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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended September 30, 2004

OR

For the transition period from                  to                 

Commission File Number 1-5263

THE LUBRIZOL CORPORATION

(Exact name of registrant as specified in its charter)

29400 Lakeland Boulevard

Wickliffe, Ohio 44092-2298

(Address of principal executive offices)

(Zip Code)

(440) 943-4200

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  x    No  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes  x    No  ¨

Number of the registrant’s common shares, without par value, outstanding, as of October 31, 2004: 66,720,225.

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THE LUBRIZOL CORPORATION

Quarterly Report on Form 10-Q

Quarter Ended September 30, 2004

Table of Con tents

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PART I. FINANCIAL INF ORMATION

THE LUBRIZOL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

Amounts shown are unaudited.

See accompanying notes to the financial statements.

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THE LUBRIZOL CORPORATION

CONSOLIDATED BALANCE SHEETS

Amounts shown are unaudited.

See accompanying notes to the financial statements.

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THE LUBRIZOL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

Amounts shown are unaudited.

See accompanying notes to the financial statements.

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THE LUBRIZOL CORPORATION

Notes to Consolidate d Financial Statements

September 30, 2004

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals unless otherwise noted) considered necessary for a fair presentation have been included. Operating results for the three-month and nine-month periods ended September 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004.

The balance sheet at December 31, 2003 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.

2. Acquisitions and Pro Forma Financial Information

On June 3, 2004, the company consummated its acquisition of Noveon International, Inc. (Noveon International) for cash of $920.2 million plus transaction costs of $11.2 million less certain seller expenses of $32.9 million and less cash acquired of $103.0 million. In addition, the company assumed $1,103.1 million of long-term indebtedness from Noveon International. Noveon International had 2003 revenues of $1,135.9 million. Similar to Lubrizol, Noveon International is a global producer and marketer of technologically advanced specialty materials and chemicals used in a broad range of consumer and industrial applications. Noveon International’s businesses include a number of industry-leading product franchises marketed under some of the industry’s most recognized brand names. These global brands include Carbopol^® acrylic thickeners for personal care, TempRite^® chlorinated polyvinyl chloride resins and compounds, Estane^® thermoplastic polyurethane and Hycar^® reactive liquid polymers for engineering adhesives and water-borne acrylic emulsions for performance coatings. The acquisition of Noveon International significantly expands the company’s products and technologies for the global coatings and personal care markets.

The acquisition and related costs were initially financed with the proceeds of a $2,450.0 million 364-day bridge credit facility. Shortly after the acquisition, the company repaid substantially all of the assumed long-term debt of Noveon International with proceeds of the temporary bridge loan. In addition, the temporary bridge loan was repaid in full in September 2004 with the proceeds from the permanent financing obtained by the issuance of senior notes, debentures and equity and the borrowing of $575.0 million of bank term loans, resulting in proceeds of approximately $2,127.1 million, net of underwriting commissions, discounts and transaction costs.

The consolidated balance sheet of the company as of September 30, 2004 reflects the acquisition of Noveon International under the purchase method of accounting. Various assets acquired and liabilities assumed, primarily working capital accounts, of Noveon International have been recorded at estimated fair values as of the acquisition date as determined by the company’s management based on the information currently available. Appraisals of long-lived assets and identifiable intangible assets, including an evaluation of in-process research and development (IPR&D) projects, are currently underway and will be substantially complete by December 31, 2004. In addition, the valuations of the company’s projected pension and other post-employment benefit obligations relating to the Noveon International acquisition are also in process and estimates have been reflected in the preliminary allocation of purchase price. Such amounts are subject to adjustment based on the completion of the

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THE LUBRIZOL CORPORATION

Notes to Consolidated Financial Statements

September 30, 2004

valuations and appraisals. Accordingly, the preliminary purchase price allocation is subject to revision.

