##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2008
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 1-5263
 THE LUBRIZOL CORPORATION
  OHIO
    
    34-0367600(State of incorporation)
    
    (I.R.S. Employer Identification No.)
 
   Title of each class
    
    Name of each exchange on which registeredCommon Shares without par value
    
    New York Stock Exchange
  þ o
 o þ
 þ o
 þ
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ
   Documents Incorporated by Reference




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##### 



TABLE OF CONTENTS
 PART IItem 1.
    
    Business
    
    
    3Item 1A.
    
    Risk Factors
    
    
    15Item 1B.
    
    Unresolved Staff Comments
    
    
    19Item 2.
    
    Properties
    
    
    19Item 3.
    
    Legal Proceedings
    
    
    21Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    21Executive Officers of the Registrant
    
    
    21PART IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    24Item 6.
    
    Selected Financial Data
    
    
    25Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    26Item 7A.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    52Item 8.
    
    Financial Statements and Supplementary Data
    
    
    53Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    94Item 9A.
    
    Controls and Procedures
    
    
    94Item 9B.
    
    Other Information
    
    
    96PART IIIItem 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    96Item 11.
    
    Executive Compensation
    
    
    96Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    96Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    97Item 14.
    
    Principal Accounting Fees and Services
    
    
    97PART IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    98Signatures
    
    
    103EX-10.2EX-10.16EX-10.17EX-10.18EX-10.19EX-10.24EX-10.25EX-12.1EX-21.1EX-23.1EX-31.1EX-31.2EX-32.1
  2




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##### Table of Contents



PART I
 
 ITEM 1. BUSINESS
  Overview
  ® ® ® ®
  www.lubrizol.com
 Acquisitions and Divestitures
   3




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®
 Business Segments
  ® 
  THE LUBRIZOL CORPORATION
  Lubrizol Additives Segment
    
    Engine Additives
 
    
    Passenger Car Motor Oils
    
    Marine Diesel, Small Engines, Stationery Gas Oils
    
    Viscosity Modifiers
    
    Fuel, Refinery and Oilfield Products
    
    Services 
    
    Driveline and Industrial Additives
 
    
    Automatic Transmission Fluids
    
    Gear Oils
    
    Farm Tractor Fluids
    
    Hydraulic Fluids
    
    Grease Additives
    
    Metalworking Fluids
    
    Compressor Lubricants
    
    Industrial Gear Oils
    
    Viscosity Modifiers
    
    Services
    
    AMPS® Monomers
    
    ADEX Emulsifiers for Explosives
  Lubrizol Advanced Materials Segment
    
    Noveon® Consumer Specialties
 
    
    Personal Care
    
    Pharmaceuticals
    
    Cassia Hydrocolloids
 
    
    Performance Coatings
 
    
    Graphic Arts/Functional Coatings
    
    Paints, Coatings and Adhesives
    
    Engineered Substrates
 
    
    Engineered Polymers
 
    
    TempRite® Engineered Polymers
    
    Estane® Engineered Polymers
 
    
    Conductive Polymers
   Lubrizol Additives Segment
  4




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
    
    antioxidants that retard oil thickening;
    
    anti-wear agents that prevent metal-to-metal contact of surfaces;
    
    corrosion inhibitors that prevent rust;
    
    detergents that prevent deposit build-up;
    
    dispersants that protect equipment by suspending contaminant particles;
    
    friction modifiers that control friction at surfaces;
    
    polymer-based viscosity modifiers that allow lubricants to operate over broad
temperature ranges; and
    
    pour point depressants that control low temperature fluid thickening.
   Engine Additives
 5




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Category
    
    Product/Brand
    
    Description/UsesEngine Additives
    
    Passenger car motor oils,
heavy-duty diesel engine
oils, marine diesel,
small engines, stationary
gas and viscosity
modifiers
    
    Additives that extend
engine life, lower
emissions and enhance
fuel economy.Fuel, refinery and
oilfield products and
other components
    
    Additives designed to
eliminate deposits and
provide fuel system
cleanliness, prevent wear
and corrosion, enhance
fuel economy, improve
combustion properties of
fuel and improve flow
characteristics for
crudes and refined
products.
 Driveline and Industrial Additives
 Driveline Additives
  Industrial Additives
   Category
    
    Product/Brand
    
    Description/UsesDriveline and
Industrial
Additives
    
    Driveline additives for automatic
transmission fluids, gear oils and farm
tractor fluids
    
    Additives that
provide multiple
and complex
performance
properties,
including reducing
friction in order
to prevent wear of
gears,
transmissions and
farm tractor
components.Additives for industrial fluids, including
hydraulics, metalworking, industrial gear,
grease and compressor fluids
    
    A wide range of
additives to meet
the lubricant
performance
requirements of
industrial
equipment.AMPS® monomers
    
    Specialty monomer
for high
performance
polymers used in
dishwashing
detergents to
reduce spotting,
skin creams to
improve lubricity
and feel, medical
gels and coatings
and adhesives to
improve adhesion.ADEX emulsifiers for explosives
    
    Customized systems
that are designed
to combine water
and oil for use in
producing civil
explosives.
 6




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Lubrizol Advanced Materials Segment
    Noveon Consumer Specialties
   Category
    
    Product/Brand
    
    Description/UsesPersonal Care and
Pharmaceuticals
    
    Carbopol®
    
    Acrylic thickener, which imparts stability
and improves aesthetics. Also used as a
controlled release agent in
pharmaceuticals.Pemulen®
    
    Polymeric emulsifier reducing formulation
irritancy and providing unique sensory
properties.Avalure®
    
    Polymers for color cosmetics and skin care.Specialty silicones
    
    Polymers affecting slip-and-feel.Fixate®
    
    Resin for hair styling.Emollients
    
    Improve skin feel and appearance.Methyl glucoside derivatives, including
Glucamate®
    
    Natural thickeners, emulsifiers and
moisturizers for shampoos, liquid
cleansers, face and body creams and
lotions.Lanolin derivatives
    
    Natural emollients, emulsifiers and
conditioners for creams, lotions and color
cosmetics.Specialty surfactants, including Sulfochem®
    
    Enhance cleansing, foaming and
moisturizing of shampoos, body washes and
industrial and household cleaners.Calcium polycarbophil
    
    Active agent for bulk laxatives.Cassia gum
    
    Gelling agents for human food (select
approvals) and pet food.
 Performance Coatings
  7




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Specialty Resins and Polymers
 ®
  Category
    
    Product/Brand
    
    Description/UsesSpecialty Resins
and Polymers
    
    Acrylic Emulsions, Polyurethane Dispersions and
Other Water-based Systems, Hycar®,
Sancure®, Algan®,
Performax®, Vycar®,
Stycar®, Myflam®
    
    Provide superior
gloss and
durability
properties to
paints and
coatings. End
markets include
wood, paper, metal,
concrete, plastic
and textiles.Acrylic and Other Polymer Resins, Doresco®
    
    Function as
carriers for
pigments, and
provide surface
protection and
adhesion
properties. End
markets include
paint and coatings,
printing ink,
laminating,
adhesives and
sealants.
 Coating Additives
  
    
    High-performance hyperdispersants for coatings, inks, thermoplastics and thermoset
composites. We are a world leader in polymeric hyperdispersant technology, sold under the
Solsperse® and Solplus® trade names. Hyperdispersants improve the
dispersion of almost any solid particulate (including pigments, fillers, flame retardants
and fibers) into almost any liquid medium (water, solvents and resins). They primarily are
used to achieve even color saturation. They enrich and strengthen color, while reducing
production costs and solvent emissions. We also produce Ircosperse® pigment
dispersants for coatings and COLORBURST pigment dispersants for printing inks.
    
    Surface modifiers improve the performance of industrial, architectural, can, coil, wood
and powder coatings by enhancing and protecting surfaces. Lanco®,
Lanco® Glidd, Lanco® Matt and Aquaslip
surface modifiers impart a variety of properties to a coating, including enhanced slip,
improved abrasion and scratch resistance, matting, texturing and a silky, soft feel.
    
    Rheology control additives improve the performance of coatings by providing thickening,
sag control, pigment anti-settling and improved surface appearance. Rheology control
additives are sold under the brand names Ircothix®, Ircogel® and
Solthix®.
    
    Specialized additives for inks improve rub resistance properties and film
characteristics.
 8




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Category
    
    Product/Brand
    
    Description/UsesCoating Additives
    
    Solsperse®,
Ircosperse®, COLORBURST
Dispersants,
    
    Improve the dispersion of solid particulates into
liquid mediums. End markets include paints and
printing inks.Lanco®, Lanco®
Glidd, Lanco® Matt,
Aquaslip Surface Modifiers
    
    Impart a variety of properties to a coating,
including enhanced slip, improved abrasion and
scratch resistance, matting and texturing. End
markets include industrial, architectural, can and
coil, wood and powder coatings.Ircothix®,
Ircogel®,
Solthix® Rheology Control
Additives
    
    Provide thickening, sag control and improved surface
appearance of coatings.Duotron®,
Liquitron®,
Fluotron® Specialized
Additives for Inks
    
    Improve the processing, performance and rub
resistance properties.Lubrizol® Specialty Additives
    
    Highly specialized performance additives for coatings.
 Engineered Polymers
 TempRite Engineered Polymers
 ® ® ® ® ® ®
  Category
    
    Product/Brand
    
    Description/UsesEP
    
    TempRite®
    
    Residential plumbingFlowGuard®
    
    Residential and commercial plumbingFlowGuard Gold®
    
    Residential and commercial plumbingCorzan®
    
    Industrial and commercial piping
 BlazeMaster®
    
    Fire sprinkler pipingFlowGuard® Flex
    
    Flexible piping systems
 Estane Engineered Polymers
  9




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®
 ®
  Category
    
    Product/Brand
    
    Description/UsesTPU
    
    Estane®and Pellethane®
    
    Aromatic grades for
film and sheet,
wire and cable
insulation,
athletic equipment,
medical
applications,
pneumatic tubing,
automotive molded
parts and
adhesives.Isoplast®
    
    Clear resins with
high stiffness,
toughness and
chemical resistance
for medical, dental
and general
industrial
applications.Estaloc®
    
    Automotive trim,
sporting goods,
agricultural
equipment and other
mechanical
components.Stat-Rite®
    
    Packaging of
sensitive
electronic
components and
various clean room
applications.Tecoflex®, Carbothane®
    
    Aliphatic grades
for medical tubing
and other devices,
optical grade film
and specialty
industrial
applications where
maintaining
aesthetic
properties is
required.
 Competition
   Product Line
    
    Principal CompetitorsNoveon consumer specialties
    
    BASF, Cognis, Croda, Evonik (Degussa
Goldschmidt), ISP, NK Chemicals, Rhodia, Rohm
and Haas, SNF, Stepan, Sumitomo Seika, 3V
Sigma, VinatiPerformance coatings
    
    BASF, Bayer, Byk, Ciba, Clariant, Cytec, Dow
Chemical, DSM, Eastman, Hexion, Michelman,
Micro Powders, OMNOVA, Parachem, Reichhold,
Rohm and Haas, TegoEngineered polymers
    
    Arkema, BASF, Bayer, Georgia Gulf, Huntsman,
Kaneka, Merquinsa, Sekisui Chemical, Vanguard,
Victaulic, Wirsbo
 Sales and Marketing
  10




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Backlog
  Research, Development and Technology
  11




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Lubrizol Additives
   Lubrizol Advanced Materials
  Patents
 Research, Testing and Development Expenditures
  12




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Raw Materials
   Regulatory
  Environmental Matters
    13




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Employees
  Geographic Area Information
   Manufacturing and Properties
   14




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ITEM 1A. RISK FACTORS
 If any of the events contemplated by the following discussion of risks should occur, our business,
results of operations and financial condition could suffer significantly.
 Risks Relating to our Business
 Some of our businesses are cyclical and demand by our customers for our products weakens during
economic downturns.
  Volatility in raw material prices could reduce our profitability and reductions in the availability
of raw material supplies could disrupt our operations.
   We face competition from other chemical companies, which could affect adversely our business,
financial condition and consolidated results of operations.
   15




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Failure to make continued improvements in our technology and productivity could hurt our
competitive position.
  Our and our suppliers production facilities are subject to operating risks that could affect
adversely our business or results of operations.
  We face numerous risks relating to our foreign operations, including exchange rate fluctuations,
exchange controls and currency devaluations, that may affect adversely our results of operations or
cash flow.
   Failure to implement our common information system platform successfully could impact negatively
our ability to conduct business in our Lubrizol Advanced Materials segment.
  16




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International social, political and economic conditions could affect adversely our operating
performance.
  Our production facilities are of the type that could attract terrorist attacks, and any attack
could disrupt our operations and cause us to incur significant costs and liabilities.
  The applicability of numerous environmental laws to our manufacturing facilities could cause us to
incur significant costs and liabilities.
     17




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If we are unable to protect our intellectual property rights, our product sales and financial
performance could be affected adversely.
   Some of our employees are covered by collective bargaining agreements, and the failure to renew
these agreements could result in labor disruptions and increased labor costs.
  Financial Risks
 We may not have access to capital in the future due to changes in general economic conditions.
  18




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We could be affected adversely if our debt is downgraded.
  The limits imposed on us by the restrictive covenants contained in our credit facilities could
prevent us from making acquisitions or capital improvements or cause us to lose access to these
facilities, and if we are unable to obtain necessary waivers and our debt is accelerated, our
financial condition could be affected adversely.
  
    
    borrow money or guarantee the debts of others;
    
    use assets as security in other transactions;
    
    materially change the nature of our business; and
    
    sell assets or merge with or into other companies.
   We may be impacted adversely by increased costs related to our defined benefit pension plans.
  
 ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
  19




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Reportable SegmentsOwned/
    
    Laboratory (R&D/Testing) or
    
    Lubrizol
    
    Lubrizol AdvancedLocation
    
    Leased
    
    Manufacturing
    
    Additives
    
    MaterialsSydney, Australia
    
    Owned
    
    Manufacturing
    
    xAntwerp, Belgium
    
    Owned
    
    Laboratory, Manufacturing
    
    
    
    xLouvain-la-Neuve, Belgium
    
    Leased
    
    Laboratory
    
    
    
    xOevel, Belgium
    
    Owned
    
    Manufacturing
    
    
    
    xVilvoorde, Belgium
    
    Owned
    
    Manufacturing
    
    
    
    xRio de Janeiro, Brazil
    
    Owned
    
    Manufacturing
    
    x
    
    xSao Paulo, Brazil
    
    Leased
    
    Laboratory
    
    
    
    xNiagara Falls, Canada(1)
    
    Owned
    
    Manufacturing
    
    xHong Kong, China
    
    Leased
    
    Laboratory
    
    
    
    xLanzhou, China(2)
    
    Plant is owned;
land is leased
    
    Manufacturing
    
    xQingpu, China
    
    Plant is owned;
land is leased
    
    Laboratory, Manufacturing
    
    
    
    xShanghai, China
    
    Leased
    
    Laboratory
    
    
    
    xShanghai, China
    
    Leased
    
    Laboratory
    
    xSongjiang, China
    
    Plant is owned;
land is leased
    
    Manufacturing
    
    
    
    xTianjin, China (2)
    
    Plant is owned;
land is leased
    
    Manufacturing
    
    xZhejiang, China(2)
    
    Plant is owned;
land is leased
    
    Manufacturing
    
    
    
    xLe Havre, France
    
    Owned
    
    Manufacturing
    
    xMourenx, France
    
    Owned
    
    Manufacturing
    
    xRouen, France
    
    Owned
    
    Manufacturing
    
    x
    
    xHamburg, Germany
    
    Leased
    
    Laboratory, Manufacturing
    
    xRitterhude, Germany
    
    Owned
    
    Laboratory, Manufacturing
    
    
    
    xTurbhe, India(2)
    
    Plant is owned;
land is leased
    
    Manufacturing
    
    xVadodara, India
    
    Owned
    
    Manufacturing
    
    
    
    xKinuura, Japan
    
    Owned
    
    Laboratory, Manufacturing
    
    xPohang, Korea
    
    Plant is owned;
land is leased
    
    Manufacturing
    
    
    
    xSeoul, Korea
    
    Leased
    
    Laboratory
    
    
    
    xSembilan, Malaysia
    
    Owned
    
    Manufacturing
    
    
    
    xApodaca, Mexico(2)
    
    Owned
    
    Manufacturing
    
    xCuautitlan Izcalli, Mexico
    
    Leased
    
    Laboratory
    
    x
    
    xDelfzijl, The Netherlands
    
    Leased
    
    Manufacturing
    
    
    
    xYanbu, Saudi Arabia(1)
    
    Plant is owned;
land is leased
    
    Laboratory, Manufacturing
    
    xSingapore
    
    Plant is owned;
land is leased
    
    Manufacturing
    
    xSingapore
    
    Leased
    
    Laboratory
    
    
    
    xDurban, South Africa
    
    Owned
    
    Manufacturing
    
    xBarcelona, Spain
    
    Owned
    
    Laboratory, Manufacturing
    
    
    
    xBarnsley, United Kingdom
    
    Owned
    
    Laboratory, Manufacturing
    
    
    
    xBlackley, United Kingdom
    
    Leased
    
    Laboratory
    
    
    
    xHazelwood, United Kingdom
    
    Owned
    
    Laboratory
    
    xHuddersfield, United Kingdom
    
    Plant is owned;
land is leased
    
    Manufacturing
    
    
    
    xPaso Robles, CA
    
    Plant is owned;
land is leased
    
    Laboratory, Manufacturing
    
    
    
    xPeachtree City, GA
    
    Owned
    
    Manufacturing
    
    
    
    xCountryside, IL
    
    Owned
    
    Laboratory, Manufacturing
    
    
    
    xMcCook, IL
    
    Leased
    
    Laboratory, Manufacturing
    
    
    
    xCalvert City, KY
    
    Owned
    
    Manufacturing
    
    
    
    xLouisville, KY
    
    Owned
    
    Manufacturing
    
    
    
    xWilmington, MA
    
    Leased
    
    Manufacturing
    
    
    
    xMidland, MI
    
    Owned
    
    Laboratory, Manufacturing
    
    xClifton, NJ
    
    Owned
    
    Laboratory, Manufacturing
    
    
    
    xPedricktown, NJ
    
    Owned
    
    Manufacturing
    
    
    
    x
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Reportable SegmentsOwned/
    
    Laboratory (R&D/Testing) or
    
    Lubrizol
    
    Lubrizol AdvancedLocation
    
    Leased
    
    Manufacturing
    
    Additives
    
    MaterialsPiscataway, NJ
    
    Leased
    
    Laboratory
    
    
    
    xGastonia, NC
    
    Owned
    
    Laboratory, Manufacturing
    
    
    
    xAvon Lake, OH
    
    Owned
    
    Laboratory, Manufacturing
    
    
    
    xBowling Green, OH
    
    Owned
    
    Laboratory, Manufacturing
    
    
    
    xBrecksville, OH
    
    Owned
    
    Laboratory
    
    
    
    xChagrin Falls, OH
    
    Owned
    
    Laboratory, Manufacturing
    
    
    
    xPainesville, OH
    
    Owned
    
    Manufacturing
    
    x
    
    xWickliffe, OH
    
    Owned
    
    Laboratory
    
    xSpartanburg, SC
    
    Leased
    
    Laboratory
    
    xSpartanburg, SC
    
    Owned
    
    Laboratory, Manufacturing
    
    x
    
    xBayport, TX
    
    Owned
    
    Manufacturing
    
    xDeer Park, TX
    
    Owned
    
    Manufacturing
    
    xHouston, TX
    
    Owned
    
    Manufacturing
    
    xLa Porte, TX(3)
    
