**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, DC  20549**

**FORM 10-K**

**                                                ANNUALREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

**For the Fiscal Year EndedDecember 31, 2006**

**Commission File Number 1-5277**

**BEMIS COMPANY, INC.**

(Exact name of Registrant as specified in its charter)

| **Missouri**                                                                           |   | **43-0178130**       |
|----------------------------------------------------------------------------------------|--------|----------------------|
| (State or other  jurisdiction of                                                       |   | (I.R.S. Employer     |
| incorporation or  organization)                                                        |   | Identification  No.) |
|                                                                                   |   |                 |
| **One  Neenah Center, 4****th Floor, P.O. Box 669, Neenah, Wisconsin 54956-0669** |
| (Address of  principal executive offices)                                              |

 

**(920) 727-4100**

Registrant’s telephonenumber, including area code:

Securitiesregistered pursuant to Section 12(b) of the Act:

| **Title of  Each Class**                |   | **Name of  Each Exchange on Which Registered** |
|-----------------------------------------|--------|------------------------------------------------|
| Common Stock,  par value $.10 per share |   | New York Stock  Exchange                       |
| Preferred Share  Purchase Rights        |   | New York Stock  Exchange                       |

 

Securities registeredpursuant to section 12(g) of the Act:   None

Indicateby check mark if the Registrant is a well-known seasoned issuer, as defined inRule 405 of the Securities Act.    Yes  x    No  o

Indicateby check mark if the Registrant is not required to file reports pursuant toSection 13 or Section 15(d) of the Act.    Yes  o    No  x

Indicateby check mark whether the Registrant has filed all reports required to be filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months and has been subject to such filing requirements for thepast 90 days.    Yes  x    No  o

Indicateby check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the bestof the Registrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or any amendment tothis Form 10-K.  x

Indicate by check markwhether the Registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer.

Large AcceleratedFiler  x    AcceleratedFiler  o    Non-AcceleratedFiler  o

Indicateby check mark whether the Registrant is a shell company.    Yeso    No  x

The aggregate marketvalue of the voting stock held by nonaffiliates of the Registrant on June 30,2006, based on a closing price of $30.62 per share as reported on the New YorkStock Exchange, was $3,210,079,000.

As of February 28, 2007, the Registrant had 104,591,366 shares ofCommon Stock issued and outstanding.

Documents Incorporated by Reference

Portionsof the Proxy Statement - Annual Meeting of Stockholders May 3, 2007 - Part III

 

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**BEMIS COMPANY, INC. AND SUBSIDIARIES**

**ANNUAL REPORT ON FORM 10-K**

**TABLE OF CONTENTS**
| **Part I**   |                                                                                                                                                                                                         |   |   |
|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
| Item 1.      | Business                                                                                                                                                                                                     |   | 3      |
| Item 1A.     | Risk  Factors                                                                                                                                                                                                |   | 5      |
| Item 1B.     | Unresolved Staff  Comments                                                                                                                                                                                   |   | 7      |
|         |                                                                                                                                                                                                         |   |   |
| Item 2.      | Properties                                                                                                                                                                                                   |   | 7      |
| Item 3.      | Legal  Proceedings                                                                                                                                                                                           |   | 7      |
| Item 4.      | Submission of  Matters to a Vote of Security Holders                                                                                                                                                         |   | 8      |
|         |                                                                                                                                                                                                         |   |   |
| **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                                                                                                                  |   | 9      |
| Item 7A.     | Quantitative  and Qualitative Disclosures About Market Risk                                                                                                                                                  |   | 18     |
|         |                                                                                                                                                                                                         |   |   |
| Item 8.      | Financial  Statements and Supplementary Data                                                                                                                                                                 |   | 18     |
|         | Management’s  Responsibility Statement                                                                                                                                                                  |   | 18     |
|         | Report of  Independent Registered Public Accounting Firm                                                                                                                                                     |   | 19     |
|         | Consolidated  Statement of Income                                                                                                                                                                            |   | 20     |
|         | Consolidated Balance  Sheet                                                                                                                                                                                  |   | 21     |
|         | Consolidated  Statement of Cash Flows                                                                                                                                                                        |   | 22     |
|         | Consolidated  Statement of Stockholders’ Equity                                                                                                                                                         |   | 23     |
|         | Notes to  Consolidated Financial Statements                                                                                                                                                                  |   | 24     |
|         |                                                                                                                                                                                                         |   |   |
| Item 9.      | Changes In and  Disagreements With Accountants on Accounting and Financial Disclosure                                                                                                                        |   | 41     |
| Item 9A.     | Controls and  Procedures                                                                                                                                                                                     |   | 41     |
| Item 9B.     | Other  Information                                                                                                                                                                                           |   | 42     |
|         |                                                                                                                                                                                                         |   |   |
| **Part III** |                                                                                                                                                                                                         |   |   |
| Item 10.     | Directors,  Executive Officers and Corporate Governance                                                                                                                                                      |   | 42     |
| Item 11.     | Executive  Compensation                                                                                                                                                                                      |   | 43     |
|         |                                                                                                                                                                                                         |   |   |
| Item 12.     | Security  Ownership of Certain Beneficial Owners and Management and Related Stockholder  Matters                                                                                                             |   | 43     |
|         |                                                                                                                                                                                                         |   |   |
| Item 13.     | Certain  Relationships and Related Transactions, and Director Independence                                                                                                                                   |   | 43     |
| Item 14.     | Principal  Accountant Fees and Services                                                                                                                                                                      |   | 43     |
|         |                                                                                                                                                                                                         |   |   |
| **Part  IV** |                                                                                                                                                                                                         |   |   |
| Item 15.     | Exhibits and  Financial Statement Schedules                                                                                                                                                                  |   | 43     |
|         |                                                                                                                                                                                                         |   |   |
|         | Signatures                                                                                                                                                                                                   |   | 44     |
|         | Exhibit  Index                                                                                                                                                                                               |   | 45     |
|         |                                                                                                                                                                                                         |   |   |
|         | Schedule II —  Valuation and Qualifying Accounts and Reserves                                                                                                                                           |   | 46     |
|         | Report of  Independent Registered Public Accounting Firm on Financial Statement Schedule                                                                                                                     |   | 46     |
|         |                                                                                                                                                                                                         |   |   |
|         | Exhibit 10(e) —  Bemis Supplemental Retirement Plan                                                                                                                                                     |   | 47     |
|         | Exhibit 10(f) — Bemis Supplemental Retirement Plan for  Senior Officers                                                                                                                                 |   | 52     |
|         |                                                                                                                                                                                                         |   |   |
|         | Exhibit 21 — Subsidiaries of the Registrant                                                                                                                                                             |   | 59     |
|         | Exhibit 23 — Consent of PricewaterhouseCoopers LLP                                                                                                                                                      |   | 61     |
|         |                                                                                                                                                                                                         |   |   |
|         | Exhibit 31.1 — Certification of  Jeffrey H. Curler, Chief Executive Officer of the Company, pursuant to Rule  13a-14(a)/15d-14(a), dated February 28, 2007                                              |   | 62     |
|         |                                                                                                                                                                                                         |   |   |
|         | Exhibit 31.2 —  Certification of Gene C. Wulf, Chief Financial Officer of the Company,  pursuant to Rule 13a-14(a)/15d-14(a), dated February 28, 2007                                                   |   | 63     |
|         |                                                                                                                                                                                                         |   |   |
|         | Exhibit 32 — Certification of Jeffrey  H. Curler, Chief Executive Officer of the Company, and Gene C. Wulf, Chief  Financial Officer of the Company, pursuant to Section 1350, dated February  28, 2007 |   | 64     |

 

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**PART I - ITEMS 1, 2, 3, and 4**

**ITEM 1 - BUSINESS**

Bemis Company, Inc., aMissouri corporation (the “Registrant” or “Company”), continues a businessformed in 1858.  The Company wasincorporated in 1885 as Bemis Bro. Bag Company with the name changed to BemisCompany, Inc. in 1965.  The Company is aprincipal manufacturer of flexible packaging products and pressure sensitivematerials, selling to customers throughout the United States, Canada, SouthAmerica, and Europe with a growing presence in Asia Pacific and Mexico.  In 2006, approximately 82 percent of theCompany’s sales were derived from the Flexible Packaging segment andapproximately 18 percent were derived from the Pressure Sensitive Materialssegment.

The Company’s products aresold to customers primarily in the food industry.  Other customers include companies in thefollowing types of businesses: chemical, agribusiness, medical, pharmaceutical,personal care, electronics, automotive, construction, graphic industries, andother consumer goods.  Furtherinformation about the Company’s operations in its business segments isavailable at Note 12 to the Consolidated Financial Statements included in Item8 of this Annual Report on Form 10-K.

As of December 31, 2006,the Company had approximately 15,700 employees, about 10,400 of whom wereclassified as production employees.  Manyof the North American production employees are covered by collective bargainingcontracts involving three different international unions, one independentunion, and 15 individual contracts with terms ranging from one to sixyears.  During 2006, two contractscovering approximately 300 employees at two different locations in the UnitedStates were successfully negotiated. Four domestic labor agreements covering approximately 300 employees arescheduled to expire in 2007.  Many of thenon-North American production employees as well as some of the non-NorthAmerican salaried workforce are covered by collective bargaining contractsinvolving nine different unions with terms ranging from one to two years.

Working capital elementsfluctuate throughout the year in relation to the level of customer volume andother marketplace conditions.  Inventorylevels reflect a reasonable balance between raw material pricing and availability,and the Company’s commitment to promptly fill customer orders.  Manufacturing backlogs are not a significantfactor in the industries in which the Company operates.  The business of each of the segments is notseasonal to any significant extent.

The Company is the owneror licensee of a number of United States and foreign patents and patentapplications that relate to certain of its products, manufacturing processes,and equipment.  The Company also has anumber of trademarks and trademark registrations in the United States and inforeign countries.  The Company’spatents, licenses, and trademarks collectively provide a competitiveadvantage.  However, the loss of anysingle patent or license alone would not have a material adverse effect on theCompany’s results as a whole or those of either of its segments.

The Company’s businessactivities are organized around its two business segments, Flexible Packagingand Pressure Sensitive Materials.  Bothinternal and external reporting conform to this organizational structure.  A summary of the Company’s businessactivities reported by its two business segments follows.

**Flexible Packaging Segment**

The flexible packagingsegment manufactures a broad range of consumer and industrial packaging.  Multilayer flexible polymer film structuresand laminates are sold for food, medical, and personal care products as well asnon-food applications utilizing vacuum or modified atmosphere packaging.  Additional products include blown and caststretchfilm products, carton sealing tapes and application equipment, customthermoformed plastic packaging, multiwall and single-ply paper bags, printedpaper roll stock, and bag closing materials. Markets for our products include processed and fresh meat, liquids,frozen foods, cereals, snacks, cheese, coffee, condiments, candy, pet food,bakery, seed, lawn and garden, tissue, fresh produce, personal care andhygiene, disposable diapers, printed shrink overwrap for the food and beverageindustry, agribusiness, pharmaceutical, minerals, and medical device packaging.

**Pressure Sensitive MaterialsSegment**

The pressure sensitivematerials segment manufactures pressure sensitive materials that are sold intolabel markets, graphic markets, and technical markets.

Products for label marketsinclude narrow-web rolls of pressure sensitive paper, film, and metalized filmprinting stocks used in high-speed printing and die-cutting of primary packagelabeling, secondary or promotional decoration, and for high-speed, high-volumedata processing (EDP) stocks, bar code labels, and numerous laser printingapplications.  Primary markets includefood and consumer goods, inventory control labeling, shipping labels, postagestamps, and laser/ink jet printed labels.

