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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

FOR THE QUARTER ENDED March 31, 2003

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.)
|--------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------
|39 Old Ridgebury Road, Danbury, Connecticut 06817-0001(Address of principal executive offices) (Zip Code)
|Registrant's telephone number, including area code:203-794-2000                                          
|Not applicable(Former name, former address and former fiscal year, if changed since last report)         

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

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

At
March 31, 2003, 1,000 shares of common stock were outstanding, all of which were held by the registrant's parent, The Dow Chemical Company.

The
registrant meets the conditions set forth in General Instructions H(1)(a) and (b) for Form 10-Q and is therefore filing this form with a reduced disclosure format.

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Union Carbide Corporation  Table of Contents

|                             |                                                                                               | PAGE                                            
|---------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------------
|PART IFINANCIAL INFORMATION |                                                                                               |                                                 
|                             | Item 1. Financial Statements                                                                  |                                                 
|                             |                                                                                               | Consolidated Statements of Operations           
|                             |                                                                                               | Consolidated Balance Sheets                     
|                             |                                                                                               | Consolidated Statements of Cash Flows           
|                             |                                                                                               | Consolidated Statements of Comprehensive Income 
|                             |                                                                                               | Notes to the Consolidated Financial Statements  
|                             | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations |                                                 
|                             |                                                                                               | Disclosure Regarding Forward-Looking Information
|                             |                                                                                               | Results of Operations                           
|                             |                                                                                               | Other Matters                                   
|                             | Item 3. Quantitative and Qualitative Disclosures About Market Risk                            |                                                 
|                             | Item 4. Controls and Procedures                                                               |                                                 
|PART IIOTHER INFORMATION    |                                                                                               |                                                 
|                             | Item 1. Legal Proceedings                                                                     |                                                 
|                             | Item 6. Exhibits and Reports on Form 8-K                                                      |                                                 
|SIGNATURES                   |                                                                                               | 24                                              
|CERTIFICATIONS               |                                                                                               | 25                                              
|EXHIBIT INDEX                |                                                                                               | 27                                              

2

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Union Carbide Corporation and Subsidiaries  Consolidated Statements of Operations

|                                                   |                                                    | Three Months Ended |      
|-------------------------------------------------- | -------------------------------------------------- | ------------------ | -----
|
|                                                   | Net trade sales                                    |                    | $    
|                                                   | Net sales to related companies                     |                    |      
|                                                   |                                                    |                    |      
|Total Net Sales                                    |                                                    |                    | 1,289
|                                                   |                                                    |                    |      
|                                                   | Cost of sales                                      |                    |      
|                                                   | Research and development expenses                  |                    |      
|                                                   | Selling, general and administrative expenses       |                    |      
|                                                   | Amortization of intangibles                        |                    |      
|                                                   | Equity in earnings of nonconsolidated affiliates   |                    |      
|                                                   | Sundry income (expense)net                        |                    |      
|                                                   | Interest income                                    |                    |      
|                                                   | Interest expense and amortization of debt discount |                    |      
|                                                   |                                                    |                    |      
|Income (Loss) before Income Taxes                  |                                                    |                    | (92  
|                                                   |                                                    |                    |      
|                                                   | Provision (Credit) for income taxes                |                    |      
|                                                   |                                                    |                    |      
|Net Income (Loss) Available for Common Stockholder |                                                    | $                  | (59  
|                                                   |                                                    |                    |      
|Depreciation                                       |                                                    | $                  | 79   
|                                                   |                                                    |                    |      
|Capital Expenditures                               |                                                    | $                  | 19   
|                                                   |                                                    |                    |      

See Notes to the Consolidated Financial Statements.

