##### 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, 2009
 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
 o o
 12b-2
 Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



THE LUBRIZOL CORPORATION  Quarterly Report on Form 10-Q  Three and Nine Months Ended September 30, 2009
 Table of Contents
 Page NumberPART I. FINANCIAL INFORMATIONItem 1 Financial Statements (unaudited):Consolidated Statements of Income
    
    
    1Consolidated Balance Sheets
    
    
    2Consolidated Statements of Cash Flows
    
    
    3Notes to Consolidated Financial Statements
    
    
    4Item 2 Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    25Item 3 Quantitative and Qualitative Disclosures About Market Risk
    
    
    42Item 4 Controls and Procedures
    
    
    43PART II. OTHER INFORMATIONItem 1 Legal Proceedings
    
    
    44Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    44Item 6 Exhibits
    
    
    45Signatures
    
    
    46EX-10.1EX-31.1EX-31.2EX-32.1




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1.
    
    Financial Statements
 
 THE LUBRIZOL CORPORATION
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(In Millions of Dollars Except Per Share Data)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Revenues
    
    $
    1,274.6
    
    
    $
    1,362.7
    
    
    $
    3,398.0
    
    
    $
    3,940.2Cost of sales
    
    
    814.0
    
    
    
    1,078.2
    
    
    
    2,269.7
    
    
    
    3,057.4Gross profit
    
    
    460.6
    
    
    
    284.5
    
    
    
    1,128.3
    
    
    
    882.8Selling and administrative expenses
    
    
    117.7
    
    
    
    111.0
    
    
    
    323.3
    
    
    
    321.5Research, testing and development expenses
    
    
    54.8
    
    
    
    55.8
    
    
    
    153.0
    
    
    
    165.6Amortization of intangible assets
    
    
    6.3
    
    
    
    6.8
    
    
    
    18.8
    
    
    
    20.8Restructuring and impairment charges
    
    
    5.8
    
    
    
    5.7
    
    
    
    27.3
    
    
    
    25.1Other expense (income)  net
    
    
    2.8
    
    
    
    (4.5
    )
    
    
    (7.7
    )
    
    
    (13.4
    )Interest income
    
    
    (1.5
    )
    
    
    (3.3
    )
    
    
    (5.8
    )
    
    
    (10.6
    )Interest expense
    
    
    26.5
    
    
    
    21.6
    
    
    
    83.4
    
    
    
    60.2Income before income taxes
    
    
    248.2
    
    
    
    91.4
    
    
    
    536.0
    
    
    
    313.6Provision for income taxes
    
    
    73.5
    
    
    
    26.2
    
    
    
    160.2
    
    
    
    91.7Net income
    
    
    174.7
    
    
    
    65.2
    
    
    
    375.8
    
    
    
    221.9Net income attributable to noncontrolling interests
    
    
    4.2
    
    
    
    2.0
    
    
    
    9.2
    
    
    
    7.0Net income attributable to The Lubrizol Corporation
    
    $
    170.5
    
    
    $
    63.2
    
    
    $
    366.6
    
    
    $
    214.9Net income per share attributable to
The Lubrizol Corporation, basic
    
    $
    2.50
    
    
    $
    0.93
    
    
    $
    5.40
    
    
    $
    3.15Net income per share attributable to
The Lubrizol Corporation, diluted
    
    $
    2.46
    
    
    $
    0.92
    
    
    $
    5.34
    
    
    $
    3.12Dividends paid per share
    
    $
    0.31
    
    
    $
    0.31
    
    
    $
    0.93
    
    
    $
    0.92
 Amounts
shown are unaudited.
 The accompanying notes are an integral part of these consolidated financial statements.
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THE LUBRIZOL CORPORATION
 September 30,
    
    
    December 31,(In Millions of Dollars Except Share Data)
    
    2009
    
    
    2008ASSETSCash and cash equivalents
    
    $
    1,127.4
    
    
    $
    186.2Investments
    
    
    1.0
    
    
    
    9.8Receivables
    
    
    728.7
    
    
    
    608.5Inventories
    
    
    604.9
    
    
    
    814.6Other current assets
    
    
    115.9
    
    
    
    80.8Total current assets
    
    
    2,577.9
    
    
    
    1,699.9Property and equipment  at cost
    
    
    2,954.9
    
    
    
    2,878.0Less accumulated depreciation
    
    
    1,763.4
    
    
    
    1,680.4Property and equipment  net
    
    
    1,191.5
    
    
    
    1,197.6Goodwill
    
    
    798.0
    
    
    
    782.1Intangible assets  net
    
    
    347.2
    
    
    
    361.0Investments in non-consolidated companies
    
    
    10.7
    
    
    
    7.3Other assets
    
    
    99.6
    
    
    
    102.6TOTAL
    
    $
    5,024.9
    
    
    $
    4,150.5LIABILITIES AND SHAREHOLDERS EQUITYShort-term debt and current portion of long-term debt
    
    $
    223.9
    
    
    $
    391.2Accounts payable
    
    
    332.3
    
    
    
    350.4Accrued expenses and other current liabilities
    
    
    370.9
    
    
    
    279.7Total current liabilities
    
    
    927.1
    
    
    
    1,021.3Long-term debt
    
    
    1,477.9
    
    
    
    954.6Pension obligations
    
    
    332.7
    
    
    
    340.1Other postretirement benefit obligations
    
    
    86.6
    
    
    
    83.1Noncurrent liabilities
    
    
    149.9
    
    
    
    129.1Deferred income taxes
    
    
    40.0
    
    
    
    37.7Total liabilities
    
    
    3,014.2
    
    
    
    2,565.9Contingencies and commitmentsPreferred stock without par value  unissued
    
    
    
    
    
    
    Common shares without par value:Authorized - 120,000,000 sharesOutstanding - 68,149,758 shares at September 30, 2009, after deducting
18,046,136 treasury shares; 67,257,963 shares at December 31, 2008,
after deducting 18,937,931 treasury shares
    
    
    808.7
    
    
    
    764.7Retained earnings
    
    
    1,209.9
    
    
    
    906.3Accumulated other comprehensive loss
    
    
    (76.0
    )
    
    
    (147.3
    )Total of The Lubrizol Corporation shareholders equity
    
    
    1,942.6
    
    
    
    1,523.7Noncontrolling interests
    
    
    68.1
    
    
    
    60.9Total shareholders equity
    
    
    2,010.7
    
    
    
    1,584.6TOTAL
    
    $
    5,024.9
    
    
    $
    4,150.5
 Amounts
shown are unaudited.
 The accompanying notes are an integral part of these consolidated financial statements.
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THE LUBRIZOL CORPORATION
 Nine Months EndedSeptember 30,(In Millions of Dollars)
    
    2009
    
    
    2008CASH PROVIDED BY (USED FOR):OPERATING ACTIVITIESNet income
    
    $
    375.8
    
    
    $
    221.9Adjustments to reconcile net income to cash provided by
operating activities:Depreciation and amortization
    
    
    125.6
    
    
    
    128.1Deferred income taxes
    
    
    (2.2
    )
    
    
    (7.2
    )Stock-based compensation
    
    
    17.1
    
    
    
    10.6Restructuring and impairment charges
    
    
    11.0
    
    
    
    15.1Gain from investments and sales of property and equipment
    
    
    
    
    
    
    (0.1
    )Change in current assets and liabilities, net of acquisitions:Receivables
    
    
    (106.2
    )
    
    
    (143.7
    )Inventories
    
    
    215.9
    
    
    
