##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 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 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 
 
 þ o
 o o
  Large accelerated filer: þ
Accelerated filer: o
Non-accelerated filer: o(Do not check if a smaller reporting company)
Smaller reporting company: o
 o þ




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##### 



THE LUBRIZOL CORPORATION  Quarterly Report on Form 10-Q  Three and Six Months Ended June 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
    
    24Item 3
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    44Item 4
    
    Controls and Procedures
    
    45PART II. OTHER INFORMATIONItem 1
    
    Legal Proceedings
    
    46Item 2
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    46Item 4
    
    Submission of Matters to a Vote of Security Holders
    
    46Item 6
    
    Exhibits
    
    47Signatures
    
    49EX-10.1EX-10.2EX-31.1EX-31.2EX-32.1




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PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 
 THE LUBRIZOL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(In Millions of Dollars Except Per Share Data)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Revenues
    
    $
    1,111.0
    
    
    $
    1,350.2
    
    
    $
    2,123.4
    
    
    $
    2,577.5Cost of sales
    
    
    717.2
    
    
    
    1,044.7
    
    
    
    1,455.7
    
    
    
    1,979.2Gross profit
    
    
    393.8
    
    
    
    305.5
    
    
    
    667.7
    
    
    
    598.3Selling and administrative expenses
    
    
    111.8
    
    
    
    101.9
    
    
    
    205.6
    
    
    
    210.5Research, testing and development expenses
    
    
    49.2
    
    
    
    55.7
    
    
    
    98.2
    
    
    
    109.8Amortization of intangible assets
    
    
    6.2
    
    
    
    7.0
    
    
    
    12.5
    
    
    
    14.0Restructuring and impairment charges
    
    
    10.1
    
    
    
    14.6
    
    
    
    21.5
    
    
    
    19.4Other income-net
    
    
    (5.3
    )
    
    
    (4.0
    )
    
    
    (10.5
    )
    
    
    (8.9
    )Interest income
    
    
    (1.6
    )
    
    
    (3.1
    )
    
    
    (4.3
    )
    
    
    (7.3
    )Interest expense
    
    
    27.5
    
    
    
    20.7
    
    
    
    56.9
    
    
    
    38.6Income before income taxes
    
    
    195.9
    
    
    
    112.7
    
    
    
    287.8
    
    
    
    222.2Provision for income taxes
    
    
    60.0
    
    
    
    32.0
    
    
    
    86.7
    
    
    
    65.5Net income
    
    
    135.9
    
    
    
    80.7
    
    
    
    201.1
    
    
    
    156.7Net income attributable to noncontrolling interests
    
    
    4.0
    
    
    
    2.6
    
    
    
    5.0
    
    
    
    5.0Net income attributable to The Lubrizol Corporation
    
    $
    131.9
    
    
    $
    78.1
    
    
    $
    196.1
    
    
    $
    151.7Net income per share attributable to
The Lubrizol Corporation, basic
    
    $
    1.95
    
    
    $
    1.14
    
    
    $
    2.90
    
    
    $
    2.22Net income per share attributable to
The Lubrizol Corporation, diluted
    
    $
    1.92
    
    
    $
    1.13
    
    
    $
    2.87
    
    
    $
    2.19Dividends paid per share
    
    $
    0.31
    
    
    $
    0.31
    
    
    $
    0.62
    
    
    $
    0.61
 Amounts shown are unaudited.
The accompanying notes are an integral part of these consolidated financial statements.
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THE LUBRIZOL CORPORATION
CONSOLIDATED BALANCE SHEETS
 June 30,
    
    
    December 31,(In Millions of Dollars Except Share Data)
    
    2009
    
    
    2008ASSETSCash and cash equivalents
    
    $
    860.8
    
    
    $
    186.2Investments
    
    
    0.9
    
    
    
    9.8Receivables
    
    
    654.7
    
    
    
    608.5Inventories
    
    
    595.9
    
    
    
    814.6Other current assets
    
    
    109.1
    
    
    
    80.8Total current assets
    
    
    2,221.4
    
    
    
    1,699.9Property and equipment  at cost
    
    
    2,901.8
    
    
    
    2,878.0Less accumulated depreciation
    
    
    1,713.8
    
    
    
    1,680.4Property and equipment  net
    
    
    1,188.0
    
    
    
    1,197.6Goodwill
    
    
    783.7
    
    
    
    782.1Intangible assets  net
    
    
    350.8
    
    
    
    361.0Investments in non-consolidated companies
    
    
    9.1
    
    
    
    7.3Other assets
    
    
    111.3
    
    
    
    102.6TOTAL
    
    $
    4,664.3
    
    
    $
    4,150.5LIABILITIES AND SHAREHOLDERS EQUITYShort-term debt and current portion of long-term debt
    
    $
    220.3
    
    
    $
    391.2Accounts payable
    
    
    274.3
    
    
    
    350.4Accrued expenses and other current liabilities
    
    
    305.4
    
    
    
    279.7Total current liabilities
    
    
    800.0
    
    
    
    1,021.3Long-term debt
    
    
    1,484.8
    
    
    
    954.6Pension obligations
    
    
    349.3
    
    
    
    340.1Other postretirement benefit obligations
    
    
    85.5
    
    
    
    83.1Noncurrent liabilities
    
    
    136.9
    
    
    
    129.1Deferred income taxes
    
    
    38.2
    
    
    
    37.7Total liabilities
    
    
    2,894.7
    
    
    
    2,565.9Contingencies and commitmentsPreferred stock without par value  unissued
    
    
    
    
    
    
    Common shares without par value:Authorized  120,000,000 sharesOutstanding  67,525,020 shares at June 30, 2009 after deducting
18,670,874 treasury shares; 67,257,963 shares at December 31, 2008
after deducting 18,937,931 treasury shares
    
    
    775.8
    
    
    
    764.7Retained earnings
    
    
    1,060.6
    
    
    
    906.3Accumulated other comprehensive loss
    
    
    (130.3
    )
    
    
    (147.3
    )Total of The Lubrizol Corporation shareholders equity
    
    
    1,706.1
    
    
    
    1,523.7Noncontrolling interests
    
    
    63.5
    
    
    
    60.9Total shareholders equity
    
    
    1,769.6
    
    
    
    1,584.6TOTAL
    
    $
    4,664.3
    
    
    $
    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 CORORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
 Six Months EndedJune 30,(In Millions of Dollars)
    
    2009
    
    
    2008CASH PROVIDED BY (USED FOR):OPERATING ACTIVITIESNet income
    
    $
    201.1
    
    
    $
    156.7Adjustments to reconcile net income to cash provided by
operating activities:Depreciation and amortization
    
    
    82.4
    
    
    
    84.2Deferred income taxes
    
    
    (17.4
    )
    
    
    (3.6
    )Deferred compensation
    
    
    9.0
    
    
    
