Summary

In 2000, the Company continued its focus on expanding core businesses by both internal investment and acquisitions. Capital expenditures for 2000 were $100.4 million compared to $137.4 million in 1999 and $139.8 million in 1998. Throughout this three-year period, the Company has focused on building and expanding its manufacturing capacity to support its technological strengths. In addition to this aggressive internal capital investment, the Company also invested heavily in business acquisitions.

On September 8, 2000, the Company purchased the pressure sensitive materials product line of Kanzaki Specialty Papers, Inc., which had approximately $78.0 million in net sales in 1999. This business supplies direct thermal pressure sensitive products to printers for labels used for bar coding, shipping and inventory labeling, and a variety of other end uses. This acquisition provides a significant new product line in the Company’s Pressure Sensitive Materials segment.

On August 31, 2000, the Company purchased the specialty plastic films business of Viskase Companies, Inc., which supplies a variety of shrinkable barrier bags, films, and cook-in bags to beef, pork, poultry, and cheese processors. It had net sales of approximately $150.0 million in 1999. This acquisition has complex technologies that both complement and extend the technologies employed in the Company’s very successful flexible packaging business. In addition, this acquisition brings to the Company immediate access to important fresh meat markets and is a natural extension of the strong position and relationships already established in the processed meat, cheese, and poultry markets. Included in the acquisition are manufacturing facilities in Centerville, Iowa; Pauls Valley, Oklahoma; Swansea, Wales; and São Paulo, Brazil.

Effective August 1, 2000, the Company purchased the assets of the flexible packaging business of Arrow Industries, which had net sales of approximately $33.0 million during the preceding twelve months. Equipment acquired with this business is being strategically deployed into existing facilities to provide additional capacity.

On January 6, 2000, the Company purchased the remaining 13 percent minority interest in Morgan Adhesives Company (MACtac). The Company issued 1,730,952 shares of its common stock and paid $3.4 million in cash. Upon the acquisition of these minority shares, MACtac became a wholly-owned subsidiary of Bemis Company, Inc.

Overall results for 2000 produced net sales of $2.16 billion compared to $1.96 billion and $1.89 billion in 1999 and 1998, respectively. Net sales and cost of products sold have been restated for all periods presented, in accordance with new accounting guidance, for the reclassification of certain freight-out costs from a reduction in net sales to cost of products sold. The net sales increase of 10.3 percent in 2000, which occurred principally in the Flexible Packaging segment, was led by strong unit volume growth in high barrier products. Net income for 2000 totaled $130.6 million compared with $114.8 million and $101.1 million for 1999 and 1998, respectively. Diluted earnings per share were $2.44 for 2000, $2.18 for 1999, and $1.90 for 1998. Excluding the effects of business acquisitions and dispositions, 2000 net sales increased 6.2 percent from 1999 while operating profit increased 9.5 percent from the 1999 level.

Net sales for the Flexible Packaging segment increased 12.9 percent with operating profits increasing 18.2 percent from the levels achieved in 1999. Strong sales increases in high barrier products and polyethylene products provided the base for improved operating profits. Flexible Packaging operating profits were $221.3 million in 2000, or 13.3 percent of net sales, compared to $187.2 million, or 12.7 percent of net sales in 1999, and $156.3 million, or 11.2 percent of net sales in 1998. Increased unit sales and a continuing focus to lower the cost structure largely account for the improvements in operating profit.

Net sales for the Pressure Sensitive Materials segment increased 2.6 percent over the 1999 level. Operating profit, however, decreased 9.5 percent as this business segment continued to face less favorable economic conditions in North America, higher raw material costs, and increased price competition in certain markets. Pressure Sensitive Materials operating profits were $40.1 million in 2000, or 7.9 percent of net sales, compared to $44.3 million, or 9.0 percent of net sales in 1999, and $51.0 million, or 10.4 percent of net sales in 1998.

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Outlook

In 2000, the Company took advantage of opportunities to further strengthen core capabilities through several strategic acquisitions. These acquisitions will increase our market share, our customer base, and our technological resources, and introduce us to new markets. The Company expects sales to continue to rise six to eight percent annually over the next several years as our Flexible Packaging business benefits from the continuing trend of flexible packaging replacing rigid packaging and from the ongoing consolidation of customers with which the Company has strong relationships. Future acquisitions could further enhance sales growth. In 2001, we expect some weakness in industrial markets served primarily by our Pressure Sensitive Materials business and portions of our polyethylene packaging product line. We expect, however, that with greater than 65 percent of our products used in the food industry, our exposure to this market will limit the adverse impact of any downturn in the economy.

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Costs and Expenses

Cost of products sold as a percentage of net sales was 79.3 percent for 2000 compared to 78.4 percent for 1999 and 79.4 percent for 1998. The increase experienced in 2000 was due to increasing material costs which were partially offset by lower product conversion and employee benefit costs.

Selling, general, and administrative expenses decreased $1.5 million in absolute dollars in 2000 versus 1999 after increasing $8.0 million in 1999 versus 1998. Expressed as a percent of net sales, selling, general, and administrative expenses were 8.9 percent, 9.9 percent, and 9.8 percent for 2000, 1999, and 1998 respectively. The Company’s focus on improved cost control together with lower employee benefit costs largely account for the improvements achieved in 2000.

Research and development expense was $10.1 million in 2000, $11.7 million in 1999, and $12.2 million in 1998. The decrease occurred principally within the Pressure Sensitive Materials segment resulting from increased focus on internal efficiencies to assist in its efforts to deal with less favorable economic conditions in North America and increased price competition in certain markets.

A higher debt level in 2000 together with rising interest rates, increased interest expense to $31.6 million compared to $21.2 million in 1999 and $21.9 million in 1998. The increased debt level during 2000 was principally due to business unit acquisitions and common stock repurchases.

Other costs reflect expense of $1.4 million for 2000 versus expense of $6.9 million and $0.3 million in 1999 and 1998, 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 improved operating results from the joint venture are reflected in the lower 2000 costs.

The 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 2000 was 17.1 percent compared to 16.2 percent in 1999
and 14.9 percent in 1998.

Operating profit as a percent of average investment was 16.8 percent in 2000 compared to 18.6 percent in 1999
and 17.1 percent in 1998.

Operating profit as a percent of average investment for the Flexible Packaging segment was 17.2 percent in 2000 compared to 18.6 percent in 1999 and 15.9 percent in 1998. This same ratio for the Pressure Sensitive Materials segment was 14.6 percent in 2000 compared to 18.7 percent in 1999 and 22.1 percent in 1998.

Return on average total capital was 10.8 percent in 2000, 10.9 percent in 1999, and 10.3 percent in 1998. 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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