##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2006
 OR
 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 or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 
 
  þ o
  þ o o
 o þ




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THE LUBRIZOL CORPORATION  Quarterly Report on Form 10-Q  Quarter Ended June 30, 2006
 Table of Contents
 Page NumberPART I. FINANCIAL INFORMATIONItem 1
    Financial Statements (unaudited)
    
    
    3Consolidated Statements of Income
    
    
    3Consolidated Balance Sheets
    
    
    4Consolidated Statements of Cash Flows
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    30Item 3
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    45Item 4
    Controls and Procedures
    
    
    47PART II. OTHER INFORMATIONItem 1
    Legal Proceedings
    
    
    47Item 1A
    Risk Factors
    
    
    47Item 2
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    47Item 4
    Submission of Matters to a Vote of Security Holders
    
    
    48Item 6
    Exhibits
    
    
    49Signatures
    
    
    49EX-31.1 CertificationEX-31.2 CertificationEX-32.1 Certification
 -2-




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PART
I. FINANCIAL INFORMATION
 
 Item 1.
Financial Statements
 THE LUBRIZOL CORPORATION
 
  
 Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,(In Millions of Dollars Except Per Share Data)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Net sales
    
    $
    1,039.9
    
    
    $
    941.6
    
    
    $
    2,023.4
    
    
    $
    1,789.6Royalties and other revenues
    
    
    1.2
    
    
    
    0.7
    
    
    
    1.9
    
    
    
    1.5Total revenues
    
    
    1,041.1
    
    
    
    942.3
    
    
    
    2,025.3
    
    
    
    1,791.1Cost of sales
    
    
    774.5
    
    
    
    694.9
    
    
    
    1,513.0
    
    
    
    1,313.1Selling and administrative expenses
    
    
    85.7
    
    
    
    86.5
    
    
    
    178.9
    
    
    
    172.1Research, testing and development expenses
    
    
    52.6
    
    
    
    49.2
    
    
    
    102.3
    
    
    
    97.7Amortization of intangible assets
    
    
    5.9
    
    
    
    5.9
    
    
    
    11.7
    
    
    
    11.8Restructuring and impairment charges
    
    
    1.8
    
    
    
    5.4
    
    
    
    3.6
    
    
    
    11.5Total costs and expenses
    
    
    920.5
    
    
    
    841.9
    
    
    
    1,809.5
    
    
    
    1,606.2Other (expense) income -net
    
    
    (0.3
    )
    
    
    0.6
    
    
    
    (1.8
    )
    
    
    1.2Interest income
    
    
    3.7
    
    
    
    1.9
    
    
    
    5.9
    
    
    
    3.7Interest expense
    
    
    (24.7
    )
    
    
    (26.8
    )
    
    
    (50.0
    )
    
    
    (53.1
    )Income from continuing operations before
income taxes
    
    
    99.3
    
    
    
    76.1
    
    
    
    169.9
    
    
    
    136.7Provision for income taxes
    
    
    35.8
    
    
    
    25.9
    
    
    
    60.6
    
    
    
    46.4Income from continuing operations
    
    
    63.5
    
    
    
    50.2
    
    
    
    109.3
    
    
    
    90.3Discontinued operations -net of tax
    
    
    (12.4
    )
    
    
    9.9
    
    
    
    (73.1
    )
    
    
    18.3Net income
    
    $
    51.1
    
    
    $
    60.1
    
    
    $
    36.2
    
    
    $
    108.6Basic earnings (loss) per share:Continuing operations
    
    $
    0.92
    
    
    $
    0.74
    
    
    $
    1.60
    
    
    $
    1.33Discontinued operations
    
    
    (0.18
    )
    
    
    0.14
    
    
    
    (1.07
    )
    
    
    0.27Net income per share, basic
    
    $
    0.74
    
    
    $
    0.88
    
    
    $
    0.53
    
    
    $
    1.60Diluted earnings (loss) per share:Continuing operations
    
    $
    0.92
    
    
    $
    0.73
    
    
    $
    1.58
    
    
    $
    1.32Discontinued operations
    
    
    (0.18
    )
    
    
    0.14
    
    
    
    (1.06
    )
    
    
    0.27Net income per share, diluted
    
    $
    0.74
    
    
    $
    0.87
    
    
    $
    0.52
    
    
    $
    1.59Dividends per share
    
    $
    0.26
    
    
    $
    0.26
    
    
    $
    0.26
    
    
    $
    0.26
 Amounts shown are unaudited.
 See accompanying notes to the financial statements.
 -3-




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THE LUBRIZOL CORPORATION
 
  
 June 30,
    
    
    December 31,(In Millions of Dollars)
    
    2006
    
    
    2005ASSETSCash and short-term investments
    
    $
    491.5
    
    
    $
    262.4Receivables
- net
    
    
    614.6
    
    
    
    585.6Inventories
    
    
    544.8
    
    
    
    586.0Other current assets
    
    
    91.2
    
    
    
    138.3Total current assets
    
    
    1,742.1
    
    
    
    1,572.3Property and equipment -at cost
    
    
    2,555.0
    
    
    
    2,621.5Less accumulated depreciation
    
    
    1,482.6
    
    
    
    1,437.1Property and equipment - net
    
    
    1,072.4
    
    
    
    1,184.4Goodwill
    
    
    1,062.8
    
    
    
    1,138.8Intangible assets -net
    
    
    378.4
    
    
    
    404.6Investments in non-consolidated companies
    
    
    7.5
    
    
    
    7.6Other assets
    
    
    54.1
    
    
    
    58.6TOTAL
    
    $
    4,317.3
    
    
    $
    4,366.3LIABILITIES AND SHAREHOLDERS EQUITYShort-term debt and current portion of long-term debt
    
    $
    14.9
    
    
    $
    7.9Accounts payable
    
    
    349.4
    
    
    
    372.2Accrued expenses and other current liabilities
    
    
    264.0
    
    
    
    284.8Total current liabilities
    
    
    628.3
    
    
    
    664.9Long-term debt
    
    
    1,608.7
    
    
    
    1,662.9Postretirement health-care obligations
    
    
    101.3
    
    
    
    102.6Noncurrent liabilities
    
    
    218.3
    
    
    
    204.0Deferred income taxes
    
    
    89.1
    
    
    
    113.7Total liabilities
    
    
    2,645.7
    
    
    
    2,748.1Minority interest in consolidated companies
    
    
    48.8
    
    
    
    51.0Contingencies and commitmentsShareholders equity:Preferred stock without par value -authorized and
unissued:Serial preferred stock -2,000,000 shares
    
    
    
    
    
    
    Serial preference shares -25,000,000 shares
    
    
    
    
    
    
    Common shares without par value:Authorized 120,000,000 shares
    
    
    
    
    
    
    Outstanding
-68,439,410 shares as of June 30, 2006 after deducting 17,756,484 treasury shares,
68,043,241 shares as of December 31, 2005 after deducting 18,152,653 treasury shares
    
    
    680.0
    
    
    
    663.7Retained earnings
    
    
    1,016.7
    
    
    
    1,016.0Accumulated other comprehensive loss
    
    
    (73.9
    )
    
    
    (112.5
    )Total shareholders equity
    
    
    1,622.8
    
    
    
    1,567.2TOTAL
    
    $
    4,317.3
    
    
    $
    4,366.3
 Amounts shown are unaudited.
 See accompanying notes to the financial statements.
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THE LUBRIZOL CORORATION
 
  
 Six MonthsEnded June 30,(In Millions of Dollars)
    
    2006
    
    
    2005CASH PROVIDED BY (USED FOR):OPERATING ACTIVITIESNet income
    
    $
    36.2
    
    
    $
    108.6Adjustments to reconcile net income to cash
provided by operating activities:Depreciation and amortization
    
    
    82.4
    
    
    
    91.7Deferred income taxes
    
    
    14.3
    
    
    
    3.9Restructuring and impairment charges
    
    
    61.0
    
    
    
    5.1Change in current assets and liabilities, net of
acquisitions and divestitures:Receivables
    
    
    (67.9
    )
    
    
    (88.0
    )Inventories
    
    
    (21.0
    )
    
    
    (8.4
    )Accounts payable, accrued expenses and other
current liabilities
    
    
    (62.8
    )
    
    
    (3.5
    )Other current assets
    
    
    4.2
    
    
    
    7.4(147.5
    )
    
    
    (92.5Change in noncurrent liabilities
    
    
    14.4
    
    
    
    18.8Other items  net
    
    
    28.8
    
    
    
    10.1Total operating activities
    
    
    89.6
    
    
    
    145.7INVESTING ACTIVITIESCapital expenditures
    
    
    (62.2
    )
    