    5.9Restructuring and impairment charges
    
    
    6.9
    
    
    
    14.9Gain from investments and sales of property and equipment
    
    
    
    
    
    
    (0.1
    )Change in current assets and liabilities, net of acquisitions:Receivables
    
    
    (36.0
    )
    
    
    (141.7
    )Inventories
    
    
    219.1
    
    
    
    (38.1
    )Accounts payable, accrued expenses and other current liabilities
    
    
    (19.2
    )
    
    
    25.1Other current assets
    
    
    (7.8
    )
    
    
    (3.9
    )156.1
    
    
    
    (158.6
    )Other items-net
    
    
    8.7
    
    
    
    (0.2
    )Total operating activities
    
    
    446.8
    
    
    
    99.2INVESTING ACTIVITIESCapital expenditures
    
    
    (75.9
    )
    
    
    (97.6
    )Acquisitions
    
    
    (2.6
    )
    
    
    0.9Proceeds from investments
    
    
    5.6
    
    
    
    Net proceeds from sales of property and equipment
    
    
    0.1
    
    
    
    0.3Total investing activities
    
    
    (72.8
    )
    
    
    (96.4
    )FINANCING ACTIVITIESChanges in short-term debt-net
    
    
    (0.7
    )
    
    
    Repayments of long-term debt
    
    
    (285.7
    )
    
    
    Proceeds from the issuance of long-term debt
    
    
    646.3
    
    
    
    Payment of Treasury rate lock upon settlement
    
    
    (16.7
    )
    
    
    Payment of debt issuance costs
    
    
    (4.8
    )
    
    
    Dividends paid
    
    
    (41.8
    )
    
    
    (41.6
    )Dividends to noncontrolling interests
    
    
    (2.5
    )
    
    
    (3.7
    )Common shares purchased
    
    
    
    
    
    
    (50.1
    )Proceeds from the exercise of stock options
    
    
    3.3
    
    
    
    3.0Excess tax benefit from the exercise of stock options and awards
    
    
    0.7
    
    
    
    2.0Total financing activities
    
    
    298.1
    
    
    
    (90.4
    )Effect of exchange rate changes on cash
    
    
    2.5
    
    
    
    5.4Net increase (decrease) in cash and cash equivalents
    
    
    674.6
    
    
    
    (82.2
    )Cash and cash equivalents at the beginning of period
    
    
    186.2
    
    
    
    502.3Cash and cash equivalents at the end of period
    
    $
    860.8
    
    
    $
    420.1
 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 Six Months Ended June 30, 2009 and 2008  (In Millions, Except Share and Per Share Data)
(Unaudited)
 1. Basis of Presentation
    2. Significant Accounting Policies
 Net Income per Share Attributable to The Lubrizol Corporation
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Numerator:Net income attributable to The Lubrizol Corporation
    
    $
    131.9
    
    
    $
    78.1
    
    
    $
    196.1
    
    
    $
    151.7Denominator (in millions of shares):Weighted-average common shares outstanding
    
    
    67.8
    
    
    
    68.3
    
    
    
    67.7
    
    
    
    68.4Dilutive effect of stock options and awards
    
    
    0.8
    
    
    
    0.8
    
    
    
    0.6
    
    
    
    0.8Denominator for net income per share, diluted
    
    
    68.6
    
    
    
    69.1
    
    
    
    68.3
    
    
    
    69.2Net income per share attributable to
The Lubrizol Corporation, basic
    
    $
    1.95
    
    
    $
    1.14
    
    
    $
    2.90
    
    
    $
    2.22Net income per share attributable to
The Lubrizol Corporation, diluted
    
    $
    1.92
    
    
    $
    1.13
    
    
    $
    2.87
    
    
    $
    2.19
  4




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Use of Estimates
  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
    4. Inventories
  June 30,
    
    
    December 31,2009
    
    
    2008Finished products
    
    $
    363.1
    
    
    $
    468.8Products in process
    
    
    94.5
    
    
    
    137.8Raw materials
    
    
    102.7
    
    
    
    172.8Supplies and engine test parts
    
    
    35.6
    
    
    
    35.2Total inventory
    
    $
    595.9
    
    
    $
    814.6
  5. Goodwill and Intangible Assets
 ® ® ®
 7




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LubrizolAdvanced
    
    
    LubrizolMaterials
    
    
    Additives
    
    
    TotalBalance, December 31, 2008
    
    $
    599.0
    
    
    $
    183.1
    
    
    $
    782.1Purchase adjustments
    
    
    (0.5
    )
    
    
    
    
    
    
    (0.5
    )Translation adjustments
    
    
    0.4
    
    
    
    1.7
    
    
    
    2.1Balance, June 30, 2009
    
    $
    598.9
    
    
    $
    184.8
    
    
    $
    783.7
   June 30, 2009
    
    
    December 31, 2008Gross
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Amount
    
    
    AmortizationAmortized intangible assets:Customer lists
    
    $
    193.2
    
    
    $
    51.2
    
    
    $
    189.2
    
    
    $
    44.1Technology
    
    
    148.4
    
    
    
    58.6
    
    
    
    160.3
    
    
    
    66.9Trademarks
    
    
    30.5
    
    
    
    9.2
    
    
    
    30.3
    
    
    
    8.3Patents
    
    
    11.2
    
    
    
    5.6
    
    
    
    10.2
    
    
    
    4.6Land-use rights and favorable lease arrangements
    
    
    11.4
    
    
    
    2.0
    
    
    
    14.6
    
    
    
    1.9Non-compete agreements
    
    
    0.8
    
    
    
    0.3
    
    
    
    1.0
    
    
    
    0.3Total amortized intangible assets
    
    
    395.5
    
    
    
    126.9
    
    
    
    405.6
    
    
    
    126.1Non-amortized trademarks
    
    
    82.2
    
    
    
    
    
    
    
    81.5
    
    
    
    Total
    
    $
    477.7
    
    
    $
    126.9
    
    
    $
    487.1
    
    
    $
    126.1
 8




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6. Debt
  June 30,
    
    
    December 31,2009
    
    
    2008Short-term debt and current portion of long-term debt:Current portion of long-term debt
    
    $
    216.1
    
    
    $
    386.3Other short-term debt
    
    
    4.2
    
    
    
    4.9$
    220.3
    
    
    $
    391.2Long-term debt:4.625% notes, due 2009, net of original issue discount of $0.1 million at
December 31, 2008, and fair value adjustments of $1.6 million and $4.3
million for unrealized gains on derivative instruments at June 30, 2009
and December 31, 2008, respectively
    
    $
    206.5
    
    
    $
    386.05.5% notes, due 2014, net of original issue discount of $1.8 million and
$1.9 million at June 30, 2009 and December 31, 2008, respectively
and fair value adjustments of $3.0 million for unrealized gains on
derivative instruments at June 30, 2009
    
