006. 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 1,364 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 for 2008 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.

The OPTIMAL Group of Companies [consisting of OPTIMAL Olefins (Malaysia) Sdn. Bhd. – 23.75 percent; OPTIMAL Glycols (Malaysia) Sdn. Bhd. – 50 percent; OPTIMAL Chemicals (Malaysia) Sdn. Bhd. – 50 percent] – Malaysian companies that operate an ethane/propane cracker, an ethylene glycol facility and a production facility for ethylene and propylene derivatives within a world-scale, integrated chemical complex located in Kertih, Terengganu, Malaysia.

·	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 2008, the Corporation derived 57 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 P 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 J to the Consolidated Financial Statements.

ITEM 1A. RISK FACTORS.

The factors described below represent the Corporation’s principal risks. Except as otherwise indicated, these factors may or may not occur and the Corporation is not in a position to express a view on the likelihood of any such factor occurring. Other factors may exist that the Corporation does not consider to be significant based on information that is currently available or that the Corporation is not currently able to anticipate.

Table of Contents

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

In 2008, purchased feedstock and energy costs continued to rise until the fourth quarter when costs fell sharply. Purchased feedstock and energy costs are expected to remain volatile throughout 2009. When these costs increase, the Corporation is not always able to immediately raise selling prices and, ultimately, its ability to pass on underlying cost increases is greatly dependent on market conditions. As a result, increases in these costs could negatively impact the Corporation’s results of operations.

The Corporation’s parent company, The Dow Chemical Company (“Dow”), 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, which could impact liquidity for the Corporation.

Dow is a service provider, material debtor and the major customer of the Corporation. Certain of the claims and lawsuits facing Dow seek damages in very large amounts, including purported class actions and lawsuits with numerous named plaintiffs. All such claims are being contested and, with the exception of the possible effect of the asbestos-related liability of UCC and the ongoing litigation with Rohm and Haas Company (“Rohm and Haas”), it is the opinion of Dow’s management that the possibility is remote that the aggregate of all such claims and lawsuits will have a material adverse impact on Dow’s consolidated financial statements. The ultimate resolution of Dow’s litigation with Rohm and Haas could potentially impact sources of liquidity for the Corporation.

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

The current economic environment is negatively impacting the fair value of pension assets, which could trigger increased future funding requirements of the pension trust.

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

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

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

The Corporation is subject to extensive federal, state, local and foreign laws, regulations, rules and ordinances relating to pollution, protection of the environment and the generation, storage, handling, transportation, treatment, disposal and remediation of hazardous substances and waste materials. At 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. This is management’s best estimate of the costs for remediation and restoration with respect to environmental matters for which the Corporation has accrued liabilities, although the ultimate cost with respect to these particular matters could range up to approximately twice that amount. Costs and capital expenditures relating to environmental, health or safety matters are subject to evolving regulatory requirements and will depend on the timing of the promulgation and enforcement of specific standards which impose the requirements. Moreover, changes in environmental regulations could inhibit or 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, 2008, the Corporation’s asbestos-related liability for pending and future claims was $934 million and the Corporation’s receivable for insurance recoveries related to its asbestos liability was $403 million. At December 31, 2008, the Corporation also had receivables of $272 million for insurance recoveries for defense and resolution costs. Management believes that it is reasonably possible that the cost of disposing of the Corporation’s asbestos-related claims, including future defense costs, could have a material adverse impact on the Corporation’s consolidated financial statements.

Table of Contents

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.

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.

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 D to the Consolidated Financial Statements.

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:

	2008			2007			2006
Claims unresolved at January 1		90,322			111,887			146,325
Claims filed		10,922			10,157			16,386
Claims settled, dismissed or otherwise resolved		(25,538	)		(31,722	)		(50,824	)
Claims unresolved at December 31		75,706			90,322			111,887
Claimants with claims against both UCC and Amchem		24,213			28,937			38,529
Individual claimants at December 31		51,493			61,385			73,358

Table of Contents

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 2006, the Corporation requested ARPC to review the Corporation’s historical asbestos claim and resolution activity and determine the appropriateness of updating its January 2005 study. In response to that request, ARPC reviewed and analyzed data through October 31, 2006 and concluded that the experience from 2004 through 2006 was sufficient for the purpose of forecasting future filings and values of asbestos claims filed against UCC and Amchem, and could be used in place of previous assumptions to update the January 2005 study. The resulting study, completed by ARPC in December 2006, stated that the undiscounted cost of resolving pending and future asbestos-related claims against UCC and Amchem, excluding future defense and processing costs, through 2021 was estimated to be between approximately $1.2 billion and $1.5 billion. As in its January 2003 and January 2005 studies, ARPC provided estimates for a longer period of time in its December 2006 study, but also reaffirmed its prior advice that forecasts for shorter periods of time are more accurate than those for longer periods of time.

Based on ARPC’s December 2006 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 $1.2 billion at December 31, 2006 which covered the 15-year period ending in 2021, excluding future defense and processing costs. The reduction was $177 million and was shown as “Asbestos-related credit” in the consolidated statements of income.

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 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.

At December 31, 2008, approximately 21 percent of the recorded liability related to pending claims and approximately 79 percent related to future claims. At December 31, 2007, approximately 31 percent of the recorded liability related to pending claims and approximately 69 percent related to future claims.

Table of Contents

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	2008	2007	2006	to Date as of Dec. 31, 2008
Defense costs	$60	$84	$62	$625
Resolution costs	$116	$88	$117	$1,386

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 $53 million in 2008, $84 million in 2007 and $45 million in 2006, 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. This lawsuit was filed against insurers that are not signatories to the Wellington Agreement and/or do not otherwise have agreements in place with the Corporation regarding their asbestos-related insurance coverage, in order to facilitate an orderly resolution and collection of such insurance policies and to resolve issues that the insurance carriers may raise. Although the lawsuit is continuing, through the end of 2008, the Corporation had reached settlements with several of the carriers involved in this litigation.

The Corporation’s receivable for insurance recoveries related to its asbestos liability was $403 million at December 31, 2008 and $467 million at December 31, 2007. At December 31, 2008 and December 31, 2007, 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 its asbestos liability, the Corporation had receivables for defense and resolution costs submitted to insurance carriers for reimbursement as follows:

Receivables for Costs Submitted to Insurance Carriers at December 31					��
In millions	2008		2007
Receivables for defense costs	$	28	$	18
Receivables for resolution costs		244		253
Total	$	272	$	271

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.

Table of Contents

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.

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.

Table of Contents

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, 2008, the most recent fiscal year, compared with the year ended December 31, 2007, 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. The Corporation’s business activities comprise components of Dow’s global operations rather than stand-alone operations. Because there are no separable reportable business segments for UCC under Statement of Financial Accounting Standards (“SFAS”) No. 131, “Disclosures about Segments of an Enterprise and Related Information,” and no detailed business information is provided to a chief operating decision maker regarding the Corporation’s stand-alone operations, the Corporation’s results are reported as a single operating segment.

Forward-Looking Information

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

Results of Operations

Total net sales for 2008 were down slightly at $7,326 million compared with $7,493 million in 2007. Sales to Dow in 2008 were $7,107 million compared with $7,282 million in 2007. Selling prices to Dow are based on market prices for the related products. Average selling prices for all major products were higher in 2008 compared with 2007 principally due to higher feedstock and energy costs, led by polyglycols and surfactants, polyethylene, polypropylene, ethanolamines and oxo products. Sales volume was down for 2008 compared with 2007 across most product lines due to softening demand in the second half of 2008.

Cost of sales for 2008 increased $313 million compared with 2007 due to significantly higher feedstock and energy costs. Gross margin for 2008 was $132 million, down from $612 million for 2007 as the increase in selling prices was more than offset by the increase in feedstock and energy costs and overall lower sales volume.

In 2008, UCC recorded a $26 million goodwill impairment loss associated with polypropylene assets. See Note F to the Consolidated Financial Statements.

