##### 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 March 31, 2008
 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
(State or other jurisdiction of 
incorporation or organization)
    
    34-0367600
(I.R.S.Employer
Identification No.)
 
 
  þ o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



THE LUBRIZOL CORPORATION  Quarterly Report on Form 10-Q  Quarter Ended March 31, 2008
 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
    
    
    21Item 3
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    34Item 4
    
    Controls and Procedures
    
    
    35PART II. OTHER INFORMATIONItem 1A
    
    Risk Factors
    
    
    35Item 2
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    36Item 6
    
    Exhibits
    
    
    37Signatures
    
    
    38EX-10.1EX-10.2EX-31.1EX-31.2EX-32.1
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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 
 THE LUBRIZOL CORPORATION
 Three Months EndedMarch 31,(In Millions of Dollars Except Per Share Data)
    
    2008
    
    
    2007Revenues
    
    $
    1,227.3
    
    
    $
    1,076.7Cost of sales
    
    
    934.5
    
    
    
    798.3Gross profit
    
    
    292.8
    
    
    
    278.4Selling and administrative expenses
    
    
    108.6
    
    
    
    102.3Research, testing and development expenses
    
    
    54.1
    
    
    
    51.7Amortization of intangible assets
    
    
    7.0
    
    
    
    6.0Restructuring and impairment charges (credits)
    
    
    4.8
    
    
    
    (2.4
    )Other income  net
    
    
    (2.5
    )
    
    
    (5.7
    )Interest income
    
    
    (4.2
    )
    
    
    (7.1
    )Interest expense
    
    
    17.9
    
    
    
    24.2Income before income taxes
    
    
    107.1
    
    
    
    109.4Provision for income taxes
    
    
    33.5
    
    
    
    38.1Net income
    
    $
    73.6
    
    
    $
    71.3Net income per share, basic
    
    $
    1.07
    
    
    $
    1.03Net income per share, diluted
    
    $
    1.06
    
    
    $
    1.02Dividends per share
    
    $
    0.30
    
    
    $
    0.26
 Amounts shown are unaudited.
 See accompanying notes to the financial statements.
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THE LUBRIZOL CORPORATION
 March 31,
    
    
    December 31,(In Millions of Dollars Except Share Data)
    
    2008
    
    
    2007ASSETSCash and short-term investments
    
    $
    459.2
    
    
    $
    502.3Receivables
    
    
    747.1
    
    
    
    665.9Inventories
    
    
    656.5
    
    
    
    600.0Other current assets
    
    
    90.3
    
    
    
    79.1Total current assets
    
    
    1,953.1
    
    
    
    1,847.3Property and equipment  at cost
    
    
    2,866.0
    
    
    
    2,763.2Less accumulated depreciation
    
    
    1,675.3
    
    
    
    1,601.7Property and equipment  net
    
    
    1,190.7
    
    
    
    1,161.5Goodwill
    
    
    1,198.6
    
    
    
    1,170.8Intangible assets  net
    
    
    384.8
    
    
    
    381.3Investments in non-consolidated companies
    
    
    7.2
    
    
    
    8.3Other assets
    
    
    75.0
    
    
    
    74.6TOTAL
    
    $
    4,809.4
    
    
    $
    4,643.8LIABILITIES AND SHAREHOLDERS EQUITYShort-term debt and current portion of long-term debt
    
    $
    205.7
    
    
    $
    204.9Accounts payable
    
    
    435.3
    
    
    
    404.8Accrued expenses and other current liabilities
    
    
    259.2
    
    
    
    275.0Total current liabilities
    
    
    900.2
    
    
    
    884.7Long-term debt
    
    
    1,231.3
    
    
    
    1,223.9Pension obligations
    
    
    201.1
    
    
    
    195.2Other postretirement benefit obligations
    
    
    93.3
    
    
    
    93.1Noncurrent liabilities
    
    
    151.7
    
    
    
    147.7Deferred income taxes
    
    
    88.7
    
    
    
