##### 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 September 30, 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
    
    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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##### Table of Contents



EXPLANATORY NOTE
  
    -2-




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##### 



THE LUBRIZOL CORPORATION  Quarterly Report on Form 10-Q  Quarter Ended September 30, 2007
 Table of Contents
 Page NumberPART I. FINANCIAL INFORMATIONItem 1
    
    Financial Statements (unaudited)
    
    
    4Consolidated Statements of Income
    
    
    4Consolidated Balance Sheets
    
    
    5Consolidated Statements of Cash Flows
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    25Item 3
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    43Item 4
    
    Controls and Procedures
    
    
    44PART II. OTHER INFORMATIONItem 1
    
    Legal Proceedings
    
    
    45Item 1A
    
    Risk Factors
    
    
    45Item 2
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    45Item 6
    
    Exhibits
    
    
    46Signatures
    
    
    47EX-10.1EX-10.2EX-31.1EX-31.2EX-32.1
  -3-




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 THE LUBRIZOL CORPORATION
 
  
 Three Months Ended

    
    Nine Months EndedSeptember 30,


    
    September 30,(In Millions of Dollars Except Per Share Data)
    
    2007
    

    2006
    
    2007

    

    2006(as restated,

    
    
    
    
    

    (as restated,see Note 16)

    
    
    
    
    

    see Note 16)Net sales
    
    $
    1,120.4
    
    


    $
    1,029.9
    
    
    $
    3,349.7
    
    

    $
    3,053.2Royalties and other revenues
    
    
    1.0
    
    

    
    1.1
    
    
    
    3.0
    
    

    
    3.0Total revenues
    
    
    1,121.4
    
    

    
    1,031.0
    
    
    
    3,352.7
    
    

    
    3,056.2Cost of sales
    
    
    846.0
    
    

    
    782.8
    
    
    
    2,503.0
    
    

    
    2,297.4Selling and administrative expenses
    
    
    103.7
    
    

    
    101.7
    
    
    
    309.4
    
    

    
    280.6Research, testing and development expenses
    
    
    56.0
    
    

    
    50.5
    
    
    
    161.4
    
    

    
    152.8Amortization of intangible assets
    
    
    5.8
    
    

    
    5.9
    
    
    
    17.7
    
    

    
    17.7Restructuring and impairment charges
    
    
    2.1
    
    

    
    2.7
    
    
    
    0.6
    
    

    
    6.3Total costs and expenses
    
    
    1,013.6
    
    

    
    943.6
    
    
    
    2,992.1
    
    

    
    2,754.8Other income (expense)  net
    
    
    5.5
    
    

    
    1.6
    
    
    
    9.7
    
    

    
    (0.1
    )Interest income
    
    
    6.9
    
    

    
    7.6
    
    
    
    20.9
    
    

    
    13.5Interest expense
    
    
    (21.7
    )
    

    
    (25.0
    )
    
    
    (70.3
    )
    

    
    (75.0
    )Income from continuing operations before
income taxes
    
    
    98.5
    
    

    
    71.6
    
    
    
    320.9
    
    

    
    239.8Provision for income taxes
    
    
    27.1
    
    

    
    21.5
    
    
    
    97.2
    
    

    
    81.4Income from continuing operations
    
    
    71.4
    
    

    
    50.1
    
    
    
    223.7
    
    

    
    158.4Discontinued operations  net of tax
    
    
    
    
    

    
    (0.5
    )
    
    
    
    
    

    
    (73.6
    )Net income
    
    $
    71.4
    
    

    $
    49.6
    
    
    $
    223.7
    
    

    $
    84.8Basic earnings (loss) per share:Continuing operations
    
    $
    1.03
    
    

    $
    0.73
    
    
    $
    3.23
    
    

    $
    2.31Discontinued operations
    
    
    
    
    

    
    (0.01
    )
    
    
    
    
    

    
    (1.07
    )Net income per share, basic
    
    $
    1.03
    
    

    $
    0.72
    
    
    $
    3.23
    
    

    $
    1.24Diluted earnings (loss) per share:Continuing operations
    
    $
    1.02
    
    

    $
    0.72
    
    
    $
    3.19
    
    

    $
    2.29Discontinued operations
    
    
    
    
    

    
    (0.01
    )
    
    
    
    
    

    
    (1.06
    )Net income per share, diluted
    
    $
    1.02
    
    

    $
    0.71
    
    
    $
    3.19
    
    

    $
    1.23Dividends paid per share
    
    $
    0.30
    
    

    $
    0.26
    
    
    $
    0.86
    
    

    $
    0.78
 Amounts shown are unaudited.
See accompanying notes to the financial statements.
 -4-




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THE LUBRIZOL CORPORATION
 
  
 September 30,

    
    December 31,(In Millions of Dollars Except Share Data)
    
    2007
    
    2006ASSETSCash and short-term investments
    
    
    $
    646.0
    
    
    
    $
    575.7Receivables
    
    
    
    655.3
    
    
    
    
    573.6Inventories
    
    
    
    571.5
    
    
    
    
    589.0Other current assets
    
    
    
    78.2
    
    
    
    
    98.0Total current assets
    
    
    
    1,951.0
    
    
    
    
    1,836.3Property and equipment  at cost
    
    
    
    2,696.6
    
    
    
    
    2,546.0Less accumulated depreciation
    
    
    
    1,571.7
    
    
    
    
    1,464.7Property and equipment  net
    
    
    
    1,124.9
    
    
    
    
    1,081.3Goodwill
    
    
    
    1,113.5
    
    
    
    
    1,076.1Intangible assets  net
    
    
    
    320.7
    
    
    
    
    322.8Investments in non-consolidated companies
    
    
    
    7.3
    
    
    
    
    7.7Other assets
    
    
    
    73.1
    
    
    
    
    66.7TOTAL
    
    
    $
    4,590.5
    
    
    
    $
    4,390.9LIABILITIES AND SHAREHOLDERS EQUITYShort-term debt and current portion of long-term debt
    
    
    $
    3.5
    
    
    
    $
    3.7Accounts payable
    
    
    
    392.4
    
    
    
    
    340.5Accrued expenses and other current liabilities
    
    
    
    290.6
    
    
    
    
    290.2Total current liabilities
    
    
    
    686.5
    
    
    
    
    634.4Long-term debt
    
    
    
    1,428.8
    
    
    
    
    1,538.0Pension obligations
    
    
    
