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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

for the fiscal year ended December 31, 2004

Commission file number: 333-19495

RADNOR HOLDINGS CORPORATION

(Exact name of Registrant as specified in its charter)

Registrant’s telephone number, including area code: 610-341-9600

Securities registered pursuant to Section 12(b) of the act: None

Securities registered pursuant to Section 12(g) of the act: None

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark 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.  x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).    Yes  ¨    No  x

As of March 31, 2005 there were 600 shares of the Registrant’s Voting Common Stock ($.10 par value), 245 shares of the Registrant’s Nonvoting Common Stock ($.10 par value) and 5,400 shares of the Registrant’s Class B Nonvoting Common Stock ($.01 par value) outstanding. There is no market for the voting and nonvoting common stock of the Registrant. Accordingly, the aggregate market value of voting and nonvoting securities held by non-affiliates of the Registrant as of June 25, 2004 was indeterminable. Based on the estimated fair value of $25,250 per share of the underlying securities, as determined by the Company’s Board of Directors, the fair value of voting and nonvoting securities held by non-affiliates of the Registrant as of June 25, 2004 was $2,272,500.

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RADNOR HOLDINGS CORPORATION

2004 FORM 10-K

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ITEM 1. BUSINESS

Radnor Holdings Corporation (the “Company”, “Radnor”, “we”, “us” or “our”) is a leading manufacturer and distributor of a broad line of disposable foodservice products in the U.S. and of specialty chemical products worldwide. We operate 15 plants in North America and three in Europe and distribute our foodservice products from ten distribution centers throughout the United States. We are the second largest U.S. manufacturer of foam cups and containers and we also manufacture polystyrene and polypropylene drinking cups, stemware, plates, bowls, containers and cutlery. In fiscal 2004, we produced 14.7 billion foam and plastic cups for hot and cold drinks, foam bowls and containers and thermoformed lids and 1.5 billion pieces of plastic cutlery. We are upgrading our thermoforming equipment and installing new production lines to facilitate the introduction of our proprietary polypropylene cold drink cups. This expansion is needed to meet accelerating customer demand, including business awards from quick service restaurants (QSRs).

By capacity, we are the fifth largest worldwide producer of expandable polystyrene, or EPS, which is the primary raw material used in our foodservice packaging products. We have been manufacturing EPS and related products sold to the foodservice, insulation and protective packaging industries for more than 26 years. In fiscal 2004, we produced 364 million pounds of EPS. We supply 100% of our own EPS needs in addition to supplying EPS to other manufacturers of foodservice, insulation and protective packaging products.

Financial information concerning the Company’s business segments appears in Note 13 to the Consolidated Financial Statements included under Item 8 herein.

Industry Overview

Packaging. We compete within the foodservice industry, which includes products manufactured with paper, plastic, foam and other materials. Radnor manufactures a broad range of disposable foam, polypropylene and polystyrene foodservice products.

According to independent industry research, the U.S. foodservice disposable industry, which includes foodservice distributors, QSRs, retail and consumer customers such as mass merchandisers, drug stores and club stores, generated $11.5 billion in U.S. sales in 2002. In 2003, disposable cups and lids represented approximately $4.1 billion of the industry. It is projected that demand for disposable cups and lids will increase 4.0% annually to $5.0 billion in 2008. Growth in this market is projected to be driven by increasing disposable personal income levels and a favorable outlook for foodservice revenues, especially in the QSR segment. According to recent independent industry analyses, the plastic cup segment is projected to grow at an annual rate of 5.0% through 2008 while the foam cup segment is projected to grow at an annual rate of 2.9% through 2013.

The factors that originally gave rise to the use of disposable products continue to support the market’s growth. These include lower labor, maintenance and energy costs as compared to reusable products, as well as sanitary considerations and growth in the consumption of take-out foods and beverages. The expansion of QSRs and warehouse retailers and the consolidation of some foodservice distributors into larger companies with a national presence have also increased the use of disposable products.

Cold drink cups constitute a majority of the disposable cup market and consist primarily of paper and polystyrene cups. Plastic cold cup usage has increased dramatically in recent years as a result of advantages as compared to paper, including lower cost, elimination of sogginess, greater rigidity, seamless construction and unique design and printing capabilities. In addition, larger size cups can be molded to fit into car cup holders, thereby taking advantage of the trend toward larger cup sizes and growing take-out markets, including drive-thru windows at QSRs. Polypropylene products additionally have cost advantages and an enhanced appearance as compared to polystyrene plastic and other cold drink cup products. Led by demand from take-out markets, including drive-thru windows at QSRs, we believe growth in this segment will be strongest in larger sizes where polypropylene cups can be designed to fit into car cup holders.

Foam cup usage has also increased over the last two decades as a result of factors unique to this segment. These factors include the superior insulating and molding qualities of foam, lower production costs as compared to other disposable and reusable products and sanitary considerations. Although the success of foam

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cups to date has been primarily in the hot drink segment, we believe that there continues to be significant growth opportunities in the sale of cold drink cups, particularly in the large (20 through 64 ounce) sizes, including specialized products such as car carrier cups, on which we make higher margin.

For both the plastic and foam products segments, other growth factors include the expansion of warehouse retailers, the growth in consumption of take-out foods and beverages and increased demand for larger sizes and specialized products.

Specialty Chemicals. We compete in the North American and European EPS markets. In North America, we sell EPS to the insulation, protective packaging and foodservice industries. Independent industry analyses estimated the U.S. EPS market to have been in excess of 400,000 metric tons in 2000 and projected an annual growth rate of approximately 3% through 2010. This market is concentrated, with Radnor and three other competitors accounting for over 90% of the North American market.

In Europe, we sell EPS to the insulation and protective packaging industries. The EPS market in Europe includes a broader range of product applications and is more fragmented than the North American market. An independent industry analysis estimated the European EPS market to have been in excess of 995,000 metric tons in 2000 and projected an annual growth rate of approximately 3% through 2005.

Products

Packaging. Radnor manufactures a broad range of disposable foodservice products, including cups, bowls, plates, containers, lids, cutlery, barware and stemware from EPS, polypropylene (“PP”) and polystyrene (“PS”):

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Our thermoformed and injection molded polypropylene and polystyrene product lines include more than 450 cups and containers, ranging in size from 3.5 oz to 44 oz with matching lids. To simplify display and inventory requirements, we design our cold drink cups so that the same lid can be interchanged with many cup sizes. The use of polypropylene as a raw material provides drink cups with enhanced appearance qualities, including a rolled lip that is less abrasive to the user while providing a sturdy yet comfortable feel. Polypropylene also allows us to improve printing quality for our customers, permitting photographic-quality printing that is superior to the print capabilities of other substitute products. We also manufacture thermoformed polypropylene portion cups used for salad dressing, condiments and other food items, as well as rigid plastic cutlery products.

The use of foam provides an insulating feature to our products, allowing them to be used for both hot and cold beverages and food products while enhancing comfort for the end user. Foam cups are manufactured in varying sizes (4 to 64 ounces) for both hot and cold beverages and are sold under numerous brand names, including WinCup, COMpac, Profit Pals, STYROcup, Big Cool and Simplicity. Foam bowls and other containers are made in varying sizes (3.5 to 32 ounces) for both hot and cold food products and are sold under the STYROcontainers brand name. Our thermoformed leak-resistant plastic lids feature a “stacking ring” that minimizes the shifting of a second cup when placed on top of the first cup. Other enhanced lid features include vents, tear-away tabs and straw slots, depending on the intended use. Cups, bowls, containers and lids are designed so that the same lid can be interchanged with many different cup, bowl or container sizes, which simplifies inventory and display area requirements. For example, our 10 cup-2 lid product line allows two different lids to fit with ten different size cups.

Our cups, bowls and containers are available with custom offset or embossed printing. We also manufacture a broad range of custom-designed foam containers for many of our large national accounts. A significant component of this business is the manufacturing of containers for customers, which use the containers for dried noodle products sold through retail grocery and supermarket chains. We also supply our products in private label packaging for certain of our customers.

We continuously work to develop new products that fit with our customers’ specific needs. One of our early customer-driven developments was the “flare” cup design that replaced the heavier rim typically built into the top of a foam cup with a smooth, flared edge that improves the stability of the cup’s construction. The flare cup was well-received by customers because it combined the favorable appearance of paper with the insulating qualities of foam. More recently, our car carrier cups have addressed the end user’s desire for a cup that can contain larger volumes of liquid while fitting into an automobile’s cup holder.

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Specialty Chemicals. In North America, we manufacture EPS for our internal consumption, in addition to selling directly to third-party manufacturers of foodservice, insulation and protective packaging products:

EPS is categorized by size, with the smallest size, or cup-grade, used to manufacture foam cups and containers. Larger sizes are sold to manufacturers of insulation and protective packaging products and include EPS modified for fire retardancy.

We manufacture a broad range of EPS formulations in Europe for conversion into a variety of standard and specialized insulation and packaging products. This EPS is made primarily for the insulation and protective packaging industries and includes a range of bead sizes and densities for conversion by customers into light and heavy insulation boards as well as various shape products, such as insulated fish packaging boxes. We work closely with our European customers to incorporate special product features into our EPS, such as fire retardancy, low water absorption, specialty coatings, higher thermal insulation qualities and antistatic properties.

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Sales, Marketing and Customers

Packaging. Radnor sells its broad range of disposable products to the foodservice industry through a 36-person sales organization and through an extensive network of 54 independent sales representatives. Sales and marketing efforts are directed by our Senior Vice President of Sales and Marketing and are supported by 12 senior sales managers averaging more than eleven years of experience in the foodservice industry. We believe our experienced sales team and long-term representative relationships enhance our ability to provide high levels of customer service and specialized marketing programs, including custom-designed products. Major end users of these products include QSRs, full-service restaurants, hospitals, nursing homes, educational institutions, airlines, business offices, movie theaters and other leisure time concessionaires, such as sports stadiums.

We sell disposable products in the foodservice industry to more than 1,400 national, institutional and retail accounts throughout the United States, in Mexico and in other countries. This customer base, which includes many of the foodservice industry’s largest companies, can be divided into three major categories:

National Accounts: National accounts are customers that use our disposable foodservice products in the sale of their own products and consist primarily of large QSR chains and convenience stores. During fiscal 2004, sales to these customers accounted for approximately 10.1% of our net sales.

Institutional Accounts: Institutional accounts are customers that purchase our disposable foodservice products with a view toward reselling such products in bulk to institutional end users, such as hospitals, restaurants, nursing homes, educational institutions, airlines, movie theaters and other leisure time concessionaires, such as sports stadiums. These customers, representing approximately 41.4% of our net sales in fiscal 2004, are primarily large foodservice distributors.

Retail Accounts: Retail accounts are customers that purchase our disposable foodservice products for resale to actual consumers of the products and consist primarily of supermarket chains and discount stores. In fiscal 2004, retail customers accounted for approximately 6.9% of our net sales.

