<PAGE>

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

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

                                   FORM 10-K

<Table>
<S>    <C>
(MARK 1)
[X]           ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                  OF THE SECURITIES EXCHANGE ACT OF 1934

            FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006

[ ]         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                  OF THE SECURITIES EXCHANGE ACT OF 1934

                  COMMISSION FILE NUMBER: 1-15157
</Table>

                               PACTIV CORPORATION
             (Exact name of Registrant as Specified in its Charter)

<Table>
<S>                                                     <C>
                       DELAWARE                                               36-2552989
           (State or other jurisdiction of                                 (I.R.S. Employer
            incorporation or organization)                               Identification No.)

                1900 WEST FIELD COURT
                LAKE FOREST, ILLINOIS                                           60045
       (Address of principal executive offices)                               (Zip Code)
</Table>

Registrant's telephone number, including area code: (847) 482-2000

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

<Table>
<S>                                                           <C>
                                                                                 NAME OF EACH EXCHANGE
                                                                                  ON WHICH REGISTERED
                    TITLE OF EACH CLASS                       ------------------------------------------------------------
------------------------------------------------------------
   Common Stock ($.01 par value) and associated Preferred                       New York Stock Exchange
                   Stock Purchase Rights
</Table>

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

    Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.

                                Yes  X   No  ___

    Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act.

                                Yes  ___   No  X

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

                                Yes  X   No  ___

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

    Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. (See definition of
"accelerated filer" and "large accelerated filer" in Rule 12b-2 of the Act.)

     Large Accelerated Filer  X   Accelerated Filer  ___   Non-Accelerated
                                   Filer  ___

    Indicate by check mark whether the registrant is a shell company (as defined
by Rule 12b-2 of the Exchange Act).

                                Yes  ___   No  X

    State the aggregate market value of the voting stock held by non-affiliates
of the registrant. The aggregate market value is computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of the last business day of the registrant's most recently completed
second fiscal quarter.

<Table>
<S>                                                           <C>
         CLASS OF VOTING STOCK AND NUMBER OF SHARES                       MARKET VALUE OF COMMON STOCK HELD BY
          HELD BY NON-AFFILIATES AT JUNE 30, 2006                                    NON-AFFILIATES
------------------------------------------------------------  ------------------------------------------------------------
              COMMON STOCK 136,961,320 SHARES                                        $3,389,792,670
</Table>

    INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE. Common Stock ($.01
par value). 132,882,058 shares outstanding as of January 31, 2007. (See Note 11
to the Financial Statements.)
                      DOCUMENTS INCORPORATED BY REFERENCE:

<Table>
<S>                                                           <C>
                                                                                 PART OF THE FORM 10-K
                          DOCUMENT                                              INTO WHICH INCORPORATED
------------------------------------------------------------  ------------------------------------------------------------
    Pactiv Corporation's Definitive Proxy Statement for                                 Part III
 the Annual Meeting of Shareholders to be held May 18, 2007
</Table>

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>

                               TABLE OF CONTENTS

<Table>
<S>              <C>                                                           <C>
                                      PART I
Item 1.          Business....................................................    1
Item 1A.         Risk Factors................................................    4
Item 1B.         Unresolved Staff Comments...................................    6
Item 2.          Properties..................................................    6
Item 3.          Legal Proceedings...........................................    6
Item 4.          Submission of Matters to a Vote of Security Holders.........    7
Item 4.1         Executive Officers of the Registrant........................    7
                                     PART II
Item 5.          Market for Registrant's Common Equity, Related Stockholder
                 Matters, and Issuer Purchases of Equity Securities..........    8
Item 6.          Selected Financial Data.....................................    9
Item 7.          Management's Discussion and Analysis of Financial Condition
                 and Results of Operations...................................   10
Item 7A.         Quantitative and Qualitative Disclosures About Market
                 Risk........................................................   21
Item 8.          Financial Statements and Supplementary Data.................   22
Item 9.          Changes in and Disagreements With Accountants on Accounting
                 and Financial Disclosure....................................   54
Item 9A.         Controls and Procedures.....................................   54
Item 9B.         Other Information...........................................   55
                                     PART III
Item 10.         Directors, Executive Officers, and Corporate Governance.....   55
Item 11.         Executive Compensation......................................   55
Item 12.         Security Ownership of Certain Beneficial Owners and
                 Management and Related Stockholder Matters..................   55
Item 13.         Certain Relationships and Related Transactions, and Director
                 Independence................................................   56
Item 14.         Principal Accounting Fees and Services......................   56
                                     PART IV
Item 15.         Exhibits and Financial Statement Schedules..................   56
</Table>
<PAGE>

ITEM 1. BUSINESS.

OVERVIEW

Pactiv Corporation is a leading producer of consumer and foodservice/food
packaging products. With one of the broadest product lines in the
specialty-packaging industry, we derive more than 80% of our sales from market
sectors in which we hold the No. 1 or No. 2 market-share position. Our business
operates 39 manufacturing facilities in North America, 3 in China, and 1 in
Germany. In 2006, 95% of our $2.9 billion in sales were generated in North
America.

We have two operating segments:

     - Consumer Products manufactures disposable plastic, foam, molded-fiber,
       pressed-paperboard, and aluminum packaging products, and sells them to
       customers such as grocery stores, mass merchandisers, and discount
       chains. Products include waste bags, food-storage bags, and disposable
       tableware and cookware. We sell many of our consumer products under
       well-known trademarks, such as Hefty(R).

     - Foodservice/Food Packaging manufactures foam, clear plastic, aluminum,
       pressed-paperboard, and molded-fiber packaging products, and sells them
       to customers in the food-distribution channel, who prepare and process
       food for consumption. Customers include foodservice distributors,
       restaurants, other institutional foodservice outlets, food processors,
       and grocery chains.

On October 12, 2005, we sold substantially all of our protective- and
flexible-packaging businesses. The results of the sold businesses, as well as
costs and charges associated with the transaction, are classified as
discontinued operations. The portion of the businesses we retained is included
in our Foodservice/Food Packaging segment. All financial statements included in
this report reflect this change.

Our company was incorporated in the state of Delaware in 1965 under the name of
Packaging Corporation of America, operating as a subsidiary of Tenneco Inc.
(Tenneco). In November 1995, we changed our name to Tenneco Packaging Inc. In
November 1999, we were spun-off from Tenneco as an independent company, and
changed our name to Pactiv Corporation.

In this report, we sometimes refer to Pactiv Corporation and its subsidiaries as
"Pactiv" or the "company." References in this report to our business, even those
that cover prior periods, do not include the protective-and flexible-packaging
businesses that were sold, except as otherwise indicated.

PRODUCTS AND MARKETS

Consumer Products

We manufacture, market, and sell consumer products such as plastic storage bags
for food and household items; plastic waste bags; aluminum cookware; and foam,
pressed-paperboard, plastic, and molded-fiber tableware. These products are
typically used by consumers in their homes and are sold through a variety of
retailers, including supermarkets and mass merchandisers. Many of these products
are sold under such recognized brand names as:

<Table>
<S>                          <C>                           <C>
- Hefty(R)                   - Hefty(R) The Gripper(R)     - Hefty(R) Zoo Pals(R)
- Baggies(R)                 - Hefty(R) Cinch Sak(R)       - Hefty(R) Serve 'n
- Kordite(R)                 - Hefty(R) Ultra Flex(TM)     Store(R)
- EZ Foil(TM)                - Hefty(R) HandySaks(TM)      - Hefty(R) Easy Grip(TM)
- Hefty(R) OneZip(R)         - Hefty(R) Kitchen Fresh(R)   - Hefty(R) EZ Ovenware(TM)
</Table>

In 2006, Consumer Products accounted for 37% of our sales.

                                        1
<PAGE>

Foodservice/Food Packaging

We are a leading provider of packaging products to the foodservice, supermarket,
restaurant, and food packaging markets. Our products are designed to protect
food during distribution, aid retailers in merchandising food products, and help
customers prepare and serve meals in their homes.

In 2006, Foodservice/Food Packaging accounted for 63% of our sales.

Foodservice customers use our products to merchandise and sell food products on
their premises and for takeout meals. Products include tableware items such as
plates, bowls, and cups, and a broad line of takeout-service containers made
from clear plastic, microwaveable plastic, foam, molded-fiber, paperboard, and
aluminum.

Food-packaging products for supermarkets include clear rigid-display packaging
for produce, delicatessen, and bakery applications; microwaveable containers for
prepared, ready-to-eat meals; and foam trays for meat and produce. We also
manufacture plastic zipper closures for a variety of other packaging
applications.

Food-processor products include dual-ovenable paperboard containers,
molded-fiber egg cartons, meat and poultry trays, and aluminum containers.

BUSINESS STRATEGY

Our business strategy is to grow by expanding our existing businesses and by
making strategic acquisitions. Through our broad product lines and custom-design
capability, we offer customers a range of products to fit their needs. As a
result, we are a primary supplier to several national and international
manufacturers and distributors, and have developed long-term relationships with
key participants in the packaging and foodservice distribution markets. These
relationships enable us to better identify and penetrate new markets.

Market Presence

Many of our products have strong market-share positions, including those in key
markets such as zipper bags, tableware, foam trays, foodservice foam containers,
clear rigid-display packaging, and aluminum cookware. In 2006, we derived more
than 80% of our sales from market sectors in which we hold the No. 1 or No. 2
market-share position. This is a reflection of the:

     - Strength of our Hefty(R) and EZ Foil(TM) brands

     - Breadth of our product lines

     - Ability to offer "one-stop shopping" to our customers

New Products/Design Services

Successful development of new products and value-added product-line extensions
are essential to our continued growth. In 2005, we opened a new
product-development center to locate our research, development, and engineering
teams close to our marketing and manufacturing teams, allowing us to better
serve our customers. We spent $33 million on research and development activities
in both 2006 and 2005 and $28 million in 2004.

Service Capabilities

The Foodservice/Food Packaging segment's "One Face to the Customer" strategy
continues to deliver positive results. The systems and information-management
infrastructure and distribution network supporting this customer-linked
manufacturing process help us to reduce supply-chain costs, enhance customer
service, and improve productivity.

                                        2
<PAGE>

Productivity/Cost Reduction

Our continued focus on productivity enhancements and manufacturing and logistics
cost reductions is key to improving our profitability. In 2006, approximately
40% of our research and development spending and 30% of our capital spending was
devoted to efforts to reduce costs and improve manufacturing and distribution
efficiency.

Strategic Acquisitions

Strategic acquisitions have been an important element of our growth strategy.
Since the beginning of 2000, $323 million has been invested to acquire
businesses that complement and/or expand our core businesses. Our focus is on
products that have strong growth characteristics and attractive margins.

MARKETING, DISTRIBUTION, AND CUSTOMERS

We have a sales and marketing staff of approximately 400 people. Our consumer
products are sold through a direct sales force and a national network of brokers
and manufacturers' representatives. We primarily use a direct sales force to
sell to our foodservice and food-packaging customers.

Wal-Mart Stores, Inc., which accounted for approximately 16% of our consolidated
sales in 2006 and 15% in 2005, was the only customer that accounted for more
than 10% of our sales. Our backlog of orders is not material.

ANALYSIS OF SALES

The following table sets forth information regarding sales from continuing
operations.

<Table>
<Caption>
                                                  2006               2005               2004
                                            ----------------   ----------------   ----------------
                                            Amount   % Total   Amount   % Total   Amount   % Total
(In millions)                               ------   -------   ------   -------   ------   -------
<S>                                         <C>      <C>       <C>      <C>       <C>      <C>
Consumer Products.........................  $1,085      37%    $  989      36%    $  934      37%
Foodservice/Food Packaging................   1,832      63      1,767      64      1,610      63
                                            ------     ---     ------     ---     ------     ---
Total.....................................  $2,917     100%    $2,756     100%    $2,544     100%
                                            ------     ---     ------     ---     ------     ---
</Table>

See Note 14 to the financial statements for additional segment and geographic
information.

COMPETITION

Our businesses face significant competition in all of our product lines from
numerous national and regional companies of various sizes. Many of our
competitors, particularly in the foodservice industry, are significantly smaller
and have lower fixed costs. Certain competitors offer a more specialized variety
of packaging materials and concepts and may serve more geographic regions
through various distribution channels. Our success in obtaining business is
driven primarily by our price, quality, product features, and service.

RAW MATERIALS

The principal raw materials we use are plastic resins, aluminum, paperboard, and
recycled paper. More than 80% of our sales were from products made from
different types of plastics, including polystyrene, polyethylene, polypropylene,
and amorphous polyethylene terephthalate (APET). These raw materials are readily
available from a wide variety of suppliers. Our overall supply of raw materials
was adequate in 2006, and we believe that our raw material supply will remain
adequate in 2007.

ENVIRONMENTAL REGULATION

We are subject to a variety of environmental and pollution-control laws and
regulations. Costs to continually monitor our compliance with these laws and
regulations are a recurring part of our operations.

                                        3
<PAGE>

These costs are not a significant percentage of total operating costs. We do not
expect continued compliance to have a material impact on our results of
operations, financial condition, or cash flows.

OTHER

At December 31, 2006, we employed approximately 11,000 people, of whom 1,000
were employed by joint ventures, and approximately 12% were covered by
collective-bargaining agreements. Two of those agreements, covering 108
employees, are scheduled for renegotiation in 2007. One of the agreements
scheduled to be renegotiated in 2006, covering 282 employees, remains open, and
is anticipated to be settled during the first quarter of 2007. Our employee
relations remain satisfactory.

We own a number of U.S. and foreign patents, trademarks, and other intellectual
property that are significant with regard to the manufacture, marketing, and
distribution of certain products. We also use numerous software licenses. The
intellectual property and licensing rights we hold are adequate for our
business.

AVAILABLE INFORMATION

Our website address is www.pactiv.com. Our investor relations link on this
website has the following information available free of charge:

     - Annual reports on Form 10-K
     - Quarterly reports on Form 10-Q
     - Current reports on Form 8-K
     - Amendments to these reports
     - Code of business conduct/ethics
     - Code of ethical conduct for financial managers
     - Certain other corporate governance documents

Investor relations information is updated on our website as soon as reasonably
practical after we electronically file or furnish information to the Securities
and Exchange Commission. In addition, copies of our annual report are made
available, free of charge, upon request.

ITEM 1A. RISK FACTORS.

General economic conditions affect demand for our products and impact our
production and selling costs. Listed below are some of the factors that may
impact our results and cause our performance to differ materially from the
results we may project. These are in addition to general economic factors and
other items discussed elsewhere in this report (for example, in the Management's
Discussion and Analysis of Financial Condition and Results of Operations).

PRODUCT CHANGES AND INNOVATION

We operate in a very competitive environment. Historically, product innovation
and development have been key to our obtaining and maintaining market share and
margins. Our future sales and profitability are partially impacted by our
ability to anticipate and react more effectively than our competitors to changes
in consumer demand for the types of products we sell. This requires
understanding customer desires, creating products that meet those desires, and
producing and selling products in a cost-effective manner.

CHANGES IN CUSTOMERS

We must address the demands of both the consumers who ultimately purchase and
use our products and the retailers and others who sell our products to
end-users. This is necessary for both of our segments, but it is particularly
important in our Consumer Products segment. Our sales and margins can be
impacted by changes in our distribution channels, customer mix, and
merchandising strategies. Examples include customer concentration,
consolidation, and substitution of unbranded products for branded products.

                                        4
<PAGE>

Although we have a diverse customer base, we have several large customers. These
large customers provide us with cost-saving opportunities that may not be
available with smaller, more diverse accounts. However, large customers can take
actions that put pressure on our margins. Moreover, a significant downturn in
the financial condition of one or more large customers could have an adverse
effect on our business results.

INCREASES IN PRODUCTION COSTS

Most of our products are made from plastic. Plastic-resin prices are impacted by
the price of oil, natural gas, and chemical intermediaries, such as benzene and
ethylene, which can be volatile and affected by many factors, including overall
economic activity, geopolitical situations (particularly in oil-exporting
regions), natural disasters, and governmental policies and regulation.

Our margins can be negatively impacted by the difference in timing of
raw-material cost increases and corresponding product selling-price increases.
Similarly, changes in costs of labor, utilities, or transportation can affect
our margins.

LAWS RELATING TO USE OR MANUFACTURE OF PLASTIC PRODUCTS

Changes in laws or governmental actions regarding the use of disposable plastic
products, such as laws relating to recycling or re-use of plastic products,
could add costs to our products. These additional costs could make our products
less competitive with products made from other materials. Similarly, changes in
laws regarding air emissions could increase our manufacturing costs.

GROWTH/ACQUISITIONS AND DIVESTITURES

Growth, internally and through acquisitions, is an important element of our
business strategy. We currently have adequate sources of liquidity for our
operations. However, our ability to grow could be impacted if our cost of
capital were to increase or if capital were to become more difficult to obtain.
Our future success will depend somewhat on our ability to integrate new
businesses that we may acquire, dispose of businesses or business segments that
we may wish to divest, and re-deploy proceeds from any divestiture.

INTERNATIONAL ISSUES

Currently most of our production and sales are in the United States. Competition
from products manufactured in countries that have lower labor and other costs
than the U.S. could negatively impact our profitability. Additionally, if we
manufacture or sell more of our products in countries outside of the U.S., we
will be subject to additional risks, such as those related to economic,
political, competitive, and foreign-currency considerations in those other
countries.

PENSION PLAN

At the time of our spin-off from Tenneco in 1999, we became the sponsor of
Tenneco (now Pactiv) pension plans. These plans cover individuals/beneficiaries
from many companies previously owned by Tenneco, but not owned by Pactiv. As a
result, the total number of individuals/beneficiaries covered by these plans is
much larger than would have been the case if only Pactiv personnel were
participants. For this reason, the impact of the pension plans on our net income
and shareholders' equity is greater than is typically found at similarly sized
companies. Changes in the following factors can have a disproportionate effect
on our results compared with similarly sized companies or companies with no
pension plan:

     - Assumptions regarding the long-term rate of return on pension assets and
       other factors
     - Interest rate used to discount projected benefit obligations
     - Level of amortization of actuarial gains and losses
     - Governmental regulations relating to funding of retirement plans in the
       U.S. and foreign countries

Funding of the qualified U.S. pension plan is currently determined by
requirements of the Employee Retirement Income Security Act, under which we were
not required to make contributions to the plan in

                                        5
<PAGE>

2006. On August 17, 2006, President Bush signed the Pension Protection Act of
2006 (PPA) into law. The PPA, which is effective for plan years beginning after
December 31, 2007, significantly alters current funding requirements. Based on
our current assumptions and requirements of the PPA, we do not anticipate that
after-tax contributions to the plan will be significant for the foreseeable
future.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

None.

ITEM 2. PROPERTIES.

HEADQUARTERS

Our corporate headquarters is located at 1900 West Field Court, Lake Forest,
Illinois 60045. Our general telephone number is (847) 482-2000.

MANUFACTURING AND DISTRIBUTION FACILITIES

Our Consumer Products and Foodservice/Food Packaging segments operate 39
manufacturing and 8 distribution facilities in North America (United States,
Mexico, and Canada). We also have a manufacturing facility in Germany and a
distribution facility in the United Kingdom that support our Foodservice/Food
Packaging segment. In addition, we have research and development centers in
Canandaigua, New York, and Vernon Hills, Illinois. We also have joint-venture
interests in a corrugated-converting operation in Shaoxing, China (62.5% owned)
and in a folding-carton operation in Dongguan, China (50% owned at December 31,
2006). In January 2007, we purchased an additional 1% interest in the operation,
bringing our total interest to 51%.

Our plants and equipment are well maintained and in good operating condition. We
have satisfactory title to our owned properties, which are subject to certain
liens that do not detract materially from the value or use of the properties.

ITEM 3. LEGAL PROCEEDINGS.

We have been named as a defendant in multiple lawsuits, covering approximately
1,400 plaintiffs, all of which are pending in the United States District Court
for the Middle District of Alabama. The claims allege that plaintiffs
experienced personal injuries and property damages as a result of the alleged
release of chemical substances from a wood-treatment facility in Lockhart,
Alabama, during the period from 1963 to 1998. A predecessor of Pactiv owned the
facility from 1978 to 1983. Louisiana-Pacific Corporation, the current owner of
the facility, to whom a predecessor of Pactiv sold the facility in 1983, also is
named as a defendant in each of the lawsuits. We are not currently able to
quantify our financial exposure, if any, relating to this matter. We intend to
defend these lawsuits vigorously.

In February 2007, we entered into a consent decree with the Michigan Department
of Environmental Quality (MDEQ) resolving a dispute associated with a
declaratory-judgment action in the United States District Court, Eastern
District of Michigan, related to a superfund site in Filer City, Michigan. In
1993, after years of study, the U.S. Environmental Protection Agency (USEPA)
selected a final clean-up remedy for the site pursuant to a record of decision
and administrative order, in which the USEPA expressly determined that
conditions at the site posed no current or potentially unacceptable risk to
human health or the environment and required only monitoring of the natural
attenuation of the site. We contended that, because of the USEPA action, the
MDEQ is precluded from demanding that we undertake additional investigative and
remedial work at the site. Under the consent decree, the MDEQ has agreed not to
seek the performance of any additional investigative or remedial work by us
unless an investigation funded by the MDEQ generates new site data demonstrating
that the USEPA's remedy is not working. The MDEQ also agreed to waive its claims
for any past costs against us. In addition, we have reserved the right to
challenge any future MDEQ demands related to the site.

