<PAGE>

                                                                    Exhibit 99.1
 
                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To James River Paper Company, Inc.
and Radnor Holdings Corporation:
 
  We have audited the accompanying balance sheets of J.R. CUP FOAM CONTAINER
OPERATIONS OF JAMES RIVER PAPER COMPANY, INC. (a Virginia corporation)
(formerly Handi-Kup Foam Container Operations of James River Paper Company,
Inc.), as of December 25, 1994 and December 31, 1995, and the related
statements of operations, changes in owner's investment and cash flows for
each of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
 
  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
  In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the J.R. Cup Foam
Container Operations of James River Paper Company, Inc. as of December 25,
1994 and December 31, 1995, and the results of its operations for each of the
three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
 
                                                            ARTHUR ANDERSEN LLP
 
Phoenix, Arizona,
 October 14, 1996
 
                                     F-23
<PAGE>
 
                     J.R. CUP FOAM CONTAINER OPERATIONS OF
                        JAMES RIVER PAPER COMPANY, INC.
 
                                 BALANCE SHEETS
 
                                    (NOTE 1)
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                       DECEMBER 25, DECEMBER 31,
                        ASSETS                             1994         1995
                        ------                         ------------ ------------
<S>                                                    <C>          <C>
CURRENT ASSETS:
  Accounts receivable.................................   $  5,309     $  4,901
  Inventories, net....................................      7,591        7,543
  Prepaid expenses and other..........................        221          224
                                                         --------     --------
    Total current assets..............................     13,121       12,668
                                                         --------     --------
PROPERTY, PLANT AND EQUIPMENT (Note 2):
  Land and improvements...............................      1,196        1,064
  Buildings and improvements..........................      8,758        7,943
  Machinery and equipment.............................     37,870       37,316
  Supplies and spare mold parts.......................      1,609        1,376
                                                         --------     --------
                                                           49,433       47,699
  Less accumulated depreciation.......................    (30,011)     (30,717)
                                                         --------     --------
                                                           19,422       16,982
                                                         --------     --------
OTHER ASSETS..........................................        123           70
                                                         --------     --------
                                                         $ 32,666     $ 29,720
                                                         ========     ========
<CAPTION>
          LIABILITIES AND OWNER'S INVESTMENT
          ----------------------------------
<S>                                                    <C>          <C>
CURRENT LIABILITIES:
  Accounts payable....................................   $  4,477     $  5,571
  Accrued liabilities (Note 2)........................      5,182        6,194
                                                         --------     --------
                                                            9,659       11,765
OTHER LONG-TERM LIABILITIES...........................        716          781
COMMITMENTS AND CONTINGENCIES (Note 3)
OWNER'S INVESTMENT....................................     22,291       17,174
                                                         --------     --------
                                                         $ 32,666     $ 29,720
                                                         ========     ========
</TABLE>
 
        The accompanying notes are an integral part of these statements.
 
                                      F-24
<PAGE>
 
                     J.R. CUP FOAM CONTAINER OPERATIONS OF
                        JAMES RIVER PAPER COMPANY, INC.
 
                            STATEMENTS OF OPERATIONS
 
                                    (NOTE 1)
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                    FOR THE YEAR ENDED
                                          --------------------------------------
                                          DECEMBER 26, DECEMBER 25, DECEMBER 31,
                                              1993         1994         1995
                                          ------------ ------------ ------------
<S>                                       <C>          <C>          <C>
NET SALES................................   $90,819      $94,644      $98,680
COST OF GOODS SOLD.......................    69,246       76,053       80,359
                                            -------      -------      -------
GROSS PROFIT.............................    21,573       18,591       18,321
OPERATING EXPENSES:
  Distribution...........................     8,336        9,812        8,354
  Selling, general and administrative....     4,164        4,061        3,672
  Allocation from James River (Note 1)...     3,880        4,725       10,101
                                            -------      -------      -------
INCOME (LOSS) FROM OPERATIONS............     5,193           (7)      (3,806)
OTHER (INCOME) EXPENSE ..................       144          253         (225)
                                            -------      -------      -------
INCOME (LOSS) BEFORE INCOME TAXES........     5,049         (260)      (3,581)
PROVISION FOR INCOME TAXES (Note 5)......        --           --           --
                                            -------      -------      -------
NET INCOME (LOSS)........................   $ 5,049      $  (260)     $(3,581)
                                            =======      =======      =======
</TABLE>
 
 
        The accompanying notes are an integral part of these statements.
 
                                      F-25
<PAGE>
 
                     J.R. CUP FOAM CONTAINER OPERATIONS OF
                        JAMES RIVER PAPER COMPANY, INC.
 
                  STATEMENTS OF CHANGES IN OWNER'S INVESTMENT
 
                                    (NOTE 1)
                                 (IN THOUSANDS)
 
<TABLE>
<S>                                                                     <C>
BALANCE, January 1, 1993............................................... $25,086
  Net income...........................................................   5,049
  Net payments to James River..........................................  (6,373)
                                                                        -------
BALANCE, December 26, 1993.............................................  23,762
  Net loss.............................................................    (260)
  Net payments to James River..........................................  (1,211)
                                                                        -------
BALANCE, December 25, 1994.............................................  22,291
  Net loss.............................................................  (3,581)
  Net payments to James River..........................................  (1,536)
                                                                        -------
BALANCE, December 31, 1995............................................. $17,174
                                                                        =======
</TABLE>
 
 
 
        The accompanying notes are an integral part of these statements.
 
                                      F-26
<PAGE>
 
                     J.R. CUP FOAM CONTAINER OPERATIONS OF
                        JAMES RIVER PAPER COMPANY, INC.
 
                            STATEMENTS OF CASH FLOWS
 
                                    (NOTE 1)
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                   FOR THE YEAR ENDED
                                         --------------------------------------
                                         DECEMBER 26, DECEMBER 25, DECEMBER 31,
                                             1993         1994         1995
                                         ------------ ------------ ------------
<S>                                      <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss).....................   $ 5,049      $  (260)     $(3,581)
  Adjustments to reconcile net income
   (loss) to net cash provided by
   operating activities:
    Depreciation........................     2,434        2,478        2,580
    Changes in operating assets and
     liabilities--
      Accounts receivable...............       866          503          408
      Inventories, net..................        20          551           48
      Prepaid expenses and other........       (21)         (64)          (3)
      Accounts payable..................       559         (411)       1,094
      Accrued liabilities...............    (1,061)         387        1,012
      Other assets......................       202           16           53
      Other long-term liabilities.......        --            6           65
                                           -------      -------      -------
        Net cash provided by operating
         activities.....................     8,048        3,206        1,676
                                           -------      -------      -------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Net purchases of property, plant and
   equipment............................    (1,675)      (1,995)        (140)
                                           -------      -------      -------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net payments to James River...........    (6,373)      (1,211)      (1,536)
                                           -------      -------      -------
CASH, beginning of period (Note 2)......        --           --           --
                                           -------      -------      -------
CASH, end of period (Note 2)............   $    --      $    --      $    --
                                           =======      =======      =======
</TABLE>
 
 
        The accompanying notes are an integral part of these statements.
 
                                      F-27
<PAGE>
 
                     J.R. CUP FOAM CONTAINER OPERATIONS OF
                        JAMES RIVER PAPER COMPANY, INC.
 
                         NOTES TO FINANCIAL STATEMENTS
 
(1) ORGANIZATION AND BASIS OF PRESENTATION:
 
 The Company
 
  As of the dates and for the periods presented, J.R. Cup Foam Container
Operations (the Company) (formerly Handi-Kup Foam Container Operations of
James River Paper Company, Inc.) was an operating unit of James River Paper
Company, Inc. (James River). The Company manufactures and distributes foam
cups, containers and thermoformed lids primarily to national, institutional
and retail customers throughout the U.S.
 
 Basis of Presentation
 
  On January 20, 1996, James River entered into a Joint Venture with WinCup
Holdings, Inc. (WinCup), another foam cup manufacturer, whereby both parties
contributed their fixed assets, leasehold improvements, technology, patents,
trademarks, real property and other noncurrent assets associated with their
foam cup and container and thermoformed lid manufacturing operations and all
inventory, spare parts and other current assets, excluding cash and accounts
receivable, to the Joint Venture.
 
  The Joint Venture is structured as a Delaware limited partnership with
WinCup as the sole general partner and James River as the sole limited
partner. Ownership interests are allocated 55% to WinCup and 45% to James
River.
 
  The financial statements include certain amounts that have been allocated to
the Company by James River. Specifically, these allocations include general
and administrative expenses and accruals for advertising, market survey,
promotion, legal fees and customer performance allowances. Management believes
that the allocation methodologies used to allocate these corporate centrally
managed costs to the Company represent a reasonable basis for allocation.
Included in selling, general and administrative expenses are $3.0 million,
$2.6 million and $2.7 million in customer performance allowances allocated to
the Company by James River for the periods ended December 26, 1993, December
25, 1994 and December 31, 1995, respectively. All other expenses allocated
from James River are included in allocation from James River in the
accompanying statements of operations.
 
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
 
 Fiscal Year
 
  The Company's fiscal year includes the 52 or 53 weeks ending on the last
Sunday in December. The year ended December 31, 1995 included 53 weeks while
the years ended December 25, 1994 and December 26, 1993 each included 52
weeks.
 
 Cash
 
  Prior to the date of its acquisition by WinCup, the Company was a
participant in the cash pool of James River. All of the cash of the James
River subsidiaries was deposited into a single account. All cash requirements
of James River and its subsidiaries were then funded out of this cash pool. As
a result, the Company had no cash balances recorded on its books prior to its
acquisition by WinCup.
 
 Inventories, Net
 
  Inventories are stated at the lower of cost (first-in, first-out) or market
and include the cost of materials, labor and manufacturing overhead.
Inventories consist of the following at December 25, 1994 and December 31,
1995:
 
 
                                     F-28
<PAGE>
 
                     J.R. CUP FOAM CONTAINER OPERATIONS OF
                        JAMES RIVER PAPER COMPANY, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
<TABLE>
<CAPTION>
                                                                    1994   1995
                                                                   ------ ------
                                                                        (IN
                                                                    THOUSANDS)
      <S>                                                          <C>    <C>
      Raw materials............................................... $  897 $1,035
      Finished goods..............................................  6,908  6,508
                                                                   ------ ------
                                                                   $7,805 $7,543
                                                                   ====== ======
</TABLE>
 
 Property, Plant and Equipment
 
  Property, plant and equipment is stated at cost, less accumulated
depreciation. Expenditures for improvements that increase the values or extend
the useful life are capitalized and maintenance repair costs are expensed as
incurred. For financial reporting purposes, depreciation is computed using the
straight-line method over the useful lives of the respective assets, which
range from 20 to 45 years for buildings and 5 to 20 years for machinery and
equipment. Leasehold improvements are amortized over the lesser of their
estimated useful lives or the term of the lease using the straight-line
method.
 
 Supplies and Spare Mold Parts
 
  Supplies and spare mold parts include maintenance parts maintained in a
central stores location. When parts are needed at the various manufacturing
facilities, the parts are shipped and expensed in that period.
 
 Accrued Liabilities
 
  The components of accrued liabilities are as follows at December 25, 1994
and December 31, 1995:
 
<TABLE>
<CAPTION>
                                                                   1994   1995
                                                                  ------ ------
                                                                       (IN
                                                                   THOUSANDS)
      <S>                                                         <C>    <C>
      Workers' compensation reserves............................. $1,630 $2,257
      Payroll and employee related items.........................  1,443  1,431
      Sales rebates..............................................    700    890
      Accrued utilities..........................................    458    320
      Other accrued liabilities..................................    951  1,296
                                                                  ------ ------
                                                                  $5,182 $6,194
                                                                  ====== ======
</TABLE>
 
 Pension Assets and Post Retirement Benefits Other than Pensions
 
  James River sponsors various contributory and noncontributory pension plans.
Benefits under the plans are primarily based on years of service and
compensation. An allocation of the total James River net pension asset
exclusive of the net minimum liabilities of $123,000 and $70,000 at December
25, 1994 and December 31, 1995, respectively, has been included in other
assets in the accompanying financial statements of the Company.
 
  James River provides certain medical and life insurance benefits to eligible
employees upon retirement. An allocation of the amounts attributable to the
Company's employees of $716,000 and $781,000 at December 25, 1994 and December
31, 1995, respectively, has been included in other long-term liabilities in
the accompanying financial statements.
 
 Revenue Recognition
 
  Revenue is recognized when goods are shipped. Sales are recorded net of
expected cash discounts.
 
 
                                     F-29
<PAGE>
 
                     J.R. CUP FOAM CONTAINER OPERATIONS OF
                        JAMES RIVER PAPER COMPANY, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 Use of Estimates
 
  The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
 Fair Value of Financial Instruments
 
  The estimated fair value of financial instruments has been determined by the
Company using the available market information and valuation methodologies.
Considerable judgment is required in estimating fair values. Accordingly, the
estimates may not be indicative of the amounts the Company could realize in a
current market exchange.
 
  The carrying values of accounts receivable, accounts payable and accrued
liabilities approximate fair values due to the short-term maturities of these
financial instruments.
 
(3) COMMITMENTS AND CONTINGENCIES:
 
  The Company leases certain facilities, vehicles and equipment over varying
periods. None of the agreements contain unusual renewal or purchase options.
As of December 31, 1995, future minimum rental payments under noncancelable
operating leases were as follows (in thousands):
 
<TABLE>
      <S>                                                                 <C>
      1996............................................................... $1,537
      1997...............................................................  1,374
      1998...............................................................    845
      1999...............................................................    338
                                                                          ------
                                                                          $4,094
                                                                          ======
</TABLE>
 
  Rent expense totaled $2.2 million, $2.4 million and $2.4 million in 1993,
1994 and 1995, respectively.
 
 Litigation
 
  The Company is involved in various legal actions arising in the normal
course of business. After taking into consideration legal counsel's evaluation
of such actions, management believes that these actions will not have a
significant effect on the Company's financial position or results of
operations.
 
  In July 1996, StyroChem, the Company's primary supplier of expandable
polystyrene beads (EPS) filed suit in the United States District Court for the
Northern District of Texas against James River for breach of a supply contract
between StyroChem and James River. The contract in question required James
River to purchase from StyroChem all of the EPS requirements for its foam
operations through February 1999, provided that the material satisfied certain
product specifications. Because the product supplied by StyroChem did not meet
such specifications, James River ceased purchasing EPS from StyroChem and did
not assign the contract to the Joint Venture in connection with its formation.
The Joint Venture agreed to indemnify James River for certain liabilities
relating to the failure of James River to assign the contract in question to
the Joint Venture and the Joint Venture has assumed the defense of such
litigation, subject to certain reservations of rights. The lawsuit has been
stayed pending the outcome of a proposed acquisition of StyroChem by WinCup,
and management expects the lawsuit will be dismissed with prejudice following
the consummation of the acquisition. Management does not believe the ultimate
outcome of the lawsuit will have a material effect on the Company's financial
position or results of operations.
 
                                     F-30
<PAGE>
 
                     J.R. CUP FOAM CONTAINER OPERATIONS OF
                        JAMES RIVER PAPER COMPANY, INC.
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
(4) RELATED PARTY TRANSACTIONS:
 
  Transactions with other James River locations are reflected as though they
were settled immediately as an addition to or a reduction of James River's
investment and there are no amounts due to or from James River at the end of
any period.
 
(5) INCOME TAXES:
 
  The Company has historically been included in the consolidated federal
income tax return and combined/unitary state income tax returns of James
River. No provision for income taxes has been reflected in the accompanying
financial statements as the Company has historically generated tax losses on a
standalone basis. Deferred income tax assets and liabilities have been
determined at the corporate level and have not been allocated on a standalone
basis. Because the Company is included in the James River consolidated federal
income tax return, net operating loss carryforwards, investment and other tax
credit carryforwards, if any, were utilized by James River. Accordingly, the
Company has no reportable net operating loss or tax credit carryforwards on a
standalone basis.
 