The purchase price includes the estimated fair value of IPR&D projects totaling $33.5 million that, as of the acquisition date, had not yet reached technological feasibility and had no alternative future use. The estimated fair value of $35.0 million of the IPR&D immediately was expensed in the second quarter, of which $1.5 million was subsequently reversed in the third quarter of 2004 based upon a refinement of our updated preliminary valuation analysis. The inventory step-up to fair value totaled $24.2 million and the company expensed $4.9 million and $9.8 million of the step-up to cost of sales in the three-month and nine-month periods ended September 30, 2004, respectively. As the remaining step-up relates to inventories accounted for on the LIFO (last-in, first-out) method of accounting, the company does not anticipate that additional amounts of the step-up will be expensed in 2004. The 2004 historical results include revenues and expenses of Noveon International since the date of acquisition.

The following unaudited pro forma data summarizes the results of operations for the three-month and nine-month periods ended September 30, 2004 and 2003 as if the Noveon International acquisition had been completed as of the beginning of each of the periods presented. The pro forma data gives effect to actual operating results prior to the acquisition. Adjustments to cost of sales for the inventory step-up charge, intangible asset amortization, the write-off of acquired IPR&D, interest expense, income taxes and weighted average common shares outstanding related to the acquisition are reflected in the pro forma data. In addition, for the three-month periods ended September 30, 2004 and 2003, the company assumed that the bridge loan used to finance the acquisition was in place for the full three-months. For the nine-month periods ended September 30, 2004 and 2003, the company assumed that the bridge loan was replaced with the permanent long-term financing, consisting of both debt and equity, at the end of the fourth month of the nine-month periods. These pro forma amounts do not purport to be indicative of the results that would have actually been obtained if the acquisition had occurred as of the beginning of the periods presented or that may be obtained in the future. Amounts are in millions of dollars except per share data.

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THE LUBRIZOL CORPORATION

Notes to Consolidated Financial Statements

September 30, 2004

In January 2004, the company completed the acquisition of the coatings hyperdispersants business of Avecia for cash totaling $129.7 million. This business is headquartered in Blackley, United Kingdom, and develops, manufactures and markets high-value additives that are based on polymeric dispersion technology and used in coatings and inks. These products enrich and strengthen color while reducing production costs and solvent emissions, and are marketed under the brand names Solsperse^®, Solplus^® and Solthix^®. Historical annual revenues of this business are approximately $50.0 million. The company currently is in the process of finalizing the allocation of the purchase price for the hyperdispersants business purchased from Avecia, so it is possible the amount of intangible asset amortization or the preliminary purchase price allocation may change.

The fair value of assets acquired and liabilities assumed in 2004 acquisitions is as follows (in millions of dollars):

3. Significant Accounting Policies

General

The accounting policies of Noveon International are consistent, in general, with the accounting policies of the company. However, several policies are being described due to their increased significance, specifically, acquired IPR&D and debt issuance costs.

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THE LUBRIZOL CORPORATION

Notes to Consolidated Financial Statements

September 30, 2004

Acquired In-Process Research and Development

Costs to acquire IPR&D projects that have no alternative future use and that have not yet reached technological feasibility at the date of acquisition are expensed upon acquisition.

Debt Issuance Costs

Costs incurred with the issuance of debt and credit facilities are capitalized and amortized over the life of the associated debt using the effective interest method of amortization. In June 2004, the company initially financed the Noveon International acquisition with a temporary bridge facility. Fees associated with the bridge facility were capitalized and amortized over the bridge financing period. A total of $11.2 million was incurred in bridge facility fees in June 2004. These fees were expensed ratably through September 2004 when the bridge facility was repaid in full. In September 2004, the company incurred $16.8 million in debt issuance costs and fees relating to the issuance of $1,150.0 million in senior notes and debentures, and the new $1,075.0 million five-year credit facilities. Such costs are being amortized under the effective interest method over the respective terms of the debt.

Net Income Per Share

Net income per share is computed by dividing net income by the weighted average common shares outstanding during the period, including contingently issuable shares. Net income per diluted share includes the dilutive effect resulting from outstanding stock options and stock awards.