    
    (58.6
    )Net proceeds from divestitures and sales of property
and equipment
    
    
    275.4
    
    
    
    3.5Other items  net
    
    
    (0.7
    )
    
    
    (0.3
    )Total investing activities
    
    
    212.5
    
    
    
    (55.4
    )FINANCING ACTIVITIESChanges in short-term debt, net
    
    
    6.9
    
    
    
    (3.7
    )Repayments of long-term debt
    
    
    (57.7
    )
    
    
    (125.0
    )Dividends paid
    
    
    (35.5
    )
    
    
    (35.0
    )Proceeds from the exercise of stock options
    
    
    10.3
    
    
    
    32.3Total financing activities
    
    
    (76.0
    )
    
    
    (131.4
    )Effect of exchange rate changes on cash
    
    
    3.0
    
    
    
    (15.8
    )Net increase (decrease) in cash and short-term investments
    
    229.1
    
    
    
    (56.9
    )Cash and
short-term investments at the beginning of
period
    
    
    262.4
    
    
    
    335.9Cash and short-term investments at the end of period
    
    $
    491.5
    
    
    $
    279.0
 Amounts shown are unaudited.
 See accompanying notes to the financial statements.
 -5-




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THE LUBRIZOL CORPORATION
 
 Notes to Consolidated Financial Statements  June 30, 2006
 1. Basis of Presentation
   2. Significant Accounting Policies
 Net Income Per Share
  Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,(in millions except per share data)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Numerator:Income from continuing operations
    
    $
    63.5
    
    
    $
    50.2
    
    
    $
    109.3
    
    
    $
    90.3Denominator:Weighted-average common shares
outstanding
    
    
    68.6
    
    
    
    68.0
    
    
    
    68.5
    
    
    
    67.7Dilutive effect of stock options and
awards
    
    
    0.6
    
    
    
    0.7
    
    
    
    0.6
    
    
    
    0.8Denominator for income from continuing
operations per share, diluted
    
    
    69.2
    
    
    
    68.7
    
    
    
    69.1
    
    
    
    68.5Income from continuing operations
per share, basic
    
    $
    0.92
    
    
    $
    0.74
    
    
    $
    1.60
    
    
    $
    1.33Income from continuing operations
per share, diluted
    
    $
    0.92
    
    
    $
    0.73
    
    
    $
    1.58
    
    
    $
    1.32
  -6-




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THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  June 30, 2006
 New Accounting Standards
   Use of Estimates
  Reclassifications
  3. Stock-Based Compensation
   -7-




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THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  June 30, 2006
    Three Months Ended
    
    
    Six Months Ended(in millions of dollars except per share data)
    
    June 30, 2005
    
    
    June 30, 2005Reported net income
    
    $
    60.1
    
    
    $
    108.6Plus: stock-based employee compensation
(net of tax) included in net income
    
    
    1.4
    
    
    
    2.8Less: stock-based employee compensation
(net of tax) using the fair value method
    
    
    (1.3
    )
    
    
    (3.5
    )Pro forma net income
    
    $
    60.2
    
    
    $
    107.9Reported net income per share, basic
    
    $
    0.88
    
    
    $
    1.60Pro forma net income per share, basic
    
    $
    0.88
    
    
    $
    1.59Reported net income per share, diluted
    
    $
    0.87
    
    
    $
    1.59Pro forma net income per share, diluted
    
    $
    0.87
    
    
    $
    1.58
 Stock Incentive Plans
  -8-




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THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  June 30, 2006
        -9-




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THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  June 30, 2006
     Weighted-
    
    
    Weighted-Average
    
    
    AggregateShares
    
    
    Average
    
    
    Remaining Contractual
    
    
    Intrinsic Value(in thousands)
    
    
    Exercise Price
    
    
    Term (in years)
    
    

(in millions)Outstanding at December 31, 2005
    
    
    4,283,917
    
    
    $
    32.35
    
    
    6.0
    
    
    $
    47.5Granted
    
    
    Exercised
    
    
    346,024
    
    
    
    30.54Forfeited
    
    
    2,700
    
    
    
    30.11Outstanding at June 30, 2006
    
    
    3,935,193
    
    
    $
    32.51
    
    
    5.7
    
    
    $
    39.7Exercisable at June 30, 2006
    
    
    3,368,865
    
    
    $
    31.33
    
    
    6.4
    
    
    $
    38.2
    -10-




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THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  June 30, 2006
  Weighted-AverageShare
    
    
    Grant DateUnits
    
    
    Fair ValueNonvested at December 31, 2005
    
    
    58,689
    
    
    $
    33.03Granted
    
    
    12,777
    
    
    
    42.27Vested
    
    
    13,689
    
    
    
    39.45Forfeited
    
    
    Nonvested at June 30, 2006
    
    
    57,777
    
    
    $
    33.10
 Long-Term Incentive Plan
    ExpectedNumber of Units
    
    
    Stock Price onAward
    
    to be Issued
    
    
    Date of Grant2004 - 2006 (a)
    
    
    
    
    
    $
    30.652005 - 2007
    
    
    198,595
    
    
    $
    40.362006 - 2008
    
    
    154,060
    
    
    $
    43.05
 
 (a)
    
    Per the terms of the agreement, payment of 165,124 units will be in cash, unless
changed to shares at the discretion of the organization and compensation committee of the
board of directors. -11-




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THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  June 30, 2006
  Weighted-AverageShare
    
    
    Grant DateUnits
    
    
    Fair ValueNonvested at December 31, 2005
    
    
    176,400
    
    
    $
    40.36Granted
    
    
    154,060
    
    
    $
    43.05Performance increase
    
    
    22,195
    
    
    $
    40.36Vested
    
    
    Forfeited
    
    
    Nonvested at June 30, 2006
    
    
    352,655
    
    
    $
    41.54
 4. Divestitures
 
  ®
   -12-




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THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  June 30, 2006
    5. Inventories
  June 30,
    
    
    December 31,(in millions of dollars)
    
    2006
    
    
    2005Finished products
    
    $
    288.1
    
    
    $
    319.6Products in process
    
    
    97.5
    
    
    
    86.9Raw materials
    
    
    133.2
    
    
    
    151.2Supplies and engine test parts
    
    
    26.0
    
    
    
    28.3Total inventory
    
    $
    544.8
    
    
    $
    586.0
 6. Goodwill and Intangible Assets
  -13-




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THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  June 30, 2006
 June 30, 2006
    
    
    December 31, 2005Gross
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    Accumulated(in millions of dollars)
    
    Amount
    
    
    Amortization
    
    
    Amount
    
    
    AmortizationAmortized intangible assets:Customer lists
    
    $
    141.8
    
    
    $
    19.1
    
    
    $
    151.5
    
    
    $
    15.8Technology
    
    
    139.8
    
    
    
    39.9
    
    
    
    144.4
    
    
    
    35.6Trademarks
    
    
    19.8
    
    
    
    4.5
    
    
    
    24.5
    
    
    
    4.2Patents
    
    
    13.1
    
    
    
    3.3
    
    
    
    11.8
    
    
    
    2.5Land-use rights
    
    
    7.3
    
    
    
    1.1
    
    
    
    7.3
    
    
    
    1.0Non-compete agreements
    
    
    8.2
    
    
    
    6.3
    
    
    
    9.1
    
    
    
    5.9Other
    
    
    5.5
    
    
    
    0.7
    
    
    
    5.4
    
    
    
    0.7Total amortized intangible assets
    
    
    335.5
    
    
    
    74.9
    
    
    
    354.0
    
    
    
    65.7Non-amortized trademarks
    
    
    117.8
    
    
    
    
    
    
    
    116.3
    
    
    
    Total
    
    $
    453.3
    
    
    $
    74.9
    
    
    $
    470.3
    
    
    $
    65.7
   Lubricant
    
    
    Specialty(in millions o f dollars)
    
    Additives
    
    
    Chemicals
    
    
    TotalBalance, January 1, 2006
    
    $
    95.8
    
    
    $
    1,043.0
    
    
    $
    1,138.8Goodwill impairment  discontinued
operations
    
    
    
    
    
    
    (61.0
    )
    
    
    (61.0
    )Goodwill of divestitures
    
    
    
    
    
    
    (26.6
    )
    
    
    (26.6
    )Translation
and other adjustments
    
    
    1.1
    
    
    
    10.5
    
    
    
    11.6Balance, June 30, 2006
    
    $
    96.9
    
    
    $
    965.9
    
    
    $
    1,062.8
 st
 -14-




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THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  June 30, 2006
 7. Comprehensive Income
  Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,(in millions of dollars)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Net income
    
    $
    51.1
    
    
    $
    60.1
    
    
    $
    36.2
    
    
    $
    108.6Foreign currency translation adjustment
    
    
    31.7
    
    
    
