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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K/A
 (Amendment
No. 1)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2006
 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 ExchangeCommon Share purchase rights
    
    New York Stock Exchange
  þ o
 o þ
 þ o
 o
  þ o o
 o þ
   Documents Incorporated by Reference




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TABLE OF CONTENTS  PART IITEM 1. BUSINESSITEM 1A. RISK FACTORSITEM 1B. UNRESOLVED STAFF COMMENTSITEM 2. PROPERTIESITEM 3. LEGAL PROCEEDINGSITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSPART IIITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERSITEM 6. SELECTED FINANCIAL DATAITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSUREITEM 9A. CONTROLS AND PROCEDURESITEM 9B. OTHER INFORMATIONPART IIIITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEITEM 11. EXECUTIVE COMPENSATIONITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCEITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICESPART IVITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULESSIGNATURESEX-12.1EX-23.1EX-24.1EX-31.1EX-31.2EX-32.1    Table of Contents   EXPLANATORY NOTE
       
    
    Part I - Item 1. Business (page 5)
    
    Part II - Item 6. Selected Financial Data
 2




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
    
    Part II - Item 7. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    Part II - Item 9A. Controls and Procedures
    
    Part IV - Item 15. Exhibits and Financial Statement Schedules
 
 
 PART I
 
 
 ITEM 1. BUSINESS
 Overview
  ® ® ® ®
    www.lubrizol.com
 3




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Acquisitions and Divestitures
   ®
    Business Segments
  4




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Lubrizol Additives Segment
    
    
    antioxidants that retard oil thickening;
    
    anti-wear agents that prevent surfaces metal-to-metal contact;
 5




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
    
    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.
  Category
    
    Product/Brand
    
    DescriptionEngine Additives
    
    Passenger car motor
oils, heavy-duty
diesel engine oils,
marine diesel,
small engines,
stationery 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 rust and
corrosion, enhance
fuel economy,
provide anti-knock,
lower volatility
and improve storage
stability.
 Driveline and Industrial Additives.
 Driveline Additives
  6




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Industrial Additives
   Category
    
    Product/Brand
    
    DescriptionDriveline 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
transmissions,
gears 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.
 Lubrizol Advanced Materials Segment
    Noveon Consumer Specialties .
  
    
    Carbopol acrylic thickener, which is a global leader in synthetic thickeners due to
its efficient stabilizing properties and superior thickening capabilities. Primary
end-uses in the personal care industry include hair care, skin care and personal and
oral hygiene products. Pharmaceutical primary end-uses include topical and
controlled-release applications.
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
    
    Methyl glucoside and lanolin derivatives that enhance the functional and aesthetic
properties of personal care products by delivering characteristics such as
emulsification, thickening and moisturizing, as well as imparting the elegant feel to
lotions and creams.
    
    AMPS® specialty monomers that are used in the manufacture of polymers for
a variety of applications such as dishwashing detergents to reduce spotting, skin
creams to improve lubricity and feel, medical gels for defibrillator pads to enhance
conductivity, and coatings and adhesives to improve adhesion.
    
    Specialty surfactants and additives that enhance the functional and aesthetic
properties of personal care products and household and industrial cleaners by improving
characteristics such as foaming, cleansing, conditioning and mildness. Surfactants
primarily are used in hair care products, such as shampoos and body washes.
  Category
    
    Product/Brand
    
    DescriptionPersonal Care and
Pharmaceuticals
    
    Carbopol®
    
    Acrylic thickener, which imparts stability
and improves aesthetics. Often used as a
controlled release agent.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.Botanical extracts
    
    Specialty additives for cosmetic and skin
care formulations.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.AMPS® monomers
    
    Specialty monomer for high performance
polymers.Specialty surfactants,  including
Sulfochem®
    
    Enhance cleansing, foaming and
moisturizing of shampoos, body washes and
industrial and household cleaners.Polycarbophil
    
    Active agent for bulk laxatives.Cassia gum
    
    Gelling agents for human food (Japan) and
pet food.
 Performance Coatings.
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Specialty Resins and Polymers
 ®
  Category
    
    Product-line
    
    DescriptionSpecialty Resins
and Polymers
    
    Acrylic Emulsions,
Polyurethane
Dispersions and
Other Water-based
Systems,
Hycar®,
Sancure®,
Algan®,
Performax®
    
    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 are primarily 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.
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Category
    
    Product/Brand
    
    DescriptionCoating Additives
    
    Dispersants, Solsperse®
Ircosperse®,
COLORBURST
    
    Improve the
dispersion of solid
particulates into
liquid mediums.
End-markets include
paints and printing
inks.Surface Modifiers
Lanco®,
Lanco®
Glidd,
Lanco®
Matt, Aquaslip
    
    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.Rheology Control
Additives,
Ircothix®,
Ircogel®
and
Solthix®
    
    Provide thickening,
sag control and
improved surface
appearance of
coatings.Specialized
Additives for Inks,
Duotron®,
Liquitron®,
Fluotron®
    
    Improve the
processing,
performance and rub
resistance
properties.
 Engineered Polymers.
 TempRite Engineered Polymers
 ® ® ® ®
  ®
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Category
    
    Product/Brand
    
    DescriptionEP
    
    TempRite®
    
    Residential plumbingFlowGuard®
    
    Residential and commercial plumbingFlowGuard Gold®
    
    Residential and commercial plumbingCorzan®
    
    Industrial and commercial pipingBlazeMaster®
    
    Fire sprinkler pipingPEX
    
    TempRite®
    
    Flexible piping systems
 Estane Engineered Polymers
 ® ®
  Category
    
    Product/Brand
    
    DescriptionTPU
    
    Estane®
    
    Aromatic grades for
film and sheet, wire
and cable
insulation, athletic
equipment, medical
applications,
pneumatic tubing,
automotive molded
parts and adhesives.Estaloc®
    
    Automotive trim,
sporting goods,
agricultural
equipment and other
mechanical
components.Stat-Rite®
    
    Packaging of
semiconductors,
sensitive electronic
components, disk
drive heads and cell
phone components.Tecoflex®
    
    Aliphatic grades for
optical film,
medical tubing and
general industrial
applications.
 Competition
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Product Line
    
    Principal CompetitorsNoveon consumer specialties
    
    Cognis, Croda, Degussa
Goldschmidt, ISP, NK Chemicals,
Rhodia, Rohm and Haas, Stepan,
Sumitomo Seika, 3V Sigma,
Toagosei, VinatiPerformance coatings
    
    BASF, Bayer, Byk, Ciba,
Clariant, Cytec, Dow Chemical,
DSM, Eastman, OMNOVA, Parachem,
Reichhold, Rohm and Haas, TegoEngineered polymers
    
    Atofina, BASF, Bayer, Dow, Georgia Gulf, Huntsman, Kaneka,
Merquinsa, Sekisui Chemical, SK,
Vanguard, Victaulic, Wirsbo
 Sales and Marketing
     Backlog
  Research, Development and Technology
  Lubrizol Additives
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Lubrizol Advanced Materials.
  Patents
 Research, Testing and Development Expenditures
  Raw Materials
   13




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Environmental Matters
     Employees
  Manufacturing and Properties
  14




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Geographic Area Information
   
 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. The risks
described below are not the only risks that we face. Additional risks not currently known to us or
that we currently deem immaterial may also impair our business.
 Financial Risks
 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.
  
    
    borrow money or guarantee the debts of others;
    
    use assets as security in other transactions;
    
    change our business or enter into new lines of business; and
    
    sell assets or merge with or into other companies.
   We may not have access to capital in the future.
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We could be adversely affected if our debt is downgraded.
  Risks Relating to our Business
 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 adversely affect our revenue and
financial condition.
   Failure to make continued improvements in our technology and productivity could hurt our
competitive position.
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Our and our suppliers production facilities are subject to operating risks that may adversely
affect our operations.
  Some of our businesses are cyclical and demand by our customers for our products weakens during
economic downturns.
  Failure to implement our common information system platform successfully could negatively impact
our ability to integrate our core business processes.
   We face numerous risks relating to our foreign operations, including foreign currency exchange rate
fluctuations, exchange controls and currency devaluations, that may adversely affect our results of
operations.
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International social, political and economic conditions may adversely affect our operating
performance.
  Our production facilities are of the type that may attract terrorist attacks, and any attack may
disrupt our operations and cause us to incur significant costs and liabilities.
  Certain 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.
  The applicability of numerous environmental laws to our manufacturing facilities could cause us to
incur significant costs and liabilities.
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If we are unable to protect our intellectual property rights, our product sales and financial
performance could be adversely affected.
   
 ITEM 1B. UNRESOLVED STAFF COMMENTS
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ITEM 2. PROPERTIES
  Reporting SegmentsLubrizolOwned/
    
    Laboratory (R&D/Testing)
    
    Lubrizol
    
    AdvancedLocation
    
    Leased
    
    or Manufacturing
    
    Additives
    
    MaterialsSydney, Australia
    
    Owned
    
    Manufacturing
    
    x
    
    xAntwerp, Belgium
    
    Owned
    
    Laboratory, Manufacturing
    
    
    
    xLouvaine Leneuve, 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, Ontario, Canada
    
    Owned
    
    Manufacturing
    
    xHong Kong, China
    
    Leased
    
    Laboratory
    
    
    
    xLanzhou, China(1)
    
    Plant is owned;
land is leased
    
    Manufacturing
    
    xQingpu, China
    
    Leased
    
    Laboratory, Manufacturing
    
    
    
    xShanghai, China
    
    Leased
    
    Laboratory
    
    
    
    xShanghai, China
    
    Leased
    
    Laboratory
    
    xSongjiang, China
    
    Leased
    
    Manufacturing
    
    
    
    xTianjin, China (1)
    
    Plant is owned;
land is leased
    
    Manufacturing
    
    xZhejiang, China(1)
    
    Plant is owned;
land is leased
    
    Manufacturing
    
    
    
    xLe Havre, France
    
    Owned
    
    Manufacturing
    
    xMourenx, France
    
    Owned
    
    Manufacturing
    
    xRouen, France
    
    Owned
    
    Manufacturing
    
    xHamburg, Germany
    
    Leased
    
    Laboratory, Manufacturing
    
    xRitterhude, Germany
    
    Owned
    
    Laboratory, Manufacturing
    
    
    
    xMumbai, India(1)
    
    Plant is owned;
land is leased
    
    Manufacturing
    
    xMumbai, India
    
    Leased
    
    Laboratory
    
    
    
    xVadadora, India
    
    Owned
    
    Laboratory, Manufacturing
    
    
    
    xKinuura, Japan
    
    Owned
    
    Laboratory, Manufacturing
    
    x
    
    xSembilan, Malaysia
    
    Owned
    
    Manufacturing
    
    
    
    xApodaca, Mexico(1)
    
    Owned
    
    Laboratory, Manufacturing
    
    xMexico City, Mexico
    
    Leased
    
    Laboratory
    
    
    
    xDelfzijl, The Netherlands
    
    Leased
    
    Manufacturing
    
    
    
    xYanbu, Saudi Arabia(1)
    
    Owned
    
    Laboratory, Manufacturing
    
    xSingapore
    
    Plant is owned;
land is leased
    
    Manufacturing
    
    xSingapore
    
    Leased
    
    Laboratory
    
    
    
    xDurban, South Africa
    
    Owned
    
    Manufacturing
    
    x
    
    xPohang, South Korea
    
    Plant is owned;
land is leased
    
    Manufacturing
    
    
    
    xBarcelona, Spain
    
    Owned
    
    Laboratory, Manufacturing
    
    
    
    x
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Reporting SegmentsLubrizolOwned/
    
    Laboratory (R&D/Testing)
    
    Lubrizol
    
    AdvancedLocation
    
    Leased
    
    or Manufacturing
    
    Additives
    
    MaterialsMuang, Thailand
    
    Jointly 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
    
    Laboratory, Manufacturing
    
    
    
    xGrangemouth, United Kingdom
    
    Leased
    
    Laboratory
    
    
    
    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
    
    
    
    xLawrence, MA
    
    Owned
    
    Laboratory, Manufacturing
    
    
    
    xWilmington, MA
    
    Leased
    
    Manufacturing
    
    
    
    xMidland, MI
    
    Owned
    
    Laboratory, Manufacturing
    
    xPedricktown, NJ
    
    Owned
    
    Manufacturing
    
    
    
    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
    
    x
    
    xDeer Park, TX
    
    Owned
    
    Manufacturing
    
    xHouston, TX
    
    Owned
    
    Manufacturing
    
    
    
    x
 (1)
    
    These manufacturing plants are owned and operated by joint venture companies licensed by
Lubrizol.
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ITEM 3. LEGAL PROCEEDINGS
   
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  22




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EXECUTIVE OFFICERS OF THE REGISTRANT
  Name
    
    
    Age
    
    
    PositionJames L. Hambrick
    
    
    52
    
    
    Chairman of the Board, President and Chief Executive OfficerJoseph W. Bauer
    
    
    53
    
    
    Vice President and General CounselDonald W. Bogus
    
    
    59
    
    
    Senior Vice President and President - Lubrizol Advanced MaterialsCharles P. Cooley
    
    
    51
    
    
    Senior Vice President, Treasurer and Chief Financial OfficerW. Scott Emerick
    
    
    42
    
    
    Corporate ControllerStephen F. Kirk
    
    
    57
    
    
    Senior Vice President and President - Lubrizol AdditivesMark W. Meister
    
    
    52
    
    
    Vice President and Chief Ethics OfficerLeslie M. Reynolds
    
    
    46
    
    
    Corporate SecretaryPatrick Saunier
    
    
    51
    
    
    Vice President, Information SystemsGregory D. Taylor
    
    
    48
    
    
    Vice President, Corporate Planning, Development and
CommunicationsJeffrey A. Vavruska
    
    
    46
    
    
    Chief Tax OfficerJoanne Wanstreet
    
    
    55
    
    
    Vice President, Investor Relations
 James L. Hambrick
 Joseph W. Bauer
 Donald W. Bogus
 Charles P. Cooley
 W. Scott Emerick
 Stephen F. Kirk
 Mark W. Meister
 Leslie M. Reynolds
 Patrick H. Saunier
 Gregory D. Taylor
 23




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Jeffrey A. Vavruska
 Joanne Wanstreet
  24




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PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
   Common Share Price History
    
    
    Dividends2006
    
    
    2005
    
    
    Per Common ShareHigh
    
    
    Low
    
    
    High
    
    
    Low
    
    
    2006
    
    
    20051st quarter
    
    $
    46.44
    
    
    $
    41.70
    
    
    $
    43.57
    
    
    $
    35.25
    
    
    
    $   .26
    
    
    
    $   .262nd quarter
    
    
    45.20
    
    
    
    38.52
    
    
    
    44.51
    
    
    
    36.74
    
    
    
    .26
    
    
    
    .263rd quarter
    
    
    46.25
    
    
    
    38.03
    
    
    
    44.50
    
    
    
    39.12
    
    
    
    .26
    
    
    
    .264th quarter
    
    
    50.75
    
    
    
    44.16
    
    
    
    44.16
    
    
    
    39.83
    
    
    
    .26
    
    
    
    .26$ 1.04
    
    
    
    $ 1.04
     Maximum NumberTotal Number
    
    
    (or Approximate Dollarof Shares (or Units)
    
    
    Value) of Shares (orTotal Number of
    
    
    Average Price
    
    
    Purchased as Part of
    
    
    Units) that May Yet beShares (or Units)
    
    
    Paid per Share
    
    
    Publicly Announced
    
    
    Purchased Under thePeriod
    
    Purchased1
    
    
    (or Unit)
    
    
    Plans or Programs
    
    
    Plans or ProgramsMonth #1
(Oct. 1, 2006 through
Oct. 31, 2006)
    
    0 Shares
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/AMonth #2
(Nov. 1, 2006 through
Nov. 30, 2006)
    
    12,267 Shares
    
    
    $ 47.84
    
    
    
    N/A
    
    
    
    N/AMonth #3
(Dec. 1, 2006 through
Dec. 31, 2006)
    
    0 Shares
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/ATotal
    
    12,267 Shares
 1
    
    This column represents common shares that we purchased pursuant to:
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Performance Comparisons
    
 12/01
    
    
    
    12/02
    
    
    
    12/03
    
    
    
    12/04
    
    
    
    12/05
    
    
    
    12/06The Lubrizol Corporation
    
    
    100.00
    
    
    
    89.77
    
    
    
    98.98
    
    
    
    115.83
    
    
    
    139.99
    
    
    
    165.43S&P Chemicals Industry
    
    
    100.00
    
    
    
    96.97
    
    
    
    123.06
    
    
    
    148.05
    
    
    
    147.91
    
    
    
    171.48S&P 500
    
    
    100.00
    
    
    
    77.90
    
    
    
    100.24
    
    
    
    111.15
    
    
    
    116.61
    
    
    
    135.03
  26




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##### Table of Contents



ITEM 6. SELECTED FINANCIAL DATA
 Historical Summary (as restated)
 (In Millions, Except Shareholders, Employees and Per-Share Data)
    
    2006
    
    2005
    
    2004*
    
    2003**
    
    2002**OPERATING RESULTS:Revenues
    
    $
    4,040.8
    
    
    $
    3,622.2
    
    
    $
    2,864.4
    
    
    $
    1,984.2
    
    
    $
    1,934.0Total cost and expenses***
    
    
    3,708.0
    
    
    
    3,286.8
    
    
    
    2,663.2
    
    
    
    1,842.6
    
    
    
    1,737.9Net interest expense and other income
    
    
    (70.8
    )
    
    
    (95.2
    )
    
    
    (66.7
    )
    
    
    (17.8
    )
    
    
    (17.8
    )Income from continuing operations before cumulative effect of
change in accounting principle
    
    
    179.8
    
    
    
    159.4
    
    
    
    85.5
    
    
    
    87.6
    
    
    
    125.6(Loss) income from discontinued operations,
net of income taxes
    
    
    (76.2
    )
    
    
    27.8
    
    
    
    6.3
    
    
    
    1.9
    
    
    
    (0.1
    )Income before cumulative effect
of change in accounting principle
    
    
    103.6
    
    
    
    187.2
    
    
    
    91.8
    
    
    
    89.5
    
    
    
    125.5Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7.8
    )Net income
    
    
    103.6
    
    
    
    187.2
    
    
    
    91.8
    
    
    
    89.5
    
    
    
    117.7Income from continuing operations, per diluted share before
cumulative effect of change in accounting principle
    
    
    2.59
    
    
    