                                        6
<PAGE>

We are party to other legal proceedings arising from our operations. We
establish reserves for claims and proceedings when it is probable that
liabilities exist and where reasonable estimates of such liabilities can be
made. While it is not possible to predict the outcome of any of these matters,
based on our assessment of the facts and circumstances now known, we do not
believe that any of these matters, individually or in the aggregate, will have a
material adverse effect on our financial position. However, actual outcomes may
be different from those expected and could have a material effect on our results
of operations or cash flows in a particular period.

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

No matters were submitted to a vote of security holders during the fourth
quarter of 2006.

ITEM 4.1. EXECUTIVE OFFICERS OF THE REGISTRANT.

Our executive officers, as of February 28, 2007, are listed below. This
information is being included in Part I of this Form 10-K pursuant to
Instruction 3 to Item 401(b) of Regulation S-K.

Richard L. Wambold, 55, Chairman of the Board of Directors, President, and Chief
Executive Officer.
Mr. Wambold has served as Chairman since March 2000, President since June 1999,
and Chief Executive Officer since our spin-off in November 1999. Prior to 1999,
Mr. Wambold served as Executive Vice President and General Manager of our
foodservice/food packaging and consumer products business units.

Andrew A. Campbell, 61, Senior Vice President and Chief Financial Officer.
Mr. Campbell joined the company in October 1999 as Vice President and Chief
Financial Officer and has served as Senior Vice President and Chief Financial
Officer since January 2001.

Joseph E. Doyle, 47, Vice President, General Counsel, and Secretary
Mr. Doyle was appointed Vice President, General Counsel, and Secretary of the
company on February 1, 2007. Prior to joining the company, he was a partner at
the law firm of Mayer, Brown, Rowe, & Maw, LLP from 2001 to 2007.

Peter J. Lazaredes, 56, Executive Vice President and General Manager,
Foodservice/Food Packaging.
Mr. Lazaredes has served as Executive Vice President and General Manager,
Foodservice/Food Packaging, since July 2004. Prior to 2004, and since he joined
the company in 1996, Mr. Lazaredes held various senior management positions in
the company's foodservice/food packaging business unit.

John N. Schwab, 57, Senior Vice President and General Manager, Hefty(R) Consumer
Products.
Mr. Schwab has served as Senior Vice President and General Manager, Hefty(R)
Consumer Products, since January 2001. Prior to 2001, and since he joined the
company in 1995, Mr. Schwab held various senior management positions in the
company's consumer products business unit.

Henry M. Wells, III, 62, Vice President and Chief Human Resources Officer.
Mr. Wells has served as Vice President and Chief Human Resources Officer since
April 2000.

                                        7
<PAGE>

                                    PART II

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

The outstanding shares of Pactiv Corporation common stock ($0.01 par value) are
listed on the New York Stock Exchange under the symbol "PTV." Stock price and
dividend information for 2006 and 2005 are shown below.

<Table>
<Caption>
                                                    2006                          2005
                                         ---------------------------   ---------------------------
                                           PRICE/SHARE                   PRICE/SHARE
                                         ---------------   DIVIDENDS   ---------------   DIVIDENDS
                                          HIGH     LOW       PAID       HIGH     LOW       PAID
                                         ------   ------   ---------   ------   ------   ---------
<S>                                      <C>      <C>      <C>         <C>      <C>      <C>
First quarter..........................  $25.07   $21.50       --      $25.58   $21.39        --
Second quarter.........................   26.00    22.61       --       23.85    20.98        --
Third quarter..........................   28.77    22.36       --       22.38    16.91        --
Fourth quarter.........................   36.53    27.81       --       22.19    16.50        --
</Table>

At January 31, 2007, there were approximately 37,609 holders of record of the
company's common stock, including brokers and other nominees.

We periodically consider alternatives to increase shareholder value, including
dividend payments. Dividend declarations are at the discretion of our board of
directors. We currently do not pay a dividend.

In October 2005, the board of directors approved the repurchase of 6.5 million
shares of our common stock. On July 13, 2006, the board of directors approved
the repurchase of an additional 10 million shares. As of December 31, 2006, the
remaining number of shares authorized to be repurchased was 4 million. We
repurchase shares using open market or privately negotiated transactions.
Repurchased shares are held in treasury for general corporate purposes. There
are no expiration dates for the current share-repurchase authorizations.

The following table summarizes our stock repurchases in the fourth quarter of
2006.

<Table>
<Caption>
                                                                          TOTAL NUMBER
                                                                           OF SHARES           MAXIMUM
                                                                          PURCHASED AS        NUMBER OF
                                                                        PART OF PUBLICLY   SHARES THAT MAY
                                            TOTAL NUMBER    AVERAGE        ANNOUNCED       YET BE PURCHASED
                                             OF SHARES     PRICE PAID       PLANS OR        UNDER PLANS OR
PERIOD                                       PURCHASED     PER SHARE        PROGRAMS           PROGRAMS
------                                      ------------   ----------   ----------------   ----------------
<S>                                         <C>            <C>          <C>                <C>
October 2006..............................     180,800       $28.47          180,800          5,824,400
November 2006.............................     950,000        32.76          950,000          4,874,400
December 2006.............................     902,000        35.29          902,000          3,972,400(1)
                                             ---------                     ---------
Total.....................................   2,032,800                     2,032,800
                                             ---------                     ---------
</Table>

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

(1) Represents the remaining number of shares that are available for repurchase
    as of December 31, 2006.

                                        8
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA.

<Table>
<Caption>
                                                      2006       2005       2004       2003       2002
FOR THE YEARS ENDING DECEMBER 31                    --------   --------   --------   --------   --------
(In millions, except per-share data)
<S>                                                 <C>        <C>        <C>        <C>        <C>
STATEMENT OF INCOME
Sales
  Consumer Products...............................  $  1,085   $    989   $    934   $    888   $    841
  Foodservice/Food Packaging......................     1,832      1,767      1,610      1,491      1,329
                                                    --------   --------   --------   --------   --------
                                                       2,917      2,756      2,544      2,379      2,170
                                                    --------   --------   --------   --------   --------
Operating income prior to restructuring...........       423        306        376        420        403
Restructuring and other charges/(credits).........        (1)         6         79         (1)        (3)
                                                    --------   --------   --------   --------   --------
Operating income..................................       424        300        297        421        406
                                                    --------   --------   --------   --------   --------
Tenneco Packaging litigation settlement...........        --         --         --         56         --
Realized foreign-currency exchange gain...........        31         --         --         --         --
Interest expense, net of interest capitalized.....        73         82         85         83         85
Income-tax expense................................       114         81         78        108        130
Income from continuing operations.................       277        143        138        176        194
Income (loss) from discontinued operations, net of
  income tax......................................        (3)       (89)        17         19         26
Cumulative effect of changes in accounting
  principles, net of income tax...................        --         --         --        (12)       (72)
Net income........................................  $    274   $     54   $    155   $    183   $    148
Weighted-average number of shares of common stock
  outstanding
  Basic...........................................   137.866    147.183    151.290    157.932    158.618
  Diluted.........................................   139.704    148.849    153.763    160.144    160.613
Earnings (loss) per share
  Basic
    Continuing operations(1)......................  $   2.01   $   0.97   $   0.91   $   1.11   $   1.22
    Discontinued operations.......................     (0.02)     (0.60)      0.11       0.12       0.16
    Cumulative effect of changes in accounting
      principles..................................        --         --         --      (0.07)     (0.45)
                                                    --------   --------   --------   --------   --------
                                                    $   1.99   $   0.37   $   1.02   $   1.16   $   0.93
  Diluted
    Continuing operations(2)......................  $   1.98   $   0.96   $   0.90   $   1.10   $   1.21
    Discontinued operations.......................     (0.02)     (0.60)      0.11       0.11       0.16
    Cumulative effect of changes in accounting
      principles..................................        --         --         --      (0.07)     (0.45)
                                                    --------   --------   --------   --------   --------
                                                    $   1.96   $   0.36   $   1.01   $   1.14   $   0.92
STATEMENT OF FINANCIAL POSITION
Net assets of discontinued operations.............  $     --   $     --   $    739   $    705   $    669
Total assets......................................     2,758      2,820      3,741      3,706      3,412
Short-term debt, including current maturities of
  long-term debt..................................        98          3        471          4          9
Long-term debt....................................       771        869        869      1,335      1,222
Minority interest.................................         9          9          9          8         21
Shareholders' equity..............................       853        820      1,083      1,061        897
STATEMENT OF CASH FLOWS
Cash provided by operating activities.............  $    372   $    266   $    366   $    336   $    384
Cash provided (used) by investing activities......       (75)       283        (91)      (194)      (244)
Cash used by financing activities.................       294        595        197        134         57
Expenditures for property, plant, and equipment...        78        143        100        112        126
</Table>

OTHER INFORMATION:

The company has never paid a dividend.

(1) 2006 includes $0.15 per share for a realized foreign-currency exchange gain
    and $0.21 for income-tax liability adjustments.

(2) 2006 includes $0.14 per share for a realized foreign-currency exchange gain
    and $0.21 for income-tax liability adjustments.

See Note 3 for restructuring and other and Note 5 for discontinued operations.

                                        9
<PAGE>

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

BASIS OF PRESENTATION

Financial statements for all periods presented in this report are prepared on a
consolidated basis in accordance with generally accepted accounting principles
consistently applied. All per-share information is presented on a diluted basis
unless otherwise noted. Certain reclassifications have been made to prior-
years' financial information to conform to current-year presentation.

On October 12, 2005, we completed the sale of most of our protective- and
flexible-packaging businesses to Pregis Corporation. These businesses
historically were included in our Protective and Flexible Packaging segment. In
conjunction with the sale of these entities, we reviewed our reporting segments
in concert with requirements of the Statement of Financial Accounting Standards
(SFAS) No. 131, "Disclosures About Segments of an Enterprise and Related
Information." As a result, we elected to include the retained portions of the
protective- and flexible-packaging businesses in our Foodservice/Food Packaging
segment.

We have three reporting segments:

     - Consumer Products manufactures disposable plastic, foam, molded-fiber,
       pressed-paperboard, and aluminum packaging products, and sells them to
       customers such as grocery stores, mass merchandisers, and discount
       chains. Products include waste bags, food-storage bags, and disposable
       tableware and cookware. We sell many of our consumer products under
       well-known trademarks, such as Hefty(R).

     - Foodservice/Food Packaging manufactures foam, clear plastic, aluminum,
       pressed-paperboard, and molded-fiber packaging products, and sells them
       to customers in the food-distribution channel, who prepare and process
       food for consumption. Customers include foodservice distributors,
       restaurants, and other institutional foodservice outlets, food
       processors, and grocery chains.

     - Other relates to corporate and administrative-service operations and
       retiree-benefit income and expense.

The accounting policies of the reporting segments are the same as those for
Pactiv as a whole. Where discrete financial information is not available by
segment, reasonable allocations of expenses and assets/liabilities are used.

EXECUTIVE OVERVIEW

BUSINESS

Our primary business involves the manufacture and sale of consumer and
specialty-packaging products for the consumer and foodservice/food packaging
markets. We operate 43 manufacturing facilities in 5 countries.

Consumer products include plastic, aluminum, and paper-based products, such as
waste bags, food-storage bags, and disposable tableware and cookware. These
products are sold under such well-known brand names as Hefty(R), Baggies(R),
Hefty(R) OneZip(R), Hefty(R) Cinch Sak(R), Hefty(R) The Gripper(R), Hefty(R) Zoo
Pals(R), Kordite(R), EZ Foil(TM), and Hefty(R) Serve 'n Store(R).

Foodservice and food-packaging products include foam, clear plastic, aluminum,
pressed-paperboard, and molded-fiber packaging for customers in the
food-distribution channel. Customers include wholesalers, supermarkets,
restaurants, and packer processors, who prepare and process food for
consumption.

We sell our products to a wide array of customers worldwide. Customers include
grocery stores, mass merchandisers, discount chains, restaurants, distributors,
and fabricators. Costs incurred in connection with the manufacture and sale of
these products are recorded in either cost of sales or selling, general, and
administrative expenses.

                                        10
<PAGE>

Greater than 80% of our sales come from products made from different types of
plastic resins, principally polystyrene and polyethylene, and to a lesser extent
polypropylene and amorphous polyethylene terephthalate (APET).

We have pension plans that cover substantially all of our employees. In
addition, in conjunction with our spin-off from Tenneco Inc. (Tenneco) in 1999,
we became the sponsor of retirement plans covering participating employees of
certain former subsidiaries and affiliates of Tenneco. With the exception of
pension-service costs associated with our production operations, we record
pension income as an offset to selling, general, and administrative expenses.
However, when assessing our performance and returns, we typically exclude the
effect of pension income and pension assets and liabilities.

SIGNIFICANT TRENDS, OPPORTUNITIES, AND CHALLENGES

Several opportunities and challenges may influence our continued growth.

     Near-term risks include:
     - The impact of energy-cost volatility on resin costs
     - The ability to increase selling prices
     - The continued effectiveness of our productivity and procurement
       initiatives

     Longer-term risks include:
     - Potential changes in consumer demand
     - Possible supplier and customer consolidations
     - Potential increases in foreign-based competition
     - Possible growth in market share of unbranded products

     We expect to continue to be successful by:
     - Adjusting selling prices to offset resin-price movements
     - Implementing aggressive cost-management and productivity programs
     - Leveraging our existing products into new distribution channels
     - Introducing innovative new products
     - Making strategic acquisitions

The primary raw materials used to manufacture our products are plastic resins,
principally polystyrene and polyethylene. While average industry prices for
polystyrene were slightly lower for the full year 2006 compared with 2005, they
began to rise at the end of 2006, driven principally by higher benzene costs. In
2006, average industry prices for polyethylene rose approximately 8%, compared
with 2005, driven by greater demand and higher ethylene prices. However, in the
fourth quarter of 2006, polyethylene costs began to decline. Over the past three
years, we were able to raise selling prices in many areas of our business to
mitigate the effect of resin cost increases.

It is likely that resin costs will continue to be a source of uncertainty for
us. We continue to closely monitor the resin marketplace in order to respond
quickly to any raw-material cost increases.

Our business is sensitive to other energy-related cost movements, particularly
those that affect transportation, logistics, and utility costs. Historically, we
have been able to mitigate the effect of higher energy-related costs with
productivity improvements and other cost reductions. However, if energy-related
costs increase significantly in the future, we may not be able to fully offset
such increases with productivity gains.

In 2006, we began to introduce "lean" principles and tools in many of our
operating facilities. We are expanding the use of lean principles to help us
accelerate productivity improvements by reducing inventory and scrap levels,
providing rapid stock replenishment, shortening scheduling cycles, improving our
"one-stop shopping" service, eliminating nonvalue-added activities, and
streamlining processes. We expect our ability to use these tools throughout the
organization will positively affect our operating results over the next several
years.

                                        11
<PAGE>

YEAR 2006 COMPARED WITH 2005

RESULTS OF CONTINUING OPERATIONS

Sales

<Table>
<Caption>
                                                                              INCREASE (DECREASE)
                                                                              --------------------
                                                             2006     2005     AMOUNT     PERCENT
(In millions)                                               ------   ------   --------   ---------
<S>                                                         <C>      <C>      <C>        <C>
Consumer Products.........................................  $1,085   $  989     $ 96        9.7%
Foodservice/Food Packaging................................   1,832    1,767       65        3.7
                                                            ------   ------     ----
Total.....................................................  $2,917   $2,756     $161        5.8%
                                                            ------   ------     ----
</Table>

The increase in total sales in 2006 reflected higher pricing, improved mix, and
flat volume. Excluding the positive impact of acquisitions ($16 million), sales
grew 5.3%.

Sales for the Consumer Products business increased in 2006, reflecting price
gains of 9% and 1% volume growth. A double-digit volume increase in food-storage
bags more than offset a volume decrease in foam tableware and waste bags.

Sales growth for the Foodservice/Food Packaging segment in 2006 was driven
principally by pricing gains. Slight volume declines in the base business were
partially offset by volume gains from acquisitions.

Operating Income

<Table>
<Caption>
                                                                            INCREASE (DECREASE)
                                                                            --------------------
                                                              2006   2005    AMOUNT     PERCENT
(In millions)                                                 ----   ----   --------   ---------
<S>                                                           <C>    <C>    <C>        <C>
Consumer Products...........................................  $195   $112     $ 83        74.1%
Foodservice/Food Packaging..................................   244    186       58        31.2
Other.......................................................   (15)     2      (17)
                                                              ----   ----     ----
Total.......................................................  $424   $300     $124        41.3%
                                                              ----   ----     ----
</Table>

Total operating income increased in 2006 as a result of positive spread (the
difference between selling prices and raw-material costs), and lower operating
costs, offset partially by higher selling, general, and administrative (SG&A)
costs. SG&A expenses rose as a result of higher performance-related compensation
costs, primarily driven by the increase in our stock price, lower pension
income, and higher advertising and promotion expenses.

Operating income for the Consumer Products business improved significantly from
2005. The increase was driven principally by positive spread, lower
product-launch costs, and productivity gains, offset partially by higher
advertising and promotion and other SG&A costs.

The increase in operating income for the Foodservice/Food Packaging business in
2006 primarily reflected favorable spread, the benefit of the Newspring
acquisition, and productivity gains, offset, in part, by higher SG&A costs.

Operating income for the Other segment decreased from 2005, principally because
of lower non-cash pension income and higher administrative expenses.

Income Taxes

Our effective tax rate for 2006 was 29.1%, compared with 36.0% for 2005. The
reduction in the tax rate was driven principally by a reduction in accrued
income taxes due to the expiration of the statute of limitations for prior tax
years, offset partially by other accruals for income-tax liabilities.

Income from Continuing Operations

We recorded income from continuing operations of $277 million, or $1.98 per
share, in 2006, compared with $143 million, or $0.96 per share, in 2005. Results
in 2006 included noncash pension income of

                                        12
<PAGE>

$26 million after tax, or $0.19 per share, a realized foreign-currency exchange
gain upon the liquidation of our European treasury operation of $20 million
after tax, or $0.14 per share, and favorable income-tax liability adjustments of
$29 million, or $0.21 per share. Prior-period results included non-cash pension
income of $34 million after tax, or $0.23 per share.

DISCONTINUED OPERATIONS

Income (Loss) from Discontinued Operations

Income (loss) from discontinued operations (See "Basis of Presentation" on page
10) was as follows:

<Table>
<Caption>
                                                              2006   2005
FOR THE YEARS ENDED DECEMBER 31 (In millions)                 ----   ----
<S>                                                           <C>    <C>
Sales.......................................................  $--    $695
                                                              ---    ----
Income (loss) from operations, net of tax of $0 and $13,
  respectively..............................................   (3)     18
Professional fees and other costs associated with the sale
  of the businesses.........................................   --     (15)
Goodwill impairment, net of tax of $12......................   --     (37)
Estimated loss on the sale of the businesses, net of tax of
  $28 million...............................................   --     (50)
Tax on repatriated foreign earnings.........................   --      (5)
                                                              ---    ----
Net loss from discontinued..................................  $(3)   $(89)
                                                              ---    ----
</Table>

In 2006, we recorded a loss on discontinued operations of $3 million related to
final working-capital adjustments and taxes. Liabilities related to discontinued
operations totaled $15 million at December 31, 2006, and $20 million at December
31, 2005, and included obligations related to income taxes, certain royalty
payments, and the costs of closing a facility in Europe.

Income (loss) from discontinued operations included an allocation of interest
expense of $11 million for 2005. Amounts allocated were based on the ratio of
the net assets of discontinued operations to the company's total net assets plus
consolidated debt. For 2005, interest expense was allocated through October 12,
the date of sale of the protective- and flexible-packaging businesses. The buyer
of the businesses did not assume the debt of the discontinued operations. In
addition, we did not have any debt-repayment requirements as a result of the
sale.

On October 22, 2004, the American Jobs Creation Act of 2004 was signed into law.
This act allowed us to take a special, one-time tax deduction of 85% of certain
repatriated foreign earnings. In the fourth quarter of 2005, we repatriated $147
million of the accumulated foreign earnings of our discontinued operations, and
recorded a related tax expense of $5 million.

LIQUIDITY AND CAPITAL RESOURCES

Capitalization

<Table>
<Caption>
                                                                                 INCREASE
                                                               2006     2005    (DECREASE)
(In millions)                                                 ------   ------   ----------
<S>                                                           <C>      <C>      <C>
Short-term debt, including current maturities of long-term
  debt(a)...................................................  $   98   $    3     $  95
Long-term debt..............................................     771      869       (98)
                                                              ------   ------     -----
Total debt..................................................     869      872        (3)
Minority interest...........................................       9        9        --
Shareholders' equity........................................     853      820        33
                                                              ------   ------     -----
Total capitalization........................................  $1,731   $1,701     $  30
                                                              ------   ------     -----
Ratio of total debt to total capitalization.................    50.2%    51.3%     (1.1)%
</Table>

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

(a) Short-term debt payable in April 2007

                                        13
<PAGE>

Shareholders' equity increased $33 million in 2006 as detailed below.

<Table>
<Caption>
(In millions)
<S>                                                            <C>
Shareholders' equity at December 31, 2005...................   $ 820
Increase (decrease)
  Impact of adopting SFAS No. 158(a)........................     (41)
  Additional minimum pension liability adjustment...........      89
  Favorable foreign-currency translation adjustments........       7
  Realized foreign-currency exchange gain (included in net
     income of $274)........................................     (31)
  Stock repurchases.........................................    (369)
  Net income................................................     274
  Stock-based compensation and issuance of common stock in
     connection with stock-option exercises.................     104
                                                               -----
Shareholders' equity at December 31, 2006...................   $ 853
                                                               -----
</Table>

(a) SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other
    Postretirement Plans"

Cash Flows

Cash flows for continuing and discontinued operations were as follows:

<Table>
<Caption>
                                                                               INCREASE
                                                              2006    2005    (DECREASE)
(In millions)                                                 -----   -----   ----------
<S>                                                           <C>     <C>     <C>
Cash provided (used) by:
  Operating activities......................................  $ 372   $ 266     $ 106
  Investing activities......................................    (75)    283      (358)
  Financing activities......................................   (294)   (595)      301
</Table>

The increase in cash provided by operating activities in 2006 was driven
primarily by higher income from continuing operations ($79 million), better
working capital management ($17 million), and an increase in non-cash pension
and long-term compensation accruals ($19 million), offset partially by an
increase in cash used by discontinued operations ($10 million).