3

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Union Carbide Corporation and Subsidiaries  Consolidated Balance Sheets

|In millions (Unaudited)                    |                                                                                  | March 31,
2003                                                       |       | Dec. 31,
2002 |    
|------------------------------------------ | -------------------------------------------------------------------------------- | -------------------------------------------------------------------- | ----- | ------------- | ---
|Assets                                     |                                                                                 
|Current Assets                             |                                                                                  |                                                                      |       |               |    
|                                           | Cash and cash equivalents                                                        |                                                                      | $     | 27            |    
|                                           | Accounts and notes receivable:                                                   |                                                                      |       |               |    
|                                           |                                                                                  | Trade (net of allowance for doubtful receivables2003: $4; 2002: $7) |       |               | 68 
|                                           |                                                                                  | Related companies                                                    |       |               | 582
|                                           |                                                                                  | Other                                                                |       |               | 124
|                                           | Inventories                                                                      |                                                                      |       | 188           |    
|                                           | Deferred income tax assetscurrent                                               |                                                                      |       | 188           |    
|                                           | Asbestos-related insurance receivablescurrent                                   |                                                                      |       | 110           |    
|                                           |                                                                                  |                                                                      |       |               |    
|                                           | Total current assets                                                             |                                                                      |       | 1,287         |    
|                                           |                                                                                  |                                                                      |       |               |    
|Investments                                |                                                                                  |                                                                      |       |               |    
|                                           | Investments in related companies                                                 |                                                                      |       | 461           |    
|                                           | Investments in nonconsolidated affiliates                                        |                                                                      |       | 513           |    
|                                           | Other investments                                                                |                                                                      |       | 41            |    
|                                           | Noncurrent receivables                                                           |                                                                      |       | 28            |    
|                                           | Noncurrent receivables from related companies                                    |                                                                      |       |              |    
|                                           |                                                                                  |                                                                      |       |               |    
|                                           | Total investments                                                                |                                                                      |       | 1,043         |    
|                                           |                                                                                  |                                                                      |       |               |    
|Property                                   |                                                                                  |                                                                      |       |               |    
|                                           | Property                                                                         |                                                                      |       | 7,516         |    
|                                           | Less accumulated depreciation                                                    |                                                                      |       | 5,065         |    
|                                           |                                                                                  |                                                                      |       |               |    
|                                           | Net property                                                                     |                                                                      |       | 2,451         |    
|                                           |                                                                                  |                                                                      |       |               |    
|Other Assets                               |                                                                                  |                                                                      |       |               |    
|                                           | Goodwill                                                                         |                                                                      |       | 26            |    
|                                           | Other intangible assets (net of accumulated amortization2003: $115; 2002: $114) |                                                                      |       | 22            |    
|                                           | Deferred income tax assetsnoncurrent                                            |                                                                      |       | 900           |    
|                                           | Asbestos-related insurance receivablesnoncurrent                                |                                                                      |       | 1,415         |    
|                                           | Deferred charges and other assets                                                |                                                                      |       | 107           |    
|                                           |                                                                                  |                                                                      |       |               |    
|                                           | Total other assets                                                               |                                                                      |       | 2,470         |    
|                                           |                                                                                  |                                                                      |       |               |    
|Total Assets                               |                                                                                  | $                                                                    | 7,251 |               | $  
|                                           |                                                                                  |                                                                      |       |               |    
|Liabilities and Stockholder's Equity       |                                                                                 
|Current Liabilities                        |                                                                                  |                                                                      |       |               |    
|                                           | Notes payable:                                                                   |                                                                      |       |               |    
|                                           |                                                                                  | Related companies                                                    |       | $             | 276
|                                           |                                                                                  | Other                                                                |       |               | 10 
|                                           | Long-term debt due within one year                                               |                                                                      |       | 380           |    
|                                           | Accounts payable:                                                                |                                                                      |       |               |    
|                                           |                                                                                  | Trade                                                                |       |               | 288
|                                           |                                                                                  | Related companies                                                    |       |               | 349
|                                           |                                                                                  | Other                                                                |       |               | 26 
|                                           | Income taxes payable                                                             |                                                                      |       | 74            |    
|                                           | Asbestos-related liabilitiescurrent                                             |                                                                      |       | 147           |    
|                                           | Accrued and other current liabilities                                            |                                                                      |       | 218           |    
|                                           |                                                                                  |                                                                      |       |               |    
|                                           | Total current liabilities                                                        |                                                                      |       | 1,768         |    
|                                           |                                                                                  |                                                                      |       |               |    
|Long-Term Debt                             |                                                                                  |                                                                      | 1,288 |               |    
|                                           |                                                                                  |                                                                      |       |               |    
|Other Noncurrent Liabilities               |                                                                                  |                                                                      |       |               |    
|                                           | Pension and other postretirement benefitsnoncurrent                             |                                                                      |       | 633           |    
|                                           | Asbestos-related liabilitiesnoncurrent                                          |                                                                      |       | 1,998         |    
|                                           | Other noncurrent obligations                                                     |                                                                      |       | 526           |    
|                                           |                                                                                  |                                                                      |       |               |    
|                                           | Total other noncurrent liabilities                                               |                                                                      |       | 3,157         |    
|                                           |                                                                                  |                                                                      |       |               |    
|Minority Interest in Subsidiaries          |                                                                                  |                                                                      | 4     |               |    
|                                           |                                                                                  |                                                                      |       |               |    
|Stockholder's Equity                       |                                                                                  |                                                                      |       |               |    
|                                           | Common stock (1,000 shares authorized and issued)                                |                                                                      |       |              |    
|                                           | Additional paid-in capital                                                       |                                                                      |       |              |    
|                                           | Retained earnings                                                                |                                                                      |       | 1,374         |    
|                                           | Accumulated other comprehensive loss                                             |                                                                      |       | (340          | )  
|                                           |                                                                                  |                                                                      |       |               |    
|                                           | Net stockholder's equity                                                         |                                                                      |       | 1,034         |    
|                                           |                                                                                  |                                                                      |       |               |    
|Total Liabilities and Stockholder's Equity |                                                                                  | $                                                                    | 7,251 |               | $  
|                                           |                                                                                  |                                                                      |       |               |    

