<PAGE>   1
words, like plastic, can
be generously molded to
shape new ideas







                                      IVEX







2000 Annual Report
Ivex Packaging Corporation

<PAGE>   2

OPPORTUNITY is central to
market selection, INGENUITY
guarantees success


<PAGE>   3





                                  OPPORGENUITY

<PAGE>   4

OP-POR-GE-NU-I-TY  The Ivex business model makes us unique in the packaging
industry. It begins with selective market positioning--identifying and pursuing
markets where the needs and opportunities match our strengths and capabilities.
The growth potential in these markets is typically driven by changes in consumer
behavior, improvements in technology or shifts in the economic balance. We
capitalize on these opportunities by responding with strategic problem-solving,
rich creative resources and aggressive marketing. This dynamic combination helps
us achieve a position of market prominence.

<PAGE>   5

SIMPLICITY eliminates
distraction, AGILITY
enhances responsiveness

<PAGE>   6





                                  SIMPLIGILITY


<PAGE>   7

SIM-PLI-GIL-I-TY  The past year lifted Ivex to a new level. We successfully
completed a process of narrowing our periphery to a focused spectrum defined by
core strengths. In 2000, we continued growth of our core businesses, divested
our Specialty Coating business resulting in debt reduction, turned around the
Ultra Pac operation and successfully completed various consolidation
initiatives. These actions yielded a fertile environment for growth, marked by
simplicity and efficiency. They have enabled us to garner enthusiasm for the
future, despite the unpredictable forces of a market economy.

<PAGE>   8

CUSTOMIZATION creates
value, efficient manufacturing
achieves ECONOMICAL results

<PAGE>   9




                                 CUSTOMNOMICAL



<PAGE>   10

CUS-TOM-NOM-I-CAL  Our strength lies in the fact that we are creative
problem-solvers. Unique skills and resources are applied to develop custom
packaging solutions within the parameters and pressures of strict competitive
pricing. We market ourselves to the highest uncommon denominator. We value and
nurture creativity, recognizing the critical role it plays in the growth of our
company. Instead of being a commodity packaging supplier, we are custom
packaging partners. This characterization sets us apart as specialists and
provides steadiness against the winds of economic irregularities.


<PAGE>   11

ENTHUSIASM follows
exuberance, experience
harbors WISDOM

<PAGE>   12




                                  ENTHUSIASDOM



<PAGE>   13

EN-THU-SI-AS-DOM  Ivex is a youthful organization with an old soul. Our journey
began as a fledgling upstart over a decade ago. Through hard work, endurance and
sheer willpower, we survived turbulent cycles and staunch challenges,
maintaining focus on a singular vision of what we could become. Four years ago,
we celebrated this vision by becoming a public company. Today, we benefit from
the accumulation of these experiences coupled with a fresh level of energy. A
mature perspective balances the new optimism brought into our organization by
the infusion of aggressive, intelligent managers.

<PAGE>   14

PRECISION requires demanding
design, ENGINEERING brings
ideas to reality


<PAGE>   15




                                PRECISIONEERING


<PAGE>   16

PRE-CI-SION-EER-ING  Creativity may be our secret weapon, but it alone is not
enough to achieve excellence. The demands set forth by the users of our product,
both industrial and consumer, make functionality and performance paramount. In
addition to being aesthetically pleasing and uniquely customized, our packaging
meets the most critical tolerances of precision fitting. Expert engineering
plays a key role in making the wishes of our customers and the dreams of our
designers come to life. The sum total of these attributes is an essence of
quality that stands apart in the packaging industry.

<PAGE>   17

to our STOCKHOLDERS,
CUSTOMERS and EMPLOYEES


<PAGE>   18

Our fourth year as a public company proved both challenging and rewarding.
Despite the large hurdles associated with the volatile raw material and energy
markets, Ivex net sales increased 5.2% to $711.0 million and the Company earned
$1.06 per share before non recurring items. Strategically, Ivex completed a
major step in its business plan by selling its Specialty Coating Business and
reducing debt by $100 million. This important transaction will enable Ivex to
leverage its management and capital resources to grow our core specialty
packaging businesses. In 2001 and beyond, Ivex will focus on only those markets
that have attractive margins and high potential for growth.

Consumer Packaging. Despite unprecedented raw material pricing volatility, our
Polymerization and Extrusion operations continued to show solid growth,
especially in the PET and custom sheet markets. Cost increases were met with
aggressive price management throughout the year which has positioned this
division well for 2001. Our Food Packaging operations had another year of
significant sales growth, especially in the supermarket and agriculture markets,
where growth was driven by the continuing trends toward Home Meal Replacement
and Clear Product Presentation. Our success in the PET markets is a direct
result of the 1998 acquisition of Ultra Pac. I am also pleased to report that
our Canadian and Mexican food packaging operations reported growth in excess of
35%. We also remain enthusiastic about future growth within our Medical and
Electronic packaging markets. Although electronics sales were below our
expectations during 2000, we have made significant changes to this organization
which should provide a solid platform for growth.

Protective Packaging. This division recorded sales growth of 10% (adjusted for
the divestiture of the Specialty Coating Business). With the divestiture of the
Specialty Coating Business completed, we can focus our considerable resources to
grow our remaining specialty paper products, through increased market
penetration and product line expansion.

Ivex also continues to move its core businesses internationally. International
growth remains a priority for the Company. During 2000, we dedicated additional
capital and resources to our Consumer and Protective Packaging presence in
Southeast Asia and we are currently realigning and strengthening our Consumer
converting platform in Europe. We also strengthened our Canadian consumer
business with the recent acquisition of Chester Plastics.

We were faced with many challenges during 2000, most noteworthy were the rising
cost of raw materials and energy and margin pressures in our electronics
packaging business. During the year, we responded rapidly to cost increases with
an aggressive

<PAGE>   19

pricing strategy which has positioned the Company well for 2001. We also made
significant changes to our electronics organization, including the closure of a
facility in Northern Ireland and the consolidation of our Hong Kong facility
into our Malaysia facility. The implementation of these changes should return
our electronics packaging profit margins to acceptable levels in 2001. With the
Specialty Coating divestiture completed, Ivex will continue to define and focus
on only those markets that create the greatest opportunities and value for the
Company. External issues of 1999 and 2000 are behind us. We are well positioned
for 2001 and have every reason to remain positive about the Company's prospects.
Our strategy remains aggressive.

Thank you for your continued support and interest in the Company.






Kind regards, George V. Bayly
Chairman, President & Chief Executive Officer

<PAGE>   20




                                  FISCALIDITY



<PAGE>   21

Financial Highlights


<TABLE>
<CAPTION>
For the Year Ended December 31
(dollars in thousands, except per share data)        2000          1999          1998          1997           1996
------------------------------------------------------------------------------------------------------------------
<S>                                             <C>           <C>           <C>           <C>            <C>
STATEMENT OF OPERATIONS DATA(1,2)
Net sales(3)                                    $ 710,951     $ 675,972     $ 634,712     $ 560,775      $ 468,036
Net income (loss) before extraordinary loss        40,324        25,242        28,194        (9,540)         8,668
Net income (loss) before extraordinary loss
  per share-basic                                    1.98          1.21          1.36         (0.75)          0.84
Net income (loss) before extraordinary loss
  per share-diluted                                  1.98          1.20          1.35         (0.75)          0.84
</TABLE>

<TABLE>
<CAPTION>
December 31 (dollars in thousands)                   2000          1999          1998          1997           1996
------------------------------------------------------------------------------------------------------------------
<S>                                             <C>           <C>           <C>           <C>            <C>
BALANCE SHEET DATA(1,2)
Total assets                                    $ 592,763     $ 640,587     $ 556,145     $ 427,465      $ 315,901
Long-term debt                                    336,087       434,902       409,071       319,055        352,893
Stockholders' equity (deficit)                     79,597        45,308        22,191       (12,169)      (127,344)
==================================================================================================================
</TABLE>

(1)  The selected financial data presented above for, and as of, each of the
     years in the five-year period ended December 31, 2000, are derived from the
     consolidated audited financial statements of the Company. The selected
     financial data should be read in conjunction with the consolidated
     financial statements and notes thereto.

(2)  The financial data of the Company reflect the following acquisitions as of
     the respective acquisition dates: Plastofilm Industries, Inc. as of August
     16, 1996; Trio Products, Inc. as of September 11, 1996; the European OPS
     business of Envirodyne Industries, Inc. as of January 17, 1997; M&R
     Plastics Inc. ("M&R") as of February 21, 1997; AVPEX International
     Corporation ("AVP") as of August 8, 1997; Crystal Thermoplastics Inc.
     ("Crystal") as of November 3, 1997; Ultra Pac, Inc. ("Ultra Pac") as of
     April 23, 1998; the paper packaging business of Bleyer Industries, Inc.
     ("Bleyer Paper") as of October 2, 1998; the electronics packaging business
     of Pactuco, Inc. ("Pactuco") as of April 20, 1999; and F.T.S. Holdings B.V.
     ("Folietechniek") as of July 30, 1999. The selected financial data
     presented includes results of the Company's Detroit, Michigan facility
     ("Detroit") through November 19, 1998, the date of its sale to Packaging
     Holdings L.L.C., and the Company's Specialty Coating business ("Specialty
     Coating") through May 26, 2000, the date of its sale to Chargeurs, SA
     ("Chargeurs") of Paris, France. The selected financial data should be read
     in conjunction with the consolidated financial statements and notes
     thereto.

(3)  The Company has reclassified shipping costs for all periods presented from
     net sales to cost of goods sold in accordance with the Emerging Issues Task
     Force ("EITF") consensus opinion, EITF No. 00-10. Among other things, this
     opinion requires changes to the Company's prior practice of deducting
     shipping costs from gross sales in arriving at net sales.

<PAGE>   22
Financial Review

                   (28-37)     Management's Discussion and Analysis

                   (38-39)     Consolidated Balance Sheets

                   (40-41)     Consolidated Statements of Operations

                   (40-41)     Consolidated Statements of Changes in
                               Stockholders' Equity

                   (42-43)     Consolidated Statements of Cash Flows

                   (44-64)     Notes to Consolidated Financial Statements

                   (64-65)     Report of Independent Accountants

                   (66-67)     Corporate and Investor Information

<PAGE>   23
Management's Discussion and
Analysis of Financial Condition
and Results of Operations

(dollars in thousands,
except per share amounts)

                                 Ivex Packaging Corporation owns 100% of the
                                 common stock of IPC, Inc. ("IPC"). References
                                 to the Company or Ivex herein reflect the
                                 consolidated results of Ivex Packaging
                                 Corporation. During 2000, in connection with
                                 the sale of the Company's Specialty Coating
                                 business, Ivex realigned its operating segments
                                 based on management decisions as to resource
                                 allocation. The Consumer Packaging group now
                                 includes the medical and electronics packaging
                                 product group, leaving the Company's Protective
                                 Packaging product group as a separate operating
                                 segment.

Results of Operations            For the Years Ended December 31, 2000, 1999
                                 and 1998

                                 NET SALES The Company's net sales increased by
                                 5.2% during the year ended December 31, 2000
                                 over the Company's net sales during the
                                 corresponding period in 1999. The increase
                                 primarily resulted from selling price increases
                                 across most markets primarily associated with
                                 increased raw material costs and increased unit
                                 volume in certain markets. The net sales
                                 increase was reduced as a result of the sale
                                 of the Specialty Coating business in May 2000
                                 and increased as a result of the Pactuco and
                                 Folietechniek acquisitions (causing an
                                 aggregate reduction in the Company's net sales,
                                 as a result of such divestiture and
                                 acquisitions, of approximately $22,600 during
                                 2000 compared to 1999).

                                 The Company's net sales increased by 6.5%
                                 during the year ended December 31, 1999 over
                                 the Company's net sales during the
                                 corresponding period in 1998. The increase
                                 primarily resulted from the strong increase in
                                 Consumer Packaging sales including increased
                                 unit sales volume of extruded sheet and film
                                 and increased sales of converted plastic and
                                 paper products for food applications. The
                                 increase in sales also was in part the result
                                 of the incremental revenues from the Ultra Pac,
                                 Bleyer Paper, Pactuco and Folietechniek
                                 acquisitions as substantially offset by the
                                 fourth quarter 1998 disposition of Detroit
                                 (causing an aggregate increase in the Company's
                                 net sales of $10,177 during 1999 compared to
                                 1998). See additional discussion in "Operating
                                 Segments."

                                 GROSS PROFIT The Company's gross profit
                                 decreased 7.3% during 2000 compared to 1999
                                 primarily as a result of the sale of the
                                 Specialty Coating business (Specialty Coating
                                 gross profit was $11,038 higher during 1999
                                 compared to 2000) and increased raw material
                                 costs across all of the Company's product
                                 groups. Gross profit margin decreased to 19.9%
                                 during 2000 compared to 22.6% during 1999 as a
                                 result of the raw material cost increases in
                                 most of the Company's markets, including
                                 increases in average plastic resin costs
                                 ranging up to 36% during 2000 compared with
                                 1999. Gross profit margin was negatively
                                 impacted by margin compression in the medical
                                 and electronics markets, partially offset by an
                                 increase in gross profit margin of the
                                 Company's manufactured paper due to favorable
                                 market conditions.
<PAGE>   24
                                 The Company's gross profit increased 5.3%
                                 during 1999 compared to 1998 primarily as a
                                 result of the incremental effects from the
                                 Ultra Pac, Bleyer Paper, Pactuco and
                                 Folietechniek acquisitions partially offset by
                                 the disposition of Detroit. Gross profit margin
                                 decreased to 22.6% during 1999 compared to
                                 22.9% during 1998. The decrease in gross profit
                                 margin is primarily the result of increased raw
                                 material costs and the poor operating
                                 performance at Ultra Pac during the second half
                                 of 1999. Such decrease was partially offset by
                                 a positive shift in product mix due to the
                                 addition of higher gross profit margin Ultra
                                 Pac and Bleyer Paper products compared with
                                 lower gross profit margin Detroit products that
                                 were eliminated with its disposition.

                                 OPERATING EXPENSES Selling and administrative
                                 expenses decreased 8.5% during 2000 primarily
                                 as a result of the sale of the Specialty
                                 Coating business (Specialty Coating's selling
                                 and administrative expenses were $5,859 higher
                                 during 1999 compared to 2000)and cost control
                                 initiatives in all businesses, partially offset
                                 by incremental costs from the Pactuco and
                                 Folietechniek acquisitions. As a percentage of
                                 net sales, selling and administrative expenses
                                 decreased to 10.3% during 2000 compared to
                                 11.8% during the prior year. The decrease as a
                                 percentage of net sales was primarily the
                                 result of the decreased selling and
                                 administrative expenses and increased selling
                                 prices.

