##### 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, 2007
 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
  þ o o
 o þ




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##### 



THE LUBRIZOL CORPORATION  Quarterly Report on Form 10-Q  Quarter Ended March 31, 2007
  
 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
    
    
    20Item 3
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    32Item 4
    
    Controls and Procedures
    
    
    33PART II. OTHER INFORMATIONItem 1
    
    Legal Proceedings
    
    
    34Item 1A
    
    Risk Factors
    
    
    34Item 2
    
    Unregistered Sales
of Equity Securities and Use of Proceeds
    
    
    34Item 6
    
    Exhibits
    
    
    35Signatures
    
    
    36EX-31.1EX-31.2EX-32.1
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PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 THE LUBRIZOL CORPORATION
 
  Three Months EndedMarch 31,(In Millions of Dollars Except Per Share Data)
    
    2007
    
    
    2006Net sales
    
    $
    1,075.8
    
    
    $
    983.5Royalties and other revenues
    
    
    0.9
    
    
    
    0.6Total revenues
    
    
    1,076.7
    
    
    
    984.1Cost of sales
    
    
    797.7
    
    
    
    738.4Selling and administrative expenses
    
    
    102.3
    
    
    
    93.3Research, testing and development expenses
    
    
    51.7
    
    
    
    49.6Amortization of intangible assets
    
    
    6.0
    
    
    
    5.8Restructuring and impairment (credits) charges
    
    
    (2.4
    )
    
    
    1.8Total costs and expenses
    
    
    955.3
    
    
    
    888.9Other income (expense)  net
    
    
    5.6
    
    
    
    (1.5
    )Interest income
    
    
    7.1
    
    
    
    2.2Interest expense
    
    
    (24.2
    )
    
    
    (25.3
    )Income from continuing operations before income taxes
    
    
    109.9
    
    
    
    70.6Provision for income taxes
    
    
    38.3
    
    
    
    24.7Income from continuing operations
    
    
    71.6
    
    
    
    45.9Discontinued operations  net of tax
    
    
    
    
    
    
    (60.7
    )Net income (loss)
    
    $
    71.6
    
    
    $
    (14.8
    )Basic earnings (loss) per share:Continuing operations
    
    $
    1.03
    
    
    $
    0.67Discontinued operations
    
    
    
    
    
    
    (0.89
    )Net income (loss) per share, basic
    
    $
    1.03
    
    
    $
    (0.22
    )Diluted earnings (loss) per share:Continuing operations
    
    $
    1.02
    
    
    $
    0.66Discontinued operations
    
    
    
    
    
    
    (0.88
    )Net income (loss) per share, diluted
    
    $
    1.02
    
    
    $
    (0.22
    )Dividends per share
    
    $
    0.26
    
    
    $
    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)
    
    2007
    
    
    2006ASSETSCash and short-term investments
    
    $
    582.8
    
    
    $
    575.7Receivables
    
    
    625.5
    
    
    
    573.6Inventories
    
    
    573.0
    
    
    
    589.0Other current assets
    
    
    86.7
    
    
    
    98.0Total current assets
    
    
    1,868.0
    
    
    
    1,836.3Property and equipment  at cost
    
    
    2,580.3
    
    
    
    2,546.0Less accumulated depreciation
    
    
    1,496.5
    
    
    
    1,464.7Property and equipment  net
    
    
    1,083.8
    
    
    
    1,081.3Goodwill
    
    
    1,092.9
    
    
    
    1,076.1Intangible assets  net
    
    
    325.4
    
    
    
    322.8Investments in non-consolidated companies
    
    
    7.2
    
    
    
    7.7Other assets
    
    
    67.0
    
    
    
    62.0TOTAL
    
    $
    4,444.3
    
    
    $
    4,386.2LIABILITIES AND SHAREHOLDERS EQUITYShort-term debt and current portion of long-term debt
    
    $
    6.1
    
    
    $
    3.7Accounts payable
    
    
    360.2
    
    
    
    340.5Accrued expenses and other current liabilities
    
    
    227.5
    
    
    
    287.8Total current liabilities
    
    
    593.8
    
    
    
    632.0Long-term debt
    
    
    1,507.1
    
    
    
    1,538.0Pension obligations
    
    
    206.7
    
    
    
    218.5Other postretirement benefit obligations
    
    
    81.1
    
    
    
    82.0Noncurrent liabilities
    
    
    135.4
    
    
    
