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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

Commission file number: 333-61812

NOVEON, INC.
(Exact name of Registrant as specified in its charter)

        Indicate by check mark whether 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 Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

        Indicate by check mark whether Registrant is an accelerated filer (as defined by Rule 12b-2 of the Securities Exchange Act). Yes o    No ý

        The Company's voting stock is not publicly traded and does not have a quantifiable market value.

        As of February 20, 2004, there was 1 share of Registrant's Common Stock outstanding.

Noveon, Inc.

2003 Annual Report on Form 10-K

Table of Contents

        We will provide, upon written request and without charge, a copy of this Form 10-K. If you would like a copy of this Form 10-K, please write to: Noveon, Inc., 9911 Brecksville Road, Cleveland, OH 44141-3247, Attention: Secretary.

Part I

Item 1. Business

        References to "Noveon," the "Company," "we," "us" or "our" refer to Noveon, Inc. and its subsidiaries, except where the context makes clear that the reference is only to Noveon, Inc. itself and not its subsidiaries.

Overview

        We are a leading global producer and marketer of technologically advanced specialty materials and chemicals used in a broad range of consumer and industrial applications. We have a number of high growth, industry leading product franchises marketed under some of the industry's most recognized brand names including Carbopol®, TempRite®, Estane® and Hycar®. These global brands are complemented by a diverse portfolio of historically stable, cash-generating businesses. We have a significant presence in many niche product categories, where customers value our long-standing ability to provide need-specific formulations and solutions. Our products and services enhance the value of customers' end-products by improving performance, providing essential product attributes, lowering cost, simplifying processing or making them more environmentally friendly.

        Through our worldwide network of 28 strategically located manufacturing facilities as of December 31, 2003, we serve more than 7,000 customers operating in over 25 industries. In 2003, we generated sales of $1,135.9 million, net income of $12.5 million and net cash provided by operating activities of $117.8 million. We derived approximately 59% of our sales from the United States, 21% of our sales from Europe and 20% of our sales from the rest of the world in 2003.

        Our principal executive offices are located at 9911 Brecksville Road, Cleveland, Ohio 44141-3247 and our telephone number is (216) 447-5000. Our website is located at www.noveoninc.com. Information contained on our website does not constitute a part of this Form 10-K.

Development of Business

        We commenced operations on March 1, 2001 through the acquisition on February 28, 2001 of the Performance Materials Segment (the "Acquisition") of Goodrich Corporation ("Goodrich"), formerly known as The BFGoodrich Company. The total purchase price was $1,386.5 million before fees and expenses. The textile dyes and drug delivery systems businesses that were operated as part of the Performance Materials Segment of Goodrich were not part of the Acquisition.

        The Acquisition was completed by PMD Investors I LLC, PMD Investors II LLC, DLJ Merchant Banking Partners III, LP and affiliated funds, and DB Capital/PMD Investors, LLC that was renamed MidOcean Capital/PMD Investors, LLC ("MidOcean"). PMD Investors I LLC and PMD Investors II LLC, collectively referred to as "PMD," are entities owned by investor groups led by AEA Investors LLC, the successor company of AEA Investors Inc. ("AEA"). DLJ Merchant Banking Partners III, LP and affiliated funds are affiliates of Credit Suisse First Boston LLC. DLJ Merchant Banking Partners III, LP and its affiliated funds that hold shares of Noveon International, Inc.'s ("International's") common stock are collectively referred to as "DLJ Merchant Banking."

        To finance the Acquisition from Goodrich, we utilized funds from the following sources:

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The equity sponsors, led by AEA, DLJ Merchant Banking and MidOcean, contributed $355.0 million of cash as equity to International, our parent, which in turn contributed this cash to us;



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International issued a $172.0 million seller note to Goodrich, which was subsequently sold by Goodrich in March 2003 to various holders in a private placement; and

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•

We issued $275.0 million of 11% senior subordinated notes due 2011 and borrowed $635.0 million under our senior credit facilities.

        International was organized for the purpose of owning all of our common stock and has no independent operations or investments other than its investment in us.

Business Segments

        Consistent with our focus on industries and end-use applications, we have organized our business into three segments: Consumer Specialties, Specialty Materials and Performance Coatings.

        Consumer Specialties is a global producer of specialty chemicals targeting the personal care, pharmaceutical and food and beverage industries. Key products in this segment include Carbopol® acrylic thickeners, film formers, fixatives, emollients, silicones, botanicals, active pharmaceutical ingredients and intermediates, benzoate preservatives, fragrances, synthetic food dyes and natural colorants. In 2003, Consumer Specialties generated sales of $328.7 million and operating income of $47.0 million.

        Personal Care and Pharmaceuticals.    Our products serving the personal care and pharmaceutical end-use industries impart physical and sensory properties, such as texture, stability and thickness to products, including lotions, hair gels, cosmetics and pharmaceuticals. Our products are an important component of the functionality and aesthetics of the end product, but typically represent a small portion of the customer's total product costs. Our history of technological innovation includes the invention of Carbopol® acrylic thickener, which is the global leader in synthetic thickeners due to its efficient stabilizing properties and superior thickening capabilities. Primary end-uses in the personal care industry for Carbopol® acrylic thickeners include hair care, skin care and personal and oral hygiene products. In addition to Carbopol® acrylic thickeners, our products include hair styling resins, silicones and emollients. Primary end-uses in pharmaceuticals for Carbopol® acrylic thickeners include topical and controlled-release applications. Our other pharmaceutical products include calcium polycarbophil bulk laxatives, advanced intermediates and active ingredients such as mesalazine, which is used in the treatment of Crohn's disease, an inflammatory disease of the gastrointestinal tract.

        In October 2003, we purchased a controlling interest in Specialty Natural Products Co., Ltd. ("SNP"), a Thailand-based manufacturer and marketer of botanical extracts used in personal care product formulations. SNP provides us with access to products that we plan to sell throughout our global distribution system. In addition, on January 2, 2004, we purchased Scher Chemicals, Inc., a manufacturer of emollient and surfactant specialty chemicals used in cosmetic and other personal care formulations. This technology will allow us to participate more fully in skin care formulations, one of the largest and fastest growing portions of the personal care industry.

        Food and Beverage.    Our products preserve freshness and improve the color and consistency of food and beverages, making them more appealing to consumers. We are a leading global producer of benzoate preservatives, the second largest U.S. supplier of synthetic colorants and an integrated producer of flavors, fragrances and other food additives to the food and beverage industry. Benzoates improve the shelf life of consumable goods and are the preservative of choice for manufacturers of soft drinks, bottled beverages, fruit-based products and prepared salads due to their anti-microbial properties. We believe that our Kalama, Washington benzoate facility is the largest facility of its type in North America and the second largest in the world, giving us the capability to serve large customers globally. This facility also produces a number of high-value, distinct flavor and fragrance products for use in many food, personal care and soap products as well as certain intermediate products. The intermediate products include plasticizers used in adhesives, sealants and safety glass, and phenol, a co-product, used for adhesive resins in forest-product applications.

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        We also sell a full line of FDA-approved food, drug and cosmetic primary dyes (including blends of primary dyes), as well as lakes and natural colors. Primary end-uses for our product line within food and beverage applications include soft drinks and processed foods, such as canned soup and pre-made meals. In addition, within the colorant operation, we produce pigment dispersions for use in architectural coatings and technical dyes used in household dyes and other applications.

        The food and beverage industry is a product-focused and fragmented industry that has historically grown with gross domestic product. We expect growth to be driven by consumer demand for convenient and nutritious foods which require additives to preserve freshness and enhance taste, texture and appearance.

        The following is a list of representative uses for and/or descriptions of Consumer Specialties products:

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        Consumer Specialties products are sold worldwide to major manufacturers of cosmetics, personal care products, household products, pharmaceuticals, soft drinks and food products.

        Specialty Materials is the largest global supplier of chlorinated polyvinyl chloride (CPVC) resins and compounds and reactive liquid polymers (RLP) sold under the respective trademarks TempRite® and Hycar®. Specialty Materials is also a leading producer of thermoplastic polyurethane (TPU) and cross-linked polyethylene compounds (PEX) sold under the respective trademarks Estane® and TempRite®. Applications for TempRite® resins and compounds include piping for residential and commercial plumbing and fire sprinkler systems. Applications for Estane® TPU include plastic film and sheet for various coatings processes. Applications for Hycar® RLP include engineering adhesives. Specialty Materials is also a leading North American producer of rubber and lubricant antioxidants and rubber accelerators. In 2003, Specialty Materials generated sales of $428.6 million and operating income of $75.8 million.

        Specialty Plastics.    Our core specialty plastics products are TempRite® CPVC, TempRite® PEX and Estane® TPU. TempRite® CPVC is a technologically advanced heat, fire and chemical resistant polymer that we commercially developed to serve technically demanding applications not well served by traditional PVC and other commodity plastics. Our TempRite® CPVC polymers are sold to customers who produce plastic piping for the following end-use applications: residential and commercial plumbing, fire sprinkler systems and industrial piping applications. TempRite® CPVC piping has inherent advantages over copper and other metals due to its heat and corrosion resistance, increased insulation properties, ease of installation and lower installed cost. We market our branded TempRite® CPVC products for specific applications: FlowGuard® and FlowGuard Gold® for residential and commercial plumbing, BlazeMaster® for fire sprinkler systems and Corzan® for industrial piping. We believe we have built strong end-user awareness of our brands by using a direct sales force that markets directly to builders, contractors, plumbers, architects, engineers and building owners.

        In 2001, we purchased select assets and technology to manufacture PEX compounds, further used to produce PEX pipe. TempRite® PEX enables Specialty Materials to add a flexible piping compound to its rigid piping product offering. TempRite® PEX is a small but growing product within certain piping applications that demand flexible piping systems.

        Estane® TPU, an engineered, highly versatile thermoplastic, provides a high quality, lower cost alternative to rigid plastics and flexible rubber. Performance attributes of Estane® TPU include abrasion, heat and chemical resistance, minimal fatigue from bending, ease of processing and good paintability. These performance characteristics make Estane® TPU attractive for use in a broad range of end-uses, including film and sheet for various coating processes, wire and cable insulation, athletic equipment (such as footwear), medical applications, pneumatic tubing and automotive molded parts. We have recently introduced several new product families that extend the uses for Estane® TPU. This includes products that can be melt spun into elastic spandex fibers and materials that offer enhanced breathability for garments. We believe that Estane® TPU is one of the industry's leading brand names. We also market Stat-Rite® thermoplastics, which are static dissipative materials used in packaging for the electronics industry. In addition, we market fiber-reinforced TPU under the Estaloc® brand. Estaloc® reinforced engineering thermoplastics offer the functional properties of traditional TPU, yet are reinforced for higher stiffness to provide the strength, dimensional stability and impact resistance required to withstand a variety of tough applications and harsh environments. Applications include sporting goods, agricultural equipment and other mechanical components.

        In October 2003, we purchased select assets and technology of Thermedics Polymer Products, LLC, a manufacturer of aliphatic TPU, which will allow us to enter high-value optical film, medical tubing and other applications.

        Polymer Additives.    We are the largest global supplier of RLP and one of the leading North American producers of polymer additives including rubber and lubricant antioxidants and rubber

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accelerators. Our products in this category extend the life and improve the performance characteristics of rubber, lubricating oil, plastics and thermoset resin-based formulations.

        RLP is a high-growth niche product for technologically challenging applications, including structural and engineered adhesives used in aerospace, transportation and electronics. RLP improves impact and crack resistance in composites and coatings and improves the toughness and long-term durability of epoxy-based structural adhesives. RLP growth is anticipated to exceed overall growth of the high-end adhesives industry, as the product is increasingly utilized for its superior performance characteristics relative to other binding agents.

        Our antioxidant products are used in rubber, plastics and lubricants and are marketed under the Good-Rite® name, a leading industry brand. Antioxidants prevent oxidative degradation and are primarily utilized by rubber manufacturers and to a lesser extent plastic manufacturers, to impart durability and prevent the loss of functional attributes such as flexibility. In motor oil and other lubricants, antioxidants prevent thermal breakdown and extend product life. We also manufacture a line of accelerators, marketed under our brand, Cure-Rite®, which are utilized by rubber manufacturers to reduce the vulcanization/curing time, and thereby improve manufacturing productivity.