Products for graphicmarkets include pressure sensitive papers and films used for decorative signagethrough computer-aided plotters, digital and screen printers, and photographicoverlaminate and mounting materials including optically clear films withbuilt-in UV inhibitors.  Offset printers,sign makers, and photo labs use these products on short-run and/or digitalprinting technology to create signs or vehicle graphics.  Primary markets are indoor and outdoorsignage, photograph and digital print overlaminates, and vehicle graphics.

Products for technicalmarkets are pressure sensitive materials that are technically engineered forperformance in varied industrial applications. They include micro-thin film adhesives used in delicate electronic partsassembly and pressure sensitives utilizing foam and tape based stocks toperform fastening and mounting functions. Tapes sold to medical markets feature medical-grade adhesives suitablefor direct skin contact.  Primary marketsare electronics, automotive, construction, medical, and pharmaceuticals.

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**Marketing,Distribution, and Competition**

Whilethe Company’s sales are made through a variety of distribution methods, morethan 90 percent of each segment’s sales are made by the Company’s direct salesforce.  Sales offices and plants arelocated throughout the United States, Canada, United Kingdom, ContinentalEurope, Scandinavia, Asia Pacific, South America, and Mexico to provide promptand economical service to more than 30,000 customers.  The Company’s technically trained sales forceis supported by product development engineers, design technicians, and acustomer service organization.

Nosingle customer accounts for ten percent or more of the Company’s totalsales.  Furthermore, the loss of one or afew major customers would not have a material adverse effect on the Company’soperating results.  Nevertheless,business arrangements with large customers require a large portion of themanufacturing capacity at a few individual manufacturing sites.  Any change in the business arrangement wouldtypically occur over a period of time, which would allow for an orderlytransition for both the Company’s manufacturing site and the customer.

Themajor markets in which the Company sells its products are highlycompetitive.  Areas of competitioninclude service, innovation, quality, and price.  This competition is significant as to boththe size and the number of competing firms. Major competitors in the Flexible Packaging segment include AlcanPackaging, Amcor Limited, Exopack Company, Hood Packaging Corporation,Intertape Polymer Group Inc., Pliant Corporation, Printpack, Inc., Sealed AirCorporation, Smurfit-Stone Container Corporation, Sonoco Products Company, andWihuri OY.  In the Pressure SensitiveMaterials segment major competitors include 3M, Acucote, Inc., Avery DennisonCorporation, Flexcon Co., Inc., Green Bay Packaging Inc., Ricoh Company, Ltd.,Ritrama Inc., Spinnaker Industries, Inc., Technicote Inc., UPM-KymmeneCorporation, and Wausau Coated Products Inc.

TheCompany considers itself to be a significant factor in the market niches itserves; however, due to the diversity of the Flexible Packaging and PressureSensitive Materials segments, the Company’s precise competitive position inthese markets is not reasonably determinable. Advertising is limited primarily to business and trade publicationsemphasizing the Company’s product features and related technical capabilitiesand the individual problem-solving approach to customer problems.

**RawMaterials**

Plasticresins and films, paper, inks, adhesives, and chemicals constitute the basicmajor raw materials.  These are purchasedfrom a variety of industry sources and the Company is not dependent on any onesupplier for its raw materials.  Whiletemporary industry-wide shortages of raw materials may occur, the Companyexpects to continue to successfully manage raw material supplies withoutsignificant supply interruptions, as demonstrated during the 2005 hurricaneseason.  Currently, raw materials arereadily available.

**Research and DevelopmentExpense**

Researchand development expenditures were as follows:
| **(in thousands)**       | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|-------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Flexible  Packaging           |       | $        | 20,036     |     | $          | 18,920   |       | $ | 16,923 |   |
| Pressure  Sensitive Materials |       | 4,988    |       | 4,608    |       | 4,215    |       |
| Total                         |       | $        | 25,024     |     | $          | 23,528   |       | $ | 21,138 |   |

 

**Environmental Control**

Compliancewith federal, state, and local provisions which have been enacted or adoptedregulating discharges of materials into the environment or otherwise relatingto the protection of the environment, is not expected to have a material effectupon the capital expenditures, earnings, or competitive position of the Companyand its subsidiaries.

**Available Information**

TheCompany is a large accelerated filer (as defined in Exchange Act Rule 12b-2)and is also an electronic filer. Electronically filed reports (Forms 4, 8-K, 10-K, 10-Q, S-3, S-8, etc.)can be accessed at the Securities and Exchange Commission (SEC) website(http://www.sec.gov) or by visiting the SEC’s Public Reference Room located at100 F St., N.E., Washington, DC 20549 (call 1-202-551-8090 or 1-800-732-0330for hours of operation). Electronically filed reports can also be accessedthrough the Company’s own website (http://www.bemis.com), under InvestorRelations/SEC Filings or by writing for free information, including SECfilings, to Investor Relations, Bemis Company, Inc., One Neenah Center, 4th Floor, P.O. Box 669, Neenah,Wisconsin 54957-0669, or calling (920) 727-4100.  In addition, the Company’s Board Committeecharters, Principles of Corporate Governance, and the Company’s code ofbusiness conduct and ethics can be electronically accessed at the Company’swebsite under Company Overview or, free of charge, by writing directly to theCompany, Attention:  CorporateSecretary.  The Company has adopted aFinancial Code of Ethics which is filed as an exhibit to this Annual Report onForm 10-K, and is also posted on the Company’s website.  The Company intends to post any amendment to,or waiver from, a provision of the Financial Code of Ethics that applies to ourprincipal executive officer, principal financial officer, principal accountingofficer, controller and other persons performing similar functions on theInvestor Relations section of its website (www.bemis.com) promptly followingthe date of such amendment or waiver.

**Explanation of TermsDescribing the Company’s Products**

Barrier laminate— A multilayer plastic film made by laminating two or more films together withthe use of glue or a molten plastic to achieve a barrier for the plannedpackage contents.

Barrierproducts — Productsthat provide protection and extend the shelf life of the contents of thepackage.  These products provide thisprotection by combining different types of plastics and chemicals into amultilayered plastic package.  Theseproducts protect the contents from such things as moisture, sunlight, odor, orother elements.

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Blown film — Aplastic film that is extruded through a round die in the form of a tube andthen expanded by a column of air in the manufacturing process.

Cast film — Aplastic film that is extruded through a straight slot die as a flat sheetduring its manufacturing process.

Coextruded film— A multiple layer extruded plastic film.

Controlled atmosphere packaging — A package which limits the flow of elements, such as oxygen ormoisture, into or out of the package.

Decorative products — Pressure sensitive materials used for decorative signage, promotionalitems, and displays and advertisements.

Flexible polymer film — A non-rigid plastic film.

Flexographic printing — The most common flexible packaging printing process in North Americausing a raised rubber or alternative material image mounted on a printingcylinder.

In-line overlaminating capability — The ability to add a protective coating toa printed material during the printing process.

Label products —Pressure sensitive materials made up and sold in roll form.

Labelstock —Base material for pressure sensitive labels.

Modified atmosphere packaging — A package in which the atmosphere inside the package has beenmodified by a gas such as nitrogen.

Monolayer film —A single layer extruded plastic film.

Multiwall paper bag — A package made from two or more layers of paper.

Polyolefin shrink film — A packaging film consisting of polyethylene and/or polypropyleneresins extruded via the blown process. The film can be irradiated in a second process to cross link themolecules for added strength, durability, and toughness.  The product is characterized by thin gauge,high gloss, sparkle, transparency, and good sealing properties.

Pressure sensitive material — A material with adhesive such that upon contact with another materialit will stick.

Rotogravure printing — A high quality, long run printing process utilizing a metal cylinder.

Sheet products —Pressure sensitive materials cut into sheets and sold in sheet form.

Stretch film —A plastic film used to wrap pallets in the shipping process, which hassignificant ability to stretch.

Technical products — Technically engineered pressure sensitive materials used primarilyfor fastening and mounting functions.

Thermoformed plastic packaging — A package formed by applying heat to a film to shape it into a trayor cavity and then placing a flat film on top of the package after it has beenfilled.

UV inhibitors — Chemicals which protect against ultravioletrays.

**ITEM 1A -RISK FACTORS**

**Funded status of pensionplans—Recognition of pension liabilities may cause a significant reduction instockholders’ equity.**

Statement of Financial Accounting Standards (FAS) No.158, *Employers’ Accounting for Defined Benefit Pensionand Other Postretirement Plans*, requires balance sheet recognitionof the funded status of our defined benefit pension and postretirement benefitplans.  If the fair value of our pensionplans’ assets at a future reporting date decreases or if the discount rate usedto calculate the projected benefit obligation (PBO) as of that date decreases,we will be required to record the incremental change in the excess of PBO overthe fair value of the assets as a reduction of stockholders’ equity.  The resulting non-cash after-tax charge wouldnot reduce reported earnings.  It wouldbe recorded directly as a decrease in the Accumulated Other ComprehensiveIncome component of stockholders’ equity. While we cannot estimate the future funded status of our pensionliability with any certainty at this time, we believe that if the market valueof assets or the discount rate used to calculate our pension liabilitydecreases, the adjustment could significantly reduce our stockholders’equity.  A significant reduction instockholders’ equity may impact our compliance with debt covenants or couldcause a downgrade in our credit ratings that could also adversely impact ourfuture cost and speed of borrowing and have an adverse affect on our financialcondition, results of operations and liquidity. We have identified pension assumptions as critical accountingestimates.  See “Management’s Discussionand Analysis of Financial Condition and Results of Operations—CriticalAccounting Estimates and Judgments—Accounting for annual pension costs” and “—Pensionassumptions sensitivity analysis” included in Item 7 of this Annual Report onForm 10-K.

**Goodwill and other intangible assets—A significantwrite down of goodwill and/or other intangible assets would have a materialadverse effect on our reported results of operations and net worth.**

On January 1, 2002, we adopted Statement ofFinancial Accounting Standards No. 142, *Goodwill andOther Intangible Assets* (FAS No. 142).  We no longer amortize goodwill, but we reviewour goodwill balance for impairment at least once a year using the businessvaluation methods required by FAS No. 142. These methods include the use of a weighted-average cost of capital tocalculate the present value of the expected future cash flows of our reportingunits.  Future changes in the cost of capital,expected cash flows, or other factors may cause our goodwill and/or otherintangible assets to be impaired, resulting in a non-cash charge againstresults of operations to write down these assets for the amount of theimpairment.  If a significant write downis required, the charge would have a material adverse effect on our reportedresults of operations and net worth.  Wehave identified the valuation of intangibles as a critical accounting estimate.  See “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations—Critical Accounting Estimates andJudgments—Intangible assets and goodwill” included in Item 7 of this AnnualReport on Form 10-K.

**Foreign operations—Conditions in foreign countries andchanges in foreign exchange rates may reduce our reported results ofoperations.**

We have operations in North America, South America,Europe, and Asia.  In 2006, approximately34 percent of our sales were generated by entities operating outside of theUnited States.  Fluctuations in currenciescan cause transaction and translation losses. In addition, our revenues and net income may be adversely affected byeconomic conditions, political situations, and changing laws and regulations inforeign countries, as to which we have no control.

**Interest rates—An increase ininterest rates could reduce our reported results of operations.**

At December 31, 2006, our variable rateborrowings approximated $467.0 million. Fluctuations in interest rates can increase borrowing costs and have anadverse impact on results of operations. In September 2001, we entered into interest rate swap agreementswith three U.S. banks, which increased our exposure to variable rates.  Accordingly, increases in short-term interestrates will directly 

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impact the amount of interest we pay. For each one percent increase in variable interest rates, our annualinterest expense on $789.8 million of total debt ($467.0 million of which isvariable) outstanding as of December 31, 2006 would increase by $4.7million.