Per share amounts are computed as follows (in millions of dollars except per share data):

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THE LUBRIZOL CORPORATION

Notes to Consolidated Financial Statements

September 30, 2004

Weighted average shares issuable upon the exercise of stock options that were excluded from the diluted earnings per share calculations because they were antidilutive for the three-month and nine-month periods ended September 30, 2004 were 0.3 million and 1.3 million, respectively, and for the three-month and nine-month periods ended September 30, 2003 were 2.0 million and 2.7 million, respectively.

Stock-Based Compensation

The company has elected the intrinsic value method to account for employee stock options. The following table shows the pro forma effect on net income per share if the company had applied the fair value recognition provisions of the Financial Accounting Standards Board’s (FASB) Statement of Financial Accounting Standard (SFAS) No. 123, “Accounting for Stock-Based Compensation,” to stock-based employee compensation. Amounts are in millions of dollars except per share data.

Medicare Prescription Drug Improvement and Modernization Act

The Medicare Prescription Drug Improvement and Modernization Act of 2003 (the Act) was signed into law on December 8, 2003. The Act introduces a prescription drug benefit under Medicare (Medicare Part D), which will begin in 2006.

The company has determined that its postretirement health care plan provides prescription drug benefits that will qualify for the federal subsidy provided by the Act. As a result, the following actuarially determined changes in accounting for this plan have been recognized in the third quarter of 2004 due to the legislation and in accordance with the provisions of FASB Staff Position FAS 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (FSP 106-2).

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THE LUBRIZOL CORPORATION

Notes to Consolidated Financial Statements

September 30, 2004

For 2004, the company’s annual net periodic postretirement benefit expense has been reduced by approximately $0.7 million in the aggregate.

Costs Associated with Exit or Disposal Activities

Liabilities for costs associated with exit or disposal activities are recognized and measured initially at fair value when the liability is incurred pursuant to the requirements of SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” which became effective for the company for exit or disposal activities initiated after December 31, 2002.

Guarantees

In December 2002, the FASB issued Interpretation No. (FIN) 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN 45 requires the disclosure of any guarantees existing prior to January 1, 2003 and the recognition of a liability for any guarantees entered or modified on or after that date. The company does not have any guarantees within the scope of FIN 45.

New Tax Legislation

In October 2004, the American Jobs Creation Act of 2004 was signed into law. We are in the process of evaluating the impact of the new law on the company’s tax provision for the year ended December 31, 2004.

Reclassifications

Certain reclassifications have been made to the 2003 financial statements to conform to the 2004 presentation.

Use of Estimates

The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

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THE LUBRIZOL CORPORATION

Notes to Consolidated Financial Statements

September 30, 2004

4. Comprehensive Income

Total comprehensive income for the three-month and nine-month periods ended September 30, 2004 and 2003 is comprised as follows (in millions of dollars):

5. Segment Reporting

Beginning in the second quarter of 2004, the company reorganized as a result of the Noveon International acquisition into two operating and reporting segments: Lubricant Additives and Specialty Chemicals. The Lubricant Additives segment, also referred to as Lubrizol Additives, represents approximately 56% of the company’s consolidated revenues for the three-month period ended September 30, 2004 and is comprised of the company’s previous businesses in fluid technologies for transportation (FTT), advanced fluid systems, emulsified products and the former industrial additives product group of fluid technologies for industry (FTI). The Specialty Chemicals segment, also referred to as the Noveon segment, represents approximately 44% of the company’s consolidated revenues for the same period and is comprised of the businesses of the acquired Noveon International and the former performance chemicals group of FTI.

Lubricant Additives consists of three product lines: engine additives; specialty driveline and industrial additives; and services and equipment. Engine additives is comprised of additives for lubricating engine oils, such as for gasoline, diesel, marine and stationary gas engines and additive components, additives for fuel products and refinery and oil field chemicals and PuriNOx^TM low-emissions diesel fuel. In addition, this product line sells additive components and viscosity improvers within its lubricant and fuel additives products. Specialty driveline and industrial additives is comprised of additives for driveline oils, such as automatic transmission fluids, gear oils and tractor lubricants and industrial additives, such as additives for hydraulic, grease and metalworking fluids, as well as compressor lubricants. Services and equipment is comprised of outsourcing strategies for supply chain and knowledge center management, fluid metering devices, particulate emission trap devices and FluiPak^TM sensor systems. The company’s Lubricant Additives product lines are generally produced in shared manufacturing facilities and sold largely to a common customer base.

