<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-K

(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (FEE REQUIRED)

For the fiscal year ended May 2, 1998

                                       OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)

For the transition period from _________________ to _______________________.

                         COMMISSION FILE NUMBER: 0-15077

                         SHOREWOOD PACKAGING CORPORATION
             (Exact name of registrant as specified in its Charter)

           DELAWARE                                         11-2742734
 (State or other jurisdiction of                 (I.R.S. Employer Identification
 incorporation or organization)                               Number)

                                 277 PARK AVENUE
                          NEW YORK, NEW YORK 10172-3000
                    (Address of principal executive offices)
                                 (212) 371-1500
               (Registrants telephone number, including area code)

           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

Title of Each Class:                   Name of Each Exchange on which Registered
      None                                          Not Applicable

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                          Common Stock, $.01 par value
                                (Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                  YES       [X]                 NO         [ ]

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

As of July 1, 1998, the aggregate market value of the Registrant's common stock
held by non-affiliates of the Registrant was approximately $246.8 million.
(This figure was computed on the basis of the average of the high and low
selling prices for the Registrant's common stock on July 1, 1998).
Non-affiliates include all shareholders of Registrant other than executive
officers, directors and 5% shareholders who are employees of the Registrant. As
of July 1, 1998, there were 26,692,275 shares of the Registrants common stock,
$.01 par value per share, issued and outstanding.

The information required in Part III of this Form 10-K is incorporated by
reference from the Registrant's definitive proxy statement for the September 23,
1998 annual meeting of stockholders.

The Exhibit Index is located on Page 43.                         Total Pages: 45


                                  Page 1 of 45
<PAGE>   2
                                     PART I

ITEM 1.    BUSINESS

Shorewood Packaging Corporation and its subsidiaries (collectively, "Shorewood"
or the "Company") print and manufacture high quality paperboard packaging for
the cosmetics, home video, music, software, tobacco, toiletries and general
consumer markets in the United States and Canada. Shorewood was incorporated in
November 1967. The Company's principal executive offices are located at 277 Park
Avenue, New York, New York 10172-3000 and its telephone number is (212)
371-1500.

Shorewood's strategic objectives are (i) continuing to enhance its position as a
leading paperboard packager to the tobacco industry and the home entertainment
market, which includes the music and video industries; (ii) the further
expansion of the Company's markets in the CD-ROM computer software and games
industry and in the cosmetics and toiletries, food, liquor, consumer
electronics, film and hosiery industries; (iii) the expansion into international
markets to meet the global sourcing needs of its customers; and (iv) the
identification of other areas in the general consumer packaging industry that
can most benefit from the Company's ability to produce graphically enhanced high
quality packaging. To achieve these objectives, the Company intends to continue
expanding its printing, packaging and graphic arts capabilities, including the
development and application of advanced manufacturing technologies and the
establishment of manufacturing facilities in strategic international markets.

PACKAGING PRODUCTS

The Company produces high quality specialized packaging, principally folding
cartons and set up boxes, for its customers in the United States and Canada that
require sophisticated precision graphic packaging for their products, including
customers in the home entertainment industry, the tobacco industry, the software
industry, the personal care, cosmetic and toiletries industries and in consumer
markets such as the food, liquor, film, hosiery, consumer electronics and
pharmaceutical industries.

The Company is a principal supplier of printed packaging products for the
tobacco industry, producing the hard flip-top cigarette packages as well as the
traditional slide and shell packages. These products are used to package many of
the leading tobacco brands including those ultimately sold in non-United States
markets. The Company believes that it is the primary carton supplier to the
Canadian tobacco industry and a leading manufacturer of paperboard packaging for
the tobacco industry in the United States. See "Tobacco Industry". In the 52
week period ended May 2, 1998 ("fiscal 1998"), Philip Morris, one of Shorewood's
tobacco industry customers, accounted for approximately 25% of the Company's
consolidated net sales. In addition, two other customers, who may be deemed to
be affiliated with each other, accounted in the aggregate for approximately 12%
of the Company's fiscal 1998 consolidated net sales. Although Shorewood believes
that its relationships with these customers are excellent, there can be no
assurance that their packaging requirements in the future will continue at the
same levels as in fiscal 1998.

For its music and home entertainment industry customers, the Company
manufactures compact disc packaging (including folders, booklets and liners),
prerecorded cassette packaging (including folders and sleeves), and other
printed material and paperboard packaging for all video formats (including DVD,
VHS and laser discs). The Company's music industry customers include many of the
major music production and distribution companies in the United States. The
Company has long standing relationships with many of these companies and in
certain cases also has agreements, typically for five year terms, to supply
their packaging products.


                                  Page 2 of 45
<PAGE>   3
The Company is a supplier of paperboard packaging for the cosmetics and
toiletries industry and also produces a wide range of consumer packaging
products. Additionally, the Company manufactures and provides rigid set-up
boxes, principally for customers in the cosmetics and entertainment industries.
Although Shorewood believes that its relationships with these customers are
excellent, there can be no assurance that their packaging requirements in the
future will continue at the same levels as in fiscal 1998.

The Company continues to expand into the CD-ROM computer software and games
industry. In 1996, the Company completed the construction of a manufacturing
facility in the Pacific Northwest with the strategic objective of enhancing its
service capabilities in this and the home entertainment market. The Pacific
Northwest is home to many of the leading software manufacturers. The facility
has successfully achieved its original strategic objective and through effective
cross selling has generated increased production and sales of packaging for
CD-ROM computer software and games at several of the Company's east coast
facilities.

PRODUCTION

The Company generally produces packaging from specifications, art work or film
supplied by its customers. However, the Company from time to time designs and
develops new packaging concepts and structures when requested by its customers.
The Company has a research and development center located on the grounds of its
Newport News ("Williamsburg") plant which is available to its customers to test
run and develop experimental and innovative packaging designs and production
graphics in a secure environment. Several of the Company's customers have
developed packaging concepts at this facility for production in Williamsburg and
other Company facilities. In addition, the Company is expanding its technical
capabilities to handle digital pre-press processes, including direct to plate
graphic work which can eliminate the need for film in the printing process. This
will also facilitate the worldwide transmission of graphics throughout all of
the Company's locations to better serve its global customers.

The Company's productive capacity and capabilities over the past several years
has substantially increased as a result of capital expenditures for plant,
machinery and equipment. The Company's policy is to continue to enhance its
technological capabilities to meet competitive challenges, although there can be
no assurance that it will be able to do so.

The Company's manufacturing facilities are equipped with multi-color sheet
and/or web fed printing presses which provide both gravure and/or lithographic
printing. In addition, the Company developed and currently utilizes a printing
and manufacturing web system, referred to as the "JOSH System", which combines
gravure and lithographic printing in one in-line system. The Company believes
that the JOSH System gives designers of packaging the flexibility to translate
certain graphic concepts into high quality, cost efficient and precisely
manufactured packaging. The Company's manufacturing facilities are equipped with
other equipment necessary to produce packaging, including platemaking equipment,
leaf stamping machines, diecutters/embossers, folders and gluers. Further, the
Company has machine shops which enable it to service and maintain substantially
all of its machinery and equipment, and maintains a full time design and
engineering staff.

MARKETING AND SALES

The Company's sales result primarily from direct solicitation by certain members
of the Company's senior management and 45 sales people, 33 of whom are in the
United States and 12 of whom are in Canada.


                                  Page 3 of 45
<PAGE>   4
The Company's marketing and sales efforts emphasize the Company's ability to
print high quality specialized packaging in a timely manner by utilizing the
Company's state-of-the-art manufacturing systems. The Company and its design and
packaging development staff are frequently consulted by customers for assistance
in developing new and alternative packaging concepts. Shorewood has also
assisted its customers in the development and acquisition of automated packaging
equipment which can use the Company's new packaging products. The Company's
ability to meet the rapid delivery requirements of its customers has enhanced
its competitive position with consumer products companies.

In addition to sales activities conducted from its manufacturing plants, the
Company has sales offices in New York, New York; Los Angeles and Redwood City,
California; Chicago, Illinois; Charlotte and Winston-Salem, North Carolina;
Fairfield, Connecticut; Portland, Oregon; Fort Lauderdale, Florida; Richmond,
Virginia; Westfield, Massachusetts; and Montreal, Canada.

Part of the Company's business is seasonal. Sales generally increase in the five
months preceding the Christmas holiday season because many of the products for
which it supplies packaging - cosmetics, home video, music, toiletries and toys
- have higher holiday sales. However, in the past several years, as the
Company's range of products has expanded (through acquisition, the development
of new markets and otherwise), the seasonality of the Company's business has
diminished.

Customers are generally billed upon shipment. Jobs are generally completed and
shipped to customers shortly after an order is received for customers in the
music and home video industry, the CD-ROM computer software and games industry,
and the tobacco industry. Jobs are usually completed and shipped within four to
eight weeks for general consumer customers. As of May 2, 1998, the Company had
approximately $83.6 million in backlog orders, all of which will be filled
within the fiscal year ending May 1, 1999. As of May 3, 1997, the Company had
backlog orders of approximately $79.0 million, all of which were filled within
fiscal 1998.

COMPETITION

The principal elements of competition in the paperboard packaging industry are
quality, service and price. The Company believes that it competes effectively in
each of these categories. Although the Company believes that it is one of the
leading non-integrated folding carton companies in North America, it faces
substantial competition from different companies in its different industry
areas, some of which are subsidiaries or divisions of companies with much
greater financial resources than those of the Company.

While the Company believes its present competitive position is strong, there can
be no assurance that this will not change. Other packaging companies may develop
technologies which equal or improve upon those of the Company or may have strong
relationships with potential customers which could inhibit the expansion of the
Company's business. Furthermore, because the Company supplies packaging to
consumer industries, it is also subject to the competitive forces affecting its
customers.

EMPLOYEES

At May 2, 1998, the Company employed approximately 2,700 employees, of which
approximately 1,600 individuals were located in the United States and
approximately 1,100 individuals were located in Canada.

Approximately 23% of the Companies employees are represented by unions covering
manufacturing personnel in Andalusia, Alabama; Waterbury, Connecticut; Smiths
Falls, Ontario Canada; and Toronto (the Shorewood Carton facility only), Ontario
Canada. Collective bargaining contracts are negotiated on an individual plant or
union local basis. The Company's collective bargaining agreements expire at
various times from calendar 1998 to 2000. The Company considers its labor
relations to be satisfactory and it has not experienced any significant work
stoppages in its operating history.


                                  Page 4 of 45
<PAGE>   5
MATERIALS

Although the Company buys a number of different materials, such as paperboard,
paper, ink, coatings, film and plates, the costs associated with the purchase of
paperboard and paper are the most significant. The Company purchases paperboard
and paper from various mills and suppliers and alternate sources are available.
While the Company does not anticipate any significant difficulty in obtaining
supplies of paperboard, paper or other materials in the future, there can be no
assurance that, as the Company's business continues to expand, it will not
encounter difficulty in obtaining its increasing material requirements.

ACQUISITIONS AND INVESTMENTS

The Company has committed to building a state-of-the-art manufacturing facility
in the city of Guangzhou, China (the "China Facility"), which will be completed
and operating in the summer of 1998. The facility and related equipment will
require an initial capital investment of approximately $40.0 million, which the
Company has financed through the Company's existing credit facility. Through May
2, 1998, the Company has invested approximately $26.6 million representing costs
associated with the lease of the related land, construction of the manufacturing
facility, purchase of the necessary machinery and equipment and other expenses
associated with the start-up of the facility. In connection with the start-up of
the facility, the Company has incurred and capitalized certain start-up costs
aggregating approximately $3.0 million. On April 3, 1998, Statement of Position
Number 98-5, "Reporting on the Costs of Start-Up Activities" was issued by the
American Institute of Certified Public Accountants, which requires the expensing
of the start-up costs when incurred. Although adoption is not required until
fiscal 2000, the Company plans to adopt this Statement of Position in fiscal
1999. Accordingly, the Company will record a $3.0 million pre-tax charge in its
first quarter of fiscal 1999 as a cumulative effect of a change in accounting
principle. This pre-tax charge will not be offset by a corresponding tax benefit
as these expenses relate to the China Facility which will enjoy a tax holiday
for its first three years of profitable operation. The Company will not report
the tax benefits until realized.

The facility in China will be capable of manufacturing both gravure and
lithographic printed product, and will have essentially the same capabilities as
the Company's North American facilities. The Company expects that the global
sourcing needs of its customers will result in many existing customers becoming
customers of the China facility. In addition, the Company expects to produce
product for Chinese customers. The Company will source the majority of its raw
material from existing suppliers.

TOBACCO INDUSTRY

The Company is a principal supplier of printed packaging products for the
tobacco industry in North America. A number of factors have recently weakened
the North American tobacco market, which could adversely affect the Company's
performance. These factors include a recent proposed settlement by the tobacco
industry which limits advertising (see discussion below), a gradual decrease in
consumption, cigarette taxes in effect or under consideration and a generally
hostile legislative and regulatory climate in the Unites States and Canada.
These factors have a much greater impact on the North American market than in
the export market, where the majority of the Company's tobacco related products
are sold.

The Company believes that the potential for export markets provide favorable
prospects for the tobacco business. There are three principal factors driving
the favorable outlook for export markets: (i) Growth in overseas markets; (ii)
the opening of international markets to free trade in tobacco (especially in
Eastern Europe, the Republics of the former Soviet Union and China) ; and (iii)
increased world demand for American blend cigarettes. The Company's policy is to
continue to aggressively pursue the export tobacco market which provides the
best potential for future sales growth.


                                  Page 5 of 45
<PAGE>   6
On June 20, 1997, the major tobacco companies (including customers of the
Company) announced they had entered into a comprehensive settlement with the
attorneys general from many states (the "Settlement"). Tobacco companies have
been the targets of law suits by approximately 40 states wherein the states
sought to recover the medical expenses incurred by them in treating their
residents for the effects of tobacco related illnesses. The claims, in the
aggregate exceed $50 billion. The settlement, if effected, will put severe
restrictions on the marketing and advertising of tobacco products. The tobacco
companies also conceded that nicotine could, under certain circumstances, be
regulated by the Food and Drug Administration. If fully implemented, the tobacco
companies would also be required to fund ongoing research and smoking prevention
plans and education programs. In return, the tobacco companies can limit their
financial exposure to state medical expense reimbursement claims and will
receive assurances that sales of tobacco products to adults would remain legal.
They may also receive relief from punitive damages claims in individual
lawsuits.