**Credit Rating— A downgrade in ourcredit rating could increase our borrowing costs and negatively affect ourfinancial condition and results of operations.**

In addition to using cash provided by operations, weregularly issue commercial paper to meet our short-term liquidity needs.  Our credit ratings are important to ourability to issue commercial paper at favorable rates of interest.  A downgrade in our credit rating couldincrease the cost of borrowing by increasing the spread over prevailing marketrates that we pay for our commercial paper or the fees associated with our bankcredit facility.  In addition, our bankcredit facility has covenants that include limits on the sale of businesses,minimum net worth calculations, and a maximum ratio of debt to total capitalization.  If for any reason our existing creditarrangements were no longer available to us we would be required to seekalternative sources of financing.  Wewould expect to meet our financial liquidity needs by accessing the bankmarket, which would further increase our borrowing costs.

**Raw materials—Raw material costincreases or shortages could adversely affect our results of operations.**

As a manufacturer, our sales and profitability aredependent upon the availability and cost of raw materials, which are subject toprice fluctuations.  Inflationary andother increases in the costs of raw materials have occurred in the past and areexpected to recur, and our performance depends in part on our ability to reflectchanges in costs in selling prices for our products.  For example, operating profit during thefirst quarter of 2005 was negatively impacted as our selling prices did notkeep pace with the rapidly increasing cost of polymer resins, adhesives, andcoatings that occurred during the latter part of the fourth quarter of 2004 andthe early part of the first quarter of 2005. In the past, we have been generally successful in managing increased rawmaterial costs and increasing selling prices when necessary.  Past performance may or may not be replicablein the future.  Natural disasters such ashurricanes, in addition to terrorist activity and government regulation ofenvironmental emissions, may negatively impact the production or deliverycapacity of our raw material suppliers in the chemical and paperindustries.  This could result inincreased raw material costs or supply shortages, which may have a negativeimpact on our profitability if we are unable to pass along the increased costsin our selling prices or, in the case of a shortage, secure raw materials fromalternative sources.

**Patents and proprietary technology—Our success isdependent on our ability to develop and successfully introduce new products andto acquire and retain intellectual property rights.**

Our ability to develop and successfully market newproducts and to develop, acquire, and retain necessary intellectual propertyrights is essential to our continued success, which ability cannot be assured.

**Industry investigations—Several lawsuits have beenfiled against us related to alleged unlawful competitive activities in theindustry in connection with now-concluded investigations of the labelstockindustry by the U.S. Department of Justice and of the paper and forest productssector by the European Commission.**

In April 2003, we were notified by the U.S.Department of Justice’s Antitrust Division that it expected to initiate acriminal investigation into competitive practices in the labelstock industry,and in August 2003, the U.S. Department of Justice issued a subpoena to usin connection with the investigation.  InMay 2004, the European Commission, seeking evidence of unlawfulanticompetitive activities, initiated inspections and obtained documents fromour pressure sensitive materials facility in Belgium.  We cooperated fully with theseinvestigations, and both investigations          wereclosed by each agency without further action. We and one of our subsidiaries are named defendants in lawsuits in theUnited States seeking treble damages and other relief for alleged unlawfulcompetitive practices, which were filed after the announcement of the U.S.Department of Justice investigation.  Weare unable to predict the outcome of these matters although the effect could bematerial to the results of operations and/or cash flows of the period in whichthe matter is resolved.

**Acquisitions—We may not be able tosuccessfully integrate the businesses that we acquire.**

We have made numerous acquisitions in the past andare actively seeking new acquisitions that we believe will provide meaningfulopportunities to grow our business and improve profitability.  Since the beginning of 2003, we havecompleted three acquisitions to enhance the breadth of our product offeringsand expand the market and geographic participation of our business segments,which included our acquisition on January 5, 2005 of majority ownership ofDixie Toga S.A., one of the largest packaging companies in South America.  Acquired businesses may not achieve thelevels of revenue, profit, productivity, or otherwise perform as we expect.  Acquisitions involve special risks,including, without limitation, the potential assumption of unanticipatedliabilities and contingencies as well as difficulties in integrating acquiredbusinesses.  While we believe that ouracquisitions will improve our competitiveness and profitability, we can give noassurance that acquisitions will be successful or accretive to earnings.

**Information technology—A failure inour information technology infrastructure or applications could negativelyaffect our business.**

We depend on information technology to record andprocess customer’s orders, manufacture and ship products in a timely manner,and maintain the financial accuracy of our business records.  We are in the process of developing a globalEnterprise Resource Planning (ERP) system that will redesign and deploy newprocesses and a common information system across our plants over a period ofseveral years.  The first plant isscheduled to implement the new system during the fourth quarter of 2007, withthe majority of our United States manufacturing operations expected to be usingthe new system by the end of 2009.  Therecan be no certainty that this system will deliver the expected benefits.  The failure to achieve our goals may impactour ability to (1) process transactions accurately and efficiently and (2)remain in step with the changing needs of the trade, which could result in theloss of customers.  In addition, thefailure to either deliver the application on time, or anticipate the necessaryreadiness and training needs, could lead to business disruption and loss ofcustomers and revenue.

Ourinformation systems could also be penetrated by outside parties intent onextracting information, corrupting information or disrupting businessprocesses.  Such unauthorized accesscould disrupt our business and could result in the loss of assets.

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**Numerous other factors over which wemay have limited or no control may affect our performance and profitability.**

Other factors that may influence our earningsinclude:  legal and administrative casesand proceedings (whether civil, such as environmental and product related, orcriminal), settlements, judgments, and investigations; developments orassertions by or against us relating to intellectual property rights and intellectualproperty licenses; adoption of new, or change in, accounting policies orpractices and the application of such policies and practices; changes inbusiness mix; customer and supplier business reorganizations or combinations;increase in cost of debt; ability to retain adequate levels of insurancecoverage at acceptable rates; fluctuations in pension and employee benefitcosts; loss of significant contract(s); risks and uncertainties relating toinvestment in development activities and new facilities; timely development andsuccessful market acceptance of new products; pricing of competitive products;disruptions in transportation networks; increased participation in potentiallyless stable emerging markets; reliability of utility services; impact of computerviruses; general or specific economic conditions and the ability andwillingness of purchasers to substitute other products for the products that wemanufacture; financial condition and inventory strategies of customers andsuppliers; credit risks; changes in customer order patterns; employee workstoppages at plants; increased competition; changes in government regulationsand the impact of changes in the world political environment, including theability to estimate the impact of foreign currency exchange rates on financialresults; the impact of epidemiological events on the economy and on ourcustomers and suppliers; and acts of war, terrorism, weather, and other naturaldisasters.

**ITEM 1B -UNRESOLVED STAFF COMMENTS**

None.

**ITEM 2 -PROPERTIES**

Propertiesutilized by the Company at December 31, 2006, were as follows:

**FlexiblePackaging Segment**

Thissegment has 48 manufacturing plants located in 13 states and nine non-USAcountries, of which 43 are owned directly by the Company or its subsidiariesand five are leased from outside parties. Initial lease terms generally provide for minimum terms of five to 25years and have one or more renewal options. The initial term of leases in effect at December 31, 2006, expirebetween 2008 and 2014.  In addition aflexible packaging operating location leased adjacent vacant land in 1999 foran initial lease term of 42 years.

**PressureSensitive Materials Segment**

Thissegment has seven manufacturing plants located in three states and two non-USAcountries, all of which are owned directly by the Company or its subsidiaries.

**Corporateand General**

TheCompany considers its plants and other physical properties to be suitable,adequate, and of sufficient productive capacity to meet the requirements of itsbusiness.  The manufacturing plantsoperate at varying levels of utilization depending on the type of operation andmarket conditions.  The executive officesof the Company, which are leased, are located in Neenah, Wisconsin.

**ITEM 3 -LEGAL PROCEEDINGS**

TheCompany is involved in a number of lawsuits incidental to its business,including environmental related litigation. Although it is difficult to predict the ultimate outcome of these cases,management believes, except as discussed below, that any ultimate liabilitywould not have a material adverse effect upon the Company’s financial conditionor results of operations.

TheCompany is a potentially responsible party (PRP) in twelve superfund sitesaround the United States.  The Companyexpects its future liability relative to these sites to be insignificant,individually and in the aggregate.  TheCompany has reserved an amount that it believes to be adequate to cover itsexposure.

Dixie Toga S.A., acquired by the Company on January5, 2005, is involved in a tax dispute with the City of São Paulo, Brazil.  The City imposes a tax on the rendering ofprinting services.  The City has assessedthis city services tax on the production and sale of printed labels andpackaging products.  Dixie Toga, alongwith a number of other packaging companies, disagree and contend that the cityservices tax is not applicable to its products and that the products aresubject only to the state value added tax (VAT).  Under Brazilian law, state VAT and cityservices tax are mutually exclusive and the same transaction can be subject toonly one of those taxes.  Based on aruling from the State of São Paulo, advice from legal counsel, and longstanding business practice, Dixie Toga appealed the city services tax andinstead continued to collect and pay only the state VAT.

The City of São Paulo disagreed and assessed DixieToga the city services tax for the years 1991-1995.  The assessments for those years are estimatedto be approximately $51.3 million at the date the Company acquired Dixie Toga,translated to U.S. dollars at the 2006 year end exchange rate.  Dixie Toga challenged the assessments andultimately litigated the issue.  A lowercourt decision in 2002 cancelled all of the assessments for 1991-1995.  The City of São Paulo, the State of São Paulo,and Dixie Toga have each appealed parts of the lower court decision.  The City continues to assert theapplicability of the city services tax and has issued assessments for thesubsequent years 1996-2001.  Theassessments for those years for tax and penalties (exclusive of interest) areestimated to be approximately $32.6 million at the date of acquisition,translated to U.S. dollars at the 2006 year end exchange rate.  In the event of an adverse resolution, theseestimated amounts for all assessments could be substantially increased forinterest, monetary adjustments, and corrections.

The Company strongly disagrees with the City’sposition and intends to vigorously challenge any assessments by the City of SãoPaulo.  The Company is unable at this timeto predict the ultimate outcome of the controversy and as such has not recordedany liability 

7

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related to this matter.  Anadverse resolution could be material to the results of operations and/or cashflows of the period in which the matter is resolved.

TheCompany first disclosed in a Form 8-K filed with the Securities and ExchangeCommission on April 23, 2003, that the Department of Justice expected toinitiate a criminal investigation into competitive practices in the labelstockindustry and the Company further discussed the investigation and disclosed thatit expected to receive a subpoena in its Form 10-Q filed for the quarter endedJune 30, 2003.  In a Form 8-K filed withthe Securities and Exchange Commission on August 15, 2003, the Company disclosedthat it had received a subpoena from the U.S. Department of Justice inconnection with the Department’s criminal investigation into competitivepractices in the labelstock industry. The Company responded to the subpoena and cooperated fully with the requestsof the U.S. Department of Justice.  OnOctober 20, 2006, the Department of Justice informed the Company that it wasclosing the investigation without any further action.