    66.7Deferred income taxes
    
    
    84.7
    
    
    
    88.9Total liabilities
    
    
    2,608.8
    
    
    
    2,626.1Minority interest in consolidated companies
    
    
    53.2
    
    
    
    52.7Contingencies 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 sharesOutstanding  69,024,228 shares as of March 31, 2007 after deducting
17,171,666 treasury shares; 69,020,569 shares as of December 31, 2006
after deducting 17,175,325 treasury shares
    
    
    728.5
    
    
    
    710.1Retained earnings
    
    
    1,094.2
    
    
    
    1,050.2Accumulated other comprehensive loss
    
    
    (40.4
    )
    
    
    (52.9
    )Total shareholders equity
    
    
    1,782.3
    
    
    
    1,707.4TOTAL
    
    $
    4,444.3
    
    
    $
    4,386.2
 Amounts shown are unaudited.
 See accompanying notes to the financial statements.
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THE
LUBRIZOL CORPORATION
 
  Three Months EndedMarch 31,(In Millions of Dollars)
    
    2007
    
    
    2006CASH PROVIDED BY (USED FOR):OPERATING ACTIVITIESNet income (loss)
    
    $
    71.6
    
    
    $
    (14.8
    )Adjustments to reconcile net income (loss) to cash provided by
operating activities:Depreciation and amortization
    
    
    39.2
    
    
    
    42.9Deferred income taxes
    
    
    10.7
    
    
    
    8.1Deferred compensation
    
    
    8.0
    
    
    
    3.8Restructuring and impairment charges
    
    
    
    
    
    
    61.0(Gain) loss from divestitures and sales of property and equipment
    
    
    (7.9
    )
    
    
    0.9Change in current assets and liabilities, net of acquisitions and divestitures:Receivables
    
    
    (46.3
    )
    
    
    (38.1
    )Inventories
    
    
    18.8
    
    
    
    (13.2
    )Accounts payable, accrued expenses and other current liabilities
    
    
    16.7
    
    
    
    (32.0
    )Other current assets
    
    
    (1.1
    )
    
    
    0.9(11.9
    )
    
    
    (82.4
    )Change in noncurrent liabilities
    
    
    (9.0
    )
    
    
    4.1Other items  net
    
    
    (2.7
    )
    
    
    2.1Total operating activities
    
    
    98.0
    
    
    
    25.7INVESTING ACTIVITIESCapital expenditures
    
    
    (31.9
    )
    
    
    (30.3
    )Acquisitions
    
    
    (15.7
    )
    
    
    Net proceeds from divestitures and sales of property and equipment
    
    
    11.4
    
    
    
    8.5Other items
 net
    
    
    (0.1
    )
    
    
    Total investing activities
    
    
    (36.3
    )
    
    
    (21.8
    )FINANCING ACTIVITIESChanges in short-term debt  net
    
    
    2.4
    
    
    
    0.3Repayments of long-term debt
    
    
    (32.5
    )
    
    
    (23.7
    )Dividends paid
    
    
    (18.0
    )
    
    
    (17.7
    )Common shares purchased
    
    
    (19.3
    )
    
    
    Proceeds from the exercise of stock options
    
    
    11.7
    
    
    
    7.3Total financing activities
    
    
    (55.7
    )
    
    
    (33.8
    )Effect of exchange rate changes on cash
    
    
    1.1
    
    
    
    0.8Net increase (decrease) in cash and short-term investments
    
    
    7.1
    
    
    
    (29.1
    )Cash and short-term investments at the beginning of period
    
    
    575.7
    
    
    
    262.4Cash and short-term investments at the end of period
    
    $
    582.8
    
    
    $
    233.3
 Amounts shown are unaudited.
 See accompanying notes to the financial statements.
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THE LUBRIZOL CORPORATION
 
 Notes to Consolidated Financial Statements  March 31, 2007
  1. Basis of Presentation
   2. Significant Accounting Policies
 Net Income Per Share
  Three Months EndedMarch 31,2007
    
    
    2006Numerator:Income from continuing operations
    
    $
    71.6
    
    
    $
    45.9Denominator:Weighted-average common shares outstanding
    
    
    69.3
    
    
    
    68.4Dilutive effect of stock options and awards
    
    
    0.8
    
    
    
    0.7Denominator for income from continuing operations
per share, diluted
    
    
    70.1
    
    
    