    85.5Total liabilities
    
    
    2,666.3
    
    
    
    2,630.1Minority interest in consolidated companies
    
    
    64.8
    
    
    
    62.4Preferred stock without par value  unissuedCommon shares without par value:Authorized  120,000,000 sharesOutstanding  68,112,916 shares as of March 31, 2008 after deducting
18,082,978 treasury shares; 68,383,833 shares as of December 31, 2007
after deducting 17,812,061 treasury shares
    
    
    760.6
    
    
    
    763.6Retained earnings
    
    
    1,178.1
    
    
    
    1,128.7Accumulated other comprehensive income
    
    
    139.6
    
    
    
    59.0Total shareholders equity
    
    
    2,078.3
    
    
    
    1,951.3TOTAL
    
    $
    4,809.4
    
    
    $
    4,643.8
 Amounts shown are unaudited.
 See accompanying notes to the financial statements.
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THE LUBRIZOL CORORATION
 Three Months EndedMarch 31,(In Millions of Dollars)
    
    2008
    
    
    2007CASH PROVIDED BY (USED FOR):OPERATING ACTIVITIESNet income
    
    $
    73.6
    
    
    $
    71.3Adjustments to reconcile net income to cash provided by
operating activities:Depreciation and amortization
    
    
    41.4
    
    
    
    39.2Deferred income taxes
    
    
    0.1
    
    
    
    10.7Deferred compensation
    
    
    2.5
    
    
    
    8.0Restructuring and impairment charges
    
    
    4.0
    
    
    
    Gain from sales of property and equipment
    
    
    (0.1
    )
    
    
    (7.9
    )Change in current assets and liabilities, net of acquisitions:Receivables
    
    
    (66.9
    )
    
    
    (46.3
    )Inventories
    
    
    (38.0
    )
    
    
    18.8Accounts payable, accrued expenses and other current liabilities
    
    
    26.8
    
    
    
    16.5Other current assets
    
    
    (8.0
    )
    
    
    (1.1
    )(86.1
    )
    
    
    (12.1
    )Change in noncurrent liabilities
    
    
    5.9
    
    
    
    (8.5
    )Other items  net
    
    
    1.8
    
    
    
    (2.7
    )Total operating activities
    
    
    43.1
    
    
    
    98.0INVESTING ACTIVITIESCapital expenditures
    
    
    (51.5
    )
    
    
    (31.9
    )Acquisitions
    
    
    0.9
    
    
    
    (15.7
    )Net proceeds from sales of property and equipment
    
    
    0.3
    
    
    
    11.4Other items  net
    
    
    (0.1
    )
    
    
    (0.1
    )Total investing activities
    
    
    (50.4
    )
    
    
    (36.3
    )FINANCING ACTIVITIESChanges in short-term debt  net
    
    
    0.2
    
    
    
    2.4Repayments of long-term debt
    
    
    
    
    
    
    (32.5
    )Dividends paid
    
    
    (20.5
    )
    
    
    (18.0
    )Common shares purchased
    
    
    (25.0
    )
    
    
    (19.3
    )Proceeds from the exercise of stock options
    
    
    2.1
    
    
    
    9.2Tax benefit from the exercise of stock options and awards
    
    
    1.7
    
    
    
    2.5Total financing activities
    
    
    (41.5
    )
    
    
    (55.7
    )Effect of exchange rate changes on cash
    
    
    5.7
    
    
    
    1.1Net (decrease) increase in cash and short-term investments
    
    
    (43.1
    )
    
    
    7.1Cash and short-term investments at the beginning of period
    
    
    502.3
    
    
    
    575.7Cash and short-term investments at the end of period
    
    $
    459.2
    
    
    $
    582.8
 Amounts shown are unaudited.
 See accompanying notes to the financial statements.
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THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  Three Months Ended March 31, 2008 and 2007
  1. Basis of Presentation
   2. Significant Accounting Policies
 Net Income Per Share
  Three Months EndedMarch 31,2008
    