TheCompany and its wholly-owned subsidiary, Morgan Adhesives Company, have beennamed as defendants in fifteen civil lawsuits.  Five ofthese lawsuits purport to represent a nationwide class of labelstockpurchasers, and each alleges a conspiracy to fix prices within theself-adhesive labelstock industry.  On November 5, 2003, the JudicialPanel on MultiDistrict Litigation issued a decision consolidating all of thefederal class actions for pretrial purposes in the United States District Courtfor the Middle District of Pennsylvania, before the Honorable Chief JudgeVanaskie.  Judge Vanaskie entered an order which called for discovery tobe taken on the issues relating to class certification and briefing onplaintiffs’ motion for class certification to be completed by March 1,2007.  At this time, a discovery cut-offand a trial date have not been set.  The Company has also beennamed in four lawsuits filed in the California Superior Court in San Francisco.Three of these lawsuits seek to represent a class of all California indirectpurchasers of labelstock and each alleged a conspiracy to fix prices within theself-adhesive labelstock industry.  Thesethree lawsuits have been consolidated. The fourth lawsuit seeks to represent a class of California direct purchasersof labelstock and alleges a conspiracy to fix prices within the self-adhesivelabelstock industry.  Finally, the Company has been named in one lawsuitin Vermont, seeking to represent a class of all Vermont indirectpurchasers of labelstock, one lawsuit in Ohio, seeking to represent a class ofall Ohio indirect purchasers of labelstock, one lawsuit in Nebraska seeking torepresent a class of all Nebraska indirect purchasers of labelstock, onelawsuit in Kansas seeking to represent a class of all Kansas indirectpurchasers of labelstock, one lawsuit in Tennessee, seeking to represent aclass of purchasers of labelstock in various jurisdictions, and one lawsuit inArizona seeking to represent a class of Arizona indirect purchasers oflabelstock, all alleging a conspiracy to fix prices within theself-adhesive labelstock industry.  The Company intends to vigorouslydefend these lawsuits.

Ina Form 8-K filed with the Securities and Exchange Commission on May 25, 2004,the Company disclosed that representatives from the European Commission hadcommenced a search of business records and interviews of certain Companypersonnel at its self-adhesive labelstock operation in Soignies,Belgium to investigate possible violations of European competition law inconnection with an investigation of potential anticompetitive activities in theEuropean paper and forestry products sector. The Company cooperated fully with the requests of the EuropeanCommission.  On November 16, 2006, theEuropean Commission informed the Company that it was closing the investigationwithout any further action.

Giventhe ongoing status of the class-action civil lawsuits, the Company is unable topredict the outcome of these matters although the effect could be material tothe results of operations and/or cash flows of the period in which the matteris resolved.  The Company is currently not otherwise subject to anypending litigation other than routine litigation arising in the ordinary courseof business, none of which is expected to have a material adverse effect on thebusiness, results of operations, financial position, or liquidity of theCompany.

**ITEM 4 -SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

Nomatters were submitted to a vote of security holders during the fourth quarterof 2006.

**PART II- ITEMS 5, 6, 7, 7A, 8, 9, 9A, and 9B**

**ITEM 5 -MARKET FOR REGISTRANT’S COMMON EQUITY,****RELATED STOCKHOLDER MATTERS ANDISSUER PURCHASES OF EQUITY SECURITIES**

TheCompany’s common stock is traded on the New York Stock Exchange under thesymbol BMS.  On December 31, 2006, therewere 4,192 registered holders of record of our common stock.  Dividends paid and the high and low commonstock prices per share were as follows:
| **For the Quarterly Periods Ended:** | ** ** | **March 31** | ** ** | **June 30** | ** ** | **September 30** | ** ** | **December 31** | ** ** |
|----------------------------------------------------------|------------|-------------------|------------|------------------|------------|-----------------------|------------|----------------------|------------|
| 2006                                                     |       |              |       |             |       |                  |       |                 |       |
| Dividend paid  per common share                          |       | $                 | 0.19       |             | $          | 0.19                  |       | $                    | 0.19       |   | $ | 0.19 |   |
| Common stock  price per share                            |       |              |       |             |       |                  |       |                 |       |
| High                                                     |       | $                 | 34.25      |             | $          | 33.10                 |       | $                    | 33.28      |   | $ | 34.99 |   |
| Low                                                      |       | $                 | 27.86      |             | $          | 28.84                 |       | $                    | 28.54      |   | $ | 32.45 |   |
| 2005                                                     |       |              |       |             |       |                  |       |                 |       |
| Dividend paid  per common share                          |       | $                 | 0.18       |             | $          | 0.18                  |       | $                    | 0.18       |   | $ | 0.18 |   |
| Common stock  price per share                            |       |              |       |             |       |                  |       |                 |       |
| High                                                     |       | $                 | 32.50      |             | $          | 31.99                 |       | $                    | 28.34      |   | $ | 28.20 |   |
| Low                                                      |       | $                 | 27.98      |             | $          | 25.99                 |       | $                    | 24.01      |   | $ | 23.20 |   |
| 2004                                                     |       |              |       |             |       |                  |       |                 |       |
| Dividend paid per common share                           |       | $                 | 0.16       |             | $          | 0.16                  |       | $                    | 0.16       |   | $ | 0.16 |   |
| Common stock price per share                             |       |              |       |             |       |                  |       |                 |       |
| High                                                     |       | $                 | 26.42      |             | $          | 28.65                 |       | $                    | 28.45      |   | $ | 29.49 |   |
| Low                                                      |       | $                 | 23.24      |             | $          | 25.22                 |       | $                    | 24.83      |   | $ | 24.74 |   |

 

8

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**ITEM 6 -SELECTED FINANCIAL DATA**

**FIVE-YEAR CONSOLIDATED REVIEW**

*(dollars in millions,except per share amounts)*
| **Years Ended December 31,**                                        | ** ** | **2006**    | ** ** | **2005**    | ** ** | **2004**    | ** ** | **2003**    | ** ** | **2002**    | ** ** |
|------------------------------------------------------------------------------------|------------|-------------|------------|-------------|------------|-------------|------------|-------------|------------|-------------|------------|
| **Operating  Data**                                                                |       |        |       |        |       |        |       |        |       |        |       |
| Net sales                                                                          |       | $           | 3,639.4    |        | $          | 3,474.0     |       | $           | 2,834.4    |        | $          | 2,635.0 |   | $ | 2,369.0 |   |
| Cost of products  sold and other expenses                                          |       | 3,304.3     |       | 3,158.9     |       | 2,525.2     |       | 2,383.2     |       | 2,086.5     |       |
| Interest expense                                                                   |       | 49.3        |       | 38.7        |       | 15.5        |       | 12.6        |       | 15.5        |       |
| Income before  income taxes                                                        |       | 285.8       |       | 276.4       |       | 293.7       |       | 239.2       |       | 267.0       |       |
| Provision for  income taxes                                                        |       | 109.5       |       | 113.9       |       | 113.7       |       | 92.1        |       | 101.5       |       |
| Net income                                                                         |       | 176.3       |       | 162.5       |       | 180.0       |       | 147.1       |       | 165.5       |       |
| Net income as a  percent of net sales                                              |       | 4.8         | %          | 4.7         | %          | 6.3         | %          | 5.6         | %          | 7.0         | %          |
|                                                                               |       |        |       |        |       |        |       |        |       |        |       |
| **Common  Share Data**                                                             |       |        |       |        |       |        |       |        |       |        |       |
| Basic earnings  per share                                                          |       | $           | 1.68       |        | $          | 1.53        |       | $           | 1.68       |        | $          | 1.39 |   | $ | 1.56 |   |
| Diluted earnings  per share                                                        |       | 1.65        |       | 1.51        |       | 1.67        |       | 1.37        |       | 1.54        |       |
| Dividends per  share                                                               |       | 0.76        |       | 0.72        |       | 0.64        |       | 0.56        |       | 0.52        |       |
| Book value per  share                                                              |       | 14.04       |       | 12.81       |       | 12.23       |       | 10.72       |       | 9.06        |       |
| Stock  price/earnings ratio range                                                  |       | 17-21x      |       | 16-21x      |       | 14-18x      |       | 15-19x      |       | 13-19x      |       |
| Weighted-average  shares outstanding for computation of diluted earnings per share |       | 106,767,114 |       | 107,818,708 |       | 107,941,738 |       | 107,733,383 |       | 107,492,974 |       |
| Common shares  outstanding at December 31,                                         |       | 104,841,576 |       | 105,305,975 |       | 106,947,128 |       | 106,242,046 |       | 105,887,476 |       |
|                                                                               |       |        |       |        |       |        |       |        |       |        |       |
| **Capital  Structure and Other Data**                                              |       |        |       |        |       |        |       |        |       |        |       |
| Current ratio                                                                      |       | 2.0x        |       | 2.1x        |       | 2.3x        |       | 2.4x        |       | 2.2x        |       |
| Working capital                                                                    |       | $           | 538.3      |        | $          | 513.5       |       | $           | 498.6      |        | $          | 436.3 |   | $ | 395.8 |   |
| Total assets                                                                       |       | 3,039.0     |       | 2,964.6     |       | 2,486.7     |       | 2,292.9     |       | 2,256.7     |       |
| Short-term debt                                                                    |       | 67.6        |       | 54.0        |       | 5.7         |       | 6.5         |       | 5.2         |       |
| Long-term debt                                                                     |       | 722.2       |       | 790.1       |       | 533.9       |       | 583.4       |       | 718.3       |       |
| Stockholders’  equity                                                         |       | 1,472.0     |       | 1,349.4     |       | 1,307.9     |       | 1,138.7     |       | 959.0       |       |
| Return on  average stockholders’ equity                                       |       | 12.5        | %          | 12.2        | %          | 14.7        | %          | 14.0        | %          | 17.9        | %          |
| Return on  average total capital                                                   |       | 8.7         | %          | 8.5         | %          | 9.7         | %          | 8.4         | %          | 10.3        | %          |
| Depreciation and  amortization                                                     |       | $           | 152.4      |        | $          | 150.8       |       | $           | 130.8      |        | $          | 128.2 |   | $ | 119.2 |   |
| Capital  expenditures                                                              |       | 158.8       |       | 187.0       |       | 134.5       |       | 106.5       |       | 91.0        |       |
| Number of common  stockholders                                                     |       | 4,192       |       | 4,359       |       | 4,465       |       | 4,484       |       | 4,542       |       |
| Number of employees                                                                |       | 15,736      |       | 15,903      |       | 11,907      |       | 11,505      |       | 11,837      |       |

 

**ITEM 7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF****FINANCIAL CONDITION ANDRESULTS OF OPERATIONS**

***Management’s Discussion and Analysis***

## ***Three Years Ended December 31, 2006***

Management’s Discussion and Analysis should be readin conjunction with the Consolidated Financial Statements and related Notesincluded in Item 8 of this Annual Report on Form 10-K.
| **Three-year review of results** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|-------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|
| **(dollars in millions)**             | ** ** | **2006**   | ** ** | **2005**   | ** ** | **2004**   | ** ** |
| Net sales                                       |       | $          | 3,639.4    |       | 100.0      | %          | $          | 3,474.0    |       | 100.0      | %          | $          | 2,834.4    |   | 100.0 | % |
| Cost of products  sold                          |       | 2,942.7    |       | 80.9       |       | 2,798.3    |       | 80.6       |       | 2,238.7    |       | 79.0       |       |
| Gross margin                                    |       | 696.7      |       | 19.1       |       | 675.7      |       | 19.4       |       | 595.7      |       | 21.0       |       |
| Selling,  general, and administrative expenses  |       | 336.4      |       | 9.2        |       | 330.9      |       | 9.5        |       | 285.0      |       | 10.1       |       |
| All other  expenses                             |       | 74.5       |       | 2.0        |       | 68.4       |       | 1.9        |       | 17.0       |       | 0.6        |       |
| Income before  income taxes                     |       | 285.8      |       | 7.9        |       | 276.4      |       | 8.0        |       | 293.7      |       | 10.3       |       |
| Provision for  income taxes                     |       | 109.5      |       | 3.1        |       | 113.9      |       | 3.3        |       | 113.7      |       | 4.0        |       |
| Net income                                      |       | $          | 176.3      |       | 4.8        | %          | $          | 162.5      |       | 4.7        | %          | 180.0      |       | 6.3 | % |
| Effective income tax  rate                      |       |       |       | 38.3       | %          |       |       | 41.2       | %          |       |       | 38.7       | %          |
|                                                 |            |            |            |            |            |            |            |            |            |            |            |            |            |  |  |  |

 

9

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# **Overview**

Bemis Company, Inc. is a leading global manufacturerof flexible packaging and pressure sensitive materials supplying a variety ofmarkets.  Generally about 60 percent ofour total company net sales are to customers in the food industry.  Sales of our flexible packaging products arewidely diversified among food categories and can be found in nearly every aisleof the grocery store.  Other markets intowhich we sell our flexible packaging products include medical devices, personalcare, and lawn and garden.  Our emphasison supplying packaging to the food industry provides a more stable marketenvironment for our flexible packaging business segment, which accounts for about82 percent of our net sales. The remaining 18 percent of our net sales is fromthe pressure sensitive materials business segment which, while diversified inend use products, is less focused on food industry applications and moreexposed to economically sensitive end markets.

