{"url_path":"/sec/cik-0000100790/10-k/2026/item-7","section_key":"item-7","section_title":"Item 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS","topic":"sec","document":{"doc_type":"10-K","doc_date":"2026-02-03","source_url":"https://www.sec.gov/Archives/edgar/data/100790/0000029915-26-000004-index.html","accession_number":"0000029915-26-000004","cik":"0000100790","ticker":null,"issuer_name":"UNION CARBIDE CORP /NEW/","edgar_url":"https://www.sec.gov/Archives/edgar/data/100790/0000029915-26-000004-index.html","primary_entity_key":"0000100790","primary_entity_name":"UNION CARBIDE CORP /NEW/"},"word_count":5734,"has_tables":true,"body_markdown":"ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS\n\nPursuant to General Instruction I of Form 10-K \"Omission of Information by Certain Wholly-Owned Subsidiaries,\" this section includes only management's narrative analysis of the results of operations for the year ended December 31, 2025, the most recent fiscal year, compared with the year ended December 31, 2024, the fiscal year immediately preceding it.\n\nReferences to \"TDCC\" refer to The Dow Chemical Company and its consolidated subsidiaries, except as otherwise indicated by the context. Union Carbide Corporation (the \"Corporation\" or \"UCC\") has been a wholly owned subsidiary of TDCC since 2001. TDCC has been a wholly owned subsidiary of Dow Inc. since 2019. References to \"Dow\" refer to Dow Inc., together with TDCC and its consolidated subsidiaries. Additionally, the term \"Diamond Infrastructure Solutions\" means Dow InfraCo, LLC, TDCC's consolidated variable interest entity that owns and operates infrastructure assets at certain TDCC and UCC locations on the U.S. Gulf Coast, which include UCC's sites in St. Charles, Louisiana, and Seadrift and Texas City, Texas. Infrastructure-related products and services provided to UCC by Diamond Infrastructure Solutions are billed to UCC in accordance with the terms of agreements between the parties.\n\nTDCC conducts its worldwide operations through global businesses and the Corporation's business activities comprise components of TDCC's global businesses rather than stand-alone operations. Further, the Corporation sells substantially all of its products to TDCC in order to simplify the customer interface process at prices determined in accordance with the terms of an agreement between UCC and TDCC. The Corporation's Board of Directors, acting pursuant to the authority delegated to it by TDCC, functions as the Corporation's chief operating decision maker (\"CODM\") to assess UCC's results and allocate resources for its operations. The Corporation's results are reported as a single operating segment as the consolidated statements of income are presented to the CODM without further disaggregation.\n\nRESULTS OF OPERATIONS\n\nNet Sales\n\nTotal net sales for 2025 were $3,989 million, compared with total net sales of $4,277 million in 2024, a decrease of 7 percent. Net sales to related companies, principally to TDCC, were $3,885 million for 2025, compared with $4,157 million for 2024, a decrease of 7 percent. Selling prices to TDCC are determined in accordance with the terms of an agreement between UCC and TDCC.\n\nAverage selling price decreased 5 percent in 2025 compared with 2024. Price decreased in most product lines, with the most significant decreases in polyethylene, ethyleneamines, acrylic monomers and ethanolamines, partially offset by price increases primarily in vinyl acetate monomers and ethylene glycol. Volume decreased 2 percent in 2025 compared with 2024. Volume decreased in most product lines, with the most significant decreases in ethylene glycol, vinyl acetate monomers and glycol ethers, due primarily to lower demand and planned maintenance turnaround activity. Volume decreases were partially offset by increases primarily in ethyleneamines and ethylene oxide.\n\nCost of Sales\n\nCost of sales in 2025 was $4,111 million, up 4 percent from $3,968 million in 2024. Cost of sales as a percentage of total net sales increased to 103.1 percent in 2025 compared with 92.8 percent in 2024. The increase in cost of sales as a percentage of net sales was primarily due to higher activity-based costs, including products and services, charged by related parties, higher ethylene prices and the impact of lower operating rates resulting from lower demand, partially offset by cost reduction initiatives. See Note 17 to the Consolidated Financial Statements for additional information about related party transactions.\n\n16\n\n[Table of Contents](#i2aef629ae28d4ab08017402fb32766d6_7)\n\nRestructuring and Asset Related Charges - Net\n\nIn the first quarter of 2025, the Corporation initiated targeted actions to further achieve its cost reduction initiatives in response to ongoing macroeconomic weakness, while reinforcing long-term competitiveness across the economic cycle. As a result of these actions, the Corporation recorded pretax charges of $6 million for severance and related benefit costs, included in \"Restructuring and asset related charges - net\" in the consolidated statements of income. These actions are substantially complete. See Note 4 to the Consolidated Financial Statements for additional information about the Corporation's restructuring activities and related charges.