Approximately 10.0% of our packaging product sales are made pursuant to arrangements under which product prices are automatically adjusted based on changes in prices of styrene monomer, polypropylene and other raw materials. Substantially all of our other packaging product sales are made pursuant to contracts or other arrangements under which we have the right to change product prices on 30 to 60 days’ prior written notice.

Specialty Chemicals. In North America, we sell EPS through a dedicated sales force averaging 21 years of experience and two broker organizations to manufacturers of foam protective packaging and insulation products. In Europe, we market through our Europe-wide sales office network. In support of these sales and marketing efforts, we employ people who are knowledgeable about chemical engineering and manufacturing processes in order to provide technical assistance to our customers.

In Europe, we sell EPS to 200 primarily mid-sized companies throughout Europe. We have actively pursued these customers because they provide potential for higher margins and because of their increased reliance on our technical support, which results in a greater ability to foster long-term customer relationships. We sell approximately 25% of our European EPS production to our former European insulation business pursuant to a long-term supply agreement.

Customer Concentration. No customer represented more than 6.3% of our net sales for fiscal 2004, although the five largest accounts represented approximately 21.5% of such sales. Because we are focusing our marketing efforts for our new thermoformed polypropylene products on our key customers, we anticipate that this customer concentration may increase in the future.

Manufacturing

We operate 15 plants in North America and three plants in Europe. Our eleven U.S. and European foam plants generally operate 24 hours a day, seven days a week and 355 days a year. Our plastic cup and

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cutlery products are manufactured through an injection molding or thermoforming process that uses polystyrene and polypropylene as its principal raw materials in our state-of-the-art manufacturing facility in North Carolina. This plant operates 24 hours a day, seven days a week and 355 days a year. We also operate six plants located in the United States, Canada and Europe that manufacture EPS from styrene monomer and also operate 24 hours a day, seven days a week and 355 days a year.

Manufacturing Process. The manufacture of EPS, the primary raw material in the manufacture of foam products, has two steps: polymerization and impregnation. In the polymerization phase, styrene monomer, which is a commodity petrochemical derived primarily from benzene and ethylene, is suspended in water and then treated with chemicals and catalysts to produce polystyrene crystal in various sizes, each of which has different end-use applications, including general purpose polystyrene. To produce EPS, the crystal is impregnated with a high-purity pentane gas.

We manufacture our foam cups and containers utilizing a custom molding process. First, the cup-grade EPS is blended with a lubricating agent and then pre-expanded so that the EPS is of the appropriate density. This pre-expanded EPS is then fed through special screeners to remove undersized and oversized beads. The pre-expanded EPS is then injected into machine molds and fused by injecting steam into the mold cavity. After the EPS is fused, the mold shells are cooled, the mold halves are opened and the finished cups are ejected. The finished products are vacuum tested, counted and packaged.

We manufacture polypropylene cups and containers using a complete line process. In this process, polypropylene pellets and desired colorants are mixed, heated and extruded into a continuous sheet, which is then fed into a thermoformer and molded into the size and shape of the preferred product design. After the cups are cooled, they are trimmed from the sheet while still in the mold and are subsequently transferred to a forming station where the rims are rolled over in a coining process to provide attractive and highly functional lips for the finished products. The finished cups are automatically transferred for packaging into finished cases or to printing and then packaged into finished cases.

We manufacture both polypropylene and polystyrene cutlery and cups using an injection molding process in which resins and colorant are mixed and heated through an extrusion process. The liquid resin is then injected into the cavities of the mold to form the shape of the product. The material is cooled inside the mold through the use of chilled water. Both halves of the mold are then separated and the parts ejected where they are transported to either an automatic or manual packing station, depending on the type of finished product.

Our lid products are produced from high-impact polystyrene, or HIPS, which is subjected to heat and pressure, after which the product is extruded through a thin die. The lids are then trimmed for finished goods packing, while the scrap is ground and reintroduced into the original material blend.

Quality Control. Our manufacturing quality control program for foam foodservice products involves automated testing of all products for leaks. In addition, random testing is performed at least hourly at each facility for various attributes: seepage, weight, appearance, strength and, where applicable, print. We centrally collect the resulting data, subject it to statistical analysis and review the results. In addition, each machine operator and packer performs various quality checks during the production process. We also obtain random samples of finished foam packaging products from our various manufacturing facilities and perform an analysis similar to that described above at our Phoenix laboratory.

Our manufacturing quality control program for thermoformed plastic products enables us to meet our customers’ requirements through a documented Quality Management System. We monitor and measure the attributes that are critical to quality. We then statistically analyze the data to ensure that the processes are consistent in conforming to the customers’ desires.

In addition to our own programs, certain of our larger customers have established their own product standards and perform periodic manufacturing audits at our facilities, either through their own personnel or through an independent testing group such as ASI Food Safety Consultants. We also submit products to third-party laboratories for microbiologic and physical tests to ensure that we conform to or exceed industry product safety standards.

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We utilize our quality, service, manufacturing and customer partners to enact and follow through on initiatives consistent with total quality management and good manufacturing practices. Through these programs, we work with our customers to ensure product quality and to create new products that reflect the present and future needs of our customers.

Our North American EPS quality control laboratory includes infrared spectrograph and atomic absorption units. Our laboratory chemists are capable of performing complex chemical and atomic analysis of styrene monomer, polystyrene crystal, expandable polystyrene and all other material components of EPS production. This gives us the ability to customize EPS formulas to meet any special customer requirements. The EPS quality control program includes testing every production batch of EPS to ensure it meets specific customer requirements. Each batch is tested for particle sizes, pentane gas volume and, if the EPS is to be used for insulation, its fire retardation capability.

In Europe, our sophisticated quality control laboratory is complemented by a fully equipped analytical laboratory containing three fully instrumented, automatically controlled pilot reactors, a fully equipped reactor bay, including a reactor and equipment for screening and coating, as well as two complete lines for converting EPS into insulation boards and shape-molded products. Testing equipment for analytical and quality audit work includes electronic balancers, equipment for testing burning behavior, gas chromatographs, sweep electron microscopes, colorimeters, flexural/compressive strength testers, an izod impact tester and lambda value testers. We regularly test our EPS for a range of key attributes that vary by specific product. Our European facilities are either ISO 9001 or ISO 9002 certified and both are also ISO 14001 certified.

Engineering. As of March 31, 2005, we employed 72 full-time technical personnel, including 30 full-time engineers and engineering managers, based in the Phoenix, Corte Madera, Fort Worth, Mooresville and Canadian facilities. The engineering staff uses computer-aided design and computer-aided manufacturing systems to design advanced, three-dimensional models of products and molds. Once an electronic image of the machine and mold part design is generated, the part can be custom manufactured. We have the capacity to construct all of the proprietary equipment, machines and molds used in the production, testing and packaging of our foam products. We have also developed and are installing in our manufacturing facilities automated materials handling equipment that includes in-line printing, automatic case packaging equipment and more advanced molding machines.

We continually examine how to improve our manufacturing process efficiencies. Sophisticated infra-red imaging systems, providing real-time video displays, are used to evaluate the thermal efficiency of molds and machines under development. We also can create special prototype mold forms for new lid designs and single-cavity cup and container molds, both of which enhance our ability to evaluate customer design requests rapidly.

The managing director of our European EPS operations is an engineer, as are each of the managers and supervisors of the production facilities located in Europe. In Europe, we also employ two full-time engineers who are responsible for process and production engineering and interact regularly with research and development personnel based in the analytical laboratory as well as senior technical support staff responsible for assisting the sales team.

Raw Materials

Our foam products are manufactured from EPS, which is produced from styrene monomer. High-purity pentane is also used as an expanding agent in the production of EPS. The raw materials we use for the manufacture of thermoformed lids are primarily plastic resins such as polystyrene. Our plastic cups and cutlery are thermoformed and injection molded from polypropylene and polystyrene resins.

Styrene monomer is a commodity petrochemical that is readily available throughout the world in bulk quantities from numerous large, vertically integrated chemical companies. Styrene monomer prices have fluctuated significantly as a result of changes in petrochemical prices and the capacity, supply and demand for styrene monomer. For example, the contract price for styrene monomer increased from $0.25 per pound in January 2002 to $0.42 per pound in December 2003. The contract price for styrene monomer increased to $0.70 per pound in November 2004, and was $0.64 per pound as of February 2005. Although future styrene monomer

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prices cannot be predicted with accuracy, contract prices are forecasted by independent industry surveys and producer reports to decline to $0.58 by the end of 2005. While the Company has been able to pass on the majority of past price increases to customers, the Company may not be able to increase prices if styrene monomer costs rise in the future.

We have historically purchased a majority of our styrene monomer requirements under a variety of long-term supply contracts. These contracts provided a supply of styrene monomer under several different pricing mechanisms and with volume discounts. The various pricing mechanisms included those tied to raw material prices, spot market indices, contract indices and varying mixtures of the three. On March 18, 2005, the Company amended the end of the term of its primary North American styrene monomer requirements contract from December 2009 to August 2005. By amending this contract, the Company believes it gained greater flexibility in its overall ability to purchase styrene monomer.

High-purity pentane, which is used as the expanding agent in the production of EPS, is available from a limited number of suppliers. Should high-purity pentane become unavailable, however, high-purity butane may be substituted as the expanding agent.

The raw materials used in the manufacture of our polystyrene plastic cups and cutlery and for the manufacture of thermoformed lids are primarily plastic resins such as polystyrene, which are available from a number of sources. Our polystyrene resin supplies are purchased under various agreements that contain minimum and maximum purchase requirements. The price we pay for polystyrene resin is determined at the time of purchase and can be supported by our styrene monomer purchases. The prices of polystyrene resins fluctuated in a fashion similar to the fluctuations affecting styrene monomer as described above. Polystyrene is largely a derivative of styrene monomer and prices react the same way over time. Prices also can change based on the operating rates of the polystyrene manufacturing facilities. Published contract polystyrene pricing was $0.88 per pound as of February 2005. The forecasted price of polystyrene is expected to range between $0.77 and $0.96 during 2005.

The primary raw materials used to manufacture our thermoformed plastic products are polypropylene resins that are made from propylene. We do not currently have long-term supply agreements for polypropylene and may not be able to enter into such agreements on favorable terms or at all. If we are unable to enter into long-term supply agreements, we will be more impacted by the changing market conditions for polypropylene. Polypropylene resin pricing follows the raw material price of propylene and is influenced by the operating rates of the respective polypropylene manufacturing locations. The published homopolymer polypropylene contract price was $0.69 per pound for February 2005 and is forecasted by independent industry surveys and producer reports to decline to $0.63 per pound by the end of 2005. Polypropylene has also had the tendency to fluctuate significantly over time. For example, the contract price for polypropylene ranged from $0.28 to $0.66 from the beginning of 2002 through December 2004. We anticipate entering into long-term contracts to provide consistent supply of polypropylene resins. We expect the pricing mechanisms in those contracts to be market driven and to change monthly. We also anticipate that we will obtain rebates based on volume incentives with the respective suppliers.