In order to be effective, the Settlement must be adopted into law by the United
States Congress. Certain lawmakers and the Clinton Administration have expressed
reservations about certain of its provisions. Its adoption by Congress and
approval by the President is uncertain. If adopted into law, the Settlement may
have a significant impact on both the tobacco companies and sales of tobacco
products generally.

In order to counter what many believed to be the overly favorable treatment of
the tobacco companies in the Settlement, new legislation directed at tobacco was
recently introduced in Congress. In the opinion of the tobacco companies, the
legislation would have the effect of imposing restrictions upon the tobacco
companies which are substantially more burdensome than the restrictions
contained in the Settlement. The tobacco legislation failed to make it out of
committee for a vote by the full Senate. There is little likelihood that
comprehensive tobacco legislation will be adopted before the end of the 1998
calendar year.

The potential impact of the Settlement and proposed legislation on the Company
is unclear at this time. They are, however, indicative of a politically hostile
environment. No portion of the Settlement or legislation is directed at the
packaging products manufactured by the Company. Moreover, the Settlement and
legislation only affects marketing and sales of tobacco products in the United
States. Marketing and sales of tobacco products in foreign countries would be
unaffected by the Settlement or legislation, however other countries have
adopted or are considering adopting, similar measures.

In addition, much of the Company's tobacco packaging is used in products that
are ultimately sold in the export market. Some of the Company's customer
products are sold in the Asian market. Recent currency devaluations in that
region have resulted in decreased sales for the product sold by some of the
Company's customers, resulting in corresponding reduction of sales of related
Company product. Although the Company believes that sales of these related
products will return to previous growth trends, there can be no assurance that
this will be the case, or that future currency fluctuations will not have an
adverse impact on the Company's operations.

YEAR 2000

Commencing in 1997 the Company began the development of a new, comprehensive
computer based information system which will integrate sales, manufacturing,
distribution, financial and human resource modules. It is anticipated that the
new system will be completed and all manufacturing facilities will be "on-line"
by the summer of 1999. While not specifically directed towards the "Year 2000"
issues, the Company's new information system will automatically be Year 2000
compliant at its completion. The Company believes that in and of itself, the
cost of addressing Year 2000 issues is not material to its future operating
results or financial position.


                                  Page 6 of 45
<PAGE>   7
The Company is also gathering information concerning the Year 2000 compliance
status of its suppliers and other entities with whom it exchanges data to
ascertain the impact, if any, of their non-compliance on the Company. In the
event the Company's significant suppliers or other entities with whom it
exchanges data do not timely achieve Year 2000 compliance, the Company's
operations and financial results could be adversely affected.

FORWARD LOOKING STATEMENTS

Certain statements under the captions "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Legal Proceedings," "Business,"
and elsewhere in this Form 10-K, constitute "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. These
statements are typically identified by their inclusion of phrases such as "the
Company anticipates," "the Company believes" and other phrases of similar
meaning. Such forward-looking statements involve known and unknown risks,
uncertainties, and other factors that 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. Such factors include, among others: general economic
and business conditions; competition; political changes in international
markets; raw material and other operating costs; costs of capital equipment;
changes in foreign currency exchange rates; changes in business strategy or
expansion plans; the results of continuing environmental compliance testing and
monitoring; quality of management; availability, terms, and development of
capital; fluctuating interest rates; and other factors referenced in this Form
10-K.

ITEM 2.  PROPERTIES

The Company owns offices and manufacturing facilities as follows, representing
an aggregate of approximately 1.4 million square feet of office and
manufacturing space:

LaGrange, Georgia                         Andalusia, Alabama
Roanoke, Virginia                         Springfield, Oregon
Danville, Virginia                        Williamsburg, Virginia
Smiths Falls, Ontario                     Brockville, Ontario
Scarborough, Ontario                      Guangzhou, China

The Company has entered into a 50 year lease for land in the Peoples Republic of
China in the city of Guangzhou, in Guandong Province for approximately $1.7
million for the purposes of constructing a manufacturing facility. The China
Facility will contain approximately 125,000 square feet of manufacturing space.
Guangzhou is in Southeastern China, approximately 120 miles from Hong Kong.

The Company also leases office, manufacturing and warehousing facilities at the
following locations with leases that expire at various times ending in the year
2010, at an annual aggregate net rental cost of approximately $2.8 million for a
total of approximately 500 thousand square feet:

New York, New York                        Farmingdale, New York
Fairfield, Connecticut                    Waterbury, Connecticut
Watertown, Connecticut                    Redwood City, California
Santa Monica, California                  Los Angeles, California
Montreal, Canada                          Brockville, Ontario
LaGrange, Georgia                         Toronto, Ontario
Charlotte, North Carolina                 Chicago, Illinois

The Company utilizes a portion of the Farmingdale, New York facility as its
corporate administrative offices and sublets the remaining portion of the
building. The Farmingdale lease expires in 1999.


                                  Page 7 of 45
<PAGE>   8
In May, 1998, the Company entered into a five year lease for office space in
Hauppauge, New York. This space will serve as its corporate administrative
offices once the Farmingdale lease expires. The lease expires in calendar 2003.

ITEM 3. LEGAL PROCEEDINGS

The Company is not presently a party to any material litigation. On a continuing
basis, the Company monitors its compliance with applicable environmental laws
and regulations. As part of this process, the Company cooperates with
appropriate governmental authorities to perform any necessary testing and
compliance procedures. The Company is not aware of any environmental compliance
proceeding that will have a material effect on its consolidated financial
statements. During 1998, 1997 and 1996 the Company has been involved, at various
locations, in the correction of certain violations of applicable environmental
laws, rules or regulations. Amounts paid during fiscal 1998, fiscal 1997 and
fiscal 1996 involving governmental authorities relating to Federal, State or
local provisions regulating the discharge of materials into the environment were
not material and aggregated less than $50,000.

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

There was no vote of security holders during the fourth quarter of the fiscal
year covered by this report.


                                  Page 8 of 45
<PAGE>   9
                                     PART II

All share and per share data have been retroactively adjusted to reflect the 3
for 2 stock split effected in May 1998.

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

(a) Market Information. The Company's Common Stock is traded on the New York
Stock Exchange under the symbol SWD. Prior to January 28, 1998, the Company's
Common Stock was traded in the over-the-counter market on the NASDAQ National
Market System under the symbol SHOR. The following table sets forth, for the
fiscal periods indicated, the high and low sales prices for the Common Stock on
the New York Stock Exchange and the National Market System, as reported by
NASDAQ.

<TABLE>
<CAPTION>
                                               High               Low
                                               ----               ---
<S>                                           <C>               <C>
Fiscal 1998
    First Quarter                             $15.33            $11.92
    Second Quarter                             17.67             12.92
    Third Quarter                              18.58             15.17
    Fourth Quarter                             18.92             15.75

Fiscal 1997
    First Quarter                             $11.50            $ 9.83
    Second Quarter                             12.83              9.75
    Third Quarter                              13.17             12.00
    Fourth Quarter                             13.17             11.59
</TABLE>

The last sale price of the Company's Common Stock on July 1, 1998 was $16.06.

The Company's Board of Directors has authorized the purchase of the Company's
common stock as follows:

         DATE OF AUTHORIZATION                         AUTHORIZED SHARES
              January 1993                                3.0 million
             December 1995                                3.0 million
               April 1997                                1.86 million

Shares are authorized for purchase from time to time in the open market, subject
to the terms of the Company's credit facility. As of May 2, 1998, 2.7 million
shares remain authorized for purchase. Since May 2, 1998 and through July 1,
1998, the Company purchased an additional 609,000 shares at a total cost of $9.0
million.

(b) Holders. There were 205 record holders of the Company's Common Stock as of
July 1, 1998. The Company believes that, as of such date, there were in excess
of 1,000 beneficial holders of the Company's Common Stock, including those
stockholders whose shares were held of record by certain depository companies.

(c) Cash Dividends. The Company has not paid any cash dividend on its Common
Stock during either of its two most recent fiscal years. The Company anticipates
that its earnings for the foreseeable future will be utilized to reduce debt, to
fund acquisitions or to purchase shares of its Common Stock, or will be retained
for use in its business. Accordingly, the Company believes that it is now
unlikely that any cash dividends will be paid on its Common Stock in the near
future.


                                  Page 9 of 45
<PAGE>   10
The Company's senior term notes and long-term revolver agreement limits the
amount of retained earnings available for the payment of dividends (other than
dividends payable in the Company's Common Stock). At May 2, 1998, there was
approximately $19.0 million of retained earnings available for the payment of
dividends.


                                 Page 10 of 45
<PAGE>   11
ITEM 6.  SELECTED FINANCIAL DATA

The selected consolidated financial information set forth below for and as of
the fiscal year ended May 2, 1998 and for and as of the end of each of the four
preceding fiscal years is derived from, and qualified by reference to, the
audited consolidated financial statements of Shorewood Packaging Corporation and
subsidiaries. The report of Deloitte & Touche LLP, independent auditors, on the
consolidated financial statements as of May 2, 1998 and May 3, 1997 and for the
52 week period ended May 2, 1998, the 53 week period ended May 3, 1997 and the
52 week period ended April 27, 1996 is included elsewhere herein. There were no
cash dividends paid on the Company's Common Stock in any of the periods
indicated below.

<TABLE>
<CAPTION>
                                                 SUMMARY FINANCIAL DATA
                                        (In thousands, except per share amounts)

                                                                             52 WEEK PERIOD ENDED
                                               ---------      ---------       ---------       ---------       ---------
                                                 MAY 2,        MAY 3,         APRIL 27,       APRIL 29,        APRIL 30,
                                                  1998         1997(1)          1996            1995             1994
                                               ---------      ---------       ---------       ---------       ---------
<S>                                            <C>            <C>             <C>             <C>             <C>
INCOME STATEMENT DATA (2)
Continuing Operations
   Net sales                                   $ 415,386      $ 425,312       $ 387,845       $ 351,361       $ 211,714
   Gross profit                                   95,658         94,522          84,211          82,807          51,458
   Selling, general and administrative
     expenses                                     46,410         46,289          42,263          37,635          25,867
   Restructuring charge                               --             --              --              --           3,400

   Earnings from operations                       49,248         48,233          41,948          45,172          22,191
   Other income, net                                 743            795             571             (10)            823

   Interest expense                                7,649          8,861           8,293           8,979           6,727
   Earnings before provision for income
     taxes and extraordinary item                 42,342         40,167          34,226          36,183          16,287
   Provision for income taxes                     16,047         15,222          12,972          13,685           6,607
   Earnings before extraordinary item             26,295         24,945          21,254          22,498           9,680
Discontinued operations                               --         (1,187)            115              11            (289)

Extraordinary item                                    --           (336)         (1,365)             --          (3,098)
Net earnings                                      26,295         23,422          20,004          22,509           6,293
BASIC EARNINGS PER SHARE INFORMATION:
   Earnings from continuing operations
     before extraordinary item per common
     share                                           .97            .91             .75             .80             .36
   Net earnings per common share                     .97            .85             .71             .80             .23
DILUTED EARNINGS PER SHARE INFORMATION:
   Earnings from continuing operations
     before extraordinary item per common
     share                                           .95            .89             .73             .78             .36

   Net earnings per common share                     .95            .83             .69             .78             .23

WEIGHTED AVERAGE COMMON AND COMMON
   EQUIVALENT SHARES OUTSTANDING
     BASIC                                        27,057         27,402          28,323          28,015          27,064
     DILUTED                                      27,723         28,070          29,160          28,971          27,134
</TABLE>

<TABLE>
<CAPTION>
                                         --------      --------      --------      --------      --------
                                          MAY 2,         MAY 3,      APRIL 27,     APRIL 29,     APRIL 30,
                                           1998         1997(1)        1996          1995          1994
                                         --------      --------      --------      --------      --------
<S>                                      <C>           <C>           <C>           <C>           <C>
BALANCE SHEET DATA
Working capital                          $ 30,992      $ 41,665      $ 30,789      $ 31,948      $ 31,408
Property, plant and equipment             200,293       156,156       153,079       129,153       135,376
Total assets                              325,984       277,878       275,914       245,264       220,350
Short-term debt                            15,000        15,000        24,000        21,394        10,419
Long-term debt excluding current
     maturities                           126,437       106,856       122,588        99,793       120,493
Convertible subordinated debentures            --            --            --            --        17,500
Stockholders' equity                      109,797        96,356        71,436        67,409        27,111
</TABLE>

(1)    53 week period

(2)    The operations of Transport have been reflected as discontinued
       operations for the period ended May 3, 1997 and for all prior periods


                                 Page 11 of 45
<PAGE>   12
ITEM 7.  MANAGEMENT'S' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

OVERVIEW

The Company's fiscal year ends on the Saturday closest to April 30. Fiscal 1998
was a 52 week year ended May 2, 1998. Fiscal 1997 was a 53 week year ended May
3, 1997. The first quarter of fiscal 1997 was a 14 week period, and the second,
third and fourth quarters were 13 week periods.

In March 1997, the Company disposed of its transportation business ("Shorewood
Transport"). The operations of Shorewood Transport have been presented as
"Discontinued" in all prior periods.

RESULTS OF OPERATIONS

Net Sales

Net sales for the 52 week period ended May 2, 1998 were $415.4 million compared
to net sales of $425.3 million for the corresponding prior period, a decrease of
2.3%. After adjusting for the extra week in the prior period, sales were
essentially flat when compared to the prior year. Flat sales for the year are
primarily due to sales to tobacco industry customers not meeting expectations.
Tobacco industry sales fell short of expectations primarily due to customers
adjusting inventory levels and reduced sales of product ultimately destined for
the Asian market. Weaknesses in Asian currency impacted the sale of products by
the Company's tobacco customers. Although the Company anticipates that sales of
packaging products to these customers will return to normal growth patterns
during fiscal 1999, there can be no assurance that this will be the case, or
that future currency fluctuations will not have an adverse impact on the
Company's operations.