    (107.6
    )Accounts payable, accrued expenses and other current liabilities
    
    
    99.2
    
    
    
    74.8Other current assets
    
    
    (15.4
    )
    
    
    (0.1
    )193.5
    
    
    
    (176.6
    )Other items  net
    
    
    13.3
    
    
    
    (3.8
    )Total operating activities
    
    
    734.1
    
    
    
    188.0INVESTING ACTIVITIESCapital expenditures
    
    
    (107.1
    )
    
    
    (146.8
    )Acquisitions
    
    
    (1.0
    )
    
    
    0.9Purchase of investments
    
    
    
    
    
    
    (50.0
    )Proceeds from investments
    
    
    5.6
    
    
    
    Other items  net
    
    
    0.2
    
    
    
    1.4Total investing activities
    
    
    (102.3
    )
    
    
    (194.5
    )FINANCING ACTIVITIESChanges in short-term debt  net
    
    
    (4.8
    )
    
    
    0.2Repayments of long-term debt
    
    
    (286.0
    )
    
    
    (0.2
    )Proceeds from the issuance of long-term debt
    
    
    646.3
    
    
    
    0.4Payment of Treasury rate lock upon settlement
    
    
    (16.7
    )
    
    
    Payment of debt issuance costs
    
    
    (4.8
    )
    
    
    Dividends paid
    
    
    (62.8
    )
    
    
    (62.6
    )Dividends to noncontrolling interests
    
    
    (2.5
    )
    
    
    (5.3
    )Common shares purchased
    
    
    
    
    
    
    (75.1
    )Proceeds from the exercise of stock options
    
    
    22.5
    
    
    
    3.8Excess tax benefit from the exercise of stock options and awards
    
    
    7.0
    
    
    
    2.2Total financing activities
    
    
    298.2
    
    
    
    (136.6
    )Effect of exchange rate changes on cash
    
    
    11.2
    
    
    
    13.2Net increase (decrease) in cash and cash equivalents
    
    
    941.2
    
    
    
    (129.9
    )Cash and cash equivalents at the beginning of period
    
    
    186.2
    
    
    
    502.3Cash and cash equivalents at the end of period
    
    $
    1,127.4
    
    
    $
    372.4
 Amounts
shown are unaudited.
 The accompanying notes are an integral part of these consolidated financial statements.
 3




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THE LUBRIZOL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended September 30, 2009 and 2008  (Unaudited)
 1. Basis of Presentation
     2. Significant Accounting Policies
 Use of Estimates
  4




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Net Income per Share Attributable to The Lubrizol Corporation
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Numerator (in millions):Net income attributable to The Lubrizol Corporation
    
    $
    170.5
    
    
    $
    63.2
    
    
    $
    366.6
    
    
    $
    214.9Denominator (in millions of shares):Weighted-average common shares outstanding
    
    
    68.1
    
    
    
    67.8
    
    
    
    67.9
    
    
    
    68.2Dilutive effect of stock options and awards
    
    
    1.3
    
    
    
    0.7
    
    
    
    0.8
    
    
    
    0.8Denominator for net income per share, diluted
    
    
    69.4
    
    
    
    68.5
    
    
    
    68.7
    
    
    
    69.0Net income per share attributable to
The Lubrizol Corporation, basic
    
    $
    2.50
    
    
    $
    0.93
    
    
    $
    5.40
    
    
    $
    3.15Net income per share attributable to
The Lubrizol Corporation, diluted
    
    $
    2.46
    
    
    $
    0.92
    
    
    $
    5.34
    
    
    $
    3.12
  Reclassifications
  New Accounting Standards
 ACCOUNTING STANDARDS ADOPTED IN 2009
    5




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ACCOUNTING STANDARDS NOT YET ADOPTED
   6




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3. Acquisitions
    7




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4. Inventories
  September 30,
    
    
    December 31,(In Millions of Dollars)
    
    2009
    
    
    2008Finished products
    
    $
    358.5
    
    
    $
    468.8Products in process
    
    
    105.9
    
    
    
    137.8Raw materials
    
    
    104.4
    
    
    
    172.8Supplies and engine test parts
    
    
    36.1
    
    
    
    35.2Total inventory
    
    $
    604.9
    
    
    $
    814.6
  5. Goodwill and Intangible Assets
 ® ® ®
 LubrizolAdvanced
    
    
    Lubrizol(In Millions of Dollars)
    
    Materials
    
    
    Additives
    
    
    TotalBalance, December 31, 2008
    
    $
    599.0
    
    
    $
    183.1
    
    
    $
    782.1Purchase adjustments
    
    
    (0.3
    )
    
    
    
    
    
    
    (0.3
    )Translation adjustments
    
    
    14.0
    
    
    
    2.2
    
    
    
    16.2Balance, September 30, 2009
    
    $
    612.7
    
    
    $
    185.3
    
    
    $
    798.0
 8




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September 30, 2009
    
    
    December 31, 2008Gross
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    Accumulated(In Millions of Dollars)
    
    Amount
    
    
    Amortization
    
    
    Amount
    
    
    AmortizationAmortized intangible assets:Customer lists
    
    $
    193.6
    
    
    $
    54.4
    
    
    $
    189.2
    
    
    $
    44.1Technology
    
    
    148.6
    
    
    
    61.0
    
    
    
    160.3
    
    
    
    66.9Trademarks
    
    
    31.3
    
    
    
    10.0
    
    
    
    30.3
    
    
    
    8.3Patents
    
    
    11.0
    
    
    
    5.7
    
    
    
    10.2
    
    
    
    4.6Land-use rights and favorable lease arrangements
    
    
    11.4
    
    
    
    2.1
    
    
    
    14.6
    
    
    
    1.9Non-compete agreements
    
    
    0.8
    
    
    
    0.3
    
    
    
    1.0
    
    
    
    0.3Total amortized intangible assets
    
    
    396.7
    
    
    
    133.5
    
    
    
    405.6
    
    
    
    126.1Non-amortized trademarks
    
    
    84.0
    
    
    
    
    
    
    
    81.5
    
    
    
    Total
    
    $
    480.7
    
    
    $
    133.5
    
    
    $
    487.1
    
    
    $
    126.1
 9




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6. Debt
  September 30,
    
    
    December 31,(In Millions of Dollars)
    
    2009
    
    
    2008Short-term debt and current portion of long-term debt:Current portion of long-term debt
    
    $
    223.9
    
    
    $
    386.3Other short-term debt
    
    
    
    
    
    
    4.9$
    223.9
    
    
    $
    391.2Long-term debt:4.625% notes, due 2009, net of original issue discount of $0.1 million and
fair value adjustment of $4.3 million for unrealized gains on derivative
instruments at December 31, 2008
    
    $
    204.9
    
    
    $
    386.05.5% notes, due 2014, net of original issue discount of $1.7 million and
$1.9 million at September 30, 2009, and December 31, 2008, respectively,
and fair value adjustments of $5.6 million for unrealized gains on
derivative instruments at September 30, 2009
    
    
    453.9
    
    
    
    448.18.875% notes, due 2019, net of original issue discount of $3.6 million at
September 30, 2009
    
    
    496.4
    
    
    
    7.25% debentures, due 2025
    
    
    100.0
    
    
    
    100.06.5% debentures, due 2034, net of original issue discount of $4.7 million
at both September 30, 2009, and December 31, 2008
    
    
    295.3
    
    
    
    295.3Debt supported by banking arrangements:Term loan, at LIBOR plus 2.75% (3.00% at September 30, 2009)
    