                                 Selling and administrative expenses increased
                                 19.7% during 1999 primarily as a result of the
                                 higher selling and administrative expenses
                                 associated with the acquisitions completed
                                 during 1998 and 1999, the increased sales and
                                 management resources for most businesses and
                                 the 1998 special benefit discussed below. The
                                 increase in selling and administrative expenses
                                 was partially offset by reduced incentive
                                 compensation. As a percentage of net sales,
                                 selling and administrative expenses increased
                                 to 11.8% during 1999 compared to 10.5% during
                                 the same period in the prior year This increase
                                 was primarily the result of the addition of
                                 Ultra Pac and Pactuco with higher selling
                                 expenses as a percentage of net sales and the
                                 divestiture of Detroit with lower operating
                                 expenses as a percentage of net sales. The
                                 increase, as a percentage of net sales, was
                                 also attributable to the 1998 special benefit
                                 and increased sales and management resources
                                 for most businesses as offset by the reduction
                                 in incentive compensation.

                                 During the second quarter of 1998, the Company
                                 recorded a special benefit of$2,766. In
                                 conjunction with the sale of their stock,
                                 certain members of senior management (the
                                 "Management Stockholders")repaid $2,700 of the
                                 loans from the Company (the "Management
                                 Loans"). Such loans were made to senior
                                 management during the fourth quarter of 1997 in
                                 connection with the Company's 1997 initial
                                 public offering In addition, during the third
                                 quarter of 1997, the Company recorded an
                                 accrual for the anticipated future Company
                                 payments to senior management of an amount
                                 which (after taxes)enabled such management to
                                 pay interest on the Management Loans. As a
                                 result of the early loan repayment by the
                                 Management Stockholders, the Company's accrual
                                 for such future Company payments was reduced by
                                 $2,766 during the second quarter of 1998.

                                 Amortization of intangibles increased 6.3%
                                 during 2000 compared to the same period in 1999
                                 primarily as a result of increased goodwill and
                                 non-compete agreement amortization associated
                                 with the Pactuco and Folietechniek
                                 acquisitions, partially offset by the sale of
                                 the Specialty Coating business.

                                 Amortization of intangibles increased during
                                 1999 compared to 1998 as a result of the
                                 incremental goodwill amortization associated
                                 with the acquisitions completed during 1998 and
                                 1999.


(28-29) Ivex Packaging Corporation

<PAGE>   25
                                 2000 RESTRUCTURING Charge During 2000, Ivex
                                 recorded a restructuring charge of $4,000 (the
                                 "2000 Restructuring Charge")related to facility
                                 exit costs and a management restructuring of
                                 the European converting operations and the
                                 additional charges incurred for the
                                 consolidation of the Sparks, Nevada facility.

                                 The Company recorded expense of $2,600 related
                                 to facility exit costs associated with closing
                                 certain European operations. The Company also
                                 recorded expense of $756 related to severance
                                 and other employee costs resulting from the
                                 restructuring of its European operations, which
                                 the Company expects to complete by early 2001.
                                 Additionally, the Company recognized an asset
                                 impairment of $194 in connection with the
                                 consolidation of the Sparks, Nevada facility.
                                 The remaining balance of the 2000 Restructuring
                                 Charge of $450 consisted of severance and other
                                 employee costs associated with completing the
                                 consolidation of the Sparks, Nevada facility.
                                 The closure of the Sparks, Nevada facility was
                                 part of a reorganization of the medical and
                                 electronics product group. During the third
                                 quarter of 2000, Ivex recorded expense of $267
                                 related to severance costs associated with its
                                 Enniskillen, Northern Ireland facility and $365
                                 related to severance costs associated with the
                                 management reorganization of the medical and
                                 electronics product group.

                                 1999 RESTRUCTURING CHARGE During 1999, Ivex
                                 recorded a restructuring charge of $4,950 (the
                                 "1999 Restructuring Charge") related to
                                 facility exit costs and certain asset
                                 impairments associated with closing the
                                 Hollister, California manufacturing facility,
                                 rationalizing and realigning manufacturing
                                 capacity in certain of the Company's
                                 businesses, including the Sparks, Nevada
                                 facility, and exiting Ultra Pac's joint venture
                                 in Chile.

                                 The Company recorded expense of $4,000 related
                                 to exit costs for the Hollister, California
                                 manufacturing facility. The Company is
                                 committed to an operating lease of the facility
                                 through March 1, 2008. The $4,000 expense
                                 included an accrual for the estimated
                                 difference between the lease commitment and
                                 expected sublease proceeds of $2,758. During
                                 the third quarter of 2000, the Company entered
                                 into a sublease for the Hollister facility that
                                 is expected to generate proceeds $632 greater
                                 than initially estimated. Accordingly, the
                                 restructuring reserve was reduced for this
                                 change in estimate in 2000.

                                 The Company also recorded expense of $450 as a
                                 result of the implementation of a manufacturing
                                 capacity rationalization plan during the fourth
                                 quarter of 1999 which resulted in closing the
                                 Sparks, Nevada facility and removing Protective
                                 Packaging production from the Grove City,
                                 Pennsylvania facility. The planned
                                 consolidations were completed as of the second
                                 quarter of 2000.

                                 Based on continued operating losses and poor
                                 cash flow from Ultra Pac's joint venture
                                 agreement in Chile, the Company recorded an
                                 asset impairment of $500 representing the
                                 difference between the Company's investment in
                                 the joint venture of $875 in the form of common
                                 stock, trade receivables and machinery and
                                 equipment transfers and the estimated
                                 realizable value of such investments.

                                 During 2000, the Company made payments related
                                 to its restructuring reserves totaling $1,555.
                                 The remaining balance sheet reserve at December
                                 31, 2000 related to 2000 and 1999 Restructuring
                                 Charges was $5,086, representing $1,571 of
                                 future lease commitment at the Hollister
                                 facility, net of estimated sublease proceeds,
                                 $162 of severance cost associated with the
                                 management reorganization of the medical and
                                 electronics group and remaining payments to
                                 complete the closure of the Sparks, Nevada
                                 facility, and $3,353 of severance, contractual
                                 obligations and facility exit costs associated
                                 with closing certain European operations.

<PAGE>   26
                                 INCOME FROM OPERATIONS Income from operations
                                 and operating margin were $61,195 and 8.6%,
                                 respectively, during 2000, compared to $64,913
                                 million and 9.6%, respectively, during 1999 and
                                 $76,493 and 12.1%, respectively, during 1998.
                                 The decrease in operating income in 2000 is
                                 primarily the result of the 2000 Restructuring
                                 Charge and the sale of the Specialty Coating
                                 business (the Specialty Coating business income
                                 from operations was $4,977 higher during 1999
                                 compared to the corresponding period in 2000).
                                 Excluding the effect of the 2000 Restructuring
                                 Charge, the 1999 Restructuring Charge and the
                                 incremental income from operations from the
                                 Specialty Coating business in 1999, income from
                                 operations during 2000 was consistent with
                                 1999. The decrease in income from operations
                                 and operating margin in 1999 compared with 1998
                                 primarily resulted from the 1999 Restructuring
                                 Charge and the special benefit recorded in
                                 administrative expenses in 1998. Without the
                                 1999 Restructuring Charge and 1998 special
                                 benefit, operating income and margin would have
                                 been $69,863 and 10.3% in 1999 compared to
                                 $73,727 and 11.6% in 1998. The decrease in 1999
                                 income from operations is primarily the result
                                 of the increased operating expenses. The
                                 decrease in operating margin primarily results
                                 from the increased operating expenses as a
                                 percentage of net sales.

                                 INTEREST EXPENSE Interest expense during 2000
                                 was $32,369 compared to $30,757 and $29,561
                                 during 1999 and 1998, respectively. The
                                 increase is primarily due to increased interest
                                 rates on borrowings (approximately 0.74% on the
                                 Company's Senior Credit Facility), partially
                                 offset by lower aggregate indebtedness due to
                                 the debt repayment associated with the sale of
                                 the Specialty Coating business. The increase in
                                 1999 interest expense is primarily due to
                                 greater indebtedness, partially offset by
                                 decreased interest rates on borrowings and
                                 increased interest income. The greater
                                 indebtedness primarily resulted from the recent
                                 acquisitions and increased working capital.

                                 INCOME FROM EQUITY INVESTMENTS Income from
                                 equity investments primarily results from the
                                 Company's equity interest in the net operating
                                 results of Packaging Holdings, L.L.C. The loss
                                 from equity investments for 2000 resulted
                                 primarily from a second quarter 2000 bad debt
                                 provision recorded by Packaging Holdings,
                                 L.L.C. for one significant customer account
                                 balance and for severance costs resulting from
                                 an operational management restructuring (the
                                 "Packaging Holdings Charges"). The Company's
                                 share of these charges was $2,123. In addition
                                 to the Packaging Holdings Charges, net income
                                 at Packaging Holdings, L.L.C. was lower during
                                 2000 compared to the corresponding period in
                                 the prior year primarily due to increased raw
                                 material and energy costs. The increase in
                                 equity investment income in 1999 compared to
                                 1998 is due to the fact that the Company's
                                 equity investment in Packaging Holdings, L.L.C.
                                 was formed near the end of 1998.

                                 GAIN ON SALE On May 26, 2000, the Company sold
                                 its Specialty Coating business to Chargeurs, SA
                                 ("Chargeurs") of Paris, France for
                                 approximately $113,000 in cash, resulting in a
                                 pre-tax gain of $42,150.

                                 INCOME TAXES The Company's effective tax rate
                                 for 2000 approximated 42% compared with 32% for
                                 1999. The increase in effective tax rate
                                 reflects a higher effective rate on the gain on
                                 the sale of the Specialty Coating business,
                                 partially due to the nondeductibility for
                                 income tax purposes of certain goodwill
                                 disposed of as part of the sale of the
                                 Specialty Coating business, and a lower
                                 effective rate on the tax benefit associated
                                 with the 2000 Restructuring Charge. During
                                 1999, the Company determined that it was more
                                 likely than not that its net operating loss
                                 carryovers in the United Kingdom would be
                                 realized. As such, the Company reversed $1,400
                                 of its valuation reserve. Additionally during
                                 1999, the Company recorded a $1,172
                                 nonrecurring tax benefit in its income tax
                                 provision resulting from the carry back of
                                 certain tax losses. Aside from the effect of
                                 the gain on sale of the Specialty Coating
                                 business, the 2000 Restructuring Charge and the
                                 nonrecurring tax benefits in 1999, the
                                 Company's

(30-31) Ivex Packaging Corporation

<PAGE>   27
                                 effective tax rate for 2000, 1999 and 1998
                                 approximated 35%, 39% and 40%, respectively.
                                 The decrease in effective tax rate reflected a
                                 lower aggregate effective rate for foreign
                                 operations in 2000 and 1999 and the favorable
                                 effect of certain state tax credits received in
                                 2000.

                                 During 2000, 1999 and 1998, the Company paid
                                 cash taxes only for U.S. alternative minimum
                                 tax, state taxes and foreign tax (primarily
                                 Canada). As a result of the Company's net
                                 operating loss carryovers for U.S. federal tax,
                                 the Company did not pay regular U.S. federal
                                 tax during 2000, 1999 or 1998. At December 31,
                                 2000, the Company had U.S. net operating loss
                                 carryovers of $27,626.

                                 NET INCOME Net income increased to $40,324 in
                                 2000 compared to net income of $25,242 in 1999.
                                 The increase is primarily the result of the
                                 gain on sale of the Specialty Coating business
                                 recorded during the quarter ended June 30,
                                 2000, offset by the 2000 Restructuring Charge,
                                 the Packaging Holdings Charges, reduced gross
                                 profit and higher interest expense. The
                                 decrease also results from the one-time tax
                                 benefits recorded during 1999.

                                 Net income was $25,242 in 1999 compared to
                                 $28,194 in 1998. The decrease in net income in
                                 1999 is primarily the result of the reduced
                                 operating income and restructuring charge
                                 partially offset by the nonrecurring tax
                                 benefits.

                                 Earnings Per Share Diluted earnings per share
                                 increased to $1.98 in 2000 compared to earnings
                                 per share of $1.20 in 1999 and $1.35 in 1998.
                                 Excluding the after-tax effect of the gain on
                                 sale of the Specialty Coating business ($1.13
                                 per share), the 2000 Restructuring Charge
                                 ($0.14 per share) and the Packaging Holdings
                                 Charges ($0.07 per share), earnings per share
                                 were $1.06 in 2000. Excluding the effect of the
                                 nonrecurring tax benefit ($0.12 per share) and
                                 the 1999 Restructuring Charge ($0.14 per
                                 share), earnings per share were $1.22 in 1999.
                                 The decrease in adjusted earnings per share in
                                 2000 compared to 1999 was primarily related to
                                 a reduction in gross profit, as well as
                                 increased interest costs. The decrease in
                                 adjusted earnings per share in 1999 compared to
                                 1998 was primarily related to the decreased net
                                 income.

Operating Segments               NET SALES The following table sets forth
                                 information with respect to net sales of the
                                 Company's operating segments for the periods
                                 presented.

<TABLE>
<CAPTION>

                                 Years Ended December 31 (dollars in thousands)      2000    % of Net Sales
                                 --------------------------------------------------------------------------
                                 <S>                                            <C>                  <C>
                                 Consumer Packaging                             $ 547,426              77.0
                                 Protective Packaging                             163,525              23.0
                                                                -------------------------------------------
                                 Total                                          $ 710,951             100.0
                                                                ===========================================

                                 Years Ended December 31 (dollars in thousands)      1999    % of Net Sales
                                 --------------------------------------------------------------------------
                                 Consumer Packaging                             $ 488,037              72.2
                                 Protective Packaging                             187,935              27.8
                                                                -------------------------------------------
                                 Total                                          $ 675,972             100.0
                                                                ===========================================

                                 Years Ended December 31 (dollars in thousands)      1998    % of Net Sales
                                 --------------------------------------------------------------------------
                                 Consumer Packaging                             $ 403,461              63.6
                                 Protective Packaging                             231,251              36.4
                                                                -------------------------------------------
                                 Total                                          $ 634,712             100.0
                                                                ===========================================
</TABLE>


                                 Consumer Packaging's net sales increased by
                                 12.2% during 2000 compared to the corresponding
                                 period in 1999. The increase primarily resulted
                                 from increased selling price in most markets
                                 (associated with raw material cost increases)
                                 and increased unit sales of extruded plastic
                                 sheet and converted packaging products for food
                                 applications. Unit volume growth in the
                                 extruded sheet markets represented
                                 approximately $12,181 of the increase. Net
                                 sales of medical and electronics packaging
                                 products during 2000 increased compared to the
                                 corresponding period in 1999(approximately
                                 $5,600), primarily as a result of incremental
                                 sales from Pactuco.