    2.32
    
    
    
    1.53
    
    
    
    1.70
    
    
    
    2.43Discontinued operations per diluted share
    
    
    (1.10
    )
    
    
    0.40
    
    
    
    0.11
    
    
    
    0.04
    
    
    
    Cumulative effect of change in accounting principle per
diluted share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.15
    )Diluted earnings per share
    
    
    1.49
    
    
    
    2.72
    
    
    
    1.64
    
    
    
    1.74
    
    
    
    2.28FINANCIAL RATIOS:Gross profit percentage
    
    
    24.6
    
    
    
    25.4
    
    
    
    26.4
    
    
    
    26.3
    
    
    
    28.4Percent of revenues:Selling and administrative expenses
    
    
    9.4
    
    
    
    9.6
    
    
    
    9.9
    
    
    
    9.6
    
    
    
    9.6Research and testing expenses
    
    
    5.1
    
    
    
    5.5
    
    
    
    6.5
    
    
    
    8.3
    
    
    
    8.6Return on average shareholders equity (%)
    
    
    6.4
    
    
    
    12.2
    
    
    
    7.5
    
    
    
    9.9
    
    
    
    14.4Debt to capitalization (%)
    
    
    47.8
    
    
    
    51.8
    
    
    
    56.5
    
    
    
    28.6
    
    
    
    31.0Current ratio
    
    
    2.9
    
    
    
    2.4
    
    
    
    2.4
    
    
    
    3.1
    
    
    
    3.0OTHER INFORMATION:Dividends declared per share
    
    $
    1.04
    
    
    $
    1.04
    
    
    $
    1.04
    
    
    $
    1.04
    
    
    $
    1.04Average common shares outstanding:Basic
    
    
    68.7
    
    
    
    67.9
    
    
    
    55.7
    
    
    
    51.7
    
    
    
    51.5Diluted
    
    
    69.3
    
    
    
    68.8
    
    
    
    56.0
    
    
    
    51.9
    
    
    
    51.8Capital expenditures - Continuing Operations
    
    
    125.7
    
    
    
    121.9
    
    
    
    122.6
    
    
    
    88.2
    
    
    
    65.0Depreciation expense - Continuing Operations
    
    
    133.4
    
    
    
    139.4
    
    
    
    123.8
    
    
    
    93.7
    
    
    
    90.1
 27




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##### Table of Contents



Historical Summary (as restated) - continued
 (In Millions, Except Shareholders, Employees and Per-Share Data)
    
    2006
    
    2005
    
    2004*
    
    2003**
    
    2002**At year end:Total assets
    
    $
    4,390.9
    
    
    $
    4,371.2
    
    
    $
    4,571.1
    
    
    $
    1,944.9
    
    
    $
    1,860.2Total debt
    
    
    1,541.7
    
    
    
    1,670.8
    
    
    
    1,972.3
    
    
    
    389.6
    
    
    
    401.9Total shareholders equity
    
    $
    1,683.1
    
    
    $
    1,551.9
    
    
    $
    1,508.5
    
    
    $
    941.0
    
    
    $
    860.1Shareholders equity per basic share
    
    
    24.39
    
    
    
    22.81
    
    
    
    22.58
    
    
    
    18.24
    
    
    
    16.71Common share price
    
    
    50.13
    
    
    
    43.43
    
    
    
    36.86
    
    
    
    32.52
    
    
    
    30.50Number of shareholders
    
    
    3,265
    
    
    
    3,500
    
    
    
    3,698
    
    
    
    3,903
    
    
    
    4,081Number of employees
    
    
    6,746
    
    
    
    7,515
    
    
    
    7,725
    
    
    
    5,032
    
    
    
    5,231
 
 *
    
    The 2004 results include the revenues and expenses of Noveon International, Inc. since June 3,
2004, the date of acquisition.**
    
    Amounts derived from previously issued financial statements have been restated to include
the effects of the restatement as described in the Explanatory Note contained in the front section
of this annual report on Form 10-K/A for the year ended December 31, 2006.***
    
    Includes restructuring and impairment charges of $51.9 million in 2006, $15.9 million in 2005,
$38.1 million in 2004 and $22.5 million in 2003. Also includes the write-off of acquired
in-process research and development of $34.0 million in 2004.  28




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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
historical summary appearing elsewhere in this annual 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.
 RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS
    29




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##### Table of Contents



OVERVIEW
       Former
Name
    

New
NameLubricant Additives
    
    Lubrizol AdditivesSpecialty Chemicals
    
    Lubrizol Advanced Materials
   30




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##### Table of Contents



®
    LUBRIZOL ADDITIVES SEGMENT
  
    
    Consolidation of the additive industry and capacity reductions in recent years, which
has tightened the supply of lubricant additive components and packages.
    
    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.
  LUBRIZOL ADVANCED MATERIALS SEGMENT
  31




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##### Table of Contents



PRIMARY FACTORS AFFECTING 2006 RESULTS FROM CONTINUING OPERATIONS
  
    
    Our ability to raise selling prices to recover raw material cost increases from 2006 and
prior years.
    
    Volume increases of 6% in the Lubrizol Advanced Materials segment and just under
one-half percent in the Lubrizol Additives segment.
    
    Increased operating costs due to general salary and benefit cost increases and the
hiring of growth resources, costs associated with a newly commenced project to implement a
common information systems platform primarily in the Lubrizol Advanced Materials segment,
the impact of variable accounting for some of our liability-based incentive compensation
plans, the adoption of Statement of Financial Accounting Standards (SFAS) No. 123R
Share-Based Payment for the accounting of stock-based awards, and a $2.9 million pension
settlement charge for a non-qualified plan distribution.
    
    Pretax impairment charges of $41.2 million associated with the impairment of the Noveon
trade name and $10.7 million related to plant and line closures in both the Lubrizol
Additives and Lubrizol Advanced Materials segments.
    
    Reduced interest expense - net of $17.7 million as a result of higher interest income of
$12.3 million associated with greater cash and short-term investment balances, primarily
related to the cash proceeds from the 2006 divestitures and lower interest expense of $5.4
million associated with reduced debt levels.
    
    Increased other income of $6.7 million primarily from legal settlements with suppliers.
    
    Reduced effective tax rate primarily due to the favorable provision impacts of foreign
operations.
  2006 RESULTS OF OPERATIONS COMPARED WITH 2005
    32




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##### Table of Contents



ANALYSIS OF REVENUES
 (In Millions of Dollars)


    2006
    
   
2005
    

    $ Change

    % ChangeNet sales
    
    
    $ 4,036.4
    
    
    
    $ 3,618.8
    
    
    
    $ 417.6
    
    
    
    12
    %Royalties and other revenues
    
    
    4.4
    
    
    
    3.4
    
    
    
    1.0
    
    
    
    29
    %Total revenues
    
    
    $ 4,040.8
    
    
    
    $ 3,622.2
    
    
    
    $ 418.6
    
    
    
    12
    %The increase in revenues in 2006 compared to 2005 primarily was due to a 10% improvement in the
combination of price and product mix and a 2% increase in volume. We experienced volume gains in
all geographic zones except Europe.ANALYSIS OF VOLUME - 2006 VS. 2005Volume patterns vary in different geographic zones. The
following table shows our 2006 volume by geographic zone as well as the changes compared with 2005:2006Volume

    % ChangeNorth America
    
    
    
    
    
    
    
    
    
    
    46%
    
1
    %Europe
    
    
    
    
    
    
    
    
    
    
    27%
    
    (1
    %)Asia-Pacific / Middle East
    
    
    
    
    
    
    
    
    
    
    22%
    
    6
    %Latin America
    
    
    
    
    
    
    
    
    
    
    5%
    
11
    %Total
    
    
    
    
    
    
    
    
    
    
    100%
    
2
    %Segment volume variances by geographic zone, as well as the factors explaining the changes in
segment revenues for 2006 compared with 2005, are contained under the Segment Analysis section.ANALYSIS OF COSTS AND EXPENSES(In Millions of Dollars)
    
    2006
    
    2005
    
    $ Change
    % ChangeCost of sales
    
    
    $ 3,045.2
    
    
    

    $ 2,700.1
    
    
    $ 345.1
    
    
    13
    %Selling and administrative expenses
    
    
    381.7
    
    
    
    348.4
    
    
    33.3
    
    
    10
    %Research, testing and development expenses
    
    
    205.5
    
    
    
    198.9
    
    
    6.6
    
    
    3
    %Amortization of intangible assets
    
    
    23.7
    
    
    
    23.5
    
    
    0.2
    
    
    1
    %Restructuring and impairment charges
    
    
    51.9
    
    
    
    15.9
    
    
    36.0
    
    
    *Total costs and expenses
    
    
    $ 3,708.0
    
    
    

    $ 3,286.8
    
    
    $ 421.2
    
    
    13
    %
    33




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##### Table of Contents



Asset
    
    Other Plant(In Millions of Dollars)
    
    Impairments
    
    Exit Costs
    
    Severance
    
    TotalNoveon trade name impairment
    
    
    $ 41.2
    
    
    
    $    
    
    
    
    $    
    
    
    
    $ 41.2Bromborough, U.K. closure
    
    
    
    
    
    
    4.8
    
    
    
    1.9
    
    
    
    6.7Lubrizol Advanced Materials plant and line closures
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
     34




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##### Table of Contents



ANALYSIS OF OTHER ITEMS AND NET INCOME
 (In Millions of Dollars)
    
    2006
    
    2005
    
    $ Change
    % ChangeOther income - net
    
    
    $     8.5
    
    
    
    $     1.8
    
    
    
    $       6.7
    
    
    
    *Interest expense - net
    
    
    79.3
    
    
    
    97.0
    
    
    
    (17.7
    )
    
    
    (18
    %)Income from continuing operations before income taxes
    
    
    262.0
    
    
    
    240.2
    
    
    
    21.8
    
    
    
    9
    %Provision for income taxes
    
    
    82.2
    
    
    
    80.8
    
    
    
    1.4
    
    
    
    2
    %Income from continuing operations
    
    
    179.8
    
    
    
    159.4
    
    
    
    20.4
    
    
    
    13
    %Discontinued operations - net of tax
    
    
    (76.2
    )
    
    
    27.8
    
    
    
    (104.0
    )
    
    
    *Net income
    
    
    $ 103.6
    
    
    
    $ 187.2
    
    
    
    $   (83.6
    )
    
    
    (45
    %)
 * Calculation not meaningful     2005 RESULTS OF OPERATIONS COMPARED WITH 2004
  35




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ANALYSIS OF REVENUES
 Excluding the Impactof Acquisitions(In Millions of Dollars)
    
    2005
    
    2004
    
    $ Change
    
    % Change
    
    
    $ Change
    
    % ChangeNet sales
    
    
    $ 3,618.8
    
    
    
    $ 2,860.5
    
    
    
    $ 758.3
    
    
    
    27%
    
    
    
    $ 333.0
    
    
    12%Royalties and other revenues
    
    
    3.4
    
    
    
    3.9
    
    
    
    (0.5
    )
    
    
(13%)
    
    
    
    (0.5
    )
    
    (13%)Total revenues
    
    
    $ 3,622.2
    
    
    
    $ 2,864.4
    
    
    
    $ 757.8
    
    
    
    26%
    
    
    
    $ 332.5
    
    
    12%The 2004 acquisitions contributed $425.3 million toward the increase in 2005 consolidated revenues
compared with 2004. Acquisitions in 2004 included Noveon International and the hyperdispersants
business purchased from Avecia.Excluding the impact of acquisitions, the increase in consolidated revenues in 2005 compared to
2004 was due to a 12% increase in the combination of price and product mix.ANALYSIS OF VOLUME - 2005 VS. 2004Volume patterns vary in different geographic zones. The
following table shows our 2005 volume by geographic zone as well as the changes compared with 2004:Excluding the Impact2005
    
    
    
    
    
    of AcquisitionsVolume
    
    % Change
    
    % ChangeNorth America
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46%
    
    
    6%
    
    
    (6%
    )Europe
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28%
    
    
    8%
    
    
    3%Asia-Pacific / Middle East
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21%
    
    
    13%
    
    
    8%Latin America
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5%
    
    
    6%
    
    
    2%Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100%
    
    
    8%
    
    
    Segment volume variances by geographic zone, as well as the factors explaining the changes in
segment revenues for 2005 compared with 2004, are contained under the Segment Analysis section.ANALYSIS OF COSTS AND EXPENSES(In Millions of Dollars)
    
    
    
    
    
    
    
    
    
    
    2005
    
    
    
    2004
    
    
    $ Change
    % ChangeCost of sales
    
    
    
    
    
    
    
    
    
    
    $ 2,700.1
    
    
    
    $ 2,104.6
    
    
    
    $ 595.5
    
    
    
    28
    %Selling and administrative expenses
    
    
    
    
    
    
    
    
    
    
    348.4
    
    
    
    284.8
    
    
    
    63.6
    
    
    
    22
    %Research, testing and development
expenses
    
    
    
    
    
    
    
    
    
    
    198.9
    
    
    
    184.8
    
    
    
    14.1
    
    
    
    8
    %Amortization of intangible assets
    
    
    
    
    
    
    
    
    
    
    23.5
    
    
    
    16.9
    
    
    
    6.6
    
    
    
    39
    %Write-off of acquired in-process research
and development
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34.0
    
    
    
    (34.0
    )
    
    
    *Restructuring and impairment charges
    
    
    
    
    
    
    
    
    
    
    15.9
    
    
    
    38.1
    
    
    
    (22.2
    )
    
    
    *Total costs and expenses
    
    
    
    
    
    
    
    
    
    
    $ 3,286.8
    
    
    
    $ 2,663.2
    
    
    
    $ 623.6
    
    
    
    23
    %
 *     Calculation not meaningful  36




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##### Table of Contents



Asset
    
    Other Plant(In Millions of Dollars)
    
    Impairments
    
    Exit Costs
    
    Severance
    
    TotalLubrizol Advanced Materials plant closures and
workforce reductions
    
    
    $ 4.2
    
    
    
    $ 1.0
    
    
    
    $ 3.8
    
    
    
    $   9.0Bromborough, U.K. closure
    
    
    0.7
    
    
    
    1.7
    
    
    
    3.7
    
    
    
    6.1Corporate / other workforce reductions
    
    
    
    
    
    
    
    
    
    
    0.7
    
    
    
    0.7Noveon International restructuring liabilities assumed
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    0.1Total restructuring and impairment charges
    
    
    $ 4.9
    
    
    
    $ 2.7
    
    
    
    $ 8.3
    
    
    
    $ 15.9
   37




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ANALYSIS OF OTHER ITEMS AND NET INCOME
 Excluding the Impact ofAcquisitions(In Millions of Dollars)
    
    2005
    
    2004
    
    $ Change
    
    % Change
    
    $ Change
    
    % ChangeOther income - net
    
    
    $     1.8
    
    
    
    $    5.6
    
    
    
    $    (3.8
    )
    
    
    *
    
    
    
    $ (4.5
    )
    
    
    *Interest expense - net
    
    
    97.0
    
    
    
    72.3
    
    
    
    24.7
    
    
    
    *
    
    
    
    (8.8
    )
    
    
    *Income from continuing operations before
income taxes
    
    
    240.2
    
    
    
    134.5
    
    
    
    105.7
    
    
    
    79
    %
    
    
    86.8
    
    
    
    65
    %Provision for income taxes
    
    
    80.8
    
    
    
    49.0
    
    
    
    31.8
    
    
    
    65
    %
    
    
    28.0
    
    
    
    57
    %Income from continuing operations
    
    
    159.4
    
    
    
    85.5
    
    
    
    73.9
    
    
    
    86
    %
    
    
    58.8
    
    
    
    69
    %Discontinued operations - net of tax
    
    
    27.8
    
    
    
    6.3
    
    
    
    21.5
    
    
    
    *
    
    
    
    8.7
    
    
    
    *Net income
    
    
    $ 187.2
    
    
    
    $  91.8
    
    
    
    $   95.4
    
    
    
    104
    %
    
    
    $ 67.5
    
    
    
    74
    %
 * Calculation not meaningful
   38




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##### Table of Contents



SEGMENT ANALYSIS
   2006
    
    2005
    

    2004Revenues:Lubrizol Additives
    
    
    64
    %
    
    63%


    
    

    70%Lubrizol Advanced Materials
    
    
    36
    %
    
37%


    
    

    30%Segment Operating Income:Lubrizol Additives
    
    
    64
    %
    
64%


    
    

    75%Lubrizol Advanced Materials
    
    
    36
    %
    
36%


    
    
        25%
 39




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##### Table of Contents



OPERATING RESULTS BY SEGMENT
 2005 vs. 2004Excluding the Impact of2006 vs. 2005
    

    Acquisitions(In Millions of Dollars)
    
    2006
    
    2005
    
    2004
    
    
    $ Change
    
    % Change
    
    
$ Change
    
    % ChangeRevenues:Lubrizol Additives
    
    
    $ 2,600.5
    
    
    
    $ 2,280.0
    
    
    
    $ 1,998.6
    
    
    
    $ 320.5
    
    
    14%
    
    
    $ 281.4
    
    
    14%Lubrizol Advanced Materials
    
    
    1,440.3
    
    
    
    1,342.2
    
    
    
    865.8
    
    
    
    98.1
    
    
    7%
    
    
    51.1
    
    
    6%Total
    
    
    $ 4,040.8
    
    
    
    $ 3,622.2
    
    
    
    $ 2,864.4
    
    
    
    $ 418.6
    
    
    12%
    
    
    $ 332.5
    
    
    12%Gross Profit:Lubrizol Additives
    
    
    $    578.0
    
    
    
    $    527.7
    
    
    
    $    505.5
    
    
    
    $   50.3
    
    
    10%
    
    
    $   23.0
    
    
    5%Lubrizol Advanced Materials
    
    
    413.2
    
    
    
    391.0
    
    
    
    250.4
    
    
    
    22.2
    
    
    6%
    
    
    6.2
    
    
    2%Total
    
    
    $    991.2
    
    
    
    $    918.7
    
    
    
    $    755.9
    
    
    
    $   72.5
    
    
    8%
    
    
    $   29.2
    
    
    4%Operating Income:Lubrizol Additives
    
    
    $    303.0
    
    
    
    $    263.3
    
    
    
    $    238.2
    
    
    
    $   39.7
    
    
    15%
    
    
    $   25.9
    
    
    11%Lubrizol Advanced Materials
    
    
    167.6
    
    
    
    150.9
    
    
    
    78.6
    
    
    