    
    150.0
    
    
    
    U.S. revolving credit borrowing, at prime (3.25% at December 31, 2008)
    
    
    
    
    
    
    75.0Euro revolving credit borrowing, at EURIBOR plus .325% (3.036% at
December 31, 2008)
    
    
    
    
    
    
    34.9Other
    
    
    1.3
    
    
    
    1.61,701.8
    
    
    
    1,340.9Less: current portion of long-term debt
    
    
    223.9
    
    
    
    386.3Total long-term debt
    
    $
    1,477.9
    
    
    $
    954.6
    
   10




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7. Derivative Instruments and Hedging Activities
    12




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Asset DerivativesSeptember 30,
    
    
    December 31,Balance Sheet Location
    
    
    2009
    
    
    2008Derivatives designated as
hedging instruments:Interest rate swap agreements
    
    Other current assets
    
    $
    
    
    
    $
    4.3Commodity purchase contracts
    
    Other current assets
    
    
    0.3
    
    
    
    Interest rate swap agreements
    
    Other assets
    
    
    5.6
    
    
    
    $
    5.9
    
    
    $
    4.3Derivatives not designated
as hedging instruments:Foreign currency forward contracts
    
    Other current assets
    
    $
    
    
    
    $
    2.1Liability DerivativesSeptember 30,
    
    
    December 31,Balance Sheet Location
    
    
    2009
    
    
    2008Derivatives designated as
hedging instruments:Treasury rate lock agreements
    
    Accrued expenses and other current liabilities
    
    
    $
    
    
    
    $
    20.0Commodity purchase contracts
    
    Accrued expenses and other current liabilities
    
    
    
    4.0
    
    
    
    5.5Commodity purchase contracts
    
    Noncurrent liabilities
    
    
    
    
    
    
    1.5$
    4.0
    
    
    $
    27.0Derivatives not designated
as hedging instruments:Foreign currency forward contracts
    
    Accrued expenses and other current liabilities
    
    
    $
    0.5
    
    
    $
    0.3
 Fair Value Hedges
  13




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Three Months Ended
    
    
    Nine Months EndedLocation of Gain (Loss)
    
    
    September 30,
    
    
    September 30,Derivative
    
    Recognized in Earnings
    
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Interest rate swap agreements
    
    Interest expense
    
    $
    1.0
    
    
    $
    (0.1
    )
    
    $
    1.3
    
    
    $
    2.5
 Three Months Ended
    
    
    Nine Months EndedLocation of Gain (Loss)
    
    
    September 30,
    
    
    September 30,Hedged Item
    
    Recognized in Earnings
    
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Long-term debt
    
    Interest expense
    
    $
    (1.0
    )
    
    $
    0.1
    
    
    $
    (1.3
    )
    
    $
    (2.5
    )
 Cash Flow Hedges
     14




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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,Derivative
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Commodity purchase contracts
    
    $
    0.1
    
    
    $
    (7.2
    )
    
    $
    (2.4
    )
    
    $
    (0.6
    )Treasury rate lock agreements
    
    
    
    
    
    
    
    
    
    
    2.1
    
    
    
    $
    0.1
    
    
    $
    (7.2
    )
    
    $
    (0.3
    )
    
    $
    (0.6
    )
  Location of Gain (Loss)
    
    Three Months Ended
    
    
    Nine Months EndedReclassified from
    
    September 30,
    
    
    September 30,Derivative
    
    AOCL into Earnings
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Commodity purchase contracts
    
    Cost of sales
    
    $
    (2.4
    )
    
    $
    0.7
    
    
    $
    (6.8
    )
    
    $
    1.3Treasury rate lock agreements
    
    Interest expense
    
    
    (1.4
    )
    
    
    (1.2
    )
    
    
    (4.6
    )
    
    
    (4.1
    )$
    (3.8
    )
    
    $
    (0.5
    )
    
    $
    (11.4
    )
    
    $
    (2.8
    )
  Derivative Instruments Not Designated as Hedges
  Location of (Loss)
    
    Three Months Ended
    
    
    Nine Months EndedGain Recognized
    
    September 30,
    
    
    September 30,Derivative
    
    in Earnings
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Foreign currency forward contracts
    
    Other income-net
    
    $
    (0.8
    )
    
    $
    0.9
    
    
    $
    (1.6
    )
    
    $
    (0.3
    )
 15




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8. Fair Value Measurements
   Fair Value Measurements at Reporting Date UsingQuoted Prices
    
    
    Significantin Active
    
    
    Other
    
    
    SignificantMarkets for
    
    
    Observable
    
    
    UnobservableSeptember 30,
    
    
    Identical Assets
    
    
    Inputs
    
    
    Inputs(In Millions of Dollars)
    
    2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Assets:Money market mutual funds (1)
    
    $
    875.0
    
    
    $
    870.8
    
    
    $
    4.2
    
    
    $
    Interest rate swaps (2)
    
    
    5.6
    
    
    
    
    
    
    
    5.6
    
    
    
    Commodity purchase contracts (3)
    
    
    0.3
    
    
    
    
    
    
    
    0.3
    
    
    
    $
    880.9
    
    
    $
    870.8
    
    
    $
    10.1
    
    
    $
    Liabilities:Commodity purchase contracts (3)
    
    $
    4.0
    
    
    $
    
    
    
    $
    4.0
    
    
    $
    Foreign currency forward contracts (4)
    
    
    0.5
    
    
    
    
    
    
    
    0.5
    
    
    
    $
    4.5
    
    
    $
    
    
    
    $
    4.5
    
    
    $
    
 
 (1)
    
    The company records the fair value of money market mutual funds within cash and cash
equivalents, investments and other assets. The fair value of money market mutual funds held
in inactive markets is corroborated through quoted prices in active markets for the funds
underlying holdings, considering nonperformance and liquidity risks.(2)
    
    The fair value of interest rate swaps are obtained from counterparty quotes, which use
discounted cash flows and the then-applicable forward interest rates.(3)
    
    The fair value of commodity purchase contracts is based on counterparty quotes of market
forward rates and reflects the present value of the amount that the company would pay or
receive for contracts involving the same notional amounts and maturity dates.(4)
    
    The fair value of foreign currency forward contracts is based on the difference between
the contract prices and market forward rates that are obtained from counterparty quotes. 16




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9. Comprehensive Income
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(In Millions of Dollars)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Net income
    
    $
    174.7
    
    
    $
    65.2
    
    
    $
    375.8
    
    
    $
    221.9Foreign currency translation adjustment
    
    
    51.7
    
    
    
    (82.2
    )
    
    
    61.2
    
    
    
    (20.0
    )Pension and other postretirement benefit plans
    
    
    0.4
    
    
    
    3.6
    
    
    
    3.5
    
    
    
    4.4Gain (loss) on natural gas hedges  net
    
    
    1.7
    
    
    
    (7.6
    )
    
    
    2.0
    
    
    
    (1.4
    )Changes in Treasury rate locks  net
    
    
    0.9
    
    
    
    0.8
    
    
    
    5.1
    
    
    
    2.7Total comprehensive income (loss)
    
    $
    229.4
    
    
    $
    (20.2
    )
    
    $
    447.6
    
    
    $
    207.6Less: Comprehensive income attributable to
noncontrolling interests
    
    
    4.6
    
    
    
    
    
    
    
    9.7
    
    
    
    4.9Comprehensive income (loss) attributable to
The Lubrizol Corporation
    
    $
    224.8
    
    
    $
    (20.2
    )
    
