Note 2 – SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting - The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) for interim financial information and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all normal and recurring adjustments considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2011, are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.

The consolidated balance sheet at December 31, 2010, has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for a complete set of financial statements.

Use of Estimates - The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Reclassifications - Certain prior year amounts have been reclassified to conform to the current year presentation.

Net Income per Share Attributable to The Lubrizol Corporation - Net income per share attributable to The Lubrizol Corporation is computed by dividing net income attributable to The Lubrizol Corporation by the weighted-average common shares of The Lubrizol Corporation outstanding during the period, including contingently issuable shares. Net income per diluted share attributable to The Lubrizol Corporation includes the dilutive impact resulting from outstanding stock options and awards. Per share amounts are computed as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
Numerator (in millions):
Net income attributable to The Lubrizol Corporation	$	191.3	$	201.4	$	360.8	$	363.7


Denominator (in millions of shares):
Weighted-average common shares outstanding		64.6		68.2		64.5		68.4
Dilutive effect of stock options and awards		1.5		1.6		1.5		1.4

Denominator for net income per share, diluted		66.1		69.8		66.0		69.8


Net income per share attributable to The Lubrizol Corporation, basic	$	2.96	$	2.95	$	5.59	$	5.32


Net income per share attributable to The Lubrizol Corporation, diluted	$	2.90	$	2.88	$	5.47	$	5.21

Options to purchase 0.1 million shares were excluded from the diluted earnings per share calculations because they were antidilutive for both the three and six months ended June 30, 2011 and 2010.

New Accounting Standards

Accounting Standards Adopted in 2011

In October 2009, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2009-13, “Multiple-Deliverable Revenue Arrangements, a Consensus of the FASB Emerging Issues Task Force.” ASU 2009-13 allows companies to allocate consideration in multiple deliverable arrangements based on the company’s best estimate of selling price when vendor specific objective evidence or vendor objective evidence of the fair value of deliverables is not available. In addition, the residual method of allocating consideration to delivered items is no longer permitted. This update is effective for fiscal years beginning on or after June 15, 2010, with early application permitted. The company’s adoption of this update on January 1, 2011, had no effect on its consolidated financial statements.

Accounting Standards Not Yet Adopted

In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement.” This ASU clarifies the concepts related to highest and best use and valuation premise, blockage factors and other premiums and discounts, the fair value measurement of financial instruments held in a portfolio and of those instruments classified as a component of shareowners’ equity. This update includes enhanced disclosure requirements about recurring Level 3 fair value measurements, the use of nonfinancial assets, and the level in the fair value hierarchy of assets and liabilities not recorded at fair value. This update is effective prospectively for interim and annual periods beginning on or after December 15, 2011. The company is evaluating the impact of this update on its consolidated financial statements.

In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income.” This ASU intends to enhance comparability and transparency of other comprehensive income components. This update provides an option to present total comprehensive income, the components of net income and the components of other comprehensive income in a single continuous statement or two separate but consecutive statements, and eliminates the option to present other comprehensive income components as part of the statement of changes in shareowners’ equity. This update will be applied retrospectively for interim and annual periods beginning after December 15, 2011. The company is evaluating the impact of this update on its consolidated financial statements.