\n\nThe Corporation expects to incur additional costs in the future related to its restructuring activities, which will be recognized as incurred. The Corporation also expects to incur additional employee-related costs, including involuntary termination benefits, related to its other optimization activities. These costs cannot be reasonably estimated at this time.\n\nSundry Income (Expense) - Net\n\nSundry income (expense) – net includes a variety of income and expense items such as charges for management services provided by TDCC, dividend income, non-operating pension and other postretirement benefit plan credits or costs, commissions, gains and losses on sales of investments and assets, and gains and losses on foreign currency exchange.\n\nSundry income (expense) – net for 2025 was income of $579 million compared with expense of $110 million in 2024. Sundry income (expense) – net in 2025 included a $735 million distribution from a related company in which the Corporation holds an ownership interest, partially offset by pension settlement charges of $37 million. Sundry income (expense) – net in 2024 included a $2 million gain on the sale of the Corporation's remaining ownership interest in a TDCC joint venture to a TDCC subsidiary. See Notes 5, 15 and 17 to the Consolidated Financial Statements for additional information.\n\nInterest Income\n\nInterest income for 2025 was $100 million, compared with $134 million in 2024. The decrease in interest income primarily resulted from decreased interest rates. See Note 17 to the Consolidated Financial Statements for additional information related to the Corporation's related party investment and cash management activities.\n\nProvision (Credit) for Income Taxes\n\nThe Corporation reported a credit for income taxes of $42 million in 2025, which resulted in a negative effective tax rate of 8.1 percent. In 2024, the Corporation reported a tax provision of $47 million, which resulted in an effective tax rate of 15.8 percent. The effective tax rate for 2025 was favorably impacted by a nontaxable distribution received from a related company. The tax rate for 2024 was favorably impacted by U.S. federal and state accrual to return adjustments. The underlying factors affecting UCC's overall effective tax rates are summarized in Note 6 to the Consolidated Financial Statements. See Notes 5 and 17 to the Consolidated Financial Statements for additional information about the related company distribution.\n\nOn July 4, 2025, U.S. legislation formally titled \"An Act to Provide for Reconciliation Pursuant to Title II of H. Con. Res. 14” (“the Act”) and commonly referred to as the One Big Beautiful Bill Act was signed into law. The Act, among other things, extended key provisions of the 2017 Tax Cuts and Jobs Act and introduced targeted changes to the U.S. federal income tax regime. The Act has not materially impacted the Corporation's effective tax rate.\n\nNet Income Attributable to UCC\n\nThe Corporation reported net income of $560 million in 2025, compared with net income of $250 million in 2024. Net income in 2025 was driven by a distribution from a related company as part of TDCC's intercompany financing arrangements, partially offset by negative sales margins, due primarily to lower demand and higher activity-based and raw material costs.\n\nCapital Expenditures\n\nCapital spending in 2025 was $137 million, compared with $338 million in 2024, as projects on the U.S. Gulf Coast were completed.\n\n17\n\n[Table of Contents](#i2aef629ae28d4ab08017402fb32766d6_7)\n\nPension Plans\n\nIn the fourth quarter of 2025, as part of its ongoing pension derisking initiatives, the Corporation terminated certain U.S. tax-qualified pension plans, which included the tax-qualified benefit obligations for substantially all employees hired after January 1, 2008. These employees earned benefits based on a set percentage of annual pay, plus interest. As part of the plan termination process, participants were provided with various benefit payment or distribution options. All benefit options were funded with existing plan assets and did not require any cash funding from the Corporation. These actions resulted in non-cash settlement charges of $37 million, primarily related to the accelerated recognition of the accumulated actuarial losses of the plans. See Note 15 to the Consolidated Financial Statements for additional information related to the Corporation's pension plans.