    16.7
    
    
    11%
    
    
    18.1
    
    
23%Total
    
    
    $    470.6
    
    
    
    $    414.2
    
    
    
    $    316.8
    
    
    
    $   56.4
    
    
    14%
    
    
    $   44.0
    
    
    14%
 LUBRIZOL ADDITIVES SEGMENT
 2006 COMPARED WITH 2005
  2006Volume
    
    % ChangeNorth America
    
    
    38
    %
    
    
    1
    %Europe
    
    
    30
    %
    
    
    (3
    %)Asia-Pacific / Middle East
    
    
    26
    %
    
    
    2
    %Latin America
    
    
    6
    %
    
    
    6
    %Total
    
    
    100
    %
    
    
    
    40




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##### Table of Contents



2005 COMPARED WITH 2004
  2005Volume
    
    % ChangeNorth America
    
    
    38
    %
    
    
    (5
    %)Europe
    
    
    31
    %
    
    
    3
    %Asia-Pacific / Middle East
    
    
    25
    %
    
    
    9
    %Latin America
    
    
    6
    %
    
    
    2
    %Total
    
    
    100
    %
    
    
    1
    %
     41




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##### Table of Contents



LUBRIZOL ADVANCED MATERIALS SEGMENT
 2006 COMPARED WITH 2005
  2006Volume
    
    % ChangeNorth America
    
    
    65
    %
    
    
    1
    %Europe
    
    
    18
    %
    
    
    4
    %Asia-Pacific / Middle East
    
    
    13
    %
    
    
    28
    %Latin America
    
    
    4
    %
    
    
    32
    %Total
    
    
    100
    %
    
    
    6
    %
 ® ®
 ®
   42




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##### Table of Contents



2005 COMPARED WITH 2004
  Excluding the Impact2005
    
    
    
    
    
    of AcquisitionsVolume
    
    % Change
    
    % ChangeNorth America
    
    
    68
    %
    
    
    28
    %
    
    
    (7
    %)Europe
    
    
    19
    %
    
    
    40
    %
    
    
    2
    %Asia-Pacific / Middle East
    
    
    10
    %
    
    
    44
    %
    
    
    (3
    %)Latin America
    
    
    3
    %
    
    
    32
    %
    
    
    Total
    
    
    100
    %
    
    
    31
    %
    
    
    (4
    %)
     43




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##### Table of Contents



RETURN ON AVERAGE SHAREHOLDERS EQUITY
  WORKING CAPITAL, LIQUIDITY AND CAPITAL RESOURCES
 SELECTED MEASURES OF LIQUIDITY AND CAPITAL RESOURCES
 2006
    
    
    2005Cash and short-term investments (in millions of dollars)
    
    
    
    
    
    $
    575.7
    
    
    $
    262.4Working capital (in millions of dollars)
    
    
    
    
    
    $
    1,201.9
    
    
    $
    906.6Current ratio
    
    
    
    
    
    
    2.9
    
    
    
    2.4Debt as a % of capitalization
    
    
    
    
    
    
    47.8
    %
    
    
    51.8
    %Net debt as a % of capitalization
    
    
    
    
    
    
    36.5
    %
    
    
    47.5
    %SUMMARY OF CASH FLOWSThe following table summarizes the major components of cash flows:(In Millions of Dollars)
    
    2006
    
    2005
    
    2004Cash provided by (used for):Operating activities
    
    $
    334.8
    
    
    $
    362.2
    
    
    $
    331.6Investing activities
    
    
    151.4
    
    
    
    (106.8
    )
    
    
    (1,088.8
    )Financing activities
    
    
    (183.9
    )
    
    
    (312.8
    )
    
    
    808.5Effect of exchange-rate changes on cash
    
    
    11.0
    
    
    
    (16.1
    )
    
    
    25.9Net increase (decrease) in cash and short-term investments
    
    $
    313.3
    
    
    $
    (73.5
    )
    
    $
    77.2
 OPERATING ACTIVITIES
   INVESTING ACTIVITIES
  44




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##### Table of Contents



FINANCING ACTIVITIES
  
 CAPITALIZATION AND CREDIT FACILITIES
      
  45




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##### Table of Contents



CONTRACTUAL CASH OBLIGATIONS
  Payments Due by Period(In Millions of Dollars)
    
    Total
    
    2007
    
    2008 - 2009
    
    2010 - 2011
    
    2012 and AfterTotal debt (1)
    
    
    $ 1,549.1
    
    
    
    $     3.7
    
    
    
    $ 582.6
    
    
    
    $ 112.7
    
    
    
    $    850.1Interest (2)
    
    
    954.6
    
    
    
    80.9
    
    
    
    150.1
    
    
    
    103.0
    
    
    
    620.6Operating leases
    
    
    62.3
    
    
    
    17.1
    
    
    
    23.0
    
    
    
    13.6
    
    
    
    8.6Non-cancelable purchase commitments (3)
    
    
    178.0
    
    
    
    77.9
    
    
    
    86.6
    
    
    
    9.2
    
    
    
    4.3Other long-term liabilities (4)(5)
    
    
    90.8
    
    
    
    66.1
    
    
    
    8.6
    
    
    
    0.6
    
    
    
    15.5Total contractual cash obligations
    
    
    $ 2,834.8
    
    
    
    $ 245.7
    
    
    
    $ 850.9
    
    
    
    $ 239.1
    
    
    
    $ 1,499.1
 (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, warehousing and service contracts, utility purchase
agreements, terminal agreements and toll processing arrangements.(4)
    
    Other long-term liabilities disclosed in the table represent long-term liabilities
reported in our consolidated balance sheet at December 31, 2006 under noncurrent
liabilities, excluding pension, postretirement, postemployment, environmental and other
non-contractual liabilities.(5)
    
    We are required to make minimum contributions to our U.S. 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 2007, we expect to make employer contributions of approximately $59.5
million to the qualified plans to satisfy these minimum statutory funding requirements. In
2007, we expect to make payments of approximately $1.8 million relating to our unfunded
pension plans. The expected payments associated with the unfunded plans represent an
actuarial estimate of future assumed payments based upon retirement and payment patterns.
Actual amounts paid could differ from this estimate. In addition, non-pension
postretirement benefit payments are expected to approximate $4.8 million in 2007. We have
included these expected contributions of $66.1 million in the above table. Due to
uncertainties regarding significant assumptions involved in estimating future required
contributions to our defined benefit pension and other plans, such as interest rate levels,
the amount and timing of asset returns and future restructurings, if any, we are not able
to reasonably estimate our contributions beyond 2007.
  
 46




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##### Table of Contents



GUARANTEES
  INDEMNIFICATIONS
  CRITICAL ACCOUNTING POLICIES
  ACCOUNTING FOR RESERVES AND CONTINGENCIES
  ACCOUNTING FOR SALES DISCOUNTS AND REBATES
  DETERMINATION OF NET PERIODIC PENSION COST
  47




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##### Table of Contents



100 Basis Point(In Millions of Dollars)
    
    Increase
    
    DecreaseU.S. pension plans
    
    
    $
    (2.7
    )
    
    
    $
    2.7International pension plans
    
    
    
    (1.9
    )
    
    
    
    1.9All pension plans
    
    
    $
    (4.6
    )
    
    
    $
    4.6
   100 Basis Point(In Millions of Dollars)
    
    Increase
    
    DecreaseU.S. pension plans
    
    
    $
    (3.0
    )
    
    
    $
    7.0International pension plans
    
    
    
    (5.3
    )
    
    
    
    3.6All pension plans
    
    
    $
    (8.3
    )
    
    
    $
    10.6
   48




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##### Table of Contents



DETERMINATION OF POSTRETIREMENT BENEFIT COST
   100 Basis Point(In Millions of Dollars)
    
    Increase
    
    DecreaseU.S. postretirement plans
    
    
    $
    (0.4
    )
    

    
    $
    0.4International postretirement plans
    
    
    
    (0.3
    )
    
    
    
    0.4All postretirement plans
    
    
    $
    (0.7
    )
    
    
    $
    0.8A change in the assumed health care cost trend rate of 100 basis points would have the following
effects on 2007 postretirement benefit cost:100 Basis Point(In Millions of Dollars)
    
    Increase
    
    DecreaseU.S. postretirement plans
    
    

    $
    1.1
    
   

    

    $
    (1.0
    )International postretirement plans
    
    
    
    0.7
    
    
    
    
    (0.5
    )All postretirement plans
    
    
    $
    1.8
    
    
    
    $
    (1.5
    )
 ACCOUNTING FOR BUSINESS COMBINATIONS
  ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS
   49




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##### Table of Contents



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.
    
    An active program to locate a buyer and other actions required to complete the plan to
sell have been initiated.
    
    The sale of the disposal group is probable and the transfer is expected to qualify for
recognition as a completed sale within one year.
    
    The disposal group is being marketed actively 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
    ASSET-RETIREMENT OBLIGATIONS
  50




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##### Table of Contents



NEW ACCOUNTING STANDARDS
 SFAS No. 158
   Balance Before
    
    
    
    
    
    Balance AfterApplying
    
    SFAS No. 158
    
    ApplyingSFAS No. 158
    
    Adjustments
    
    SFAS No. 158Current assets:Other current assets
    
    $
    104.9
    
    
    $
    (6.9
    )
    
    $
    98.0Noncurrent assets:Other assets
    
    $
    65.5
    
    
    $
    1.2
    
    
    $
    66.7Intangible assets - net
    
    $
    329.2
    
    
    $
    (6.4
    )
    
    $
    322.8Total assets
    
    $
    4,403.0
    
    
    $
    (12.1
    )
    
    $
    4,390.9Current liabilities:Accrued expenses and other current liabilities
    
    $
    287.2
    
    
    $
    3.0
    
    
    $
    290.2Noncurrent liabilities:Pension obligations
    
    $
    149.1
    
    
    $
    88.8
    
    
    $
    237.9Other postretirement health care obligations
    
    $
    104.7
    
    
    $
    (11.2
    )
    
    $
    93.5Deferred income taxes
    
    $
    110.3
    
    
    $
    (29.9
    )
    
    $
    80.4Total liabilities
    
    $
    2,605.8
    
    
    $
    50.7
    
    
    $
    2,656.5Accumulated other comprehensive income (loss)
    
    $
    2.0
    
    
    $
    (62.8
    )
    
    $
    (60.8
    )Total shareholders equity
    
    $
    1,745.9
    
    
    $
    (62.8
    )
    
    $
    1,683.1
 SFAS No. 157
  51




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##### Table of Contents



SAB No. 108
  FIN No. 48
  SFAS No. 154
  SFAS No. 123R
  SFAS No. 151
  52




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##### 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 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.
 
    
    The effect of required principal and interest payments on our ability to fund capital
expenditures and acquisitions and to meet operating needs.
 
    
    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.
 
    
    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.
 53




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##### Table of Contents



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
       
 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  54




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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
       Internal Control-Integrated
Framework.
  55




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Internal Control-Integrated Framework
    56




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##### Table of Contents



Internal Control-Integrated Framework Internal
Control-Integrated Framework
  
 
 ITEM 9B. OTHER INFORMATION
  57




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##### Table of Contents



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
   Number of SecuritiesRemaining AvailableNumber of Securities to
    
    Weighted-Average
    
    for Future Issuance underbe Issued upon Exercise
    
    Exercise Price of
    
    Equity Compensation Plansof Outstanding Options,
    
    Outstanding Options,
    
    (excluding SecuritiesPlan Category
    
    Warrants and Rights
    
    Warrants and Rights
    
    reflected in Column (a))Equity compensation plans
approved by security holders
    
    3,339,329
    
    
    $
    32.72
    
    
    
    3,030,401
    (1)Equity compensation plans not approved by security holders
    
    
    (2)
    
    
    N/A
    
    
    
    
    (2)Total
    
    3,339,329
    
    
    $
    32.72
    
    
    
    3,030,401
    (1)
 
 (1)
    
    The 1991 Stock Incentive Plan was terminated with respect to future grants effective
November 15, 2004. The shares shown are with respect to the 2005 Stock Incentive Plan. In
addition to the shares shown, effective January 1, 2003, pursuant to grants under the 1991
Stock Incentive Plan, Donald W. Bogus, Charles P. Cooley and Stephen F. Kirk each will be
issued 15,000 shares if the officer remains an employee until January 1, 2008. There are no
voting or dividend rights associated with these common shares unless and until they are
issued.(2)
    
    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 58




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##### Table of Contents



ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
  
 ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
  59




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##### Table of Contents



PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 (a)
    
    Documents filed in a separate section of this annual report on Form 10-K/A:
 1.
    
    The following restated consolidated financial statements of the company are
included in a separate section of this report following the signature page:
       2.
    
    Schedule II - Valuation and Qualifying Accounts
 60




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##### Table of Contents



SCHEDULE II   (in millions of dollars)
 Charged
    
    ChargedBalance at
    
    /(Credited)
    
    /(Credited)
    
    
    
    
    
    Balance atBeginning
    
    To
    
    to Other
    
    
    
    
    
    End ofDescription
    
    of Year
    
    Expenses
    
    Accounts*
    
    Deductions
    
    YearYear 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
    )
    
    
    
    
    
    $
    17.8Year ended December 31, 2005Allowance for uncollectible accounts
    
    $
    11.0
    
    
    $
    1.9
    
    
    $
    (0.9
    )
    
    $
    1.9
    
    
    $
    10.1Inventory reserves
    
    $
    19.1
    
    
    $
    10.9
    
    
    $
    (2.8
    )
    
    $
    9.0
    
    
    $
    18.2Deferred tax asset valuation allowance
    
    $
    18.8
    
    
    $
    4.0
    
    
    $
    (4.7
    )
    
    
    
    
    
    $
    18.1Year ended December 31, 2004Allowance for uncollectible accounts
    
    $
    4.2
    
    
    $
    0.4
    
    
    $
    7.7
    
    
    $
    1.3
    
    
    $
    11.0Inventory reserves
    
    $
    9.0
    
    
    $
    5.4
    
    
    $
    8.5
    
    
    $
    3.8
    
    
    $
    19.1Deferred tax asset valuation allowance
    
    $
    1.9
    
    
    $
    2.4
    
    
    $
    14.5
    
    
    
    
    
    
    $
    18.8
 
 *
    
    Valuation and qualifying accounts of acquired and divested companies.  61




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##### Table of Contents



3.1
    
    Amended Articles of Incorporation of The Lubrizol Corporation, as adopted
September 23, 1991 (incorporated by reference to Exhibit 3.1 to The Lubrizol
Corporation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 Lubrizol Corporation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 Lubrizol Corporations annual report on Form 10-K
for the year ended December 31, 2004).4.2
    
    Amended and Restated Rights Agreement between The Lubrizol Corporation and
American Stock Transfer & Trust Company dated as of July 26, 1999 (incorporated by
reference to Exhibit 4.2 to The Lubrizol Corporations annual report on Form 10-K for
the year ended December 31, 2004).4.3
    
    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 of the Form 8-K of The Lubrizol Corporation filed with the SEC on
September 29, 2004).4.4
    
    Amended and Restated Indenture dated September 28, 2004 (originally dated
November 25, 1998), 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 99.2 of the Form 8-K of The Lubrizol Corporation filed with the
SEC on September 29, 2004).4.5
    
    Form of Indenture for Debt Securities of The Lubrizol Corporation (incorporated
by reference to Exhibit 4.2 of Amendment No. 2 to the Registration Statement on Form
S-3 of The Lubrizol Corporation filed with the SEC on August 24, 2004).10.1*
    
    The Lubrizol Corporation 1991 Stock Incentive Plan, as amended (incorporated
by reference to Exhibit (10)(h) to The Lubrizol Corporations Current Report on Form
8-K filed with the SEC on November 18, 2004).10.2*
    
    The Lubrizol Corporation 2005 Stock Incentive Plan, as amended (incorporated
by reference to Exhibit 10.1 to The Lubrizol Corporations Current Report on Form 8-K
filed with the SEC on December 12, 2006).10.3*
    
    The Lubrizol Corporation Amended Deferred Compensation Plan for Directors
(incorporated by reference to Exhibit (10)(b) to The Lubrizol Corporations Current
Report on Form 8-K filed with the SEC on November 18, 2004).10.4*
    
    The Lubrizol Corporation Deferred Stock Compensation Plan for Outside
Directors, as amended (incorporated by reference to Exhibit (10)(i) to The Lubrizol
Corporations annual report on Form 10-K for the year ended December 31, 2003).10.5*
    
    The Lubrizol Corporation Deferred Compensation Plan for Officers, as amended
(incorporated by reference to Exhibit (10)(k) to The Lubrizol Corporations Current
Report on Form 8-K filed with the SEC on November 18, 2004).10.6*
    
    The Lubrizol Corporation Executive Council Deferred Compensation Plan, as
amended (incorporated by reference to Exhibit (10)(l) to The Lubrizol Corporations
Current Report on Form 8-K filed with the SEC on November 18, 2004).
 62




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##### Table of Contents



10.7*
    
    The Lubrizol Corporation 2005 Deferred Compensation Plan for Directors
(incorporated by reference to Exhibit (10)(v) to The Lubrizol Corporations Current
Report on Form 8-K filed with the SEC on November 18, 2004).10.8*
    
    The Lubrizol Corporation Senior Management Deferred Compensation Plan (fka The
Lubrizol Corporation 2005 Deferred Compensation Plan for Officers) (incorporated by
reference to Exhibit
10.8 to The Lubrizol Corporations Current Report on Form 8-K filed with the SEC on
December 13, 2005).10.9*
    
    The Lubrizol Corporation 2005 Executive Council Deferred Compensation Plan
(incorporated by reference to Exhibit 10.7 to The Lubrizol Corporations Current Report
on Form 8-K filed with the SEC on December 13, 2005).10.10*
    
    The Lubrizol Corporation Excess Defined Benefit Plan, as amended (incorporated by
reference to Exhibit (10)(d) to The Lubrizol Corporations Current Report on Form 8-K
filed with the SEC on December 15, 2004).10.11*
    
    The Lubrizol Corporation Excess Defined Contribution Plan, as amended (incorporated
by reference to Exhibit (10)(e) to The Lubrizol Corporations Current Report on Form
8-K filed with the SEC on December 15, 2004).10.12*
    
    The Lubrizol Corporation Officers Supplemental Retirement Plan, as amended
(incorporated by reference to Exhibit (10)(j) to The Lubrizol Corporations Current
Report on Form 8-K filed with the SEC on December 15, 2004).10.13*
    