    69.1Income from continuing operations per share, basic
    
    $
    1.03
    
    
    $
    0.67Income from continuing operations per share, diluted
    
    $
    1.02
    
    
    $
    0.66
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THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  March 31, 2007
 New Accounting Standards
   Use of Estimates
  Reclassifications
  3. Stock-Based Compensation
  -7-




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THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  March 31, 2007
   Risk-free interest rate
    
    
    4.8
    %Dividend yield
    
    
    2.0
    %Volatility
    
    
    17.8
    %Expected life (years)
    
    
    10.0Weighted-average fair value of
options granted during the year
    
    $
    14.68
     Expected
    
    AverageNumber of Units
    
    Stock Price onAward
    
    to be Issued
    
    Date of Grant2005-2007
    
    
    268,881
    
    
    $
    39.442006-2008
    
    
    298,034
    
    
    $
    43.072007-2009
    
    
    162,414
    
    
    $
    53.07
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THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  March 31, 2007
 Weighted-AverageShare
    
    Grant DateUnits
    
    Fair ValueNonvested at January 1, 2007
    
    
    370,448
    
    
    $
    40.95Granted
    
    
    129,930
    
    
    $
    53.07Performance increase
    
    
    228,981
    
    
    $
    43.66Vested
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Nonvested at March 31, 2007
    
    
    729,359
    
    
    $
    43.96
  Three Months EndedMarch 31,2007
    
    
    2006Restricted share units:Long-term incentive program
    
    $
    6.6
    
    
    $
    1.7Other plans
    
    
    2.9
    
    
    
    1.7Stock options
    
    
    0.7
    
    
    
    0.8Total
    
    $
    10.2
    
    
    $
    4.2Tax benefit
    
    $
    3.6
    
    
    $
    1.5
 4. Acquisitions
  5. Divestitures
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THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  March 31, 2007
 ®
  6. Inventories
  March 31,
    
    
    December 31,2007
    
    
    2006Finished products
    
    $
    310.7
    
    
    $
    315.0Products in process
    
    
    87.7
    
    
    
    108.2Raw materials
    
    
    146.3
    
    
    
    138.2Supplies and engine test parts
    
    
    28.3
    
    
    
    27.6Total inventory
    
    $
    573.0
    
    
    $
    589.0
 7. Goodwill and Intangible Assets
   LubrizolAdvanced
    
    
    LubrizolMaterials
    
    
    Additives
    
    
    TotalBalance, January 1, 2007
    
    $
    978.3
    
    
    $
    97.8
    
    
    $
    1,076.1Additions
    
    
    
    
    
    
    8.1
    
    
    
    8.1Translation & other adjustments
    
    
    8.6
    
    
    
    0.1
    
    
    
    8.7Balance, March 31, 2007
    
    $
    986.9
    
    
    $
    106.0
    
    
    $
    1,092.9
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THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  March 31, 2007
 March 31, 2007
    
    
    December 31, 2006Gross
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Amount
    
    
    AmortizationAmortized intangible assets:Customer lists
    
    $
    150.1
    
    
    $
    26.3
    
    
    $
    145.0
    
    
    $
    24.0Technology
    
    
    141.5
    
    
    
    47.4
    
    
    
    139.8
    
    
    
    44.9Trademarks
    
    
    21.9
    
    
    
    5.8
    
    
    
    20.7
    
    
    
    5.5Patents
    
    
    14.1
    
    
    
    4.5
    
    
    
    14.0
    
    
    
    4.2Land-use rights
    
    
    7.5
    
    
    
    1.2
    
    
    
    7.5
    
    
    
    1.2Non-compete agreements
    
    
    8.4
    
    
    
    7.8
    
    
    
    8.2
    
    
    
    7.2Other
    
    
    0.9
    
    
    
    0.9
    
    
    
    0.9
    
    
    
    0.7Total amortized intangible assets
    
    
    344.4
    
    
    
    93.9
    
    
    
    336.1
    
    
    
    87.7Non-amortized trademarks
    
    
    74.9
    
    
    
    
    
    
    
    74.4
    
    
    
    Total
    
    $
    419.3
    
    
    $
    93.9
    
    
    $
    410.5
    
    
    $
    87.7
  8. Income Taxes
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THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  March 31, 2007
    9. Comprehensive Income (Loss)
  Three Months EndedMarch 31,2007
    