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. 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, the Corporation recorded restructuring charges of $55 million in the fourth quarter of 2007 that included the write-off of the net book value of the polypropylene plant in St. Charles, Louisiana, which was shut down in the fourth quarter of 2007, and organizational changes in West Virginia. See Note B to the Consolidated Financial Statements.

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. The reduction was shown as “Asbestos-related credit” in the consolidated statements of income.

Equity in earnings of nonconsolidated affiliates in 2008 was $166 million, down from $500 million in 2007 primarily due to the absence of equity earnings from EQUATE Petrochemical Company K.S.C. (“EQUATE”). In late fourth quarter 2007, the Corporation, through a series of noncash transactions, contributed its share of EQUATE for an increased share in Dow International Holdings Company (“DIHC”).

Sundry income (expense) – 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 for 2008 was $243 million compared with $49 million in 2007. Sundry income for

Table of Contents

2008 included dividend income of $297 million from related parties, including $204 million from DIHC and $82 million from Modeland International Holdings Inc.

Interest income for 2008 was $110 million compared with $173 million in 2007, reflecting a decrease in interest rates. Interest expense and amortization of debt discount for 2008 was $48 million compared with $52 million for 2007.

The provision for income taxes was $118 million in 2008 compared with $86 million in 2007. The Corporation’s overall effective tax rate was 26.5 percent for 2008 compared with 7.6 percent for 2007. UCC’s effective tax rate fluctuates based on, among other factors, the level of after-tax income from joint ventures and the level of income relative to available tax credits. The effective tax rate for 2007 was low principally due to a change in the Corporation’s legal ownership structure with respect to its investment in EQUATE, resulting in a favorable impact to the provision for income taxes of $195 million in the fourth quarter of 2007. Also impacting the 2007 rate was the net reversal of valuation allowances of $64 million and higher earnings from the Corporation’s joint ventures. Since most of the earnings from nonconsolidated affiliates are taxed at the joint venture level, the impact of higher equity earnings decreased the Corporation’s overall effective tax rate. The Corporation is included in Dow’s consolidated federal income tax group and consolidated income tax return. The underlying factors affecting UCC’s overall effective tax rates are summarized in Note O to the Consolidated Financial Statements.

The Corporation reported net income of $327 million for 2008 compared with $1,052 million for 2007.

OTHER MATTERS

Recent Accounting Pronouncements

See Note A to the Consolidated Financial Statements for a summary of significant accounting policies and recent accounting pronouncements.

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 the preparation of the Consolidated Financial Statements. Following are the Corporation’s critical accounting policies impacted by judgments, assumptions and estimates:

Litigation

The Corporation is subject to legal proceedings and claims arising out of the normal course of business. The Corporation routinely assesses the likelihood of any adverse judgments or outcomes to these matters, as well as ranges of probable losses. A determination of the amount of the reserves required, if any, for these contingencies is made after thoughtful analysis of each known issue and an 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 J 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.

Table of Contents

ARPC in December 2006, stated that the undiscounted cost of resolving pending and future asbestos-related claims against UCC and Amchem, excluding future defense and processing costs, through 2021 was estimated to be between approximately $1.2 billion and $1.5 billion. As in its January 2003 and January 2005 studies, ARPC provided estimates for a longer period of time in its December 2006 study, but also reaffirmed its prior advice that forecasts for shorter periods of time are more accurate than those for longer periods of time.

Based on ARPC’s December 2006 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 $177 million to $1.2 billion at December 31, 2006 which covered the 15-year period ending in 2021, excluding future defense and processing costs.

Following the completion of the review by ARPC in December 2007, as well as the Corporation’s own review of the asbestos claim and resolution activity, the Corporation determined that no change to the asbestos-related liability for pending and future claims was required. At December 31, 2007, the Corporation’s asbestos-related liability for pending and future claims was $1.1 billion.

The Corporation’s receivable for insurance recoveries related to its asbestos liability was $403 million at December 31, 2008 and $467 million at December 31, 2007. In addition, the Corporation had receivables of $272 million at December 31, 2008 and $271 million at December 31, 2007 for insurance recoveries for defense and resolution costs.

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, Asbestos-Related Matters in Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Note J 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, 2008, the Corporation had accrued obligations of $67 million for environmental remediation and restoration costs, including $18 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, 2007, the Corporation had accrued obligations of $75 million for environmental remediation and restoration costs, including $23 million for the remediation of Superfund sites. For further discussion, see Environmental Matters in Management’s Discussion and Analysis of Financial Condition and Results of Operations and Notes A and J to the Consolidated Financial Statements.

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

Table of Contents

assets, discount rates at which the liabilities could be settled at December 31, 2008, rate of increase in future compensation levels, mortality rates and health care cost trend rates. These assumptions are updated annually and are disclosed in Note L to the Consolidated Financial Statements. In 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 determined 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 and comparisons to expected returns of peer companies with similar fund assets were also considered. The expected return of each asset class is derived from a forecasted future return confirmed by historical experience. 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 2008 was 8.0 percent. This assumption remained unchanged for determining 2009 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 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, 2008, $707 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 $1,143 million shown under “Amounts recognized in “Pretax balance in AOCI at end of year” in the table entitled “Change in Projected Benefit Obligations, Plan Assets and Funded Status of all Significant Plans” included in Note L to the Consolidated Financial Statements. The remaining $436 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:

Net Decrease in Market-Related Asset Value due to Recognition of Prior Asset Gains and Losses In millions
2009	$	172
2010		158
2011		174
2012		203
Total	$	707

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 resulting discount rate increased from 6.65 percent at December 31, 2007, to 6.85 percent at December 31, 2008.

A 25 basis point adjustment in the long-term return on assets assumption would change total pension expense for 2009 by approximately $9 million. A 25 basis point increase in the discount rate assumption would lower the total pension expense for 2009 by approximately $1 million. A 25 basis point decrease in the discount rate would increase pension expense by approximately $6 million. A 25 basis point change in the long-term return and discount rate assumptions would have an immaterial impact on the other postretirement benefit expense for 2009.

The assumption for the long-term rate of increase in compensation levels is zero percent for 2009, 4.25 percent for 2010 and 4.50 percent thereafter. Since 2002, the Corporation has used a generational mortality table to determine the duration of its pension and other postretirement obligations.

Based on the 2009 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 to record $13 million more in income for pension and other postretirement benefits in 2009 than it did in 2008.

Table of Contents

The value of the qualified plan assets totaled $3.2 billion at December 31, 2008, a decrease of $999 million compared with December 31, 2007. The funded status of the qualified plan, net of benefit obligations was down by $918 million at December 31, 2008 compared with December 31, 2007. The decrease was due to the unfavorable impact of asset returns partially offset by an increase in the assumed discount rate. For 2009, the Corporation does not expect to make cash contributions to its pension and other postretirement benefit plans.

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, 2008, the Corporation had a net deferred tax asset balance of $477 million, including deferred tax assets for tax loss and tax credit carryforwards of $161 million, of which $1 million is subject to expiration in the years 2009-2013. In order to realize these deferred tax assets for tax loss and tax credit carryforwards, the Corporation needs taxable income of approximately $712 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 2009-2013 is $6 million. In evaluating the ability to realize its deferred tax assets, the Corporation relied principally on forecasted taxable income using historical and projected future operating results, the reversal of existing temporary differences and the availability of tax planning strategies.

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 upon examination. At December 31, 2008, the Corporation had uncertain tax positions of $265 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, 2008, the Corporation had a non-income tax contingency reserve of $29 million. For additional information, see Note O to the Consolidated Financial Statements.

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.

Table of Contents

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.

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 $49 million at December 31, 2008 and $52 million at December 31, 2007 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 $18 million at December 31, 2008 and $23 million at December 31, 2007, 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)
	2008			2007			2008			2007
Number of sites at January 1		32			33			62			47
Sites added during year		-			1			3			15
Sites closed during year		(1	)		(2	)		(9	)		-
Number of sites at December 31		31			32			56			62
(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.