                                     F-31
<PAGE>
 
                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To SP Acquisition Co.:
 
  We have audited the accompanying consolidated balance sheet of SP
Acquisition Co. (a Delaware Corporation) and subsidiaries as of December 5,
1996 and the related consolidated statements of income, stockholders' equity
and cash flows for the eight month period then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
 
  We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
 
  In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of SP
Acquisition Co. and subsidiaries as of December 5, 1996, and the results of
their operations and cash flows for the eight month period then ended in
conformity with generally accepted accounting principles.
 
                                                            ARTHUR ANDERSEN LLP
 
Philadelphia, Pennsylvania
 March 18, 1997
 
                                     F-32
<PAGE>
 
                         INDEPENDENT AUDITORS' REPORT
 
SP Acquisition Co.
Fort Worth, Texas
 
  We have audited the accompanying consolidated balance sheets of SP
Acquisition Co. and subsidiaries (the Company), as of April 1, 1995 and March
30, 1996 and the related consolidated statements of income, stockholders'
equity and cash flows for the years then ended. The consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the consolidated financial
statements based on our audits.
 
  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
  In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of SP Acquisition Co. and
subsidiaries as of April 1, 1995 and March 30, 1996 and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
 
  On October 30, 1996, as discussed in Note 16, the Company's shareholders
entered into a definitive agreement with Radnor Holdings Corporation (Radnor)
whereby Radnor agreed to acquire all the issued and outstanding capital stock
of and equity interests in the Company, subject to certain conditions.
 
DELOITTE & TOUCHE LLP
 
Fort Worth, Texas
 
October 18, 1996
(October 30, 1996 as to Note 16)
 
                                     F-33
<PAGE>
 
                      SP ACQUISITION CO. AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
 
               APRIL 1, 1995, MARCH 30, 1996 AND DECEMBER 5, 1996
 
<TABLE>
<CAPTION>
                                          APRIL 1,     MARCH 30,   DECEMBER 5,
                 ASSETS                     1995         1996         1996
                 ------                  -----------  -----------  -----------
<S>                                      <C>          <C>          <C>
CURRENT ASSETS
  Cash and cash equivalents............. $   117,696  $    73,342  $ 2,413,575
  Accounts receivable...................  15,933,813   11,697,236   12,066,644
  Refundable income taxes...............          --      391,340      436,629
  Inventory.............................   7,839,053    6,794,310    7,411,516
  Prepaid expenses......................     313,636      436,823      443,336
  Deferred income taxes.................     923,687      858,920      946,191
                                         -----------  -----------  -----------
    Total current assets................  25,127,885   20,251,971   23,717,891
PROPERTY, PLANT AND EQUIPMENT, NET......   3,878,920    7,391,878    6,826,068
PROPERTY HELD FOR SALE..................   1,600,000    1,771,176           --
DEFERRED INCOME TAXES...................   1,990,557    1,380,264    1,065,103
OTHER ASSETS............................     253,113      171,248       60,018
                                         -----------  -----------  -----------
TOTAL................................... $32,850,475  $30,966,537  $31,669,080
                                         ===========  ===========  ===========
<CAPTION>
  LIABILITIES AND STOCKHOLDERS' EQUITY
  ------------------------------------
<S>                                      <C>          <C>          <C>
CURRENT LIABILITIES:
  Notes payable......................... $ 1,609,954  $ 1,832,581  $   133,781
  Accounts payable......................  17,131,719   14,464,013   17,242,167
  Accrued liabilities...................   1,509,801    1,207,789    2,979,653
  Income taxes payable..................     683,908      252,963      568,195
  Current portion of long-term debt.....   1,219,135    1,242,556    1,320,179
                                         -----------  -----------  -----------
    Total current liabilities...........  22,154,517   18,999,902   22,243,975
                                         -----------  -----------  -----------
LONG-TERM DEBT..........................   6,235,010    6,318,873    2,859,264
                                         -----------  -----------  -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
  Preferred stock, $.01 par value,
   100,000 shares authorized; 22,315
   shares issued and outstanding
   (liquidation preference of $500,000)
   .....................................         223          223          223
  Common stock, $.01 par value, 400,000
   shares authorized; 65,184 shares
   issued and outstanding...............         652          652          652
  Additional paid-in capital............     999,125      999,125      999,125
  Retained earnings.....................   3,492,533    4,723,461    5,658,568
  Cumulative translation adjustments....     (31,585)     (75,699)     (92,727)
                                         -----------  -----------  -----------
    Total stockholders' equity..........   4,460,948    5,647,762    6,565,841
                                         -----------  -----------  -----------
TOTAL................................... $32,850,475  $30,966,537  $31,669,080
                                         ===========  ===========  ===========
</TABLE>
 
                See notes to consolidated financial statements.
 
                                      F-34
<PAGE>
 
                      SP ACQUISITION CO. AND SUBSIDIARIES
 
                       CONSOLIDATED STATEMENTS OF INCOME
 
FOR THE YEARS ENDED APRIL 1, 1995 AND MARCH 30, 1996 AND THE EIGHT MONTH PERIOD
                             ENDED DECEMBER 5, 1996
 
<TABLE>
<CAPTION>
                                          YEAR ENDED          
                                  ---------------------------
                                                              EIGHT MONTH
                                                              PERIOD ENDED
                                   APRIL 1,                   DECEMBER 5,
                                     1995      MARCH 30, 1996    1996
                                  -----------  -------------- -----------
<S>                               <C>          <C>            <C>          
NET SALES.......................  $72,106,153   $76,221,366   $52,375,480
COST OF GOODS SOLD..............   61,472,165    68,121,794    44,534,090
                                  -----------   -----------   -----------
GROSS PROFIT....................   10,633,988     8,099,572     7,841,390
DISTRIBUTION EXPENSE............    2,011,000     2,604,026     1,316,131
SELLING, GENERAL AND ADMINISTRA-
 TIVE EXPENSE...................    2,980,743     3,069,379     4,106,890
                                  -----------   -----------   -----------
INCOME FROM OPERATIONS..........    5,642,245     2,426,167     2,418,369
                                  -----------   -----------   -----------
OTHER INCOME (EXPENSE):
  Interest expense..............     (924,033)     (830,966)     (684,129)
  Other income (expense), net...      254,996       589,820      (175,633)
                                  -----------   -----------   -----------
TOTAL OTHER INCOME (EXPENSE)....     (669,037)     (241,146)     (859,762)
                                  -----------   -----------   -----------
INCOME BEFORE INCOME TAXES......    4,973,208     2,185,021     1,558,607
INCOME TAXES....................    1,845,675       954,093       623,500
                                  -----------   -----------   -----------
NET INCOME......................  $ 3,127,533   $ 1,230,928   $   935,107
                                  ===========   ===========   ===========
</TABLE>
 
 
                See notes to consolidated financial statements.
 
                                      F-35
<PAGE>
 
                      SP ACQUISITION CO. AND SUBSIDIARIES
 
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
 
FOR THE YEARS ENDED APRIL 1, 1995 AND MARCH 30, 1996 AND THE EIGHT MONTH PERIOD
                             ENDED DECEMBER 5, 1996
 
<TABLE>
<CAPTION>
                                              ADDITIONAL
                             PREFERRED COMMON  PAID-IN    RETAINED  TRANSLATION
                               STOCK   STOCK   CAPITAL    EARNINGS  ADJUSTMENTS
                             --------- ------ ---------- ---------- -----------
<S>                          <C>       <C>    <C>        <C>        <C>
BALANCE, APRIL 3, 1994......   $223     $652   $999,125  $  365,000  $    --
  Net income................    --       --         --    3,127,533       --
  Translation adjustments...    --       --         --          --    (31,585)
                               ----     ----   --------  ----------  --------
BALANCE, APRIL 1, 1995......    223      652    999,125   3,492,533   (31,585)
  Net income................    --       --         --    1,230,928       --
  Translation adjustments...    --       --         --          --    (44,114)
                               ----     ----   --------  ----------  --------
BALANCE, MARCH 30, 1996.....    223      652    999,125   4,723,461   (75,699)
  Net income................    --       --         --      935,107       --
  Translation adjustments...    --       --         --          --    (17,028)
                               ----     ----   --------  ----------  --------
BALANCE, DECEMBER 5, 1996...   $223     $652   $999,125  $5,658,568  $(92,727)
                               ====     ====   ========  ==========  ========
</TABLE>
 
 
 
                See notes to consolidated financial statements.
 
                                      F-36
<PAGE>
 
                      SP ACQUISITION CO. AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
FOR THE YEARS ENDED APRIL 1, 1995 AND MARCH 30, 1996 AND THE EIGHT MONTH PERIOD
                             ENDED DECEMBER 5, 1996
<TABLE>
<CAPTION>
                                                YEAR ENDED
                                          ------------------------
                                                                    EIGHT MONTH
                                                                    PERIOD ENDED
                                           APRIL 1,     MARCH 30,   DECEMBER 5,
                                             1995         1996          1996
                                          -----------  -----------  ------------
<S>                                       <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income............................  $ 3,127,533  $ 1,230,928   $  935,107
  Adjustments to reconcile net income to
   net cash provided by operating
   activities:
    Depreciation and amortization.......      357,984      490,759    1,202,778
    Deferred income taxes...............      245,756      675,060      228,118
    Loss on sale of property............           --           --      712,069
    Changes in operating assets and lia-
     bilities:
      Accounts receivable...............   (2,833,745)   4,236,577     (369,408)
      Inventory.........................   (3,497,510)   1,044,743     (617,206)
      Prepaid expenses and other as-
       sets.............................     (300,042)    (117,473)      (6,513)
      Accounts payable..................    6,919,397   (2,667,706)   2,778,154
      Accrued liabilities...............       60,096     (302,012)   1,771,635
      Income taxes refundable and
       payable..........................      583,861     (822,285)     269,943
                                          -----------  -----------   ----------
        Net cash provided by operating
         activities.....................    4,663,330    3,768,591    6,904,677
                                          -----------  -----------   ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property and equipment....   (3,241,588)  (3,916,806)  (1,046,646)
  Additions to property held for sale...           --     (226,049)          --
  Disposal of property and equipment....           --           --    1,562,988
                                          -----------  -----------   ----------
        Net cash provided by (used in)
         investing activities...........   (3,241,588)  (4,142,855)     516,342
                                          -----------  -----------   ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Repayment of debt.....................     (858,877)  (1,035,507)  (3,381,986)
  Net borrowings (repayment) on line of
   credit and other.....................     (392,519)   1,365,417   (1,698,800)
  Payment of financing costs............     (160,192)          --           --
                                          -----------  -----------   ----------
        Net cash provided by (used in)
         financing activities...........   (1,411,588)     329,910   (5,080,786)
                                          -----------  -----------   ----------
NET INCREASE (DECREASE) IN CASH AND CASH
 EQUIVALENTS............................       10,154      (44,354)   2,340,233
CASH AND CASH EQUIVALENTS AT BEGINNING
 OF YEAR................................      107,542      117,696       73,342
                                          -----------  -----------   ----------
CASH AND CASH EQUIVALENTS AT END OF
 YEAR...................................  $   117,696  $    73,342   $2,413,575
                                          ===========  ===========   ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
  Cash paid during the year for:
    Interest............................  $   800,745  $   794,009   $  605,226
    Income taxes........................    1,111,521    1,116,000      422,436
  Noncash financing activities:
    Note payable for insurance policy...  $   188,393  $   203,462   $       --
</TABLE>
 
                See notes to consolidated financial statements.
 
                                      F-37
<PAGE>
 
                      SP ACQUISITION CO. AND SUBSIDIARIES
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
   FOR THE YEARS ENDED APRIL 1, 1995 AND MARCH 30, 1996 AND THE EIGHT MONTH
                         PERIOD ENDED DECEMBER 5, 1996
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
  BUSINESS--SP Acquisition Co. (SPAC) and subsidiaries develop, manufacture
and market a broad line of crystal polystyrene and expandable polystyrene for
sale to manufacturers of foam cups and containers and insulation and packaging
products.
 
  BASIS OF CONSOLIDATION--The accompanying consolidated financial statements
include the accounts of SP Acquisition Co. and its wholly-owned subsidiaries,
StyroChem International, Inc. and StyroChem International, Ltd. (collectively,
the Company). All significant intercompany accounts and transactions have been
eliminated in consolidation.
 
  ACQUISITION--SPAC was incorporated on January 18, 1994 for the sole purpose
of acquiring certain operations of Kimberly-Clark Tissue Company, formerly
known as Scott Paper Company (KCTC). On February 25, 1994, SPAC acquired all
of the outstanding shares of common stock of StyroChem International, Inc. and
StyroChem International, Ltd. from KCTC for an aggregate cash purchase price,
including costs and expenses of approximately $14.5 million, subject to
adjustment for certain contingent consideration. The acquisition was funded by
the proceeds from the issuance of common and preferred stock of SPAC, along
with borrowings under term loans by SPAC and each of the Company's
subsidiaries.
 
  The acquisition was accounted for using the purchase method of accounting
and, accordingly, the purchase price has been allocated to the assets acquired
and liabilities assumed based on their relative fair market values. As of the
acquisition date, assets acquired and liabilities assumed were as follows (in
thousands):
 
<TABLE>
      <S>                                                             <C>
      Purchase price................................................. $ 14,456
      Fair values of net assets acquired:
        Fair value of assets acquired................................   34,473
        Liabilities assumed..........................................  (10,307)
                                                                      --------
                                                                        24,166
                                                                      --------
      Excess fair value.............................................. $ (9,710)
                                                                      ========
</TABLE>
 
  The excess of the fair value of the net assets acquired was accounted for as
a reduction in the fair value allocated to property and equipment.
 
  FISCAL YEAR--The Company's fiscal year ends on the Saturday nearest March 31
of each year.
 
  UNAUDITED SUMMARY OPERATING RESULTS--Summary operating results of the
Company for the unaudited three month period ended March 30, 1996 are as
follows:
 
<TABLE>
      <S>                                                          <C>
      Net sales................................................... $16,991,252
                                                                   ===========
      Gross profit................................................ $ 1,834,560
                                                                   ===========
      Income from operations...................................... $   268,083
                                                                   ===========
      Net income.................................................. $    88,535
                                                                   ===========
      Total depreciation, amortization, interest and income
       taxes...................................................... $   617,075
                                                                   ===========
</TABLE>
 
                                     F-38
<PAGE>
 
                      SP ACQUISITION CO. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
           FOR THE YEARS ENDED APRIL 1, 1995 AND MARCH 30, 1996 AND
                 THE EIGHT MONTH PERIOD ENDED DECEMBER 5, 1996
 
  CASH AND CASH EQUIVALENTS--For the purposes of reporting cash flows, cash
and cash equivalents includes investments readily convertible to cash with
remaining maturities at date of purchase of three months or less.
 
  FINANCIAL INSTRUMENTS--The Company's financial instruments under Statement
of Financial Accounting Standards No. 107, "Disclosure About Fair Value of
Financial Instruments," include cash and cash equivalents, accounts
receivable, accounts payable and long-term debt. The Company believes that the
carrying amounts of cash and cash equivalents, accounts receivable, accounts
payable and long-term debt to banks are a reasonable estimate of their fair
value because of the short-term maturities of such instruments or, in the case
of long-term debt to banks, because of the floating interest rates on such
long-term debt.
 
  INVENTORIES--Inventories are valued at the lower of cost or market with cost
determined using the average cost method. Inventories consist of finished
goods, work-in-process and raw materials. Finished goods costs include raw
materials, direct labor and indirect production and overhead costs. The
Company provides an allowance for obsolescence based on management's
evaluation of future usefulness and salability of inventory.
 