    
    451.2
    
    
    
    448.18.875% notes, due 2019, net of original issue discount of $3.6 million at
June 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 June 30, 2009 and December 31, 2008
    
    
    295.3
    
    
    
    295.3Debt supported by long-term banking arrangements:Term loan, at LIBOR plus 2.75% (3.07% at June 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
    
    
    1.5
    
    
    
    1.61,700.9
    
    
    
    1,340.9Less: current portion of long-term debt
    
    
    216.1
    
    
    
    386.3Total long-term debt
    
    $
    1,484.8
    
    
    $
    954.6
   9




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7. Derivative Instruments and Hedging Activities
    11




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Asset DerivativesJune 30,
    
    
    December 31,Balance Sheet Location
    
    2009
    
    
    2008Derivatives designated as
hedging instruments:Interest rate swap agreements
    
    Other current assets
    
    $
    1.6
    
    
    $
    4.3Interest rate swap agreements
    
    Other assets
    
    
    3.0
    
    
    
    $
    4.6
    
    
    $
    4.3Derivatives not designated
as hedging instruments:Foreign currency forward contracts
    
    Other current assets
    
    $
    0.1
    
    
    $
    2.1
 Liability DerivativesJune 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
    
    
    5.4
    
    
    
    5.5Commodity purchase contracts
    
    Noncurrent liabilities
    
    
    1.0
    
    
    
    1.5$
    6.4
    
    
    $
    27.0Derivatives not designated
as hedging instruments:Foreign currency forward contracts
    
    Accrued expenses and other current liabilities
    
    $
    0.4
    
    
    $
    0.3
 Fair Value Hedges
  12




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Three Months Ended
    
    
    Six Months EndedLocation of Gain (Loss)
    
    June 30,
    
    
    June 30,Derivative
    
    Recognized in Earnings
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Interest rate swap agreements
    
    Interest expense
    
    $
    1.7
    
    
    $
    (5.9
    )
    
    $
    0.3
    
    
    $
    2.6
 Three Months Ended
    
    
    Six Months EndedLocation of Gain (Loss)
    
    June 30,
    
    
    June 30,Hedged Item
    
    Recognized in Earnings
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Long-term debt
    
    Interest expense
    
    $
    (1.7
    )
    
    $
    5.9
    
    
    $
    (0.3
    )
    
    $
    (2.6
    )
 Cash Flow Hedges
     13




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Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,Derivative
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Commodity purchase contracts
    
    $
    (0.1
    )
    
    $
    4.0
    
    
    $
    (2.5
    )
    
    $
    6.6Treasury rate lock agreements
    
    
    
    
    
    
    
    
    
    
    2.1
    
    
    
    $
    (0.1
    )
    
    $
    4.0
    
    
    $
    (0.4
    )
    
    $
    6.6
  Location of Gain (Loss)
    
    Three Months Ended
    
    
    Six Months EndedReclassified from
    
    June 30,
    
    
    June 30,Derivative
    
    AOCL into Earnings
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Commodity purchase contracts
    
    Cost of sales
    
    $
    (2.4
    )
    
    $
    0.9
    
    
    $
    (4.4
    )
    
    $
    0.6Treasury rate lock agreements
    
    Interest expense
    
    
    (1.4
    )
    
    
    (1.2
    )
    
    
    (3.2
    )
    
    
    (2.9
    )$
    (3.8
    )
    
    $
    (0.3
    )
    
    $
    (7.6
    )
    
    $
    (2.3
    )
  Derivative Instruments Not Designated as Hedges
  Location of Loss
    
    Three Months Ended
    
    
    Six Months EndedRecognized
    
    June 30,
    
    
    June 30,Derivative
    
    in Earnings
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Foreign currency forward contracts
    
    Other income-net
    
    $
    (1.0
    )
    
    $
    (1.4
    )
    
    $
    (0.8
    )
    
    $
    (1.2
    )
 14




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8. Fair Value Measurements
   Fair Value Measurements at Reporting Date UsingQuoted Prices
    
    
    Significantin Active
    
    
    Other
    
    
    SignificantMarkets for
    
    
    Observable
    
    
    UnobservableJune 30,
    
    
    Identical Assets
    
    
    Inputs
    
    
    Inputs2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Assets:Money market mutual funds (1)
    
    $
    753.6
    
    
    $
    749.4
    
    
    $
    4.2
    
    
$
    Interest rate swaps (2)
    
    
    4.6
    
    
    
    
    
    
    
    4.6
    
    

    Foreign currency forward contracts (3)
    
    
    0.1
    
    
    
    
    
    
    
    0.1
    
    

    $
    758.3
    
    
    $
    749.4
    
    
    $
    8.9
    
    
$
    Liabilities:Commodity purchase contracts (4)
    
    $
    6.4
    
    
    $
    
    
    
    $
    6.4
    
    
$
    Foreign currency forward contracts (3)
    
    
    0.4
    
    
    
    
    
    
    
    0.4
    
    

    $
    6.8
    
    
    $
    
    
    
    $
    6.8
    
    
$
    
 
 (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 foreign currency forward contracts is based on the difference between
the contract prices and market forward rates that are obtained from counterparty quotes.(4)
    
    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. 15




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##### Table of Contents



9. Comprehensive Income
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net income
    
    $
    135.9
    
    
    $
    80.7
    
    
    $
    201.1
    
    
    $
    156.7Foreign currency translation adjustment
    
    
    43.7
    
    
    
    (13.9
    )
    
    
    9.5
    
    
    
    62.2Pension and other postretirement benefit plans
    
    
    0.3
    
    
    
    0.2
    
    
    
    3.1
    
    
    
    0.8Gain on natural gas hedges, net
    
    
    1.4
    
    
    
    3.4
    
    
    
    0.3
    
    
    
    6.2Changes in treasury rate locks, net
    
    
    0.9
    
    
    
    0.8
    
    
    
    4.2
    
    
    
    1.9Total comprehensive income
    
    $
    182.2
    
    
    $
    71.2
    
    
    $
    218.2
    
    
    $
    227.8Less: Comprehensive income attributable to
noncontrolling interests
    
    
    5.0
    
    
    
    2.5
    
    
    
    5.1
    
    
    
    4.9Comprehensive income attributable to
The Lubrizol Corporation
    
    $
    177.2
    
    
    $
    68.7
    
    
    $
    213.1
    
    
    $
    222.9
 10. Shareholders Equity
  Shareholders EquityAccumulatedNumber of
    
    
    
    
    
    
    
    
    
    
    OtherShares
    
    
    Common
    
    
    Retained
    
    
    Comprehensive
    
    
    NoncontrollingOutstanding
    
    
    Shares
    
    
    Earnings
    
    
    Loss
    
    
    Interests
    
    
    TotalBalance, January 1, 2009
    
    
    67.3
    
    
    $
    764.7
    
    
    $
    906.3
    
    
    $
    (147.3
    )
    