    $
    437.9
    
    
    $
    202.7
 10. Shareholders Equity
  Shareholders EquityAccumulatedOtherNumber of
    
    
    Common
    
    
    Retained
    
    
    Comprehensive
    
    
    Noncontrolling(In Millions)
    
    Shares Outstanding
    
    
    Shares
    
    
    Earnings
    
    
    Loss
    
    
    Interests
    
    
    TotalBalance, January 1, 2009
    
    
    67.3
    
    
    $
    764.7
    
    
    $
    906.3
    
    
    $
    (147.3
    )
    
    $
    60.9
    
    
    $
    1,584.6Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    366.6
    
    
    
    
    
    
    
    9.2
    
    
    
    375.8Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71.3
    
    
    
    0.5
    
    
    
    71.8Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    447.6Dividends declared
    
    
    
    
    
    
    
    
    
    
    (63.0
    )
    
    
    
    
    
    
    (2.5
    )
    
    
    (65.5
    )Stock-based compensation
    
    
    
    
    
    
    15.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15.4Shares
issued upon exercise of stock options and awards
    
    
    0.8
    
    
    
    22.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22.5Tax benefit from stock compensation
    
    
    
    
    
    
    6.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.1Balance, September 30, 2009
    
    
    68.1
    
    
    $
    808.7
    
    
    $
    1,209.9
    
    
    $
    (76.0
    )
    
    $
    68.1
    
    
    $
    2,010.7
 11. Segment Reporting
   17




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
    
    The AMPS® specialty monomer business, with 2008 annual revenues of $35.3
million, which previously was reported as part of the Noveon consumer specialties product
line, and
    
    The ADEXTM explosives emulsifier business, with 2008 annual revenues of $45.0
million, which previously was reported as part of the engineered polymers product line.
  18




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(In Millions of Dollars)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Revenues from external customers:Lubrizol Additives
    
    $
    914.5
    
    
    $
    961.9
    
    
    $
    2,445.1
    
    
    $
    2,752.2Lubrizol Advanced Materials
    
    
    360.1
    
    
    
    400.8
    
    
    
    952.9
    
    
    
    1,188.0Total revenues
    
    $
    1,274.6
    
    
    $
    1,362.7
    
    
    $
    3,398.0
    
    
    $
    3,940.2Segment operating income:Lubrizol Additives
    
    $
    256.5
    
    
    $
    102.1
    
    
    $
    596.4
    
    
    $
    341.1Lubrizol Advanced Materials
    
    
    60.5
    
    
    
    26.5
    
    
    
    122.6
    
    
    
    90.4Segment operating income
    
    
    317.0
    
    
    
    128.6
    
    
    
    719.0
    
    
    
    431.5Corporate expenses
    
    
    (31.7
    )
    
    
    (17.0
    )
    
    
    (76.5
    )
    
    
    (50.7
    )Corporate other (expense) income-net
    
    
    (6.3
    )
    
    
    3.8
    
    
    
    (1.6
    )
    
    
    7.5Restructuring and impairment charges
    
    
    (5.8
    )
    
    
    (5.7
    )
    
    
    (27.3
    )
    
    
    (25.1
    )Interest expense-net
    
    
    (25.0
    )
    
    
    (18.3
    )
    
    
    (77.6
    )
    
    
    (49.6
    )Income before income taxes
    
    $
    248.2
    
    
    $
    91.4
    
    
    $
    536.0
    
    
    $
    313.6
  September 30,
    
    
    December 31,(In Millions of Dollars)
    
    2009
    
    
    2008Segment assets:Lubrizol Additives
    
    $
    1,813.7
    
    
    $
    1,853.8Lubrizol Advanced Materials
    
    
    1,846.7
    
    
    
    1,843.2Total segment assets
    
    
    3,660.4
    
    
    
    3,697.0Corporate assets
    
    
    1,364.5
    
    
    
    453.5Total consolidated assets
    
    $
    5,024.9
    
    
    $
    4,150.5
 12. Pension and Postretirement Benefits
    19




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Three Months Ended
    
    
    Three Months EndedSeptember 30, 2009
    
    
    September 30, 2008Non-
    
    
    Non-(In Millions of Dollars)
    
    U.S. Plans
    
    
    U.S. Plans
    
    
    Total
    
    
    U.S. Plans
    
    
    U.S. Plans
    
    
    TotalService cost  benefits earned during period
    
    $
    5.4
    
    
    $
    2.1
    
    
    $
    7.5
    
    
    $
    4.6
    
    
    $
    3.0
    
    
    $
    7.6Interest cost on projected benefit obligation
    
    
    7.0
    
    
    
    3.5
    
    
    
    10.5
    
    
    
    6.1
    
    
    
    4.5
    
    
    
    10.6Expected return on plan assets
    
    
    (5.9
    )
    
    
    (3.2
    )
    
    
    (9.1
    )
    
    
    (5.7
    )
    
    
    (3.6
    )
    
    
    (9.3
    )Amortization of prior service costs
    
    
    0.6
    
    
    
    0.1
    
    
    
    0.7
    
    
    
    0.5
    
    
    
    0.3
    
    
    
    0.8Recognized net actuarial loss
    
    
    1.1
    
    
    
    0.3
    
    
    
    1.4
    
    
    
    0.1
    
    
    
    0.5
    
    
    
    0.6Net periodic pension cost
    
    $
    8.2
    
    
    $
    2.8
    
    
    $
    11.0
    
    
    $
    5.6
    
    
    $
    4.7
    
    
    $
    10.3
 Nine Months Ended
    
    
    Nine Months EndedSeptember 30, 2009
    
    
    September 30, 2008Non-
    
    
    Non-(In Millions of Dollars)
    
    U.S. Plans
    
    
    U.S. Plans
    
    
    Total
    
    
    U.S. Plans
    
    
    U.S. Plans
    
    
    TotalService cost  benefits earned during period
    
    $
    16.2
    
    
    $
    6.1
    
    
    $
    22.3
    
    
    $
    14.0
    
    
    $
    9.3
    
    
    $
    23.3Interest cost on projected benefit obligation
    
    
    20.8
    
    
    
    10.8
    
    
    
    31.6
    
    
    
    19.2
    
    
    
    13.6
    
    
    
    32.8Expected return on plan assets
    
    
    (17.8
    )
    
    
    (9.5
    )
    
    
    (27.3
    )
    
    
    (16.9
    )
    
    
    (11.4
    )
    
    
    (28.3
    )Amortization of prior service costs
    
    
    1.8
    
    
    
    0.3
    
    
    
    2.1
    
    
    
    1.6
    
    
    
    0.7
    
    
    
    2.3Recognized net actuarial loss
    
    
    3.4
    
    
    
    0.9
    
    
    
    4.3
    
    
    
    0.7
    
    
    
    1.5
    
    
    
    2.2Net periodic pension cost
    
    $
    24.4
    
    
    $
    8.6
    
    
    $
    33.0
    
    
    $
    18.6
    
    
    $
    13.7
    
    
    $
    32.3
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(In Millions of Dollars)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Service cost  benefits earned during period
    
    $
    0.3
    
    
    $
    0.5
    
    
    $
    1.0
    
    
    $
    1.4Interest cost on projected benefit obligation
    
    
    1.4
    
    
    
    1.4
    
    
    
    4.1
    
    
    
    4.5Amortization of prior service credits
    
    
    (1.7
    )
    
    
    (1.7
    )
    
    
    (5.2
    )
    