    Plant is owned;
land is leased
    
    Manufacturing
    
    
    
    x
 (1)
    
    Operations are expected to cease by the end of the second quarter of 2009.(2)
    
    These manufacturing plants are owned and operated by joint venture companies licensed by
Lubrizol. Our ownership of each of these companies ranges from 28% to 50%.(3)
    
    Acquired on December 31, 2008.   
 ITEM 3. LEGAL PROCEEDINGS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 EXECUTIVE OFFICERS OF THE REGISTRANT
  Name
    
    Age
    
    PositionJames L. Hambrick
    
    54
    
    Chairman of the Board, President and Chief Executive OfficerJoseph W. Bauer
    
    55
    
    Vice President and General CounselCharles P. Cooley
    
    53
    
    Senior Vice President, Treasurer and Chief Financial OfficerW. Scott Emerick
    
    44
    
    Corporate ControllerRobert T. Graf
    
    50
    
    Vice President, Research and DevelopmentStephen F. Kirk
    
    59
    
    Senior Vice President and Chief Operating OfficerGregory R. Lewis
    
    50
    
    Vice President, Global Risk Management and Chief Ethics OfficerMark W. Meister
    
    54
    
    Vice President, Human ResourcesLarry D. Norwood
    
    58
    
    Vice President, OperationsLeslie M. Reynolds
    
    48
    
    Corporate Secretary and CounselPatrick H. Saunier
    
    53
    
    Vice President, Information SystemsEric R. Schnur
    
    42
    
    Vice President and President, Lubrizol Advanced MaterialsDaniel L. Sheets
    
    51
    
    Vice President and President, Lubrizol AdditivesGregory D. Taylor
    
    50
    
    Vice President, Corporate Planning, Development and CommunicationsJeffrey A. Vavruska
    
    48
    
    Chief Tax Officer
 21




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##### Table of Contents



James L. Hambrick
 Joseph W. Bauer
 Charles P. Cooley
 W. Scott Emerick
 Robert T. Graf
 Stephen F. Kirk
 Gregory R. Lewis
 Mark W. Meister
 Larry D. Norwood
 Leslie M. Reynolds
 Patrick H. Saunier
 Eric R. Schnur
 Daniel L. Sheets
 Gregory D. Taylor
 22




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Jeffrey A. Vavruska
  23




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PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
   Common Share Sale Price History
    
    
    Dividends2008
    
    
    2007
    
    
    Per Common ShareHigh
    
    
    Low
    
    
    High
    
    
    Low
    
    
    2008
    
    
    20071st quarter
    
    $
    60.48
    
    
    $
    46.69
    
    
    $
    54.13
    
    
    $
    48.76
    
    
    $
    .30
    
    
    $
    .262nd quarter
    
    
    61.38
    
    
    
    46.21
    
    
    
    69.89
    
    
    
    51.40
    
    
    
    .31
    
    
    
    .303rd quarter
    
    
    54.78
    
    
    
    40.61
    
    
    
    68.46
    
    
    
    52.38
    
    
    
    .31
    
    
    
    .304th quarter
    
    
    43.56
    
    
    
    26.72
    
    
    
    69.95
    
    
    
    54.16
    
    
    
    .31
    
    
    
    .30$
    1.23
    
    
    $
    1.16
    Total Numberof Shares(or Units)
    
    Maximum NumberPurchased as
    
    (or Approximate DollarAverage
    
    Part of
    
    Value)Total Number
    
    Price
    
    Publicly
    
    of Shares (or Units)of Shares
    
    Paid per
    
    Announced
    
    that May Yet be(or Units)
    
    Share
    
    Plans or
    
    Purchased Under thePeriod
    
    Purchased1
    
    (or Unit)
    
    Programs
    
    Plans or Programs2Month #1
(Oct. 1, 2008 through Oct. 31, 2008)
    
    
    144
    
    
    $
    43.14
    
    
    
    N/A
    
    
    
    3,755,918Month #2
(Nov. 1, 2008 through Nov. 30, 2008)
    
    
    0
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    3,755,918Month #3
(Dec. 1, 2008 through Dec. 31, 2008)
    
    
    7
    
    
    $
    35.12
    
    
    
    N/A
    
    
    
    3,755,918Total
    
    
    151
    
    
    
    
    
    
    
    N/A
    
    
    
    3,755,918
 1
    
    This column includes common shares that we purchased pursuant to our deferred
compensation plans whereby we withhold shares upon a distribution to pay the withholding taxes
on behalf of the employee and pursuant to our stock incentive plan in which participants
provide already owned shares to us to pay for the exercise price of an option or whereby we
withhold shares upon the exercise of an option to pay the withholding taxes on behalf of the
employee.2
    
    This column represents common shares that we are permitted to purchase pursuant to a
share repurchase program authorized by our board of directors and announced on April 27, 2007.
This share repurchase program permits the company to repurchase up to 5.0 million of its
common shares in the open market or through negotiated transactions. The program will expire
when all authorized shares have been repurchased. In the third quarter of 2008, we suspended
temporarily our share repurchase program.
 24




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##### Table of Contents



ITEM 6. SELECTED FINANCIAL DATA
  (In Millions Except Shareholders, Employees and Per Share Data)
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004*OPERATING RESULTS:Revenues
    
    $
    5,027.8
    
    
    $
    4,499.0
    
    
    $
    4,040.8
    
    
    $
    3,622.2
    
    
    $
    2,864.4Cost of sales
    
    
    3,906.5
    
    
    
    3,378.1
    
    
    
    3,045.2
    
    
    
    2,700.1
    
    
    
    2,104.6Gross profit
    
    
    1,121.3
    
    
    
    1,120.9
    
    
    
    995.6
    
    
    
    922.1
    
    
    
    759.8Selling, administrative, technical and research expenses
    
    
    638.6
    
    
    
    641.1
    
    
    
    587.2
    
    
    
    547.3
    
    
    
    469.6Amortization of intangible assets
    
    
    27.0
    
    
    
    24.3
    
    
    
    23.7
    
    
    
    23.5
    
    
    
    16.9Write-off of acquired in-process research and development
    
    
    1.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34.0Restructuring and impairment charges
    
    
    394.0
    
    
    
    1.5
    
    
    
    51.9
    
    
    
    15.9
    
    
    
    38.1Net interest expense and other income
    
    
    50.3
    
    
    
    55.0
    
    
    
    70.8
    
    
    
    95.2
    
    
    
    66.7Income from continuing operations before income taxes
    
    
    9.8
    
    
    
    399.0
    
    
    
    262.0
    
    
    
    240.2
    
    
    
    134.5Provision for income taxes
    
    
    75.9
    
    
    
    115.6
    
    
    
    82.2
    
    
    
    80.8
    
    
    
    49.0(Loss) income from continuing operations
    
    
    (66.1
    )
    
    
    283.4
    
    
    
    179.8
    
    
    
    159.4
    
    
    
    85.5(Loss) income from discontinued operations - net of tax
    
    
    
    
    
    
    
    
    
    
    (76.2
    )
    
    
    27.8
    
    
    
    6.3Net (loss) income
    
    $
    (66.1
    )
    
    $
    283.4
    
    
    $
    103.6
    
    
    $
    187.2
    
    
    $
    91.8(Loss) income from continuing operations per diluted share
    
    $
    (0.97
    )
    
    $
    4.05
    
    
    $
    2.59
    
    
    $
    2.32
    
    
    $
    1.53Discontinued operations per diluted share
    
    
    
    
    
    
    
    
    
    
    (1.10
    )
    
    
    0.40
    
    
    
    0.11Diluted (loss) earnings per share
    
    $
    (0.97
    )
    
    $
    4.05
    
    
    $
    1.49
    
    
    $
    2.72
    
    
    $
    1.64FINANCIAL RATIOS:Gross profit percentage
    
    
    22.3
    
    
    
    24.9
    
    
    
    24.6
    
    
    
    25.5
    
    
    
    26.5Percent of revenues:Selling and administrative expenses
    
    
    8.3
    
    
    
    9.4
    
    
    
    9.4
    
    
    
    9.6
    
    
    
    9.9Research and testing expenses
    
    
    4.4
    
    
    
    4.9
    
    
    
    5.1
    
    
    
    5.5
    
    
    
    6.5Return on average shareholders equity (%)
    
    
    (3.8
    )
    
    
    15.6
    
    
    
    6.4
    
    
    
    12.2
    
    
    
    7.5Debt to capitalization (%)
    
    
    46.9
    
    
    
    42.2
    
    
    
    47.8
    
    
    
    51.8
    
    
    
    56.5Current ratio
    
    
    1.7
    
    
    
    2.1
    
    
    
    2.9
    
    
    
    2.4
    
    
    
    2.4OTHER INFORMATION:Dividends declared per share
    
    $
    1.23
    
    
    $
    1.16
    
    
    $
    1.04
    
    
    $
    1.04
    
    
    $
    1.04Average common shares outstanding:Basic
    
    
    68.1
    
    
    
    69.2
    
    
    
    68.7
    
    
    
    67.9
    
    
    
    55.7Diluted
    
    
    68.1
    
    
    
    70.0
    
    
    
    69.3
    
    
    
    68.8
    
    
    
    56.0Capital expenditures - continuing operations
    
    $
    202.6
    
    
    $
    182.8
    
    
    $
    125.7
    
    
    $
    121.9
    
    
    $
    122.6Depreciation expense - continuing operations
    
    $
    144.9
    
    
    $
    137.1
    
    
    $
    133.3
    
    
    $
    139.4
    
    
    $
    123.8At Year End:Total assets
    
    $
    4,150.5
    
    
    $
    4,643.8
    
    
    $
    4,390.9
    
    
    $
    4,371.2
    
    
    $
    4,571.1Long-term debt
    
    $
    954.6
    
    
    $
    1,223.9
    
    
    $
    1,538.0
    
    
    $
    1,662.9
    
    
    $
    1,964.1Total debt
    
    $
    1,345.8
    
    
    $
    1,428.8
    
    
    $
    1,541.7
    
    
    $
    1,670.8
    
    
    $
    1,972.3Total shareholders equity
    
    $
    1,523.7
    
    
    $
    1,951.3
    
    
    $
    1,683.1
    
    
    $
    1,551.9
    
    
    $
    1,508.5Shareholders equity per basic share
    
    $
    22.65
    
    
    $
    28.53
    
    
    $
    24.39
    
    
    $
    22.81
    
    
    $
    22.58Common share price
    
    $
    36.39
    
    
    $
    54.16
    
    
    $
    50.13
    
    
    $
    43.43
    
    
    $
    36.86Number of shareholders
    
    
    2,920
    
    
    
    3,029
    
    
    
    3,265
    
    
    
    3,500
    
    
    
    3,698Number of employees
    
    
    6,967
    
    
    
    6,921
    
    
    
    6,746
    
    
    
    7,515
    
    
    
    7,725
 *
    
    The 2004 results include the revenues and expenses of Lubrizol Advanced Materials International,
Inc. (formerly known as Noveon International, Inc.) since June 3, 2004, the date of acquisition.
 25




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##### Table of Contents



ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 This Managements Discussion and Analysis of Financial Condition and Results of Operations should
be read in conjunction with the consolidated financial statements, the notes thereto and the
selected financial data appearing elsewhere in this report. Historical results and percentage
relationships set forth in the consolidated financial statements, including trends that might
appear, should not be taken as indicative of future operations. The following discussion contains
forward-looking statements that involve risks and uncertainties. Our actual results may differ
materially from those discussed in such forward-looking statements as a result of various factors,
including those described under the section Cautionary Statements for Safe Harbor Purposes
included elsewhere in this annual report.
 OVERVIEW
 GENERAL
 .
     26




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##### Table of Contents



®
 LUBRIZOL ADDITIVES SEGMENT
  
    
    Frequent product specification changes primarily driven by original equipment manufacturers
(OEMs) and the impact of environmental and fuel economy regulations on the OEMs. The
specification changes require us to incur product development and testing costs, but also
enable us to apply our technology know-how to create products and solve problems. We believe
our technology, and our expertise in applying it, are key strengths.
    
    Improved engine design, which can result in longer lubricant drain intervals. Longer drain
intervals reduce demand for finished lubricants.
    
    New vehicle production levels, which affect our driveline fluids in particular because the
initial factory fill is an important market factor in that product line.
    
    In recent years, a general tightening of supplies leading to significant increases in raw
material and energy costs.
  27




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##### Table of Contents



LUBRIZOL ADVANCED MATERIALS SEGMENT
  PRIMARY FACTORS AFFECTING 2008 RESULTS FROM CONTINUING OPERATIONS
  
    
    Our ability to recover raw material cost increases and increased operating costs. Average
raw material cost increased 22% in 2008 after increasing 7% in 2007 and 14% in 2006. Our
results were affected by how quickly and the extent to which we were able to raise selling
prices in response to raw material and other cost increases. Both the Lubrizol Additives and
Lubrizol Advanced Materials segments implemented several price increases in 2008 in response
to continuing increases in these costs.
    
    The significant global economic weakness during the fourth quarter of 2008 that affected the
markets we serve, which negatively impacted our results. As a result of the weak fourth
quarter, volume declined 2% for the full year of 2008. Volume declined 21% in the fourth
quarter of 2008 compared to the same period in 2007 as demand declined sharply and customers
reduced their inventory levels.
    
    A goodwill impairment charge of $363.0 million associated with our performance coatings and
engineered polymers product lines. The impairment charge reflects the full impairment of the
performance coatings product line goodwill and is driven mainly by the product lines weak
current performance and outlook. The goodwill impairment charge also includes the partial
impairment of goodwill within our engineered polymers product line and is driven mainly by the
increase in our cost of capital in the fourth quarter of 2008 and to a lesser extent, a
reduction in their near-term earnings outlook. While the outlook for these product lines
dampened in the fourth quarter of 2008, we continue to view them as integral to our company.
    
    A favorable currency impact on our 2008 revenues of 3% in the Lubrizol Additives segment and
2% in the Lubrizol Advanced Materials segment. While we experienced an increase in operating
costs from changes in foreign currencies, we estimate that our overall results during 2008
benefited by $0.21 per share from a net favorable currency impact.
    
    Increased operating costs due to general salary and benefit cost increases, unfavorable
manufacturing cost absorption and costs associated with the implementation of a common
information systems platform primarily in the Lubrizol Advanced Materials segment.
    
    Restructuring and impairment charges of $31.0 million related to business improvement
initiatives in the performance coatings product line of the Lubrizol Advanced Materials
segment, the decision to close a Lubrizol Additives blending, packaging and warehouse facility
in Ontario, Canada, and the impairment of long-lived assets in our performance coatings
product line.
 28




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##### Table of Contents



2008 RESULTS OF OPERATIONS COMPARED WITH 2007
  Year Ended December 31(In Millions of Dollars Except Per Share Data)
    
    2008
    
    
    2007
    
    
    $ Change
    
    
    % ChangeRevenues
    
    $
    5,027.8
    
    
    $
    4,499.0
    
    
    $
    528.8
    
    
    
    12%Cost of sales
    
    
    3,906.5
    
    
    
    3,378.1
    
    
    
    528.4
    
    
    
    16%Gross profit
    
    
    1,121.3
    
    
    
    1,120.9
    
    
    
    0.4
    
    
    
    Selling and administrative expenses
    
    
    417.7
    
    
    
    422.2
    
    
    
    (4.5
    )
    
    
    (1%)Research, testing and development expenses
    
    
    220.9
    
    
    
    218.9
    
    
    
    2.0
    
    
    
    1%Amortization of intangible assets
    
    
    27.0
    
    
    
    24.3
    
    
    
    2.7
    
    
    
    11%Write-off of acquired in-process research
and development
    
    
    1.6
    
    
    
    
    
    
    
    1.6
    
    
    
    *Restructuring and impairment charges
    
    
    394.0
    
    
    
    1.5
    
    
    
    392.5
    
    
    
    *Other income - net
    
    
    (15.4
    )
    
    
    (8.8
    )
    
    
    (6.6
    )
    
    
    75%Interest income
    
    
    (12.4
    )
    
    
    (28.0
    )
    
    
    15.6
    
    
    
    (56%)Interest expense
    
    
    78.1
    
    
    
    91.8
    
    
    
    (13.7
    )
    
    
    (15%)Income before income taxes
    
    
    9.8
    
    
    
    399.0
    
    
    
    (389.2
    )
    
    
    (98%)Provision for income taxes
    
    
    75.9
    
    
    
    115.6
    
    
    
    (39.7
    )
    
    
    (34%)Net (loss) income
    
    $
    (66.1
    )
    
    $
    283.4
    
    
    $
    (349.5
    )
    
    
    *Basic (loss) earnings per share
    
    $
    (0.97
    )
    
    $
    4.10
    
    
    $
    (5.07
    )
    
    
    *Diluted (loss) earnings per share
    
    $
    (0.97
    )
    
    $
    4.05
    
    
    $
    (5.02
    )
    
    
    *
 *
    
    Calculation not meaningful
 Revenues
 Analysis of Volume - 2008 vs. 2007
 Excludingthe Impact of2008
    
    
    
    
    
    
    AcquisitionsVolume
    
    
    % Change
    
    
    % ChangeNorth America
    
    
    42
    %
    
    
    (11
    %)
    
    
    (12
    %)Europe
    
    
    27
    %
    
    
    1
    %
    
    
    Asia-Pacific / Middle East
    
    
    24
    %
    
    
    8
    %
    
    
    7
    %Latin America
    
    
    7
    %
    
    
    11
    %
    
    
    11
    %Total
    
    
    100
    %
    
    
    (2
    %)
    
    
    (3
    %)
  29




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##### Table of Contents



Cost of Sales
 Gross Profit
 Selling and Administrative Expenses
 Research, Testing and Development Expenses
 Write-off of Acquired In-Process Research and Development
 Restructuring and Impairment Charges
 Asset
    
    
    Other Plant

    
    Severance(In Millions of Dollars)
    
    Impairments

    
    Exit Costs

    
    and Benefits

    
    TotalGoodwill impairment charges
    
    $
    363.0
    
    
    $
    
    
    
    $
    
    
    
    $
    363.0Performance coatings 2008 business
improvement initiatives
    
    
    14.7
    
    
    
    0.4
    
    
    
    4.7
    
    
    
    19.8Lubrizol Advanced Materials product line
impairments and workforce reductions
    
    
    5.3
    
    
    
    
    
    
    
    0.3
    
    
    
    5.6Lubrizol Additives plant closure and workforce
reductions
    
    
    
    
    
    
    
    
    
    
    5.6
    
    
    
    5.6Total restructuring and impairment charges
    
    $
    383.0
    
    
    $
    0.4
    
    
    $
    10.6
    
    
    $
    394.0
 ® ®
  30




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Other Income - Net
 Interest Expense - Net
 Provision for Income Taxes
 Net (Loss) Income
 2007 RESULTS OF OPERATIONS COMPARED WITH 2006
   31




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##### Table of Contents



Year Ended December 31(In Millions of Dollars Except Per Share Data)
    
    2007
    
    
    2006
    
    
    $ Change
    
    
    % ChangeRevenues
    
    $
    4,499.0
    
    
    $
    4,040.8
    
    
    $
    458.2
    
    
    