    $
    60.9
    
    
    $
    1,584.6Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    196.1
    
    
    
    
    
    
    
    5.0
    
    
    
    201.1Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17.0
    
    
    
    0.1
    
    
    
    17.1Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    218.2Dividends declared
    
    
    
    
    
    
    
    
    
    
    (41.8
    )
    
    
    
    
    
    
    (2.5
    )
    
    
    (44.3
    )Deferred stock compensation
    
    
    
    
    
    
    8.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8.0Shares issued upon exercise
of stock options and awards
    
    
    0.2
    
    
    
    3.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.3Tax benefit (shortfall) from stock
compensation
    
    
    
    
    
    
    (0.2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.2
    )Balance, June 30, 2009
    
    
    67.5
    
    
    $
    775.8
    
    
    $
    1,060.6
    
    
    $
    (130.3
    )
    
    $
    63.5
    
    
    $
    1,769.6
 11. Segment Reporting
  16




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##### Table of Contents




    
    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.
  17




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenues from external customers:Lubrizol Additives
    
    $
    802.8
    
    
    $
    945.6
    
    
    $
    1,530.6
    
    
    $
    1,790.3Lubrizol Advanced Materials
    
    
    308.2
    
    
    
    404.6
    
    
    
    592.8
    
    
    
    787.2Total revenues
    
    $
    1,111.0
    
    
    $
    1,350.2
    
    
    $
    2,123.4
    
    
    $
    2,577.5Segment operating income:Lubrizol Additives
    
    $
    221.2
    
    
    $
    122.2
    
    
    $
    339.9
    
    
    $
    239.0Lubrizol Advanced Materials
    
    
    36.6
    
    
    
    34.7
    
    
    
    62.1
    
    
    
    63.9Segment operating income
    
    
    257.8
    
    
    
    156.9
    
    
    
    402.0
    
    
    
    302.9Corporate expenses
    
    
    (28.8
    )
    
    
    (12.5
    )
    
    
    (44.8
    )
    
    
    (33.7
    )Corporate other income-net
    
    
    2.9
    
    
    
    0.5
    
    
    
    4.7
    
    
    
    3.7Restructuring and impairment charges
    
    
    (10.1
    )
    
    
    (14.6
    )
    
    
    (21.5
    )
    
    
    (19.4
    )Interest expense-net
    
    
    (25.9
    )
    
    
    (17.6
    )
    
    
    (52.6
    )
    
    
    (31.3
    )Income before income taxes
    
    $
    195.9
    
    
    $
    112.7
    
    
    $
    287.8
    
    
    $
    222.2
  June 30,
    
    
    December 31,2009
    
    
    2008Segment total assets:Lubrizol Additives
    
    $
    1,738.4
    
    
    $
    1,853.8Lubrizol Advanced Materials
    
    
    1,832.2
    
    
    
    1,843.2Total segment assets
    
    
    3,570.6
    
    
    
    3,697.0Corporate assets
    
    
    1,093.7
    
    
    
    453.5Total consolidated assets
    
    $
    4,664.3
    
    
    $
    4,150.5
 12. Pension and Postretirement Benefits
   18




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Three Months Ended
    
    
    Three Months EndedJune 30, 2009
    
    
    June 30, 2008Non-
    
    
    
    
    
    
    
    
    
    
    Non-U.S. Plans
    
    
    U.S. Plans
    
    
    Total
    
    
    U.S. Plans
    
    
    U.S. Plans
    
    
    TotalService cost  benefits earned during period
    
    $
    5.2
    
    
    $
    2.0
    
    
    $
    7.2
    
    
    $
    5.0
    
    
    $
    3.2
    
    
    $
    8.2Interest cost on projected benefit obligation
    
    
    6.8
    
    
    
    3.7
    
    
    
    10.5
    
    
    
    6.6
    
    
    
    4.6
    
    
    
    11.2Expected return on plan assets
    
    
    (5.9
    )
    
    
    (3.2
    )
    
    
    (9.1
    )
    
    
    (5.2
    )
    
    
    (4.0
    )
    
    
    (9.2
    )Amortization of prior service costs
    
    
    0.6
    
    
    
    0.1
    
    
    
    0.7
    
    
    
    0.6
    
    
    
    0.2
    
    
    
    0.8Recognized net actuarial loss
    
    
    1.1
    
    
    
    0.3
    
    
    
    1.4
    
    
    
    0.4
    
    
    
    0.5
    
    
    
    0.9Net periodic pension cost
    
    $
    7.8
    
    
    $
    2.9
    
    
    $
    10.7
    
    
    $
    7.4
    
    
    $
    4.5
    
    
    $
    11.9
 Six Months Ended
    
    
    Six Months EndedJune 30, 2009
    
    
    June 30, 2008Non-
    
    
    
    
    
    
    
    
    
    
    Non-U.S. Plans
    
    
    U.S. Plans
    
    
    Total
    
    
    U.S. Plans
    
    
    U.S. Plans
    
    
    TotalService cost  benefits earned during period
    
    $
    10.8
    
    
    $
    4.0
    
    
    $
    14.8
    
    
    $
    9.4
    
    
    $
    6.3
    
    
    $
    15.7Interest cost on projected benefit obligation
    
    
    13.8
    
    
    
    7.3
    
    
    
    21.1
    
    
    
    13.1
    
    
    
    9.1
    
    
    
    22.2Expected return on plan assets
    
    
    (11.9
    )
    
    
    (6.3
    )
    
    
    (18.2
    )
    
    
    (11.2
    )
    
    
    (7.8
    )
    
    
    (19.0
    )Amortization of prior service costs
    
    
    1.2
    
    
    
    0.2
    
    
    
    1.4
    
    
    
    1.1
    
    
    
    0.4
    
    
    
    1.5Recognized net actuarial loss
    
    
    2.3
    
    
    
    0.6
    
    
    
    2.9
    
    
    
    0.6
    
    
    
    1.0
    
    
    
    1.6Net periodic pension cost
    
    $
    16.2
    
    
    $
    5.8
    
    
    $
    22.0
    
    
    $
    13.0
    
    
    $
    9.0
    
    
    $
    22.0
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Service cost  benefits earned during period
    
    $
    0.4
    
    
    $
    0.4
    
    
    $
    0.7
    
    
    $
    0.9Interest cost on projected benefit obligation
    
    
    1.3
    
    
    
    1.6
    
    
    
    2.7
    
    
    
    3.1Amortization of prior service credits
    
    
    (1.8
    )
    
    
    (1.7
    )
    
    
    (3.5
    )
    
    
    (3.4
    )Amortization of initial net obligation
    
    
    0.1
    
    
    
    0.2
    
    
    
    0.2
    
    
    
    0.3Recognized net actuarial loss
    
    
    0.1
    
    
    