    The Lubrizol Corporation 2005 Excess Defined Benefit Plan (incorporated by reference
to Exhibit 10.4 to The Lubrizol Corporations Current Report on Form 8-K filed with the
SEC on December 13, 2005).10.14*
    
    The Lubrizol Corporation 2005 Excess Defined Contribution Plan (incorporated by
reference to Exhibit 10.3 to The Lubrizol Corporations Current Report on Form 8-K
filed with the SEC on December 12, 2006).10.15*
    
    The Lubrizol Corporation 2005 Officers Supplemental Retirement Plan (incorporated by
reference to Exhibit 10.5 to The Lubrizol Corporations Current Report on Form 8-K
filed with the SEC on December 13, 2005).10.16*
    
    Supplemental Retirement for Donald W. Bogus (incorporated by reference to Exhibit
10.6 to The Lubrizol Corporations Current Report on Form 8-K filed with the SEC on
December 13, 2005).10.17*
    
    The Lubrizol Corporation Executive Death Benefit Plan, as amended (incorporated by
reference to Exhibit 10.11 to The Lubrizol Corporations Current Report on Form 8-K
filed with the SEC on December 13, 2005).10.18*
    
    The Lubrizol Corporation Executive Officer Long Term Incentive Plan (incorporated by
reference to Exhibit (10)(n) to The Lubrizol Corporations annual report on Form 10-K
for the year ended December 31, 2003).10.19*
    
    Form of Employment Agreement between The Lubrizol Corporation and certain of its
senior executive officers (incorporated by reference to Exhibit 10.19 to The Lubrizol
Corporations annual report on Form 10-K for the year ended December 31, 2005).10.20*
    
    Employment Agreement effective January 1, 2003, between The Lubrizol Corporation and
Charles P. Cooley (incorporated by reference to Exhibit (10)(o) to The Lubrizol
Corporations Quarterly Report on Form 10-Q for the period ended on March 31, 2003).10.21*
    
    Employment Agreement effective January 1, 2003, between The Lubrizol Corporation and
Stephen F. Kirk (incorporated by reference to Exhibit (10)(p) to The Lubrizol
Corporations Quarterly Report on Form 10-Q for the period ended on March 31, 2003).
 63




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10.22*
    
    Employment Agreement effective January 1, 2003, between The Lubrizol Corporation and
Donald W. Bogus (incorporated by reference to Exhibit (10)(r) to The Lubrizol
Corporations Quarterly Report on Form 10-Q for the period ended on March 31, 2003).10.23*
    
    The Lubrizol Corporation Annual Incentive Pay Plan (incorporated by reference to
Exhibit 10.10 to The Lubrizol Corporations Current Report on Form 8-K filed with the
SEC on December 13, 2005).10.24*
    
    The Lubrizol Corporation Annual Incentive Pay Plan Award Letter, as amended
(incorporated by reference to Exhibit 10.2 to The Lubrizol Corporations Current Report
on Form 8-K filed with the SEC on December 13, 2005).10.25*
    
    The Lubrizol Corporation Financial Planning Program (incorporated by reference to
Exhibit 10.1 to The Lubrizol Corporations Quarterly Report on Form 10-Q for the period
ended on September 30, 2006).10.26*
    
    Form of Indemnification Agreement between The Lubrizol Corporation and certain of its
senior executive officers (incorporated by reference to Exhibit 10.26 to the Lubrizol
Corporations Annual Report on Form 10-K for the period ended December 31, 2006).10.27
    
    Asset Purchase Agreement, dated March 16, 2006, by and among Noveon, Inc.,
Noveon Hilton Davis, Inc., Noveon Kalama, Inc., Noveon Textile Chemicals, Inc.,
Lubrizol Foam Control Additives, Inc., Lubrizol do Brasil Aditivos Ltda., and SPM Group
Holdings LLC (incorporated by reference to Exhibit 10.1 to The Lubrizol Corporations
Current Report on Form 8-K filed with the SEC on May 5, 2006).10.28
    
    Letter of Guarantee dated as of May 19, 2006 by and between Noveon, Inc. and
SK Corporation (incorporated by reference to Exhibit 10.1 to The Lubrizol Corporations
Current Report on Form 8-K filed with the SEC on May 25, 2006).10.29
    
    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 Lubrizol Corporations Current Report on Form 8-K
filed with the SEC on August 30, 2004).10.30
    
    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 Lubrizol
Corporations Quarterly Report on Form 10-Q for the period ended March 31, 2005).10.31
    
    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, as 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 Lubrizol Corporations Current
Report on Form 8-K filed with the SEC on September 22, 2006).10.32
    
    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 Lubrizol Corporations Current Report on Form 8-K
filed with the SEC on September 16, 2005).
 64




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##### Table of Contents



10.33
    
    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 Lubrizol Corporation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 (incorporated by
reference to Exhibit 21.1 to The Lubrizol Corporations Annual Report on Form 10-K for
the period ended December 31, 2006).23.1
    
    Consent of Independent Registered Public Accounting Firm.24.1
    
    Powers of Attorney.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. 65




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SIGNATURES
  THE LUBRIZOL CORPORATIONBY
    /s/ James L. HambrickJames L. Hambrick, President andChief Executive Officer  /s/ James L. Hambrick
    
    Chairman of the Board, President and Chief Executive OfficerJames L. Hambrick
    
    (Principal
Executive Officer)/s/ Charles P. Cooley
    
    Sr. Vice President, Treasurer and Chief Financial OfficerCharles P. Cooley
    
    (Principal
Financial Officer)/s/ W. Scott Emerick
    
    Corporate ControllerW. Scott Emerick
    
    (Chief
Accounting Officer)DirectorRobert E. AbernathyDirectorJerald A. Blumberg*
    /s/ Forest J. Farmer, Sr.
    
    DirectorForest J. Farmer, Sr.*
    /s/ Gordon D. Harnett
    
    DirectorGordon D. Harnett*
    /s/ William P. Madar
    
    DirectorWilliam P. Madar*
    /s/ Dominic J. Pileggi
    
    DirectorDominic J. Pileggi*
    /s/ Harriet Tee Taggart
    
    DirectorHarriet Tee Taggart*
    /s/ James E. Sweetnam
    
    DirectorJames E. Sweetnam
 * By:
    
    /s/ Charles P. CooleyCharles P. CooleyAttorney-in-Fact
 66




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
      Internal Control-Integrated Framework
 /s/
    
    Deloitte & Touche LLP
 
 67




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THE
LUBRIZOL CORPORATION
  Year Ended December 31(In Millions of Dollars Except Per Share Data)
    
    2006
    
    2005
    
    2004(as restated,
    
    (as restated,
    
    (as restated,see Note 20)
    
    see Note 20)
    
    see Note 20)Net sales
    
    
    $ 4,036.4
    
    
    
    $ 3,618.8
    
    
    
    $ 2,860.5Royalties and other revenues
    
    
    4.4
    
    
    
    3.4
    
    
    
    3.9Total revenues
    
    
    4,040.8
    
    
    
    3,622.2
    
    
    
    2,864.4Cost of sales
    
    
    3,045.2
    
    
    
    2,700.1
    
    
    
    2,104.6Selling and administrative expenses
    
    
    381.7
    
    
    
    348.4
    
    
    
    284.8Research, testing and development expenses
    
    
    205.5
    
    
    
    198.9
    
    
    
    184.8Amortization of intangible assets
    
    
    23.7
    
    
    
    23.5
    
    
    
    16.9Write-off of acquired in-process research and development
    
    
    
    
    
    
    
    
    
    
    34.0Restructuring and impairment charges
    
    
    51.9
    
    
    
    15.9
    
    
    
    38.1Total costs and expenses
    
    
    3,708.0
    
    
    
    3,286.8
    
    
    
    2,663.2Other income - net
    
    
    8.5
    
    
    
    1.8
    
    
    
    5.6Interest income
    
    
    20.4
    
    
    
    8.1
    
    
    
    4.8Interest expense
    
    
    (99.7
    )
    
    
    (105.1
    )
    
    
    (77.1
    )Income from continuing operations before income taxes
    
    
    262.0
    
    
    
    240.2
    
    
    
    134.5Provision for income taxes
    
    
    82.2
    
    
    
    80.8
    
    
    
    49.0Income from continuing operations
    
    
    179.8
    
    
    
    159.4
    
    
    
    85.5(Loss) income from discontinued operations - net of tax
    
    
    (76.2
    )
    
    
    27.8
    
    
    
    6.3Net income
    
    
    $    103.6
    
    
    
    $    187.2
    
    
    
    $      91.8Basic earnings (loss) per share:Continuing operations
    
    
    $      2.62
    
    
    
    $      2.35
    
    
    
    $      1.54Discontinued operations
    
    
    (1.11
    )
    
    
    0.41
    
    
    
    0.11Net income per share, basic
    
    
    $      1.51
    
    
    
    $      2.76
    
    
    
    $      1.65Diluted earnings (loss) per share:Continuing operations
    
    
    $      2.59
    
    
    
    $      2.32
    
    
    
    $      1.53Discontinued operations
    
    
    (1.10
    )
    
    
    0.40
    
    
    
    0.11Net income per share, diluted
    
    
    $      1.49
    
    
    
    $      2.72
    
    
    
    $      1.64Dividends paid per share
    
    
    $      1.04
    
    
    
    $      1.04
    
    
    
    $      1.04
 The accompanying notes are an integral part of these consolidated financial statements.
 68




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THE
LUBRIZOL CORPORATION
  December 31(In Millions of Dollars Except Share Data)
    
    2006
    
    2005(as restated,
    
    (as restated,see Note 20)
    
    see Note 20)ASSETSCash and short-term investments
    
    
    $   575.7
    
    
    
    $    262.4Receivables
    
    
    573.6
    
    
    
    585.6Inventories
    
    
    589.0
    
    
    
    586.0Other current assets
    
    
    98.0
    
    
    
    138.3Total current assets
    
    
    1,836.3
    
    
    
    1,572.3Property and equipment - at cost
    
    
    2,546.0
    
    
    
    2,621.5Less accumulated depreciation
    
    
    1,464.7
    
    
    
    1,437.1Property and equipment - net
    
    
    1,081.3
    
    
    
    1,184.4Goodwill
    
    
    1,076.1
    
    
    
    1,138.8Intangible assets - net
    
    
    322.8
    
    
    
    407.2Investments in non-consolidated companies
    
    
    7.7
    
    
    
    7.6Other assets
    
    
    66.7
    
    
    
    60.9TOTAL
    
    
    $ 4,390.9
    
    
    
    $ 4,371.2LIABILITIES AND SHAREHOLDERS EQUITYShort-term debt and current portion of long-term debt
    
    
    $        3.7
    
    
    
    $        7.9Accounts payable
    
    
    340.5
    
    
    
    372.2Accrued expenses and other current liabilities
    
    
    290.2
    
    
    
    285.6Total current liabilities
    
    
    634.4
    
    
    
    665.7Long-term debt
    
    
    1,538.0
    
    
    
    1,662.9Pension obligations
    
    
    237.9
    
    
    
    140.6Other postretirement benefit obligations
    
    
    93.5
    
    
    
    109.5Noncurrent liabilities
    
    
    72.3
    
    
    
    82.8Deferred income taxes
    
    
    80.4
    
    
    
    107.7Total liabilities
    
    
    2,656.5
    
    
    
    2,769.2Minority interest in consolidated companies
    
    
    51.3
    
    
    
    50.1Contingencies and commitmentsPreferred stock without par value - unissued
    
    
    
    
    
    
    Common shares without par value - 69,020,569 and 68,043,241
outstanding shares at December 31, 2006 and 2005,
respectively
    
    
    710.1
    
    
    
    663.7Retained earnings
    
    
    1,033.8
    
    
    
    1,001.7Accumulated other comprehensive loss
    
    
    (60.8
    )
    
    
    (113.5
    )Total shareholders equity
    
    
    1,683.1
    
    
    
    1,551.9TOTAL
    
    
    $ 4,390.9
    
    
    
    $ 4,371.2
 The accompanying notes are an integral part of these consolidated financial statements.
 69




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THE
LUBRIZOL CORPORATION
  Year Ended December 31(In Millions of Dollars)
    
    2006
    
    2005
    
    2004(as restated,
    
    (as restated,
    
    (as restated,see Note 20)
    
    see Note 20)
    
    see Note 20)CASH PROVIDED BY (USED FOR):OPERATING ACTIVITIESNet income
    
    
    $  103.6
    
    
    
    $  187.2
    
    
    
    $        91.8Adjustments to reconcile net income to cash
provided by operating activities:Depreciation and amortization
    
    
    161.8
    
    
    
    179.8
    
    
    
    154.7Write-off of acquired in-process research and development
    
    
    
    
    
    
    
    
    
    
    34.0Deferred income taxes
    
    
    28.6
    
    
    
    9.1
    
    
    
    4.9Deferred compensation
    
    
    19.5
    
    
    
    16.3
    
    
    
    3.4Restructuring and impairment charges
    
    
    105.6
    
    
    
    11.1
    
    
    
    27.5Loss (gain) from divestitures and sales of property and
equipment
    
    
    9.6
    
    
    
    (3.9
    )
    
    
    3.1Change in current assets and liabilities, net of
acquisitions and divestitures:Receivables
    
    
    (3.4
    )
    
    
    (52.9
    )
    
    
    (38.4
    )Inventories
    
    
    (56.2
    )
    
    
    (47.5
    )
    
    
    (50.0
    )Accounts payable, accrued expenses and other current
liabilities
    
    
    (57.1
    )
    
    
    56.1
    
    
    
    80.7Other current assets
    
    
    3.4
    
    
    
    6.9
    
    
    
    2.5(113.3
    )
    
    
    (37.4
    )
    
    
    (5.2
    )Change in noncurrent liabilities
    
    
    8.5
    
    
    
    8.6
    
    
    
    11.6Other items - net
    
    
    10.9
    
    
    
    (8.6
    )
    
    
    5.8Total operating activities
    
    
    334.8
    
    
    
    362.2
    
    
    
    331.6INVESTING ACTIVITIESCapital expenditures
    
    
    (130.9
    )
    
    
    (136.7
    )
    
    
    (133.2
    )Acquisitions - net of cash received and liabilities assumed
    
    
    
    
    
    
    
    
    
    
    (958.4
    )Net proceeds from divestitures and sales of property and equipment
    
    
    281.9
    
    
    
    30.1
    
    
    
    3.0Other items - net
    
    
    0.4
    
    
    
    (0.2
    )
    
    
    (0.2
    )Total investing activities
    
    
    151.4
    
    
    
    (106.8
    )
    
    
    (1,088.8
    )FINANCING ACTIVITIESChanges in short-term debt - net
    
    
    (0.6
    )
    
    
    (4.0
    )
    
    
    (72.6
    )Repayments of long-term debt
    
    
    (143.4
    )
    
    
    (512.2
    )
    
    
    (1,193.0
    )Proceeds from the issuance of long-term debt
    
    
    
    
    
    
    235.8
    
    
    
    1,743.3Dividends paid
    
    
    (71.2
    )
    
    
    (70.4
    )
    
    
    (57.6
    )Proceeds from sale of common shares, net of underwriting
commissions and offering expenses of $20.2 million
    
    
    
    
    
    
    
    
    
    
    470.0Payment of debt issuance costs
    
    
    
    
    
    
    (0.8
    )
    
    
    (16.8
    )Payment of treasury rate lock upon settlement
    
    
    
    
    
    
    
    
    
    
    (73.9
    )Payment on termination of interest rate swaps
    
    
    
    
    
    
    
    
    
    
    (2.9
    )Proceeds from the exercise of stock options
    
    
    31.3
    
    
    
    38.8
    
    
    
    12.0Total financing activities
    
    
    (183.9
    )
    
    
    (312.8
    )
    
    
    808.5Effect of exchange rate changes on cash
    
    
    11.0
    
    
    
    (16.1
    )
    
    
    25.9Net increase (decrease) in cash and short-term investments
    
    
    313.3
    
    
    
    (73.5
    )
    
    
    77.2Cash and short-term investments at the beginning of year
    
    
    262.4
    
    
    
    335.9
    
    
    
    258.7Cash and short-term investments at the end of year
    
    
    $  575.7
    
    
    
    $  262.4
    
    
    
    $      335.9
 The accompanying notes are an integral part of these consolidated financial statements.
 70




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THE
LUBRIZOL CORPORATION
  Shareholders EquityAccumulatedNumber of
    
    
    
    
    
    
    
    
    
    
    OtherShares
    
    Common
    
    Retained
    
    
    Comprehensive(In Millions)
    
    Outstanding
    
    
    Shares
    
    
    
    Earnings
    
    
    
    (Loss) Income
    
    
    TotalBALANCE, JANUARY 1, 2004, AS PREVIOUSLY
REPORTED
    
    
    51.6
    
    
 
    $ 123.8
    
    
    
    $    865.5
    
    
 
    $ (36.0
    )
    
    
    $    953.3Restatement adjustments, see Note 20
    
    
    
    
    
    
    
    
    
    
    (10.5
    )
    
    
    (1.8
    )
    
    
    (12.3
    )BALANCE, JANUARY 1, 2004, AS RESTATED
    
    
    51.6
    
    
    
    123.8
    
    
    
    855.0
    
    
    
    (37.8
    )
    
    
    941.0Comprehensive income:Net income 2004
    
    
    
    
    
    
    
    
    
    
    91.8
    
    
    
    
    
    
    
    91.8Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50.5
    
    
    
    50.5Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    142.3Dividends declared
    
    
    
    
    
    
    
    
    
    
    (61.6
    )
    
    
    
    
    
    
    (61.6
    )Common shares - issued in public offerings
    
    
    14.7
    
    
    
    470.0
    
    
    
    
    
    
    
    
    
    
    
    470.0Deferred stock compensation
    
    
    
    
    
    
    3.4
    
    
    
    
    
    
    
    
    
    
    
    3.4Common shares - treasury:Shares issued upon exercise of
stock options and awards
    
    
    0.5
    
    
    
    13.4
    
    
    
    
    
    
    
    
    
    
    
    13.4BALANCE, DECEMBER 31, 2004, AS RESTATED
    
    
    66.8
    
    
    
    610.6
    
    
    
    885.2
    
    
    
    12.7
    
    
    
    1,508.5Comprehensive income:Net income 2005
    
    
    
    
    
    
    
    
    
    
    187.2
    
    
    
    
    
    
    
    187.2Other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (126.2
    )
    
    
    (126.2
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61.0Dividends declared
    
    
    
    
    
    
    
    
    
    
    (70.7
    )
    
    
    
    
    