    
    2006Net income (loss)
    
    $
    71.6
    
    
    $
    (14.8
    )Foreign currency translation adjustment
    
    
    10.3
    
    
    
    6.9Pension and other postretirement benefit plans
    
    
    
    
    
    
    (0.8
    )Unrealized gain (loss) - natural gas hedges
    
    
    1.5
    
    
    
    (0.8
    )Amortization of treasury rate locks
    
    
    0.7
    
    
    
    0.7Total comprehensive income (loss)
    
    $
    84.1
    
    
    $
    (8.8
    )
 10. Segment Reporting
   -12-




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THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  March 31, 2007
 ® ®
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THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  March 31, 2007
  Three Months EndedMarch 31,2007
    
    
    2006Revenues from external customers:Lubrizol Additives
    
    $
    696.0
    
    
    $
    627.5Lubrizol Advanced Materials
    
    
    380.7
    
    
    
    356.6Total revenues
    
    $
    1,076.7
    
    
    $
    984.1Segment operating income:Lubrizol Additives
    
    $
    101.4
    
    
    $
    74.4Lubrizol Advanced Materials
    
    
    45.4
    
    
    
    44.6Segment operating income
    
    
    146.8
    
    
    
    119.0Corporate expenses
    
    
    (21.7
    )
    
    
    (21.3
    )Corporate other expense  net
    
    
    (0.5
    )
    
    
    (2.2
    )Restructuring and impairment credits (charges)
    
    
    2.4
    
    
    
    (1.8
    )Interest expense  net
    
    
    (17.1
    )
    
    
    (23.1
    )Income from continuing operations
before income taxes
    
    $
    109.9
    
    
    $
    70.6
  March 31,
    
    
    December 31,2007
    
    
    2006Segment total assets:Lubrizol Additives
    
    $
    1,447.2
    
    
    $
    1,392.9Lubrizol Advanced Materials
    
    
    2,209.8
    
    
    
    2,193.7Total segment assets
    
    
    3,657.0
    
    
    
    3,586.6Corporate assets
    
    
    787.3
    
    
    
    799.6Total consolidated assets
    
    $
    4,444.3
    
    
    $
    4,386.2
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THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  March 31, 2007
 11. Pension and Postretirement Benefits
  Three Months EndedMarch 31,2007
    
    
    2006Pension benefits:Service cost - benefits earned during period
    
    $
    7.2
    
    
    $
    7.9Interest cost on projected benefit obligation
    
    
    9.6
    
    
    
    8.3Expected return on plan assets
    
    
    (8.6
    )
    
    
    (7.1
    )Amortization of prior service costs
    
    
    0.6
    
    
    
    0.5Settlement / curtailment loss
    
    
    
    
    
    
    3.3Recognized net actuarial loss
    
    
    1.2
    
    
    
    2.1Net periodic pension cost
    
    $
    10.0
    
    
    $
    15.0Other postretirement benefits:Service cost - benefits earned during period
    
    $
    0.3
    
    
    $
    0.4Interest cost on projected benefit obligation
    
    
    1.3
    
    
    
    1.3Amortization of prior service costs
    
    
    (1.6
    )
    
    
    (2.1
    )Recognized net actuarial loss
    
    
    0.3
    
    
    
    0.4Net periodic non-pension postretirement
benefit cost
    
    $
    0.3
    
    
    $
    
  12.
    
    Restructuring and Impairment (Credits) Charges
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THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  March 31, 2007
  Liability
    
    
    Restructuring
    
    
    
    
    
    
    LiabilityJanuary 1,
    
    
    and Impairment
    
    
    
    
    
    
    March 31,2007
    
    
    (Credits) Charges
    
    
    Cash Paid
    
    
    2007Bromborough,
U.K. plant closure and sale
    
    $
    1.0
    
    
    $
    (0.8
    )
    
    $
    
    
    
    $
    0.2Lubrizol Advanced Materials plant
closures and workforce reductions
    
    
    0.7
    
    
    
    0.3
    
    
    
    (0.4
    )
    
    
    0.6Corporate / other workforce reductions
    
    
    0.2
    
    
    
    0.1
    
    
    
    (0.3
    )
    
    
    Noveon International restructuring
liabilities assumed
    
    
    0.9
    
    
    
    
    
    
    
    (0.3
    )
    
    
    0.6$
    2.8
    
    
    $
    (0.4
    )
    