    0.3
    
    
    
    0.2
    
    
    
    0.5Settlement / curtailment gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.1
    )Net periodic non-pension postretirement benefit cost
    
    $
    0.1
    
    
    $
    0.8
    
    
    $
    0.3
    
    
    $
    0.3
 13. Stock-Based Compensation
  19




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Six Months EndedJune 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
    
    
    380,881
    
    
    $
    35.03Forfeited
    
    
    (15,746
    )
    
    $
    48.43Nonvested at June 30, 2009
    
    
    887,816
    
    
    $
    37.13
  Expected
    
    Weighted-Number
    
    Averageof Units
    
    Grant DatePerformance Period
    
    to be Issued
    
    Fair Value2007-2009
    
    
    237,086
    
    
    $
    53.072008-2010
    
    
    75,470
    
    
    $
    58.452009-2011
    
    
    575,260
    
    
    $
    27.77
 20




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##### Table of Contents



14. Restructuring and Impairment Charges
  21




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##### Table of Contents



RestructuringLiability
    
    
    and
    
    
    
    
    
    
    
    
    
    
    LiabilityJanuary 1,
    
    
    Impairment
    
    
    
    
    
    
    Non-cash
    
    
    June 30,2009
    
    
    Charges
    
    
    Cash Paid
    
    
    Adjustments
    
    
    2009Corporate organizational restructuring
    
    $
    
    
    
    $
    13.7
    
    
    $
    (9.9
    )
    
    $
    
    
    
    $
    3.8Long-lived asset impairments
    
    
    
    
    
    
    6.9
    
    
    
    
    
    
    
    (6.9
    )
    
    
    Lubrizol Additives plant closure
and workforce reductions
    
    
    0.7
    
    
    
    0.9
    
    
    
    (1.5
    )
    
    
    
    
    
    
    0.1Performance coatings 2008 business
improvement initiatives
    
    
    0.9
    
    
    
    
    
    
    
    (0.4
    )
    
    
    
    
    
    
    0.5Noveon International, Inc. restructuring
liabilities assumed
    
    
    0.5
    
    
    
    
    
    
    
    (0.5
    )
    
    
    
    
    
    
    $
    2.1
    
    
    $
    21.5
    
    
    $
    (12.3
    )
    
    $
    (6.9
    )
    
    $
    4.4
  15. Contingencies
 General
  Environmental
   22




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##### Table of Contents



23




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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
 .
    24




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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 24% compared with the same period in 2008 as demand
declined sharply and customers reduced their inventory levels. However, we believe that
inventory destocking by our customers substantially is complete as we experienced a 15%
sequential quarterly growth in volume over the first quarter of 2009.
    
    Our disciplined margin management and cost reduction initiatives offset the decline in
volume and resulted in an increase in our gross profit percentage to 31.4% from 23.2% in the
same period in 2008.
    
    Our inventory reduction initiatives contributed to the significant increase in cash flow
from operations. We reduced production in order to achieve our inventory reduction goals
and in response to lower sales volume. As a result of our abnormally low production, we
incurred $57.4 million of unabsorbed manufacturing costs. The reduction in inventory also
resulted in incremental 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 5% due to reductions in travel and
entertainment, information technology expenses and outside services. 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
$13.7 million of severance and benefit charges. We estimate these cost reduction and
organizational restructuring actions will result in approximately $50.0 million to $60.0
million of pre-tax savings during 2009.
    
    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 $10.4 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 $7.9 million compared with the same period in
2008.
    
    As compared with the same period in 2008, currency fluctuations were unfavorable to
revenues by 3%, favorable to operating costs and unfavorable to net income attributable to
The Lubrizol Corporation by an estimated $0.04 per share.
    
    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 $0.21 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
 25




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##### Table of Contents



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 June 30, 2009 Compared With Three Months Ended June 30, 2008
 Three MonthsEnded June 30,(In Millions of Dollars Except Per Share Data)
    
    2009
    
    
    2008
    
    
    $ Change
    
    
    % ChangeRevenues
    
    $
    1,111.0
    
    
    $
    1,350.2
    
    
    $
    (239.2
    )
    
    
    (18
    %)Cost of sales
    
    
    717.2
    
    
    
    1,044.7
    
    
    
    (327.5
    )
    
    
    (31
    %)Gross profit
    
    
    393.8
    
    
    
    305.5
    
    
    
    88.3
    
    
    
    29
    %Selling and administrative expenses
    
    
    111.8
    
    
    
    101.9
    
    
    
    9.9
    
    
    
    10
    %Research, testing and development expenses
    
    
    49.2
    
    
    
    55.7
    
    
    
    (6.5
    )
    
    
    (12
    %)Amortization of intangible assets
    
    
    6.2
    
    
    
    7.0
    
    
    
    (0.8
    )
    
    
    (11
    %)Restructuring and impairment charges
    
    
    10.1
    
    
    
    14.6
    
    
    
    (4.5
    )
    
    
    *Other income  net
    
    
    (5.3
    )
    
    
    (4.0
    )
    
    
    1.3
    
    
    
    33
    %Interest income
    
    
    (1.6
    )
    
    
    (3.1
    )
    
    
    (1.5
    )
    
    
    (48
    %)Interest expense
    
    
    27.5
    
    
    
    20.7
    
    
    
    6.8
    
    
    
    33
    %Income before income taxes
    
    
    195.9
    
    
    
    112.7
    
    
    
    83.2
    
    
    
    74
    %Provision for income taxes
    
    
    60.0
    
    
    
    32.0
    
    
    
    28.0
    
    
    
    88
    %Net income
    
    
    135.9
    
    
    
    80.7
    
    
    
    55.2
    
    
    
    68
    %Net income attributable to noncontrolling interests
    
    
    4.0
    
    
    
    2.6
    
    
    
    1.4
    
    
    
    54
    %Net income attributable to The Lubrizol Corporation
    
    $
    131.9
    
    
    $
    78.1
    
    
    $
    53.8
    
    
    
    69
    %Basic earnings per share attributable to
The Lubrizol Corporation
    
    $
    1.95
    
    
    $
    1.14
    
    
    $
    0.81
    
    
    
    71
    %Diluted earnings per share attributable to
The Lubrizol Corporation
    
    $
    1.92
    
    
    $
    1.13
    
    
    $
    0.79
    
    
    
    70
    %
 
 *
    
    Calculation not meaningful Revenues
 27




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##### Table of Contents



Excludingthe Impact of2009
    
    2009 vs. 2008
    
    AcquisitionsVolume
    
    % Change
    
    % ChangeNorth America
    
    
    40
    %
    
    
    (25
    %)
    
    
    (26
    %)Europe
    
    
    27
    %
    
    
    (20
    %)
    
    
    (20
    %)Asia-Pacific / Middle East
    
    
    26
    %
    
    
    (17
    %)
    