Net sales for the 53 weeks ended May 3, 1997 were $425.3 million compared to net
sales of $387.8 million for the 52 weeks ended April 27, 1996, an increase of
9.7%.

The Company believes that future sales growth will be generated through
continued penetration of its existing markets and the expanding market of CD-ROM
products, as well as its expansion into China.

Cost of Sales

Cost of sales as a percentage of sales for the 52 weeks ended May 2, 1998 were
77.0% as compared to 77.8% for the 53 weeks ended May 3, 1997. The decrease in
this percentage when compared to the prior year is primarily due to
manufacturing efficiencies resulting from the Company's capital investment
programs.

Cost of sales as a percentage of sales for the 53 weeks ended May 3, 1997 were
77.8% as compared to 78.3% for the 52 weeks ended April 27, 1996. The favorable
trend in cost of sales as a percentage of sales is due to the favorable
(stabilized) trend in raw material costs, increased sales of value added
packaging, the favorable impact of the Company's corporate wide purchasing
program and the continued attention to enhancing manufacturing efficiencies. In
addition, the Company's Oregon facility had a negative impact on the Company's
overall margin in the first quarter of 1997 and has since contributed favorably
in each of the next three quarters.

The Company remains sensitive to price competitiveness in the markets that it
serves, and in the areas that are targeted for growth. It believes that the
installation of state-of-the-art printing and manufacturing equipment (and
related labor and production efficiencies) enables it to compete effectively.


                                 Page 12 of 45
<PAGE>   13
Selling, General and Administrative Expenses

Selling, general and administrative expenses as a percentage of sales for the 52
weeks ended May 2, 1998 were 11.2% as compared to 10.9% for the 53 weeks ended
May 3, 1997. The increase in selling, general and administrative expenses as a
percentage of sales is largely due to the flat sales described above and the
Company's continued development of corporate-wide shared services.

Selling, general and administrative expenses as a percentage of sales for the 53
weeks ended May 3, 1997 and 52 weeks ended April 27, 1996 were 10.9%. Included
in the amount of selling, general and administrative expenses for fiscal 1997 is
$399 thousand (recorded in the fourth quarter) as a result of the Company
reaching certain incentive compensation thresholds contained in its restricted
stock award program earlier than originally anticipated. Excluding this amount,
the decrease in selling, general and administrative expenses as a percentage of
sales for the period is largely due to increased sales while certain selling,
general and administrative costs have remained fixed. This decrease is offset
somewhat by additional costs associated with the enhancement of the Company's
customer service departments, as well as increased occupancy and operating costs
associated with the Company's corporate offices, and an increase in legal costs
and other professional fees.

The Company anticipates that the China Facility will have a negative impact on
the Company's overall operating margins during the early stages of its growth
during fiscal 1999.

Other Income, net

Other income, net, for the 52 weeks ended May 2, 1998 includes investment income
of $841 thousand and foreign exchange gains of $377 thousand, offset by losses
on the disposal of fixed assets of $475 thousand.

Other income, net, for the 53 week period ended May 3, 1997 was primarily
related to investment income of $561 thousand, $123 thousand related to gains on
the disposal of fixed assets and $111 thousand related to foreign exchange
gains.

Other income, net, for the 52 week period ended April 27, 1996 was primarily
related to investment income of $446 thousand and $157 thousand of gains on the
disposal of certain fixed assets. Foreign exchange gains/losses were not
significant in 1996.

The Company's exposure to foreign exchange transaction gains or losses relate to
the Company's Canadian facilities which have U.S. dollar denominated net assets.
The Company believes that fluctuations in foreign exchange rates will not have a
material impact on the operations or liquidity of the Company, based upon
current and historical levels of working capital at the Canadian facilities.
During fiscal 1998, several Asian currencies have experienced weaknesses which
had the impact of reducing some demand for Company products produced in North
America intended for ultimate use in export markets. The recent investments in
the China Facility will expose the Company to foreign exchange risks related to
the Renminbi ("Rmb"). A significant weakening of the Rmb would result in a
reduction in the net worth of the Company's investment in the China Facility
(through the cumulative translation adjustment account). In addition, net
operating results (whether losses or profits) would be reduced. Exposure to
foreign exchange transaction gains or losses is expected to be minimal as the
Company will make purchases and sales in both Rmb and the US$, and settlement
periods on both accounts receivable and accounts payable are expected to be
short.


                                 Page 13 of 45
<PAGE>   14
Interest Expense

Interest expense for the 52 week period ended May 2, 1998 was $7.6 million as
compared to $8.9 million, for the 53 week period ended May 3, 1997. The decrease
in interest costs for the 52 week period as compared to the prior year is due to
a reduced average level of borrowings, exclusive of borrowings related to
capital expenditures and the China Facility not yet in production ("construction
in progress"). Interest cost on construction in progress is capitalized.
Capitalized interest for the year ended May 2, 1998 was $1.9 million.
Capitalized interest for the year ended May 3, 1997 was $450 thousand. The
Company expects to record increased levels of capitalized interest in early
fiscal 1999 in connection with its expansion into China. As the facility
commences operations, the Company expects that capitalized interest will
decrease.

At May 2, 1998, the Company had two outstanding intermediate-term interest rate
swap agreements. Under the first agreement which relates to $35.0 million of
borrowings under the credit facility, the Company pays a fixed rate of 6.19% and
receives a floating rate based on LIBOR, as determined in three-month intervals.
This agreement terminates May 5, 1998. Under the second agreement which relates
to $50.0 million of borrowings under the credit facility, the Company pays a
fixed rate of 5.76% and receives a floating rate based on LIBOR, as determined
in three-month intervals. This agreement terminates November 3, 1998. The
agreement may be extended at the discretion of the financial institution for an
additional year.

In October 1997, the Company entered into an intermediate-term interest rate
swap agreement relating to approximately $35.0 million of borrowings under the
credit facility. Under the agreement, the Company pays a fixed rate of 5.74% and
receives a floating rate based on LIBOR, as determined in three-month intervals.
The agreement begins on May 5, 1998 and terminates May 5, 1999. The agreement
may be extended at the discretion of the financial institution for an additional
year.

In July 1997, the Company entered into a reversion swap agreement relating to
$50.0 million of borrowings under the credit facility. Under the agreement, the
Company pays a fixed rate of 5.73% and receives a floating rate based on LIBOR,
as determined in three month intervals. This agreement terminates in April 2002.
After the first year, however, the fixed rate reverts back to floating for any
three month period during which the LIBOR rate exceeds 6.625%. The rate reverts
back to the fixed rate of 5.73% for any subsequent period for which the LIBOR
rate drops below 6.625%.

These transactions effectively change a portion of the Company's interest rate
exposure from a floating-rate to a fixed-rate basis.

The fair value of the interest rate swap agreements are immaterial to the
financial statements of the Company.

The Company has used, and may continue to use, interest rate swaps and caps to
manage its exposure to fluctuating interest rates under its debt agreements.

Income Taxes

The effective income tax rate for the 52 week period ended May 2, 1998 and the
53 week period ended May 3, 1997 was 37.9%. These rates reflect a blend of
domestic and foreign taxes. The China Facility will enjoy a tax holiday for the
first three years of profitable operations, and thereafter be taxed at lower
rates than the Company's North American operations. During the early periods of
operation, losses incurred will not result in related tax benefits. The Company
anticipates that this situation will temporarily result in an increase in its
effective tax rate in fiscal 1999.


                                 Page 14 of 45
<PAGE>   15
Start-Up Costs/Discontinued Operations/Extraordinary Items

In connection with the start-up of the China Facility, the Company has incurred
and capitalized certain start-up costs aggregating approximately $3.0 million.
On April 3, 1998, Statement of Position Number 98-5, "Reporting on the Costs of
Start-Up Activities" was issued by the American Institute of Certified Public
Accountants, which requires the expensing of the start-up costs when incurred.
Although adoption is not required until fiscal 2000, the Company plans to adopt
this Statement of Position in fiscal 1999. Accordingly, the Company will record
a $3.0 million pre-tax charge in its first quarter of fiscal 1999 as a
cumulative effect of a change in accounting principle. This pre-tax charge will
not be offset by a corresponding tax benefit as these expenses relate to the
China Facility which will enjoy a tax holiday for its first three years of
profitable operation. The Company will not report the tax benefits until
realized.

In March 1997 the Company announced that it would discontinue its transportation
business ("Transport"), dispose of the related assets and outsource its future
delivery requirements. Transport had provided freight delivery services to the
Company as well as to other non-related customers. As of May 3, 1997,
substantially all of the costs associated with closing Transport had been paid.
In connection with the disposal of Transport, the Company recorded a loss on
disposal of $488 thousand (net of income tax benefit of $298 thousand). During
fiscal 1997, Transport's loss from operations was $699 thousand (net of income
tax benefit of $426 thousand). For the years ended May 3, 1997 and April 27,
1996, Transport had revenues to outside customers of $5.8 million and $6.5
million, respectively. The net assets of Transport were not material to the
Company.

In connection with the establishment of new credit facilities in the fourth
quarter of 1997 and the third quarter of 1996, the Company recorded
extraordinary charges representing the write-off of previously deferred finance
costs incurred in connection with the respective facilities of approximately
$336 thousand (net of tax benefit of $205 thousand) and $1.4 million (net of tax
benefit of $.8 million), respectively.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents at May 2, 1998 were $7.3 million as compared to $3.2
million at May 3, 1997, and working capital was $31.0 million as compared to
$41.7 million as of the same dates respectively. The current ratio at May 2,
1998 was 1.5 to one as compared to 1.8 to one as of May 3, 1997. The Company has
a cash management program whereby collections of accounts receivable are used to
retire revolver obligations, and payments of accounts payable and accrued
expenses are funded through the revolving credit facility.

Cash flow from operating activities for fiscal 1998 was $46.3 million before
changes in operating assets and liabilities as compared to $46.5 million for the
corresponding prior period, whereas net cash flows provided from operating
activities was $57.2 million as compared to $47.4 million for the same periods.
Cash flows from operations as well as borrowings under the Company's credit
facilities were used to support $61.4 million in capital investments. In
addition, the Company purchased approximately $14.5 million of treasury stock
under the Board of Directors authorized program described below. Further
investment in plant and equipment will be dependent upon business needs and
opportunities. The Company anticipates that capital expenditures will
approximate $35.0 million for all of fiscal 1999 including the completion of the
China Facility. The Company has committed to building a state-of-the-art
manufacturing facility in the city of Guangzhou, China, which will be completed
and operating in the summer of 1998. The facility and related equipment will
require an initial capital investment of approximately $40.0 million, which the
Company has financed through the Company's existing credit facility. Through May
2, 1998, the Company has invested approximately $26.6 million representing costs
associated with the lease of the related land, construction of the manufacturing
facility, purchase of the necessary machinery and equipment and other expenses
associated with the start-up of the facility. The Company anticipates spending
the remaining $13.4 million during fiscal 1999 with funds generated from
operations as well as the existing credit facility.


                                 Page 15 of 45
<PAGE>   16
The Company's Board of Directors has authorized the purchase of the Company's
common stock as follows:

         DATE OF AUTHORIZATION                    AUTHORIZED SHARES
              January 1993                           3.0 million
             December 1995                           3.0 million
               April 1997                           1.86 million

Shares are authorized for purchase from time to time in the open market, subject
to the terms of the Company's credit facility. As of May 2, 1998, 2.7 million
shares remain authorized for purchase. Since May 2, 1998 and through July 1,
1998, the Company purchased an additional 609,000 shares at a total cost of $9.0
million.

To fund the China investment and other global opportunities which may arise over
the next several years and to facilitate its share repurchase program, the
Company entered into a credit facility in May 1997 with its lending banks,
increasing its line of credit to $200 million. The facility consists of $75.0
million of senior term notes and $125.0 million of a long-term revolver which
bear interest, at the discretion of the Company, at either the bank's prime rate
or LIBOR plus between 50 and 100 basis points depending upon certain financial
ratios. The revolving credit is available, in its entirety, without any
borrowing base limitation. At May 2, 1998, the Company had borrowings under the
revolving facility of $77.7 million. The senior term notes will be repaid in
equal quarterly installments through May 2002 at which time the revolver will
mature.

The loan agreement contains covenants related to levels of debt to cash flow,
current assets to current liabilities, fixed charge coverage, net worth and
investments (including investments in the Company's own common stock), and
restricts the amount of retained earnings available for payment of dividends
(other than dividends in the Company's common stock). At May 2, 1998, there was
approximately $19.0 million of retained earnings available for the payment of
dividends.

The Company expects that cash flow from operations together with the borrowing
capacity under the revolving credit facility will be sufficient to meet the
needs of the business.

RECENT ACCOUNTING PRONOUNCEMENTS

Recent pronouncements of the Financial Accounting Standards Board, which are not
required to be adopted at this date, include Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income," SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information" and SFAS
No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits." The adoption of SFAS No. 130 will expand the Company's current
disclosure requirements. The adoption of SFAS No. 131 and SFAS No. 132 are not
expected to have a material impact on the Company's financial statements.


                                 Page 16 of 45
<PAGE>   17
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                         SHOREWOOD PACKAGING CORPORATION
                                AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                                                PAGE

<S>                                                                                                             <C>
Independent Auditors' Report                                                                                    18

Consolidated Financial Statements

              Balance Sheets at May 2, 1998 and May 3, 1997                                                     19

              Statements of Earnings, 52 week period ended May 2, 1998, 53 week period
                              ended May 3, 1997 and 52 week period ended April 27, 1996                         20

              Statements of Cash Flows, 52 week period ended May 2, 1998, 53 week
                              period ended May 2, 1997 and 52 week period ended April 27, 1996                  21

              Statements of  Stockholders' Equity, 52 week period ended May 2, 1998, 53 week
                              period ended May 2, 1997 and 52 week period ended April 27, 1996                  22

              Notes to Financial Statements                                                                     23-36
</TABLE>

                                 Page 17 of 45
<PAGE>   18
INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Stockholders of
Shorewood Packaging Corporation

We have audited the accompanying consolidated balance sheets of Shorewood
Packaging Corporation and subsidiaries as of May 2, 1998 and May 3, 1997 and the
related consolidated statements of earnings, stockholders' equity and cash flows
for the 52 weeks ended May 2, 1998, the 53 weeks ended May 3, 1997 and the 52
weeks ended April 27, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Shorewood Packaging Corporation and
subsidiaries as of May 2, 1998 and May 3, 1997 and the results of their
operations and their cash flows for the 52 weeks ended May 2, 1998, the 53 weeks
ended May 3, 1997 and the 52 weeks ended April 27, 1996 in conformity with
generally accepted accounting principles.