Investing activities in 2006 primarily represented capital expenditures. In
2005, investing activities represented proceeds of $524 million from the sale of
the protective- and flexible-packaging businesses and other asset sales, offset,
in part, by capital expenditures of $143 million and the cost of acquiring
Newspring Industrial Corp. ($98 million).

Cash used by financing activities in 2006 was driven primarily by the repurchase
of company stock ($369 million), offset partially by proceeds ($73 million) from
the issuance of company stock in connection with the exercise of stock options.
Financing activities used $595 million of cash in 2005 for the repayment of debt
($610 million) and the repurchase of company stock ($164 million), offset
partially by the issuance of debt ($142 million) and the receipt of proceeds in
connection with the issuance of company stock related to the administration of
employee-benefit plans ($28 million).

Capital Commitments

Commitments for authorized capital expenditures totaled approximately $103
million at December 31, 2006. It is anticipated that the majority of these
expenditures will be funded over the next 12 months from existing cash and
short-term investments and internally generated cash.

                                        14
<PAGE>

Contractual Obligations

We enter into arrangements that obligate us to make future payments under
long-term contracts. Our long-term contractual obligations at December 31, 2006,
were as follows:

<Table>
<Caption>
                                                                            DUE IN
                                                       -------------------------------------------------
                                                       LESS THAN                               MORE THAN
                                              TOTAL     1 YEAR      1-3 YEARS     3-5 YEARS     5 YEARS
(In millions)                                 ------   ---------   -----------   -----------   ---------
<S>                                           <C>      <C>         <C>           <C>           <C>
Long-term debt obligations(1)...............  $1,895     $166         $126          $126        $1,477
Operating-lease obligations.................      87       23           31            19            14
Purchase obligations(2).....................     455      380           75            --            --
Other long-term liabilities(3)..............     206       27           38            36           105
                                              ------     ----         ----          ----        ------
Total.......................................  $2,643     $596         $270          $181        $1,596
                                              ------     ----         ----          ----        ------
</Table>

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

(1) Includes fixed-rate debentures, plus related interest-payment obligations
    based on rates in effect at December 31, 2006.

(2) Includes open capital commitments, amounts related to the purchase of
    minimum quantities of raw materials at current market prices under supply
    agreements and other long-term vendor agreements with specific payment
    provisions and early termination penalties.

(3) Includes undiscounted workers' compensation obligations, and undiscounted
    and unfunded postretirement medical and supplemental pension-funding
    requirements.

Liquidity and Off-Balance-Sheet Financing

We use various sources of funding to manage liquidity. Sources of liquidity
include cash flow from operations and a 5-year revolving-credit facility of $750
million. No amounts were outstanding under the revolving-credit facility at
December 31, 2006. We were in full compliance with the financial and other
covenants of our revolving-credit agreement at year-end 2006. We also use an
asset-securitization program as off-balance-sheet financing. No amounts were
securitized under this program as of December 31, 2006, or December 31, 2005.

We have pension plans that cover substantially all of our employees. Funding of
the qualified U.S. pension plan is currently determined by requirements of the
Employee Retirement Income Security Act, under which we were not required to
make contributions to the plan in 2006. On August 17, 2006, President Bush
signed the Pension Protection Act of 2006 (PPA) into law. The PPA, which is
effective for plan years beginning after December 31, 2007, significantly alters
current funding requirements. Based on our current assumptions and requirements
of the PPA, we do not anticipate that after-tax contributions to the plan will
be significant for the foreseeable future.

We believe that cash flow from operations, available cash reserves, and the
ability to obtain cash under our credit facilities and asset-securitization
program will be sufficient to meet current and future liquidity and capital
requirements.

YEAR 2005 COMPARED WITH 2004

RESULTS OF CONTINUING OPERATIONS

     In the first quarter of 2004, we announced a restructuring program to
reduce manufacturing capacity and overhead costs and to reinvest a portion of
the related savings in strategic growth initiatives. Implementation of the
program resulted in the elimination of approximately 850 salaried and hourly
positions worldwide. The total cost of the restructuring program was $84
million, $54 million after tax, or $0.35 per share, covering severance, asset
write-offs, and other, which consisted principally of asset-removal costs. The
majority of the program was executed in the second quarter of 2004. After-tax
cash payments related to the restructuring and other actions totaled $4 million
in 2005 and $9 million in 2004. See Note 3 for additional information.

                                        15
<PAGE>

Sales

<Table>
<Caption>
                                                                               INCREASE (DECREASE)
                                                                               --------------------
                                                              2005     2004     AMOUNT     PERCENT
(In millions)                                                ------   ------   --------   ---------
<S>                                                          <C>      <C>      <C>        <C>
Consumer Products..........................................  $  989   $  934     $ 55        5.9%
Foodservice/Food Packaging.................................   1,767    1,610      157        9.8
                                                             ------   ------     ----
Total......................................................  $2,756   $2,544     $212        8.3%
                                                             ------   ------     ----
</Table>

Total sales increased in 2005 on flat volume.  Excluding the positive impact of
foreign-currency exchange rates ($5 million) and acquisitions ($51 million),
sales grew 6.1%, driven mainly by the impact of pricing actions to offset
increased resin costs.

Sales for the Consumer Products business increased in 2005 primarily as a result
of price increases. Sales growth was driven by an increase in tableware, with
the introduction of Hefty(R) Serve n' Store(R)plates and bowls and Hefty(R) Easy
Grip(TM) cups, along with the broad-based impact of pricing actions to offset
increased resin costs.

Foodservice/Food Packaging segment sales growth in 2005 was primarily a result
of price increases implemented to offset the impact of higher polystyrene costs.
Volume gains from acquisitions offset volume declines in the base business.

Operating Income

<Table>
<Caption>
                                                                            INCREASE (DECREASE)
                                                                            --------------------
                                                              2005   2004    AMOUNT     PERCENT
(In millions)                                                 ----   ----   --------   ---------
<S>                                                           <C>    <C>    <C>        <C>
Consumer Products...........................................  $112   $175     $(63)      (36.0)%
Foodservice/Food Packaging..................................   186    112       74        66.1
Other.......................................................     2     10       (8)      (80.0)
                                                              ----   ----     ----
Total.......................................................  $300   $297     $  3         1.0%
                                                              ----   ----     ----
</Table>

Total operating income increased in 2005 as a result of lower restructuring
costs and positive spread (the difference between selling prices and
raw-material costs), offset partially by higher new product launch costs, and
higher manufacturing and logistics costs.

The following tables summarize the impact of restructuring and other charges on
2005 and 2004 operating income by segment.

<Table>
<Caption>
                                                           OPERATING INCOME -- TWELVE MONTHS ENDED
                                                                      DECEMBER 31, 2005
                                                     ---------------------------------------------------
                                                     GAAP    RESTRUCTURING AND   EXCLUDING RESTRUCTURING
                                                     BASIS     OTHER CHARGES        AND OTHER CHARGES
(In millions)                                        -----   -----------------   -----------------------
<S>                                                  <C>     <C>                 <C>
Consumer Products..................................  $112           $1                    $113
Foodservice/Food Packaging.........................   186            5                     191
Other..............................................     2           --                       2
                                                     ----           --                    ----
Total..............................................  $300           $6                    $306
                                                     ----           --                    ----
</Table>

<Table>
<Caption>
                                                           OPERATING INCOME -- TWELVE MONTHS ENDED
                                                                      DECEMBER 31, 2004
                                                     ---------------------------------------------------
                                                     GAAP    RESTRUCTURING AND   EXCLUDING RESTRUCTURING
                                                     BASIS     OTHER CHARGES        AND OTHER CHARGES
(In millions)                                        -----   -----------------   -----------------------
<S>                                                  <C>     <C>                 <C>
Consumer Products..................................  $175           $ 4                   $179
Foodservice/Food Packaging.........................   112            72                    184
Other..............................................    10             3                     13
                                                     ----           ---                   ----
Total..............................................  $297           $79                   $376
                                                     ----           ---                   ----
</Table>

                                        16
<PAGE>

We believe focusing on operating income excluding the effect of restructuring
and other charges is a meaningful alternative way of evaluating our operating
results. The restructuring and other charges relate to actions that will have an
ongoing effect on our company. Considering such charges as being applicable to
2005 and 2004 only could make our operating performance in those periods more
difficult to evaluate when compared with other periods in which there were no
such charges. We use operating income excluding restructuring and other charges
to evaluate operating performance.

The following table summarizes operating income excluding restructuring and
other charges for 2005 and 2004.

<Table>
<Caption>
                                                                            INCREASE (DECREASE)
                                                                            --------------------
                                                              2005   2004    AMOUNT     PERCENT
(In millions)                                                 ----   ----   --------   ---------
<S>                                                           <C>    <C>    <C>        <C>
Consumer Products...........................................  $113   $179     $(66)      (36.9)%
Foodservice/Food Packaging..................................   191    184        7         3.8
Other.......................................................     2     13      (11)      (84.6)
                                                              ----   ----     ----
Total.......................................................  $306   $376     $(70)      (18.6)%
                                                              ----   ----     ----
</Table>

Total operating income excluding restructuring and other charges was down versus
2004. The decline primarily reflected higher new product launch, raw-material,
energy-related, and logistics costs, which were offset partially by the effect
of price increases.

Operating income excluding restructuring and other charges for the Consumer
Products business was down compared with 2004. The decline was driven primarily
by increased new product launch expenses, higher plastic-resin and other
energy-related costs, and increased logistics costs, which were offset partially
by higher selling prices and productivity gains.

Operating income excluding restructuring and other charges for the
Foodservice/Food Packaging business increased from 2004. The increase primarily
reflected favorable spread, the benefit of the Newspring acquisition, and
productivity gains, offset, in part, by higher energy-related and logistics
costs.

Operating income excluding restructuring and other charges for the Other segment
decreased from 2004, principally because of higher compensation-related expenses
and a decrease in noncash pension income.

Income Taxes

Our effective tax rate for 2005 was 36.0%, compared with 36.2% for 2004.

Income from Continuing Operations

We recorded income from continuing operations of $143 million, or $0.96 per
share, in 2005, compared with $138 million, or $0.90 per share, in 2004. Results
for 2005 included restructuring and other charges of $4 million after tax, or
$0.03 per share, and noncash pension income of $34 million after tax, or $0.23
per share. Results for 2004 included restructuring and other charges of $50
million after tax, or $0.32 per share, and noncash pension income of $35 million
after tax, or $0.23 per share.

                                        17
<PAGE>

DISCONTINUED OPERATIONS

Income (Loss) from Discontinued Operations

Income (loss) from discontinued operations (see "Basis of Presentation" on page
10) was as follows:

<Table>
<Caption>
                                                              2005   2004
FOR THE YEARS ENDED DECEMBER 31 (In millions)                 ----   ----
<S>                                                           <C>    <C>
Sales.......................................................  $695   $839
                                                              ----   ----
Income from operations, net of tax of $13 and $12,
  respectively..............................................    18     17
Professional fees and other costs associated with the sale
  of the businesses.........................................   (15)    --
Goodwill impairment, net of tax of $12......................   (37)    --
Estimated loss on the sale of the businesses, net of tax of
  $28 million...............................................   (50)    --
Tax on repatriated foreign earnings.........................    (5)    --
                                                              ----   ----
Net income (loss) from discontinued operations..............  $(89)  $ 17
                                                              ----   ----
</Table>

Income (loss) from discontinued operations included an allocation of interest
expense for all periods presented. Amounts allocated were based on the ratio of
the net assets of discontinued operations to the company's total net assets plus
consolidated debt. For 2005, interest expense was allocated through October 12,
the date of sale of the protective- and flexible-packaging businesses. Amounts
allocated were $11 million for 2005 and $15 million for 2004. The buyer of the
businesses did not assume the debt of the discontinued operations. In addition,
we did not have any debt-repayment requirements as a result of the sale.

On October 22, 2004, the American Jobs Creation Act of 2004 was signed into law.
This act allowed us to take a special, one-time tax deduction of 85% of certain
repatriated foreign earnings. In the fourth quarter of 2005, we repatriated $147
million of the accumulated foreign earnings of our discontinued operations, and
recorded a related tax expense of $5 million.

Assets and liabilities from discontinued operations were as follows:

<Table>
<Caption>
                                                              2005   2004
DECEMBER 31 (In millions)                                     ----   ----
<S>                                                           <C>    <C>
Accounts and notes receivable, net..........................  $--    $127
Inventories.................................................   --      95
Other current as sets.......................................   --       4
Property, plant, and equipment, net.........................   --     308
Other long-term assets......................................   --     205
                                                              ---    ----
Total assets from discontinued operations...................  $--    $739
                                                              ---    ----
Accounts payable............................................  $--    $ 64
Accrued expense and other...................................   20      41
Long-term liabilities.......................................   --      40
                                                              ---    ----
Total liabilities from discontinued operations..............  $20    $145
                                                              ---    ----
</Table>

We have retained responsibility for certain liabilities related to the
businesses sold. These included income taxes through October 12, 2005, certain
royalty payments, and the costs of closing a facility in Europe. These costs
were included in the calculation of the loss on the sale of the businesses.

CHANGES IN ACCOUNTING PRINCIPLES

In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS
No. 123(R) "Share-Based Payments," which requires that the fair value of all
share-based payments to employees, including stock options, be recognized in
financial statements. SFAS No. 123(R) superseded Accounting Principles Board
(APB) Opinion No. 25 "Accounting for Stock Issued to Employees," which required
that the intrinsic-value method be used in determining compensation expense for
share-based payments to employees. Under SFAS No. 123(R), employee-compensation
expense is based on the grant-date fair

                                        18
<PAGE>

value of awards, and is recognized in the Statement of Income over the period
that recipients of awards are required to provide related service (normally the
vesting period).

We adopted SFAS No. 123(R) using the modified prospective method as of January
1, 2006. The impact if SFAS No. 123(R) had been adopted in prior periods is
shown in the "Stock Based Compensation" section of Note 2. The one-time
cumulative adjustment recorded in connection with adopting SFAS No. 123(R) was
immaterial for the twelve months ended December 31, 2006.

We elected to use the simplified method in calculating our additional paid-in
capital pool upon adoption of SFAS No. 123(R), as described in FASB Staff
Position No. FAS 123(R) -- 3, "Transition Election Related to Accounting for the
Tax Effects of Share-Based Payment Awards." SFAS No. 123(R) requires that tax
deductions for compensation costs in excess of amounts recognized for accounting
purposes be reported as cash flow from financing activities, rather than as cash
flow from operating activities. Such "excess" amounts totaled $4 million in 2006
and $6 million in both 2005 and 2004.

In July 2006, the FASB issued FASB Interpretation (FIN) No. 48, "Accounting for
Uncertainty in Income Taxes," which clarifies the application of SFAS No. 109,
"Accounting for Income Taxes." FIN No. 48 establishes a threshold condition that
a tax position must meet for any part of the benefit of such a position to be
recognized in the financial statements. In addition, FIN No. 48 provides
guidance regarding measurement, derecognition, classification, and disclosure of
tax positions. FIN No. 48 is effective for fiscal years beginning after December
15, 2006. We are currently reviewing FIN No. 48 and evaluating its potential
impact on our financial statements.

In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans -- an Amendment of SFAS
Nos. 87, 88, 106, and 132(R)." SFAS No. 158 requires employers to recognize the
overfunded or underfunded status of a defined-benefit postretirement plan as
assets or liabilities in their statement of financial position. In this
connection, previously disclosed but unrecognized gains or losses, prior-service
costs or credits, and transition assets or obligations must be recognized upon
adoption as a component of accumulated other comprehensive income, net of
applicable taxes. SFAS No. 158 also requires that additional disclosures be
provided in the notes to the financial statements regarding the impact on net
periodic-benefit costs of delaying the recognition of gains or losses,
prior-service costs or credits, and transition assets or obligations. These
changes are effective for fiscal years ending after December 15, 2006. In
addition, effective for fiscal years beginning after December 31, 2008, SFAS No.
158 precludes companies from using other than their fiscal year-end date to
measure plan assets and obligations.

We adopted the recognition and disclosure provision of SFAS No. 158 on December
31, 2006. We recorded a charge to other comprehensive income of $41 million upon
adoption.

CRITICAL ACCOUNTING POLICIES

Following are our accounting policies that involve the exercise of considerable
judgment and the use of estimates. These have the most significant impact on our
financial condition and results of operations.

REVENUE RECOGNITION

We recognize sales when the risks and rewards of ownership have transferred to
the customer, which generally occurs as products are shipped. In arriving at net
sales, we estimate the amount of deductions from sales that are likely to be
earned or taken by customers in conjunction with incentive programs. These
include volume rebates, early payment discounts, and coupon redemptions.
Estimates are based on historical trends and are reviewed quarterly for possible
revision. The amount of sales deductions reflected in net sales for the 12
months ended December 31, 2006, are reasonable. In the event that future sales-
deduction trends vary significantly from past or expected trends, reported sales
may increase or decrease by a material amount.

                                        19
<PAGE>

INVENTORY VALUATION

Our inventories are stated at the lower of cost or market. A portion of
inventories (55% and 62% at December 31, 2006, and 2005, respectively) is valued
using the last-in, first-out (LIFO) method of accounting. Given the volatility
of our costs of raw materials (primarily plastic resins), we prefer the LIFO
method because it reflects the current cost of inventories in cost of sales. If
we had valued inventories using the first-in, first-out (FIFO) accounting method
as of January 1, 2004, net income would have been $33 million, or $0.21 per
share, higher in 2004; $2 million, or $0.01 per share, higher in 2005; and $2
million, or $0.02 per share, higher in 2006.

We periodically review inventory balances to identify slow-moving and/or
obsolete items. This determination is based on a number of factors, including
new product introductions, changes in consumer-demand patterns, and historical
usage trends.

PENSION PLANS

In September 2006, the FASB issued SFAS No. 158. See "Changes in Accounting
Principles" on page 18 for additional information. Pretax pension-plan income
was $42 million in 2006, $54 million in 2005, and $56 million in 2004. With the
exception of pension-service costs associated with our production operations,
pension income is included in the Statement of Income as an offset to selling,
general, and administrative expenses. We estimate that our noncash pretax
pension income will increase to $50 million in 2007.

Projections of pension income are based on a number of factors, including
estimates of future returns on pension-plan assets; assumptions pertaining to
the amortization of actuarial gains/losses; expectations regarding employee
compensation; and assumptions related to participant turnover, retirement age,
and life expectancy.

In developing our assumption regarding the rate of return on pension-plan
assets, we estimate future returns on various classes of assets, risk-free rates
of return, and long-term inflation rates. Since inception in 1971, our U.S.
qualified pension plan's annual rate of return on assets has averaged 11%.
Historically, the plan has invested approximately 70% of its assets in equity
securities and 30% in fixed-income investments. After considering all of these
factors, we concluded that the use of a 9% rate-of-return on assets assumption
was appropriate for 2006. Holding all other assumptions constant, a one-half
percentage-point change in the rate-of-return on assets assumption would impact
our pretax pension income by approximately $19 million.

The discount-rate assumption for our U.S. plan is based on the composite yield
on a portfolio of high-quality corporate bonds constructed with durations to
match the plan's future benefit obligations. In this connection, the
discount-rate assumption for our U.S. plan at our September 30 measurement date
was 5.93% for 2006 and 5.7% for 2005. Holding all other assumptions constant, a
one-half percentage-point change in the discount rate would impact our pretax
pension income by approximately $4 million.

We use a market-related method for calculating the value of plan assets. This
method recognizes the difference between actual and expected returns on plan
assets over a 5-year period. Resulting unrecognized gains or losses, along with
other actuarial gains and losses, are amortized using the "corridor approach"
outlined in SFAS No. 87, "Employers' Accounting for Pensions."

                                        20
<PAGE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

DERIVATIVE FINANCIAL INSTRUMENTS

We are exposed to market risks related to changes in foreign-currency exchange
rates, interest rates, and commodity prices. To manage these risks we may enter
into various hedging contracts in accordance with established policies and
procedures. We do not use hedging instruments for trading purposes and are not a
party to any transactions involving leveraged derivatives.

COMMODITY DERIVATIVES

During the fourth quarter of 2006, we entered into natural gas commodity
purchase agreements with third parties, hedging a portion of anticipated first
quarter 2007 purchases of natural gas used in the production process at certain
of our plants. These purchase agreements are marked to market, with the
resulting gains or losses recognized in earnings when hedged transactions are
recorded. The mark-to-market adjustments at December 31, 2006, were not
material.

INTEREST RATES

At December 31, 2006, we had public-debt securities of $875 million outstanding,
with fixed interest rates and maturity dates ranging from 4 months to 21 years.
Should we decide to redeem these securities prior to their stated maturity, we
would incur costs based on the fair value of the securities at that time.

The following table provides information about Pactiv's financial instruments
that are sensitive to interest-rate risks.