  PROPERTY, PLANT AND EQUIPMENT--Property, plant and equipment are recorded at
cost. Depreciation is recorded using the straight-line method over the
estimated useful lives of the assets, as follows:
 
<TABLE>
<CAPTION>
                                                                 NUMBER OF YEARS
                                                                 ---------------
      <S>                                                        <C>
      Building and improvements.................................        20
      Machinery and equipment...................................      3-10
      Furniture and fixtures....................................      5-10
</TABLE>
 
  Expenditures that result in the enhancement of the assets involved are
capitalized and maintenance and repair costs are expensed when incurred. Upon
sale or other disposition, any gain or loss is included in income.
 
  PROPERTY HELD FOR SALE--Land and structures currently being offered for sale
are classified separately from property and equipment.
 
  INCOME TAXES--Federal income taxes have been computed in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," which requires income taxes to be accounted for under the liability
method. Income taxes are provided for the tax effects of transactions reported
in the financial statements and consist of taxes currently due plus deferred
income taxes related primarily to differences between the basis of property,
plant and equipment due to depreciation differences and to the application of
the purchase method of accounting for financial statement purposes but not for
tax purposes, and nondeductible asset and liability reserves for tax purposes.
The deferred tax assets and liabilities represent the future tax return
consequences of those differences, which will either be taxable or deductible
when the assets and liabilities are recovered or settled. Deferred tax assets
are evaluated based on the guidelines for realization and may be reduced by a
valuation allowance.
 
  FOREIGN CURRENCY TRANSLATION--The assets and liabilities of the Company's
Canadian subsidiary, StyroChem International, Ltd., whose functional currency
is other than the U.S. dollar are translated at year-end exchange rates.
Revenue and expense accounts are translated using the weighted average
exchange rate during the periods. Translation gains and losses are not
included in determining net income but are accumulated in a separate component
of stockholders' equity, as is required by Statement of Financial Accounting
Standards No. 52, "Foreign Currency Translation."
 
  RESEARCH AND DEVELOPMENT--Research and development expenses are charged to
income as incurred. Total research and development expenses were approximately
$1.3 million and $1.6 million for the years ended
 
                                     F-39
<PAGE>
 
                      SP ACQUISITION CO. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
           FOR THE YEARS ENDED APRIL 1, 1995 AND MARCH 30, 1996 AND
                 THE EIGHT MONTH PERIOD ENDED DECEMBER 5, 1996
 
April 1, 1995 and March 30, 1996, respectively, and approximately $1.5 million
for the eight month period ended December 5, 1996.
 
  ACCOUNTING ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
 
  RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS--Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Impairment is evaluated by
comparing future cash flows (undiscounted and without interest charges)
expected to result from the use of the asset and its eventual disposition to
the carrying amount of the asset. The Company adopted this pronouncement
during the eight month period ended December 5, 1996 and the adoption did not
have a material impact on its consolidated financial position or results of
operations.
 
2. ACCOUNTS RECEIVABLE
 
  Accounts receivable consist of the following:
 
<TABLE>
<CAPTION>
                                          APRIL 1,     MARCH 30,   DECEMBER 5,
                                            1995         1996         1996
                                         -----------  -----------  -----------
      <S>                                <C>          <C>          <C>
      Trade accounts receivable......... $15,964,399  $11,680,811  $12,120,749
      Other receivables.................      54,414      125,425       29,397
                                         -----------  -----------  -----------
                                          16,018,813   11,806,236   12,150,146
      Allowance for doubtful accounts...     (85,000)    (109,000)     (83,502)
                                         -----------  -----------  -----------
                                         $15,933,813  $11,697,236  $12,066,644
                                         ===========  ===========  ===========
</TABLE>
 
3. INVENTORY
 
  Inventory consists of the following:
 
<TABLE>
<CAPTION>
                                             APRIL 1,   MARCH 30,   DECEMBER 5,
                                               1995        1996        1996
                                            ----------  ----------  -----------
      <S>                                   <C>         <C>         <C>
      Finished goods....................... $3,921,857  $3,149,525  $3,455,685
      Work-in-process......................    897,126   1,076,670   1,989,546
      Raw materials........................  3,384,070   3,067,115   2,239,108
                                            ----------  ----------  ----------
                                             8,203,053   7,293,310   7,684,339
      Allowance for obsolescence...........   (364,000)   (499,000)   (272,823)
                                            ----------  ----------  ----------
                                            $7,839,053  $6,794,310  $7,411,516
                                            ==========  ==========  ==========
</TABLE>
 
                                     F-40
<PAGE>
 
                      SP ACQUISITION CO. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
           FOR THE YEARS ENDED APRIL 1, 1995 AND MARCH 30, 1996 AND
                 THE EIGHT MONTH PERIOD ENDED DECEMBER 5, 1996
 
4. PROPERTY, PLANT AND EQUIPMENT
 
  Property, plant and equipment consists of the following:
 
<TABLE>
<CAPTION>
                                             APRIL 1,   MARCH 30,   DECEMBER 5,
                                               1995        1996        1996
                                            ----------  ----------  -----------
      <S>                                   <C>         <C>         <C>
      Land................................. $  138,964  $  138,964  $  138,964
      Building and improvements............    118,029     201,761     201,761
      Machinery and equipment..............  3,666,995   5,881,326   6,324,086
      Furniture and fixtures...............    111,028     152,448     152,448
      Construction in progress.............    167,180   1,744,503   1,830,098
                                            ----------  ----------  ----------
                                             4,202,196   8,119,002   8,647,357
      Accumulated depreciation.............   (323,276)   (727,124) (1,821,289)
                                            ----------  ----------  ----------
                                            $3,878,920  $7,391,878  $6,826,068
                                            ==========  ==========  ==========
</TABLE>
 
5. PROPERTY HELD FOR SALE
 
  The Company had property held for sale, which included land and a building
and related improvements. During the eight months ended December 5, 1996, the
Company made net improvements of $222,898 to this property, which were
capitalized. This property was sold on November 21, 1996 at a loss of
approximately $700,000 to a real estate company owned by certain of the
Company's stockholders.
 
  The Company had leased this property to a third party. Rental income related
to this property was approximately $148,200 and $141,300 for the years ended
April 1, 1995 and March 30, 1996, respectively, and approximately $155,564 for
the eight month period ended December 5, 1996.
 
6. OTHER ASSETS
 
  Other assets include primarily loan origination costs associated with long-
term debt which are being amortized over the term of the related debt.
Accumulated amortization was $34,708, $66,746 and $160,192 as of April 1,
1995, March 30, 1996 and December 5, 1996, respectively.
 
                                     F-41
<PAGE>
 
                      SP ACQUISITION CO. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
           FOR THE YEARS ENDED APRIL 1, 1995 AND MARCH 30, 1996 AND
                 THE EIGHT MONTH PERIOD ENDED DECEMBER 5, 1996
 
7. NOTES PAYABLE AND LONG-TERM DEBT
 
  Notes payable represent advances from a Canadian bank under a $2.5 million
operating line of credit for the Company's Canadian subsidiary, which is
payable on demand and bears interest at a rate of Canadian prime (4.75% at
December 5, 1996) plus 1.25%. The advances under the line of credit are
secured by substantially all of the assets of the Company's Canadian
subsidiary.
  Long-term debt consists of the following:
 
<TABLE>
<CAPTION>
                                          APRIL 1,     MARCH 30,   DECEMBER 5,
                                            1995         1996         1996
                                         -----------  -----------  -----------
   <S>                                   <C>          <C>          <C>
   Bank term note, with interest at
    prime (8.25% at December 5, 1996)
    plus 1.25%, collateralized by all
    assets and outstanding common stock
    of the Company, payable in monthly
    principal payments of $66,667 plus
    interest, with the final payment
    due February 1999..................  $ 3,200,000  $ 2,400,000  $ 2,559,482
   Note payable to bank under a $6 mil-
    lion line of credit which expires
    on September 1, 1998, with interest
    at prime plus 1%, collateralized by
    all assets and outstanding common
    stock of the Company. Interest is
    due and payable quarterly along
    with commitment fees of 0.5% on the
    unused balance.....................    2,200,011    3,300,000      860,000
   Term loan payable to Canadian bank,
    with interest at Canadian prime
    plus 1.50%, collateralized by sub-
    stantially all assets of the Cana-
    dian subsidiary, payable in quar-
    terly principal payments of $59,773
    plus interest, with the final pay-
    ment due November 1998.............      865,282      657,508      478,646
   Notes payable to stockholders, with
    interest at 17.5% payable quarter-
    ly, due February 28, 1999, subject
    to prepayment penalties............    1,000,459    1,000,459           --
   Other...............................      188,393      203,462      281,315
                                         -----------  -----------  -----------
                                           7,454,145    7,561,429    4,179,443
   Less--current maturities............   (1,219,135)  (1,242,556)  (1,320,179)
                                         -----------  -----------  -----------
                                         $ 6,235,010  $ 6,318,873  $ 2,859,264
                                         ===========  ===========  ===========
</TABLE>
 
  The Company's notes payable and long-term debt agreements contain certain
restrictive covenants. These covenants require that the Company meet certain
requirements such as a minimum current ratio, a minimum trailing twelve-months
operating cash flow, a minimum tangible net worth, a minimum fixed charge
coverage ratio, a maximum ratio of indebtedness to tangible net worth and
maximum dividend distributions. The Company was not in compliance with certain
of these covenants at April 1, 1995 and March 30, 1996, but subsequently
obtained a waiver or an amendment for these instances of noncompliance.
 
  Effective August 31, 1996, the bank term note and line of credit agreement
was amended to revise certain covenants and to extend the final maturities to
September 1, 1998. Under the terms of the loan agreements, the Company has the
option to designate the interest rate for borrowings under the loan agreements
using either a prime plus or London Interbank Offering Rate (LIBOR) option.
The interest rate for domestically designated borrowings under the bank term
note and the line of credit was adjusted to prime plus 0.25% and prime,
respectively. LIBOR designated borrowings under the bank term note and line of
credit agreement bear interest at LIBOR plus 2% and LIBOR plus 1.75%,
respectively. In addition, effective November 1996, the commitment fee was
reduced to 0.25% of the unused balance of the line of credit which is payable
quarterly.
 
                                     F-42
<PAGE>
 
                      SP ACQUISITION CO. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
           FOR THE YEARS ENDED APRIL 1, 1995 AND MARCH 30, 1996 AND
                 THE EIGHT MONTH PERIOD ENDED DECEMBER 5, 1996
 
  The following represents the future annual maturities for the Company's
long-term debt obligations:
 
<TABLE>
<CAPTION>
                                                                     DECEMBER 5,
                                                                        1996
                                                                     -----------
   <S>                                                               <C>
   1997............................................................. $1,320,179
   1998.............................................................  1,899,790
   1999.............................................................    959,474
                                                                     ----------
                                                                     $4,179,443
                                                                     ==========
</TABLE>
 
  In conjunction with the acquisition (see Note 16), the bank term loan and
note payable to bank were paid off in the amounts of $2,559,482 and $860,000,
respectively.
 
8. INCOME TAXES
 
  Income tax expense included in the consolidated statements of income is as
follows:
 
<TABLE>
<CAPTION>
                                                    YEAR ENDED      EIGHT MONTH
                                               -------------------- PERIOD ENDED
                                                APRIL 1,  MARCH 30, DECEMBER 5,
                                                  1995      1996        1996
                                               ---------- --------- ------------
<S>                                            <C>        <C>       <C>
Current income tax expense:
  Federal..................................... $1,362,656 $209,727    $296,440
  State.......................................    237,263   69,306      98,942
                                               ---------- --------    --------
                                                1,599,919  279,033     395,382
                                               ---------- --------    --------
Deferred income tax expense:
  Federal.....................................    215,817  592,920     200,361
  State.......................................     29,939   82,140      27,757
                                               ---------- --------    --------
                                                  245,756  675,060     228,118
                                               ---------- --------    --------
Income tax expense ........................... $1,845,675 $954,093    $623,500
                                               ========== ========    ========
</TABLE>
 
  A reconciliation of the Company's effective income tax rate is as follows:
 
<TABLE>
<CAPTION>
                                                    YEAR ENDED     EIGHT MONTH
                                                ------------------ PERIOD ENDED
                                                APRIL 1, MARCH 30, DECEMBER 5,
                                                  1995     1996        1996
                                                -------- --------- ------------
<S>                                             <C>      <C>       <C>
Federal income taxes computed at the statutory
 rate.........................................    34.0%    34.0%       34.0%
State income taxes, net of federal income tax
 benefit......................................     3.1      2.0         2.7
Net operating (income) loss of Canadian sub-
 sidiary......................................      --      4.4          --
Other.........................................      --      3.3         3.3
                                                  ----     ----        ----
                                                  37.1%    43.7%       40.0%
                                                  ====     ====        ====
</TABLE>
 
                                     F-43
<PAGE>
 
                      SP ACQUISITION CO. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
           FOR THE YEARS ENDED APRIL 1, 1995 AND MARCH 30, 1996 AND
                 THE EIGHT MONTH PERIOD ENDED DECEMBER 5, 1996
 
  The tax effect of the Company's temporary differences giving rise to the net
deferred income tax assets is as follows:
 
<TABLE>
<CAPTION>
                                             APRIL 1,   MARCH 30,   DECEMBER 5,
                                               1995        1996        1996
                                            ----------  ----------  -----------
<S>                                         <C>         <C>         <C>
Deferred income tax assets:
  Current:
    Inventory.............................. $  285,213  $  408,331  $  282,864
    Accrued liabilities and reserves.......    607,031     411,771     629,927
    Allowance for doubtful accounts........     31,443      38,818      33,400
                                            ----------  ----------  ----------
                                               923,687     858,920     946,191
                                            ----------  ----------  ----------
  Noncurrent:
    Property and equipment.................  2,585,104   2,095,410   1,721,656
    Valuation allowance....................   (594,547)   (715,146)   (656,553)
                                            ----------  ----------  ----------
                                             1,990,557   1,380,264   1,065,103
                                            ----------  ----------  ----------
  Net deferred income tax assets........... $2,914,244  $2,239,184  $2,011,294
                                            ==========  ==========  ==========
</TABLE>
 
  The Company has established a valuation allowance for deferred tax assets of
the Company's Canadian subsidiary. The deferred tax assets represent primarily
the excess of the tax over the book basis of property, plant and equipment.
Because of the past operating losses of this subsidiary, the Company has been
unable to determine that it is more likely than not that the net deferred tax
assets of this subsidiary will be realized.
 
9. MAJOR SUPPLIER
 
  The Company agreed to purchase a minimum of 67% of its styrene monomer used
in production from one supplier. The agreement was for a five year period
ending February 1999, was renewable for successive annual terms, and provided
for purchases at prevailing market-related prices and for favorable payment
terms.
 
  In connection with this agreement, the Company's majority shareholder
granted this supplier an option to purchase 51,000 shares of common stock held
by the shareholder at the fair market value, as defined, of such shares at the
date of exercise. This option, which is exercisable between March 1, 1997 and
February 28, 1999, also requires this supplier to offer to purchase all the
outstanding shares of the Company's common stock at date of exercise.
 
  During the years ended April 1, 1995 and March 30, 1996, the Company's
purchases from this supplier amounted to approximately $41.0 million and $42.8
million, respectively, and the balance payable to this supplier by the Company
as of April 1, 1995 and March 30, 1996 amounted to approximately $8.6 million
and $8.2 million, respectively. During the eight month period ended December
5, 1996, the Company's purchases from this supplier amounted to approximately
$31.3 million. As of December 5, 1996, the balance payable to this supplier
was approximately $13.4 million.
 
10. CONCENTRATION OF CREDIT RISK
 
  Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of accounts receivable. Generally, the
Company does not require collateral to support customer receivables. The
Company follows established credit inquiry and investigation procedures in an
attempt to minimize credit risk associated with customer receivables. The
Company has one related party customer,
 
                                     F-44
<PAGE>
 
                      SP ACQUISITION CO. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
           FOR THE YEARS ENDED APRIL 1, 1995 AND MARCH 30, 1996 AND
                 THE EIGHT MONTH PERIOD ENDED DECEMBER 5, 1996
 
WinCup Holdings, L.P., a subsidiary of Radnor Holdings Corporation, which
accounted for more than 10% of sales in both 1995 and 1996. Sales to this
customer were approximately $24.0 million and $23.0 million for the years
ended April 1, 1995 and March 30, 1996, respectively, and approximately $12.8
million for the eight month period ended December 5, 1996. As of April 1,
1995, March 30, 1996 and December 5, 1996, outstanding accounts receivable
from this customer were approximately $6.5 million, $4.2 million and $2.6
million, respectively.
 