## **Market Conditions**

The markets into which our products are sold arehighly competitive.  Our leading flexiblepackaging market positions in North and South America reflect our focus onvalue-added, proprietary products that are not available from most of ourcompetitors.  During 2006, many of ourlarge customers announced sales growth strategies that were supported by newproduct introductions.  This providesopportunities for future growth at Bemis since new customer products often requireinnovative new packaging.  In Europe andAsia, where our market position is smaller, we continue to introduce ourproprietary products to the market, and we are encouraged by the strengtheningeconomies in those regions.  The strongerEuropean economy has also benefited our pressure sensitive graphic product linewhich is predominately sold in Europe. The primary raw materials for our business segments are polymer resinsand adhesives.  The cost of raw materialsmoderated during 2006 after experiencing a period of significant volatility duringlate 2004 and 2005.  Raw material costshave been impacted in recent years by higher energy prices in addition toproduction disruptions related to the 2005 Gulf Coast hurricanes.

## **Restructuring and Related Charges**

On January 25, 2006, we announced a facilityconsolidation project intended to reduce fixed costs and shift production tolower cost facilities.  These costreduction efforts included the closure of five flexible packaging facilitiesand one pressure sensitive materials facility during 2006 and was substantiallycomplete as of December 31, 2006. Restructuring and related charges incurred in 2006 totaled $31.2million, of which $12.3 million primarily reflected accelerated depreciationand was recorded as a component of cost of products sold.  The remaining $18.9 million primarilyreflects employee-related costs and was recorded as a component of other costs(income).

During 2003, we initiated a restructuring program inwhich five facilities were closed.  Whilemost of the restructuring activities were completed as of December 31, 2003,gains and losses related to the sale of these closed facilities resulted in anet charge of $2.4 million in 2004 and a net gain of $0.9 million in 2005.

## **Acquisitions**

On January 5, 2005, we acquired majority ownership ofDixie Toga S.A., one of the largest packaging companies in South America with2004 annual revenues totaling about $325 million.  The acquisition included the outstandingvoting common stock of Dixie Toga in addition to 43 percent of the outstandingnonvoting preferred stock.  The initialcash purchase price, paid in 2005, was approximately $235 million increased by$4.2 million in 2006 related to post close adjustments.  This acquisition significantly increased ourexposure to the growing South American packaging market and provides a strongplatform from which to introduce our propriety film products to a newregion.  Subsequently, our South Americansubsidiary has repurchased additional shares of its outstanding preferred stockin the open market, reducing the total minority interest in our subsidiary to14 percent as of December 31, 2006.  InApril 2006, we also acquired the remaining shares of our three majority-ownedjoint ventures in Mexico for $6.8 million.
| **Results of Operations**                                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|----------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| **Consolidated Overview**                                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **(in millions, except per share amounts)** | ** ** | **2006**   | ** ** | **2005**   | ** ** | **2004**   | ** ** |
| Net sales                                                            |       | $          | 3,639.4    |       | $          | 3,474.0    |       | $ | 2,834.4 |   |
| Net income                                                           |       | 176.3      |       | 162.5      |       | 180.0      |       |
| Diluted earnings per  share                                          |       | 1.65       |       | 1.51       |       | 1.67       |       |
|                                                                      |            |            |            |            |            |            |            |  |  |  |

 

***2006 versus 2005***

For the year ended December 31, 2006, net salesincreased 4.8 percent.  Currencytranslation was a benefit to net sales growth of 1.8 percent.  The remaining 3.0 percent increase in netsales reflects increased sales of higher priced, value-added products in eachof the two business segments.

Diluted earnings per share were $1.65 for 2006,including $0.18 per share of restructuring and related charges.  For 2005, diluted earnings per share totaled$1.51, including approximately $0.06 per share of tax charges related to therepatriation of international subsidiary earnings under The American JobsCreation Act of 2004.  The improvement in2006 resulted from a more profitable sales mix, a moderating raw material costenvironment, and successful cost management efforts.

***2005 versus 2004***

For the year ended December 31, 2005, net salesincreased 22.6 percent.  The 2005 DixieToga acquisition accounted for 16.5 percent of the increase in sales whilecurrency translation was insignificant to net sales growth in 2005.  The remaining 6.1 percent increase in netsales reflects the impact of increased price and mix in all marketcategories.  Price increases during 2005were driven by increased raw material costs. Unit volume was flat compared to 2004.

 

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Diluted earnings per share were $1.51 for 2005, including $0.06 pershare of tax charges related to the repatriation of international subsidiaryearnings under The American Jobs Creation Act of 2004.  For 2004, diluted earnings per share totaled$1.67, including a net gain of $0.02 per share on the sale of certain plantassets.  Results for 2005 were negativelyimpacted by significant increases in raw material costs during the year.

# ***Flexible PackagingBusiness Segment***

Our flexible packaging business segment provides packaging to a varietyof end markets, including meat and cheese, confectionery and snack, frozenfoods, lawn and garden, health and hygiene, beverages, medical devices, bakery,and dry foods.  These markets aregenerally less affected by economic cycles and grow through product innovationand geographical expansion.

The most significant raw materials used in this business segment arepolymer resins, which we use to develop and manufacture single layer andmultilayer film products.  During periodsof unusual raw material cost volatility, selling price changes may lag behindchanges in our raw material costs. During both 2004 and 2005, resin costs dramatically increased resultingin double-digit percentage increases for each year.  These raw material costs were reflected inincreased selling prices throughout each year; however the magnitude andfrequency of the cost increases negatively impacted operating profit.  The impact of raw material cost changes in 2006was more moderate.

In January of 2006, we announced a restructuring plan to close fiveflexible packaging plants in order to consolidate production capacity andimprove overall cost structure and efficiency throughout this businesssegment.  These efforts weresubstantially completed by December 31, 2006. Restructuring and related charges for the flexible packaging businesssegment totaled $29.0 million in 2006. The disposal of facilities closed during the 2003 restructuring programresulted in a charge of $0.6 million in 2005 and a gain of $0.7 million in2004.

*** ***
| **(dollars in millions)**                                      | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|--------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Net sales                                                                |       | $        | 3,000.1    |     | $          | 2,855.8  |       | $ | 2,249.6 |   |
| Operating profit (See  Note 12 to the Consolidated Financial Statements) |       | 335.1    |       | 332.7    |       | 308.3    |       |
| Operating profit as a percentage of net sales                            |       | 11.2     | %          | 11.7     | %          | 13.7     | %          |
|                                                                          |            |          |            |          |            |          |            |  |  |  |

 

***2006 versus 2005***

Our flexible packaging business segment recorded a 5.1 percent increasein net sales in 2006.  Currencytranslation was a benefit of 2.1 percent. The remaining 3.0 percent increase is attributable to increased netsales for packaging in markets such as meat and cheese, health and hygiene,coffee, unitizing films for cans and bottles, and medical devices.  This was partially offset by lower net salesfor markets such as confectionery, snack and frozen foods.

Operating profit as a percentage of net sales decreased to 11.2 percentin 2006 from 11.7 percent in 2005. During 2006, restructuring and related charges totaling $29.0 millionwere recorded as a reduction of operating profit.  Operating profit in 2006 benefited from strongersales of value-added flexible packaging products.  During 2005, operating profit includes theimpact of restructuring and related charges totaling $0.6 million.

***2005 versus 2004***

Our flexible packaging business segment recorded a 27.0 percent increasein net sales in 2005.  The acquisition ofDixie Toga increased 2005 sales by 20.8 percent.  The remaining 6.2 percent increase isattributable to price and mix across all market categories.  Increases in demand for packaging in marketssuch as meat and cheese, health and hygiene, cereal and other dry foods,coffee, unitizing films for cans and bottles, and medical devices were offsetby lower unit sales for markets such as confectionery and snack, frozen foods,bakery, and pet products.

Operating profit as a percentage of net sales decreased in 2005.  During the fourth quarter of 2004, werecorded a gain of $5.6 million from the sale of a manufacturing facility inFlorence, Kentucky.  During 2005, rawmaterial cost increases outpaced increases in selling prices, negativelyimpacting operating profit.

# ***Pressure SensitiveMaterials Business Segment***

The pressure sensitive materials business segment offers adhesiveproducts to three markets:  prime andvariable information labels, which include roll label stock used in a widevariety of label markets; graphic design, used to create signage anddecorations; and technical components, which represent pressure sensitivecomponents for industries such as the electronics, automotive, construction andmedical industries.

Paper and adhesive are the primary raw materials used in our pressuresensitive materials business segment. For the last several years, general economic conditions have had agreater influence on selling prices and operating performance than raw materialcosts.

In January of 2006, we announced a restructuring plan which included theclosure of one pressure sensitive materials plant in order to consolidateproduction capacity and improve overall cost structure and efficiency.  This effort was completed by December 31,2006.  Restructuring and related chargesincurred and related to the pressure sensitive materials business segmenttotaled $1.0 million in 2006.  Thesecosts were primarily employee-related costs and were recorded as a component ofother costs (income), net.

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In 2003, we announced the restructuring of our label products capacity,closing two facilities to reduce fixed costs and improve capacityutilization.  During 2004, restructuringand related charges totaling $3.1 million related primarily to the cost ofclosing a label products plant in Nevada. Of this total, $1.8 million represented equipment relocation and wasrecorded as other costs (income), net, with the remaining costs associated withaccelerated depreciation charged to costs of products sold.  During 2005, a net gain of $1.5 million wasrecorded for the sale of previously closed facilities and property.

During 2005, we changed the year-end of our pressure sensitive materialsEuropean subsidiary from November 30 to December 31.  This resulted in a 13-month reporting periodin 2005 for this subsidiary, increasing 2005 net sales by $17.2 million.  The impact on operating profit wasinsignificant.
| **(dollars in millions)**                                      | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|--------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Net sales                                                                |       | $        | 639.3      |     | $          | 618.1    |       | $ | 584.8 |   |
| Operating profit  (See Note 12 to the Consolidated Financial Statements) |       | 50.1     |       | 41.3     |       | 33.9     |       |
| Operating profit as a  percentage of net sales                           |       | 7.8      | %          | 6.7      | %          | 5.8      | %          |
|                                                                          |            |          |            |          |            |          |            |  |  |  |

 

***2006 versus 2005***

Our pressure sensitive materials business segment reported a net salesincrease of 3.4 percent in 2006.  Netsales in 2005 include the impact of the thirteenth month of net sales from theEuropean subsidiary.  The increase in netsales in 2006 was driven by unit sales volume growth in each of the pressuresensitive materials product lines during the year.  Currency benefits provided less than onepercent net sales growth in 2006.