    11%Cost of sales
    
    
    3,378.1
    
    
    
    3,045.2
    
    
    
    332.9
    
    
    
    11%Gross profit
    
    
    1,120.9
    
    
    
    995.6
    
    
    
    125.3
    
    
    
    13%Selling and administrative expenses
    
    
    422.2
    
    
    
    381.7
    
    
    
    40.5
    
    
    
    11%Research, testing and development expenses
    
    
    218.9
    
    
    
    205.5
    
    
    
    13.4
    
    
    
    7%Amortization of intangible assets
    
    
    24.3
    
    
    
    23.7
    
    
    
    0.6
    
    
    
    3%Restructuring and impairment charges
    
    
    1.5
    
    
    
    51.9
    
    
    
    (50.4
    )
    
    
    *Other income - net
    
    
    (8.8
    )
    
    
    (8.5
    )
    
    
    (0.3
    )
    
    
    4%Interest income
    
    
    (28.0
    )
    
    
    (20.4
    )
    
    
    (7.6
    )
    
    
    37%Interest expense
    
    
    91.8
    
    
    
    99.7
    
    
    
    (7.9
    )
    
    
    (8%)Income from continuing operations before
income taxes
    
    
    399.0
    
    
    
    262.0
    
    
    
    137.0
    
    
    
    52%Provision for income taxes
    
    
    115.6
    
    
    
    82.2
    
    
    
    33.4
    
    
    
    41%Income from continuing operations
    
    
    283.4
    
    
    
    179.8
    
    
    
    103.6
    
    
    
    58%Loss from discontinued operations - net
of tax
    
    
    
    
    
    
    (76.2
    )
    
    
    76.2
    
    
    
    *Net income
    
    $
    283.4
    
    
    $
    103.6
    
    
    $
    179.8
    
    
    
    174%Basic earnings (loss) per share:Continuing operations
    
    $
    4.10
    
    
    $
    2.62
    
    
    $
    1.48
    
    
    
    56%Discontinued operations
    
    
    
    
    
    
    (1.11
    )
    
    
    1.11
    
    
    
    *Net income per share, basic
    
    $
    4.10
    
    
    $
    1.51
    
    
    $
    2.59
    
    
    
    172%Diluted earnings (loss) per share:Continuing operations
    
    $
    4.05
    
    
    $
    2.59
    
    
    $
    1.46
    
    
    
    56%Discontinued operations
    
    
    
    
    
    
    (1.10
    )
    
    
    1.10
    
    
    
    *Net income per share, diluted
    
    $
    4.05
    
    
    $
    1.49
    
    
    $
    2.56
    
    
    
    172%
 *
    
    Calculation not meaningful
 Revenues
 32




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##### Table of Contents



Analysis of Volume - 2007 vs. 2006
 2007Volume
    
    % ChangeNorth America
    
    
    46
    %
    
    
    Europe
    
    
    26
    %
    
    
    5%Asia-Pacific / Middle East
    
    
    21
    %
    
    
    7%Latin America
    
    
    7
    %
    
    
    24%Total
    
    
    100
    %
    
    
    4%
  Cost of Sales
 Gross Profit
 Selling and Administrative Expenses
 Research, Testing and Development Expenses
 Restructuring and Impairment Charges
 Asset

    
    Other Plant

    
    Severance(In Millions of Dollars)
    
    Impairments

    
    Exit Costs

    
    and Benefits

    
    TotalLubrizol Advanced Materials plant closures, production
line impairments and workforce reductions
    
    
    $  3.4
    
    
    
    $ 0.2
    
    
    
    $ 0.5
    
    
    
    $  4.1Bromborough, U.K. plant closure and sale
    
    
    (2.8
    )
    
    
    0.1
    
    
    
    
    
    
    
    (2.7
    )Corporate / other workforce reductions
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    0.1Total restructuring and impairment charges
    
    
    $  0.6
    
    
    
    $ 0.3
    
    
    
    $ 0.6
    
    
    
    $  1.5
  33




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##### Table of Contents



Asset

    
    Other Plant

    
    Severance(In Millions of Dollars)
    
    Impairments

    
    Exit Costs

    
    and Benefits

    
    TotalNoveon trade name impairment
    
    
    $ 41.2
    
    
    
    $    
    
    
    
    $    
    
    
    
    $ 41.2Bromborough, U.K. plant closure
    
    
    
    
    
    
    4.8
    
    
    
    1.9
    
    
    
    6.7Lubrizol Advanced Materials plant closures, production
line impairments and workforce reductions
    
    
    3.3
    
    
    
    0.2
    
    
    
    0.6
    
    
    
    4.1Other
    
    
    
    
    
    
    
    
    
    
    (0.1
    )
    
    
    (0.1
    )Total restructuring and impairment charges
    
    
    $ 44.5
    
    
    
    $  5.0
    
    
    
    $ 2.4
    
    
    
    $ 51.9
   Other Income - Net
 Interest Expense - Net
 Provision for Income Taxes
 Income from Continuing Operations
 Net Income
 SEGMENT ANALYSIS
  34




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##### Table of Contents




    
    The AMPS® specialty monomer business, with 2008 annual revenues of $35.3
million, which previously was reported as part of the Noveon consumer specialties product
line, and
    
    The ADEXTM explosives emulsifier business, with 2008 annual revenues of $45.0
million, which previously was reported as part of the engineered polymers product line.
   2008
    
    2007
    
    2006Revenues:Lubrizol Additives
    
    
    70
    %
    
    
    67
    %
    
    
    66
    %Lubrizol Advanced Materials
    
    
    30
    %
    
    
    33
    %
    
    
    34
    %Segment Operating
Income:Lubrizol Additives
    
    
    83
    %
    
    
    75
    %
    
    
    66
    %Lubrizol Advanced Materials
    
    
    17
    %
    
    
    25
    %
    
    
    34
    %
 OPERATING RESULTS BY SEGMENT
 2008 vs. 2007

    
    2007 vs. 2006(In Millions of Dollars)
    
    2008
    
    
    2007
    
    
    2006
    
    
    $ Change
    
    
    % Change

    
    $ Change
    
    
    % ChangeRevenues:Lubrizol Additives
    
    $
    3,541.5
    
    
    $
    3,032.8
    
    
    $
    2,661.7
    
    
    $
    508.7
    
    
    
    17
    %
    
    $
    371.1
    
    
    
    14
    %Lubrizol Advanced Materials
    
    
    1,486.3
    
    
    
    1,466.2
    
    
    
    1,379.1
    
    
    
    20.1
    
    
    
    1
    %
    
    
    87.1
    
    
    
    6
    %Total
    
    $
    5,027.8
    
    
    $
    4,499.0
    
    
    $
    4,040.8
    
    
    $
    528.8
    
    
    
    12
    %
    
    $
    458.2
    
    
    
    11
    %Gross Profit:Lubrizol Additives
    
    $
    749.3
    
    
    $
    716.8
    
    
    $
    594.2
    
    
    $
    32.5
    
    
    
    5
    %
    
    $
    122.6
    
    
    
    21
    %Lubrizol Advanced
Materials
    
    
    372.0
    
    
    
    404.1
    
    
    
    401.4
    
    
    
    (32.1
    )
    
    
    (8
    %)
    
    
    2.7
    
    
    
    1
    %Total
    
    $
    1,121.3
    
    
    $
    1,120.9
    
    
    $
    995.6
    
    
    $
    0.4
    
    
    
    
    
    
    $
    125.3
    
    
    
    13
    %Segment Operating
Income:Lubrizol Additives
    
    $
    427.3
    
    
    $
    398.4
    
    
    $
    311.7
    
    
    $
    28.9
    
    
    
    7
    %
    
    $
    86.7
    
    
    
    28
    %Lubrizol Advanced
Materials
    
    
    88.8
    
    
    
    134.4
    
    
    
    158.9
    
    
    
    (45.6
    )
    
    
    (34
    %)
    
    
    (24.5
    )
    
    
    (15
    %)Total
    
    $
    516.1
    
    
    $
    532.8
    
    
    $
    470.6
    
    
    $
    (16.7
    )
    
    
    (3
    %)
    
    $
    62.2
    
    
    
    13
    %
 35




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##### Table of Contents



LUBRIZOL ADDITIVES SEGMENT
 2008 COMPARED WITH 2007
 Revenues
 Analysis
of Volume - 2008 vs. 2007
 Excludingthe Impact of2008
    
    
    
    
    
    
    AcquisitionsVolume
    
    
    % Change
    
    
    % ChangeNorth America
    
    
    33
    %
    
    
    (9
    %)
    
    
    (10
    %)Europe
    
    
    31
    %
    
    
    4
    %
    
    
    2
    %Asia-Pacific / Middle East
    
    
    27
    %
    
    
    8
    %
    
    
    6
    %Latin America
    
    
    9
    %
    
    
    13
    %
    
    
    13
    %Total
    
    
    100
    %
    
    
    1
    %
    
    
    (1
    %)
  Gross Profit
  Selling, Technical, Administrative and Research Expenses
 Other Expense (Income) - Net
 Segment Operating Income
 36




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##### Table of Contents



2007 COMPARED WITH 2006
 Revenues
 Analysis of Volume - 2007 vs. 2006
 2007Volume
        
    % ChangeNorth America
    
    
    36
    %
    
    
    Europe
    
    
    31
    %
    
    
    6
    %Asia-Pacific / Middle East
    
    
    25
    %
    
    
    5
    %Latin America
    
    
    8
    %
    
    
    23
    %Total
    
    
    100
    %
    
    
    5
    %
  Gross Profit
  Selling, Technical, Administrative and Research Expenses
 Other Income - Net
 Segment Operating Income
 37




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##### Table of Contents



LUBRIZOL ADVANCED MATERIALS SEGMENT
 2008 COMPARED WITH 2007
 Revenues
 Analysis of Volume - 2008 vs. 2007
 2008Volume
    
    % ChangeNorth America
    
    
    66
    %
    
    
    (13%)Europe
    
    
    16
    %
    
    
    (9%)Asia-Pacific / Middle East
    
    
    15
    %
    
    
    11%Latin America
    
    
    3
    %
    
    
    (2%)Total
    
    
    100
    %
    
    
    (9%)
     Gross Profit
 38




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##### Table of Contents



Selling, Technical, Administrative and Research Expenses
 Segment Operating Income
 2007 COMPARED WITH 2006
 Revenues
 Analysis of Volume - 2007 vs. 2006
 2007Volume
    
    % ChangeNorth America
    
    
    69
    %
    
    
    (1
    %)Europe
    
    
    16
    %
    
    
    1
    %Asia-Pacific / Middle East
    
    
    12
    %
    
    
    18
    %Latin America
    
    
    3
    %
    
    
    27
    %Total
    
    
    100
    %
    
    
    2
    %
     39




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##### Table of Contents



Gross Profit
  Selling, Technical, Administrative and Research Expenses
 Segment Operating Income
 WORKING CAPITAL, LIQUIDITY AND CAPITAL RESOURCES
 SELECTED MEASURES OF LIQUIDITY AND CAPITAL RESOURCES
 2008
    
    2007Cash and cash equivalents (in millions of dollars)
    
    $
    186.2
    
    
    $
    502.3Working capital (in millions of dollars)
    
    $
    678.6
    
    
    $
    962.6Current ratio
    
    
    1.7
    
    
    
    2.1Debt as a % of capitalization
    
    
    46.9
    %
    
    
    42.2
    %Net debt as a % of capitalization
    
    
    43.0
    %
    
    
    32.1
    %
 SUMMARY OF CASH FLOWS
 (In Millions of Dollars)
    
    2008
    
    2007
    
    2006Cash provided by (used for):Operating activities
    
    
    $   218.0
    
    
    
    $  476.4
    
    
    
    $  334.8Investing activities
    
    
    (273.7
    )
    
    
    (309.8
    )
    
    
    151.4Financing activities
    
    
    (239.9
    )
    
    
    (260.0
    )
    
    
    (183.9
    )Effect of exchange-rate changes on cash
    
    
    (20.5
    )
    
    
    20.0
    
    
    
    11.0Net (decrease) increase in cash and cash equivalents
    
    
    $  (316.1
    )
    
    
    $  (73.4
    )
    
    
    $  313.3
 OPERATING ACTIVITIES
   40




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INVESTING ACTIVITIES
     ®
 FINANCING ACTIVITIES
   
   CAPITALIZATION, LIQUIDITY AND CREDIT FACILITIES
   41




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 
      42




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CONTRACTUAL CASH OBLIGATIONS
  Payments Due by Period(In Millions of Dollars)
    
    Total
    
    
    2009
    
    
    2010 - 2011

    
    2012 - 2013

    
    2014 and AfterTotal debt (1)
    
    $
    1,348.2
    
    
    $
    387.0
    
    
    $
    110.6
    
    
    $
    0.4
    
    
    $
    850.2Interest (2)
    
    
    788.3
    
    
    
    64.7
    
    
    
    103.0
    
    
    
    103.0
    
    
    
    517.6Operating leases
    
    
    80.5
    
    
    
    24.6
    
    
    
    33.9
    
    
    
    14.2
    
    
    
    7.8Non-cancelable purchase
commitments (3)
    
    
    233.2
    
    
    
    92.4
    
    
    
    95.5
    
    
    
    44.3
    
    
    
    1.0Other long-term liabilities (4)(5)
    
    
    90.7
    
    
    
    64.8
    
    
    
    3.8
    
    
    
    0.7
    
    
    
    21.4Total contractual cash obligations
    
    $
    2,540.9
    
    
    $
    633.5
    
    
    $
    346.8
    
    
    $
    162.6
    
    
    $
    1,398.0
 (1)
    
    Total debt includes both the current and long-term portions of debt as reported in Note 7 to
the consolidated financial statements, excluding original issue discounts and unrealized gains
on derivative instruments designated as fair-value hedges of fixed-rate debt.(2)
    
    Represents estimated contractual interest payments for fixed-rate debt only. We are not able
to estimate reasonably the cash payments for interest associated with variable-rate debt due
to the significant estimation required relating to both market interest rates as well as
projected principal payments.(3)
    
    Non-cancelable purchase commitments primarily include raw materials purchased under
take-or-pay contracts, drumming, service contracts, utility purchase
agreements and toll processing arrangements.(4)
    
    We are required to make minimum contributions to our U.S. qualified defined benefit pension
plans pursuant to the minimum funding requirements of the Internal Revenue Code of 1986, as
amended, and the Employee Retirement Income Security Act of 1974, as amended. Funding
requirements for plans outside the United States are subject to applicable local regulations.
In 2009, we expect to make employer contributions of approximately $60.0 million to the
qualified plans to satisfy these minimum statutory funding requirements. The expected payments
associated with these plans represent an actuarial estimate of future assumed payments based
upon retirement and payment patterns. In addition, non-pension postretirement benefit
payments are expected to approximate $4.8 million in 2009. We have included these expected
contributions of $64.8 million in the above table. Due to uncertainties regarding significant
assumptions involved in estimating future required contributions to the Companys pension and
non-pension postretirement benefit plans, including: (i) interest rate levels, (ii) the amount
and timing of asset returns, and (iii) what, if any, changes may occur in pension funding
legislation, the estimates in the table may differ materially from actual future payments. The
Company can not reasonably estimate payments beyond 2009.(5)
    
    Other long-term liabilities disclosed in the table represent long-term liabilities reported
in our consolidated balance sheet at December 31, 2008 under noncurrent liabilities,
excluding pension, postretirement, postemployment, environmental and other non-contractual
liabilities. At December 31, 2008, we had gross unrecognized tax benefits of $50.0 million
relating to uncertain tax positions. Due to the high degree of uncertainty regarding the
timing of future cash outflows associated with these tax positions, we are unable to estimate
when cash settlement may occur. 43




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##### Table of Contents




 OFF-BALANCE SHEET ARRANGEMENTS
    CRITICAL ACCOUNTING POLICIES
  ACCOUNTING FOR SALES DISCOUNTS AND REBATES
  ACCOUNTING FOR RESERVES AND CONTINGENCIES
  44




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DETERMINATION OF NET PERIODIC PENSION COST
   100 Basis Point(In Millions of Dollars)
    
    Increase

    
    DecreaseU.S. pension plans
    
    $
    (2.9
    )
    
    $
    2.9International pension plans
    
    
    (2.2
    )
    
    
    2.2All pension plans
    
    $
    (5.1
    )
    
    $
    5.1
  45




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##### Table of Contents



100 Basis Point(In Millions of Dollars)
    
    Increase

    
    DecreaseU.S. pension plans
    
    $
    (2.5
    )
    
    $
    5.3International pension plans
    
    
    (5.9
    )
    
    
    5.1All pension plans
    
    $
    (8.4
    )
    
    $
    10.4
     100 Basis Point(In Millions of Dollars)
    
    Increase

    
    DecreaseU.S. pension plans
    
    $
    (2.9
    )
    
    $
    2.9International pension plans
    
    
    (1.7
    )
    
    
    1.7All pension plans
    
    $
    (4.6
    )
    
    $
    4.6
  100 Basis Point(In Millions of Dollars)
    
    Increase

    
    DecreaseU.S. pension plans
    
    $
    (6.8
    )
    
    $
    8.9International pension plans
    
    
    (3.0
    )
    
    
    4.6All pension plans
    
    $
    (9.8
    )
    
    $
    13.5
 46




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##### Table of Contents



DETERMINATION OF POSTRETIREMENT BENEFIT COST
   100 Basis Point(In Millions of Dollars)
    
    Increase

    
    DecreaseU.S. postretirement plans
    
    $
    0.6
    
    
    $
    (0.6
    )International postretirement plans
    
    
    0.3
    
    
    
    (0.2
    )All postretirement plans
    
    $
    0.9
    
    
    $
    (0.8
    )
  100 Basis Point(In Millions of Dollars)
    
    Increase

    
    DecreaseU.S. postretirement plans
    
    $
    (0.4
    )
    
    $
    0.4International postretirement plans
    
    
    (0.2
    )
    
    
    0.5All postretirement plans
    
    $
    (0.6
    )
    
    $
    0.9
 ACCOUNTING FOR BUSINESS COMBINATIONS
  ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS
    47




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DISCONTINUED OPERATIONS
  
    
    We commit to a plan to sell the disposal group.
    
    The disposal group is available for immediate sale in its present condition, subject
only to the terms that are usual and customary for sales of such disposal groups.
    
    We have initiated an active program to locate a buyer and other actions required to
complete the plan to sell.
    
    We believe the sale of the disposal group is probable and expect the transfer to
qualify for recognition as a completed sale within one year.
    
    We actively market the disposal group for sale at a price that is reasonable in
relation to its current fair value.
    
    Actions necessary to complete the plan indicate that it is unlikely that significant
changes to the plan will be made or that the plan will be withdrawn.
  ACCOUNTING FOR IMPAIRMENT OF GOODWILL AND INTANGIBLE ASSETS
   48




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ASSET-RETIREMENT OBLIGATIONS
  49




---



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NEW ACCOUNTING STANDARDS
     50




---



##### Table of Contents



CAUTIONARY STATEMENTS FOR SAFE HARBOR PURPOSES
   
    
    The cost, availability and quality of raw materials, especially petroleum-based products.
    
    Our ability to sustain profitability of our products in a competitive environment.
    
    The demand for our products as influenced by factors such as the global economic environment,
longer-term technology developments and the success of our commercial development programs.
    
    The effects of required principal and interest payments and the access to capital on our
ability to fund capital expenditures and acquisitions and to meet operating needs.
    