    232.2
    
    
    
    
    237.9Other postretirement benefit obligations
    
    
    
    97.2
    
    
    
    
    93.5Noncurrent liabilities
    
    
    
    141.9
    
    
    
    
    72.3Deferred income taxes
    
    
    
    78.1
    
    
    
    
    80.4Total liabilities
    
    
    
    2,664.7
    
    
    
    
    2,656.5Minority interest in consolidated companies
    
    
    
    58.1
    
    
    
    
    51.3Contingencies 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  68,587,544 shares as of September 30, 2007 after deducting
17,608,350 treasury shares; 69,020,569 shares as of December 31, 2006
after deducting 17,175,325 treasury shares
    
    
    
    756.3
    
    
    
    
    710.1Retained earnings
    
    
    
    1,107.1
    
    
    
    
    1,033.8Accumulated other comprehensive income (loss)
    
    
    
    4.3
    
    
    
    
    (60.8
    )Total shareholders equity
    
    
    
    1,867.7
    
    
    
    
    1,683.1TOTAL
    
    
    $
    4,590.5
    
    
    
    $
    4,390.9
 Amounts shown are unaudited.
See accompanying notes to the financial statements.
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THE LUBRIZOL CORPORATION
 
  
 Nine Months EndedSeptember 30,(In Millions of Dollars)
    
    2007
    
    

    2006(as restated, seeNote 16)CASH PROVIDED BY (USED FOR):OPERATING ACTIVITIESNet income
    
    
    $ 223.7
    
    

    
    $   84.8Adjustments to reconcile net income to cash provided by
operating activities:Depreciation and amortization
    
    
    117.9
    
    

    
    120.8Deferred income taxes
    
    
    10.9
    
    

    
    32.2Deferred compensation
    
    
    16.0
    
    

    
    12.9Restructuring and impairment charges
    
    
    2.8
    
    

    
    61.6(Gain) loss from divestitures and sales of property and equipment
    
    
    (8.0
    )
    

    
    5.2Change in current assets and liabilities, net of acquisitions and
divestitures:Receivables
    
    
    (46.1
    )
    

    
    (45.0
    )Inventories
    
    
    33.7
    
    

    
    (28.8
    )Accounts payable, accrued expenses and other current liabilities
    
    
    50.3
    
    

    
    (24.1
    )Other current assets
    
    
    8.1
    
    

    
    9.546.0
    
    

    
    (88.4
    )Change in noncurrent liabilities
    
    
    (1.9
    )
    

    
    5.5Other items  net
    
    
    (0.9
    )
    

    
    10.5Total operating activities
    
    
    406.5
    
    

    
    245.1INVESTING ACTIVITIESCapital expenditures
    
    
    (121.6
    )
    

    
    (91.2
    )Acquisitions
    
    
    (15.7
    )
    

    
    Net proceeds from divestitures and sales of property and equipment
    
    
    12.9
    
    

    
    281.4Other items  net
    
    
    (1.3
    )
    

    
    (0.8
    )Total investing activities
    
    
    (125.7
    )
    

    
    189.4FINANCING ACTIVITIESChanges in short-term debt  net
    
    
    (0.4
    )
    

    
    4.5Repayments of long-term debt
    
    
    (113.7
    )
    

    
    (114.3
    )Dividends paid
    
    
    (59.4
    )
    

    
    (53.3
    )Common shares purchased
    
    
    (82.1
    )
    

    
    Proceeds from the exercise of stock options
    
    
    34.5
    
    

    
    17.9Total financing activities
    
    
    (221.1
    )
    

    
    (145.2
    )Effect of exchange rate changes on cash
    
    
    10.6
    
    

    
    8.0Net increase in cash and short-term investments
    
    
    70.3
    
    

    
    297.3Cash and short-term investments at the beginning of period
    
    
    575.7
    
    

    
    262.4Cash and short-term investments at the end of period
    
    
    $ 646.0
    
    

    
    $ 559.7
 Amounts shown are unaudited.
See accompanying notes to the financial statements.
 -6-




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THE LUBRIZOL CORPORATION
 
 Notes to Consolidated Financial Statements
 September 30, 2007
  1. Basis of Presentation
   2. Significant Accounting Policies
 Net Income Per Share
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Numerator:Income from continuing operations
    
    $
    71.4
    
    
    $
    50.1
    
    
    $
    223.7
    
    
    $
    158.4Denominator (in millions):Weighted-average common shares outstanding
    
    
    69.2
    
    
    
    68.7
    
    
    
    69.3
    
    
    
    68.6Dilutive effect of stock options and awards
    
    
    0.8
    
    
    
    0.6
    
    
    
    0.8
    
    
    
    0.6Denominator for income from continuing
operations
per share, diluted
    
    
    70.0
    
    
    
    69.3
    
    
    
    70.1
    
    
    
    69.2Income from continuing operations per share, basic
    
    $
    1.03
    
    
    $
    0.73
    
    
    $
    3.23
    
    
    $
    2.31Income from continuing operations per share,
diluted
    
    $
    1.02
    
    
    $
    0.72
    
    
    $
    3.19
    
    
    $
    2.29
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THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  September 30, 2007
 New Accounting Standards
   Use of Estimates
  Reclassifications
  3. Stock-Based Compensation
  -8-




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THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  September 30, 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 period
    
    $
    14.68
     Expected

    
    AverageNumber of Units

    
    Stock Price onAward
    
    to be Issued

    

Date of Grant2005-2007
    
    
    230,515
    
    
    $
    39.442006-2008
    
    
    290,346
    
    
    $
    43.072007-2009
    
    
    219,368
    
    
    $
    53.07
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THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  September 30, 2007
  Weighted-AverageShare
    
    
    Grant DateUnits
    
    
    Fair ValueNonvested at January 1, 2007
    
    
    370,448
    
    
    $
    40.95Granted
    
    
    129,930
    
    
    $
    53.07Performance increase
    
    
    250,722
    
    
    $
    46.45Vested
    
    
    
    
    
    
    Forfeited
    
    
    (10,871
    )
    
    $
    43.55Nonvested at September 30, 2007
    
    
    740,229
    
    
    $
    44.90
    4. Acquisitions
   5. Divestitures
 -10-




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THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  September 30, 2007
  ®
  6. Inventories
  September 30,

    

    December 31,2007

    

    2006Finished products
    

    $
    323.9
    
    