                                 Consumer Packaging's net sales increased by
                                 21.0% in 1999 from 1998. The increase primarily
                                 resulted from incremental sales associated with
                                 the Ultra Pac, Bleyer Paper and Folietechniek
                                 acquisitions and increased sales of converted
                                 plastic and paper products for food
                                 applications.

<PAGE>   28
                                 During 1999, sales of converted plastic and
                                 paper products in the U.S. (excluding the sales
                                 relating to Ultra Pac and Bleyer Paper)
                                 increased approximately 3.9% while such sales
                                 outside of the U.S. (Europe, Canada and Mexico)
                                 increased 23.0% compared to 1998. The largest
                                 increase in sales outside of the U.S. occurred
                                 in the United Kingdom and Continental Europe.
                                 The largest unit sales volume growth within the
                                 Company's extruded products occurred in the
                                 custom extruded sheet product category in the
                                 areas of PET sheet and HIPS sheet.

                                 Protective Packaging's net sales decreased by
                                 13.0% during 2000 from the corresponding period
                                 in 1999, primarily due to the sale of the
                                 Specialty Coating business. The decrease in net
                                 sales was partially offset by increased selling
                                 price in most markets (associated with raw
                                 material cost increases)and increased unit
                                 volume of converted protective packaging and
                                 manufactured paper products.

                                 Protective Packaging's net sales decreased by
                                 18.7% in 1999 from 1998. The decrease in 1999
                                 resulted primarily from the disposition of
                                 Detroit, partially offset by incremental sales
                                 from the Pactuco acquisition. Additionally,
                                 during 1999 the Company continued to experience
                                 significant unit volume decreases in its coated
                                 and laminated products as a result of declining
                                 markets for these products. During 1999,
                                 increased sales unit volume was mostly offset
                                 by decreased selling prices for the Company's
                                 surface protection, protective packaging and
                                 manufactured paper products.

                                 Adjusted EBITDA Adjusted EBITDA includes income
                                 from operations adjusted to exclude
                                 depreciation and amortization expenses, the
                                 gain on the sale of the Specialty Coating
                                 business, the 2000 restructuring charge and
                                 1999 restructuring charge and the 1998 special
                                 benefit. The Company believes that Adjusted
                                 EBITDA provides additional information for
                                 determining its ability to meet future debt
                                 service requirements. However, Adjusted EBITDA
                                 is not a defined term under Generally Accepted
                                 Accounting Principles ("GAAP") and is not
                                 indicative of operating income or cash flow
                                 from operations as determined under GAAP.

                                 The following table sets forth information with
                                 respect to Adjusted EBITDA of the Company's
                                 operating segments for the periods presented.

<TABLE>
<CAPTION>

                                 Years Ended December 31 (dollars in thousands)      2000     % of Net Sales
                                 ---------------------------------------------------------------------------
                                 <S>                                            <C>                     <C>
                                 Consumer Packaging                             $  87,193               15.9
                                 Protective Packaging                              25,512               15.6
                                 Corporate expenses                                (6,944)                --
                                                                --------------------------------------------
                                 Total                                          $ 105,761               14.9
                                                                ============================================

                                 Years Ended December 31 (dollars in thousands)      1999     % of Net Sales

                                 Consumer Packaging                             $  86,033               17.6
                                 Protective Packaging                              30,970               16.5
                                 Corporate expenses                                (8,159)                --
                                                                --------------------------------------------
                                 Total                                          $ 108,844               16.1
                                                                ============================================

                                 Years Ended December 31 (dollars in thousands)      1998     % of Net Sales

                                 Consumer Packaging                             $  77,425               19.2
                                 Protective Packaging                              37,948               16.4
                                 Corporate expenses                                (7,622)                --
                                                                --------------------------------------------
                                 Total                                          $ 107,751               17.0
                                                                ============================================
</TABLE>


                                 The Company's Adjusted EBITDA decreased 2.8%
                                 from $108,844 to $105,761 and EBITDA margin
                                 decreased from 16.1% to 14.9% during 2000
                                 compared to the same period in 1999. The 1.3%,
                                 or $1,160, increase in Consumer Packaging's
                                 EBITDA is primarily attributable to increased
                                 unit sales volume in the Company's Extrusion
                                 and U.S. and Canadian Converting operations,
                                 partially offset by reduced margin resulting
                                 from raw material cost increases and reduced
                                 EBITDA in the medical and electronics business.
                                 The decrease in Protective Packaging's EBITDA
                                 of 17.6%, or $5,458 is primarily due to the
                                 sale of the Specialty Coating business,
                                 partially offset by increased unit sales volume
                                 of converted protective packaging and
                                 manufactured paper products. Specialty Coating
                                 EBITDA was approximately $7,424 higher during
                                 1999 compared to the corresponding period in
                                 2000.

(32-33) Ivex Packaging Corporation

<PAGE>   29
                                 The Company's Adjusted EBITDA increased by
                                 $1,093 to $108,844 in 1999, an Adjusted EBITDA
                                 margin of 16.1%, compared to 1998 Adjusted
                                 EBITDA of $107,751 and an Adjusted EBITDA
                                 margin of 17.0%. The 11.1%, or $8,608, increase
                                 in Consumer Packaging's Adjusted EBITDA was
                                 primarily attributable to the incremental
                                 Adjusted EBITDA from Ultra Pac, Bleyer Paper,
                                 Folietechniek and Pactuco, increased sales
                                 volume and reduced incentive compensation. The
                                 increase was partially offset by third and
                                 fourth quarter increases in raw material costs
                                 and poor operating performance at Ultra Pac.
                                 The decrease in Protective Packaging's Adjusted
                                 EBITDA of 18.4%, or $6,978, was primarily due
                                 to the disposition of Detroit and decreased
                                 sales in the first quarter of 1999 for the
                                 Company's protective packaging and surface
                                 protection product lines. The increase in
                                 Corporate expenses was primarily the result
                                 of an increase in human resources required as a
                                 result of the Company's growth partially offset
                                 by reduced incentive compensation expense.

Liquidity and Capital Resources  At December 31, 2000, the Company had cash
                                 and cash equivalents of $5,212 and $65,407 was
                                 available under the Revolving Credit Facility
                                 of IPC's Senior Credit Facility (the "Senior
                                 Credit Facility"). IPC's working capital at
                                 December 31, 2000 was $59,361. During 2000, the
                                 Company made investments in accounts receivable
                                 and inventory balances aggregating $24,933
                                 compared with $32,194 in 1999 and $21,616 in
                                 1998. The increased investment in these working
                                 capital assets in 2000 and 1999 is primarily
                                 the result of significant selling price and raw
                                 material cost increases incurred beginning in
                                 the second half of 1999.

                                 On October 26,1999, the Company's Senior Credit
                                 Facility was amended to revise certain
                                 covenants. The Company paid fees of $600 and
                                 increased the interest rate on all borrowings
                                 under the Senior Credit Facility by a range of
                                 0.25% to 0.375% as a result of the amendment.

                                 The Company's primary short-term and long-term
                                 operating cash requirements for the Company are
                                 for debt service, working capital and capital
                                 expenditures. The Company expects to rely on
                                 cash generated from operations supplemented by
                                 Revolving Credit Facility borrowings under the
                                 Senior Credit Facility to fund the Company's
                                 principal short-term and long-term cash
                                 requirements.

                                 The Senior Credit Facility is comprised of a
                                 $150,000 Term A Loan, a $150,000 Term B Loan
                                 and a $265,000 revolving credit facility (up to
                                 $65,000 of which may be in the form of letters
                                 of credit). As a result of the sale of the
                                 Specialty Coating business, the Company was
                                 required to repay $30,731 of the Term A Loan
                                 and $43,849 of the Term B Loan. The remaining
                                 proceeds were used to pay down the revolving
                                 credit facility. The Term A Loan is required to
                                 be repaid in quarterly payments totaling
                                 $22,756 in 2001, $21,881 in 2002 and $18,380 in
                                 2003, and the Term B Loan is required to be
                                 repaid in quarterly payments of $263 per
                                 quarter through September 30, 2003 and four
                                 installments of $24,681 on December 31, 2003,
                                 March 31, 2004, June 30, 2004 and September 30,
                                 2004. The interest rate of the Senior Credit
                                 Facility can be, at the election of IPC, based
                                 upon LIBOR or the Adjusted Base Rate, as
                                 defined there in, and is subject to certain
                                 performance pricing adjustments. The Term A
                                 Loan and loans under the revolving credit
                                 facility bear interest at rates up to LIBOR
                                 plus 1.625% or the Adjusted Base Rate plus
                                 0.625%. As of December 31, 2000, such rate was
                                 LIBOR plus 1.375%. The Term B Loan bears
                                 interest at rates up to LIBOR plus 2.0% or the
                                 Adjusted Base Rate plus 1.0%. As of December
                                 31, 2000, such rate for the Term B Loan was
                                 LIBOR plus 1.75%. Borrowings are secured by
                                 substantially all the assets of the Company and
                                 its subsidiaries. The revolving credit facility
                                 and Term A Loan will terminate on September 30,
                                 2003 and the Term B Loan will terminate on
                                 September 30, 2004. Under the Senior Credit
                                 Facility, IPC is required to maintain certain
                                 financial ratios and levels of net worth and
                                 future indebtedness and dividends are
                                 restricted, among other things. The Company
                                 believes it is currently in compliance with the
                                 terms and conditions of the Senior Credit
                                 Facility in all material respects.

<PAGE>   30
                                 IPC's industrial revenue bonds require monthly
                                 interest payments and are due in varying
                                 amounts and dates through 2009. As a result
                                 of the sale of the Specialty Coating business,
                                 the Company repaid $4,400 of its industrial
                                 revenue bonds. Certain letters of credit
                                 under the Company's Senior Credit Facility
                                 provide credit enhancement for IPC's industrial
                                 revenue bonds.

                                 In order to reduce the impact of changes in
                                 interest rates on its variable rate debt, the
                                 Company entered into interest rate derivative
                                 instruments which are discussed in
                                 "Quantitative and Qualitative Disclosures About
                                 Market Risk."

                                 The Company made capital expenditures of
                                 $40,916, $48,323 and $40,137 in 2000, 1999 and
                                 1998, respectively. At December 31, 2000, the
                                 Company has several capital projects on going
                                 in all major business groups with the majority
                                 of the spending going to capacity additions in
                                 extrusion and converting for the Consumer
                                 Packaging operating segment. In 2001, capital
                                 spending is expected to be slightly less than
                                 depreciation in the range of $30,000 to
                                 $35,000. In future periods, the capital
                                 spending is expected to approximate or slightly
                                 exceed depreciation expense.

                                 On October 21, 1999, Ivex announced its plans
                                 to purchase up to $5,000 of its outstanding
                                 shares of common stock, from time to time, in
                                 the open market and in individually negotiated
                                 transactions, subject to price, availability
                                 and general market conditions. At December 31,
                                 2000, the Company had purchased $4,848 of its
                                 outstanding shares of common stock.

                                 During 2000, the Company made payments related
                                 to its restructuring reserves totaling $1,555.
                                 The remaining balance sheet reserve at December
                                 31, 2000 related to restructuring charges was
                                 $5,086 representing $1,571 of future lease
                                 commitment at the Hollister facility, net of
                                 estimated sublease proceeds, $162 of severance
                                 cost associated with the management
                                 reorganization of the medical and electronics
                                 group and remaining payments to complete the
                                 closure of the Sparks, Nevada facility, and
                                 $3,353 of severance, contractual obligations
                                 and exit costs associated with terminating
                                 certain European operations.

                                 On May 26, 2000, the Company sold its Specialty
                                 Coating for approximately $113,000 in cash. The
                                 proceeds of the sale, net of expenses and cash
                                 taxes were used to repay debt. The Company is
                                 subject to certain indemnities and obligations
                                 under the terms of the sales contract.

Recently Issued Accounting       In June 1998, the Financial Accounting
Pronouncements                   Standards Board issued Statement of Financial
                                 Accounting Standards ("SFAS") No. 133,
                                 "Accounting for Derivatives and Similar
                                 Financial Instruments and Hedging Activities.
                                 "It requires all derivative instruments to be
                                 recorded in the statement of financial position
                                 at fair value. The change in fair value of a
                                 derivative is required to be recorded each
                                 period in current earnings or other
                                 comprehensive income, depending on whether the
                                 derivative is designated as part of a hedge
                                 transaction and if so, the type of hedge
                                 transaction. The statement, as amended by SFAS
                                 No. 137 and No. 138, will be effective January
                                 1, 2001 for the Company. The initial adoption
                                 of this statement will not have a material
                                 effect on the Company's net earnings or
                                 statement of financial position.

Quantitative and Qualitative     FOREIGN EXCHANGE The Company uses primarily
Disclosure About Market Risk     foreign exchange forward contracts to hedge its
                                 exposure from adverse changes in foreign
                                 exchange rates. A 10% unfavorable movement in
                                 the foreign exchange rates would not expose the
                                 Company to material losses in earnings or cash
                                 flows.

(34-35) Ivex Packaging Corporation

<PAGE>   31
                                 INTEREST RATES The Company uses interest rate
                                 swaps and collars to modify its exposure to
                                 interest rate movements and to reduce borrowing
                                 costs. The Company's net exposure interest rate
                                 risk consists of floating rate debt instruments
                                 that are benchmarked to LIBOR. During the third
                                 quarter of 2000, the Company sold certain
                                 interest rate swaps with an aggregate notional
                                 amount of $60,000. The interest rate swaps were
                                 accounted for as hedges and effectively fixed
                                 the Company's LIBOR base rate at 5.33% on
                                 $60,000 of indebtedness through January 22,
                                 2002. The sale resulted in a gain of $985 which
                                 is being amortized over the instrument period.
                                 As of December 31, 2000, the Company had
                                 $260,000 notional value of interest rate
                                 derivatives outstanding (described below). A
                                 10% unfavorable movement in LIBOR rates would
                                 not expose the Company to material losses
                                 of earnings or cash flows.