    (58.4
    )
    
    
    38.6
    
    
    
    (107.1
    )Pension plan minimum liability
    
    
    
    
    
    
    
    
    
    
    (0.8
    )
    
    
    Unrealized
(losses) gains  natural gas hedges
    
    
    
    
    
    
    (0.5
    )
    
    
    (0.8
    )
    
    
    0.2Amortization of treasury rate locks
    
    
    0.9
    
    
    
    0.8
    
    
    
    1.6
    
    
    
    1.4Total comprehensive income
    
    $
    83.7
    
    
    $
    2.0
    
    
    $
    74.8
    
    
    $
    3.1
 8. Segment Reporting
   ® ®
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THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  June 30, 2006
    Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,(in millions of dollars)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Revenues from external customers:Lubricant Additives
    
    $
    678.4
    
    
    $
    605.3
    
    
    $
    1,306.0
    
    
    $
    1,118.8Specialty Chemicals
    
    
    362.7
    
    
    
    337.0
    
    
    
    719.3
    
    
    
    672.3Total revenues
    
    $
    1,041.1
    
    
    $
    942.3
    
    
    $
    2,025.3
    
    
    $
    1,791.1Segment operating income:Lubricant Additives
    
    $
    89.8
    
    
    $
    83.2
    
    
    $
    164.4
    
    
    $
    151.0Specialty Chemicals
    
    
    48.4
    
    
    
    37.7
    
    
    
    92.9
    
    
    
    76.6Segment operating income
    
    
    138.2
    
    
    
    120.9
    
    
    
    257.3
    
    
    
    227.6Corporate expenses
    
    
    (12.6
    )
    
    
    (14.7
    )
    
    
    (34.0
    )
    
    
    (29.4
    )Corporate other (expense) income  net
    
    
    (3.5
    )
    
    
    0.2
    
    
    
    (5.7
    )
    
    
    (0.6
    )Restructuring and impairment charges
    
    
    (1.8
    )
    
    
    (5.4
    )
    
    
    (3.6
    )
    
    
    (11.5
    )Interest
expense  net
    
    
    (21.0
    )
    
    
    (24.9
    )
    
    
    (44.1
    )
    
    
    (49.4
    )Income from continuing operations
before income taxes
    
    $
    99.3
    
    
    $
    76.1
    
    
    $
    169.9
    
    
    $
    136.7
 -16-




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##### Table of Contents



THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  June 30, 2006
  June 30,
    
    
    December 31,(in millions of dollars)
    
    2006
    
    
    2005Segment total assets:Lubricant Additives
    
    $
    1,411.6
    
    
    $
    1,319.1Specialty Chemicals
    
    
    2,222.0
    
    
    
    2,536.8Total segment assets
    
    
    3,633.6
    
    
    
    3,855.9Corporate assets
    
    
    683.7
    
    
    
    510.4Total consolidated assets
    
    $
    4,317.3
    
    
    $
    4,366.3
 9. Pension and Postretirement Benefits
  Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,(in millions of dollars)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Pension benefits:Service cost
 benefits earned
during period
    
    $
    8.0
    
    
    $
    7.2
    
    
    $
    16.0
    
    
    $
    14.2Interest cost on projected
benefit obligation
    
    
    8.3
    
    
    
    8.1
    
    
    
    16.6
    
    
    
    15.9Expected return on plan assets
    
    
    (7.2
    )
    
    
    (6.7
    )
    
    
    (14.3
    )
    
    
    (13.5
    )Amortization of prior service costs
    
    
    0.5
    
    
    
    0.6
    
    
    
    0.9
    
    
    
    1.1Amortization of initial net asset
obligation
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    0.1Settlement / curtailment loss
    
    
    
    
    
    
    
    
    
    
    3.3
    
    
    
    Recognized net actuarial loss
    
    
    2.1
    
    
    
    1.5
    
    
    
    4.2
    
    
    
    2.7Net periodic benefit cost
    
    $
    11.7
    
    
    $
    10.7
    
    
    $
    26.8
    
    
    $
    20.5Other benefits:Service cost
 benefits earned
during period
    
    $
    0.4
    
    
    $
    0.4
    
    
    $
    0.7
    
    
    $
    1.1Interest cost on projected
benefit obligation
    
    
    1.3
    
    
    
    1.4
    
    
    
    2.5
    
    
    
    3.2Amortization of prior service costs
    
    
    (2.1
    )
    
    
    (1.9
    )
    
    
    (4.1
    )
    
    
    (3.4
    )Recognized net actuarial loss
    
    
    0.4
    
    
    
    0.5
    
    
    
    0.9
    
    
    
    1.1Net periodic benefit cost
    
    $
    
    
    
    $
    0.4
    
    
    $
    
    
    
    $
    2.0
  -17-




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##### Table of Contents



THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  June 30, 2006
   10. Restructuring and Impairment Charges
   Liability
    
    
    
    
    
    
    
    
    
    
    LiabilityJanuary 1,
    
    
    Restructuring
    
    
    
    
    
    
    June 30,(in millions of dollars)
    
    2006
    
    
    Charges
    
    
    Cash Paid
    
    
    2006Specialty Chemicals plant closures
and workforce reductions
    
    $
    2.5
    
    
    $
    0.5
    
    
    $
    (0.6
    )
    
    $
    2.4Bromborough, United Kingdom closure
    
    
    2.3
    
    
    
    3.2
    
    
    
    (1.8
    )
    
    
    3.7Corporate / other workforce reductions
    
    
    0.3
    
    
    
    
    
    
    
    (0.1
    )
    
    
    0.2Noveon International restructuring
liabilities assumed
    
    
    1.3
    
    
    
    (0.1
    )
    
    
    (0.3
    )
    
    
    0.9$
    6.4
    
    
    $
    3.6
    
    
    $
    (2.8
    )
    
    $
    7.2
    -18-




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##### Table of Contents



THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  June 30, 2006
 11. Debt
    
 12. Shareholders Equity
  Shareholders EquityAccumulatedNumber of
    
    
    
    
    
    
    
    
    
    
    OtherShares
    
    
    Common
    
    
    Retained
    
    
    Comprehensive(in millions)
    
    Outstanding
    
    
    Shares
    
    
    Earnings
    
    
    (Loss) Income
    
    
    TotalBalance, January 1, 2006
    
    
    68.0
    
    
    $
    663.7
    
    
    $
    1,016.0
    
    
    $
    (112.5
    )
    
    $
    1,567.2Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    36.2
    
    
    
    
    
    
    
    36.2Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38.6
    
    
    
    38.6Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    74.8Dividends declared
    
    
    
    
    
    
    
    
    
    
    (35.5
    )
    
    
    
    
    
    
    (35.5
    )Deferred stock compensation
    
    
    
    
    
    
    1.3
    
    
    
    
    
    
    
    
    
    
    
    1.3Common
shares  treasury:Shares issued upon exercise
of stock options and awards
    
    
    0.4
    
    
    
    15.0
    
    
    
    
    
    
    
    
    
    
    
    15.0Balance, June 30, 2006
    
    
    68.4
    
    
    $
    680.0
    
    
    $
    1,016.7
    
    
    $
    (73.9
    )
    
    $
    1,622.8
 13. Contingencies
  General
  -19-




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##### Table of Contents



THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  June 30, 2006
 ENVIRONMENTAL
      -20-




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##### Table of Contents



THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  June 30, 2006
 GUARANTEES
    INDEMNIFICATIONS
  14. Guarantor and Non-Guarantor Subsidiary Information
  - 21 -




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##### Table of Contents



THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  June 30, 2006
 Condensed Consolidating Statement of OperationsFor Three Months Ended June 30, 2006Parent
    
    
    Subsidiary
    
    
    Other
    
    
    
    
    
    
    TotalCompany
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    396.0
    
    
    $
    208.5
    
    
    $
    557.1
    
    
    $
    (121.7
    )
    
    $
    1,039.9Royalties and other revenues
    
    
    0.6
    
    
    
    0.5
    
    
    
    0.1
    
    
    
    
    
    
    
    1.2Total revenues
    
    
    396.6
    
    
    
    209.0
    
    
    
    557.2
    
    
    
    (121.7
    )
    
    
    1,041.1Cost of sales
    
    
    310.5
    
    
    
    145.4
    
    
    
    440.3
    
    
    
    (121.7
    )
    
    
    774.5Selling and administrative expenses
    
    
    32.7
    
    
    
    26.0
    
    
    
    27.0
    
    
    
    
    
    
    
    85.7Research, testing and development expenses
    
    
    24.3
    
    
    
    9.3
    
    
    
    19.0
    
    
    
    
    
    
    
