Summary

In 2001, the Company continued its history of meeting customer needs through technological innovation, customer intimacy, and manufacturing excellence. Manufacturing capacity expansion continued via internal investment, business unit acquisition, and an internal focus on manufacturing efficiency. Capital expenditures for 2001 were $117.5 million compared to $100.4 million in 2000 and $137.4 million in 1999. This three-year period reflects a continuation of the Company’s focus on building and expanding its manufacturing capacity to support its technological strengths. In addition to this capital investment, the Company also invested in strategic business acquisitions. During the past five-years the Company has invested more than $1.0 billion in capacity and capability improvements through capital expenditures and business unit acquisitions.

During 2001, the Company successfully integrated new strategic businesses acquired during 2001 and the latter half of 2000, while maintaining profit margins and customer service levels during the transition. Capacity has been added where growth opportunities are imminent, and manufacturing improvements have been made in the pressure sensitive materials business which are expected to lead to improved results in 2002.

On September 7, 2001, the Company purchased all outstanding stock of Duralam, Inc., which had annual sales of approximately $55.0 million, for a cash purchase price of $68.4 million. Duralam manufactures films for packaging meat, cheese, candy, and other food products at facilities in Appleton and Neenah, Wisconsin. The total cash purchase price has been accounted for under the purchase method of accounting in accordance with Statement of Financial Accounting Standard (SFAS) Nos. 141 and 142 which discusses accounting treatment for acquisitions initiated after June 30, 2001.

On July 19, 2001, the Company purchased the land, building, and manufacturing equipment of the Prattville, Alabama facility of Wright Plastics that had been closed earlier in 2001. The added capacity provided by this modern manufacturing facility is used to produce polyethylene packaging products.

Overall results for 2001 produced net sales of $2.29 billion compared to $2.16 billion and $1.96 billion in 2000 and 1999, respectively. The net sales increase of 5.9 percent in 2001 was led by volume growth in the Flexible Packaging Segment’s high barrier products principally due to business unit acquisitions made in the third quarters of 2001 and 2000. Net income for 2001 totaled $140.3 million compared with $130.6 million and $114.8 million for 2000 and 1999 respectively. Diluted earnings per share were $2.64 for 2001, $2.44 for 2000, and $2.18 for 1999. Excluding the effects of business acquisitions and dispositions, 2001 net sales decreased 1.9 percent from 2000.

Net sales for the Flexible Packaging segment increased 8.6 percent with operating profits increasing 23.4 percent from the levels achieved in 2000. Strong sales increases in high barrier products, further supported by polyethylene and paper products, provided the base for improved operating profits. Flexible Packaging operating profits were $273.2 million in 2001, or 15.2 percent of net sales, compared to $221.3 million, or 13.3 percent of net sales in 2000, and $187.2 million, or 12.7 percent of net sales in 1999. A continuing focus on lowering costs and developing unique products to meet customer needs largely account for the improvements in operating profit.

Net sales for the Pressure Sensitive Materials segment decreased 2.9 percent below the 2000 level. The weakened economy and general overcapacity in the pressure sensitive materials industry have impacted sales in this business segment throughout 2001. Operating profit decreased 69.9 percent as this business segment continued to face less favorable economic conditions in North America and increased price competition in certain markets. Pressure Sensitive Materials operating profits were $12.1 million in 2001, or 2.5 percent of net sales, compared to $40.1 million, or 7.9 percent of net sales in 2000, and $44.3 million, or 9.0 percent of net sales in 1999.