    The risks of conducting business in foreign countries, including the effects of fluctuations
in currency exchange rates upon our consolidated results and political, social, economic and
regulatory factors.
    
    The extent to which we are successful in expanding our business in new and existing markets
and in identifying, understanding and managing the risks inherent in those markets.
    
    Our ability to identify, complete and integrate acquisitions for profitable growth and
operating efficiencies.
    
    Our success at continuing to develop proprietary technology to meet or exceed new industry
performance standards and individual customer expectations.
    
    Our ability to implement a new common information systems platform primarily into our
Lubrizol Advanced Materials segment successfully, including the management of project costs,
its timely completion and realization of its benefits.
    
    Our ability to continue to reduce complexities and conversion costs and modify our cost
structure to maintain and enhance our competitiveness.
    
    Our success in retaining and growing the business that we have with our largest customers.
    
    The cost and availability of energy, especially natural gas and electricity.
    
    The effect of interest rate fluctuations on our net interest expense.
 51




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##### Table of Contents




    
    The risk of weather-related disruptions to our Lubrizol Additives production facilities
located near the U.S. Gulf Coast.
    
    Significant changes in government regulations affecting environmental compliance.
 
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
       52




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##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
       
 53




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THE LUBRIZOL CORPORATION
 
 Year Ended December 31(In Millions of Dollars Except Per Share Data)
    
    2008

    
    2007

    
    2006Revenues
    
    $
    5,027.8
    
    
    $
    4,499.0
    
    
    $
    4,040.8Cost of sales
    
    
    3,906.5
    
    
    
    3,378.1
    
    
    
    3,045.2Gross profit
    
    
    1,121.3
    
    
    
    1,120.9
    
    
    
    995.6Selling and administrative expenses
    
    
    417.7
    
    
    
    422.2
    
    
    
    381.7Research, testing and development expenses
    
    
    220.9
    
    
    
    218.9
    
    
    
    205.5Amortization of intangible assets
    
    
    27.0
    
    
    
    24.3
    
    
    
    23.7Write-off of acquired in-process research and development
    
    
    1.6
    
    
    
    
    
    
    
    Restructuring and impairment charges
    
    
    394.0
    
    
    
    1.5
    
    
    
    51.9Other income - net
    
    
    (15.4
    )
    
    
    (8.8
    )
    
    
    (8.5
    )Interest income
    
    
    (12.4
    )
    
    
    (28.0
    )
    
    
    (20.4
    )Interest expense
    
    
    78.1
    
    
    
    91.8
    
    
    
    99.7Income from continuing operations before income taxes
    
    
    9.8
    
    
    
    399.0
    
    
    
    262.0Provision for income taxes
    
    
    75.9
    
    
    
    115.6
    
    
    
    82.2(Loss) income from continuing operations
    
    
    (66.1
    )
    
    
    283.4
    
    
    
    179.8Loss from discontinued operations - net of tax
    
    
    
    
    
    
    
    
    
    
    (76.2
    )Net (loss) income
    
    $
    (66.1
    )
    
    $
    283.4
    
    
    $
    103.6Basic (loss) earnings per share:Continuing operations
    
    $
    (0.97
    )
    
    $
    4.10
    
    
    $
    2.62Discontinued operations
    
    
    
    
    
    
    
    
    
    
    (1.11
    )Net (loss) income per share, basic
    
    $
    (0.97
    )
    
    $
    4.10
    
    
    $
    1.51Diluted (loss) earnings per share:Continuing operations
    
    $
    (0.97
    )
    
    $
    4.05
    
    
    $
    2.59Discontinued operations
    
    
    
    
    
    
    
    
    
    
    (1.10
    )Net (loss) income per share, diluted
    
    $
    (0.97
    )
    
    $
    4.05
    
    
    $
    1.49Dividends paid per share
    
    $
    1.23
    
    
    $
    1.16
    
    
    $
    1.04
 The accompanying notes are an integral part of these consolidated financial statements.
 54




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THE LUBRIZOL CORPORATION
 
 December 31(In Millions of Dollars Except Share Data)
    
    2008
    
    
    2007ASSETSCash and cash equivalents
    
    $
    186.2
    
    
    $
    502.3Investments
    
    
    9.8
    
    
    
    Receivables
    
    
    608.5
    
    
    
    665.9Inventories
    
    
    814.6
    
    
    
    600.0Other current assets
    
    
    80.8
    
    
    
    79.1Total current assets
    
    
    1,699.9
    
    
    
    1,847.3Property and equipment - at cost
    
    
    2,878.0
    
    
    
    2,763.2Less accumulated depreciation
    
    
    1,680.4
    
    
    
    1,601.7Property and equipment - net
    
    
    1,197.6
    
    
    
    1,161.5Goodwill
    
    
    782.1
    
    
    
    1,170.8Intangible assets - net
    
    
    361.0
    
    
    
    381.3Investments in non-consolidated companies
    
    
    7.3
    
    
    
    8.3Other assets
    
    
    102.6
    
    
    
    74.6TOTAL
    
    $
    4,150.5
    
    
    $
    4,643.8LIABILITIES AND SHAREHOLDERS EQUITYShort-term debt and current portion of long-term debt
    
    $
    391.2
    
    
    $
    204.9Accounts payable
    
    
    350.4
    
    
    
    404.8Accrued expenses and other current liabilities
    
    
    279.7
    
    
    
    275.0Total current liabilities
    
    
    1,021.3
    
    
    
    884.7Long-term debt
    
    
    954.6
    
    
    
    1,223.9Pension obligations
    
    
    340.1
    
    
    
    195.2Other postretirement benefit obligations
    
    
    83.1
    
    
    
    93.1Noncurrent liabilities
    
    
    129.1
    
    
    
    147.7Deferred income taxes
    
    
    37.7
    
    
    
    85.5Total liabilities
    
    
    2,565.9
    
    
    
    2,630.1Contingencies and commitmentsMinority interest in consolidated companies
    
    
    60.9
    
    
    
    62.4Preferred stock without par value - unissued
    
    
    
    
    
    
    Common shares without par value - 67,257,963 and 68,383,833 shares outstanding at December 31, 2008 and 2007, respectively
    
    
    764.7
    
    
    
    763.6Retained earnings
    
    
    906.3
    
    
    
    1,128.7Accumulated other comprehensive (loss) income
    
    
    (147.3
    )
    
    
    59.0Total shareholders equity
    
    
    1,523.7
    
    
    
    1,951.3TOTAL
    
    $
    4,150.5
    
    
    $
    4,643.8
 The accompanying notes are an integral part of these consolidated financial statements.
 55




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THE LUBRIZOL CORORATION
 
 Year Ended December 31(In Millions of Dollars)
    
    2008

    
    2007

    
    2006CASH PROVIDED BY (USED FOR):OPERATING ACTIVITIESNet (loss) income
    
    $
    (66.1
    )
    
    $
    283.4
    
    
    $
    103.6Adjustments to reconcile net (loss) income to cash provided by
operating activities:Depreciation and amortization
    
    
    173.5
    
    
    
    161.4
    
    
    
    161.8Deferred income taxes
    
    
    (31.6
    )
    
    
    20.2
    
    
    
    28.6Deferred compensation
    
    
    8.4
    
    
    
    20.5
    
    
    
    19.5Restructuring and impairment charges
    
    
    383.4
    
    
    
    3.6
    
    
    
    105.6Loss (gain) from sales of property and equipment, divestitures and investments
    
    
    0.5
    
    
    
    (7.5
    )
    
    
    9.6Change in current assets and liabilities, net of acquisitions and divestitures:Receivables
    
    
    22.5
    
    
    
    (44.8
    )
    
    
    (3.4
    )Inventories
    
    
    (224.0
    )
    
    
    17.5
    
    
    
    (56.2
    )Accounts payable, accrued expenses and other current liabilities
    
    
    (45.3
    )
    
    
    20.1
    
    
    
    (57.1
    )Other current assets
    
    
    (0.3
    )
    
    
    4.0
    
    
    
    3.4(247.1
    )
    
    
    (3.2
    )
    
    
    (113.3
    )Other items - net
    
    
    (3.0
    )
    
    
    (2.0
    )
    
    
    19.4Total operating activities
    
    
    218.0
    
    
    
    476.4
    
    
    
    334.8INVESTING ACTIVITIESCapital expenditures
    
    
    (202.6
    )
    
    
    (182.8
    )
    
    
    (130.9
    )Acquisitions
    
    
    (60.5
    )
    
    
    (140.3
    )
    
    
    Net proceeds from sales of property and equipment and divestitures
    
    
    1.3
    
    
    
    14.5
    
    
    
    281.9Purchase of investments
    
    
    (50.0
    )
    
    
    
    
    
    
    Proceeds from investments
    
    
    39.4
    
    
    
    
    
    
    
    Other items - net
    
    
    (1.3
    )
    
    
    (1.2
    )
    
    
    0.4Total investing activities
    
    
    (273.7
    )
    
    
    (309.8
    )
    
    
    151.4FINANCING ACTIVITIESChanges in short-term debt - net
    
    
    4.8
    
    
    
    (3.6
    )
    
    
    (0.6
    )Repayments of long-term debt
    
    
    (200.3
    )
    
    
    (114.0
    )
    
    
    (143.4
    )Proceeds from the issuance of long-term debt
    
    
    108.2
    
    
    
    
    
    
    
    Dividends paid
    
    
    (83.5
    )
    
    
    (80.0
    )
    
    
    (71.2
    )Common shares purchased
    
    
    (75.1
    )
    
    
    (100.3
    )
    
    
    Proceeds from the exercise of stock options
    
    
    3.8
    
    
    
    28.2
    
    
    
    26.5Tax benefit from the exercise of stock options and awards
    
    
    2.2
    
    
    
    9.7
    
    
    
    4.8Total financing activities
    
    
    (239.9
    )
    
    
    (260.0
    )
    
    
    (183.9
    )Effect of exchange rate changes on cash
    
    
    (20.5
    )
    
    
    20.0
    
    
    
    11.0Net (decrease) increase in cash and cash equivalents
    
    
    (316.1
    )
    
    
    (73.4
    )
    
    
    313.3Cash and cash equivalents at the beginning of year
    
    
    502.3
    
    
    
    575.7
    
    
    
    262.4Cash and cash equivalents at the end of year
    
    $
    186.2
    
    
    $
    502.3
    
    
    $
    575.7
 The accompanying notes are an integral part of these consolidated financial statements.
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THE LUBRIZOL CORORATION
 
 Shareholders EquityAccumulatedNumber of
    
    
    
    
    
    
    
    
    
    
    OtherShares
    
    
    Common
    
    
    Retained
    
    
    Comprehensive(In Millions)
    
    Outstanding

    
    Shares

    
    Earnings

    
    (Loss) Income

    
    TotalBALANCE, JANUARY 1, 2006
    
    
    68.0
    
    
    $
    663.7
    
    
    $
    1,001.7
    
    
    $
    (113.5
    )
    
    $
    1,551.9Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    103.6
    
    
    
    
    
    
    
    103.6Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    115.5
    
    
    
    115.5Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    219.1Adjustment to recognize pension and other
postretirement benefit plans funded status
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (62.8
    )
    
    
    (62.8
    )Dividends declared
    
    
    
    
    
    
    
    
    
    
    (71.5
    )
    
    
    
    
    
    
    (71.5
    )Deferred stock compensation
    
    
    
    
    
    
    11.2
    
    
    
    
    
    
    
    
    
    
    
    11.2Common shares - treasury:Shares issued upon exercise of stock
options
and awards
    
    
    1.0
    
    
    
    35.2
    
    
    
    
    
    
    
    
    
    
    
    35.2BALANCE, DECEMBER 31, 2006
    
    
    69.0
    
    
    
    710.1
    
    
    
    1,033.8
    
    
    
    (60.8
    )
    
    
    1,683.1Cumulative effect of a change in
accounting
due to the adoption of FIN No. 48
    
    
    
    
    
    
    
    
    
    
    (8.9
    )
    
    
    
    
    
    
    (8.9
    )BALANCE, JANUARY 1, 2007
    
    
    69.0
    
    
    
    710.1
    
    
    
    1,024.9
    
    
    
    (60.8
    )
    
    
    1,674.2Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    283.4
    
    
    
    
    
    
    
    283.4Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    119.8
    
    
    
    119.8Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    403.2Dividends declared
    
    
    
    
    
    
    
    
    
    
    (82.6
    )
    
    
    
    
    
    
    (82.6
    )Deferred stock compensation
    
    
    
    
    
    
    18.9
    
    
    
    
    
    
    
    
    
    
    
    18.9Common shares - treasury:Common shares purchased
    
    
    (1.7
    )
    
    
    (3.3
    )
    
    
    (97.0
    )
    
    
    
    
    
    
    (100.3
    )Shares issued upon exercise of stock
options
and awards
    
    
    1.1
    
    
    
    37.9
    
    
    
    
    
    
    
    
    
    
    
    37.9BALANCE, DECEMBER 31, 2007
    
    
    68.4
    
    
    
    763.6
    
    
    
    1,128.7
    
    
    
    59.0
    
    
    
    1,951.3Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    (66.1
    )
    
    
    
    
    
    
    (66.1
    )Other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (206.3
    )
    
    
    (206.3
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (272.4
    )Dividends declared
    
    
    
    
    
    
    
    
    
    
    (83.9
    )
    
    
    
    
    
    
    (83.9
    )Deferred stock compensation
    
    
    
    
    
    
    (2.2
    )
    
    
    
    
    
    
    
    
    
    
    (2.2
    )Common shares - treasury:Common shares purchased
    
    
    (1.4
    )
    
    
    (2.7
    )
    
    
    (72.4
    )
    
    
    
    
    
    
    (75.1
    )Shares issued upon exercise of stock
options
and awards
    
    
    0.3
    
    
    
    6.0
    
    
    
    
    
    
    
    
    
    
    
    6.0BALANCE, DECEMBER 31, 2008
    
    
    67.3
    
    
    $
    764.7
    
    
    $
    906.3
    
    
    $
    (147.3
    )
    
    $
    1,523.7
 The accompanying notes are an integral part of these consolidated financial statements.
 57




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THE LUBRIZOL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (In Millions, Except Per Share Data)
 Note 1 - NATURE OF OPERATIONS
   Note 2 - SIGNIFICANT ACCOUNTING POLICIES
      58




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2008

    
    2007

    
    2006Numerator:(Loss) income from continuing operations
    
    $
    (66.1
    )
    
    $
    283.4
    
    
    $
    179.8Loss from discontinued operations - net of tax
    
    
    
    
    
    
    
    
    
    
    (76.2
    )Net (loss) income
    
    $
    (66.1
    )
    
    $
    283.4
    
    
    $
    103.6Denominator:Weighted-average common shares outstanding
    
    
    68.1
    
    
    
    69.2
    
    
    
    68.7Dilutive effect of stock options and awards
    
    
    
    
    
    
    0.8
    
    
    
    0.6Denominator for net (loss) income per share, diluted
    
    
    68.1
    
    
    
    70.0
    
    
    
    69.3Basic (loss) earnings per share:Continuing operations
    
    $
    (0.97
    )
    
    $
    4.10
    
    
    $
    2.62Discontinued operations
    
    
    
    
    
    
    
    
    
    
    (1.11
    )Net (loss) income per share, basic
    
    $
    (0.97
    )
    
    $
    4.10
    
    
    $
    1.51Diluted (loss) earnings per share:Continuing operations
    
    $
    (0.97
    )
    
    $
    4.05
    
    
    $
    2.59Discontinued operations
    
    
    
    
    
    
    
    
    
    
    (1.10
    )Net (loss) income per share, diluted
    
    $
    (0.97
    )
    
    $
    4.05
    
    
    $
    1.49
     61




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Note 3 - ACQUISITIONS
      63




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Note 4 - DIVESTITURES
 ®
 ®
  Note 5 - INVENTORIES
 2008

    
    2007Finished products
    
    $
    468.8
    
    
    $
    332.7Products in process
    
    
    137.8
    
    
    
    105.0Raw materials
    
    
    172.8
    
    
    
    132.2Supplies and engine test parts
    
    
    35.2
    
    
    
    30.1Total inventory
    
    $
    814.6
    
    
    $
    600.0
  64




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Note 6 - GOODWILL AND INTANGIBLE ASSETS
 Goodwill
 ® ®
    LubrizolAdvanced
    
    LubrizolMaterials
    
    Additives
    
    TotalBalance, January 1, 2007
    
    
    $    978.3
    
    
    
    $    97.8
    
    
    
    $ 1,076.1Goodwill acquired
    
    
    
    
    
    
    61.6
    
    
    
    61.6Translation and other adjustments
    
    
    32.6
    
    
    
    0.5
    
    
    
    33.1Balance, December 31, 2007
    
    
    1,010.9
    
    
    
    159.9
    
    
    
    1,170.8Goodwill acquired
    
    
    2.9
    
    
    
    
    
    
    
    2.9Impairment
    
    
    (363.0
    )
    
    
    
    
    
    
    (363.0
    )Reorganization of reporting units
    
    
    (30.1
    )
    
    
    30.1
    
    
    
    Translation and other adjustments
    
    
    (21.7
    )
    
    
    (6.9
    )
    
    
    (28.6
    )Balance, December 31, 2008
    
    
    $    599.0
    
    
    
    $   183.1
    
    
    
    $    782.1
   65




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Intangible Assets
   2008
    
    2007Gross
    
    
    
    
    
    GrossCarrying
    
    Accumulated
    
    Carrying
    
    AccumulatedAmount
    
    Amortization
    
    Amount
    
    AmortizationAmortized intangible assets:Customer lists
    
    
    $   189.2
    
    
    
    $    44.1
    
    
    
    $   195.5
    
    
    
    $    34.6Technology
    
    
    160.3
    
    
    
    66.9
    
    
    
    155.1
    
    
    
    55.1Trademarks
    
    
    30.3
    
    
    
    8.3
    
    
    
    23.6
    
    
    
    7.2Patents
    
    
    10.2
    
    
    
    4.6
    
    
    
    14.4
    
    
    
    5.7Land-use rights
    
    
    11.0
    
    
    
    1.9
    
    
    
    10.3
    
    
    
    1.5Favorable lease arrangements
    
    
    3.6
    
    
    
    
    
    
    
    
    
    
    
    Non-compete agreements
    
    
    1.0
    
    
    
    0.3
    
    
    
    2.6
    
    
    
    1.0Total amortized
intangible assets
    
    
    405.6
    
    
    
    126.1
    
    
    
    401.5
    
    
    
    105.1Non-amortized trademarks
    
    
    81.5
    
    
    
    
    
    
    
    84.9
    
    
    
    Total
    
    
    $   487.1
    
    
    
    $   126.1
    
    
    
    $   486.4
    
    
    
    $   105.1
  66




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Note 7 - DEBT
  2008

    
    2007Short-term debt and current portion of long-term debt:Current portion of long-term debt
    
    $
    386.3
    
    
    $
    204.9Other short-term debt
    
    
    4.9
    
    
    
    $
    391.2
    
    
    $
    204.9Long-term debt:5.875% notes, due 2008, including a fair value adjustment of $2.1 million
for unrealized gains on derivative hedge instruments and remaining
unamortized gain on termination of swaps of $2.5 million in 2007
    
    $
    
    
    
    $
    204.64.625% notes, due 2009, net of original issue discount of $0.1 million in both
2008 and 2007, and fair value adjustments of $4.3 million and $(2.0)
million for unrealized gains (losses) on derivative hedge instruments in 2008
and 2007, respectively
    