Table of Contents

In total, the Corporation’s accrued liability for probable environmental remediation and restoration costs was $67 million at December 31, 2008, compared with $75 million at December 31, 2007. 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 $29 million in 2008 and $33 million in 2007. Capital expenditures for environmental protection were $17 million in 2008 and $15 million in 2007.

Asbestos-Related Matters

Introduction

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

	2008			2007			2006
Claims unresolved at January 1		90,322			111,887			146,325
Claims filed		10,922			10,157			16,386
Claims settled, dismissed or otherwise resolved		(25,538	)		(31,722	)		(50,824	)
Claims unresolved at December 31		75,706			90,322			111,887
Claimants with claims against both UCC and Amchem		24,213			28,937			38,529
Individual claimants at December 31		51,493			61,385			73,358

Estimating the Liability

Table of Contents

excluding future defense and processing costs, through 2021 was estimated to be between approximately $1.2 billion and $1.5 billion. As in its January 2003 and January 2005 studies, ARPC provided estimates for a longer period of time in its December 2006 study, but also reaffirmed its prior advice that forecasts for shorter periods of time are more accurate than those for longer periods of time.

Based on ARPC’s December 2006 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 $1.2 billion at December 31, 2006 which covered the 15-year period ending in 2021 (excluding future defense and processing costs). The reduction was $177 million and was shown as “Asbestos-related credit” in the consolidated statements of income.

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	2008	2007	2006	to Date as of Dec. 31, 2008
Defense costs	$60	$84	$62	$625
Resolution costs	$116	$88	$117	$1,386

Insurance Receivables

Table of Contents

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 at December 31
In millions	2008		2007
Receivables for defense costs	$	28	$	18
Receivables for resolution costs		244		253
Total	$	272	$	271

Summary

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.

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

Table of Contents

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 will seek to fully enforce its rights under the terms of the JVFA and various related agreements.

Although Dow is currently prepared to close the K-Dow transaction immediately despite PIC’s breach, Dow has been approached by other interested parties about joint venturing with Dow for the businesses originally intended to be part of K-Dow. Dow is in the process of seeking an alternative joint venture partner for these businesses.

Table of Contents

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 potential gain or loss in fair market values given a certain move in prices over a certain period of time, using specified confidence levels. Through the end of 2007, the VAR methodology used by the Corporation was based primarily on a variance/covariance statistical model. The year-end daily VAR and average daily VAR for 2008 and 2007 are shown below.

Total Daily VAR at December 31(1)	2008		2007
In millions	Year-end	Average	Year-end	Average
Interest rate	$21	$15	$10	$8
(1) Using a 95 percent confidence level

In 2008, the Corporation changed its primary VAR methodology from a variance/covariance statistical model to a historical simulation model to more effectively capture co-movements in market rates across different instruments. In the new historical simulation model, a 97.5 percent confidence level is used and the historical scenario period includes at least six months of historical data. The new historical simulation model resulted in a total daily VAR of $46 million at December 31, 2008.

See Notes G and N to the Consolidated Financial Statements for further disclosure regarding market risk.

Table of Contents

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, 2008 and 2007, and the related consolidated statements of income, stockholder’s equity, comprehensive income, and cash flows for each of the three years in the period ended December 31, 2008. 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, 2008 and 2007, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008, 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.

As discussed in Note A to the consolidated financial statements, effective December 31, 2006, Union Carbide Corporation changed its method of accounting for defined benefit pension and other postretirement plans to conform to Statement of Financial Accounting Standards No. 158.

/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP Midland, Michigan February 17, 2009

Table of Contents

Union Carbide Corporation and Subsidiaries
Consolidated Statements of Income

(In millions) For the years ended December 31	2008		2007		2006
Net trade sales	$	219	$	211	$	506
Net sales to related companies		7,107		7,282		7,022
Total Net Sales		7,326		7,493		7,528
Cost of sales		7,194		6,881		6,563
Research and development expenses		68		70		71
Selling, general and administrative expenses		13		19		21
Goodwill impairment loss		26		-		-
Restructuring charges		105		55		14
Asbestos-related credit		54		-		177
Equity in earnings of nonconsolidated affiliates		166		500		395
Sundry income (expense) - net		243		49		(39	)
Interest income		110		173		128
Interest expense and amortization of debt discount		48		52		54
Income before Income Taxes		445		1,138		1,466
Provision for income taxes		118		86		420
Net Income Available for Common Stockholder	$	327	$	1,052	$	1,046
See Notes to the Consolidated Financial Statements.

Table of Contents

Union Carbide Corporation and Subsidiaries
Consolidated Balance Sheets

(In millions) At December 31	2008			2007
Assets
Current Assets
Cash and cash equivalents	$	24		$	22
Accounts receivable:
Trade (net of allowance for doubtful receivables - 2008: $1; 2007: $2)		21			26
Related companies		128			487
Other		90			129
Notes receivable from related companies		3,934			3,227
Inventories		187			178
Deferred income taxes and other current assets		64			60
Total current assets		4,448			4,129
Investments
Investments in related companies		972			972
Investments in nonconsolidated affiliates		427			385
Other investments		19			22
Noncurrent receivables		46			46
Noncurrent receivables from related companies		187			306
Total investments		1,651			1,731
Property
Property		7,630			7,509
Less accumulated depreciation		5,744			5,547
Net property		1,886			1,962
Other Assets
Goodwill		-			26
Other intangible assets (net of accumulated amortization - 2008: $135; 2007: $128)		17			22
Deferred income tax assets - noncurrent		439			112
Asbestos-related insurance receivables - noncurrent		658			696
Pension assets		-			699
Deferred charges and other assets		79			88
Total other assets		1,193			1,643
Total Assets	$	9,178		$	9,465
Liabilities and Stockholder's Equity
Current Liabilities
Notes payable - related companies	$	12		$	5
Long-term debt due within one year		249			-
Accounts payable:
Trade		170			239
Related companies		299			391
Other		35			29
Income taxes payable		176			185
Asbestos-related liabilities - current		120			141
Accrued and other current liabilities		198			180
Total current liabilities		1,259			1,170
Long-Term Debt		571			820
Other Noncurrent Liabilities
Pension and other postretirement benefits - noncurent		662			461
Asbestos-related liabilities - noncurrent		824			1,001
Other noncurrent obligations		298			356
Total other noncurrent liabilities		1,784			1,818
Minority Interest in Subsidiaries		2			2
Stockholder's Equity
Common stock (authorized and issued: 1,000 shares of $0.01 par value each)		-			-
Additional paid-in capital		312			121
Retained earnings		6,094			5,767
Accumulated other comprehensive loss		(844	)		(233	)
Net stockholder's equity		5,562			5,655
Total Liabilities and Stockholder's Equity	$	9,178		$	9,465
See Notes to the Consolidated Financial Statements.

Table of Contents

Union Carbide Corporation and Subsidiaries
Consolidated Statements of Cash Flows

(In millions) For the years ended December 31	2008			2007			2006
Operating Activities
Net Income Available for Common Stockholder	$	327		$	1,052		$	1,046
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		273			311			301
Provision (Credit) for deferred income tax		60			(238	)		58
Earnings of nonconsolidated affiliates in excess of dividends received		(34	)		(169	)		(24	)
Net gain on sales of property		(14	)		(10	)		-
Restructuring charges		105			55			14
Other (gain) loss, net		-			(1	)		1
Asbestos-related credit		(54	)		-			(177	)
Goodwill impairment loss		26			-			-
Pension contributions		(2	)		(2	)		(2	)
Changes in assets and liabilities:
Accounts and notes receivable		19			(6	)		42
Related company receivables		(348	)		(825	)		(857	)
Inventories		(9	)		21			(18	)
Accounts payable		(63	)		(64	)		12
Related company payables		(85	)		135			(62	)
Other assets and liabilities		(81	)		(51	)		(112	)
Cash provided by operating activities		120			208			222
Investing Activities
Capital expenditures		(252	)		(272	)		(228	)
Proceeds from sales of property		14			22			5
Distributions from nonconsolidated affiliates		-			7			4
Changes in noncurrent receivable from related company		119			(12	)		10
Purchases of investments		(19	)		(7	)		(14	)
Proceeds from sales of investments		20			6			3
Cash used in investing activities		(118	)		(256	)		(220	)
Financing Activities
Changes in short-term notes payable		-			(1	)		(2	)
Payments on long-term debt		-			-			(2	)
Cash used in financing activities		-			(1	)		(4	)
Summary
Increase (Decrease) in cash and cash equivalents		2			(49	)		(2	)
Cash and cash equivalents at beginning of year		22			71			73
Cash and cash equivalents at end of year	$	24		$	22		$	71
See Notes to the Consolidated Financial Statements.