Operating profit as a percent of sales improved in 2006 compared to2005, reflecting increased sales of value-added graphic and technicalproducts.  In addition, the profitabilityof the label product line increased with continued improvements in costmanagement and production efficiency. Currency translation did not impact operating profit in 2006.

***2005 versus 2004***

Our pressure sensitive materials business segment reported a net salesincrease of 5.7 percent in 2005.  Thethirteenth month of net sales from the European subsidiary accounted for about3.0 percent sales growth compared to 2004. The remaining 2.7 percent increase was driven by unit sales volume growthin label products during the year, partially offset by unit sales volumedecreases in the other product categories. Price increases were offset by increased unit sales of lower pricedlabel products in 2005, and currency had no impact on net sales for the year.

Improved profit levels in 2005 reflect improved profit from labelproducts and focused cost control measures.  Currency translation did not impact operating profit in 2005 andcontributed $2.2 million in 2004.

**Consolidated Gross Margin**
| **(dollars in millions)**        | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|--------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Gross margin                               |       | $        | 696.7      |     | $          | 675.6    |       | $ | 595.7 |   |
| Gross margin as a  percentage of net sales |       | 19.1     | %          | 19.4     | %          | 21.0     | %          |
|                                            |            |          |            |          |            |          |            |  |  |  |

 

Restructuring and related charges reduced gross margins by $12.9 millionin 2006 and $1.1 million in 2004.  The timelag between the implementation of selling price increases and increases in rawmaterial costs reduced gross margins as a percent of net sales in each of theyears presented.  This reduction in grossmargin as a percentage of net sales was partially offset by ongoingimprovements in production efficiency, sales mix and cost management during thesame timeframe.

# **Consolidated Selling,General and Administrative Expenses**

| **(dollars in millions)**                      | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|----------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Selling, general  and administrative expenses (SG&A) |       | $        | 336.4      |     | $          | 330.9    |       | $ | 285.0 |   |
| SG&A as a  percentage of net sales                   |       | 9.2      | %          | 9.5      | %          | 10.1     | %          |
|                                                          |            |          |            |          |            |          |            |  |  |  |

 

In 2006, the lower ratio of expenses to net sales reflects the benefitsof cost management programs, and the impact of higher selling prices onconsolidated net sales.  In 2005, thelower ratio compared to 2004 reflects lower costs associated with the SouthAmerican operations purchased in January 2005, and the impact of higher sellingprices on consolidated net sales.

**OtherExpenses**
| **(dollars in millions)**   | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|---------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Research and  development (R&D)   |       | $        | 25.0       |     | $          | 23.5     |       | $ | 21.1 |   |
| R&D as a  percentage of net sales |       | 0.7      | %          | 0.7      | %          | 0.7      | %          |
| Interest expense                      |       | $        | 49.3       |     | $          | 38.7     |       | $ | 15.5 |   |
| Other costs  (income), net            |       | (3.3     | )          | 0.1      |       | (20.1    | )          |
| Minority  interest in net income      |       | 3.5      |       | 5.9      |       | 0.5      |       |
| Income taxes                          |       | 109.5    |       | 113.9    |       | 113.7    |       |
| Effective tax rate                    |       | 38.3     | %          | 41.2     | %          | 38.7     | %          |

 

# **Research and Development**

Our efforts to introduce new products continue at a steady pace and arean integral part of our daily plant operations. Our research and development engineers work directly on commercialproduction equipment, bringing new products to market without the use 

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ofpilot equipment.  We believe thisapproach significantly improves the efficiency, effectiveness and relevance ofour research and developments activities and results in earliercommercialization of new products. Expenditures that are not distinctly identifiable as research anddevelopment costs are included in costs of products sold.

# **Interest Expense**

The increase in interest expense in 2006 reflects higher interest ratesin 2006 compared to 2005 and 2004.  Inaddition, debt levels increased in 2005 as a result of the January 2005acquisition of Dixie Toga.  Prior to 2005,substantially all of our outstanding debt was subject to variable interestrates.  In 2005, we issued $300 millionof fixed rate public bonds at a 4.875 percent interest rate.  This effectively reduced our percentage ofvariable rate debt to about 59 percent in 2006 and 62 percent in 2005.  The effective interest rate was 5.9 percentin 2006, 4.9 percent in 2005, and 2.7 percent in 2004.

# **Other Costs (Income), Net**

In 2006, other costs (income) included $18.3 million of restructuringand related charges, which were more than offset by financial income of $18.0million and a $4.5 million favorable resolution of a litigated foreign excisetax liability.  About half of thefinancial income relates to interest income on cash held at non-U.S.locations.  The remainder of thefinancial income is generated from fiscal incentives for certain locations andis considered as a part of flexible packaging operating profit.  In 2005, net other expenses primarily reflectinterest income offset by currency exchange losses.  Net other income in 2004 includes a $5.6million gain on the sale of a rotogravure facility partially offset byrestructuring and related charges of $1.2 million.  Equity income from our Brazilian jointventure was $11.7 million in 2004.  Sincethe January 2005 acquisition of Dixie Toga, the Brazilian joint venture hasbeen accounted for on a consolidated basis and the related operating resultsare included with the flexible packaging segment. The remainder of other incomein 2004 is primarily interest income.

**MinorityInterest in Net Income**

In connection with the January 2005 acquisition of Dixie Toga, weacquired approximately 80 percent of the total outstanding shares of DixieToga.  As of December 31, 2006, ourownership had increased to approximately 86 percent of the total outstanding shares.  The increase in minority interest in netincome in 2005 is primarily due to the accounting for the shares of Dixie Togathat were not acquired.  In April 2006,we acquired the remaining minority interest in our three Mexican joint ventureswhich reduced minority interest in net income.

# **Income Taxes**

The difference between our overall tax rate and the U. S. statutory taxrate of 35 percent in each of the three years presented principally relates tostate and local income taxes net of federal income tax benefits.  During 2005, an additional $6.0 million oftax expense was recorded as a result of the repatriation of internationalsubsidiary earnings under The American Jobs Creation Act of 2004 (The JobsAct), increasing the effective tax rate for 2005 from 39.0 percent to 41.2percent.  For the total year 2006, theeffective tax rate was 38.3 percent, reflecting the final determination of thebenefits provided under The Jobs Act.

# **Liquidity and CapitalResources**

## ***Debt toTotal Capitalization***

Debt to total capitalization (which includes total debt, long-termdeferred tax liabilities and equity) was 33.0 percent at December 31, 2006,compared to 35.7 percent at December 31, 2005 and 26.7 percent at December 31,2004.  Total debt was $789.8 million,$844.1 million, and $539.6 million at year-end 2006, 2005 and 2004,respectively.   The increase in 2005primarily reflects the impact of the Dixie Toga acquisition in January 2005.

## ***CreditRating***

## Our capital structureand financial practices have earned Bemis Company long-term credit ratings of “A”from Standard & Poor’s and “Baa1” from Moody’s Investors Service, and acredit rating of “A-1” and “Prime-2” for our commercial paper program fromStandard & Poor’s and Moody’s Investor Service, respectively.  Our strong financial positions and creditratings are important to our ability to issue commercial paper at favorablerates of interest.

## ***Sources ofLiquidity***

Cash provided by operations was $349.0 million for the year endedDecember 31, 2006, compared to $280.4 million in 2005 and $271.5 million in2004.  Cash provided by operations ineach of the years ended December 31, 2006, 2005 and 2004 was reduced byvoluntary pension contributions to our U.S. pension plans of $24.0 million,$35.0 million, and $50.0 million, respectively. While no contributions are required for our U.S. pension plans in 2007,we continue to monitor the funded status of all pension plans and will evaluatethe benefits of future voluntary contributions subject to availableliquidity.  Increasing raw material costsduring the three-year period resulted in increased levels of working capital,which had a negative impact on cash provided by operations during each of thethree years presented.

In addition to using cash provided by operations, we issue commercialpaper to meet our short-term liquidity needs. At year-end, our commercial paper debt outstanding was $80.7million.  Based upon our current creditrating, we enjoy ready access to the commercial paper markets.  While not anticipated, if these markets wereto become illiquid or if a credit rating downgrade limited our ability to issuecommercial paper, we would draw upon our existing back-up credit facility.  In September 2004, we renegotiated ourback-up credit facility to extend the term to September 2009.  This credit facility provides $500 million ofavailable financing supported by a group of major U.S. and internationalbanks.  Covenants imposed by this bankcredit facility include limits on the sale of businesses, minimum net worthcalculations, and a maximum ratio of debt to total capitalization.  In addition to funds available under thiscredit facility, we also have the capability of issuing up to approximately$100 million of Extendable Commercial Notes (ECNs), which are short-terminstruments whose maturity can be extended to 390 days from the date ofissuance.  If these credit facilities andECNs were no 

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longeravailable to us, we would expect to meet our financial liquidity needs byaccessing the bank market, which would increase our borrowing costs.

The $500 million credit facility includes a $100 million multicurrencylimit to support the financing needs of our international subsidiaries.  As of December 31, 2006, outstandingmulticurrency borrowings under the credit facility totaled $59.7 million.  Borrowings from the credit agreement maturein September 2009 and are subject to a variable interest rate.

As of December 31, 2006, available capacity on the credit agreementwhich matures in September 2009 was $351.6 million.

## ***Long-term Debt***

Commercial paper outstanding at December 31, 2006, has been classifiedas long-term debt in accordance with our intention and ability to refinancesuch obligations on a long-term basis. The related back-up credit agreement expires in 2009.

## ***Uses ofLiquidity***

## **CapitalExpenditures**

Capital expenditures were $158.8 million during 2006, compared to $187.0million in 2005, and $134.5 million in 2004. Higher levels of expenditures in 2005 funded additional capacity for ourSouth American operations to meet strong demand for our shrink bag products andnew capacity in our high growth North American production plants.  Capital expenditures for 2007 are estimatedto be in the $175 million to $185 million range, which includes about $20million of costs related to the design of a new enterprise resource planningsystem.  After 2007, capital expendituresare expected to return to levels approximately equivalent to total annualdepreciation and amortization expenses.

## **Dividends**

We increased our quarterly cash dividend by 5.6 percent during the firstquarter of 2006 to 19 cents per share from 18 cents per share.  This follows increases of 12.5 percent in2005 and 14.3 percent in 2004.  InFebruary 2007, the Board of Directors approved the 24th consecutive annual increase inthe quarterly cash dividend on common stock to 21 cents per share, a 10.5percent increase.

## **ShareRepurchases**

During 2006, we purchased 600,000 shares of common stock in the openmarket.  During 2005, we purchased 1.9million shares of common stock in the open market. We did not make any sharerepurchases during 2004.  As of December31, 2006, we were authorized to purchase up to 2.2 million shares of additionalcommon stock for the treasury.  InFebruary 2007, the Board of Directors authorized an additional 3 million sharesfor repurchase.