    
    2007Numerator:Net income
    
    $
    73.6
    
    
    $
    71.3Denominator:Weighted-average common shares outstanding
    
    
    68.6
    
    
    
    69.3Dilutive effect of stock options and awards
    
    
    0.7
    
    
    
    0.8Denominator for net income per share, diluted
    
    
    69.3
    
    
    
    70.1Net income per share, basic
    
    $
    1.07
    
    
    $
    1.03Net income per share, diluted
    
    $
    1.06
    
    
    $
    1.02
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THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  Three Months Ended March 31, 2008 and 2007
 New Accounting Standards
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THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  Three Months Ended March 31, 2008 and 2007
  Use of Estimates
  Reclassifications
  3. Stock-Based Compensation
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THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  Three Months Ended March 31, 2008 and 2007
  Three Months EndedMarch 31,2008
    
    2007Risk-free interest rate
    
    
    3.5
    %
    
    
    4.8
    %Dividend yield
    
    
    2.1
    %
    
    
    2.0
    %Expected volatility
    
    
    20.0
    %
    
    
    17.8
    %Expected life (years)
    
    
    6.5
    
    
    
    10.0Weighted-average fair value per share
of options granted during the period
    
    $
    12.27
    
    
    $
    14.68
     Expected
    
    AverageNumber of Shares
    
    Stock Price onAward
    
    to be Issued
    
    Date of Grant2006-2008
    
    
    288,652
    
    
    $
    43.072007-2009
    
    
    255,346
    
    
    $
    53.072008-2010
    
    
    116,990
    
    
    $
    58.45
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THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  Three Months Ended March 31, 2008 and 2007
  Weighted-AverageGrant DateShare
    
    
    Fair ValueUnits
    
    
    Per ShareNonvested at January 1, 2008
    
    
    543,998
    
    
    $
    47.76Granted
    
    
    116,990
    
    
    $
    58.45Performance increase
    
    
    
    
    
    $
    Vested
    
    
    
    
    
    $
    Forfeited
    
    
    
    
    
    $
    Nonvested at March 31, 2008
    
    
    660,988
    
    
    $
    49.65
   4. Acquisitions
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THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  Three Months Ended March 31, 2008 and 2007
  5. Inventories
  March 31,
    
    
    December 31,2008
    
    
    2007Finished products
    
    $
    361.9
    
    
    $
    332.7Products in process
    
    
    115.9
    
    
    
    105.0Raw materials
    
    
    146.5
    
    
    
    132.2Supplies and engine test parts
    
    
    32.2
    
    
    
    30.1Total inventories
    
    $
    656.5
    
    
    $
    600.0
 6. Goodwill and Intangible Assets
   LubrizolAdvanced
    
    
    LubrizolMaterials
    
    
    Additives
    
    
    TotalBalance, January 1, 2008
    
    $
    1,010.9
    
    
    $
    159.9
    
    
    $
    1,170.8Translation and other adjustments
    
    
    25.2
    
    
    
    2.6
    
    
    
    27.8Balance, March 31, 2008
    
    $
    1,036.1
    
    
    $
    162.5
    
    
    $
    1,198.6
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THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  Three Months Ended March 31, 2008 and 2007
  March 31, 2008
    
    
    December 31, 2007Gross
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Amount
    
    
    AmortizationAmortized intangible assets:Customer lists
    
    $
    200.7
    
    
    $
    38.3
    
    
    $
    195.5
    
    
    $
    34.6Technology
    
    
    155.4
    
    
    
    58.0
    
    
    
    155.1
    
    
    
    55.1Trademarks
    
    
    25.3
    
    
    
    8.1
    
    
    
    23.6
    
    
    
    7.2Patents
    
    
    15.3
    
    
    
    6.2
    
    
    
    14.4
    
    
    
    5.7Land-use rights
    
    
    10.5
    
    
    