    
    (5.1
    )Amortization of initial net obligation
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.3
    
    
    
    0.4Recognized net actuarial loss
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.3
    
    
    
    0.6Settlement / curtailment gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.1
    )Net periodic non-pension postretirement benefit cost
    
    $
    0.2
    
    
    $
    0.4
    
    
    $
    0.5
    
    
    $
    0.7
 13. Stock-Based Compensation
  20




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Nine Months EndedSeptember 30,2009
    
    2008Risk-free interest rate
    
    
    2.8
    %
    
    
    3.5
    %Dividend yield
    
    
    4.5
    %
    
    
    2.1
    %Expected volatility
    
    
    27.9
    %
    
    
    20.0
    %Expected life (years)
    
    
    6.5
    
    
    
    6.5Weighted-average fair value per share
of options granted during the period
    
    $
    5.03
    
    
    $
    12.27
  Weighted-AverageShare
    
    Grant DateUnits
    
    Fair ValueNonvested at January 1, 2009
    
    
    232,161
    
    
    $
    53.07Granted
    
    
    290,520
    
    
    $
    27.77Performance increase
    
    
    519,544
    
    
    $
    41.28Forfeited
    
    
    (29,371
    )
    
    $
    40.21Nonvested at September 30, 2009
    
    
    1,012,854
    
    
    $
    40.14
  Expected
    
    Weighted-Number
    
    Averageof Units
    
    Grant DatePerformance Period
    
    to be Issued
    
    Fair Value2007-2009
    
    
    236,476
    
    
    $
    53.072008-2010
    
    
    213,328
    
    
    $
    58.452009-2011
    
    
    563,050
    
    
    $
    27.77
  21




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##### Table of Contents



14. Restructuring and Impairment Charges
  22




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##### Table of Contents



RestructuringLiability
    
    
    and
    
    
    
    
    
    
    
    
    
    
    LiabilityJanuary 1,
    
    
    Impairment
    
    
    
    
    
    
    Non-cash
    
    
    September 30,(In Millions of Dollars)
    
    2009
    
    
    Charges
    
    
    Cash Paid
    
    
    Adjustments
    
    
    2009Corporate organizational restructuring
    
    $
    
    
    
    $
    15.2
    
    
    $
    (11.3
    )
    
    $
    
    
    
    $
    3.9Long-lived asset impairments
    
    
    
    
    
    
    7.4
    
    
    
    
    
    
    
    (7.4
    )
    
    
    Lubrizol Additives plant closure and
workforce reductions
    
    
    0.7
    
    
    
    1.0
    
    
    
    (1.7
    )
    
    
    
    
    
    
    Lubrizol Advanced Materials plant closures
and workforce reductions
    
    
    
    
    
    
    3.6
    
    
    
    
    
    
    
    (3.6
    )
    
    
    Performance coatings 2008 business
improvement initiatives
    
    
    0.9
    
    
    
    0.1
    
    
    
    (0.7
    )
    
    
    
    
    
    
    0.3Noveon International, Inc. restructuring
liabilities assumed
    
    
    0.5
    
    
    
    
    
    
    
    (0.5
    )
    
    
    
    
    
    
    $
    2.1
    
    
    $
    27.3
    
    
    $
    (14.2
    )
    
    $
    (11.0
    )
    
    $
    4.2
  15. Contingencies
 General
  23




---



##### Table of Contents



Environmental
       24




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##### 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




    
    The ongoing global recession has affected the markets we serve and negatively impacted
our sales volume. Volume declined 18% compared with the same period in 2008 as demand
declined sharply and customers reduced their inventory levels. However, we believe
inventory destocking substantially was complete in the first quarter as we experienced
sequential quarterly volume growth of 13% and 15% in the third and second quarters,
respectively, influenced by customers replenishing their inventories.
    
    Our disciplined margin management and cost reduction initiatives offset the decline in
volume and resulted in an increase in our gross profit percentage to 33.2% from 22.4% in the
same period in 2008.
    
    Our inventory reduction initiatives contributed to the significant increase in cash flow
from operations. We reduced production to respond to lower sales volume and reduce
inventories. As a result of our abnormally low production, we incurred $61.2 million of
unabsorbed manufacturing costs. The reduction in inventory also resulted in charges of $8.5
million due to a liquidation of LIFO inventory quantities carried at higher costs.
    
    Our aggressive cost reduction actions and organizational restructuring increased
operating efficiencies and improved profitability. We reduced manufacturing expenses by
curtailing production and reducing spending on supplies and services. Selling, testing,
administrative and research (STAR) expenses declined by 2% due to reductions in information
technology and travel expenses. Manufacturing and STAR expenses both benefited from a
favorable currency impact. The effect of our cost reduction initiatives partially was
offset by the increase in incentive and deferred compensation expenses described below. In
conjunction with our organizational restructuring, we incurred $15.2 million of severance
and benefit charges and $3.6 million of asset impairment charges due to our decision to
cease manufacturing at two U.S. facilities.
    
    Our actual and projected financial performance relative to the financial objectives
contained within our annual and long-term incentive compensation programs resulted in
additional compensation expense of $21.2 million compared with the same period in 2008.
Further, appreciation in the liabilities recorded for our deferred compensation plans and
stock appreciation rights, which primarily are based on the value of Lubrizol stock,
resulted in additional compensation expense of $18.1 million compared with the same period
in 2008.
    
    The additional interest costs associated with the issuance of $500.0 million of 8.875%
notes and the $150.0 million term loan, coupled with lower interest income, reduced our
earnings by approximately $0.27 per share as compared with the same period in 2008. The
proceeds from these borrowings provided us with sufficient funds to retire in full the
4.625% notes due 2009, enabled us to repay in full our outstanding U.S. revolver balance and
to fund the acquisition of the thermoplastic polyurethane business from The Dow Chemical
Company (Dow), and strengthened our liquidity with approximately $175.0 million of
additional cash.
  26




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##### Table of Contents



RESULTS OF OPERATIONS
 Three Months Ended September 30, 2009 Compared With Three Months Ended September 30, 2008
 Three MonthsEnded September 30,(In Millions of Dollars Except Per Share Data)
    
    2009
    
    
    2008
    
    
    $ Change
    
    
    % ChangeRevenues
    
    $
    1,274.6
    
    
    $
    1,362.7
    
    
    $
    (88.1
    )
    
    
    (6
    %)Cost of sales
    
    
    814.0
    
    
    
    1,078.2
    
    
    
    (264.2
    )
    
    
    (25
    %)Gross profit
    
    
    460.6
    
    
    
    284.5
    
    
    
    176.1
    
    
    
    62
    %Selling and administrative expenses
    
    
    117.7
    
    
    
    111.0
    
    
    
    6.7
    
    
    
    6
    %Research, testing and development expenses
    
    
    54.8
    
    
    
    55.8
    
    
    
    (1.0
    )
    
    
    (2
    %)Amortization of intangible assets
    
    
    6.3
    
    
    
    6.8
    
    
    
    (0.5
    )
    
    
    (7
    %)Restructuring and impairment charges
    
    
    5.8
    
    
    
    5.7
    
    
    
    0.1
    
    
    
    
    *Other expense (income)  net
    
    
    2.8
    
    
    
    (4.5
    )
    
    
    (7.3
    )
    
    
    
    *Interest income
    
    
    (1.5
    )
    
    
    (3.3
    )
    
    
    (1.8
    )
    
    
    (55
    %)Interest expense
    
    
    26.5
    
    
    