        The following is a list of representative uses for and/or descriptions of Specialty Materials products:

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        Specialty Materials products are sold to a diverse customer base comprised of major manufacturers in the construction, automotive, telecommunications, electronics, recreation and aerospace industries.

        Performance Coatings is a leading global producer of high-performance polymers for specialty paper, printing and packaging, industrial and architectural specialty coatings and textile applications. Approximately 70% of Performance Coatings' sales are generated from our water-based acrylic polymers and compounds and polyurethane dispersions. We believe that we offer customized solutions to meet the specific needs of our customers sold under the trademarks Hycar®, Sancure®, Algan®, Performax® and Myflam®. In 2003, Performance Coatings generated sales of $378.6 million and operating income of $43.3 million.

        Our product offerings include a broad range of water-based polymer emulsions, resins and auxiliaries used in the production of high-end paint and coatings for wood, paper, metal, concrete, plastic, textiles and other surfaces. Our water-based polymers, which are environmentally attractive substitutes for solvent-based products, are valued for the superior gloss and durability properties they provide. In addition, our polymers are used as ink vehicles, overprint varnishes and functional coatings for specialty paper, printing and packaging applications. We supply acrylic emulsions used to improve the appearance, texture, durability and flame retardance of high-end specialty textiles sold to the home furnishings, technical fabrics and apparel industries. In addition, we believe we are the only fully integrated U.S. supplier of glyoxal and glyoxal-based resins for durable press and wrinkle-resistant textile additives.

        Our business strategy is centered on our ability to formulate and compound polymer emulsions to create customized solutions to meet the specific needs of our customers. We have had success with acrylic and polyurethane water-borne technologies as global restrictions targeting the reduction of the volatile organic compounds prevalent in solvent-based products have become more stringent. We continue to develop innovative products based on these technologies to enhance our portfolio. We expect water-borne formulations to continue to grow faster than the overall industry growth rate for the niche industries in which we participate.

        The following is a list of representative uses for and/or descriptions of Performance Coatings products:

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        Performance Coatings products are sold to major companies in the specialty paper, printing, packaging, paint and coatings, and textiles industries.

Competition

        We face a variety of competitors in each of our product lines, but we believe no single company competes with us across all of our existing product lines. The specialty chemicals industry is highly fragmented and its participants offer a broad array of product lines and categories, representing many different products designed to meet specific customer requirements. Individual products or service offerings compete on a global, regional and local level due to the nature of the businesses and

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products, as well as the end-use applications and customers served. The following chart sets forth our principal competitors by segment:

Sales and Marketing

        We have approximately 330 sales and marketing employees worldwide. Unlike many chemical companies that organize their sales and marketing around product platforms, our sales and marketing efforts are structured around end-use applications to maximize our understanding of customer needs as well as emerging trends. Each end-use team includes representatives from sales, marketing and research and development.

        Most of our sales and marketing staff is technically oriented and works closely with customers through globally located application development laboratories to develop products and formulations that deliver the desired product attributes. Most of our laboratories are equipped with small-scale equipment that replicates our customers' processing capabilities, which ensure our solutions are easily and efficiently implemented at our customers' facilities.

        Finally, many of our sales and marketing resources are dedicated to stimulating end-use demand for our products and, in the case of our TempRite® plumbing, fire sprinkler and industrial piping applications, are focused on marketing to building contractors, plumbers, distributors and construction code officials to convince them to specify our products in their projects or building codes.

Research, Development and Technology

        We have a long history as an industry innovator, creating proprietary, high-performance materials for our customers, including the invention of Carbopol® acrylic thickener and the commercial development of TempRite® CPVC. These products are derived from a broad range of technology platforms developed either internally or externally through licensing, acquisition or joint technological alliances with global suppliers and customers. Our research and development staff includes approximately 235 professionals, many of whom possess Ph.D. or equivalent degrees, and 130 technical service employees. Our research and development staff works with both our sales force and customers to utilize our wide spectrum of technology platforms and processing capabilities to produce one of the most comprehensive product offerings in the specialty chemicals industry. We have developed many of our products in cooperation with our customers, often as a result of their specific needs, resulting in long-standing loyal customer relationships.

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        Our successful record of technological innovation is evidenced by the more than 700 patents that we have secured worldwide during the past 20 years. Currently, we possess approximately 1,100 issued or pending foreign and domestic patents and patent applications worldwide, and over 1,200 foreign and domestic product trademarks and applications and other significant trade secrets. Many of the products represented by these patents are breakthrough innovations, such as specialty Estane® TPU for producing breathable fabric, new generation TempRite® CPVC for impact resistant pipe, water-based acrylic urethane emulsion blends for clear varnishes on wood flooring, Fixate™ resin for hair styling and Carbopol® acrylic thickener formulations for ink-jet printing applications.

Raw Materials

        We use a variety of specialty and commodity chemicals in our manufacturing processes. The majority of raw materials used in manufacturing our products are available from more than one source and are readily available on the open market. Those materials that we choose to purchase from a single source generally have long-term supply contracts as a basis to guarantee supply reliability. Our raw material base is most affected by changes in feedstock prices, which are driven by crude oil or natural gas prices and supply and demand characteristics in our various feedstock-related markets. The majority of our raw materials are derived from petrochemical-based feedstocks. Our single largest raw material purchased represented less than 5% of cost of sales in 2003. Described below is a summary of the principal raw material requirements of each segment:

Employees

        As of December 31, 2003, we had approximately 2,780 employees worldwide, with approximately 1,865 in the Americas, 790 in Europe and 125 in the Asia/Pacific region. Many of our employees are highly trained and our key plant managers possess an average of over 15 years of experience.

        Seven of our U.S. sites are organized by labor unions with collective bargaining agreements that are subject to periodic renegotiation, with durations varying from three to five years. Approximately 24% of our domestic employees are covered by collective bargaining agreements, with five agreements expiring in 2004 and 2005. We have not experienced any significant labor strikes or work stoppages and believe that our relationships with our employees is satisfactory. We expect to enter into new agreements with these unions as the current agreements expire. Our failure to renew agreements on reasonable terms could result in labor disruptions and increased labor costs, and a prolonged work stoppage or strike could disrupt our operations. Production employees in Europe generally fall under national master agreements for all chemical companies that are reviewed and modified by March 1 of

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each year. We observe local customs and legislation in labor relations (including staff councils, where required) and, where applicable, in negotiating collective bargaining agreements.

Health, Safety and Environmental Matters

        Our operations, like those of other companies engaged in similar businesses, are subject to extensive environmental laws and regulations by foreign, federal, state and local authorities. These include laws and regulations pertaining to pollution, the protection of human health and the environment, air emissions, wastewater discharges, occupational safety and health, the generation, handling, treatment, disposal, remediation, use, storage and release, and exposure to hazardous substances and wastes. We have incurred, and will continue to incur, costs and capital expenditures in complying with these laws and regulations and to obtain and maintain all necessary permits. In our effort to comply with these environmental laws and regulations, we maintain a disciplined environmental and occupational safety and health compliance program. We conduct internal and external regulatory audits at our plants to identify and categorize potential environmental exposures as well as to ensure compliance with applicable environmental, health and safety laws and regulations. In addition, we are committed to the implementation of the American Chemistry Council's Responsible Care® principles and to the continuous improvement of our health, safety and environmental performance.

        We believe that our business, operations and facilities are being operated in compliance in all material respects with applicable environmental and health and safety laws and regulations, many of which provide for substantial fines, penalties and criminal sanctions for violations. Based on information presently known and our current accrued environmental reserves, we do not expect environmental costs or contingencies to have a material adverse effect on us. The operation of manufacturing plants entails risks in these areas, and we may incur material costs or liabilities in the future which could adversely affect us. Material expenditures could potentially be required in the future. For example, we may be required to comply with evolving environmental and health and safety laws, regulations or requirements that may be adopted or imposed in the future or to address newly discovered contamination or other conditions or information that require a response.

        Under certain environmental laws, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (commonly known as Superfund) and similar state laws, we may be jointly and severally liable for the costs of environmental contamination at current or former facilities and at off-site locations at which we have disposed of hazardous waste. As a result, we may be subject to liability for costs to investigate and remediate contamination without regard to fault and under certain circumstances liability may be joint and several resulting in one responsible party being held responsible for the entire obligation. Liability may also include damages to natural resources. As discussed below, Goodrich has agreed to indemnify us with respect to the majority of environmental liabilities relating to these contaminated sites.

        We reduced our environmental accrual by $23.7 million to $23.2 million on March 1, 2001 from $46.9 million as of February 28, 2001, because under the Acquisition agreement, Goodrich retained and did not sell to us seven parcels of real property for which there was an environmental accrual. As reflected in the environmental accrual as of January 1, 2001, these sites, and various other environmental obligations retained by Goodrich, represented $24.3 million of the accrual. Under the Acquisition agreement, Goodrich also has agreed to indemnify us against, or has retained, certain environmental liabilities. Our financial statements as of December 31, 2003 included liabilities, measured on an undiscounted basis, of $19.0 million to cover future environmental expenditures either payable by us or indemnifiable by Goodrich. We estimate Goodrich's share of such currently identified liabilities under the indemnity, which extends to 2011, to be approximately $8.1 million. In addition to Goodrich's indemnity, several other indemnities from third parties such as past owners relate to specific environmental liabilities. Goodrich's share of such liabilities may increase to the extent such third

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parties fail to honor their indemnity obligations through 2011. Accordingly, the current portion of the environmental obligations of $0.8 million is recorded in accrued expenses and $1.4 million of the recovery due from Goodrich is recorded in accounts receivable. Non-current liabilities include $18.2 million and other non-current assets include $6.7 million reflecting the recovery due from Goodrich.

        Although we believe that our environmental accruals are adequate, given the uncertainties involved in estimating environmental costs, it is possible that the amount of expenses that will be required relating to remedial actions and compliance with applicable environmental laws and regulations will exceed the amounts reflected in our reserves or that Goodrich (or any of other third party indemnitors) will not fulfill its indemnity obligations. Accordingly, currently identified environmental liabilities may not be adequately covered and additional environmental liabilities may arise in the future that could have a material adverse effect on our financial position, results of operations, or cash flows.

Product Liability

        Goodrich has agreed to indemnify us for all liabilities (including product liability claims and product recalls) arising in connection with product lines no longer manufactured or sold by us. In addition, Goodrich has agreed to indemnify us against all product liability, product warranty and product defect claims made prior to the 10th anniversary of the closing of the Acquisition, relating to products manufactured, sold or delivered by Goodrich prior to the closing of the Acquisition and involving damages of at least $2.0 million. However, Goodrich may not fulfill its indemnity obligations.

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Item 2. Properties

        Our headquarters and primary research facility is located in Brecksville, Ohio. Our chemical manufacturing facilities as of December 31, 2003 are listed below.

(1)

Operations will cease by the end of 2004.

        We possess global manufacturing, sales and technical service facilities enabling us to provide customers with worldwide service and a reliable supply of products. We have 28 manufacturing sites, with two of the facilities, located at Kalama, Washington and Pohang, South Korea, certified to ISO 14001 and all but three U.S. plants, three European plants and three Asian plants certified to ISO 9002 standards. The non-certified plants are recent acquisitions or recent startups. In addition, the plants located at Calvert City, Kentucky; Chennai, India and Raubling, Germany operate to "current good manufacturing practices" standards (cGMP) and manufacture products suitable for use in the production of pharmaceutical products. Each plant has rigorous productivity and quality assessment programs in place, with performance metrics summarized and reviewed on a monthly basis by our management.