DELOITTE & TOUCHE LLP

/s/ DELOITTE & TOUCHE LLP

New York, New York
June 12, 1998


                                 Page 18 of 45
<PAGE>   19
                SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                        (In thousands except share data)

<TABLE>
<CAPTION>
                                                                                       MAY 2,               MAY 3,
                                                                                        1998                   1997
<S>                                                                               <C>                   <C>
ASSETS
Current Assets:
     Cash, including cash equivalents of $1,341 and $1,292
            in 1998 and 1997                                                           $7,268                 $3,153
     Accounts receivable, net of allowance for doubtful accounts
            of $516 and $440 in 1998 and 1997                                          32,054                 38,998
     Inventories                                                                       46,591                 42,291
     Deferred tax assets                                                                  317                    885
     Refundable income taxes                                                              411                  4,621
     Prepaid expenses and other current assets                                          9,202                  4,584
                                                                                  -----------            -----------
          Total Current Assets                                                         95,843                 94,532
Property, Plant and Equipment, net                                                    200,293                156,156
Excess of Cost Over the Fair Value of Net Assets Acquired, net                         18,295                 19,180
Other Assets                                                                           11,553                  8,010
                                                                                 ------------            -----------
                                                                                     $325,984               $277,878
                                                                                     ========               ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
     Accounts payable                                                                 $33,100                $25,653
     Accrued expenses                                                                  13,887                 10,047
     Income taxes payable                                                               2,864                  2,167
     Current maturities of long-term debt                                              15,000                 15,000
                                                                                   ----------             ----------
          Total Current Liabilities                                                    64,851                 52,867
Long-Term Debt                                                                        126,437                106,856
Other Long-Term Liabilities                                                               794                    713
Deferred Income Taxes                                                                  21,395                 20,211
                                                                                   ----------             ----------
          Total Liabilities                                                           213,477                180,647
                                                                                    ---------               --------

Temporary Equity Relating to Put Options                                                2,710                    875
                                                                                  -----------          -------------

Commitments and Contingencies

Stockholders' Equity:
     Series A preferred stock, $10 par value; 50,000 shares
          authorized, none issued                                                        -                      -
     Preferred stock, $10 par value; 5,000,000 shares authorized
          none issued                                                                    -                      -
     Common stock, $.01 par value; 40,000,000 shares authorized;
          34,106,974 issued and 27,092,100 outstanding in 1998 and
          33,752,013 issued and 27,802,734 outstanding in 1997                            341                    338
     Additional paid-in capital                                                        52,448                 49,343
     Retained earnings                                                                121,976                 95,681
     Cumulative foreign currency translation adjustment                                (4,274)                (2,875)
     Treasury stock (7,014,874 and 5,949,279 shares at
          cost in 1998 and 1997)                                                      (60,694)               (46,131)
                                                                                   ----------             ----------
          Total Stockholders' Equity                                                  109,797                 96,356
                                                                                  -----------             ----------
                                                                                     $325,984               $277,878
                                                                                     ========               ========
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                 Page 19 of 45
<PAGE>   20
                SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF EARNINGS
                      (IN THOUSANDS EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                            52 WEEKS        53 WEEKS        52 WEEKS
                                                              ENDED           ENDED           ENDED
                                                              MAY 2,          MAY 3,        APRIL 27,
                                                              1998            1997             1996
                                                            ---------       ---------       ---------
<S>                                                         <C>             <C>             <C>
Net Sales                                                   $ 415,386       $ 425,312       $ 387,845
                                                            ---------       ---------       ---------
Costs and Expenses:
     Cost of Sales                                            319,728         330,790         303,634
     Selling, General and Administrative                       46,410          46,289          42,263
                                                            ---------       ---------       ---------
                                                              366,138         377,079         345,897
                                                            ---------       ---------       ---------

Earnings from Operations                                       49,248          48,233          41,948
Other Income, net                                                 743             795             571
Interest Expense                                               (7,649)         (8,861)         (8,293)
                                                            ---------       ---------       ---------

Earnings from Continuing Operations Before
     Provision for Income Taxes and Extraordinary Item         42,342          40,167          34,226
Provision for Income Taxes                                     16,047          15,222          12,972
                                                            ---------       ---------       ---------

Earnings from Continuing Operations Before
     Extraordinary Item                                        26,295          24,945          21,254
Discontinued Operations, net of Income Tax Benefit
     of $724 in 1997 and Provision of $70 in 1996                  --          (1,187)            115
Extraordinary Item, net of Income Tax Benefit of
     $205 and $837 in 1997 and 1996                                --            (336)         (1,365)
                                                            ---------       ---------       ---------

Net Earnings                                                $  26,295       $  23,422       $  20,004
                                                            =========       =========       =========

EARNINGS PER SHARE INFORMATION:
BASIC
     Earnings from Continuing Operations Before
        Extraordinary Item                                  $     .97       $     .91       $     .75
     Discontinued Operations                                       --            (.05)            .01
     Extraordinary Item                                            --            (.01)           (.05)
                                                            ---------       ---------       ---------
     Net Earnings Per Common Share                          $     .97       $     .85       $     .71
                                                            =========       =========       =========

DILUTED
     Earnings from Continuing Operations Before
        Extraordinary Item                                  $     .95       $     .89       $     .73
     Discontinued Operations                                       --            (.05)            .01
     Extraordinary Item                                            --            (.01)           (.05)
                                                            ---------       ---------       ---------
     Net Earnings Per Common and Common
        Equivalent Share                                    $     .95       $     .83       $     .69
                                                            =========       =========       =========

WEIGHTED AVERAGE SHARES OUTSTANDING
     BASIC                                                     27,057          27,402          28,323
                                                            =========       =========       =========
     DILUTED                                                   27,723          28,070          29,160
                                                            =========       =========       =========


   The accompanying notes are an integral part of these financial statements.
</TABLE>

                                 Page 20 of 45
<PAGE>   21
                SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                   52 WEEKS        53 WEEKS        52 WEEKS
                                                                    ENDED           ENDED            ENDED
                                                                    MAY 2,          MAY 3,         APRIL 27,
                                                                     1998            1997            1996
<S>                                                               <C>             <C>             <C>
Cash Flows from Operating Activities:
   Net earnings                                                   $  26,295       $  23,422       $  20,004
   Adjustments to reconcile net earnings to net
      cash flows provided from operations:
         Depreciation and amortization                               17,874          17,214          14,231
         Deferred income taxes                                        1,888           5,182           3,758
         Non-cash restricted stock compensation                         241             656             279
         Changes in operating assets and liabilities:
            Accounts receivable                                       6,468           5,585          (3,589)
            Inventories                                              (4,762)         (1,661)          5,175
            Prepaid expenses and other current assets                (4,655)            102          (1,216)
            Other assets                                             (2,503)         (1,349)         (2,651)
            Accounts payable, accrued expenses and
               other long term liabilities                           11,362            (560)         (6,726)
            Current income taxes                                      4,944          (1,162)           (188)
                                                                  ---------       ---------       ---------
Net cash flows provided from operating activities                    57,152          47,429          29,077
                                                                  ---------       ---------       ---------

Cash Flows from Investing Activities:
   Capital Expenditures                                             (61,410)        (20,794)        (37,429)
   Business Acquisitions                                                 --          (5,000)         (1,146)
                                                                  ---------       ---------       ---------
Net cash flows used in investing activities:                        (61,410)        (25,794)        (38,575)
                                                                  ---------       ---------       ---------

Cash Flows from Financing Activities:
   Net proceeds from revolver borrowings                             31,070          14,706          21,006
   Additions to long-term borrowings                                     --          75,000          26,000
   Repayments of long-term borrowings                               (11,250)       (114,000)        (21,500)
   Purchase of treasury stock                                       (14,563)         (6,619)        (17,277)
   Issuance of common stock                                           2,864           7,334           1,465
                                                                  ---------       ---------       ---------
Net cash flows provided from (used in) financing activities           8,121         (23,579)          9,694
                                                                  ---------       ---------       ---------

Effect of exchange rate changes on cash and cash equivalents            252             618             183
                                                                  ---------       ---------       ---------

Increase (decrease) in cash and cash equivalents                      4,115          (1,326)            379
Cash and cash equivalents at beginning of period                      3,153           4,479           4,100
                                                                  ---------       ---------       ---------

Cash and cash equivalents at end of period                        $   7,268       $   3,153       $   4,479
                                                                  =========       =========       =========


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

   Interest paid, net of capitalized amounts                      $   5,553       $  10,504       $   8,321
                                                                  =========       =========       =========
   Income taxes paid                                              $   9,252       $  11,359       $   8,872
                                                                  =========       =========       =========
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                 Page 21 of 45
<PAGE>   22
                SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                        (In thousands except share data)

<TABLE>
<CAPTION>
                                                                                           Cumulative
                                                                                             Foreign
                                        Common Stock           Additional                   Currency
                                    Shares                      Paid-In       Retained     Translation     Treasury
                                    Issued        Amount        Capital       Earnings     Adjustments      Stock          Total
                                  ----------    ----------    ----------     ----------    ----------     ----------     ----------
<S>                               <C>           <C>           <C>            <C>           <C>            <C>            <C>
Balance, April 29, 1995           32,434,089    $      324    $   38,562     $   52,255    $   (1,497)    $  (22,235)    $   67,409
Issuance of common stock             360,317             4         1,918             --            --             --          1,922
Purchase of treasury stock                --            --            --             --            --        (17,277)       (17,277)
Net earnings, 52 weeks
   ended April 27, 1996                   --            --            --         20,004            --             --         20,004
Foreign currency
   translation adjustments                --            --            --             --          (622)            --           (622)
                                  ----------    ----------    ----------     ----------    ----------     ----------     ----------
Balance, April 27, 1996           32,794,406           328        40,480         72,259        (2,119)       (39,512)        71,436
Issuance of common stock
   and warrant                       957,607            10         9,738             --            --             --          9,748
Purchase of treasury stock                --            --            --             --            --         (6,619)        (6,619)
Net earnings, 53 weeks
   ended May 3, 1997                      --            --            --         23,422            --             --         23,422
Temporary equity
   relating to put options                --            --          (875)            --            --             --           (875)
Foreign currency
   translation adjustments                --            --            --             --          (756)            --           (756)
                                  ----------    ----------    ----------     ----------    ----------     ----------     ----------
Balance, May 3, 1997              33,752,013           338        49,343         95,681        (2,875)       (46,131)        96,356
Issuance of common stock
   and warrant                       354,961             3         4,940             --            --             --          4,943
Purchase of treasury stock                --            --            --             --            --        (14,563)       (14,563)
Net earnings, 52 weeks
   ended May 2, 1998                      --            --            --         26,295            --             --         26,295
Temporary equity
   relating to put options                --            --        (1,835)            --            --             --         (1,835)
Foreign currency
   translation adjustments                --            --            --             --        (1,399)            --         (1,399)
                                  ----------    ----------    ----------     ----------    ----------     ----------     ----------
Balance, May 2, 1998              34,106,974    $      341    $   52,448     $  121,976    $   (4,274)    $  (60,694)    $  109,797
                                  ==========    ==========    ==========     ==========    ==========     ==========     ==========
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                 Page 22 of 45
<PAGE>   23
                SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        (In thousands except share data)


1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a)   Principles of consolidation

The consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly-owned. All significant intercompany
balances and transactions have been eliminated in consolidation.

(b)   Recognition of revenue

The Company reports revenue, with the related costs, in the accounting period in
which goods are shipped to the customer.

(c)   Statement of cash flows

The Company considers all highly liquid temporary investments with original
maturities of three months or less to be cash equivalents.

(d)   Inventories

Inventories are valued at the lower of cost or market. Cost is determined
principally on the first-in, first-out (FIFO) method. Components of inventory
include materials, labor and overhead costs.

(e)   Depreciation and amortization

The Company computes depreciation and amortization of property, plant and
equipment substantially by the straight line method over the shorter of the
estimated useful lives or lease periods of the respective assets. The excess of
purchase price over the fair value of net assets of businesses acquired is
amortized over periods ranging from 10 to 40 years on a straight line basis.

The Company periodically evaluates the possible impairment of the excess of cost
over the fair value of net assets acquired and recorded amounts of property,
plant and equipment by comparing the estimated future undiscounted cash flows
from the acquired operations or the related assets, respectively, to the net
carrying value of the related asset.

(f)   Income taxes

The Company and its domestic subsidiaries file a consolidated Federal income tax
return. Deferred taxes are provided for the income tax effects of temporary
differences in reporting transactions for financial reporting and tax reporting
purposes.

The Company records income taxes under the liability method as required by
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes". Under the liability method, deferred tax assets and liabilities are
determined based on the differences between the financial accounting and tax
basis of assets and liabilities. Deferred tax assets or liabilities at the end
of each period are determined using the currently enacted tax rate.



                                 Page 23 of 45
<PAGE>   24
United States ("U.S.") income taxes with respect to the undistributed earnings
of the Company's foreign subsidiaries have not been provided since it is the
intention of management that the undistributed earnings will be reinvested or
transferred to the Company without giving rise to U.S. tax liabilities. The
total amount of unremitted earnings of non-U.S. subsidiaries was approximately
$65 million at May 2, 1998.

(g)   Stock-Based Compensation

The Company applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for stock-based compensation awards.
Accordingly, no compensation cost has been recognized for stock options
granted under the Plans.

(h)   Foreign currency translation

Assets and liabilities of foreign subsidiaries are translated into U.S. dollars
at fiscal period-end exchange rates and revenues and expenses are translated on
a monthly basis at weighted average exchange rates for the respective month.
Gains and losses arising from translation are recorded as foreign currency
translation adjustments, a component of stockholders' equity. Foreign currency
transaction gains and losses are included in determining net earnings.