Table of Contents

Union Carbide Corporation and Subsidiaries
Consolidated Statements of Stockholder's Equity

(In millions) For the years ended December 31	2008			2007			2006
Common stock
Balance at beginning and end of year		-			-			-
Additional paid-in capital
Balance at beginning of year	$	121		$	121		$	121
Capital contribution		191			-			-
Balance at end of year		312			121			121
Retained earnings
Balance at beginning of year		5,767			4,782			3,736
Cumulative effect of adopting FIN No. 48		-			(67	)		-
Net income		327			1,052			1,046
Balance at end of year		6,094			5,767			4,782
Accumulated other comprehensive loss, net of tax
Cumulative translation adjustments at beginning of year		(69	)		(72	)		(72	)
Translation adjustments		8			3			-
Balance at end of year		(61	)		(69	)		(72	)
Minimum pension liability at beginning of year		-			-			(12	)
Adjustments		-			-			1
Balance at end of year, 2006 prior to adoption of SFAS No. 158		-			-			(11	)
Reversal of Minimum Pension Liability under SFAS No. 158		-			-			11
Recognition of prior service cost and net gain (loss) under SFAS No. 158		-			-			(411	)
Pension and Other Postretirement Benefit Plans at beginning of year		(164	)		(411	)		-
Net prior service cost (credit)		7			(41	)		-
Net gain (loss)		(626	)		288			-
Pension and Other Postretirement Benefit Plans at end of year		(783	)		(164	)		(411	)
Accumulated investment gain at beginning of year		-			-			-
Net investment results		1			-			-
Balance at end of year		1			-			-
Accumulated derivative gain at beginning of year		-			-			1
Net hedging results		(1	)		-			(1	)
Balance at end of year		(1	)		-			-
Total accumulated other comprehensive loss		(844	)		(233	)		(483	)
Net Stockholder's Equity	$	5,562		$	5,655		$	4,420
See Notes to the Consolidated Financial Statements.


Consolidated Statements of Comprehensive Income

(In millions) For the years ended December 31	2008			2007			2006
Net Income Available for Common Stockholder	$	327		$	1,052		$	1,046
Other Comprehensive Income (Loss), Net of Tax (tax amounts shown below for 2008, 2007, 2006)
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 $(331), $160, $-)		(627	)		270			-
Less: Amortization of prior service cost included in net periodic pension costs (net of tax of $2, $-, $-)		3			-			-
Less: Amortization of net loss included in net periodic pension costs (net of tax of $1, $11, $-)		1			18			-
Minimum pension liability adjustment (net of tax of $-, $-, $1)		-			-			1
Net loss on cash flow hedging derivative instruments		(1	)		-			(1	)
Total other comprehensive income (loss)		(611	)		250			-
Comprehensive Income (Loss)	$	(284	)	$	1,302		$	1,046
See Notes to the Consolidated Financial Statements.

Table of Contents

Union Carbide Corporation and Subsidiaries

Notes to the Consolidated Financial Statements

NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS

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. See Note N for further discussion.

The Corporation is a wholly owned subsidiary of The Dow Chemical Company (“Dow”). In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 128, “Earnings Per Share,” the presentation of earnings per share is not provided, as it is not required in financial statements of wholly owned subsidiaries.

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 under SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” and no detailed business information is provided to a chief operating decision maker regarding the Corporation’s stand-alone operations, the Corporation’s results are reported as a single operating segment.

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. See Note N for further discussion.

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.

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 “Other noncurrent obligations” at undiscounted amounts.

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.

Table of Contents

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, which take into account the present value of estimated future cash flows.

The Corporation utilizes derivative instruments to manage exposures to currency exchange rates, commodity prices and interest rate risk. The fair values of all derivative instruments 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 under the provisions of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended and interpreted.

Gains and losses on derivative instruments that qualify as cash flow hedges 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 derivative instruments 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. Derivative instruments not designated as hedges 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.

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 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.

The excess of the cost of investments in subsidiaries over the values assigned to assets and liabilities is shown as goodwill and is subject to the impairment provisions of SFAS No. 142, “Goodwill and Other Intangible Assets.” Absent any

Table of Contents

impairment indicators, recorded goodwill is tested annually for impairment by comparing the fair value of assets, determined using a discounted cash flow method, with the carrying value.

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 FOB (free on board) 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 for trade sales 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 associated 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.

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 (under SFAS No. 112, “Employers’ Accounting for Postemployment Benefits – an amendment of FASB Statements No. 5 and 43”) 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.

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 other 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.

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.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes,” which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” The interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The interpretation also provides guidance on derecognition,

Table of Contents

classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN No. 48 was effective for fiscal years beginning after December 15, 2006. On January 1, 2007, the Corporation adopted the provisions of FIN No. 48. The cumulative effect of adoption was a $67 million reduction of retained earnings. See Note O for further information on income taxes.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106, and 132(R).” The Statement, which was effective December 31, 2006 for the Corporation, requires employers to recognize the funded status of defined benefit postretirement plans as an asset or liability on the balance sheet and to recognize changes in that funded status through comprehensive income. See Note L for further information on pension plans and other postretirement benefits.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The Statement applies under other accounting pronouncements that require or permit fair value measurements and was effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued FASB Staff Position (“FSP”) FAS No. 157-2, which delayed the effective date of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis, to fiscal years beginning after November 15, 2008. On January 1, 2008, the Corporation adopted the portion of SFAS No. 157 that was not delayed, and since the Corporation’s existing fair value measurements are consistent with the guidance of the Statement, the partial adoption of the Statement did not have a material impact on the Corporation’s consolidated financial statements. Since the Corporation’s existing fair value measurements for pension assets are also consistent with the guidance of the Statement, the adoption of the Statement for pension and postretirement plans at the December 31, 2008 measurement date did not have a material impact on the Corporation’s consolidated financial statements. In accordance with FSP FAS No. 157-2, the provisions of SFAS No. 157 were not applied to the long-lived asset impairments described in Note B or to the goodwill impairments described in Note F. The Corporation does not expect the adoption of the Statement for nonfinancial assets and nonfinancial liabilities on January 1, 2009 to have a material impact on the Corporation’s consolidated financial statements. See Note H for expanded disclosures about fair value measurements.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of SFAS No. 133.” The Statement requires enhanced disclosures about an entity’s derivative and hedging activities. The Statement is effective for fiscal years and interim periods beginning after November 15, 2008, which is January 1, 2009 for the Corporation; early adoption is encouraged. The Corporation’s disclosures are included in Note G.

In September 2008, the FASB issued FSP FAS No. 133-1 and FIN No. 45-4, “Disclosures About Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161.” The FSP amends and enhances the disclosure requirements for sellers of credit derivatives (including hybrid instruments that have embedded credit derivatives) and financial guarantees. The FSP was effective for reporting periods ending after November 15, 2008. The Corporation currently does not hold any of these instruments, thus the FSP did not have an impact on the disclosures in the Corporation’s consolidated financial statements at December 31, 2008.