        We have met increases in global demand through productivity initiating, acquisitions and joint ventures, as well as by investment in new or significantly expanded existing production facilities in the United States, Europe and Asia. Since 2001, we have made multiple investments in a Carbopol® acrylic thickener and latex facility in Antwerp, Belgium; an Estane® TPU plant expansion in Oevel, Belgium;

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and benzoate, plasticizer and hexylcynamicaldehyde plant expansions in Kalama, Washington. In addition, we have completed a textile compounding facility and have broken ground for an Estane® TPU plant in China. Most recently, we have also initiated construction on a Carbopol® acrylic thickener expansion in Calvert City, Kentucky.

Item 3. Legal Proceedings

        We are engaged in legal proceedings arising in the ordinary course of business. We believe that the ultimate outcome of these proceedings will not have a material adverse impact on our results of operations, financial position or cash flows. See "Environmental Matters" in Item 1, "Business," for information concerning legal proceedings relating to certain environmental claims.

Item 4. Submission of Matters to a Vote of Security Holders

        No matters were submitted to a vote of our security holders during the fourth quarter of the fiscal year ended December 31, 2003.

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Part II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

        Our voting stock is not publicly traded and does not have a quantifiable market value. As of February 20, 2004, we had one holder of record of our voting common stock. Other than a restricted payment in the form of a dividend of $45.0 million to International for the repayment of a portion of the seller note, we have not declared any dividends in the years ended December 31, 2003 or 2002. Any future determination as to the payment of dividends will be made at the discretion of the Board of Directors and will depend upon our operating results, financial condition, capital requirements, general business conditions and such other factors as the Board of Directors deems relevant. Our debt instruments include restrictions on the payment of cash dividends on our common stock.

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Item 6. Selected Financial Data

        The following table presents selected financial data at the dates and for the periods indicated. The data for the years ended December 31, 2003, 2002 and the ten months ended December 31, 2001 are derived from the audited consolidated financial statements of Noveon, Inc. The data for the two months ended February 28, 2001 and the years ended December 31, 2000 and 1999 are derived from the audited consolidated historical financial statements of the Performance Materials Segment of Goodrich. The information set forth below should be read in conjunction with the consolidated financial statements and the related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and other financial information included elsewhere in this Form 10-K.

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

        You should read the following discussion in conjunction with the audited consolidated financial statements of Noveon, Inc. and the Performance Materials Segment of Goodrich included elsewhere in this document.

        This Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors. See "Cautionary Note Regarding Forward-Looking Statements" for a discussion of the uncertainties, risks and assumptions associated with these statements.

Executive Overview

        We are a leading global producer and marketer of technologically advanced specialty materials and chemicals used in a broad range of consumer and industrial applications. We have a number of high growth, industry-leading franchises marketed under some of the industry's most recognized brand names including Carbopol®, TempRite®, Estane® and Hycar®. These global brands are complemented by a diverse portfolio of historically stable, cash-generating businesses. We have a significant presence in many niche product categories, where customers value our long-standing ability to provide need-specific formulations and solutions. Our products and services enhance the value of customers' end-products by improving performance, providing essential product attributes, lowering cost, simplifying processing or making them more environmentally friendly.

        Through our worldwide network of 28 strategically located manufacturing facilities, we serve more than 7,000 customers operating in over 25 industries. In 2003, we generated sales of $1,135.9 million, net income of $12.5 million and net cash provided by operating activities of $117.8 million. We derive our revenues from the sale of our manufactured specialty chemicals and materials with approximately 59% of our sales from the United States, 21% of our sales from Europe and 20% of our sales from the rest of the world in 2003.

        Our business serves a multitude of industries and end-use applications globally including various consumer, residential and commercial housing and industrial applications, which diversity imparts a relative degree of stability in our revenue. However, we are impacted by macroeconomic factors that include available discretionary income, housing starts, industrial production and overall levels of economic activity in the regions in which we operate. In general, our revenues do not fluctuate with raw material and other input prices.

        The competitive environment for our products depends upon many factors, including industry consolidation and capacity, general economic conditions and availability of substitute materials. We have experienced pricing pressure in parts of our business as a result of consolidation among some of our competitors and customers and as some of the industries we serve have matured.

        Our cost base is most affected by changes in feedstock prices, which are driven by crude oil and natural gas prices and supply and demand characteristics in our various feedstock-related markets. For the year ended December 31, 2003, our raw material costs represented 43% of sales as compared to 39% in 2002 and 42% in 2001. Our most significant raw materials include toluene, ethyl and butyl acrylate, glacial acrylic acid, chlorine, MDI, PTMEG, aniline, acetone, PVC, styrene and ethylene glycol, although we do purchase approximately 1,500 other materials. Raw materials tend to be specific to a particular product line, which can result in significant fluctuations in results from product line to product line. Other components of our costs include base manufacturing costs, selling, research and development and administrative expenses.

        We are also impacted by currency fluctuations. The depreciation of the U.S. dollar versus the euro benefited our results in 2003 as compared to 2002, as well as our results in 2002 as compared to 2001.

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In 2003, we generated approximately 31% of our sales in foreign currencies and we incurred approximately 28% of our costs in foreign currencies. We have attempted to mitigate the impact of currency fluctuations by manufacturing products in the countries in which the products are sold and offsetting our asset exposure with local currency borrowings. Our hedging program is limited to protecting known future cash flows due primarily from customers and suppliers who pay or require payment in foreign currency.

        We had $864.4 million of debt outstanding at December 31, 2003. In 2003, we refinanced our term loans under our credit facilities and reduced the applicable margin permanently by 0.75%. Additionally, in 2002, we prepaid a portion of our term loans. These factors reduced interest expense by $11.9 million in 2003. Our ability to repay or refinance our indebtedness depends on our financial and operating performance, which is somewhat dependent on prevailing economic and competitive conditions discussed above. Management is comfortable with our ability to service the levels of debt we have incurred since inception. Our ability to generate strong cash flows is principally attributable to the diversity of our product lines, industry-leading margins, rigorous management of working capital and limited requirements for capital expenditures.

        In general, our business has relatively low capital requirements. Consistent with prior years, we expect capital expenditures for the years 2004 and 2005 in an amount between $55 million and $65 million annually. Capital spending is focused on maintaining our plants in safe operating condition, expanding capacity to meet growing demand, improving product quality, lowering operating costs and automating processes.

        We commenced operations on March 1, 2001 through the Acquisition on February 28, 2001 of the Performance Materials Segment of Goodrich. The Acquisition was financed through borrowings under our credit facilities, proceeds from our 11% senior subordinated note offering, and an equity contribution from affiliates of our equity sponsors. We are a wholly owned subsidiary of International.

        International was organized for the purpose of owning all of our common stock and was capitalized through an equity contribution of $355.0 million from affiliates of its equity sponsors, AEA, DLJ Merchant Banking and MidOcean. International has no independent operations or investments other than its investment in us. International has made an equity contribution of $527.0 million to us comprised of $355.0 million in cash and $172.0 million from the seller note that International issued to a subsidiary of Goodrich in connection with the Acquisition. The seller note bears interest at an initial rate of 13% payable semi-annually in cash or additional notes at the option of International and increases to a rate of 15% after five years. However, if the interest is paid in cash after five years, the interest rate remains at 13%. International may be dependent on our cash flows to repay the seller note upon maturity in 2011. At December 31, 2003, there was $165.9 million outstanding on the seller note.

        The Acquisition was recorded using the purchase method of accounting. The assets acquired and liabilities assumed of the Performance Materials Segment of Goodrich have been recorded at fair values. The purchase price before fees and expenses, totaling $21.4 million, was $1,386.5 million and consisted of cash of $1,167.1 million, assumption of debt and liabilities of $32.9 million, net of cash acquired, a $14.5 million working capital settlement from Goodrich, and a $172.0 million equity contribution resulting from the seller note of International issued to Goodrich, the proceeds of which were contributed to us as equity. The seller note was subsequently sold to various investors in a private placement in March 2003.

Restructuring and Other Matters

        In 2003, we announced the relocation of the Sancure® polyurethane dispersions line, part of our Performance Coatings segment, to our Avon Lake, Ohio facility and the closing of the Leominster, Massachusetts facility. Production is expected to be completely shifted to the Avon Lake site by the end

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of 2004. In conjunction with the announced closing of the Leominster facility, we performed an evaluation of the ongoing value of the long-lived assets and determined the carrying value was no longer recoverable. As a result, the long-lived assets were written down to their estimated fair value of $1.4 million, which was determined by an independent appraisal, and an impairment charge of $5.7 million was recorded. Additionally, in 2003, in order to increase efficiency and productivity and to reduce costs, we implemented a headcount reduction at various administrative and manufacturing facilities.

        Through these restructuring efforts, we planned to eliminate approximately 80 positions across all segments. Approximately 50% of the affected employees have left their positions as of December 31, 2003. In conjunction with these restructuring plans, we recorded severance costs of $6.2 million pursuant to our existing severance plan. As of December 31, 2003, $2.7 million remains accrued related to these restructurings with substantially all of the remaining costs anticipated to be paid by the end of 2004.

        During 2002, we consolidated our static control manufacturing facilities into our Malaysia facility and closed the Twinsburg, Ohio leased facility in order to improve the productivity of our electronics industry-related product lines. In conjunction with this consolidation, we incurred additional restructuring and severance as well as closure costs, totaling $0.2 million, related to this leased facility in 2003. In 2002, we incurred facility and severance costs of $1.3 million related to this leased facility.

        In 2001, we implemented a plan to restructure and streamline our operations to increase efficiency and productivity, reduce costs and support our global growth strategy. As part of this plan, we reduced headcount throughout our global operations, restructured our colorants business in Cincinnati, Ohio and discontinued our flush pigments and colorformers products lines. Through these restructuring efforts, we eliminated approximately 440 positions. In conjunction with this restructuring plan, the Company recorded restructuring and severance costs of $1.1 million in 2003 consisting primarily of personnel-related costs. In 2002, we incurred costs of $4.7 million primarily relating to severance and facility closure costs. In 2001, we incurred $2.0 million of costs associated with this restructuring relating to asset impairment and other charges. As of December 31, 2003, approximately $1.6 million remains accrued for restructuring costs with substantially all of the remaining costs anticipated to be paid by 2007. As a result of these restructuring efforts, we have reduced annual employee expenses by approximately $17.0 million attributable to reduced employee expenses. These savings were partially recognized beginning in the third quarter of 2001.

Results of Operations

Historical Basis

        The following table presents the major components of the statement of operations on a historical basis. Consistent with our focus on industries and end-use applications, we have organized our business into three segments: Consumer Specialties, Specialty Materials and Performance Coatings. The textile dyes business and the drug delivery systems business, which were not part of our Acquisition of the Performance Materials Segment of Goodrich, had sales and an operating loss of $1.1 million and $0.6 million, respectively, during the two months ended February 28, 2001. The results of the textile dyes business and the drug delivery systems business are included in the data for the two months ended

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February 28, 2001. We show segment sales as a percent of total sales and segment gross profit and operating income as a percentage of segment sales.

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Pro Forma Basis

        The following table presents major components of the historical and pro forma statements of operations. The major components of the pro forma consolidated statements of operations reflect the effect of the Acquisition of the Performance Materials Segment of Goodrich on February 28, 2001 as if it occurred on January 1, 2001 and excludes the results of the textile dyes business and drug delivery systems business retained by Goodrich. The primary effects of the Acquisition include: increased depreciation for the write-up of property, plant and equipment; increased amortization expense for goodwill and intangible assets; the impact of increased stand-alone costs; management and advisory services fees; amortization expense of debt issuance costs associated with the credit facilities; increased interest expense associated with the credit facilities; and the associated income tax impact of these items.

        The components of the pro forma consolidated statements of operations for the year ended December 31, 2001 are derived from the audited consolidated financial statements of the Performance Materials Segment of Goodrich for the two months ended February 28, 2001 and the audited consolidated financial statements of Noveon, Inc. for the ten months ended December 31, 2001.

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2003 Compared with 2002

Total Company Analysis

        Sales.    Sales increased $66.6 million, or 6.2%, to $1,135.9 million in 2003 from $1,069.3 million in 2002. The increase in sales was attributable to the strength of the euro, incremental sales of $34.8 million associated with acquisitions across all segments, and higher volumes in our personal care and Estane® TPU product lines, partially offset by lower volumes within Performance Coatings. Increased volumes and the strength of the euro were principally responsible for sales increases of $23.1 million within our personal care and pharmaceutical product lines and $19.0 million in our Estane® TPU product lines. Increased sales of $14.7 million within our food and beverage product lines were due primarily to the impact of acquisitions.