If pricing of either polystyrene or polypropylene resins would put us in an uncompetitive position, we can switch to the other resin to make our products competitive.

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Proprietary Technology and Intellectual Property

We have developed a broad array of proprietary technology that is utilized in various stages of our manufacturing operations, including the manufacture of our new thermoformed polypropylene products. We rely primarily upon confidentiality agreements and restricted plant access to protect our proprietary technology, which we consider material to our operations. We own several patents relating to our foodservice packaging products and our EPS manufacturing processes. However, we do not consider these patents material to our operations.

As of March 31, 2005, we owned 57 trademarks and 11 copyrights registered in the United States, several of which are also registered in other countries. As of such date, we also owned a number of unregistered trademarks. We do not consider any of these trademarks or copyrights material to our operations.

Competition

We compete in the highly competitive foodservice industry. The foam segment of the disposable cup and container market is highly concentrated and, within this segment, we compete principally with Dart Container, which has significantly greater financial resources than we have and controls the largest share of this market segment. We do not believe that companies operating in related markets are likely to enter the foam segment due to the significant investment that would be required.

We believe that competition within the foam segment of the market is based primarily on customer service, product quality and the price at which products are offered. We believe that our market position is attributable to our high level of customer service and product quality, strategically located manufacturing facilities, proprietary technology and experienced management team.

The plastic segment of the disposable cup and container market is significantly fragmented. Major producers of thermoformed plastic cups and containers include Pactiv, Solo Cup, Alcoa Packaging and Dart Container. However, the Company believes that only one other competitor, Berry Plastics, manufactures deep-draw thermoformed polypropylene cold cups. It is possible that other competitors may enter the plastic segment of the disposable cup and container market despite the significant investment, especially in equipment and technology that would be required. In addition, as thermoformed polypropylene cold cups gain market acceptance, we would anticipate that producers of polystyrene plastic cups may enter this market.

We believe that competition within the plastic segment of the disposable cup and container market is based primarily on customer service, product quality and appearance and the price at which products are offered. We believe that the manufacturing capability we are developing, together with our experience customizing products, superior customer service, national distribution capabilities, demonstrated ability to successfully integrate acquisitions and ability to leverage our long-term customer relationships and our other competitive strengths, will position us to capture a meaningful portion of the plastic cold drink cup market.

We also compete with the paper segment, which is significantly more fragmented than the foam segment. We believe that competition between foam, plastic and paper is based on product appearance, quality and price.

In North America, the EPS industry is highly concentrated. Management believes that each of NOVA Chemicals, Inc., Huntsman Chemical Corp. and BASF Corporation, which are larger than we are and have greater financial resources than we have, controls a significant share of the market for supplying EPS to manufacturers of insulation and protective packaging products. We believe that competition within this industry is primarily based on price, although customer service, support and specialized product development can be significant competitive factors, particularly among the smaller manufacturers of foam insulation and protective packaging products.

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The European EPS industry is more fragmented than in North America. Several companies, including BASF Corporation, and the NOVA Chemicals - BP joint venture are larger and have greater financial resources than we have. We believe that competition is based primarily on price, although technical support, specialized product development and consistent quality are important factors to many of our customers.

Employees

As of December 31, 2004, we had 1,940 full-time employees. We have never experienced a material labor strike or other labor-related work stoppage. We consider our relations with our employees to be good.

Our U.S. employees are not represented by any union. In Canada, approximately 60% of our employees are represented by a union and are covered by a collective bargaining agreement. In Finland, over 80% of our employees are represented by one of three unions and we are subject to two collective bargaining agreements. The European Union directives regarding employment are applicable to us in Finland; however, the terms of the collective bargaining agreements will control employment relationships to the extent that these agreements address relevant issues in a more detailed manner and include benefits exceeding the minimum standards established by the directives.

We are dependent on the management experience and continued services of our executive officers, including our Chief Executive Officer, Michael T. Kennedy. The loss of the services of these officers could have a material adverse effect on our business. In addition, our continued growth depends on our ability to attract and retain experienced key employees.

Environmental Matters

Our facilities are used for manufacturing or warehousing of foam container, thermoformed or injection molded products, as well as the EPS from which foam products are manufactured. Many of these facilities are subject to federal, state, foreign and local laws and regulations relating to, among other things, emissions to air such as pentane, styrene and particulate matter, discharges to water, and the generation, handling, storage, transportation and disposal of hazardous and non-hazardous materials and wastes.

In 1996, in connection with their acquisition, the soil and shallow groundwater at our domestic EPS facilities were found to contain elevated levels of various contaminants. However, based on the results of soil and groundwater testing, material remediation efforts with respect to these conditions have not been, and we believe will not be, required. We own and operate, or owned or operated, underground storage tanks, also referred to as USTs, at several of our facilities for the storage of liquid pentane and heavy fuel oil. Leak detection or containment systems are in place at each facility with USTs that we currently own or operate. USTs are generally subject to federal, state, local and foreign laws and regulations that require testing and upgrading of USTs and remediation of polluted soils and groundwater resulting from leaking USTs. In addition, if any leakage from our USTs were to migrate onto the property of others, we could be subject to civil liability to third parties for remediation costs or other damages.

Some of our facilities have been alleged or are known to have failed to comply with various reporting or permitting obligations under applicable environmental laws and regulations. The resolution of these allegations and failures has not had a material adverse effect on our financial condition or results of operations, nor do we believe that any future costs of achieving and maintaining compliance with these laws and regulations will have that effect. There have been no instances of noncompliance with these laws and regulations that have had a material adverse effect on our financial condition or results of operations. We believe the likelihood of any such instances as having occurred is remote. However, if any such instances of noncompliance are confirmed, we could incur significant fines, penalties or capital and operating costs. We cannot currently estimate the possible scope of these fines, penalties and costs as we are not aware of any such instances. There can be no assurance that recently promulgated or future environmental laws or regulations, including regulations affecting the volume of and permitting for air emissions in the United States, Canada and in Europe, or changes in interpretation of environmental laws and regulations or of reporting or permitting obligations, will not require us to incur substantial expenditures or significantly modify our operations.

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Certain of our current and former facilities are located in industrial areas and have been in operation for many years. As a consequence, it is reasonably possible that historical or neighboring activities have affected properties currently or formerly owned or operated by us and that, as a result, additional environmental issues may arise in the future. Because we cannot predict the precise nature of these issues, we cannot estimate the possible range of costs we could incur to address them.

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ITEM 2. PROPERTIES

We lease approximately 25,000 square feet in Radnor, Pennsylvania, a suburb of Philadelphia, for our executive offices. We believe that our present facilities are adequate for our current operations and that we will be able to lease or otherwise acquire any additional facilities as may be required for our future operations.

We also own or lease manufacturing, warehouse, office, machine assembly and utilities facilities at the locations shown in the following table:

Packaging

Specialty Chemicals

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ITEM 3. LEGAL PROCEEDINGS

We are involved in a number of legal proceedings arising in the ordinary course of business, none of which we believe will have a material adverse effect on our financial condition or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There are no matters to be reported hereunder.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

There currently exists no established public trading market for the Company’s Voting Common Stock, $.10 par value, Nonvoting Common Stock, $.10 par value, or Class B Nonvoting Common Stock, $.01 par value.

As of March 31, 2005, there were 3 holders of record of the Company’s Voting Common Stock, 11 holders of record of the Company’s Nonvoting Common Stock and 13 holders of record of the Company’s Class B Nonvoting Common Stock.

Dividends

No dividends were declared or paid during the years ended December 31, 2004 or December 26, 2003. The declaration and payment of dividends are subject to the discretion of the Company’s Board of Directors and will depend on various factors, including restrictions on dividends contained in the Company’s credit agreements and the indentures pursuant to which the Company issued its 11% Senior Notes due 2010 and its Senior Secured Floating Rate Notes due on April 15, 2009.

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ITEM 6. SELECTED FINANCIAL DATA

The following table presents selected consolidated financial data for the Company. The following data should be read in conjunction with the consolidated financial statements, the related notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere herein. Financial results for the periods presented are not fully comparable because of the December 2001 disposition of our European insulation operations and the November 2003 acquisition of certain assets from Polar Plastics Inc. (the “Acquisition”) as described in Note 3 to the Company’s consolidated financial statements included elsewhere herein. Fiscal years 2000 and 2001 contain the results of operations from the European insulation operations.

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In March 2003, the Company issued $135.0 million of senior notes due 2010 and amended its domestic revolving credit facility to include a $45.0 million term loan and to increase the revolving credit commitment from $35.0 million to $45.0 million. The proceeds were used to repay the then outstanding $159.5 million of Series A and Series B senior notes due 2003 and outstanding borrowings under the existing revolving credit facilities. The Company recorded $0.8 million of personnel costs directly related to the extinguishment of the long-term debt described above.

In 2002, the Company incurred $1.2 million in costs, primarily investment banking fees, relating to the exploration of the possible sale of its European specialty chemicals operations.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations

The following discussion and analysis should be read in conjunction with Item 6, “Selected Financial Data” and Item 8, “Financial Statements and Supplementary Data” included elsewhere herein. Financial results for the periods presented are not fully comparable because of the November 2003 Acquisition and due to the fact that fiscal year 2004 was a 53 week period and fiscal years 2003 and 2002 were 52 week periods.

General

Radnor Holdings Corporation is a leading manufacturer and distributor of a broad line of disposable foodservice products in the United States and specialty chemical products worldwide. We operate 15 plants in North America and 3 in Europe and distribute our foodservice products from 10 distribution centers throughout the United States. In November 2003, we acquired the operations of Polar Plastics, Inc. and its subsidiary (“Polar Plastics” or the “Acquisition”). The Acquisition extended our product line to include thermoformed and injection molded disposable foodservice products. We are also upgrading our thermoforming equipment and installing new production lines to facilitate the introduction of our proprietary polypropylene cold drink cups. This product line expansion is necessary to meet accelerating customer demand, including business awards from quick service restaurant customers.

We have been manufacturing expandable polystyrene, or EPS, and related products sold to the foodservice, insulation and protective packaging industries for more than 26 years. In the foodservice industry, we are the second largest manufacturer of foam cup and container products in the U.S. By capacity, we are also the fifth largest worldwide producer of EPS. In fiscal 2004, we produced 14.7 billion foam and plastic cups for hot and cold drinks, foam bowls and containers and thermoformed lids and 364 million pounds of EPS. We supply 100% of our own EPS needs in addition to supplying EPS to other manufacturers of foodservice, insulation and protective packaging products.

Net Sales

Net sales represent the sales of the Company’s products less (i) cash discounts and allowances, which historically have averaged approximately 2% of gross sales, and (ii) sales and marketing rebates.