    
    386.0
    
    
    
    379.75.5% notes, due 2014, net of original issue discount of $1.9 million and $2.2
million in 2008 and 2007, respectively
    
    
    448.1
    
    
    
    447.87.25% debentures, due 2025
    
    
    100.0
    
    
    
    100.06.5% debentures, due 2034, net of original issue discount of $4.7 million and
$4.8 million in 2008 and 2007, respectively
    
    
    295.3
    
    
    
    295.2Debt supported by long-term banking arrangements:U.S. revolving credit borrowing, at prime (3.25% at December 31, 2008)
    
    
    75.0
    
    
    
    Euro revolving credit borrowing, at EURIBOR plus .325% (3.036% at
December 31, 2008)
    
    
    34.9
    
    
    
    Other
    
    
    1.6
    
    
    
    1.51,340.9
    
    
    
    1,428.8Less: current portion of long-term debt
    
    
    386.3
    
    
    
    204.9Total long-term debt
    
    $
    954.6
    
    
    $
    1,223.9
     
   67




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Note 8 - FINANCIAL INSTRUMENTS
     69




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Note 9 - OTHER BALANCE SHEET INFORMATION
 2008

    
    2007Receivables:Customers
    
    $
    525.3
    
    
    $
    582.4Affiliates
    
    
    16.4
    
    
    
    7.4Other
    
    
    66.8
    
    
    
    76.1Total
    
    $
    608.5
    
    
    $
    665.9
  2008

    
    2007Property
and equipment - at cost:Land and improvements
    
    $
    174.5
    
    
    $
    171.8Buildings and improvements
    
    
    458.0
    
    
    
    458.8Machinery and equipment
    
    
    2,060.8
    
    
    
    1,994.0Construction in progress
    
    
    184.7
    
    
    
    138.6Total
    
    $
    2,878.0
    
    
    $
    2,763.2
  2008

    
    2007Accrued expenses and other current liabilities:Employee compensation
    
    $
    98.6
    
    
    $
    113.0Income taxes
    
    
    21.4
    
    
    
    21.2Sales allowances and rebates
    
    
    29.7
    
    
    
    38.2Taxes other than income
    
    
    35.2
    
    
    
    27.3Interest
    
    
    14.3
    
    
    
    16.4Fair value of Treasury rate locks
    
    
    20.0
    
    
    
    Other
    
    
    60.5
    
    
    
    58.9Total
    
    $
    279.7
    
    
    $
    275.0
  Note 10 - SHAREHOLDERS EQUITY
   71




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##### Table of Contents



Unrealized

    
    UnrecognizedForeign

    
    
    
    
    
    (Losses)

    
    Pension Plan

    
    AccumulatedCurrency

    
    Treasury

    
    Gains

    
    and Other

   
    OtherTranslation

    
    Rate

    
    on Cash

    
    Postretirement

    
    ComprehensiveAdjustment

    
    Locks

    
    Flow Hedges

    
    Benefit Costs

    
    (Loss) IncomeBalance, January 1, 2006
    
    $
    (25.9
    )
    
    $
    (44.5
    )
    
    $
    (0.5
    )
    
    $
    (42.6
    )
    
    $
    (113.5
    )Other comprehensive income (loss):Pretax
    
    
    80.2
    
    
    
    5.0
    
    
    
    (1.0
    )
    
    
    46.8
    
    
    
    131.0Tax (provision) benefit
    
    
    (0.2
    )
    
    
    (1.7
    )
    
    
    0.3
    
    
    
    (13.9
    )
    
    
    (15.5
    )Total
    
    
    80.0
    
    
    
    3.3
    
    
    
    (0.7
    )
    
    
    32.9
    
    
    
    115.5Adjustment to recognize pension and other
postretirement benefit plans funded status(Note 13):Pretax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (92.8
    )
    
    
    (92.8
    )Tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30.0
    
    
    
    30.0Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (62.8
    )
    
    
    (62.8
    )Balance, December 31, 2006
    
    
    54.1
    
    
    
    (41.2
    )
    
    
    (1.2
    )
    
    
    (72.5
    )
    
    
    (60.8
    )Other comprehensive income:Pretax
    
    
    84.4
    
    
    
    4.7
    
    
    
    1.1
    
    
    
    45.6
    
    
    
    135.8Tax provision
    
    
    
    
    
    
    (1.7
    )
    
    
    (0.4
    )
    
    
    (13.9
    )
    
    
    (16.0
    )Total
    
    
    84.4
    
    
    
    3.0
    
    
    
    0.7
    
    
    
    31.7
    
    
    
    119.8Balance, December 31, 2007
    
    
    138.5
    
    
    
    (38.2
    )
    
    
    (0.5
    )
    
    
    (40.8
    )
    
    
    59.0Other comprehensive loss:Pretax
    
    
    (83.2
    )
    
    
    (15.0
    )
    
    
    (6.2
    )
    
    
    (166.1
    )
    
    
    (270.5
    )Tax benefit
    
    
    
    
    
    
    5.7
    
    
    
    2.2
    
    
    
    56.3
    
    
    
    64.2Total
    
    
    (83.2
    )
    
    
    (9.3
    )
    
    
    (4.0
    )
    
    
    (109.8
    )
    
    
    (206.3
    )Balance, December 31, 2008
    
    $
    55.3
    
    
    $
    (47.5
    )
    
    $
    (4.5
    )
    
    $
    (150.6
    )
    
    $
    (147.3
    )
  Note
11 - OTHER INCOME - NET
 2008

    
    2007

    
    2006Currency exchange / transaction gain (loss)
    
    $
    16.4
    
    
    $
    4.0
    
    
    $
    (2.9
    )Settlement of insurance and legal matters
    
    
    2.0
    
    
    
    0.6
    
    
    
    11.6Equity earnings of nonconsolidated companies
    
    
    2.3
    
    
    
    1.2
    
    
    
    1.0Minority interest in earnings of consolidated companies
    
    
    (7.2
    )
    
    
    (6.4
    )
    
    
    (4.1
    )Gain on sale of Bayport, Texas property
    
    
    
    
    
    
    5.0
    
    
    
    Other - net
    
    
    1.9
    
    
    
    4.4
    
    
    
    2.9Total
    
    $
    15.4
    
    
    $
    8.8
    
    
    $
    8.5
  72




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Note 12 - INCOME TAXES
  2008

    
    2007

    
    2006United States
    
    $
    (180.0
    )
    
    $
    131.0
    
    
    $
    75.5Foreign
    
    
    189.8
    
    
    
    268.0
    
    
    
    186.5Total
    
    $
    9.8
    
    
    $
    399.0
    
    
    $
    262.0
  2008
    
    
    2007
    
    
    2006Current:United States:Federal
    
    $
    32.9
    
    
    $
    32.1
    
    
    $
    (3.9
    )State
    
    
    2.8
    
    
    
    3.6
    
    
    
    (0.7
    )Foreign
    
    
    71.8
    
    
    
    59.7
    
    
    
    48.2107.5
    
    
    
    95.4
    
    
    
    43.6Deferred:United States:Federal
    
    
    (15.7
    )
    
    
    12.5
    
    
    
    28.6State
    
    
    (2.1
    )
    
    
    0.7
    
    
    
    8.5Foreign
    
    
    (13.8
    )
    
    
    7.0
    
    
    
    1.5(31.6
    )
    
    
    20.2
    
    
    
    38.6Total
    
    $
    75.9
    
    
    $
    115.6
    
    
    $
    82.2
  2008
    
    
    2007
    
    
    2006Tax at statutory rate of 35%
    
    $
    3.4
    
    
    $
    139.7
    
    
    $
    91.7Goodwill impairment
    
    
    86.4
    
    
    
    
    
    
    
    U.S. tax cost of foreign dividends
    
    
    10.3
    
    
    
    4.2
    
    
    
    7.7U.S. tax benefit on exports
    
    
    
    
    
    
    (0.5
    )
    
    
    (4.1
    )State and local income taxes
    
    
    0.5
    
    
    
    2.8
    
    
    
    5.1Impacts of translation losses (gains)
    
    
    11.3
    
    
    
    (5.4
    )
    
    
    (0.5
    )Impacts of
foreign operations
    
    
    (30.2
    )
    
    
    (24.4
    )
    
    
    (18.3
    )U.S. research credit
    
    
    (2.8
    )
    
    
    (2.7
    )
    
    
    (0.8
    )Uncertain tax positions
    
    
    (3.6
    )
    
    
    1.3
    
    
    
    0.4Corporate owned life insurance
    
    
    2.1
    
    
    
    
    
    
    
    (0.1
    )Other - net
    
    
    (1.5
    )
    
    
    0.6
    
    
    
    1.1Provision for income taxes
    
    $
    75.9
    
    
    $
    115.6
    
    
    $
    82.2
 73




---



##### Table of Contents



2008

    
    2007Deferred tax assets:Accrued compensation and benefits
    
    $
    181.0
    
    
    $
    138.4Inventory
    
    
    30.0
    
    
    
    22.4Cash flow hedges
    
    
    28.2
    
    
    
    20.8Net operating losses and tax credits carried forward
    
    
    27.9
    
    
    
    13.9Other
    
    
    37.2
    
    
    
    35.6Total gross deferred tax assets
    
    
    304.3
    
    
    
    231.1Less: valuation allowance
    
    
    (10.4
    )
    
    
    (18.7
    )Net deferred tax assets
    
    
    293.9
    
    
    
    212.4Deferred tax liabilities:Depreciation and other basis differences
    
    
    206.6
    
    
    
    217.6Foreign subsidiary and affiliate undistributed earnings
    
    
    5.4
    
    
    
    7.1Other
    
    
    15.3
    
    
    
    14.2Total deferred tax liabilities
    
    
    227.3
    
    
    
    238.9Net deferred tax assets (liabilities)
    
    $
    66.6
    
    
    $
    (26.5
    )
     74




---



##### Table of Contents



2008

    
    2007Balance at January 1
    
    $
    59.3
    
    
    $
    57.8Additions:Current year tax positions
    
    
    6.9
    
    
    
    9.2Prior year tax positions
    
    
    
    
    
    
    7.7Reductions for prior year tax positions
    
    
    (9.3
    )
    
    
    (4.5
    )Expirations of statutes of limitations
    
    
    (6.5
    )
    
    
    (10.8
    )Settlements
    
    
    (0.4
    )
    
    
    (0.1
    )Balance at December 31
    
    $
    50.0
    
    
    $
    59.3
    Note 13 - PENSION, PROFIT SHARING AND OTHER POSTRETIREMENT BENEFIT PLANS
    75




---



##### Table of Contents



Percentage of PlanAssetsat December 312008
    
    2007Asset category:Equity securities
    
    
    63
    %
    
    
    65
    %Debt securities
    
    
    37
    %
    
    
    35
    %Total
    
    
    100
    %
    
    
    100
    %
    76




---



##### Table of Contents



Pension Plans2008
    
    2007Non-
    
    
    
    
    
    
    
    
    
    Non-U.S. Plans
    
    U.S. Plans
    
    Total
    
    U.S. Plans
    
    U.S. Plans
    
    TotalChange in Projected Benefit Obligation:Projected benefit obligation at beginning
of year
    
    $
    400.5
    
    
    $
    326.6
    
    
    $
    727.1
    
    
    $
    390.2
    
    
    $
    320.8
    
    
    $
    711.0Service cost
    
    
    18.6
    
    
    
    11.9
    
    
    
    30.5
    
    
    
    18.8
    
    
    
    12.7
    
    
    
    31.5Interest cost
    
    
    25.7
    
    
    
    17.4
    
    
    
    43.1
    
    
    
    24.0
    
    
    
    16.0
    
    
    
    40.0Plan participants contributions
    
    
    
    
    
    
    0.9
    
    
    
    0.9
    
    
    
    
    
    
    
    0.9
    
    
    
    0.9Actuarial loss (gain)
    
    
    60.8
    
    
    
    (20.2
    )
    
    
    40.6
    
    
    
    (16.3
    )
    
    
    (27.4
    )
    
    
    (43.7
    )Currency exchange rate change
    
    
    
    
    
    
    (60.3
    )
    
    
    (60.3
    )
    
    
    
    
    
    
    14.1
    
    
    
    14.1Plan amendments
    
    
    1.7
    
    
    
    
    
    
    
    1.7
    
    
    
    2.1
    
    
    
    1.1
    
    
    
    3.2Adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.0
    
    
    
    3.0Special termination benefits
    
    
    
    
    
    
    4.2
    
    
    
    4.2
    
    
    
    
    
    
    
    
    
    
    
    Settlements / curtailments
    
    
    
    
    
    
    (2.9
    )
    
    
    (2.9
    )
    
    
    
    
    
    
    
    
    
    
    Benefits paid
    
    
    (24.9
    )
    
    
    (39.8
    )
    
    
    (64.7
    )
    
    
    (18.3
    )
    
    
    (14.6
    )
    
    
    (32.9
    )Projected benefit obligation at end of year
    
    
    482.4
    
    
    
    237.8
    
    
    
    720.2
    
    
    
    400.5
    
    
    
    326.6
    
    
    
    727.1Change in Plan Assets:Fair value of plan assets at beginning of year
    
    
    299.6
    
    
    
    232.8
    
    
    
    532.4
    
    
    
    269.5
    
    
    
    201.8
    
    
    
    471.3Actual return on plan assets
    
    
    (70.3
    )
    
    
    (35.1
    )
    
    
    (105.4
    )
    
    
    19.4
    
    
    
    11.9
    
    
    
    31.3Employer contributions
    
    
    17.5
    
    
    
    44.2
    
    
    
    61.7
    
    
    
    29.0
    
    
    
    23.2
    
    
    
    52.2Plan participants contributions
    
    
    
    
    
    
    0.9
    
    
    
    0.9
    
    
    
    
    
    
    
    0.9
    
    
    
    0.9Currency exchange rate change
    
    
    
    
    
    
    (45.9
    )
    
    
    (45.9
    )
    
    
    
    
    
    
    8.0
    
    
    
    8.0Adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.6
    
    
    
    1.6Benefits paid
    
    
    (24.9
    )
    
    
    (39.8
    )
    
    
    (64.7
    )
    
    
    (18.3
    )
    
    
    (14.6
    )
    
    
    (32.9
    )Fair value of plan assets at end of year
    
    
    221.9
    
    
    
    157.1
    
    
    
    379.0
    
    
    
    299.6
    
    
    
    232.8
    
    
    
    532.4Funded Status
    
    $
    (260.5
    )
    
    $
    (80.7
    )
    
    $
    (341.2
    )
    
    $
    (100.9
    )
    
    $
    (93.8
    )
    
    $
    (194.7
    )Net amounts recognized in the
consolidated balance sheets:Other assets
    
    $
    
    
    
    $
    0.5
    
    
    $
    0.5
    
    
    $
    
    
    
    $
    2.0
    
    
    $
    2.0Accrued expenses and other
current liabilities
    
    
    (0.4
    )
    
    
    (1.2
    )
    
    
    (1.6
    )
    
    
    (0.4
    )
    
    
    (1.1
    )
    
    
    (1.5
    )Pension obligations
    
    
    (260.1
    )
    
    
    (80.0
    )
    
    
    (340.1
    )
    
    
    (100.5
    )
    
    
    (94.7
    )
    
    
    (195.2
    )Funded Status
    
    $
    (260.5
    )
    
    $
    (80.7
    )
    
    $
    (341.2
    )
    
    $
    (100.9
    )
    
    $
    (93.8
    )
    
    $
    (194.7
    )
 
  77




---



##### Table of Contents



2008U.S. Plans
    
    Non-U.S. Plans
    
    CombinedService cost - benefits earned during period
    
    $
    18.6
    
    
    $
    11.9
    
    
    $
    30.5Interest cost on projected benefit obligation
    
    
    25.7
    
    
    
    17.4
    
    
    
    43.1Expected return on plan assets
    
    
    (22.6
    )
    
    
    (14.6
    )
    
    
    (37.2
    )Amortization of prior service costs
    
    
    2.2
    
    
    
    0.8
    
    
    
    3.0Amortization of initial net obligation
    
    
    
    
    
    
    0.1
    
    
    
    0.1Recognized net actuarial loss
    
    
    0.9
    
    
    
    2.0
    
    
    
    2.9Settlement / curtailment loss
    
    
    
    
    
    
    5.8
    
    
    
    5.8Net periodic pension cost
    
    $
    24.8
    
    
    $
    23.4
    
    
    $
    48.22007U.S. Plans
    
    Non-U.S. Plans
    
    CombinedService cost - benefits earned during period
    
    $
    18.8
    
    
    $
    12.7
    
    
    $
    31.5Interest cost on projected benefit obligation
    
    
    24.0
    
    
    
    16.0
    
    
    
    40.0Expected return on plan assets
    
    
    (21.9
    )
    
    
    (12.8
    )
    
    
    (34.7
    )Amortization of prior service costs
    
    
    2.1
    
    
    
    0.7
    
    
    
    2.8Amortization of initial net obligation
    
    
    
    
    
    
    0.1
    
    
    
    0.1Recognized net actuarial loss
    
    
    1.0
    
    
    
    4.1
    
    
    
    5.1Net periodic pension cost
    
    $
    24.0
    
    
    $
    20.8
    
    
    $
    44.82006U.S. Plans
    
    Non-U.S. Plans
    
    CombinedService cost - benefits earned during period
    
    $
    19.5
    
    
    $
    12.2
    
    
    $
    31.7Interest cost on projected benefit obligation
    
    
    20.8
    
    
    
    14.1
    
    
    
    34.9Expected return on plan assets
    
    
    (18.2
    )
    
    
    (10.1
    )
    
    
    (28.3
    )Amortization of prior service costs
    
    
    1.8
    
    
    
    0.7
    
    
    
    2.5Amortization of initial net obligation
    
    
    
    
    
    
    0.7
    
    
    
    0.7Recognized net actuarial loss
    
    
    3.5
    
    
    
    5.0
    
    
    
    8.5Settlement / curtailment loss (gain)
    
    
    3.6
    
    
    
    (0.7
    )
    
    
    2.9Net periodic pension cost
    
    $
    31.0
    
    
    $
    21.9
    
    
    $
    52.9
  December 31, 2008
    
    December 31, 2007Non-
    
    
    
    
    
    
    
    
    
    Non-U.S. Plans
    
    U.S. Plans
    
    Combined
    
    U.S. Plans
    
    U.S. Plans
    
    CombinedDiscount rate
    
    
    5.96
    %
    
    
    5.90
    %
    
    
    5.94
    %
    
    
    6.67
    %
    
    
    5.61
    %
    
    
    6.19
    %Rate of compensation increase
    
    
    4.27
    %
    
    
    4.00
    %
    
    
    4.18
    %
    
    
    4.29
    %
    
    
    3.97
    %
    
    
    4.15
    %
  2008
    
    2007Non-
    
    
    
    
    
    
    
    
    