<Table>
<Caption>
                                                              2007   THEREAFTER   TOTAL
(In millions)                                                 ----   ----------   -----
<S>                                                           <C>    <C>          <C>
Fixed-rate debt.............................................  $ 99      $776      $875
Average interest rate.......................................   8.0%      8.1%      8.1%
Fair value..................................................  $ 99      $871      $970
</Table>

Prior to our spin-off from Tenneco Inc., we entered into an interest-rate swap
to hedge our exposure to interest-rate movements. We settled this swap in
November 1999, incurring a $43 million loss, which is being recognized as
additional interest expense over the life of the underlying debt.

                                        21
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

            INDEX OF THE FINANCIAL STATEMENTS OF PACTIV CORPORATION
                         AND CONSOLIDATED SUBSIDIARIES

<Table>
<Caption>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Management's Report on Internal Control Over Financial
  Reporting.................................................   23
Reports of Independent Registered Public Accounting Firm....   24
Consolidated Statement of Income for each of the three years
  in the period ended
  December 31, 2006.........................................   26
Consolidated Statement of Financial Position at December 31,
  2006, and 2005............................................   27
Consolidated Statement of Cash Flows for each of the three
  years in the period ended December 31, 2006...............   28
Consolidated Statement of Shareholders' Equity for each of
  the three years in the period ended December 31, 2006.....   29
Notes to Financial Statements...............................   30
</Table>

                                        22
<PAGE>

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Our management is responsible for establishing and maintaining effective
internal control over financial reporting (as defined in Rules 13a-15(f) under
the Securities Exchange Act of 1934). Our internal control over financial
reporting is designed to provide reasonable assurance to our management and
board of directors regarding the preparation and fair presentation of published
financial statements.

Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation.

We assessed the effectiveness of our internal controls over financial reporting
as of December 31, 2006. In making this assessment, we used the criteria set
forth in the Internal Control -- Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Based on our
assessment using those criteria, we concluded that Pactiv's internal control
over financial reporting at December 31, 2006, was effective.

Our assessment of the effectiveness of internal control over financial reporting
as of December 31, 2006, has been audited by Ernst & Young LLP, the independent
registered public accounting firm who also audited the company's consolidated
financial statements. Ernst & Young's attestation report on management's
assessment of the company's internal control over financial reporting appears on
page 25.

                                        23
<PAGE>

            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of Pactiv Corporation:

We have audited the accompanying consolidated statements of financial position
of Pactiv Corporation and consolidated subsidiaries (the company) as of December
31, 2006, and 2005, and the related consolidated statements of income,
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 2006. Our audits also included the financial statement
schedule listed in the Index at Item 15(a). These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on our
audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Pactiv
Corporation and consolidated subsidiaries at December 31, 2006 and 2005, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2006, in conformity with U.S.
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.

As discussed in Note 2 to the consolidated financial statements, effective
January 1, 2006, the Company adopted Statement of Financial Accounting Standards
No. 123 (revised 2004), "Share-Based Payment" and, effective December 31, 2006,
the Company adopted certain provisions of Statement of Financial Accounting
Standards No. 158, "Employers' Accounting for Defined Benefit Pension and Other
Postretirement Plans".

We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of Pactiv
Corporation's internal control over financial reporting as of December 31, 2006,
based on criteria established in Internal Control -- Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated February 28, 2007 expressed an unqualified opinion thereon.

                                          /s/ ERNST & YOUNG LLP

Chicago, Illinois
February 28, 2007

                                        24
<PAGE>

            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of Pactiv Corporation:

We have audited management's assessment, included in the accompanying
Management's Report on Internal Control over Financial Reporting, that Pactiv
Corporation maintained effective internal control over financial reporting as of
December 31, 2006, based on criteria established in Internal Control --
Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the COSO criteria). Pactiv Corporation's management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting. Our responsibility is to express an opinion on management's
assessment and an opinion on the effectiveness of the Company's internal control
over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.

In our opinion, management's assessment that Pactiv Corporation maintained
effective internal controls over financial reporting as of December 31, 2006, is
fairly stated, in all material respects, based on the COSO criteria. Also, in
our opinion, Pactiv Corporation maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2006, based on the
COSO criteria.

We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated statements of
financial position of Pactiv Corporation and consolidated subsidiaries as of
December 31, 2006 and 2005, and the related consolidated statements of income,
shareholder's equity, and cash flows for each of the three years in the period
ended December 31, 2006, and our report dated February 28, 2007 expressed an
unqualified opinion therein.

                                          /s/ ERNST & YOUNG LLP

Chicago, Illinois
February 28, 2007

                                        25
<PAGE>

CONSOLIDATED STATEMENT OF INCOME

<Table>
<Caption>
            FOR YEARS ENDED DECEMBER 31                  2006           2005           2004
  (In millions, except share and per-share data)     ------------   ------------   ------------
<S>                                                  <C>            <C>            <C>
SALES
  Consumer Products................................  $      1,085   $        989   $        934
  Foodservice/Food Packaging.......................         1,832          1,767          1,610
                                                     ------------   ------------   ------------
                                                            2,917          2,756          2,544
                                                     ------------   ------------   ------------
COSTS AND EXPENSES
  Cost of sales, excluding depreciation and
     amortization..................................         2,027          2,035          1,795
  Selling, general, and administrative.............           316            259            229
  Depreciation and amortization....................           145            146            139
  Other expense....................................             6             10              5
  Restructuring and other..........................            (1)             6             79
                                                     ------------   ------------   ------------
                                                            2,493          2,456          2,247
OPERATING INCOME...................................           424            300            297
OTHER INCOME (EXPENSE)
  Interest income..................................             6              4              2
  Realized foreign-currency exchange gain..........            31             --             --
  Interest expense, net of interest capitalized....           (73)           (82)           (85)
  Share of income of joint ventures................             3              2              2
                                                     ------------   ------------   ------------
INCOME BEFORE INCOME TAXES.........................           391            224            216
Income tax expense.................................           114             81             78
                                                     ------------   ------------   ------------
INCOME FROM CONTINUING OPERATIONS..................           277            143            138
Discontinued operations, net of tax................            (3)           (89)            17
                                                     ------------   ------------   ------------
NET INCOME.........................................  $        274   $         54   $        155
                                                     ------------   ------------   ------------
EARNINGS PER SHARE
Weighted-average number of shares of common stock
  outstanding
  Basic............................................   137,865,929    147,182,776    151,289,798
  Diluted..........................................   139,704,381    148,849,418    153,763,156
Basic earnings (loss) per share of common stock
  Continuing operations............................  $       2.01   $       0.97   $       0.91
  Discontinued operations..........................         (0.02)         (0.60)          0.11
                                                     ------------   ------------   ------------
  Total............................................  $       1.99   $       0.37   $       1.02
                                                     ------------   ------------   ------------
Diluted earnings (loss) per share of common stock
  Continuing operations............................  $       1.98   $       0.96   $       0.90
  Discontinued operations..........................         (0.02)         (0.60)          0.11
                                                     ------------   ------------   ------------
  Total............................................  $       1.96   $       0.36   $       1.01
                                                     ------------   ------------   ------------
</Table>

The accompanying notes to the financial statements are an integral part of this
statement.

                                        26
<PAGE>

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

<Table>
<Caption>
                                                               DECEMBER 31, 2006      DECEMBER 31, 2005
AT DECEMBER 31 (In millions, except share data)               --------------------   --------------------
<S>                                                           <C>                    <C>
ASSETS
Current assets
  Cash and temporary cash investments.......................         $  181                 $  172
  Accounts and notes receivable
     Trade, less allowances of $9 and $8 at the respective
       dates................................................            310                    299
     Other..................................................             13                     20
                                                                     ------                 ------
     Total accounts and notes receivable....................            323                    319
                                                                     ------                 ------
  Inventories
     Finished goods.........................................            144                    148
     Work in process........................................             52                     41
     Raw materials..........................................             61                     61
     Other materials and supplies...........................             39                     39
                                                                     ------                 ------
     Total inventories......................................            296                    289
                                                                     ------                 ------
  Other.....................................................             38                     40
                                                                     ------                 ------
  Total current assets......................................            838                    820
                                                                     ------                 ------
Property, plant, and equipment, net.........................          1,093                  1,141
                                                                     ------                 ------
Other assets
  Goodwill..................................................            525                    527
  Intangible assets, net....................................            238                    260
  Other.....................................................             64                     72
                                                                     ------                 ------
  Total other assets........................................            827                    859
                                                                     ------                 ------
TOTAL ASSETS................................................         $2,758                 $2,820
                                                                     ------                 ------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
  Short-term debt, including current maturities of long-term
     debt...................................................         $   98                 $    3
  Accounts payable..........................................            152                    179
  Taxes accrued.............................................             54                     32
  Interest accrued..........................................              8                      8
  Accrued promotions, rebates, and discounts................             77                     70
  Accrued payroll and benefits..............................             82                     69
  Other.....................................................             63                     75
  Liabilities from discontinued operations..................             15                     20
                                                                     ------                 ------
  Total current liabilities.................................            549                    456
                                                                     ------                 ------
Long-term debt..............................................            771                    869
                                                                     ------                 ------
Deferred income taxes.......................................            120                    104
                                                                     ------                 ------
Pension and postretirement benefits.........................            403                    525
                                                                     ------                 ------
Other.......................................................             53                     37
                                                                     ------                 ------
Minority interest...........................................              9                      9
                                                                     ------                 ------
Shareholders' equity
  Common stock (132,676,408 and 142,362,441 shares issued
     and outstanding, after deducting 39,106,769 and
     29,420,736 shares held in treasury, at the respective
     dates).................................................              1                      2
  Premium on common stock and other capital surplus.........            757                  1,021
  Accumulated other comprehensive income (loss)
     Currency translation adjustment........................             10                     34
     Pension funded status..................................         (1,072)                (1,120)
  Retained earnings.........................................          1,157                    883
                                                                     ------                 ------
  Total shareholders' equity................................            853                    820
                                                                     ------                 ------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY..................         $2,758                 $2,820
                                                                     ------                 ------
</Table>

The accompanying notes to the financial statements are an integral part of this
statement.

                                        27
<PAGE>

CONSOLIDATED STATEMENT OF CASH FLOWS

<Table>
<Caption>
                                                              2006    2005    2004
FOR YEARS ENDING DECEMBER 31 (In millions)                    -----   -----   -----
<S>                                                           <C>     <C>     <C>
OPERATING ACTIVITIES
Net income..................................................  $ 274   $  54   $ 155
Less results from discontinued operations...................      3      89     (17)
                                                              -----   -----   -----
Income from continuing operations...........................    277     143     138
Adjustments to reconcile income from continuing operations
  to cash provided by operating activities -- continuing
  operations:
  Depreciation and amortization.............................    145     146     139
  Deferred income taxes.....................................    (19)     20      39
  Restructuring and other...................................     (1)     (1)     32
  Pension income............................................    (42)    (54)    (56)
  Noncash compensation expense..............................      5      --      --
  Realized foreign-exchange gain............................    (31)     --      --
  Changes in components of working capital
     Increase in receivables................................     (6)    (30)     (3)
     (Increase) decrease in inventories.....................     (5)     25       4
     (Increase) decrease in prepayments and other current
      assets................................................     (2)      2       4
     Increase (decrease) in accounts payable................    (27)     (7)     33
     Increase (decrease) in taxes accrued...................     58      30       4
     Decrease in interest accrued...........................     --      (1)     --
     Increase (decrease) in other current liabilities.......     23       5      (5)
  Other.....................................................     11      (8)      4
                                                              -----   -----   -----
Cash provided by operating activities -- continuing
  operations................................................    386     270     333
Cash provided (used) by operating activities -- discontinued
  operations................................................    (14)     (4)     33
                                                              -----   -----   -----
CASH PROVIDED BY OPERATING ACTIVITIES.......................  $ 372   $ 266   $ 366
                                                              -----   -----   -----
INVESTING ACTIVITIES
Expenditures for property, plant, and
  equipment -- continuing operations........................    (78)   (121)    (78)
Acquisitions of businesses and assets.......................     --     (98)     --
Proceeds from the sale of a business or assets..............      3     524       2
                                                              -----   -----   -----
Cash provided (used) by investing activities -- continuing
  operations................................................    (75)    305     (76)
Expenditures for property, plant, and
  equipment -- discontinued operations......................     --     (22)    (22)
Other discontinued operations investing activities..........     --      --       7
                                                              -----   -----   -----
CASH PROVIDED (USED) BY INVESTING ACTIVITIES................  $ (75)  $ 283   $ (91)
                                                              -----   -----   -----
FINANCING ACTIVITIES
Issuance of common stock....................................     73      28      33
Purchase of common stock....................................   (369)   (164)   (230)
Issuance of long-term debt..................................     --     142      --
Retirement of long-term debt................................     --    (610)     --
Net increase in short-term debt, excluding current
  maturities of long-term debt..............................      2       9      --
                                                              -----   -----   -----
CASH USED BY FINANCING ACTIVITIES -- CONTINUING
  OPERATIONS................................................  $(294)  $(595)  $(197)
                                                              -----   -----   -----
Effect of foreign-exchange rate changes on cash and
  temporary cash investments................................      6      (4)      4
                                                              -----   -----   -----
INCREASE (DECREASE) IN CASH AND TEMPORARY CASH
  INVESTMENTS...............................................      9     (50)     82
Cash and temporary cash investments, January 1..............    172     222     140
                                                              -----   -----   -----
CASH AND TEMPORARY CASH INVESTMENTS, DECEMBER 31............  $ 181   $ 172   $ 222
                                                              -----   -----   -----
SUPPLEMENTAL DISCLOSURE OF CASH-FLOW INFORMATION
Cash paid for interest......................................  $  73   $  96   $ 100
Cash paid for income taxes -- continuing operations.........     73      31      35
Cash paid for income taxes -- discontinued operations.......     10      17       6
</Table>

The accompanying notes to the financial statements are an integral part of this
statement.

                                        28
<PAGE>

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

<Table>
<Caption>
                                                PREMIUM ON                  ACCUMULATED
                                               COMMON STOCK                    OTHER           TOTAL           TOTAL
                                     COMMON      AND OTHER      RETAINED   COMPREHENSIVE   SHAREHOLDERS'   COMPREHENSIVE
                                     STOCK    CAPITAL SURPLUS   EARNINGS   INCOME (LOSS)      EQUITY       INCOME (LOSS)
(In millions, except share amounts)  ------   ---------------   --------   -------------   -------------   -------------
<S>                                  <C>      <C>               <C>        <C>             <C>             <C>
BALANCE, DECEMBER 31, 2003.......     $ 2         $1,326         $  674       $  (941)        $1,061
Premium on common stock issued
  (2,524,346 shares).............                     45                                          45
Treasury stock repurchased
  (10,148,500 shares)............                   (230)                                       (230)
Translation of foreign-currency
  statements.....................                                                  33             33           $ 33
Additional minimum pension-
  liability adjustment, net of tax
  of $12.........................                                                  19             19             19
Net income.......................                                   155                          155            155
                                                                                                               ----
Total comprehensive income.......                                                                               207
                                      ---         ------         ------       -------         ------           ----
BALANCE, DECEMBER 31, 2004.......       2          1,141            829          (889)         1,083
Premium on common stock issued
  (2,264,848 shares).............                     44                                          44
Treasury stock repurchased
  (8,614,222 shares).............                   (164)                                       (164)
Translation of foreign-currency
  statements.....................                                                 (56)           (56)           (56)
Additional minimum pension-
  liability adjustment, net of tax
  of $158........................                                                (141)          (141)          (141)
Net income.......................                                    54                           54             54
                                                                                                               ----
Total comprehensive loss.........                                                                              (143)
                                      ---         ------         ------       -------         ------           ----
BALANCE, DECEMBER 31, 2005.......       2          1,021            883        (1,086)           820
Premium on common stock issued
  (4,218,967 shares).............                     74                                          74
Treasury stock repurchased
  (13,905,000 shares)............      (1)          (368)                                       (369)
Non-cash realized foreign-currency
  exchange gain..................                                                 (31)           (31)           (31)
Translation of foreign-currency
  statements.....................                                                   7              7              7
Stock-based compensation.........                     30                                          30
Additional minimum pension-
  liability adjustment, net of tax
  of $55, before adopting SFAS No.
  158(a).........................                                                  89             89             89
Impact of adopting SFAS No. 158 net
  of tax of ($36)................                                                 (41)           (41)
Net income.......................                                   274                          274            274
                                                                                                               ----
TOTAL COMPREHENSIVE INCOME.......                                                                              $339
                                      ---         ------         ------       -------         ------           ----
BALANCE, DECEMBER 31, 2006.......     $ 1         $  757         $1,157       $(1,062)        $  853
                                      ---         ------         ------       -------         ------
</Table>

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

(a) Statement of Financial Accounting Standards No. 158, "Employers' Accounting
    for Defined Benefit Pension and Other Postretirement Plans."

The accompanying notes to the financial statements are an integral part of this
statement.

                                        29
<PAGE>

NOTES TO FINANCIAL STATEMENTS

NOTE 1. BASIS OF PRESENTATION

Financial statements for all periods presented in this report are prepared on a
consolidated basis in accordance with generally accepted accounting principles
consistently applied. All per-share information is presented on a diluted basis
unless otherwise noted. Certain reclassifications have been made to prior-
years' financial information to conform to current-year presentation.

On October 12, 2005, we completed the sale of most of our protective- and
flexible-packaging businesses to Pregis Corporation. These businesses
historically were included in our Protective and Flexible Packaging segment. In
conjunction with the sale of these entities, we reviewed our reporting segments
in concert with requirements of the Statement of Financial Accounting Standards
(SFAS) No. 131, "Disclosures About Segments of an Enterprise and Related
Information." As a result, we elected to include the retained portions of the
protective- and flexible-packaging businesses in our Foodservice/Food Packaging
segment.

We have three reporting segments:

     - Consumer Products manufactures disposable plastic, foam, molded-fiber,
       pressed-paperboard, and aluminum packaging products, and sells them to
       customers such as grocery stores, mass merchandisers, and discount
       chains. Products include waste bags, food-storage bags, and disposable
       tableware and cookware. We sell many of our consumer products under
       well-known trademarks, such as Hefty(R).

     - Foodservice/Food Packaging manufactures foam, clear plastic, aluminum,
       pressed-paperboard, and molded-fiber packaging products, and sells them
       to customers in the food-distribution channel, who prepare and process
       food for consumption. Customers include foodservice distributors,
       restaurants, other institutional foodservice outlets, food processors,
       and grocery chains.

     - Other relates to corporate and administrative-service operations and
       retiree-benefit income and expense.

The accounting policies of the reporting segments are the same as those for
Pactiv as a whole. Where discrete financial information is not available by
segment, reasonable allocations of expenses and assets/ liabilities are used.

NOTE 2. SUMMARY OF ACCOUNTING POLICIES

CONSOLIDATION

Our financial statements include all majority-owned subsidiaries. Investments in
20%- to 50%-owned companies in which we have the ability to exert significant
influence over operating and financial policies are carried at cost plus our
share of change in equity earnings since date of acquisition. All intercompany
transactions are eliminated.

FOREIGN-CURRENCY TRANSLATION

Financial statements of international operations are translated into U.S.
dollars using end-of-period exchange rates for assets and liabilities and
weighted-average exchange rates for sales, expenses, gains, and losses.
Translation adjustments are recorded as a component of shareholders' equity.

CASH AND TEMPORARY CASH INVESTMENTS

We define cash and temporary cash investments as checking accounts, money-market
accounts, certificates of deposit, and U.S. Treasury notes having an original
maturity of 90 days or less.

                                        30
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

ACCOUNTS AND NOTES RECEIVABLE

Trade accounts receivable are classified as current assets and are reported net
of allowances for doubtful accounts. We record such allowances based on a number
of factors, including historical trends and specific customer liquidity.

On a recurring basis, we sell an undivided interest in a pool of trade
receivables meeting certain criteria to a third party as an alternative to debt
financing. Such sales, which represent a form of off-balance-sheet financing,
are recorded as a reduction of accounts and notes receivable in the Statement of
Financial Position. The related proceeds are included in cash provided by
operating activities in the Statement of Cash Flows. No receivables were sold at
December 31, 2006, or December 31, 2005.

Discounts and fees related to these sales were not material in 2006, were $2
million in 2005, and were not material in 2004. These expenses are included in
other expense in the Statement of Income. In the event that either Pactiv or the
third-party purchaser of the trade receivables were to discontinue this program,
our debt would increase, or our cash balance would decrease, by an amount
corresponding to the level of sold receivables at such time.

INVENTORIES

Our inventories are stated at the lower of cost or market. A portion of
inventories (55% and 62% at December 31, 2006, and 2005, respectively) is valued
using the last-in, first-out (LIFO) method of accounting. All other inventories
are valued using first-in, first-out (FIFO) or average-cost methods. If FIFO or
average-cost methods had been used to value all inventories, the total inventory
balance would have been $59 million higher at December 31, 2006, and $55 million
higher at December 31, 2005.

PROPERTY, PLANT, AND EQUIPMENT, NET

Depreciation is recorded on a straight-line basis over the estimated useful
lives of assets. Useful lives range from 10 to 40 years for buildings and
improvements and from 3 to 25 years for machinery and equipment. Depreciation
expense totaled $129 million, $129 million, and $124 million for the years ended
December 31, 2006, 2005, and 2004, respectively.

We capitalize certain costs related to the purchase and development of software
used in our business. Such costs are amortized over the estimated useful lives
of the assets, ranging from 3 to 12 years. Capitalized software development
costs, net of amortization, were $31 million and $38 million at December 31,
2006, and 2005, respectively.