(i)   Share information

All share and per share data have been retroactively adjusted to reflect the 3
for 2 stock split effected in May, 1998.

The Company has adopted Statement of Financial Accounting Standards No. 128
"Earnings per Share". Under this statement, basic weighted average shares
outstanding does not include the dilutive effect of outstanding stock options
and warrants. Diluted weighted average common and common equivalent shares
outstanding include the dilutive effect of outstanding stock options and
warrants for all periods presented.

(j)   Financial Instruments

Derivative financial instruments are used by the Company in the management of
its interest rate exposures and are accounted for on the accrual basis. Income
and expense are recorded as a component of interest expense. Gains realized on
the termination of interest rate swaps contracts (accounted for as hedges) are
deferred and amortized over the remaining terms of the original swap agreements.

(k)   Use of Estimates in the Preparation of Financial Statements

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

(l)   Business segment

The Company and its subsidiaries operate in one business segment, providing
printed packaging products to the entertainment, cosmetic, tobacco and other
consumer product industries.

(m)   Fiscal periods

Reference to 1998, 1997 and 1996 in the accompanying notes to the consolidated
financial statements refer to the fiscal periods ending May 2, 1998, May 3, 1997
and April 27, 1996, respectively.


                                 Page 24 of 45
<PAGE>   25
(n)   Reclassifications

Certain reclassifications have been made to the prior years balances to conform
with the current year's presentation.

2.    BUSINESS ACQUISITIONS AND INVESTMENTS

Premium Group Acquisition

Effective January 1, 1994, the Company purchased certain of the United States
and Canadian assets of the Premium Packaging Group of Cascade Paperboard
International, Inc. (the "Premium Group"). In connection with this acquisition,
the Company had $5.0 million of contingent consideration accrued as of April 27,
1996. This amount was paid in May, 1996. In addition, the Company issued to the
seller a warrant for 52,500 shares of the Company's common stock at an exercise
price of $9.00 per share. The seller exercised the warrant in December 1997.

Other Investment

In 1996, the Company acquired, for approximately $1.1 million, a 25% interest in
a company that develops and manufactures holographic images on film. The
agreement provides the Company with an option to acquire up to 51% of the
investee under certain conditions, and provides the Company with the right of
first refusal to acquire the remaining 49%. This investment was funded through
the Company's revolving line of credit. The operations of this investee are not
material to the operations of the Company.

The investment was recorded using the equity method of accounting and
accordingly, the Company has recorded its proportionate share of the net results
of the investee since the date of the investment. In connection with the
investment, the Company recorded approximately $830 thousand representing the
excess of cost over the Company's portion of the fair value of the net assets of
the investee at the date of the investment.

<TABLE>
<CAPTION>
                                              MAY 2,         MAY 3,
                                              1998            1997
                                            --------        --------
<S>                                         <C>             <C>
Excess of cost over the fair value of
businesses acquired                         $ 20,809        $ 20,960
Accumulated amortization                      (2,514)         (1,780)
                                            --------        --------
                                            $ 18,295        $ 19,180
                                            ========        ========
</TABLE>

3.    INVENTORIES

<TABLE>
<CAPTION>
                                  MAY 2,      MAY 3,
                                  1998          1997
                                -------       -------
<S>                             <C>           <C>
Raw material and supplies       $17,862       $16,432
Work in process                   7,833         8,209
Finished Goods                   20,896        17,650
                                -------       -------
                                $46,591       $42,291
                                =======       =======
</TABLE>

4.    PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are recorded at historical cost. Depreciation and
amortization of property, plant and equipment from continuing operations was
$15.9 million, $15.3 million and $13.0 million in 1998, 1997 and 1996,
respectively. Capitalized interest costs related to the construction of plant
and equipment were $1.9 million, $450 thousand and $1.1 million in 1998, 1997,
and 1996, respectively.


                                 Page 25 of 45
<PAGE>   26
<TABLE>
<CAPTION>
                                RANGE OF
                                  USEFUL      MAY 2,       MAY 3,
                                   LIFE        1998         1997
                              ---------------------------------------
<S>                           <C>              <C>         <C>
Land                                -          $  5,686    $  4,022
Building and improvements     30-40 years        43,959      43,739
Machinery and equipment        7-13 years       219,521     174,688
Leasehold improvements              -             5,818       5,715
Construction in progress            -            16,208       7,674
                                               --------    --------
                                                291,192     235,838
Accumulated depreciation and
amortization                                    (90,899)    (79,682)
                                               --------    --------
                                               $200,293    $156,156
                                               ========    ========
</TABLE>

5.    ACCRUED EXPENSES

<TABLE>
<CAPTION>
                                               MAY 2,        MAY 3,
                                                1998          1997
                                              -------       -------
<S>                                           <C>           <C>
Accrued salaries, employee benefits and
payroll taxes                                 $ 6,842       $ 6,363
Other accrued expenses                          7,045         3,684
                                              -------       -------
                                              $13,887       $10,047
                                              =======       =======
</TABLE>

6.    LONG-TERM DEBT/FINANCE AGREEMENTS

<TABLE>
<CAPTION>
                            MAY 2,          MAY 3,
                            1998             1997
                         ---------        ---------
<S>                      <C>              <C>
Senior term notes        $  63,750        $  75,000
Long-term revolver          77,687           46,856
                         ---------        ---------
                           141,437          121,856
Current maturities         (15,000)         (15,000)
                         ---------        ---------
                         $ 126,437        $ 106,856
                         =========        =========
</TABLE>

In order to facilitate the Company's expansion into China, effectuate the
Company's stock repurchase program and other global opportunities which may
arise over the next several years, on May 2, 1997, the Company entered into a
new credit agreement with its lending banks to replace its existing credit
facility. The new credit facility provides for up to $200 million of borrowings
and consists of a $75 million term loan to be paid in equal quarterly
installments over five years and a $125 million revolving credit facility
maturing at the end of five years. The revolving credit is available, in its
entirety, without any borrowing base limitation. Borrowings pursuant to the
facility bear interest at the discretion of the Company, at either the bank's
prime rate (8.5% at May 2, 1998) or at the LIBOR rate (three month term of 5.72%
at May 2, 1998) plus 50 to 100 basis points based upon financial ratios as
defined in the underlying agreement (75 basis points at May 2, 1998). Unused
commitment fees will range from 17.5 to 30 basis points (25 basis points at May
2, 1998 based upon the same financial ratios). The Company had $1.6 million in
outstanding letters of credit under the credit facility at May 2, 1998.

In connection with the establishment of new credit facilities in the fourth
quarter of 1997 and the third quarter of 1996, the Company recorded net of tax
extraordinary charges representing the write-off of previously deferred finance
costs incurred in connection with the respective facilities of approximately
$336 thousand and $1.4 million, respectively.


                                 Page 26 of 45
<PAGE>   27
The underlying loan agreement for the borrowings referred to above includes
covenants related to levels of debt to cash flow, current assets to current
liabilities, fixed charge coverage, net worth and investments (including
investments in the Company's own common stock), and limits the amount of
retained earnings available for payment of dividends (other than dividends in
the Company's common stock). At May 2, 1998, there was approximately $19.0
million of retained earnings available for the payment of dividends. The
borrowings are collateralized by substantially all of the capital stock of the
Company's subsidiaries.

Based upon the borrowing rates currently available to the Company for bank loans
with similar terms, the fair value of the senior long-term debt approximates the
carrying value.

Aggregate maturities of long-term debt are as follows:

<TABLE>
<S>                                 <C>
         Fiscal year ending:
               1999                 $  15,000
               2000                    15,000
               2001                    15,000
               2002                    96,437
                                    ---------
                                    $ 141,437
                                    =========
</TABLE>

The effective interest rate on the Company's borrowings was 6.76%, 6.69% and
6.74% in 1998, 1997 and 1996, respectively.

Interest Rate Swap Agreements

At May 2, 1998, the Company had two outstanding intermediate-term interest rate
swap agreements. Under the first agreement which relates to $35.0 million of
borrowings under the credit facility, the Company pays a fixed rate of 6.19% and
receives a floating rate based on LIBOR, as determined in three-month intervals.
This agreement terminates May 5, 1998. Under the second agreement which relates
to $50.0 million of borrowings under the credit facility, the Company pays a
fixed rate of 5.76% and receives a floating rate based on LIBOR, as determined
in three-month intervals. This agreement terminates November 3, 1998. The
agreement may be extended at the discretion of the financial institution for an
additional year.

In October 1997, the Company entered into an intermediate-term interest rate
swap agreement relating to approximately $35.0 million of borrowings under the
credit facility. Under the agreement, the Company pays a fixed rate of 5.74% and
receives a floating rate based on LIBOR, as determined in three-month intervals.
The agreement begins on May 5, 1998 and terminates May 5, 1999. The agreement
may be extended at the discretion of the financial institution for an additional
year.

In July 1997, the Company entered into a reversion swap agreement relating to
$50.0 million of borrowings under the credit facility. Under the agreement, the
Company pays a fixed rate of 5.73% and receives a floating rate based on LIBOR,
as determined in three month intervals. This agreement terminates in April 2002.
After the first year, however, the fixed rate reverts back to floating for any
three month period during which the LIBOR rate exceeds 6.625%. The rate reverts
back to the fixed rate of 5.73% for any subsequent period for which the LIBOR
rate drops below 6.625%.

These transactions effectively change a portion of the Company's interest rate
exposure from a floating-rate to a fixed-rate basis.

The fair value of the interest rate swap agreements are immaterial to the
financial statements of the Company.


                                 Page 27 of 45
<PAGE>   28
7.    INCOME TAXES

Earnings from continuing operations before provision for income taxes and
extraordinary item is comprised of the following:

<TABLE>
<CAPTION>
                     MAY 2,        MAY 3,      APRIL 27,
                     1998          1997          1996
                    -------       -------       -------
<S>                 <C>           <C>           <C>
United States       $20,391       $17,248       $16,428
Foreign              21,951        22,919        17,798
                    -------       -------       -------
                    $42,342       $40,167       $34,226
                    =======       =======       =======
</TABLE>

The provision for income taxes is comprised of the following:

<TABLE>
<CAPTION>
                    MAY 2,       MAY 3,       APRIL 27,
                    1998          1997          1996
                  -------       -------       -------
<S>               <C>           <C>           <C>
Current
    Federal       $ 5,782       $ 1,893       $ 2,840
    State             884           579           630
    Foreign         7,493         7,568         5,744
                  -------       -------       -------
                   14,159        10,040         9,214
                  -------       -------       -------
Deferred
    Federal           846         3,467         2,730
    State             504           810           266
    Foreign           538           905           762
                  -------       -------       -------
                    1,888         5,182         3,758
                  -------       -------       -------
                  $16,047       $15,222       $12,972
                  =======       =======       =======
</TABLE>

The Company's effective tax rate differs from the statutory U. S. Federal
income tax rate as a result of the following:

<TABLE>
<CAPTION>
                                         MAY 2,         MAY 3,        APRIL 27,
                                          1998           1997           1996
                                         ------         ------         ------
<S>                                      <C>            <C>            <C>
Statutory U.S. Federal tax rate            35.0%          35.0%          35.0%
State income taxes, net of Federal
benefit                                     2.1            2.2            1.7
Foreign income tax rate
differentials                               1.3            1.1             .8
Other                                       (.5)           (.4)            .4
                                         ------         ------         ------
                                           37.9%          37.9%          37.9%
                                         ======         ======         ======
</TABLE>


                                 Page 28 of 45
<PAGE>   29
The tax effects of significant items comprising the Company's net deferred tax
liability are as follows:

<TABLE>
<CAPTION>
                                         MAY 2,          MAY 3,         APRIL 27,
                                          1998            1997            1996
                                        --------        --------        --------
<S>                                     <C>             <C>             <C>
Deferred tax asset (liability):
    Property, plant and equipment       $(22,740)       $(20,366)       $(15,603)
    Other assets                             645             155            (422)
    Accounts receivable                      141             140             163
    Inventories                              600             941             607
    Accrued expenses                          48             153             140
    State net operating loss and
        investment tax
        credit carryforwards               2,430           1,912           1,375
    Employee benefits                        137              86             209
    Other current assets                    (609)           (617)             30
                                        --------        --------        --------
                                         (19,348)        (17,596)        (13,501)
   Valuation Allowance                    (1,730)         (1,730)           (765)
                                        --------        --------        --------
                                        $(21,078)       $(19,326)       $(14,266)
                                        ========        ========        ========
</TABLE>

The valuation allowance has been provided against state net operating loss and
investment tax credit carryforwards to reduce them to an amount that will more
likely than not be realized.

8.    COMMITMENTS AND CONTINGENCIES

(a)   Lease Agreements

The Company is committed for annual rentals under noncancellable operating
leases for production and office facilities expiring on various dates through
2010. Several leases include one year renewal options. The minimum future rental
commitments under noncancellable leases, exclusive of taxes and utilities, are
as follows:

<TABLE>
<S>                                   <C>
Fiscal year ending:
               1999                   $ 2,373
               2000                     2,040
               2001                     1,546
               2002                       946
               2003                       939
            Thereafter                  8,425
                                      -------
                                      $16,269
                                      =======
</TABLE>

Rent expense under operating leases from continuing operations approximated $2.8
million, $3.1 million and $2.8 million in 1998, 1997 and 1996, respectively.

(b)   Treasury Stock

The Company's Board of Directors has authorized the purchase of the Company's
common stock as follows:

<TABLE>
<CAPTION>
       DATE OF AUTHORIZATION                  AUTHORIZED SHARES
<S>                                           <C>
            January 1993                         3.0 million
           December 1995                         3.0 million
             April 1997                          1.86 million
</TABLE>


                                 Page 29 of 45
<PAGE>   30
Shares are authorized for purchase from time to time in the open market, subject
to the terms of the Company's credit facility. As of May 2, 1998, 2.7 million
shares remain authorized for purchase. Since May 2, 1998 and through July 1,
1998, the Company purchased an additional 609,000 shares at a total cost of $9.0
million.