        Cost of Sales.    Cost of sales as a percentage of sales increased to 71.3% in 2003 from 68.0% in 2002. The increase in cost of sales as a percentage of sales was primarily attributable to substantially higher raw material and utility costs across each segment that were not passed on to customers.

        Gross Profit.    Gross profit decreased $16.0 million, or 4.7%, to $326.5 million in 2003 from $342.5 million in 2002. As a percentage of sales, gross profit decreased to 28.7% in 2003 from 32.0% in 2002. The decrease in gross profit and gross profit as a percentage of sales was primarily associated with higher raw material and utility costs and the impact of competitive pricing pressure, partially offset by increased sales and lower manufacturing costs related to ongoing productivity initiatives.

        Selling and Administrative Expenses.    Selling and administrative expenses increased $3.2 million, or 1.6%, to $204.8 million in 2003 from $201.6 million in 2002. The increase in selling and administrative expenses was primarily related to the impact of the stronger euro and the addition of sales, marketing and research and development resources, partially offset by cost controls and reduced costs associated

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with our variable incentive plans. Selling and administrative expenses as a percentage of sales declined to 18.0% in 2003 from 18.8% in 2002.

        Amortization Expense.    Amortization expense totaled $14.7 million in 2003 and was comparable to $13.9 million in 2002.

        Restructuring and Severance Costs.    Restructuring and severance costs were $13.2 million in 2003 and $6.1 million in 2002. The 2003 costs include $7.2 million of severance costs related to our continued efforts to increase efficiency and productivity and a $5.7 million asset impairment associated with plant consolidation activities within our Performance Coatings segment.

        Operating Income.    Operating income decreased by $27.1 million, or 22.4% to $93.8 million in 2003 from $120.9 million in 2002. The decrease in operating income was primarily attributable to substantially higher raw material and utility costs across each segment, the impact of competitive pricing pressure, lower volumes within our Performance Coatings segment and higher restructuring and severance costs. The decrease was partially offset by increased volumes within our personal care product lines, benefits from productivity initiatives and the impact of acquisitions.

        Interest Expense—Net.    Interest expense was $70.5 million in 2003 and $75.6 million in 2002. The decrease in interest expense was attributable to the impact of debt reductions and lower interest rates associated with the refinancing of our Term Loans.

        Income Tax Expense.    Income tax expense was $9.2 million in 2003 compared to $8.2 million in 2002. The income tax expense in 2003 and 2002 was primarily associated with our international operations. The effective tax rate in 2003 and 2002 was 41.4% and 19.1%, respectively. The increase in the effective tax rate in 2003 as compared to 2002 was principally related to a net increase in tax valuation allowances recorded in 2003 and the overall decrease in income from continuing operations.

        In 2003 and to a lesser extent in 2002, the effective tax rate differed from the federal statutory rate principally due to increases in the effective tax rate as a result of tax valuation allowance amounts associated with our domestic and foreign operations and other nondeductible business operating expenses. The increases in the income tax rate were partially offset as a result of certain income tax credits and from the impact of foreign operations. In addition, in 2002, decreases in the income tax rate resulted from the reversal of tax valuation allowances previously recorded for our domestic operations.

        As of December 31, 2003, we have determined, based on our lack of prior earnings history, that it is uncertain that our future taxable income will be sufficient to recognize certain of our net deferred tax assets. In accordance with the provisions of Statement of Financial Account Standards ("SFAS") No. 109, we intend to maintain the tax valuation allowances recorded at December 31, 2003 for certain deferred tax assets until sufficient positive evidence (for example, cumulative positive earnings and future taxable income) exits to support the reversal of the tax valuation allowances. This valuation allowance relates to net domestic deferred tax assets established in purchase accounting, acquired foreign net deferred tax assets associated with net operating losses and credits and deferred tax assets from domestic and foreign tax net operating losses and credits arising subsequent to March 1, 2001. The most significant portion of the valuation allowance is associated with the deferred tax assets established in purchase accounting. Any reversal of the valuation allowance that was established in purchase accounting would reduce goodwill.

        Cumulative Effect of Accounting Change—Net of Tax.    The cumulative effect of accounting change resulted in a charge of $0.5 million in 2003 and related to the adoption of SFAS No. 143, "Accounting for Asset Retirement Obligations," effective January 1, 2003.

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        Net Income.    As a result of the factors discussed above, net income decreased by $22.2 million to $12.5 million in 2003 from $34.7 million in 2002.

Segment Analysis

        Consumer Specialties.    Sales increased $37.9 million, or 13.0%, to $328.7 million in 2003 from $290.8 million in 2002. The increase was primarily attributable to higher sales of $23.1 million in our personal care and pharmaceutical product lines, principally due to higher global Carbopol® acrylic thickener sales, the successful launch of new products and the strength of the euro as well as higher sales of $14.7 million in our food and beverage product lines, principally driven by incremental sales associated with acquisitions.

        Gross profit increased $3.2 million, or 3.6%, to $92.1 million in 2003 from $88.9 million in 2002. The increase was primarily associated with higher volumes within our personal care and food and beverage product lines and the strength of the euro, substantially offset by higher raw material and utility costs within our food and beverage product lines. As a percentage of sales, gross profit decreased to 28.0% in 2003 from 30.6% in 2002. The decrease in gross profit as a percentage of sales was due to increases in raw material and utility costs.

        Operating income decreased $1.2 million, or 2.5%, to $47.0 million in 2003 from $48.2 million in 2002. The decrease in operating income was primarily associated with increased raw material and utility costs within our food and beverage product lines and the impact of additional sales, marketing and research and development resources, offset partially by higher volumes within our personal care and food and beverage product lines and the strength of the euro.

        Specialty Materials.    Sales increased by $26.2 million, or 6.5%, to $428.6 million in 2003 from $402.4 million in 2002. The increase was primarily attributable to $19.0 million in higher sales within our Estane® TPU product lines, principally related to a stronger euro and higher volumes. Volume increases across most of the segment were partially offset by competitive pricing pressure.

        Gross profit decreased $5.5 million, or 3.7%, to $142.1 million in 2003 from $147.6 million in 2002. The decrease was primarily attributable to substantially higher raw material and utility costs in our TempRite® CPVC and polymer additives product lines and the impact of competitive pricing pressure across the segment. This decrease was partially offset by higher volumes and lower manufacturing spending across most of the segment. As a percentage of sales, gross profit decreased to 33.2% in 2003 from 36.7% in 2002. The decrease in gross profit as a percentage of sales was driven by increases in raw material and utility costs and the impact of competitive pricing pressure.

        Operating income decreased $8.5 million, or 10.1%, to $75.8 million in 2003 from $84.3 million in 2002. The decrease was primarily attributable to substantially higher raw material and utility costs in our TempRite® CPVC and polymer additives product lines and the impact of competitive pricing pressure across most of the segment. This decrease was partially offset by higher volumes, lower manufacturing spending and lower selling and administrative expenses across most of the segment.

        Performance Coatings.    Sales increased $2.5 million, or 0.7%, to $378.6 million in 2003 from $376.1 million in 2002. The increase was primarily attributable to the impact of acquisitions and the strength of the euro, partially offset by lower sales volumes.

        Gross profit decreased $13.7 million, or 12.9%, to $92.3 million in 2003 from $106.0 million in 2002. The decrease was primarily attributable to substantially higher raw material and utility costs and lower sales volumes, partially offset by lower manufacturing costs, higher selling prices and the impact of acquisitions. As a percentage of sales, gross profit decreased to 24.4% in 2003 from 28.2% in 2002. The decrease in gross profit as a percentage of sales was primarily due to increased raw material and utility costs.

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        Operating income decreased $16.1 million, or 27.1%, to $43.3 million in 2003 from $59.4 million in 2002. The decrease was primarily attributable to substantially higher raw material and utility costs and lower sales volumes, partially offset by lower manufacturing costs, higher selling prices and the impact of acquisitions.

        Corporate.    Corporate costs decreased $5.8 million, or 8.9%, to $59.1 million in 2003 from $64.9 million in 2002. This decrease was primarily the result of cost controls and reduced costs associated with our variable incentive plans.

2002 Compared with Pro Forma 2001

        The comparison of the year ended December 31, 2002 to the pro forma year ended December 31, 2001 has been completed by using audited consolidated financial information for 2002 and unaudited pro forma consolidated financial information for 2001. This unaudited pro forma consolidated financial information is provided for informational purposes only and does not purport to be indicative of the results which would have actually been obtained had the Acquisition of the Performance Materials Segment of Goodrich occurred on January 1, 2001.

Total Company Analysis

        Sales.    Sales increased $7.0 million, or 0.7%, to $1,069.3 million in 2002 from $1,062.3 million in pro forma 2001. The increase was primarily the result of higher sales within our TempRite® CPVC product lines of $17.3 million and personal care product lines of $9.8 million, principally related to increased volume. Additionally, current year acquisitions resulted in increased sales of approximately $11.4 million. These increases were offset partially by lower sales of $12.4 million in our Estane® TPU and polymer additives product lines, due primarily to lower industrial and European demand and competitive price pressure, and $4.7 million in Performance Coatings, primarily due to lower textile application volume. Furthermore, sales decreased in our food colorants business by $5.9 million, principally due to the impact of product lines discontinued in 2001.

        Cost of Sales.    Cost of sales as a percentage of sales decreased to 68.0% in 2002 from 72.1% in pro forma 2001. The decrease in cost of sales as a percentage of sales was primarily attributable to a decrease in raw material and utility costs across all segments and, to a lesser extent, lower manufacturing spending.

        Gross Profit.    Gross profit increased $45.7 million, or 15.4%, to $342.5 million in 2002 from $296.8 million in pro forma 2001. As a percentage of sales, gross profit increased to 32.0% in 2002 from 27.9% in pro forma 2001. The increase in gross profit was primarily associated with decreases in raw material and utility costs and lower manufacturing spending. The increase was partially offset by competitive pricing pressure and an unfavorable sales mix shift.

        Selling and Administrative Expenses.    Selling and administrative expenses increased $5.9 million, or 3.0%, to $201.6 million in 2002 from $195.7 million in pro forma 2001. The increase in selling and administrative expenses was primarily attributable to the strategic addition of sales and marketing resources and the additional costs associated with our variable incentive plans, driven by improved financial performance during 2002 and expansion of the variable incentive plans to include substantially all employees beginning in 2002. The increase was partially offset by cost reductions attributable to our restructuring efforts. Selling and administrative expenses as a percentage of sales increased to 18.8% in 2002 from 18.4% in pro forma 2001.

        Amortization Expense.    Amortization expense decreased $17.9 million, or 56.3%, to $13.9 million in 2002 from $31.8 million in pro forma 2001. The decrease was primarily due to the elimination of $18.1 million of goodwill amortization, as required by the provisions of SFAS No. 142 beginning in 2002.

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        Restructuring and Severance Costs.    Restructuring and severance costs increased $3.0 million to $6.1 million in 2002 from $3.1 million in pro forma 2001. The increase was related to the consolidation of the static control manufacturing facilities into Malaysia and the closing of the Twinsburg, Ohio leased facility, which occurred in the third quarter of 2002; expenses related to our effort to increase efficiency and productivity, reduce costs and support our global growth strategy; and to additional pension expenses associated with the exit of a facility in Europe.

        Operating Income.    Operating income increased by $54.7 million, or 82.6%, to $120.9 million in 2002 from $66.2 million in pro forma 2001. The increase in operating income was primarily attributable to decreases in raw material and utility costs, lower manufacturing spending, increased volumes within our TempRite® CPVC and personal care product lines and reduced amortization expense for goodwill and was partially offset by competitive pricing pressure and an unfavorable sales mix shift and an increase in selling and administrative expenses.