We periodically re-evaluate carrying values and estimated useful lives of
long-lived assets to determine if adjustments are warranted. We use estimates of
undiscounted cash flows from long-lived assets to determine whether the book
value of such assets is recoverable over the assets' remaining useful lives.

GOODWILL AND INTANGIBLES, NET

In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets," we
review our goodwill and indefinite-lived intangibles for possible impairment.
Our annual review is conducted in the fourth quarter of the year, or earlier if
warranted by events or changes in circumstances.

Possible impairment of goodwill and indefinite-lived intangibles is determined
using a two-step process.

     - The first step requires that the fair value of individual reporting units
       be compared with their respective carrying values. If the carrying value
       of a reporting unit exceeds its fair value, a second step is performed to
       measure the amount of impairment, if any.

                                        31
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

     - The second step requires that the fair value of a reporting unit be
       allocated to all of its assets and liabilities, including
       indefinite-lived intangibles. Any remaining fair value is the implied
       goodwill, which is then compared with the carrying value of goodwill to
       determine possible impairment.

Estimates of fair value used in testing goodwill and indefinite-lived intangible
assets for possible impairment are primarily determined using projected
discounted cash flows, along with other publicly available market information.
These approaches use estimates and assumptions, including the amount and timing
of projected cash flows, discount rates reflecting the risk inherent in future
cash flows, perpetual growth rates, and appropriate market comparables.

Intangible assets that are not deemed to have an indefinite life are amortized
over their useful lives. We assess the recoverability of the carrying value of
such assets based on expected undiscounted cash flows, excluding interest
charges, and record an impairment loss if the carrying amount of such assets
exceeds the fair value. See Note 8 for additional information.

ENVIRONMENTAL LIABILITIES

We are subject to a variety of environmental and pollution-control laws and
regulations. From time to time, we identify costs or liabilities arising from
compliance with environmental laws and regulations. When related liabilities are
probable and can be reasonably estimated, we establish appropriate reserves.
Estimated liabilities may change as additional information becomes available. We
appropriately adjust our reserves as new information on possible clean-up costs,
expense and effectiveness of alternative clean-up methods, and other potential
liabilities is received. We do not expect that any additional liabilities
recorded as a result of the availability of new information will have a material
adverse effect on our financial position. However, such costs could have a
material effect on our results of operations or cash flows in a particular
period.

REVENUE RECOGNITION

We recognize sales when the risks and rewards of ownership have transferred to
the customer, which generally occurs as products are shipped.

FREIGHT

We record amounts billed to customers for shipping and handling as sales, and
record shipping and handling expenses as cost of sales.

GENERAL AND ADMINISTRATIVE EXPENSES

With the exception of pension-service costs associated with our production
operations, which approximated $7 million in 2006, and $6 million in both 2005
and 2004, we record pension income as an offset to selling, general, and
administrative expenses. Noncash pension income was $49 million in 2006, $60
million in 2005, and $62 million in 2004.

RESEARCH AND DEVELOPMENT

Research and development costs, which are expensed as incurred, totaled $33
million in both 2006 and 2005 and $28 million in 2004.

ADVERTISING

Advertising production costs are expensed as incurred, while advertising media
costs are expensed in the period in which the related advertising first takes
place. Advertising expenses were $21 million in 2006, $16 million in 2005, and
$11 million in 2004.

                                        32
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

STOCK-BASED COMPENSATION

In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS
No. 123(R) "Share-Based Payments," which requires that the fair value of all
share-based payments to employees, including stock options, be recognized in
financial statements. SFAS No. 123(R) superseded Accounting Principles Board
(APB) Opinion No. 25, "Accounting for Stock Issued to Employees," which required
that the intrinsic-value method be used in determining compensation expense for
share-based payments to employees. Under SFAS No. 123(R), employee-compensation
expense is based on the grant-date fair value of awards, and is recognized in
the Statement of Income over the period that recipients of awards are required
to provide related service (normally the vesting period).

Effective January 1, 2006, we adopted the fair-value method of accounting for
employee stock-compensation costs as outlined in SFAS No. 123(R). Prior to that
date, we used the intrinsic-value method in accordance with requirements of APB
Opinion No. 25. The following table shows the effects on net income and earnings
per share had the fair-value method been used in determining stock-based
compensation costs in 2005 and 2004.

<Table>
<Caption>
                                                               2005     2004
(In millions, except per-share data)                          ------   ------
<S>                                                           <C>      <C>
NET INCOME
As reported.................................................  $   54   $  155
After-tax adjustment of stock-based compensation costs
  Intrinsic-value method....................................       5        3
  Fair-value method.........................................     (17)     (13)
                                                              ------   ------
Pro forma...................................................  $   42   $  145
                                                              ------   ------
EARNINGS PER SHARE
Basic
As reported.................................................  $ 0.37   $ 1.02
Adjustment of stock-based compensation costs
  Intrinsic-value method....................................    0.03     0.02
  Fair-value method.........................................   (0.12)   (0.08)
                                                              ------   ------
Pro forma...................................................  $ 0.28   $ 0.96
                                                              ------   ------
Diluted
As reported.................................................  $ 0.36   $ 1.01
Adjustment of stock-based compensation costs
  Intrinsic-value method....................................    0.03     0.02
  Fair-value method.........................................   (0.11)   (0.08)
                                                              ------   ------
Pro forma...................................................  $ 0.28   $ 0.95
                                                              ------   ------
</Table>

Effective November 28, 2005, our board of directors replaced stock options with
performance shares under our long-term compensation program. As part of this
change, the board accelerated the vesting of all unvested stock options as of
that date. Accelerating the vesting of options will give rise to a reduction in
compensation costs going forward, compared with what would have been the case if
we had commenced the expensing of these options in 2006.

INCOME TAXES

We use the asset and liability method of accounting for income taxes. This
method requires that deferred-tax assets and liabilities be recorded to reflect
the future tax consequences of temporary differences between the tax and
financial-statement basis of assets and liabilities. If we determine that it is
more likely than not that a portion of deferred-tax assets will not be realized
in a future period, we reduce deferred-tax

                                        33
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

assets by recording a valuation allowance. Estimates used to recognize
deferred-tax assets are subject to revision in subsequent periods based on new
facts or circumstances.

We do not provide for U.S. federal income taxes on unremitted earnings of
foreign subsidiaries because we intend to reinvest those earnings in foreign
operations. Unremitted earnings of foreign subsidiaries totaled $40 million at
December 31, 2006, and $41 million at December 31, 2005. The unrecognized
deferred-tax liability associated with unremitted earnings totaled approximately
$6 million at December 31, 2006, and $4 million at December 31, 2005.

On October 22, 2004, the American Jobs Creation Act of 2004 was signed into law.
This act allowed us to take a special, one-time tax deduction of 85% of certain
repatriated foreign earnings. In the fourth quarter of 2005, we repatriated $147
million of the accumulated foreign earnings of our discontinued foreign
operations, and recorded a related tax expense of $5 million.

EARNINGS PER SHARE

Basic earnings per share is computed by dividing income available to common
shareholders by the weighted-average number of shares outstanding. Diluted
earnings per share is calculated in the same manner; however, adjustments are
made to reflect the potential issuance of dilutive shares.

RISK MANAGEMENT

From time to time, we use derivative financial instruments to hedge our exposure
to changes in foreign-currency exchange rates, principally using
foreign-currency purchase and sale contracts with terms of less than 1 year. Net
gains or losses on such contracts are recognized in the Statement of Income as
offsets to foreign-currency gains or losses on the underlying transactions. In
the Statement of Cash Flows, cash receipts and payments related to hedging
contracts are classified in the same way as cash flows from the transactions
being hedged.

Interest-rate risk management is accomplished through the use of swaps.
Interest-rate swaps are recorded at their fair value at each reporting date,
with an equal offset either in earnings or other accumulated comprehensive
income depending on the designation (or lack thereof) for each swap as a hedging
instrument.

From time to time, we employ commodity forward or other derivative contracts to
hedge our exposure to adverse changes in the price levels of certain
commodities. These instruments are intended to limit the risk on purchases of
commodities used in our production processes.

Gains and losses on derivative contracts were not material in 2006, 2005, and
2004. We do not use derivative financial instruments for speculative purposes.

CHANGES IN ACCOUNTING PRINCIPLES

We adopted SFAS No. 123(R) using the modified prospective method as of January
1, 2006. The impact if SFAS No. 123(R) had been adopted in prior periods is
shown in the "Stock Based Compensation" section of this note. The one-time
cumulative adjustment recorded in connection with adopting SFAS No. 123(R) was
immaterial for the twelve months ended December 31, 2006.

We elected to use the simplified method in calculating our additional paid-in
capital pool upon adoption of SFAS No. 123(R), as described in FASB Staff
Position No. FAS 123(R) -- 3, "Transition Election Related to Accounting for the
Tax Effects of Share-Based Payment Awards." SFAS No. 123(R) requires that tax
deductions for compensation costs in excess of amounts recognized for accounting
purposes be reported as cash flow from financing activities, rather than as cash
flow from operating activities. Such "excess" amounts totaled $4 million in 2006
and $6 million in both 2005 and 2004.

                                        34
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

In July 2006, the FASB issued FASB Interpretation (FIN) No. 48, "Accounting for
Uncertainty in Income Taxes," which clarifies the application of SFAS No. 109,
"Accounting for Income Taxes." FIN No. 48 establishes a threshold condition that
a tax position must meet for any part of the benefit of such a position to be
recognized in the financial statements. In addition, FIN No. 48 provides
guidance regarding measurement, derecognition, classification, and disclosure of
tax positions. FIN No. 48 is effective for fiscal years beginning after December
15, 2006. We are currently reviewing FIN No. 48 and evaluating its potential
impact on our financial statements.

In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans -- an Amendment of SFAS
Nos. 87, 88, 106, and 132(R)." SFAS No. 158 requires employers to recognize the
overfunded or underfunded status of a defined-benefit postretirement plan as
assets or liabilities in their statement of financial position. In this
connection, previously disclosed but unrecognized gains or losses, prior-service
costs or credits, and transition assets or obligations must be recognized upon
adoption as a component of accumulated other comprehensive income, net of
applicable taxes. SFAS No. 158 also requires that additional disclosures be
provided in the notes to the financial statements regarding the impact on net
periodic-benefit costs of delaying the recognition of gains or losses,
prior-service costs or credits, and transition assets or obligations. These
changes are effective for fiscal years ending after December 15, 2006. In
addition, effective for fiscal years beginning after December 31, 2008, SFAS No.
158 precludes companies from using other than their fiscal year-end date to
measure plan assets and obligations.

We adopted the recognition and disclosure provision of SFAS No. 158 on December
31, 2006. We recorded a charge to accumulated other comprehensive income of $41
million upon adoption. See Note 13 for additional information.

ESTIMATES

Financial-statement presentation requires management to make estimates and
assumptions that affect reported amounts for assets, liabilities, sales, and
expenses. Actual results may differ from such estimates.

RECLASSIFICATIONS

Certain prior-year amounts have been reclassified to conform with current-year
presentation.

NOTE 3. RESTRUCTURING AND OTHER

In the first quarter of 2004, we announced a restructuring program to reduce
manufacturing capacity and overhead costs and to reinvest a portion of the
related savings in strategic growth initiatives. Implementation of the program
resulted in the elimination of approximately 850 salaried and hourly positions
worldwide. The total cost of the restructuring program was approximately $84
million, $54 million after tax, or $0.35 per share, covering severance, asset
write-offs, and other, which consisted principally of asset-removal costs. The
majority of the program was executed in the second quarter of 2004.

After-tax cash payments related to the restructuring and other actions totaled
$4 million in 2005, and $9 million in 2004.

                                        35
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The following summarizes impacts of the restructuring and related actions.

<Table>
<Caption>
                                                                         ASSET
                                                           SEVERANCE   WRITE-OFFS   OTHER(1)    TOTAL
(In millions)                                              ---------   ----------   ---------   -----
<S>                                                        <C>         <C>          <C>         <C>
Accrued restructuring balance at January 1, 2005.........     $ 3         $--          $ 7       $10
                                                              ---         ---          ---       ---
Additions/adjustments to the account
  Consumer Products......................................       1          --           --         1
  Foodservice/Food Packaging.............................      (1)          7           (1)        5
                                                              ---         ---          ---       ---
  Total additions/adjustments............................                   7           (1)        6
Cash payments............................................      (3)         --           (4)       (7)
Charges against asset accounts...........................      --          (7)          --        (7)
                                                              ---         ---          ---       ---
Accrued restructuring balance at December 31, 2005.......     $--         $--          $ 2       $ 2
                                                              ---         ---          ---       ---
Additions/adjustments to the account
  Consumer Products......................................      --          --           --        --
  Foodservice/Food Packaging.............................      --          --           (1)       (1)
                                                              ---         ---          ---       ---
  Total additions/adjustments............................      --          --           (1)       (1)
Cash payments............................................      --          --           --        --
                                                              ---         ---          ---       ---
Accrued restructuring balance at December 31, 2006.......     $--         $--          $ 1       $ 1
                                                              ---         ---          ---       ---
CUMULATIVE RESTRUCTURING COSTS AT DECEMBER 31, 2006
  Consumer Products......................................     $ 5         $--          $--       $ 5
  Foodservice/Food Packaging.............................      10          31           35        76
  Other..................................................      --          --            3         3
                                                              ---         ---          ---       ---
TOTAL....................................................     $15         $31          $38       $84
                                                              ---         ---          ---       ---
</Table>

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

(1) Principally asset-removal costs.

NOTE 4. ACQUISITIONS

On March 15, 2005, we acquired Newspring Industrial Corp. (Newspring) for $98
million. Newspring is a leading supplier of thin wall, injection-molded
polypropylene products for use in the takeout, delicatessen, and foodservice
markets. We paid $87 million for the stock of Newspring and recorded liabilities
of $11 million for anticipated future payments related to non-compete agreements
and other items. Appraisals of the fair-market value of the assets acquired were
finalized during 2006. This resulted in goodwill being reduced by $1 million and
other intangibles, property, plant, and equipment, and deferred-tax liabilities
being increased by $2 million, $7 million, and $8 million, respectively.

NOTE 5. DISCONTINUED OPERATIONS

On October 12, 2005, we completed the sale of most of our protective- and
flexible-packaging businesses to Pregis Corporation for $523 million. Results of
these businesses are reported in our financial statements as discontinued
operations.

                                        36
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Income (loss) from discontinued operations in 2006, 2005, and 2004 (see Note 1)
was as follows:

<Table>
<Caption>
                                                              2006   2005   2004
DECEMBER 31 (In millions)                                     ----   ----   ----
<S>                                                           <C>    <C>    <C>
Sales.......................................................  $--    $695   $839
                                                              ---    ----   ----
Income from operations, net of tax of $0, $13, and $12,
  respectively..............................................   (3)     18     17
Professional fees and other costs associated with the sale
  of the businesses.........................................   --     (15)    --
Goodwill impairment, net of tax of $12......................   --     (37)    --
Estimated loss on the sale of the businesses, net of tax of
  $28 million...............................................   --     (50)    --
Tax on repatriated foreign earnings.........................   --      (5)    --
                                                              ---    ----   ----
Net income (loss) from discontinued operations..............  $(3)   $(89)  $ 17
                                                              ---    ----   ----
</Table>

In 2006, we recorded a loss on discontinued operations of $3 million related to
final working-capital adjustments and taxes. Liabilities related to discontinued
operations totaled $15 million at December 31, 2006, and $20 million at December
31, 2005, and included obligations related to income taxes, certain royalty
payments, and the costs of closing a facility in Europe.

Income (loss) from discontinued operations included an allocation of interest
expense for 2005 and 2004. Amounts allocated were based on the ratio of the net
assets of discontinued operations to the company's total net assets plus
consolidated debt. For 2005, interest expense was allocated through October 12,
the date of sale of the protective- and flexible-packaging businesses. Amounts
allocated were $11 million for 2005 and $15 million for 2004. The buyer of the
businesses did not assume the debt of the discontinued operations. In addition,
we did not have any debt-repayment requirements as a result of the sale.

On October 22, 2004, the American Jobs Creation Act of 2004 was signed into law.
This act allowed us to take a special, one-time tax deduction of 85% of certain
repatriated foreign earnings. In the fourth quarter of 2005, we repatriated $147
million of the accumulated foreign earnings of our discontinued operations, and
recorded a related tax expense of $5 million.

NOTE 6. LONG-TERM DEBT, SHORT-TERM DEBT, AND FINANCING ARRANGEMENTS

LONG-TERM DEBT

<Table>
<Caption>
                                                              2006   2005
DECEMBER 31 (In millions)                                     ----   ----
<S>                                                           <C>    <C>
Notes due 2007, effective interest rate of 8.0%.............  $ --   $ 98
Debentures due 2017, effective interest rate of 8.1%........   300    300
Debentures due 2025, effective interest rate of 7.9%, net of
  $1 million of unamortized discount........................   275    275
Debentures due 2027, effective interest rate of 8.4%, net of
  $4 million of unamortized discount........................   196    196
                                                              ----   ----
Total long-term debt........................................  $771   $869
                                                              ----   ----
</Table>

At December 31, 2006, aggregate maturities of debt outstanding were $776 million
after 2016.

We were in full compliance with financial and other covenants in our various
credit agreements at December 31, 2006.

SHORT-TERM DEBT

<Table>
<Caption>
                                                              2006   2005
DECEMBER 31 (In millions)                                     ----   ----
<S>                                                           <C>    <C>
Current maturities of long-term debt........................  $98     $--
Other.......................................................   --      3
                                                              ---     --
Total short-term debt.......................................  $98     $3
                                                              ---     --
</Table>

                                        37
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

We use lines of credit and overnight borrowings to finance certain of our
short-term capital requirements. Information regarding short-term debt,
excluding current maturities of long-term debt, is shown below. We had no
short-term borrowings in 2006.

<Table>
<Caption>
                                                               2005(A)
DECEMBER 31 (In millions)                                      -------
<S>                                                            <C>
Borrowings at end of year...................................    $  3
Weighted-average interest rate on borrowings at end of
  year......................................................     4.8%
Maximum month-end borrowings during year....................       4
Average month-end borrowings during year....................       4
Weighted-average interest rate on average month-end
  borrowings during year....................................     4.8%
</Table>

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

(a) Includes borrowings under committed credit facilities and uncommitted lines
    of credit.

In 1999, our former parent, Tenneco Inc. (Tenneco) realigned certain of its debt
in preparation for the spin-off of Pactiv. In conjunction with this realignment,
we entered into an interest-rate swap to hedge our exposure to interest-rate
movement. We settled this swap in November 1999 at a loss of $43 million. The
loss on the swap is being recognized as additional interest expense over the
life of the underlying debentures. At December 31, 2006, the unamortized balance
was $38 million.

NOTE 7. FINANCIAL INSTRUMENTS

ASSET AND LIABILITY INSTRUMENTS

At December 31, 2006, and 2005, the fair value of cash and temporary cash
investments, short- and long-term receivables, accounts payable, and short-term
debt were the same as, or not materially different than, the amounts recorded
for these assets and liabilities. The fair value of long-term debt at December
31, 2006, and 2005, was approximately $871 million and $987 million,
respectively. The recorded amount was $771 million at December 31, 2006, and
$869 million at December 31, 2005. The fair value of long-term debt was based on
quoted market prices for our debt instruments.

INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (INCLUDING DERIVATIVES)

We use derivative instruments, principally swaps, forward contracts, and
options, to manage our exposure to movements in foreign-currency values,
interest rates, and commodity prices. Amounts recognized in earnings related to
our hedging transactions were not material in 2006, 2005, or 2004.

From time to time, we enter into foreign-currency forward contracts with terms
of less than 1 year. We do so to mitigate our exposure to exchange-rate changes
related to third-party trade receivables and accounts payable. We had no open
foreign currency contracts as of December 31, 2006.

During the fourth quarter of 2006, we entered into natural gas commodity
purchase agreements with third parties, hedging a portion of anticipated
first-quarter 2007 purchases of natural gas used in the production process at
certain of our plants. These purchase agreements are marked to market, with the
resulting gains or losses recognized in earnings when hedged transactions are
recorded. The mark-to-market adjustments at December 31, 2006, were not
material.

                                        38
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 8. GOODWILL AND INTANGIBLE ASSETS

Changes in the carrying value of goodwill during 2006 and 2005 by operating
segment are shown in the following table.

<Table>
<Caption>
                                                                                          TOTAL
                                                            CONSUMER    FOODSERVICE/    CONTINUING
                                                            PRODUCTS   FOOD PACKAGING   OPERATIONS
(In millions)                                               --------   --------------   ----------
<S>                                                         <C>        <C>              <C>
Balance, December 31, 2004................................    $136          $326           $462
Goodwill additions........................................      --            63             63
Foreign-currency translation adjustment...................      --             2              2
                                                              ----          ----           ----
Balance, December 31, 2005................................    $136          $391           $527
                                                              ----          ----           ----
Goodwill adjustment -- prior acquisitions.................      --            (1)            (1)
Foreign-currency translation adjustment...................      --            (1)            (1)
                                                              ----          ----           ----
Balance, December 31, 2006................................    $136          $389           $525
                                                              ----          ----           ----
</Table>

Details of intangible assets are shown in the following table.