In October 2008, the FASB issued FSP FAS No. 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active.” The FSP clarifies the application of SFAS No. 157, “Fair Value Measurements,” when the market for a financial asset is not active. The FSP was effective upon issuance, including reporting for prior periods for which financial statements had not been issued. The adoption of the FSP did not have a material impact on the Corporation’s consolidated financial statements. See Note H for further information on fair value measurements.

Accounting Standards Issued But Not Yet Adopted

In December 2007, the FASB revised SFAS No. 141, “Business Combinations” (“SFAS No. 141R”), to establish revised principles and requirements for how entities will recognize and measure assets and liabilities acquired in a business combination. The Statement is effective for business combinations completed on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Corporation will apply the guidance of the Statement to business combinations completed on or after January 1, 2009.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51.” The Statement establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The Statement is effective for annual reporting periods beginning on or after December 15, 2008. The Corporation does not expect the adoption of the Statement on January 1, 2009 to have a material impact on the Corporation’s consolidated financial statements. The Corporation will incorporate presentation and disclosure requirements outlined by SFAS No. 160 in the Corporation’s Quarterly Report on Form 10-Q for the period ending March 31, 2009.

In April 2008, the FASB issued FSP FAS No. 142-3, “Determination of the Useful Life of Intangible Assets.” The FSP amends the factors an entity should consider in developing renewal or extension assumptions used in determining the useful life of recognized intangible assets under SFAS No. 142, “Goodwill and Other Intangible Assets.” The FSP must be applied

Table of Contents

prospectively to intangible assets acquired in fiscal years beginning after December 15, 2008. The Corporation will apply the guidance of the FSP to intangible assets acquired on or after January 1, 2009.

In November 2008, the FASB ratified the consensus reached by the EITF with respect to EITF Issue No. 08-6, “Equity Method Investment Considerations.” The Issue is effective in the first reporting period beginning on or after December 15, 2008, which is January 1, 2009 for the Corporation. The Issue addresses accounting for certain transactions and impairment considerations involving equity method investments, in light of SFAS No. 141R and SFAS No. 160. The Corporation will apply the guidance of the Issue to equity method investments acquired on or after January 1, 2009.

In November 2008, the FASB ratified the consensus reached by the EITF with respect to EITF Issue No. 08-7, “Accounting For Defensive Intangible Assets.” The Issue, which is effective in the first annual reporting period beginning on or after December 15, 2008, which is January 1, 2009 for the Corporation, applies to acquired intangible assets, except for intangible assets used in research and development activities, that are not intended for active use, but rather will be held to prevent others from obtaining access to the asset. The Issue requires such assets to be treated as separate units of accounting and provides guidance on determining the useful life of such assets. The Corporation will apply the guidance of the Issue to defensive intangible assets acquired on or after January 1, 2009.

In December 2008, the FASB issued FSP FAS No. 132R-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets.” The FSP requires new disclosures on investment policies and strategies, categories of plan assets, fair value measurements of plan assets, and significant concentrations of risk, and is effective for fiscal years ending after December 15, 2009, with earlier application permitted. The provisions of the FSP are not required for earlier periods that are presented for comparative purposes.

NOTE B RESTRUCTURING

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 (shown as “Restructuring charges” in the consolidated statements of income) in the fourth quarter of 2008 which included the write-off of the net book value of certain assets in Texas and Xiaolan, China, and a workforce reduction to improve the cost effectiveness and to enhance the efficiency of the Corporation’s operations. The charges included a $57 million write-off of the net book value associated with the shutdown of a facility that manufactures NORDELTM hydrocarbon rubber in Seadrift, Texas, the solution vinyl resins facility in Texas City, Texas and the emulsion systems facility in Xiaolan, China; severance of $24 million for a workforce reduction of 399 people and curtailment costs of $24 million associated with the Corporation’s defined benefit plans (see Note L). At December 31, 2008, a liability of $48 million remained for severance and curtailment costs.

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 reserve		(57	)		-		-		(57	)
Reserve balance at December 31, 2008		-		$	24	$	24	$	48

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 (shown as “Restructuring charges” in the consolidated statements of income) 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 plans (see Note L). At December 31, 2008, severance of $2 million had been paid to 44 employees, and a liability of $15 million remained for 187 employees. The workforce reduction is expected to be completed by December 31, 2009.

Table of Contents

The following table summarizes the 2007 and 2008 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 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

2006 Restructuring

In 2006, the Corporation recorded restructuring charges totaling $14 million (shown as “Restructuring charges” in the consolidated statements of income) resulting from decisions made by management in the third quarter to improve the competitiveness of its global operations. The decisions resulted in the write-off of the net book value of three manufacturing facilities totaling $10 million (the largest of which was $8 million associated with the shutdown of the peroxymeric chemicals production facility in St. Charles, Louisiana, in October 2006), and costs totaling $4 million related to the dissolution of a consolidated joint venture in China which ceased operations in October 2006.

NOTE C INVENTORIES

The following table provides a breakdown of inventories:

Inventories at December 31 In millions	2008		2007
Finished goods	$	48	$	17
Work in process		10		40
Raw materials		55		47
Supplies		74		74
Total inventories	$	187	$	178

The reserves reducing inventories from a FIFO basis to a LIFO basis amounted to $115 million at December 31, 2008 and $183 million at December 31, 2007. The inventories that were valued on a LIFO basis, principally U.S. chemicals and plastics product inventories, represented 51 percent of the total inventories at December 31, 2008 and 44 percent of the total inventories at December 31, 2007.

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 2008, 2007 and 2006.

NOTE D PROPERTY

Property at December 31	Estimated
In millions	Useful Lives (Years)		2008		2007
Land		-	$	51	$	52
Land and waterway improvements		15-25		225		215
Buildings		5-55		505		498
Machinery and equipment		3-20		6,071		6,060
Utility and supply lines		5-20		85		82
Other property		3-30		379		377
Construction in progress		-		314		225
Total property			$	7,630	$	7,509

Table of Contents

In millions	2008	2007	2006
Depreciation expense	$271	$270	$275
Manufacturing maintenance and repair costs	$211	$223	$199
Capitalized interest	$15	$13	$10

NOTE E NONCONSOLIDATED AFFILIATES

The Corporation’s investments in related companies accounted for by the equity method (“nonconsolidated affiliates”) were $427 million at December 31, 2008 and $385 million at December 31, 2007. Dividends received from nonconsolidated affiliates were $132 million in 2008, $331 million in 2007 and $371 million in 2006.

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. At December 31, 2008, the Corporation had a 19.13 percent ownership interest in DIHC (18.77 percent at December 31, 2007). For additional information, see Note N.

Undistributed earnings of nonconsolidated affiliates included in retained earnings were $245 million at December 31, 2008 and $576 million at December 31, 2007.

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, 2008, 2007 and 2006 are shown below:

Principal Nonconsolidated Affiliates at December 31	Ownership Interest
	2008			2007			2006
EQUATE Petrochemical Company K.S.C.		-			-			42.5	%
Nippon Unicar Company Limited		50	%		50	%		50	%
The OPTIMAL Group of Companies:
OPTIMAL Chemicals (Malaysia) Sdn. Bhd.		50	%		50	%		50	%
OPTIMAL Glycols (Malaysia) Sdn. Bhd.		50	%		50	%		50	%
OPTIMAL Olefins (Malaysia) Sdn. Bhd.		23.75	%		23.75	%		23.75	%
Univation Technologies, LLC		50	%		50	%		50	%

The Corporation’s investment in the principal nonconsolidated affiliates was $420 million at December 31, 2008 and $372 million at December 31, 2007, and its equity in earnings was $167 million in 2008, $495 million in 2007 and $385 million in 2006. 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	2008		2007
Current assets	$	840	$	828
Noncurrent assets		1,038		1,086
Total assets	$	1,878	$	1,914
Current liabilities	$	416	$	463
Noncurrent liabilities		399		477
Total liabilities	$	815	$	940

Table of Contents

Summarized Income Statement Information
In millions	2008	2007(1)	2006(1)
Sales	$2,410	$3,278	$2,885
Gross profit	$798	$1,478	$1,177
Net income	$515	$1,223	$911
(1) The summarized income statement information for 2007 and 2006 includes the results for EQUATE.