***Contractual Obligations***

The following table provides a summary of contractual obligationsincluding our debt payment obligations, capital lease obligations, operatinglease obligations and certain other purchase obligations as of December 31,2006.
| ** **                      | ** ** | **Contractual Payments Due by Period** | ** ** |
|---------------------------------|------------|------------------------------------------------------------|------------|
| ** **                      | ** ** | ** **                                                 | ** ** | **Less than** | ** ** | **1 to 3** | ** ** | **3 to 5** | ** ** | **More than** | ** ** |
| **(in millions)**          | ** ** | **Total**                                                  | ** ** | **1 year** | ** ** | **years** | ** ** | **years** | ** ** | **5 years** | ** ** |
| Debt payments  (1)              |       | $                                                          | 787.1      |   | $ | 67.4 |   | $ | 396.9 |   | $ | 1.0 |   | $ | 321.8 |   |
| Interest expense  (2)           |       | 143.0                                                      |       | 44.7 |   | 56.8 |   | 33.9 |   | 7.6 |   |
| Capital leases  (3)             |       | 0.3                                                        |       | 0.2 |   | 0.1 |   | 0.0 |   | 0.0 |   |
| Operating leases  (4)           |       | 17.8                                                       |       | 4.3 |   | 5.2 |   | 3.2 |   | 5.1 |   |
| Purchase  obligations (5)       |       | 162.4                                                      |       | 162.3 |   | 0.1 |   | 0.0 |   | 0.0 |   |
| Postretirement  obligations (6) |       | 53.1                                                       |       | 2.9 |   | 7.5 |   | 14.6 |   | 28.1 |   |
|                                 |            |                                                            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

----

(1)          These amounts are included in our Consolidated Balance Sheet.  A portion of this debt is commercial paperbacked by a bank credit facility that expires on September 2, 2009.

(2)          A portion of the interest expense disclosed is subject to variableinterest rates.   The amounts disclosedabove assume that variable interest rates are equal to rates at December 31,2006.

(3)          Amount noted also includes estimated interest costs.  The present value of these obligations,excluding interest, is included on our Consolidated Balance Sheet.  See Note 11 to the Consolidated FinancialStatements for additional information about our capital lease obligations.

(4)          We enter into operating leases in the normal course of business.  Substantially all lease agreements have fixedpayments terms based on the passage of time. Some lease agreements provide us with the options to renew thelease.  Our future operating leaseobligations would change if we exercised these renewal options and if weentered into additional operating lease agreements.

(5)          Purchase obligations represent contracts or commitments for the purchaseof raw materials, utilities, capital equipment and various other goods andservices.

(6)          Postretirement obligations represent contracts or commitments forpostretirement healthcare benefits and benefit payments for the unfunded BemisSupplemental Retirement Plan.

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**Interest Rate Swaps**

Our long-term unsecured notes include $250 million due in August2008.  In September 2001, we entered intointerest rate swap agreements with two U.S. banks, which increased our exposureto variable rates.  We generally prefervariable rate debt since it has been our experience that borrowing at variablerates is less expensive than borrowing at fixed rates over the long term.  These interest rate swap agreements, whichexpire in 2008, reduced the interest cost of the $250 million of long-term debtfrom 6.5 percent to about 6.0 percent in 2006. Since these variable rates are based upon six-month London InterbankOffered Rates (LIBOR), calculated in arrears, at the semiannual interestpayment dates of the corresponding notes, increases in short-term interestrates will directly impact the amount of interest we pay.

Accounting principles generally accepted in the United States of Americarequire that the fair value of these swaps, which have been designated ashedges of our fixed rate unsecured notes outstanding, be recorded as an assetor liability of the Company.  The fairvalue of these swaps was recorded as an asset of $2.5 million at December 31,2006, and an asset of $5.0 million at December 31, 2005.  For each period, an offsetting increase isrecorded in the fair value of the related long-term notes outstanding.  These fair value adjustments do not impactthe actual balance of outstanding principal on the notes, nor do they impactthe income statement or related cash flows. Credit loss from counterparty nonperformance is not anticipated.

In connection with the issue of seven-year,$300 million notes in March 2005, we entered into a forward starting swap onFebruary 3, 2005, in order to lock in an interest rate in advance of thepricing date for the notes.   On March14, 2005, in connection with the pricing of the notes, we terminated the swapand recorded the resulting gain of $6.1 million (pre-tax) on the balance sheetas a component of other comprehensive income. This gain is being amortized as a component of interest expense over theterm of the notes.

## **Market Risksand Foreign Currency Exposures**

We enter into contractual arrangements (derivatives) in the ordinarycourse of business to manage foreign currency exposure and interest raterisks.  We do not enter into derivativetransactions for trading purposes.  Ouruse of derivative instruments is subject to internal policies that provideguidelines for control, counterparty risk, and ongoing reporting.  These derivative instruments are designed toreduce the income statement volatility associated with movement in foreignexchange rates, establish rates for future issuance of public bonds, and toachieve greater exposure to variable interest rates.

Interest expense calculated on our outstanding debt is substantiallysubject to short-term interest rates.  Assuch, increases in short-term interest rates will directly impact the amount ofinterest we pay.  For each one percentincrease in variable interest rates, the annual interest expense on $789.8million of total debt outstanding would increase by $4.7 million.

Our international operations enter into forward foreign currencyexchange contracts to manage foreign currency exchange rate exposuresassociated with certain foreign currency denominated receivables andpayables.  At December 31, 2006 and 2005,we had outstanding forward exchange contracts with notional amounts aggregating$3.5 million and $4.4 million, respectively. Forward exchange contracts generally have maturities of less than ninemonths.  Counterparties to the forwardexchange contracts are major financial institutions.  Credit loss from counterparty nonperformanceis not anticipated.  We have notdesignated these derivative instruments as hedging instruments.  The net settlement amount (fair value)related to the active forward foreign currency exchange contacts isinsignificant and recorded on the balance sheet within current liabilities andas an element of other costs (income), net, which offsets the relatedtransactions gains and losses on the related foreign denominated asset orliability.

The operating results of our international operations are recorded inlocal currency and translated into U.S. dollars for consolidation purposes.  The impact of foreign currency translation onnet sales was an increase of $63.3 million in 2006 and $5.4 million in2005.  Operating profit improved byapproximately $7.0 million in 2006 and $0.6 million in 2005 as a result of thepositive effect of foreign currency translation.

## **Long-termCompensation**

Our practice of awarding long-term compensation has relied primarily onrestricted stock unit programs that are valued at the time of the award andexpensed over the vesting period. Beginning in 2004, we discontinued the awarding of stock options.  Stock options granted prior to 2004 weregranted at prices equal to the fair market value on the date of grant andexercisable, upon vesting, over varying periods up to ten years from the dateof grant.  Stock options for Directorsvested immediately, while options for Company employees generally become vestedover three years (one-third per year). Beginning January 1, 2006, accounting rules require us to follow a fairvalue based method of recognizing expense for stock options.  The impact to diluted earnings per share forstock options expense in 2006 was insignificant.  If we had followed this fair value methodprior to 2006, the impact on diluted earnings per share would have been onecent for each year ended 2005 and 2004.

# **Critical AccountingEstimates and Judgments**

Our discussion and analysis of our financial condition and results ofoperations is based upon our consolidated financial statements, which have beenprepared in accordance with accounting principles generally accepted in theUnited States.  The preparation of thesefinancial statements requires us to make estimates and assumptions that affectthe reported amounts of assets and liabilities and the disclosure of contingentassets and liabilities at the date of the financial statements and the reportedamounts of expenses during the reporting period.  On an ongoing basis, management evaluates itsestimates and judgments, including those related to retirement benefits,intangible assets, goodwill, and expected future performance ofoperations.  Our estimates and judgmentsare based upon historical experience and on various other factors that arebelieved to be reasonable under the circumstances. Actual results may differfrom these estimates under different assumptions or conditions.

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We believe the following are critical accounting estimates used in thepreparation of our consolidated financial statements.

·                  The calculation of annual pension costs andrelated assets and liabilities; and

·                  Thevaluation and useful lives of intangible assets and goodwill.

### **Accounting for annualpension costs**

We account for our defined benefit pension plans in accordance with FASNo. 87, *Employers’ Accounting for Pensions*,as amended by FAS No. 158, *Employers’Accounting for Defined Benefit Pension and Other Postretirement Plans*,which requires that amounts recognized in financial statements be determined onan actuarial basis.  FAS No. 158 requiresus to recognize the overfunded or underfunded status of the pension plans onour balance sheet.  A substantial portionof our pension amounts relate to our defined benefit plans in the UnitedStates.

Pension expense recorded in 2006 was $16.1 million, compared to pensionexpense of $27.7 million in 2005 and $22.6 million in 2004.  Effective January 1, 2006, our U.S. definedbenefit pension plans were amended for approximately two-thirds of theparticipant population.  For thoseemployees impacted, future pension benefits were replaced with a definedcontribution plan which is subject to achievement of certain financialperformance goals of the Company.

One element used in determining annual pension income and expense inaccordance with accounting rules is the expected return on plan assets.  As of January 1, 2007, for our U.S. definedbenefit pension plans, we have assumed that the expected long-term rate ofreturn on plan assets will be 8.75 percent. This is consistent with the rate assumed for 2006 and 2005.

To develop the expected long-term rate of return on assets assumption,we considered compound historical returns and future expectations based uponour target asset allocation.  Usinghistorical long-term investment periods of 10, 15 and 20 years, our pensionplan assets have earned rates of return of 7.8 percent, 8.7 percent and 9.4percent, respectively.  Considering theselong-term results, we selected an 8.75 percent long-term rate of return onassets assumption as of January 1, 2007. Using our target asset allocation of plan assets of 80 percent equitysecurities and 20 percent fixed income securities, our outside actuaries haveused their independent economic model to calculate a range of expectedlong-term rates of return and have determined our assumptions to be reasonable.

This assumed long-term rate of return on assets is applied to acalculated value of plan assets, which recognizes changes in the fair value ofplan assets in a systematic manner over approximately three years.  This process calculates the expected returnon plan assets that is included in pension income or expense.  The difference between this expected returnand the actual return on plan assets is generally deferred and recognized oversubsequent periods.  The net deferral ofasset gains and losses affects the calculated value of pension plan assets and,ultimately, future pension income and expense.

At the end of each year, we determine the discount rate to be used tocalculate the present value of pension plan liabilities.  This discount rate is an estimate of thecurrent interest rate at which the pension liabilities could be effectivelysettled at the end of the year.  Inestimating this rate, we look to changes in rates of return on high quality,fixed income investments that receive one of the two highest ratings given by arecognized ratings agency.  At December31, 2006, for our U.S. defined benefit pension plans we determined this rate tobe 5.75 percent, an increase of one quarter of one percent from the 5.50percent rate used at December 31, 2005.