    
    (70.7
    )Deferred stock compensation
    
    
    
    
    
    
    8.8
    
    
    
    
    
    
    
    
    
    
    
    8.8Common shares - treasury:Shares issued upon exercise of
stock options and awards
    
    
    1.2
    
    
    
    44.3
    
    
    
    
    
    
    
    
    
    
    
    44.3BALANCE, DECEMBER 31, 2005, AS RESTATED
    
    
    68.0
    
    
    
    663.7
    
    
    
    1,001.7
    
    
    
    (113.5
    )
    
    
    1,551.9Comprehensive income:Net income 2006
    
    
    
    
    
    
    
    
    
    
    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, AS RESTATED
    
    
    69.0
    
    
    
    $ 710.1
    
    
    
    $ 1,033.8
    
    
    
    $ (60.8
    )
    
    
    $ 1,683.1
 The accompanying notes are an integral part of these consolidated financial statements.
 71




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Notes to Financial Statements  (In Millions Except Per Share Data)
 Note 1 - NATURE OF OPERATIONS
   Note 2 - SIGNIFICANT ACCOUNTING POLICIES
       72




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73




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74




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2006
    
    
    
    2005
    
    
    
    2004Numerator:Income from continuing operations
    
    
    $ 179.8
    
    
    
    $ 159.4
    
    
    
    $ 85.5(Loss) income from discontinued
operations - net of tax
    
    
    (76.2
    )
    
    
    27.8
    
    
    
    6.3Net income
    
    
    $ 103.6
    
    
    
    $ 187.2
    
    
    
    $ 91.8Denominator:Weighted-average common shares outstanding
    
    
    68.7
    
    
    
    67.9
    
    
    
    55.7Dilutive effect of stock options and awards
    
    
    0.6
    
    
    
    0.9
    
    
    
    0.3Denominator for net income per share, diluted
    
    
    69.3
    
    
    
    68.8
    
    
    
    56.0Basic earnings (loss) per share:Continuing operations
    
    
    $   2.62
    
    
    
    $   2.35
    
    
    
    $ 1.54Discontinued operations
    
    
    (1.11
    )
    
    
    0.41
    
    
    
    0.11Net income per share, basic
    
    
    $   1.51
    
    
    
    $   2.76
    
    
    
    $ 1.65Diluted earnings (loss) per share:Continuing operations
    
    
    $   2.59
    
    
    
    $   2.32
    
    
    
    $ 1.53Discontinued operations
    
    
    (1.10
    )
    
    
    0.40
    
    
    
    0.11Net income per share, diluted
    
    
    $   1.49
    
    
    
    $   2.72
    
    
    
    $ 1.64
     75




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2005
    
    
    
    2004Reported net income
    
    
    $ 187.2
    
    
    
    $ 91.8Plus: Stock-based employee compensation
(net of tax) included in net income
    
    
    5.5
    
    
    
    2.1Less: Stock-based employee compensation
(net of tax) using the fair value method
    
    
    (6.5
    )
    
    
    (6.0
    )Pro forma net income
    
    
    $ 186.2
    
    
    
    $ 87.9Reported net income per share, basic
    
    
    $   2.76
    
    
    
    $ 1.65Pro forma net income per share, basic
    
    
    $   2.74
    
    
    
    $ 1.58Reported net income per share, diluted
    
    
    $   2.72
    
    
    
    $ 1.64Pro forma net income per share, diluted
    
    
    $   2.71
    
    
    
    $ 1.57
   76




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Note 3 - ACQUISITIONS
      77




---



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Note 4 - DIVESTITURES
   ®
     78




---



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Note 5 - INVENTORIES
 2006
    
    
    
    2005Finished products
    
    
    $
    315.0
    
    
    
    $
    319.6Products in process
    
    
    
    108.2
    
    
    
    
    86.9Raw materials
    
    
    
    138.2
    
    
    
    
    151.2Supplies and engine test parts
    
    
    
    27.6
    
    
    
    
    28.3Total inventory
    
    
    $
    589.0
    
    
    
    $
    586.0
  Note 6
- GOODWILL AND INTANGIBLE ASSETS
 Goodwill
   LubrizolAdvanced

    

    LubrizolMaterials

    

    Additives
    
    
    TotalBalance, January 1, 2005
    
    
    $
    1,052.9
    
    
    
    $
    100.9
    
    
    
    $
    1,153.8Goodwill acquired
    
    
    
    32.9
    
    
    
    
    
    
    
    
    
    32.9Translation & other adjustments
    
    
    
    (42.8
    )
    
    
    
    (5.1
    )
    
    
    
    (47.9
    )Balance, December 31, 2005
    
    
    
    1,043.0
    
    
    
    
    95.8
    
    
    
    
    1,138.8Goodwill of divestitures
    
    
    
    (87.6
    )
    
    
    
    
    
    
    
    
    (87.6
    )Translation & other adjustments
    
    
    
    22.9
    
    
    
    
    2.0
    
    
    
    
    24.9Balance, December 31, 2006
    
    
    $
    978.3
    
    
    
    $
    97.8
    
    
    
    $
    1,076.1
  Intangible Assets
  79




---



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2006



    
    2005Gross
    
    
    
    
    
    
    GrossCarrying




    





    Accumulated


    
    Carrying


    


    AccumulatedAmount
    



    Amortization

    

    Amount

    

    AmortizationAmortized intangible assets:Customer lists
    
    
    $ 145.0
    
    
    
    
    $ 24.0
    
    
    
    $ 151.5
    
    
    
    
    $ 15.8Technology
    
    
    139.8
    
    
    
    
    44.9
    
    
    
    144.4
    
    
    
    
    35.6Trademarks
    
    
    20.7
    
    
    
    
    5.5
    
    
    
    24.5
    
    
    
    
    4.2Patents
    
    
    14.0
    
    
    
    
    4.2
    
    
    
    11.8
    
    
    
    
    2.5Land-use rights
    
    
    7.5
    
    
    
    
    1.2
    
    
    
    7.3
    
    
    
    
    1.0Non-compete agreements
    
    
    8.2
    
    
    
    
    7.2
    
    
    
    9.1
    
    
    
    
    5.9Other
    
    
    0.9
    
    
    
    
    0.7
    
    
    
    8.0
    
    
    
    
    0.7Total amortized intangible assets
    
    
    336.1
    
    
    
    
    87.7
    
    
    
    356.6
    
    
    
    
    65.7Non-amortized trademarks
    
    
    74.4
    
    
    
    
    
    
    
    
    116.3
    
    
    
    
    Total
    
    
    $ 410.5
    
    
    
    
    $ 87.7
    
    
    
    $ 472.9
    
    
    
    
    $ 65.7
  80




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Note 7
- DEBT
  2006
    
    
    2005Short-term debt:Yen
denominated, at weighted-average rates of 0.8% and 0.5%
    
    $
    2.5
    
    
    $
    2.5Other
    
    
    0.2
    
    
    
    0.8Current portion of long-term debt
    
    
    1.0
    
    
    
    4.6Total
    
    $
    3.7
    
    
    $
    7.9Long-term debt:5.875% notes, due 2008, including
a fair value adjustment of $(1.1)
million and $(0.6) million
in 2006 and 2005,
respectively, for
unrealized losses on derivative hedge
instruments and remaining
unamortized gain on termination
of swaps of $5.2 million and $8.0
million in 2006 and 2005,
respectively
    
    $
    204.1
    
    
    $
    207.44.625%
notes, due 2009, net of original issue discount of $0.2 million and $0.3
million in 2006 and 2005,
respectively, and fair
value
adjustments of $(4.1) million and
$(4.3) million for unrealized losses
on derivative hedge instruments
in 2006 and 2005, respectively
    
    
    377.5
    
    
    
    395.45.5% notes, due 2014, net of
original issue discount of $2.4
million
and $2.7 million in 2006
and 2005, respectively
    
    
    447.6
    
    
    
    447.37.25% debentures, due 2025
    
    
    100.0
    
    
    
    100.06.5% debentures, due 2034, net of
original issue discount of
$4.8 million and $4.9 million in
2006 and 2005,
respectively
    
    
    295.2
    
    
    
    295.1Debt supported by long-term
banking arrangements:Euro revolving credit borrowing, at EURIBOR plus
0.4% (4.1% and 2.9% at December 31,
2006 and 2005, respectively)
    
    
    112.2
    
    
    
    215.6Other
    
    
    2.4
    
    
    
    6.71,539.0
    
    
    
    1,667.5Less current portion
    
    
    1.0
    
    
    
    4.6Total
    
    $
    1,538.0
    
    
    $
    1,662.9
    
 81




---



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 
      82




---



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Note 8 - FINANCIAL INSTRUMENTS
       83




---



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Note 9 - OTHER BALANCE SHEET INFORMATION
 2006
    
    

2005Receivables:Customers
    
    $
    509.3
    
    
    $
    533.9Affiliates
    
    
    4.0
    
    
    
    8.1Other
    
    
    60.3
    
    
    
    43.6Total
    
    $
    573.6
    
    
    $
    585.6
  2006
    
    
    2005Property and equipment - at cost:Land and improvements
    
    $
    177.0
    
    
    $
    178.0Buildings and improvements
    
    
    457.8
    
    
    
    456.2Machinery and equipment
    
    
    1,820.2
    
    
    
    1,912.2Construction in progress
    
    
    91.0
    
    
    
    75.1Total
    
    $
    2,546.0
    
    
    $
    2,621.5
  84




---



##### Table of Contents



2006
    
    
    
    2005Accrued expenses and other current liabilities:Employee compensation
    
    
    $ 108.1
    
    
    
    $   99.4Income taxes
    
    
    48.5
    
    
    
    56.3Sales allowances and rebates
    
    
    33.8
    
    
    
    30.3Taxes other than income
    
    
    31.2
    
    
    
    31.2Interest
    
    
    17.9
    
    
    
    17.6Other
    
    
    50.7
    
    
    
    50.8Total
    
    
    $ 290.2
    
    
    
    $ 285.6
  Note 10 - SHAREHOLDERS EQUITY
    85




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##### Table of Contents



Unrealized
    
    UnrecognizedForeign
    
    
    
    
    
    Gains
    
    Pension Plan
    
    AccumulatedCurrency
    
    Treasury
    
    (Losses)
    
    and Other
    
    OtherTranslation
    
    Rate
    
    on Interest
    
    Postretirement
    
    ComprehensiveAdjustment

    
    Locks
    
    Rate Swaps
    
    Benefit Costs
    
    (Loss) IncomeBalance,
January 1, 2004, as previously reported
    
    
    $     (4.1
    )
    
    
    $       
    
    
    
    $ (1.8
    )
    
    
    $ (30.1
    )
    
    
    $  (36.0
    )Restatement adjustments, see Note 20
    
    
    (1.8
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.8
    )Balance, January 1, 2004, as restated
    
    
    (5.9
    )
    
    
    
    
    
    
    (1.8
    )
    
    
    (30.1
    )
    
    
    (37.8
    )Other comprehensive
income (loss):Pretax
    
    
    96.5
    
    
    
    (72.9
    )
    
    
    3.2
    
    
    
    1.9
    
    
    
    28.7Tax benefit (provision)
    
    
    (1.9
    )
    
    
    25.5
    
    
    
    (1.1
    )
    
    
    (0.7
    )
    
    
    21.8Total
    
    
    94.6
    
    
    
    (47.4
    )
    
    
    2.1
    
    
    
    1.2
    
    
    
    50.5Balance, December 31, 2004, as restated
    
    
    88.7
    
    
    
    (47.4
    )
    
    
    0.3
    
    
    
    (28.9
    )
    
    
    12.7Other comprehensive
(loss) income:Pretax
    
    
    (117.3
    )
    
    
    4.4
    
    
    
    
    
    
    
    (19.1
    )
    
    
    (132.0
    )Tax benefit (provision)
    
    
    1.9
    
    
    
    (1.5
    )
    
    
    
    
    
    
    5.4
    
    
    
    5.8Total
    
    
    (115.4
    )
    
    
    2.9
    
    
    
    
    
    
    
    (13.7
    )
    
    
    (126.2
    )Balance, December 31, 2005, as restated
    
    
    (26.7
    )
    
    
    (44.5
    )
    
    
    0.3
    
    
    
    (42.6
    )
    
    
    (113.5
    )Other comprehensive
income (loss):Pretax
    
    
    79.2
    
    
    
    5.0
    
    
    
    
    
    
    
    46.8
    
    
    
    131.0Tax benefit (provision)
    
    
    0.1
    
    
    
    (1.7
    )
    
    
    
    
    
    
    (13.9
    )
    
    
    (15.5
    )Total
    
    
    79.3
    
    
    
    3.3
    
    
    
    
    
    
    
    32.9
    
    
    
    115.5Adjustment to recognize
pension and other postretirement
benefit plans funded status:Pretax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (92.8
    )
    
    
    (92.8
    )Tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30.0
    
    
    
    30.0Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (62.8
    )
    
    
    (62.8
    )Balance, December 31, 2006, as restated
    
    
    $     52.6
    
    
    
    $ (41.2
    )
    
    
    $  0.3
    
    
    
    $ (72.5
    )
    
    
    $  (60.8
    )
 86




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Note 11 - OTHER INCOME - NET
 2006
    
    
    
    2005
    
    
    
    2004Settlement of insurance and legal matters
    
    
    $ 10.4
    
    
    
    $       
    
    
    
    $       Currency exchange / transaction (loss) gain
    
    
    (2.9
    )
    
    
    (0.6
    )
    
    
    6.6Equity earnings of nonconsolidated
companies
    
    
    1.0
    
    
    
    0.8
    
    
    
    0.8Other - net
    
    
    
    
    
    
    1.6
    
    
    
    (1.8
    )Total
    
    
    $   8.5
    
    
    
    $   1.8
    
    
    
    $   5.6
  Note 12 - INCOME TAXES
  2006
    
    
    
    2005
    
    
    
    2004United States
    
    
    $   75.5
    
    
    
    $   40.2
    
    
    
    $   32.2Foreign
    
    
    186.5
    
    
    
    200.0
    
    
    
    102.3Total
    
    
    $ 262.0
    
    
    
    $ 240.2
    
    
    
    $ 134.5
  2006
    
    
    
    2005
    
    
    
    2004Current:United States:Federal
    
    
    $  (3.9
    )
    
    
    $   4.0
    
    
    
    $    1.4State
    
    
    (0.7
    )
    
    
    (0.2
    )
    
    
    1.4Foreign
    
    
    48.2
    
    
    
    67.5
    
    
    
    40.943.6
    
    
    
    71.3
    
    
    
    43.7Deferred:United States:Federal
    
    
    28.6
    
    
    
    9.5
    
    
    
    17.5State
    
    
    8.5
    
    
    
    6.1
    
    
    
    (1.0
    )Foreign
    
    
    1.5
    
    
    
    (6.1
    )
    
    
    (11.2
    )38.6
    
    
    
    9.5
    
    
    
    5.3Total
    
    
    $ 82.2
    
    
    
    $ 80.8
    
    
    
    $  49.0
 87




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2006
    
    
    
    2005
    
    
    
    2004Tax at statutory rate of 35%
    
    
    $  91.7
    
    
    
    $  84.1
    
    
    
    $  47.1U.S. and foreign tax on foreign dividends
    
    
    7.7
    
    
    
    8.1
    
    
    
    13.8U.S. tax benefit on exports
    
    
    (4.1
    )
    
    
    (5.0
    )
    
    
    (1.8
    )State and local income taxes
    
    
    5.1
    
    
    
    3.8
    
    
    
    0.3Untaxed translation gains
    
    
    (0.5
    )
    
    
    (0.8
    )
    
    
    (2.5
    )Provision impacts of foreign operations
    
    
    (19.3
    )
    
    
    (11.4
    )
    
    
    (7.9
    )Other - net
    
    
    1.6
    
    
    
    2.0
    
    
    
    Provision for income taxes
    
    
    $  82.2
    
    
    
    $  80.8
    
    
    
    $  49.0
  2006
    
    
    
    2005Deferred tax assets:Accrued compensation and benefits
    
    
    
    
    
    
    $  148.4
    
    
    
    $  116.6Inventory
    
    
    
    
    
    
    22.4
    
    
    
    16.7Cash flow hedges
    
    
    
    
    
    
    22.9
    
    
    
    24.3Net operating losses and tax credits carried forward
    
    
    
    
    
    
    29.9
    
    
    
    94.9Other
    
    
    
    
    
    
    23.8
    
    
    
    27.0Total gross deferred tax assets
    
    
    
    
    
    
    247.4
    
    
    
    279.5Less valuation allowance
    
    
    
    
    
    
    (17.8
    )
    
    
    (18.1
    )Net deferred tax assets
    
    
    
    
    
    
    229.6
    
    
    
    261.4Deferred tax liabilities:Depreciation and other basis differences
    
    
    
    
    
    
    203.8
    
    
    
    233.5Foreign subsidiary and affiliate undistributed earnings
    
    
    
    
    
    
    7.9
    
    
    
    6.5Other
    
    
    
    
    
    
    11.9
    
    
    
    13.5Total gross deferred tax liabilities
    
    
    
    
    
    
    223.6
    
    
    
    253.5Net deferred tax assets
    
    
    
    
    
    
    $      6.0
    
    
    
    $      7.9
   88




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##### Table of Contents



Note 13 - PENSION, PROFIT SHARING AND OTHER POSTRETIREMENT BENEFIT PLANS
       Percentage of PlanAssetsat December 312006
    
    
    
    2005Asset
category:Equity securities
    
    
    73
    %
    
    
    72
    %Debt securities
    
    
    27
    %
    
    
    28
    %Total
    
    
    100
    %
    
    
    100
    %
  89




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##### Table of Contents



Balance Before
    
    
    
    
    
    Balance AfterApplying
    
    SFAS No. 158
    
    ApplyingSFAS No. 158
    
    Adjustments
    
    SFAS No. 158Current assets:Other current assets
    
    $
    104.9
    
    
    $
    (6.9
    )
    
    $
    98.0Noncurrent assets:Other assets
    
    $
    65.5
    
    
    $
    1.2
    
    
    $
    66.7Intangible assets - net
    
    $
    329.2
    
    
    $
    (6.4
    )
    
    $
    322.8Total assets
    
    $
    4,403.0
    
    
    $
    (12.1
    )
    
    $
    4,390.9Current liabilities:Accrued expenses and other current liabilities
    
    $
    287.2
    
    
    $
    3.0
    
    
    $
    290.2Noncurrent liabilities:Pension obligations
    
    $
    149.1
    
    
    $
    88.8
    
    
    $
    237.9Other postretirement health care obligations
    
    $
    104.7
    
    
    $
    (11.2
    )
    