11. EMPLOYEE BENEFIT PLAN
 
  The Company sponsors a tax-qualified defined contribution plan under Section
401(a) of the Internal Revenue Code covering all full-time employees in the
U.S. who have completed one year of service. This plan includes a 401(k)
arrangement pursuant to which participants may contribute, subject to certain
limitations, a percentage of their salary on a pretax basis. The Company
contributes a matching contribution with respect to the contributions made by
participants at a rate determined by the Board of Directors of the Company
each year. The Company's 401(k) matching contributions were $62,763 and
$64,674 for the years ended April 1, 1995 and March 30, 1996, respectively,
and $66,505 for the eight month period ended December 5, 1996.
 
12. RELATED PARTY TRANSACTIONS
 
  Grupo Industrial Hermes and James River Paper Company, Inc. (James River)
are shareholders of the Company. Sales by the Company for the years ended
April 1, 1995 and March 30, 1996 and for the eight month period ended December
5, 1996 to Convermex, a subsidiary of Grupo Industrial Hermes, and to James
River are as follows:
 
<TABLE>
<CAPTION>
                                               YEAR ENDED       
                                         ---------------------- 
                                                               EIGHT MONTH
                                                               PERIOD ENDED
                                          APRIL 1,   MARCH 30,  DECEMBER 5,
                                            1995        1996       1996
                                         ----------- ---------- -----------
     <S>                                 <C>         <C>        <C>         
     Convermex.......................... $ 1,262,144 $1,218,230 $2,031,650
     James River........................  12,072,402  4,635,959  2,730,555
</TABLE>
 
  Receivables from the above related parties are as follows:
 
<TABLE>
<CAPTION>
                                                 APRIL 1,  MARCH 30, DECEMBER 5,
                                                   1995      1996       1996
                                                ---------- --------- -----------
     <S>                                        <C>        <C>       <C>
     Convermex.............................     $  138,600 $201,600   $619,760
     James River...........................      1,396,305   76,698    122,488
</TABLE>
 
                                     F-45
<PAGE>
 
                      SP ACQUISITION CO. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
           FOR THE YEARS ENDED APRIL 1, 1995 AND MARCH 30, 1996 AND
                 THE EIGHT MONTH PERIOD ENDED DECEMBER 5, 1996
 
  Effective January 20, 1996, James River, one of the Company's shareholders,
acquired an interest in the Company's largest customer, WinCup Holdings, L.P.,
a subsidiary of Radnor Holdings Corporation.
 
13. GEOGRAPHIC INFORMATION
 
  Information about the Company's operations in different geographic areas for
the years ended April 1, 1995 and March 30, 1996 and for the eight month
period ended December 5, 1996 is as follows:
 
<TABLE>
<CAPTION>
                                            YEAR ENDED       
                                      -----------------------
                                                               EIGHT MONTH
                                                               PERIOD ENDED
                                       APRIL 1,    MARCH 30,   DECEMBER 5,
                                         1995        1996         1996
                                      ----------- -----------  -----------
<S>                                   <C>         <C>          <C>         
Net sales:
  United States...................... $57,764,433 $61,357,065  $39,294,285
  Canada.............................  14,341,720  14,864,301   13,081,195
                                      ----------- -----------  -----------
    Total............................ $72,106,153 $76,221,366  $52,375,480
                                      =========== ===========  ===========
Operating income (loss):
  United States...................... $ 5,096,319 $ 2,639,092  $ 1,389,043
  Canada.............................     511,218    (244,963)     935,880
                                      ----------- -----------  -----------
    Total............................ $ 5,607,537 $ 2,394,129  $ 2,324,923
                                      =========== ===========  ===========
Identifiable assets (at end of      
 period):                            
  United States...................... $25,709,341 $24,150,958  $23,684,841
  Canada.............................   7,141,134   6,815,579    7,984,239
                                      ----------- -----------  -----------
    Total............................ $32,850,475 $30,966,537  $31,669,080
                                      =========== ===========  ===========
</TABLE>
 
14. STOCKHOLDERS' EQUITY
 
  On February 25, 1994, the Company issued to its preferred stockholders
warrants to allow for the purchase of 25,313 shares (the "Warrant Shares") of
the Company's common stock at an exercise price of $.01 per share. The
warrants are not exercisable until the notes to stockholders (the Notes) are
repaid; however, they become immediately exercisable in full on the Company's
capital reorganization, merger or acquisition of the Company. The Warrant
Shares are subject to adjustment or cancellation upon the occurrence of
certain events; including the repayment of the Notes in advance of their
scheduled maturity. In addition, the terms of the warrants provide for
adjustments to the exercise price as a result of stock splits, dividends or
issuances. During 1995, warrants for 12,500 shares of common stock were
canceled as a result of early repayments or payments of certain of the Notes.
At April 1, 1995, March 30, 1996 and December 5, 1996, warrants for 12,813
shares were outstanding, which expire at March 31, 1999.
 
15. COMMITMENTS AND CONTINGENCIES
 
  SUPPLY AGREEMENT--The Company is committed under a supply agreement to sell
to WinCup Holdings, L.P. all of WinCup's requirements for expandable
polystyrene for certain of its plants at sales prices based on prevailing
market prices for up to 40 million pounds annually, and no less than 75% of
the requirements for those plants in excess of 40 million pounds annually. The
agreement is for an eight-year period ending February 2000, with options for
annual extensions thereafter.
 
                                     F-46

<PAGE>
 
                      SP ACQUISITION CO. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
           FOR THE YEARS ENDED APRIL 1, 1995 AND MARCH 30, 1996 AND
                 THE EIGHT MONTH PERIOD ENDED DECEMBER 5, 1996
 
 
  OPERATING LEASES--The Company leases certain buildings and equipment under
operating leases for periods ranging from one to five years. These leases
generally contain optional renewal provisions for one or more periods. Future
annual minimum lease payments as of December 5, 1996 are as follows:
 
<TABLE>
      <S>                                                               <C>
      1997............................................................. $211,859
      1998.............................................................  197,779
      1999.............................................................  169,261
      2000.............................................................   83,655
      2001.............................................................    6,817
                                                                        --------
      Total............................................................ $669,371
                                                                        ========
</TABLE>
 
  Rental expense under operating leases for the years ended April 1, 1995 and
March 30, 1996 was approximately $170,000 and $329,000, respectively, and
approximately $263,000 for the eight month period ended December 5, 1996.
 
  OTHER--The Company is involved in various legal proceedings arising in the
normal course of business. Management believes the outcome of these matters
will not materially affect the consolidated financial position or results of
operations of the Company.
 
  Like other chemical manufacturers, the Company's operations are subject to
extensive and rapidly changing federal and state environmental regulations,
including original and renewal permit application proceedings in connection
with its business operations. These environmental laws and regulations may
require the Company to take action in the future to correct the effects of
prior environmental issues at the Company's facilities, if any. In connection
with the Company's acquisition of its business operations from KCTC on
February 25, 1994, as discussed in Note 1, the Company was indemnified by KCTC
as to environmental matters existing prior to the acquisition date. The extent
of loss related to environmental matters depends on a number of factors,
including technological developments and changes in environmental laws, among
others. Based on currently known facts, management believes that any
environmental costs the Company may incur would not have a material adverse
effect on the consolidated financial position or results of operations of the
Company.
 
  The Company participates in a self-insurance program that provides for the
payment of employee health claims. The program provides for specific excess
loss reinsurance for aggregate claims greater than a specified amount for any
one claimant. The Company accrues the estimated liabilities for the ultimate
costs of both reported claims and incurred but not reported claims.
 
16. ACQUISITION BY RADNOR HOLDINGS CORPORATION
 
  On October 30, 1996, the Company's shareholders entered into a definitive
agreement with Radnor Holdings Corporation (Radnor) whereby Radnor agreed to
acquire all the issued and outstanding shares of capital stock of and other
equity interests in the Company for an aggregate purchase price of $31.0
million, subject to satisfactory resolution of environmental matters and
financing and subject to certain adjustments, as defined. The closing of the
acquisition occurred on December 5, 1996.
 
                                     F-47
<PAGE>
 
                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To Neste Oy:
 
  We have audited the accompanying balance sheets of NESTE OY POLYSTYRENE
UPSTREAM BUSINESS IN PORVOO AND KOKEMAKI (an operating unit of the NESTE Oy
Chemicals division) as of December 31, 1995 and 1996, and the related
statements of operations, changes in owner's investment and cash flows for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
 
  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
  In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of NESTE OY POLYSTYRENE
UPSTREAM BUSINESS IN PORVOO AND KOKEMAKI as of December 31, 1995 and 1996, and
the results of its operations and its cash flows for each of the three years
in the period ended December 31, 1996, in conformity with generally accepted
accounting principles (see Note 1).
 
                                                             ARTHUR ANDERSEN OY
Helsinki, Finland
 September 5, 1997
 (except with respect to the matters discussed in Note 10,
 as to which the date is October 15, 1997)
 
                                     F-48
<PAGE>
 
         NESTE OY POLYSTYRENE UPSTREAM BUSINESS IN PORVOO AND KOKEMAKI
 
                                 BALANCE SHEETS
                          (IN THOUSANDS OF US DOLLARS)
 
<TABLE>
<CAPTION>
                                         DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
                                             1995         1996         1997
                                         ------------ ------------ -------------
                                                                    (UNAUDITED)
<S>                                      <C>          <C>          <C>
                ASSETS
                ------
CURRENT ASSETS:
  Accounts receivable..................    $  7,615     $  6,499     $  8,659
  Inventories, net.....................      10,498        5,149        5,718
  Prepaid expenses and other...........          71          735          553
                                           --------     --------     --------
                                             18,184       12,383       14,930
                                           --------     --------     --------
PROPERTY, PLANT AND EQUIPMENT, at cost:
  Land and improvements................         483          453          398
  Buildings and improvements...........      19,680       18,648       16,531
  Machinery and equipment..............      30,374       28,146       25,519
                                           --------     --------     --------
                                             50,537       47,247       42,448
  Less accumulated depreciation........     (23,263)     (22,963)     (21,240)
                                           --------     --------     --------
                                             27,274       24,284       21,208
  Share of common assets allocated by
   Neste (Note 5)......................       2,581        1,735        1,357
                                           --------     --------     --------
    Total property, plant, and
     equipment.........................      29,855       26,019       22,565
                                           --------     --------     --------
OTHER ASSETS...........................         332          344          323
                                           --------     --------     --------
                                           $ 48,371     $ 38,746     $ 37,818
                                           ========     ========     ========
  LIABILITIES AND OWNER'S INVESTMENT
  ----------------------------------
CURRENT LIABILITIES:
  Accounts payable.....................    $  3,811     $  3,657     $  3,708
  Accrued liabilities..................       1,024        1,353        1,160
                                           --------     --------     --------
                                              4,835        5,010        4,868
COMMITMENTS AND CONTINGENCIES (Note 9)
OWNER'S INVESTMENT.....................      43,536       33,736       32,950
                                           --------     --------     --------
                                           $ 48,371     $ 38,746     $ 37,818
                                           ========     ========     ========
</TABLE>
 
  The accompanying notes are an integral part of these finanacial statements.
 
                                      F-49
<PAGE>
 
         NESTE OY POLYSTYRENE UPSTREAM BUSINESS IN PORVOO AND KOKEMAKI
 
                            STATEMENTS OF OPERATIONS
                          (IN THOUSANDS OF US DOLLARS)
 
<TABLE>
<CAPTION>
                                                           FOR THE NINE MONTH PERIOD
                          FOR THE YEAR ENDED DECEMBER 31,     ENDED SEPTEMBER 30,
                          -------------------------------- ---------------------------
                             1994       1995       1996        1996           1997
                          ---------- ---------- ---------- ------------   ------------
                                                           (UNAUDITED)    (UNAUDITED)
<S>                       <C>        <C>        <C>        <C>            <C>
NET SALES...............  $   58,188 $   63,179 $   60,805   $     45,905   $     46,380
COST OF GOODS SOLD......      41,060     47,944     40,752         30,635         32,455
                          ---------- ---------- ----------   ------------   ------------
GROSS PROFIT............      17,128     15,235     20,053         15,270         13,925
OPERATING EXPENSES:
  Distribution..........       2,961      2,471      3,392          2,440          2,632
  Selling, general and
   administrative.......       7,515     10,652     10,768          7,774          8,781
  Allocation from
   Neste................       1,529      2,026      1,610          1,324            --
                          ---------- ---------- ----------   ------------   ------------
INCOME FROM OPERATIONS..       5,123         86      4,283          3,732          2,512
OTHER INCOME............           1          1        --             --             --
                          ---------- ---------- ----------   ------------   ------------
INCOME BEFORE INCOME
 TAXES..................       5,124         87      4,283          3,732          2,512
PROVISION FOR INCOME
 TAXES..................       1,434         24      1,199          1,045            703
                          ---------- ---------- ----------   ------------   ------------
NET INCOME..............  $    3,690 $       63 $    3,084   $      2,687   $      1,809
                          ========== ========== ==========   ============   ============
</TABLE>
 
 
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-50
<PAGE>
 
         NESTE OY POLYSTYRENE UPSTREAM BUSINESS IN PORVOO AND KOKEMAKI
 
                  STATEMENTS OF CHANGES IN OWNER'S INVESTMENT
                          (IN THOUSANDS OF US DOLLARS)
 
<TABLE>
   <S>                                                                 <C>
   BALANCE, January 1, 1994........................................... $ 39,522
     Net income.......................................................    3,690
     Contributions from Neste.........................................      932
                                                                       --------
   BALANCE, December 31, 1994......................................... $ 44,144
     Net income.......................................................       63
     Distributions to Neste...........................................   (2,107)
     Translation adjustment...........................................    1,436
                                                                       --------
   BALANCE, December 31, 1995.........................................   43,536
     Net income.......................................................    3,084
     Distributions to Neste...........................................  (10,170)
     Translation adjustment...........................................   (2,714)
                                                                       --------
   BALANCE, December 31, 1996.........................................   33,736
     Net income (unaudited)...........................................    1,809
     Contributions to Neste (unaudited)...............................   (2,547)
     Translation adjustment (unaudited)...............................      (48)
                                                                       --------
   BALANCE, September 30, 1997 (unaudited)............................ $ 32,950
                                                                       ========
</TABLE>
 
 
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-51
<PAGE>
 
         NESTE OY POLYSTYRENE UPSTREAM BUSINESS IN PORVOO AND KOKEMAKI
 
                            STATEMENTS OF CASH FLOWS
                          (IN THOUSANDS OF US DOLLARS)
 