    21.6
    
    
    
    4.9
    
    
    
    23
    %Income before income taxes
    
    
    248.2
    
    
    
    91.4
    
    
    
    156.8
    
    
    
    172
    %Provision for income taxes
    
    
    73.5
    
    
    
    26.2
    
    
    
    47.3
    
    
    
    181
    %Net income
    
    
    174.7
    
    
    
    65.2
    
    
    
    109.5
    
    
    
    168
    %Net income attributable to noncontrolling interests
    
    
    4.2
    
    
    
    2.0
    
    
    
    2.2
    
    
    
    110
    %Net income attributable to The Lubrizol Corporation
    
    $
    170.5
    
    
    $
    63.2
    
    
    $
    107.3
    
    
    
    170
    %Basic earnings per share attributable to
The Lubrizol Corporation
    
    $
    2.50
    
    
    $
    0.93
    
    
    $
    1.57
    
    
    
    169
    %Diluted earnings per share attributable to
The Lubrizol Corporation
    
    $
    2.46
    
    
    $
    0.92
    
    
    $
    1.54
    
    
    
    167
    %
 
 *
    
    Calculation not meaningful Revenues
 27




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##### Table of Contents



Excludingthe Impact of2009
    
    2009 vs. 2008
    
    AcquisitionsVolume
    
    % Change
    
    % ChangeNorth America
    
    
    39
    %
    
    
    (12
    %)
    
    
    (13
    %)Europe
    
    
    26
    %
    
    
    (9
    %)
    
    
    (9
    %)Asia-Pacific / Middle East
    
    
    28
    %
    
    
    7
    %
    
    
    5
    %Latin America
    
    
    7
    %
    
    
    
    
    
    
    Total
    
    
    100
    %
    
    
    (6
    %)
    
    
    (7
    %)
   Cost of Sales
 Gross Profit
 Selling and Administrative Expenses
 Research, Testing and Development Expenses
 28




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##### Table of Contents



Restructuring and Impairment Charges
 Three Months Ended September 30, 2009Asset
    
    
    Other Plant
    
    
    Severance(In Millions of Dollars)
    
    Impairments
    
    
    Exit Costs
    
    
    and Benefits
    
    
    TotalCorporate organizational restructuring
    
    $
    
    
    
    $
    
    
    
    $
    1.5
    
    
    $
    1.5Long-lived asset impairments
    
    
    0.5
    
    
    
    
    
    
    
    
    
    
    
    0.5Lubrizol Additives plant closure and
workforce reductions
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    0.1Lubrizol Advanced Materials plant closures
and workforce reductions
    
    
    3.6
    
    
    
    
    
    
    
    
    
    
    
    3.6Performance coatings 2008 business
improvement initiatives
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    0.1Total restructuring and impairment charges
    
    $
    4.1
    
    
    $
    0.1
    
    
    $
    1.6
    
    
    $
    5.8
    Three Months Ended September 30, 2008Asset
    
    
    Other Plant
    
    
    Severance(In Millions of Dollars)
    
    Impairments
    
    
    Exit Costs
    
    
    and Benefits
    
    
    TotalLubrizol Additives plant closure and
workforce reductions
    
    $
    
    
    
    $
    
    
    
    $
    5.0
    
    
    $
    5.0Lubrizol Advanced Materials plant closures
and workforce reductions
    
    
    
    
    
    
    
    
    
    
    0.2
    
    
    
    0.2Performance coatings 2008 business
improvement initiatives
    
    
    0.3
    
    
    
    
    
    
    
    0.2
    
    
    
    0.5Total restructuring and impairment charges
    
    $
    0.3
    
    
    $
    
    
    
    $
    5.4
    
    
    $
    5.7
  Interest Expense
 Provision for Income Taxes
 Net Income Attributable to The Lubrizol Corporation
 29




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##### Table of Contents



Nine Months Ended September 30, 2009 Compared With Nine Months Ended September 30, 2008
 Nine MonthsEnded September 30,(In Millions of Dollars Except Per Share Data)
    
    2009
    
    
    2008
    
    
    $ Change
    
    
    % ChangeRevenues
    
    $
    3,398.0
    
    
    $
    3,940.2
    
    
    $
    (542.2
    )
    
    
    (14
    %)Cost of sales
    
    
    2,269.7
    
    
    
    3,057.4
    
    
    
    (787.7
    )
    
    
    (26
    %)Gross profit
    
    
    1,128.3
    
    
    
    882.8
    
    
    
    245.5
    
    
    
    28
    %Selling and administrative expenses
    
    
    323.3
    
    
    
    321.5
    
    
    
    1.8
    
    
    
    1
    %Research, testing and development expenses
    
    
    153.0
    
    
    
    165.6
    
    
    
    (12.6
    )
    
    
    (8
    %)Amortization of intangible assets
    
    
    18.8
    
    
    
    20.8
    
    
    
    (2.0
    )
    
    
    (10
    %)Restructuring and impairment charges
    
    
    27.3
    
    
    
    25.1
    
    
    
    2.2
    
    
    
    
    *Other income  net
    
    
    (7.7
    )
    
    
    (13.4
    )
    
    
    (5.7
    )
    
    
    (43
    %)Interest income
    
    
    (5.8
    )
    
    
    (10.6
    )
    
    
    (4.8
    )
    
    
    (45
    %)Interest expense
    
    
    83.4
    
    
    
    60.2
    
    
    
    23.2
    
    
    
    39
    %Income before income taxes
    
    
    536.0
    
    
    
    313.6
    
    
    
    222.4
    
    
    
    71
    %Provision for income taxes
    
    
    160.2
    
    
    
    91.7
    
    
    
    68.5
    
    
    
    75
    %Net income
    
    
    375.8
    
    
    
    221.9
    
    
    
    153.9
    
    
    
    69
    %Net income attributable to noncontrolling interests
    
    
    9.2
    
    
    
    7.0
    
    
    
    2.2
    
    
    
    31
    %Net income attributable to The Lubrizol Corporation
    
    $
    366.6
    
    
    $
    214.9
    
    
    $
    151.7
    
    
    
    71
    %Basic earnings per share attributable to
The Lubrizol Corporation
    
    $
    5.40
    
    
    $
    3.15
    
    
    $
    2.25
    
    
    
    71
    %Diluted earnings per share attributable to
The Lubrizol Corporation
    
    $
    5.34
    
    
    $
    3.12
    
    
    $
    2.22
    
    
    
    71
    %
 
 *
    
    Calculation not meaningful Revenues
 30




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##### Table of Contents



Excludingthe Impact of2009
    
    2009 vs. 2008
    
    AcquisitionsVolume
    
    % Change
    
    % ChangeNorth America
    
    
    40
    %
    
    
    (22
    %)
    
    
    (23
    %)Europe
    
    
    27
    %
    
    
    (18
    %)
    
    
    (18
    %)Asia-Pacific / Middle East
    
    
    26
    %
    
    
    (11
    %)
    
    
    (12
    %)Latin America
    
    
    7
    %
    
    
    (15
    %)
    
    
    (15
    %)Total
    
    
    100
    %
    
    
    (18
    %)
    
    
    (19
    %)
   Cost of Sales
 Gross Profit
 Selling and Administrative Expenses
 Research, Testing and Development Expenses
 31




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##### Table of Contents



Restructuring and Impairment Charges
 Nine Months Ended September 30, 2009Asset
    
    
    Other Plant
    
    
    Severance(In Millions of Dollars)
    