    $
    93.5Deferred income taxes
    
    $
    110.3
    
    
    $
    (29.9
    )
    
    $
    80.4Total liabilities
    
    $
    2,605.8
    
    
    $
    50.7
    
    
    $
    2,656.5Accumulated other comprehensive income (loss)
    
    $
    2.0
    
    
    $
    (62.8
    )
    
    $
    (60.8
    )Total shareholders equity
    
    $
    1,745.9
    
    
    $
    (62.8
    )
    
    $
    1,683.1
 90




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##### Table of Contents



Pension Plans
    
    
    Other Benefits2006
    
    
    2005
    
    
    2006
    
    
    2005Change in Projected Benefit Obligation:Projected benefit obligation at
beginning of year
    
    $
    659.8
    
    
    $
    576.2
    
    
    $
    103.2
    
    
    $
    131.5Service cost
    
    
    31.7
    
    
    
    29.3
    
    
    
    1.8
    
    
    
    2.2Interest cost
    
    
    34.9
    
    
    
    32.2
    
    
    
    5.4
    
    
    
    6.4Plan participants contributions
    
    
    0.9
    
    
    
    0.8
    
    
    
    3.6
    
    
    
    3.3Actuarial (gain) loss
    
    
    (21.0
    )
    
    
    76.1
    
    
    
    (0.7
    )
    
    
    (8.5
    )Currency exchange rate change
    
    
    35.0
    
    
    
    (29.3
    )
    
    
    1.1
    
    
    
    (1.0
    )Plan amendments
    
    
    2.5
    
    
    
    2.3
    
    
    
    
    
    
    
    (22.1
    )Settlements / curtailments
    
    
    (2.8
    )
    
    
    (1.0
    )
    
    
    (1.5
    )
    
    
    Divestitures
    
    
    (3.6
    )
    
    
    
    
    
    
    (6.2
    )
    
    
    Benefits paid
    
    
    (26.4
    )
    
    
    (26.8
    )
    
    
    (8.4
    )
    
    
    (8.6
    )Benefit obligation at end of year
    
    
    711.0
    
    
    
    659.8
    
    
    
    98.3
    
    
    
    103.2Change in Plan Assets:Fair value of plan assets at beginning of year
    
    
    401.1
    
    
    
    358.7
    
    
    
    
    
    
    
    Actual return on plan assets
    
    
    50.6
    
    
    
    46.1
    
    
    
    
    
    
    
    Employer contributions
    
    
    24.0
    
    
    
    38.7
    
    
    
    4.8
    
    
    
    5.3Settlements
    
    
    
    
    
    
    (0.9
    )
    
    
    
    
    
    
    Plan participants contributions
    
    
    0.9
    
    
    
    0.8
    
    
    
    3.6
    
    
    
    3.3Currency exchange rate change
    
    
    19.9
    
    
    
    (15.5
    )
    
    
    
    
    
    
    Adjustments
    
    
    1.2
    
    
    
    
    
    
    
    
    
    
    
    Benefits paid
    
    
    (26.4
    )
    
    
    (26.8
    )
    
    
    (8.4
    )
    
    
    (8.6
    )Fair value of plan assets at end of year
    
    
    471.3
    
    
    
    401.1
    
    
    
    
    
    
    
    Funded Status
    
    $
    (239.7
    )
    
    
    (258.7
    )
    
    $
    (98.3
    )
    
    
    (103.2
    )Items not yet recognized as a component of net periodic
pension and other postretirement benefit cost (credit):Unrecognized net loss
    
    $
    92.3
    
    
    
    150.0
    
    
    
    27.2
    
    
    
    35.5Unrecognized net transition obligation
    
    
    0.4
    
    
    
    1.0
    
    
    
    2.9
    
    
    
    3.3Unrecognized prior service cost (credit)
    
    
    25.0
    
    
    
    24.8
    
    
    
    (41.4
    )
    
    
    (49.7
    )Total
    
    $
    117.7
    
    
    
    175.8
    
    
    $
    (11.3
    )
    
    
    (10.9
    )Net amounts recognized
    
    
    
    
    
    $
    (82.9
    )
    
    
    
    
    
    $
    (114.1
    )Net amounts recognized in the
consolidated balance sheets:Prepaid benefit cost
    
    $
    1.0
    
    
    $
    0.3
    
    
    $
    
    
    
    $
    Intangible asset
    
    
    
    
    
    
    7.5
    
    
    
    
    
    
    
    Accrued benefit liability
    
    
    (240.7
    )
    
    
    (151.5
    )
    
    
    (98.3
    )
    
    
    (114.1
    )Funded Status
    
    $
    (239.7
    )
    
    
    
    
    
    $
    (98.3
    )Accumulated other comprehensive loss
    
    
    
    
    
    
    60.8
    
    
    
    
    
    
    
    Net amounts recognized
    
    
    
    
    
    $
    (82.9
    )
    
    
    
    
    
    $
    (114.1
    )
 91




---



##### Table of Contents



2006
    
    
    2005
    
    
    2004Service cost - benefits earned during period
    
    $
    31.7
    
    
    $
    29.3
    
    
    $
    23.3Interest cost on projected benefit obligation
    
    
    34.9
    
    
    
    32.2
    
    
    
    28.7Expected return on plan assets
    
    
    (28.3
    )
    
    
    (26.9
    )
    
    
    (27.5
    )Amortization of prior service costs
    
    
    2.5
    
    
    
    2.4
    
    
    
    1.8Amortization of initial net obligation (asset)
    
    
    0.7
    
    
    
    0.7
    
    
    
    (0.1
    )Recognized net actuarial loss
    
    
    8.5
    
    
    
    5.5
    
    
    
    3.8Settlement / curtailment loss
    
    
    2.9
    
    
    
    0.3
    
    
    
    7.7Net periodic pension cost
    
    $
    52.9
    
    
    $
    43.5
    
    
    $
    37.7The company recorded a $7.7 million settlement charge in 2004 primarily associated with workforce
reductions announced in June 2004 in the United States.The amount of net loss and prior service cost that is expected to be recognized as a component of
net periodic benefit cost in 2007 is $4.9 million and $2.7 million, respectively.Net periodic non-pension postretirement benefit cost consists of:2006
    
    
    2005
    
    
    2004Service cost - benefits earned during period
    
    $
    1.8
    
    
    $
    2.2
    
    
    $
    2.9Interest cost on projected benefit obligation
    
    
    5.4
    
    
    
    6.4
    
    
    
    7.3Amortization of prior service credits
    
    
    (8.4
    )
    
    
    (7.7
    )
    
    
    (6.3
    )Amortization of initial net obligation
    
    
    0.4
    
    
    
    0.4
    
    
    
    0.4Recognized net actuarial loss
    
    
    1.8
    
    
    
    2.1
    
    
    
    2.5Settlement / curtailment loss
    
    
    (1.1
    )
    
    
    
    
    
    
    Net periodic non-pension postretirement benefit (credit) cost
    
    $
    (0.1
    )
    
    $
    3.4
    
    
    $
    6.8
  92




---



##### Table of Contents



Pension Plans

    
    

    Other Benefits2006
    
    2005
    
    2006
    
    2005The weighted-average assumptions used to determine
benefit obligations at December 31:Measurement date
    
    
    12/31
    
    
    
    12/31
    
    
    
    12/31
    
    
    
    12/31Discount rate
    
    
    5.63
    %
    
    
    5.25
    %
    
    
    5.99
    %
    
    
    5.50
    %Rate of compensation increase
    
    
    3.99
    %
    
    
    3.92
    %
    
    
    *
    
    
    
    *The weighted-average assumptions used to determine
net periodic benefit cost for years ended December 31:Discount rate
    
    
    5.25
    %
    
    
    5.72
    %
    
    
    5.50
    %
    
    
    6.20
    %Expected long-term return on plan assets
    
    
    7.48
    %
    
    
    7.71
    %
    
    
    *
    
    
    
    *Rate of compensation increase
    
    
    3.92
    %
    
    
    4.03
    %
    
    
    *
    
    
    
    *
   Pension
    
    OtherPlans
    
    Plans
    
    Total2005
    
    
    $ 38.7
    
    
    
    $ 6.4
    
    
    
    $ 45.12006
    
    
    24.0
    
    
    
    4.8
    
    
    
    28.82007 (expected)
    
    
    61.3
    
    
    
    4.8
    
    
    
    66.1
    Pension
    
    Other
    
    TotalBenefits
    
    Benefits
    
    Benefits2007
    
    
    $  28.8
    
    
    
    $ 4.8
    
    
    
    $ 33.62008
    
    
    30.4
    
    
    
    5.1
    
    
    
    35.52009
    
    
    32.6
    
    
    
    5.5
    
    
    
    38.12010
    
    
    36.8
    
    
    
    5.9
    
    
    
    42.72011
    
    
    38.7
    
    
    
    6.4
    
    
    
    45.12012-2016
    
    
    225.7
    
    
    
    37.1
    
    
    
    262.8
  93




---



##### Table of Contents



One-Percentage-PointIncrease
    
    
    DecreaseEffect on postretirement benefit obligation
    
    $ 11.9
    
    
    $ (10.2)Effect on total service and interest cost components
    
    $   0.9
    
    
    $   (0.8)
  Note 14 - LEASES
  Note 15 - SEGMENT AND GEOGRAPHIC INFORMATION
   ® ®
 94




---



##### Table of Contents



95




---



##### Table of Contents



2006
    
    
    2005
    
    
    2004Lubrizol Additives:Revenues from external customers
    
    $
    2,600.5
    
    
    $
    2,280.0
    
    
    $
    1,998.6Equity earnings
    
    
    1.0
    
    
    
    0.8
    
    
    
    0.8Amortization of intangibles
    
    
    3.1
    
    
    
    3.0
    
    
    
    3.0Operating income
    
    
    303.0
    
    
    
    263.3
    
    
    
    238.2Total assets
    
    
    1,397.6
    
    
    
    1,324.0
    
    
    
    1,341.9Capital expenditures
    
    
    77.1
    
    
    
    70.0
    
    
    
    82.4Depreciation
    
    
    71.7
    
    
    
    79.7
    
    
    
    86.2Lubrizol Advanced Materials:Revenues from external customers
    
    $
    1,440.3
    
    
    $
    1,342.2
    
    
    $
    865.8Amortization of intangibles
    
    
    20.6
    
    
    
    20.5
    
    
    
    13.9Operating income
    
    
    167.6
    
    
    
    150.9
    
    
    
    78.6Total assets
    
    
    2,193.7
    
    
    
    2,536.8
    
    
    
    2,733.3Capital expenditures
    
    
    40.2
    
    
    
    51.3
    
    
    
    40.1Depreciation
    
    
    61.0
    
    
    
    59.0
    
    
    
    28.1Corporate:Total assets
    
    $
    799.6
    
    
    $
    510.4
    
    
    $
    495.9Capital expenditures
    
    
    8.4
    
    
    
    0.6
    
    
    
    0.1Depreciation
    
    
    0.6
    
    
    
    0.7
    
    
    
    1.1Discontinued operations:Capital expenditures
    
    $
    5.2
    
    
    $
    14.8
    
    
    $
    10.6Depreciation
    
    
    4.4
    
    
    
    15.2
    
    
    
    21.3Reconciliation to income from continuing
operations before income taxes:Segment operating income
    
    $
    470.6
    
    
    $
    414.2
    
    
    $
    316.8Corporate expenses
    
    
    (73.6
    )
    
    
    (61.1
    )
    
    
    (44.1
    )Corporate other (expense) income - net
    
    
    (3.8
    )
    
    
    
    
    
    
    6.2Write-off of acquired IPR&D
    
    
    
    
    
    
    
    
    
    
    (34.0
    )Restructuring and impairment charges
    
    
    (51.9
    )
    
    
    (15.9
    )
    
    
    (38.1
    )Interest expense - net
    
    
    (79.3
    )
    
    
    (97.0
    )
    
    
    (72.3
    )Income from continuing operations before
income taxes
    
    $
    262.0
    
    
    $
    240.2
    
    
    $
    134.5
 96




---



##### Table of Contents



2006
    
    
    2005
    
    
    2004Engine additives
    
    $
    1,665.4
    
    
    $
    1,404.7
    
    
    $
    1,222.7Driveline and industrial oil additives
    
    
    935.1
    
    
    
    875.3
    
    
    
    775.9Total Lubrizol Additives
    
    
    2,600.5
    
    
    
    2,280.0
    
    
    
    1,998.6Performance coatings
    
    
    543.7
    
    
    
    537.6
    
    
    
    366.2Engineered polymers
    
    
    523.1
    
    
    
    462.3
    
    
    
    260.2Noveon consumer specialties
    
    
    373.5
    
    
    
    342.3
    
    
    
    239.4Total Lubrizol Advanced Materials
    
    
    1,440.3
    
    
    
    1,342.2
    
    
    
    865.8Total revenues from external customers
    
    $
    4,040.8
    
    
    $
    3,622.2
    
    
    $
    2,864.4
  2006
    
    
    2005
    
    
    2004United States
    
    $
    1,637.0
    
    
    $
    1,492.3
    
    
    $
    1,159.1Other North America
    
    
    187.2
    
    
    
    178.3
    
    
    
    151.0Europe
    
    
    1,144.7
    
    
    
    1,045.0
    
    
    
    835.7Asia-Pacific / Middle East
    
    
    823.5
    
    
    
    708.8
    
    
    
    560.5Latin America
    
    
    248.4
    
    
    
    197.8
    
    
    
    158.1Total revenues from external customers
    
    $
    4,040.8
    
    
    $
    3,622.2
    
    
    $
    2,864.4
    2006
    
    
    2005United States
    
    $
    1,525.3
    
    
    $
    1,827.8Belgium
    
    
    375.1
    
    
    
    346.1United Kingdom
    
    
    154.4
    
    
    
    152.5France
    
    
    103.9
    
    
    
    79.3Hong Kong
    
    
    77.5
    
    
    
    78.7China
    
    
    45.1
    
    
    
    45.5Germany
    
    
    34.5
    
    
    
    31.6Other
    
    
    164.4
    
    
    
    166.3Total long-lived assets
    
    $
    2,480.2
    
    
    $
    2,727.8
 97




---



##### Table of Contents



Note 16 - STOCK COMPENSATION PLANS
      98




---



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99




---



##### Table of Contents



Weighted-AverageExerciseShares
    
    
    PriceOutstanding, January 1, 2006
    
    
    4,283,917
    
    
    $
    32.35Granted
    
    
    
    
    
    
    Exercised
    
    
    (938,950
    )
    
    $
    31.03Forfeited
    
    
    (5,638
    )
    
    $
    29.72Outstanding, December 31, 2006
    
    
    3,339,329
    
    
    $
    32.72Options exercisable, December 31, 2006
    
    
    2,992,327
    
    
    $
31.93
    2005
    
    2004Risk-free interest rate
    
    
    4.3
    %
    
    
    3.7
    %Dividend yield
    
    
    2.5
    %
    
    
    3.5
    %Volatility
    
    
    21.2
    %
    
    
    24.0
    %Expected life (years)
    
    
    8.0
    
    
    
    10.0
     100




---



##### Table of Contents



Weighted-AverageShare
    
    Grant DateUnits
    
    
    
    Fair ValueNonvested at January 1, 2006
    
    
    58,689
    
    
    
    $ 29.01Granted
    
    
    12,777
    
    
    
    $ 42.27Vested
    
    
    13,689
    
    
    
    $ 39.45Forfeited
    
    
    
    
    
    
    Nonvested at December 31, 2006
    
    
    57,777
    
    
    
    $ 29.46
    Expected
    
    AverageNumber of Units
    
    Stock Price onAward
    
    to be Issued
    
    Date of Grant2004-2006 (a)
    
    
    178,541
    
    
    
    $ 30.652005-2007
    
    
    216,388
    
    
    
    $ 39.442006-2008
    
    
    154,060
    
    
    
    $ 43.07
 (a)
    
    On February 19, 2007, the organization and compensation committee of the board of directors
approved the issuance of 178,541 share units in lieu of a cash distribution.
  101




---



##### Table of Contents



Weighted-AverageShare
    
    

    Grant DateUnits
    
    

    Fair ValueNonvested at January 1, 2006
    
    
    330,460
    
    
    
    $
    41.13Granted
    
    
    
    
    
    
    
    Performance increase
    
    
    39,988
    
    
    
    $
    39.44Vested
    
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    
    Nonvested at December 31, 2006
    
    
    370,448
    
    
    
    $
    40.95
  2006

    

    2005


    
    2004Restricted share units:Long-term incentive program
    
    
    $
    9.5
    
    
    
    $
    7.8
    
    
    
    $
    2.6Other plans
    
    
    
    3.3
    
    
    
    
    2.3
    
    
    
    
    1.1Stock options
    
    
    
    3.5
    
    
    
    
    
    
    
    
    
    Total
    
    
    $
    16.3
    
    
    
    $
    10.1
    
    
    
    $
    3.7Tax benefit
    
    
    $
    6.1
    
    
    
    $
    3.8
    
    
    
    $
    1.4
  102




---



##### Table of Contents



Options Outstanding
    
    Options ExercisableWeighted-Average
    
    
    Weighted-

    
    
    
    
    
    Weighted-Range of
    
    Number
    
    
    Remaining
    
    
    Average

    
    Number

    
    AverageExercise
    
    Outstanding
    
    
    Contractual
    
    
    Exercise

    
    Exercisable

    
    ExercisePrices
    
    at 12/31/06
    
    
    Life
    
    
    Price

    
    at 12/31/06

    
    Price$ 19 - $ 25
    
    
    86,612
    
    
    2.1 years
    
    $
    21.36
    
    
    
    86,612
    
    
    $
    21.36$ 25 - $ 31
    
    
    1,929,878
    
    
    4.9 years
    
    $
    29.89
    
    
    
    1,820,876
    
    
    $
    29.87$ 31 - $ 38
    
    
    708,839
    
    
    4.5 years
    
    $
    34.51
    
    
    
    707,839
    
    
    $
    34.51$ 38 - $ 45
    
    
    614,000
    
    
    8.6 years
    
    $
    41.18
    
    
    
    307,000
    
    
    $
    41.183,339,329
    
    
    5.4 years
    
    $
    32.72
    
    
    
    2,922,327
    
    
    $
    31.93
 103




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##### Table of Contents



Note 17 - RESTRUCTURING AND IMPAIRMENT CHARGES
   Liability

    