 (c)  New Facility

The Company has committed to building a state-of-the-art manufacturing facility
in the city of Guangzhou, China (the "China Facility"), which will be completed
and operating in the summer of 1998. The facility and related equipment will
require an initial capital investment of approximately $40.0 million, which the
Company has financed through the Company's existing credit facility. Through May
2, 1998, the Company has invested approximately $26.6 million representing costs
associated with the lease of the related land, construction of the manufacturing
facility, purchase of the necessary machinery and equipment and other expenses
associated with the start-up of the facility. In connection with the start-up of
the facility, the Company has incurred and capitalized certain start-up costs
aggregating approximately $3.0 million. On April 3, 1998, Statement of Position
Number 98-5, "Reporting on the Costs of Start-Up Activities" was issued by the
American Institute of Certified Public Accountants, which requires the expensing
of the start-up costs when incurred. Although adoption is not required until
fiscal 2000, the Company plans to adopt this Statement of Position in fiscal
1999. Accordingly, the Company will record a $3.0 million pre-tax charge in its
first quarter of fiscal 1999 as a cumulative effect of a change in accounting
principle. This pre-tax charge will not be offset by a corresponding tax benefit
as these expenses relate to the China Facility which will enjoy a tax holiday
for its first three years of profitable operation. The Company will not report
the tax benefits until realized. The Company anticipates spending the remaining
$13.4 million during fiscal 1999 with funds generated from operations as well as
the existing credit facility.

(d)   Other Matters

On a continuing basis, the Company monitors its compliance with applicable
environmental laws and regulations. As part of this process the Company
cooperates with appropriate governmental authorities to perform any necessary
testing and compliance procedures. The Company is not currently aware of any
environmental compliance matters that it believes will have a material effect on
the consolidated financial statements.

9.    STOCKHOLDERS' EQUITY

(a)    Stock Incentive Plans

In October 1990, the Company made available for future grant options to acquire
900,000 shares of common stock under a nonqualified stock option plan. In July
1993, the Company established the 1993 Incentive Program (the "1993 Program").
The 1993 Program permits the granting of any or all of the following types of
awards: (i) stock options, including incentive stock options ("ISO's"), (ii)
stock appreciation rights ("SAR's"), in tandem with stock options or
freestanding, (iii) restricted stock, (iv) director's options, and (v) restored
options. Under the 1993 Program, 1.5 million shares were initially made
available for grant. In 1998, the Board of Directors authorized, and the
shareholders approved, an additional 1.5 million shares available for future
grant under the 1993 Program. Shares available for grant may be increased in
certain circumstances not to exceed a total of 4.5 million shares available
under the 1993 Program. Options granted prior to December 1994 become
exerciseable over four years from the date of grant at a rate of 25% each year,
and expire five years from the date of grant. Grants made subsequent to November
1994 become exerciseable over five years from the date of grant at the rate of
20% of the grant each year, and expire 10 years from the date of grant. Options
previously authorized under the 1990 plan which were not granted as of April 27,
1996 were considered to have lapsed and are no longer available for future
grant.


                                 Page 30 of 45
<PAGE>   31
A summary of changes in stock options and awards follows:

<TABLE>
<CAPTION>
                                      Options              Outstanding Options
                                    Available for     ---------------------------------
                                    Future Grant         Number         Price Per Share
                                    ------------         ------         ---------------
<S>                                 <C>               <C>              <C>
Balance April 30, 1995                 961,052         1,473,941        $ 3.71 - $13.50
    Restricted Stock Award             (10,139)             --                     --
    Options granted                   (331,523)          331,523        $ 9.50 - $10.67
    Options exercised                     --            (156,201)       $ 3.71 - $ 9.17
    Options canceled                    47,813           (47,813)       $ 4.67 - $ 9.17
                                    ----------        ----------        ---------------
Balance April 27, 1996                 667,203         1,601,450        $ 4.67 - $13.50
     Increase in 1993 Program           35,459              --
     Options granted                  (449,843)          449,843        $10.92 - $12.08
     Options exercised                    --            (502,289)       $ 4.67 - $12.67
     Options canceled                   42,149           (42,149)           $11.00
     Options lapsed                   (288,192)             --                     --
                                    ----------        ----------        ---------------
Balance May 3, 1997                      6,776         1,506,855        $ 5.76 - $13.50
     Increase in 1993 Program        1,571,979              --                     --
     Restricted Stock Award            (69,973)             --                     --
     Options granted                  (336,750)          336,750        $14.00 - $16.58
     Options exercised                    --            (232,488)       $ 5.76 - $12.67
     Options canceled                   52,390           (52,390)       $ 5.76 - $12.67
                                    ----------        ----------        ---------------
Balance May 2, 1998                  1,224,422         1,558,727        $ 5.76 - $16.58
                                    ==========        ==========        ===============
</TABLE>


                               Options Outstanding

<TABLE>
<CAPTION>
                                          Weighted Average
        Range of           Number of          Remaining
        Exercise           Options           Contractual        Weighted Average
         Prices           Outstanding       Life (in Years)      Exercise Price
        --------          -----------      ----------------     ----------------
<S>                       <C>                    <C>                   <C>  
    $  5.76 - $ 8.67         36,375               .4                   $ 7.51
    $  8.68 - $11.33        818,429              6.3                   $10.45
    $ 11.34 - $16.58        703,923              6.4                   $13.79
                          ---------              ---                   ------
                          1,558,727              6.3                   $11.90
                          =========              ===                   ======
</TABLE>

                              Options Exerciseable

<TABLE>
<CAPTION>
                                            Weighted Average
        Range of            Number of           Remaining
        Exercise            Options            Contractual       Weighted Average
         Prices            Exerciseable       Life (in Years)     Exercise Price
<S>                        <C>              <C>                  <C>
    $  5.76 - $ 8.67           36,375               .3                  6.27
    $  8.68 - $11.33          417,341              4.9                $10.13
    $11.34 -  $16.58          246,133              1.9                $12.11
                              -------              ---                ------
                              699,849              3.6                $10.63
                              =======              ===                ======
</TABLE>

During 1998 the Company issued 75,000 shares of restricted stock to certain key
employees and 5,027 shares of restricted stock issued in 1995 were forfeited.
All or a portion of the shares issued in 1998 may vest in 2001 based upon the
market performance of the Company's common stock. Shares that do not vest in
2001 will otherwise vest at the end of fiscal 2006 if the employees continue to
be employed by the Company. During 1996, the Company issued a net 10,139 shares
of restricted stock to certain key employees. At the end of 1997, based upon the
performance of the Company's common stock, 90,946


                                 Page 31 of 45
<PAGE>   32
shares of previously issued restricted stock vested and a remaining 85,911
shares will vest at the end of fiscal 2002 if the employees continue to be
employed by the Company.

In 1997, the Company granted an option to purchase 225,000 shares at $12.08 per
share (the fair market value at the date of grant) to the Chief Executive
Officer and President ("the Executive"). These options are not pursuant to any
of the previously described plans. The option vests immediately, has demand
registration rights and expires ten years from the date of the grant.

(b)   Accounting for Stock-Based Compensation

Under Statement of Financial Accounting Standards No. 123 "Accounting for
Stock-Based Compensation" ("SFAS 123"), the fair value of stock-based awards to
employees is calculated through the use of option pricing models, even though
such models were developed to estimate the fair value of freely tradable, fully
transferable options without vesting restrictions, which significantly differ
from the Company's stock option awards. These models also require subjective
assumptions, including future stock price volatility and expected time to
exercise, which greatly affect the calculated values. The Company adopted the
disclosure-only provisions of SFAS 123 and accordingly, no compensation cost was
recognized in connection with its stock option plans. Had the Company elected to
recognize compensation cost for its stock option plans based upon the calculated
fair value at the grant dates for awards issued after April 30, 1995 under such
plans, consistent with the method prescribed by SFAS 123, net income and
earnings per share would reflect the pro forma amounts indicated below (in
thousands except per share data)

<TABLE>
<CAPTION>
                                                                                      FOR THE YEARS ENDED
                                                                       MAY 2, 1998        MAY 3, 1997    APRIL 27, 1996
                                                                       -----------        -----------    --------------
<S>                                                 <C>                <C>                <C>            <C>
Earnings from Continuing
Operations
     Before Extraordinary Item                      As reported           $26,295           $24,945         $21,254
                                                    Pro forma              25,743            24,673          21,197

Net Earnings                                        As reported           $26,295           $23,422         $20,004
                                                    Pro forma              25,743            23,150          19,947
--------------------------------------------------------------------------------------------------------------------
Earnings Per Share Information:
     BASIC:
          Earnings from Continuing Operations
               Before Extraordinary Item            As reported           $   .97           $   .91         $   .75
                                                    Pro forma                 .95               .90             .75

          Net Earnings                              As reported               .97               .85             .71
                                                    Pro forma                 .95               .84             .70

     DILUTED:
          Earnings from Continuing Operations
               Before Extraordinary Item            As reported           $   .95           $   .89         $   .73
                                                    Pro forma                 .94               .88             .73

          Net Earnings                              As reported               .95               .83             .69
                                                    Pro forma                 .94               .83             .68
</TABLE>


The Company's calculations were made using the Black-Scholes option pricing
model with the following assumptions: expected life, 5 years; 5.42% risk free
interest rate; assumed volatility of 24.66%; and no dividends during the
expected term.


                                 Page 32 of 45
<PAGE>   33
(c)   Common Stock Purchase Warrants

In fiscal 1996, the Company issued a warrant to purchase 300,000 shares of its
common stock at an exercise price of $10.00 per share to a customer who
concurrently entered into a five year supply agreement (which has since been
modified). The warrants are exerciseable immediately upon issuance and expire in
July 2001. During fiscal 1998, the supply agreement was modified and extended
and the Company concurrently issued warrants to purchase 525,000 shares of its
common stock to the customer. The warrant is exerciseable immediately at $12.25
and expires in May 2002. The modified supply agreement expires in May 2003. The
fair value of the warrants at the date of their respective issuances were
$900,000 and $1,838,000, respectively, which are being amortized on a straight
line basis over the respective term of the supply agreements.

During fiscal 1996, as amended in fiscal 1997, the Company issued warrants to
purchase 600,000 shares of its common stock to a customer who concurrently
entered into a long-term supply agreement with the Company. The warrant is
exerciseable immediately at $10.00 per share (the market value at the date of
grant) and expires September 1, 2001. At such time as the customer may exercise
the warrant, any cash volume discount previously paid to the customer (and
charged to the Company's operations) based upon minimum levels of purchases will
be refunded to the Company and included in additional paid-in-capital.

During 1993, the Company issued a warrant to purchase 450,000 shares of its
common stock at an exercise price of $4.58 per share to a customer who
concurrently entered into a long-term supply agreement with the Company. The
customer was given the choice of either exercising the warrant or receiving a
cash volume rebate based upon certain minimal levels of purchases from the
Company during the term of the agreement. The warrant was exerciseable
immediately upon issuance, whereas the cash volume rebate, if any, was to be
paid after the expiration of the agreement. The customer exercised the warrant
in the fourth quarter of 1997, and the related accrual for the cash volume
rebate totaling $855 thousand, was transferred to additional paid-in capital.

(d)   Reserved Shares

At May 2, 1998, there were 4,470,649 common shares reserved for issuance under
the stock incentive plans, outstanding options and warrants.

(e)   Preferred Stock Purchase Rights

On May 4, 1995, the Board of Directors declared a dividend of one preferred
share purchase right (a "Right") for each outstanding share of common stock.
Each Right entitles the holder to purchase from the Company one one-hundredth of
a share of Series B Junior Participating Preferred Stock at a price of $17.00
per one one-hundredth of a preferred share. The Rights are exerciseable only if
an acquiring person acquires, or announces the intention to acquire, 25% or more
beneficial ownership of the outstanding common shares. The effect of the Rights
plan is to provide to the Company's stockholders the right, upon the occurrence
of an acquisition, tender offer or business combination transaction, to exchange
the preferred shares for common stock at a fraction of the then-current market
price of the common stock. The Rights expire on June 14, 2005 unless extended.
The Rights are subject to other restrictions and terms as described in the
Rights Agreement.

(f)   Temporary Equity Relating to Put Options

The Company periodically sells common equity put options ("put options") on
shares of its common stock which are exerciseable six months from the date of
issuance. At May 2, 1998, 168,000 options were outstanding at strike prices
ranging from $15.18 to $16.83 per share.

Temporary equity relating to put options on the accompanying consolidated
balance sheets represent the amount the Company would be obligated to pay if all
unexpired put options were exercised.


                                 Page 33 of 45
<PAGE>   34
(g)   Related Party Transactions

A firm whose president and principal shareholder is a director of the Company
exercised options in 1996 to purchase 22,232 common shares of the Company at an
exercise price of $3.35 per share. In connection with the other investment
described in Note 2, this firm received an option to purchase 37,500 shares of
the Company's common stock at an exercise price of $9.00.

In May 1995, the Company loaned $2.0 million (included in other assets) to the
Executive. The loan is due on May 4, 2000, and bears interest payable quarterly
equal to the Applicable Federal Rate as defined (5.39% at May 2, 1998), adjusted
monthly. Mandatory prepayments of this loan are required if the Executive's
compensation exceeds certain thresholds. No prepayment was required for 1996 and
the compensation committee of the Board of Directors waived the required
prepayment for 1997 and 1998. In March 1996 the Company loaned the Executive an
additional $800 thousand which was repaid in December 1996. Interest income
related to these loans was $113 thousand, $153 thousand and $115 thousand in
1998, 1997 and 1996, respectively.

The Company agreed to guaranty a portion of an $8.5 million loan made by a bank
to the Executive in connection with his purchase of certain real estate. The
Company's maximum liability under the guaranty is $3.0 million. The guaranty
will terminate at such time as $4.3 million of the loan has been repaid by the
Executive provided that: i) the unpaid portion of the loan is less than 75% of
the then fair market value of the related real estate which was mortgaged to
secure the loan; ii) the Executive's annual compensation meets or exceeds the
level of annual compensation at the date of the guaranty; and iii) there are no
defaults under the loan agreement. Pursuant to the terms of the loan agreement,
a prepayment of $2.0 million was originally required to be made in each of
November 1997, February 1998 and May 1998, with the remaining balance due in
August 1998. In consideration for the Company's guaranty, the Executive agreed
to pay to the Company a monthly fee of 1% per annum of the outstanding guaranty
amount and to reimburse the Company for expenses incurred in connection with the
guaranty. In December 1997 and May 1998, the underlying loan agreement was
modified, waiving the November 1997 and May 1998 payments, respectively, and
increasing the August 1998 payment to $6.5 million from the original amount of
$2.5 million. The February 1998 payment was made.