See Notes to the Consolidated Financial Statements.

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Union Carbide Corporation and Subsidiaries  Consolidated Statements of Cash Flows

|                                        |                                                                                                    | Three Months Ended                                                         |  
|--------------------------------------- | -------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------- | -
|
|Operating Activities                    |                                                                                                    |                                                                            |  
|                                        | Net Income (Loss) Available for Common Stockholder                                                 |                                                                            | $
|                                        | Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |                                                                            |  
|                                        |                                                                                                    | Depreciation and amortization                                              |  
|                                        |                                                                                                    | Credit for deferred income tax                                             |  
|                                        |                                                                                                    | Earnings/losses of nonconsolidated affiliates less than dividends received |  
|                                        |                                                                                                    | Net loss (gain) on sales of property                                       |  
|                                        |                                                                                                    | Other net loss                                                             |  
|                                        | Changes in assets and liabilities that provided (used) cash:                                       |                                                                            |  
|                                        |                                                                                                    | Accounts and notes receivable                                              |  
|                                        |                                                                                                    | Related company receivables                                                |  
|                                        |                                                                                                    | Inventories                                                                |  
|                                        |                                                                                                    | Accounts payable                                                           |  
|                                        |                                                                                                    | Related company payables                                                   |  
|                                        |                                                                                                    | Other assets and liabilities                                               |  
|                                        |                                                                                                    |                                                                            |  
|                                        | Cash provided by (used in) operating activities                                                    |                                                                            |  
|                                        |                                                                                                    |                                                                            |  
|Investing Activities                    |                                                                                                    |                                                                            |  
|                                        | Capital expenditures                                                                               |                                                                            |  
|                                        | Proceeds from sales of property                                                                    |                                                                            |  
|                                        | Investments in nonconsolidated affiliates                                                          |                                                                            |  
|                                        | Collection of noncurrent note receivable from related company                                      |                                                                            |  
|                                        | Purchases of investments                                                                           |                                                                            |  
|                                        | Proceeds from sales of investments                                                                 |                                                                            |  
|                                        |                                                                                                    |                                                                            |  
|                                        | Cash used in investing activities                                                                  |                                                                            |  
|                                        |                                                                                                    |                                                                            |  
|Financing Activities                    |                                                                                                    |                                                                            |  
|                                        | Changes in short-term notes payable                                                                |                                                                            |  
|                                        | Changes in notes payable to related companies                                                      |                                                                            |  
|                                        | Payments on long-term debt                                                                         |                                                                            |  
|                                        | Distributions to minority interests                                                                |                                                                            |  
|                                        |                                                                                                    |                                                                            |  
|                                        | Cash provided by (used in) financing activities                                                    |                                                                            |  
|                                        |                                                                                                    |                                                                            |  
|Effect of Exchange Rate Changes on Cash |                                                                                                    |                                                                            | 
|                                        |                                                                                                    |                                                                            |  
|Summary                                 |                                                                                                    |                                                                            |  
|                                        | Increase (Decrease) in cash and cash equivalents                                                   |                                                                            |  
|                                        | Cash and cash equivalents at beginning of year                                                     |                                                                            |  
|                                        |                                                                                                    |                                                                            |  
|                                        | Cash and cash equivalents at end of period                                                         |                                                                            | $
|                                        |                                                                                                    |                                                                            |  