\n\nDistribution Received from Related Company\n\nAs part of TDCC's continuing efforts to optimize its intercompany financing structure, the Corporation received a pro-rata distribution of a portion of a note receivable totaling $735 million during the year ended December 31, 2025, from Dow International Holdings Company, a related company in which the Corporation holds a minority ownership interest. The distribution was recorded in “Sundry income (expense) – net” in the consolidated statements of income and was subsequently distributed to TDCC and presented as \"Distribution to parent\" in the consolidated statements of equity. These nontaxable transactions were executed in accordance with TDCC's intercompany cash management process. See Note 17 to the Consolidated Financial Statements for additional information about the Corporation's dividends and distributions.\n\nOTHER MATTERS\n\nRecent Accounting Guidance\n\nSee Note 2 to the Consolidated Financial Statements for a summary of recent accounting guidance.\n\nCritical Accounting Estimates\n\nThe preparation of financial statements and related disclosures in accordance with accounting principles generally accepted in the United States of America (\"U.S. GAAP\") requires management to make judgments, assumptions and estimates that affect the amounts reported in the consolidated financial statements and accompanying notes. Note 1 to the Consolidated Financial Statements describes the significant accounting policies and methods used in preparation of the Consolidated Financial Statements. Following are the Corporation's accounting policies impacted by judgments, assumptions and estimates.\n\nAsbestos-Related Matters\n\nThe Corporation is and has been involved in a large number of asbestos-related suits filed primarily in state courts during the past several decades. These suits principally allege personal injury resulting from exposure to asbestos-containing products and frequently seek both actual and punitive damages. The alleged claims primarily relate to products that UCC sold in the past, alleged exposure to asbestos-containing products located on UCC’s premises, and UCC’s responsibility for asbestos suits filed against a former UCC subsidiary, Amchem Products, Inc. (\"Amchem\"). Each year, Ankura Consulting Group, LLC (\"Ankura\") performs a review for UCC based upon historical asbestos claims and resolution activity and historical defense spending. UCC compares current asbestos claim, resolution and defense spending activity to the results of the most recent Ankura study at each balance sheet date to determine whether the asbestos-related liability for pending and future claims, including future defense and processing costs, continues to be appropriate.\n\nFor additional information, see Part I, Item 3. Legal Proceedings; Asbestos-Related Matters in Management's Discussion and Analysis of Financial Condition and Results of Operations; and Notes 1 and 12 to the Consolidated Financial Statements.\n\n18\n\n[Table of Contents](#i2aef629ae28d4ab08017402fb32766d6_7)\n\nEnvironmental Matters\n\nThe Corporation determines the costs of environmental remediation of its facilities and formerly owned facilities based on evaluations of current law and existing technologies. Inherent uncertainties exist in such evaluations primarily due to unknown environmental conditions, changing governmental regulations and legal standards regarding liability, and emerging remediation technologies. The recorded liabilities are adjusted periodically as remediation efforts progress or as additional technical or legal information becomes available. At December 31, 2025, the Corporation had accrued obligations of $188 million for probable environmental remediation and restoration costs, including $39 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 it is reasonably possible that the ultimate cost with respect to these particular matters could range up to approximately two times that amount. For further discussion, see Environmental Matters in Notes 1 and 12 to the Consolidated Financial Statements.\n\nPension Plans and Other Postretirement Benefits\n\nThe 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 have been settled at December 31, 2025, 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 15 to the Consolidated Financial Statements. In accordance with U.S. GAAP, actual results that differ from the assumptions are accumulated and amortized over future periods and, therefore, affect expense recognized and obligations recorded in future periods. The Corporation's pension plans are frozen and, therefore, participants do not accrue additional benefits for future service and compensation.\n\nThe Corporation uses the spot rate approach to determine the discount rate utilized to measure the service cost and interest cost components of net periodic pension and other postretirement benefit costs. Under the spot rate approach, the Corporation calculates service cost and interest cost by applying individual spot rates from the Willis Towers Watson U.S. RATE:Link 60-90 corporate yield curve (based on 60th to 90th percentile high-quality corporate bond yields) to the separate expected cash flow components of service cost and interest cost.