<Table>
<Caption>
                                                  DECEMBER 31, 2006               DECEMBER 31, 2005
                                            -----------------------------   -----------------------------
                                                             ACCUMULATED                     ACCUMULATED
                                            CARRYING VALUE   AMORTIZATION   CARRYING VALUE   AMORTIZATION
(In millions)                               --------------   ------------   --------------   ------------
<S>                                         <C>              <C>            <C>              <C>
Intangible assets subject to
  amortization
  Patents.................................       $ 87            $ 59            $ 85            $ 52
  Other...................................        148              67             157              59
                                                 ----            ----            ----            ----
                                                  235             126             242             111
Intangible assets not subject to
  amortization (primarily trademarks).....        129              --             129              --
                                                 ----            ----            ----            ----
                                                 $364            $126            $371            $111
                                                 ----            ----            ----            ----
</Table>

A pension-related intangible of $9 million was eliminated as a result of
adjusting our minimum pension liability prior to adopting SFAS No. 158.

The weighted-average amortization period used for patents and other intangible
assets subject to amortization is 15 years and 22 years, respectively.
Amortization of intangible assets was $14 million for the year ended December
31, 2006. Amortization expense is estimated to total $14 million, $13 million,
$12 million, $11 million, and $10 million for 2007, 2008, 2009, 2010, and 2011,
respectively.

NOTE 9. PROPERTY, PLANT, AND EQUIPMENT, NET

<Table>
<Caption>
                                                               2006     2005
DECEMBER 31 (In millions)                                     ------   ------
<S>                                                           <C>      <C>
Original cost
  Land, buildings, and improvements.........................  $  645   $  636
  Machinery and equipment...................................   1,507    1,454
  Other, including construction in progress.................      82       94
                                                              ------   ------
                                                              $2,234   $2,184
Less accumulated depreciation and amortization..............  (1,141)  (1,043)
                                                              ------   ------
Net property, plant, and equipment..........................  $1,093   $1,141
                                                              ------   ------
</Table>

Capitalized interest was $2 million in 2006, $3 million in 2005, and $2 million
in 2004.

                                        39
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 10. INCOME TAXES

Details of income (loss) from continuing operations before income taxes are
shown below.

<Table>
<Caption>
                                                              2006   2005   2004
(In millions)                                                 ----   ----   ----
<S>                                                           <C>    <C>    <C>
Income (loss) from continuing operations before income taxes
  U.S. operations...........................................  $368   $218   $249
  Foreign operations........................................    23      6    (33)
                                                              ----   ----   ----
Total.......................................................  $391   $224   $216
                                                              ----   ----   ----
</Table>

Shown below are details of income-tax expense for continuing operations.

<Table>
<Caption>
                                                              2006   2005   2004
(In millions)                                                 ----   ----   ----
<S>                                                           <C>    <C>    <C>
Current
  Federal...................................................  $109   $47    $28
  State and local...........................................    16     3      1
  Foreign...................................................     4    11      7
                                                              ----   ---    ---
                                                               129    61     36
                                                              ----   ---    ---
Deferred
  Federal...................................................   (14)   13     39
  State and local...........................................    (5)    5      6
  Foreign...................................................     4     2     (3)
                                                              ----   ---    ---
                                                               (15)   20     42
                                                              ----   ---    ---
Total income-tax expense -- continuing operations...........  $114   $81    $78
                                                              ----   ---    ---
</Table>

In the third quarter of 2006, we reduced our accrued income taxes by $27
million, which gave rise to an increase of $29 million, or $0.21 per share, in
income from continuing operations, for the year ended December 31, 2006, and a
decrease of $2 million, or $0.02 per share, in income from discontinued
operations for the same period. These adjustments, which were related
principally to matters associated with our separation from Tenneco in 1999,
reflected (1) a reduction in accrued income taxes of $40 million due to the
expiration of the statute of limitations for prior tax years and (2) an increase
in other accruals for income-tax liabilities of $13 million, primarily related
to the status of tax audits in Europe.

A reconciliation of the difference between the U.S. statutory federal income-tax
rate and our effective income-tax rate is shown in the following table.

<Table>
<Caption>
                                                              2006    2005   2004
                                                              -----   ----   ----
<S>                                                           <C>     <C>    <C>
U.S. statutory federal income-tax rate......................   35.0%  35.0%  35.0%
Increase (decrease) in income-tax rate
  Foreign income taxed at various rates.....................     --    2.2    7.0
  State and local taxes on income, net of U.S. federal
     income-tax benefit.....................................    2.4    1.5    2.2
  Foreign branch losses.....................................     --   (1.2)  (5.4)
  Domestic production deduction.............................   (0.7)  (0.6)    --
  Research and experimentation credit.......................   (0.1)  (0.5)  (2.5)
  Income-tax liability increase.............................    2.4     --     --
  Income-tax liability decrease.............................  (10.1)    --     --
  Other.....................................................    0.2   (0.4)  (0.1)
                                                              -----   ----   ----
Effective income-tax rate...................................   29.1%  36.0%  36.2%
                                                              -----   ----   ----
</Table>

Summarized below are the components of our net deferred-tax liabilities.

                                        40
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

<Table>
<Caption>
                                                              2006   2005
DECEMBER 31 (In millions)                                     ----   ----
<S>                                                           <C>    <C>
Deferred-tax assets
  Tax-loss carryforwards
     Federal................................................  $ 15   $ --
     State and local........................................     3      3
     Foreign................................................    25     26
  Pensions..................................................   161    202
  Post-retirement benefits..................................    40     36
  Other items...............................................    45     47
  Valuation allowance(1)....................................   (42)   (24)
                                                              ----   ----
  Total deferred-tax liabilities............................  $247   $290
                                                              ----   ----
Deferred-tax liabilities
  Property and equipment....................................   276    278
  Other items...............................................    64     86
                                                              ----   ----
  Total deferred-tax liabilities............................   340    364
                                                              ----   ----
Net deferred-tax liabilities................................  $ 93   $ 74
                                                              ----   ----
</Table>

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

(1) Related to federal, state, and foreign tax loss carryforwards, and other
    deferred tax assets.

We had federal capital loss carryforwards of $15 million as of December 31,
2006, which will expire in 2011. State tax-loss carryforwards at December 31,
2006, ($29 million) will expire at various dates from 2010 to 2018. Foreign
tax-loss carryforwards at December 31, 2006, totaled $92 million, of which $29
million will expire at various dates from 2007 to 2015, with the balance having
unlimited lives.

In July 2006, the FASB issued FIN No. 48, which clarifies the application of
SFAS No. 109. FIN No. 48 establishes a threshold condition that a tax position
must meet for any part of the benefit of such a position to be recognized in the
financial statements. In addition, FIN No. 48 provides guidance regarding
measurement, derecognition, classification, and disclosure of tax positions. FIN
No. 48 is effective for fiscal years beginning after December 15, 2006. We are
currently reviewing FIN No. 48, and evaluating its potential impact on our
financial statements.

NOTE 11. COMMON STOCK

We have 350 million shares of common stock ($0.01 par value) authorized, of
which 132,676,408 shares were issued and outstanding as of December 31, 2006.

RESERVES

Reserved shares at December 31, 2006 were as follows:

<Table>
<Caption>
(In thousands)
<S>                                                            <C>
Thrift plans................................................      860
2002 incentive-compensation plan............................   18,412
Employee Stock purchase plan................................    1,884
                                                               ------
Total.......................................................   21,156
                                                               ------
</Table>

STOCK PLANS

2002 Incentive-Compensation Plan -- In November 1999, we initiated a
stock-ownership plan that permits the granting of a variety of incentives,
including common stock, restricted stock, performance shares, stock-appreciation
rights, and stock options, to directors, officers, and employees. In May 2002,
the 1999 plan was succeeded by the 2002 plan, and all balances under the 1999
plan were transferred to the new plan, which remains in effect until amended or
terminated. Under the 2002 plan, up to 27 million shares

                                        41
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

of common stock can be issued (including shares issued under the prior plan), of
which 17 million were issued or granted as of December 31, 2006.

Restricted-stock, performance-share, and stock-option awards generally require
that, among other things, grantees remain with the company for certain periods
of time. Performance shares granted under the plan vest upon the attainment of
specified performance goals in the 3 years following the date of grant.

Changes in performance-share balances were as follows:

<Table>
<Caption>
                                                               PERFORMANCE
                                                                 SHARES
                                                               -----------
<S>                                                            <C>
Outstanding, December 31, 2004..............................      632,386
  Granted...................................................      532,173
  Canceled..................................................      (41,275)
  Paid......................................................     (223,937)
                                                                ---------
Outstanding, December 31, 2005..............................      899,347
  Granted...................................................      653,146
  Canceled..................................................      (20,678)
  Paid......................................................     (147,959)
                                                                ---------
Outstanding, December 31, 2006..............................    1,383,856
                                                                ---------
</Table>

Additional information related to performance-shares is as follows:

<Table>
<Caption>
                                               WEIGHTED-AVERAGE     PRE-TAX      ASSOCIATED
                                               GRANT-DATE FAIR    COMPENSATION       TAX       IMPACT ON
                                               VALUE PER SHARE      EXPENSE        BENEFIT     NET INCOME
(In millions, except share data)               ----------------   ------------   -----------   ----------
<S>                                            <C>                <C>            <C>           <C>
2006.........................................       $22.20            $17            $6           $11
2005.........................................        19.84              8             3             5
2004.........................................        22.06              4             2             2
</Table>

There is $17 million, after tax, of unamortized performance-share expenses at
December 31, 2006, of which $9 million and $8 million, after tax, will be
charged to net income in 2007 and 2008, respectively.

Summarized below are changes in stock-option balances.

<Table>
<Caption>
                                                              SHARES UNDER   WEIGHTED-AVERAGE
                                                                 OPTION       EXERCISE PRICE
                                                              ------------   ----------------
<S>                                                           <C>            <C>
Outstanding, January 1, 2005................................   14,317,588         $21.89
  Granted...................................................       15,470          20.65
  Exercised.................................................   (1,591,381)         15.14
  Canceled..................................................     (551,381)         29.12
                                                               ----------
Outstanding and exercisable, December 31, 2005..............   12,190,296          22.45
                                                               ----------
Outstanding, January 1, 2006................................   12,190,296          22.45
  Exercised.................................................   (4,166,947)         17.71
  Canceled..................................................   (1,186,762)         37.40
                                                               ----------
Outstanding, December 31, 2006..............................    6,836,587          22.74
                                                               ----------
Exercisable, December 31, 2006..............................    6,833,079          22.74
                                                               ----------
</Table>

                                        42
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Stock options expire 10 to 20 years following the date of grant. The
weighted-average fair value of options granted in 2005 ($4.99) was determined
using the Black-Scholes option-pricing model with the following assumptions:

<Table>
<Caption>
                                                              2005   2004
                                                              ----   ----
<S>                                                           <C>    <C>
ACTUARIAL ASSUMPTIONS
  Risk-free interest rate...................................   4.1%   3.4%
  Life (years)..............................................   0.9    4.5
  Volatility................................................  19.7%  34.1%
</Table>

Options granted in 2005 principally represented shares acquired under the
employee stock-purchase plan that were treated as stock options in accordance
with requirements of SFAS No. 123(R). These options had a life of less than 1
year and therefore had a low Black-Scholes value.

Summarized below is information regarding stock options outstanding and
exercisable at December 31, 2006.

<Table>
<Caption>
                                                                    OUTSTANDING OPTIONS
                                                          ----------------------------------------
                                                                                         WEIGHTED-
                                                                      WEIGHTED-AVERAGE    AVERAGE
                                                                         REMAINING       EXERCISE
                                                           NUMBER     CONTRACTUAL LIFE     PRICE
RANGE OF EXERCISE PRICE                                   ---------   ----------------   ---------
<S>                                                       <C>         <C>                <C>
$7  to $12..............................................    266,071   3.8 years           $11.68
$13 to $21..............................................  3,805,578   4.9                  16.82
$22 to $29..............................................  1,133,617   7.6                  23.99
$30 to $37..............................................    634,472   5.3                  33.61
$38 to $45..............................................    996,849   0.2                  39.96
                                                          ---------
                                                          6,836,587     4.7                22.74
                                                          ---------
</Table>

See Note 2 for additional information regarding accounting for stock-based
employee compensation.

Employee Stock-Purchase Plan -- Prior to 2006, our stock-purchase plan allowed
U.S. and Canadian employees to purchase Pactiv stock (up to $25,000 annually) at
a 15% discount. In 2005 and 2004, employees purchased 199,114 and 270,298 shares
of stock, respectively, at a weighted-average price of $17.66 and $19.52 per
share, respectively. We terminated the plan on December 31, 2005.

Employee 401(k) Plans -- We have qualified 401(k) plans for employees under
which eligible participants may make contributions equal to a percentage of
their annual salary. We matched a portion of such contributions with Pactiv
common stock until February 2006. Effective March 2006, all matching
contributions are in cash. The company or plan participants may contribute
additional amounts in accordance with the plans' terms. In 2006, 2005, and 2004,
we incurred 401(k) plan expense of $9 million, $10 million, and $11 million,
respectively.

Grantor Trust -- In November 1999, we established a grantor trust and issued
3,200,000 shares of Pactiv common stock for the trust. These shares were issued
to the trust in January 2000. This so-called "rabbi trust" is designed to assure
the payment of deferred-compensation and supplemental pension benefits. These
shares are not considered outstanding for purposes of financial reporting.

QUALIFIED OFFER RIGHTS PLAN

In November 1999, we adopted a qualified offer rights plan (QORP). Its purpose
is to deter coercive takeover tactics and to prevent a potential acquirer from
gaining control of the company in a transaction that would not be in the best
interest of shareholders. Under this plan, if a person becomes a beneficial
owner of 20% or more of our outstanding common stock without a qualified offer,
any right holder, other

                                        43
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

than the 20% holder is entitled to purchase common stock having a market value
of twice the right's exercise price.

Rights are not exercisable in connection with a qualified offer. A qualified
offer is defined as an all-cash tender offer for all outstanding shares of
common stock that is fully financed, remains open for a period of at least 60
business days, results in the offeror owning at least 85% of the common stock
after consummation of the offer, assures a prompt second-step acquisition of
shares not purchased in the initial offer at the same price as in the initial
offer, and meets certain other requirements.

In connection with the adoption of the QORP, the board of directors also adopted
an evaluation mechanism. It calls for an independent board committee (the
Three-year Independent Director Evaluation (TIDE) Committee) to review, on an
ongoing basis, the QORP and developments in rights plans in general. Based on
its review, the TIDE Committee can recommend modification or termination of the
plan. At least every 3 years, the TIDE Committee is required to report to the
board whether the QORP continues to be in the best interest of shareholders. In
May 2005, upon consideration and advice of the TIDE Committee, the board decided
to retain the QORP.

EARNINGS PER SHARE

Earnings from continuing operations per share of common stock outstanding were
computed as follows:

<Table>
<Caption>
                                                         2006           2005           2004
(In millions, except share and per-share data)       ------------   ------------   ------------
<S>                                                  <C>            <C>            <C>
BASIC EARNINGS PER SHARE
Income from continuing operations..................  $        277   $        143   $        138
Weighted-average number of shares of common stock
  outstanding......................................   137,865,929    147,182,776    151,289,798
                                                     ------------   ------------   ------------
Basic earnings from continuing operations per
  share............................................  $       2.01   $       0.97   $       0.91
                                                     ------------   ------------   ------------
DILUTED EARNINGS PER SHARE
Income from continuing operations..................  $        277   $        143   $        138
Weighted-average number of shares of common stock
  outstanding......................................   137,865,929    147,182,776    151,289,798
Effect of dilutive securities
  Stock options....................................     1,619,705      1,328,286      2,033,810
  Performance shares...............................       218,270        338,356        439,548
  Restricted shares................................           477             --             --
                                                     ------------   ------------   ------------
Weighted-average number of shares of common stock
  outstanding, including dilutive securities.......   139,704,381    148,849,418    153,763,156
                                                     ------------   ------------   ------------
Diluted earnings from continuing operations per
  share............................................  $       1.98   $       0.96   $       0.90
                                                     ------------   ------------   ------------
</Table>

The following table summarizes annual repurchases of our common stock for 2004
through 2006.

<Table>
<Caption>
                                                                        AVERAGE PRICE
                                                           NUMBER OF      PAID PER      TOTAL OUTLAY
                                                             SHARES         SHARE       (IN MILLIONS)
                                                           ----------   -------------   -------------
<S>                                                        <C>          <C>             <C>
2006.....................................................  13,905,000      $26.53           $369
2005.....................................................   8,614,222      $19.00           $164
2004.....................................................  10,148,500      $22.71           $230
</Table>

NOTE 12. PREFERRED STOCK

Pactiv has 50 million shares of preferred stock ($0.01 par value) authorized,
none of which was issued at December 31, 2006. We have reserved 750,000 shares
of preferred stock for the QORP.

                                        44
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 13. PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS

We have pension plans that cover substantially all of our employees. Benefits
are based on years of service and, for most salaried employees, final average
compensation. Our funding policy is to contribute to the plans amounts necessary
to satisfy requirements of applicable laws and regulations. Plan assets of our
U.S. qualified plan consist principally of equity and fixed-income securities.
Effective December 31, 2004, after the plans' September 30 measurement date, the
company's two U.S. qualified pension plans were merged. The merger had no effect
on participants' benefits or any other substantive features of the plans.
However, the merger resulted in a write-off of pension assets of $203 million
and the recording of corresponding reductions of pension liabilities, equity
(other comprehensive income), and deferred-tax liabilities of $88 million, $72
million, and $43 million, respectively, in 2005. The merger had a negligible
impact on pension plan income.

We have postretirement health-care and life-insurance plans that cover certain
of our salaried and hourly employees who retire in accordance with the various
provisions of such plans. Benefits may be subject to deductibles, co-payments,
and other limitations. These postretirement plans are not funded, and we reserve
the right to change them.

On December 8, 2003, the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 was enacted. This act expands Medicare coverage,
primarily by adding a prescription-drug benefit for Medicare-eligible
participants, starting in 2006. The act provides employers currently sponsoring
prescription-drug programs for Medicare-eligible participants with a range of
options to coordinate with the new government-sponsored program to potentially
reduce employers' costs. These options include supplementing the government
program on a secondary payor basis, or accepting a direct subsidy from the
government to support a portion of the costs of employers' programs.

Our plans currently provide prescription-drug benefits that will be coordinated
with the related Medicare benefits. As a result, subsidies from Medicare for
prescription-drug benefits will average approximately $2 million per year for
the foreseeable future, which will reduce our plans' expense by a similar
amount.

Effective December 31, 2006, we adopted the recognition and disclosure
provisions of SFAS No. 158. See Note 2.

Prior to the adoption of the recognition provisions of SFAS No. 158, we
accounted for our defined-benefit postretirement plans in accordance with
requirements of SFAS No. 87, "Employers Accounting for Pensions", and SFAS No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." If
the accumulated benefit obligations of a pension plan exceeded its fair value of
plan assets, SFAS No. 87 required that an additional minimum pension liability
be recorded as a noncash charge to accumulated other comprehensive income (loss)
in shareholders' equity (deficit). SFAS No. 106 required that the liability for
postretirement benefits other than pensions represent the actuarial present
value of all future benefits attributable to employees' service rendered to
date. Under both SFAS Nos. 87 and 106, changes in the funded status were
deferred and recognized ratably over future periods.

Upon the adoption of the recognition provisions of SFAS No. 158, we recognized
prior changes in the funded status of our postretirement benefit plans by
recording the following adjustments in individual line items of our Consolidated
Statement of Financial Position at December 31, 2006.

<Table>
<Caption>
                                                            IMPACT OF ADOPTING SFAS NO. 158
                                                            -------------------------------
                                                                             POSTRETIREMENT
                                              PRIOR TO         DEFINED-       OBLIGATIONS        BALANCE
                                              ADOPTING         BENEFIT         OTHER THAN      DECEMBER 31,
(IN MILLIONS)                               SFAS NO. 158     PENSION PLAN       PENSION            2006
-------------                              --------------   --------------   --------------   --------------
<S>                                        <C>              <C>              <C>              <C>
Deferred income taxes....................      $(156)            $19              $17             $(120)
Pension and postretirement benefit
  liability..............................       (326)            (51)             (26)             (403)
Accumulated other comprehensive loss.....      1,031              32                9             1,072
</Table>

                                        45
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The adoption of SFAS No. 158 had no effect on our Consolidated Statement of
Income for the year ended December 31, 2006, or for any prior period presented
herein, and had no impact on our debt covenants.

Funding of the qualified U.S. pension plan is currently determined by
requirements of the Employee Retirement Income Security Act, under which we were
not required to make contributions to the plan in 2006. On August 17, 2006,
President Bush signed the Pension Protection Act of 2006 (PPA) into law. The
PPA, which is effective for plan years beginning after December 31, 2007,
significantly alters current funding requirements. Based on our current
assumptions and requirements of the PPA, we do not anticipate that after-tax
contributions to the plan will be significant for the foreseeable future.

                                        46
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Financial data pertaining to our pension- and postretirement benefit plans
appears below.