<TABLE>
<CAPTION>
                                                               FOR THE NINE MONTH PERIOD
                           FOR THE YEAR ENDED DECEMBER 31,        ENDED SEPTEMBER 30,
                          -----------------------------------  ----------------------------
                             1994        1995        1996          1996            1997
                          ----------  ----------  -----------  ------------    ------------
                                                               (UNAUDITED)     (UNAUDITED)
<S>                       <C>         <C>         <C>          <C>             <C>
CASH FLOWS FROM OPERAT-
 ING ACTIVITIES:
  Net income............  $    3,690  $       63  $     3,084    $      2,687    $      1,809
  Adjustments to
   reconcile net income
   to net cash provided
   by operating
   activities:
  Depreciation..........       2,141       2,455        1,975           1,506           1,286
  Changes in operating
   assets and liabili-
   ties--
   Accounts receivable..      (3,739)      4,016          648          (1,597)         (2,160)
   Inventories, net.....      (1,354)        306        4,704           5,288            (569)
   Prepaid expenses and
    other...............         --          (71)        (668)           (274)            182
   Accounts payable.....         541      (2,605)          80             751              51
   Accrued liabilities..        (587)        903          392             285            (193)
                          ----------  ----------  -----------    ------------    ------------
    Net cash provided by
     operating activi-
     ties...............         692       5,067       10,215           8,646             406
                          ----------  ----------  -----------    ------------    ------------
CASH FLOWS FROM INVEST-
 ING ACTIVITIES:
  Net purchases of
   property, plant,
   equipment and other
   assets...............      (1,517)     (3,081)        (699)            938           1,811
  Net (increase)
   decrease in share of
   common assets
   allocated by Neste...        (485)        121          695            (156)            378
                          ----------  ----------  -----------    ------------    ------------
    Net cash provided by
     (used in) investing
     activities.........      (2,002)     (2,960)          (4)            782           2,189
                          ----------  ----------  -----------    ------------    ------------
CASH FLOWS FROM FINANC-
 ING ACTIVITIES:
  Other.................         378         --           (41)             27             (48)
  Contributions from
   (distributions to)
   Neste................         932      (2,107)     (10,170)         (9,455)         (2,547)
                          ----------  ----------  -----------    ------------    ------------
    Net cash provided by
     (used in) financing
     activities.........       1,310      (2,107)     (10,211)         (9,428)         (2,595)
                          ----------  ----------  -----------    ------------    ------------
CASH, BEGINNING OF PERI-
 OD.....................         --          --           --              --              --
                          ----------  ----------  -----------    ------------    ------------
CASH, END OF PERIOD.....  $      --   $      --   $       --     $        --     $        --
                          ==========  ==========  ===========    ============    ============
</TABLE>
 
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-52
<PAGE>
 
         NESTE OY POLYSTYRENE UPSTREAM BUSINESS IN PORVOO AND KOKEMAKI
 
                         NOTES TO FINANCIAL STATEMENTS
               (INCLUDING NOTES APPLICABLE TO UNAUDITED PERIODS)
 
(1) ORGANIZATION AND BASIS OF PRESENTATION:
 
 The Business Unit
 
  Neste Oy (Neste) is an international oil, exploration and production, energy
and chemicals company, which is registered in Espoo, Finland and the shares of
which are quoted on the Helsinki stock exchange. The Neste Oy Polystyrene
Upstream Business in Porvoo and Kokemaki (the Company) has been an operating
unit of the Neste Oy Chemicals division.
 
  The production and sales of the Company consist of polystryrene resins
including expandable polystyrene (EPS), general purpose polystyrene (PS) and
high-impact polystyrene (HIPS). EPS is manufactured in the Porvoo and Kokemaki
plants and PS and HIPS are manufactured in the Porvoo plant. EPS is sold
through Neste Oy Chemicals' European sales network mainly to construction
applications and approximately 30% is sold for packaging uses. Approximately
70% of the PS and HIPS grades are sold in Finland through the Company's
salespeople. The remainder of the PS and HIPS is sold by the Neste Oy
Chemicals sales force.
 
  Neste is establishing a production base in St. Petersburg, Russia where
exploratory marketing efforts have been underway since 1994, using products
exported from Finland. The St. Petersburg plant started operations in the
spring of 1997. These financial statements do not include the St. Petersburg
conversion business.
 
 Basis of Presentation
 
  Neste Oy's records are maintained in accordance with Finnish law and
reporting requirements. These financial statements have been converted from
Finnish generally accepted accounting principles (GAAP) to U.S. GAAP.
 
  The financial statements of the Company include certain amounts that have
been allocated to the Company by Neste Oy. These allocations include general
and administrative expenses incurred at the Porvoo site, but do not include
expenses incurred in the Espoo headquarters. The balance sheet includes a
share of common facilities at the Porvoo site. The definition of common
facilities and the method of allocating them has changed during 1997 such that
these costs are invoiced, not allocated, directly to the Company. Management
believes that the allocation methodologies used to allocate these costs and
corresponding assets to the Company represent a reasonable basis for
allocation. The amounts of the allocations have been shown as separate line
items in the balance sheets and statements of operations in 1994, 1995 and
1996 and are included in selling, general and administrative in the nine month
period ended September 30, 1997.
 
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
 
 Fiscal year
 
  The fiscal year of the Company presented in the financial statements is the
calendar year.
 
 Foreign Currency Translation
 
  The assets and liabilities of the Company, whose functional currency is
other than the U.S. dollar, are translated into U.S. dollars at year end
exchange rates. Revenues and expense accounts are translated using the
weighted average exchange rate during the periods indicated. The functional
currency of the Company is the Finnish markka and the exchange rates used were
those quoted by the Bank of Finland. Translation gains and losses are not
included in determining net income but are accumulated in a separate component
of owner's investment, as is required by Statement of Financial Accounting
Standards No. 52, "Foreign Currency Translation."
 
 
                                     F-53
<PAGE>
 
         NESTE OY POLYSTYRENE UPSTREAM BUSINESS IN PORVOO AND KOKEMAKI
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 Cash
 
  The Company is an operating unit of the Neste Oy Chemicals division, and
participates in the cash pool of Neste Oy. All cash requirements of the
Company have been funded out of this cash pool. As a result, the entity has no
cash balances recorded on its books.
 
 Revenue Recognition
 
  Revenue is recognized when goods are shipped. Sales are recorded gross
before cash and other discounts, which are deducted from the value of sales,
when the customer fulfills the terms of trade agreed upon.
 
 Research and Development
 
  Research and development expenses are charged to operations as incurred.
Total research and development expenses were approximately $859,000,
$1,233,000, $1,206,000, $885,000 and $861,000 for the years ended December 31,
1994, 1995 and 1996 and the nine month periods ended September 30, 1996 and
1997, respectively.
 
 Use of Estimates
 
  The preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of financial statements and the reported amounts of
revenues and expenses during the reported period. Actual results could differ
from those estimates.
 
 Fair Value of Financial Instruments
 
  The fair value of financial instruments, including accounts receivable and
accounts payable, approximate their recorded values due primarily to the
short-term nature of their maturities.
 
(3) ACCOUNTS RECEIVABLE
 
  Accounts receivable include the following balances due from affiliated
companies:
 
<TABLE>
<CAPTION>
                                                                   SEPTEMBER 30,
                                                      1995   1996      1997
                                                     ------ ------ -------------
                                                                    (UNAUDITED)
                                                           (IN THOUSANDS)
   <S>                                               <C>    <C>    <C>
   Isora Oy......................................... $  949 $  756    $  657
   Neste Cellplast AB...............................    691    380       475
   Neste Thermisol A/S..............................    417    175       243
                                                     ------ ------    ------
   Total............................................ $2,057 $1,311    $1,375
                                                     ====== ======    ======
</TABLE>
 
(4) INVENTORIES
 
  Inventories are stated at the lower of cost (first-in, first-out) or market
and consist of the following:
 
<TABLE>
<CAPTION>
                                                                   SEPTEMBER 30,
                                                     1995    1996      1997
                                                    ------- ------ -------------
                                                                    (UNAUDITED)
                                                           (IN THOUSANDS)
   <S>                                              <C>     <C>    <C>
   Raw materials................................... $ 5,130 $2,493    $3,734
   Work-in-progress................................     382    187       208
   Finished goods..................................   4,986  2,469     1,776
                                                    ------- ------    ------
     Total......................................... $10,498 $5,149    $5,718
                                                    ======= ======    ======
</TABLE>
 
(5) PROPERTY, PLANT AND EQUIPMENT
 
  Property, plant and equipment are recorded at cost. Expenditures for
improvements that increase the values or extend the useful life are
capitalized and maintenance repair costs are expensed as incurred.
Depreciation is
 
                                     F-54
<PAGE>
 
         NESTE OY POLYSTYRENE UPSTREAM BUSINESS IN PORVOO AND KOKEMAKI
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
recorded using the straight-line method over the useful lives of the
respective assets, which range from 20 to 40 years for buildings, 5 to 20
years for machinery and equipment and 5 to 10 years for other property and
equipment.
 
  The share of common facilities allocated from Neste has been shown as a
separate line item, net of accumulated depreciation, in the balance sheets. In
addition to an allocated share of common facilities it includes spare parts
stored in a central stores location, but apportioned to the Company in the
Neste Oy stock records. The amount of spare parts at December 31, 1995 was
$565,000, at December 31, 1996 was $502,000, and at September 30, 1997 was
$419,000. Spare parts are expensed in the period they are needed and shipped
to the various manufacturing facilities.
 
(6) ACCRUED LIABILITIES
 
  Accrued liabilities consists of the following:
 
<TABLE>
<CAPTION>
                                                                   SEPTEMBER 30,
                                                     1995    1996      1997
                                                    ------  ------ -------------
                                                                    (UNAUDITED)
                                                          (IN THOUSANDS)
   <S>                                              <C>     <C>    <C>
   Accrued holiday................................. $  764  $  839    $  540
   Payroll related items...........................    322     318       534
   Added value tax.................................    (88)     95       --
   Other...........................................     26     101        86
                                                    ------  ------    ------
     Total......................................... $1,024  $1,353    $1,160
                                                    ======  ======    ======
</TABLE>
 
(7) PENSION COSTS
 
  The pensions of the Company personnel are covered by the Joint Pension
Foundation of Neste Corporation (the Foundation) in accordance with the local
laws and practices. The Foundation has been able to offer pension services at
lower annual fees than the market prices of pension insurance companies. The
compulsory deficit of the foundation is immaterial but has been provided for
in the accounts of Neste Oy. Under Finnish GAAP the future salary increases
have not been taken into account when calculating the pension liability. U.S.
GAAP calculations have been prepared only for that part of pension liability
that exceeds the normal pension liability stipulated by law. The calculations
are at the level of total Neste Corporation only, and show that at December
31, 1996 the local method had resulted in a somewhat higher pension liability
and somewhat higher annual pension cost than the U.S. GAAP method.
 
(8) INCOME TAXES
 
  The Company, having legally been part of Neste Oy, has been included in the
tax return of Neste Oy. The tax in the statements of operations has been
calculated by applying the general company tax rate of 28% to the income
before income taxes. No possible tax losses, accelerated depreciation or other
similar effects, which usually have been considered at the level of Neste Oy
only, have been reflected in the calculations. Accordingly no deferred tax
assets or liabilities have been recorded. All taxes are paid by the parent
company.
 
(9) COMMITMENTS AND CONTINGENCIES
 
  The Company is a party to various legal actions arising in the ordinary
course of its business. The liability, if any, associated with these matters
will not have a material adverse effect upon financial condition, results of
operations or cash flows of the Company.
 
  The Company is also subject to environmental regulations, including rules
relating to air and water pollution and the storage and disposal of chemicals
and waste. The Company believes it complies in all material respects with
applicable laws.
 
  It has been Neste Oy's policy to not make use of leased assets except for
minor office equipment.
 
                                     F-55
<PAGE>
 
         NESTE OY POLYSTYRENE UPSTREAM BUSINESS IN PORVOO AND KOKEMAKI
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
(10) SUBSEQUENT EVENT
 
  On October 15, 1997, Neste Oy, Isora Oy, Neste Cellplast AB and Neste
Thermisol A/S sold certain EPS, PS and HIPS assets in Finland, Sweden and
Denmark, which include the assets of the Company, to StyroChem Finland Oy,
ThermiSol Finland Oy, ThermiSol Sweden AB and ThermiSol Denmark ApS and Radnor
Holdings Corporation as parent and guarantor.
 
                                     F-56
<PAGE>
 
                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To Isora Oy:
  We have audited the accompanying balance sheets of ISORA OY (a Finnish Joint
Stock company) as of December 31, 1995 and 1996, and the related statements of
operations, changes in stockholder's equity and cash flows for each of the
three years in the period ended December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
 
  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
  In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ISORA OY as of December
31, 1995 and 1996, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles (see Note 1).
 
                                                             ARTHUR ANDERSEN OY
Helsinki, Finland
 September 5, 1997
 (except with respect to the matters discussed in Note 12,
 as to which the date is October 15, 1997).
 
                                     F-57
<PAGE>
 
                                    ISORA OY
 
                                 BALANCE SHEETS
                (IN THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
 
<TABLE>
<CAPTION>
                           DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
                               1995         1996         1997
                           ------------ ------------ -------------
                                                      (UNAUDITED)
<S>                        <C>          <C>          <C>
          ASSETS
          ------
CURRENT ASSETS:
  Cash....................   $ 3,182      $ 4,863       $ 4,241
  Accounts receivable.....     1,708        1,311         2,462
  Inventories, net........     1,495        1,383         1,311
  Prepaid expenses and
   other..................       378          199           208
  Loans to Neste Oy and
   affiliates.............     2,960        2,048         1,086
                             -------      -------       -------
                               9,723        9,804         9,308
                             -------      -------       -------
PROPERTY, PLANT AND
 EQUIPMENT, at cost:
  Machinery and
   equipment..............     8,470        8,133         7,213
  Less accumulated
   depreciation...........    (3,068)      (3,887)       (3,758)
                             -------      -------       -------
                               5,402        4,246         3,455
                             -------      -------       -------
OTHER ASSETS..............       330          236           195
                             -------      -------       -------
                             $15,455      $14,286       $12,958
                             =======      =======       =======
     LIABILITIES AND
   STOCKHOLDER'S EQUITY
   --------------------
CURRENT LIABILITIES:
  Accounts payable........   $ 1,656      $ 2,220       $ 1,227
  Accrued liabilities.....     1,048        1,260         2,337
  Loans from credit
   institutions...........        23           95           --
                             -------      -------       -------
                               2,727        3,575         3,564
                             -------      -------       -------
LONG-TERM LIABILITIES.....     3,597        1,818           990
COMMITMENTS AND
 CONTINGENCIES (Note 10)
STOCKHOLDER'S EQUITY
  Common stock............     3,858        3,858         3,858
  Retained earnings.......     4,531        4,859         5,490
  Cumulative translation
   adjustment.............       742          176          (944)
                             -------      -------       -------
                               9,131        8,893         8,404
                             -------      -------       -------
                             $15,455      $14,286       $12,958
                             =======      =======       =======
</TABLE>
 
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-58
<PAGE>
 
                                    ISORA OY
 
                            STATEMENTS OF OPERATIONS
                          (IN THOUSANDS OF US DOLLARS)
 
<TABLE>
<CAPTION>
                           FOR THE YEAR ENDED      FOR THE NINE MONTH PERIOD
                              DECEMBER 31,            ENDED SEPTEMBER 30,
                         ------------------------- ---------------------------
                          1994     1995     1996       1996           1997
                         -------  -------  ------- ------------   ------------
                                                   (UNAUDITED)    (UNAUDITED)
<S>                      <C>      <C>      <C>     <C>            <C>
NET SALES............... $15,823  $20,561  $19,298   $     14,392   $     13,759
COST OF GOODS SOLD......  12,484   16,800   14,960         10,406          9,842
                         -------  -------  -------   ------------   ------------
GROSS PROFIT............   3,339    3,761    4,338          3,986          3,917
OPERATING EXPENSES:
  Distribution..........     730      841      938            682            664
  Selling, general and
   administrative.......   3,069    3,567    3,336          2,861          2,692
                         -------  -------  -------   ------------   ------------
INCOME (LOSS) FROM
 OPERATIONS.............    (460)    (647)      64            443            561
OTHER INCOME............      32      637      112             58             70
                         -------  -------  -------   ------------   ------------
INCOME (LOSS) BEFORE
 INCOME TAXES...........    (428)     (10)     176            501            631
(PROVISION) BENEFIT FOR
 INCOME TAXES...........     (63)     (17)     152            113            --
                         -------  -------  -------   ------------   ------------
NET INCOME (LOSS)....... $  (491) $   (27) $   328   $        614   $        631
                         =======  =======  =======   ============   ============
</TABLE>
 
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-59
<PAGE>
 
                                    ISORA OY
 
                 STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
                (IN THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
 