NOTE F 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 which came on stream in 2008 and additional industry capacity which is expected to come on stream in 2009. As a result, the Corporation recognized an impairment loss of $26 million in the fourth quarter of 2008.

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

Other Intangible Assets at December 31			2008							2007
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	$	(32	)	$	1
Patents		2		(1	)	$	1		3		(2	)		1
Software		117		(101	)		16		114		(94	)		20
Total other intangible assets	$	152	$	(135	)	$	17	$	150	$	(128	)	$	22

The following table provides information regarding amortization expense:

Amortization Expense In millions	2008	2007	2006
Software, included in “Cost of sales”	$7	$6	$4

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

Estimated Amortization Expense for Next Five Years In millions
2009	$6
2010	$5
2011	$4
2012	$2
2013	-

Table of Contents

NOTE G FINANCIAL INSTRUMENTS

Investments

The Corporation’s investments in marketable securities are classified as available-for-sale. The Corporation’s investments in debt securities had contractual maturities of one to ten years at December 31, 2008.

Investing Results
In millions	2008	2007	2006
Proceeds from sales of available-for-sale securities	$13	$2	$2

Fair Value of Financial Instruments at December 31
	2008											2007
In millions		Cost			Gain		Loss		Fair Value			Cost			Gain		Loss			Fair Value
Marketable securities(1):
Debt securities		$	13		$	1		-	$	14		$	19		$	1		-		$	20
Long-term debt including debt due within one year		$	(820	)	$	145		-	$	(675	)	$	(820	)	$	5	$	(9	)	$	(824	)

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

Cost approximates fair value for all other financial instruments.

The Corporation enters into foreign exchange forward contracts to hedge various currency exposures, primarily related to assets and liabilities denominated in foreign currencies. The primary business objective of the activity is to optimize the U.S. dollar value of the Corporation’s assets and liabilities. Assets and liabilities denominated in the same foreign currency are netted, and only the net exposure is hedged. At December 31, 2008, the Corporation had forward contracts to buy, sell or exchange foreign currencies, with expiration dates in the first quarter of 2009, which were immaterial. The Corporation did not designate any derivatives as hedges at December 31, 2008 or December 31, 2007.

During the three-year period ended December 31, 2008, nonconsolidated affiliates of the Corporation had hedging activities that were accounted for as cash flow hedges in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended and interpreted. The Corporation’s proportionate share of the hedging results recorded in accumulated other comprehensive income by the nonconsolidated affiliates is reported as net hedging results in the Corporation’s consolidated statements of stockholder’s equity in accordance with SFAS No. 130, “Reporting Comprehensive Income.”

NOTE H FAIR VALUE MEASUREMENTS

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

Basis of Fair Value Measurements at December 31, 2008		Significant Other Observable Inputs (Level 2)
In millions		Significant Other Observable Inputs (Level 2)
Assets at fair value:
Debt securities(1)		$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.

The prices for Level 2 items (significant other observable inputs) are based on the price a dealer would pay for the security or similar securities. Market inputs are obtained from well established and recognized vendors of market data and placed through tolerance/quality checks.

Table of Contents

NOTE I SUPPLEMENTARY INFORMATION

Accrued and Other Current Liabilities

“Accrued and other current liabilities” were $198 million at December 31, 2008 and $180 million at December 31, 2007. Postretirement benefit obligation, which is a component of “Accrued and other current liabilities,” was $52 million at December 31, 2008 and $54 million at December 31, 2007. No other accrued liabilities were more than 5 percent of total current liabilities.

Other Noncurrent Obligations

“Other noncurrent obligations” were $298 million at December 31, 2008 and $356 million at December 31, 2007. Tax contingency reserve, which is a component of “Other noncurrent obligations,” was $172 million at December 31, 2008 and $141 million at December 31, 2007. No other noncurrent obligations were more than 5 percent of total liabilities.

Sundry Income (Expense) – Net
In millions	2008			2007			2006
Net gain (loss) on sales of assets and securities	$	14		$	10		$	(3	)
Foreign exchange gain		-			1			-
Related company commissions - net		(33	)		(37	)		(40	)
Dividend income - related companies		297			109			37
Other - net		(35	)		(34	)		(33	)
Total sundry income (expense) - net	$	243		$	49		$	(39	)

Other Supplementary Information
In millions	2008		2007		2006
Cash payments for interest	$	59	$	66	$	62
Cash payments for income taxes	$	40	$	233	$	276
Provision for (recovery of) doubtful receivables (1)		-	$	4	$	(1	)
(1) Included in “Selling, general and administrative expenses” in the consolidated statements of income.

NOTE J 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 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. 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, 2007, the Corporation had accrued obligations of $75 million for environmental remediation and restoration costs, including $23 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, 2008 and 2007:

Accrued Liability for Environmental Matters
In millions	2008			2007
Balance at January 1	$	75		$	77
Additional accruals		30			33
Charges against reserve		(38	)		(35	)
Balance at December 31	$	67		$	75

Table of Contents

The amounts charged to income on a pretax basis related to environmental remediation totaled $29 million in 2008, $33 million in 2007 and $23 million in 2006. Capital expenditures for environmental protection were $17 million in 2008, $15 million in 2007 and $25 million in 2006.

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 subsidiary, Amchem Products, Inc. (“Amchem”). In many cases, plaintiffs are unable to demonstrate that they have suffered any compensable loss as a result of such exposure, or that injuries incurred in fact resulted from exposure to the Corporation’s products.

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

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

In November 2006, the Corporation requested ARPC to review the Corporation’s historical asbestos claim and resolution activity and determine the appropriateness of updating its January 2005 study. In response to that request, ARPC reviewed and analyzed data through October 31, 2006 and concluded that the experience from 2004 through 2006 was sufficient for the purpose of forecasting future filings and values of asbestos claims filed against UCC and Amchem, and could be used in place of previous assumptions to update its January 2005 study. The resulting study, completed by ARPC in December 2006, stated that the undiscounted cost of resolving pending and future asbestos-related claims against UCC and Amchem, excluding future defense and processing costs, through 2021 was estimated to be between approximately $1.2 billion and $1.5 billion. As in its January 2003 and January 2005 studies, ARPC provided estimates for a longer period of time in its December 2006 study, but also reaffirmed its prior advice that forecasts for shorter periods of time are more accurate than those for longer periods of time.

Based on ARPC’s December 2006 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 $1.2 billion at December 31, 2006 which covered the 15-year period ending in 2021 (excluding future defense and processing costs). The reduction was $177 million and was shown as “Asbestos-related credit” in the consolidated statements of income for 2006.

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

Table of Contents

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.

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 at December 31
In millions	2008		2007
Receivables for defense costs	$	28	$	18
Receivables for resolution costs		244		253
Total	$	272	$	271

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 Corporation’s consolidated financial statements. 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.

Table of Contents

Purchase Commitments

At December 31, 2008, the Corporation had various outstanding commitments for take-or-pay agreements, with terms extending from one to fifteen years. Such commitments were not in excess of current market prices. The fixed and determinable portion of obligations under purchase commitments at December 31, 2008 is presented in the following table:

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

Guarantees

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

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

Guarantees In millions	Final Expiration	Maximum Future Payments	Recorded Liability
Guarantees at December 31, 2008	2014	$72	$1
Guarantees at December 31, 2007	2014	$77	$1

Conditional Asset Retirement Obligations

In accordance with FIN No. 47, 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, 2008 and December 31, 2007. The discount rate used to calculate the Corporation’s conditional asset retirement obligations was 7.13 percent (5.08 percent at December 31, 2007). These obligations are included in the consolidated balance sheet 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.