    1.6
    
    
    
    10.3
    
    
    
    1.5Non-compete agreements
    
    
    2.1
    
    
    
    1.1
    
    
    
    2.6
    
    
    
    1.0Total amortized intangible assets
    
    
    409.3
    
    
    
    113.3
    
    
    
    401.5
    
    
    
    105.1Non-amortized trademarks
    
    
    88.8
    
    
    
    
    
    
    
    84.9
    
    
    
    Total
    
    $
    498.1
    
    
    $
    113.3
    
    
    $
    486.4
    
    
    $
    105.1
  7. Comprehensive Income
  Three Months EndedMarch 31,2008
    
    
    2007Net income
    
    $
    73.6
    
    
    $
    71.3Foreign currency translation adjustment
    
    
    76.2
    
    
    
    10.0Pension and other postretirement benefit plans
    
    
    0.5
    
    
    
    Unrealized gain - natural gas hedges
    
    
    2.8
    
    
    
    1.5Amortization of treasury rate locks
    
    
    1.1
    
    
    
    0.7Total comprehensive income
    
    $
    154.2
    
    
    $
    83.5
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THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  Three Months Ended March 31, 2008 and 2007
 8. Segment Reporting
   ® ® ®
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THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  Three Months Ended March 31, 2008 and 2007
  Three Months EndedMarch 31,2008
    
    
    2007Revenues from external customers:Lubrizol Additives
    
    $
    826.2
    
    
    $
    696.0Lubrizol Advanced Materials
    
    
    401.1
    
    
    
    380.7Total revenues
    
    $
    1,227.3
    
    
    $
    1,076.7Segment operating income:Lubrizol Additives
    
    $
    112.8
    
    
    $
    100.9Lubrizol Advanced Materials
    
    
    30.8
    
    
    
    45.4Segment operating income
    
    
    143.6
    
    
    
    146.3Corporate expenses
    
    
    (21.2
    )
    
    
    (21.7
    )Corporate other income (expense)  net
    
    
    3.2
    
    
    
    (0.5
    )Restructuring and impairment (charges) credits
    
    
    (4.8
    )
    
    
    2.4Interest expense  net
    
    
    (13.7
    )
    
    
    (17.1
    )Income before income taxes
    
    $
    107.1
    
    
    $
    109.4
  March 31,
    
    
    December 31,2008
    
    
    2007Segment total assets:Lubrizol Additives
    
    $
    1,799.1
    
    
    $
    1,663.4Lubrizol Advanced Materials
    
    
    2,312.7
    
    
    
    2,240.0Total segment assets
    
    
    4,111.8
    
    
    
    3,903.4Corporate assets
    
    
    697.6
    
    
    
    740.4Total consolidated assets
    
    $
    4,809.4
    
    
    $
    4,643.8
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THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  Three Months Ended March 31, 2008 and 2007
 9. Pension and Postretirement Benefits
  Three Months EndedMarch 31,2008
    
    
    2007Pension benefits:Service cost - benefits earned during period
    
    $
    7.5
    
    
    $
    7.5Interest cost on projected benefit obligation
    
    
    11.0
    
    
    
    9.8Expected return on plan assets
    
    
    (9.8
    )
    
    
    (8.6
    )Amortization of prior service costs
    
    
    0.7
    
    
    
    0.7Recognized net actuarial loss
    
    
    0.7
    
    
    
    1.2Net periodic pension cost
    
    $
    10.1
    
    
    $
    10.6Other postretirement benefits:Service cost - benefits earned during period
    
    $
    0.5
    
    
    $
    0.4Interest cost on projected benefit obligation
    
    
    1.5
    
    
    
    1.4Amortization of prior service costs
    
    
    (1.7
    )
    
    
    (1.6
    )Amortization of initial net obligation
    
    
    0.1
    
    
    
    0.1Recognized net actuarial loss
    
    
    0.2
    
    
    