                                 The Company has entered into interest rate swap
                                 agreements with a group of banks having
                                 notional amounts totaling $100,000 through
                                 November 5, 2002. These agreements effectively
                                 fix the Company's LIBOR base rate for $100,000
                                 of the Company's indebtedness at a rate of
                                 6.12% during this period. The Company has
                                 entered into no cost interest rate collar
                                 agreements with a group of banks having
                                 notional amounts totaling $100,000 through
                                 November 5, 2002. These collar agreements
                                 effectively fix the LIBOR base rate for
                                 $100,000 of the Company's indebtedness at a
                                 maximum of 7.00% and allow for the Company to
                                 pay the market LIBOR from a floor of 5.55% to
                                 the maximum rate. If LIBOR falls below 5.55%,
                                 the Company is required to pay the floor rate
                                 of 5.55%. The Company has also entered into no
                                 cost interest rate collar agreements with a
                                 group of banks having notional amounts totaling
                                 $60,000 of the Company's indebtedness through
                                 November 5, 2001 at a maximum of 5.31% and
                                 allow for the Company to pay the market LIBOR
                                 from a floor of 4.47% to the maximum rate. If
                                 LIBOR falls below 4.47%, the Company is
                                 required to pay the floor rate of 4.47%. Income
                                 or expense related to settlements under these
                                 agreements is recorded as adjustments to
                                 interest expense in the Company's financial
                                 statements. The fair market value of the
                                 Company's derivative instruments outlined above
                                 approximates a loss of $574 as of December 31,
                                 2000 and is based upon the amount at which it
                                 could be settled with a third party, although
                                 the Company has no current intention to trade
                                 any of these instruments and plans to hold them
                                 as hedges for the Senior Credit Facility.

Legal Proceedings and            The Company and its subsidiaries are subject
Environmental Matters            to various claims arising in the ordinary
                                 course of business, and are parties to various
                                 legal proceedings, which constitute ordinary
                                 routine litigation incidental to the business
                                 of the Company and its subsidiaries. In the
                                 opinion of the Company's management, none
                                 of these proceedings or claims is material to
                                 the business or financial condition of
                                 the Company.

                                 The Company is subject to extensive and
                                 changing federal, state, local and foreign
                                 environmental laws and regulations pertaining
                                 to the discharge of materials into the
                                 environment, the handling and disposition of
                                 wastes and the protection of the environment.
                                 As is the case with manufacturers in general,
                                 if a release of hazardous substances occurs on
                                 or from the Company's properties or any
                                 associated offsite disposal location, or if
                                 contamination from prior activities is
                                 discovered at any of the Company's properties,
                                 the Company may be held liable. From time to
                                 time, the Company is involved in regulatory
                                 proceedings and inquiries relating to
                                 compliance with environmental laws, permits and
                                 other environmental matters. The Company is
                                 currently involved with environmental
                                 remediation and ongoing maintenance at certain
                                 of its facilities. The Company believes that
                                 the costs of such remediation have been
                                 adequately reserved for and that such costs are
                                 unlikely to have a material adverse effect on
                                 the Company. No assurance can be given,
                                 however, that additional environmental issues
                                 relating to the presently known remediation
                                 matters or identified sites or to other sites
                                 or matters will not require additional
                                 investigation, assessment or expenditures

<PAGE>   32
                                 From time to time, the Company is involved in
                                 cases arising under the Comprehensive
                                 Environmental Response Compensation and
                                 Liability Act ("CERCLA"). These cases generally
                                 involve sites, which allegedly have received
                                 wastes from current or former Company
                                 locations. During 2000, the Company's
                                 subsidiary, Crystal Thermoplastics, Inc.,
                                 responded to an information request from the
                                 United States Environmental Protection Agency
                                 ("EPA") regarding the J.M. Mills Landfill in
                                 Rhode Island. Since filing such response, the
                                 Company has not received any further
                                 notifications regarding such site. Also, the
                                 Company's subsidiary, CFI Industries, Inc., was
                                 notified by EPA and the United States
                                 Department of Justice that a
                                 predecessor-company was a
                                 potentially-responsible-party ("PRP") in
                                 cooperation with other parties, with respect to
                                 the Agriculture Street Landfill in New Orleans,
                                 Louisiana by virtue of having allegedly
                                 recycled and generated municipal and commercial
                                 waste during the time period from approximately
                                 1948 to 1952. The Company believes that it is
                                 not reasonably possible that its potential
                                 liability, if any, with respect to the known
                                 issues at these sites is likely to have a
                                 material adverse effect on the Company;
                                 however, because liability under CERCLA is
                                 joint and several and because the remediation
                                 costs at the New Orleans' site are reported to
                                 be approximately $30,000 to $40,000, there can
                                 be no assurance that such liabilities would not
                                 have a material adverse effect on the Company.

                                 The Company has accrued approximately $1,335
                                 and $1,600 relating to environmental matters at
                                 December 31, 2000 and 1999, respectively. The
                                 Company's environmental liabilities are not
                                 discounted and do not take into consideration
                                 any possible recoveries of future insurance
                                 proceeds. Because of the uncertainties
                                 associated with environmental assessment and
                                 remediation activities, future expenses to
                                 remediate the currently identified sites could
                                 be higher than the accrued liability. While the
                                 amount of ultimate costs associated with known
                                 environmental matters cannot be determined at
                                 this time, management believes, that absent any
                                 unforeseen future developments, these
                                 environmental matters will not have a material
                                 adverse effect on the Company. Although, no
                                 assurance can be given that additional issues
                                 relating to presently known sites or to other
                                 sites will not require additional investigation
                                 or expenditures.

Special Note Regarding           Certain statements in "Management's Discussion
Forward-Looking Statements       and Analysis of Financial Condition and Results
                                 of Operations - Results of Operations - For the
                                 Three Years Ended December 31, 2000 - Operating
                                 Segments - Liquidity and Capital Resources, and
                                 - Quantitative and Qualitative Disclosures
                                 About Market Risk" constitute "forward-looking
                                 statements" within the meaning of the Private
                                 Securities Litigation Reform Act of 1995 (the
                                 "Reform Act"). Such forward-looking statements
                                 involve known and unknown risks, uncertainties
                                 and other factors which may cause the actual
                                 results, performance or achievements of the
                                 Company to be materially different from any
                                 future results, performance or achievements
                                 expressed or implied by such forward-looking
                                 statements. Among the factors that could cause
                                 results to differ materially from current
                                 expectations are: (i) changes in consumer
                                 demand and prices resulting in a negative
                                 impact on revenues and margins; (ii) raw
                                 material substitutions and increases in the
                                 costs of raw materials, utilities, labor and
                                 other supplies; (iii) increased competition in
                                 the Company's product lines; (iv) changes in
                                 capital availability or costs; (v) workforce
                                 factors such as strikes or labor interruptions;
                                 (vi) the ability of the Company and its
                                 subsidiaries to develop new products, identify
                                 and execute capital programs and efficiently
                                 integrate acquired businesses; (vii) the cost
                                 of compliance with applicable governmental
                                 regulations and changes in such regulations,
                                 including environmental regulations; (viii) the
                                 general political, economic and competitive
                                 conditions in markets and countries where the
                                 Company and its subsidiaries operate, including
                                 currency fluctuations and other risks
                                 associated with operating in foreign countries;
                                 and (ix) the timing and occurrence (or
                                 non-occurrence) of transactions and events
                                 which may be subject to circumstances beyond
                                 the control of the Company and its
                                 subsidiaries.

(36-37 ) Ivex Packaging Corporation

<PAGE>   33
Consolidated Balance Sheets
<TABLE>
<CAPTION>

                                  December 31 (dollars in thousands, except per share data)           2000             1999
                                  ----------------------------------------------------------------------------------------
                                  <S>                                                          <C>              <C>
                                  ASSETS
                                  Current Assets
                                    Cash and cash equivalents                                  $    5,212       $    5,824
                                    Accounts receivable trade, net of allowance                    96,545           98,280
                                    Inventories                                                    89,848           97,519
                                    Prepaid expenses                                                5,762            5,036
                                                                                         ---------------------------------
                                    Total current assets                                          197,367          206,659
                                                                                         ---------------------------------
                                  Property, Plant and Equipment
                                    Buildings and improvements                                     67,029           65,994
                                    Machinery and equipment                                       347,742          368,050
                                    Construction in progress                                       23,076           19,119
                                                                                         ---------------------------------
                                                                                                  437,847          453,163
                                    Less-Accumulated depreciation                                (203,379)        (199,457)
                                                                                         ---------------------------------
                                                                                                  234,468          253,706
                                    Land                                                           12,301           12,608
                                                                                         ---------------------------------
                                    Total property, plant and equipment                           246,769          266,314
                                                                                         ---------------------------------
                                  Other Assets
                                    Goodwill, net of accumulated amortization                      94,063          104,411
                                    Deferred income taxes                                              --            5,934
                                    Management receivable                                           9,664            9,817
                                    Miscellaneous                                                  44,900           47,452
                                                                                         ---------------------------------
                                    Total other assets                                            148,627          167,614
                                                                                         ---------------------------------
                                  Total Assets                                                 $  592,763       $  640,587
                                                                                         =================================

</TABLE>

<PAGE>   34
<TABLE>
<CAPTION>

December 31 (dollars in thousands, except per share data)                          2000         1999
-------------------------------------------------------------------------------------------------------
<S>                                                                             <C>          <C>
Liabilities and Stockholders' Equity
Current Liabilities
  Current installments of long-term debt                                        $   25,078   $   27,806
  Accounts payable and accrued invoices                                             67,975       64,108
  Accrued salary and wages                                                           7,901        9,980
  Self insurance reserves                                                            7,221        8,853
  Accrued rebates and discounts                                                      5,752        7,595
  Accrued interest                                                                   4,344        3,164
  Other accrued expenses                                                            19,735       15,954
                                                                                ----------   ----------
   Total current liabilities                                                       138,006      137,460
                                                                                ----------   ----------
Long-term Debt                                                                     336,087      434,902
                                                                                ----------   ----------
Other Long-term Liabilities                                                         22,211       21,566
                                                                                ----------   ----------
Deferred Income Taxes                                                               16,862        1,351
                                                                                ----------   ----------
Commitments and Contingencies (Note 10)                                                 --           --
                                                                                ----------   ----------
Stockholders' Equity
  Common stock, $.01 par value--45,000,000 shares authorized;
    20,947,269 shares issued; and 20,321,994 and 20,793,469 shares outstanding         209          209
  Paid in capital in excess of par value                                           339,382      339,354
  Accumulated deficit                                                             (246,076)    (286,400)
  Treasury stock, at cost--625,275 and 153,800 shares                               (5,094)      (1,216)
  Accumulated other comprehensive loss                                              (8,824)      (6,639)
                                                                                ----------   ----------
   Total stockholders' equity                                                       79,597       45,308
                                                                                ----------   ----------
Total Liabilities and Stockholders' Equity                                      $  592,763   $  640,587
                                                                                ==========   ==========
The accompanying notes are an integral part of this statement.

</TABLE>
<PAGE>   35
Consolidated Statements
of Operations

<TABLE>
<CAPTION>

Year Ended December 31 (dollars in thousands, except per share data)       2000         1999        1998
-----------------------------------------------------------------------------------------------------------
<S>                                                                     <C>          <C>          <C>
Net sales                                                               $ 710,951    $ 675,972    $ 634,712
Cost of goods sold                                                         569,139      522,915      489,396
                                                                      -----------  -----------  -----------
Gross profit                                                              141,812      153,057      145,316
                                                                      -----------  -----------  -----------
Operating expenses
  Selling                                                                  34,846       38,169       32,517
  Administrative                                                           38,119       41,589       34,110
  Amortization of intangibles                                                3,652        3,436        2,196
  Restructuring charge                                                      4,000        4,950           --
                                                                      -----------  -----------  -----------
Total operating expenses                                                   80,617       88,144       68,823
                                                                      -----------  -----------  -----------
Income from operations                                                     61,195       64,913       76,493
Other income (expense)
  Interest expense                                                        (32,369)     (30,757)     (29,561)
  Income (loss)from equity investments                                     (1,659)       3,012           --
  Gain on sale                                                             42,150           --           --
                                                                      -----------  -----------  -----------
Income before income taxes                                                 69,317       37,168       46,932
Income tax provision                                                        28,993       11,926       18,738
                                                                      -----------  -----------  -----------
Net income                                                              $  40,324    $  25,242    $  28,194
                                                                      ===========  ===========  ===========
Earnings Per Share
  Basic:
   Net income                                                           $    1.98    $    1.21    $    1.36
                                                                      -----------  -----------  -----------
   Weighted average shares outstanding                                 20,368,422   20,915,910   20,726,556
                                                                      ===========  ===========  ===========
  Diluted:
   Net income                                                           $    1.98    $    1.20    $    1.35
                                                                      -----------  -----------  -----------
   Weighted average shares outstanding                                 20,369,541   20,978,942   20,909,317
                                                                      ===========  ===========  ===========
</TABLE>

The accompanying notes are an integral part of this statement.

<PAGE>   36
Consolidated Statements of
Changes in Stockholders' Equity

<TABLE>
<CAPTION>

                                        Common Stock  Paid in Capital                         Accumulated Other
----------------------------------------------------     In Excess of  Accumulated  Treasury      Comprehensive
(dollars in thousands,                Shares  Amount        Par Value      Deficit     Stock      Income (Loss)
except per share data)
-----------------------------------------------------------------------------------------------------------------
<S>                               <C>          <C>         <C>          <C>          <C>             <C>
Balance at December 31, 1997      20,426,666   $ 204       $ 328,322    $ (339,836)  $    --          $   (859)
  Issuance of common stock           500,000       5          10,702            --        --                --
  Exercise of common stock options     4,602      --              74            --        --                --
  Net income                              --      --              --        28,194        --                --
  Other comprehensive loss                --      --              --            --        --            (4,615)
  Comprehensive income                    --      --              --            --        --                --
                                  ----------------------------------------------------------------------------
Balance at December 31, 1998      20,931,268     209         339,098      (311,642)       --            (5,474)
  Exercise of common stock options    16,001      --             256            --        --                --
  Purchase of treasury stock        (153,800)     --              --            --    (1,216)               --
  Net income                              --      --              --        25,242        --                --
  Other comprehensive loss                --      --              --            --        --            (1,165)
  Comprehensive income                    --      --              --            --        --                --
                                  ----------------------------------------------------------------------------
Balance at December 31,1999       20,793,469     209         339,354      (286,400)   (1,216)           (6,639)
  Employee Stock Purchase Plan        76,325      --              28            --       618                --
  Purchase of treasury stock        (547,800)     --              --            --    (4,496)               --
  Net income                              --      --              --        40,324        --                --
  Other comprehensive loss                --      --              --            --        --            (2,185)
  Comprehensive income                    --      --              --            --        --                --
                                  ----------------------------------------------------------------------------
Balance at December 31, 2000      20,321,994   $ 209       $ 339,382    $ (246,076) $ (5,094)         $ (8,824)
                                  ============================================================================
</TABLE>

The accompanying notes are an integral part of this statement.