    Restructuring

    

    
    
    
    

    
    
    
    

    LiabilityJanuary 1,

    

    and Impairment

    

    
    
    
    

    Non-cash

    

    December 31,2006

    

    Charges
    

    Cash Paid

    

    Adjustments

    

    2006Noveon trade name impairment
    

    $
    
    
    

    
    $ 41.2
    
    

    $
    
    
    

    
    $ (41.2
    )
    

    $
    Bromborough, U.K. plant closure
    

    
    2.3
    
    

    
    6.7
    
    

    
    (8.2
    )
    

    
    0.2
    
    

    
    1.0Lubrizol Advanced Materials
facility and line
closures and workforce
reductions
    

    
    2.5
    
    

    
    4.1
    
    

    
    (2.5
    )
    

    
    (3.4
    )
    

    
    0.7Corporate / other workforce
reductions
    

    
    0.3
    
    

    
    (0.1
    )
    

    
    
    
    

    
    
    
    

    
    0.2Noveon International
restructuring
liabilities assumed
    

    
    1.3
    
    

    
    
    
    

    
    (0.4
    )
    

    
    
    
    

    
    0.9$
    6.4
    
    

    
    $ 51.9
    
    

    $
    (11.1
    )
    

    
    $ (44.4
    )
    

    $
    2.8Liability

    

    Restructuring

    

    
    
    
    

    
    
    
    

    LiabilityJanuary 1,

    

    and Impairment

    

    
    
    
    

    Non-cash

    

    December 31,2005

    

    Charges
    

    Cash Paid

    

    Adjustments

    

    2005Bromborough, U.K. plant closure
    

    $
    
    
    

    
    $   6.1
    
    

    $
    (3.1
    )
    

    
    $   (0.7
    )
    

    $
    2.3Lubrizol Advanced Materials facility
closures and workforce reductions
    

    
    
    
    

    
    9.0
    
    

    
    (2.3
    )
    

    
    (4.2
    )
    

    
    2.5Corporate / other workforce reductions
    

    
    2.7
    
    

    
    0.7
    
    

    
    (3.1
    )
    

    
    
    
    

    
    0.3Noveon International restructuring
liabilities assumed
    

    
    6.1
    
    

    
    0.1
    
    

    
    (5.0
    )
    

    
    0.1
    
    

    
    1.3$
    8.8
    
    

    
    $ 15.9
    
    

    $
    (13.5
    )
    

    
    $   (4.8
    )
    

    $
    6.4Liability

    

    Restructuring

    

    
    
    
    

    
    
    
    

    LiabilityJanuary 1,

    

    and Impairment

    

    
    
    
    

    Non-cash

    

    December 31,2004

    

    Charges
    

    Cash Paid

    

    Adjustments

    

    2004Bromborough, U.K. plant closure
    

    $
    
    
    

    
    $ 17.0
    
    

    $
    
    
    

    
    $ (17.0
    )
    

    $
    Bromborough, U.K. workforce reductions
    

    
    0.2
    
    

    
    
    
    

    
    (0.2
    )
    

    
    
    
    

    
    Corporate / other workforce reductions
    

    
    12.2
    
    

    
    11.1
    
    

    
    (20.6
    )
    

    
    
    
    

    
    2.7Pension settlement
    

    
    
    
    

    
    7.7
    
    

    
    
    
    

    
    (7.7
    )
    

    
    Noveon International restructuring
liabilities assumed
    

    
    
    
    

    
    0.2
    
    

    
    (1.1
    )
    

    
    7.0
    
    

    
    6.1PuriNOx asset impairment
    

    
    
    
    

    
    2.1
    
    

    
    
    
    

    
    (2.1
    )
    

    
    $
    12.4
    
    

    
    $ 38.1
    
    

    $
    (21.9
    )
    

    
    $ (19.8
    )
    

    $
    8.8
   104




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##### Table of Contents



Note 18 - CONTINGENCIES
  General
  105




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Environmental
      GUARANTEES
   106




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##### Table of Contents



INDEMNIFICATIONS
  107




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##### Table of Contents



Note 19 - QUARTERLY FINANCIAL DATA (UNAUDITED)
  2006First (1)
    
    Second (1)
    
    Third (1)
    
    Fourth (1)
    
    Full YearAs Previously
    
    As
    
    As Previously
    
    As
    
    As Previously
    
    As
    
    As Previously
    
    As
    
    As Previously
    
    AsReported
    
    Restated
    
    Reported
    
    Restated
    
    Reported
    
    Restated
    
    Reported
    
    Restated
    
    Reported
    
    RestatedNet sales
    
    $
    984.1
    
    
    $
    984.1
    
    
    $
    1,041.1
    
    
    $
    1,041.1
    
    
    $
    1,031.0
    
    
    $
    1,031.0
    
    
    $
    984.6
    
    
    $
    984.6
    
    
    $
    4,040.8
    
    
    $
    4,040.8Gross profit
    
    $
    245.0
    
    
    $
    244.1
    
    
    $
    265.4
    
    
    $
    264.5
    
    
    $
    248.1
    
    
    $
    247.2
    
    
    $
    236.0
    
    
    $
    235.4
    
    
    $
    994.5
    
    
    $
    991.2Income from continuing operations
    
    $
    45.8
    
    
    $
    45.3
    
    
    $
    63.5
    
    
    $
    63.0
    
    
    $
    50.8
    
    
    $
    50.1
    
    
    $
    21.7
    
    
    $
    21.4
    
    
    $
    181.8
    
    
    $
    179.8Discontinued operations
    
    
    (60.7
    )
    
    
    (60.7
    )
    
    
    (12.4
    )
    
    
    (12.4
    )
    
    
    (0.5
    )
    
    
    (0.5
    )
    
    
    (2.6
    )
    
    
    (2.6
    )
    
    
    (76.2
    )
    
    
    (76.2
    )Net income
    
    $
    (14.9
    )
    
    $
    (15.4
    )
    
    $
    51.1
    
    
    $
    50.6
    
    
    $
    50.3
    
    
    $
    49.6
    
    
    $
    19.1
    
    
    $
    18.8
    
    
    $
    105.6
    
    
    $
    103.6Per common share  basic:Continuing operations
    
    $
    0.67
    
    
    $
    0.66
    
    
    $
    0.92
    
    
    $
    0.92
    
    
    $
    0.74
    
    
    $
    0.73
    
    
    $
    0.32
    
    
    $
    0.31
    
    
    $
    2.65
    
    
    $
    2.62Discontinued operations
    
    
    (0.89
    )
    
    
    (0.89
    )
    
    
    (0.18
    )
    
    
    (0.18
    )
    
    
    (0.01
    )
    
    
    (0.01
    )
    
    
    (0.04
    )
    
    
    (0.04
    )
    
    
    (1.11
    )
    
    
    (1.11
    )Net income
    
    $
    (0.22
    )
    
    $
    (0.23
    )
    
    $
    0.74
    
    
    $
    0.74
    
    
    $
    0.73
    
    
    $
    0.72
    
    
    $
    0.28
    
    
    $
    0.27
    
    
    $
    1.54
    
    
    $
    1.51Per common share  diluted:Continuing operations
    
    $
    0.66
    
    
    $
    0.65
    
    
    $
    0.92
    
    
    $
    0.91
    
    
    $
    0.73
    
    
    $
    0.72
    
    
    $
    0.31
    
    
    $
    0.31
    
    
    $
    2.62
    
    
    $
    2.59Discontinued operations
    
    
    (0.88
    )
    
    
    (0.88
    )
    
    
    (0.18
    )
    
    
    (0.18
    )
    
    
    
    
    
    
    
    
    
    
    (0.04
    )
    
    
    (0.04
    )
    
    
    (1.10
    )
    
    
    (1.10
    )Net income
    
    $
    (0.22
    )
    
    $
    (0.23
    )
    
    $
    0.74
    
    
    $
    0.73
    
    
    $
    0.73
    
    
    $
    0.72
    
    
    $
    0.27
    
    
    $
    0.27
    
    
    $
    1.52
    
    
    $
    1.49
 2005First (2)
    
    Second (2)
    
    Third (2)
    
    Fourth (2)
    
    Full YearAs Previously
    
    As
    
    As Previously
    
    As
    
    As Previously
    
    As
    
    As Previously
    
    As
    
    As Previously
    
    AsReported
    
    Restated
    
    Reported
    
    Restated
    
    Reported
    
    Restated
    
    Reported
    
    Restated
    
    Reported
    
    RestatedNet sales
    
    $
    848.8
    
    
    $
    848.8
    
    
    $
    942.3
    
    
    $
    942.3
    
    
    $
    899.5
    
    
    $
    899.5
    
    
    $
    931.6
    
    
    $
    931.6
    
    
    $
    3,622.2
    
    
    $
    3,622.2Gross profit
    
    $
    229.8
    
    
    $
    229.0
    
    
    $
    246.7
    
    
    $
    245.8
    
    
    $
    229.7
    
    
    $
    228.8
    
    
    $
    216.0
    
    
    $
    215.1
    
    
    $
    922.2
    
    
    $
    918.7Income from continuing operations
    
    $
    40.1
    
    
    $
    39.5
    
    
    $
    50.2
    
    
    $
    49.7
    
    
    $
    42.7
    
    
    $
    42.2
    
    
    $
    28.5
    
    
    $
    28.0
    
    
    $
    161.5
    
    
    $
    159.4Discontinued operations
    
    
    8.4
    
    
    
    8.4
    
    
    
    9.9
    
    
    
    9.9
    
    
    
    5.9
    
    
    
    5.9
    
    
    
    3.6
    
    
    
    3.6
    
    
    
    27.8
    
    
    
    27.8Net income $(0.22) $(0.23) $0.74 $ 0.73 $ 0.73 $ 0.72 $ 0.27 $ 0.27 $ 1.52 $ 1.49Net income
    
    $
    48.5
    
    
    $
    47.9
    
    
    $
    60.1
    
    
    $
    59.6
    
    
    $
    48.6
    
    
    $
    48.1
    
    
    $
    32.1
    
    
    $
    31.6
    
    
    $
    189.3
    
    
    $
    187.2Per common share  basic:Continuing operations
    
    $
    0.59
    
    
    $
    0.59
    
    
    $
    0.74
    
    
    $
    0.73
    
    
    $
    0.63
    
    
    $
    0.62
    
    
    $
    0.42
    
    
    $
    0.41
    
    
    $
    2.38
    
    
    $
    2.35Discontinued operations
    
    
    0.13
    
    
    
    0.13
    
    
    
    0.14
    
    
    
    0.14
    
    
    
    0.08
    
    
    
    0.08
    
    
    
    0.05
    
    
    
    0.05
    
    
    
    0.41
    
    
    
    0.41Net income
    
    $
    0.72
    
    
    $
    0.72
    
    
    $
    0.88
    
    
    $
    0.87
    
    
    $
    0.71
    
    
    $
    0.70
    
    
    $
    0.47
    
    
    $
    0.46
    
    
    $
    2.79
    
    
    $
    2.76Per common share  diluted:Continuing operations
    
    $
    0.59
    
    
    $
    0.58
    
    
    $
    0.73
    
    
    $
    0.72
    
    
    $
    0.62
    
    
    $
    0.61
    
    
    $
    0.41
    
    
    $
    0.40
    
    
    $
    2.35
    
    
    $
    2.32Discontinued operations
    
    
    0.12
    
    
    
    0.12
    
    
    
    0.14
    
    
    
    0.14
    
    
    
    0.08
    
    
    
    0.08
    
    
    
    0.05
    
    
    
    0.05
    
    
    
    0.40
    
    
    
    0.40Net income
    
    $
    0.71
    
    
    $
    0.70
    
    
    $
    0.87
    
    
    $
    0.86
    
    
    $
    0.70
    
    
    $
    0.69
    
    
    $
    0.46
    
    
    $
    0.45
    
    
    $
    2.75
    
    
    $
    2.72
 (1)
    
    The company recorded restructuring and impairment charges of $1.8 million, $1.8 million, $2.7
million and $45.6 million in the first, second, third and fourth quarters of 2006, respectively.(2)
    
    The company recorded restructuring and impairment charges of $6.1 million, $5.4 million, $1.1
million and $3.3 million in the first, second, third and fourth quarters of 2005, respectively.
 108




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##### Table of Contents



Note
20 - RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS
    109




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##### Table of Contents



Consolidated Statement of Income
 Year Ended December 31, 2006(as previously(In Millions of Dollars Except Per Share Data)
    
    reported)
    
    (adjustments)
    
    (as restated)Net sales
    
    
    $ 4,036.4
    
    
    
    $       
    
    
    
    $ 4,036.4Royalties and other revenues
    
    
    4.4
    
    
    
    
    
    
    
    4.4Total revenues
    
    
    4,040.8
    
    
    
    
    
    
    
    4,040.8Cost of sales
    
    
    3,041.9
    
    
    
    3.3
    
    
    
    3,045.2Selling and administrative expenses
    
    
    381.7
    
    
    
    
    
    
    
    381.7Research, testing and development expenses
    
    
    205.5
    
    
    
    
    
    
    
    205.5Amortization of intangible assets
    
    
    23.7
    
    
    
    
    
    
    
    23.7Restructuring and impairment charges
    
    
    51.9
    
    
    
    
    
    
    
    51.9Total costs and expenses
    
    
    3,704.7
    
    
    
    3.3
    
    
    
    3,708.0Other income - net
    
    
    8.3
    
    
    
    0.2
    
    
    
    8.5Interest income
    
    
    20.4
    
    
    
    
    
    
    
    20.4Interest expense
    
    
    (99.7
    )
    
    
    
    
    
    
    (99.7
    )Income from continuing operations before income taxes
    
    
    265.1
    
    
    
    (3.1
    )
    
    
    262.0Provision for income taxes
    
    
    83.3
    
    
    
    (1.1
    )
    
    
    82.2Income from continuing operations
    
    
    181.8
    
    
    
    (2.0
    )
    
    
    179.8Loss from discontinued operations - net of tax
    
    
    (76.2
    )
    
    
    
    
    
    
    (76.2
    )Net income
    
    
    $    105.6
    
    
    
    $   (2.0
    )
    
    
    $    103.6Basic earnings (loss) per share:Continuing operations
    
    
    $      2.65
    
    
    
    $ (0.03
    )
    
    
    $      2.62Discontinued operations
    
    
    (1.11
    )
    
    
    
    
    
    
    (1.11
    )Net income per share, basic
    
    
    $      1.54
    
    
    
    $ (0.03
    )
    
    
    $      1.51Diluted earnings (loss) per share:Continuing operations
    
    
    $      2.62
    
    
    
    $ (0.03
    )
    
    
    $      2.59Discontinued operations
    
    
    (1.10
    )
    
    
    
    
    
    
    (1.10
    )Net income per share, diluted
    
    
    $      1.52
    
    
    
    $ (0.03
    )
    
    
    $      1.49
 110




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Consolidated Statement of Income
 Year Ended December 31, 2005(as previously(In Millions of Dollars Except Per Share Data)
    
    reported)
    
    (adjustments)
    
    (as restated)Net sales
    
    
    $ 3,618.8
    
    
    
    $       
    
    
    
    $ 3,618.8Royalties and other revenues
    
    
    3.4
    
    
    
    
    
    
    
    3.4Total revenues
    
    
    3,622.2
    
    
    
    
    
    
    
    3,622.2Cost of sales
    
    
    2,696.6
    
    
    
    3.5
    
    
    
    2,700.1Selling and administrative expenses
    
    
    348.4
    
    
    
    
    
    
    
    348.4Research, testing and development expenses
    
    
    198.9
    
    
    
    
    
    
    
    198.9Amortization of intangible assets
    
    
    23.5
    
    
    
    
    
    
    
    23.5Restructuring and impairment charges
    
    
    15.9
    
    
    
    
    
    
    
    15.9Total costs and expenses
    
    
    3,283.3
    
    
    
    3.5
    
    
    
    3,286.8Other income - net
    
    
    1.6
    
    
    
    0.2
    
    
    
    1.8Interest income
    
    
    8.1
    
    
    
    
    
    
    
    8.1Interest expense
    
    
    (105.1
    )
    
    
    
    
    
    
    (105.1
    )Income from continuing operations before income taxes
    
    
    243.5
    
    
    
    (3.3
    )
    
    
    240.2Provision for income taxes
    
    
    82.0
    
    
    
    (1.2
    )
    
    
    80.8Income from continuing operations
    
    
    161.5
    
    
    
    (2.1
    )
    
    
    159.4Income from discontinued operations - net of tax
    
    
    27.8
    
    
    
    
    
    
    
    27.8Net income
    
    
    $    189.3
    
    
    
    $   (2.1
    )
    
    
    $     187.2Basic earnings per share:Continuing operations
    
    
    $      2.38
    
    
    
    $ (0.03
    )
    
    
    $       2.35Discontinued operations
    
    
    0.41
    
    
    
    
    
    
    
    0.41Net income per share, basic
    
    
    $      2.79
    
    
    
    $ (0.03
    )
    
    
    $       2.76Diluted earnings per share:Continuing operations
    
    
    $      2.35
    
    
    
    $ (0.03
    )
    
    
    $       2.32Discontinued operations
    
    
    0.40
    
    
    
    
    
    
    
    0.40Net income per share, diluted
    
    
    $      2.75
    
    
    
    $ (0.03
    )
    
    
    $       2.72
 111




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Consolidated Statement of Income
 Year Ended December 31, 2004(as previously(In Millions of Dollars Except Per Share Data)
    
    reported)
    
    (adjustments)
    
    (as restated)Net sales
    
    
    $ 2,860.5
    
    
    
    $        
    
    
    
    $ 2,860.5Royalties and other revenues
    
    
    3.9
    
    
    
    
    
    
    
    3.9Total revenues
    
    
    2,864.4
    
    
    
    
    
    
    
    2,864.4Cost of sales
    
    
    2,101.7
    
    
    
    2.9
    
    
    
    2,104.6Selling and administrative expenses
    
    
    284.8
    
    
    
    
    
    
    
    284.8Research, testing and development expenses
    
    
    184.8
    
    
    
    
    
    
    
    184.8Amortization of intangible assets
    
    
    16.9
    
    
    
    
    
    
    
    16.9Write-off of acquired in-process research and developmen
    
    
    34.0
    
    
    
    
    
    
    
    34.0Restructuring and impairment charges
    
    
    38.1
    
    
    
    
    
    
    
    38.1Total costs and expenses
    
    
    2,660.3
    
    
    
    2.9
    
    
    