See Notes to the Consolidated Financial Statements.

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Union Carbide Corporation and Subsidiaries  Consolidated Statements of Comprehensive Income

|                                                   |                                         | Three Months Ended |    
|-------------------------------------------------- | --------------------------------------- | ------------------ | ---
|
|Net Income (Loss) Available for Common Stockholder |                                         | $                  | (59
|                                                   |                                         |                    |    
|Other Comprehensive Income (Loss), Net of Tax      |                                         |                    |    
|                                                   | Unrealized gains on investments         |                    |    
|                                                   | Translation adjustments                 |                    |    
|                                                   |                                         |                    |    
|                                                   | Total other comprehensive income (loss) |                    |    
|                                                   |                                         |                    |    
|Comprehensive Income (Loss)                        |                                         | $                  | (55
|                                                   |                                         |                    |    

See Notes to the Consolidated Financial Statements.

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Union Carbide Corporation and Subsidiaries  Notes to the Consolidated Financial Statements

(Unaudited)

NOTE A    CONSOLIDATED FINANCIAL STATEMENTS

Except as otherwise indicated by the context, the terms "Corporation" and "UCC" as used herein mean Union Carbide Corporation and its consolidated subsidiaries.
The accompanying consolidated financial statements of the Corporation include the assets, liabilities, revenues and expenses of all majority-owned subsidiaries over which the Corporation exercises
control. Intercompany transactions and balances are eliminated in consolidation. Investments in nonconsolidated affiliates (20-50 percent owned companies) are accounted for on the
equity basis.

Since
February 6, 2001, the Corporation has been a wholly owned subsidiary of The Dow Chemical Company ("Dow") as a consequence of the Corporation merging with a wholly owned
subsidiary of Dow effective that date (the "merger" or "Dow merger"). Transactions with the Corporation's parent company, Dow, or other Dow subsidiaries have been reflected as related company
transactions in the consolidated financial statements. See Note H for further discussion. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share," the presentation of earnings per share is not required in financial statements of wholly owned subsidiaries.

The
Corporation's business activities comprise components of Dow's global operations rather than stand-alone operations. The Corporation sells its products to Dow at market-based prices,
in accordance with Dow's longstanding intercompany pricing policy, in order to simplify the customer interface process. Dow conducts its worldwide operations through global businesses. Because there
are no separable reportable business segments for UCC under SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," and no detailed business information is provided
to a chief operating decision maker regarding the Corporation's stand-alone operations, the Corporation's results are reported as a single operating segment.

Certain
reclassifications of prior year's amounts have been made to conform to the presentation adopted for 2003. These statements should be read in conjunction with the audited
consolidated financial statements and notes thereto included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2002.