Table of Contents

NOTE K NOTES PAYABLE AND LONG-TERM DEBT

Notes Payable at December 31 In millions
Notes Payable at December 31 In millions	2008	2007
Notes payable – related companies	$12	$5
Year-end average interest rates	2.70%	5.67%

Long-Term Debt at December 31	2008						2007
	Average						Average
In millions	Rate			2008			Rate			2007
Promissory notes and debentures:
6.70% Notes due 2009		6.70	%	$	249			6.70	%	$	249
7.875% Debentures due 2023		7.88	%		175			7.88	%		175
6.79% Debentures due 2025		6.79	%		12			6.79	%		12
7.50% Debentures due 2025		7.50	%		150			7.50	%		150
7.75% 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 a year		-			(249	)		-			-
Total long-term debt		-		$	571			-		$	820

Annual Installments on Long-Term Debt for the Next Five Years In millions
2009	$249
2010	-
2011	-
2012	$37
2013	-

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. At December 31, 2008, management believes the Corporation was in compliance with the covenants referred to above.

NOTE L 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 non-qualified 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 2008, UCC did not make any contributions to its qualified pension plan. UCC does not expect to contribute assets to its qualified pension plan in 2009.

Table of Contents

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
	2008	2007	2008	2007
Discount rate	6.85%	6.65%	6.65%	5.95%
Rate of increase in future compensation levels	4.50%	4.50%	4.50%	4.50%
Long-term rate of return on assets	-	-	8.00%	8.40%

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 $3.4 billion at December 31, 2008 and $3.5 billion at December 31, 2007.

Pension Plans with Accumulated Benefit Obligations in Excess of Plan Assets at December 31
In millions	2008	2007
Projected benefit obligation	$3,419	$18
Accumulated benefit obligation	$3,392	$18
Fair value of plan assets	$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 2008 and UCC does not expect to contribute assets to its other postretirement benefit plan trust in 2009.

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
	2008	2007	2008	2007
Discount rate	6.95%	6.50%	6.50%	5.85%
Initial health care cost trend rate	9.79%	10.43%	10.43%	8.84%
Ultimate health care cost trend rate	6.00%	6.00%	6.00%	6.00%
Year ultimate trend rate to be reached	2018	2014	2014	2011

Increasing or decreasing the assumed medical cost trend rate by one percentage point in each year would have an immaterial impact on the accumulated postretirement benefit obligation at December 31, 2008 and on the net periodic postretirement benefit cost for the year.

Table of Contents

Net Periodic Benefit Cost (Credit) for all Significant Plans
	Defined Benefit Pension Plans									Other Postretirement Benefits
In millions	2008			2007			2006			2008			2007			2006
Service cost	$	18		$	22		$	23		$	2		$	3		$	4
Interest cost		225			214			211			30			30			31
Expected return on plan assets		(310	)		(317	)		(332	)		-			-			-
Amortization of prior service cost (credit)		7			2			2			(2	)		(2	)		(2	)
Amortization of net loss		2			27			31			-			2			3
Termination/curtailment cost(1)		16			5			-			8			6			-
Net periodic benefit cost (credit)	$	(42	)	$	(47	)	$	(65	)	$	38		$	39		$	36

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

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

Change in Projected Benefit Obligations, Plan Assets and Funded Status of all Significant Plans
	Defined Benefit Pension Plans						Other Postretirement Benefits
In millions	2008			2007			2008			2007
Change in projected benefit obligation:
Benefit obligation at beginning of year	$	3,500		$	3,712		$	490		$	548
Service cost		18			22			2			3
Interest cost		225			214			30			30
Amendments		-			64			-			-
Actuarial changes in assumptions and experience		(39	)		(238	)		(21	)		(55	)
Benefits paid		(285	)		(279	)		(41	)		(43	)
Termination/curtailment cost		9			5			9			7
Other		(9	)		-			-			-
Benefit obligation at end of year	$	3,419		$	3,500		$	469		$	490

Change in plan assets:
Fair value of plan assets at beginning of year	$	4,180		$	4,003			-			-
Actual return (loss) on plan assets		(709	)		466			-			-
Employer contributions		2			2			-			-
Asset transfer		(7	)		(12	)		-			-
Benefits paid		(285	)		(279	)		-			-
Fair value of plan assets at end of year	$	3,181		$	4,180			-			-

Funded status at end of year	$	(238	)	$	680		$	(469	)	$	(490	)

Net amounts recognized in the consolidated balance sheets at December 31:
Noncurrent assets		-		$	699			-			-
Current liabilities	$	(2	)		(2	)	$	(50	)	$	(52	)
Noncurrent liabilities		(236	)		(17	)		(419	)		(438	)
Net amounts recognized in the consolidated balance sheets	$	(238	)	$	680		$	(469	)	$	(490	)

Table of Contents

Pretax amounts recognized in AOCI at December 31:
Net loss	$	1,143	$	167	$	10		$	30
Prior service cost (credit)		61		74		(10	)		(12	)
Pretax balance in AOCI at end of year	$	1,204	$	241		-		$	18

In 2009, an estimated net loss of $4 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 2009, an estimated prior service credit of $2 million for the other postretirement benefit plan will be amortized from AOCI to net periodic benefit cost.

The Corporation uses a December 31 measurement date for all of its plans.

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, 2008
In millions	Defined Benefit Pension Plans		Other Postretirement Benefits
2009	$	286	$	52
2010		283		50
2011		278		48
2012		275		45
2013		271		42
2014 through 2018		1,316		200
Total	$	2,709	$	437

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, 2008, plan assets totaled $3.2 billion and included no Dow common stock. At December 31, 2007, plan assets totaled $4.2 billion and included no Dow common stock.

Weighted-Average Allocation of Plan Assets at December 31
	2008			2007
Equity securities		16	%		43	%
Debt securities		60	%		36	%
Alternative Investments		24	%		21	%
Total		100	%		100	%

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.

Strategic Target Allocation of Plan Assets
Asset Category	Target Allocation	Range
Equity securities	40%	15 - 50%
Debt securities	43%	33 - 68%
Alternative Investments	17%	9 - 25%
Total	100%

Table of Contents

NOTE M LEASED PROPERTY

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

Minimum Operating Lease Commitments at December 31, 2008 In millions
2009	$	6
2010		3
2011		2
2012		2
2013		1
2014 and thereafter		-
Total	$	14

Rental expenses under operating leases were $30 million in 2008, $36 million in 2007 and $37 million in 2006 (net of sublease rental income of zero in 2008 and 2007, and $22 million in 2006).

NOTE N 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 (expense) – net” in the consolidated statements of income. Purchases from that Dow subsidiary were approximately $3.9 billion in 2008, $3.3 billion in 2007 and $3.1 billion in 2006.

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

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

The monitoring and execution of risk management policies related to interest rate 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, 2008, the Corporation had a note receivable of $3.9 billion ($3.2 billion at December 31, 2007) 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, 2009, pursuant to an amendment effective as of September 30, 2008. Dow may demand repayment with a 30-day written notice to the Corporation, subject to certain restrictions. A related collateral agreement provides for the replacement of certain existing pledged assets, primarily equity interests in various subsidiaries and joint ventures, with cash collateral. At December 31, 2008, $826 million ($813 million at December 31, 2007) was available under the revolving credit agreement. The cash collateral was reported as “Noncurrent receivables from related companies” in the consolidated balance sheets.

The Corporation has an insurance receivable from its insurer (an affiliate of Dow) for losses incurred from Hurricane Katrina in 2005 and Hurricanes Gustav and Ike in 2008. At December 31, 2008, the insurance receivable was $47 million and was reported in “Accounts receivable – Related companies.” At December 31, 2007, the insurance receivable was $105 million and was reported in “Noncurrent receivables from related companies” in the consolidated balance sheets.