    Non-U.S. Plans
    
    U.S. Plans
    
    Combined
    
    U.S. Plans
    
    U.S. Plans
    
    CombinedDiscount rate
    
    
    6.67
    %
    
    
    5.61
    %
    
    
    6.19
    %
    
    
    6.25
    %
    
    
    4.89
    %
    
    
    5.63
    %Expected long-term return on plan assets
    
    
    8.25
    %
    
    
    6.86
    %
    
    
    7.64
    %
    
    
    8.25
    %
    
    
    6.63
    %
    
    
    7.56
    %Rate of compensation increase
    
    
    4.29
    %
    
    
    3.97
    %
    
    
    4.15
    %
    
    
    4.29
    %
    
    
    3.63
    %
    
    
    3.99
    %
 78




---



##### Table of Contents



2006Non-U.S. Plans
    
    U.S. Plans
    
    CombinedDiscount rate
    
    
    5.75
    %
    
    
    4.63
    %
    
    
    5.25
    %Expected long-term return on plan assets
    
    
    8.25
    %
    
    
    6.37
    %
    
    
    7.48
    %Rate of compensation increase
    
    
    4.32
    %
    
    
    3.41
    %
    
    
    3.92
    %
  Non-PensionPostretirement Plans2008
    
    2007Change in Projected Benefit Obligation:Projected benefit obligation at beginning of year
    
    
    
    
    
    $
    97.2
    
    
    $
    98.3Service cost
    
    
    
    
    
    
    1.8
    
    
    
    1.8Interest cost
    
    
    
    
    
    
    5.9
    
    
    
    5.8Plan participants contributions
    
    
    
    
    
    
    5.2
    
    
    
    4.5Actuarial gain
    
    
    
    
    
    
    (6.5
    )
    
    
    (6.2
    )Currency exchange rate change
    
    
    
    
    
    
    (2.7
    )
    
    
    2.2Settlements / curtailments
    
    
    
    
    
    
    (0.5
    )
    
    
    Plan amendments
    
    
    
    
    
    
    (3.6
    )
    
    
    Benefits paid
    
    
    
    
    
    
    (8.9
    )
    
    
    (9.2
    )Projected benefit obligation at end of year
    
    
    
    
    
    
    87.9
    
    
    
    97.2Change in Plan Assets:Fair value of plan assets at beginning of year
    
    
    
    
    
    
    
    
    
    
    Employer contributions
    
    
    
    
    
    
    3.7
    
    
    
    4.7Plan participants contributions
    
    
    
    
    
    
    5.2
    
    
    
    4.5Benefits paid
    
    
    
    
    
    
    (8.9
    )
    
    
    (9.2
    )Fair value of plan assets at end of year
    
    
    
    
    
    
    
    
    
    
    Funded Status
    
    
    
    
    
    $
    (87.9
    )
    
    $
    (97.2
    )Net amounts recognized in the consolidated
balance sheets:Accrued expenses and other current liabilities
    
    
    
    
    
    
    (4.8
    )
    
    
    (4.1
    )Other postretirement benefit obligations
    
    
    
    
    
    
    (83.1
    )
    
    
    (93.1
    )Funded Status
    
    
    
    
    
    $
    (87.9
    )
    
    $
    (97.2
    )Net periodic non-pension postretirement benefit cost consists of:2008
    
    
    2007
    
    
    2006Service cost - benefits earned during period
    
    $
    1.8
    
    
    $
    1.8
    
    
    $
    1.8Interest cost on projected benefit obligation
    
    
    5.9
    
    
    
    5.8
    
    
    
    5.4Amortization of prior service credits
    
    
    (6.8
    )
    
    
    (6.7
    )
    
    
    (8.4
    )Amortization of initial net obligation
    
    
    0.4
    
    
    
    0.4
    
    
    
    0.4Recognized net actuarial loss
    
    
    0.8
    
    
    
    1.3
    
    
    
    1.8Settlement / curtailment gain
    
    
    (0.6
    )
    
    
    
    
    
    
    (1.1
    )Net periodic non-pension postretirement benefit cost (credit)
    
    $
    1.5
    
    
    $
    2.6
    
    
    $
    (0.1
    )
 79




---



##### Table of Contents



One-Percentage-PointIncrease
    
    DecreaseEffect on postretirement benefit obligation
    
    $
    8.4
    
    
    $
    (7.2
    )Effect on total service and interest cost components
    
    $
    0.9
    
    
    $
    (0.8
    )
  Pension Plans

    
    Non-Pension Postretirement PlansPrior

    
    
    
    
    
    
    
    
    
    PriorActuarial

    
    Service

    
    Transition

    
    Actuarial

    
    Service

    
    TransitionNet Loss

    
    Cost

    
    Obligation

    
    Net Loss

    
    Cost

    
    Obligation

    
    TotalBalance at January 1, 2007
    
    $
    (62.9
    )
    
    $
    (17.0
    )
    
    $
    (0.3
    )
    
    $
    (18.5
    )
    
    $
    28.2
    
    
    $
    (2.0
    )
    
    $
    (72.5
    )Reclassification adjustments:Pretax
    
    
    5.1
    
    
    
    2.8
    
    
    
    0.1
    
    
    
    1.3
    
    
    
    (6.7
    )
    
    
    0.4
    
    
    
    3.0Tax (provision) benefit
    
    
    (1.6
    )
    
    
    (0.9
    )
    
    
    
    
    
    
    (0.4
    )
    
    
    2.4
    
    
    
    (0.1
    )
    
    
    (0.6
    )Total
    
    
    3.5
    
    
    
    1.9
    
    
    
    0.1
    
    
    
    0.9
    
    
    
    (4.3
    )
    
    
    0.3
    
    
    
    2.4Adjustment to recognize 
changes
in actuarial assumptions:Pretax
    
    
    40.2
    
    
    
    (3.3
    )
    
    
    
    
    
    
    5.7
    
    
    
    
    
    
    
    
    
    
    
    42.6Tax (provision) benefit
    
    
    (12.6
    )
    
    
    1.0
    
    
    
    
    
    
    
    (1.7
    )
    
    
    
    
    
    
    
    
    
    
    (13.3
    )Total
    
    
    27.6
    
    
    
    (2.3
    )
    
    
    
    
    
    
    4.0
    
    
    
    
    
    
    
    
    
    
    
    29.3Balance at December 31, 2007
    
    
    (31.8
    )
    
    
    (17.4
    )
    
    
    (0.2
    )
    
    
    (13.6
    )
    
    
    23.9
    
    
    
    (1.7
    )
    
    
    (40.8
    )Reclassification adjustments:Pretax
    
    
    2.9
    
    
    
    3.0
    
    
    
    0.1
    
    
    
    0.8
    
    
    
    (6.8
    )
    
    
    0.4
    
    
    
    0.4Tax benefit (provision)
    
    
    (0.9
    )
    
    
    (1.0
    )
    
    
    
    
    
    
    (0.3
    )
    
    
    2.5
    
    
    
    (0.1
    )
    
    
    0.2Total
    
    
    2.0
    
    
    
    2.0
    
    
    
    0.1
    
    
    
    0.5
    
    
    
    (4.3
    )
    
    
    0.3
    
    
    
    0.6Adjustment to recognize 
changes
in actuarial assumptions:Pretax
    
    
    (174.8
    )
    
    
    (1.7
    )
    
    
    
    
    
    
    6.4
    
    
    
    3.6
    
    
    
    
    
    
    
    (166.5
    )Tax benefit (provision)
    
    
    58.9
    
    
    
    0.6
    
    
    
    
    
    
    
    (2.1
    )
    
    
    (1.3
    )
    
    
    
    
    
    
    56.1Total
    
    
    (115.9
    )
    
    
    (1.1
    )
    
    
    
    
    
    
    4.3
    
    
    
    2.3
    
    
    
    
    
    
    
    (110.4
    )Balance at December 31, 2008
    
    $
    (145.7
    )
    
    $
    (16.5
    )
    
    $
    (0.1
    )
    
    $
    (8.8
    )
    
    $
    21.9
    
    
    $
    (1.4
    )
    
    $
    (150.6
    )
  80




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##### Table of Contents



Pension
    
    Other
    
    TotalBenefits
    
    Benefits
    
    Benefits2009
    
    $
    29.5
    
    
    $
    4.8
    
    
    $
    34.32010
    
    
    49.6
    
    
    
    5.3
    
    
    
    54.92011
    
    
    35.0
    
    
    
    5.7
    
    
    
    40.72012
    
    
    39.7
    
    
    
    6.1
    
    
    
    45.82013
    
    
    40.6
    
    
    
    6.4
    
    
    
    47.02014-2018
    
    
    250.7
    
    
    
    36.6
    
    
    
    287.3
   Note 14 - LEASES
  Note 15 - SEGMENT AND GEOGRAPHIC INFORMATION
   81




---



##### Table of Contents




    
    The AMPS® specialty monomer business, with 2008 annual revenues of $35.3
million, which previously was reported as part of the Noveon consumer specialties product
line, and
    
    The ADEXTM explosives emulsifier business, with 2008 annual revenues of $45.0
million, which previously was reported as part of the engineered polymers product line.
  82




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##### Table of Contents



2008
    
    
    2007
    
    
    2006Lubrizol Additives:Revenues from external customers
    
    $
    3,541.5
    
    
    $
    3,032.8
    
    
    $
    2,661.7Equity earnings
    
    
    2.3
    
    
    
    1.2
    
    
    
    1.0Amortization of intangibles
    
    
    7.8
    
    
    
    4.5
    
    
    
    3.1Operating income
    
    
    427.3
    
    
    
    398.4
    
    
    
    311.7Total assets
    
    
    1,853.8
    
    
    
    1,696.1
    
    
    
    1,444.1Capital expenditures
    
    
    95.5
    
    
    
    86.9
    
    
    
    78.3Depreciation
    
    
    77.4
    
    
    
    73.4
    
    
    
    74.6Lubrizol Advanced Materials:Revenues from external customers
    
    $
    1,486.3
    
    
    $
    1,466.2
    
    
    $
    1,379.1Amortization of intangibles
    
    
    19.2
    
    
    
    19.8
    
    
    
    20.6Operating income
    
    
    88.8
    
    
    
    134.4
    
    
    
    158.9Total assets
    
    
    1,843.2
    
    
    
    2,207.3
    
    
    
    2,147.2Capital expenditures
    
    
    90.7
    
    
    
    74.9
    
    
    
    39.0Depreciation
    
    
    66.0
    
    
    
    60.4
    
    
    
    58.1Corporate:Total assets
    
    $
    453.5
    
    
    $
    740.4
    
    
    $
    799.6Capital expenditures
    
    
    16.4
    
    
    
    21.0
    
    
    
    8.4Depreciation
    
    
    1.5
    
    
    
    3.3
    
    
    
    0.6Discontinued operations:Capital expenditures
    
    $
    
    
    
    $
    
    
    
    $
    5.2Depreciation
    
    
    
    
    
    
    
    
    
    
    4.4Reconciliation to income from continuing operations before income taxes:Segment operating income
    
    $
    516.1
    
    
    $
    532.8
    
    
    $
    470.6Corporate expenses
    
    
    (60.7
    )
    
    
    (73.3
    )
    
    
    (73.6
    )Corporate other income (expense) - net
    
    
    15.7
    
    
    
    4.8
    
    
    
    (3.8
    )Write-off of acquired in-process research and development
    
    
    (1.6
    )
    
    
    
    
    
    
    Restructuring and impairment charges
    
    
    (394.0
    )
    
    
    (1.5
    )
    
    
    (51.9
    )Interest expense - net
    
    
    (65.7
    )
    
    
    (63.8
    )
    
    
    (79.3
    )Income from continuing operations before income taxes
    
    $
    9.8
    
    
    $
    399.0
    
    
    $
    262.0
  83




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##### Table of Contents



2008
    
    
    2007
    
    
    2006Engine additives
    
    $
    2,258.7
    
    
    $
    1,930.6
    
    
    $
    1,665.4Driveline and industrial additives
    
    
    1,282.8
    
    
    
    1,102.2
    
    
    
    996.3Total Lubrizol Additives
    
    
    3,541.5
    
    
    
    3,032.8
    
    
    
    2,661.7Performance coatings
    
    
    510.6
    
    
    
    540.2
    
    
    
    543.7Engineered polymers
    
    
    567.4
    
    
    
    547.9
    
    
    
    497.9Noveon consumer specialties
    
    
    408.3
    
    
    
    378.1
    
    
    
    337.5Total Lubrizol Advanced Materials
    
    
    1,486.3
    
    
    
    1,466.2
    
    
    
    1,379.1Total revenues from external customers
    
    $
    5,027.8
    
    
    $
    4,499.0
    
    
    $
    4,040.8
  2008
    
    
    2007
    
    
    2006United States
    
    $
    1,710.1
    
    
    $
    1,687.7
    
    
    $
    1,637.0Canada
    
    
    184.8
    
    
    
    192.5
    
    
    
    187.2Europe
    
    
    1,576.7
    
    
    
    1,347.2
    
    
    
    1,144.7Asia-Pacific / Middle East
    
    
    1,176.8
    
    
    
    956.2
    
    
    
    823.5Latin America
    
    
    379.4
    
    
    
    315.4
    
    
    
    248.4Total revenues from external customers
    
    $
    5,027.8
    
    
    $
    4,499.0
    
    
    $
    4,040.8
   2008
    

    2007United States
    
    $
    747.0
    
    
    $
    730.3France
    
    
    126.2
    
    
    
    123.6Belgium
    
    
    84.1
    
    
    
    84.2China
    
    
    82.7
    
    
    
    51.2United Kingdom
    
    
    36.3
    
    
    
    43.5India
    
    
    26.6
    
    
    
    30.5Other
    
    
    94.7
    
    
    
    98.2Total property and equipment - net
    
    $
    1,197.6
    
    
    $
    1,161.5
 84




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##### Table of Contents



Note 16 - STOCK COMPENSATION PLANS
    Weighted-Shares
    
    AverageUnderlying
    
    ExerciseOptions
    
    PriceOutstanding, January 1, 2008
    
    
    2,593,837
    
    
    $
    35.07Granted
    
    
    253,100
    
    
    $
    58.45Exercised
    
    
    (125,375
    )
    
    $
    30.65Forfeited
    
    
    (650
    )
    
    $
    37.20Outstanding, December 31, 2008
    
    
    2,720,912
    
    
    $
    37.45Options exercisable, December 31, 2008
    
    
    2,361,212
    
    
    $
    34.49
  85




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##### Table of Contents



Options Outstanding
    
    Options ExercisableWeighted-Average
    
    Weighted-
    
    
    
    
    
    Weighted-Range of
    
    Number
    
    Remaining
    
    Average
    
    Number
    
    AverageExercise
    
    Outstanding
    
    Contractual
    
    Exercise
    
    Exercisable
    
    ExercisePrices
    
    at 12/31/08
    
    Life
    
    Price
    
    at 12/31/08
    
    Price$ 20 - $ 30
    
    
    182,412
    
    
    1.1 years
    
    $
    26.85
    
    
    
    182,412
    
    
    $
    26.85$ 30 - $ 40
    
    
    1,793,000
    
    
    3.9 years
    
    $
    32.83
    
    
    
    1,793,000
    
    
    $
    32.83$ 40 - $ 50
    
    
    279,200
    
    
    7.0 years
    
    $
    43.07
    
    
    
    279,200
    
    
    $
    43.07$ 50 - $ 60
    
    
    466,300
    
    
    8.7 years
    
    $
    55.99
    
    
    
    106,600
    
    
    $
    53.072,720,912
    
    
    4.8 years
    
    $
    37.45
    
    
    
    2,361,212
    
    
    $
    34.49
  2008
    
    2007Risk-free interest rate
    
    
    3.5
    %
    
    
    4.8
    %Dividend yield
    
    
    2.1
    %
    
    
    2.0
    %Expected volatility
    
    
    20.0
    %
    
    
    17.8
    %Expected life (years)
    
    
    6.5
    
    
    
    10.0Weighted-average fair value of options granted during the year
    
    $
    12.27
    
    
    $
    14.68
  Weighted-AverageShare
    
    Grant DateUnits
    
    Fair ValueNonvested at January 1, 2008
    
    
    54,560
    
    
    $
    31.57Granted
    
    
    10,152
    
    
    $
    59.07Vested
    
    
    (54,560
    )
    
    $
    31.57Forfeited
    
    
    
    
    
    
    Nonvested at December 31, 2008
    
    
    10,152
    
    
    $
    59.07
   86




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##### Table of Contents



Weighted-AverageShare
    
    Grant DateUnits
    
    Fair ValueNonvested at January 1, 2008
    
    
    543,998
    
    
    $
    47.76Granted
    
    
    116,990
    
    
    $
    58.45Performance decrease
    
    
    (136,140
    )
    
    $
    57.69Vested
    
    
    (284,792
    )
    
    $
    43.07Forfeited
    
    
    (7,895
    )
    
    $
    48.18Nonvested at December 31, 2008
    
    
    232,161
    
    
    $
    53.07
  Expected
    
    Weighted-Number
    
    Averageof Units
    
    Grant DateAward
    
    to be Issued
    
    Fair Value2006-2008
    
    
    284,792
    
    
    $
    43.072007-2009
    
    
    232,161
    
    
    $
    53.072008-2010
    
    
    
    
    
    $
    58.45
    87




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##### Table of Contents



Note 17 - RESTRUCTURING AND IMPAIRMENT CHARGES
         88




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##### Table of Contents



RestructuringLiability
    
    
    and
    
    
    
    
    
    
    
    
    
    
    LiabilityJanuary 1,
    
    
    Impairment
    
    
    
    
    
    
    Non-cash
    
    
    December 31,2008
    
    
    Charges
    
    
    Cash Paid
    
    
    Adjustments
    
    
    2008Performance coatings 2008 business
improvement initiatives
    
    $
    
    
    
    $
    19.8
    
    
    $
    (4.1
    )
    
    $
    (14.8
    )
    
    $
    0.9Lubrizol Advanced Materials plant closures,
production line impairments and
workforce reductions
    
    
    0.4
    
    
    
    5.6
    
    
    
    (0.7
    )
    
    
    (5.3
    )
    
    
    Lubrizol Additives plant closure
and workforce reductions
    
    
    
    
    
    
    5.6
    
    
    
    (0.2
    )
    
    
    (4.7
    )
    
    
    0.7Bromborough, U.K. plant closure and sale
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    (0.1
    )
    
    
    Noveon International, Inc. restructuring
liabilities assumed
    
    
    0.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.5$
    1.0
    
    
    $
    31.0
    
    
    $
    (5.0
    )
    
    $
    (24.9
    )
    
    $
    2.1
  RestructuringLiability
    
    
    and
    
    
    
    
    
    
    
    
    
    
    LiabilityJanuary 1,
    
    
    Impairment
    
    
    
    
    
    
    Non-cash
    
    
    December 31,2007
    
    
    Charges
    
    
    Cash Paid
    
    
    Adjustments
    
    
    2007Bromborough, U.K. plant closure and sale
    
    $
    1.0
    
    
    $
    (0.7
    )
    
    $
    (0.1
    )
    
    $
    (0.1
    )
    
    $
    0.1Lubrizol Advanced Materials plant closures,
production line impairments and
workforce reductions
    
    
    0.7
    
    
    
    4.1
    
    
    
    (1.0
    )
    
    
    (3.4
    )
    
    
    0.4Corporate / other workforce reductions
    
    
    0.2
    
    
    
    0.1
    
    
    
    (0.3
    )
    
    
    
    
    
    
    Noveon International, Inc. restructuring
liabilities assumed
    
    
    0.9
    
    
    
    
    
    
    
    (0.4
    )
    
    
    
    
    
    
    0.5$
    2.8
    
    
    $
    3.5
    
    
    $
    (1.8
    )
    
    $
    (3.5
    )
    