    0.3Settlement / curtailment gain
    
    
    (1.1
    )
    
    
    Net periodic non-pension postretirement
benefit cost
    
    $
    (0.5
    )
    
    $
    0.6
  10. Restructuring and Impairment Charges (Credits)
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THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  Three Months Ended March 31, 2008 and 2007
  Liability
    
    
    Restructuring
    
    
    
    
    
    
    
    
    
    
    LiabilityJanuary 1,
    
    
    and Impairment
    
    
    
    
    
    
    Non-cash
    
    
    March 31,2008
    
    
    Charges
    
    
    Cash Paid
    
    
    Adjustments
    
    
    2008Bromborough, U.K. plant closure and
sale
    
    $
    0.1
    
    
    $
    
    
    
    $
    
    
    
    $
    (0.1
    )
    
    $
    Lubrizol Advanced Materials plant
closures and sale, production line
impairments and workforce reductions
    
    
    0.4
    
    
    
    
    
    
    
    (0.2
    )
    
    
    
    
    
    
    0.2Performance Coatings 2008 business
improvement initiatives
    
    
    
    
    
    
    4.8
    
    
    
    
    
    
    
    (4.0
    )
    
    
    0.8Noveon International restructuring
liabilities assumed
    
    
    0.5
    
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    0.6$
    1.0
    
    
    $
    4.8
    
    
    $
    (0.2
    )
    
    $
    (4.0
    )
    
    $
    1.6
 11. Shareholders Equity
  Shareholders EquityAccumulatedNumber of
    
    
    
    
    
    
    
    
    
    
    OtherShares
    
    
    Common
    
    
    Retained
    
    
    ComprehensiveOutstanding
    
    
    Shares
    
    
    Earnings
    
    
    Income
    
    
    TotalBalance, January 1, 2008
    
    
    68.4
    
    
    $
    763.6
    
    
    $
    1,128.7
    
    
    $
    59.0
    
    
    $
    1,951.3Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    73.6
    
    
    
    
    
    
    
    73.6Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80.6
    
    
    
    80.6Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    154.2Deferred stock compensation
    
    
    
    
    
    
    (6.0
    )
    
    
    
    
    
    
    
    
    
    
    (6.0
    )Common shares  treasury:Common shares purchased
    
    
    (0.4
    )
    
    
    (0.8
    )
    
    
    (24.2
    )
    
    
    
    
    
    
    (25.0
    )Shares issued upon exercise
of stock options and awards
    
    
    0.1
    
    
    
    3.8
    
    
    
    
    
    
    
    
    
    
    
    3.8Balance, March 31, 2008
    
    
    68.1
    
    
    $
    760.6
    
    
    $
    1,178.1
    
    
    $
    139.6
    
    
    $
    2,078.3
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THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  Three Months Ended March 31, 2008 and 2007
 12. Fair Value Measurements
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THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  Three Months Ended March 31, 2008 and 2007
  Fair Value Measurements at Reporting Date UsingQuoted Prices
    
    
    Significant
    
    
    Significantin Active Markets
    
    
    Other
    
    
    UnobservableMarch 31,
    
    
    for Identical Assets
    
    
    Observable Inputs
    
    
    Inputs2008
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Assets:Forward commodity contracts (1)
    
    $
    3.5
    
    
    $
    
    
    
    $
    3.5
    
    
    $
    Interest rate swaps (2)
    
    
    8.5
    
    
    
    
    
    
    
    8.5
    
    
    
    Total
    
    $
    12.0
    
    
    $
    
    
    
    $
    12.0
    
    
    $
    Liabilities:Deferred compensation plans (3)
    
    $
    24.8
    
    
    $
    24.8
    
    
    $
    
    
    
    $
    
    13. Contingencies
  General
  -18-




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THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  Three Months Ended March 31, 2008 and 2007
 Environmental
      indemnifications
  -19-




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THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  Three Months Ended March 31, 2008 and 2007
  -20-