<TABLE>
<CAPTION>
                                     COMMON STOCK           CUMULATIVE
                                     ------------- RETAINED TRANSLATION
                                     SHARES AMOUNT EARNINGS ADJUSTMENT  TOTAL
                                     ------ ------ -------- ----------- ------
<S>                                  <C>    <C>    <C>      <C>         <C>
BALANCE, January 1, 1994............ 18,300 $3,858  $4,744    $    18   $8,620
  Net loss..........................    --     --     (491)       --
  Group contribution................    --     --      305        --
  Translation adjustment............    --     --      --         (18)
                                     ------ ------  ------    -------
BALANCE, December 31, 1994.......... 18,300  3,858   4,558        --     8,416
  Net loss..........................    --     --      (27)       --
  Translation adjustment............    --     --      --         742
                                     ------ ------  ------    -------
BALANCE, December 31, 1995.......... 18,300  3,858   4,531        742    9,131
  Net income........................    --     --      328        --
  Translation adjustment............    --     --      --        (566)
                                     ------ ------  ------    -------
BALANCE, December 31, 1996.......... 18,300  3,858   4,859        176    8,893
  Net income (unaudited)............    --     --      631        --
  Translation adjustment
   (unaudited)......................    --     --      --      (1,120)
                                     ------ ------  ------    -------
BALANCE, September 30, 1997
 (unaudited)........................ 18,300 $3,858  $5,490    $  (944)  $8,404
                                     ====== ======  ======    =======   ======
</TABLE>
 
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-60
<PAGE>
 
                                    ISORA OY
 
                            STATEMENTS OF CASH FLOWS
 
                          (IN THOUSANDS OF US DOLLARS)
 
<TABLE>
<CAPTION>
                                                         FOR THE NINE MONTH
                                FOR THE YEAR ENDED          PERIOD ENDED
                                   DECEMBER 31,             SEPTEMBER 30,
                               -----------------------  ----------------------
                                1994    1995    1996       1996        1997
                               ------  ------  -------  ----------  ----------
                                                        (UNAUDITED) (UNAUDITED)
<S>                            <C>     <C>     <C>      <C>         <C>
CASH FLOWS FROM OPERATING
 ACTIVITIES:
  Net income(loss)............ $ (491) $  (27) $   328   $   614     $   631
  Adjustments to reconcile net
   income (loss) to net cash
   provided by (used in)
   operating activities:
   Depreciation...............    658     575    1,101       828         353
   Other......................     50       1      (19)                    1
   Changes in operating assets
    and liabilities:
    Accounts receivable.......   (286)    476      293    (1,543)     (1,314)
    Inventories, net..........   (935)  1,134       20       (20)       (100)
    Loans, prepaid expenses
     and other................    500   1,325      887       305         674
    Accounts payable..........    677    (934)     665       242        (718)
    Loans from credit
     institutions and accrued
     liabilities..............   (399)   (154)     349       505       1,150
    Other assets..............      2      (9)               (11)         11
                               ------  ------  -------   -------     -------
     Net cash (used in)
      provided by operating
      activities..............   (224)  2,387    3,624       920         688
                               ------  ------  -------   -------     -------
CASH FLOWS FROM INVESTING
 ACTIVITIES:
  Net purchases of property,
   plant and equipment........   (589)   (293)    (190)     (114)        (88)
                               ------  ------  -------   -------     -------
     Net cash used in
      investing activites.....   (589)   (293)    (190)     (114)        (88)
                               ------  ------  -------   -------     -------
CASH FLOWS FROM FINANCING
 ACTIVITIES:
     Group contribution.......    305      --       --        --          --
     Long-term liabilities....   (191)    (95)  (1,557)      (33)       (603)
                               ------  ------  -------   -------     -------
     Net cash provided by
      (used in) financing
      activities..............    114     (95)  (1,557)      (33)       (603)
                               ------  ------  -------   -------     -------
Translation effect on cash....     --      95     (196)     (142)       (619)
                               ------  ------  -------   -------     -------
CASH, BEGINNING OF PERIOD.....  1,787   1,088    3,182     3,182       4,863
                               ------  ------  -------   -------     -------
CASH, END OF PERIOD........... $1,088  $3,182  $ 4,863   $ 3,813     $ 4,241
                               ======  ======  =======   =======     =======
</TABLE>
 
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-61
<PAGE>
 
                                   ISORA OY
 
                         NOTES TO FINANCIAL STATEMENTS
               (INCLUDING NOTES APPLICABLE TO UNAUDITED PERIODS)
 
(1) ORGANIZATION AND BASIS OF PRESENTATION:
 
 The Business Unit
 
  Isora Oy (the Company) is a Finnish Joint Stock company 100% owned by Neste
Oy.
 
  Isora has three production sites--Nurmijarvi, Vammala and Pietarsaari.
Nurmijarvi is an almost fully automated site for standard insulation products.
Vammala produces standard as well as special products. Pietarsaari, located on
the northwest coast, covers the northern region. In addition to its EPS
conversion business, Isora also produces and markets patented EPS sandwich
elements for a broad range of construction applications. Sales are carried out
through Isora's sales organization located at the three sites.
 
  Neste is establishing a production base in St. Petersburg, Russia where
exploratory marketing efforts have been underway since 1994, using products
exported from Finland. The plant started operations in spring 1997. These
statements do not include any part of the St. Petersburg conversion business.
 
 Basis of Presentation
 
  Isora Oy's records are maintained in accordance with Finnish law and
reporting requirements. These financial statements have been converted from
Finnish generally accepted accounting principles (GAAP) to U.S. GAAP.
 
  The following adjustments have been made to Finnish GAAP amounts to comply
with U.S. GAAP requirements:
 
  . Voluntary provisions (difference between fiscal depreciation and the
    planned depreciation) have been transferred to stockholder's equity.
    Deferred tax at 28% has been deduced from the difference and added to
    long-term liabilities. The change of deferred tax is included in the
    statements of operations (provision for income taxes). The Company has
    accumulated tax losses from fiscal years 1992 and 1994, which can be
    deducted from future taxable profits. Deferred tax on accumulated tax
    losses has not been calculated as the effect on income of 1994 is not
    material.
 
  . Obligatory provisions have been classified as long term liabilities.
 
  . In 1994 Neste Oy paid a group contribution of $305,000 to Isora Oy. In
    these statements the amount has been reflected as a capital contribution,
    so that it has no effect on the income of 1994.
 
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
 
 Fiscal year
 
  The fiscal year of the Company presented in the financial statements is the
calendar year.
 
 Foreign Currency Translation
 
  The assets and liabilities of the Company, whose functional currency is
other than the U.S. dollar, are translated into U.S. dollars at year end
exchange rates. Revenues and expense accounts are translated using the
weighted average exchange rate during the periods. The functional currency of
the Company is the Finnish markka and the exchange rates used were those
quoted by the Bank of Finland. Translation gains and losses are not included
in determining net income but are accumulated in a separate component of
owner's investment, as is required by Statement of Financial Accounting
Standards No. 52, "Foreign Currency Translation."
 
 
                                     F-62
<PAGE>
 
                                   ISORA OY
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 Revenue Recognition
 
  Revenue is recognized when goods are shipped. Sales are recorded gross
before cash and other discounts, which are deducted from the value of sales,
when the customer fulfils the terms of trade agreed upon.
 
Use of Estimates
 
  The preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of financial statements and the reported amounts of
revenues and expenses during the reported period. Actual results could differ
from those estimates.
 
 Fair Value of Financial Instruments
 
  The fair value of financial instruments, including accounts receivables and
accounts payable, approximate their recorded values due primarily to the
short-term nature of their maturities.
 
(3) INVENTORIES
 
  Inventories are stated at the lower of cost (first-in, first-out) or market
and consist of the following:
 
<TABLE>
<CAPTION>
                                                         (IN THOUSANDS)
                                                --------------------------------
                                                 1995   1996  SEPTEMBER 30, 1997
                                                ------ ------ ------------------
                                                                 (UNAUDITED)
   <S>                                          <C>    <C>    <C>
   Raw materials............................... $  915 $1,086       $  968
   Work-in-progress............................    247    149          194
   Finished goods..............................    333    148          149
                                                ------ ------       ------
   Total....................................... $1,495 $1,383       $1,311
                                                ====== ======       ======
</TABLE>
 
(4) PROPERTY PLANT AND EQUIPMENT
 
  Property, plant and equipment are recorded at cost. Expenditures for
improvements that increase the values or extend the useful life are
capitalized and maintenance repair costs are expensed as incurred.
Depreciation is recorded using the straight-line method over the useful lives
of the respective assets, which is 15 years for machinery and equipment and 5
years for other capitalized expenditures.
 
(5) OTHER ASSETS
 
  Other assets consist of the following:
 
<TABLE>
<CAPTION>
                                                         (IN THOUSANDS)
                                                 ------------------------------
                                                 1995  1996  SEPTEMBER 30, 1997
                                                 ----- ----- ------------------
                                                                (UNAUDITED)
   <S>                                           <C>   <C>   <C>
   Intangible rights............................ $  17 $  19        $ 17
   Other capitalized expenditures...............   155    82          60
   Shares in housing and other corporations.....   158   135         118
                                                 ----- -----        ----
   Total........................................ $ 330 $ 236        $195
                                                 ===== =====        ====
</TABLE>
 
                                     F-63
<PAGE>
 
                                   ISORA OY
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
(6) ACCRUED LIABILITIES
 
  Accrued liabilities consist of the following:
 
<TABLE>
<CAPTION>
                                                      (IN THOUSANDS)
                                            ----------------------------------
                                             1995    1996   SEPTEMBER 30, 1997
                                            ------- ------- ------------------
                                                               (UNAUDITED)
   <S>                                      <C>     <C>     <C>
   Unpaid rent to Neste.................... $    -- $   672       $  442
   Provision for holiday payment...........     441     377          225
   Other accrued liabilities...............     607     211        1,670
                                            ------- -------       ------
   Total................................... $ 1,048 $ 1,260       $2,337
                                            ======= =======       ======
 
(7) LONG-TERM LIABILITIES
 
  Long-term liabilities consist of the following:
 
<CAPTION>
                                                      (IN THOUSANDS)
                                            ----------------------------------
                                             1995    1996   SEPTEMBER 30, 1997
                                            ------- ------- ------------------
                                                               (UNAUDITED)
   <S>                                      <C>     <C>     <C>
   Loans from pension institutions......... $ 2,128 $   756       $   38
   Other non-current liabilities...........      69      43          121
   Difference between fiscal and planned
    depreciation...........................   1,032     835          725
   Obligatory provisions...................     368     184          106
                                            ------- -------       ------
   Total................................... $ 3,597 $ 1,818       $  990
                                            ======= =======       ======
</TABLE>
 
(8) PENSION COSTS
 
  The pensions of the personnel have been covered by the Joint Pension
Foundation of Neste Corporation in line with the local laws and practices. The
foundation has been able to offer pension services at lower annual fees than
the market prices of pension insurance companies. The compulsory deficit of
the foundation, which is immaterial, has been provided for in the accounts of
the company. In Finnish GAAP the future salary increases have not been taken
into account when calculating the pension liability. U.S. GAAP calculations
have been prepared only for that part of pension liability that exceeds the
normal pension liability stipulated by law. The calculations are at the level
of total Neste Corporation only, and show, that at December 31, 1996 the local
method had resulted in a somewhat higher pension liability and somewhat higher
annual pension cost than the U.S. GAAP method.
 
(9) INCOME TAXES
 
  The tax in the statements of operations has been calculated by applying the
general company tax rate of 28% to the income before taxes (according to
Finnish GAAP). Deferred taxes on the differences between the fiscal and
planned depreciation has been added.
 
(10) COMMITMENTS AND CONTINGENCIES
 
  The Company is a party to various legal actions arising in the ordinary
course of its business. The liability, if any, associated with these matters
will not have a material adverse effect upon financial condition, results of
operations or cash flows of the Company.
 
  The Company is also subject to environmental regulations, including rules
relating to air and water pollution and the storage and disposal of chemicals
and waste. The Company believes it complies in all material respects with
applicable laws.
 
                                     F-64
<PAGE>
 
                                   ISORA OY
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
  The land and buildings in Vammala and Nurmijarvi are owned by Neste Oy and
rented to the Company under two separate rental agreements. The annual rent of
the Vammala agreement is $480,000. The rental payment can be renegotiated
annually in February. The Nurmijarvi agreement is similar to the Vammala
agreement. The annual rent is $144,000. The right to rent the property cannot,
however be transferred to a third party without the consent of the lessor. The
Pietarsaari production facilities have been rented from a third party at an
annual rent of $65,000. The rental period ends 12th of April 2000, but notice
can be given by both parties any time upon six months notice. The contract
includes an option to buy the land and buildings at a price offered by a third
party. The contract cannot be transferred to a third party without the consent
of the lessor.
 
(11) RELATED PARTY TRANSACTIONS:
 
  The Company had accounts receivable from Neste Oy of $125,000, $81,000 and
$69,000 at December 31, 1995 and 1996 and September 30, 1997, respectively.
Additionally, the Company had accounts payable to Neste Oy and Neste Cellplast
AB of $952,000 and $46,000 at December 31, 1995, $907,000 and $44,000 at
December 31, 1996 and $613,000 and $0 at September 30, 1997.
 
(12) SUBSEQUENT EVENT:
 
  On October 15, 1997, Neste Oy, Isora Oy, Neste Cellplast AB and Neste
Thermisol A/S sold certain EPS, PS and HIPS assets in Finland, Sweden and
Denmark, which include the assets of the Company, to StyroChem Finland Oy,
ThermiSol Finland Oy, ThermiSol Sweden AB and ThermiSol Denmark ApS and Radnor
Holdings Corporation as parent and guarantor.
 
                                     F-65
<PAGE>
 
                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To Neste Cellplast AB:
 
  We have audited the accompanying balance sheet of NESTE CELLPLAST AB (a
Swedish Corporation and subsidiary of Neste Sverige AB) as of December 31,
1996, and the related statements of operations, changes in stockholders'
equity and cash flows for the year ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
 
  We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
  In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of NESTE CELLPLAST AB as of
December 31, 1996, and the results of its operations and its cash flows for
the year ended December 31, 1996, in conformity with generally accepted
accounting principles (see Note 2).
 
  The financial statements of Neste Cellplast AB for the two years ended
December 31, 1994 and 1995 were audited by other auditors whose reports dated
February 17, 1995 and February 21, 1996, respectively, expressed unqualified
opinions on these statements. The opinion of such auditors, however, does not
cover the restatement of those financial statements as described in Note 2.
 
  We have also audited the adjustments described in Note 2 that were applied
to restate the December 31, 1994 and December 31, 1995 financial statements.
In our opinion, such adjustments are appropriate and have been properly
applied.
 
                                                             ARTHUR ANDERSEN AB
Stockholm, Sweden
 September 12, 1997
 (except with respect to the matters discussed in Note 10,
 as to which the date is October 15, 1997).
 
 
                                     F-66
<PAGE>
 
                                                ORGANISATION NUMBER: 556190-3419
 
                     AUDITORS' REPORT ON NESTE CELLPLAST AB
 
  We have examined the annual report, the accounting records and the
administration by the Board of Directors and the Managing Director for the
financial year 1995. The examination was made in accordance with generally
accepted auditing standards.
 
  The accounts have been prepared in conformity with the Swedish Companies Act.
 
  We recommend,
 
    that the Income Statement and the Balance Sheet be adopted,
 
    that the profit be disposed as proposed in the administration report and
 
    that the members of the Board of Directors and the Managing Director be
  discharged from personal liability for the fiscal year.
 
1996-02-21
 
Ohrlings Coopers & Lybrand AB
 
 
                                      F-67
<PAGE>
 
                                               ORGANISATION NUMBER: 556190-3419
 
                AUDITORS' REPORT ON NESTE CELLPLAST AKTIEBOLAG
 
  We have examined the annual report, the accounting records and the
administration by the Board of Directors and the Managing Director for the
financial year 1994. The examination was made in accordance with generally
accepted auditing standards.
 