\n\nThe Corporation determines the expected long-term rate of return on plan assets by performing a detailed analysis of key economic and market factors driving historical returns for each asset class and formulating a projected return based on factors in the current environment. Factors considered include, but are not limited to, inflation, real economic growth, interest rate yield, interest rate spreads, and other valuation measures and market metrics. The expected long-term rate of return for each asset class is then weighted based on the strategic asset allocation approved by the governing body for each plan. The Corporation's historical experience with the pension fund asset performance is also considered. The expected long-term rate of return is an assumption and not what is expected to be earned in any one particular year. The weighted-average long-term rate of return assumption used for determining net periodic pension expense for 2025 was 6.33 percent. The weighted-average assumption to be used for determining 2026 net periodic pension expense is 6.30 percent. Future actual pension expense will depend on future investment performance, changes in future discount rates and various other factors related to the population of participants in the Corporation's pension plans.\n\nThe discount rates utilized to measure the pension and other postretirement benefit obligations are based on the yield on high-quality corporate fixed income investments at the measurement date. Future expected actuarially determined cash flows for the plans are individually discounted at the spot rates under the Willis Towers Watson U.S. RATE:Link 60-90 corporate yield curve (based on 60th to 90th percentile high-quality corporate bond yields) to arrive at the plan’s obligations as of the measurement date. The weighted-average discount rate utilized to measure pension obligations was 5.35 percent at December 31, 2025 and 5.67 percent at December 31, 2024.\n\nThe value of the Corporation's qualified plans' assets totaled $2.1 billion at December 31, 2025, a decrease from $2.2 billion at December 31, 2024. The net underfunded status of the Corporation's qualified plans increased by $18 million at December 31, 2025, compared with December 31, 2024. The Corporation's contributions to the qualified plans were insignificant in 2025. The Corporation uses a generational mortality table to determine the duration of its pension and other postretirement obligations.\n\n19\n\n[Table of Contents](#i2aef629ae28d4ab08017402fb32766d6_7)\n\nThe Corporation bases the determination of pension expense on a market-related valuation of plan assets that reduces year-to-year volatility. This market-related valuation recognizes investment gains or losses over a five-year period from the year in which they occur. Investment gains or losses for this purpose represent the difference between the expected return calculated using the market-related value of plan assets and the actual return based on the market value of plan assets. Since the market-related value of plan assets recognizes gains or losses over a five-year period, the future value of plan assets will be impacted when previously deferred gains or losses are recorded. Over the life of the plan, both gains and losses have been recognized and amortized. At December 31, 2025, $219 million of net losses remain to be recognized in the calculation of the market-related value of plan assets. These net losses will result in increases in future pension expense as they are recognized in the market-related value of assets.\n\nThe net decrease in the market-related value of assets due to the recognition of prior losses (gains) is presented in the following table:\n\nNet Decrease in Market-Related Asset Value Due to Recognition of Prior Losses (Gains)\n\nIn millions\n\n2026$172 \n\n202731 \n\n202824 \n\n2029(8)\n\nTotal$219 \n\nExcluding the impact of the Corporation's 2025 derisking activities, the Corporation expects pension expense to increase in 2026 by approximately $18 million. The increase is primarily due to the recognition of prior losses under the market-related valuation of plan assets methodology described above.\n\nA 25 basis point increase in the long-term return on assets assumption would decrease the Corporation's total pension expense by $5 million for 2026. A 25 basis point decrease in the long-term return on assets assumption would increase the Corporation's total pension expense by $6 million for 2026. A 25 basis point increase or decrease in the discount rate assumption would not significantly impact the Corporation's total pension expense for 2026.