    $
    315.0Products in process
    

    
    93.6
    
    

    
    108.2Raw materials
    

    
    123.5
    
    

    
    138.2Supplies and engine test parts
    

    
    30.5
    
    

    
    27.6Total inventory
    

    $
    571.5
    
    

    $
    589.0
 7. Goodwill and Intangible Assets
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THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  September 30, 2007
 LubrizolAdvanced
    

    

    LubrizolMaterials
    

    

    Additives

    

    TotalBalance, January 1, 2007
    

    $
    978.3
    

    

    $
    97.8
    
    

    $
    1,076.1Additions
    

    
    
    

    

    
    8.1
    
    

    
    8.1Translation and other adjustments
    

    
    28.0
    

    

    
    1.3
    
    

    
    29.3Balance, September 30, 2007
    

    $
    1,006.3
    

    

    $
    107.2
    
    

    $
    1,113.5
  September 30, 2007

    
    

    December 31, 2006Gross

    

    
    
    
    

    GrossCarrying

    

    Accumulated

    

    Carrying

    

    AccumulatedAmount

    

    Amortization

    

    Amount

    

    AmortizationAmortized intangible assets:Customer lists
    

    $
    152.6
    
    

    $
    31.5
    
    

    $
    145.0
    
    

    $
    24.0Technology
    

    
    141.5
    
    

    
    52.5
    
    

    
    139.8
    
    

    
    44.9Trademarks
    

    
    23.0
    
    

    
    6.8
    
    

    
    20.7
    
    

    
    5.5Patents
    

    
    14.5
    
    

    
    5.4
    
    

    
    14.0
    
    

    
    4.2Land-use rights
    

    
    9.0
    
    

    
    1.4
    
    

    
    7.5
    
    

    
    1.2Non-compete agreements
    

    
    1.4
    
    

    
    1.0
    
    

    
    8.2
    
    

    
    7.2Other
    

    
    
    
    

    
    
    
    

    
    0.9
    
    

    
    0.7Total amortized intangible assets
    

    
    342.0
    
    

    
    98.6
    
    

    
    336.1
    
    

    
    87.7Non-amortized trademarks
    

    
    77.3
    
    

    
    
    
    

    
    74.4
    
    

    
    Total
    

    $
    419.3
    
    

    $
    98.6
    
    

    $
    410.5
    
    

    $
    87.7
  8. Income Taxes
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THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  September 30, 2007
       9. Comprehensive Income
  -13-




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THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  September 30, 2007
 Three Months Ended

    
    

    Nine Months EndedSeptember 30,


    

    September 30,2007

    

    2006

    

    2007

    

    2006Net income
    

    $
    71.4
    
    

    $
    49.6
    
    

    $
    223.7
    
    

    $
    84.8Foreign currency translation adjustment
    

    
    40.4
    
    

    
    10.5
    
    

    
    60.7
    
    

    
    48.2Pension and other postretirement benefit plans
    

    
    1.6
    
    

    
    
    
    

    
    1.6
    
    

    
    (0.8
    )Unrealized (loss) gain  natural gas hedges
    

    
    (0.3
    )
    

    
    0.2
    
    

    
    0.5
    
    

    
    (0.6
    )Amortization of treasury rate locks
    

    
    0.8
    
    

    
    0.9
    
    

    
    2.3
    
    

    
    2.5Total comprehensive income
    

    $
    113.9
    
    

    $
    61.2
    
    

    $
    288.8
    
    

    $
    134.1
 10. Segment Reporting
   ® ® ®
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THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  September 30, 2007
   Three Months Ended

    
    

    Nine Months EndedSeptember 30,


    

    September 30,2007

    

    2006

    

    2007

    

    2006Revenues from external customers:Lubrizol Additives
    

    $
    738.8
    
    

    $
    661.3
    
    

    $
    2,193.8
    
    

    $
    1,967.3Lubrizol Advanced Materials
    

    
    382.6
    
    

    
    369.7
    
    

    
    1,158.9
    
    

    
    1,088.9Total revenues
    

    $
    1,121.4
    
    

    $
    1,031.0
    
    

    $
    3,352.7
    
    

    $
    3,056.2Segment operating income:Lubrizol Additives
    

    $
    97.0
    
    

    $
    70.6
    
    

    $
    304.3
    
    

    $
    233.4Lubrizol Advanced Materials
    

    
    30.9
    
    

    
    42.5
    
    

    
    119.8
    
    

    
    135.4Total segment operating income
    

    
    127.9
    
    

    
    113.1
    
    

    
    424.1
    
    

    
    368.8Corporate expenses
    

    
    (17.7
    )
    

    
    (22.0
    )
    

    
    (57.0
    )
    

    
    (56.2
    )Corporate other income (expense)  net
    

    
    5.2
    
    

    
    0.6
    
    

    
    3.8
    
    

    
    (5.0
    )Restructuring and impairment charges
    

    
    (2.1
    )
    

    
    (2.7
    )
    

    
    (0.6
    )
    

    
    (6.3
    )Interest expense  net
    

    
    (14.8
    )
    

    
    (17.4
    )
    

    
    (49.4
    )
    

    
    (61.5
    )Income from continuing operations
before income taxes
    

    $
    98.5
    
    

    $
    71.6
    
    

    $
    320.9
    
    

    $
    239.8
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THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  September 30, 2007
 September 30,

    
    December 31,2007
        
        
    2006Segment total assets:Lubrizol Additives
    
        
    
    $  1,494.0
    
    
        
    
    $ 1,397.6Lubrizol Advanced Materials
    
        
    
    2,248.1
    
    
        
    
    2,193.7Total segment assets
    
        
    
    3,742.1
    
    
        
    
    3,591.3Corporate assets
    
        
    
    848.4
    
    
        
    
    799.6Total consolidated assets
    
        
    
    $  4,590.5
    
    
        
    
    $ 4,390.9
 11. Pension and Postretirement Benefits
  Three Months Ended

    
    

    Nine Months EndedSeptember 30,

    
    

    September 30,2007

    

    2006

    

    2007

    

    2006Pension benefits:Service cost - benefits earned during period
    
        
    $
    7.9
    
    
        
    $
    8.3
    
    
        
    $
    23.4
    
    
        
    $
    25.0Interest cost on projected benefit obligation
    
        
    
    10.0
    
    
        
    
    8.7
    
    
        
    
    29.7
    
    
        