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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 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 quarterly report on Form 10-Q .
 OVERVIEW
     -21-




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RESULTS OF OPERATIONS
  -22-




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##### Table of Contents



Three MonthsEnded March 312008
    
    
    2007
    
    

$ Change
    
    
    % ChangeRevenues
    
    $
    1,227.3
    
    
    $
    1,076.7
    
    
    $
    150.6
    
    
    
    14%Cost of sales
    
    
    934.5
    
    
    
    798.3
    
    
    
    136.2
    
    
    
    17%Gross profit
    
    
    292.8
    
    
    
    278.4
    
    
    
    14.4
    
    
    
    5%Selling and administrative expenses
    
    
    108.6
    
    
    
    102.3
    
    
    
    6.3
    
    
    
    6%Research, testing and development expenses
    
    
    54.1
    
    
    
    51.7
    
    
    
    2.4
    
    
    
    5%Amortization of intangible assets
    
    
    7.0
    
    
    
    6.0
    
    
    
    1.0
    
    
    
    17%Restructuring and impairment charges
(credits)
    
    
    4.8
    
    
    
    (2.4
    )
    
    
    7.2
    
    
    
    *Other income
 net
    
    
    (2.5
    )
    
    
    (5.7
    )
    
    
    3.2
    
    
    
    (56%
    )Interest income
    
    
    (4.2
    )
    
    
    (7.1
    )
    
    
    2.9
    
    
    
    (41%
    )Interest expense
    
    
    17.9
    
    
    
    24.2
    
    
    
    (6.3
    )
    
    
    (26%
    )Income before income taxes
    
    
    107.1
    
    
    
    109.4
    
    
    
    (2.3
    )
    
    
    (2%
    )Provision for income taxes
    
    
    33.5
    
    
    
    38.1
    
    
    
    (4.6
    )
    
    
    (12%
    )Net income
    
    $
    73.6
    
    
    $
    71.3
    
    
    $
    2.3
    
    
    
    3%Net income per share, basic
    
    $
    1.07
    
    
    $
    1.03
    
    
    $
    0.04
    
    
    
    4%Net income per share, diluted
    
    $
    1.06
    
    
    $
    1.02
    
    
    $
    0.04
    
    
    
    4%
 *
    
    Calculation not meaningful Revenues
 Analysis
of Volume  2008 vs. 2007
 Excludingthe Impact of2008
    
    
    
    
    
    AcquisitionsVolume
    
    % Change
    
    % ChangeNorth America
    
    
    44
    %
    
    
    (1
    %)
    
    
    (2
    %)Europe
    
    
    28
    %
    
    
    9
    %
    
    
    7
    %Asia-Pacific / Middle East
    
    
    21
    %
    
    
    12
    %
    
    
    9
    %Latin America
    
    
    7
    %
    
    
    28
    %
    
    
    27
    %Total
    
    
    100
    %
    
    
    6
    %
    
    
    4
    %
  Cost of Sales
 -23-




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Gross Profit
 Selling and Administrative Expenses
 Research, Testing and Development Expenses
 Restructuring and Impairment Charges (Credits)
 -24-




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Three Months Ended March 31, 2008Asset
    
    
    Other PlantImpairments
    
    
    Exit Costs
    
    
    Severance
    
    
    TotalPerformance Coatings 2008 business improvement initiatives
    
    $
    4.0
    
    
    $
    
    
    
    $
    0.8
    
    
    $
    4.8
 Three Months Ended March 31, 2007AssetImpairments
    
    
    Other Plant(Gains)
    
    
    Exit Costs
    
    
    Severance
    
    
    TotalLubrizol Advanced Materials plant closures and workforce reductions
    
    $
    
    
    
    $
    0.2
    
    
    $
    0.1
    
    
    $
    0.3Bromborough, U.K. plant closure and sale
    
    
    (2.8
    )
    
    
    
    
    
    
    
    
    
    
    (2.8
    )Other
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    0.1Total restructuring and impairment (credits) charges
    