        Interest Expense—Net.    Interest expense decreased $12.2 million to $75.6 million in 2002 from $87.8 million in pro forma 2001. The decrease in expense was attributable to lower interest rates in 2002, debt repayment and interest income from our cash balances.

        Income Tax Expense.    Income tax expense was $8.2 million in 2002 compared to income tax expense of $5.5 million in pro forma 2001. The income tax expense in 2002 and pro forma 2001 was primarily associated with our international operations. The effective tax rate for 2002 and pro forma 2001 was 19.1% and 23.1%, respectively.

        For pro forma 2001, we incurred pro forma domestic losses. These pro forma cumulative losses and a lack of prior earnings history in our new capital structure provided substantial evidence regarding our inability to realize certain deferred tax assets. As a result, under the provisions of SFAS No. 109, we established a tax valuation allowance to offset domestic income tax benefits associated with domestic losses for 2001.

        For the year ended December 31, 2002, sufficient income was generated to realize certain of the deferred tax assets associated with domestic net operating losses. Therefore, under the provisions of SFAS No. 109, domestic income tax expense for 2002 has been significantly offset by the reversal of tax valuation allowances. Further, based on a lack of earnings history, we have provided an additional valuation allowance associated with our foreign net operating losses.

        As of December 31, 2002, we still had cumulative losses and maintained tax valuation allowances for the balance of deferred tax assets until sufficient positive evidence (for example, cumulative positive domestic earnings and taxable income) exists to support the reversal of the tax valuation allowances.

        Net Income (Loss).    As a result of the factors discussed above, net income increased by $64.0 million to $34.7 million in 2002 from a net loss of $29.3 million in pro forma 2001.

Segment Analysis

        Consumer Specialties—Sales increased $6.8 million, or 2.4%, to $290.8 million in 2002 from $284.0 million in pro forma 2001. The increase was primarily attributable to the impact of higher sales of $9.8 million in our personal care product lines, principally due to higher Carbopol® acrylic thickener sales volumes and the impact of the success of new product introductions. The increase was partially offset by lower sales in our food colorants business of $5.9 million, principally the result of discontinued product lines.

        Gross profit increased $14.2 million, or 19.0%, to $88.9 million in 2002 from $74.7 million in pro forma 2001. As a percentage of sales, gross profit increased to 30.6% in 2002 from 26.3% in pro forma 2001. The increase in gross profit was primarily associated with decreases in raw material and utility costs, lower manufacturing spending and higher personal care volumes.

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        Operating income increased $15.3 million, or 46.5%, to $48.2 million in 2002 from $32.9 million in pro forma 2001. The increase was primarily associated with decreases in raw material and utility costs, lower manufacturing spending, higher personal care volumes and $5.2 million in reduced amortization expense for goodwill.

        Specialty Materials—Sales increased by $4.9 million, or 1.2%, to $402.4 million in 2002 from $397.5 million in 2001. The increase was primarily attributable to higher sales of $17.3 million in TempRite® CPVC, primarily related to volume increases, partially offset by lower sales of $12.4 million in polymer additives product lines, static control and Estane® TPU, principally resulting from competitive pricing pressure and soft industrial demand.

        Gross profit increased $16.0 million, or 12.2%, to $147.6 million in 2002 from $131.6 million in pro forma 2001. As a percentage of sales, gross profit increased to 36.7% in 2002 from 33.1% in pro forma 2001. The increase in gross profit was primarily attributable to decreases in raw material and utility costs, higher TempRite® CPVC volume and lower manufacturing spending.

        Operating income for the segment increased $17.4 million, or 26.0%, to $84.3 million in 2002 from $66.9 million in pro forma 2001. The increase was primarily attributable to decreases in raw material and utility costs, higher TempRite® CPVC volume, lower manufacturing spending and $7.6 million in reduced amortization expense for goodwill. The increase was partially offset by lower sales in Estane® TPU and polymer additives as mentioned above and increases in selling and administrative expenses, primarily related to the addition of sales and marketing resources and the additional costs associated with our variable incentive plans, driven by improved financial performance during 2002.

        Performance Coatings—Sales decreased $4.7 million, or 1.2%, to $376.1 million in 2002 from $380.8 million in pro forma 2001. The decrease was primarily attributable to a decline in demand in textile applications, competitive pricing pressure and an unfavorable sales mix shift.

        Gross profit increased $15.5 million, or 17.1%, to $106.0 million in 2002 from $90.5 million in pro forma 2001. As a percentage of sales, gross profit increased to 28.2% in 2002 from 23.8% in pro forma 2001. The increase in gross profit was primarily associated with decreases in raw material and utility costs. The increase was partially offset by a decline in demand in textile applications.

        Operating income for the segment increased $21.6 million, or 57.1%, to $59.4 million in 2002 from $37.8 million in 2001. The increase was primarily associated with the decrease in raw material and utility costs, and $5.3 million in reduced amortization expense for goodwill. The increase was partially offset by a decline in demand in textile applications.

        Corporate—Corporate costs decreased $3.4 million, or 5.0%, to $64.9 million in 2002 from $68.3 million in pro forma 2001. This decrease was primarily the result of our restructuring efforts, partially offset by additional costs associated with our variable incentive plans, driven by improved financial performance during 2002 and expansion of the variable incentive plans to include substantially all employees beginning in 2002.

Short Period Discussions

        Since Noveon acquired the Performance Materials Segment of Goodrich on February 28, 2001, the Performance Materials Segment of Goodrich and Noveon are reported on a different basis. Accordingly, there are short reporting periods that are not comparable to other periods. Discussions follow for the short periods, including the ten months ended December 31, 2001 for Noveon and the two months ended February 28, 2001 for the Performance Materials Segment of Goodrich.

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Ten Months Ended December 31, 2001

Total Company Analysis

        For the ten months ended December 31, 2001, we generated sales of $876.4 million, with cost of sales of $628.1 million resulting in a gross profit of $248.3 million and a gross profit margin of 28.3%. Selling and administrative expenses were $160.5 million, or 18.3% of sales. Amortization was $26.5 million, restructuring and severance costs were $3.1 million and operating income was $58.2 million, or 6.6% of sales. Interest expense was $73.5 million, other expense was $0.7 million, income tax expense was $4.6 million and net loss was $20.6 million.

Segment Analysis

        Consumer Specialties—For the ten months ended December 31, 2001, the Consumer Specialties segment generated sales of $238.8 million, with a gross profit of $64.5 million and a gross profit margin of 27.0%. Operating income was $30.8 million, or 12.9% of sales.

        Specialty Materials—For the ten months ended December 31, 2001, the Specialty Materials segment generated sales of $324.4 million, with a gross profit of $106.5 million and a gross profit margin of 32.8%. Operating income was $52.3 million, or 16.1% of sales.

        Performance Coatings—For the ten months ended December 31, 2001, the Performance Coatings segment generated sales of $313.2 million, with a gross profit of $77.3 million and a gross profit margin of 24.7%. Operating income was $34.5 million, or 11.0% of sales.

        Corporate—For the ten months ended December 31, 2001, corporate expense was $56.3 million.

Two Months Ended February 28, 2001

Total Company Analysis

        For the two months ended February 28, 2001, the Performance Materials Segment of Goodrich generated sales of $187.0 million, with cost of sales of $137.3 million, resulting in a gross profit of $49.7 million and a gross profit margin of 26.6%. Selling and administrative expenses were $35.2 million, or 18.8% of sales. Amortization expense was $4.0 million and operating income was $10.5 million, or 5.6% of sales. Interest income was $0.6 million, other expense was $1.5 million, income tax expense was $4.0 million and net income was $5.6 million, or 3.0% of sales.

Segment Analysis

        Consumer Specialties—For the two months ended February 28, 2001, the Consumer Specialties segment of the Performance Materials Segment of Goodrich generated sales of $45.2 million, with a gross profit of $10.5 million and a gross profit margin of 23.2%. Operating income was $2.1 million, or 4.6% of sales.

        Specialty Materials—For the two months ended February 28, 2001, the Specialty Materials segment of the Performance Materials Segment of Goodrich generated sales of $73.1 million, with a gross profit of $25.6 million and a gross profit margin of 35.0%. Operating income was $16.9 million, or 23.1% of sales.

        Performance Coatings—For the two months ended February 28, 2001, the Performance Coatings segment of the Performance Materials Segment of Goodrich generated sales of $68.7 million, with a gross profit of $13.6 million and a gross profit margin of 19.8%. Operating income was $3.2 million, or 4.7% of sales.

        Corporate—For the two months ended February 28, 2001, the corporate expense of the Performance Materials Segment of Goodrich was $11.7 million.

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Liquidity and Capital Resources

        Our primary sources of liquidity are cash provided by operations, undrawn commitments available under our credit facilities and proceeds generated from the sale of our debt and equity securities.

Debt and Commitments

        In July 2003, we amended and refinanced the term loans within our existing credit facilities. As a result of this amendment, our amended credit facilities include (1) a Term Loan A facility that matures on March 31, 2007, (2) a Term Loan B facility that matures on December 31, 2009 and (3) a revolving credit facility in the amount of $125.0 million that matures on March 31, 2007. A portion of the revolving credit is available in various foreign currencies. All of Term Loan A and a portion of Term Loan B are denominated in euros. The domestic revolving credit facility provides for a letter of credit subfacility, usage under which reduces the amount available under the domestic revolving credit facility. Borrowings under the revolving credit facility may be used for working capital and for general corporate purposes. We and each of our direct and indirect material domestic subsidiaries guarantee our obligations under the credit facilities. The credit facilities are secured by substantially all of our assets and the assets of all of our domestic subsidiaries in addition to a pledge of 65% of the stock of our first tier foreign subsidiaries. At December 31, 2003, there was $37.9 million outstanding on Term Loan A and $551.2 million outstanding on Term Loan B.

        Additionally, as part of the amendment, the applicable margin on the U.S. dollar-denominated portion of Term Loan B was decreased by 0.75% to 2.75% and the applicable margin on the euro-denominated Term Loan B was decreased by 0.50% to 3.00%. The applicable margin on Term Loan A is currently 2.75%. The amendment and the refinancing were not deemed to be a substantial modification of the credit facilities, and accordingly, were not accounted for as a debt extinguishment. As a result of the amended terms to our credit facilities, interest expense will be reduced by $3.4 million annually as compared to the interest expense that would have resulted given the terms of the credit facilities prior to the amendment.

        In 2002, the credit facilities were amended to allow us to prepay $45.0 million of our outstanding Term Loans and dividend to International $45.0 million in cash so that International could repay the seller note based upon an agreement between International and Goodrich.

        As of December 31, 2003, we had a cash balance of $115.6 million. We had $119.2 million available for borrowing under the revolving credit facility of $125.0 million, net of $5.8 million of outstanding letters of credit.

        Our $275.0 million senior subordinated notes mature on February 28, 2011 and interest accrues at 11% per year. Interest payments on the notes occur on March 15 and September 15 of each year. The senior subordinated notes are subordinated to our credit facility and other senior obligations that we may incur. The senior subordinated notes contain customary covenants and events of default typical of publicly traded high yield debt.

        Principal and interest payments under the credit facilities and the senior subordinated notes represent significant liquidity requirements for us. Borrowings under the credit facilities bear interest at floating rates and require periodic interest payments. Interest and principal on the credit facilities are payable periodically, but not less frequently than quarterly. The credit facilities will be repaid in periodic installments until the maturity of each of the term loans. The credit facilities contain customary representations, restrictive non-financial covenants which, among other things and with certain exceptions, restrict our ability to incur additional indebtedness, make some acquisitions, pay dividends, issue stock, enter into sale and leaseback transactions, make loans or investments, enter into new lines of business and engage in some transactions with affiliates, and restrictive financial covenants related to net worth requirements, capital expenditures, interest coverage, leverage and events of

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default. As of December 31, 2003, we were in compliance with all of the covenants contained in our credit facilities and the senior subordinated notes.