    
    25.7Expected return on plan assets
    
        
    
    (8.7
    )
    
        
    
    (7.2
    )
    
        
    
    (25.8
    )
    
        
    
    (21.5
    )Amortization of prior service costs
    
        
    
    0.6
    
    
        
    
    0.5
    
    
        
    
    2.0
    
    
        
    
    1.5Recognized net actuarial loss
    
        
    
    1.4
    
    
        
    
    2.2
    
    
        
    
    3.9
    
    
        
    
    6.4Settlement / curtailment loss
    
        
    
    
    
    
        
    
    0.4
    
    
        
    
    
    
    
        
    
    2.7Amortization of initial net asset obligation
    
        
    
    
    
    
        
    
    
    
    
        
    
    
    
    
        
    
    0.4Net periodic pension cost
    
        
    $
    11.2
    
    
        
    $
    12.9
    
    
        
    $
    33.2
    
    
        
    $
    40.2Other postretirement benefits:Service cost - benefits earned during period
    
        
    $
    0.6
    
    
        
    $
    0.5
    
    
        
    $
    1.4
    
    
        
    $
    1.4Interest cost on projected benefit obligation
    
        
    
    1.5
    
    
        
    
    1.4
    
    
        
    
    4.4
    
    
        
    
    4.1Amortization of prior service costs
    
        
    
    (1.9
    )
    
        
    
    (2.1
    )
    
        
    
    (5.1
    )
    
        
    
    (6.3
    )Recognized net actuarial loss
    
        
    
    0.4
    
    
        
    
    0.4
    
    
        
    
    1.0
    
    
        
    
    1.3Settlement / curtailment gain
    
        
    
    
    
    
        
    
    (1.1
    )
    
        
    
    
    
    
        
    
    (1.1
    )Amortization of initial net obligation
    
        
    
    0.1
    
    
        
    
    0.1
    
    
        
    
    0.3
    
    
        
    
    0.3Net periodic non-pension postretirement
benefit cost
    
        
    $
    0.7
    
    
        
    $
    (0.8
    )
    
        
    $
    2.0
    
    
        
    $
    (0.3
    )
  -16-




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##### Table of Contents



THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  September 30, 2007
  12. Restructuring and Impairment Charges
   Liability

    
    
    Restructuring

    

    
    
    
    

    
    
    
    
    LiabilityJanuary 1,

    
    
    and Impairment

    

    
    
    
    

    Non-cash

    
    September 30,2007

    
    
    Charges

    

    Cash Paid

    

    Adjustments

    
    2007Bromborough, U.K. plant closure and sale
    

    $
    1.0
    
    

    
    $ (0.7
    )
    

    $
    (0.1
    )
    

    $
    (0.1
    )
    
    
    $ 0.1Lubrizol Advanced Materials plant and
line
closures and workforce reductions
    

    
    0.7
    
    

    
    3.2
    
    

    
    (1.0
    )
    

    
    (2.5
    )
    
    
    0.4Corporate / other workforce reductions
    

    
    0.2
    
    

    
    0.1
    
    

    
    (0.3
    )
    

    
    
    
    
    
    Noveon International restructuring
liabilities assumed
    

    
    0.9
    
    

    
    
    
    

    
    (0.4
    )
    

    
    
    
    
    
    0.5$
    2.8
    
    

    
    $  2.6
    
    

    $
    (1.8
    )
    

    $
    (2.6
    )
    
    
    $ 1.0
  13. Debt
   
 -17-




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##### Table of Contents



THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  September 30, 2007
 14. Shareholders Equity
  Shareholders EquityAccumulatedNumber of

    


    
    
    
    

    
    
    
    
    
    OtherShares

    


    Common

    

    Retained

    
    
    ComprehensiveOutstanding

    


    Shares
    
    

    Earnings
    
    

    (Loss) Income

    
    

    TotalBalance, December 31, 2006
    

    
    69.0
    
    


    $
    710.1
    
    

    $
    1,033.8
    
    

    
    $ (60.8
    )
    

    
    $ 1,683.1Cumulative 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
    
    

    
    1,024.9
    
    

    
    (60.8
    )
    

    
    1,674.2Comprehensive income:Net income
    

    
    
    
    


    
    
    
    

    
    223.7
    
    

    
    
    
    

    
    223.7Other comprehensive income
    

    
    
    
    


    
    
    
    

    
    
    
    

    
    65.1
    
    

    
    65.1Total comprehensive income
    

    
    
    
    


    
    
    
    

    
    
    
    

    
    
    
    

    
    288.8Dividends
    

    
    
    
    


    
    
    
    

    
    (62.1
    )
    

    
    
    
    

    
    (62.1
    )Deferred stock compensation
    

    
    
    
    


    
    14.4
    
    

    
    
    
    

    
    
    
    

    
    14.4Common shares  treasury:Common shares purchased
    

    
    (1.4
    )
    


    
    (2.7
    )
    

    
    (79.4
    )
    

    
    
    
    

    
    (82.1
    )Shares issued upon exercise
of stock options and awards
    

    
    1.0
    
    


    
    34.5
    
    

    
    
    
    

    
    
    
    

    
    34.5Balance, September 30, 2007
    

    
    68.6
    
    


    $
    756.3
    
    

    $
    1,107.1
    
    

    
    $    4.3
    
    

    
    $ 1,867.7
  15. Contingencies
  General
  -18-




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##### Table of Contents



THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  September 30, 2007
 Environmental
      -19-




---



##### Table of Contents



THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  September 30, 2007
 Guarantees
     Indemnifications
  16. Restatement of Consolidated Financial Statements
    -20-




---



##### Table of Contents



THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  September 30, 2007
  -21-




---



##### Table of Contents



THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  September 30, 2007
  Consolidated Statement of Income
 Three Months Ended(In Millions of Dollars Except Per Share Data)
    
    September 30, 2006(as previouslyreported)
    
    (adjustments)
    
    (as restated)Net sales
    
    
    $ 1,029.9
    
    
    
    $       
    
    
    
    $ 1,029.9Royalties and other revenues
    
    
    1.1
    
    
    
    
    
    
    
    1.1Total revenues
    
    
    1,031.0
    
    
    
    
    
    
    
    1,031.0Cost of sales
    
    
    781.8
    
    
    
    1.0
    
    
    
    782.8Selling and administrative expenses
    
    
    101.7
    
    
    
    
    
    
    