\n\nIncome Taxes\n\nDeferred tax assets and liabilities are determined based on temporary differences between the financial reporting and tax bases of assets and liabilities, applying enacted tax rates expected to be in effect for the year in which the differences are expected to reverse. Based on the evaluation of available evidence, both positive and negative, the Corporation recognizes future tax benefits, such as net operating loss carryforwards and tax credit carryforwards, to the extent that realizing these benefits is considered more likely than not.\n\nAt December 31, 2025, the Corporation had a net deferred tax asset balance of $289 million, after valuation allowances of $19 million. In evaluating the ability to realize the deferred tax assets, the Corporation relies on, in order of increasing subjectivity, taxable income in prior carryback years, the future reversals of existing taxable temporary differences, tax planning strategies and forecasted taxable income using historical and projected future operating results.\n\nThe Corporation recognizes the financial statement effects of an uncertain tax position when it is more likely than not, based on technical merits, that the position will be sustained upon examination. At December 31, 2025, the Corporation had a liability for uncertain tax positions of $8 million. For additional information, see Note 6 to the Consolidated Financial Statements.\n\n20\n\n[Table of Contents](#i2aef629ae28d4ab08017402fb32766d6_7)\n\nEnvironmental Matters\n\nEnvironmental Policies\n\nThe Corporation is committed to world-class environmental, health and safety (\"EH&S\") performance, as demonstrated by a long-standing commitment to the American Chemistry Council's Responsible Care® program and a strong commitment to deliver against Dow's targets around a circular economy and climate protection. These targets set the standard for sustainability in the chemical industry, focusing on improvements in UCC's local corporate citizenship and product stewardship, and by actively pursuing methods to reduce the Corporation's environmental impact.\n\nTo help meet Dow’s public commitments, as well as the stringent laws and government regulations related to environmental protection and remediation to which its global operations are subject, UCC has well-defined policies, requirements and management systems. Dow's EH&S management system (\"EMS\") defines the \"who, what, when and how\" needed for the Corporation to implement Dow's policies and requirements and meet performance objectives, leadership expectations and public commitments. To ensure effective utilization, Dow's EMS is integrated into a company-wide management system for EH&S, Operations, Quality and Human Resources.\n\nDow believes third-party verification and transparent public reporting are cornerstones of world-class EH&S performance and building public trust. Numerous Dow sites in the U.S. & Canada, Europe, Asia Pacific and Latin America, including UCC sites, have received third-party verification of compliance with Responsible Care® and with outside specifications such as ISO-14001. Dow continues to be a global champion of Responsible Care® and has worked to broaden the application and impact of Responsible Care® around the world through engagement with suppliers, customers and joint venture partners.\n\nChemical Security\n\nPublic and political attention continues to be placed on the protection of U.S. critical infrastructure, including the chemical industry, from security threats. Sabotage, terrorism, war, natural disasters and cybersecurity incidents have increased global concerns about the security and safety of chemical production and distribution. UCC continues to improve its security plans, placing emphasis on the safety of UCC communities and people by being prepared to meet risks at any level and to address both internal and external identifiable risks. UCC's security plans are designed to avert interruptions of normal business operations that could have a material impact on the Corporation's results of operations, financial condition and cash flows.\n\nUCC is a Responsible Care® company and adheres to the Responsible Care® Security Code (\"Security Code\"), which requires that all aspects of security - including facility, transportation and cyberspace - be assessed and gaps addressed. Through global implementation of the Security Code, including voluntary security enhancements and upgrades, UCC has permanently heightened its level of security - not just in the United States, but worldwide. Further, the Corporation’s Distribution Risk Review process addresses potential threats in all modes of transportation across the supply chain. In 2019, Dow Inc. established its Global Security Operations Center (\"GSOC\") to provide 24-hour/day, 365-day/year real-time monitoring of global risks to Dow Inc. assets and people, which includes UCC assets and people. The GSOC employs state-of-the-art social media monitoring, threat reporting and geo-fencing capabilities to analyze global risks and report those risks, facilitating decision-making and actions to prevent Dow Inc. and UCC crises.