    $
    (1.0
    )
    
    $
    1.4
  13. Debt
   
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THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  March 31, 2007
 14. Shareholders Equity
  Shareholders EquityAccumulatedNumber of
    
    
    
    
    
    
    
    
    
    
    OtherShares
    
    
    Common
    
    
    Retained
    
    
    ComprehensiveOutstanding
    
    
    Shares
    
    
    Earnings
    
    
    (Loss) Income
    
    
    TotalBalance, December 31, 2006
    
    
    69.0
    
    
    $
    710.1
    
    
    $
    1,050.2
    
    
    $
    (52.9
    )
    
    $
    1,707.4Cumulative effect of a
change in
accounting principle due to
the
adoption of FIN No. 48
    
    
    
    
    
    
    
    
    
    
    (8.9
    )
    
    
    
    
    
    
    (8.9
    )Balance, January 1, 2007
    
    
    69.0
    
    
    
    710.1
    
    
    
    1,041.3
    
    
    
    (52.9
    )
    
    
    1,698.5Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    71.6
    
    
    
    
    
    
    
    71.6Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12.5
    
    
    
    12.5Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    84.1Deferred stock compensation
    
    
    
    
    
    
    7.3
    
    
    
    
    
    
    
    
    
    
    
    7.3Common shares  treasury:Common shares purchased
    
    
    (0.4
    )
    
    
    (0.6
    )
    
    
    (18.7
    )
    
    
    
    
    
    
    (19.3
    )Shares issued upon exercise
of stock options and awards
    
    
    0.4
    
    
    
    11.7
    
    
    
    
    
    
    
    
    
    
    
    11.7Balance, March 31, 2007
    
    
    69.0
    
    
    $
    728.5
    
    
    $
    1,094.2
    
    
    $
    (40.4
    )
    
    $
    1,782.3
 15. Contingencies
  General
  -17-




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THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  March 31, 2007
 Environmental
      -18-




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THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  March 31, 2007
 GUARANTEES
    INDEMNIFICATIONS
  -19-




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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
     ®
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RESULTS OF OPERATIONS
   Revenues
  Three MonthsEnded March 31,2007
    
    
    2006
    
    
    $ Change
    
    
    % ChangeNet sales
    
    $
    1,075.8
    
    
    $
    983.5
    
    
    $
    92.3
    
    
    
    9
    %Royalties and other
revenues
    
    
    0.9
    
    
    
    0.6
    
    
    
    0.3
    
    
    
    50
    %Total revenues
    
    $
    1,076.7
    
    
    $
    984.1
    
    
    $
    92.6
    
    
    
    9
    %
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1st Quarter
    
    1st Quarter2007
    
    2007 vs. 2006Volume
    
    % ChangeNorth America
    
    
    47
    %
    
    
    (3
    %)Europe
    
    
    27
    %
    
    
    1
    %Asia-Pacific / Middle East
    
    
    20
    %
    
    
    (1
    %)Latin America
    
    
    6
    %
    
    
    22
    %Total
    
    
    100
    %
    
    
    
  Costs and Expenses
  Three Months EndedMarch 31,2007
    
    
    2006
    
    
    $ Change
    
    
    % ChangeCost of sales
    
    $
    797.7
    
    
    $
    738.4
    
    
    $
    59.3
    
    
    
    8
    %Selling and administrative expenses
    
    
    102.3
    
    
    
    93.3
    
    
    
    9.0
    
    
    
    10
    %Research, testing and development expenses
    
    
    51.7
    
    
    
    49.6
    
    
    
    2.1
    
    
    
    4
    %Amortization of intangible assets
    
    
    6.0
    
    
    
    5.8
    
    
    
    0.2
    
    
    
    3
    %Restructuring and impairment (credits) charges
    
    
    (2.4
    )
    
    
    1.8
    
    
    
    (4.2
    )
    
    
    *Total costs and expenses
    
    $
    955.3
    
    
    $
    888.9
    
    
    $
    66.4
    
    
    
    7
    %o
 *
    
    Calculation not meaningful
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Three Months Ended March 31, 2007AssetImpairments
    
    
    Other Plant(Gains)
    
    
    Exit Costs
    
    
    Severance
    
    
    TotalBromborough, U.K. plant closure and sale
    
    $
    (2.8
    )
    
    $
    
    
    
    $
    
    
    