<TABLE>
<CAPTION>


                                   Stockholders'  Comprehensive
(dollars in thousands,                   Equity   Income (Loss)
except per share data)
---------------------------------------------------------------
<S>                                  <C>               <C>
Balance at December 31, 1997          $ (12,169)
  Issuance of common stock               10,707
  Exercise of common stock options           74
  Net income                             28,194        $ 28,194
  Other comprehensive loss               (4,615)         (4,615)
                                                       --------
  Comprehensive income                       --        $ 23,579
                                                       ========
Balance at December 31,1998               22,191
  Exercise of common stock options          256
  Purchase of treasury stock             (1,216)
  Net income                             25,242        $ 25,242
  Other comprehensive loss               (1,165)         (1,165)
                                                       --------
  Comprehensive income                       --        $ 24,077
                                                       ========
Balance at December 31, 1999             45,308
  Employee Stock Purchase Plan              646
  Purchase of treasury stock             (4,496)
  Net income                             40,324        $ 40,324
  Other comprehensive loss               (2,185)         (2,185)
                                                       --------
  Comprehensive income                       --        $ 38,139
Balance at December 31, 2000                           ========
-----------------------------------------------
                                      $  79,597
                                      =========
</TABLE>

<PAGE>   37
Consolidated Statements
of Cash Flows

<TABLE>
<CAPTION>

Year Ended December 31 (dollars in thousands, except per share data)                    2000        1999        1998
--------------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>         <C>         <C>
Cash Flows from Operating Activities
  Net income                                                                       $  40,324   $  25,242   $  28,194
  Adjustments to reconcile net income to net cash from operating activities:
   Depreciation of properties                                                         36,914      35,545      31,828
   Amortization of intangibles and debt issue costs                                    4,649       4,335       2,978
   Non-cash restructuring charge                                                       3,489       4,586          --
   Non-cash (income)loss from equity investments                                       1,659      (3,012)         --
   Non-cash interest income                                                           (1,816)     (1,609)     (1,072)
   Gain on sale                                                                      (42,150)         --          --
   Deferred income taxes                                                              21,445       7,653      12,749
   Changes in operating assets and liabilities
       (excluding acquisition and divestitures of businesses):
     Accounts receivable                                                             (12,790)    (16,865)    (10,372)
     Inventories                                                                     (12,143)    (15,329)    (11,244)
     Prepaid expenses                                                                 (1,730)       (220)       (232)
     Accounts payable and accrued invoices                                             7,765      20,049      (5,557)
     Accrued expenses and other liabilities                                           (9,786)     (6,365)     (3,246)
                                                                                  ----------------------------------
       Net cash from operating activities                                             35,830      54,010      44,026
                                                                                  ----------------------------------

</TABLE>
<PAGE>   38
<TABLE>
<CAPTION>
Year Ended December 31(dollars in thousands, except per share data)        2000        1999         1998
----------------------------------------------------------------------------------------------------------
<S>                                                                   <C>           <C>            <C>
Cash Flows from Financing Activities
  Proceeds from issuance of stock                                             --           --        10,707
  Payment of debt                                                         (95,123)     (25,237)     (36,117)
  Proceeds from (payment of) revolving credit facility                     (6,100)      52,900      111,800
  Purchase of treasury stock                                               (4,496)      (1,216)        --
  Payment of debt issue costs and other                                       132        1,593       (3,528)
                                                                        -----------------------------------
   Net cash from (used by) financing activities                          (105,587)      28,040       82,862
                                                                        -----------------------------------
Cash Flows from Investing Activities
  Purchase of property, plant and equipment                               (40,916)     (48,323)     (40,137)
  (Acquisitions) divestitures, net of cash acquired                       110,620      (28,061)     (85,005)
  Other, net                                                                 (559)      (7,205)        (372)
                                                                        -----------------------------------
   Net cash from (used by) investing activities                            69,145      (83,589)    (125,514)
                                                                        -----------------------------------
Net increase (decrease) in cash and cash equivalents                         (612)      (1,539)       1,374
Cash and cash equivalents at beginning of year                              5,824        7,363        5,989
                                                                        -----------------------------------
Cash and cash equivalents at end of year                                $   5,212    $   5,824    $   7,363
                                                                        -----------------------------------
Supplemental cash flow disclosures
  Cash paid during the year for:
   Interest                                                             $  32,008    $  31,582    $  30,757
   Income taxes                                                             6,815        6,232        3,412

</TABLE>


The accompanying notes are an integral part of this statement.

<PAGE>   39
Notes to Consolidated
Financial Statements

(dollars in thousands,
except per share data)

Note 1 -- Organization                  IvexPackaging Corporation (the
                                        "Company") owns 100% of the common stock
                                        of IPC, Inc. ("IPC"). The Company is a
                                        holding company with no operations of
                                        its own and IPC has no contractual
                                        obligations to distribute funds to the
                                        Company.

                                        On May 27, 1998, the Company completed a
                                        secondary offering (the "Secondary") of
                                        4,000,000 shares of common stock of the
                                        Company. In the Secondary, the Company
                                        sold to the underwriters 500,000
                                        previously unissued shares of common
                                        stock at an offering price of $24.00 per
                                        share yielding net proceeds of $10,707.
                                        Other selling stockholders, including
                                        members of the Company's management,
                                        sold 3,500,000 previously issued and
                                        outstanding shares of common stock owned
                                        by them. The Company did not receive any
                                        of the proceeds from the sale of shares
                                        of common stock by such selling
                                        stockholders. The proceeds of the
                                        Secondary were used to reduce borrowings
                                        under the Company's revolving credit
                                        facility.

Note 2 -- SUMMARY OF SIGNIFICANT        The preparation of financial statements
ACCOUNTING POLICIES                     in conformity with generally accepted
                                        accounting principles ("GAAP") requires
                                        management to make estimates and
                                        assumptions that affect the reported
                                        amounts of assets and liabilities and
                                        disclosure of contingent assets and
                                        liabilities at the date of the financial
                                        statements and the reported amounts
                                        of revenues and expenses during the
                                        reporting period. Actual results could
                                        differ from those estimates.

                                        PRINCIPLES OF CONSOLIDATION All the
                                        accounts of the wholly-owned
                                        subsidiaries of the Company have been
                                        consolidated. All significant
                                        inter-company transactions and accounts
                                        have been eliminated.

                                        REVENUE RECOGNITION The Company
                                        recognizes revenue upon shipment of
                                        products. Shipping and handling costs
                                        are included as a component of cost of
                                        goods sold.

                                        CASH AND CASH EQUIVALENTS The Company
                                        considers all short-term deposits with
                                        initial maturities of three months or
                                        less to be cash equivalents.

                                        ACCOUNTS RECEIVABLE

<TABLE>
<CAPTION>
                                        December 31                                 2000           1999
                                        ---------------------------------------------------------------
                                        <S>                                     <C>            <C>
                                        Accounts receivable                     $ 99,029       $103,273
                                        Less-Allowance for doubtful accounts      (2,484)        (4,993)
                                                                             --------------------------
                                                                                $ 96,545      $  98,280
                                                                             ==========================
</TABLE>

                                        Accounts receivable from sales to
                                        customers are unsecured.

<PAGE>   40
INVENTORIES Inventories are stated at the lower of cost or market using the
first-in, first-out (FIFO) method to determine the cost of raw materials and
finished goods. Such cost includes raw materials, direct labor and manufacturing
overhead.

December 31                                                2000             1999
--------------------------------------------------------------------------------
Raw materials                                           $41,167          $46,018
Finished goods                                           48,681           51,501
                                                        ------------------------
                                                        $89,848          $97,519
                                                        ========================

PROPERTY, PLANT AND EQUIPMENT Depreciation of property, plant and equipment is
computed using the straight-line method over the estimated useful lives of the
assets (generally thirty years for buildings and three to fifteen years for
equipment). Expenditures for maintenance and repairs are charged to operations
as incurred; major improvements are capitalized.

INCOME TAXES The Company recognizes deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. In estimating future tax
consequences, the Company generally considers all expected future events other
than enactments of changes in the tax law or rates.

EMPLOYEE BENEFIT PLANS IPC and its subsidiaries have defined contribution and
defined benefit plans covering substantially all employees. IPC's contributions
to the defined contribution plans are determined by matching employee
contributions and by discretionary contributions. Defined benefit plan
contributions are determined by independent actuaries and are generally funded
in the minimum annual amount required by the Employee Retirement Income Security
Act of 1974.

IPC provides limited post retirement benefits to a select group of employees.
The current period cost and reserves related to these benefits are not material.

GOODWILL AND OTHER LONG-LIVED ASSETS Goodwill represents the excess purchase
price over fair value of net assets acquired and is being amortized using the
straight-line method over forty-year periods. Accumulated amortization was
$26,434 and $23,889 as of December 31, 2000 and 1999, respectively.

Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of assets may not be recoverable. If the expected future cash
flows (undiscounted and without interest charges) is less than the carrying
amount of the asset, an impairment loss is recognized. No such impairment has
occurred in the periods presented.

EARNINGS PER SHARE Basic earnings per share excludes dilution and is computed by
dividing net income by the weighted average number of common shares outstanding
during each period. Diluted earnings per share reflects the potential dilution
that could occur if common stock options are exercised and is computed by
dividing net income by the weighted average number of common shares outstanding,
including common stock equivalent shares, issuable upon exercise of outstanding
stock options, to the extent that they would have a dilutive effect on the per
share

<PAGE>   41
amounts. Dilution of the Company's weighted average shares outstanding results
from common stock issuable upon exercise of outstanding stock options (1,119 and
63,032 for the years ended December 31, 2000 and 1999, respectively).

OTHER COMPREHENSIVE INCOME Comprehensive income is defined as the sum of net
income and all other non-owner changes in equity. The components of accumulated
other comprehensive loss were as follows:

Year Ended December 31                         2000        1999        1998
----------------------------------------------------------------------------
Foreign currency translation adjustments     $(3,418)    $    84     $(4,615)
Minimum pension liability adjustment           1,233      (1,249)       --
                                             -------------------------------
                                             $(2,185)    $(1,165)    $(4,615)
                                             ===============================

FOREIGN CURRENCY TRANSLATION The financial statements of the Company's foreign
subsidiaries are maintained in local currency which is the functional currency.
The balance sheets of these subsidiaries are translated at exchange rates in
effect at the balance sheet date and the related statements of operations are
translated at weighted average rates of exchange for the year. Translation
adjustments resulting from this process are reflected as comprehensive income
(loss). Gains and losses resulting from foreign exchange transactions are
recorded in the results from operations. Such amounts were not significant in
the periods presented.

OPERATING SEGMENTS The Company engages in the business of manufacturing plastic
and paper packaging products for different end-use packaging applications
principally with customers in North America and Europe. The Company is divided
into two operating segments, Consumer Packaging and Protective Packaging, based
on management decisions as to resource allocation. Consumer Packaging
applications include the integrated production and conversion of oriented
polystyrene sheet, other plastic sheet and paper into thermoformed and converted
packaging products and the sale of plastic sheet to other packaging
thermoformers. Protective Packaging applications include the manufacture and
sale of converted, coated and laminated paper and plastic materials as well as
the manufacture and sale of recycled kraft paper. Operating performance and
decisions are based on Adjusted EBITDA of each segment which includes income
from operations adjusted to exclude depreciation and amortization expenses and
nonrecurring charges.

FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of financial
instruments, other than the Company's interest rate derivative instruments (see
Note 5-Long-term Debt), approximates their estimated fair value based on market
prices for the same or similar type of financial instruments.

EQUITY INVESTMENTS The Company has investments in a number of affiliates which
are accounted for on the equity method. Affiliated companies in which Ivex does
not have a controlling interest, or for which control is expected to be
temporary, are accounted for using the equity method. The Company's share of
earnings of these affiliates is included in income as earned.

RECLASSIFICATIONS The Company has reclassified shipping costs for all periods
presented from net sales to cost of goods sold in accordance with the Emerging
Issues Task Force ("EITF") consensus opinion, EITF No. 00-10. Among other
things, this opinion requires changes to the Company's

<PAGE>   42
prior practice of deducting shipping costs from gross sales in arriving at net
sales. Certain other amounts in the consolidated financial statements for 1999
and 1998 have been reclassified to conform to the 2000 presentation.


NOTE 3 -- ACQUISITIONS AND DIVESTITURES

SALE OF SPECIALTY COATING BUSINESS On May 26, 2000, the Company sold its
Specialty Coating business to Chargeurs, SA ("Chargeurs") of Paris, France for
approximately $113,000 in cash, resulting in a pre-taxgain of $42,150. The
Specialty Coating business was part of the Company's former Technical Packaging
operating segment and included the Newton, Massachusetts, Troy, Ohio and
Bellwood, Illinois operations. The Specialty Coating business generated revenues
of approximately $90,000 in 1999 and $45,000 through the date of sale in 2000.
The Company is subject to certain indemnities and obligations under the terms of
the sales contract.

ACQUISITIONS On April 20, 1999, Ivex acquired the electronics packaging business
of Pactuco, Inc. ("Pactuco"), headquartered in Lompoc, California for a $21,000
initial payment and payments of $1,000 per year for the next five years
(including non-compete agreements). Based on the operating results of the
business, the purchase price could be increased by as much as $3,000 per year
over the next three years. With manufacturing operations in California and
Malaysia, this business provides protective packaging solutions for the computer
and electronics industries and has annual sales of $35,000. On July 30,1999,
Ivex acquired all of the outstanding stock of F.T.S. Holdings B.V.
("Folietechniek") headquartered in Raamsdonksveer, Netherlands for $4,792 and
assumed debt of approximately $1,900. Folietechniekis a manufacturer of extruded
plastic products and has annual sales of approximately $13,000.

On April 23, 1998, Ivex acquired all of the common stock of Ultra Pac, Inc.
("Ultra Pac"), a Rogers, Minnesota based specialty packaging company, for
$67,625. In addition, Ivex assumed approximately $33,000 of Ultra Pac
liabilities (including $18,000 of indebtedness) and paid fees associated with
the transaction of approximately $2,500. Ultra Pac is a leading North American
producer of PET food packaging that designs and manufactures plastic containers
and packaging for the food industry. On October 2, 1998, Ivex acquired the paper
packaging business of Bleyer Industries, Inc., headquartered in Valley Stream,
New York for $17,380. The acquired business manufactures fluted cups and pads
for the baking and candy industries.