  The accounts have been prepared in conformity with the Swedish Companies
Act.
 
  We recommend,
 
    that the Income Statement and the Balance Sheet be adopted,
 
    that the profit be disposed as proposed in the administration report and
 
    that the members of the Board of Directors and the Managing Director be
  discharged from personal liability for the fiscal year.
 
1995-02-17
 
Ohrlings Reveko AB
 
                                     F-68
<PAGE>
 
                               NESTE CELLPLAST AB
 
                                 BALANCE SHEETS
                (IN THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
 
<TABLE>
<CAPTION>
                                         DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
                                             1995         1996         1997
                                         ------------ ------------ -------------
                                                                    (UNAUDITED)
<S>                                      <C>          <C>          <C>
                ASSETS
                ------
CURRENT ASSETS
  Cash.................................    $ 1,029      $ 2,631       $ 1,636
  Accounts receivable, net.............      1,159          727         1,372
  Inventories, net.....................        489          439           505
  Prepaid expenses and other current
   assets..............................        651          122           199
                                           -------      -------       -------
                                             3,328        3,919         3,712
                                           -------      -------       -------
PROPERTY, PLANT AND EQUIPMENT, at cost:
  Land.................................         11           11            10
  Buildings and improvements...........        973          946           856
  Machinery and equipment..............      4,478        4,546         4,202
                                           -------      -------       -------
                                             5,462        5,503         5,068
  Less--accumulated depreciation.......     (4,789)      (4,869)       (4,557)
                                           -------      -------       -------
                                               673          634           511
                                           -------      -------       -------
TOTAL ASSETS...........................    $ 4,001      $ 4,553       $ 4,223
                                           =======      =======       =======
 LIABILITIES AND STOCKHOLDERS' EQUITY
 ------------------------------------
CURRENTS LIABILITIES
  Accounts payable.....................    $   933      $ 1,748       $ 1,381
  Accrued liabilities..................        383          489           493
  Other current liabilities............        333           60           221
                                           -------      -------       -------
                                             1,649        2,297         2,095
                                           -------      -------       -------
DEFERRED TAX LIABILITY.................         61           51            36
                                           -------      -------       -------
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY
  Share capital, 67,000 shares of nom.
   SEK 100 each........................        804          804           804
  Retained earnings....................      1,130        1,131         1,228
  Cumulative translation adjustment....        357          270            60
                                           -------      -------       -------
    Total stockholders' equity.........      2,291        2,205         2,092
                                           -------      -------       -------
TOTAL STOCKHOLDERS' EQUITY AND 
LIABILITIES............................    $ 4,001      $ 4,553       $ 4,223
                                           =======      =======       =======
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-69
<PAGE>
 
                               NESTE CELLPLAST AB
 
                            STATEMENTS OF OPERATIONS
 
                          (IN THOUSANDS OF US DOLLARS)
 
<TABLE>
<CAPTION>
                                                         FOR THE NINE MONTH
                              FOR THE YEAR ENDED            PERIOD ENDED
                                 DECEMBER 31,               SEPTEMBER 30,
                            -------------------------  -----------------------
                             1994     1995     1996       1996        1997
                            -------  -------  -------  ----------- -----------
                                                       (UNAUDITED) (UNAUDITED)
<S>                         <C>      <C>      <C>      <C>         <C>
NET SALES.................. $ 8,961  $10,072  $10,319    $ 7,715     $ 7,275
COST OF GOODS SOLD.........  (6,251)  (7,810)  (6,904)    (5,013)     (4,685)
                            -------  -------  -------    -------     -------
GROSS PROFIT...............   2,710    2,262    3,415      2,702       2,590
OPERATING EXPENSES:
  Distribution.............    (736)    (766)    (870)      (705)       (801)
  Selling, general and 
   administrative..........  (1,236)  (1,253)  (1,725)    (1,104)     (1,108)
                            -------  -------  -------    -------     -------
                             (1,972)  (2,019)  (2,595)    (1,809)     (1,909)
                            -------  -------  -------    -------     -------
INCOME FROM OPERATIONS.....     738      243      820        893         681
OTHER INCOME:
  Interest income, net.....      23       74       80         61          37
                            -------  -------  -------    -------     -------
INCOME FROM CONTINUING 
 OPERATIONS BEFORE INCOME
 TAXES.....................     761      317      900        954         718
  Current income tax 
   provision...............      (2)      (6)      (4)        (4)          8
  Deferred income tax 
   benefit.................      39        2        8          6          10
                            -------  -------  -------    -------     -------
NET INCOME................. $   798  $   313  $   904    $   956     $   736
                            =======  =======  =======    =======     =======
</TABLE>
 
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-70
<PAGE>
 
                               NESTE CELLPLAST AB
 
                       STATEMENTS OF STOCKHOLDERS' EQUITY
                (IN THOUSANDS OF US DOLLARS, EXCEPT SHARE DATA)
 
<TABLE>
<CAPTION>
                                     COMMON STOCK           CUMULATIVE
                                     ------------- RETAINED TRANSLATION
                                     SHARES AMOUNT EARNINGS ADJUSTMENT  TOTAL
                                     ------ ------ -------- ----------- ------
<S>                                  <C>    <C>    <C>      <C>         <C>
BALANCE, January 1, 1994............ 67,000  $804   $1,244     $(127)   $1,921
  Net income........................     --    --      798        --
  Group contribution................     --    --     (895)       --
  Translation Adjustment............     --    --       --       221
                                     ------  ----   ------     -----
BALANCE, December 31, 1994.......... 67,000   804    1,147        94     2,045
  Net income........................     --    --      313        --
  Group contribution................     --    --     (330)       --
  Translation Adjustment............     --    --       --       263
                                     ------  ----   ------     -----
BALANCE, December 31, 1995.......... 67,000   804    1,130       357     2,291
  Net income........................                   904
  Group contribution................                  (903)
  Translation Adjustment............     --    --       --       (87)
                                     ------  ----   ------     -----
BALANCE, December 31, 1996.......... 67,000   804    1,131       270     2,205
  Net income (unaudited)............                   736
  Group contribution (unaudited)....                  (639)
  Translation Adjustment 
   (unaudited)......................     --    --       --      (210)
                                     ------  ----   ------     -----
BALANCE, September 30, 1997 
 (unaudited)........................ 67,000  $804   $1,228     $  60    $2,092
                                     ======  ====   ======     =====    ======
</TABLE>
 
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-71
<PAGE>
 
                               NESTE CELLPLAST AB
 
                            STATEMENTS OF CASH FLOWS
                          (IN THOUSANDS OF US DOLLARS)
 
<TABLE>
<CAPTION>
                                                             FOR THE NINE
                                   FOR THE YEAR              MONTH PERIOD
                                ENDED DECEMBER 31,        ENDED SEPTEMBER 30,
                              ------------------------  -----------------------
                               1994     1995    1996       1996        1997
                              -------  ------  -------  ----------- -----------
                                                        (UNAUDITED) (UNAUDITED)
<S>                           <C>      <C>     <C>      <C>         <C>
CASH FLOWS FROM OPERATING
 ACTIVITIES
  Net income................. $   798  $  313  $   904    $  956      $  736
  Adjustments to reconcile
   net income to net cash
   provided by (used in)
   operating activities:
   Depreciation..............     336     205      233       167         164
   Changes in operating
    assets and liabilities
    Accounts receivable......    (246)   (296)     432      (440)       (645)
    Inventories..............    (255)    112       50      (107)        (67)
    Prepaid expense and
     other...................     673     204      529       441         (76)
    Accounts payable.........     423    (275)     815       325        (367)
    Accrued liabilities and
     other liabilities.......      22     270     (177)      203         150
                              -------  ------  -------    ------      ------
     Net cash provided by
      (used in) operating
      activities.............   1,751     533    2,786     1,545        (105)
                              -------  ------  -------    ------      ------
CASH FLOWS FROM INVESTING
 ACTIVITIES
  Capital expenditures.......    (110)   (331)    (212)      (97)       (115)
  Group contribution.........    (895)   (330)    (903)     (716)       (639)
                              -------  ------  -------    ------      ------
     Net cash used in
      investing activities...  (1,005)   (661)  (1,115)     (813)       (754)
                              -------  ------  -------    ------      ------
CASH FLOWS FROM FINANCING
 ACTIVITIES
  Payments of bank loans.....    (127)   (142)     --        --          --
                              -------  ------  -------    ------      ------
     Net cash used in
      financing activities...    (127)   (142)     --        --          --
                              -------  ------  -------    ------      ------
  Translation effect on
   cash......................     153     198      (69)      (21)       (136)
                              -------  ------  -------    ------      ------
NET INCREASE (DECREASE) IN
 CASH........................     772     (72)   1,602       711        (995)
CASH, beginning of period....     329   1,101    1,029     1,029       2,631
                              -------  ------  -------    ------      ------
CASH, end of period.......... $ 1,101  $1,029  $ 2,631    $1,740      $1,636
                              =======  ======  =======    ======      ======
</TABLE>
 
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-72
<PAGE>
 
                              NESTE CELLPLAST AB
 
                         NOTES TO FINANCIAL STATEMENTS
 
               (INCLUDING NOTES APPLICABLE TO UNAUDITED PERIODS)
 
(1) ORGANIZATION
 
 The Company
 
  Neste Cellplast AB (the Company), a Swedish company, is owned by Neste
Sverige AB (91%) and Gullfiber AB (9%). Neste Sverige AB is a wholly owned
subsidiary of the Finnish oil-chemistry and energy company, Neste Oy. The
Company carries on thermisol manufacturing for insulation purposes in the
building and packaging industry. The Company has two manufacturing plants, one
in Norrtalje, and one in Vargarda. The Company's headquarters are located in
Norrtalje.
 
 Intercompany transaction
 
  For 1995 and 1996 91% and 89%, respectively, of total purchases were made
from other group companies, and 1% and 0%, respectively, of total sales were
made to group companies.
 
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Basis of presentation
 
  The Company's records are maintained in accordance with Swedish laws and
reporting requirements. These financial statements have been prepared in
accordance with United States generally accepted accounting principles ("U.S.
GAAP") and have been translated into U.S. dollars.
 
  For Swedish statutory reporting purposes, operating expenses in the
statement of operations include cost of goods sold, distribution cost and
selling, general and administration costs. For U.S. GAAP purposes these costs
have been separated.
 
 Foreign currency translation
 
  The functional currency for the Company's operations is Swedish krona. The
translation from Swedish krona to U.S. dollars is performed for the balance
sheet accounts using the exchange rates in effect at the balance sheet date
and for revenue and expense accounts using a weighted average exchange rate
during the period. Translation gains and losses are not included in
determining net income but are accumulated in a separate component of
stockholders' equity, as is required by Statement of Financial Accounting
Standards No. 52, "Foreign Currency Translation."
 
 Contributions to Neste Sverige AB
 
  The Company has given group contribution to Neste Sverige AB during each of
the three years ended December 31, 1994, 1995 and 1996. Group contributions
are principally made to transfer taxable income from one group entity with the
objective of reducing the group's total current tax expenses. These
contributions lead to a taxable income for the recipient and a taxable expense
for the donor. The Company's annual current tax expense has therefore been
impacted by the group contributions. Since the contributions are permanent
differences for tax purposes, no deferred tax accounting related to group
contribution has been made.
 
  For Swedish statutory reporting purposes, group contributions are accounted
for as an appropriation in the statement of operations. This accounting
methodology is utilized primarily to obtain an agreement between a company's
financial statement income and taxable income. Group contributions are thus
not related to a company's operations. For U.S. GAAP purposes, group
contributions provided have been treated as a transfer from stockholders'
equity.
 
                                     F-73
<PAGE>
 
                              NESTE CELLPLAST AB
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
 Cash
 
  Cash is deposited on a group account held by the Swedish parent company
Neste Sverige AB. The Company has access to these accounts. For Swedish
statutory purposes these liquid funds are disclosed as a short-term receivable
from the parent company. For U.S. GAAP purposes the item is restated to cash.
 
 Revenue Recognition
 
  Revenue is recognized when goods are shipped.
 
 Use of Estimates
 
  The preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of financial statements and the reported amounts of
revenues and expenses during the reported period. Actual results could differ
from those estimates.
 
 Fair Value of Financial Instruments
 
  The fair value of financial instruments is determined by reference to
various market data and other valuation techniques, as appropriate. Unless
otherwise disclosed, the fair value of financial instruments, including
accounts receivable and accounts payable, approximate their recorded values
due primarily to the short-term nature of their maturities.
 
(3) INVENTORY
 
  Inventories are valued at the lower of cost (first-in, first-out) or market.
Provision for obsolescence has been calculated based on review of individual
items. Inventories at December 31, 1995 and 1996, and for the nine month
period ended September 30, 1997 consist of the following items:
 
<TABLE>
<CAPTION>
                                                             (IN THOUSANDS)
                                                         -----------------------
                                                                   SEPTEMBER 30,
                                                         1995 1996     1997
                                                         ---- ---- -------------
                                                                    (UNAUDITED)
<S>                                                      <C>  <C>  <C>
Raw material............................................ $199 $171     $201
Work in progress........................................   87   72       86
Finished goods..........................................  203  196      218
                                                         ---- ----     ----
  Total................................................. $489 $439     $505
                                                         ==== ====     ====
</TABLE>
 
  The Company purchases most of its raw material from Neste Oy in Finland. The
prices are based on market prices of polystyrene, the primal component of
thermisol products.
 
(4) PROPERTY, PLANT AND EQUIPMENT
 
  Property, plant and equipment are recorded at cost and depreciated using the
straight-line method with estimated lives ranging as follows:
 
<TABLE>
   <S>                                                                  <C>
   Land................................................................     None
   Land improvements................................................... 27 years
   Buildings........................................................... 20 years
   Equipment...........................................................  5 years
</TABLE>
 
                                     F-74
<PAGE>
 
                              NESTE CELLPLAST AB
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
(5) PROVISION FOR PENSION LIABILITIES
 
  Providing for future pension liabilities, two main systems are used in
Sweden. One where actuarially computed premiums are currently paid to an
independent pension insurance company, and the other where an independent body
computes the actuarial liability for unfunded pensions which a company has to
include among long-term liabilities (the book reserve method).
 
  When a company uses the method by paying premiums to an insurance company
there is no remaining risk or cost to the company for benefits earned to date
once the premium is paid. It is only benefits financed by the book reserve
method that has to be actuarially valued according to FAS 87.
 
  The Company is paying a fixed premium to a Swedish independent insurance
company, SPP. The Company has therefore no pension liability to provide for
and no restatement is to be made according to FAS 87.
 
(6) INCOME TAXES
 
  Deferred income taxes are provided under the asset and liability method.
This method requires recognition of deferred tax liabilities and assets for
the expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this period, deferred income taxes
are determined based on the difference between the financial statement and tax
basis of assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts
expected to be realized. Income tax expense consists of the Company's current
liability for income taxes and the change in the Company's deferred tax assets
and liabilities.
 
  The provision for income taxes varies from the amount of income tax
determined by applying the applicable domestic statutory tax rate to pre-tax
income as a result of the following:
 
<TABLE>
<CAPTION>
                                                              1995   1996   1997
                                                              ----   ----   ----
   <S>                                                        <C>    <C>    <C>
   Statutory tax rate........................................  28%    28%    28%
   Group contribution........................................ (26)%  (27)%  (27)%
   Other..................................................... --      (1)%   (1)%
                                                              ---    ---    ---
   Effective tax rate........................................   2%     0%     0%
                                                              ===    ===    ===
</TABLE>
 
(7) COMMITMENTS AND CONTINGENCIES
 
 Patent dispute with Sundolitt AB
 
  The Company is involved in a patent dispute with Sundolitt AB, a Swedish
competitor. In 1991, Sundolitt commenced a patent infringement for the product
"Makribbdack". In 1995, the Swedish Patent and Registration Office accorded
another patent for the product to Sundolitt AB. In November 1995, Sundolitt AB
claimed damages of $110,000. The Company filed an objection towards the patent
to the Swedish Patent and Registration Office in June 1997. The dispute is
expected to be settled in 1997. If the Company loses the dispute, they are to
pay $110,000 in damages to Sundolitt AB.
 