    $
    (2.8
    )Lubrizol Advanced Materials plant closures
and workforce reductions
    
    
    
    
    
    
    0.2
    
    
    
    0.1
    
    
    
    0.3Other
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    0.1Total restructuring and impairment (credits) charges
    
    $
    (2.8
    )
    
    $
    0.2
    
    
    $
    0.2
    
    
    $
    (2.4
    )
 Three Months Ended March 31, 2006Other PlantExit Costs
    
    
    Severance
    
    
    TotalBromborough, U.K. plant closure
    
    $
    0.9
    
    
    $
    0.6
    
    
    $
    1.5Lubrizol Advanced Materials plant closures
and workforce reductions
    
    
    
    
    
    
    0.4
    
    
    
    0.4Other
    
    
    
    
    
    
    (0.1
    )
    
    
    (0.1
    )Total restructuring and impairment charges
    
    $
    0.9
    
    
    $
    0.9
    
    
    $
    1.8
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OtherItems andNetIncome (Loss)
  Three Months EndedMarch 31,2007
    
    2006
    
    $ Change
    
    % ChangeOther income (expense)  net
    
    $
    5.6
    
    
    $
    (1.5
    )
    
    $
    7.1
    
    
    
    *Interest expense  net
    
    
    (17.1
    )
    
    
    (23.1
    )
    
    
    6.0
    
    
    
    (26
    %)Income from continuing
operations
before income taxes
    
    
    109.9
    
    
    
    70.6
    
    
    
    39.3
    
    
    
    56
    %Provision for income taxes
    
    
    38.3
    
    
    
    24.7
    
    
    
    13.6
    
    
    
    55
    %Income from continuing
operations
    
    
    71.6
    
    
    
    45.9
    
    
    
    25.7
    
    
    
    56
    %Discontinued operations
    
    
    
    
    
    
    (60.7
    )
    
    
    60.7
    
    
    
    *Net income (loss)
    
    
    71.6
    
    
    
    (14.8
    )
    
    
    86.4
    
    
    
    *
 *
    
    Calculation not meaningful
     SEGMENT ANALYSIS
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Three Months EndedMarch 31,2007
    
    2006Revenues:Lubrizol Additives
    
    
    65
    %
    
    
    64
    %Lubrizol Advanced Materials
    
    
    35
    %
    
    
    36
    %Segment Operating Income:Lubrizol Additives
    
    
    69
    %
    
    
    63
    %Lubrizol Advanced Materials
    
    
    31
    %
    
    
    37
    %
  Three Months EndedMarch 31,2007
    
    
    2006
    
    
    $ ChangeRevenues:Lubrizol Additives
    
    $
    696.0
    
    
    $
    627.5
    
    
    $
    68.5Lubrizol Advanced Materials
    
    
    380.7
    
    
    
    356.6
    
    
    
    24.1Total
    
    $
    1,076.7
    
    
    $
    984.1
    
    
    $
    92.6Gross Profit:Lubrizol Additives
    
    $
    168.1
    
    
    $
    141.0
    
    
    $
    27.1Lubrizol Advanced Materials
    
    
    110.0
    
    
    
    104.1
    
    
    
    5.9Total
    
    $
    278.1
    
    
    $
    245.1
    
    
    $
    33.0Segment Operating
Income:Lubrizol Additives
    
    $
    101.4
    
    
    $
    74.4
    
    
    $
    27.0Lubrizol Advanced Materials
    
    
    45.4
    
    
    
    44.6
    
    
    
    0.8Total
    
    $
    146.8
    
    
    $
    119.0
    
    
    $
    27.8
 Lubrizol Additives Segment
  -25-




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1st Quarter
    
    1st Quarter2007
    
    2007 vs. 2006Volume
    
    % ChangeNorth America
    
    
    37
    %
    
    
    (1
    %)Europe
    
    
    31
    %
    
    
    Asia-Pacific / Middle East
    
    
    25
    %
    
    
    (5
    %)Latin America
    
    
    7
    %
    
    
    15
    %Total
    
    
    100
    %
    
    
    (1
    %)
       -26-




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lubrizol advanced materials Segment
   1st Quarter
    