The acquired businesses were financed through revolving credit borrowings under
the Senior Credit Facility. All of these acquisitions were accounted for as a
purchase; accordingly, the purchase price was allocated to the specific assets
acquired and liabilities assumed based upon their fair value at date of
acquisition. During 2000, 1999 and 1998, the Company paid additional purchase
price of approximately $1,598, $5,405 and $1,500, respectively, under the terms
of earnout agreements associated acquisitions completed since 1997.

The Company's consolidated financial statements include the results of
operations and cash flows of these acquisitions from the purchase date.
Adjusting for the full year effect of the acquisitions, unaudited pro forma net
sales would have been approximately $14,000 and $80,000 higher than the
Company's reported net sales in 1999 and 1998, respectively. Unaudited pro forma
net income would have been $650 less in 1999 and $400 higher in 1998 than the
Company's reported results. The unaudited pro forma results of operations were
prepared as if these acquisitions had occurred as of the beginning of 1999 and
1998, after giving effect for certain adjustments. These unaudited pro forma
results were prepared for comparative purposes only and do not purport to be
indicative of what would have occurred had the acquisitions been made as of the
beginning of the year, or of results which may occur in the future.

<PAGE>   43
Note 4 -- Miscellaneous Other Assets

December 31                                   2000      1999
--------------------------------------------------------------
Investments in Packaging Holdings, L.L.C.    $24,942   $24,992
Non-compete agreements, net                   6,375     7,553
Deferred financing costs, net                 3,088     4,460
Other                                        10,495    10,447
                                            -----------------
                                            $44,900   $47,452
                                            =================


INVESTMENTS IN PACKAGING HOLDINGS, L.L.C. On November 19, 1998, Packaging
Holdings L.L.C., a newly organized Delaware limited liability company
("Packaging") acquired (i) the business of Bagcraft Corporation of America
("Bagcraft") for a cash purchase price of $89,000 (including a two-year
non-compete agreement for $5,000) and (ii) the business of the Company's Detroit
paper mill facility ("Detroit") for 12% Subordinated Notes with an original face
value of $12,500 (the "Packaging Notes") and an equity interest equal to 49.5%
of the common stock of Packaging. The remaining equity investors in Packaging
include, among others, certain members of the Company and Bagcraft management.
Additionally, the Company received a $1,000 fee resulting from work performed in
the formation and acquisitions of Packaging.

During 1999, Ivex contributed additional capital of $1,800 to Packaging in
connection with the acquisition of International Converters, Inc. ("ICI"), a
flexible packaging converter supplying product to consumer and industrial
markets. In connection with the additional capital contributions necessary to
finance the acquisition of ICI, the Company's ownership in Packaging decreased
to 48.19%. The Company has accounted for its investment in Packaging through the
equity method of accounting. The Company's equity investment asset of $10,717
differs from the underlying equity in net assets of Packaging by $7,911 due to
the deferred gain on the sale of Detroit.

Packaging is an integrated manufacturer of flexible packaging supplying products
to the food service, bakery, microwave popcorn, supermarket and industrial
market segments. Additionally, Packaging manufactures specialty lightweight
papers with waxing and foil lamination capabilities for the flexible packaging
industry and food packaging converters, masking tape base stock and natural
kraft paper.

<PAGE>   44
Condensed financial information for Packaging is as follows:

<TABLE>
<CAPTION>
December 31                                                         2000                  1999
----------------------------------------------------------------------------------------------
<S>                                                            <C>                   <C>
Balance Sheet
Current assets                                                 $  61,026             $  59,550
Property, plant and equipment                                     71,108                76,131
Other assets                                                      38,321                41,627
                                         -----------------------------------------------------
Total assets                                                   $ 170,455             $ 177,308
                                         -----------------------------------------------------
Current liabilities                                            $  35,000             $  25,854
Long-term liabilities                                            102,975               113,774
Members' capital                                                  32,480                37,680
                                         -----------------------------------------------------
Total liabilities and members' capital                         $ 170,455             $ 177,308
                                         =====================================================

<CAPTION>
                                                                           For the period from
                                  For the year ended  For the year ended   November 19,1998 to
                                   December 31, 2000    December 31,1999     December 31, 1998
----------------------------------------------------------------------------------------------
Income Statement
Net sales                                  $ 229,895           $ 206,516             $  18,665
Cost of goods sold                           193,233             166,839                16,446
Operating expense                             30,702              25,971                 1,945
Interest and income taxes                     11,160              10,026                   828
                                         -----------------------------------------------------
Net income (loss)                          $  (5,200)          $   3,680             $    (554)
                                         =====================================================
</TABLE>

At December 31, 2000 and 1999, the balance of the Packaging Notes was $16,091
and $14,275. Interest on the Packaging Notes is currently paid-in-kind at a rate
of 12% on a semi-annual basis. The Packaging Notes are unsecured and mature on
November 21, 2005.

Non-Compete Agreements Non-compete agreements are amortized over the related
life of the agreement (generally five to ten years). At December 31, 2000 and
1999, accumulated amortization on the non-compete agreements was $2,899 and
$1,740, respectively.

Deferred Financing Costs Deferred financing costs are being amortized over the
term of the related debt. At December 31, 2000 and 1999, accumulated
amortization was $3,522 and $2,151, respectively.

<PAGE>   45
<TABLE>
<CAPTION>
Note 5 -- Long-Term Debt      December 31                                       2000            1999
                              ----------------------------------------------------------------------
                              <S>                                          <C>             <C>
                              Senior credit facility                       $ 324,493       $ 421,075
                              Industrial revenue bonds                        35,093          39,590
                              Other                                            1,579           2,043
                                                                          --------------------------
                                Total debt outstanding                       361,165         462,708
                              Less-Current installments of long-term debt    (25,078)        (27,806)
                                                                          --------------------------
                                Long-term debt                             $ 336,087       $ 434,902
                                                                          ==========================
</TABLE>

                              SENIOR CREDIT FACILITY On October 26,1999, the
                              Senior Credit Facility was amended to revise
                              certain covenants. The Company paid fees of $600
                              and increased the interest rate on all borrowings
                              under the Senior Credit Facility by a range of
                              0.25% to 0.375% as a result of the amendment. The
                              Senior Credit Facility is comprised of a $150,000
                              Term A Loan, a $150,000 Term B Loan and a $265,000
                              revolving credit facility (up to $65,000 of which
                              may be in the form of letters of credit). At
                              December 31, 2000, borrowings of $159,600 were
                              outstanding and $65,407 was available under the
                              revolving credit portion of the Senior Credit
                              Facility. The Term A Loan is required to be repaid
                              in quarterly payments totaling $22,755 in 2001,
                              $21,881 in 2002 and $18,380 in 2003 and the Term B
                              Loan is required to be repaid in quarterly
                              payments of $263 per quarter through September 30,
                              2003 and installments of $24,681 on December 31,
                              2003, March 31, 2004, June 30, 2004 and September
                              30, 2004. The interest rate of the Senior Credit
                              Facility can be, at the election of the Company,
                              based upon LIBOR or the Adjusted Base Rate, as
                              defined, and is subject to certain performance
                              pricing adjustments. The Term A Loan and loans
                              under the revolving credit facility bear interest
                              at rates up to LIBOR plus 1.625% or the Adjusted
                              Base Rate plus 0.625%. At December 31, 2000, such
                              rates are 1.375% plus LIBOR. The Term B Loan bears
                              interest at rates up to LIBOR plus 2.0% or the
                              Adjusted Base Rate plus 1.0%. As of December 31,
                              2000, such rates are 1.75% plus LIBOR.
                              Substantially all the assets of the Company and
                              its subsidiaries are pledged as collateral for the
                              Senior Credit Facility. The revolving credit
                              facility and Term A Loan will terminate on
                              September 30, 2003 and the Term B Loan will
                              terminate on September 30, 2004. Under the Senior
                              Credit Facility, the Company is required to
                              maintain certain financial ratios and levels of
                              net worth, and future indebtedness and dividends
                              are restricted, among other things. Limitations on
                              dividends, advances and loans between IPC and the
                              Company, as defined in the Senior Credit Facility,
                              restrict substantially all of IPC's net assets.

                              The Company uses interest rate swaps and collars
                              to modify its exposure to interest rate movements
                              and to reduce borrowing costs. The Company's net
                              exposure interest rate risk consists of floating
                              rate debt instruments that are benchmarked to
                              LIBOR. During the third quarter of 2000, the
                              Company sold certain interest rate swaps with an
                              aggregate notional amount of $60,000. The interest
                              rate swaps were accounted for as hedges and
                              effectively fixed the Company's LIBOR base rate at
                              5.33%on $60,000 of indebtedness through January
                              22, 2002. The sale resulted in a gain of $985
                              which is being amortized over the instrument
                              period. As of December 31, 2000, the Company had
                              $260,000 notional value of interest rate
                              derivatives outstanding (described below).

                              The Company has entered into interest rate swap
                              agreements with a group of banks having notional
                              amounts totaling $100,000 through November 5,
                              2002. These agreements effectively fix the
                              Company's LIBOR base rate for $100,000 of the
                              Company's indebtedness at a rate of 6.12% during
                              this period. The Company has entered into no cost
                              interest rate collar agreements with a group of
                              banks having notional amounts totaling

<PAGE>   46
$100,000 through November 5, 2002. These collar agreements effectively fix the
LIBOR base rate for $100,000 of the Company's indebtedness at a maximum of 7.00%
and allow for the Company to pay the market LIBOR from a floor of 5.55% to the
maximum rate. If LIBOR falls below 5.55%, the Company is required to pay the
floor rate of 5.55%. The Company has also entered into no cost interest rate
collar agreements with a group of banks having notional amounts totaling $60,000
of the Company's indebtedness through November 5, 2001 at a maximum of 5.31% and
allow for the Company to pay the market LIBOR from a floor of 4.47% to the
maximum rate. If LIBOR falls below 4.47%, the Company is required to pay the
floor rate of 4.47%. Income or expense related to settlements under these
agreements is recorded as adjustments to interest expense in the Company's
financial statements. The fair market value of the Company's derivative
instruments outlined above approximates a loss of $574 as of December 31, 2000
and is based upon the amount at which it could be settled with a third party,
although the Company has no current intention to trade any of these instruments
and plans to hold them as hedges for the Senior Credit Facility.

In June1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No.133, "Accounting for Derivatives and
Similar Financial Instruments and Hedging Activities. "It requires all
derivative instruments to be recorded in the statement of financial position at
fair value. The change in fair value of a derivative is required to be recorded
each period in current earnings or other comprehensive income, depending on
whether the derivative is designated as part of a hedge transaction and if so,
the type of hedge transaction. The statement, as amended by SFAS No.137 and
No. 138, will be effective January 1, 2001 for the Company. The initial adoption
of this statement will not have a material effect on the Company's net earnings
or statement of financial position.

INDUSTRIAL REVENUE BONDS Industrial Revenue Bonds requiring monthly interest
payments with average effective rates during 2000 and 1999 of 6.4% and 5.6%,
respectively, are due in varying amounts and dates through 2009 and are secured
by certain assets of IPC. Letters of credit under the Senior Credit Facility
provide credit enhancement for the Industrial Revenue Bonds.

Long-term debt principal maturities are as follows:

--------------------------------------------------------------------------------

               2001                                          $ 25,078
               2002                                            23,192
               2003                                           203,727
               2004                                            74,310
               2005                                             4,241
               Thereafter                                      30,617
                                                              -------
                                                             $361,165
                                                              =======

<PAGE>   47
Note 6--Income Taxes

The components of the income tax provision shown in the consolidated statements
of operations are as follows:

Year Ended December 31                      2000            1999            1998
--------------------------------------------------------------------------------
Current provision (benefit):
 Federal                                $    804        $   (660)        $   979
 State                                     3,361             865           1,163
 Foreign                                   3,383           3,615           3,847
Deferred provision                        21,445           8,106          12,749
                                        --------        --------        --------
                                        $ 28,993        $ 11,926        $ 18,738
                                        ========        ========        ========

The provision recognized for income taxes differs from the amount determined by
applying the U.S. federal income tax rate of 35% due to the following:

Year Ended December 31                                 2000       1999      1998
--------------------------------------------------------------------------------
Income before income taxes                         $ 69,317   $ 37,168  $ 46,932
                                                   ========   ========  ========
Computed expected provision at the statutory rate  $ 24,261   $ 13,009  $ 16,426
Adjustments to the computed expected provision
 (benefit) resulting from:
Increase to (reduction of) valuation allowance           40     (1,400)       --
Amortization of goodwill                              2,965        598       536
State income taxes, net                               2,195        562       756
Other, net                                             (468)      (843)    1,020
                                                   --------   --------  --------
                                                   $ 28,993   $ 11,926  $ 18,738
                                                   ========   ========  ========
<PAGE>   48
                                    U.S. federal deferred tax liabilities
                                    (assets) are comprised of the following:

<TABLE>
<CAPTION>
                                    December 31                                             2000               1999
                                    -------------------------------------------------------------------------------
                                    <S>                                                <C>                <C>
                                    Depreciation                                       $  36,278          $  39,956
                                    Basis differences of acquired assets                   1,454              2,182
                                                                                   --------------------------------
                                      Total deferred tax liabilities                      37,732             42,138
                                                                                   ================================
                                    Self insurance reserves                               (1,256)            (1,595)
                                    Management compensation accrual                       (2,765)            (3,482)
                                    Other                                                 (8,348)            (2,646)
                                    Tax credit carryovers                                 (5,522)            (3,805)
                                    Net operating loss carryovers                         (9,669)           (38,738)
                                                                                   --------------------------------
                                      Total deferred tax assets                          (27,560)           (50,266)
                                      Valuation allowance on deferred tax assets           2,234              2,194
                                                                                   --------------------------------
                                    Net deferred tax assets                              (25,326)           (48,072)
                                                                                   ================================
                                    Deferred tax (asset) liability                     $  12,406          $  (5,934)
                                                                                   ================================
</TABLE>

                                    The Company's foreign and state deferred tax
                                    liabilities at December 31, 2000 and 1999 of
                                    $4,456 and $1,351, respectively, arose
                                    primarily due to differences between book
                                    and tax depreciation.

                                    At December 31, 2000, the Company has U.S.
                                    federal net operating loss carryovers,
                                    including the net operating loss carryovers
                                    of IPC, for income tax reporting purposes of
                                    approximately $27,626. These carryovers
                                    expire between 2005 and 2012. In the event
                                    of a change in ownership of the Company
                                    these net operating loss carryovers may be
                                    limited.