    
    (18
    %)Latin America
    
    
    7
    %
    
    
    (18
    %)
    
    
    (18
    %)Total
    
    
    100
    %
    
    
    (21
    %)
    
    
    (22
    %)
   Cost of Sales
 Gross Profit
 Selling and Administrative Expenses
 Research, Testing and Development Expenses
 28




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Restructuring and Impairment Charges
 Three Months Ended June 30, 2009Asset
    
    
    Other Plant
    
    
    SeveranceImpairments
    
    
    Exit Costs
    
    
    and Benefits
    
    
    TotalCorporate organizational restructuring
    
    $
    
    
    
    $
    
    
    
    $
    2.8
    
    
    $
    2.8Long-lived asset impairments
    
    
    6.9
    
    
    
    
    
    
    
    
    
    
    
    6.9Lubrizol Additives plant closure
and workforce reductions
    
    
    
    
    
    
    0.2
    
    
    
    0.2
    
    
    
    0.4Total restructuring and impairment charges
    
    $
    6.9
    
    
    $
    0.2
    
    
    $
    3.0
    
    
    $
    10.1
     Three Months Ended June 30, 2008Asset
    
    
    Other Plant
    
    
    SeveranceImpairments
    
    
    Exit Costs
    
    
    and Benefits
    
    
    TotalPerformance coatings 2008 business improvement
initiatives
    
    $
    10.4
    
    
    $
    0.4
    
    
    $
    3.3
    
    
    $
    14.1Lubrizol Advanced Materials plant closures and
workforce reductions
    
    
    0.3
    
    
    
    
    
    
    
    0.2
    
    
    
    0.5Total restructuring and impairment charges
    
    $
    10.7
    
    
    $
    0.4
    
    
    $
    3.5
    
    
    $
    14.6
  Interest Expense
 Provision for Income Taxes
 29




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##### Table of Contents



Net Income Attributable to The Lubrizol Corporation
 Six Months Ended June 30, 2009 Compared With Six Months Ended June 30, 2008
 Six MonthsEnded June 30,(In Millions of Dollars Except Per Share Data)
    
    2009
    
    
    2008
    
    
    $ Change
    
    
    % ChangeRevenues
    
    $
    2,123.4
    
    
    $
    2,577.5
    
    
    $
    (454.1
    )
    
    
    (18
    %)Cost of sales
    
    
    1,455.7
    
    
    
    1,979.2
    
    
    
    (523.5
    )
    
    
    (26
    %)Gross profit
    
    
    667.7
    
    
    
    598.3
    
    
    
    69.4
    
    
    
    12
    %Selling and administrative expenses
    
    
    205.6
    
    
    
    210.5
    
    
    
    (4.9
    )
    
    
    (2
    %)Research, testing and development expenses
    
    
    98.2
    
    
    
    109.8
    
    
    
    (11.6
    )
    
    
    (11
    %)Amortization of intangible assets
    
    
    12.5
    
    
    
    14.0
    
    
    
    (1.5
    )
    
    
    (11
    %)Restructuring and impairment charges
    
    
    21.5
    
    
    
    19.4
    
    
    
    2.1
    
    
    
    *Other income  net
    
    
    (10.5
    )
    
    
    (8.9
    )
    
    
    1.6
    
    
    
    18
    %Interest income
    
    
    (4.3
    )
    
    
    (7.3
    )
    
    
    (3.0
    )
    
    
    (41
    %)Interest expense
    
    
    56.9
    
    
    
    38.6
    
    
    
    18.3
    
    
    
    47
    %Income before income taxes
    
    
    287.8
    
    
    
    222.2
    
    
    
    65.6
    
    
    
    30
    %Provision for income taxes
    
    
    86.7
    
    
    
    65.5
    
    
    
    21.2
    
    
    
    32
    %Net income
    
    
    201.1
    
    
    
    156.7
    
    
    
    44.4
    
    
    
    28
    %Net income attributable to noncontrolling interests
    
    
    5.0
    
    
    
    5.0
    
    
    
    
    
    
    
    Net income attributable to The Lubrizol Corporation
    
    $
    196.1
    
    
    $
    151.7
    
    
    $
    44.4
    
    
    
    29
    %Basic earnings per share attributable to
The Lubrizol Corporation
    
    $
    2.90
    
    
    $
    2.22
    
    
    $
    0.68
    
    
    
    31
    %Diluted earnings per share attributable to
The Lubrizol Corporation
    
    $
    2.87
    
    
    $
    2.19
    
    
    $
    0.68
    
    
    
    31
    %
 
 *
    
    Calculation not meaningful Revenues
 30




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##### Table of Contents



Excludingthe Impact of2009
    
    2009 vs. 2008
    
    AcquisitionsVolume
    
    % Change
    
    % ChangeNorth America
    
    
    41
    %
    
    
    (27
    %)
    
    
    (28
    %)Europe
    
    
    28
    %
    
    
    (23
    %)
    
    
    (23
    %)Asia-Pacific / Middle East
    
    
    24
    %
    
    
    (20
    %)
    
    
    (21
    %)Latin America
    
    
    7
    %
    
    
    (22
    %)
    
    
    (22
    %)Total
    
    
    100
    %
    
    
    (24
    %)
    
    
    (25
    %)
   Cost of Sales
 Gross Profit
 Selling and Administrative Expenses
 Research, Testing and Development Expenses
 31




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Restructuring and Impairment Charges
 Six Months Ended June 30, 2009Asset
    
    
    Other Plant
    
    
    SeveranceImpairments
    
    
    Exit Costs
    
    
    and Benefits
    
    
    TotalCorporate organizational restructuring
    
    $
    
    
    
    $
    
    
    
    $
    13.7
    
    
    $
    13.7Long-lived asset impairments
    
    
    6.9
    
    
    
    
    
    
    
    
    
    
    
    6.9Lubrizol Additives plant closure
and workforce reductions
    
    
    
    
    
    
    0.2
    
    
    
    0.7
    
    
    
    0.9Total restructuring and impairment charges
    
    $
    6.9
    
    
    $
    0.2
    
    
    $
    14.4
    
    
    $
    21.5
   Six Months Ended June 30, 2008Asset
    
    
    Other Plant
    
    
    SeveranceImpairments
    
    
    Exit Costs
    
    
    and Benefits
    
    
    TotalPerformance coatings 2008 business improvement
initiatives
    
    $
    14.4
    
    
    $
    0.4
    
    
    $
    4.1
    
    
    $
    18.9Lubrizol Advanced Materials plant closures and
workforce reductions
    
    
    0.3
    
    
    
    
    
    
    
    0.2
    
    
    
    0.5Total restructuring and impairment charges
    
    $
    14.7
    
    
    $
    0.4
    
    
    $
    4.3
    
    
    $
    19.4
  Interest Expense
 Provision for Income Taxes
 Net Income Attributable to The Lubrizol Corporation
 32