<Table>
<Caption>
                                                                                POSTRETIREMENT
                                                               PENSION PLANS         PLANS
                                                              ---------------   ---------------
                                                               2006     2005     2006     2005
(In millions)                                                 ------   ------   ------   ------
<S>                                                           <C>      <C>      <C>      <C>
Accumulated benefit obligation, September 30................  $3,954   $4,102    $ --     $ --
Changes in projected benefit obligations
  Benefit obligations at September 30 of the previous
     year...................................................   4,138    3,862      99       98
  Currency-rate conversion..................................       4       (4)     --       --
  Service cost of benefits earned...........................      19       21       1        1
  Interest cost of benefit obligations......................     228      233       5        6
  Actuarial (gains)/losses..................................    (121)     295      (6)       2
  Benefits paid.............................................    (277)    (269)    (12)     (12)
  Participants contributions................................      --       --       5        4
  Medicare Part D reimbursement.............................      --       --       1       --
                                                              ------   ------    ----     ----
  Benefit obligations at September 30.......................  $3,991   $4,138    $ 93     $ 99
                                                              ------   ------    ----     ----
Changes in fair value of plan assets
  Fair value at September 30 of the previous year...........  $3,636   $3,500    $ --     $ --
  Currency-rate conversion..................................       3       (2)     --       --
  Actual return on plan assets..............................     294      401      --       --
  Employer contributions....................................       9        6       7        8
  Participant contributions.................................      --       --       5        4
  Benefits paid.............................................    (277)    (269)    (12)     (12)
                                                              ------   ------    ----     ----
  Fair value at September 30                                  $3,665   $3,636    $ --     $ --
                                                              ------   ------    ----     ----
Development of amounts recognized in the statement of
  financial positions
  Funded status at September 30.............................    (326)    (502)    (93)     (99)
  Contributions during the fourth quarter...................       1        4       1        2
                                                              ------   ------    ----     ----
  Funded status at December 31..............................  $ (325)    (498)   $(92)     (97)
                                                              ------             ----
  Unrecognized costs
     Actuarial losses.......................................            1,849               36
     Prior-service costs....................................                9               (2)
                                                                       ------             ----
  Net amount recognized at December 31......................           $1,360             $(63)
                                                                       ------             ----
Amounts recognized in the statements of financial position
  Contributions during the fourth quarter...................           $    4             $ --
  Accrued benefit costs.....................................             (468)             (63)
  Intangible assets.........................................               10               --
  Accumulated other comprehensive loss (pre-tax)............            1,814               --
                                                                       ------             ----
  Net amount recognized at December 31......................           $1,360             $(63)
                                                                       ------             ----
Amounts recognized in accumulated other comprehensive loss
  (pre-tax)
  Net actuarial loss........................................  $1,725             $ 27
  Prior-service credit......................................      (5)              (1)
                                                              ------             ----
                                                              $1,720             $ 26
                                                              ------             ----
Estimated effect of amortization of accumulated other
  comprehensive loss on 2007 net periodic benefit cost
  Net actuarial loss........................................  $   47             $  2
  Prior-service cost (credit)...............................      --               (1)
                                                              ------             ----
                                                              $   47             $  1
                                                              ------             ----
</Table>

                                        47
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The additional minimum liability for our pension plans was $1.823 billion at
December 31, 2005. An additional other comprehensive loss of $141 million after
tax was recognized in 2005 as a result of the merger of the two U.S. plans,
changes in discount-rate assumptions, the use of updated mortality tables, and
the sale of the protective- and flexible-packaging businesses.

Benefit payments expected to be made under the pension plans and postretirement
benefit plans over the next 10 years are summarized below.

<Table>
<Caption>
                                                                                  POSTRETIREMENT
                                                                              PLANS, NET OF EXPECTED
                                                              PENSION PLANS      MEDICARE SUBSIDY
(In millions)                                                 -------------   ----------------------
<S>                                                           <C>             <C>
2007........................................................     $  276                $ 8
2008........................................................        273                  8
2009........................................................        274                  8
2010........................................................        279                  7
2011........................................................        277                  7
2012-2016...................................................      1,439                 32
</Table>

We expect to contribute $10 million to our foreign and non-qualified pension
plans.

The impact of pension plans on pretax income from continuing operations was as
follows:

<Table>
<Caption>
                                                              2006    2005    2004
(In millions)                                                 -----   -----   -----
<S>                                                           <C>     <C>     <C>
Components of periodic benefit income (expense)
  Service cost of benefits earned...........................  $ (19)  $ (20)  $ (25)
  Interest cost of benefit obligations......................   (228)   (231)   (230)
  Expected return on plan assets............................    344     344     346
Amortization of:
  Unrecognized net losses...................................    (51)    (36)    (31)
  Unrecognized prior-service costs..........................     (2)     (3)     (4)
Additional cost due to SFAS No. 88(a).......................     (2)     --      --
                                                              -----   -----   -----
Total net periodic benefit income...........................  $  42   $  54   $  56
                                                              -----   -----   -----
</Table>

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

(a) SFAS No. 88, "Employers' Accounting for Settlements and Curtailments of
    Defined Benefit Pension Plans and for Termination of Benefits."

Pension-plan actuarial assumptions are shown below.

<Table>
<Caption>
                                                              2006   2005   2004
SEPTEMBER 30                                                  ----   ----   ----
<S>                                                           <C>    <C>    <C>
Actuarial assumptions
  Discount rate.............................................  5.93%  5.70%  6.25%
  Compensation increases....................................  4.00   4.00   4.00
  Return on assets..........................................  9.00   9.00   9.00
</Table>

For all of our worldwide pension plans, accumulated benefit obligations totaled
$3.954 billion and $4.102 billion at December 31, 2006, and 2005, respectively.

                                        48
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Pension plans with accumulated benefit obligations in excess of plan assets were
as follows:

<Table>
<Caption>
                                                               2006     2005
SEPTEMBER 30 (In millions)                                    ------   ------
<S>                                                           <C>      <C>
Projected benefit obligations...............................  $3,991   $4,138
Accumulated benefit obligations.............................   3,954    4,102
Fair value of plan assets...................................   3,665    3,636
</Table>

The discount-rate assumption for our U.S. plan is based on the composite yield
of a portfolio of high-quality corporate bonds constructed with durations to
match the plan's future benefit obligations

In developing actuarial assumptions for the return on pension-plan assets, we
receive independent input on asset-allocation strategies, projections regarding
long-term rates of return on various asset classes, risk-free rates of return,
and long-term inflation rates. Since inception in 1971, our U.S. qualified
pension plan's annual rate of return on assets has averaged approximately 11%.
At December 31, 2006, and 2005, the percentage of pension plan assets invested
in equity securities and fixed-income securities was approximately 75% and 25%,
respectively. A mixture of equity and fixed-income investments is used to
maximize the long-term return on pension-plan assets for a prudent level of
risk. Risk tolerances are established based on careful consideration of plan
liabilities, plan funded status, and the company's financial condition. The
plan's investment portfolio contains a diversified mix of equity and
fixed-income investments. Equity investments include U.S. and non-U.S. stocks,
as well as growth, value, and small-and large-capitalization stocks. Other asset
classes, such as private equity investments, are used judiciously to enhance
long-term returns while increasing portfolio diversification. Investment risk is
measured and monitored on an ongoing basis through quarterly investment
portfolio reviews, annual liability measurements, and periodic asset/liability
studies. After considering all of these factors, we concluded that a 9% rate of
return on assets assumption for our U.S. plan was appropriate for 2006 and 2005.

We use a market-related method for calculating the value of plan assets. This
method recognizes the difference between actual and expected returns on plan
assets over a 5-year period. Resulting unrecognized gains or losses, along with
other actuarial gains and losses, are amortized using the "corridor approach"
outlined in SFAS No. 87.

The impact of postretirement benefit plans on pretax income from continuing
operations was as follows:

<Table>
<Caption>
                                                              2006   2005   2004
(In millions)                                                 ----   ----   ----
<S>                                                           <C>    <C>    <C>
Service cost of benefits earned.............................  $ 1    $ 1    $ 1
Interest cost of benefit obligations........................    5      6      6
Prior-service costs.........................................   (1)    (1)    --
Losses......................................................    3      3      4
                                                              ---    ---    ---
Total post-retirement benefit-plan costs....................  $ 8    $ 9    $11
                                                              ---    ---    ---
</Table>

Actuarial assumptions used to determine postretirement benefit obligations
follow.

<Table>
<Caption>
                                                              2006   2005   2004
                                                              ----   ----   -----
<S>                                                           <C>    <C>    <C>
Actuarial assumptions
  Health-care cost inflation(a)
     Prior to age 65........................................   9.5%  10.0%   10.0%
     After age 65...........................................  11.0   10.0    10.0
  Discount rate.............................................  5.93   5.70    6.25
</Table>

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

(a) Assumed to decline to 5% in 2012. In 2006, our assumption was different for
    participants under age 65.

                                        49
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

A one percentage-point change in assumed health-care cost inflation would have
the following effects:

<Table>
<Caption>
                                                              1% INCREASE   1% DECREASE
(In millions)                                                 -----------   -----------
<S>                                                           <C>           <C>
Effect on total service and interest costs..................      $--           $--
Effect on post-retirement benefit obligations...............       3             (3)
</Table>

We contributed $7 million and $8 million in 2006 and 2005, respectively, to fund
postretirement medical-plan obligations. We expect to contribute $8 million to
fund our postretirement medical-plan obligations in 2007.

NOTE 14. SEGMENT AND GEOGRAPHIC AREA INFORMATION

We report the results of our segments in accordance with SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information." We
reclassified our reporting segments following the sale of most of our
protective- and flexible-packaging businesses. Our three segments are Consumer
Products, Foodservice/Food Packaging, and Other. See Note 1 for additional
details.

Products are transferred between segments and among geographic areas at, as
nearly as possible, market value. Wal-Mart Stores, Inc. accounted for
approximately 16% and 15% of our consolidated sales in 2006 and 2005,
respectively. These sales were reflected primarily in the results of the
Consumer Products segment and, to a lesser extent, in the results of the
Foodservice/Food Packaging segment. Our backlog of orders is not material.

The following table sets forth certain segment information.

<Table>
<Caption>
                                                               FOODSERVICE/
                                                  CONSUMER         FOOD
                                                  PRODUCTS      PACKAGING       OTHER      TOTAL
(In millions)                                     --------     ------------     ------     ------
<S>                                               <C>          <C>              <C>        <C>
FOR THE YEAR ENDING DECEMBER 31, 2006
Sales to external customers.....................   $1,085         $1,832        $   --     $2,917
Depreciation and amortization...................       57             81             7        145
Operating income................................      195            244(b)        (15)(c)    424
Total assets....................................    1,043          1,445           270      2,758
Capital expenditures from continuing
  operations....................................       14             58             6         78
Noncash items other than depreciation and
  amortization..................................       --             --           (37)(e)    (37)
FOR THE YEAR ENDING DECEMBER 31, 2005
Sales to external customers.....................   $  989         $1,767        $   --     $2,756
Depreciation and amortization...................       55             83             8        146
Operating income................................      112(a)         186(b)          2(c)     300
Total assets....................................    1,028          1,478           314      2,820
Capital expenditures from continuing
  operations....................................       25             91             5        121
Noncash items other than depreciation and
  amortization..................................       --             (1)          (54)(e)    (55)
FOR THE YEAR ENDING DECEMBER 31, 2004
Sales to external customers.....................   $  934         $1,610        $   --     $2,544
Depreciation and amortization...................       53             78             8        139
Operating income................................      175(a)         112(b)         10(c)     297
Total assets....................................    1,062          1,357         1,322(d)   3,741
Capital expenditures from continuing
  operations....................................       16             58             4         78
Noncash items other than depreciation and
  amortization..................................       --             32           (56)(e)    (24)
</Table>

                                        50
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

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

(a) Includes restructuring and other charges of $1 million in 2005 and $4
    million in 2004.

(b) Includes restructuring and other charges/(credits) of $(1) million, $5
    million, and $72 million in 2006, 2005, and 2004, respectively.

(c) Includes pension-plan income, unallocated corporate expense, and $3 million
    restructuring and other charges in 2004.

(d) Includes administrative-service operations and assets from discontinued
    operations of $739 million at December 31, 2004.

(e) Includes pension-plan income and compensation expense for 2006 and
    pension-plan income for 2005 and 2004.

The following table sets forth certain geographic area information.

<Table>
<Caption>
                                                                GEOGRAPHIC AREA
                                                              -------------------
                                                              UNITED
                                                              STATES   FOREIGN(A)   TOTAL
(In millions)                                                 ------   ----------   ------
<S>                                                           <C>      <C>          <C>
AT DECEMBER 31, 2006, AND FOR THE YEAR THEN ENDED
Sales to external customers(b)..............................  $2,625      $292      $2,917
Long-lived assets(c)........................................   1,055       102       1,157
Total assets................................................   2,452       306       2,758
AT DECEMBER 31, 2005, AND FOR THE YEAR THEN ENDED
Sales to external customers(b)..............................  $2,482      $274      $2,756
Long-lived assets(c)........................................   1,115        98       1,213
Total assets................................................   2,513       307       2,820
AT DECEMBER 31, 2004, AND FOR THE YEAR THEN ENDED
Sales to external customers(b)..............................  $2,293      $251      $2,544
Long-lived assets(c)........................................   1,322        94       1,416
Total assets(d).............................................   2,755       986       3,741
</Table>

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

(a) Sales to external customers and long-lived assets for individual countries
    (primarily Germany, Canada, and Mexico) were not material.

(b) Geographic assignment is based on location of selling business.

(c) Long-lived assets include all long-term assets other than net assets of
    discontinued operations, goodwill, intangibles, and deferred taxes.

(d) Total assets include assets from discontinued operations of $739 million.

NOTE 15. COMMITMENTS AND CONTINGENCIES

CAPITAL COMMITMENTS

Commitments for authorized capital expenditures totaled approximately $103
million at December 31, 2006. It is anticipated that the majority of these
expenditures will be funded over the next 12 months from existing cash and
short-term investments and internally generated cash.

LEASE COMMITMENTS

Certain of our facilities, equipment, and other assets are leased under
long-term arrangements. Minimum lease payments under noncancelable operating
leases with lease terms in excess of 1 year are expected to total $23 million,
$17 million, $14 million, $10 million, and $9 million for 2007, 2008, 2009,
2010, and 2011, respectively, and $14 million for subsequent years.

Commitments under capital leases are not significant. Total rental costs for
continuing operations for 2006, 2005, and 2004 were $27 million, $25 million,
and $26 million, respectively, which included minimum
                                        51
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

rentals under noncancelable operating leases of $27 million, $25 million, and
$21 million for the respective periods.

LITIGATION

We have been named as a defendant in multiple lawsuits, covering approximately
1,400 plaintiffs, all of which are pending in the United States District Court
for the Middle District of Alabama. The claims allege that plaintiffs
experienced personal injuries and property damages as a result of the alleged
release of chemical substances from a wood-treatment facility in Lockhart,
Alabama, during the period from 1963 to 1998. A predecessor of Pactiv owned the
facility from 1978 to 1983. Louisiana-Pacific Corporation, the current owner of
the facility, to whom a predecessor of Pactiv sold the facility in 1983, also is
named as a defendant in each of the lawsuits. We are not currently able to
quantify our financial exposure, if any, relating to this matter. We intend to
defend these lawsuits vigorously.

In February 2007, we entered into a consent decree with the Michigan Department
of Environmental Quality (MDEQ) resolving a dispute associated with a
declaratory-judgment action in the United States District Court, Eastern
District of Michigan, related to a superfund site in Filer City, Michigan. In
1993, after years of study, the U.S. Environmental Protection Agency (USEPA)
selected a final clean-up remedy for the site pursuant to a record of decision
and administrative order, in which the USEPA expressly determined that
conditions at the site posed no current or potentially unacceptable risk to
human health or the environment and required only monitoring of the natural
attenuation of the site. We contended that, because of the USEPA action, the
MDEQ is precluded from demanding that we undertake additional investigative and
remedial work at the site. Under the consent decree, the MDEQ has agreed not to
seek the performance of any additional investigative or remedial work by us
unless an investigation funded by the MDEQ generates new site data demonstrating
that the USEPA's remedy is not working. The MDEQ also agreed to waive its claims
for any past costs against us. In addition, we reserved the right to challenge
any future MDEQ demands related to the site.

We are party to other legal proceedings arising from our operations. We
establish reserves for claims and proceedings when it is probable that
liabilities exist and where reasonable estimates of such liabilities can be
made. While it is not possible to predict the outcome of any of these matters,
based on our assessment of the facts and circumstances now known, we do not
believe that any of these matters, individually or in the aggregate, will have a
material adverse effect on our financial position. However, actual outcomes may
be different from those expected and could have a material effect on our results
of operations or cash flows in a particular period.

ENVIRONMENTAL MATTERS

We are subject to a variety of environmental and pollution-control laws and
regulations. From time to time, we identify costs or liabilities arising from
compliance with environmental laws and regulations. When related liabilities are
probable and can be reasonably estimated, we establish appropriate reserves.
Estimated liabilities may change as additional information becomes available. We
appropriately adjust our reserves as new information on possible clean-up costs,
expense and effectiveness of alternative clean-up methods, and other potential
liabilities is received. We do not expect that any additional liabilities
recorded as a result of the availability of new information will have a material
adverse effect on our financial position. However, such costs could have a
material effect on our results of operations or cash flows in a particular
period.

                                        52
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 16. QUARTERLY FINANCIAL DATA (UNAUDITED)

<Table>
<Caption>
                                                                               INCOME (LOSS)
                                                                 INCOME FROM       FROM
                                       COST OF   RESTRUCTURING   CONTINUING    DISCONTINUED
                              SALES     SALES      AND OTHER     OPERATIONS     OPERATIONS     NET INCOME
(In millions)                 ------   -------   -------------   -----------   -------------   ----------
<S>                           <C>      <C>       <C>             <C>           <C>             <C>
2006
  First quarter.............  $  680   $  482         $(1)          $ 51           $ --           $ 51
  Second quarter............     750      511          --             69             --             69
  Third quarter.............     749      518          --            104             (2)           102
  Fourth quarter............     738      516          --             53             (1)            52
                              ------   ------         ---           ----           ----           ----
                              $2,917   $2,027         $(1)          $277           $( 3)          $274
                              ------   ------         ---           ----           ----           ----
2005
  First quarter.............  $  613   $  463         $ 6           $ 21           $  1           $ 22
  Second quarter............     707      525          --             37            (79)           (42)
  Third quarter.............     695      507          --             42             (3)            39
  Fourth quarter............     741      540          --             43             (8)            35
                              ------   ------         ---           ----           ----           ----
                              $2,756   $2,035         $ 6           $143           $(89)          $ 54
                              ------   ------         ---           ----           ----           ----
</Table>

<Table>
<Caption>
                                BASIC EARNINGS PER SHARE            DILUTED EARNINGS PER SHARE
                                  OF COMMON STOCK (A)                  OF COMMON STOCK (A)
                           ----------------------------------   ----------------------------------   STOCK PRICE/ SHARE
                           CONTINUING   DISCONTINUED    NET     CONTINUING   DISCONTINUED    NET     -------------------
                           OPERATIONS    OPERATIONS    INCOME   OPERATIONS    OPERATIONS    INCOME     HIGH       LOW
                           ----------   ------------   ------   ----------   ------------   ------   --------   --------
<S>                        <C>          <C>            <C>      <C>          <C>            <C>      <C>        <C>
2006
  First quarter..........    $0.36         $   --      $ 0.36     $0.35         $   --      $ 0.35    $25.07     $21.50
  Second quarter.........     0.50             --        0.50      0.49             --        0.49     26.00      22.61
  Third quarter..........     0.76          (0.02)       0.74      0.75          (0.02)       0.73     28.77      22.36
  Fourth quarter.........     0.40             --        0.40      0.39             --        0.39     36.53      27.81
  Total year.............     2.01          (0.02)       1.99      1.98          (0.02)       1.96     36.53      21.50
2005
  First quarter..........    $0.14         $ 0.01      $ 0.15     $0.14         $ 0.01      $ 0.15    $25.58     $21.39
  Second quarter.........     0.25          (0.53)      (0.28)     0.24          (0.52)      (0.28)    23.85      20.98
  Third quarter..........     0.28          (0.02)       0.26      0.28          (0.02)       0.26     22.38      16.91
  Fourth quarter.........     0.30          (0.05)       0.25      0.30          (0.05)       0.25     22.19      16.50
  Total year.............     0.97          (0.60)       0.37      0.96          (0.60)       0.36     25.58      16.50
</Table>

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

(a) The sum of amounts shown for individual quarters may not equal the total for
    the year because of changes in the weighted-average number of shares
    outstanding throughout the year.

The preceding notes are an integral part of the foregoing financial statements.

                                        53
<PAGE>

         CAUTIONARY STATEMENT FOR PURPOSES OF "SAFE HARBOR" PROVISIONS
            OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

Certain statements included in this Annual Report on Form 10-K, including
statements in the "Management's Discussion and Analysis of Financial Condition
and Results of Operations" section and in the notes to the financial statements,
are "forward-looking statements." All statements other than statements of
historical fact, including statements regarding prospects and future results,
are forward-looking. These forward-looking statements generally can be
identified by the use of terms and phrases such as "will", "believe",
"anticipate", "may", "might", "could", "expect", "estimated", "projects",
"intends", "foreseeable future", and similar terms and phrases. These
forward-looking statements are not based on historical facts, but rather on our
current expectations or projections about future events. Accordingly, these
forward-looking statements are subject to known and unknown risks and
uncertainties. While we believe that the assumptions underlying these
forward-looking statements are reasonable and make the statements in good faith,
actual results almost always vary from expected results, and differences could
be material.

In the "Risk Factors" section (Item 1A), we have attempted to list some of the
factors that we believe could cause our actual results to differ materially from
future results expressed or implied by these forward-looking statements. These
factors include the following:

     - Changes in consumer demand and selling prices for our products, including
       new products that our competitors or we may introduce that could impact
       sales and margins.

     - Material substitutions and changes in costs of raw materials, including
       plastic resins, labor, utilities, or transportation that could impact our
       expenses and margins.

     - Changes in laws or governmental actions, including changes in regulations
       such as those relating to air emissions or plastics generally.

     - The availability or cost of capital could impact growth or acquisition
       opportunities.

     - Workforce factors such as strikes or other labor interruptions.

     - The general economic, political, and competitive conditions in countries
       in which we operate, including currency fluctuations and other risks
       associated with operating outside of the U.S.