In April 1998, the Company loaned $630 thousand to its Executive Vice President
and Chief Financial Officer ("EVP"). The loan bears interest at 6.5%, is
collateralized by a first mortgage on a residential property and is due in
annual installments beginning in August 1999 and continuing through August 2013.
The EVP has the right to prepay the loan at his option.

10.   DISCONTINUED OPERATIONS

In March 1997 the Company announced that it would discontinue its transportation
business ("Transport"), dispose of the related assets and outsource its future
delivery requirements. Transport had provided freight delivery services to the
Company as well as to other non-related customers. In connection with the
disposal of Transport, the Company recorded a loss on disposal of $488 thousand
(net of income tax benefit of $298 thousand). During fiscal 1997, Transport's
loss from operations was $699 thousand (net of income tax benefit of $426
thousand). For the years ended May 3, 1997 and April 27, 1996 Transport had
revenues to outside customers of $5.8 million and $6.5 million, respectively.
The net assets of Transport were not material to the Company. As of May 3, 1997,
substantially all of the costs associated with closing Transport had been paid.


                                 Page 34 of 45
<PAGE>   35
11.   EMPLOYEE BENEFIT PLANS

(a)   Defined Contribution Plans

The Company has profit sharing plans as well as employee savings plans. Based
upon the provisions of each employee savings plan, the Company matches a portion
of the employees' voluntary contributions. The amounts contributed to the profit
sharing plan in the United States are at the discretion of the Board of
Directors, whereas the amounts contributed to the profit sharing plans in Canada
are at the percentages provided for by the respective plans. Total provisions
with respect to defined contribution plans approximated $2.9 million, $2.8
million and $2.2 million in 1998, 1997 and 1996, respectively.

(b)   1995 Performance Bonus Plan

In July 1995, the Board of Directors approved the 1995 Performance Bonus Plan
(the "Plan"), applicable to the Executive. Under the Plan, for each of the five
fiscal years of the Company commencing with fiscal year 1996, the Executive will
be entitled to a graduated bonus (the "Performance Bonus") based upon a
comparison of the Company's earnings from operations plus depreciation and
amortization (the "Performance Measure") in that award year with the immediately
preceding fiscal year. The size of the Performance Bonus, if any, is tied to the
level of the Company's performance, as measured by the Performance Measure. The
maximum Performance Bonus payable in respect of any award year under the Plan is
$2.0 million. No bonus was payable under the terms of this Plan for 1996. For
fiscal 1997, a bonus of approximately $1.2 million would have been earned, had
the Executive not voluntarily agreed to accept $450,000. For fiscal 1998, a
bonus of $302,000 was earned by the Executive.

12.   MAJOR CUSTOMER AND CREDIT CONCENTRATIONS

Approximately 25% and 12% of net sales during 1998 were derived from sales to
two customers and their affiliates. Approximately 23% and 14% of net sales
during 1997 were derived from sales to two customers and their affiliates.
Approximately 20% and 16% of net sales during 1996 were derived from sales to
two customers and their affiliates.

The Company's customers are primarily large entertainment, tobacco and other
consumer products companies who produce products in the United States and
Canada. At May 2, 1998, approximately 41% and 18% of accounts receivable related
to customers in the tobacco and cosmetics industries, respectively.
Approximately 30% of accounts receivable are due from Canadian companies.

13.   GEOGRAPHIC OPERATIONS

<TABLE>
<CAPTION>
                                       MAY 2,         MAY 3,        APRIL 27,
                                        1998           1997           1996
                                      --------       --------       --------
<S>                                   <C>            <C>            <C>
Net Sales
    Domestic                          $249,222       $251,691       $227,566
    Foreign                            166,164        173,621        160,279
                                      --------       --------       --------
                                      $415,386       $425,312       $387,845
                                      ========       ========       ========
Net Earnings
    Domestic (a)                      $ 12,320       $  7,773       $  9,181
    Foreign                             13,975         15,649         10,823
                                      --------       --------       --------
                                      $ 26,295       $ 23,422       $ 20,004
                                      ========       ========       ========
Identifiable Assets at Year-End
    Domestic                          $205,960       $192,220       $190,479
    Foreign                            120,024         85,658         85,435
                                      --------       --------       --------
                                      $325,984       $277,878       $275,914
                                      ========       ========       ========
</TABLE>


                                 Page 35 of 45
<PAGE>   36
(a) Net of loss on discontinued operations in 1997 and 1996.

The Company's foreign operations are conducted in Canada. The Company's foreign
identifiable assets are in Canada and China.

14.    SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
                                                                               QUARTER ENDED FISCAL 1998
                                                        -------------------------------------------------------------------
                                                        AUGUST 2,          NOVEMBER 1,        JANUARY 31,            MAY 2,
                                                          1997                1997               1998                1998
                                                          ----                ----               ----                ----
<S>                                                     <C>                 <C>                <C>                 <C>
Net sales                                               $100,596            $114,828            $96,629            $103,333
Gross profit                                              22,509              27,401             21,695              24,053
Selling, general and administrative expenses              11,024              11,888             11,283              12,215
Earnings from operations                                  11,485              15,513             10,412              11,838
Net earnings                                               8,560               5,538              6,209               5,988
Basic Earnings per Share Information:
   Net earnings per common share                        $    .23            $    .32            $   .20            $    .22
Diluted Earnings per Share Information:
   Net earnings per common share                        $    .22            $    .31            $   .20            $    .22
Weighted average common and common
      equivalent shares outstanding
   Basic                                                  27,141              27,132             27,026              26,928
   Diluted                                                27,693              27,888             27,695              27,614
</TABLE>

<TABLE>
<CAPTION>
                                                                               QUARTER ENDED FISCAL 1997
                                                          --------------------------------------------------------------------
                                                          AUGUST 3,           NOVEMBER 2,        FEBRUARY 1,           MAY 3,
                                                             1996                1996               1997                1997
                                                             ----                ----               ----                ----
<S>                                                        <C>                 <C>                 <C>                <C>
Continuing Operations:
   Net sales                                               $108,121            $115,246            $97,823            $104,122
   Gross profit                                              23,894              25,572             21,172
                                                                                                                        23,884
   Selling, general and administrative expenses              11,609              11,570             11,116              11,994
   Earnings from operations                                  12,285              14,002             10,056              11,890
Earnings before extraordinary item                            7,077               5,112              6,266               6,490
Net earnings                                                  6,139               7,094              4,865               5,324
Basic Earnings per Share Information:
   Earnings from continuing operations before
      extraordinary item per common share                  $    .23            $    .26            $   .19            $    .24
Net earnings per common share                                   .22                 .26                .18                 .19
Diluted Earnings per Share Information:
   Earnings from continuing operations before
      extraordinary item per common share                  $    .22            $    .25            $   .18            $    .23
   Net earnings per common share                                .22                 .25                .17                 .19
Weighted average common and common
      equivalent shares outstanding
   Basic                                                     27,379              27,306             27,358              27,566
   Diluted                                                   28,061              28,016             28,232              27,971
</TABLE>


                                 Page 36 of 45
<PAGE>   37
ITEM 9.   DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

                                    PART III

Pursuant to instruction G(3) to Form 10-K, the information required in Items
10-13 is incorporated by reference from the Company's definitive proxy statement
for the September 23, 1998 annual meeting of stockholders.

                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

        (a)(1)    Financial Statements. See "Index to Financial Statements and
                  Supplementary Data" in Item 8.

        (a)(2)    Financial Statements Schedules. The financial statement
                  schedules have not been included because they are not
                  applicable, not material or the information is included in
                  financial statements or notes thereto.

        (a)(3)    Exhibits


NUMBER                DESCRIPTION
------                -----------

 3.1     --       Certificate of Incorporation of the Company, as amended,
                  incorporated by reference to the corresponding Exhibit item to
                  Registration Statement on Form S-1, as amended, as filed with
                  the Commission on September 4, 1986, Commission File No.
                  33-8490.

 3.2     --       Amended and Restated By-laws of the Company, incorporated by
                  reference to the corresponding Exhibit item to Amendment No. 1
                  to Registration Statement on Form S-1, as filed with the
                  Commission on October 20, 1986, Commission File No. 33-8490.

 9.1     --       Intentionally Omitted.

10.1     --       through 10.4 Intentionally Omitted.

10.5     --       Agreement of Lease dated May 20, 1977 between Frank X.
                  Mascioli and Shorewood Packaging Corporation, a New York
                  corporation, relating to premises located at 55 Engineers
                  Lane, Farmingdale, New York, incorporated by reference to the
                  corresponding Exhibit item to Registration Statement on Form
                  S-1, as amended, as filed with the Commission on September 4,
                  1986, Commission File No. 33-8490.

10.6     --       and 10.7 Intentionally Omitted.

10.08    --       through 10.40 Intentionally Omitted.

10.41    --       Non-Competition Agreement dated as of June 20, 1985 between
                  Shorewood Packaging Corporation of New York and Marc P. Shore,
                  incorporated by reference to the corresponding Exhibit item to
                  Registration Statement on Form S-1, as amended, as filed with
                  the Commission on September 4, 1986, Commission File No.
                  33-8490.

10.42    --       Non-Competition Agreement dated as of June 20, 1985 between
                  Shorewood Packaging Corporation of New York and Floyd Glinert,
                  incorporated by reference to the corresponding Exhibit item to
                  Registration Statement on Form S-1, as amended, as filed with
                  the Commission on September 4, 1986, Commission File No.
                  33-8490.

10.43    --       Intentionally Omitted.

10.44    --       Non-Competition Agreement dated as of June 20, 1985 between
                  Shorewood Packaging Corporation of New York and Charles
                  Kreussling, incorporated by reference to the corresponding
                  Exhibit item to Registration Statement on Form S-1, as
                  amended, as filed with the Commission on September 4, 1986,
                  Commission File No. 33-8490.


                                 Page 37 of 45
<PAGE>   38
10.45    --       Non-Competition Agreement dated as of June 20, 1985 between
                  Shorewood Packaging Corporation of New York and Kenneth
                  Rosenblum, incorporated by reference to the corresponding
                  Exhibit item to Registration Statement on Form S-1, as
                  amended, as filed with the Commission on September 4, 1986,
                  Commission File No. 33-8490.

10.46    --       through 10.77 Intentionally Omitted.

10.78    --       Asset Purchase Agreement dated December 23, 1993 by and among
                  Shorewood Paperboard Corporation Limited, Shorewood
                  Acquisition Corporation of Delaware, Paperboard Industries
                  Corporation and Paperboard Industries Inc. incorporated by
                  reference to the corresponding exhibit item to Form 8-K
                  Current Report of Shorewood Packaging Corporation filed with
                  the Commission on January 28, 1994, Commission File No.
                  0-15077.

10.79    --       Sheeter Purchase Agreement dated December 23, 1993 by and
                  among Shorewood Acquisition Corporation of Delaware and
                  Paperboard Industries Inc. incorporated by reference to the
                  corresponding exhibit item to Form 8-K Current Report of
                  Shorewood Packaging Corporation filed with the Commission on
                  January 28, 1994, Commission File No. 0-15077.

10.80    --       Restated and Amended Credit Agreement dated February 25, 1994
                  between Shorewood Packaging Corporation, Shorewood Corporation
                  of Canada Limited and NationsBank of North Carolina, N.A. and
                  The Bank of Nova Scotia incorporated by reference to the
                  corresponding exhibit item to Shorewood Packaging
                  Corporation's quarterly report on Form 10-Q for the fiscal
                  quarter ended January 29, 1994, as filed with the Commission
                  on March 15, 1994, Commission File No. 0-15077.

10.81    --       Trademark License Agreement dated January 14, 1994 between
                  Paperboard Industries Inc. and Shorewood Acquisition
                  Corporation of Delaware incorporated by reference to the
                  corresponding exhibit item to the Company's annual report on
                  Form 10-K for the fiscal year ended April 30, 1994, as filed
                  with the Commission on July 29, 1994, Commission File No.
                  O-15077.

10.82    --       Non-Competition Agreement dated January 14, 1994 between
                  Cascades Inc., Cascades Paperboard International Inc.,
                  Paperboard Industries Corporation, Paperboard Industries Inc.,
                  Shorewood Packaging Corporation, Shorewood Paperboard
                  Corporation Limited and Shorewood Acquisition Corporation of
                  Delaware incorporated by reference to the corresponding
                  exhibit item to the Company's annual report on Form 10-K for
                  the fiscal year ended April 30, 1994, as filed with the
                  Commission on July 29, 1994, Commission File No. O-15077.

10.83    --       First Amendment to Restated and Amended Credit Agreement dated
                  July 18, 1994 between Shorewood Packaging Corporation,
                  Shorewood Corporation of Canada Limited and NationsBank of
                  North Carolina, N.A. and The Bank of Nova Scotia incorporated
                  by reference to the corresponding exhibit item to the
                  Company's annual report on Form 10-K for the fiscal year ended
                  April 30, 1994, as filed with the Commission on July 29, 1994,
                  Commission File No. O-15077.

10.84    --       through 10.85 Intentionally Omitted.

10.86    --       Lease dated as of January 17, 1994 between Shorewood/Heminway
                  Acquisition Corporation and Heminway Packaging Corporation in
                  respect of premises located at 155 South Leonard Street,
                  Waterbury, Connecticut incorporated by reference to the
                  corresponding exhibit item to the Company's annual report on
                  Form 10-K for the fiscal year ended April 30, 1994, as filed
                  with the Commission on July 29, 1994, Commission File No.
                  O-15077.