    101.7Research, testing and development expenses
    
    
    50.5
    
    
    
    
    
    
    
    50.5Amortization of intangible assets
    
    
    5.9
    
    
    
    
    
    
    
    5.9Restructuring and impairment charges
    
    
    2.7
    
    
    
    
    
    
    
    2.7Total costs and expenses
    
    
    942.6
    
    
    
    1.0
    
    
    
    943.6Other expense  net
    
    
    1.6
    
    
    
    
    
    
    
    1.6Interest income
    
    
    7.6
    
    
    
    
    
    
    
    7.6Interest expense
    
    
    (25.0
    )
    
    
    
    
    
    
    (25.0
    )Income from continuing operations before income taxes
    
    
    72.6
    
    
    
    (1.0
    )
    
    
    71.6Provision for income taxes
    
    
    21.8
    
    
    
    (0.3
    )
    
    
    21.5Income from continuing operations
    
    
    50.8
    
    
    
    (0.7
    )
    
    
    50.1Discontinued operations  net of tax
    
    
    (0.5
    )
    
    
    
    
    
    
    (0.5
    )Net income
    
    
    $      50.3
    
    
    
    $   (0.7
    )
    
    
    $      49.6Basic
earnings (loss) per share:Continuing operations
    
    
    $      0.74
    
    
    
    $ (0.01
    )
    
    
    $      0.73Discontinued operations
    
    
    (0.01
    )
    
    
    
    
    
    
    (0.01
    )Net income per share, basic
    
    
    $      0.73
    
    
    
    $ (0.01
    )
    
    
    $      0.72Diluted earnings (loss) per share:Continuing operations
    
    
    $      0.73
    
    
    
    $ (0.01
    )
    
    
    $      0.72Discontinued operations
    
    
    (0.01
    )
    
    
    
    
    
    
    (0.01
    )Net income per share, diluted
    
    
    $      0.72
    
    
    
    $ (0.01
    )
    
    
    $      0.71
 -22-




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##### Table of Contents



THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  September 30, 2007
 Consolidated Statement of Income
 Nine Months Ended(In Millions of Dollars Except Per Share Data)
    
    September 30, 2006(as previouslyreported)
    
    (adjustments)
    
    (as restated)Net sales
    
    
    $ 3,053.2
    
    
    
    $      
    
    
    
    $ 3,053.2Royalties and other revenues
    
    
    3.0
    
    
    
    
    
    
    
    3.0Total revenues
    
    
    3,056.2
    
    
    
    
    
    
    
    3,056.2Cost of sales
    
    
    2,294.8
    
    
    
    2.6
    
    
    
    2,297.4Selling and administrative expenses
    
    
    280.6
    
    
    
    
    
    
    
    280.6Research, testing and development expenses
    
    
    152.8
    
    
    
    
    
    
    
    152.8Amortization of intangible assets
    
    
    17.7
    
    
    
    
    
    
    
    17.7Restructuring and impairment charges
    
    
    6.3
    
    
    
    
    
    
    
    6.3Total costs and expenses
    
    
    2,752.2
    
    
    
    2.6
    
    
    
    2,754.8Other expense  net
    
    
    (0.1
    )
    
    
    
    
    
    
    (0.1
    )Interest income
    
    
    13.5
    
    
    
    
    
    
    
    13.5Interest expense
    
    
    (75.0
    )
    
    
    
    
    
    
    (75.0
    )Income from continuing operations before income taxes
    
    
    242.4
    
    
    
    (2.6
    )
    
    
    239.8Provision for income taxes
    
    
    82.3
    
    
    
    (0.9
    )
    
    
    81.4Income from continuing operations
    
    
    160.1
    
    
    
    (1.7
    )
    
    
    158.4Discontinued operations  net of tax
    
    
    (73.6
    )
    
    
    
    
    
    
    (73.6
    )Net income
    
    
    $      86.5
    
    
    
    $   (1.7
    )
    
    
    $      84.8Basic earnings (loss) per share:Continuing operations
    
    
    $      2.33
    
    
    
    $ (0.02
    )
    
    
    $      2.31Discontinued operations
    
    
    (1.07
    )
    
    
    
    
    
    
    (1.07
    )Net income per share, basic
    
    
    $      1.26
    
    
    
    $ (0.02
    )
    
    
    $      1.24Diluted earnings (loss) per share:Continuing operations
    
    
    $      2.31
    
    
    
    $ (0.02
    )
    
    
    $      2.29Discontinued operations
    
    
    (1.06
    )
    
    
    
    
    
    
    (1.06
    )Net income per share, diluted
    
    
    $      1.25
    
    
    
    $ (0.02
    )
    
    
    $      1.23
 -23-




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##### Table of Contents



THE LUBRIZOL CORPORATION  Notes to Consolidated Financial Statements  September 30, 2007
 Consolidated Statement of Cash Flows
 Nine Months EndedSeptember 30, 2006(as previously(In Millions of Dollars)

    
    reported)
    
    (adjustments)
    
    (as restated)CASH PROVIDED BY (USED FOR):OPERATING ACTIVITIESNet income
    
    
    $  86.5
    
    
    
    $ (1.7
    )
    
    
    $   84.8Adjustments to reconcile net income to cash
provided by operating activities:Depreciation and amortization
    
    
    120.8
    
    
    
    
    
    
    
    120.8Deferred income taxes
    
    
    33.1
    
    
    
    (0.9
    )
    
    
    32.2Deferred compensation
    
    
    12.9
    
    
    
    
    
    
    
    12.9Restructuring and impairment charges
    
    
    61.6
    
    
    
    
    
    
    
    61.6Loss from divestitures and sales of property and equipment
    
    
    5.2
    
    
    
    
    
    
    
    5.2Change in current assets and liabilities, net of acquisitions and divestitures:Receivables
    
    
    (45.0
    )
    
    
    
    
    
    
    (45.0
    )Inventories
    
    
    (28.8
    )
    
    
    
    
    
    
    (28.8
    )Accounts payable, accrued expenses and other current liabilities
    
    
    (23.4
    )
    
    
    (0.7
    )
    
    
    (24.1
    )Other current assets
    
    
    9.5
    
    
    
    
    
    
    
    9.5(87.7
    )
    
    
    (0.7
    )
    
    
    (88.4
    )Change in noncurrent liabilities
    
    
    4.3
    
    
    
    1.2
    
    
    
    5.5Other items  net
    
    
    8.4
    
    
    