NOTE B    ACCOUNTING CHANGES

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

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

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

In
the first quarter of 2003, Dow adopted the fair value provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," for new grants of equity instruments to employees.
The Corporation is
allocated the portion of expense relating to its employees who receive stock-based compensation. This allocation was not material to the consolidated financial statements for the first quarter of
2003.

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

In
January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest Entities." FIN No. 46 clarifies the application of Accounting Research Bulletin
No. 51, "Consolidated Financial Statements," to certain entities in which equity investors do not have the characteristics of a controlling financial interest or in which equity investors do
not bear the residual economic risks. The interpretation applies to variable interest entities ("VIEs") created after January 31, 2003, and to VIEs in which an enterprise obtains an interest
after that date. It applies in the fiscal year or interim period beginning after June 15, 2003, to VIEs in which an enterprise holds a variable interest that was acquired before
February 1, 2003. See Note G for disclosures regarding the Corporation's VIE and the expected impact of adoption in the third quarter of 2003.

NOTE C    MERGER-RELATED EXPENSES AND RESTRUCTURING

Merger-related Expenses and Restructuring

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

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

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

Other Restructuring

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

NOTE D    INVENTORIES

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

Inventories(in millions)

Mar. 31,
2003

Dec. 31,
2002Finished goods

$
46

$
96Work in process


32


28Raw materials


32


24Supplies


78


71Total inventories

$
188

$
219


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

NOTE E    OTHER INTANGIBLE ASSETS

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

|                                     |                                    | At March 31, 2003 |   | At December 31, 2002
|------------------------------------ | ---------------------------------- | ----------------- | - | --------------------
|
|Intangible assets with finite lives: |                                    |                   |   |                     
|                                     | Licenses and intellectual property |                   | $ | 36                  
|                                     | Patents                            |                   |   | 5                   
|                                     | Software                           |                   |   | 94                  
|                                     | Other                              |                   |   | 2                   
|                                     |                                    |                   |   |                     
|                                     | Total                              |                   | $ | 137                 
|                                     |                                    |                   |   |                     

Amortization expense for other intangible assets (not including software) was $1 million in the first quarter of 2003, compared with $1 million for
the same period last year. Amortization expense for

9

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software, which is included in cost of sales, totaled $1 million in the first quarters of both 2003 and 2002. Total estimated amortization expense for the next five fiscal years is as follows:

(in millions)

Estimated
Amortization
Expense2003

$
5.62004


5.52005


2.32006


2.02007


1.82008


1.8


NOTE F    COMMITMENTS AND CONTINGENT LIABILITIES

Environmental

Accruals for environmental matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably
estimated, based on current law and existing technologies. The Corporation had accrued obligations of $130 million at December 31, 2002 for environmental remediation and restoration
costs, including $35 million for the remediation of Superfund sites. At March 31, 2003, the Corporation had accrued obligations of $125 million for environmental remediation and
restoration costs, including $34 million for the remediation of Superfund sites. This is management's best estimate of the costs for remediation and restoration with respect to environmental
matters for which the Corporation has accrued liabilities, although the ultimate cost with respect to these particular matters could range up to twice that amount. Inherent uncertainties exist in
these estimates primarily due to unknown conditions, changing governmental regulations and legal standards regarding liability, and evolving technologies for handling site remediation and restoration.
It is the opinion of the Corporation's management that the possibility is remote that costs in excess of those accrued or disclosed will have a material adverse impact on the Corporation's
consolidated financial statements.

Litigation

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

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

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

10

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

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

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

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

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



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

11

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

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

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

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

The
Corporation also increased the receivable for insurance recoveries related to its asbestos liability to $1.35 billion at December 31, 2002, substantially exhausting its
asbestos product liability coverage. This resulted in a net income statement impact of $828 million, $522 million on an after-tax basis, in the fourth quarter of 2002. At
March 31, 2003, the receivable for insurance recoveries related to the Corporation's asbestos liability was $1.3 billion. The insurance receivable related to the asbestos liability was
determined after a thorough review of applicable insurance policies and the 1985 Wellington Agreement, to which the Corporation and many of its liability insurers are signatory parties, as well as
other insurance settlements, with due consideration given to applicable deductibles, retentions and policy limits, and taking into account the solvency and historical payment experience of various
insurance carriers. In addition, the Corporation had receivables for insurance recoveries for defense and resolution costs of $219 million at December 31, 2002 and $249 million at
March 31, 2003.