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##### Table of Contents



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.
   Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2009
    
    2008
    
    2009
    
    2008Revenues:Lubrizol Additives
    
    
    72
    %
    
    
    70
    %
    
    
    72
    %
    
    
    69
    %Lubrizol Advanced Materials
    
    
    28
    %
    
    
    30
    %
    
    
    28
    %
    
    
    31
    %Segment Operating Income:Lubrizol Additives
    
    
    86
    %
    
    
    78
    %
    
    
    85
    %
    
    
    79
    %Lubrizol Advanced Materials
    
    
    14
    %
    
    
    22
    %
    
    
    15
    %
    
    
    21
    %
 33




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##### Table of Contents



OPERATING RESULTS BY SEGMENT
 Three Months Ended
    
    
    
    
    
    
    
    
    
    
    Six Months EndedJune 30,
    
    
    
    
    
    
    %
    
    
    June 30,
    
    
    
    
    
    
    %2009
    
    
    2008
    
    
    $ Change
    
    
    Change
    
    
    2009
    
    
    2008
    
    
    $ Change
    
    
    ChangeRevenues:Lubrizol Additives
    
    $
    802.8
    
    
    $
    945.6
    
    
    $
    (142.8
    )
    
    
    (15
    %)
    
    $
    1,530.6
    
    
    $
    1,790.3
    
    
    $
    (259.7
    )
    
    
    (15
    %)Lubrizol Advanced Materials
    
    
    308.2
    
    
    
    404.6
    
    
    
    (96.4
    )
    
    
    (24
    %)
    
    
    592.8
    
    
    
    787.2
    
    
    
    (194.4
    )
    
    
    (25
    %)Total
    
    $
    1,111.0
    
    
    $
    1,350.2
    
    
    $
    (239.2
    )
    
    
    (18
    %)
    
    $
    2,123.4
    
    
    $
    2,577.5
    
    
    $
    (454.1
    )
    
    
    (18
    %)Gross Profit:Lubrizol Additives
    
    $
    292.5
    
    
    $
    199.5
    
    
    $
    93.0
    
    
    
    47
    %
    
    $
    481.2
    
    
    $
    392.5
    
    
    $
    88.7
    
    
    
    23
    %Lubrizol Advanced Materials
    
    
    101.3
    
    
    
    106.0
    
    
    
    (4.7
    )
    
    
    (4
    %)
    
    
    186.5
    
    
    
    205.8
    
    
    
    (19.3
    )
    
    
    (9
    %)Total
    
    $
    393.8
    
    
    $
    305.5
    
    
    $
    88.3
    
    
    
    29
    %
    
    $
    667.7
    
    
    $
    598.3
    
    
    $
    69.4
    
    
    
    12
    %Segment Operating Income:Lubrizol Additives
    
    $
    221.2
    
    
    $
    122.2
    
    
    $
    99.0
    
    
    
    81
    %
    
    $
    339.9
    
    
    $
    239.0
    
    
    $
    100.9
    
    
    
    42
    %Lubrizol Advanced Materials
    
    
    36.6
    
    
    
    34.7
    
    
    
    1.9
    
    
    
    5
    %
    
    
    62.1
    
    
    
    63.9
    
    
    
    (1.8
    )
    
    
    (3
    %)Total
    
    $
    257.8
    
    
    $
    156.9
    
    
    $
    100.9
    
    
    
    64
    %
    
    $
    402.0
    
    
    $
    302.9
    
    
    $
    99.1
    
    
    
    33
    %
 Three Months Ended June 30, 2009 Compared With Three Months Ended June 30, 2008
 LUBRIZOL ADDITIVES SEGMENT
 Revenues
  2009
    
    2009 vs. 2008Volume
    
    % ChangeNorth America
    
    
    32
    %
    
    
    (18
    %)Europe
    
    
    31
    %
    
    
    (17
    %)Asia-Pacific / Middle East
    
    
    29
    %
    
    
    (18
    %)Latin America
    
    
    8
    %
    
    
    (20
    %)Total
    
    
    100
    %
    
    
    (18
    %)
  Gross Profit
 34




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##### Table of Contents



Selling, Testing, Administrative and Research Expenses
 Segment Operating Income
 LUBRIZOL ADVANCED MATERIALS SEGMENT
 Revenues
  Excludingthe Impact of2009
    
    2009 vs. 2008
    
    AcquisitionsVolume
    
    % Change
    
    % ChangeNorth America
    
    
    63
    %
    
    
    (33
    %)
    
    
    (34
    %)Europe
    
    
    15
    %
    
    
    (34
    %)
    
    
    (34
    %)Asia-Pacific / Middle East
    
    
    19
    %
    
    
    (11
    %)
    
    
    (19
    %)Latin America
    
    
    3
    %
    
    
    (8
    %)
    
    
    (9
    %)Total
    
    
    100
    %
    
    
    (29
    %)
    
    
    (31
    %)
  Gross Profit
 35




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##### Table of Contents



Selling, Testing, Administrative and Research Expenses
 Segment Operating Income
 Six Months Ended June 30, 2009 Compared With Six Months Ended June 30, 2008
 LUBRIZOL ADDITIVES SEGMENT
 Revenues
  2009
    
    2009 vs. 2008Volume
    
    % ChangeNorth America
    
    
    33
    %
    
    
    (22
    %)Europe
    
    
    32
    %
    
    
    (21
    %)Asia-Pacific / Middle East
    
    
    27
    %
    
    
    (20
    %)Latin America
    
    
    8
    %
    
    
    (21
    %)Total
    
    
    100
    %
    
    
    (21
    %)
  Gross Profit
 36




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##### Table of Contents



Selling, Testing, Administrative and Research Expenses
 Segment Operating Income
 LUBRIZOL ADVANCED MATERIALS SEGMENT
 Revenues
  Excludingthe Impact of2009
    
    2009 vs. 2008
    
    AcquisitionsVolume
    
    % Change
    
    % ChangeNorth America
    
    
    65
    %
    
    
    (35
    %)
    
    
    (36
    %)Europe
    
    
    16
    %
    
    
    (33
    %)
    
    
    (33
    %)Asia-Pacific / Middle East
    
    
    16
    %
    
    
    (20
    %)
    
    
    (27
    %)Latin America
    
    
    3
    %
    
    
    (29
    %)
    
    
    (29
    %)Total
    
    
    100
    %
    
    
    (32
    %)
    
    
    (34
    %)
  Gross Profit
  37




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##### Table of Contents



Selling, Testing, Administrative and Research Expenses
 Segment Operating Income
 WORKING CAPITAL, LIQUIDITY AND CAPITAL RESOURCES
  Six Months EndedJune 30,2009
    
    
    2008Cash provided by (used for):Operating activities
    
    $
    446.8
    
    
    $
    99.2Investing activities
    
    
    (72.8
    )
    