                                    During 1999, the Company determined that it
                                    was more likely than not that its net
                                    operating loss carryovers in the United
                                    Kingdom would be realized. As such, the
                                    Company reversed $1,400 of its valuation
                                    reserve. Additionally during 1999, the
                                    Company recorded a $1,172 nonrecurring tax
                                    benefit in its income tax provision
                                    resulting from the carry back of certain
                                    tax losses.

Note 7 -- Employee Benefit Plans    At December 31, 2000, the Company maintained
                                    defined benefit plans for certain employees
                                    at its Joliet, Illinois, Bridgeview,
                                    Illinois (frozen plan) and Chagrin Falls,
                                    Ohio facilities. At December 31, 1999 and
                                    1998, the Company maintained defined benefit
                                    plans for certain employees at its Newton,
                                    Massachusetts and Troy, Ohio facilities.
                                    Such facilities and the related defined
                                    benefit plan obligations were sold in
                                    connection with sale of the Specialty
                                    Coating business during the year ended
                                    December 31, 2000. Plan assets of the
                                    Company's defined benefit plans are invested
                                    in money market, equity and bond funds.

<PAGE>   49
The following table sets forth the funded status of these plans as of the date
of the latest available actuarial valuation.

<TABLE>
<CAPTION>

December 31                                                           2000        1999
--------------------------------------------------------------------------------------
<S>                                                               <C>         <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year                           $ 18,965    $ 17,875
Service cost                                                           207         348
Interest cost                                                          737       1,333
Actuarial gain                                                          40         743
Benefits paid                                                         (978)     (1,334)
Specialty Coating divestiture                                      (14,952)         --
                                                                ----------------------
Benefit obligation at end of year                                 $  4,019    $ 18,965
                                                                ======================
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year                    $ 18,741    $ 17,189
Actual return (loss) on plan assets                                    329       2,011
Company contributions                                                  283         875
Benefits paid                                                         (997)     (1,334)
Specialty Coating divestiture                                      (14,696)         --
                                                                ----------------------
Fair value of plan assets at end of year                          $  3,660    $ 18,741
                                                                ======================
RECONCILIATION OF PREPAID (ACCRUED) AND TOTAL AMOUNT RECOGNIZED
Funded status                                                     $   (359)   $   (224)
Unrecognized net actuarial loss                                        370       1,272
Unrecognized prior service costs                                        63       1,241
Unrecognized net transition (asset) obligation                         (18)        204
                                                                ----------------------
Net amount recognized                                             $     56    $  2,493
                                                                ======================
AMOUNT RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS
Prepaid benefit cost                                              $    861    $  3,047
Accrued benefit liability                                             (823)     (3,205)
Intangible asset                                                         2       1,402
Accumulated other comprehensive income                                  16       1,249
                                                                ----------------------
Net amount recognized                                             $     56    $  2,493
                                                                ======================
</TABLE>
<PAGE>   50
Net periodic pension expense related to the defined benefit plans for the years
ended December 31, 2000, 1999 and 1998 is comprised of the following components:

Year Ended December 31                              2000        1999       1998
-------------------------------------------------------------------------------
Weighted Average Assumptions
  Discount rate                                      7.5%        7.5%       7.5%
  Expected long-term rate of return on assets        9.0%        9.0%       9.0%
  Expected rate of compensation increase            0%-5%       0%-5%      0%-5%
Components of Net Periodic Pension Expense
  Service cost                                    $  207     $   348    $   320
  Interest cost                                      737       1,333      1,282
  Expected return on plan assets                    (885)     (1,533)    (1,422)
  Amortization of transition obligation              139         313        234
                                                 ------------------------------
Net periodic pension expense                      $  198     $   461    $   414
                                                 ==============================


The charge to operations under the Company's defined contribution plans was
approximately $3,576, $3,580 and $3,077 for the years ended December 31, 2000,
1999 and 1998, respectively.

Note 8--Stockholders' Equity

THE 1997 STOCK INCENTIVE PLAN  In connection with the Company's 1997 initial
public offering, the Company adopted the Ivex Packaging Corporation 1997
Long-Term Stock Incentive Plan (the "1997 Stock Incentive Plan") which
authorizes the grant of stock options at a fair market value, as defined, to
participants with respect to a maximum of 2,000,000 shares of the Company's
common stock.

The following nonqualified options were granted under the 1997 Stock Incentive
Plan:

<TABLE>
<CAPTION>
Year Ended December 31                                     2000            1999           1998
-----------------------------------------------------------------------------------------------
<S>                                                <C>               <C>             <C>
Options outstanding at the beginning of the year      1,290,168         881,501         467,500
Granted                                                 478,500         523,000         449,500
Exercised                                                    --         (16,001)             --
Cancelled                                              (120,167)        (98,332)        (35,499)
                                                   --------------------------------------------
Options outstanding at the end of the year            1,648,501       1,290,168         881,501
                                                   ============================================
</TABLE>

At December 31, 2000, the exercise prices of outstanding options range from
$7.56 to $23.25, with a weighted average of $14.84. At December 31, 2000,
731,616 of such options were exercisable. The outstanding options vest over a
period of three years from the date of grant and expire on dates in a range from
September 30, 2007 to December 31, 2009.



(54-55) Ivex Packaging Corporation
<PAGE>   51
The 1999 Stock Option Plan for Non-Employee Directors On May 11, 1999, the
Company adopted the Ivex Packaging Corporation 1999 Stock Option Plan for
Non-Employee Directors (the "1999 Director Stock Option Plan") which authorizes
the grant of stock options at a fair market value, as defined, to participants
with respect to a maximum of 100,000 shares of the Company's common stock.
During 2000 and 1999, respectively, 12,000 and 8,000 stock options were granted
with an exercise price of $9.00 and $19.88, respectively and all such options
were outstanding at December 31, 2000 and 1999. The options vest over a period
of three years from the date of grant and expire on May 12, 2009.

The IPC Option Plan IPC and the Company established a stock option plan (the
"IPC Option Plan") for certain key executives, effective January 1, 1993. On
September 30, 1997, options granted under this plan were exchanged for newly
issued shares of the Company's common stock and newly issued stock options (the
"IPC Options") exercisable for 817,067 shares of the Company's common stock at
an option price of $16.00 (fair market value at the date of grant). Such
options expire in 2007 and are fully vested and exercisable.

The following table summarizes the activity for the IPC Options:

Year Ended December 31                                2000       1999      1998
--------------------------------------------------------------------------------
Options outstanding at the beginning of the year   812,465    812,465   817,067
Granted                                                 --         --        --
Exercised                                               --         --    (4,602)
                                                  ------------------------------
Options outstanding at the end of the year         812,465    812,465   812,465
                                                  ==============================

In connection with the exchange of the options granted under the IPC Option
Plan for newly issued shares of the Company's common stock, the Company granted
loans (the "Management Receivable") to participants in the IPC Option Plan to
pay the income tax associated with the newly issued shares of the Company's
common stock. In addition, the Company recorded an accrual of the future
Company payments to senior management of an amount which (after taxes) will
enable such management to pay interest on the Management Receivable. As of
December 31, 2000 and 1999, the balance of this management compensation accrual
is $7,899 and $9,175, respectively. The Management Receivable bears interest at
the minimum applicable federal rate at the date of funding (averaging
approximately 6.5%) and are secured only by the newly issued shares of stock
exchanged for the IPC options and are non recourse to any other personal assets.

Employee Stock Purchase Plan On April 26, 2000, the stockholders approved the
1999 Employee Stock Purchase Plan (the "Purchase Plan"). The Purchase Plan
provides for eligible employees of the Company and certain designated
subsidiaries to purchase the Company's common stock at a discount from fair
market value through automatic payroll deductions. A total of 300,000 shares of
the Company's common stock have been reserved for issuance under the Purchase
Plan for each fiscal year occurring during the term of such plan. During 2000,
employees purchased 76,235 shares of the Company's common stock under the
Purchase Plan.

<PAGE>   52
SFAS 123 DISCLOSURES On a pro forma basis, had compensation cost for the
Company's stock option plan been determined based on the fair value at the grant
date, the Company's net income and diluted earnings per share would have been as
follows:

Year Ended December 31                                   2000      1999    1998
--------------------------------------------------------------------------------
Net income                                            $39,301   $24,406  $27,865
                                                     ===========================
Diluted earnings per share                            $  1.93   $  1.16  $  1.33
                                                     ===========================

The Company's pro forma net income was determined under the assumption that
options granted were fully earned with equal vesting over the three years from
date of grant. The fair value of the options granted was estimated on the date
earned using the Black-Scholes option-pricing model and utilized the following
weighted-average assumptions:

Year Ended December 31                                    2000     1999    1998
--------------------------------------------------------------------------------
Dividend yield                                            0.00%    0.00%   0.00%
Volatility                                               35.00%   35.00%  25.00%
Risk-free interest rate                                   5.80%    6.45%   5.50%
Expected lives                                          3 years  3 years 3 years
Fair value of options (weighted-average)                 $ 3.30   $ 3.99  $ 3.61

NOTE 9--RELATED PARTY TRANSACTIONS

Pursuant to a consulting agreement, Packaging pays IPC a fixed annual consulting
fee for certain services rendered to Packaging by IPC. During 2000 and 1999, the
Company recorded consulting fee income of $750 and $625 related to this
agreement. See Note 4-"Miscellaneous Other Assets."

NOTE 10--COMMITMENTS AND CONTINGENCIES

The Company and its subsidiaries are subject to various claims arising in the
ordinary course of business, and are parties to various legal proceedings, which
constitute ordinary routine litigation incidental to the business of the Company
and its subsidiaries. In the opinion of the Company's management, none of these
proceedings or claims is material to the business or financial condition of the
Company.

The Company is subject to extensive and changing federal, state, local and
foreign environmental laws and regulations pertaining to the discharge of
materials into the environment, the handling and disposition of wastes and the
protection of the environment. As is the case with manufacturers in general, if
a release of hazardous substances occurs on or from the Company's properties or
any associated offsite disposal location, or if contamination from prior
activities is discovered at any of the Company's properties, the Company may be
held liable. From time to time, the Company is involved in regulatory
proceedings and inquiries relating to compliance with environmental laws,
permits and other environmental matters. The Company is currently involved with
environmental remediation and ongoing maintenance at certain of its facilities.
The Company believes that the costs of such remediation have been adequately
reserved for and that such costs are unlikely to have a material adverse effect
on the Company. No assurance can be given, however, that additional
environmental issues relating to the presently known remediation matters or
identified sites or to other sites or matters will not require additional
investigation, assessment or expenditures.

<PAGE>   53
From time to time, the Company is involved in cases arising under the
Comprehensive Environmental Response Compensation and Liability Act ("CERCLA").
These cases generally involve sites, which allegedly have received wastes from
current or former Company locations. During 2000, the Company's subsidiary,
Crystal Thermoplastics, Inc., responded to an information request from the
United States Environmental Protection Agency ("EPA") regarding the J.M. Mills
Landfill in Rhode Island. Since filing such response, the Company has not
received any further notifications regarding such site. Also, the Company's
subsidiary, CFI Industries, Inc., was notified by EPA and the United States
Department of Justice that a predecessor-company was a
potentially-responsible-party ("PRP"), in cooperation with other parties, with
respect to the Agriculture Street Landfill in New Orleans, Louisiana by virtue
of having allegedly recycled and generated municipal and commercial waste during
the time period from approximately 1948 to 1952. The Company believes that it is
not reasonably possible that its potential liability, if any, with respect to
the known issues at these sites is likely to have a material adverse effect on
the Company; however, because liability under CERCLA is joint and several and
because the remediation costs at the New Orleans site are reported to be
approximately $30,000 to $40,000, there can be no assurance that such
liabilities would not have a material adverse effect on the Company.

The Company has accrued approximately $1,335 and $1,600 relating to
environmental matters at December 31, 2000 and 1999, respectively. The Company's
environmental liabilities are not discounted and do not take into consideration
any possible recoveries of future insurance proceeds. Because of the
uncertainties associated with environmental assessment and remediation
activities, future expenses to remediate the currently identified sites could be
higher than the accrued liability. While the amount of ultimate costs associated
with known environmental matters cannot be determined at this time, management
believes, that absent any unforeseen future developments, these environmental
matters will not have a material adverse effect on the Company. Although, no
assurance can be given that additional issues relating to presently known sites
or to other sites will not require additional investigation or expenditures.

IPC leases certain of its facilities and equipment under non-cancelable
operating leases, some of which contain renewal options, escalation clauses and
requirements that IPC pay taxes, insurance and maintenance costs.

<PAGE>   54
Approximate future minimum annual rental payments under non-cancelable operating
lease agreements are as follows:

--------------------------------------------------------------------------------
    2001                                                    $ 7,500
    2002                                                      5,839
    2003                                                      4,298
    2004                                                      3,178
    2005                                                      3,853
    Thereafter                                                5,007

Rent expense under operating leases included in the accompanying statements
of operations aggregated approximately $10,345, $7,565 and $8,073 during
2000, 1999 and 1998, respectively.

Note 11 -- Reporting Segments

In connection with the sale of the Company's Specialty Coating business,
Ivex realigned its operating segments based on management decisions as to
resource allocation. The Consumer Packaging group now includes the medical and
electronics product group, leaving the Company's Protective Packaging product
group as a separate operating segment. All historical information has been
restated to reflect the realignment.