Cost of Goods Sold

Raw material and energy-related costs represent a large portion of the Company’s cost of goods sold and are susceptible to price fluctuations based upon supply and demand as well as general market conditions. Beginning in January 2003 through January 2005, market prices of styrene monomer, the primary raw material in the Company’s foam products, increased by 56%. Although future raw material prices cannot be predicted with accuracy, prices for styrene monomer are forecasted by independent industry surveys and producer reports to decline by approximately 10% over the remainder of 2005. While the Company has been able to pass on the majority of past raw material price increases to customers, the Company may not be able to increase prices if raw material costs rise in the future.

Our plastic cups and cutlery are thermoformed and injection molded from polypropylene and polystyrene resins. The prices of polystyrene resins have generally fluctuated in a fashion similar to the fluctuations affecting styrene monomer. Polystyrene is largely a derivative of styrene monomer and prices typically react similarly over time. Prices also can change based on the operating rates of the polystyrene manufacturing facilities. Published contract pricing for high-impact polystyrene, or HIPS, was $0.88 per pound as of February 2005. The forecasted price of HIPS is expected to range between $0.77 and $0.96 during 2005.

The primary raw materials used to manufacture our thermoformed plastic products are polypropylene resins, which are made from propylene. We do not currently have long-term supply agreements for polypropylene. Polypropylene resin pricing will generally follow the raw material price of propylene and be influenced by the

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operating rates of the respective polypropylene manufacturing locations, as well as general supply and demand conditions. Polypropylene has also had the tendency to fluctuate significantly over time. For example, the contract price for polypropylene ranged from $0.28 to $0.66 from the beginning of 2002 through December 2004. The published polypropylene contract price was $0.69 per pound for February 2005 and is projected by independent industry surveys and producer reports to decline to $0.63 per pound by the end of 2005.

In connection with the Company’s engineering initiatives, the Company has invested significant resources in research and development. The Company expenses all research and development costs in the period incurred and includes such costs in cost of goods sold. As a percentage of net sales, these costs have represented 0.4%, 0.5% and 0.8% in fiscal 2004, 2003 and 2002, respectively.

Distribution Expense

The Company ships its products from manufacturing locations using a combination of common carriers and its own fleet of leased vehicles. Distribution expense consists of the costs to ship products, including costs of labor and leased vehicles.

Key Business Indicators

The Company’s financial results are directly impacted by several key items, which management has identified as key indicators in its evaluation of the business. These indicators include:

Year Ended December 31, 2004 Compared to the Year Ended December 26, 2003

Executive Summary

The Company’s gross operating profitability was higher in 2004 as compared to 2003 primarily due to higher selling prices and sales volumes across all segments, which largely offset increases in raw material costs. Fiscal 2004 net sales of $442.2 million increased 29.4% over the prior year due to increased selling prices, the impact of the Acquisition in November 2003 and the favorable impact of changes in foreign currency exchange rates. Income from operations decreased $2.1 million from the prior year to $4.8 million as the improvements in gross profit described above were offset by higher distribution costs, selling expenses, foreign currency transaction losses and other expenses.

Consolidated Results

The following table summarizes the results of operations for the fiscal years ended December 31, 2004 and December 26, 2003.

Net sales in fiscal 2004 were $442.2 million, an increase of $100.5 million from $341.7 million in fiscal 2003. This increase was primarily due to higher average selling prices ($39.6 million), the Acquisition

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in November 2003 ($34.9 million), higher sales volumes ($10.9 million) and foreign currency changes driven by the strengthening of the Euro and Canadian dollar against the U.S. dollar ($13.5 million).

Gross profit increased $7.2 million to $69.9 million or 15.8% of net sales in fiscal 2004 from $62.7 million or 18.4% of net sales in fiscal 2003. This was primarily caused by higher average selling prices across all segments, combined with the impact of the Acquisition ($6.6 million), higher sales volumes ($2.1 million), partially offset by higher raw material prices ($36.8 million) and the write-off of costs associated with the accelerated termination of one of the Company’s raw material requirements Contracts ($2.1 million) as described in Note 6 to the Company’s consolidated financial statements included elsewhere herein.

Operating expenses increased by $9.3 million or 16.7% in fiscal 2004 to $65.1 million from $55.8 million in fiscal 2003. This was primarily caused by an increase in operating costs at our packaging operations ($7.6 million) and specialty chemicals operations ($1.6 million). Included in operating expenses for the year ended December 31, 2004 are approximately $1.4 million of foreign currency transaction losses compared to losses of $1.0 million in the prior year.

For the reasons described above, income from operations decreased by $2.1 million in fiscal 2004 to $4.8 million or 1.1% of net sales from $6.9 million or 2.0% of net sales in 2003.

Interest expense increased $4.7 million during fiscal 2004 to $26.8 million from $22.0 million in fiscal 2003 primarily due to the impact of higher average levels of outstanding debt, primarily related to the Acquisition and capital expenditures for our new state-of-the-art manufacturing equipment, along with increased interest rates. Income from unconsolidated affiliates decreased $3.1 million from the prior year to $0.5 million primarily due to the consolidation of the investment partnership in which the Company is the limited partner. Other expenses of $0.5 million in fiscal 2004 decreased $0.4 million from $0.9 million in fiscal 2003.

The effective tax rate for fiscal 2004 increased to 33.5% from 21.1% in the prior year. This increase was primarily due to the creation of a valuation allowance against certain of the Company’s state net operating loss carryforwards in the prior year for which there was no corresponding expense in the current year.

Segment Analysis

Packaging Segment Results

The following table summarizes the packaging segment results of operations for the fiscal years ended December 31, 2004 and December 26, 2003.

Net sales in the packaging segment in fiscal 2004 increased $48.8 million or 24.8% to $245.2 million compared to $196.4 million in fiscal 2003. The increase was primarily due to the Acquisition in November 2003 ($34.9 million), higher average selling prices ($8.6 million), and increased sales volumes ($4.0 million).

Gross profit in the packaging segment was adversely impacted by the lag between increases in raw material prices and the implementation of selling price increases, as well as by the impact of the installation of the Company’s new thermoforming equipment. During 2004, primarily the fourth quarter, the Company expended significant time and resources to install and test its first new state-of-the-art thermoforming line. Due to the extent of the facilitization required and the scope of the project, operating results were negatively impacted by both the costs of the project as well as the temporary effect on overall operational efficiency. Despite these items, gross profit increased $1.8 million to $46.3 million or 18.9% of net sales in fiscal 2004 from $44.5 million or 22.7% of net sales in fiscal 2003. This was caused primarily by higher average selling prices, as discussed above, as well as the impact of the Acquisition ($6.6 million) and higher sales volumes

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($1.1 million), which were only partially offset by higher raw materials prices ($10.0 million) and the overall impact of the new equipment installation.

Operating expenses increased $7.6 million to $34.2 million in fiscal 2004 from $26.6 million in fiscal 2003. This was primarily due to higher distribution costs ($4.4 million) associated with an increase in sales volumes and increased transportation costs, higher depreciation and amortization ($1.4 million) and increased selling expenses ($1.2 million).

For the reasons described above, income from operations decreased $5.8 million to $12.1 million in fiscal 2004 from $17.9 million in the prior year.

Specialty Chemicals Segment Results

The following table summarizes the specialty chemicals segment results of operations for the fiscal years ended December 31, 2004 and December 26, 2003.

For fiscal 2004, net sales in the specialty chemicals segment increased $55.8 million or 36.2% to $210.0 million from $154.2 million in fiscal 2003. This increase was primarily due to higher selling prices and sales volumes, combined with currency effects driven by the strengthening of both the Euro and the Canadian dollar. Sales at our North American specialty chemicals operations increased $19.5 million primarily due to higher average selling prices ($14.4 million) and favorable currency effects ($3.1 million), combined with the impact of increased sales volumes ($2.0 million). Sales at our European operations increased $36.3 million primarily due to the higher average selling prices ($17.3 million) and favorable currency effects ($11.3 million), combined with the impact of increased sales volumes ($7.4 million). Net sales included $13.0 million and $8.9 million of sales to the packaging segment for fiscal 2004 and 2003, respectively, which are eliminated in consolidation.

Gross profit increased by $5.5 million to $23.6 million or 11.2% of net sales in fiscal 2004 from $18.1 million or 11.7% of net sales in fiscal 2003. This increase was primarily caused by higher selling prices, as described above, and higher sales volumes ($1.1 million), as well as by the impact of changes in foreign currency rates ($2.0 million), partially offset by higher raw material prices ($26.8 million), primarily styrene monomer, and a write-off of costs associated with the accelerated termination of one of the Company’s raw material requirements contracts ($2.1 million) as described in Note 6 to the Company’s consolidated financial statements included elsewhere herein.

For fiscal 2004, operating expenses increased by $1.6 million to $20.2 million from $18.6 million in fiscal 2003 primarily as a result of changes in foreign currency rates ($1.4 million).

For the reasons described above, income from operations increased $3.9 million to $3.4 million in fiscal 2004 from a $0.5 million loss in the prior year.

Corporate and Other

Corporate operating expenses increased by $0.1 million during the fiscal 2004 to $10.7 million from $10.6 million in fiscal 2003 primarily due to, as described in Note 8 to the consolidated financial statements included elsewhere herein, $0.8 million in other expenses related to the extinguishment of long-term debt in fiscal 2003 for which there was no corresponding expense in the fiscal 2004, partially offset by the write-off, in the current year, of costs associated with the Company’s proposed initial public offering of our common stock ($0.8 million).

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Year Ended December 26, 2003 Compared to the Year Ended December 27, 2002

Executive Summary

The Company’s profitability was lower in 2003 as compared to 2002 due to higher raw material and energy-related costs, which had a negative impact on our operating results. Fiscal 2003 net sales of $341.7 million increased 5.7% over the prior year mainly due to changes in foreign currency rates and the Acquisition, which occurred on November 14, 2003. Income from operations decreased $15.8 million from the prior year to $6.9 million mainly due to significant increases in energy-related costs at our packaging segment and a contraction in the spread between selling prices and raw material costs at our specialty chemicals segment, both due in large part to the hostilities which occurred in the Middle East, partially offset by the impact of changes in foreign currency rates.

Consolidated Results

The following table summarizes the results of operations for the fiscal years ended December 26, 2003 and December 27, 2002.

Net sales in fiscal 2003 were $341.7 million, an increase of $18.5 million from $323.2 million in fiscal 2002. This increase was primarily caused by foreign currency changes driven by the strengthening of the Euro against the U.S. dollar ($17.4 million) combined with higher selling prices at the specialty chemicals segment ($1.6 million), and the Acquisition in November 2003 ($3.0 million). These increases were partially offset by decreased sales volumes at our domestic packaging and specialty chemicals operations ($2.2 million).

Gross profit decreased to $62.7 million or 18.3% of net sales in fiscal 2003 from $79.7 million or 24.7% of net sales in fiscal 2002. This decrease was primarily caused by higher raw material costs ($9.8 million), and higher energy-related costs ($7.4 million) combined with higher depreciation at our specialty chemicals segment ($1.1 million) and higher employee costs ($1.1 million). These decreases were partially offset by foreign currency changes driven by the strengthening of the Euro against the U.S. dollar ($2.6 million), higher selling prices at the specialty chemicals segment ($1.6 million) and the impact of the Acquisition ($1.3 million).