    52.6Amortization of intangible assets
    
    
    0.8
    
    
    
    3.7
    
    
    
    1.4
    
    
    
    
    
    
    
    5.9Restructuring and impairment charges
    
    
    0.2
    
    
    
    (0.1
    )
    
    
    1.7
    
    
    
    
    
    
    
    1.8Total costs and expenses
    
    
    368.5
    
    
    
    184.3
    
    
    
    489.4
    
    
    
    (121.7
    )
    
    
    920.5Other (expense) income  net
    
    
    8.7
    
    
    
    7.9
    
    
    
    (15.1
    )
    
    
    (1.8
    )
    
    
    (0.3
    )Interest expense  net
    
    
    (20.3
    )
    
    
    
    
    
    
    (0.7
    )
    
    
    
    
    
    
    (21.0
    )Equity in income of subsidiaries
    
    
    27.0
    
    
    
    22.0
    
    
    
    
    
    
    
    (49.0
    )
    
    
    Income from continuing operations before
income taxes
    
    
    43.5
    
    
    
    54.6
    
    
    
    52.0
    
    
    
    (50.8
    )
    
    
    99.3Provision (benefit) for income taxes
    
    
    (4.4
    )
    
    
    15.9
    
    
    
    24.3
    
    
    
    
    
    
    
    35.8Income from continuing operations
    
    
    47.9
    
    
    
    38.7
    
    
    
    27.7
    
    
    
    (50.8
    )
    
    
    63.5Discontinued operations  net of tax
    
    
    3.2
    
    
    
    (11.7
    )
    
    
    (3.9
    )
    
    
    
    
    
    
    (12.4
    )Net income
    
    $
    51.1
    
    
    $
    27.0
    
    
    $
    23.8
    
    
    $
    (50.8
    )
    
    $
    51.1
 -22-




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##### Table of Contents



THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  June 30, 2006
 Condensed Consolidating Statement of OperationsFor Six Months Ended June 30, 2006Parent
    
    
    Subsidiary
    
    
    Other
    
    
    
    
    
    
    TotalCompany
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    775.0
    
    
    $
    390.7
    
    
    $
    1,089.6
    
    
    $
    (231.9
    )
    
    $
    2,023.4Royalties and other revenues
    
    
    1.3
    
    
    
    0.5
    
    
    
    0.1
    
    
    
    
    
    
    
    1.9Total revenues
    
    
    776.3
    
    
    
    391.2
    
    
    
    1,089.7
    
    
    
    (231.9
    )
    
    
    2,025.3Cost of sales
    
    
    614.2
    
    
    
    268.2
    
    
    
    862.5
    
    
    
    (231.9
    )
    
    
    1,513.0Selling and administrative expenses
    
    
    74.6
    
    
    
    51.8
    
    
    
    52.5
    
    
    
    
    
    
    
    178.9Research, testing and development expenses
    
    
    47.5
    
    
    
    18.7
    
    
    
    36.1
    
    
    
    
    
    
    
    102.3Amortization of intangible assets
    
    
    1.4
    
    
    
    7.3
    
    
    
    3.0
    
    
    
    
    
    
    
    11.7Restructuring and impairment charges
    
    
    0.5
    
    
    
    (0.1
    )
    
    
    3.2
    
    
    
    
    
    
    
    3.6Total costs and expenses
    
    
    738.2
    
    
    
    345.9
    
    
    
    957.3
    
    
    
    (231.9
    )
    
    
    1,809.5Other
(expense) income  net
    
    
    13.7
    
    
    
    14.1
    
    
    
    (27.2
    )
    
    
    (2.4
    )
    
    
    (1.8
    )Interest
expense  net
    
    
    (42.8
    )
    
    
    
    
    
    
    (1.3
    )
    
    
    
    
    
    
    (44.1
    )Equity in income of subsidiaries
    
    
    30.3
    
    
    
    61.2
    
    
    
    
    
    
    
    (91.5
    )
    
    
    Income from continuing operations before
income taxes
    
    
    39.3
    
    
    
    120.6
    
    
    
    103.9
    
    
    
    (93.9
    )
    
    
    169.9Provision for income taxes
    
    
    4.1
    
    
    
    22.7
    
    
    
    33.8
    
    
    
    
    
    
    
    60.6Income from continuing operations
    
    
    35.2
    
    
    
    97.9
    
    
    
    70.1
    
    
    
    (93.9
    )
    
    
    109.3Discontinued
operations  net of tax
    
    
    1.0
    
    
    
    (67.9
    )
    
    
    (6.2
    )
    
    
    
    
    
    
    (73.1
    )Net income
    
    $
    36.2
    
    
    $
    30.0
    
    
    $
    63.9
    
    
    $
    (93.9
    )
    
    $
    36.2
 -23-




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##### Table of Contents



THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  June 30, 2006
 Condensed Consolidating Statement of OperationsFor Three Months Ended June 30, 2005Parent
    
    
    Subsidiary
    
    
    Other
    
    
    
    
    
    
    TotalCompany
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    355.8
    
    
    $
    154.2
    
    
    $
    512.4
    
    
    $
    (80.8
    )
    
    $
    941.6Royalties and other revenues
    
    
    0.4
    
    
    
    0.2
    
    
    
    0.1
    
    
    
    
    
    
    
    0.7Total revenues
    
    
    356.2
    
    
    
    154.4
    
    
    
    512.5
    
    
    
    (80.8
    )
    
    
    942.3Cost of sales
    
    
    279.3
    
    
    
    97.2
    
    
    
    399.2
    
    
    
    (80.8
    )
    
    
    694.9Selling and administrative expenses
    
    
    36.7
    
    
    
    28.5
    
    
    
    21.3
    
    
    
    
    
    
    
    86.5Research, testing and development expenses
    
    
    22.7
    
    
    
    9.2
    
    
    
    17.3
    
    
    
    
    
    
    
    49.2Amortization of intangible assets
    
    
    0.8
    
    
    
    3.6
    
    
    
    1.5
    
    
    
    
    
    
    
    5.9Restructuring and impairment charges
    
    
    1.0
    
    
    
    1.0
    
    
    
    3.4
    
    
    
    
    
    
    
    5.4Total costs and expenses
    
    
    340.5
    
    
    
    139.5
    
    
    
    442.7
    
    
    
    (80.8
    )
    
    
    841.9Other
(expense) income  net
    
    
    7.0
    
    
    
    2.5
    
    
    
    (7.6
    )
    
    
    (1.3
    )
    
    
    0.6Interest
(expense) income  net
    
    
    (26.0
    )
    
    
    (1.6
    )
    
    
    2.7
    
    
    
    
    
    
    
    (24.9
    )Equity in income of subsidiaries
    
    
    73.8
    
    
    
    47.8
    
    
    
    
    
    
    
    (121.6
    )
    
    
    Income from continuing operations before
income taxes
    
    
    70.5
    
    
    
    63.6
    
    
    
    64.9
    
    
    
    (122.9
    )
    
    
    76.1Provision (benefit) for income taxes
    
    
    10.2
    
    
    
    (1.4
    )
    
    
    17.1
    
    
    
    
    
    
    
    25.9Income from continuing operations
    
    
    60.3
    
    
    
    65.0
    
    
    
    47.8
    
    
    
    (122.9
    )
    
    
    50.2Discontinued
operations  net of tax
    
    
    (0.2
    )
    
    
    7.8
    
    
    
    2.3
    
    
    
    
    
    
    
    9.9Net income
    
    $
    60.1
    
    
    $
    72.8
    
    
    $
    50.1
    
    
    $
    (122.9
    )
    
    $
    60.1
 -24-




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##### Table of Contents



THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  June 30, 2006
 Condensed Consolidating Statement of OperationsFor Six Months Ended June 30, 2005Parent
    
    
    Subsidiary
    
    
    Other
    
    
    
    
    
    
    TotalCompany
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    661.9
    
    
    $
    300.5
    
    
    $
    973.0
    
    
    $
    (145.8
    )
    
    $
    1,789.6Royalties and other revenues
    
    
    1.3
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    
    
    
    
    1.5Total revenues
    
    
    663.2
    
    
    
    300.6
    
    
    
    973.1
    
    
    
    (145.8
    )
    
    
    1,791.1Cost of sales
    
    
    522.4
    
    
    
    189.4
    
    
    
    747.1
    
    
    
    (145.8
    )
    
    
    1,313.1Selling and administrative expenses
    
    
    73.2
    
    
    
    49.8
    
    
    
    49.1
    
    
    
    
    
    
    
    172.1Research, testing and development expenses
    
    
    46.1
    
    
    
    17.8
    
    
    
    33.8
    
    
    
    
    
    
    
    97.7Amortization of intangible assets
    
    
    1.5
    
    
    