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

12

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among insurers, and the continuing solvency of various insurance companies, as well as the numerous uncertainties surrounding asbestos litigation in the United States, could cause the actual costs
and insurance recoveries to be higher or lower than those projected or those recorded. The Corporation expenses defense and processing costs as incurred. Accordingly, defense and processing costs
incurred in the future for asbestos-related litigation, net of insurance, will impact results of operations in future periods.

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

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

Purchase Commitments

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

Fixed and Determinable Portion of Take or Pay and
Throughput Obligations at December 31, 2002(in millions)2003

$
14.92004


5.32005


0.32006 through expiration of contracts


0.3Total

$
20.8


Guarantees

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

Guarantees

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

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Residual Value Guarantees

The Corporation provides a guarantee related to leased assets specifying the residual value that will be available to the lessor at lease termination through sale
of the assets to the lessee or third parties.

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

|Guarantees at March 31, 2003(in millions) |  | Final
Expiration |  | Maximum Future
Payments |    | Recorded
Liability
|----------------------------------------- |  | ---------------- |  | ----------------------- | -- | ------------------
|Guarantees                                |  | 2007             |  | $                       | 16 |                   
|Residual Value Guarantees                 |  | 2005             |  |                         | 82 |                   
|                                          |  |                  |  |                         |    |                   
|Total                                     |  |                  |  | $                       | 98 |                   
|                                          |  |                  |  |                         |    |                   

|Guarantees at December 31, 2002(in millions) |  | Final
Expiration |  | Maximum Future
Payments |    | Recorded
Liability
|-------------------------------------------- |  | ---------------- |  | ----------------------- | -- | ------------------
|Guarantees                                   |  | 2007             |  | $                       | 17 |                   
|Residual Value Guarantees                    |  | 2005             |  |                         | 82 |                   
|                                             |  |                  |  |                         |    |                   
|Total                                        |  |                  |  | $                       | 99 |                   
|                                             |  |                  |  |                         |    |                   

NOTE G    VARIABLE INTEREST ENTITIES

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

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

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

NOTE H    RELATED PARTY TRANSACTIONS

The Corporation sells products to Dow to simplify the customer interface process. Products are sold to and purchased from Dow in accordance with the terms of
Dow's longstanding intercompany pricing policies. The application of these policies results in products being sold to and purchased from Dow at market-based prices. The Corporation also procures
certain commodities and raw materials through a Dow subsidiary and pays a commission to that Dow subsidiary based on the volume and type of commodities and raw materials purchased. The commission
expense is included in "Sundry income (expense)net" in the consolidated statements of operations. Purchases from that Dow subsidiary were approximately $489 million during the
first quarter of 2003 and $236 million during the first quarter of 2002.

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

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

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

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

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

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

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

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

DISCLOSURE REGARDING FORWARD-LOOKING INFORMATION

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

RESULTS OF OPERATIONS

The Corporation reported a net loss of $59 million for the first quarter of 2003 compared with net income of $37 million for the first quarter of
2002. The results for the first quarter of 2003 were negatively impacted by significantly higher hydrocarbon feedstocks and energy costs, in addition to asset write-downs and impairments of
$35 million related to restructuring activities in the first quarter 2003.

Total
net sales for the first quarter of 2003 were $1,289 million compared with $1,119 million for the first quarter of 2002. Selling prices to Dow are based on market
prices for the related products. Increases in average selling prices occurred for most products in the first quarter of 2003 compared with the first quarter of 2002, led by polyethylene and ethylene
glycol ("EG"), the Corporation's principal products. The Corporation also reported substantial volume gains for EG, vinyl acetate monomer, and oxo products.