Operating expenses decreased by $1.2 million in fiscal 2003 to $55.8 million. This was primarily caused by lower operating expenses at our corporate offices ($4.2 million), largely offset by an increase in operating costs at our packaging operations ($1.8 million) and specialty chemicals operations ($1.1 million). Included in operating expenses for the year ended December 26, 2003 are approximately $1.0 million of foreign currency transaction losses, as well as $0.4 million of internal costs related to the Acquisition and the costs related to the Company’s registration statement relating to the proposed sale of the Company’s common stock.

For the reasons described above, income from operations decreased by $15.8 million in fiscal 2003 to $6.9 million or 2.0% of net sales from $22.7 million or 7.0% of net sales in 2002.

Interest expense of $22.0 million in 2003 was comparable to $21.4 million in the prior year, as lower average interest rates more than offset the impact of higher average levels of outstanding debt. Income from unconsolidated affiliates decreased $2.5 million from the prior year to $3.6 million due to a reduction in partners’ capital from an investment partnership in which the Company serves as a limited partner. Other expenses of $0.9 million in 2003 were comparable to $1.1 million in 2002.

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The effective tax rate for fiscal 2003 decreased to 21.1% from 38.8% in the prior year. This reduction was primarily due to the creation of a valuation allowance against certain of the Company’s state net operating loss carryforwards.

Segment Analysis

Packaging Segment Results

The following table summarizes the packaging segment results of operations for the fiscal years ended December 26, 2003 and December 27, 2002.

Financial results at the Company’s packaging operations were negatively impacted by higher energy-related costs, higher raw material costs and lower sales volumes of foam packaging products, primarily during the first half of fiscal 2003. These factors were due in large part to the hostilities which occurred in the Middle East. Partially offsetting these items were savings realized from implemented cost containment measures.

Net sales in the packaging segment in fiscal 2003 increased $1.0 million to $196.4 million compared to $195.4 million in fiscal 2002. The increase was primarily due to the Acquisition in mid-November ($3.0 million) and increased sales at our European packaging operations ($0.7 million). These increases were partially offset by lower selling prices ($1.7 million) resulting primarily from changes in product mix and lower sales volumes ($1.0 million), primarily during the first half of 2003.

Gross profit decreased $9.9 million to $44.5 million or 22.7% of net sales in fiscal 2003 from $54.4 million or 27.8% of net sales in fiscal 2002. This decrease was primarily caused by higher energy-related costs ($6.2 million) and raw material costs ($2.1 million). The increase in energy-related costs stemmed from an increase in the average price per million British thermal units of natural gas, primarily during the first half of 2003. The increase in raw materials related to higher EPS production costs, resulting from increased styrene monomer costs over the prior year.

Operating expenses increased $1.9 million to $26.6 million in fiscal 2003 from $24.7 million in fiscal 2002. This increase was due to higher general and administrative costs ($2.2 million), primarily at our European packaging operations, partially offset by lower distribution costs ($0.6 million) in the domestic packaging operations resulting from lower sales volumes.

For the reasons described above, primarily higher energy-related and raw material costs, income from operations decreased $11.8 million to $17.9 million in fiscal 2003 from $29.7 million in the prior year.

Specialty Chemicals Segment Results

The following table summarizes the specialty chemicals segment results of operations for the fiscal years ended December 26, 2003 and December 27, 2002.

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For fiscal 2003, net sales in the specialty chemicals segment increased $19.9 million or 14.8% to $154.2 million from $134.3 million in fiscal 2002. This increase was primarily due to currency effects driven by the strengthening of both the Euro and the Canadian dollar. Sales at our North American specialty chemicals operations increased $6.6 million primarily due to the favorable currency effects ($3.6 million) combined with higher selling prices ($6.5 million), partially offset by lower sales volumes ($3.8 million). Sales at our European operations increased $13.3 million primarily due to the favorable currency effects ($13.8 million) combined with higher sales volumes ($2.7 million), partially offset by lower selling prices ($3.1 million). Net sales included $8.9 million and $9.8 million of sales to the packaging segment for fiscal 2003 and 2002, respectively, which are eliminated in consolidation.

Gross profit decreased by $3.8 million to $18.1 million in fiscal 2003 from $21.9 million in fiscal 2002. This was mainly due to higher styrene monomer costs ($7.7 million), the primary raw material in EPS, combined with higher energy costs ($1.2 million) and depreciation expense ($1.1 million), partially offset by higher selling prices ($3.3 million) as discussed above and the favorable impact of changes in foreign currency rates ($2.6 million).

For fiscal 2003, operating expenses increased by $1.1 million to $18.6 million from $17.5 million in fiscal 2002. This increase was primarily caused by changes in foreign currency rates ($2.3 million) combined with increased selling costs ($0.4 million) and higher distribution costs resulting from increased sales volumes ($0.4 million). These increases were partially offset by lower general and administrative expenses resulting from cost savings initiatives that were implemented during fiscal 2003.

For the reasons described above, primarily higher raw material and energy-related costs, income from operations decreased $4.9 million in fiscal 2003 from $4.4 million in the prior year.

Corporate and Other

Corporate operating expenses decreased by $4.2 million during fiscal 2003. In addition to the $1.2 million of expenses incurred in the prior year related to the exploration of the possible sale of the European specialty chemicals operations, this favorable change was caused by lower general and administrative expenses ($2.0 million) resulting from cost savings initiatives implemented during fiscal 2003 and lower amortization costs. Partially offsetting this was an increase in foreign currency losses ($1.0 million) and expenses related to the extinguishment of long-term debt ($0.8 million) as described in Note 8 to the consolidated financial statements included elsewhere herein.

Liquidity and Capital Resources

During fiscal 2004, cash used in operating activities totaled $12.3 million mainly due to a $9.3 million increase in working capital. The increase in working capital was primarily due to higher accounts receivable ($5.6 million) and inventory ($14.4 million), partially offset by higher accounts payable ($8.9 million). The increase in accounts receivable was mainly caused by increased sales volumes and higher average selling prices. The increases in inventory and accounts payable were due in large part to higher raw material costs.

During fiscal 2004, inventory turnover was approximately 6.0 times per year compared to 6.3 in 2003. As of December 31, 2004, the average collection period for our accounts receivable was 43 days, which was slightly lower than the 45 day average collection period as of December 26, 2003.

The Company used $36.0 million in investing activities during fiscal 2004, primarily due to $34.5 million in capital expenditures which were primarily related to the installation of new state-of-the-art manufacturing equipment. Distributions received from investments in unconsolidated affiliates exceeded the additional investments in these affiliates by $1.1 million during fiscal 2004.

On April 27, 2004, the Company issued $70.0 million of Senior Secured Floating Rate Notes due 2009. The notes bear interest at a floating rate of LIBOR plus 6.75% per year. Interest on the notes is reset quarterly and is payable quarterly, with the first payment having been made on July 15, 2004. The notes will mature on April 15, 2009. The net proceeds were used to repay a then outstanding $40.5 million term loan and

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outstanding borrowings under the existing revolving credit facilities. In connection with the repayment of the term loan, we amended the domestic revolving credit facility to increase the commitment from $45 million to $55 million.

As of December 31, 2004, the Company had $60.2 million outstanding under its revolving credit facilities. After taking into account cash on hand, we had the ability to draw up to an additional $8.3 million under these facilities as of December 31, 2004. The principal uses of cash for the next several years will be debt service, capital expenditures and working capital requirements. The Company’s capital expenditures for fiscal years 2004 and 2003 were $34.5 million and $11.4 million, respectively.

As a holding company, the Company is dependent upon dividends and other payments from its subsidiaries to generate the funds necessary to meet its obligations. Subject to certain limitations, the Company is, and will continue to be, able to control its receipt of dividends and other payments from its subsidiaries. Under the Company’s current business plan, the Company expects that in 2005 and in the long-term, cash generated from operations will be sufficient to meet the Company’s expected operating needs. However, as a result of uncertainties including pricing of the Company’s products, general market and economic conditions and fluctuations in raw material prices, the Company is not able to accurately predict the amount of cash that will be generated from operating activities and cash generated from operating activities, if any, may not be sufficient to meet the Company’s operating needs. To the extent that the Company uses cash in operating activities, we expect that such amounts will be financed from borrowings under credit facilities.

The Company expects to spend approximately $25.0 million on capital expenditures in 2005. Of this amount, approximately $20.0 million relates to new capital expenditures, while $5.0 million relates to maintenance-related capital expenditures on existing equipment. Management estimates that capital expenditures will be made from cash generated from operating activities with the remainder financed with other long-term debt. The Company’s planned spending on capital investments is expected to provide sufficient capacity to satisfy the production requirements under the Company’s current business plan. The Company believes that the levels of capital expenditures permitted by its credit facilities will be sufficient to meet long-term capital expenditure requirements under the Company’s current business plan. The Company has flexibility regarding its long-term capital spending as the majority of its capital spending is not subject to contractual commitments, has the ability to adjust capital spending based on results of operations, excluding maintenance-related capital expenditures, and can assess the overall liquidity position of the Company at the time future investment decisions are made.

The Company’s projected fiscal 2005 debt service payments as of December 31, 2004 were $37.8 million, which included debt principal payments of $10.9 million and interest payments of $26.9 million. As of December 31, 2004, if the interest rate on the Company’s variable rate debt had changed by 1%, the Company’s annual debt service payment obligations would have changed by approximately $1.3 million. Management estimates that debt service requirements will be satisfied from cash generated from operating activities with the remainder financed from borrowings under credit facilities.

From time to time, the Company evaluates and may pursue various capital raising transactions including the sale of debt or equity securities and the divestiture of non-core assets, which will enhance the Company’s overall liquidity and improve its capital structure. The Company may need to pursue capital raising transactions in the event that cash generated from operating activities and amounts financed from borrowings, including borrowings from any additional commitments under the Company’s credit facilities, are insufficient to cover our operating, short-term capital expenditure and debt service requirements. If a capital raising transaction is necessary, the Company may not be able to enter into such a transaction on favorable terms or at all.

Credit Agreements

Effective September 2004 the Company amended its domestic revolving credit facility to increase the commitment from $55 million to $65 million. In February 2005 the Company again amended its domestic revolving credit facility (as amended to date, the “Amended Credit Agreement”) to increase the revolving commitment from $65 million to $75 million effective upon the Company’s satisfaction of certain conditions relating to the pay down of the facility or the Company’s borrowing base requirements, which were subsequently satisfied.