  The Company is a party to various legal actions arising in the ordinary
course of its business. The liability, if any, associated with these matters
will not have a material adverse effect upon financial condition, results of
operations or cash flows of the Company.
 
                                     F-75

<PAGE>
 
                              NESTE CELLPLAST AB
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
  The Company is also subject to environmental regulations, including rules
relating to air and water pollution and the storage and disposal of chemicals
and waste. The Company believes it complies in all material respects with
applicable laws.
 
(8) EMPLOYEE BENEFIT PLAN:
 
  The Company has a profit sharing plan, which covers all employees. The
Company will pay the employees a total annual bonus amounting to 10% of income
after depreciation. The profit sharing plan exists on a voluntary basis and
the management is free to abolish the plan from one year to another. The board
of directors has decided that a bonus will be paid to the employees according
to the plan in 1997. The bonus amounted to $82,000, $29,000 and $38,000 in
1996, 1995 and 1994, respectively. The amount for 1997 has not yet been
decided upon.
 
(9) RESTRICTIONS ON RETAINED EARNINGS
 
  Retained earnings available for dividends are based upon statutory financial
statements. Under the provisions of the Swedish Companies Act a legal reserve
must be established in an amount equal to 20% of the share capital. This
reserve is established by appropriating 10% of the statutory net income each
year until the prescribed amount has been appropriated. The legal reserve may
be used to absorb deficit, but usually may not be distributed as dividends.
 
  Retained earnings available for dividends were $905,000 at December 31,
1996.
 
(10) SUBSEQUENT EVENTS:
 
  On October 15, 1997, Neste Oy, Isora Oy, Neste Cellplast AB and Neste
Thermisol A/S sold certain EPS, PS and HIPS assets in Finland, Sweden and
Denmark, which include the assets of the Company, to StyroChem Finland Oy,
ThermiSol Finland Oy, ThermiSol Sweden AB and ThermiSol Denmark ApS and Radnor
Holdings Corporation as parent and guarantor.
 
  On October 15, 1997, the minority interest of Gullfiber AB was acquired by
Neste Sverige AB.
 
                                     F-76
<PAGE>
 
                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To Neste Thermisol A/S:
 
  We have audited the accompanying balance sheets of NESTE THERMISOL A/S as of
December 31, 1995 and 1996, and the related statements of operations, changes
in shareholder's equity and cash flows for each of the three years in the
period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
 
  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
  In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of NESTE Thermisol A/S as of
December 31, 1995 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles (see Note 1).
 
                                                                ARTHUR ANDERSEN
Arhus, Denmark
 August 29, 1997
 (except with respect to the matters discussed in Note 8,
 as to which the date is October 15, 1997).
 
                                     F-77
<PAGE>
 
                              NESTE THERMISOL A/S
 
                                 BALANCE SHEETS
               (IN THOUSANDS OF US DOLLARS, EXCEPT SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                        DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
                                            1995         1996         1997
                                        ------------ ------------ -------------
                                                                   (UNAUDITED)
<S>                                     <C>          <C>          <C>
                ASSETS
CURRENT ASSETS:
  Cash and equivalents.................   $   787      $   872       $   720
  Accounts receivable..................       403          327           575
  Inventories, net.....................       481          242           332
  Prepaid expenses and other...........       174           32            71
                                          -------      -------       -------
                                            1,845        1,473         1,698
                                          -------      -------       -------
PROPERTY, PLANT AND EQUIPMENT:
  Land and improvements................       207          193           170
  Buildings and improvements...........     2,076        1,979         1,747
  Machinery and equipment..............     2,920        2,864         2,452
                                          -------      -------       -------
                                            5,203        5,036         4,369
  Less accumulated depreciation........    (1,758)      (1,936)       (1,800)
                                          -------      -------       -------
    Total fixed assets.................     3,445        3,100         2,569
                                          -------      -------       -------
                                          $ 5,290      $ 4,573       $ 4,267
                                          =======      =======       =======
  LIABILITIES AND OWNER'S INVESTMENT
CURRENT LIABILITIES:
  Accounts payable.....................   $   652      $   439       $   501
  Accrued liabilities..................     1,248        1,280           875
                                          -------      -------       -------
                                            1,900        1,719         1,376
OTHER LONG-TERM LIABILITIES............     2,073        1,710         1,310
COMMITMENTS AND CONTINGENCIES (Note 7)
SHAREHOLDERS' EQUITY:
  Share capital........................     2,398        2,237         1,973
  Accumulated deficit..................    (1,074)      (1,096)         (354)
  Translation adjustment...............        (7)           3           (38)
                                          -------      -------       -------
                                            1,317        1,144         1,581
                                          -------      -------       -------
                                          $ 5,290      $ 4,573       $ 4,267
                                          =======      =======       =======
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-78
<PAGE>
 
                              NESTE THERMISOL A/S
 
                            STATEMENTS OF OPERATIONS
                          (IN THOUSANDS OF US DOLLARS)
 
<TABLE>
<CAPTION>
                                                                FOR THE NINE MONTH
                                                                   PERIOD ENDED
                          FOR THE YEAR ENDED DECEMBER 31,          SEPTEMBER 30,
                          ----------------------------------  -----------------------
                             1994        1995        1996        1996        1997
                          ----------  ----------  ----------  ----------- -----------
                                                              (UNAUDITED) (UNAUDITED)
<S>                       <C>         <C>         <C>         <C>         <C>
NET SALES...............  $    4,538  $    5,675  $    5,470    $4,074      $5,083
COST OF GOODS SOLD......       3,105       3,800       3,405     2,617       2,816
                          ----------  ----------  ----------    ------      ------
GROSS PROFIT............       1,433       1,875       2,065     1,457       2,267
OPERATING EXPENSES
  Distribution..........         561         624         642       473         616
  Selling, general and
   administrative.......       1,094       1,241       1,368     1,002         965
                          ----------  ----------  ----------    ------      ------
INCOME (LOSS) FROM 
 OPERATIONS.............        (222)         10          55       (18)        686
FINANCIAL EXPENSES......         186         151         142       114          76
                          ----------  ----------  ----------    ------      ------
NET INCOME (LOSS).......  $     (408) $     (141) $      (87)   $ (132)     $  610
                          ==========  ==========  ==========    ======      ======
</TABLE>
 
 
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-79
<PAGE>
 
                              NESTE THERMISOL A/S
 
                  STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
                          (IN THOUSANDS OF US DOLLARS)
 
<TABLE>
<S>                                                                      <C>
BALANCE, January 1, 1994................................................ $1,070
  Increase to share capital.............................................    575
  Reduction of share capital............................................   (575)
  Share capital transferred to cover the loss...........................    575
  Net loss..............................................................   (408)
  Translation adjustment................................................     98
                                                                         ------
BALANCE, December 31, 1994..............................................  1,335
  Net loss..............................................................   (141)
  Translation adjustment................................................    123
                                                                         ------
BALANCE, December 31, 1995..............................................  1,317
  Net loss..............................................................    (87)
  Translation adjustment................................................    (86)
                                                                         ------
BALANCE, December 31, 1996..............................................  1,144
  Net income (unaudited)................................................    610
  Translation adjustment (unaudited)....................................   (173)
                                                                         ------
BALANCE, September 30, 1997 (unaudited)................................. $1,581
                                                                         ======
</TABLE>
 
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-80
<PAGE>
 
                              NESTE THERMISOL A/S
 
                            STATEMENTS OF CASH FLOWS
                          (IN THOUSANDS OF US DOLLARS)
 
<TABLE>
<CAPTION>
                                                           FOR THE NINE MONTH
                                  FOR THE YEAR ENDED          PERIOD ENDED
                                     DECEMBER 31,             SEPTEMBER 30,
                                 ----------------------  -----------------------
                                  1994    1995    1996      1996        1997
                                 ------  ------  ------  ----------- -----------
                                                         (UNAUDITED) (UNAUDITED)
<S>                              <C>     <C>     <C>     <C>         <C>
CASH FLOW FROM OPERATING 
 ACTIVITIES:
  Net income (loss)............  $ (408) $ (141) $  (87)    $(132)      $ 610
  Adjustments to reconcile net
   income (loss) to net cash
   provided by operating 
   activities:
  Depreciation.................     372     413     320       239         231
  Changes in operating assets
   and liabilities:
  Accounts receivable..........     (17)   (145)     76        37        (247)
  Inventories, net.............     (76)    (77)    238       184         (89)
  Prepaid expenses and other...     (41)   (107)    142        39         (39)
  Accounts payable.............     357      39    (212)     (214)         61
  Accrued liabilities..........     362      83      50      (228)       (383)
                                 ------  ------  ------     -----       -----
    Net cash provided (used) by
     operating activities......     549      65     527       (75)        144
                                 ------  ------  ------     -----       -----
CASH FLOWS FROM INVESTING 
 ACTIVITIES:
  Net purchases of property,
   plant & equipment...........    (121)   (134)   (201)     (116)        (57)
                                 ------  ------  ------     -----       -----
    Net cash used in investing
     activities................    (121)   (134)   (201)     (116)        (57)
                                 ------  ------  ------     -----       -----
CASH FLOWS FROM FINANCING 
 ACTIVITIES:
  Increase of share capital....     575
  Installment on bank debt.....    (133)     (7)     --        --          --
  Installment on loan..........      --     (29)   (232)     (234)       (211)
                                 ------  ------  ------     -----       -----
    Net cash (provided by) used
     in financing activites....     442     (36)   (232)     (234)       (211)
                                 ------  ------  ------     -----       -----
Increase (decrease) in cash....     870    (105)     94      (425)       (124)
CASH, beginning of period......      46     878     787       787         872
  Translation effect on cash...     (38)     14      (9)       (6)        (28)
                                 ------  ------  ------     -----       -----
CASH, end of period............  $  878  $  787  $  872     $ 356       $ 720
                                 ======  ======  ======     =====       =====
</TABLE>
 
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-81
<PAGE>
 
                              NESTE THERMISOL A/S
 
                         NOTES TO FINANCIAL STATEMENTS
 
               (INCLUDING NOTES APPLICABLE TO UNAUDITED PERIODS)
 
(1) ORGANIZATION AND BASIS OF PRESENTATION:
 
 The Business Unit
 
  Neste Thermisol A/S (the Company) is owned by the Finnish concern Neste Oy,
who has activities within chemistry, gas and natural gas. The company is
registered in Denmark.
 
  The Company produces and markets insulation material made of polystyrene for
the Danish and German construction activities, and has considerable market
shares within floor and roof insulation.
 
 Basis of Presentation
 
  The Company's records are maintained in accordance with Danish law and
reporting requirements. These financial statements have been converted from
Danish GAAP to U.S. GAAP.
 
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
 
 Fiscal year
 
  The fiscal year of the Company presented in the financial statements is the
calendar year.
 
 Foreign Currency Translation
 
  The assets and liabilities of the Company, whose functional currency is
other than the U.S. dollar, are translated into U.S. dollars at year end
exchange rates. Revenues and expense accounts are translated using the
weighted average exchange rate during the periods. Translation gains and
losses are not included in determining net income but are accumulated in a
separate component of owner's investment, as is required by Statement of
Financial Accounting Standards No. 52, "Foreign Currency Translation."
 
 Cash
 
  The Company is an operating unit of Neste Oy, and participates in the cash
pool of Neste Oy. All cash requirements of the Company have been funded out of
this cash pool.
 
 Revenue Recognition
 
  Revenue is recognized when goods are shipped. Sales are recorded gross
before cash and other discounts, which are deducted from the value of sales,
when the customer fulfills the terms of trade agreed upon.
 
 Use of Estimates
 
  The preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of financial statements and the reported amounts of
revenues and expenses during the reported period. Actual results could differ
from those estimates.
 
 Fair Value of Financial Instruments
 
  The fair value of financial instruments is determined by reference to
various market data and other valuation techniques, as appropriate. Unless
otherwise disclosed, the fair value of financial instruments, including
accounts
 
                                     F-82
<PAGE>
 
                              NESTE THERMISOL A/S
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
receivables and accounts payable, approximate their recorded values due
primarily to the short-term nature of their maturities.
 
(3) INVENTORIES
 
  Inventories are stated at acquisition cost or production cost--determined on
the basis of FIFO (first-in, first-out) method and include the cost of
materials, labor and manufacturing overhead.
 
<TABLE>
<CAPTION>
                                                         (IN THOUSANDS)
                                                --------------------------------
                                                1995 1996 SEPTEMBER 30, 1997
                                                ---- ---- ------------------
                                                             (UNAUDITED)
   <S>                                          <C>  <C>  <C>                <C>
   Raw material and supplies................... $204 $ 69       $ 135
   Work in progress............................  213  104         137
   Finished goods..............................   64   69          60
                                                ---- ----       -----
                                                $481 $242       $ 332
                                                ==== ====       =====
</TABLE>
 
(4) PROPERTY, PLANT AND EQUIPMENT
 
  Property, plant and equipment is stated at cost, less accumulated
depreciation. Expenditures for improvements that increase the values or extend
the useful life are capitalized and maintenance repair costs are expensed as
incurred. For financial reporting purposes, depreciation is computed using the
straight-line method over the useful lives of the respective assets, which
range from 10 to 25 years for buildings and 3 to 15 years for machinery and
equipment. The depreciation time for the production plant has from 1996 been
changed from 10 to 15 years.
 
(5) ACCRUED LIABILITIES
 
  Accrued liabilities consist of the following:
 
<TABLE>
<CAPTION>
                                                       (IN THOUSANDS)
                                             ----------------------------------
                                              1995    1996   SEPTEMBER 30, 1997
                                             ------- ------- ------------------
                                                                (UNAUDITED)
   <S>                                       <C>     <C>     <C>
   Bonus due to customers................... $   510 $   591       $  454
   A-Tax, vacation pay, etc.................     178     185          159
   Other accrued liabilities................     320     280           64
   Current part of long term liabilities....     240     224          198
                                             ------- -------       ------
                                             $ 1,248 $ 1,280       $  875
                                             ======= =======       ======
 
(6) LONG-TERM LIABILITIES
 
  Long-term liabilities consist of the following:
 
<CAPTION>
                                                       (IN THOUSANDS)
                                             ----------------------------------
                                              1995    1996   SEPTEMBER 30, 1997
                                             ------- ------- ------------------
                                                                (UNAUDITED)
   <S>                                       <C>     <C>     <C>
   Due 1-5 years............................ $ 1,322 $ 1,065       $  791
   Due after 5 years........................     751     645          519
                                             ------- -------       ------
                                             $ 2,073 $ 1,710       $1,310
                                             ======= =======       ======
</TABLE>
 
                                     F-83
<PAGE>
 
                              NESTE THERMISOL A/S
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
(7) COMMITMENTS AND CONTINGENCIES
 
  The Company is a party to various legal actions arising in the ordinary
course of its business. The liability if any, associated with these matters
will not have a material adverse effect upon financial condition, results of
operations or cash flows of the Company.
 
  The Company is also subject to environmental regulations, including rules
relating to air and water pollution and the storage and disposal of chemicals
and waste. The Company believes it complies in all material respects with
applicable laws.
 
  The company has no contracts of guarantee or pension provisions.
 
(8) SUBSEQUENT EVENT:
 
  On October 15, 1997, Neste Oy, Isora Oy, Neste Cellplast AB and Neste
Thermisol A/S sold certain EPS, PS and HIPS assets in Finland, Sweden and
Denmark, which include the assets of the Company, to StyroChem Finland Oy,
ThermiSol Finland Oy, ThermiSol Sweden AB and ThermiSol Denmark ApS and Radnor
Holdings Corporation as parent and guarantor.
 
                                     F-84