    $
    (2.8
    )
    
    $
    0.2
    
    
    $
    0.2
    
    
    $
    (2.4
    )
 Other Income  Net
 Interest Expense  Net
 Provision for Income Taxes
 Net Income
 SEGMENT ANALYSIS
  -25-




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Three Months EndedMarch 31,2008
    
    2007Revenues:Lubrizol Additives
    
    
    67
    %
    
    
    65
    %Lubrizol Advanced Materials
    
    
    33
    %
    
    
    35
    %Segment Operating Income:Lubrizol Additives
    
    
    79
    %
    
    
    69
    %Lubrizol Advanced Materials
    
    
    21
    %
    
    
    31
    %
  Three Months EndedMarch 31,2008
    
    
    2007
    
    

$ Change
    
   
     % ChangeRevenues:Lubrizol Additives
    
    $
    826.2
    
    
    $
    696.0
    
    
    $
    130.2
    
    
    
    19
    %Lubrizol Advanced
Materials
    
    
    401.1
    
    
    
    380.7
    
    
    
    20.4
    
    
    
    5
    %Total
    
    $
    1,227.3
    
    
    $
    1,076.7
    
    
    $
    150.6
    
    
    
    14
    %Gross Profit:Lubrizol Additives
    
    $
    190.2
    
    
    $
    168.1
    
    
    $
    22.1
    
    
    
    13
    %Lubrizol Advanced
Materials
    
    
    102.6
    
    
    
    110.3
    
    
    
    (7.7
    )
    
    
    (7
    %)Total
    
    $
    292.8
    
    
    $
    278.4
    
    
    $
    14.4
    
    
    
    5
    %Segment Operating
Income:Lubrizol Additives
    
    $
    112.8
    
    
    $
    100.9
    
    
    $
    11.9
    
    
    
    12
    %Lubrizol Advanced
Materials
    
    
    30.8
    
    
    
    45.4
    
    
    
    (14.6
    )
    
    
    (32
    %)Total
    
    $
    143.6
    
    
    $
    146.3
    
    
    $
    (2.7
    )
    
    
    (2
    %)
 Lubrizol Additives Segment
 Revenues
 -26-




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Excluding1st Quarter
    
    1st Quarter
    
    the Impact of2008
    
    2008 vs. 2007
    
    AcquisitionsVolume
    
    % Change
    
    % ChangeNorth America
    
    
    34
    %
    
    
    1
    %
    
    
    (1
    %)Europe
    
    
    32
    %
    
    
    13
    %
    
    
    11
    %Asia-Pacific / Middle East
    
    
    26
    %
    
    
    12
    %
    
    
    9
    %Latin America
    
    
    8
    %
    
    
    34
    %
    
    
    34
    %Total
    
    
    100
    %
    
    
    10
    %
    
    
    7
    %
  Gross Profit
  Selling, Technical, Administrative and Research Expenses
 Other (Expense) Income  Net
 -27-




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Segment Operating Income
 Lubrizol advanced materials Segment
 Revenues
  1st Quarter
    
    1st Quarter2008
    
    2008 vs. 2007Volume
    
    % ChangeNorth America
    
    
    66
    %
    
    
    (3
    %)Europe
    
    
    18
    %
    
    
    (6
    %)Asia-Pacific / Middle East
    
    
    12
    %
    
    
    11
    %Latin America
    
    
    4
    %
    
    
    6
    %Total
    
    
    100
    %
    
    
    (2
    %)
 ®
 ®
   Gross Profit
 -28-




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® ®
  Selling, Technical, Administrative and Research Expenses
 Segment Operating Income
 WORKING CAPITAL, LIQUIDITY AND CAPITAL RESOURCES
  Three Months EndedMarch 31,2008
    
    
    2007Cash provided by (used for):Operating activities
    
    $
    43.1
    
    
    $
    98.0Investing activities
    
    
    (50.4
    )
    