Effective April 2004 in connection with the issuance of the senior secured Floating Rate Notes, in September 2004, February 2005 and again in March 2005, we amended certain financial covenants in the Amended Credit Agreement to permit additional flexibility in operating our business and address compliance issues and instances of non-compliance. The recent amendments caused changes to the following financial covenants: (i) the minimum fixed charge coverage ratios, (ii) the maximum ratio of funded indebtedness to earnings before interest, taxes, depreciation and

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amortization and (iii) the limitation of capital expenditures. As amended, the Amended Credit Agreement contains the following financial covenants:

As a result of the amendments discussed above, one of which served to eliminate the fixed charge coverage ratio and funded indebtedness to earnings before interest, taxes, depreciation and amortization covenants at December 31, 2004, the Company is in compliance with all covenants, including financial covenants, under all of the Company’s credit arrangements.

As part of the February 2005 amendment, the lenders received an assignment of rights under two promissory notes in the aggregate principal amount of $22.9 million, a pledge of certain stock from an affiliate of the Company and a guaranty from the Company’s President and Chief Executive Officer of the obligation under the facility up to an amount not exceeding $8.0 million. We also agreed to apply the net proceeds of certain capital events to reduce outstanding obligations under the facility.

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Contractual Obligations and Commercial Commitments

The Company has future obligations for debt repayments, capital leases, future minimum rental and similar commitments under non-cancelable operating leases, non-competition agreement and purchase obligations as well as contingent obligations related to outstanding letters of credit. These obligations as of December 31, 2004 are summarized in the tables below.

Critical Accounting Policies and Estimates

The Company prepares its financial statements in conformity with U.S. generally accepted accounting principles. The preparation of such consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of those financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The Company discloses its significant accounting policies in the notes to its audited consolidated financial statements. Judgments and estimates of uncertainties are required in applying the Company’s accounting policies in certain areas. Following are some of the areas requiring significant judgments and estimates: determination of an asset’s useful life; estimates of allowances for bad debts; cash flow and valuation assumptions in performing asset impairment tests of long-lived assets; valuation assumption in determining the fair value of investments held by affiliates; and estimates of realizability of deferred tax assets.

The Company’s senior management has reviewed these critical accounting policies and estimates and the discussion below with its Audit Committee.

There are numerous critical assumptions that may influence accounting estimates in these and other areas. We base our critical assumptions on historical experience, third-party data and on various other estimates we believe to be reasonable. Certain of the more critical assumptions include:

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Bad Debt Risk

Depreciable Lives of Plant and Equipment

The depreciable lives of the plant and equipment used in the operation of our business average approximately 17.1 years. Management monitors the assumptions underlying the useful lives of these assets and may potentially need to adjust the corresponding depreciable lives as circumstances change. A change in the average depreciable life of the Company’s plant and equipment by one year would impact depreciation expense by $1.1 million.

Asset Impairment Determinations

Fair Value of Investments Held by Affiliates

Changes in key assumptions about the financial condition of an underlying investment or actual condition which differs from estimates could result in an other than temporary impairment charge. However, given the substantial margin by which the fair value of the underlying investments exceeds the carrying value of our investment, the Company does not anticipate a material impact on the consolidated financial statements from differences in these assumptions.

Deferred Taxes

Changes in key assumptions about expected future profitability and cash flows could result in changes to the Company’s tax provision and deferred tax liability position resulting from its ability to utilize existing net operating loss carry forwards. Given the margin by which expected future profitability and cash flows exceed those levels required to utilize existing net operating loss carry forwards, the Company does not anticipate a material impact on the consolidated financial statements from differences in these assumptions.

Recently Issued Accounting Standards and Regulatory Items

In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 151, “Inventory Costs - An Amendment of ARB No. 43, Chapter 4,” which clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted

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material (spoilage). Under this Statement, such items will be recognized as current-period charges. In addition, the Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The provisions of SFAS No. 151 will be effective for inventory costs incurred during fiscal years beginning after June 15, 2005.

In December 2004, the FASB issued SFAS No. 123(R), Share-Based Payment, which establishes standards for transactions in which an entity exchanges its equity instruments for goods or services. This standard requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. This eliminates the exception to account for such awards using the intrinsic method previously allowable under APB Opinion No. 25. SFAS 123(R) will be effective for interim or annual reporting periods beginning on or after June 15, 2005. We previously adopted the fair value recognition provisions of SFAS No. 123 Accounting for Stock-Based Compensation, in the third quarter of 2003. Accordingly, we believe that SFAS No. 123(R) will not have a material impact on our balance sheet or income statements. We continue to assess the potential impact that the adoption of SFAS No. 123(R) could have on our statement of cash flows.

On October 22, 2004, the American Jobs Creation Act (the “AJCA”) was signed into law. The AJCA provides for the deduction for U.S. federal income tax purposes of 85% of certain foreign earnings that are repatriated, as defined in the AJCA. As the Company currently plans to permanently reinvest the undistributed earnings of its foreign subsidiaries, it does not expect that the ACJA will have a material impact on its financial position or results of operations. The AJCA also provides for a domestic manufacturing deduction for U.S. federal income tax purposes. We will not benefit from this deduction until the date in the future that our U.S. federal tax losses have been fully absorbed.

Forward Looking Statements

The statements contained in this Annual Report that are not historical facts, including but not limited to raw material prices, are based on current expectations. These statements are forward looking (as defined in the U.S. Private Securities Litigation Reform Act of 1995) in nature and involve a number of risks and uncertainties. Actual results may vary materially due to risks relating to raw material price volatility, dependence on key customers, international operations, dependence on key personnel and environmental matters, as well as general business and economic conditions, both domestic and international, and other risks that may be described from time to time in the reports that the Company files with the Securities and Exchange Commission. See “Business—Raw Materials”, “Business—Competition”, “Business—Employees”, “Business—Environmental Matters,” and “Quantitative and Qualitative Disclosures about Market Risk.”

Risks Relating to Our Business

To the extent that our costs for raw materials rise without comparable increases in the prices of our products or our supply of raw materials is hindered and no alternative sources can be found, our gross profit and net income may decrease.

Our foam products are manufactured from EPS, which is produced from styrene monomer. Our plastic cups and cutlery are thermoformed and injection molded from polypropylene and polystyrene resins.

Styrene monomer is a commodity petrochemical that is readily available throughout the world in bulk quantities from numerous large, vertically integrated chemical companies. Prices for styrene monomer have fluctuated significantly, principally due to supply and demand in the styrene monomer market, but also because of fluctuations in petrochemical feedstock prices. Beginning in January 2002 through March 2003,

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market prices for styrene monomer increased by more than 80%. From March 2003 through July 2003, market prices for styrene monomer decreased by approximately 15%, but from July 2003 through February 2005, market prices for styrene monomer increased by approximately 66% to $0.64 per pound.

We may be subject to significant increases in prices for polypropylene and polystyrene resins that may materially impact our financial condition. The prices of polystyrene resins fluctuate in a fashion similar to the fluctuations affecting styrene monomer as described above. Polystyrene is largely a derivative of styrene monomer and prices react the same way over time. Prices also can change based on the operating rates of the polystyrene manufacturing facilities.

We have long-term supply agreements to purchase styrene monomer and polystyrene, however, in March 2005 we accelerated the termination of our primary North American styrene monomer requirements contract to not later than August 1, 2005. We believe that entering into long-term supply agreements for the purchase of styrene monomer and polystyrene has increased our flexibility to purchase styrene monomer and polystyrene and mitigated, but not eliminated, the impact on us of future price fluctuations for styrene monomer and polystyrene. We will continue to be exposed to fluctuations in styrene monomer and polystyrene prices to the extent that our supply agreements do not satisfy our needs for styrene monomer and polystyrene or if we are not able to replace the long-term supply contract pursuant to which we purchase styrene monomer for our domestic operations on favorable terms or at all.

The primary raw materials used to manufacture our thermoformed plastic products are polypropylene resins that are made from propylene. We do not currently have long-term supply agreements for polypropylene and may not be able to enter into such agreements on favorable terms or at all. If we are unable to enter into long-term supply agreements, we will be more impacted by the changing market conditions for polypropylene, particularly if our competitors are able to do so. Polypropylene resin pricing will follow the raw material price of propylene and be influenced by the operating rates of the respective polypropylene manufacturing locations. Polypropylene prices have had the tendency to fluctuate significantly over time. For example, the contract price for polypropylene ranged from $0.28 to $0.69 per pound from the beginning of 2002 through February 2005. The published homopolymer polypropylene contract price was $0.69 per pound for February 2005. We may not be able to arrange for other sources of polypropylene resins in the event of an industry-wide general shortage of resins used by us, or a shortage or discontinuation of certain types or grades of resin purchased from one or more of our suppliers.

If raw material prices increase and we are unable to pass such price increases on to our customers, employ successful hedging strategies, enter into long-term supply contracts at favorable prices or buy on the spot market at favorable prices, our gross profit and thus net income may decrease. To the extent that our supply of raw materials is hindered and no alternative sources can be found, our revenues also may decrease. In addition, to the extent prices for polypropylene resins significantly increase compared to polystyrene resins, the cost advantage for our polypropylene products will be mitigated or eliminated and our sales of polypropylene products may suffer. See “Business—Manufacturing—Raw Materials.”

Both the disposable foodservice packaging product market and the market for EPS are highly competitive. Many of our competitors in both of these markets are larger and have significantly greater resources, which could put us at a competitive disadvantage against such competitors.

In North America, we compete in the highly competitive foodservice industry and in the market for EPS. Within the foam segment of the cup and container market, we compete principally with Dart Container, which controls the largest share of this market segment. The plastic segment of the disposable cup and container market in which we compete is significantly more fragmented. However, the Company believes that only one other competitor, Berry Plastics, manufactures deep-draw thermoformed polypropylene cold drink cups. As thermoformed polypropylene cold cups gain market acceptance, we would anticipate that producers of polystyrene plastic cups may enter this market. Our products also compete with metal, glass, paper and other packaging materials, as well as plastic packaging materials made through different manufacturing processes. In Europe, we compete primarily in the fragmented European EPS market. See “Business—Competition.”

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Many of our current and potential competitors in both North America and Europe are larger than we are and have significantly greater resources than we have, which could adversely impact our ability to effectively compete with these companies. The competition we face could result in our products losing market share or our having to reduce our prices, either of which would have a material adverse effect on our business and results of operations and financial condition.

Our customers for our disposable foodservice packaging products are concentrated; our revenues and net income may decline if we are unable to maintain our relationships with our largest customers.

In North America, we supply foam cup and container products to a number of national QSR and convenience store companies and to a number of large foodservice distributors. No customer represented more than 6.3% of our net sales for fiscal 2004, although the five largest accounts represented approximately 21.5% of such sales. While we have not lost sales from our key customers in fiscal 2003, 2004 or 2005 to date, if any of such customers substantially reduces its level of purchases from us, our revenues and net income may decline. As a result of concentrating our marketing efforts for thermoformed polypropylene products initially on key existing customers, especially QSRs, we anticipate that the concentration of net sales from our largest customers may increase beginning in 2005. Moreover, continued consolidation among distributors in the foodservice industry could result in an increasingly concentrated customer base or the loss of certain customers. See “Business—Sales, Marketing and Customers.”