Cost
of sales increased $301 million (30 percent) in the first quarter of 2003 compared with the first quarter of 2002, due primarily to a $250 million increase in
hydrocarbon feedstock and energy costs, reflecting a 65 percent increase in costs of these raw materials over the first quarter of 2002. In addition, asset write-downs and impairments of
$24 million related to restructuring activities were included in cost of sales for the first quarter of 2003. Gross margin declined in the first quarter of 2003, as the substantial increase in
raw material costs were not entirely recovered by the higher selling prices.

Research
and development expenses declined $7 million in the first quarter of 2003 compared with the same quarter last year. Selling, general and administrative expenses declined
$4 million in the first quarter of 2003 compared with the same quarter last year. These declines are attributable to the cost containment efforts begun in late 2002, as well as the impact of
workforce reductions that occurred during 2002.

Equity
in earnings of nonconsolidated affiliates increased to $10 million in the first quarter of 2003 from $3 million in the first quarter of 2002, reflecting a strong
performance by EQUATE Petrochemical

16

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

Sundry
income (expense)net includes a variety of income and expense items such as the gain or loss on foreign currency exchange, dividends from investments, commissions,
charges for management services provided by Dow, and gains and losses on sales of investments and assets. Sundry income (expense) for the first quarter of 2003 was expense of $15 million,
compared with expense of $3 million for the first quarter last year. Results for the first quarter of 2003 included expense of $11 million associated with the impairment of a chemical
transport vessel to be sold in the second quarter of 2003.

Interest
income for the first quarter of 2003 declined to $2 million from $15 million in the first quarter of last year. Interest income in the first quarter of 2002
included $9 million related to a $483 million related company note receivable that was repaid in the second quarter of 2002. Interest expense and amortization of debt discount for the
first quarter of 2003 was $34 million compared with $33 million in the first quarter of last year.

The
effective tax rate for the first quarter of 2003 was 35.8 percent compared with 19.6 percent for the same quarter last year. The effective tax rate fluctuates based on,
among other factors, where income is earned and the level of income relative to tax credits available.

Asbestos-Related Matters

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

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

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

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

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

17

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

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



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

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

18

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

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

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

The
Corporation also increased the receivable for insurance recoveries related to its asbestos liability to $1.35 billion at December 31, 2002, substantially exhausting its
asbestos product liability coverage. This resulted in a net income statement impact of $828 million, $522 million on an after-tax basis, in the fourth quarter of 2002. At
March 31, 2003, the receivable for insurance recoveries related to the Corporation's asbestos liability was $1.3 billion. The insurance receivable related to the asbestos liability was
determined after a thorough review of applicable insurance policies and the 1985 Wellington Agreement, to which the Corporation and many of its liability insurers are signatory parties, as well as
other insurance settlements, with due consideration given to applicable deductibles, retentions and policy limits, and taking into account the solvency and historical payment experience of various
insurance carriers. In addition, the Corporation had receivables for insurance recoveries for defense and resolution costs of $219 million at December 31, 2002 and $249 million at
March 31, 2003.

The
amounts recorded for the asbestos-related liability and related insurance receivable described above were based upon currently known facts. However, projecting future events, such as
the number of new claims to be filed each year, the average cost of disposing of each such claim, coverage issues among insurers, and the continuing solvency of various insurance companies, as well as
the numerous uncertainties surrounding asbestos litigation in the United States, could cause the actual costs and insurance recoveries to be higher or lower than those projected or those recorded. The
Corporation expenses defense and processing costs as incurred. Accordingly, defense and processing costs incurred in the future for asbestos-related litigation, net of insurance, will impact results
of operations in future periods.