     - Changes in (1) assumptions regarding the long-term rate of return on
       pension assets and other factors, (2) the discount rate, and (3) the
       level of amortization of actuarial gains and losses.

     - Changes in U.S. and/or foreign governmental regulations relating to
       pension-plan funding.

     - Changes enacted by the SEC, the Financial Accounting Standards Board, or
       other regulatory or accounting bodies. See "Changes in Accounting
       Principles."

     - Competition from producers located in countries that have lower labor and
       other costs.

     - Our ability to integrate new businesses that we may acquire or to dispose
       of businesses or business segments that we may wish to divest.

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

None.

ITEM 9A. CONTROLS AND PROCEDURES.

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Our disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) are designed to ensure that information required to be
disclosed by us in reports we file or submit under the Securities Exchange Act
is recorded, processed, summarized, and reported within the appropriate time
periods. We, under the supervision and with the participation of our management,
including our principal

                                        54
<PAGE>

executive officer and principal financial officer, have evaluated the
effectiveness of our disclosure controls and procedures, and we and such
officers have concluded that such controls and procedures were adequate and
effective as of December 31, 2006. We completed our evaluation of such controls
and procedures in connection with the preparation of this annual report on Form
10-K on March 1, 2007.

There have been no significant changes in our internal controls or in other
factors that could significantly affect these controls subsequent to the date of
their evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses therein. There were no changes in internal
controls over financial reporting (as defined in Exchange Act Rules 13a-15(f)
and 15d-15(f)) during the quarter ended December 31, 2006, that materially
affected, or are reasonably likely to materially affect, our internal controls
over financial reporting.

ITEM 9B. OTHER INFORMATION.

None.

                                    PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.

Information regarding our executive officers required by this Item 10 is set
forth in Item 4.1 of Part I, "Executive Officers of the Registrant."

The following information required by this Item 10 is included in our Proxy
Statement related to our May 18, 2007, Annual Meeting of Shareholders, and is
incorporated by reference herein.
     - Information regarding our directors
     - Information regarding compliance with Section 16(a) of the Securities
       Exchange Act of 1934
     - Information regarding our code of ethics

ITEM 11. EXECUTIVE COMPENSATION.

Information regarding the compensation of certain of the company's executive
officers required by this Item 11 is included in our Proxy Statement related to
our May 18, 2007, Annual Meeting of Shareholders, and is incorporated by
reference herein.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
         RELATED STOCKHOLDER MATTERS.

Information regarding the security ownership of certain beneficial owners and
management and related stockholder matters of the company required by this Item
12 is included in our Proxy Statement related to our May 18, 2007, Annual
Meeting of Shareholders, and is incorporated by reference herein.

                                        55
<PAGE>

The following table summarizes our equity-compensation plans at December 31,
2006.

<Table>
<Caption>
                                                                                           NUMBER OF SHARES
                                              NUMBER OF SHARES                             OF COMMON STOCK
                                               OF COMMON STOCK                           AVAILABLE FOR FUTURE
                                              TO BE ISSUED UPON     WEIGHTED-AVERAGE        ISSUANCE UNDER
                                                 EXERCISE OF        EXERCISE PRICE OF          EQUITY-
PLAN CATEGORY                                OUTSTANDING OPTIONS   OUTSTANDING OPTIONS    COMPENSATION PLANS
-------------                                -------------------   -------------------   --------------------
<S>                                          <C>                   <C>                   <C>
Equity-compensation plans approved by
  shareholders.............................       8,216,935(1)          $  22.74              10,063,028
Equity-compensation plans not approved by
  shareholders.............................         468,045(2)          $  35.69               1,884,095(3)
                                                  ---------                                   ----------
Total......................................       8,684,980                                   11,947,123
                                                  ---------                                   ----------
</Table>

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

(1) Includes outstanding options and performance-share awards. Stock options
    generally expire 10 to 20 years after date of grant and vest over 1 to 3
    years. Outstanding performance-share awards are subject to achievement of
    performance criteria, vesting, and continued employment, and are paid in
    stock, except for executive officers who will be paid 50% in cash and 50% in
    stock. See Note 11 to the financial statements for additional information.

(2) Pactiv common stock index units (common stock equivalents) held pursuant to
    the company's deferred-compensation plan.

(3) Represents shares reserved for issuance under the now discontinued employee
    stock-purchase plan.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
         INDEPENDENCE.

Information required by this Item 13 is included in our Proxy Statement related
to our May 18, 2007, Annual Meeting of Shareholders, and is incorporated by
reference herein.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.

Information required by this Item 14 is included in our Proxy Statement related
to our May 18, 2007, Annual Meeting of Shareholders, and is incorporated by
reference herein.

                                    PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

FINANCIAL STATEMENTS INCLUDED IN ITEM 8

See "Index of Financial Statements of Pactiv Corporation and Consolidated
Subsidiaries" in Item 8, "Financial Statements and Supplementary Data."

                                        56
<PAGE>

INDEX OF FINANCIAL STATEMENTS AND SCHEDULES INCLUDED IN ITEM 15

<Table>
<Caption>
                                                               PAGE
                                                               ----
<S>                                                            <C>
Schedule II -- Valuation and qualifying accounts -- three
  years ended December 31, 2006.............................    58

SCHEDULES OMITTED AS NOT REQUIRED OR INAPPLICABLE
Schedule I -- Condensed financial information of registrant
Schedule III -- Real estate and accumulated depreciation
Schedule IV -- Mortgage loans on real estate
Schedule V -- Supplemental information concerning
  property -- casualty insurance operations
</Table>

                                        57
<PAGE>

                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
                                 (In millions)

<Table>
<Caption>
               COLUMN A                   COLUMN B             COLUMN C             COLUMN D    COLUMN E
---------------------------------------  ----------   --------------------------   ----------   ---------
                                                              ADDITIONS
                                                      --------------------------
                                                       CHARGED TO    CHARGED TO
                                         BALANCE AT    (REVERSED     (REVERSED)                  BALANCE
                                         BEGINNING    FROM) COSTS    FROM) OTHER                AT END OF
              DESCRIPTION                 OF YEAR     AND EXPENSES    ACCOUNTS     DEDUCTIONS     YEAR
              -----------                ----------   ------------   -----------   ----------   ---------
<S>                                      <C>          <C>            <C>           <C>          <C>
Allowance for doubtful accounts
  Year ended December 31, 2006.........     $ 8           $ 2            $(1)         $--          $ 9
  Year ended December 31, 2005.........       6             4             (1)          (1)           8
  Year ended December 31, 2004.........       7             5             --           (6)           6
Inventory valuation
  Year ended December 31, 2006.........     $55           $(7)           $ 7          $--          $55
  Year ended December 31, 2005.........      47             8             --           --           55
  Year ended December 31, 2004.........      (4)           51             --           --           47
Deferred tax asset valuation
  Year ended December 31, 2006.........     $24           $(4)           $22          $--          $42
  Year ended December 31, 2005.........      25            --             (1)          --           24
  Year ended December 31, 2004.........       8            15              2           --           25
</Table>

                                        58
<PAGE>

INDEX OF EXHIBITS

The following exhibits are filed as part of this Annual Report on Form 10-K for
the fiscal year ended December 31, 2006. (Exhibits designated with an asterisk
are filed with this report; all other exhibits are incorporated by reference.)

<Table>
<Caption>
EXHIBIT NO.                           DESCRIPTION
-----------                           -----------
<C>           <S>
   2          Distribution Agreement by and between Tenneco Inc. and the
              registrant (incorporated herein by reference to Exhibit 2 to
              Pactiv Corporation's Current Report on Form 8-K dated
              November 11, 1999, File No. 1-15157).
   3.1        Restated Certificate of Incorporation of the registrant
              (incorporated herein by reference to Exhibit 3.1 to Pactiv
              Corporation's Quarterly Report on Form 10-Q for the quarter
              ended September 30, 1999, File No. 1-15157).
   3.2        Amended and Restated By-laws of the registrant adopted May
              17, 2001 (incorporated herein by reference to Exhibit 3.2 to
              Pactiv Corporation's Quarterly Report on Form 10-Q for the
              quarter ended June 30, 2001, File No. 1-15157).
   4.1        Specimen Stock Certificate of Pactiv Corporation Common
              Stock (incorporated herein by reference to Exhibit 4.1 to
              Pactiv Corporation's Quarterly Report on Form 10-Q for the
              quarter ended September 30, 1999, File No. 1-15157).
   4.2(a)     Qualified Offer Plan Rights Agreement, dated as of November
              4, 1999, by and between the registrant and First Chicago
              Trust Company of New York, as Rights Agent (incorporated
              herein by reference to Exhibit 4.2 to Pactiv Corporation's
              Quarterly Report on Form 10-Q for the quarter ended
              September 30, 1999, File No. 1-15157).
   4.2(b)     Amendment No. 1 to Rights Agreement, dated as of November 7,
              2002, by and between the registrant and National City Bank,
              as rights agent (incorporated herein by reference to Exhibit
              4.4(a) to Pactiv Corporation's Registration Statement on
              Form S-8, File No. 333-101121).
   4.3(a)     Indenture, dated September 29, 1999, by and between the
              registrant and The Chase Manhattan Bank, as Trustee
              (incorporated herein by reference to Exhibit 4.1 to Tenneco
              Packaging Inc.'s Registration Statement on Form S-4, File
              No. 333-82923).
   4.3(b)     First Supplemental Indenture, dated as of November 4, 1999,
              to Indenture dated as of September 29, 1999, between the
              registrant and The Chase Manhattan Bank, as Trustee
              (incorporated herein by reference to Exhibit 4.3(b) to
              Pactiv Corporation's Quarterly Report on Form 10-Q for the
              quarter ended September 30, 1999, File No. 1-15157).
   4.3(c)     Second Supplemental Indenture, dated as of November 4, 1999,
              to Indenture dated as of September 29, 1999, between the
              registrant and The Chase Manhattan Bank, as Trustee
              (incorporated herein by reference to Exhibit 4.3(c) to
              Pactiv Corporation's Quarterly Report on Form 10-Q for the
              quarter ended September 30, 1999, File No. 1-15157).
   4.3(d)     Third Supplemental Indenture, dated as of November 4, 1999,
              to Indenture dated as of September 29, 1999, between the
              registrant and The Chase Manhattan Bank, as Trustee
              (incorporated herein by reference to Exhibit 4.3(d) to
              Pactiv Corporation's Quarterly Report on Form 10-Q for the
              quarter ended September 30, 1999, File No. 1-15157).
   4.3(e)     Fourth Supplemental Indenture, dated as of November 4, 1999,
              to Indenture dated as of September 1999, between the
              registrant and The Chase Manhattan Bank, as Trustee
              (incorporated herein by reference to Exhibit 4.3(e) to
              Pactiv Corporation's Quarterly Report on Form 10-Q for the
              quarter ended September 30, 1999, File No. 1-15157).
   4.3(f)     Fifth Supplemental Indenture, dated as of November 4, 1999,
              to Indenture dated as of September 29, 1999, between the
              registrant and The Chase Manhattan Bank, as Trustee
              (incorporated herein by reference to Exhibit 4.3(f) to
              Pactiv Corporation's Quarterly Report on Form 10-Q for the
              quarter ended September 30, 1999, File No. 1-15157).
   4.4        Registration Rights Agreement, dated as of November 4, 1999,
              by and between the registrant and the trustees under the
              Pactiv Corporation Rabbi Trust (incorporated herein by
              reference to Exhibit 4.4 to Pactiv Corporation's Quarterly
              Report on Form 10-Q for the quarter ended September 30,
              1999, File No. 1-15157).
</Table>

                                        59
<PAGE>

<Table>
<Caption>
EXHIBIT NO.                           DESCRIPTION
-----------                           -----------
<C>           <S>
   9          None.
  10.1        Human Resources Agreement, dated as of November 4, 1999, by
              and between Tenneco Inc. and the registrant (incorporated
              herein by reference to Exhibit 16.1 to Tenneco Inc.'s
              Current Report on Form 8-K dated November 4, 1999, File No.
              1-12387).
  10.2        Tax Sharing Agreement, dated as of November 3, 1999, by and
              between Tenneco Inc. and the registrant (incorporated herein
              by reference to Exhibit 16.2 to Tenneco Inc.'s Current
              Report on Form 8-K dated November 4, 1999, File No.
              1-12387).
  10.3        Amended and Restated Transition Services Agreement, dated as
              of November 4, 1999, by and between Tenneco Inc. and the
              registrant (incorporated herein by reference to Exhibit 10.3
              to Tenneco Automotive Inc.'s Quarterly Report on Form 10-Q
              for quarterly period ended September 30, 1999, File No.
              1-12387).
  10.4        Pactiv Corporation (formerly known as Tenneco Packaging
              Inc.) Executive Incentive Compensation Plan (incorporated
              herein by reference to Exhibit 10.5 to Pactiv Corporation's
              Quarterly Report on Form 10-Q for the quarter ended
              September 30, 1999, File No. 1-15157).
  10.5        Pactiv Corporation (formerly known as Tenneco Packaging
              Inc.) Supplemental Executive Retirement Plan (incorporated
              herein by reference to Exhibit 10.6 to Pactiv Corporation's
              Quarterly Report on Form 10-Q for the quarter ended
              September 30, 1999, File No. 1-15157).
* 10.6        Amended and Restated Change in Control Severance Benefit
              Plan for Key Executives as of December 31, 2006
              (incorporated herein by reference to Exhibit 10.6 to Pactiv
              Corporation's Annual Report on Form 10-K for the year ended
              December 31, 2006, File No. 1-15157) (superseding Pactiv
              Corporation Change in Control Severance Benefit Plan for Key
              Executives as of March 1, 2005).
  10.7        Pactiv Corporation (formerly known as Tenneco Packaging
              Inc.) Deferred Compensation Plan (incorporated herein by
              reference to Exhibit 10.8 to Pactiv Corporation's Quarterly
              Report on Form 10-Q for the quarter ended September 30,
              1999, File No. 1-15157).
  10.8        Pactiv Corporation Rabbi Trust (incorporated herein by
              reference to Exhibit 10.11 to Pactiv Corporation's Quarterly
              Report on Form 10-Q for the quarter ended September 30,
              1999, File No. 1-15157).
  10.9        Employment Agreement, dated as of March 11, 1997, by and
              between Richard L. Wambold and Tenneco Inc. (incorporated
              herein by reference to Exhibit 10.17 to Pactiv Corporation's
              Quarterly Report on Form 10-Q for the quarter ended
              September 30, 1999, File No. 1-15157).
  10.10       Long Term Credit Agreement, dated as of September 29, 1999,
              among the registrant, Bank of America, N.A., as
              Administrative Agent, Credit Suisse First Boston, as
              Syndication Agent, Bank One, NA and Banque Nationale de
              Paris, as Co-Documentation Agents, and the other financial
              institutions party thereto (incorporated herein by reference
              to Exhibit 4.3 to Tenneco Packaging Inc.'s Registration
              Statement on Form S-4, File No. 333-82923).
  10.11       Term Loan Agreement, dated as of November 3, 1999, between
              the registrant and Bank of America (incorporated herein by
              reference to Exhibit 10.21 to Pactiv Corporation's Quarterly
              Report on Form 10-Q for the quarter ended September 30,
              1999, File No. 1-15157).
  10.12       Letter of Agreement dated September 10, 1999, by and among
              Tenneco Inc., Bank of America, N.A., and Bank of America
              Securities LLC, related to Term Loan Agreement, dated as of
              November 3, 1999, by and between the registrant and Bank of
              America (incorporated herein by reference to Exhibit 10.22
              to Pactiv Corporation's Quarterly Report on Form 10-Q for
              the quarter ended September 30, 1999, File No. 1-15157).
  10.13       Participation Agreement, dated as of October 28, 1999, among
              the registrant, First Security Bank, N.A., Bank of America,
              as Administrative Agent, and the other financial
              institutions party thereto (incorporated herein by reference
              to Exhibit 10.23 to Pactiv Corporation's Quarterly Report on
              Form 10-Q for the quarter ended September 30, 1999, File No.
              1-15157).
</Table>

                                        60
<PAGE>

<Table>
<Caption>
EXHIBIT NO.                           DESCRIPTION
-----------                           -----------
<C>           <S>
  10.14       Pactiv Corporation 2002 Incentive Compensation Plan
              (incorporated herein by reference to Exhibit 4.7 to Pactiv
              Corporation's Registration Statement on Form S-8, File No.
              333-101121).
  10.15       Credit Agreement, dated as of April 19, 2006, among the
              registrant, Bank of America, N.A., as Administrative Agent,
              JP Morgan Chase Bank, N. A., as Syndication Agent and L/C
              Issuer, BNP Paribas, Suntrust Bank, and Citibank, N. A.,
              Inc., as Co-Documentation Agents, and the other financial
              institutions party thereto (incorporated herein by reference
              to Exhibit 10.15 to Pactiv Corporation's Quarterly Report on
              Form 10-Q for the quarter ended March 31, 2006, File No.
              1-15157).
  10.16       Pactiv Corporation Defined Retirement Savings Plan
              (incorporated herein by reference to Exhibit 10.16 to Pactiv
              Corporation's Annual Report on Form 10-K for the year ended
              December 31, 2004, File No. 1-15157).
  10.17       Form Pactiv Corporation Non-Qualified Stock Option Award
              Agreement (incorporated herein by reference to Exhibit 10.17
              to Pactiv Corporation's Annual Report on Form 10-K for the
              year ended December 31, 2004, File No. 1-15157).
  10.18       Form of Pactiv Corporation Performance Share Award Agreement
              (incorporated herein by reference to Exhibit 10.18 to Pactiv
              Corporation's Annual Report on Form 10-K for the year ended
              December 31, 2004, File No. 1-15157).
  10.19       Summary of Compensation Arrangements of Directors
              (incorporated herein by reference to Exhibit 10.19 to Pactiv
              Corporation's Quarterly Report on Form 10-Q for the quarter
              ended June 30, 2006, File No. 1-15157).
  10.20       Summary of Named Executive Officer Compensation Arrangements
              (incorporated herein by reference to Exhibit 10.20 to Pactiv
              Corporation's Annual Report on Form 10-K for the year ended
              December 31, 2004, File No. 1-15157).
  10.21       Stock Purchase agreement dated as of June 23, 2005, among
              Pactiv Corporation and certain of its affiliates, as
              sellers, and PFP Holding II Corporation, as purchaser
              (incorporated herein by reference to Exhibit 10.21 to Pactiv
              Corporation's Current Report on Form 8-K dated June 23,
              2005, File No. 1-15157).
* 10.22       Receivables Purchase Agreement, dated as of December 21,
              2006, among the registrant and Atlantic Asset Securitization
              LLC and Calyon New York Branch, as agent for Purchasers.
  11          None.
  13          None.
  14          Code of Ethical Conduct for Financial Managers (posted to
              company's website, www.pactiv.com) in accordance with Item
              406(c) (2) of Regulation S-K.
  15          None.
  16          None.
  18          None.
* 21          List of subsidiaries of Pactiv Corporation.
  22          None.
* 23.1        Consent of Ernst & Young LLP.
* 24          Powers of Attorney for the following directors of Pactiv
              Corporation: Larry D. Brady, K. Dane Brooksher, Robert J.
              Darnall, Mary R. (Nina) Henderson, N. Thomas Linebarger,
              Roger B. Porter, and Norman H. Wesley.
* 31.1        Rule 13a-14(a)/15d-14(a) Certification.
* 31.2        Rule 13a-14(a)/15d-14(a) Certification.
**32.1        Section 1350 Certification.
**32.2        Section 1350 Certification.
</Table>

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

* Filed herewith

** Furnished herewith

                                        61
<PAGE>

                                   SIGNATURES

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

                                          PACTIV CORPORATION

                                          By: /s/ RICHARD L. WAMBOLD
                                            ------------------------------------
                                                  Richard L. Wambold
                                                  Chairman, President and
                                                  Chief Executive Officer

Date: March 1, 2007

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

<Table>
<Caption>
                    SIGNATURE                                      TITLE                       DATE
                    ---------                                      -----                       ----
<C>     <S>                                          <C>                                  <C>

/s/ RICHARD L. WAMBOLD                               Chairman, President, Chief           March 1, 2007
------------------------------------------------       Executive Officer and Director
     Richard L. Wambold                                (principal executive officer)


/s/ ANDREW A. CAMPBELL                               Senior Vice President and Chief      March 1, 2007
------------------------------------------------       Financial Officer (principal
     Andrew A. Campbell                                financial and accounting
                                                       officer)


/s/ LARRY D. BRADY*                                  Director                             March 1, 2007
------------------------------------------------
     Larry D. Brady


/s/ K. DANE BROOKSHER*                               Director                             March 1, 2007
------------------------------------------------
     K. Dane Brooksher


/s/ ROBERT J. DARNALL*                               Director                             March 1, 2007
------------------------------------------------
     Robert J. Darnall


/s/ MARY R. (NINA) HENDERSON*                        Director                             March 1, 2007
------------------------------------------------
     Mary R. (Nina) Henderson


/s/ N. THOMAS LINEBARGER*                            Director                             March 1, 2007
------------------------------------------------
     N. Thomas Linebarger


/s/ ROGER B. PORTER*                                 Director                             March 1, 2007
------------------------------------------------
     Roger B. Porter


/s/ NORMAN H. WESLEY*                                Director                             March 1, 2007
------------------------------------------------
     Norman H. Wesley

 *By:   /s/ JOSEPH E. DOYLE                                                               March 1, 2007
         -----------------------------------------
              Joseph E. Doyle
              Attorney-in-fact
</Table>

                                        62