At Bemis, to innovate means to improve upon the status quo with leading edge technology and ingenuity. But a successful innovator must also accurately anticipate the needs of the market and be versatile enough to deliver its product to customers in a timely and cost-efficient manner. Bemis Company has been successfully doing just that since 1858. And now as we enter 2001, opportunities to innovate continue to abound.

In the year 2000, we recorded our first year of sales above the $2 billion mark. We achieved this with the help of some highly successful operations in the face of formidable market challenges.

Highlights of the past year include:

• Record sales of $2.2 billion dollars, a 10% increase over 1999;
  
• 12% earnings growth to $2.44 per share;
  
• 15% increase in earnings before interest, income taxes, depreciation and amortization (EBITDA) to $351 million;
  
• Successful integration of three strategic acquisitions totaling $250 million in incremental annual sales;
  
• Strong 13% sales growth and 18% operating profit growth in our largest business segment, Flexible Packaging, representing 77% of company sales, and;
  
• Repurchase of 1,460,900 shares of company stock for $43 million.
  

Flexible Packaging

Our Flexible Packaging business segment continues to be highly successful. This year we devoted substantial resources to our high barrier products, installing state-of-the-art equipment in our multi-layer coextruded film production lines. This added capacity improves our ability to meet increasing customer demand for innovative new packaging designs. Our polyethylene products also performed well last year. Operating margins continue to be very strong, as our focused factories maximize manufacturing efficiencies and product quality. Some variability in order volume within paper products last year created efficiency challenges, but much of that had normalized by year-end. We now look forward to opportunities to grow sales and profit in paper products with the recent introduction of several paper packaging design innovations.

Acquisitions also contributed positively to the results of the year. With over $150 million in annual sales, our new high barrier shrink film product line is the largest single acquisition the company has ever made. Since the close of the transaction in August, shrink film sales have been strong, integration efforts are progressing well and operational synergies are quickly being realized. In addition to focused shrink film factories and strong customer relationships that complement our existing customer portfolio, this acquisition has expanded our core competencies. Patented shrink film technology offers exciting new product opportunities in our existing high barrier film business. At the same time, our material science expertise complements the shrink film business with multi-layer technology that increases barrier capabilities. Capital expansion in these factories will provide great opportunities for us to increase our position in these key markets for both food and industrial products.

Our international capabilities have also expanded with the purchase of the shrink film business that included factories in Brazil and the United Kingdom. This is a substantial sales volume increase for us in both countries, and permits us to offer greater resources to meet our customers growing international needs.

In July, we acquired a polyethylene packaging business which added $20 to $25 million of sales annually and increased our market leading positions in the packaging of bread, ice, and produce. The business was transferred to our existing facilities, and the manufacturing equipment is being strategically deployed into business units that need the additional capacity.

Overall, with capacity expansion, new product innovation and strategic acquisitions, our Flexible Packaging business segment delivered strong results of 13% sales growth and 18% operating profit growth for the year 2000 and is well positioned to continue to deliver solid performance in the future.

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Pressure Sensitive Materials

Sales growth in 2000 for the Pressure Sensitive Materials business segment was 3% while operating profit decreased by 9% from 1999 levels. The first half of last year was very promising as growing demand improved facility utilization and operating margins reached target double-digit levels. In the second half of the year, increasing raw materials prices created a sizable hurdle in a very competitive pricing environment. As the economy began to lose steam in the latter half of the year, demand in industrial markets weakened, resulting in lower profit margins and slower sales.

We have opportunities to improve results in 2001. The pricing environment has eased in certain areas, allowing better recovery of increasing freight and raw materials costs. Our newly implemented Six Sigma program is now keenly focused on manufacturing and overhead efficiencies and general cost containment throughout the business. The new facility in Columbus, Indiana is progressing well now that it has installed all necessary production equipment, and we are optimistic that its performance will significantly improve in the coming year.

Opportunities have also emerged in the form of new acquisitions. In September we acquired the pressure sensitive product line of Kanzaki Specialty Films, representing approximately $75 million in annual sales. This new product line broadens our product offerings in a high growth niche market and adds new customers to our existing customer base. We purchased no equipment or facilities with this product line, but will purchase Kanzaki’s high quality face paper under a long-term supply agreement and perform the required adhesive lamination using our own state-of-the-art equipment. Since this process will not be completely implemented until late in the second quarter of 2001, it should lead to improved operating efficiencies later in the year.

Our European pressure sensitive materials operations enjoyed record sales and profit growth last year, excluding the dampening effect of currency exposure. Demand in the European industrial markets was healthy in the year 2000 and we continue to have strong positions in niche markets.

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A Formula for Business Excellence

The accomplishments of the past year are evidence of the success of our persistent adherence to a long-term strategy that delivers results. In this year of leadership transition, we emphasize that our long-term strategy remains clear and compelling. As illustrated above, our strategic commitment is centered on a formula that combines three distinct disciplines to create value.

First, we are dedicated to promoting technology and innovation throughout the organization. Our talented and experienced workforce uses material science to develop new blends of raw materials and deliver solutions to our customers’ needs. This innovation drives our growth and secures our position as a leading manufacturer of flexible packaging and pressure
sensitive materials.

We have structured our production facilities as focused factories, dedicating equipment to a particular product to achieve manufacturing excellence. This approach improves production and scheduling efficiencies, and fosters technical and operating excellence in our operations. Our level of investment in world-class production equipment and development of proprietary manufacturing processes have positioned Bemis as a premier supplier of innovative products to many markets.

At Bemis, we have a strong commitment to customer focus that extends beyond providing quality products at reasonable prices. We interface directly with our customers in various aspects of their business: in their manufacturing process to test products and improve efficiency, in providing graphics services, logistics, electronic data interchange, and in technical support for new product development. Our goal is to meet or exceed our customers' objectives, expectations and scheduling requirements.

We believe that continued emphasis on these three elements in our operating model provides unique benefits to our customers which, in turn, enables Bemis to deliver financial results that create substantial shareholder value.

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Outlook

Overall, the Company has performed very well in the last two years and our prospects for the future are bright. We continue to dedicate ourselves to being the premier flexible packaging company in the world, and to strengthen our number two position in the pressure sensitive materials business. Specifically, our long-term financial goals are to achieve consistent, double digit growth in earnings per share and cash flow, improve our return on capital, and maintain a capital structure that gives us the financial flexibility to take advantage of strategic acquisitions.

During 2000, we acquired three businesses in one quarter, an aggressive undertaking by most standards. The success of their integration is a credit to the transition teams who worked diligently throughout the process to ensure a smooth transfer. Going forward, our acquisition strategy remains the same. We continue to look for opportunities to add value with businesses that use similar technologies and to participate in global industry consolidation.

We are grateful for the hard work and dedication of nearly 11,000 employees and welcome those who have recently joined the Bemis team. Their devotion to innovation and operating excellence makes Bemis a world-class organization. We thank all of them for their efforts as well as our customers, suppliers, and shareholders for their continued support and confidence.

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