We may not be successful in expanding our product line to include plastic products, and our inability to implement our expansion plans may have an adverse effect on our ability to increase our revenues, cash flows and net income.

We will be dependent upon the successful integration and retooling of the assets we have acquired and the installation of the new equipment we have ordered to manufacture these products. We will also need to market this new product line to our existing customers and new customers if we are to be successful. In addition to the risks relating to the asset acquisition and the equipment installation discussed above, our ability to penetrate this new market may be adversely affected by:

Although several current and new customers are purchasing or have advised us of their intent to purchase cold drink cups from us, we may not achieve our anticipated level of sales or profitability of cold cups in 2005 or beyond. Our sales of polypropylene cold drink cups could be adversely affected by a decision by one or more of these customers to delay purchasing or not to proceed under the purchase commitments we have received, whether due to product quality concerns, changes in business strategies or other considerations. In addition, because these commitments do not include volume guarantees and may be terminated at any time at our customers’ discretion, we may not sell to these customers the volume of polypropylene cold drink cups that we currently anticipate.

If we are not able to begin selling a significant volume of polypropylene products beginning in 2005, our revenues, cash flows and net income may be lower than expected.

We conduct a significant portion of our operations in foreign countries, and are subject to risks that are inherent in operating abroad, including governmental regulation, changes in import duties, trade restrictions, currency restrictions and other restraints and burdensome taxes.

Our international operations and the products we sell are subject to numerous governmental regulations and inspections. Although we believe we substantially comply with such regulations, changes in

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legislation or regulations and actions by regulators, including changes in administration and enforcement policies, may from time to time require operational improvements or modifications at various locations or the payment of fines and penalties, or both.

We are subject to a variety of governmental regulations in the countries where we market our products, including import quotas, tariffs and taxes. For example, distributions of earnings and other payments, including interest, received from our foreign subsidiaries may be subject to withholding taxes imposed by the jurisdiction in which such entities are formed or operating, which will reduce the amount of after-tax cash we can receive. In general, as a U.S. corporation, we may claim a foreign tax credit against our federal income tax expense for such foreign withholding taxes and for foreign income taxes paid directly by foreign corporate entities in which we own 10% or more of the voting stock. The ability to claim such foreign tax credits and to utilize net foreign losses is, however, subject to numerous limitations, and we may incur incremental tax costs as a result of these limitations or because we are not in a tax-paying position in the United States. We may also be required to include in our income for U.S. federal income tax purposes our proportionate share of certain earnings of those foreign subsidiaries that are classified as “controlled foreign corporations” without regard to whether distributions have been actually received from such subsidiaries.

Our financial results depend in part on the economies of the markets in which we have operations and other interests. These markets are in countries with economies in various stages of development or structural reform, and our operations in such markets also could be affected by:

Our international operations involve transactions in a variety of currencies. Our financial results may be significantly affected by fluctuations of currency exchange rates. Such fluctuations are significant to our international operations because many of the costs related to those operations are incurred in currencies different from those that are received from the sale of our products in foreign markets, and there is normally a time lag between the incurrence of such costs and collection of the related sales proceeds. To the extent that foreign subsidiaries distribute dividends in local currencies in the future, the amount of cash to be received by us and, consequently, the amount of cash available to make payments for principal of and interest on our senior notes, will be affected by fluctuations in exchange rates, and such shifts in the currency exchange rates may have a material adverse effect on our revenues, cash flows and net income. Although we periodically evaluate derivative financial instruments to manage foreign currency exchange rate changes, we have never held derivatives for managing foreign currency exchange rate risks.

A number of our agreements are governed by the laws of, and subject to dispute resolution in the courts of, or through arbitration proceedings in, the country or region in which the operations are located. We cannot accurately predict whether such forum will provide us with an effective and efficient means of resolving disputes that may arise in the future. Even if we are able to obtain a satisfactory decision through arbitration or a court proceeding, we could have difficulty enforcing any award or judgment on a timely basis. Our ability to obtain or enforce relief in the United States is uncertain.

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We depend on the services of Michael T. Kennedy, our President, Chief Executive Officer and Chairman, the loss of whom would materially harm our business.

We are dependent on the management experience and continued services of Michael T. Kennedy, our President, Chief Executive Officer and Chairman. We entered into an employment agreement with Mr. Kennedy for an initial three-year term that is contingent upon closing of a public offering of our common stock. We do not currently maintain key person life insurance policies on Mr. Kennedy. Mr. Kennedy has extensive and specialized experience in the foodservice and EPS packaging industries. Accordingly, if Mr. Kennedy were unable or unwilling to continue in his present position, we could have difficulty finding a comparably experienced replacement. If we were unable to replace Mr. Kennedy, our sales and product line expansion initiatives could suffer. In addition, our continued growth depends on our ability to attract and retain other experienced key employees.

If we are not able to use our net operating loss carryforwards to reduce our income tax obligations, our income tax expense may increase and our cash flows may decrease.

As of December 31, 2004, we had federal net operating loss carryforwards of approximately $114.3 million from our U.S. operations. These net operating loss carryforwards will expire between December 2009 and 2023. We have assessed our ability to utilize our federal net operating loss carryforwards and concluded that no valuation allowance currently is required since we believe that it is more likely than not that the federal net operating loss carryforwards will be utilized either by generating taxable income or through tax planning strategies. However, some portions of these net operating loss carryforwards may expire before we can utilize them to reduce our income tax obligations. Our income tax obligations affect our cash position and, therefore, may affect our ability to make payments on our long-term debt, including the notes.

We are subject to various environmental laws and regulations that could impose substantial costs upon us and may adversely affect our business, results of operations and financial condition.

Our operations are subject to federal, state, local and foreign environmental laws and regulations. As a result, we are involved from time to time in administrative or legal proceedings relating to environmental matters. The aggregate amount of future clean up costs and other environmental liabilities may be material. We cannot predict what environmental legislation or regulations will be enacted in the future, how existing or future laws or regulations will be administered or interpreted or what environmental conditions may be found to exist. Enactment of more stringent laws or regulations or more strict interpretation of existing laws and regulations may require additional expenditures by us, some of which could be material. See “Business—Environmental Matters.”

The continuing hostilities in the Middle East or the outbreak or escalation of hostilities elsewhere could increase our manufacturing costs.

Continued unrest in Iraq and the outbreak, continuation or escalation of hostilities between the United States and any foreign nation, organization or group, together with the recent increase in the frequency and severity of terrorist and similar activity, may have a material adverse effect on our business, results of operations or financial condition. In particular, continued conflict in the Middle East may result in a real or perceived shortage of oil and/or natural gas, which could result in an increase in our manufacturing costs, including an increase in our energy costs and the cost of some of our raw materials.

We rely on unpatented proprietary know-how and trade secrets.

While we hold certain patents and trademarks, we rely primarily upon confidentiality agreements and restricted plant access to protect our proprietary technology. However, these methods and our patents and trademarks may not afford complete protection and others may independently develop the know-how and trade secrets or develop better production methods than us. Further, we may not be able to deter current and former employees, contractors and other parties from breaching confidentiality agreements and misappropriating our proprietary information, and it is possible that third parties may copy or otherwise obtain and use our proprietary information and technology without authorization or otherwise infringe on our intellectual property rights. While we attempt to ensure that our intellectual property and similar proprietary rights are protected and

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that the third party rights we need are licensed to us when entering into business relationships, third parties may take actions that could materially and adversely affect our rights or the value of our intellectual property, similar proprietary rights or reputation. Furthermore, claims or litigation asserting infringement of intellectual property rights may be initiated by third parties seeking damages, the payment of royalties or licensing fees and/or an injunction against the sale of our products and we may not prevail in any such litigation or be successful in preventing such judgment. In the future, we may also rely on litigation to enforce our intellectual property rights and contractual rights, and, if not successful, we may not be able to protect the value of our intellectual property. Any litigation could be protracted and costly and could have a material adverse effect on our business and results of operations regardless of its outcome. Although we believe that our intellectual property rights are sufficient to allow us to conduct our business without incurring liability to third parties, our products may infringe on the intellectual property rights of third parties and our intellectual property rights may not have the value we believe them to have.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company’s market risk is the potential loss arising from adverse changes in interest rates. The Company’s long-term debt obligations are mostly at fixed interest rates and denominated in U.S. dollars. The Company manages its interest rate risk by monitoring trends in interest rates as a basis for determining whether to enter into fixed rate or variable rate agreements. Market risk is estimated as the potential increase in fair value of the Company’s long-term debt obligations resulting from a hypothetical one-percent decrease in interest rates and amounts to approximately $5.6 million over the term of the debt.

Although the Company continues to evaluate derivative financial instruments to manage foreign currency exchange rate changes, the Company does not currently hold derivatives for managing these risks or for trading purposes.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports under the Securities and Exchange Act of 1934 (the “Exchange Act”) is accurately recorded, processed, summarized and reported within the time periods specified in the Securities Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Under the supervision of the Chief Executive Officer and Chief Financial Officer, the Company’s management conducted an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of December 31, 2004. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective. As part of the year-end close process, certain adjustments were identified and recorded at several of our subsidiaries. While the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective at year-end, the Company is taking steps to further strengthen the control environments at both the subsidiary and the corporate monitoring levels to more quickly identify and resolve these types of issues. Among other things, we are in the process of adding new personnel resources and restructuring reporting relationships. The above matters were discussed with our Audit Committee.

There have been no changes in the Company’s internal control over financial reporting that occurred during the Company’s fiscal quarter ended December 31, 2004 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

The Company’s management, including the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, does not expect that the Company’s disclosure controls or its internal controls will prevent all errors and all fraud. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. As a result of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. As a result of the inherent limitations in a cost-effective controls system, misstatements due to error or fraud may occur and not be detected. Accordingly, the Company’s disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the disclosure controls and procedures are met.

ITEM 9B. OTHER INFORMATION

Item 11 contains a discussion of certain 2005 compensation and bonus arrangements approved on March 29, 2005, which is incorporated by reference into this Item 9B.

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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Directors and Executive Officers

The directors and executive officers of the Company and their ages as of March 30, 2005 are as follows:

Michael T. Kennedy has served as President, Chief Executive Officer and Chairman of the Board of the Company since its formation in November 1991. Between March 1985 and July 1990, Mr. Kennedy served as Chief Financial Officer of Airgas, Inc., a New York Stock Exchange-listed distributor of industrial gases.

Michael V. Valenza has served as Senior Vice President-Finance and Chief Financial Officer of the Company since April 1993. He joined the Company in September 1992 as Director of Finance. From 1984 until joining the Company, Mr. Valenza served in a variety of positions with Arthur Andersen LLP, most recently as a manager in the Enterprise Group.

Richard C. Hunsinger has served as Senior Vice President-Sales and Marketing of the Company since its formation in November 1991. From 1979 through August 1991, Mr. Hunsinger served in various management positions, including Vice President of Sales and Marketing, for Winkler/Flexible Products, Inc., a former division of The Coca Cola Company.