    
    (96.4
    )Financing activities
    
    
    298.1
    
    
    
    (90.4
    )Effect of exchange rate changes on cash
    
    
    2.5
    
    
    
    5.4Net increase (decrease) in cash and cash equivalents
    
    $
    674.6
    
    
    $
    (82.2
    )
 OPERATING ACTIVITIES
   INVESTING ACTIVITIES
  38




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##### Table of Contents



FINANCING ACTIVITIES
  CAPITALIZATION, LIQUIDITY AND CREDIT FACILITIES
    
    
   39




---



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CONTRACTUAL CASH OBLIGATIONS
   40




---



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
  NEW ACCOUNTING STANDARDS
 ACCOUNTING STANDARDS ADOPTED IN 2009
      41




---



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ACCOUNTING STANDARDS NOT YET ADOPTED
     42




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CAUTIONARY STATEMENTS FOR SAFE HARBOR PURPOSES
   
    
    The cost, availability and quality of raw materials, especially petroleum-based products.
    
    Our ability to sustain profitability of our products in a competitive environment.
    
    The demand for our products as influenced by factors such as the global economic environment,
longer-term technology developments and the success of our commercial development programs.
    
    The 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 risks of conducting business in foreign countries, including the effects of fluctuations
in currency exchange rates upon our consolidated results and political, social, economic and
regulatory factors.
    
    The extent to which we are successful in expanding our business in new and existing markets
and in identifying, understanding and managing the risks inherent in those markets.
    
    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.
 43




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##### Table of Contents




    
    The risk of weather-related disruptions to our Lubrizol Additives production facilities
located near the U.S. Gulf Coast.
    
    Significant changes in government regulations affecting environmental compliance.
 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
      44




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##### Table of Contents



Item 4. Controls and Procedures
    45




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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 June 30, 2009, we issued
the following common shares to employees on the dates indicated.
 Date of Issuance
    
    Number of Common SharesMay 7, 2009
    
    
    1,733May 8, 2009
    
    
    360May 27, 2009
    
    
    430June 15, 2009
    
    
    1,085
 (c)
    
    During the quarter ended June 30, 2009, we did not purchase any Lubrizol common shares under
the 5.0 million share repurchase program authorized by our board of directors and announced on
April 27, 2007. At June 30, 2009, 3,755,918 common shares may yet be purchased under the
program.
 
 Item 4. Submission of Matters to a Vote of Security Holders
  1.
    
    Election of Directors.
 (a)
    
    Forest J. Farmer, Sr. The vote was 60,456,204 shares for and 2,451,067 shares
to withhold authority.(b)
    
    Michael J. Graff. The vote was 59,972,527 shares for and 2,934,744 shares to
withhold authority.(c)
    
    James E. Sweetnam. The vote was 58,164,086 shares for and 4,743,185 shares to
withhold authority.(d)
    
    Phillip C. Widman. The vote was 60,219,960 shares for and 2,687,331 shares to
withhold authority.
 The names of each director whose term of office as a director continued after the meeting
are: Robert E. Abernathy, James L. Hambrick, Gordon D. Harnett, Dominic J. Pileggi and
Harriett Tee Taggart.
 46




---



##### Table of Contents



2.
    
    A proposal to confirm the appointment of Deloitte & Touche LLP as the independent
registered public accountant. The vote was 61,861,911 shares for; 994,524 shares against;
and 50,646 shares abstaining.3.
    
    A proposal to amend the companys Amended Articles of Incorporation to:
 (a)
    
    add a majority voting standard in uncontested elections of directors. The vote
was 62,480,405 shares for; 337,570 shares against; and 89,296 shares abstaining.(b)
    
    repeal Article Ninth to delete existing control share acquisition provisions
and opt back into control share acquisition provisions under Ohio law. The vote was
56,368,293 shares for; 2,044,534 shares against; 116,201 shares abstaining; and
4,378,243 shares subject to broker non-votes.
 4.
    
    A proposal to amend the companys Amended and Restated Regulations to:
 (a)
    
    declassify the Board of Directors, add a majority voting standard in
uncontested elections of directors, authorize the board to fix the number of directors
and clarify the provisions relating to removal of directors. The vote was 62,527,531
shares for; 237,828 shares against; and 141,912 shares abstaining.(b)
    
    modernize and clarify various provisions related to shareholder meetings and
notices, meetings and committees of the board, election of officers and
indemnifications of directors, officers and agents. The vote was 24,923,014 shares
for; 37,899,633 shares against; and 84,625 shares abstaining.(c)
    
    revise provisions related to special meetings requested by shareholders,
advance notice requirements for shareholder proposals and business brought at
shareholder meetings. The vote was 62,167,648 shares for; 626,236 shares against; and
113,387 shares abstaining.(d)
    
    revise the amendment provisions in accordance with Ohio law. The vote was
58,830,891 shares for; 3,979,084 shares against; and 97,296 shares abstaining.
 
 Item 6. Exhibits
 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 June
23, 2009 (incorporated by reference to Exhibit 3.1 to the companys current report on Form
8-K filed with the SEC on June 24, 2009).10.1*
    
    The Lubrizol Corporation Executive Death Benefit Plan, as amended and restated June
23, 2009.10.2*
    
    The Lubrizol Corporation Excess Defined Contribution Plan, as amended and restated
June 23, 2009.10.3
    
    Three Year Credit Agreement dated July 21, 2009 among Lubrizol Holdings France SAS,
Lubrizol Advanced Materials Europe BVBA, Lubrizol (Gibraltar) Limited and Lubrizol
Coordination Center BVBA as borrowers, The Lubrizol Corporation as guarantor, the initial
lenders named therein, and The Royal Bank of Scotland plc as administrative agent
(incorporated by reference to Exhibit 10.1 to the companys current report on Form 8-K filed
with the SEC on July 22, 2009).
 47




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##### Table of Contents



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. 48




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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  49




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##### 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
June 23, 2009 (incorporated by reference to Exhibit 3.1 to the companys current report on
Form 8-K filed with the SEC on June 24, 2009).10.1*
    
    The Lubrizol Corporation Executive Death Benefit Plan, as amended and restated
June 23, 2009.10.2*
    
    The Lubrizol Corporation Excess Defined Contribution Plan, as amended and
restated June 23, 2009.10.3
    
    Three Year Credit Agreement dated July 21, 2009 among Lubrizol Holdings France SAS,
Lubrizol Advanced Materials Europe BVBA, Lubrizol (Gibraltar) Limited and Lubrizol
Coordination Center BVBA as borrowers, The Lubrizol Corporation as guarantor, the initial
lenders named therein, and The Royal Bank of Scotland plc as administrative agent
(incorporated by reference to Exhibit 10.1 to the companys current report on Form 8-K
filed with the SEC on July 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.