    2.1
    
    
    
    10.5Total operating activities
    
    
    245.1
    
    
    
    
    
    
    
    245.1INVESTING ACTIVITIESCapital expenditures
    
    
    (91.2
    )
    
    
    
    
    
    
    (91.2
    )Net proceeds from divestitures and sales of property and equipment
    
    
    281.4
    
    
    
    
    
    
    
    281.4Other items  net
    
    
    (0.8
    )
    
    
    
    
    
    
    (0.8
    )Total investing activities
    
    
    189.4
    
    
    
    
    
    
    
    189.4FINANCING ACTIVITIESChanges in short-term debt  net
    
    
    4.5
    
    
    
    
    
    
    
    4.5Repayments of long-term debt
    
    
    (114.3
    )
    
    
    
    
    
    
    (114.3
    )Dividends paid
    
    
    (53.3
    )
    
    
    
    
    
    
    (53.3
    )Proceeds from the exercise of stock options
    
    
    17.9
    
    
    
    
    
    
    
    17.9Total financing activities
    
    
    (145.2
    )
    
    
    
    
    
    
    (145.2
    )Effect of exchange rate changes on cash
    
    
    8.0
    
    
    
    
    
    
    
    8.0Net increase in cash and short-term investments
    
    
    297.3
    
    
    
    
    
    
    
    297.3Cash and short-term investments at the beginning of period
    
    
    262.4
    
    
    
    
    
    
    
    262.4Cash and short-term investments at the end of period
    
    
    $ 559.7
    
    
    
    $     
    
    
    
    $ 559.7
 -24-




---



##### 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 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
   -25-




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##### Table of Contents



®
 RESULTS OF OPERATIONS
   Revenues
  -26-




---



##### Table of Contents



Three Months EndedSeptember 30,2007
    
    2006
    
    $ Change
    
    % ChangeNet sales
    
    
    $ 1,120.4
    
    
    
    $ 1,029.9
    
    
    
    $ 90.5
    
    
    
    9
    %Royalties and other revenues
    
    
    1.0
    
    
    
    1.1
    
    
    
    (0.1
    )
    
    
    (9
    %)Total revenues
    
    
    $ 1,121.4
    
    
    
    $ 1,031.0
    
    
    
    $ 90.4
    
    
    
    9
    %
 Nine Months EndedSeptember 30,2007
    
    2006
    

$ Change
    
    % ChangeNet sales
    
    
    $ 3,349.7
    
    
    
    $ 3,053.2
    
    
    
    $ 296.5
    
    
    
    10
    %Royalties and other revenues
    
    
    3.0
    
    
    
    3.0
    
    
    
    
    
    
    
    Total revenues
    
    
    $ 3,352.7
    
    
    
    $ 3,056.2
    
    
    
    $ 296.5
    
    
    
    10
    %
   2007 Volume3rd Quarter
    
    Year-to-DateNorth America
    
    
    46
    %
    
    
    47
    %Europe
    
    
    26
    %
    
    
    26
    %Asia-Pacific / Middle East
    
    
    21
    %
    
    
    21
    %Latin America
    
    
    7
    %
    
    
    6
    %Total
    
    
    100
    %
    
    
    100
    %
  -27-




---



##### Table of Contents



2007 vs. 2006% Change3rd Quarter
    
    Year-to-DateNorth America
    
    
    (1
    %)
    
    
    (1
    %)Europe
    
    
    3
    %
    
    
    5
    %Asia-Pacific / Middle East
    
    
    9
    %
    
    
    2
    %Latin America
    
    
    25
    %
    
    
    24
    %Total
    
    
    4
    %
    
    
    2
    %
  Costs and Expenses
  -28-




---



##### Table of Contents



Three Months EndedSeptember 30,2007
    
    2006
    
    $ Change
    
    % ChangeCost of sales
    
    
    $   846.0
    
    
    
    $ 782.8
    
    
    
    $ 63.2
    
    
    
    8
    %Selling and administrative expenses
    
    
    103.7
    
    
    
    101.7
    
    
    
    2.0
    
    
    
    2
    %Research, testing and development expenses
    
    
    56.0
    
    
    
    50.5
    
    
    
    5.5
    
    
    
    11
    %Amortization of intangible assets
    
    
    5.8
    
    
    
    5.9
    
    
    
    (0.1
    )
    
    
    (2
    %)Restructuring and impairment charges
    
    
    2.1
    
    
    
    2.7
    
    
    
    (0.6
    )
    
    
    *Total costs and expenses
    
    
    $ 1,013.6
    
    
    
    $ 943.6
    
    
    
    $ 70.0
    
    
    
    7
    %
 Nine Months EndedSeptember 30,2007
    
    2006
    

$ Change
    
    % ChangeCost of sales
    
    
    $ 2,503.0
    
    
    
    $ 2,297.4
    
    
    
    $ 205.6
    
    
    
    9
    %Selling and administrative expenses
    
    
    309.4
    
    
    
    280.6
    
    
    
    28.8
    
    
    
    10
    %Research, testing and development expenses
    
    
    161.4
    
    
    
    152.8
    
    
    
    8.6
    
    
    
    6
    %Amortization of intangible assets
    
    
    17.7
    
    
    
    17.7
    
    
    
    
    
    
    
    Restructuring and impairment charges
    
    
    0.6
    
    
    
    6.3
    
    
    
    (5.7
    )
    
    
    *Total costs and expenses
    
    
    $ 2,992.1
    
    
    
    $ 2,754.8
    
    
    
    $ 237.3
    
    
    
    9
    %
 
 *

    Calculation not meaningful    -29-




---



##### Table of Contents



Three Months Ended September 30, 2007Asset
 

Other PlantImpairments
    

    Exit Costs
    


Severance
    

    TotalLubrizol Advanced Materials production line
impairment and workforce reductions
    

        $
    2.0
    
    

        $
    
    
    

        $
    0.1
    
    

        $
    2.1Nine Months Ended September 30, 2007AssetImpairments
    
    Other Plant(Gains)
    

    Exit Costs
    

    Severance
    

    TotalLubrizol Advanced Materials plant closures,
production line impairments and workforce reductions
    

        $
    2.5
    
    

        $
    0.2
    
    

        $
    0.6
    
    

        $
    3.3Bromborough, U.K. plant closure and sale
    

    
    (2.8
    )
    

    
    0.1
    
    

    
    