Operating segment information based on Adjusted EBITDA is as follows:

Year Ended December 31                        2000       1999       1998
--------------------------------------------------------------------------------
Consumer Packaging
  Net Sales                                   $547,426   $488,037   $403,461
  Adjusted EBITDA                               87,193     86,033     77,425
  Total Assets                                 487,684    467,127    381,554
  Purchase of property, plant and equipment     34,388     33,440     26,250
Protective Packaging
  Net Sales                                    163,525    187,935    231,251
  Adjusted EBITDA                               25,512     30,970     37,948
  Total Assets                                  85,295    141,115    126,944
  Purchase of property, plant and equipment      4,867     11,078     12,382

<PAGE>   55
The reconciliation of the operating segment information to the Company's
consolidated financial statements is as follows:

Year Ended December 31                        2000         1999         1998
--------------------------------------------------------------------------------
NET SALES
  Consumer Packaging                        $ 547,426    $ 488,037    $ 403,461
  Protective Packaging                        163,525      187,935      231,251
                                            ------------------------------------
   Total                                    $ 710,951    $ 675,972    $ 634,712
                                            ------------------------------------
INCOME BEFORE INCOME TAXES
  Adjusted EBITDA:
   Consumer Packaging                       $  87,193    $  86,033    $  77,425
   Protective Packaging                        25,512       30,970       37,948
   Corporate                                   (6,944)      (8,159)      (7,622)
                                            ------------------------------------
     Total                                    105,761      108,844      107,751
  Depreciation expense                        (36,914)     (35,545)     (31,828)
  Amortization expense                         (3,652)      (3,436)      (2,196)
  Special benefit                                --           --          2,766
  Restructuring charge                         (4,000)      (4,950)        --
  Income (loss) from equity investments        (1,659)       3,012         --
  Gain on sale                                 42,150         --           --
  Interest expense                            (32,369)     (30,757)     (29,561)
                                            ------------------------------------
   Income before income taxes               $  69,317    $  37,168    $  46,932
                                            ====================================

PURCHASE OF PROPERTY, PLANT AND EQUIPMENT
   Consumer Packaging                       $  34,388    $  33,440    $  26,250
   Protective Packaging                         4,867       11,078       12,382
   Corporate                                    1,661        3,805        1,505
                                            ------------------------------------
     Total                                  $  40,916    $  48,323    $  40,137
                                            ====================================


December 31                                   2000         1999         1998
--------------------------------------------------------------------------------
TOTAL ASSETS
  Consumer Packaging                        $ 487,684    $ 467,127    $ 381,554
  Protective Packaging                         85,295      141,115      126,944
  Corporate                                    19,784       32,345       47,647
                                            ------------------------------------
   Total                                    $ 592,763    $ 640,587    $ 556,145
                                            ====================================
<PAGE>   56
                                    FOREIGN OPERATIONS The Company has
                                    operations in the United States, Canada,
                                    Europe and Southeast Asia. The following
                                    table allocates net sales and identifiable
                                    assets between U.S. operations and non-U.S.
                                    operations based on manufacturing locations.

<TABLE>
<CAPTION>
                                    Year Ended December 31                        2000            1999              1998
                                    ------------------------------------------------------------------------------------
                                    <S>                                      <C>             <C>               <C>
                                    NET SALES
                                      United States                          $ 549,997       $ 542,154         $ 534,654
                                      Canada                                    67,102          60,123            67,206
                                      Other foreign subsidiaries                93,852          73,695            32,852
                                                                         -----------------------------------------------
                                                                             $ 710,951       $ 675,972         $ 634,712
                                                                         ===============================================

                                    December 31                                   2000            1999              1998
                                    ------------------------------------------------------------------------------------
                                    IDENTIFIABLE ASSETS
                                      United States                          $ 463,352       $ 528,932         $ 479,129
                                      Canada                                    57,575          51,684            45,184
                                      Other foreign subsidiaries                71,836          59,971            31,832
                                                                         -----------------------------------------------
                                                                             $ 592,763       $ 640,587         $ 556,145
                                                                         ===============================================
</TABLE>

Note 12 -- Restructuring Charges    2000 RESTRUCTURING CHARGE During 2000, Ivex
                                    recorded a restructuring charge of $4,000
                                    (the "2000 Restructuring Charge") related to
                                    facility exit costs and a management
                                    restructuring of the European converting
                                    operations and the additional charges
                                    incurred for the consolidation of the
                                    Sparks, Nevada facility.

                                    The Company recorded expense of$2,600
                                    related to facility exit costs associated
                                    with closing certain European operations.
                                    The Company also recorded expense of $756
                                    related to severance and other employee
                                    costs resulting from the restructuring of
                                    its European operations, which the Company
                                    expects to complete by early 2001.
                                    Additionally, the Company recognized an
                                    asset impairment of $194 in connection with
                                    the consolidation of the Sparks, Nevada
                                    facility. The remaining balance of the 2000
                                    Restructuring Charge of $450 consisted of
                                    severance and other employee costs
                                    associated with completing the consolidation
                                    of the Sparks, Nevada facility. The closure
                                    of the Sparks, Nevada facility was part of a
                                    reorganization of the medical and
                                    electronics product group. During the third
                                    quarter of 2000, Ivex recorded expense of
                                    $267 related to severance costs associated
                                    with its Enniskillen, Northern Ireland
                                    facility and $365 related to severance costs
                                    associated with the management
                                    reorganization of the medical and
                                    electronics product group.

                                    1999 Restructuring Charge During 1999, Ivex
                                    recorded a restructuring charge of $4,950
                                    (the "1999 Restructuring Charge") related to
                                    facility exit costs and certain asset
                                    impairments associated with closing the
                                    Hollister, California manufacturing
                                    facility, rationalizing and realigning
                                    manufacturing capacity in certain of the
                                    Company's businesses, including the Sparks,
                                    Nevada facility, and exiting Ultra Pac's
                                    joint venture in Chile.

<PAGE>   57
The Company recorded expense of $4,000 related to exit costs for the Hollister,
California manufacturing facility. The Company is committed to an operating
lease of the facility through March 1, 2008. The $4,000 expense included an
accrual for the estimated difference between the lease commitment and expected
sublease proceeds of $2,758. During the third quarter of 2000, the Company
entered into a sublease for the Hollister facility that is expected to generate
proceeds $632 greater than initially estimated. Accordingly, the restructuring
reserve was reduced for this change in estimate in 2000.

The Company also recorded expense of $450 as a result of the implementation of a
manufacturing capacity rationalization plan during the fourth quarter of 1999
which resulted in closing the Sparks, Nevada facility and removing Protective
Packaging production from the Grove City, Pennsylvania facility. The planned
consolidations were completed as of the second quarter of 2000.

Based on continued operating losses and poor cash flow from Ultra Pac's joint
venture agreement in Chile, the Company recorded an asset impairment of $500
representing the difference between the Company's investment in the joint
venture of $875 in the form of common stock, trade receivables and machinery and
equipment transfers and the estimated realizable value of such investments.

During 2000, the Company made payments related to its restructuring reserves
totaling $1,555. The remaining balance sheet reserve at December 31, 2000
related to 2000 and 1999 Restructuring Charges was $5,086, representing $1,571
of future lease commitment at the Hollister facility, net of estimated sublease
proceeds, $162 of severance cost associated with the management reorganization
of the medical and electronics group and remaining payments to complete the
closure of the Sparks, Nevada facility, and $3,353 of severance, contractual
obligations and facility exit costs associated with closing certain European
operations.

The reserves for restructuring charges are as follows:

                                              Medical and
                                   Hollister  Electronics    Europe     Total
------------------------------------------------------------------------------
Balance at December 31, 1999       $ 2,750      $    85         --     $ 2,835
  Additions                             --          450    $ 3,356       3,806
  Payments/Reductions                 (547)        (738)      (270)     (1,555)
  Adjustments                         (632)         365        267          --
                                   -------------------------------------------
Balance at December 31, 2000       $ 1,571      $   162    $ 3,353     $ 5,086
                                   ===========================================
<PAGE>   58
Note 13 -- Unaudited Quarterly Results

Summarized unaudited quarterly data for the years ended December 31, 2000 and
1999 are as follows:


<TABLE>
<CAPTION>
Quarter Ended                March 31, 2000   June 30, 2000    September 30, 2000    December 31, 2000
------------------------------------------------------------------------------------------------------
<S>                          <C>              <C>              <C>                   <C>
Net sales(1)                    $181,512          $188,978          $172,269              $168,192
Gross profit                      36,900            37,617            33,631                33,663
Income from operations            15,721            13,150            16,951                15,373
Net income                         4,237            24,313             6,026                 5,747
Diluted earnings per share:
  Net income                    $   0.21          $   1.20          $   0.30              $   0.28

<CAPTION>

Quarter Ended                March 31, 1999   June 30, 1999    September 30, 1999    December 31, 1999
------------------------------------------------------------------------------------------------------
<S>                           <C>             <C>              <C>                    <C>
Net sales(1)                    $150,421          $168,133          $175,208              $182,210
Gross profit                      37,192            40,355            37,852                37,658
Income from operations            16,642            19,546            17,644                11,081
Net income                         6,193             8,126             7,674                 3,249
Diluted earnings per share:
  Net income                    $   0.29          $   0.39          $   0.37              $   0.16
</TABLE>


(1)The Company has reclassified shipping costs for both current and prior
periods from net sales to cost of goods sold in accordance with EITF consensus
opinion No.00-10.

Note 14 -- Stockholders Rights Plan

On February 10, 1999, the Board of Directors adopted a Stockholder in which
rights were distributed as a dividend at the rate of one Rights Plans Right for
each share of common stock, par value $0.01 per share, of the Company held by
stockholders of record as of the close of business on March 16, 1999. The Rights
Plan is designed to deter coercive takeover tactics including the accumulation
of shares in the open market or through private transactions and to prevent an
acquiror from gaining control of the Company without offering a fair price to
all of the Company's stockholders. The Rights will expire on February 10, 2009.

Each Right initially will entitle stockholders to buy one unit of a share of
preferred stock for $80.00. The Rights will be exercisable only if a person or
group acquires beneficial ownership of 15% or more of the Company's common
stock, if a person or group commences a tender or exchange offer upon
consummation of which such person or group would beneficially own 15% or more of
the Company's common stock or if the Board of Directors determines that a person
or group, having obtained beneficial ownership of at least 10% of the Company's
common stock, is seeking short-term financial gain which would not serve the
long-term interests of the Company or whose ownership is causing or is likely to
cause a material adverse impact on the Company (an "Adverse Person").

<PAGE>   59
If any person becomes the beneficial owner of 15% or more of the Company's
common stock, other than pursuant to a tender or exchange offer for all
outstanding shares of the Company approved by a majority of the independent
directors not affiliated with a 15%-or-more stockholder, or the Board of
Directors determines that any person or group is an Adverse Person, then each
Right not owned by a 15%-or-more stockholder or related parties will entitle its
holder to purchase, at the Right's then current exercise price, shares of the
Company's common stock (or, in certain circumstances as determined by the Board,
cash, other property, or other securities) having a value of twice the Right's
then current exercise price. In addition, if after any person has become a
15%-or-more stockholder, Ivex Packaging Corporation is involved in a merger or
other business combination transaction with another person in which the Company
does not survive or in which its common stock is changed or exchanged, or sells
50% or more of its assets or earning power to another person, each Right will
entitle its holder to purchase, at the Right's then current exercise price,
shares of common stock of such other person having a value of twice the Right's
then current exercise price.

The Company will generally be entitled to redeem the Rights at $0.01 per Right
at any time prior to 10 days (subject to extension) following a public
announcement that a 15% position has been acquired or the date a person is
declared by the Board to be an Adverse Person.

<PAGE>   60
Report of Independent Accountants



TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF IVEX PACKAGING CORPORATION

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Ivex
Packaging Corporation ("the Company") and its subsidiaries at December 31, 2000
and 1999, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States of America. 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 of these statements in accordance with
auditing standards generally accepted in the United States of America, which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.




PricewaterhouseCoopers LLP
Chicago, Illinois
January 29, 2001




(64-65) Ivex Packaging Corporation

<PAGE>   61
Corporate and
Investor Information

<TABLE>
<S>                       <C>                                                      <C>
Board of Directors        GEORGE V. BAYLY                                           ANTHONY P. SCOTTO(2)
                          Chairman, President and Chief Executive Officer           Managing Director, Oak Hill Partners
                          Ivex Packaging Corporation
                                                                                    WILLIAM J. WHITE(1,2)
                          FRANK V. TANNURA                                          Retired, Chairman, Bell and Howell Company
                          Executive Vice President and Chief Financial Officer
                          Ivex Packaging Corporation                                (1)member of audit committee

                                                                                    (2)member of compensation committee
                          GLENN R. AUGUST
                          Managing Director, Oak Hill Partners

                          R. JAMES COMEAUX(1)
                          President, Management Associates

Officers                  GEORGE V. BAYLY                                           DENNIS W. HADLEY
                          Chairman, President and Chief Executive Officer           Vice President, Human Resources

                          FRANK V. TANNURA                                          G. DOUGLAS PATTERSON
                          Executive Vice President and Chief Financial Officer      Vice President and General Counsel

                          GORDON B. BONFIELD                                        DAVID E. WARTNER
                          Executive Vice President and Chief Operating Officer      Vice President and Corporate Controller

                          RICHARD R. COTE
                          Vice President and Treasurer

</TABLE>
<PAGE>   62
<TABLE>
<S>                           <C>                                           <C>
Stockholder Information       CORPORATE OFFICES                             ANNUAL MEETING
                              100 Tri-State Drive, Suite 200                The Annual Meeting of stockholders is scheduled
                              Lincolnshire, Illinois 60069                  to be held on Wednesday, May 9, 2001 at 9:00 A.M.
                              847.945.9100                                  at the Company's corporate headquarters in
                              www.ivexpackaging.com                         Lincolnshire, Illinois.

                              INVESTOR CONTACTS                             TRANSFER AGENT
                              Richard R. Cote                               First Chicago Trust Company,
                              Vice President and Treasurer                  a Division of EquiServe
                              847.374.4324                                  P.O. Box 2500
                                                                            Jersey City, New Jersey 07303.2500
                              Tricia A. Kelly
                              Manager Investor Relations                    LEGAL COUNSEL
                              847.374.4313                                  Skadden, Arps, Slate, Meagher and Flom
                                                                            Chicago, Illinois
                              NEWS RELEASES
                              Copies of recent news releases are            AUDITOR
                              available at no charge through PR             PricewaterhouseCoopers LLP
                              Newswire (IVEX code #123480)
                              800.758.5804
                              www.prnewswire.com
</TABLE>
<PAGE>   63
Common Stock The Company's Common Stock is listed on the New York and Chicago
Stock Exchanges trading symbol [IXX].

The Company is currently subject to certain covenants in loan documents that
limit the payment of cash dividends.

No dividends were paid in 2000 and 1999.


<TABLE>
<CAPTION>
QUARTER ENDED          March 31, 2000     June 30, 2000       September 30, 2000     December 31, 2000
--------------------------------------------------------------------------------------------------------
<S>                    <C>                <C>                <C>                     <C>
    High                    10.50             11.13             11.88                      11.50
    Low                      5.13              7.63              9.25                       8.13

<CAPTION>

QUARTER ENDED          March 31,1999     June 30,1999         September 30,1999      December 31,1999
--------------------------------------------------------------------------------------------------------
<S>                          <C>               <C>               <C>       <C>
   High                     26.13             22.00             22.50                      12.88
   Low                      13.63             13.75              9.75                       6.88
</TABLE>

<PAGE>   64











<TABLE>
<S><C>
              design  Petrick Design        photography  Howard Bjornson          printing  Lake County Press
</TABLE>


<PAGE>   65

Ivex is a specialty packaging company
that designs and manufactures plastic
and paper-based packaging for high
growth niche markets, including food,
medical, electronic and industrial.












Ivex Packaging Corporation
100 Tri-State Drive Suite 200
Lincolnshire Illinois 60069