    7.2
    
    
    
    3.1
    
    
    
    
    
    
    
    11.8Restructuring and impairment charges
    
    
    4.7
    
    
    
    2.6
    
    
    
    4.2
    
    
    
    
    
    
    
    11.5Total costs and expenses
    
    
    647.9
    
    
    
    266.8
    
    
    
    837.3
    
    
    
    (145.8
    )
    
    
    1,606.2Other (expense) income  net
    
    
    14.7
    
    
    
    6.6
    
    
    
    (18.7
    )
    
    
    (1.4
    )
    
    
    1.2Interest (expense) income  net
    
    
    (52.0
    )
    
    
    (1.0
    )
    
    
    3.6
    
    
    
    
    
    
    
    (49.4
    )Equity in income of subsidiaries
    
    
    131.9
    
    
    
    89.8
    
    
    
    
    
    
    
    (221.7
    )
    
    
    Income from continuing operations before
income taxes
    
    
    109.9
    
    
    
    129.2
    
    
    
    120.7
    
    
    
    (223.1
    )
    
    
    136.7Provision for income taxes
    
    
    1.1
    
    
    
    13.9
    
    
    
    31.4
    
    
    
    
    
    
    
    46.4Income from continuing operations
    
    
    108.8
    
    
    
    115.3
    
    
    
    89.3
    
    
    
    (223.1
    )
    
    
    90.3Discontinued
operations  net of tax
    
    
    (0.2
    )
    
    
    14.7
    
    
    
    3.8
    
    
    
    
    
    
    
    18.3Net income
    
    $
    108.6
    
    
    $
    130.0
    
    
    $
    93.1
    
    
    $
    (223.1
    )
    
    $
    108.6
 -25-




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##### Table of Contents



THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  June 30, 2006
 Condensed Consolidating Balance SheetJune 30, 2006Parent
    
    
    Subsidiary
    
    
    Other
    
    
    
    
    
    
    TotalCompany
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCash and short-term investments
    
    $
    335.0
    
    
    $
    1.5
    
    
    $
    155.0
    
    
    $
    
    
    
    $
    491.5Receivables
 net
    
    
    152.9
    
    
    
    105.1
    
    
    
    356.6
    
    
    
    
    
    
    
    614.6Inventories
    
    
    121.9
    
    
    
    114.9
    
    
    
    339.6
    
    
    
    (31.6
    )
    
    
    544.8Other current assets
    
    
    41.3
    
    
    
    25.5
    
    
    
    13.5
    
    
    
    10.9
    
    
    
    91.2Total current assets
    
    
    651.1
    
    
    
    247.0
    
    
    
    864.7
    
    
    
    (20.7
    )
    
    
    1,742.1Property and
equipment  net
    
    
    383.0
    
    
    
    336.0
    
    
    
    353.4
    
    
    
    
    
    
    
    1,072.4Goodwill
    
    
    27.1
    
    
    
    572.7
    
    
    
    463.0
    
    
    
    
    
    
    
    1,062.8Intangible
assets  net
    
    
    9.1
    
    
    
    239.8
    
    
    
    129.5
    
    
    
    
    
    
    
    378.4Investments in subsidiaries and intercompany
balances
    
    
    2,390.1
    
    
    
    2,657.2
    
    
    
    (243.1
    )
    
    
    (4,804.2
    )
    
    
    Investments in non-consolidated companies
    
    
    6.0
    
    
    
    1.4
    
    
    
    0.1
    
    
    
    
    
    
    
    7.5Other assets
    
    
    31.1
    
    
    
    2.0
    
    
    
    21.0
    
    
    
    
    
    
    
    54.1Total
    
    $
    3,497.5
    
    
    $
    4,056.1
    
    
    $
    1,588.6
    
    
    $
    (4,824.9
    )
    
    $
    4,317.3LIABILITIES AND SHAREHOLDERS
EQUITYShort-term debt and current
portion of long-term debt
    
    $
    
    
    
    $
    
    
    
    $
    14.9
    
    
    $
    
    
    
    $
    14.9Accounts payable
    
    
    134.6
    
    
    
    77.6
    
    
    
    137.2
    
    
    
    
    
    
    
    349.4Accrued expenses and other
current liabilities
    
    
    4.4
    
    
    
    165.4
    
    
    
    94.2
    
    
    
    
    
    
    
    264.0Total current liabilities
    
    
    139.0
    
    
    
    243.0
    
    
    
    246.3
    
    
    
    
    
    
    
    628.3Long-term debt
    
    
    1,436.6
    
    
    
    
    
    
    
    172.1
    
    
    
    
    
    
    
    1,608.7Postretirement health care obligations
    
    
    94.5
    
    
    
    
    
    
    
    6.8
    
    
    
    
    
    
    
    101.3Noncurrent liabilities
    
    
    104.5
    
    
    
    2.8
    
    
    
    111.0
    
    
    
    
    
    
    
    218.3Deferred income taxes
    
    
    79.4
    
    
    
    (17.4
    )
    
    
    27.1
    
    
    
    
    
    
    
    89.1Total liabilities
    
    
    1,854.0
    
    
    
    228.4
    
    
    
    563.3
    
    
    
    
    
    
    
    2,645.7Minority interest in consolidated
companies
    
    
    
    
    
    
    
    
    
    
    (0.7
    )
    
    
    49.5
    
    
    
    48.8Total shareholders equity
    
    
    1,643.5
    
    
    
    3,827.7
    
    
    
    1,026.0
    
    
    
    (4,874.4
    )
    
    
    1,622.8Total
    
    $
    3,497.5
    
    
    $
    4,056.1
    
    
    $
    1,588.6
    
    
    $
    (4,824.9
    )
    
    $
    4,317.3
 -26-




---



##### Table of Contents



THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  June 30, 2006
 Condensed Consolidating Balance SheetDecember 31, 2005Parent
    
    
    Subsidiary
    
    
    Other
    
    
    
    
    
    
    TotalCompany
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCash and short-term investments
    
    $
    83.2
    
    
    $
    3.6
    
    
    $
    175.6
    
    
    $
    
    
    
    $
    262.4Receivables
 net
    
    
    143.8
    
    
    
    137.0
    
    
    
    304.8
    
    
    
    
    
    
    
    585.6Inventories
    
    
    122.4
    
    
    
    175.1
    
    
    
    316.4
    
    
    
    (27.9
    )
    
    
    586.0Other current assets
    
    
    91.5
    
    
    
    25.9
    
    
    
    11.3
    
    
    
    9.6
    
    
    
    138.3Total current assets
    
    
    440.9
    
    
    
    341.6
    
    
    
    808.1
    
    
    
    (18.3
    )
    
    
    1,572.3Property and
equipment  net
    
    
    383.4
    
    
    
    458.2
    
    
    
    342.8
    
    
    
    
    
    
    
    1,184.4Goodwill
    
    
    27.1
    
    
    
    664.1
    
    
    
    447.6
    
    
    
    
    
    
    
    1,138.8Intangible
assets  net
    
    
    9.8
    
    
    
    262.8
    
    
    
    132.0
    
    
    
    
    
    
    
    404.6Investments in subsidiaries and intercompany
balances
    
    
    2,554.3
    
    
    
    2,506.6
    
    
    
    (247.9
    )
    
    
    (4,813.0
    )
    
    
    Investments in non-consolidated companies
    
    
    6.2
    
    
    
    1.4
    
    
    
    
    
    
    
    
    
    
    
    7.6Other assets
    
    
    33.9
    
    
    
    3.4
    
    
    
    21.3
    
    
    
    
    
    
    
    58.6Total
    
    $
    3,455.6
    
    
    $
    4,238.1
    
    
    $
    1,503.9
    
    
    $
    (4,831.3
    )
    
    $
    4,366.3LIABILITIES AND SHAREHOLDERS
EQUITYShort-term debt and current
portion of long-term debt
    
    $
    
    
    
    $
    0.1
    
    
    $
    7.8
    
    
    $
    
    
    
    $
    7.9Accounts payable
    
    
    143.5
    
    
    
    142.8
    
    
    
    85.9
    
    
    
    
    
    
    
    372.2Accrued expenses and other
current liabilities
    
    
    38.9
    
    
    
    113.6
    
    
    
    132.3
    
    
    
    
    
    
    
    284.8Total current liabilities
    
    
    182.4
    
    
    
    256.5
    
    
    
    226.0
    
    
    
    
    
    
    
    664.9Long-term debt
    
    
    1,445.2
    
    
    
    
    
    
    
    217.7
    
    
    
    
    
    
    
    1,662.9Postretirement health care obligations
    
    
    91.4
    
    
    
    4.8
    
    
    
    6.4
    
    
    
    
    
    
    