    $
    1.0
 RestructuringLiability
    
    
    and
    
    
    
    
    
    
    
    
    
    
    LiabilityJanuary 1,
    
    
    Impairment
    
    
    
    
    
    
    Non-cash
    
    
    December 31,2006
    
    
    Charges
    
    
    Cash Paid
    
    
    Adjustments
    
    
    2006Bromborough, U.K. plant closure and sale
    
    $
    2.3
    
    
    $
    6.7
    
    
    $
    (8.2
    )
    
    $
    0.2
    
    
    $
    1.0Lubrizol Advanced Materials plant closures,
production line impairments and workforce reductions
    
    
    2.5
    
    
    
    4.1
    
    
    
    (2.5
    )
    
    
    (3.4
    )
    
    
    0.7Corporate / other workforce reductions
    
    
    0.3
    
    
    
    (0.1
    )
    
    
    
    
    
    
    
    
    
    
    0.2Noveon International, Inc. restructuring
liabilities assumed
    
    
    1.3
    
    
    
    
    
    
    
    (0.4
    )
    
    
    
    
    
    
    0.9$
    6.4
    
    
    $
    10.7
    
    
    $
    (11.1
    )
    
    $
    (3.2
    )
    
    $
    2.8
 89




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##### Table of Contents



Note 18 - FAIR VALUE MEASUREMENTS
    Fair Value Measurements at Reporting Date UsingQuoted Prices
    
    
    Significant
    
    
    Significantin Active Markets
    
    
    Other
    
    
    Unobservablefor Identical Assets
    
    
    Observable Inputs
    
    
    InputsDecember 31,2008
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Assets:Money market mutual funds (1)
    
    $
    59.7
    
    
    $
    49.9
    
    
    $
    9.8
    
    
    $
    Interest rate swaps (2)
    
    
    4.3
    
    
    
    
    
    
    
    4.3
    
    
    
    $
    64.0
    
    
    $
    49.9
    
    
    $
    14.1
    
    
    $
    Liabilities:Treasury rate locks (2)
    
    $
    20.0
    
    
    $
    
    
    
    $
    20.0
    
    
    $
    Forward commodity contracts (3)
    
    
    7.0
    
    
    
    
    
    
    
    7.0
    
    
    
    Deferred compensation plans (4)
    
    
    20.8
    
    
    
    20.8
    
    
    
    
    
    
    
    $
    47.8
    
    
    $
    20.8
    
    
    $
    27.0
    
    
    $
    
 (1)
    
    The company records the fair value of money market mutual funds within cash and cash
equivalents and investments. The fair value of money market mutual funds held in inactive
markets is corroborated through quoted prices in active markets for the funds underlying
holdings, considering nonperformance and liquidity risks.(2)
    
    The fair value of interest rate swaps and Treasury rate locks are obtained from
counterparty quotes, which use discounted cash flows and the then-applicable forward
interest rates.
 90




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##### Table of Contents



(3)
    
    The fair values of forward commodity contracts are based on counterparty quotes of market
forward rates and reflect the present value of the amount that the company would pay or
receive for contracts involving the same notional amounts and maturity dates.(4)
    
    The company allows directors and senior management to defer their fees, salary and
incentive compensation into non-qualified deferred compensation plans, which are funded
informally through trust-owned life insurance held in a rabbi trust. Deferrals can be made
into various cash investment accounts and/or a share unit account. Changes in the value of
compensation deferred under these plans are recognized each period based on the fair value
of the underlying investments, including the companys common share price if amounts are
held in a share unit account at the end of the reporting period.
  Note 19 - CONTINGENCIES
 General
  Environmental
     91




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Commitments
  Indemnifications
  92




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Note 20 - QUARTERLY FINANCIAL DATA (UNAUDITED)
  2008First
    
    Second
    
    Third
    
    Fourth
    
    Full YearRevenues
    
    $
    1,227.3
    
    
    $
    1,350.2
    
    
    $
    1,362.7
    
    
    $
    1,087.6
    
    
    $
    5,027.8Gross profit
    
    $
    292.8
    
    
    $
    305.5
    
    
    $
    284.5
    
    
    $
    238.5
    
    
    $
    1,121.3Restructuring and impairment charges
    
    $
    4.8
    
    
    $
    14.6
    
    
    $
    5.7
    
    
    $
    368.9
    
    
    $
    394.0Net (loss) income
    
    $
    73.6
    
    
    $
    78.1
    
    
    $
    63.2
    
    
    $
    (281.0
    )
    
    $
    (66.1
    )Net (loss) income per common share:Basic
    
    $
    1.07
    
    
    $
    1.14
    
    
    $
    0.93
    
    
    $
    (4.16
    )
    
    $
    (0.97
    )Diluted
    
    $
    1.06
    
    
    $
    1.13
    
    
    $
    0.92
    
    
    $
    (4.16
    )
    
    $
    (0.97
    )
 2007First
    
    Second
    
    Third
    
    Fourth
    
    Full YearRevenues
    
    $
    1,076.7
    
    
    $
    1,154.6
    
    
    $
    1,121.4
    
    
    $
    1,146.3
    
    
    $
    4,499.0Gross profit
    
    $
    278.5
    
    
    $
    295.8
    
    
    $
    275.4
    
    
    $
    271.2
    
    
    $
    1,120.9Restructuring and impairment charges (credits)
    
    $
    (2.4
    )
    
    $
    0.9
    
    
    $
    2.1
    
    
    $
    0.9
    
    
    $
    1.5Net income
    
    $
    71.3
    
    
    $
    81.0
    
    
    $
    71.4
    
    
    $
    59.7
    
    
    $
    283.4Net income per common share:Basic
    
    $
    1.03
    
    
    $
    1.17
    
    
    $
    1.03
    
    
    $
    0.87
    
    
    $
    4.10Diluted
    
    $
    1.02
    
    
    $
    1.15
    
    
    $
    1.02
    
    
    $
    0.86
    
    
    $
    4.05
 93




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##### Table of Contents



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
 DISCLOSURE CONTROLS AND PROCEDURES
   MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
     94




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     
  
 95




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##### Table of Contents



ITEM 9B. OTHER INFORMATION
  
 PART III
 
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  www.lubrizol.com
 
 ITEM 11. EXECUTIVE COMPENSATION
  
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
   (a)
    
    (b)
    
    (c)Number of Securities RemainingAvailableNumber of Securities to be
    
    Weighted-Average Exercise
    
    for Future Issuance under EquityIssued upon Exercise of
    
    Price of Outstanding
    
    Compensation Plans (excludingOutstanding Options,
    
    Options,
    
    SecuritiesPlan Category
    
    Warrants and Rights
    
    Warrants and Rights
    
    reflected in Column (a))Equity compensation plans
approved by security holders
    
    
    3,115,989
    (1)
    
    $
    37.45
    
    
    
    1,955,040
    (2)Equity compensation plans not
approved by security holders
    
    
    473,909
    (3)
    
    
    N/A
    
    
    
    (3
    )Total
    
    
    3,589,898
    
    
    $
    37.45
    
    
    
    1,955,040
    (2)
 (1)
    
    This number includes 383,986 performance share awards at the target level granted under Lubrizols long-term incentive plans. Depending on the level of achievement of performance goals,
the performance shares may instead be paid at zero shares, at 767,972 shares at the maximum level, or at 131,596 shares at the threshold level.
This number also includes 11,091 restricted stock units.  Because there is no
exercise price associated with performance shares or restricted stock units, such shares and units are not included in the weighted average price calculation.(2)
    
    The shares shown are with respect to the 2005 Stock Incentive Plan. There are no voting or
dividend rights associated with these common shares until they are issued.(3)
    
    Under the Executive Council Deferred Compensation Plan, certain executive officers may defer
any amount of their variable pay under the annual incentive pay plan. Deferred amounts are
converted into share units based on the current market price of Lubrizols common shares.
There is a 25% company match. Additional share units are credited for quarterly dividends
paid on Lubrizol common shares. At the end of the deferral period, which is at least three
years, common shares are issued equal to the number of share units in the participants
account. Amounts attributable to the company match credited after January 1, 2004 will be
paid in cash. As of December 31, 2008, there were 129,755 share units outstanding that are
payable in shares.Prior to January 1, 2004, under the Deferred Stock Compensation Plan for Outside Directors, each
director who was not a Lubrizol employee received 500 share units on each October 1st and was
credited with additional share units for quarterly dividends paid on Lubrizol common shares.
When a person is no longer a director, Lubrizol common shares are issued equal to the number of share units in the persons account. As
of
 96




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##### Table of Contents



December 31, 2008, there were 27,400 share units outstanding that are payable in shares. No
additional share units other than those credited for quarterly dividends have been or will be
granted after January 1, 2004.Under the Deferred Compensation Plan for Directors, each director who is not a Lubrizol employee
may defer all or any portion of his or her yearly fee and meeting attendance fees and have these
amounts credited to various cash investment accounts and/or a share unit account. The number of
share units credited to the share unit account is based on the price of Lubrizol common shares on
the day the share units are credited to the account and includes share units credited for
quarterly dividends paid on Lubrizol common shares. When a person is no longer a director,
Lubrizol shares are issued equal to the number of share units in the persons share unit account.
As of December 31, 2008, there were 73,949 share units outstanding, 33,529 of which must be paid
in Lubrizol shares and the remainder of which may be invested in the various cash investment
accounts at the discretion of the director, and paid in cash.Under the Senior Management Deferred Compensation Plan, each executive officer may defer all or
any portion of his or her total annual pay and have these amounts credited to various cash
investment accounts and/or a share unit account. The number of share units credited to the share
unit account is based on the price of Lubrizol common shares on the day the share units are
credited to the account and includes share units credited for quarterly dividends paid on
Lubrizol common shares. Upon the distribution date, Lubrizol common shares are issued equal to
the number of share units in the persons share unit account. As of December 31, 2008, there
were 280,782 share units outstanding.Under the Supplemental Retirement Plan for Donald W. Bogus, 500 share units are credited each
anniversary date of the officers employment to an officers account and includes share units
credited for quarterly dividends paid on Lubrizol common shares. Upon retirement, Mr. Bogus may
elect to receive cash or Lubrizol shares equal to the number of share units in the account. As
of December 31, 2008, there were 2,443 share units outstanding that could be paid in shares. For
units credited after January 1, 2004, the payment will be made in cash only.
 
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
  
 ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
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##### Table of Contents



PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 LIST OF
CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
 (a)(1)
    
    The following consolidated financial statements of The Lubrizol Corporation are included
in Item 8:Consolidated Statements of Operations - Years ended December 31, 2008, 2007 and 2006Consolidated Balance Sheets - December 31, 2008 and 2007Consolidated Statements of Cash Flows - Years ended December 31, 2008, 2007 and 2006Consolidated Statements of Shareholders Equity - Years ended December 31, 2008, 2007 and
2006Notes to Consolidated Financial Statements(a)(2)
    
    Schedule II is included below. All other schedules have been omitted because they are
not applicable.
 SCHEDULE II - Valuation and Qualifying Accounts   (in millions of dollars)
 Charged

    
    ChargedBalance at

    
    /(Credited)

    
    /(Credited) to

    
    
    
    
    
    BalanceBeginning

    
    to

    
    Other

    
    
    
    
    
    at End ofDescription
    
    of Year

    
    Expenses

    
    Accounts

    
    Deductions

    
    YearYear ended December 31, 2008Allowance for uncollectible
accounts
    
    $
    6.3
    
    
    $
    2.1
    
    
    
    
    
    
    $
    1.7
    
    
    $
    6.7Inventory reserves
    
    $
    15.0
    
    
    $
    8.4
    
    
    $
    2.5
    
    
    $
    1.2
    
    
    $
    24.7Deferred tax asset valuation
allowance
    
    $
    18.7
    
    
    $
    (6.7
    )
    
    $
    (1.6
    )
    
    
    
    
    
    $
    10.4Year ended December 31, 2007Allowance for uncollectible
accounts
    
    $
    7.5
    
    
    $
    1.1
    
    
    
    
    
    
    $
    2.3
    
    
    $
    6.3Inventory reserves
    
    $
    16.1
    
    
    $
    12.9
    
    
    
    
    
    
    $
    14.0
    
    
    $
    15.0Deferred tax asset valuation
allowance
    
    $
    17.8
    
    
    $
    1.5
    
    
    $
    (0.6
    )
    
    
    
    
    
    $
    18.7Year ended December 31, 2006Allowance for uncollectible
accounts
    
    $
    10.1
    
    
    $
    0.8
    
    
    $
    (1.2
    )
    
    $
    2.2
    
    
    $
    7.5Inventory reserves
    
    $
    18.2
    
    
    $
    9.1
    
    
    $
    1.2
    
    
    $
    12.4
    
    
    $
    16.1Deferred tax asset valuation
allowance
    
    $
    18.1
    
    
    $
    (0.1
    )
    
    $
    (0.2
    )
    
    
    
    
    
    $
    17.8
 (a)(3)
    
    Exhibits
 ExhibitNumber
    
    Description3.1
    
    Amended Articles of Incorporation of The Lubrizol Corporation, as adopted September 23,
1991 (incorporated by reference to Exhibit 3.1 to the companys annual report on Form 10-K
for the year ended December 31, 2004).3.2
    
    Regulations of The Lubrizol Corporation, as amended effective April 27, 1992
(incorporated by reference to Exhibit 3.2 to the companys annual report on Form 10-K for
the year ended December 31, 2004).
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ExhibitNumber
    
    Description4.1
    
    Amendment to Article Fourth of Amended Articles of Incorporation (incorporated by
reference to Exhibit 4.1 to the companys annual report on Form 10-K for the year ended
December 31, 2004).4.2
    
    Indenture, dated as of January 27, 2009, by and between The Lubrizol Corporation and
Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1
to the companys current report on Form 8-K filed with the SEC on January 27, 2009).4.3
    
    First Supplemental Indenture to the Indenture dated as of January 27, 2009, by and
between The Lubrizol Corporation and Wells Fargo Bank, National Association, as trustee
(incorporated by reference to Exhibit 4.2 to the companys current report on Form 8-K filed
with the SEC on January 27, 2009).4.4
    
    Form of $500,000,000 8.875% Notes due 2019 (incorporated by reference to Exhibit 4.3 to
the companys current report on Form 8-K filed with the SEC on January 27, 2009).4.5
    
    Amended and Restated Indenture dated September 28, 2004 (originally dated June 1, 1995)
by and among The Lubrizol Corporation, all of The Lubrizol Corporations wholly owned direct
and indirect domestic subsidiaries, as guarantors, and J.P. Morgan Trust Company, National
Association, as successor trustee (incorporated by reference to Exhibit 99.1 to the
companys current report on Form 8-K filed with the SEC on September 29, 2004).4.6
    
    Form of $100,000,000 7.25% Notes due 2025 (incorporated by reference to Exhibit (4)(b) to
the companys registration statement on Form S-3 (SEC File No. 33-68246) filed with the SEC
on September 1, 1993).4.7
    
    Form of Indenture for Debt Securities of The Lubrizol Corporation (incorporated by
reference to Exhibit 4.2 of Amendment No. 2 to the companys registration statement on Form
S-3 filed with the SEC on August 24, 2004).4.8
    
    Form of $400,000,000 4.625% Notes due 2009 (incorporated by reference to Exhibit 99.3 to
the companys current report on Form 8-K filed with the SEC on September 24, 2004).4.9
    
    Form of $450,000,000 5.5% Notes due 2014 (incorporated by reference to Exhibit 99.4 to
the companys current report on Form 8-K filed with the SEC on September 24, 2004).4.10
    
    Form of $300,000,000 6.5% Debentures due 2034 (incorporated by reference to Exhibit 99.5
to the companys current report on Form 8-K filed with the SEC on September 24, 2004).10.1*
    
    The Lubrizol Corporation 1991 Stock Incentive Plan, as amended (incorporated by
reference to Exhibit (10)(h) to the companys current report on Form 8-K filed with the SEC
on November 18, 2004).10.2*
    
    The Lubrizol Corporation 2005 Stock Incentive Plan, amended and restated as of December
15, 2008.10.3*
    
    Form of Nonstatutory Stock Option Award Agreement under The Lubrizol Corporation 2005
Stock Incentive Plan (included in Exhibit 10.2 filed herewith).10.4*
    
    Form of Performance Share Award under The Lubrizol Corporation 2005 Stock Incentive
Plan (included in Exhibit 10.2 filed herewith).
 99




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##### Table of Contents



ExhibitNumber
    
    Description10.5*
    
    Form of Outside Director Restricted Stock Unit Award under The Lubrizol Corporation 2005
Stock Incentive Plan (included in Exhibit 10.2 filed herewith).10.6*
    
    The Lubrizol Corporation Amended Deferred Compensation Plan for Directors (incorporated
by reference to Exhibit (10)(b) to the companys current report on Form 8-K filed with the
SEC on November 18, 2004).10.7*
    
    The Lubrizol Corporation Deferred Stock Compensation Plan for Outside Directors, as
amended (incorporated by reference to Exhibit (10)(i) to the companys annual report on Form
10-K for the year ended December 31, 2003).10.8*
    
    The Lubrizol Corporation Deferred Compensation Plan for Officers, as amended
(incorporated by reference to Exhibit (10)(k) to the companys current report on Form 8-K
filed with the SEC on November 18, 2004).10.9*
    
    The Lubrizol Corporation Executive Council Deferred Compensation Plan, as amended
(incorporated by reference to 
Exhibit (10)(l) to the companys current report on Form 8-K
filed with the SEC on November 18, 2004).10.10*
    
    The Lubrizol Corporation 2005 Deferred Compensation Plan for Directors, as amended
(incorporated by reference to Exhibit 10.3 to the companys quarterly report on Form 10-Q
for the quarter ended September 30, 2008).10.11*
    
    The Lubrizol Corporation Senior Management Deferred Compensation Plan, as amended
(incorporated by reference to Exhibit 10.1 to the companys quarterly report on Form 10-Q
for the quarter ended September 30, 2008).10.12*
    
    The Lubrizol Corporation 2005 Executive Council Deferred Compensation Plan, as amended
(incorporated by reference to Exhibit 10.2 to the companys quarterly report on Form 10-Q
for the year ended September 30, 2008).10.13*
    
    The Lubrizol Corporation Excess Defined Benefit Plan, as amended (incorporated by
reference to Exhibit (10)(d) to the companys current report on Form 8-K filed with the SEC
on December 15, 2004).10.14*
    
    The Lubrizol Corporation Excess Defined Contribution Plan, as amended (incorporated by
reference to Exhibit (10)(e) to the companys current report on Form 8-K filed with the SEC
on December 15, 2004).10.15*
    
    The Lubrizol Corporation Officers Supplemental Retirement Plan, as amended (incorporated
by reference to Exhibit (10)(j) to the companys current report on Form 8-K filed with the
SEC on December 15, 2004).10.16*
    
    The Lubrizol Corporation 2005 Excess Defined Benefit Plan, amended and restated as of
December 31, 2008.10.17*
    
    The Lubrizol Corporation 2005 Excess Defined Contribution Plan, amended and restated as of
December 31, 2008.10.18*
    
    The Lubrizol Corporation 2005 Officers Supplemental Retirement Plan, amended and restated
as of December 31, 2008.
 100




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##### Table of Contents



ExhibitNumber
    
    Description10.19*
    
    Supplemental Retirement Plan for Donald W. Bogus, amended and restated as of December 31,
2008.10.20*
    