    1st Quarter2007
    
    2007 vs. 2006Volume
    
    % ChangeNorth America
    
    
    67
    %
    
    
    (4
    %)Europe
    
    
    18
    %
    
    
    7
    %Asia-Pacific / Middle East
    
    
    11
    %
    
    
    24
    %Latin America
    
    
    4
    %
    
    
    57
    %Total
    
    
    100
    %
    
    
    2
    %
  ®
 ®
  -27-




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WORKING CAPITAL, LIQUIDITY AND CAPITAL RESOURCES
  Three Months EndedMarch 31,2007
    
    
    2006Cash provided by (used for):Operating activities
    
    $
    98.0
    
    
    $
    25.7Investing activities
    
    
    (36.3
    )
    
    
    (21.8
    )Financing activities
    
    
    (55.7
    )
    
    
    (33.8
    )Effect of exchange-rate changes on cash
    
    
    1.1
    
    
    
    0.8Net increase (decrease) in cash and
short-term investments
    
    $
    7.1
    
    
    $
    (29.1
    )
 Operating Activities
   Investing Activities
  -28-




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Financing Activities
  
   Capitalization, Liquidity and Credit Facilities
      
  Contractual Cash Obligations
  -29-




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
 NEW ACCOUNTING STANDARDS
     -30-




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CAUTIONARY STATEMENTS FOR SAFE HARBOR PURPOSES
   
    
    The cost, availability and quality of raw materials, especially petroleum-based products.
 -31-




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
    
    Our ability to sustain profitability of our products in a competitive environment.
 
    
    The demand for our products as influenced by factors such as the global economic environment, longer-term technology
developments and the success of our commercial development programs.
 
    
    The risks of conducting business in foreign countries, including the effects of fluctuations in currency exchange rates
upon our consolidated results and political, social, economic and regulatory factors.
 
    
    The extent to which we are successful in expanding our business in new and existing markets and in identifying,
understanding and managing the risks inherent in those markets.
 
    
    The effect of required principal and interest payments on our ability to fund capital expenditures and acquisitions and
to meet operating needs.
 
    
    Our ability to identify, complete and integrate acquisitions for profitable growth and operating efficiencies.
 
    
    Our success at continuing to develop proprietary technology to meet or exceed new industry performance standards and
individual customer expectations.
 
    
    Our ability to implement a new common information systems platform primarily into our Lubrizol Advanced Materials
segment successfully, including the management of project costs, its timely completion and realization of its benefits.
 
    
    Our ability to continue to reduce complexities and conversion costs and modify our cost structure to maintain and
enhance our competitiveness.
 
    
    Our success in retaining and growing the business that we have with our largest customers.
 
    
    The cost and availability of energy, especially natural gas and electricity.
 
    
    The effect of interest rate fluctuations on our net interest expense.
 
    
    The risk of transportation or weather-related disruptions to our Lubrizol Additives production facilities located near
the U.S. Gulf Coast.
 
    
    Significant changes in government regulations affecting environmental compliance.
 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
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Item 4. Controls and Procedures
  -33-




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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 January 2, 2007, we issued 297 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, 2007, we issued 2,217 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.On February 1, 2007, we issued 8,295 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.On March 1, 2007, we issued 9,651 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 three current officers and two former
officers under a deferred compensation plan for officers and to one former director
under a deferred compensation plan for directors.
 -34-




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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 Yet beShares (or Units)
    
    Paid per Share
    
    Publicly Announced
    
    Purchased Under thePeriod
    
    Purchased1
    
    (or Unit)
    
    Plans or Programs2
    
    Plans or ProgramsMonth #1
(January 1, 2007 through
January 31, 2007)
    
    118
    Shares
    
    $
    50.13
    
    
    0
    Shares
    
    1,779,118
    SharesMonth #2
(February 1, 2007
through
February 28, 2007)
    
    301,182
    Shares
    
    $
    52.83
    
    
    265,000
    Shares
    
    1,514,118
    SharesMonth #3
(March 1, 2007 through
March 31, 2007)
    
    103,222
    Shares
    
    $
    52.91
    
    
    101,000
    Shares
    
    1,413,118
    SharesTotal
    
    404,522
    Shares
    
    
    
    
    
    366,000
    Shares
    
    1,413,118
    Shares
 1
    
    This column includes common shares (118 in January; 36,182 in
February; and 2,222 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 $19.3 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.
 
 Item 6. Exhibits
 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.
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Signatures
  THE LUBRIZOL CORPORATION/s/ W. Scott EmerickW. Scott EmerickChief Accounting Officer and Duly Authorized
Signatory of The Lubrizol Corporation  -36-