10.87    --       Letter Agreement dated April 21, 1994 by and among SPC
                  Corporation Limited, (formerly known as Shorewood Paperboard
                  Corporation Limited), Shorewood Acquisition Corporation of
                  Delaware, Paperboard Industries Corporation and Paperboard
                  Industries Inc. in respect of working capital adjustment
                  incorporated by reference to the corresponding exhibit item to
                  the Company's annual report on Form 10-K for the fiscal year
                  ended April 30, 1994, as filed with the Commission on July 29,
                  1994, Commission File No. O-15077.

10.88    --       Employment Agreement dated as of May 16, 1994 between
                  Shorewood Packaging Corporation and Howard M. Liebman
                  incorporated by reference to the corresponding exhibit item to
                  the Company's annual report on Form 10-K for the fiscal year
                  ended April 30, 1994, as filed with the Commission on July 29,
                  1994, Commission File No. O-15077.


                                 Page 38 of 45
<PAGE>   39
10.89    --       Intentionally Omitted.

10.90    --       Shorewood Packaging Corporation Retirement and Savings Plan,
                  and Adoption Agreement, dated March 19, 1994 between Shorewood
                  Packaging Corporation and its subsidiaries, as employer, and
                  NationsBank of Georgia, N.A., as trustee incorporated by
                  reference to the corresponding exhibit item to the Company's
                  annual report on Form 10-K for the fiscal year ended April 30,
                  1994, as filed with the Commission on July 29, 1994,
                  Commission File No. O-15077.

10.91    (a)      Stock Warrant Agreement to purchase 100,000 shares of Common
                  Stock, dated as of January 13, 1994 incorporated by reference
                  to the corresponding exhibit item on Company's annual report
                  on Form 10-K/A for the fiscal year ended April 30, 1994, as
                  filed with the Commission on April 20, 1995, Commission File
                  No. 0-15077.

10.91    (b)      Stock Warrant Agreement dated as of July 23, 1992 to purchase
                  300,000 shares of Common Stock incorporated by reference to
                  the corresponding exhibit item on Company's annual report on
                  Form 10-K/A for the fiscal year ended April 30, 1994, as filed
                  with the Commission on April 20, 1995, Commission File No.
                  0-15077.

10.92    --       Second Amendment to Amended and Restated Credit Agreement
                  dated as of November 22, 1994, among Shorewood Packaging
                  Corporation, Shorewood Packaging Corporation of Canada
                  Limited, NationsBank of North Carolina, N.A. and The Bank of
                  Nova Scotia incorporated by reference to the corresponding
                  exhibit item on Company's annual report on Form 10-K/A for the
                  fiscal year ended April 29, 1995, as filed with the Commission
                  on August 11, 1995, Commission File No. 0-15077.

10.93    --       Lease dated as of February 6, 1995, between Stanley Stahl,
                  d/b/a Stahl Park Avenue Co., and Shorewood Packaging
                  Corporation (omitting schedules and exhibits), incorporated by
                  reference to the corresponding exhibit item on the Company's
                  annual report on Form 10-K/A for the fiscal year ended April
                  29, 1995, as filed with the Commission on August 11, 1995,
                  Commission File No. 0-15077.

10.94    --       The 1995 Performance Bonus Plan incorporated by reference to
                  the corresponding exhibit item to Quarterly Report on Form
                  10-Q/A for the quarterly period ended July 29, 1995, as filed
                  with the Commission on September 20, 1995, Commission File No.
                  0-15077.

10.95    --       Stock Warrant Agreement dated as of August 11, 1995 to
                  purchase shares of common Stock incorporated by reference to
                  the corresponding exhibit item to Quarterly Report on Form
                  10-Q for the quarterly period ended October 28, 1995, as filed
                  with the Commission on December 12, 1995, Commission File No.
                  0-15077.

10.96    --       1993 Incentive Program as amended May 4, 1995 incorporated by
                  reference to the corresponding exhibit item to Quarterly
                  Report on Form 10-Q/A for the quarterly period ended October
                  28, 1995, as filed with the Commission on February 20, 1996,
                  Commission File No. 0-15077.

10.97    --       Non-Negotiable Promissory Note of Marc P. Shore dated May 4,
                  1995 incorporated by reference to the corresponding exhibit
                  item to Quarterly Report on Form 10-Q/A for the quarterly
                  period ended October 28, 1995, as filed with the Commission on
                  February 20, 1996, Commission File No. 0-15077.

10.98    (a)      Employment Agreement dated January 25, 1996 and made effective
                  as of May 1, 1995 between Shorewood Packaging Corporation and
                  Marc P. Shore incorporated by reference to the corresponding
                  exhibit item to Quarterly Report on Form 10-Q/A for the
                  quarterly period ended October 28, 1995, as filed with the
                  Commission on February 20, 1996, Commission File No. 0-15077.

10.98    (b)      Stock Option Agreement dated as of February 1, 1996 between
                  Shorewood Packaging Corporation and Jefferson Capital Group,
                  LTD incorporated by reference to the corresponding exhibit
                  item to Quarterly Report on Form 10-Q for the quarterly period
                  ended January 27, 1996, as filed with the Commission on March
                  12, 1996, Commission File No. 0-15077.

10.99    --       Third Amendment to Amended and Restated Credit Agreement dated
                  as of July 28, 1995, among Shorewood Packaging Corporation,
                  Shorewood Packaging Corporation of Canada Limited,
                  Nationsbank, N.A. (formerly known as NationsBank of North
                  Carolina, N.A.) and


                                 Page 39 of 45
<PAGE>   40
                  The Bank of Nova Scotia incorporated by reference to the
                  corresponding exhibit item to the Company's annual report on
                  Form 10-K for the fiscal year ended April 27, 1996, as filed
                  with the Commission on July 26, 1996, Commission File No.
                  O-15077.

10.100   --       Fourth Amendment to Amended and Restated Credit Agreement
                  dated as of December 12, 1995, among Shorewood Packaging
                  Corporation, Shorewood Packaging Corporation of Canada
                  Limited, Nationsbank, N.A. (formerly known as NationsBank of
                  North Carolina, N.A.) and The Bank of Nova Scotia incorporated
                  by reference to the corresponding exhibit item to the
                  Company's annual report on Form 10-K for the fiscal year ended
                  April 27, 1996, as filed with the Commission on July 26, 1996,
                  Commission File No. O-15077.

10.101   --       Fifth Amendment to Amended and Restated Credit Agreement dated
                  as of January, 26, 1996 among Shorewood Packaging Corporation,
                  Shorewood Packaging Corporation of Canada Limited,
                  Nationsbank, N.A. (formerly known as NationsBank of North
                  Carolina, N.A.) and The Bank of Nova Scotia incorporated by
                  reference to the corresponding exhibit item to the Company's
                  annual report on Form 10-K for the fiscal year ended April 27,
                  1996, as filed with the Commission on July 26, 1996,
                  Commission File No. O-15077.

10.102   --       Promissory Note of Marc P. Shore dated March 15, 1996
                  incorporated by reference to the corresponding exhibit item to
                  the Company's annual report on Form 10-K for the fiscal year
                  ended April 27, 1996, as filed with the Commission on July 26,
                  1996, Commission File No. O-15077.

10.103   --       Sixth Amendment to Amended and Restated Credit Agreement dated
                  as of July 2, 1996 among Shorewood Packaging Corporation,
                  Shorewood Packaging Corporation of Canada Limited,
                  Nationsbank, N.A. (formerly known as NationsBank of North
                  Carolina, N.A.) and The Bank of Nova Scotia incorporated by
                  reference to the corresponding exhibit item to the Company's
                  quarterly report on Form 10-Q for the quarterly period ended
                  August 3, 1996, as filed with the Commission on September 17,
                  1996, Commission File No. O-15077.

10.104   --       Promissory Note of Marc P. Shore dated July 13, 1996
                  incorporated by reference to the corresponding exhibit item to
                  the Company's quarterly report on Form 10-Q for the quarterly
                  period ended August 3, 1996, as filed with the Commission on
                  September 17, 1996, Commission File No. O-15077.

10.105   --       Promissory Note of Marc P. Shore dated August 22, 1996
                  incorporated by reference to the corresponding exhibit item to
                  the Company's quarterly report on Form 10-Q for the quarterly
                  period ended August 3, 1996, as filed with the Commission on
                  September 17, 1996, Commission File No. O-15077.

10.106   --       Promissory Note of Marc P. Shore dated November 11, 1996
                  incorporated by reference to the corresponding exhibit item to
                  the Company's quarterly report on Form 10-Q for the quarterly
                  period ended November 2, 1996, as filed with the Commission on
                  December 17, 1996, Commission File No. O-15077.

10.107   --       Seventh Amendment to Amended and Restated Credit Agreement
                  dated as of January 8, 1997 among Shorewood Packaging
                  Corporation, Shorewood Packaging Corporation of Canada
                  Limited, Nationsbank, N.A. (formerly known as NationsBank of
                  North Carolina, N.A.) and the Bank of Nova Scotia incorporated
                  by reference to the corresponding exhibit item to the
                  Company's quarterly report on Form 10-Q for the quarterly
                  period ended February 1, 1997, as filed with the Commission on
                  March 18, 1997, Commission File No. O-15077.

10.108   --       Amended and Restated Credit Agreement dated as of May 2, 1997,
                  among Shorewood Packaging Corporation, Shorewood Corporation
                  of Canada Limited, Nationsbank, N.A., The Bank of Nova Scotia,
                  Creditanstalt-Bankverein, Crestar Bank, The Chase Manhattan
                  Bank, N.A., Banque Paribas, The Daiwa Bank, Ltd., Natwest
                  Bank, N.A., The Bank of New York, First Union National Bank of
                  North Carolina and United States National Bank of Oregon
                  incorporated by reference to the corresponding exhibit item to
                  the Company's annual report on Form 10-K for the fiscal year
                  ended May 2, 1997, as filed with the Commission on August 1,
                  1997, Commission File No. O-15077.

10.109   --       Guaranty dated as of May 13, 1997, made by Shorewood Packaging
                  Corporation in favor of the Chase Manhattan Bank incorporated
                  by reference to the corresponding exhibit item to the


                                 Page 40 of 45
<PAGE>   41
                  Company's annual report on Form 10-K for the fiscal year ended
                  May 2, 1997, as filed with the Commission on August 1, 1997,
                  Commission File No. O-15077.

10.110   --       Agreement for Engineering Procurement and Construction between
                  Shorewood Packaging Company (Guangzhou) Ltd. And Lam
                  Construction Company, Ltd. Dated as of July 11, 1997 (with
                  exhibits omitted) incorporated by reference to the
                  corresponding exhibit item to the Company's annual report on
                  Form 10-K for the fiscal year ended May 2, 1997, as filed with
                  the Commission on August 1, 1997, Commission File No. O-15077.

10.111   --       Amendment No. 1 to Stock Warrant Agreement as of December 4,
                  1996 incorporated by reference to the corresponding exhibit
                  item to the Company's annual report on Form 10-K for the
                  fiscal year ended May 2, 1997, as filed with the Commission on
                  August 1, 1997, Commission File No. O-15077. *

10.112   --       Stock Option Agreement dated as of April 17, 1997 between
                  Shorewood Packaging Corporation and Marc P. Shore incorporated
                  by reference to the corresponding exhibit item to the
                  Company's annual report on Form 10-K for the fiscal year ended
                  May 2, 1997, as filed with the Commission on August 1, 1997,
                  Commission File No. O-15077.

10.113   --       Stock Warrant Agreement dated as of May 15, 1997 to purchase
                  350,000 shares of common stock incorporated by reference to
                  the corresponding exhibit item to the Company's quarterly
                  report on Form 10-Q for the quarterly period ended January 31,
                  1998, as filed with the Commission on March 17, 1998,
                  Commission File No. O-15077. *

10.114   --       Form 8-A for registration of certain classes of securities
                  incorporated by reference, as filed with the Commission on
                  January 14, 1998, Commission file No. 0-15077

10.115   --       Promissory Note of Howard Liebman and Marsha Liebman dated
                  April 1, 1998.

21.1     --       Subsidiaries of Registrant.

23.1     --       Consent of Deloitte & Touche LLP.
        (b)       Reports on Form 8-K
                  No current reports on Form 8-K were filed by the Company
                  during the last quarter of the period covered by this report.

*     Portions of this document have been omitted from the filed text pursuant
      to an Application for Confidential Treatment which was filed with the
      Securities and Exchange Commission


                                 Page 41 of 45
<PAGE>   42
                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

                                        SHOREWOOD PACKAGING CORPORATION

                                        By: /s/  Marc P. Shore
                                        ----------------------------------------
                                        Marc P. Shore
                                        Chairman of the Board and President
                                        and Chief Executive Officer

                                                             Date: July 24, 1998

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company and in
the capacities and on the dates indicated.

<TABLE>
<CAPTION>
Signature                   Title                        Date
---------                   -----                        ----
<S>                         <C>                          <C>
/s/  Marc P. Shore          Chairman of the Board,       July 24, 1998
------------------------    President and Chief
Marc P. Shore               Executive Officer and
                            Director

/s/  Howard M. Liebman      Executive Vice               July 22, 1998
------------------------    President and Chief
Howard M. Liebman           Financial Officer and
                            Director
                            (Principal Financial
                            Officer)

/s/  Floyd S. Glinert       Executive Vice               July 22, 1998
------------------------    President - Marketing
Floyd S. Glinert            and Director

/s/  William H. Hogan       Vice President -             July 21, 1998
------------------------    Finance/   Corporate
William H. Hogan            Controller
                            (Principal Accounting
                            Officer)

/s/  William Weidner        Director                     July 23, 1998
------------------------
William Weidner


/s/  Timothy O'Donnell      Director                     July 20, 1998
------------------------
R. Timothy O'Donnell

/s/  Melvin Braun           Director                     July 22, 1998
------------------------
Melvin Braun

/s/ Seymour Leslie          Director                     July 20, 1998
------------------------
Seymour Leslie

/s/  Kevin J. Bannon        Director                     July 20, 1998
------------------------
Kevin J. Bannon
</TABLE>


                                 Page 42 of 45
<PAGE>   43
                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
Item      Description                                      Page
----      -----------                                      ----
<S>       <C>                                              <C>
21.1      Subsidiaries of Registrant                       44

23.1      Consent of Deloitte & Touche LLP                 45
</TABLE>


                                 Page 43 of 45