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THE LUBRIZOL CORPORATION

Notes to Consolidated Financial Statements

September 30, 2004

The Specialty Chemicals segment consists of consumer specialties, specialty materials and performance coatings product lines. The consumer specialties product line is characterized by global production of acrylic thickeners, specialty monomers, film formers, fixatives, emollients, silicones, surfactants, botanicals, active pharmaceutical ingredients and intermediates, process chemicals, benzoate preservatives, fragrances, defoamers, synthetic food dyes and natural colorants. The company markets products in the consumer specialties product line to the following primary end-use industries: personal care, pharmaceuticals, textiles and food and beverage. The consumer specialties products are sold to customers worldwide and these customers include major manufacturers of cosmetics, personal care products, water soluble polymers, household products, soft drinks and food products. The specialty materials product line is characterized by products such as chlorinated polyvinyl chloride (CPVC) resins and compounds, reactive liquid polymers (RLP), rubber and lubricant antioxidants and rubber accelerators. The specialty materials product line is also a leading producer of thermoplastic polyurethane (TPU) and cross-linked polyethylene compounds (PEX). The company markets products of specialty materials through the primary product categories of specialty plastics and polymer additives. Specialty materials products are sold to a diverse customer base comprised of major manufacturers in the construction, automotive, telecommunications, electronics, recreation and aerospace industries. The performance coatings product line includes high-performance polymers and additives for specialty paper, printing and packaging, industrial and architectural specialty coatings, inks and textile applications. The company markets the performance coatings products through the primary product categories of performance polymers and resins, pigment dispersants, rheology and surface modifiers and textile performance chemicals. Performance coatings products serve major companies in the specialty paper, printing and packaging, paint and coatings, ink and textile industries.

The company primarily evaluates performance and allocates resources based on segment operating income, defined as revenues less expenses identifiable to each segment, as well as projected future returns. The company has reclassified certain administrative expenses that previously were deducted in arriving at segment operating income and are now classified as unallocated corporate expenses. Segment operating income will reconcile to consolidated income before tax by deducting the write-off of acquired IPR&D projects, restructuring charges, net interest expense, corporate expenses and corporate other income (expense) that are not directly attributable to the reporting segments.

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THE LUBRIZOL CORPORATION

Notes to Consolidated Financial Statements

September 30, 2004

The following table presents a summary of the company’s segments for the three-month and nine-month periods ended September 30, 2004 and 2003 based on the current reporting structure. Current year and prior year amounts have been restated to reflect the new reporting classifications of products between the two reporting segments and the new definition of segment operating income (in millions of dollars).

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THE LUBRIZOL CORPORATION

Notes to Consolidated Financial Statements

September 30, 2004

6. Goodwill and Intangible Assets

The major components of the company’s identifiable intangible assets are customer lists, technology, trademarks, patents, land-use rights and non-compete agreements. Excluding the non-amortized trademarks, which are indefinite-lived and will not be amortized, the intangible assets are amortized over the lives of the respective agreements or other periods of value, which range between three and forty years. We assess the indefinite-lived trademarks for impairment separately from goodwill.

The following table shows the components of the company’s identifiable intangible assets as of September 30, 2004 and December 31, 2003 (in millions of dollars):

The fair value of intangible assets acquired in acquisitions during 2004 as of the acquisition date is shown below by major asset class. The intangible assets will be amortized over periods ranging from three to twenty years. The company is currently in the process of finalizing the allocation of the purchase price for the Noveon International acquisition and the hyperdispersants business purchased from Avecia, so it is possible the amount of amortization or the purchase price allocation may change. Amounts are in millions of dollars.

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THE LUBRIZOL CORPORATION

Notes to Consolidated Financial Statements

September 30, 2004