We are very pleased to report that 2001 was another record year for Bemis. This strong performance in a difficult economic environment reflects our diligent adherence to a successful long-term business strategy and the resilience of our selected markets.

Highlights of the past year include:

• Record sales of $2.3 billion, an increase of 6% over 2000;
  
• 8% earnings growth to $2.64 per share;
  
• 9% increase in earnings before interest, income taxes, depreciation
  and amortization (EBITDA) to $382 million;
  
• Strong 9% sales growth and 23% operating profit growth in our largest business segment, Flexible Packaging, representing 79% of company sales;
  
• Cash flow from operating activities increased to $318 million from
  $210 in the prior year;
  
• Our high barrier product line expanded with the purchase of Duralam, Inc.;
  
• Our Pressure Sensitive Materials business segment was reorganized
  for improved efficiency.
  

Flexible Packaging

Our flexible packaging business provides packaging primarily to food and consumer products industries, making it less sensitive to economic cycles than other businesses. Operating profit margins in this business improved to 15% in 2001 compared to about 13% in 2000. Expanded capacity allowing more efficient use of plant facilities, excellent cost management and new product innovation all contributed to this profitability in 2001.

Our high barrier product line continues to be the beneficiary of most of our packaging innovations. New packaging concepts introduced during the year spread quickly through the product categories, prompting more value added consumer convenience features and product line extensions. The division between our high barrier and polyethylene product lines is becoming blurred, as more and more customers are looking to extend shelf life with barrier films and increase the visibility of their products on store shelves by offering consumer convenience features and high quality brand graphics. This gives Bemis additional opportunities to integrate our proprietary film structures and value-added technologies into the sales mix and drives operating margin growth. At the same time, we continue to see a steady migration of products from rigid into flexible packaging.

Our shrink packaging business, acquired in 2000, has been successfully integrated into our marketing efforts to provide a substantially broader product offering to our meat and cheese customers. We are merging this patented shrink technology with our existing high barrier technology to bring new products to many food, consumer products and industrial markets.

We continue to look for opportunities to profitably expand in international markets. Enhancements of technology at our existing European and South American operations will complement our product lines.

The September, 2001 acquisition of Duralam, a meat, cheese and confectionery packaging company located very near our existing high barrier operations in Wisconsin, brought with it a loyal customer base and efficient but underutilized production facilities. The rapid integration of these facilities allowed us to readily capture synergies and successfully transition the Duralam business.

The polyethylene packaging business continued to deliver strong performance this year. Bemis is the leading supplier of polyethylene packaging for food and consumer products such as bread, ice, frozen foods, tissue products, and sanitary products. Printed shrink film is also a growing market, used primarily for unitizing multipacks of canned food products, bottled water and other beverages. Our emphasis on cost management coupled with the ongoing success of our focused factory approach led to solid profit improvement for the year.

In July of 2001, we purchased a packaging plant in Prattville, Alabama, which had been closed earlier in the year. We have reopened this modern facility with a skilled, local workforce, and plan to establish this as a focused factory for our polyethylene product lines.

Operating profits in the paper packaging product line nearly doubled this year thanks to cost management and improved production efficiency. We continue to focus on pet food products with a focused factory dedicated to that market. Our marketing efforts have effectively integrated our high barrier expertise with that of paper packaging, offering pet product customers a broad array of packaging options from both product lines. In pet food as well as agriculture and chemical products markets, we are bringing innovation to our customers in the form of stronger materials and improved features to increase bag filling speeds and incorporate easy opening features.

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Pressure Sensitive Materials Segment

This business is entering 2002 a much stronger business than it was in 2001. During 2001, a weak industrial economy and decreased demand for pressure sensitive materials adversely affected the performance of our pressure sensitive materials business segment. The changes we made in 2001 have positioned this business to successfully meet those market challenges and deliver improving results.

We have realigned the organization, centralizing common functions and reducing overhead. We have identified products and markets where the technologies of our pressure sensitive materials segment can create unique marketing solutions for our customers. Our research and development function was enhanced with experience from our successful flexible packaging business, and is supporting the business with renewed emphasis on product development and innovation.

New plant management at three of our facilities implemented six sigma programs that have improved quality control, manufacturing waste, and customer service. Six sigma programs throughout the pressure sensitive materials facilities (and in several flexible packaging facilities) are leading the drive for increased profitability and product quality.

The Kanzaki product lines that were purchased in 2000 were successfully transitioned to our facilities during the second quarter of 2001. We also qualified for and began production on our first contract for United States Postal Service stamp materials.

We expect 2002 to benefit from the improving manufacturing performance of this business, better focus and strengthening customer relationships.

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Our leadership position in flexible packaging and in our pressure sensitive materials markets is supported by our dedication to using technology and innovation to influence the selected markets that we serve. Our technical personnel use the latest technology and state-of-the-art facilities to develop solutions that improve the quality of our products and create growth opportunities for both Bemis and our customers. We are dedicated to being the leading innovator of the packaging industry, and applying our knowledge and expertise to create unique, proprietary solutions for our customers.

Manufacturing excellence represents a goal of continuous improvement in production efficiency and product quality. Capacity expansion in 2001 relieved the scheduling conflicts of 2000 and will allow plants to create additional focused production lines, further improving production and scheduling efficiencies. The plants that we acquired in 2000 and 2001 were effectively integrated into our focused factory blueprint, with production equipment dedicated to specific processes or markets to promote the highest levels of quality and operating efficiency. Our focused factory approach allows us to tailor our state-of-the-art facilities to the specific needs of a particular market, giving us a competitive advantage in that marketplace.

The third important component of our formula is customer focus. Bemis operates in the marketplace as many decentralized businesses, each with their own market focused expertise and identity. Many of our customers work with more than one of the Bemis businesses. Our “One Bemis” program combines the talents and expertise of each of our decentralized businesses to “bring the best of what Bemis has to offer to each and every customer.” By dedicating a senior account executive to coordinate all of the resources and products of Bemis, customers are able to find all of their solutions in one place. Our customers work closely with Bemis technicians to develop and test new products, design package graphics, implement electronic exchange of information, and improve efficiency on their packaging lines.

We believe that the combination of these three disciplines will differentiate Bemis in the marketplace, secure our position as the leading supplier of flexible packaging in the Americas, and build strong customer relationships. Using this formula for business excellence, we will continue to deliver value to our customers, our shareholders and our employees.

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Business Outlook

We enter 2002 in a strong financial and competitive position, having just achieved record sales, earnings, and cash flow levels for 2001. The acquisitions that we have made over the last two years have been fully integrated, transitions of production facilities are complete, and marketing efforts continue to capitalize on the “One Bemis” philosophy. Cash flow improved considerably during 2001, reflecting our strong operating performance and improved working capital management. Future capital investments will focus on developing new technology and products to support our ongoing commitment to innovation in key markets. The addition of two new facilities purchased in 2001 has provided additional capacity for the future. Strategic acquisitions will continue to be a key part of our growth strategy to add value and strengthen our leadership position in the industry.

Our long-term financial goals remain unchanged: deliver consistent, double-digit growth in earnings per share and cash flow, improve return on capital ratios, and maintain a strong capital structure to maximize our financial flexibility.

We are pleased with the success of the company and the achievements of over 11,000 dedicated and talented employees. We are grateful to all of them for their efforts and would like to express our appreciation for the continued support and confidence of our customers, suppliers and shareholders.

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