\n\nTo reduce vulnerabilities, UCC maintains security measures that meet or exceed regulatory and industry security standards in all areas in which UCC operates. Assessment and improvement costs are not considered material to the Corporation's consolidated financial statements.\n\nClimate Protection\n\nEvaluation of climate-related risks and opportunities continues to be a catalyst for the development of Dow’s Decarbonize & Grow strategy (Dow’s climate transition plan), and its broad water stewardship and habitat conservation efforts. Dow's science-based strategy includes a phased approach to decarbonize while meeting the growing demand for Dow's products and contributing to a low-carbon future through continued investment in new products, technologies and processes, and a focus on water resilience in key watersheds and positive impact on biodiversity through habitat conservation.\n\nIn 2020, Dow set a target to be carbon neutral by 2050 across Scopes 1, 2 and 3, as defined by the Greenhouse Gas Protocol Corporate Accounting and Reporting Standard, plus product benefits. Dow’s Protect the Climate goals include reducing net annual greenhouse gas (\"GHG\") emissions by 5 million metric tons by 2030 versus its 2020\n\n21\n\n[Table of Contents](#i2aef629ae28d4ab08017402fb32766d6_7)\n\nbaseline, representing approximately a 15 percent reduction versus 2020 and a nearly 30 percent reduction since 2005. Dow has a multi-generational plan to replace end-of-life emissions-intensive assets with higher-efficiency, lower-emissions assets. Dow has continued its near-term progression in its Decarbonize & Grow strategy by starting construction of its Fort Saskatchewan Path2Zero project which will be the world’s first net-zero Scope 1 and 2 emissions ethylene complex, when completed, and will decarbonize approximately 20 percent of Dow’s global ethylene production capacity. While Dow remains committed to this project and the growth upside it will enable, Dow now expects to complete construction of the project with a two-year delay, with the first and second phases expected to start up by the end of 2029 and 2030, respectively. Dow has also continued to advance a project with X-energy, a nuclear energy innovation company, to commercialize an advanced small modular nuclear reactor that will generate GHG emissions-free process heat and energy at the Corporation's site in Seadrift, Texas. Energy reduction and optimization projects will provide continuous progress toward Dow’s carbon-neutral ambitions.\n\nDow is also committed to advancing water stewardship within its operations and supply chain and with downstream customers and to working collaboratively to enhance water management at the watershed level. In 2024, Dow announced a robust 2050 water resilience strategy as well as a 50,000 acre habitat conservation target to address these key elements of climate adaptation.\n\nDespite these commitments, climate change-related risks and uncertainties, legal or regulatory responses to climate change, and failure to meet climate change commitments could negatively impact UCC’s results of operations, financial condition and/or reputation. Climate-related risks include both physical and transition risks.\n\nPhysical Risks\n\nClimate-related physical risks include more frequent severe weather events, potential changes in precipitation patterns, water scarcity and extreme variability in weather patterns, which can disrupt the operations of Dow and the Corporation, as well as those of its customers, partners and vendors.\n\nTo evaluate physical risks, Dow partnered with S&P Global Trucost (“Trucost”) to assess Dow’s exposure to physical risks based on the geographic location of its manufacturing operations. The risks assessed included water stress, flood, heat waves, cold waves, hurricanes, wildfires and sea level rise. The analysis included an assessment of the physical risks using a baseline year of 2020 with time periods for medium- (year 2030) and long-term (year 2050) using the Intergovernmental Panel on Climate Change representative concentration pathways. These pathways represent varying degrees of global atmospheric GHG concentrations (low, medium and high), and thus different expectations on global temperature rise. Results are incorporated into Dow’s long-term assessments of its manufacturing sites, which are key inputs into Dow’s and UCC's capital approval process.\n\nTransition Risks\n\nClimate-related transition risks include the availability, development and affordability of lower GHG emissions technology, the effects of carbon dioxide equivalent (\"CO2e\") pricing and changes in public sentiment, regulations, taxes, public mandates or requirements as they relate to CO2e, water or land use.\n\nClimate-related risks, including both physical and transition risks, are assessed by Dow with input from internal and external sources including corporate, business, function and geographic leaders; subject matter experts; investors; and other stakeholders. The evaluation of climate-related risks and opportunities is integrated into Dow's annual company-wide risk management process, known as enterprise risk management (“ERM”). ERM identifies significant or major risks to Dow and develops action plans to modify or mitigate risks.