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

OTHER MATTERS

Accounting Changes

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

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Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America
("GAAP") requires management to make judgments, assumptions and estimates that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Note A to the
Consolidated Financial Statements in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2002, describes the significant accounting policies and
methods used in the preparation of the Consolidated Financial
Statements. Following are the Corporation's critical accounting policies impacted by judgments, assumptions and estimates:



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



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

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

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

20

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

The
Corporation also increased the receivable for insurance recoveries related to its asbestos liability to $1.35 billion at December 31, 2002. At March 31, 2003,
the receivable for insurance recoveries related to the Corporation's asbestos liability was $1.3 billion. In addition, the Corporation had receivables for insurance recoveries for defense and
resolution costs of $219 million at December 31, 2002 and $249 million at March 31, 2003. The amounts recorded for the asbestos-related liability and related insurance
receivable described above were based upon currently known facts. However, projecting future events, such as the number of new claims to be filed each year, the average cost of disposing of each such
claim, coverage issues among insurers, and the continuing solvency of various insurance companies, as well as the numerous uncertainties surrounding asbestos litigation in the United States, could
cause the actual costs and insurance recoveries to be higher or lower than those projected or those recorded. The Corporation expenses defense and processing costs as incurred. Accordingly, defense
and processing costs incurred in the future for asbestos-related litigation, net of insurance, will impact results of operations in future periods. For additional information, see Asbestos-Related
Matters in Management's Discussion and Analysis of Financial Condition and Results of Operations and Note F to the Consolidated Financial Statements.



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



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

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

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

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

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

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

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

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



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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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ITEM 4. CONTROLS AND PROCEDURES

Within the 90 days prior to the date of filing this Quarterly Report on Form 10-Q, the Corporation carried out an evaluation, under the
supervision and with the participation of the Corporation's Disclosure Committee and the Corporation's management, including the President (Chief Executive Officer) and the Treasurer (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-14. Based upon that evaluation,
the President (Chief Executive Officer) and the Treasurer (Chief Financial Officer) concluded that the Corporation's disclosure controls and procedures are effective in timely alerting them to
material information relating to the Corporation (including its consolidated subsidiaries) required to be included in the Corporation's periodic SEC filings. Subsequent to the date of that evaluation,
there have been no significant changes in the Corporation's internal controls or in other factors that could significantly affect internal controls, nor were any corrective actions required with
regard to significant deficiencies and material weaknesses.

PART IIOTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



Exhibit No.

Exhibit Description10.28

Revolving Credit Agreement, dated as of March 25, 2003, between the Corporation and The Dow Chemical Company.10.29

Pledge and Security Agreement, dated as of March 25, 2003, between the Corporation and the Dow Chemical Company.23

Analysis, Research & Planning Corporation's Consent.99.1

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.99.2

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






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Union Carbide Corporation and Subsidiaries  Signatures

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

|UNION CARBIDE CORPORATIONRegistrant |     | 
|----------------------------------- | --- | 
|Date: May 2, 2003                   |     | 
|                                    | By: | 
|                                    |     | 
|                                    |     | 
|                                    | By: | 
|                                    |     | 

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

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

|Date: May 2, 2003 |  |                                                                        
|----------------- |  | -----------------------------------------------------------------------
|                  |  | /s/JOHN R. DEARBORNJohn R. Dearborn
President (Chief Executive Officer)

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

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

|Date: May 2, 2003 |  |                                                                                       
|----------------- |  | --------------------------------------------------------------------------------------
|                  |  | /s/EDWARD W. RICHEdward W. Rich
Vice President and Treasurer
(Chief Financial Officer)

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EXHIBIT INDEX

|EXHIBIT NO. |  | DESCRIPTION                                                                                                     
|----------- |  | ----------------------------------------------------------------------------------------------------------------
|10.28       |  | Revolving Credit Agreement, dated as of March 25, 2003, between the Corporation and The Dow Chemical Company.   
|10.29       |  | Pledge and Security Agreement, dated as of March 25, 2003, between the Corporation and The Dow Chemical Company.
|23          |  | Analysis, Research & Planning Corporation's Consent.                                                            
|99.1        |  | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                        
|99.2        |  | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                        

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