    Impairments
    
    
    Exit Costs
    
    
    and Benefits
    
    
    TotalCorporate organizational restructuring
    
    $
    
    
    
    $
    
    
    
    $
    15.2
    
    
    $
    15.2Long-lived asset impairments
    
    
    7.4
    
    
    
    
    
    
    
    
    
    
    
    7.4Lubrizol Additives plant closure and
workforce reductions
    
    
    
    
    
    
    0.3
    
    
    
    0.7
    
    
    
    1.0Lubrizol Advanced Materials plant closures
and workforce reductions
    
    
    3.6
    
    
    
    
    
    
    
    
    
    
    
    3.6Performance coatings 2008 business
improvement initiatives
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    0.1Total restructuring and impairment charges
    
    $
    11.0
    
    
    $
    0.3
    
    
    $
    16.0
    
    
    $
    27.3
     Nine Months Ended September 30, 2008Asset
    
    
    Other Plant
    
    
    Severance(In Millions of Dollars)
    
    Impairments
    
    
    Exit Costs
    
    
    and Benefits
    
    
    TotalLubrizol Additives plant closure and workforce
reductions
    
    $
    
    
    
    $
    
    
    
    $
    5.0
    
    
    $
    5.0Performance coatings 2008 business improvement
initiatives
    
    
    14.7
    
    
    
    0.4
    
    
    
    4.4
    
    
    
    19.5Lubrizol Advanced Materials plant closures and
workforce reductions
    
    
    0.3
    
    
    
    
    
    
    
    0.3
    
    
    
    0.6Total restructuring and impairment charges
    
    $
    15.0
    
    
    $
    0.4
    
    
    $
    9.7
    
    
    $
    25.1
  32




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##### Table of Contents



Interest Expense
 Provision for Income Taxes
 Net Income Attributable to The Lubrizol Corporation
 SEGMENT ANALYSIS
   
    
    The AMPS® specialty monomer business, with 2008 annual revenues of $35.3
million, which previously was reported as part of the Noveon consumer specialties product
line, and
    
    The ADEXTM explosives emulsifier business, with 2008 annual revenues of $45.0
million, which previously was reported as part of the engineered polymers product line.
  33




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##### Table of Contents



Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2009
    
    2008
    
    2009
    
    2008Revenues:Lubrizol Additives
    
    
    72
    %
    
    
    71
    %
    
    
    72
    %
    
    
    70
    %Lubrizol Advanced Materials
    
    
    28
    %
    
    
    29
    %
    
    
    28
    %
    
    
    30
    %Segment Operating Income:Lubrizol Additives
    
    
    81
    %
    
    
    79
    %
    
    
    83
    %
    
    
    79
    %Lubrizol Advanced Materials
    
    
    19
    %
    
    
    21
    %
    
    
    17
    %
    
    
    21
    %
 OPERATING RESULTS BY SEGMENT
 Three Months Ended
    
    
    
    
    
    
    
    
    
    
    Nine Months EndedSeptember 30,
    
    
    
    
    
    
    %
    
    
    September 30,
    
    
    
    
    
    
    %(In Millions of Dollars)
    
    2009
    
    
    2008
    
    
    $ Change
    
    
    Change
    
    
    2009
    
    
    2008
    
    
    $ Change
    
    
    ChangeRevenues:Lubrizol Additives
    
    $
    914.5
    
    
    $
    961.9
    
    
    $
    (47.4
    )
    
    
    (5
    %)
    
    $
    2,445.1
    
    
    $
    2,752.2
    
    
    $
    (307.1
    )
    
    
    (11
    %)Lubrizol Advanced Materials
    
    
    360.1
    
    
    
    400.8
    
    
    
    (40.7
    )
    
    
    (10
    %)
    
    
    952.9
    
    
    
    1,188.0
    
    
    
    (235.1
    )
    
    
    (20
    %)Total
    
    $
    1,274.6
    
    
    $
    1,362.7
    
    
    $
    (88.1
    )
    
    
    (6
    %)
    
    $
    3,398.0
    
    
    $
    3,940.2
    
    
    $
    (542.2
    )
    
    
    (14
    %)Gross Profit:Lubrizol Additives
    
    $
    335.4
    
    
    $
    184.3
    
    
    $
    151.1
    
    
    
    82
    %
    
    $
    816.6
    
    
    $
    576.8
    
    
    $
    239.8
    
    
    
    42
    %Lubrizol Advanced Materials
    
    
    125.2
    
    
    
    100.2
    
    
    
    25.0
    
    
    
    25
    %
    
    
    311.7
    
    
    
    306.0
    
    
    
    5.7
    
    
    
    2
    %Total
    
    $
    460.6
    
    
    $
    284.5
    
    
    $
    176.1
    
    
    
    62
    %
    
    $
    1,128.3
    
    
    $
    882.8
    
    
    $
    245.5
    
    
    
    28
    %Segment Operating Income:Lubrizol Additives
    
    $
    256.5
    
    
    $
    102.1
    
    
    $
    154.4
    
    
    
    151
    %
    
    $
    596.4
    
    
    $
    341.1
    
    
    $
    255.3
    
    
    
    75
    %Lubrizol Advanced Materials
    
    
    60.5
    
    
    
    26.5
    
    
    
    34.0
    
    
    
    128
    %
    
    
    122.6
    
    
    
    90.4
    
    
    
    32.2
    
    
    
    36
    %Total
    
    $
    317.0
    
    
    $
    128.6
    
    
    $
    188.4
    
    
    
    147
    %
    
    $
    719.0
    
    
    $
    431.5
    
    
    $
    287.5
    
    
    
    67
    %
 34




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##### Table of Contents



Three Months Ended September 30, 2009 Compared With Three Months Ended September 30, 2008
 LUBRIZOL ADDITIVES SEGMENT
 Revenues
  2009
    
    2009 vs. 2008Volume
    
    % ChangeNorth America
    
    
    31
    %
    
    
    (1
    %)Europe
    
    
    31
    %
    
    
    (6
    %)Asia-Pacific / Middle East
    
    
    30
    %
    
    
    7
    %Latin America
    
    
    8
    %
    
    
    (1
    %)Total
    
    
    100
    %
    
    
    
  Gross Profit
  Selling, Testing, Administrative and Research Expenses
 Segment Operating Income
 35




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##### Table of Contents



LUBRIZOL ADVANCED MATERIALS SEGMENT
 Revenues
  Excludingthe Impact of2009
    
    2009 vs. 2008
    
    AcquisitionsVolume
    
    % Change
    
    % ChangeNorth America
    
    
    61
    %
    
    
    (24
    %)
    
    
    (27
    %)Europe
    
    
    15
    %
    
    
    (21
    %)
    
    
    (21
    %)Asia-Pacific / Middle East
    
    
    20
    %
    
    
    5
    %
    
    
    (5
    %)Latin America
    
    
    4
    %
    
    
    11
    %
    
    
    11
    %Total
    
    
    100
    %
    
    
    (18
    %)
    
    
    (21
    %)
  Gross Profit
  Selling, Testing, Administrative and Research Expenses
 Segment Operating Income
 36




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##### Table of Contents



Nine Months Ended September 30, 2009 Compared With Nine Months Ended September 30, 2008
 LUBRIZOL ADDITIVES SEGMENT
 Revenues
  2009
    