\n\nTo ensure its processes and plans are resilient, Dow uses climate-related scenarios to assess physical and transition risks. Dow’s periodic climate scenario analysis considers a longer time frame (currently to 2050) for magnitude of impact. Every few years, Dow also utilizes a robust scenario analysis to assess the long-term materiality and impact of climate-related risks and opportunities. Scenario analysis is used to challenge business-as-usual assumptions and strengthen the resiliency of Dow’s Decarbonize & Grow strategy. Scenarios are used to evaluate both physical and transition risk and are particularly useful in evaluating the potential and impact of emerging risks. Dow selected several climate scenarios relevant for physical and transition risks, to cover a range of assumptions regarding policy development and to build resiliency for a variety of outcomes in its strategy.\n\n22\n\n[Table of Contents](#i2aef629ae28d4ab08017402fb32766d6_7)\n\nManaging Climate Risks\n\nManagement of climate risk is assigned to Dow’s Climate Steering Team (“CST”), which is accountable for developing and implementing plans to mitigate risk and for tracking actions and progress against those plans. With oversight and accountability by the CST, specific carbon-related risks are managed by Dow’s Carbon Program Management Office (“PMO”). Water and nature risks are managed by the Water and Nature PMO, which is also accountable to the CST. The PMOs partner with subject matter experts to develop and implement strategies to mitigate or eliminate climate-related risks. The teams develop specific action plans and ensure owners are assigned to drive forward progress to reduce Dow’s and UCC's risk exposure. Risk mitigation status updates are provided to Dow's executive leaders on a regular basis and discussions include risk time horizons or magnitude of impact to confirm that the strategy remains solid.\n\nEnvironmental Remediation\n\nUCC accrues the costs of remediation of its facilities and formerly owned facilities based on current law and existing technologies. The nature of such remediation includes, for example, the management of soil and groundwater contamination. The policies adopted to properly reflect the monetary impacts of environmental matters are discussed in Note 1 to the Consolidated Financial Statements. To assess the impact on the consolidated financial statements, environmental experts review currently available facts to evaluate the probability and scope of potential liabilities. Inherent uncertainties exist in such evaluations primarily due to unknown environmental conditions, changing governmental regulations and legal standards regarding liability, and emerging remediation technologies. These liabilities are adjusted periodically as remediation efforts progress or as additional technical or legal information becomes available. The Corporation had an accrued liability of $149 million at December 31, 2025 and $149 million at December 31, 2024, related to the remediation of current or former UCC-owned sites.\n\nIn addition to current and former UCC-owned sites, under the Federal Comprehensive Environmental Response, Compensation and Liability Act and equivalent state laws (hereafter referred to collectively as \"Superfund Law\"), UCC is liable for remediation of other hazardous waste sites where UCC allegedly disposed of, or arranged for the treatment or disposal of, hazardous substances. Because Superfund Law imposes joint and several liability upon each party at a site, UCC has evaluated its potential liability in light of the number of other companies that also have been named potentially responsible parties (\"PRPs\") at each site, the estimated apportionment of costs among all PRPs, and the financial ability and commitment of each to pay its expected share. Management's estimate of the Corporation's remaining liability for the remediation of Superfund sites was $39 million at December 31, 2025 and $35 million at December 31, 2024, which has been accrued, although the ultimate cost with respect to these sites could exceed that amount. The Corporation has not recorded any third-party recovery related to these sites as a receivable.\n\nInformation regarding environmental sites is provided below:\n\nEnvironmental Sites\nUCC-owned Sites 1\n\nSuperfund Sites 2\n\n2025202420252024\n\nNumber of sites at Jan 125 25 62 63 \n\nSites added during year— — 3 — \n\nSites closed during year(2)— (4)(1)\n\nNumber of sites at Dec 3123 25 61 62 \n\n1.UCC-owned sites are sites currently or formerly owned by UCC. In the United States, remediation obligations are imposed by the Resource Conservation and Recovery Act or analogous state law.