    
    

    
    (2.7
    )Total restructuring and impairment charges
    

    $
    (0.3
    )
    

        $
    0.3
    
    

        $
    0.6
    
    

        $
    0.6Three Months Ended September 30, 2006Asset
    
    Other PlantImpairments
    
    Exit Costs
    
    Severance
    
    TotalLubrizol Advanced Materials plant closures
and workforce reductions
    

    $
    0.6
    
    

    $
    0.3
    
    

    $
    0.3
    
    

    $
    1.2Bromborough, U.K. plant closure
    

    
    
    
    

    
    1.2
    
    

    
    0.5
    
    

    
    1.7Other
    

    
    
    
    

    
    
    
    

    
    (0.2
    )
    

    
    (0.2
    )Total restructuring and impairment charges
    

    $
    0.6
    
    

    $
    1.5
    
    

    $
    0.6
    
    

    $
    2.7
 -30-




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##### Table of Contents



Nine Months Ended September 30, 2006Asset
    
    Other PlantImpairments
    
    Exit Costs
    
    Severance
    
    TotalLubrizol Advanced Materials plant closures
and workforce reductions
    
    
    $ 0.6
    
    
    
    $ 0.3
    
    
    
    $  0.8
    
    
    
    $  1.7Bromborough, U.K. plant closure
    
    
    
    
    
    
    3.3
    
    
    
    1.6
    
    
    
    4.9Other
    
    
    
    
    
    
    
    
    
    
    (0.3
    )
    
    
    (0.3
    )Total restructuring and impairment charges
    
    
    $ 0.6
    
    
    
    $ 3.6
    
    
    
    $  2.1
    
    
    
    $  6.3
  -31-




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##### Table of Contents



Other
Items and Net Income
  Three Months EndedSeptember 30,2007
    
    2006
    
    $ Change
    
    % ChangeOther income (expense)  net
    
    
    $     5.5
    
    
    
    $     1.6
    
    
    
    $   3.9
    
    
    
    *Interest expense  net
    
    
    (14.8
    )
    
    
    (17.4
    )
    
    
    2.6
    
    
    
    (15
    %)Income from continuing operations
before income taxes
    
    
    98.5
    
    
    
    71.6
    
    
    
    26.9
    
    
    
    38
    %Provision for income taxes
    
    
    27.1
    
    
    
    21.5
    
    
    
    5.6
    
    
    
    26
    %Income from continuing operations
    
    
    71.4
    
    
    
    50.1
    
    
    
    21.3
    
    
    
    43
    %Discontinued operations
    
    
    
    
    
    
    (0.5
    )
    
    
    0.5
    
    
    
    *Net income
    
    
    71.4
    
    
    
    49.6
    
    
    
    21.8
    
    
    
    *Nine Months EndedSeptember 30,2007
    
    2006
    
    $ Change
    
    % ChangeOther income (expense)  net
    
    
    $     9.7
    
    
    
    $    (0.1
    )
    
    
    $     9.8
    
    
    
    *Interest expense  net
    
    
    (49.4
    )
    
    
    (61.5
    )
    
    
    12.1
    
    
    
    (20
    %)Income from continuing operations
before income taxes
    
    
    320.9
    
    
    
    239.8
    
    
    
    81.1
    
    
    
    34
    %Provision for income taxes
    
    
    97.2
    
    
    
    81.4
    
    
    
    15.8
    
    
    
    19
    %Income from continuing operations
    
    
    223.7
    
    
    
    158.4
    
    
    
    65.3
    
    
    
    41
    %Discontinued operations
    
    
    
    
    
    
    (73.6
    )
    
    
    73.6
    
    
    
    *Net income
    
    
    223.7
    
    
    
    84.8
    
    
    
    138.9
    
    
    
    *
 
 *
 
    Calculation not meaningful     -32-




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##### Table of Contents



SEGMENT ANALYSIS
   Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006Revenues:Lubrizol Additives
    
    
    66
    %
    
    
    64
    %
    
    
    65
    %
    
    
    64
    %Lubrizol Advanced Materials
    
    
    34
    %
    
    
    36
    %
    
    
    35
    %
    
    
    36
    %Segment Operating Income:Lubrizol Additives
    
    
    76
    %
    
    
    62
    %
    
    
    72
    %
    
    
    63
    %Lubrizol Advanced Materials
    
    
    24
    %
    
    
    38
    %
    
    
    28
    %
    
    
    37
    %
 -33-




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##### Table of Contents



Three Months Ended
    
    
    
    
    
    
    
    
    
    Nine Months EndedSeptember 30,
    
    
    
    
    
    
    
    
    
    
    
    September 30,2007
    
    
    
    2006
    
    
    
    $ Change
    
    
    % Change
    
    
    2007
    
    
    
    2006
    
    

    $ Change
    
    
    % ChangeRevenues:Lubrizol Additives
    
    
    $    738.8
    
    
    
    $    661.3
    
    
    
    $   77.5
    
    
    
    12
    %
    
    
    $ 2,193.8
    
    
    
    $ 1,967.3
    
    
    
    $ 226.5
    
    
    
    12
    %Lubrizol Advanced Materials
    
    
    382.6
    
    
    
    369.7
    
    
    
    12.9
    
    
    
    3
    %
    
    
    1,158.9
    
    
    
    1,088.9
    
    
    
    70.0
    
    
    
    6
    %Total
    
    
    $ 1,121.4
    
    
    
    $ 1,031.0
    
    
    
    $   90.4
    
    
    
    9
    %
    
    
    $ 3,352.7
    
    
    
    $ 3,056.2
    
    
    
    $ 296.5
    
    
    
    10
    %Gross Profit:Lubrizol Additives
    
    
    $    175.7
    
    
    
    $    139.7
    
    
    
    $   36.0
    
    
    
    26
    %
    
    
    $    528.7
    
    
    
    $    438.9
    
    
    
    $   89.8
    
    
    
    20
    %Lubrizol Advanced Materials
    
    
    98.7
    
    
    
    107.4
    
    
    
    (8.7
    )
    
    
    (8
    %)
    
    
    318.0
    
    
    
    316.9
    
    
    
    1.1
    
    
    
    Total
    
    
    $    274.4
    
    
    
    $    247.1
    
    
    
    $   27.3
    
    
    
    11
    %
    
    
    $    846.7
    
    
    
    $    755.8
    
    
    
    $   90.9
    
    
    