    102.6Noncurrent liabilities
    
    
    63.5
    
    
    
    41.3
    
    
    
    99.2
    
    
    
    
    
    
    
    204.0Deferred income taxes
    
    
    87.6
    
    
    
    1.4
    
    
    
    24.7
    
    
    
    
    
    
    
    113.7Total liabilities
    
    
    1,870.1
    
    
    
    304.0
    
    
    
    574.0
    
    
    
    
    
    
    
    2,748.1Minority interest in consolidated
companies
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    51.0
    
    
    
    51.0Total shareholders equity
    
    
    1,585.5
    
    
    
    3,934.1
    
    
    
    929.9
    
    
    
    (4,882.3
    )
    
    
    1,567.2Total
    
    $
    3,455.6
    
    
    $
    4,238.1
    
    
    $
    1,503.9
    
    
    $
    (4,831.3
    )
    
    $
    4,366.3
 -27-




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##### Table of Contents



THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  June 30, 2006
 Condensed Consolidating Statement of Cash FlowsSix Months Ended June 30, 2006Parent
    
    
    Subsidiary
    
    
    Other
    
    
    
    
    
    
    TotalCompany
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCASH PROVIDED BY (USED FOR):OPERATING ACTIVITIESNet income
    
    $
    36.2
    
    
    $
    30.0
    
    
    $
    63.9
    
    
    $
    (93.9
    )
    
    $
    36.2Adjustments to reconcile net income to
cash provided by (used for) operating
activities
    
    
    35.2
    
    
    
    (126.6
    )
    
    
    50.9
    
    
    
    93.9
    
    
    
    53.4Total operating activities
    
    
    71.4
    
    
    
    (96.6
    )
    
    
    114.8
    
    
    
    
    
    
    
    89.6INVESTING ACTIVITIESCapital expenditures
    
    
    (25.6
    )
    
    
    (17.4
    )
    
    
    (19.2
    )
    
    
    
    
    
    
    (62.2
    )Proceeds from divestitures and sales of property
and equipment
    
    
    0.8
    
    
    
    261.5
    
    
    
    13.1
    
    
    
    
    
    
    
    275.4Other items
 net
    
    
    
    
    
    
    
    
    
    
    (0.7
    )
    
    
    
    
    
    
    (0.7
    )Total investing activities
    
    
    (24.8
    )
    
    
    244.1
    
    
    
    (6.8
    )
    
    
    
    
    
    
    212.5FINANCING ACTIVITIESChanges in short-term debt, net
    
    
    
    
    
    
    
    
    
    
    6.9
    
    
    
    
    
    
    
    6.9Repayments of long-term debt
    
    
    
    
    
    
    
    
    
    
    (57.7
    )
    
    
    
    
    
    
    (57.7
    )Dividends paid
    
    
    (35.5
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (35.5
    )Changes in intercompany activities
    
    
    230.4
    
    
    
    (149.5
    )
    
    
    (80.9
    )
    
    
    
    
    
    
    Proceeds from the exercise of stock options
    
    
    10.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10.3Total financing activities
    
    
    205.2
    
    
    
    (149.5
    )
    
    
    (131.7
    )
    
    
    
    
    
    
    (76.0
    )Effect of exchange rate changes on cash
    
    
    
    
    
    
    (0.1
    )
    
    
    3.1
    
    
    
    
    
    
    
    3.0Net increase (decrease) in cash and short-term
investments
    
    
    251.8
    
    
    
    (2.1
    )
    
    
    (20.6
    )
    
    
    
    
    
    
    229.1Cash and short-term investments at the
beginning of period
    
    
    83.2
    
    
    
    3.6
    
    
    
    175.6
    
    
    
    
    
    
    
    262.4Cash and short-term investments at the
end of period
    
    $
    335.0
    
    
    $
    1.5
    
    
    $
    155.0
    
    
    $
    
    
    
    $
    491.5
 -28-




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##### Table of Contents



THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements
 Condensed Consolidating Statement of Cash FlowsSix Months Ended June 30, 2005Parent
    
    
    Subsidiary
    
    
    Other
    
    
    
    
    
    
    TotalCompany
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCASH PROVIDED BY (USED FOR):OPERATING ACTIVITIESNet income
    
    $
    108.6
    
    
    $
    130.0
    
    
    $
    93.1
    
    
    $
    (223.1
    )
    
    $
    108.6Adjustments to reconcile net income to
cash provided by (used for) operating
activities
    
    
    21.6
    
    
    
    (5.8
    )
    
    
    (201.8
    )
    
    
    223.1
    
    
    
    37.1Total operating activities
    
    
    130.2
    
    
    
    124.2
    
    
    
    (108.7
    )
    
    
    
    
    
    
    145.7INVESTING ACTIVITIESCapital expenditures
    
    
    (21.2
    )
    
    
    (16.3
    )
    
    
    (21.1
    )
    
    
    
    
    
    
    (58.6
    )Net proceeds from divestitures and sales of
property and equipment
    
    
    
    
    
    
    3.3
    
    
    
    0.2
    
    
    
    
    
    
    
    3.5Other items
 net
    
    
    (0.4
    )
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    (0.3
    )Total investing activities
    
    
    (21.6
    )
    
    
    (12.9
    )
    
    
    (20.9
    )
    
    
    
    
    
    
    (55.4
    )FINANCING ACTIVITIESChanges in short-term debt, net
    
    
    
    
    
    
    
    
    
    
    (3.7
    )
    
    
    
    
    
    
    (3.7
    )Repayments of long-term debt
    
    
    (125.0
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (125.0
    )Dividends paid
    
    
    (35.0
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (35.0
    )Changes in intercompany activities
    
    
    42.9
    
    
    
    (100.9
    )
    
    
    58.0
    
    
    
    
    
    
    
    Proceeds from the exercise of stock options
    
    
    32.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32.3Total financing activities
    
    
    (84.8
    )
    
    
    (100.9
    )
    
    
    54.3
    
    
    
    
    
    
    
    (131.4
    )Effect of exchange rate changes on cash
    
    
    
    
    
    
    (2.4
    )
    
    
    (13.4
    )
    
    
    
    
    
    
    (15.8
    )Net increase (decrease) in cash and short-term
investments
    
    
    23.8
    
    
    
    8.0
    
    
    
    (88.7
    )
    
    
    
    
    
    
    (56.9
    )Cash and short-term investments at the
beginning of period
    
    
    40.4
    
    
    
    (0.2
    )
    
    
    295.7
    
    
    
    
    
    
    
    335.9Cash and short-term investments at the
end of period
    
    $
    64.2
    
    
    $
    7.8
    
    
    $
    207.0
    
    
    $
    
    
    
    $
    279.0
 -29-




---



##### Table of Contents



Item 2. 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
unaudited consolidated financial statements and the notes thereto appearing elsewhere in this quarterly report on Form 10-Q.
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 risk 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 quarterly report on
Form 10-Q.
 OVERVIEW
    ®
  -30-




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##### Table of Contents



Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations (continued)
  RESULTS OF OPERATIONS
    Revenues
  Periods EndedJune 30,(in millions of dollars)
    
    2006
    
    
    2005
    
    
    $ Change
    
    
    % ChangeThree Months:Net sales
    
    $
    1,039.9
    
    
    $
    941.6
    
    
    $
    98.3
    
    
    
    10%Royalties and other
revenues
    
    
    1.2
    
    
    
    0.7
    
    
    
    0.5
    
    
    
    71%Total revenues
    
    $
    1,041.1
    
    
    $
    942.3
    
    
    $
    98.8
    
    
    
    10%Six Months:Net sales
    
    $
    2,023.4
    
    
    $
    1,789.6
    
    
    $
    233.8
    
    
    
    13%Royalties and other
revenues
    
    
    1.9
    
    
    
    1.5
    
    
    
    0.4
    
    
    
    27%Total revenues
    
    $
    2,025.3
    
    
    $
    1,791.1
    
    
    $
    234.2
    
    
    
    13%
 -31-




---



##### Table of Contents



Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations (continued)
   2nd Quarter
    
    Year-to-Date2006
    
    2006Volume
    
    VolumeNorth America
    
    
    46
    %
    
    
    46
    %Europe
    
    
    26
    %
    
    
    27
    %Asia-Pacific / Middle East
    
    
    23
    %
    
    
    22
    %Latin America
    
    
    5
    %
    
    
    5
    %Total
    
    
    100
    %
    
    
    100
    %
  2nd Quarter
    
    Year-to-Date2006 vs. 2005
    
    2006 vs. 2005% Change
    
    % ChangeNorth America
    
    
    2
    %
    
    
    3
    %Europe
    
    
    (4
    %)
    