\n\n2.Superfund sites are sites, including sites not owned by UCC, where remediation obligations are imposed by Superfund Law.\n\nIn total, the Corporation's accrued liability for probable environmental remediation and restoration costs was $188 million at December 31, 2025, compared with $184 million at December 31, 2024. 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 it is reasonably possible that the ultimate cost with respect to these particular matters could range up to approximately two times that amount. Consequently, it is reasonably possible that environmental remediation and restoration costs in excess of amounts accrued could have a material impact on the Corporation's results of operations, financial condition and cash flows. It is the opinion of the Corporation's management, however, that the possibility is remote that costs in excess of the range disclosed will have a material impact on the Corporation's results of operations, financial condition and cash flows.\n\n23\n\n[Table of Contents](#i2aef629ae28d4ab08017402fb32766d6_7)\n\nThe amounts charged to income on a pretax basis related to environmental remediation totaled $35 million in 2025, $37 million in 2024 and $44 million in 2023. The amounts charged to income on a pretax basis related to operating the Corporation's pollution abatement facilities, excluding internal recharges, totaled $19 million in 2025, $24 million in 2024 and $106 million in 2023. The decrease in charges to operate pollution abatement facilities is primarily due to the Corporation's divestment of certain production supporting infrastructure assets on the U.S. Gulf Coast that are now owned and managed by Diamond Infrastructure Solutions. See Note 17 for additional information. Capital expenditures for environmental protection were $10 million in 2025, $16 million in 2024 and $47 million in 2023.\n\nAsbestos-Related Matters\n\nThe Corporation is and has been involved in a large number of asbestos-related suits filed primarily in state courts during the past several decades. These suits principally allege personal injury resulting from exposure to asbestos-containing products and frequently seek both actual and punitive damages. The alleged claims primarily relate to products that UCC sold in the past, alleged exposure to asbestos-containing products located on UCC's premises, and UCC's responsibility for asbestos suits filed against a former UCC subsidiary, Amchem. 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 UCC's products.\n\nThe table below provides information regarding asbestos-related claims pending against the Corporation and Amchem based on criteria developed by UCC and its external consultants:\n\nAsbestos-Related Claim Activity202520242023\n\nClaims unresolved at Jan 15,813 6,367 6,873 \n\nClaims filed4,615 4,568 4,199 \n\nClaims settled, dismissed or otherwise resolved(3,270)(5,122)(4,705)\n\nClaims unresolved at Dec 317,158 5,813 6,367 \n\nClaimants with claims against both UCC and Amchem(1,277)(1,005)(1,236)\n\nIndividual claimants at Dec 315,881 4,808 5,131 \n\nPlaintiffs' lawyers often sue numerous defendants in individual lawsuits or on behalf of numerous claimants. As a result, the damages alleged are not expressly identified as to UCC, Amchem or any other particular defendant, even when specific damages are alleged with respect to a specific disease or injury. For these reasons and based upon the Corporation's litigation and settlement experience, the Corporation does not consider the damages alleged against it and Amchem to be a meaningful factor in its determination of any potential asbestos-related liability.\n\nFor additional information, see Part I, Item 3. Legal Proceedings and Asbestos-Related Matters in Notes 1 and 12 to the Consolidated Financial Statements.\n\nDebt Covenants and Default Provisions\n\nThe Corporation's outstanding public debt has been issued under indentures which contain, among other provisions, covenants that the Corporation must comply with while the underlying notes are outstanding. Such covenants are typically based on the Corporation's size and financial position and include, subject to the exceptions and qualifications contained in the indentures, obligations not to (i) allow liens on principal U.S. manufacturing facilities, (ii) enter into sale and lease-back transactions with respect to principal U.S. manufacturing facilities, or (iii) merge into or consolidate with any other entity or sell or convey all or substantially all of its assets. Failure of the Corporation to comply with any of these covenants could, after the passage of any applicable grace period, result in a default under the applicable indenture which would allow the note holders to accelerate the due date of the outstanding principal and accrued interest on the subject notes. Management believes the Corporation was in compliance with the covenants referred to above at December 31, 2025.\n\n24\n\n[Table of Contents](#i2aef629ae28d4ab08017402fb32766d6_7)"}