    2009 vs. 2008Volume
    
    % ChangeNorth America
    
    
    32
    %
    
    
    (15
    %)Europe
    
    
    31
    %
    
    
    (16
    %)Asia-Pacific / Middle East
    
    
    29
    %
    
    
    (11
    %)Latin America
    
    
    8
    %
    
    
    (15
    %)Total
    
    
    100
    %
    
    
    (14
    %)
  Gross Profit
  Selling, Testing, Administrative and Research Expenses
 Segment Operating Income
 37




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##### Table of Contents



LUBRIZOL ADVANCED MATERIALS SEGMENT
 Revenues
  Excludingthe Impact of2009
    
    2009 vs. 2008
    
    AcquisitionsVolume
    
    % Change
    
    % ChangeNorth America
    
    
    63
    %
    
    
    (31
    %)
    
    
    (33
    %)Europe
    
    
    16
    %
    
    
    (29
    %)
    
    
    (29
    %)Asia-Pacific / Middle East
    
    
    18
    %
    
    
    (11
    %)
    
    
    (19
    %)Latin America
    
    
    3
    %
    
    
    (16
    %)
    
    
    (17
    %)Total
    
    
    100
    %
    
    
    (27
    %)
    
    
    (30
    %)
  Gross Profit
  Selling, Testing, Administrative and Research Expenses
 Segment Operating Income
 38




---



##### Table of Contents



WORKING CAPITAL, LIQUIDITY AND CAPITAL RESOURCES
  Nine Months EndedSeptember 30,(In Millions of Dollars)
    
    2009
    
    
    2008Cash provided by (used for):Operating activities
    
    $
    734.1
    
    
    $
    188.0Investing activities
    
    
    (102.3
    )
    
    
    (194.5
    )Financing activities
    
    
    298.2
    
    
    
    (136.6
    )Effect of exchange rate changes on cash
    
    
    11.2
    
    
    
    13.2Net increase (decrease) in cash and cash equivalents
    
    $
    941.2
    
    
    $
    (129.9
    )
 OPERATING ACTIVITIES
   INVESTING ACTIVITIES
  FINANCING ACTIVITIES
  39




---



##### Table of Contents



CAPITALIZATION, LIQUIDITY AND CREDIT FACILITIES
       
    40




---



##### Table of Contents



CONTRACTUAL CASH OBLIGATIONS
  
  NEW ACCOUNTING STANDARDS
  41




---



##### Table of Contents



CAUTIONARY STATEMENTS FOR SAFE HARBOR PURPOSES
   
    
    The cost, availability and quality of raw materials, especially petroleum-based products, and
the cost and availability of energy, especially natural gas and electricity.
    
    Our ability to continue to maximize efficiencies in our procurement and manufacturing
processes and manage our cost structure to sustain profitability in a competitive market.
    
    The demand for our products as influenced by such factors as the global economy and the
development of replacement technology.
    
    Our success at continuing to develop, and benefit from, proprietary technology to meet or
exceed new industry performance standards and to create new products to meet changing customer
expectations.
    
    The extent to which we are successful in expanding our business in new and existing markets
and identifying, understanding and managing the risks inherent in those markets.
    
    The risks of conducting business in various countries, including general economic conditions,
inflation and foreign currency exchange rates, foreign investment and repatriation
restrictions, legal, environmental and other regulatory constraints, and other social and
political factors.
    
    Our success in retaining and growing the business that we have with our largest customers.
    
    Our ability to identify, complete and integrate acquisitions for profitable growth and
operating efficiencies.
    
    The potential disruption or interruption of our production facilities due to accidents,
terrorism, political events, civil unrest, or weather-related disruptions to our facilities
located near the U.S. Gulf Coast.
    
    The effects of required principal and interest payments and the access to capital on our
ability to fund capital expenditures and acquisitions and to meet operating needs.
    
    The potential disruption to our business from our inability to maintain our common
information systems platform or to implement successfully such systems, including the
management of implementation costs, timely completion and realization of system benefits.
 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  42




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##### Table of Contents



Item 4. Controls and Procedures
  43




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 (a)
    
    From time to time, we issue common shares, exempt from registration under Regulation S of the
Securities Act of 1933, as amended, pursuant to various employee benefit plans sponsored by
wholly owned subsidiaries of the company. During the quarter ended September 30, 2009, we
issued the following common shares to employees on the dates indicated.
 Number ofDate of Issuance
    
    Common SharesJuly 10, 2009
    
    
    336July 13, 2009
    
    
    660August 1, 2009
    
    
    303September 9, 2009
    
    
    771September 23, 2009
    
    
    809
 44




---



##### Table of Contents



(c)
    
    The following table provides information regarding our purchases of Lubrizol common shares
during the quarter.
 Total Numberof Shares
    
    Maximum NumberAverage
    
    (or Units)
    
    (or Approximate Dollar Value)Total Number
    
    Price
    
    Purchased as Part
    
    of Shares (or Units)of Shares
    
    Paid per
    
    of
    
    that May Yet be(or Units)
    
    Share
    
    Publicly Announced
    
    Purchased Under thePeriod
    
    Purchased1
    
    (or Unit)
    
    Plans or Programs
    
    Plans or Programs2Month #1
(July 1, 2009 through July 31, 2009)
    
    
    
    
    
    
    N/A
    
    
    
    
    
    
    
    3,755,918Month #2
(Aug. 1, 2009 through Aug. 31, 2009)
    
    
    1,366
    
    
    $
    60.27

    
    
    
    
    
    
    
    3,755,918Month #3
(Sep. 1, 2009 through Sep. 30, 2009)
    
    
    
    
    
    
    N/A
    
    
    
    
    
    
    
    3,755,918Total
    
    
    1,366
    
    
    
    
    
    
    
    
    
    
    
    3,755,918
 
 1
    
    This column includes common shares that we purchased pursuant to our stock
incentive plan whereby participants sell already owned shares to us to pay for the exercise
price of a stock option.2
    
    This column represents common shares that we are permitted to purchase
pursuant to a share repurchase program authorized by our board of directors and announced on
April 27, 2007. This share repurchase program permits the company to repurchase up to 5.0
million of its common shares in the open market or through negotiated transactions. The
program will expire when all authorized shares have been repurchased. In the third quarter
of 2008, we suspended temporarily our share repurchase program. 
 Item 6. Exhibits
  45




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##### Table of Contents



Signatures
  THE LUBRIZOL CORPORATION/s/ W. Scott EmerickW. Scott EmerickChief Accounting Officer and Duly Authorized
Signatory of The Lubrizol Corporation  46




---



##### Table of Contents



Exhibit Index
 3.1
    
    Second Amended and Restated Articles of Incorporation of The Lubrizol Corporation,
effective as of May 6, 2009 (incorporated by reference to Exhibit 3.1 to the companys
quarterly report on Form 10-Q filed with the SEC on
May 8, 2009).3.2
    
    Second Amended and Restated Regulations of The Lubrizol Corporation, effective as of
September 23, 2009 (incorporated by reference to Exhibit 3.1 to the companys current report
on Form 8-K filed with the SEC on September 24, 2009).10.1*
    
    Form of Employment Agreement between The Lubrizol Corporation and certain of its senior
executive officers for new agreements executed on or after September 22, 2009.31.1
    
    Rule 13a-14(a) Certification of the Chief Executive Officer, as created by Section 302 of
the Sarbanes-Oxley Act of 2002.31.2
    
    Rule 13a-14(a) Certification of the Chief Financial Officer, as created by Section 302 of
the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer and Chief Financial Officer of The Lubrizol
Corporation pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the
Sarbanes-Oxley Act of 2002.
 
 *
    
    Indicates management contract or compensatory plan or arrangement.