        The table below summarizes our significant contractual obligations and commercial commitments as of December 31, 2003:

        As of December 31, 2003, we had cash and cash equivalents of $115.6 million. We had $119.2 million available for borrowing under the $125.0 million revolving credit facility, net of $5.8 million of outstanding letters of credit. We believe that our cash on hand, anticipated funds from operations, and the amounts available to us under our revolving credit facilities will be sufficient to cover our working capital needs, capital expenditures, debt service requirements, other commitments and tax obligations for the foreseeable future. Our ability to fund working capital, capital expenditures, debt service requirements, tax obligations and other commitments will be dependent upon our future financial performance and our ability to repay or refinance our debt obligations, which in turn will be subject to economic conditions and to financial, business and other factors, many of which are beyond our control.

Cash Flows

        Cash flows provided by operating activities decreased $25.1 million to $117.8 million in 2003 from $142.9 million in 2002. The decrease was primarily related to a reduction in operating results due primarily to higher raw material costs, increased working capital related to sales growth and the impact of the stronger euro.

        Investing activities used $88.7 million in 2003 and included payments made in connection with acquisitions of $32.1 million and purchases of property, plant and equipment of $56.6 million. Investing activities used $79.7 million of cash in 2002 and included the working capital settlement with Goodrich discussed below which totaled $14.5 million, fees associated with that settlement of $1.0 million, payments made in connection with acquisitions of $11.9 million and capital expenditures of $52.3 million.

        During 2003, we purchased select assets and technology from a European extruder of electrostatic dissipative sheet; acquired a 5% equity investment in a company that produces TPU-based cushion technology; and purchased select assets of Thermedics Polymer Products, LLC, a manufacturer of aliphatic thermoplastic polyurethane, from VIASYS Healthcare, Inc., all of which are included in our Specialty Materials segment. We purchased the remaining minority shares of our joint venture company, Indiamalt Private Ltd., and acquired a controlling interest in Specialty Natural Products Co., Ltd., or SNP, a manufacturer of botanical extracts used in personal care product formulations based in Thailand, for our Consumer Specialties segment. We purchased certain water-based overprint coatings technology and manufacturing assets for our Performance Coatings segment. The aggregate purchase price of $32.1 million paid for these acquisitions and investment was allocated to the assets

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acquired and resulted in goodwill of $13.9 million. Final determinations of the fair value of certain assets are in process. Accordingly, the preliminary purchase price allocations are subject to revision.

        During 2002, we purchased certain tangible assets of a distributor of personal care and pharmaceutical products in Latin America; certain assets, technology and other intellectual property from a colors dispersions business; and certain assets, technology and other intellectual property related to aroma chemicals, all of which were added to our Consumer Specialties segment. We purchased certain tangible assets and technology of a textile coatings business for our Performance Coatings segment. We acquired the common stock of Gemoplast SA, which is a business located in Lyon, France engaged in the development, production and marketing of plastic alloys for our Specialty Materials segement. The total cash paid for these 2002 acquisitions was $11.9 million.

        In January 2004, we purchased Scher Chemicals, Inc., a manufacturer of emollient and surfactant specialty chemicals used in cosmetic and other personal care formulations for our Consumer Specialties segment.

        Financing activities used $2.2 million related to debt issuance costs and repayments of short-term debt. Financing activities used $107.5 million in 2002, primarily related to repayments of long-term debt, which included the $45.0 million prepayment of principal on our Term Loans, and the $45.0 million dividend to International, which utilized the proceeds to prepay a portion of the seller note.

Capital Expenditures

        We believe that our manufacturing facilities are generally in good condition and we do not anticipate that major capital expenditures will be needed to replace existing facilities in the near future. Our capital expenditures for 2003 were $56.6 million. These expenditures were used to maintain our production sites, implement our business strategy regarding operations and health and safety and for strategic capacity expansion in our key product lines. These capital expenditures were paid for through internally generated cash flow. Consistent with prior years, we expect capital expenditures for the years 2004 and 2005 to be between $55.0 million and $65.0 million annually.

Working Capital Adjustment

        Pursuant to the purchase agreement between us and Goodrich, the purchase price for the Acquisition was subject to a post-closing working capital adjustment. On June 28, 2002, we entered into an agreement with Goodrich settling the working capital adjustment in which we agreed to pay Goodrich $14.5 million. We paid that amount to Goodrich on June 28, 2002 using cash on hand. The settlement payment and the costs associated with the settlement efforts have been reflected as an adjustment to the purchase price in our financial statements and increased the goodwill associated with the Acquisition.

New Accounting Standards

        The Financial Accounting Standards Board ("FASB") issued SFAS No. 142, "Goodwill and Other Intangible Assets," in July 2001. SFAS No. 142 addressed financial accounting and reporting for acquired goodwill and other intangible assets and supersedes Accounting Principles Board Opinion No. 17, "Intangible Assets." SFAS No. 142 applied to all goodwill and other intangible assets recognized in an entity's statement of financial position at that date, regardless of when those assets were initially recognized. Under these rules, goodwill and intangible assets deemed to have indefinite lives are no longer amortized but are subject to annual impairment tests. Other intangible assets continue to be amortized over their useful lives. We adopted SFAS No. 142 effective January 1, 2002. After giving effect to the elimination of goodwill amortization, as required by SFAS No. 142, net income (loss) for the ten months ended December 31, 2001 and the two months ended February 28, 2001 would have been $(5.5) million and $8.5 million, respectively. During the second quarter of 2002, we performed the first of the required impairment tests of goodwill as of January 1, 2002. During the fourth quarters of 2003 and 2002, we performed our annual impairment test of goodwill. We determined that no goodwill impairment had occurred.

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        In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations," that requires the fair value of the liability for closure and removal costs associated with the resulting legal obligations upon retirement or removal of any tangible long-lived assets be recognized in the period in which it is incurred. The initial recognition of the liability will be capitalized as part of the asset cost and depreciated over its estimated useful life. We adopted this statement on January 1, 2003. In the first quarter of 2003 we recorded a liability for the expected present value of future asset retirement obligations costs of $1.1 million, increased net property, plant and equipment by $0.4 million and recognized a charge of $0.5 million, net of tax, related to the cumulative effect of this change in accounting principle. The pro forma effects as if the Company adopted SFAS No. 143 on January 1, 2001 are not material to the results of operations.

        In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," that supersedes SFAS No. 121, "Accounting for the Impairment or Disposal of Long-Lived Assets and for Long-Lived Assets to Be Disposed of." SFAS No. 144 retains the fundamental provisions of SFAS No. 121 related to the recognition and measurement of the impairment of long-lived assets to be "held and used," provides more guidance on estimating cash flows when performing a recoverability test, requires that a long-lived asset (group) to be disposed of other than by sales (i.e. abandoned) be classified as "held and used" until it is disposed of, and establishes more restrictive criteria to classify an asset (group) as "held for sale." We adopted SFAS No. 144 effective January 1, 2002. Upon adoption, this statement had no impact on our consolidated financial position or results of operations.

        In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 62, Amendment of FASB Statement No. 13, and Technical Corrections." For most companies, SFAS No. 145 requires gains and losses on extinguishments of debt to be classified as income or loss from continuing operations rather than as extraordinary items as previously required under SFAS No. 4. Extraordinary treatment is required for certain extinguishments as provided in APB Opinion No. 30. SFAS No. 145 also amends certain extinguishments as provided in APB Opinion No. 30. SFAS No. 145 also amends SFAS No. 13 to require certain modifications to capital leases to be treated as a sale-leaseback and modifies the accounting for sub-leases when the original lessee remains a secondary obligor (or guarantor). We adopted SFAS No. 145 during the second quarter of 2002, which had no impact on our consolidated financial position or results of operations.

        In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 requires recording costs associated with exit or disposal activities at their fair values when a liability has been incurred. Under previous guidance, certain exit costs were accrued upon management's commitment to an exit plan, which is generally before an actual liability has been incurred. The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002. We adopted this statement effective January 1, 2003. The adoption of this statement had no impact on our consolidated financial position or results of operations.

        In November 2002, the Emerging Issues Task Force ("EITF") reached a consensus on Issue No. 00-21 ("Issue 00-21"), "Revenue Arrangements with Multiple Deliverables." Issue 00-21 provides guidance on how to account for arrangements that involve delivery or performance of multiple products, services and/or rights to use assets. The adoption of Issue 00-21 in 2003 had no impact on our consolidated financial position or results of operations.

        In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." FIN No. 45 requires guarantors to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee for those guarantees initiated or modified after December 31, 2002. However, certain guarantees, including product warranties and guarantees between parties under common control (i.e., parent and subsidiary), are not required to be recognized

33

at fair value at inception. FIN No. 45 also requires additional disclosures of guarantees, including product warranties and guarantees between parties under common control, beginning with interim or annual periods ending after December 15, 2002. Guarantees initiated prior to December 31, 2002 are not recognized as a liability measured at fair value per FIN No. 45, but are subject to the disclosure requirements. The effect of adoption had no impact on our consolidated financial position or results of operations.

        In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities." Interpretation No. 46 clarifies the application of Accounting Research Bulletin ("ARB") No. 51, "Consolidated Financial Statements" for certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. Interpretation No. 46 requires that variable interest entities, as defined, be consolidated by the primary beneficiary, which is defined as the entity that is expected to absorb the majority of the expected losses, receive a majority of the expected residual returns, or both. We adopted this statement in 2003. The adoption had no impact on our consolidated financial position or results of operations.

        In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The adoption of this statement had no impact on our consolidated financial position or results of operations.

        In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 also requires that an issuer classify a financial instrument that is within its scope as a liability, many of which were previously classified as equity. SFAS No. 150 was effective for financial instruments entered into or modified after May 31, 2003, and otherwise was effective July 1, 2003. The adoption of this statement had no impact on our consolidated financial statements.

Critical Accounting Policies and Estimates

        The preparation of these financial statements in conformity with generally accepted accounting principles requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to product returns, bad debts, inventories, investments, intangible assets, income taxes, restructuring, pensions and other postretirement benefits, and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our accounting policies are more fully described in Note C of the consolidated financial statements.

        We believe the following critical accounting policies affect our significant judgments and estimates used in the preparation of our consolidated financial statements.

Allowances and Rebates

        We recognize our allowance for doubtful accounts based on our historical experience of customer write-offs as well as specific provisions for customer receivables balances. In establishing the specific

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provisions, we make assumptions with respect to future collectibility based upon such factors as the customer's ability to meet and sustain their financial commitments, their current and projected financial condition and the occurrence of changes in their general business, economic or market conditions that could affect their ability to make required payments to us in the future. The allowance for doubtful accounts is reviewed monthly and changes to the allowance are updated as appropriate. Our level of reserves for our customer accounts receivable fluctuates depending upon the factors mentioned above.

        Rebates, customer claims, allowances, returns and discounts are reflected as reductions from gross sales in determining net sales. In 2003, the total of rebates, customer claims, returns, allowances and discounts amounted to 3.9% of gross sales. Rebates are accrued based on contractual relationships with customers as shipments are made. Customer claims, returns, allowances and discounts are accrued based on our history of claims and sales returns and allowances.

Deferred Income Taxes

        The provision for income taxes is calculated in accordance with SFAS No. 109, "Accounting for Income Taxes," which requires the recognition of deferred income taxes using the liability method. Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. We provide valuation allowances against the deferred tax assets if, based on available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

        In determining the adequacy of the valuation allowance, which totaled $50.6 million as of December 31, 2003, management assesses our profitability by taking into account the present and anticipated amounts of domestic and international earnings or losses, as well as the anticipated taxable income as a result of the reversal of future taxable temporary differences.

        During 2003, we incurred losses for our domestic operations and for certain of our foreign operations. These cumulative losses and lack of prior earnings history provide substantial evidence regarding our inability to realize certain deferred tax assets. Therefore, we intend to maintain the recorded valuation allowances until sufficient positive evidence (for example, cumulative positive earnings and future taxable income) exists to support a reversal of the tax valuation allowances.