Table of Contents

The Corporation received cash dividends from its investments in related companies of $297 million in 2008, including $204 million from Dow International Holding Company (“DIHC”) and $82 million from Modeland International Holdings Inc (“Modeland”). In 2007, dividends from its investments in related companies were $109 million (including $98 million from DIHC) and $37 million in 2006. These dividends were included in “Sundry income (expense) – 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, 2008, the Corporation had a 19.13 percent ownership interest in DIHC (18.77 percent at December 31, 2007) 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 $33 million to Dow in 2008 to cover the Corporation’s estimated federal tax liability for 2008; payments were $287 million in 2007.

NOTE O INCOME TAXES

Operating loss carryforwards at December 31, 2008 amounted to $607 million compared with $1,290 million at the end of 2007. Such amounts included U.S. state and local operating loss carryforwards determined more likely than not to be utilized. At December 31, 2008, $6 million of the operating loss carryforwards was subject to expiration in the years 2009 through 2013. The remaining balances expire in years beyond 2013 or have an indefinite carryforward period. Tax credit carryforwards amounted to $39 million at December 31, 2008 and $59 million at December 31, 2007, all of which expire in years beyond 2013.

Undistributed earnings of foreign subsidiaries and related companies that are deemed to be permanently invested amounted to $60 million at December 31, 2008, $72 million at December 31, 2007 and $73 million at December 31, 2006. 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 $111 million at December 31, 2008 and $49 million at December 31, 2007.

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 E and N 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.

The Corporation’s tax rate for 2006 was lower than the U.S. statutory rate due to an excess of earnings by a number of joint ventures over dividends received from those companies and the benefit of dividend income from related companies. UCC’s reported effective tax rate for 2006 was 28.6 percent.

Domestic and Foreign Components of Income Before Income Taxes
In millions	2008			2007			2006
Domestic	$	447		$	1,141		$	1,465
Foreign		(2	)		(3	)		1
Total	$	445		$	1,138		$	1,466

Table of Contents

Reconciliation to U.S. Statutory Rate
In millions	2008			2007			2006
Taxes at U.S. statutory rate	$	156		$	399		$	513
Equity earnings effect		(70	)		(121	)		(142	)
Change in EQUATE legal ownership structure		-			(195	)		-
Foreign income taxed at rates other than 35%		1			1			1
U.S. tax effect of foreign earnings and dividends		14			86			94
U.S. business credits		(4	)		(9	)		(28	)
Benefit of dividend income from related companies		(58	)		(34	)		-
Unrecognized tax benefits		16			34			-
Tax contingency reserve adjustments		-			-			66
State and local tax impact		56			(24	)		(59	)
Other – net		7			(51	)		(25	)
Total tax provision	$	118		$	86		$	420
Effective tax rate		26.5	%		7.6	%		28.6	%

Provision for Income Taxes
	2008										2007							2006
In millions		Current			Deferred			Total			Current		Deferred			Total		Current		Deferred			Total
Federal		$	63		$	62		$	125		$	300	$	(239	)	$	61	$	351	$	117		$	468
State and local			(13	)		(2	)		(15	)		17		1			18		-		(59	)		(59	)
Foreign			9			(1	)		8			7		-			7		11		-			11
Total		$	59		$	59		$	118		$	324	$	(238	)	$	86	$	362	$	58		$	420

Deferred Tax Balances at December 31	2008					2007
In millions	Deferred Tax Assets			Deferred Tax Liabilities		Deferred Tax Assets			Deferred Tax Liabilities
Property	$	1		$	292		-		$	344
Tax loss and credit carryforwards		161			-	$	151			-
Postretirement benefit obligations		662			360		342			343
Other accruals and reserves		470			41		400			51
Inventory		8			-		8			-
Long-term debt		-			1		-			1
Investments		-			1		2			-
Other – net		56			75		66			9
Subtotal	$	1,358		$	770	$	969		$	748
Valuation allowance		(111	)		-		(49	)		-
Total	$	1,247		$	770	$	920		$	748

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, 2008, the total amount of unrecognized tax benefits was $265 million ($269 million at December 31, 2007), of which $247 million ($259 million at December 31, 2007) 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 $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 $35 million at December 31, 2008 and $57 million at December 31, 2007.

Table of Contents

Total Gross Unrecognized Tax Benefits
In millions	2008			2007
Balance at January 1	$	269		$	251
Increases related to positions taken on items from prior years		15			30
Decreases related to positions taken on items from prior years		(8	)		(29	)
Increases related to positions taken in current year		11			17
Settlement of uncertain tax positions with tax authorities		(22	)		-
Balance at December 31	$	265		$	269

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, varous 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 will be reduced by approximately $70 million ($80 million at December 31, 2007). 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 $10 million. The impact on the Corporation’s results of operations is expected to be immaterial.

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	2008	2007
United States:
Federal income tax	2001	2001
State and local income tax	1996	1989

The reserve for non-income tax contingencies related to issues in the United States was $29 million at December 31, 2008 and $50 million at December 31, 2007. This is management’s best estimate of the potential liability for other 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.

Table of Contents

NOTE P BUSINESS AND GEOGRAPHIC SEGMENT INFORMATION

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 under SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” and no detailed business information is provided to a chief operating decision maker regarding the Corporation's stand-alone operations, the Corporation’s results are reported as a single operating segment.

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
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
2006
Sales to external customers (1)	$352	$118	$36	$506
Long-lived assets	$1,950	$15	$5	$1,970

(1) Of the total sales to external customers, China represented approximately 14 percent in 2008, 19 percent in 2007 and 15 percent in 2006, and

is included in Asia Pacific.

Table of Contents

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

None.

ITEM 9A(T). 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, 2008, 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/ WILLIAM H. WEIDEMAN
William H. Weideman, Vice President and Controller The Dow Chemical Company Authorized Representative of Union Carbide Corporation

February 12, 2009

Table of Contents

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, 2008 and 2007, 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	2008		2007
Audit fees (1)	$	1,747	$	1,669
Audit-related fees (2)		434		252
Tax fees		4		5
Total	$	2,185	$	1,926
(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 procedures, engagements and audits of employee benefit plans’ financial statements.

Table of Contents

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

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

1. The Corporation’s 2008 Consolidated Financial Statements and the Report of Independent Registered Public Accounting Firm are included in Item 8 of Part II.

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 N), 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 81-82 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
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, 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

Table of Contents

	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
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

2006
RESERVES DEDUCTED FROM ASSETS TO WHICH THEY APPLY:
	For doubtful receivables	$3	-	$1	(1)		$2

	2008	2007	2006
(1) Deductions represent:
Notes and accounts receivable written off	$1	-	$1

Table of Contents

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

Table of Contents

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.

Table of Contents

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.

Table of Contents

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.

Table of Contents

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.

Table of Contents

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

Table of Contents

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.

Table of Contents

	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.

Table of Contents

	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

Table of Contents

	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.

Table of Contents

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.

Table of Contents

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

Table of Contents

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

Table of Contents

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.

Table of Contents

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.

Table of Contents

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

Table of Contents

	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.

Table of Contents

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

Table of Contents

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

Table of Contents

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.

Table of Contents

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.

Table of Contents

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

Table of Contents

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.

Table of Contents

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

Table of Contents

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.

Table of Contents

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 18th day of February 2009.

	UNION CARBIDE CORPORATION
	By:	/s/ W. H. WEIDEMAN
		W. H. Weideman, 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 18th day of February 2009 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/ W. H. WEIDEMAN
W. H. Weideman, Vice President and Controller The Dow Chemical Company Authorized Representative of Union Carbide Corporation

Table of Contents

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.

Table of Contents

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).
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 (see Exhibit 10.28 of the Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004).
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).

Table of Contents

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).
10.6	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).
10.8	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.

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

Positive
Negative
Uncertain
Constraining
Legalese
Litigious
Readability	H.S. freshman V bad

Union Carbide 10-K2008 FY Annual report

Content analysis