Outlook

In 2001, the successful integration of strategic acquisitions made during 2001 and the second half of 2000 further strengthened the Company’s core capabilities and capacity to better meet the ever changing needs of our growing customer base. The Company’s goal is for sales to rise six to eight percent annually. During the next several years we expect the Flexible Packaging business to benefit from continuing trends such as flexible packaging replacing rigid packaging, enhanced product protection, end-user convenience, product presentation, easy-to-handle features, and the unitization of single-pack to multi-pack as well as from the ongoing consolidation of customers with which the Company has strong relationships. Future acquisitions could further enhance sales growth. In 2002, industrial markets are expected to remain weak. These markets are served primarily by our Pressure Sensitive Materials business and portions of our polyethylene packaging product line. The Company expects, however, that with greater than 65 percent of our products used in the food industry, our exposure to this market limits the adverse impact of any downturn in the economy.

Costs and Expenses

Cost of products sold as a percentage of net sales was 79.2 percent for 2001 compared to 79.3 percent for 2000 and 78.4 percent for 1999. The increase experienced in 2000 was due to increasing material costs which were partially offset by lower product conversion costs and employee benefit costs.

Selling, general, and administrative expenses increased $14.9 million in absolute dollars in 2001 versus 2000 after decreasing $1.5 million in 2000 versus 1999. The 2001 increase is principally due to business unit acquisitions during the third quarters of 2001 and 2000. Expressed as a percent of net sales, selling, general, and administrative expenses were 9.0 percent, 8.9 percent, and 9.9 percent for 2001, 2000, and 1999, respectively. The Company’s focus on improved cost control together with lower employee benefit costs largely accounted for the improvements achieved in 2000.

Research and development expense was $10.3 million in 2001, $10.1 million in 2000, and $11.7 million in 1999. This expense for the Flexible Packaging segment increased $1.2 million in 2001 reflecting continued commitment to product development. Within the Pressure Sensitive Materials segment this expense decreased $1.0 million as the primary focus was directed at improving operational efficiency.

Lower interest rates more than offset the impact of higher average debt levels to lower 2001 interest expense to $30.3 million compared to $31.6 million in 2000 and $21.2 million in 1999. Business unit acquisitions and common stock repurchases during 2000 resulted in increased debt levels and associated interest expense compared to 1999.

Other costs reflect expense of $1.9 million for 2001 versus expense of $1.4 million and $6.9 million in 2000 and 1999, respectively. The 1999 expense was principally due to losses from our Brazilian joint venture that included $1.7 million for currency losses and $2.6 million for relocation and reorganization costs. The results in 2000 reflect both improved operating performance and reduced currency effects. The increased expense in 2001 results from a loss attributable to our Brazilian joint venture.

The year 2000 reduction in minority interest is due to the January 2000 purchase of the 13 percent minority interest in MACtac. Upon the acquisition of these minority shares, MACtac became a wholly-owned subsidiary of Bemis Company, Inc.

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Return on Investment

Return on average stockholders’ equity in 2001 was 16.7 percent compared to 17.1 percent in 2000 and 16.2 percent in 1999. Operating profit as a percent of average investment was 17.5 percent in 2001 compared to 16.8 percent in 2000 and 18.6 percent in 1999.

Operating profit as a percent of average investment for the Flexible Packaging segment was 20.5 percent in 2001 compared to 17.2 percent in 2000 and 18.6 percent in 1999. This same ratio for the Pressure Sensitive Materials segment was 4.1 percent in 2001 compared to 14.6 percent in 2000 and 18.7 percent in 1999.

Return on average total capital was 10.0 percent in 2001, 10.8 percent in 2000, and 10.9 percent in 1999. Total capital is defined as the sum of all short-term and long-term interest-bearing debt, including obligations under capital leases, stockholders’ equity, and deferred taxes. Return on total capital is based on net income adjusted for interest expense on an after-tax basis.

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Capital Expenditures

Capital expenditures in 2001 were $117.5 million compared to $100.4 million in 2000 and $137.4 million in 1999, including capitalized interest of $0.2 million, $1.7 million, and $1.6 million for 2001, 2000, and 1999, respectively. In 2002, management anticipates expenditures of approximately $105 million. The majority of these expenditures are expected to be made from internally generated funds and will be for continued expansion and enhancement of the Company’s growth businesses.

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