Derivative and Hedging Activities

        As required by our credit agreement, we have entered into interest rate swap agreements to limit our exposure to interest rate fluctuations on $180.0 million of the outstanding principal of our Term Loans through June 2005. In 2003, we entered into an additional interest rate swap agreement to limit our exposure to interest rate fluctuations on $25.0 million of the outstanding principle of Term Loan B. These agreements require us to pay a fixed rate of interest while receiving a variable rate. The net payments or receipts under these agreements are recognized as an adjustment to interest expense in the Company's results of operations. For the year ended December 31, 2003, the Company recorded $8.0 million of interest expense as a result of these swap agreements. As of December 31, 2003, the fair value of these swap arrangements included in other non-current liabilities totaled approximately $10.2 million. The offsetting impact of this hedge transaction is included in accumulated other comprehensive loss.

        We have entered into forward foreign currency exchange contracts, totaling $19.2 million as of December 31, 2003, to hedge certain firm commitments denominated in foreign currencies. The purpose of our foreign currency hedging activities is to protect us from risk that the eventual cash flows from the purchase or sale of products to international customers will be adversely affected by changes in the exchange rates. The fair values of these contracts at December 31, 2003 and 2002 were not material to our consolidated financial position, results of operations or cash flow.

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        We have foreign denominated floating rate debt to protect the value of our investments in our foreign subsidiaries in Europe. Realized and unrealized gains and losses from these hedges are not included in the income statement, but are shown in the cumulative translation adjustment account included in other comprehensive loss. During the year ended December 31, 2003, the unrealized loss related to the impact of foreign currency fluctuation on foreign denominated debt was $17.3 million and was included in cumulative translation adjustment.

Environmental Liabilities

        Our environmental engineers and consultants review and monitor environmental issues at our existing operating sites. This process includes investigation and remedial action selection and implementation, as well as negotiations with other potentially responsible parties and governmental agencies. Our estimates of environment liabilities are based on the results of this process.

        Goodrich provided us with an indemnity for various environmental liabilities. We estimate Goodrich's share of such currently identified liabilities under the indemnity, which extends to 2011, to be $8.1 million. In addition to Goodrich's indemnity, several other indemnities from third parties such as past owners relate to specific environmental liabilities. Goodrich and other third party indemnitors are currently indemnifying us for several environmental remediation projects. Goodrich's share of all of these liabilities may increase to the extent such third parties fail to honor their indemnity obligations through 2011. Our December 31, 2003 balance sheet includes liabilities, measured on an undiscounted basis, of $19.0 million to cover future environmental expenditures either payable by us or indemnifiable by Goodrich. Accordingly, the current portion of the environmental obligations of $0.8 million is recorded in accrued expenses and $1.4 million of the recovery due from Goodrich is recorded in accounts receivable. Non-current liabilities include $18.2 million and other non-current assets include $6.7 million, reflecting the recovery due from Goodrich.

        We believe that our environmental accruals are adequate based on currently available information. We believe that it is reasonably possible that additional costs may be incurred beyond the amounts accrued as a result of new information, newly discovered conditions or a change in the law. Additionally, as the indemnification from Goodrich extends through 2011, changes in assumptions regarding when costs will be incurred may result in additional expenses to us. However, the additional costs, if any, cannot currently be estimated.

Goodwill

        Effective January 1, 2002, we adopted SFAS No. 142, "Goodwill and Other Intangible Assets". Under SFAS No. 142, we are required to perform annual impairment tests of our goodwill and intangible assets and more frequently in certain circumstances. We have elected to test for goodwill impairment in the fourth quarter of each year. The goodwill impairment test is a two-step process, which requires management to make judgments in determining what assumptions to use in the calculation. The first step of the process consists of estimating the fair value of each reporting unit based on a discounted cash flow model using revenue and profit forecasts and comparing those estimated fair values with the carrying values, which includes allocated goodwill. Other key assumptions used to determine the fair value of our reporting units include estimated cash flow periods, terminal values based on our anticipated growth rates and the discount rate used, which is based on our current cost of capital adjusted for the risks associated with our operations. If the estimated fair value is less than the carrying value, a second step is performed to compute the amount of the impairment by determining an "implied fair value" of goodwill, which requires us to allocate the estimated fair value of the reporting unit to the assets and liabilities of the reporting unit. Any unallocated fair value represents the "implied fair value" of goodwill, which is compared to its corresponding carrying value.

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        We cannot predict the occurrence of certain future events that might adversely affect the reported value of goodwill. Such events include, but are not limited to, strategic decisions made in response to economic and competitive conditions, the impact of the overall economic environment on our customer base, or a material negative change in our relationships with significant customers.

Inventories

        Inventories are stated at the lower of cost or market. The elements of inventory cost include raw materials and labor and manufacturing overhead costs attributed to the production process. Most domestic inventories are valued by the last-in, first-out, or LIFO, cost method. Inventories not valued by the LIFO method are valued principally by the average cost method. We provide for allowances for excess and obsolete in inventory based on the age and quality of our products.

Long-Lived Assets

        We review the carrying value of long-lived assets to be held and used when events or circumstances indicate that the carrying value may not be recoverable. Factors that we consider important that could trigger an impairment include current period operating or cash flow losses combined with a history of operating or cash flow losses, a projection or forecast that demonstrates continuing losses, significant adverse changes in the business climate within a particular business or current expectations that a long-lived asset will be sold or otherwise disposed of significantly before the end of its estimated useful life. To test for impairment, we compare the estimated undiscounted cash flows expected to be generated from the use and disposal of the asset or asset group to its carrying value. If these undiscounted cash flows are less than their respective carrying values, an impairment charge would be recognized to the extent that the carrying values exceed estimated fair values. Although third party estimates of fair value are utilized when available, the estimation of undiscounted cash flows and fair value requires us to make assumptions regarding future operating results, as well as appropriate discount rates, where necessary. The results of our impairment testing are dependent on these estimates, which may be affected by the occurrence of certain events, including changes in economic and competitive conditions.

Pension and Postretirement Benefits

        Our pension and postretirement costs are accrued based on an annual analysis performed by our actuary. This analysis is based on assumptions such as an assumed discount rate and an expected rate of return on plan assets. Both the discount rate and expected rate of return on plan assets require estimates and projections by management and can fluctuate from period to period. Our expected rate of return on plan assets is a long-term assumption based upon our target asset mix. Our objective in selecting a discount rate is to select the best estimate of the rate at which the benefit obligations could be effectively settled. In making this estimate, we look at rates of return on high-quality fixed-income investments currently available and expected to be available during the period to maturity of the benefits. This process includes the construction of a hypothetical bond portfolio whose cash flow from coupons and maturities match the year-by-year, projected benefit cash flows from our pension and retiree health plans. The yield on such a portfolio becomes the basis for determining our best estimate of the effective settlement rate. If we increased the discount rate by one half of one percent, the net periodic benefit costs would have decreased by approximately $0.4 million. A decrease in the discount rate by one half of one percent would have increased our net periodic benefit costs by approximately $0.7 million.

        Unrecognized actuarial gains and losses relating to changes in our assumptions and actual experiences differing from them are being recognized over a 10.3 year period, which represents the expected remaining service life of the employer group. These unrecognized losses will be systematically recognized as an increase in future net periodic benefit costs in accordance with SFAS No. 87.

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        The actuarial assumptions used to determine pension and other postretirement benefit plan retirement benefits may differ from actual results due to changing market and economic conditions, higher or lower withdrawal rates or longer or shorter life spans of participants. We do not believe differences in actual experience or changes in assumptions will materially affect our financial position or results of operations.

Revenue Recognition

        Revenue from the sale of products is recognized at the point of passage of title, which is at the time of shipment or consumption by the customer for inventory on consignment. We require that persuasive evidence of a revenue arrangement exists, delivery of product has occurred or services have been rendered, the price to the customer is fixed and determinable and collectibility is reasonably assured before revenue is realized and earned.

Cautionary Note Regarding Forward-Looking Statements

        Certain statements in this section and elsewhere in this report include forward-looking statements, including those that relate to our future plans, objectives, expectations and intentions. Statements that are predictive in nature, that depend upon or refer to future events or conditions or that include the words "expects," "anticipates," "intends," "plans," "believes," "estimates," "seeks," "thinks" and variations of these words and similar expressions are forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results and performance to be materially different from any future results or performance expressed or implied by these forward-looking statements. Although we believe that these statements are based upon reasonable assumptions, our goals may not be achieved. These forward-looking statements are made as of the date of this report, and, except as required under the federal securities laws and the rules and regulations of the Commission, we assume no obligation to update or revise them or provide reasons why actual results may differ.

        Important factors that may affect our expectations, estimates or projections include:

•

the effects of the substantial debt we have incurred in connection with our Acquisition of the Performance Materials Segment from Goodrich and our ability to refinance or repay that debt;



•

changes in customer requirements in markets or industries we serve;



•

general economic and market conditions;



•

competition within our industry;



•

our access to capital markets and any restrictions placed on us by any current or future financing arrangements;



•

environmental and other government regulations;



•

the effect of risks of investing in and conducting operations in foreign countries, including political, social, economic, currency and regulatory factors;



•

changes in the price and supply of major raw materials; and



•

the effect of fluctuations in currency exchange rates on our international operations.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk

        We are exposed to various market risk factors such as fluctuating interest rates and changes in foreign currency rates. These risk factors can impact results of operations, cash flows and financial

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position. We manage these risks through regular operating and financing activities and periodically use derivative financial instruments such as foreign exchange forward contracts and interest rate swaps. These derivative instruments are placed with major financial institutions and are not for speculative or trading purposes.

Foreign Currency Risk

        We limit our foreign currency risk by operational means, mostly by locating our manufacturing operations in those locations where we have significant exposures to major currencies. We have entered into forward contracts to partially offset the transactional risk of foreign currency fluctuations. The fair value of these contracts at December 31, 2003 was not material to our consolidated financial position or results of operations.

        We sell to customers in foreign markets through foreign operations and through export sales from plants in the United States. These transactions are often denominated in currencies other than the U.S. dollar. The primary currency exposure is the euro.

        We have foreign denominated floating rate debt to protect the value of our investments in our foreign subsidiaries in Europe. Realized and unrealized gains and losses from these hedges are not included in the income statement, but are shown in the cumulative translation adjustment account included in other comprehensive loss.

Interest Rate Risk

        As required by our credit agreement, we are a party to interest rate swap agreements with notional amounts of $180.0 million and for which we pay a fixed rate of interest and receive a LIBOR-based floating rate. In 2003, we entered into an additional interest rate swap agreement with a notional amount of $25.0 million on our Term Loan B through 2007. Our interest rate swap agreements at December 31, 2003 did qualify for hedge accounting under SFAS No. 133 and as such the changes in the fair value of the interest rate swap agreements are recognized as a component of equity. The fair value of the interest rate swap agreements increased stockholder's equity by $4.5 million in 2003 and reduced stockholder's equity by $9.0 million in 2002.

        At December 31, 2003, we had $864.4 million of outstanding debt on our balance sheet, with $384.4 million of that total, net of $205.0 million of debt that is hedged, held at variable interest rates. Holding all other variables constant, if interest rates hypothetically increased or decreased by 10%, for the year ended December 31, 2003, interest expense would have increased or decreased by $2.6 million. In addition, if interest rates hypothetically increased or decreased by 10% on December 31, 2003, with all other variables held constant, the fair market value of our $275.0 million, 11% senior subordinated notes would decrease or increase by approximately $15.2 million.

Item 8. Financial Statements and Supplementary Data

        The financial statements required by this item are included as a separate section of this report and begin on page F-2. See Index to Consolidated Financial Statements on page F-1.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

        None.

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Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

        An evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our management including the CEO and CFO, concluded that, as of the end of such period, our disclosure controls and procedures were effective in alerting them in a timely manner to material information required to be included in our Securities and Exchange Commission reports. Our Disclosure Committee, which is comprised of members of operations and functional management, reports directly to the CEO and CFO regarding the committee's formal evaluation of disclosure controls and procedures.

Changes in Internal Controls

        There have been no significant changes in our internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation, nor were there any significant deficiencies or material weaknesses in our internal controls. Accordingly, no corrective actions were required or undertaken.

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Part III

Item 10. Directors and Executive Officers of the Registrant

        The following table sets forth information with respect to each member of our Board of Directors and each of our executive officers.