    
    Asia-Pacific / Middle East
    
    
    6
    %
    
    
    14
    %Latin America
    
    
    1
    %
    
    
    7
    %Total
    
    
    1
    %
    
    
    5
    %
  -32-




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##### Table of Contents



Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations (continued)
 Costs and Expenses
  Periods EndedJune 30,(in millions of dollars)
    
    2006
    
    
    2005
    
    
    $ Change
    
    
    % ChangeThree Months:Cost of sales
    
    $
    774.5
    
    
    $
    694.9
    
    
    $
    79.6
    
    
    
    11%Selling and
administrative
expenses
    
    
    85.7
    
    
    
    86.5
    
    
    
    (0.8
    )
    
    
    (1%)Research, testing and
development expenses
    
    
    52.6
    
    
    
    49.2
    
    
    
    3.4
    
    
    
    7%Amortization of
intangible assets
    
    
    5.9
    
    
    
    5.9
    
    
    
    
    
    
    
    0%Restructuring and
impairment charges
    
    
    1.8
    
    
    
    5.4
    
    
    
    (3.6
    )
    
    
    *Total costs and expenses
    
    $
    920.5
    
    
    $
    841.9
    
    
    $
    78.6
    
    
    
9%Six Months:Cost of sales
    
    $
    1,513.0
    
    
    $
    1,313.1
    
    
    $
    199.9
    
    
    
    15%Selling and
administrative
expenses
    
    
    178.9
    
    
    
    172.1
    
    
    
    6.8
    
    
    
    4%Research, testing and
development expenses
    
    
    102.3
    
    
    
    97.7
    
    
    
    4.6
    
    
    
    5%Amortization of
intangible assets
    
    
    11.7
    
    
    
    11.8
    
    
    
    (0.1
    )
    
    
    (1%)Restructuring and
impairment charges
    
    
    3.6
    
    
    
    11.5
    
    
    
    (7.9
    )
    
    
    *Total costs and expenses
    
    $
    1,809.5
    
    
    $
    1,606.2
    
    
    $
    203.3
    
    
    
    13%
 * Calculation not meaningful   -33-




---



##### Table of Contents



Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations (continued)
     Periods Ended June 30, 2006Asset
    
    
    Other Plant(in millions of dollars)
    
    Impairments
    
    
    Exit Costs
    
    
    Severance
    
    
    TotalThree Months:Specialty Chemicals plant
closures
and workforce reductions
    
    $
    
    
    
    $
    
    
    
    $
    0.1
    
    
    $
    0.1Bromborough, UK closure
    
    
    
    
    
    
    1.1
    
    
    
    0.6
    
    
    
    1.7$
    
    
    
    $
    1.1
    
    
    $
    0.7
    
    
    $
    1.8Six Months:Specialty Chemicals plant
closures
and workforce reductions
    
    $
    
    
    
    $
    
    
    
    $
    0.5
    
    
    $
    0.5Bromborough, UK closure
    
    
    
    
    
    
    2.0
    
    
    
    1.2
    
    
    
    3.2Noveon International
restructuring
liabilities assumed
    
    
    
    
    
    
    
    
    
    
    (0.1
    )
    
    
    (0.1
    )$
    
    
    
    $
    2.0
    
    
    $
    1.6
    
    
    $
    3.6
 -34-




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##### Table of Contents



Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
 Periods Ended June 30, 2005Asset
    
    
    Other Plant(in millions of dollars)
    
    Impairments
    
    
    Exit Costs
    
    
    Severance
    
    
    TotalThree Months:Specialty Chemicals plant closures
and workforce reductions
    
    $
    
    
    
    $
    0.5
    
    
    $
    1.7
    
    
    $
    2.2Bromborough, UK closure
    
    
    0.7
    
    
    
    0.3
    
    
    
    1.5
    
    
    
    2.5Corporate / other workforce
reductions
    
    
    
    
    
    
    
    
    
    
    0.7
    
    
    
    0.7$
    0.7
    
    
    $
    0.8
    
    
    $
    3.9
    
    
    $
    5.4Six Months:Specialty Chemicals plant closures
and workforce reductions
    
    $
    4.4
    
    
    $
    0.9
    
    
    $
    1.8
    
    
    $
    7.1Bromborough, UK closure
    
    
    0.7
    
    
    
    0.5
    
    
    
    2.2
    
    
    
    3.4Corporate / other workforce
reductions
    
    
    
    
    
    
    
    
    
    
    0.7
    
    
    
    0.7Noveon International restructuring
liabilities assumed
    
    
    
    
    
    
    
    
    
    
    0.3
    
    
    
    0.3$
    5.1
    
    
    $
    1.4
    
    
    $
    5.0
    
    
    $
    11.5
     -35 -




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (continued)
  Other Items and Net Income
  Three Months EndedJune 30,(in millions of dollars)
    
    2006
    
    2005
    
    $ Change
    
    % ChangeOther (expense) income 
net
    
    $
    (0.3
    )
    
    $
    0.6
    
    
    $
    (0.9
    )
    
    
    *Interest expense  net
    
    
    21.0
    
    
    
    24.9
    
    
    
    (3.9
    )
    
    
    (16
    %)Income from continuing
operations before income
taxes
    
    
    99.3
    
    
    
    76.1
    
    
    
    23.2
    
    
    
    30
    %Provision for income
taxes
    
    
    35.8
    
    
    
    25.9
    
    
    
    9.9
    
    
    
    38
    %Income from continuing
operations
    
    
    63.5
    
    
    
    50.2
    
    
    
    13.3
    
    
    
    26
    %Discontinued operations
    
    
    (12.4
    )
    
    
    9.9
    
    
    
    (22.3
    )
    
    
    *Net income
    
    
    51.1
    
    
    
    60.1
    
    
    
    (9.0
    )
    
    
    (15
    %)
 Six Months EndedJune 30,(in millions of dollars)
    
    2006
    
    2005
    
    $ Change
    
    % ChangeOther (expense) income 
net
    
    $
    (1.8
    )
    
    $
    1.2
    
    
    $
    (3.0
    )
    
    
    *Interest expense  net
    
    
    44.1
    
    
    
    49.4
    
    
    
    (5.3
    )
    
    
    (11
    %)Income from continuing
operations before income
taxes
    
    
    169.9
    
    
    
    136.7
    
    
    
    33.2
    
    
    
    24
    %Provision for income
taxes
    
    
    60.6
    
    
    
    46.4
    
    
    
    14.2
    
    
    
    31
    %Income from continuing
operations
    
    
    109.3
    
    
    
    90.3
    
    
    
    19.0
    
    
    
    21
    %Discontinued operations
    
    
    (73.1
    )
    
    
    18.3
    
    
    
    (91.4
    )
    
    
    *Net income
    
    
    36.2
    
    
    
    108.6
    
    
    
    (72.4
    )
    
    
    (67
    %)
 *
    Calculation not meaningful  -36 -




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (continued)
  
    SEGMENT ANALYSIS
   -37 -




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (continued)
  Periods EndedJune 30,(in millions of dollars)
    
    2006
    
    
    2005
    
    
    $ Change
    
    
    % ChangeRevenuesThree Months:Lubricant Additives
    
    $
    678.4
    
    
    $
    605.3
    
    
    $
    73.1
    
    
    
    12%Specialty Chemicals
    
    
    362.7
    
    
    
    337.0
    
    
    
    25.7
    
    
    
    8%Total
    
    $
    1,041.1
    
    
    $
    942.3
    
    
    $
    98.8
    
    
    
    10%Six Months:Lubricant Additives
    
    $
    1,306.0
    
    
    $
    1,118.8
    
    
    $
    187.2
    
    
    
    17%Specialty Chemicals
    
    
    719.3
    
    
    
    672.3
    
    
    
    47.0
    
    
    
    7%Total
    
    $
    2,025.3
    
    
    $
    1,791.1
    
    
    $
    234.2
    
    
    
    13%Gross
ProfitThree Months:Lubricant Additives
    
    $
    159.8
    
    
    $
    147.8
    
    
    $
    12.0
    
    
    
    8%Specialty Chemicals
    
    
    105.6
    
    
    
    98.9
    
    
    
    6.7
    
    
    
    7%Total
    
    $
    265.4
    
    
    $
    246.7
    
    
    $
    18.7
    
    
    
    8%Six Months:Lubricant Additives
    
    $
    300.9
    
    
    $
    278.1
    
    
    $
    22.8
    
    
    
    8%Specialty Chemicals
    
    
    209.5
    
    
    
    198.4
    
    
    
    11.1
    
    
    
    6%Total
    
    $
    510.4
    
    
    $
    476.5
    
    
    $
    33.9
    
    
    