    The Lubrizol Corporation Executive Death Benefit Plan, as amended (incorporated by
reference to Exhibit 10.17 to the companys annual report on Form 10-K for the year ended
December 31, 2007).10.21*
    
    Form of Employment Agreement between The Lubrizol Corporation and certain of its senior
executive officers, amended and restated as of January 1, 2008 (incorporated by reference to
Exhibit 10.18 to the companys annual report on Form 10-K for the year ended
December 31,
2007).10.22*
    
    Employment Agreement between The Lubrizol Corporation and Charles P. Cooley, amended and
restated as of January 1, 2008 (incorporated by reference to Exhibit 10.19 to the companys
annual report on Form 10-K for the year ended
December 31, 2007).10.23*
    
    Employment Agreement between The Lubrizol Corporation and Stephen F. Kirk, amended and
restated as of January 1, 2008 (incorporated by reference to Exhibit 10.20 to the companys
annual report on Form 10-K for the year ended December 31, 2007).10.24*
    
    Employment Agreement between The Lubrizol Corporation and Donald W. Bogus, amended and
restated as of December 31, 2008.10.25*
    
    The Lubrizol Corporation Annual Incentive Pay Plan, amended and restated as of November
11, 2008.10.26*
    
    The Lubrizol Corporation Annual Incentive Pay Plan Award Letter, as amended (incorporated
by reference to Exhibit 10.2 to the companys current report on Form 8-K filed with the SEC
on December 13, 2005).10.27*
    
    The Lubrizol Corporation Financial Planning Program, as amended (incorporated by reference
to Exhibit 10.24 to the companys annual report on Form 10-K for the year ended December 31,
2007).10.28*
    
    Form of Indemnification Agreement between The Lubrizol Corporation and certain of its
senior executive officers and directors (incorporated by reference to Exhibit 10.26 to the
companys annual report on Form 10-K for the period ended December 31, 2006).10.29*
    
    General Release between The Lubrizol Corporation and Donald W. Bogus (incorporated by
reference to Exhibit 99.1 to the companys current report on Form 8-K/A filed with the SEC
on February 17, 2009).10.30
    
    Credit Agreement dated as of February 2, 2009 among The Lubrizol Corporation, the
Initial Lenders named therein, KeyBanc Capital Markets, as joint lead arranger and sole
bookrunner, PNC Capital Markets LLC, as joint lead arranger, PNC Bank, National Association,
as syndication agent, and KeyBank National Association, as administrative agent
(incorporated herein by reference to Exhibit 10.1 to the companys current report on Form
8-K filed with the SEC on February 5, 2009).
 101




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##### Table of Contents



ExhibitNumber
    
    Description10.31
    
    Credit Agreement dated as of August 24, 2004 among The Lubrizol Corporation, the Initial
Lenders named therein, Citigroup Global Markets Inc. and KeyBanc Capital Markets, as co-lead
arrangers and co-bookrunners, KeyBank National Association and ABN Amro Bank N.V., as
co-syndication agents, Wachovia Bank, National Association, as documentation agent, and
Citicorp North America, Inc., as agent (incorporated by reference to Exhibit 10.1 to the
companys current report on Form 8-K filed with the SEC on August 30, 2004).10.32
    
    Amended and Restated Credit Agreement dated as of March 29, 2005 among The Lubrizol
Corporation, the Initial Lenders named therein, Citicorp North America, Inc., as
administrative agent, and Citigroup Global Markets, Inc., as arranger and syndication agent
(incorporated by reference to Exhibit 10.5 to the companys quarterly report on Form 10-Q
for the period ended March 31, 2005).10.33
    
    Amendment No. 2 to the Credit Agreement among The Lubrizol Corporation, the banks,
financial institutions and other institutional lenders who are parties to the Credit
Agreement dated as of August 24, 2004, amended and restated as of 
March 29, 2005, and as
further amended as of August 23, 2005, and Citicorp North America, Inc. as agent
(incorporated by reference to Exhibit 10.1 to the companys current report on Form 8-K filed
with the SEC on September 22, 2006).10.34
    
    Five Year Credit Agreement dated as of September 14, 2005 among Europe Chemical Holdings
C.V., Noveon Holdings France S.A.S. and Noveon Europe BVBA, The Lubrizol Corporation, the
Initial Lenders named therein, ABN AMRO Bank N.V. as administrative agent, and ABN AMRO Bank
N.V., Calyon, Citigroup Global Markets Inc., and Fortis Capital Corp., as mandated lead
arrangers and bookrunners (incorporated by reference to Exhibit 10.1 to the companys
current report on Form 8-K filed with the SEC on September 16, 2005).10.35
    
    Letter Amendment dated as of September 20, 2006 among Lubrizol Holdings France S.A.S.
(formerly known as Noveon Holdings France S.A.S.) and Noveon Europe BVBA (collectively, the
Borrowers), The Lubrizol Corporation, the Lenders named therein, ABN AMRO Bank N.V. as
agent, to the Five Year Credit Agreement dated as of September 14, 2005 among the Borrowers,
The Lubrizol Corporation, the Initial Lenders named therein, ABN AMRO Bank N.V., Calyon,
Citigroup Global Markets Inc. and Fortis Capital Corp. (incorporated by reference to Exhibit
10.2 to the companys current report on Form 8-K filed with the SEC on September 22, 2006).12.1
    
    Computation of Ratio of Earnings to Fixed Charges.21.1
    
    List of Significant Subsidiaries of The Lubrizol Corporation.23.1
    
    Consent of Independent Registered Public Accounting Firm.31.1
    
    Rule 13a-14(a) Certification of the Chief Executive Officer, as created by Section 302 of
the Sarbanes-Oxley Act of 2002.31.2
    
    Rule 13a-14(a) Certification of the Chief Financial Officer, as created by Section 302 of
the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer and Chief Financial Officer of The Lubrizol
Corporation pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the
Sarbanes-Oxley Act of 2002.
 *
    
    Indicates management contract or compensatory plan or arrangement.
 102




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##### Table of Contents



SIGNATURES
  THE LUBRIZOL CORPORATIONBY
    
    /s/ James L. HambrickJames L. Hambrick, Chairman of the Board,President and Chief Executive Officer  /s/ James L. Hambrick

James L. Hambrick
    
    Chairman of the Board, President and Chief Executive Officer 
(Principal
Executive Officer)/s/ Charles P. Cooley

Charles P. Cooley
    
    Sr. Vice President, Treasurer and Chief Financial Officer 
(Principal
Financial Officer)/s/ W. Scott Emerick.

W. Scott Emerick
    
    Corporate Controller 
(Chief
Accounting Officer)/s/ Robert E. Abernathy

Robert E. Abernathy
    
    Director/s/ Jerald A. Blumberg

Jerald A. Blumberg
    
    Director/s/ Forest J. Farmer, Sr.

Forest J. Farmer, Sr.
    
    Director/s/ Gordon D. Harnett

Gordon D. Harnett
    
    Director/s/ William P. Madar

William P. Madar
    
    Director/s/ Dominic J. Pileggi

Dominic J. Pileggi
    
    Director/s/ James E. Sweetnam

James E. Sweetnam
    
    Director/s/ Harriett Tee Taggart

Harriett Tee Taggart
    
    Director/s/Phillip C. Widman

Phillip C. Widman
    
    Director
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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description3.1
    
    Amended Articles of Incorporation of The Lubrizol Corporation, as adopted September 23,
1991 (incorporated by reference to Exhibit 3.1 to the companys annual report on Form 10-K
for the year ended December 31, 2004).3.2
    
    Regulations of The Lubrizol Corporation, as amended effective April 27, 1992
(incorporated by reference to Exhibit 3.2 to the companys annual report on Form 10-K for
the year ended December 31, 2004).4.1
    
    Amendment to Article Fourth of Amended Articles of Incorporation (incorporated by
reference to Exhibit 4.1 to the companys annual report on Form 10-K for the year ended
December 31, 2004).4.2
    
    Indenture, dated as of January 27, 2009, by and between The Lubrizol Corporation and
Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1
to the companys current report on Form 8-K filed with the SEC on January 27, 2009).4.3
    
    First Supplemental Indenture to the Indenture dated as of January 27, 2009, by and
between The Lubrizol Corporation and Wells Fargo Bank, National Association, as trustee
(incorporated by reference to Exhibit 4.2 to the companys current report on Form 8-K filed
with the SEC on January 27, 2009).4.4
    
    Form of $500,000,000 8.875% Notes due 2019 (incorporated by reference to Exhibit 4.3 to
the companys current report on Form 8-K filed with the SEC on January 27, 2009).4.5
    
    Amended and Restated Indenture dated September 28, 2004 (originally dated June 1, 1995)
by and among The Lubrizol Corporation, all of The Lubrizol Corporations wholly owned direct
and indirect domestic subsidiaries, as guarantors, and J.P. Morgan Trust Company, National
Association, as successor trustee (incorporated by reference to Exhibit 99.1 to the
companys current report on Form 8-K filed with the SEC on September 29, 2004).4.6
    
    Form of $100,000,000 7.25% Notes due 2025 (incorporated by reference to Exhibit (4)(b) to
the companys registration statement on Form S-3 (SEC File No. 33-68246) filed with the SEC
on September 1, 1993).4.7
    
    Form of Indenture for Debt Securities of The Lubrizol Corporation (incorporated by
reference to Exhibit 4.2 of Amendment No. 2 to the companys registration statement on Form
S-3 filed with the SEC on August 24, 2004).4.8
    
    Form of $400,000,000 4.625% Notes due 2009 (incorporated by reference to Exhibit 99.3 to
the companys current report on Form 8-K filed with the SEC on September 24, 2004).4.9
    
    Form of $450,000,000 5.5% Notes due 2014 (incorporated by reference to Exhibit 99.4 to
the companys current report on Form 8-K filed with the SEC on September 24, 2004).4.10
    
    Form of $300,000,000 6.5% Debentures due 2034 (incorporated by reference to Exhibit 99.5
to the companys current report on Form 8-K filed with the SEC on September 24, 2004).10.1*
    
    The Lubrizol Corporation 1991 Stock Incentive Plan, as amended (incorporated by
reference to Exhibit (10)(h) to the companys current report on Form 8-K filed with the SEC
on November 18, 2004).10.2*
    
    The Lubrizol Corporation 2005 Stock Incentive Plan, amended and restated as of December
15, 2008.




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##### Table of Contents



ExhibitNumber
    
    Description10.3*
    
    Form of Nonstatutory Stock Option Award Agreement under The Lubrizol Corporation 2005
Stock Incentive Plan (included in Exhibit 10.2 filed herewith).10.4*
    
    Form of Performance Share Award under The Lubrizol Corporation 2005 Stock Incentive
Plan (included in Exhibit 10.2 filed herewith).10.5*
    
    Form of Outside Director Restricted Stock Unit Award under The Lubrizol Corporation 2005
Stock Incentive Plan (included in Exhibit 10.2 filed herewith).10.6*
    
    The Lubrizol Corporation Amended Deferred Compensation Plan for Directors (incorporated
by reference to Exhibit (10)(b) to the companys current report on Form 8-K filed with the
SEC on November 18, 2004).10.7*
    
    The Lubrizol Corporation Deferred Stock Compensation Plan for Outside Directors, as
amended (incorporated by reference to Exhibit (10)(i) to the companys annual report on Form
10-K for the year ended December 31, 2003).10.8*
    
    The Lubrizol Corporation Deferred Compensation Plan for Officers, as amended
(incorporated by reference to Exhibit (10)(k) to the companys current report on Form 8-K
filed with the SEC on November 18, 2004).10.9*
    
    The Lubrizol Corporation Executive Council Deferred Compensation Plan, as amended
(incorporated by reference to Exhibit (10)(l) to the companys current report on Form 8-K
filed with the SEC on November 18, 2004).10.10*
    
    The Lubrizol Corporation 2005 Deferred Compensation Plan for Directors, as amended
(incorporated by reference to Exhibit 10.3 to the companys quarterly report on Form 10-Q
for the quarter ended September 30, 2008).10.11*
    
    The Lubrizol Corporation Senior Management Deferred Compensation Plan, as amended
(incorporated by reference to Exhibit 10.1 to the companys quarterly report on Form 10-Q
for the quarter ended September 30, 2008).10.12*
    
    The Lubrizol Corporation 2005 Executive Council Deferred Compensation Plan, as amended
(incorporated by reference to Exhibit 10.2 to the companys quarterly report on Form 10-Q
for the year ended September 30, 2008).10.13*
    
    The Lubrizol Corporation Excess Defined Benefit Plan, as amended (incorporated by
reference to Exhibit (10)(d) to the companys current report on Form 8-K filed with the SEC
on December 15, 2004).10.14*
    
    The Lubrizol Corporation Excess Defined Contribution Plan, as amended (incorporated by
reference to Exhibit (10)(e) to the companys current report on Form 8-K filed with the SEC
on December 15, 2004).10.15*
    
    The Lubrizol Corporation Officers Supplemental Retirement Plan, as amended (incorporated
by reference to Exhibit (10)(j) to the companys current report on Form 8-K filed with the
SEC on December 15, 2004).10.16*
    
    The Lubrizol Corporation 2005 Excess Defined Benefit Plan, amended and restated as of
December 31, 2008.10.17*
    
    The Lubrizol Corporation 2005 Excess Defined Contribution Plan, amended and restated as of
December 31, 2008.




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##### Table of Contents



ExhibitNumber
    
    Description10.18*
    
    The Lubrizol Corporation 2005 Officers Supplemental Retirement Plan, amended and restated
as of December 31, 2008.10.19*
    
    Supplemental Retirement Plan for Donald W. Bogus, amended and restated as of December 31,
2008.10.20*
    
    The Lubrizol Corporation Executive Death Benefit Plan, as amended (incorporated by
reference to Exhibit 10.17 to the companys annual report on Form 10-K for the year ended
December 31, 2007).10.21*
    
    Form of Employment Agreement between The Lubrizol Corporation and certain of its senior
executive officers, amended and restated as of January 1, 2008 (incorporated by reference to
Exhibit 10.18 to the companys annual report on Form 10-K for the year ended December 31,
2007).10.22*
    
    Employment Agreement between The Lubrizol Corporation and Charles P. Cooley, amended and
restated as of January 1, 2008 (incorporated by reference to Exhibit 10.19 to the companys
annual report on Form 10-K for the year ended December 31, 2007).10.23*
    
    Employment Agreement between The Lubrizol Corporation and Stephen F. Kirk, amended and
restated as of January 1, 2008 (incorporated by reference to Exhibit 10.20 to the companys
annual report on Form 10-K for the year ended December 31, 2007).10.24*
    
    Employment Agreement between The Lubrizol Corporation and Donald W. Bogus, amended and
restated as of December 31, 2008.10.25*
    
    The Lubrizol Corporation Annual Incentive Pay Plan, amended and restated as of November
11, 2008.10.26*
    
    The Lubrizol Corporation Annual Incentive Pay Plan Award Letter, as amended (incorporated
by reference to Exhibit 10.2 to the companys current report on Form 8-K filed with the SEC
on December 13, 2005).10.27*
    
    The Lubrizol Corporation Financial Planning Program, as amended (incorporated by reference
to Exhibit 10.24 to the companys annual report on Form 10-K for the year ended December 31,
2007).10.28*
    
    Form of Indemnification Agreement between The Lubrizol Corporation and certain of its
senior executive officers and directors (incorporated by reference to Exhibit 10.26 to the
companys annual report on Form 10-K for the period ended December 31, 2006).10.29*
    
    General Release between The Lubrizol Corporation and Donald W. Bogus (incorporated by
reference to Exhibit 99.1 to the companys current report on Form 8-K/A filed with the SEC
on February 17, 2009).10.30
    
    Credit Agreement dated as of February 2, 2009 among The Lubrizol Corporation, the
Initial Lenders named therein, KeyBanc Capital Markets, as joint lead arranger and sole
bookrunner, PNC Capital Markets LLC, as joint lead arranger, PNC Bank, National Association,
as syndication agent, and KeyBank National Association, as administrative agent
(incorporated herein by reference to Exhibit 10.1 to the companys current report on Form
8-K filed with the SEC on February 5, 2009).




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##### Table of Contents



ExhibitNumber
    
    Description10.31
    
    Credit Agreement dated as of August 24, 2004 among The Lubrizol Corporation, the Initial
Lenders named therein, Citigroup Global Markets Inc. and KeyBanc Capital Markets, as co-lead
arrangers and co-bookrunners, KeyBank National Association and ABN Amro Bank N.V., as
co-syndication agents, Wachovia Bank, National Association, as documentation agent, and
Citicorp North America, Inc., as agent (incorporated by reference to Exhibit 10.1 to the
companys current report on Form 8-K filed with the SEC on August 30, 2004).10.32
    
    Amended and Restated Credit Agreement dated as of March 29, 2005 among The Lubrizol
Corporation, the Initial Lenders named therein, Citicorp North America, Inc., as
administrative agent, and Citigroup Global Markets, Inc., as arranger and syndication agent
(incorporated by reference to Exhibit 10.5 to the companys quarterly report on Form 10-Q
for the period ended March 31, 2005).10.33
    
    Amendment No. 2 to the Credit Agreement among The Lubrizol Corporation, the banks,
financial institutions and other institutional lenders who are parties to the Credit
Agreement dated as of August 24, 2004, amended and restated as of March 29, 2005, and as
further amended as of August 23, 2005, and Citicorp North America, Inc. as agent
(incorporated by reference to Exhibit 10.1 to the companys current report on Form 8-K filed
with the SEC on September 22, 2006).10.34
    
    Five Year Credit Agreement dated as of September 14, 2005 among Europe Chemical Holdings
C.V., Noveon Holdings France S.A.S. and Noveon Europe BVBA, The Lubrizol Corporation, the
Initial Lenders named therein, ABN AMRO Bank N.V. as administrative agent, and ABN AMRO Bank
N.V., Calyon, Citigroup Global Markets Inc., and Fortis Capital Corp., as mandated lead
arrangers and bookrunners (incorporated by reference to Exhibit 10.1 to the companys
current report on Form 8-K filed with the SEC on September 16, 2005).10.35
    
    Letter Amendment dated as of September 20, 2006 among Lubrizol Holdings France S.A.S.
(formerly known as Noveon Holdings France S.A.S.) and Noveon Europe BVBA (collectively, the
Borrowers), The Lubrizol Corporation, the Lenders named therein, ABN AMRO Bank N.V. as
agent, to the Five Year Credit Agreement dated as of September 14, 2005 among the Borrowers,
The Lubrizol Corporation, the Initial Lenders named therein, ABN AMRO Bank N.V., Calyon,
Citigroup Global Markets Inc. and Fortis Capital Corp. (incorporated by reference to Exhibit
10.2 to the companys current report on Form 8-K filed with the SEC on September 22, 2006).12.1
    
    Computation of Ratio of Earnings to Fixed Charges.21.1
    
    List of Significant Subsidiaries of The Lubrizol Corporation.23.1
    
    Consent of Independent Registered Public Accounting Firm.31.1
    
    Rule 13a-14(a) Certification of the Chief Executive Officer, as created by Section 302 of
the Sarbanes-Oxley Act of 2002.31.2
    
    Rule 13a-14(a) Certification of the Chief Financial Officer, as created by Section 302 of
the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer and Chief Financial Officer of The Lubrizol
Corporation pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the
Sarbanes-Oxley Act of 2002.
 
 *
    
    Indicates management contract or compensatory plan or arrangement.