    2,663.2Other income - net
    
    
    5.4
    
    
    
    0.2
    
    
    
    5.6Interest income
    
    
    4.8
    
    
    
    
    
    
    
    4.8Interest expense
    
    
    (77.1
    )
    
    
    
    
    
    
    (77.1
    )Income from continuing operations before income taxes
    
    
    137.2
    
    
    
    (2.7
    )
    
    
    134.5Provision for income taxes
    
    
    50.0
    
    
    
    (1.0
    )
    
    
    49.0Income from continuing operations
    
    
    87.2
    
    
    
    (1.7
    )
    
    
    85.5Income from discontinued operations - net of tax
    
    
    6.3
    
    
    
    
    
    
    
    6.3Net income
    
    
    $      93.5
    
    
    
    $    (1.7
    )
    
    
    $      91.8Basic earnings per share:Continuing operations
    
    
    $      1.57
    
    
    
    $  (0.03
    )
    
    
    $      1.54Discontinued operations
    
    
    0.11
    
    
    
    
    
    
    
    0.11Net income per share, basic
    
    
    $      1.68
    
    
    
    $  (0.03
    )
    
    
    $      1.65Diluted earnings per share:Continuing operations
    
    
    $      1.56
    
    
    
    $  (0.03
    )
    
    
    $      1.53Discontinued operations
    
    
    0.11
    
    
    
    
    
    
    
    0.11Net income per share, diluted
    
    
    $      1.67
    
    
    
    $  (0.03
    )
    
    
    $      1.64
 112




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##### Table of Contents



Consolidated Balance Sheet
 December 31, 2006(as previously(In Millions of Dollars)
    
    reported)
    
    (adjustments)
    
    (as restated)ASSETSCash and short-term investments
    
    
    $    575.7
    
    
    $
    
    
    
    
    $    575.7Receivables
    
    
    573.6
    
    
    
    
    
    
    
    573.6Inventories
    
    
    589.0
    
    
    
    
    
    
    
    589.0Other current assets
    
    
    98.0
    
    
    
    
    
    
    
    98.0Total current assets
    
    
    1,836.3
    
    
    
    
    
    
    
    1,836.3Property and equipment - at cost
    
    
    2,546.0
    
    
    
    
    
    
    
    2,546.0Less accumulated depreciation
    
    
    1,464.7
    
    
    
    
    
    
    
    1,464.7Property and equipment - net
    
    
    1,081.3
    
    
    
    
    
    
    
    1,081.3Goodwill
    
    
    1,076.1
    
    
    
    
    
    
    
    1,076.1Intangible assets - net
    
    
    322.8
    
    
    
    
    
    
    
    322.8Investments in non-consolidated companies
    
    
    7.7
    
    
    
    
    
    
    
    7.7Other assets
    
    
    62.0
    
    
    
    4.7
    
    
    
    66.7TOTAL
    
    
    $ 4,386.2
    
    
    $
    4.7
    
    
    
    $ 4,390.9LIABILITIES AND SHAREHOLDERS
EQUITYShort-term debt and current portion of long-term
debt
    
    
    $        3.7
    
    
    $
    
    
    
    
    $        3.7Accounts payable
    
    
    340.5
    
    
    
    
    
    
    
    340.5Accrued expenses and other current liabilities
    
    
    287.8
    
    
    
    2.4
    
    
    
    290.2Total current liabilities
    
    
    632.0
    
    
    
    2.4
    
    
    
    634.4Long-term debt
    
    
    1,538.0
    
    
    
    
    
    
    
    1,538.0Pension obligations
    
    
    218.5
    
    
    
    19.4
    
    
    
    237.9Other postretirement benefit obligations
    
    
    82.0
    
    
    
    11.5
    
    
    
    93.5Noncurrent liabilities
    
    
    66.7
    
    
    
    5.6
    
    
    
    72.3Deferred income taxes
    
    
    88.9
    
    
    
    (8.5
    )
    
    
    80.4Total liabilities
    
    
    2,626.1
    
    
    
    30.4
    
    
    
    2,656.5Minority interest in consolidated companies
    
    
    52.7
    
    
    
    (1.4
    )
    
    
    51.3Contingencies and commitmentsPreferred stock without par value - unissued
    
    
    
    
    
    
    
    
    
    
    Common shares without par value
    
    
    710.1
    
    
    
    
    
    
    
    710.1Retained earnings
    
    
    1,050.2
    
    
    
    (16.4
    )
    
    
    1,033.8Accumulated other comprehensive loss
    
    
    (52.9
    )
    
    
    (7.9
    )
    
    
    (60.8
    )Total shareholders equity
    
    
    1,707.4
    
    
    
    (24.3
    )
    
    
    1,683.1TOTAL
    
    
    $ 4,386.2
    
    
    $
    4.7
    
    
    
    $ 4,390.9
 113




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##### Table of Contents



Consolidated Balance Sheet
 December
31, 2005(as previously(In Millions of Dollars)
    
    reported)
    
    (adjustments)
    
    (as restated)ASSETSCash and short-term investments
    
    
    $    262.4
    
    
    $
    
    
    
    
    $    262.4Receivables
    
    
    585.6
    
    
    
    
    
    
    
    585.6Inventories
    
    
    586.0
    
    
    
    
    
    
    
    586.0Other current assets
    
    
    138.3
    
    
    
    
    
    
    
    138.3Total current assets
    
    
    1,572.3
    
    
    
    
    
    
    
    1,572.3Property and equipment - at cost
    
    
    2,621.5
    
    
    
    
    
    
    
    2,621.5Less accumulated depreciation
    
    
    1,437.1
    
    
    
    
    
    
    
    1,437.1Property and equipment - net
    
    
    1,184.4
    
    
    
    
    
    
    
    1,184.4Goodwill
    
    
    1,138.8
    
    
    
    
    
    
    
    1,138.8Intangible assets - net
    
    
    404.6
    
    
    
    2.6
    
    
    
    407.2Investments in non-consolidated companies
    
    
    7.6
    
    
    
    
    
    
    
    7.6Other assets
    
    
    58.6
    
    
    
    2.3
    
    
    
    60.9TOTAL
    
    
    $ 4,366.3
    
    
    $
    4.9
    
    
    
    $ 4,371.2LIABILITIES AND SHAREHOLDERS EQUITYShort-term debt and current portion of long-term debt
    
    
    $        7.9
    
    
    $
    
    
    
    
    $        7.9Accounts payable
    
    
    372.2
    
    
    
    
    
    
    
    372.2Accrued expenses and other current liabilities
    
    
    284.8
    
    
    
    0.8
    
    
    
    285.6Total current liabilities
    
    
    664.9
    
    
    
    0.8
    
    
    
    665.7Long-term debt
    
    
    1,662.9
    
    
    
    
    
    
    
    1,662.9Pension obligations
    
    
    125.7
    
    
    
    14.9
    
    
    
    140.6Other postretirement benefit obligations
    
    
    102.6
    
    
    
    6.9
    
    
    
    109.5Noncurrent liabilities
    
    
    78.3
    
    
    
    4.5
    
    
    
    82.8Deferred income taxes
    
    
    113.7
    
    
    
    (6.0
    )
    
    
    107.7Total liabilities
    
    
    2,748.1
    
    
    
    21.1
    
    
    
    2,769.2Minority interest in consolidated companies
    
    
    51.0
    
    
    
    (0.9
    )
    
    
    50.1Contingencies and commitmentsPreferred stock without par value - unissued
    
    
    
    
    
    
    
    
    
    
    Common shares without par value
    
    
    663.7
    
    
    
    
    
    
    
    663.7Retained earnings
    
    
    1,016.0
    
    
    
    (14.3
    )
    
    
    1,001.7Accumulated other comprehensive loss
    
    
    (112.5
    )
    
    
    (1.0
    )
    
    
    (113.5
    )Total shareholders equity
    
    
    1,567.2
    
    
    
    (15.3
    )
    
    
    1,551.9TOTAL
    
    
    $ 4,366.3
    
    
    $
    4.9
    
    
    
    $ 4,371.2
 114




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##### Table of Contents



Consolidated Statement of Cash Flows
 Year Ended December 31, 2006(as previously(In Millions of Dollars)
    
    reported)
    
    (adjustments)
    
    (as restated)CASH PROVIDED BY (USED FOR):OPERATING ACTIVITIESNet income
    
    
    $  105.6
    
    
    
    $ (2.0
    )
    
    
    $ 103.6Adjustments to reconcile net income to cash
provided by operating activities:Depreciation and amortization
    
    
    161.8
    
    
    
    
    
    
    
    161.8Deferred income taxes
    
    
    29.8
    
    
    
    (1.2
    )
    
    
    28.6Deferred compensation
    
    
    19.5
    
    
    
    
    
    
    
    19.5Restructuring and impairment charges
    
    
    105.6
    
    
    
    
    
    
    
    105.6Loss from divestitures and sales of property and equipment
    
    
    9.6
    
    
    
    
    
    
    
    9.6Change in current assets and liabilities, net of acquisitions and divestitures:Receivables
    
    
    (3.4
    )
    
    
    
    
    
    
    (3.4
    )Inventories
    
    
    (56.2
    )
    
    
    
    
    
    
    (56.2
    )Accounts payable, accrued expenses and other current liabilities
    
    
    (58.5
    )
    
    
    1.4
    
    
    
    (57.1
    )Other current assets
    
    
    3.4
    
    
    
    
    
    
    
    3.4(114.7
    )
    
    
    1.4
    
    
    
    (113.3
    )Change in noncurrent liabilities
    
    
    6.6
    
    
    
    1.9
    
    
    
    8.5Other items - net
    
    
    11.0
    
    
    
    (0.1
    )
    
    
    10.9Total operating activities
    
    
    334.8
    
    
    
    
    
    
    
    334.8INVESTING ACTIVITIESCapital expenditures
    
    
    (130.9
    )
    
    
    
    
    
    
    (130.9
    )Net proceeds from divestitures and sales of property and equipment
    
    
    281.9
    
    
    
    
    
    
    
    281.9Other items - net
    
    
    0.4
    
    
    
    
    
    
    
    0.4Total investing activities
    
    
    151.4
    
    
    
    
    
    
    
    151.4FINANCING ACTIVITIESChanges in short-term debt - net
    
    
    (0.6
    )
    
    
    
    
    
    
    (0.6
    )Repayments of long-term debt
    
    
    (143.4
    )
    
    
    
    
    
    
    (143.4
    )Dividends paid
    
    
    (71.2
    )
    
    
    
    
    
    
    (71.2
    )Proceeds from the exercise of stock options
    
    
    31.3
    
    
    
    
    
    
    
    31.3Total financing activities
    
    
    (183.9
    )
    
    
    
    
    
    
    (183.9
    )Effect of exchange rate changes on cash
    
    
    11.0
    
    
    
    
    
    
    
    11.0Net increase in cash and short-term investments
    
    
    313.3
    
    
    
    
    
    
    
    313.3Cash and short-term investments at the beginning of year
    
    
    262.4
    
    
    
    
    
    
    
    262.4Cash and short-term investments at the end of year
    
    
    $  575.7
    
    
    
    $    
    
    
    
    $  575.7
 115




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##### Table of Contents



Consolidated Statement of Cash Flows
 Year Ended December 31, 2005(as previously(In Millions of Dollars)
    
    reported)
    
    (adjustments)
    
    (as restated)CASH PROVIDED BY (USED FOR):OPERATING ACTIVITIESNet income
    
    
    $ 189.3
    
    
    $
    (2.1
    )
    
    
    $ 187.2Adjustments to reconcile net income to cash
provided by operating activities:Depreciation and amortization
    
    
    179.8
    
    
    
    
    
    
    
    179.8Deferred income taxes
    
    
    10.3
    
    
    
    (1.2
    )
    
    
    9.1Deferred compensation
    
    
    16.3
    
    
    
    
    
    
    
    16.3Restructuring and impairment charges
    
    
    11.1
    
    
    
    
    
    
    
    11.1Gain from divestitures and sales of property and equipment
    
    
    (3.9
    )
    
    
    
    
    
    
    (3.9
    )Change in current assets and liabilities, net of acquisitions and divestitures:Receivables
    
    
    (52.9
    )
    
    
    
    
    
    
    (52.9
    )Inventories
    
    
    (47.5
    )
    
    
    
    
    
    
    (47.5
    )Accounts payable, accrued expenses and other current liabilities
    
    
    56.0
    
    
    
    0.1
    
    
    
    56.1Other current assets
    
    
    6.9
    
    
    
    
    
    
    
    6.9(37.5
    )
    
    
    0.1
    
    
    
    (37.4
    )Change in noncurrent liabilities
    
    
    5.4
    
    
    
    3.2
    
    
    
    8.6Other items - net
    
    
    (8.6
    )
    
    
    
    
    
    
    (8.6
    )Total operating activities
    
    
    362.2
    
    
    
    
    
    
    
    362.2INVESTING ACTIVITIESCapital expenditures
    
    
    (136.7
    )
    
    
    
    
    
    
    (136.7
    )Net proceeds from divestitures and sales of property and equipment
    
    
    30.1
    
    
    
    
    
    
    
    30.1Other items - net
    
    
    (0.2
    )
    
    
    
    
    
    
    (0.2
    )Total investing activities
    
    
    (106.8
    )
    
    
    
    
    
    
    (106.8
    )FINANCING ACTIVITIESChanges in short-term debt - net
    
    
    (4.0
    )
    
    
    
    
    
    
    (4.0
    )Repayments of long-term debt
    
    
    (512.2
    )
    
    
    
    
    
    
    (512.2
    )Proceeds from the issuance of long-term debt
    
    
    235.8
    
    
    
    
    
    
    
    235.8Dividends paid
    
    
    (70.4
    )
    
    
    
    
    
    
    (70.4
    )Payment of debt issuance costs
    
    
    (0.8
    )
    
    
    
    
    
    
    (0.8
    )Proceeds from the exercise of stock options
    
    
    38.8
    
    
    
    
    
    
    
    38.8Total financing activities
    
    
    (312.8
    )
    
    
    
    
    
    
    (312.8
    )Effect of exchange rate changes on cash
    
    
    (16.1
    )
    
    
    
    
    
    
    (16.1
    )Net decrease in cash and short-term investments
    
    
    (73.5
    )
    
    
    
    
    
    
    (73.5
    )Cash and short-term investments at the beginning of year
    
    
    335.9
    
    
    
    
    
    
    
    335.9Cash and short-term investments at the end of year
    
    
    $  262.4
    
    
    $
    
    
    
    
    $  262.4
 116




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##### Table of Contents



Consolidated Statement of Cash Flows
 Year
Ended December 31, 2004(as previously(In Millions of Dollars)
    
    reported)
    
    (adjustments)
    
    (as restated)CASH PROVIDED BY (USED FOR):OPERATING ACTIVITIESNet income
    
    $
    93.5
    
    
    $
    (1.7
    )
    
    $
    91.8Adjustments to reconcile net income to cash
provided by operating activities:Depreciation and amortization
    
    
    154.7
    
    
    
    
    
    
    
    154.7Write-off of acquired in-process
research and development
    
    
    34.0
    
    
    
    
    
    
    
    34.0Deferred income taxes
    
    
    5.9
    
    
    
    (1.0
    )
    
    
    4.9Deferred compensation
    
    
    3.4
    
    
    
    
    
    
    
    3.4Restructuring and impairment charges
    
    
    27.5
    
    
    
    
    
    
    
    27.5Loss from divestitures and sales of
property and equipment
    
    
    3.1
    
    
    
    
    
    
    
    3.1Change in current assets and
liabilities, net of acquisitions and
divestitures:Receivables
    
    
    (38.4
    )
    
    
    
    
    
    
    (38.4
    )Inventories
    
    
    (50.0
    )
    
    
    
    
    
    
    (50.0
    )Accounts payable, accrued
expenses and other current
liabilities
    
    
    80.5
    
    
    
    0.2
    
    
    
    80.7Other current assets
    
    
    2.5
    
    
    
    
    
    
    
    2.5(5.4
    )
    
    
    0.2
    
    
    
    (5.2
    )Change in noncurrent liabilities
    
    
    9.0
    
    
    
    2.6
    
    
    
    11.6Other items - net
    
    
    5.9
    
    
    
    (0.1
    )
    
    
    5.8Total operating activities
    
    
    331.6
    
    
    
    
    
    
    
    331.6INVESTING ACTIVITIESCapital expenditures
    
    
    (133.2
    )
    
    
    
    
    
    
    (133.2
    )Acquisitions - net of cash received and
liabilities assumed
    
    
    (958.4
    )
    
    
    
    
    
    
    (958.4
    )Net proceeds from divestitures and sales of
property and equipment
    
    
    3.0
    
    
    
    
    
    
    
    3.0Other items - net
    
    
    (0.2
    )
    
    
    
    
    
    
    (0.2
    )Total investing activities
    
    
    (1,088.8
    )
    
    
    
    
    
    
    (1,088.8
    )FINANCING ACTIVITIESChanges in short-term debt - net
    
    
    (72.6
    )
    
    
    
    
    
    
    (72.6
    )Repayments of long-term debt
    
    
    (1,193.0
    )
    
    
    
    
    
    
    (1,193.0
    )Proceeds from the issuance of long-term debt
    
    
    1,743.3
    
    
    
    
    
    
    
    1,743.3Dividends paid
    
    
    (57.6
    )
    
    
    
    
    
    
    (57.6
    )Proceeds from sale of common shares, net of
underwriting
commissions and offering expenses of
$20.2 million
    
    
    470.0
    
    
    
    
    
    
    
    470.0Payment of debt issuance costs
    
    
    (16.8
    )
    
    
    
    
    
    
    (16.8
    )Payment of treasury rate lock upon
settlement
    
    
    (73.9
    )
    
    
    
    
    
    
    (73.9
    )Payment on termination of interest rate
swaps
    
    
    (2.9
    )
    
    
    
    
    
    
    (2.9
    )Proceeds from the exercise of stock options
    
    
    12.0
    
    
    
    
    
    
    
    12.0Total financing activities
    
    
    808.5
    
    
    
    
    
    
    
    808.5Effect of exchange rate changes on cash
    
    
    25.9
    
    
    
    
    
    
    
    25.9Net increase in cash and short-term
investments
    
    
    77.2
    
    
    
    
    
    
    
    77.2Cash and short-term investments at the
beginning of year
    
    
    258.7
    
    
    
    
    
    
    
    258.7Cash and short-term investments at the end
of year
    
    $
    335.9
    
    
    $
    
    
    
    $
    335.9
 117