    12
    %Segment Operating Income:Lubrizol Additives
    
    
    $      97.0
    
    
    
    $      70.6
    
    
    
    $   26.4
    
    
    
    37
    %
    
    
    $    304.3
    
    
    
    $    233.4
    
    
    
    $   70.9
    
    
    
    30
    %Lubrizol Advanced Materials
    
    
    30.9
    
    
    
    42.5
    
    
    
    (11.6
    )
    
    
    (27
    %)
    
    
    119.8
    
    
    
    135.4
    
    
    
    (15.6
    )
    
    
    (12
    %)Total
    
    
    $    127.9
    
    
    
    $    113.1
    
    
    
    $    14.8
    
    
    
    13
    %
    
    
    $    424.1
    
    
    
    $    368.8
    
    
    
    $   55.3
    
    
    
    15
    %
 Lubrizol Additives Segment
   2007 Volume3rd Quarter
    
    Year-to-DateNorth America
    
    
    36%
    
    
    
    37%Europe
    
    
    30%
    
    
    
    31%Asia-Pacific / Middle East
    
    
    25%
    
    
    
    25%Latin America
    
    
    9%
    
    
    
    7%Total
    
    
    100%
    
    
    
    100%
  -34-




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##### Table of Contents



2007 vs. 2006% Change3rd Quarter
    
    Year-to-DateNorth America
    
    
    (2
    %)
    
    
    (2
    %)Europe
    
    
    4
    %
    
    
    4
    %Asia-Pacific / Middle East
    
    
    7
    %
    
    
    (1
    %)Latin America
    
    
    34
    %
    
    
    25
    %Total
    
    
    5
    %
    
    
    2
    %
       -35-




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##### Table of Contents



lubrizol advanced materials Segment
   2007 Volume3rd Quarter
    
    Year-to-DateNorth America
    
    
    67
    %
    
    
    67
    %Europe
    
    
    16
    %
    
    
    17
    %Asia-Pacific / Middle East
    
    
    13
    %
    
    
    12
    %Latin America
    
    
    4
    %
    
    
    4
    %Total
    
    
    100
    %
    
    
    100
    %
  2007 vs. 2006% Change3rd Quarter
    
    Year-to-DateNorth America
    
    
    
    
    
    
    (1
    %)Europe
    
    
    2
    %
    
    
    5
    %Asia-Pacific / Middle East
    
    
    17
    %
    
    
    20
    %Latin America
    
    
    1
    %
    
    
    21
    %Total
    
    
    2
    %
    
    
    3
    %
 ®
 ®
 -36-




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##### Table of Contents



®
       -37-




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##### Table of Contents



WORKING CAPITAL, LIQUIDITY AND CAPITAL RESOURCES
  Nine Months EndedSeptember 30,2007
    
    2006Cash provided by (used for):Operating activities
    
    $
    406.5
    
    
    $
    245.1Investing activities
    
    
    (125.7
    )
    
    
    189.4Financing activities
    
    
    (221.1
    )
    
    
    (145.2
    )Effect of exchange-rate changes on cash
    
    
    10.6
    
    
    
    8.0Net increase in cash and short-term
investments
    
    $
    70.3
    
    
    $
    297.3
 Operating Activities
   Investing Activities
  Financing Activities
  
 -38-




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##### Table of Contents



Capitalization, Liquidity and Credit Facilities
     
  Contractual Cash Obligations
  -39-




---



##### Table of Contents




 NEW ACCOUNTING STANDARDS
       -40-




---



##### Table of Contents



CAUTIONARY STATEMENTS FOR SAFE HARBOR PURPOSES
   
    
    The cost, availability and quality of raw materials, especially petroleum-based products.
    
    Our ability to sustain profitability of our products in a competitive environment.
    
    The demand for our products as influenced by factors such as the global economic
environment, longer-term technology developments and the success of our commercial development
programs.
    
    The risks of conducting business in foreign countries, including the effects of
fluctuations in currency exchange rates upon our consolidated results and political, social,
economic and regulatory factors.
 -41-




---



##### Table of Contents




    
    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
     -42-




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##### Table of Contents



Item 4. Controls and Procedures
   -43-




---



##### Table of Contents



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 July 2, 2007, we issued 419 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.On August 1, 2007, we issued 8,407 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 two former directors under deferred
compensation plans.On September 4, 2007, we issued 15 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.On September 4, 2007, we issued 312 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.
 -44-




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##### Table of Contents



(c)
    
    The following table provides information regarding our purchases of Lubrizol
common shares during the third 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
(July 1, 2007 through
July 31, 2007)
    
    119 Shares
    
    $
    64.55
    
    

    N/A

    
    5,928,799 SharesMonth #2
(August 1, 2007 through
August 31, 2007)
    
    467,000 Shares
    
    $
    60.26
    
    
    467,000 Shares
    
    5,461,799 SharesMonth #3
(September 1, 2007
through
September 30, 2007)
    
    60,004 Shares
    
    $
    63.38
    
    
    60,000 Shares
    
    5,401,795 SharesTotal
    
    527,123 Shares
    
    
    
    
    
    527,000 Shares
    
    5,401,795 Shares
 1
    
    This column includes common shares (119 in July; 0 in August and 4 in
September) that we purchased pursuant to our deferred compensation plans whereby we
withhold shares upon a distribution to pay the withholding taxes on behalf of the
employee and pursuant to our stock incentive plan in which participants 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.2
    
    This column represents common shares that we purchased at a cost of $31.9
million pursuant to a share repurchase program announced on June 23, 1997. On April 23,
2007, our board of directors authorized an enhanced share repurchase program that permits
the company to repurchase up to 5.0 million of its common shares upon completion of
repurchases under the previous share repurchase program. These shares may be repurchased
in the open market or through negotiated transactions. The program does not have an
expiration date.
 
 Item 6. Exhibits
 10.1*
    
    The Lubrizol Corporation Executive Death Benefit Plan (as amended)10.2*
    
    Employee Agreement effective June 3, 2004, between Noveon, Inc. and Julian M.
Steinberg.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 of 2002.*
    
    Indicates management contract or compensatory plan or arrangement.
 -45-




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##### Table of Contents



Signatures
  THE LUBRIZOL CORPORATION/s/ W. Scott EmerickW. Scott EmerickChief Accounting Officer and Duly AuthorizedSignatory of The Lubrizol CorporationDate: November 9, 2007
 -46-