    
    (36.3
    )Financing activities
    
    
    (41.5
    )
    
    
    (55.7
    )Effect of exchange-rate changes on cash
    
    
    5.7
    
    
    
    1.1Net (decrease) increase in cash and short-term
investments
    
    $
    (43.1
    )
    
    $
    7.1
 Operating Activities
   -29-




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Investing Activities
  Financing
Activities
  
  Capitalization,
Liquidity and Credit Facilities
     
  -30-




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Contractual
Cash Obligations
  
 NEW ACCOUNTING STANDARDS
    -31-




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-32-




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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 effects of required principal and interest payments and the high degree of volatility in
the capital markets 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.
 -33-




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##### Table of Contents




    
    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.
 
 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
      -34-




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Item 4. Controls and Procedures
   
 PART II. OTHER INFORMATION
 
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 (a)
    
    On January 2, 2008, we issued 303 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 January 18, 2008, we issued 1,643 common shares in transactions exempt from
registration under the Securities Act of 1933 pursuant to Regulation S. We issued
the common shares to 20 employees of a wholly owned Canadian subsidiary of the
company under an employee benefit plan.
 -35-




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On February 1, 2008, we issued 797 common shares in private placement transactions
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 and the spouse of a
deceased officer under a deferred compensation plan for officers and to one former
employee under a senior management deferred compensation plan.On March 3, 2008, we issued 2,465 common shares in private placement transactions
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 and one current officer
under a deferred compensation plan for officers and to one former officer under a
senior management deferred compensation plan.On March 4, 2008, we issued 1,018 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.
 -36-




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(c)
    
    The following table provides information regarding our purchases of Lubrizol
common shares during the 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 YetShares (or Units)
    
    Paid per Share
    
    Publicly Announced
    
    be Purchased Under thePeriod
    
    Purchased1
    
    (or Unit)
    
    Plans or Programs2
    
    Plans or ProgramsMonth #1
(January 1, 2008 through 
January 31, 2008)
    
    
    120
    Shares
    
    $
    54.16
    
    
    
    0
    Shares
    
    
    5,111,918
    SharesMonth #2
(February 1, 2008
through 
February 29, 2008)
    
    
    430,102
    Shares
    
    $
    58.23
    
    
    
    430,000
    Shares
    
    
    4,681,918
    SharesMonth #3
(March 1, 2008 through 
March 31, 2008)
    
    
    983
    Shares
    
    $
    58.30
    
    
    
    0
    Shares
    
    
    4,681,918
    SharesTotal
    
    
    431,205
    Shares
    
    
    
    
    
    
    430,000
    Shares
    
    
    4,681,918
    Shares
 1
    
    This column includes common shares (120 in January; 102 in February; and
983 in March) that we purchased pursuant to our deferred compensation plans and long-term
incentive program, whereby we withhold shares upon a distribution to pay the withholding
taxes on behalf of the employee.2
    
    This column represents common shares that we purchased at a cost of $25.0
million pursuant to a previously announced share repurchase plan on June 23, 1997 at
which time our board of directors authorized the company to repurchase up to four million
of its common shares. These shares may be repurchased in the open market or through
negotiated transactions. The program does not have an expiration date. On April 23,
2007, our board of directors authorized a new share repurchase program that, combined
with our existing repurchase program, permits us to repurchase up to $300.0 million of
our common shares through 2009. 
 Item 6. Exhibits
 10.1*
    
    
    The Lubrizol Corporation Senior Management Deferred Compensation Plan, as amended.10.2*
    
    
    The Lubrizol Corporation 2005 Deferred Compensation Plan for Directors, as amended31.1
    
    
    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.
 *
    
    Indicates management contract or compensatory plan or arrangement. -37-




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Signatures
  THE LUBRIZOL CORPORATION/s/ W. Scott EmerickW. Scott EmerickChief Accounting Officer and Duly Authorized
Signatory of The Lubrizol Corporation  -38-