    7%Segment Operating
IncomeThree Months:Lubricant Additives
    
    $
    89.8
    
    
    $
    83.2
    
    
    $
    6.6
    
    
    
    8%Specialty Chemicals
    
    
    48.4
    
    
    
    37.7
    
    
    
    10.7
    
    
    
    28%Total
    
    $
    138.2
    
    
    $
    120.9
    
    
    $
    17.3
    
    
    
    14%Six Months:Lubricant Additives
    
    $
    164.4
    
    
    $
    151.0
    
    
    $
    13.4
    
    
    
    9%Specialty Chemicals
    
    
    92.9
    
    
    
    76.6
    
    
    
    16.3
    
    
    
    21%Total
    
    $
    257.3
    
    
    $
    227.6
    
    
    $
    29.7
    
    
    
    13%
 Lubricant Additives Segment
  -38 -




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (continued)
  2nd Quarter
    
    Year-to-Date2006
    
    2006Volume
    
    VolumeNorth America
    
    
    38
    %
    
    
    38
    %Europe
    
    
    29
    %
    
    
    30
    %Asia-Pacific / Middle East
    
    
    27
    %
    
    
    26
    %Latin America
    
    
    6
    %
    
    
    6
    %Total
    
    
    100
    %
    
    
    100
    %
  2nd Quarter
    
    Year-to-Date2006 vs. 2005
    
    2006 vs. 2005% Change
    
    % ChangeNorth America
    
    
    (1
    %)
    
    
    2
    %Europe
    
    
    (5
    %)
    
    
    Asia-Pacific / Middle East
    
    
    1
    %
    
    
    11
    %Latin America
    
    
    1
    %
    
    
    7
    %Total
    
    
    (1
    %)
    
    
    4
    %
    -39 -




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (continued)
      Specialty Chemicals Segment
   2nd Quarter
    
    Year-to-Date2006
    
    2006Volume
    
    VolumeNorth America
    
    
    66
    %
    
    
    66
    %Europe
    
    
    18
    %
    
    
    19
    %Asia-Pacific / Middle East
    
    
    12
    %
    
    
    12
    %Latin America
    
    
    4
    %
    
    
    3
    %Total
    
    
    100
    %
    
    
    100
    %
 -40-




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (continued)
  2nd Quarter
    
    Year-to-Date2006 vs. 2005
    
    2006 vs. 2005% Change
    
    % ChangeNorth America
    
    
    7
    %
    
    
    3
    %Europe
    
    
    1
    %
    
    
    2
    %Asia-Pacific / Middle East
    
    
    37
    %
    
    
    33
    %Latin America
    
    
    
    
    
    
    7
    %Total
    
    
    9
    %
    
    
    6
    %
 ® ®
   -41-




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (continued)
    WORKING CAPITAL, LIQUIDITY AND CAPITAL RESOURCES
  Six Months Ended June 30,(in millions of dollars)
    
    2006
    
    
    2005
    
    
    $ ChangeCash provided by (used for):Operating activities
    
    $
    89.6
    
    
    $
    145.7
    
    
    $
    (56.1
    )Investing activities
    
    
    212.5
    
    
    
    (55.4
    )
    
    
    267.9Financing activities
    
    
    (76.0
    )
    
    
    (131.4
    )
    
    
    55.4Effect of exchange-rate changes on cash
    
    
    3.0
    
    
    
    (15.8
    )
    
    
    18.8Net increase (decrease) in cash and
short-term investments
    
    $
    229.1
    
    
    $
    (56.9
    )
    
    $
    286.0
 Operating Activities
   Investing Activities
  -42-




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (continued)
   Financing Activities
  Capitalization, Liquidity and Credit Facilities
      
  Contractual Cash Obligations
  -43-




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (continued)
  
 NEW ACCOUNTING STANDARDS
    CAUTIONARY STATEMENTS FOR SAFE HARBOR PURPOSES
  -44-




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (continued)







    
    the cost, availability and quality of raw materials, including petroleum-based products;



    
    our ability to increase the prices of our products in a competitive environment;



    
    the effect of required principal and interest payments on our ability to fund capital expenditures and acquisitions and
to meet operating needs;



    
    the overall global economic environment and the overall demand for our products on a worldwide basis;



    
    technology developments that affect longer-term trends for our products;



    
    the extent to which we are successful in expanding our business in new and existing markets;



    
    our ability to identify, complete and integrate acquisitions for profitable growth and operating efficiencies;



    
    our success at continuing to develop proprietary technology to meet or exceed new industry performance standards and
individual customer expectations;



    
    our ability to 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, including natural gas and electricity;



    
    the effect of interest rate fluctuations on our interest expense;



    
    the effects of fluctuations in currency exchange rates upon our reported results from international operations,
together with non-currency risks of investing in and conducting significant operations in foreign countries, including
those relating to political, social, economic and regulatory factors;



    
    the extent to which we achieve market acceptance of our commercial development programs;



    
    significant changes in government regulations affecting environmental compliance; and



    
    our ability to identify, understand and manage risks inherent in new markets in which we choose to expand.





Item 3. Quantitative and Qualitative Disclosures about Market Risk




-45-




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Item 3. Quantitative and Qualitative Disclosures about Market Risk (continued)












-46-



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##### Table of Contents



Item 4. Controls and Procedures
  
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 (a)
    
    On April 1, 2006, we issued 292 common shares in a private placement transaction
exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) of
that Act. We issued the common shares to one former officer under a deferred
compensation plan for officers.On April 12, 2006, we issued 3,217 common shares in a private placement transaction
exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) of
that Act. We issued the common shares to one former officer under a deferred
compensation plan for officers.On May 1, 2006, we issued 7,059 common shares in a private placement transaction
exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) of
that Act. We issued the common shares to one former director under a deferred
compensation plan for directors.On June 1, 2006, we issued 195 common shares in a private placement transaction exempt
from registration under the Securities Act of 1933 pursuant to Section 4(2) of that
Act. We issued the common shares to one former officer under a deferred compensation
plan for officers.On June 13, 2006, we issued 505 common shares in transactions exempt from registration
under the Securities Act of 1933 pursuant to Regulation S. We issued the common
shares to two employees of a wholly owned United Kingdom subsidiary of the company
under an employee benefit plan.On June 16, 2006, we issued 362 common shares in a transaction exempt from
registration under the Securities Act of 1933 pursuant to Regulation S. We issued the
common shares to one employee of a wholly owned United Kingdom subsidiary of the
company under an employee benefit plan.
 -47-




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##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds (continued)
 (c)
    
    The following table provides information regarding the companys purchases of
its common shares during the second quarter.
 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(April 1, 2006 through April 30, 2006)
    
    1,189 Shares
    
    $
    42.19
    
    
    N/A
    
    N/AMonth #2(May 1, 2006 through May 31, 2006)
    
    0 Shares
    
    
    N/A
    
    
    N/A
    
    N/AMonth #3(June 1, 2006 through June 30, 2006)
    
    79 Shares
    
    $
    40.42
    
    
    N/A
    
    N/ATotal
    
    1,268 Shares
 
 1
    
    This column represents common shares that were purchased by the
company pursuant to: (a)
    
    our option plan, whereby participants exchange already
owned shares to us to pay for the exercise price of an option or whereby we
withhold shares upon the exercise of an option to pay the withholding taxes
on behalf of the employee.(b)
    
    our deferred compensation plans, whereby we withhold shares
upon a distribution to pay the withholding taxes on behalf of the employee.
 
 Item 4. Submission of Matters to a Vote of Security Holders
  1.
    
    Election of Directors
 a.
    
    Robert E. Abernathy. The vote was 59,030,013 shares for and
227,985 shares to withhold authority.b.
    
    Jerald A. Blumberg. The vote was 59,028,815 shares for and 229,184
shares to withhold authority.c.
    
    Forest J. Farmer, Sr. The vote was 58,994,902 shares for and
263,097 shares to withhold authority.d.
    
    Daniel E. Somers. The vote was 58,959,812 shares for and 298,186
shares to withhold authority.
 The names of each director whose term of office as a director continued after the
meeting are: James L. Hambrick, Gordon D. Harnett, Victoria F. Haynes, William P.
Madar, Peggy Gordon Miller and Dominic J. Pileggi.2.
    
    A proposal to confirm the appointment of Deloitte & Touche LLP as the independent
registered public accountant. The vote was 58,167,663 shares for; 1,020,179 shares
against; and 69,814 shares abstaining.
 -48-




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##### Table of Contents



Item 6. Exhibits
 10.1
    
    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).10.2
    
    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).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 the 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.
 
 Signatures
  THE LUBRIZOL CORPORATION/s/ W. Scott EmerickW. Scott EmerickChief Accounting Officer and Duly Authorized
Signatory of The Lubrizol Corporation  -49-