        H. William Lichtenberger has been our Chairman of the Board of Directors since March 2001. In November 2000, Mr. Lichtenberger retired from Praxair, Inc., which was spun off from Union Carbide Corporation in 1992. He served as Chairman of the Board of Praxair from 1992 until his retirement in 2000 and as Chief Executive Officer of Praxair from 1992 until March 2000. Mr. Lichtenberger is currently a director of Arch Chemicals, Inc. and Ingersoll-Rand Company. Mr. Lichtenberger is a former President, Chief Operating Officer and director of Union Carbide. He holds a bachelor of arts and a bachelor of science in chemical engineering from the University of Iowa. Mr. Lichtenberger holds a master's degree in business administration from the State University of New York, Buffalo.

        Steven J. Demetriou has been our Chief Executive Officer since March 2001 and our President since May 2001, and has served on our Board of Directors since March 2001. Prior to joining us, Mr. Demetriou served as an Executive Vice President of IMC Global Inc. and President of IMC Crop Nutrients. Mr. Demetriou joined IMC Global Inc. in June 1999 as a Senior Vice President and President of the IMC Phosphates business unit. From December 1997 to June 1999, Mr. Demetriou served as Vice President, Global Specialty Resins and President, Cytec Asia-Pacific of Cytec Industries, Inc., a manufacturer of specialty materials. Prior to working for Cytec, Mr. Demetriou worked for Exxon Chemical Company for 16 years and held various leadership positions during that time. Mr. Demetriou serves on the Board of Directors of Commonwealth Industries, Inc. Mr. Demetriou holds a bachelor of science in chemical engineering from Tufts University.

        T. J. Dermot Dunphy has served on our Board of Directors since March 2001. Mr. Dunphy has been the Chairman of Kildare Enterprises, LLC, a private equity management and investment firm

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since December 2001. Prior to joining Kildare, Mr. Dunphy worked for Sealed Air Corporation, a manufacturer and marketer of proprietary protective products and systems. In 1971, Mr. Dunphy was elected President and Chief Executive Officer of Sealed Air, and in 1996, he was elected Chairman and Chief Executive Officer of Sealed Air. From 1971 until he retired in 2000, Sealed Air's annual sales grew from approximately $5 million to approximately $3 billion. Mr. Dunphy was also President of Custom-Made Packaging, Inc. and worked for Westinghouse Electric Corporation as Manager of Services for the corporation's air-conditioning division. Mr. Dunphy is currently a director of Sealed Air Corporation and was formerly a director of FleetBoston Financial Corporation, Public Service Enterprise Group, Rockaway Corporation and Loctite Corporation. Mr. Dunphy graduated from Oxford University and holds a master's degree in business administration from Harvard Business School.

        John L. Garcia has served on our Board of Directors since March 2001. Mr. Garcia is President of AEA Investors LLC, the successor company of AEA Investors Inc., of which he has been President since September 2002. Previously, he was a Managing Director of AEA Investors Inc. from May 1999. From 1994 to 1999, Mr. Garcia was a Managing Director with Credit Suisse First Boston Corporation, where he served as Global Head of the Chemicals Investment Banking Group and Head of the European Acquisition and Leveraged Finance and Financial Sponsor Groups. His previous experience was with Wertheim Schroder in New York as an investment banker and at ARCO Chemicals, in research, strategic planning and commercial development roles. Mr. Garcia is currently a director of AEA Investors LLC, Acetex Corporation and Sovereign Specialty Chemicals, Inc. and is on the supervisory board of Symrise GmbH. Mr. Garcia is a graduate of the University of Kent in England and holds a master's degree and Ph.D. in organic chemistry from Princeton University. He also holds a master's degree in business administration from The Wharton School of the University of Pennsylvania.

        Brian R. Hoesterey has served on our Board of Directors since March 2001. Mr. Hoesterey is a Managing Director of AEA Investors LLC, the successor company of AEA Investors Inc., of which he has been a Managing Director since September 2002. Prior to joining AEA in 1999, he was an Associate with BT Capital Partners, the private equity investment vehicle of Bankers Trust, from 1998 to 1999. Mr. Hoesterey worked for McKinsey & Co. as an Engagement Manager from 1995 to 1997 and the investment banking division of Morgan Stanley & Co. Incorporated in both New York and Hong Kong from 1989 to 1993. He is currently an officer of Sovereign Specialty Chemicals, Inc. Mr. Hoesterey obtained a bachelor of business administration degree from Texas Christian University and holds a master's degree in business administration from Harvard Business School.

        Vincent A. Sarni has served on our Board of Directors since March 2001. Mr. Sarni retired from PPG Industries, Inc. in August 1993, concluding a 25-year career with the company, and is currently an independent consultant. He served as Chairman of the Board and Chief Executive Officer of PPG from 1984 until his retirement in 1993. Mr. Sarni is currently a director of Mueller Group, Inc. He is a former director of Amtrol, Inc., Brockway, Inc., Hershey Foods Corp., Honeywell, Inc., LTV Corporation, Mellon Bank, and PNC Financial Corp. Mr. Sarni is also a former Chairman of the Pittsburgh Pirates. Mr. Sarni holds a bachelor of science from the University of Rhode Island. He completed graduate studies in marketing at New York University Graduate School of Business and the advanced management program of Harvard Business School.

        Susan C. Schnabel has served on our Board of Directors since March 2001. Ms. Schnabel has been a Managing Director in the Private Equity group of Credit Suisse First Boston since December 2000. In 1990, she joined Donaldson, Lufkin & Jenrette, Inc. and became a Managing Director in 1996. In 1997, Ms. Schnabel left DLJ to serve as Chief Financial Officer of PETsMART, a high-growth specialty retailer of pet products and supplies. She rejoined DLJ in her present capacity in 1998. Ms. Schnabel serves on the Board of Directors of DeCrane Aircraft Holdings, Inc., Environmental Systems Products Holding, Inc., Shoppers Drug Mart and Target Media Partners. Ms. Schnabel received a bachelor of

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science in chemical engineering from Cornell University and holds a master's degree in business administration from Harvard Business School.

        James E. Virtue has served on our Board of Directors since April 2003. Mr. Virtue has been the Chief Executive Officer of MidOcean Partners and affiliated entities since February 2003. Prior to that, he was Chief Executive Officer of DB Capital Partners since June 1999 and a member of Deutsche Bank's Executive Committee. From 1990 to 1999, Mr. Virtue was a Managing Director of Bankers Trust Company. Mr. Virtue is currently a director of Kinetics Holdings Corp. Mr. Virtue graduated from Middlebury College with a bachelor of arts degree.

        Christopher R. Clegg is our Senior Vice President, General Counsel and Secretary and has served in that capacity since March 2001. Mr. Clegg had served as Vice President-Legal for the Performance Materials Segment of Goodrich since 1999. Before assuming that position, Mr. Clegg served as Senior Corporate Counsel for Goodrich Aerospace since May 1991. Prior to joining Goodrich, Mr. Clegg was a corporate lawyer in private practice with the law firms of Squire, Sanders & Dempsey in Cleveland, Ohio from March 1988 to May 1991 and Perkins Coie in Seattle, Washington. Mr. Clegg holds a bachelor's degree in political science from the University of California at Berkeley, a master's degree in International Studies from the Johns Hopkins University School of Advanced International Studies and a law degree from the Georgetown University Law Center.

        Michael D. Friday is our Executive Vice President and Chief Financial Officer and has served in that capacity since March 2001. Mr. Friday had served as Vice President-Finance, Business Development and Information Technology of the Performance Materials Segment of Goodrich since March 1997. Prior to joining Goodrich, Mr. Friday spent three years at Rubbermaid Incorporated as Vice President of Finance for the Little Tikes Company, where he had responsibility for information technology, customer service and finance. Prior to joining Rubbermaid, Mr. Friday spent 20 years in the General Electric Company's financial organization. Mr. Friday holds a bachelor of science degree in business administration from the Rochester Institute of Technology.

        William B. Sedlacek is our Senior Vice President and General Manager, Personal Care and Pharmaceuticals Global Business Unit and has served in that capacity since March 2001. Mr. Sedlacek had served as Group President of the Consumer Specialties Group for the Performance Materials Segment of Goodrich since 1998. Mr. Sedlacek joined Goodrich in 1977 as a product engineer in that company's international business unit. In 1988, Mr. Sedlacek moved to Brussels, Belgium, as business manager for the hydrophilics business in Europe. In 1992, Mr. Sedlacek returned to the United States as General Manager of the Hycar® Reactive Liquid Polymers business unit. Mr. Sedlacek was named Vice President and General Manager of the consumer specialties business unit in 1995 and promoted to Group President in 1998. Mr. Sedlacek earned a bachelor's degree in chemistry and zoology from Miami University and a master's degree in business administration from Miami University.

        Kumar Shah is our Senior Vice President, Corporate and Business Development and has served in that capacity since March 2001. Prior to joining us, Mr. Shah was an independent consultant from July 2000 to May 2001. Mr. Shah served as Senior Vice President-Corporate Development of International Specialty Products Inc., a specialty chemicals firm, from March 1999 to April 2000. From 1993 to February 1999, Mr. Shah served as Vice President-Corporate Development, Investor Relations of Cytec Industries, Inc., a manufacturer of specialty materials. Mr. Shah holds a bachelor's degree in chemical engineering from the Indian Institute of Technology, a master's degree in polymer science from the Polytechnic Institute of Brooklyn and a master's degree in business administration from New York University.

        Sean M. Stack is our Vice President and Treasurer and has served in that capacity since March 2001. Prior to joining us, Mr. Stack served as Vice President and Treasurer for Specialty Foods Corporation from May 1996 to December 2000. Specialty Foods filed for bankruptcy in September 2000 and emerged from bankruptcy in December 2000. Mr. Stack joined Specialty Foods as Assistant

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Treasurer in 1996. Prior to that he was a Vice President at ABN AMRO Bank in commercial and investment banking. Mr. Stack holds a bachelor's degree in business administration from the University of Notre Dame and a master's degree in management from Northwestern University's J.L. Kellogg Graduate School of Management.

        Cornelis K. Verhaar is our Senior Vice President and General Manager, Performance Coatings Global Business Unit and has served in that capacity since August 2003. From January 2003 through July 2003, Mr. Verhaar served as our Vice President and General Manager, Textiles. Prior to joining us, Mr. Verhaar served as President and Chief Operating Officer for Johnson Polymer in Wisconsin from October 1999 to June 2002. From March 1997 to September 1999, Mr. Verhaar was the European Regional Director for Johnson Polymer BV in The Netherlands. Prior to that he was Managing Director, Europe, for ICI PLC/Grow Group. Mr. Verhaar holds a bachelor's degree in economics and a doctorate degree in economics from the University of Amsterdam.

Board Committee Membership

        Our Board of Directors has two standing committees: a compensation committee and an audit committee. The compensation committee is comprised of Messrs. Lichtenberger, Dunphy and Garcia. The audit committee is comprised of Messrs. Sarni, Hoesterey and Lichtenberger. Currently, Mr. Garcia is President and Mr. Hoesterey is a Managing Director of AEA. For a more detailed discussion of relationships among our stockholders, AEA, Credit Suisse First Boston LLC and us, see "Certain Relationships and Related Transactions."

Audit Committee Financial Expert

        Our Board of Directors has determined that Vincent A. Sarni, Chair of the Audit Committee, is an audit committee financial expert as defined by Item 401(h) of Regulation S-K of the Securities Exchange Act of 1934, as amended the ("Exchange Act"), and is independent within the meaning of Item 7(d)(3)(iv) of Schedule 14A of the Exchange Act.

Conflict of Interest, Code of Ethics and Antitrust Law Policies

        We have adopted policies for conflict of interest, code of ethics, and compliance with antitrust laws for all employees, including our principal executive officer, principal financial officer and controller. These policies are attached as an exhibit to this Form 10-K, which is incorporated herein by reference.

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Item 11. Executive Compensation

        The table below summarizes compensation information for our Chief Executive Officer and our four other most highly compensated executive officers for the period of March 1, 2001 (the date we began operations) through December 31, 2003.