Donald D. Walker has served as Senior Vice President-Operations of the Company since November 1992. Mr. Walker served as Vice President of Manufacturing and as Director of Manufacturing of the Company from February 1992 through November 1992. From 1969 until February 1992, Mr. Walker served in various management positions with Scott Container Products Group, Inc. (WinCup’s predecessor), WMF Corporation and Thompson Industries.

R. Radcliffe Hastings has served as Executive Vice President and Treasurer of the Company since March 2004. Mr. Hastings served as Senior Vice President and Treasurer of the Company from June 1996 until March 2004 and as a director since May 1997. Previously, Mr. Hastings was with Continental Bank, N.A. and its successor, Bank of America, for 18 years. Mr. Hastings held a variety of management positions in the U.S. banking group and in Bank of America’s securities operation, BA Securities, Inc.

John P. McKelvey has served as Senior Vice President-Human Resources and Administration for the Company since March 2002. From October 1992 through March 2002, Mr. McKelvey was the Vice President-Human Resources and Quality Assurance for the Company. From February 1992 until October 1992, Mr. McKelvey was Director of Human Resources for the Company. From 1971 until joining the Company, Mr. McKelvey served in a variety of human resources management positions for Scott Container Products Group, Inc., Texstyrene Corporation, WMF Corporation and Thompson Industries.

Caroline J. Williamson has served as Vice President and Corporate Counsel of the Company since March 1997. From March 1996 to March 1997, Ms. Williamson served as counsel for Aetna U.S. Healthcare. From September 1992 to March 1996, Ms. Williamson was an associate with Duane Morris LLP.

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Paul D. Ridder has served as Vice President and Corporate Controller of the Company since December 2002. From January 1998 through December 2002, Mr. Ridder served as Corporate Controller for the Company. From August 1996 through January 1998, Mr. Ridder held various management positions with the Company, including Director of Financial Reporting and Manager of Financial Reporting. From 1993 until joining the Company, Mr. Ridder served in a variety of positions with Price Waterhouse LLP, most recently as a senior accountant.

Paul M. Finigan has served as a director of the Company since July 2000. Mr. Finigan served as counsel to the law firm of Day Berry & Howard, LLP from October 2002 to January 2005. From November 1999 to June 2002, Mr. Finigan served as Chief Legal Officer of Lumenos, Inc.

Board Committees

Our board of directors has the authority to appoint committees to perform certain management and administrative functions. Currently, the Board has appointed an Audit Committee and a Compensation Committee.

The Audit Committee has the responsibility for the appointment, compensation, retention and oversight of our independent registered public accountants for the purpose of preparing or issuing an audit report or performing other audit, review or attest services. The audit committee also has the responsibility of reviewing the results and scope of audit and other services provided by the independent registered public accountants, evaluating the objectivity and independence of our outside registered public accountants and reviewing and evaluating our audit functions generally. The audit committee also exercises oversight of our internal controls and financial reporting processes, and ethical and legal compliance matters. The Audit Committee is comprised of Mr. Kennedy, Mr. Hastings and Mr. Finigan. The Board of Directors has determined that Mr. Kennedy is an audit committee financial expert. Neither Mr. Kennedy nor Mr. Hastings is “independent” within the meaning of the rules adopted by the New York Stock Exchange and the Nasdaq Stock Market, although we are not currently subject to those rules. Our Board of Directors has determined that the qualifications and experience of Messrs. Kennedy and Hastings provide valuable guidance to the Audit Committee notwithstanding their lack of independence, and that their significant stock ownership enhances the likelihood that they will perform their duties as members of the Audit Committee in a manner that is in the best interest of our stockholders and other constituencies.

The Compensation Committee is responsible for approving, or making recommendations to the Board of Directors with respect to, the compensation arrangements (including bonus payments) for our executive officers, approving or making recommendations with respect to our equity incentive plans and making recommendations with respect to our general compensation plans and programs. The sole member of the Compensation Committee is Mr. Finigan. Mr. Finigan qualifies as independent within the meaning of the rules adopted by the New York Stock Exchange and the Nasdaq Stock Market.

Code of Ethics for Senior Officers

We have adopted a Code of Ethics for our chief executive officer and our other senior financial officers, including our chief financial officer, treasurer and controller. We will provide a copy of the code of ethics to any person upon request without charge. Any such request should include the name and mailing address of the person making the request, which should be directed to:

Radnor Holdings Corporation

Radnor Financial Center

150 Radnor Chester Road

Suite 300

Radnor, PA 19087-5292

Attention: Corporate Controller

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ITEM 11. EXECUTIVE COMPENSATION

Officers of the Company who serve as directors are not compensated for serving as directors of the Company. The Company’s non-officer director receives an annual retainer of $25,000 for his services as director, plus an annual retainer of $5,000 for his services as a member of each Board committee on which he sits and an annual retainer of $5,000 for his services as the chairperson of each Board committee that he chairs. The Company’s non-officer director serves as chairperson of each of the Audit Committee and the Compensation Committee, and his current aggregate annual retainer is $45,000. The non-officer director may also receive, in the Company’s discretion, $1,250 per meeting for his attendance at meetings of the Board and of its committees. In addition, all directors are reimbursed for their expenses incurred in attending meetings.

The following table sets forth certain information concerning the compensation paid to the Company’s chief executive officer and the Company’s four other most highly compensated executive officers (the “Named Executive Officers”) whose total annual salary and bonus exceeded $100,000 for the year ended December 31, 2004:

Summary Compensation Table

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The Compensation Committee determined that no bonuses would be paid to any of the Named Executive Officers (other than the President and Chief Executive Officer) for the year ended December 31, 2004.

The following table sets forth the 2005 salary approved by the Compensation Committee for the Company’s Named Executive Officers:

Effective April 1, 2005, the President and Chief Executive Officer’s annualized base salary was reduced from $3,000,000 to $1,000,000. The Compensation Committee also approved the 2005 Bonus Plan for the Company’s President and Chief Executive Officer. Bonuses payable to the Company’s President and Chief Executive Officer under the Bonus Plan are determined quarterly by the Committee based on attainment of certain financial objectives and execution of certain nonfinancial objectives. The financial objectives consist of targets for profitability and the nonfinancial objectives relate to divestitures, capital raising transactions and critical operating initiatives. For 2005, the President and Chief Executive Officer will be eligible to receive an amount up to $2,500,000 if all financial objectives are exceeded and nonfinancial objectives are met. Notwithstanding the foregoing, the Compensation Committee retains the discretion under the Bonus Plan to adjust the amount of any bonus to be paid to the Company’s President and Chief Executive Officer with respect to the nonfinancial objectives.

The following table sets forth information with respect to options to purchase the Company’s Nonvoting Common Stock held at December 31, 2004 by the Named Executive Officers. No options were granted to or exercised by such persons during the fiscal year ended December 31, 2004.

Employment Agreements

In May 1993, the Company entered into an employment agreement with Richard C. Hunsinger, which was amended in January 1996, pursuant to which Mr. Hunsinger serves as Senior Vice President—Sales and Marketing of the Company. The agreement was for an initial term of seven years and six months and, absent 180 days prior written notice by either party before the end of any renewal term, renews for twelve months from year to year. Under the agreement as amended, Mr. Hunsinger is entitled to an annual salary of not less than $145,000 beginning in 1996, subject to annual cost of living increases. The agreement contains a covenant not to engage in any business that is competitive with the business of the Company in any geographical area in which it does business during the term of the agreement and for a period of two years immediately following the termination of the agreement.

In April 1996, the Company entered into an employment agreement with R. Radcliffe Hastings, pursuant to which Mr. Hastings serves as Senior Vice President and Treasurer of the Company. The agreement was for an initial term of three years and, absent 90 days prior written notice by either party before the end of any renewal term, renews for twelve months from year to year. Mr. Hastings is entitled to an annual salary of

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not less than $125,000, subject to annual review by the Board of Directors. The agreement contains a covenant not to compete in any business that is competitive with the business of the Company in the United States during the term of the agreement.

We entered into an employment agreement with Mr. Kennedy that is contingent upon closing of a public offering by us of common stock. The agreement, which will be for an initial three-year term (subject to possible one-year renewals after this three-year period), will provide for an annual base salary of $1,000,000. All bonuses payable during, or in respect of, the employment term will be set by our compensation committee based upon reasonable performance criteria established by the committee no later than March 31 of the year to which it relates and after consultation with Mr. Kennedy. Mr. Kennedy will have the right to elect whether to receive any bonus that may become payable in the form of cash or shares of our common stock. As a long-term incentive, Mr. Kennedy will receive an award of 70,000 shares of restricted stock, assuming a 1,803-for-one stock split, upon the closing of the offering. All of these shares will be subject to forfeiture under the circumstances to be described in the award. The risk of forfeiture for such shares generally lapses with respect to one-third of such shares on each of the first three anniversaries of the closing of the offering. Mr. Kennedy will be eligible to participate in all of the Company’s employee benefits (including retirement, health and fringe benefits) made available generally to other officers and key employees and to such other benefits provided to him in accordance with past practice. Under the employment agreement, Mr. Kennedy’s employment may be terminated with or without “cause” by us at any time. In the event that we terminate Mr. Kennedy’s employment other than “for cause” or Mr. Kennedy terminates for “good reason” (as such terms will be defined in the agreement), we will be obligated to provide severance pay equal to two times his then current annual base salary and bonus amount and two years’ health insurance continuation and to unrestrict his restricted stock award to the extent such restrictions had not then already lapsed. The severance benefits increase to three times annual base salary and bonus and the health insurance continuation extends to three years in the event the qualifying termination occurs within two years following a “change of control of the Company” (as will be defined in the agreement). This agreement will also provide that, upon a change of control, (i) Mr. Kennedy will have the right to resign during a 60-day period following the first anniversary of the date of the change of control and receive the severance pay and benefits that would otherwise be provided if his employment were terminated other than “for cause” and (ii) Mr. Kennedy will be entitled to receive a tax “gross-up” payment to fully offset any excise taxes incurred if the after-tax benefit to Mr. Kennedy of the gross-up is at least 10% greater than the after-tax benefit that Mr. Kennedy would receive if he were cut back to the maximum amount that could be paid to him without incurring any such excise taxes. The employment agreement will also contain customary post-employment restrictive covenants in connection with Mr. Kennedy’s ability to compete and to solicit customers and employees of the Company.

Compensation Committee Interlocks and Insider Participation

There were no Compensation Committee interlocks required to be disclosed under Item 402(j) of Regulation S-K under the Securities Act of 1933 during 2004.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information as of March 31, 2005, with respect to each person who is known by the Company to own beneficially 5% or more of each class of voting securities of the Company.

The following table sets forth certain information as of December 31, 2004, with respect to compensation plans under which equity securities of the Company are authorized for issuance.

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The following table sets forth certain information as of March 31, 2005, with respect to beneficial ownership of each class of equity securities of the Company by (a) the directors of the Company, (b) the Named Executive Officers and (c) the directors and all executive officers of the Company as a group.