#### **Pensionassumptions sensitivity analysis**

Based upon current assumptions of 5.75 percent for the discount rate and8.75 percent for the expected rate of return on pension plan assets, we expectpension expense before the effect of income taxes for 2007 to be in a range of$15 million to $20 million.  Thefollowing charts depict the sensitivity of estimated 2007 pension expense toincremental changes in the discount rate and the expected long-term rate ofreturn on assets.
| ** **                                  | ** ** | **Total increase (decrease)** | ** ** | ** **                                  | ** **                        | **Total increase (decrease)** | ** ** |
|---------------------------------------------|------------|-----------------------------------------|------------|---------------------------------------------|-----------------------------------|-----------------------------------------|------------|
| ** **                                  | ** ** | **to pension expense**        | ** ** | ** **                                  | ** **                        | **to pension expense**        | ** ** |
| **(dollars in millions)**         | ** ** | **from current assumptions**  | ** ** | ** **                                  | ** **                        | **from current assumptions**  | ** ** |
| **Discount rate**                           | ** ** | ** **                              | ** ** | ** **                                  | **Rate of Return on Plan Assets** | ** **                              | ** ** | ** ** | ** ** |
| 5.00 percent                                |       | $                                       | 4.9        |                                        | 8.00  percent                     |                                    | $          | 3.6 |   |
| 5.25 percent                                |       | 3.2                                     |       | 8.25  percent                               |                              | 2.4                                     |       |
| 5.50 percent                                |       | 1.6                                     |       | 8.50  percent                               |                              | 1.2                                     |       |
| **5.75  percent — Current Assumption** | ** ** | **0.0**                                 | ** ** | **8.75 percent — Current  Assumption** | ** **                        | **0.0**                                 | ** ** |
| 6.00 percent                                |       | (1.6                                    | )          | 9.00  percent                               |                              | (1.2                                    | )          |
| 6.25 percent                                |       | (3.1                                    | )          | 9.25  percent                               |                              | (2.4                                    | )          |
| 6.50 percent                                |       | (4.6                                    | )          | 9.50 percent                                |                              | (3.6                                    | )          |
|                                             |            |                                         |            |                                             |                                   |                                         |            |  |  |  |  |

 

In accordance with FAS No. 158, the amount by which the fair value ofplan assets differs from the projected benefit obligation of a pension planmust be recorded on the Consolidated Balance Sheet as an asset, in the case ofan overfunded plan, or as a liability, in the case of an underfunded plan.  The gains or losses and prior service costsor credits that arise but are not recognized as components of pension cost arerecorded as a component of other comprehensive income.  The following chart depicts the sensitivityof the total pension adjustment to other comprehensive income to changes in theassumed discount rate.
|                                             | ** ** | **Total increase (decrease) in Accumulated Other Comprehensive** | ** ** |
|---------------------------------------------|------------|------------------------------------------------------------------------------------------------|------------|
| **(dollars in millions)**         | ** ** | **Income, net of taxes, from current assumptions**               | ** ** |
| **Discount rate**                      | ** ** | ** **                                                                                     | ** ** | ** ** |
| 5.00 percent                                |       | $                                                                                              | (32.8      | ) |
| 5.25 percent                                |       | (21.3                                                                                          | )          |
| 5.50 percent                                |       | (10.4                                                                                          | )          |
| **5.75  percent — Current Assumption** | ** ** | **0.0**                                                                                        | ** ** |
| 6.00 percent                                |       | 9.8                                                                                            |       |
| 6.25 percent                                |       | 19.1                                                                                           |       |
| 6.50 percent                                |       | 27.9                                                                                           |       |
|                                             |            |                                                                                                |            |  |  |

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**Intangible assets and goodwill**

The purchase price of each new acquisition is allocated to tangibleassets, identifiable intangible assets, liabilities assumed, and goodwill.  Determining the portion of the purchase priceallocated to identifiable intangible assets and goodwill requires us to makesignificant estimates.  The amount of thepurchase price allocated to intangible assets is generally determined byestimating the future cash flows of each asset and discounting the net cashflows back to their present values.  Thediscount rate used is determined at the time of the acquisition in accordancewith accepted valuation methods.

Goodwill represents the excess of the aggregate purchase price over thefair value of net assets acquired, including intangible assets.  We review our goodwill for impairmentannually and assess whether significant events or changes in the businesscircumstances indicate that the carrying value of the goodwill may not berecoverable. The test for impairment requires us to make estimates about fairvalue, most of which are based on projected future cash flows.  Our estimates associated with the goodwillimpairment tests are considered critical due to the amount of goodwill recordedon our consolidated balance sheet and the judgment required in determining fairvalue amounts, including projected future cash flows.  Goodwill was $603.7 million as of December31, 2006.

Intangible assets consist primarily of purchased technology, customerrelationships, patents, trademarks, and tradenames and are amortized using thestraight-line method over their estimated useful lives, which range from one to30 years, when purchased.  We reviewthese intangible assets for impairment as changes in circumstances or theoccurrence of events suggest that the remaining value is not recoverable.  The test for impairment requires us to makeestimates about fair value, most of which are based on projected future cashflows.  These estimates and projectionsrequire judgments as to future events, condition and amounts of future cash flows.

# **New AccountingPronouncements**

In September 2006, the Financial Accounting Standards Board (FASB)issued Statement of Financial Accounting Standards (FAS) No. 157, *Fair Value Measurements*, which defines fair value,establishes a framework for measuring fair value in generally accepted accountingprinciples (GAAP), and expands disclosures about fair value measurements.  FAS No. 157 will apply whenever anotherstandard requires (or permits) assets or liabilities to be measured at fairvalue.  The standard does not expand theuse of fair value to any new circumstances, and is effective beginning afterDecember 31, 2007.  We are currentlyevaluating the impact of adopting FAS No. 157 on our financial position andresults of operations.

In June 2006, the FASB issued FASB Interpretation (FIN) No. 48, *Accounting for Uncertainty in Income Taxes, aninterpretation of FASB Statement No. 109* (FIN 48).  FIN 48 clarifies the accounting for uncertaintax positions in accordance with FAS No. 109,* Accounting for Income Taxes*. We will be required to recognize, in our financial statements, thelargest tax benefit of a tax position that is “more-likely-than-not” to besustained on audit based solely on the technical merits of the position as ofthe reporting date.  In addition, FIN 48provides guidance on new disclosure requirements, reporting and accrual ofinterest and penalties, accounting in interim periods, and transition.  FIN 48 is effective beginning January 1,2007, with the cumulative effect of initially applying FIN 48 recognized as achange in accounting principle recorded as an adjustment to opening retainedearnings.  We are currently evaluatingthe impact of adopting this standard and upon implementation do not expect amaterial impact to the financial statements.

# **Forward-looking Statements**

This Annual Report contains certain estimates, predictions, and other “forward-lookingstatements” (as defined in the Private Securities Litigation Reform Act of1995, and within the meaning of Section 27A of the Securities Act of 1933, asamended, and Section 21E of the Securities Exchange Act of 1934, asamended).  Forward-looking statements aregenerally identified with the words “believe,” “expect,” “anticipate,” “intend,”“estimate,” “target,” “may,” “will,” “plan,” “project,” “should,” “continue,”or the negative thereof or other similar expressions, or discussion of futuregoals or aspirations, which are predictions of or indicate future events andtrends and which do not relate to historical matters.  Such statements are based on informationavailable to management as of the time of such statements and relate to, amongother things, expectations of the business environment in which we operate,projections of future performance (financial and otherwise), including those ofacquired companies, perceived opportunities in the market and statementsregarding our mission and vision. Forward-looking statements involve known and unknown risks,uncertainties and other factors, which may cause actual results, performance orachievements to differ materially from anticipated future results, performanceor achievements expressed or implied by such forward-looking statements.  We undertake no obligation to publicly updateor revise any forward-looking statement, whether as a result of newinformation, future events, or otherwise.

Factors that could cause actual results todiffer from those expected include, but are not limited to, general economicconditions caused by inflation, interest rates, consumer confidence, rates ofunemployment and foreign currency exchange rates; investment performance ofassets in our pension plans; operating results and cash flows from acquisitionsmay differ from what we anticipate; competitive conditions within our markets,including the acceptance of our new and existing products; threats or challengesto our patented or proprietary technologies; raw material costs, availability,and terms, particularly for polymer resins and adhesives; price changes for rawmaterials and our ability to pass these price changes on to our customers orotherwise manage commodity price fluctuation risks; the presence of adequatecash available for investment in our business in order to maintain desired debtlevels; unexpected costs or manufacturing issues related to the implementationof a new enterprise resource system; changes in governmental regulation,especially in the areas of environmental, health and safety matters, andforeign investment; unexpected outcomes in our current and future litigationproceedings and any related proceedings or civil lawsuits; unexpected outcomesin our current and future domestic and international tax proceedings; changesin our labor relations; and the impact of changes in the world politicalenvironment including threatened or actual armed conflict.  These and other risks, uncertainties, andassumptions identified from time to time in our filings with 

17

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the Securities and Exchange Commission, including without limitation,those described under Item 1A “Risk Factors” of this Annual Report on Form 10-Kand our quarterly reports on Form 10-Q, could cause actual future results todiffer materially from those projected in the forward-looking statements.  In addition, actual future results coulddiffer materially from those projected in the forward-looking statement as aresult of changes in the assumptions used in making such forward-lookingstatement.

**ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

The information required is included in Note 14 to the ConsolidatedFinancial Statements included in Item 8 of this Annual Report on Form 10-K, andunder the caption “Market Risks and Foreign Currency Exposures” which is partof Management’s Discussion and Analysis included in Item 7 of this AnnualReport on Form 10-K.  Based on asensitivity analysis (assuming a 10 percent adverse change in market rates) ofour foreign exchange and interest rate derivatives and other financialinstruments, changes in exchange rates or interest rates would not materiallyaffect our financial position and liquidity. The effect on our results of operations would be substantially offset bythe impact of the hedged items.

**ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**

**Management’s Responsibility Statement**

The management of Bemis Company, Inc. is responsible for the integrity,objectivity, and accuracy of the financial statements of the Company.  The financial statements are prepared by theCompany in accordance with accounting principles generally accepted in theUnited States of America, and using management’s best estimates and judgments,where appropriate.  The financialinformation presented throughout this Annual Report on Form 10-K is consistentwith that in the financial statements.

The management of BemisCompany, Inc. is responsible for establishing and maintaining adequate internalcontrol over financial reporting, as such term is defined in Exchange ActRule 13a-15(f).  Under thedirection, supervision, and participation of the Chief Executive Officer andthe Chief Financial Officer, the Company’s management conducted an evaluationof the effectiveness of internal control over financial reporting based on theframework in *Internal Control - IntegratedFramework*issued by the Committee of Sponsoring Organizations of theTreadway Commission (COSO-Framework). Based on the results of this evaluation management has concluded thatinternal control over financial reporting was effective as of December 31,2006.

Item 9A of this Annual Reporton Form 10-K contains management’s favorable assessment of internal controlsover financial reporting based on their review and evaluation utilizing theCOSO-Framework criteria.  Management’sassessment of the effectiveness of internal control over financial reporting asof December 31, 2006, has been audited by PricewaterhouseCoopers LLP, theCompany’s independent registered public accounting firm, as stated in theirreport which is included in Item 8 of this Form 10-K.

The Audit Committee of the Board of Directors, which is composed solelyof outside directors, meets quarterly with management, the Internal AuditDirector, the Director of Global Financial Compliance, and independentaccountants to review the work of each and to satisfy itself that therespective parties are properly discharging their responsibilities.  PricewaterhouseCoopers LLP, the Director ofGlobal Financial Compliance, and the Internal Audit Director have had andcontinue to have unrestricted access to the Audit Committee, without thepresence of Company management.
| Jeffrey H. Curler        |   | Gene C. Wulf              |   | Stanley A. Jaffy   |
|--------------------------|--------|---------------------------|--------|--------------------|
| President and            |   | Senior Vice President and |   | Vice President and |
| Chief Executive  Officer |   | Chief Financial Officer   |   | Controller         |

18

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**Report of Independent Registered Public Accounting Firm**

Tothe Stockholders and Board of Directors of Bemis Company:

We have completed integrated audits of Bemis Company, Inc.’sconsolidated financial statements and of its internal control over financialreporting as of December 31, 2006 in accordance with the standards of thePublic Company Accounting Oversight Board (United States).  Ouropinions, based on our audits, are presented below.

Consolidated****financial statements and financial statementschedule

In our opinion, the accompanyingbalance sheets and the related consolidated statements of income, ofstockholders’ equity and of cash flows present fairly, in all materialrespects, the financial position of Bemis Company, Inc. and its subsidiaries atDecember 31, 2006 and 2005, and the results of their operations and theircash flows for each of the three years in the period ended December 31,2006****in conformity with accountingprinciples generally accepted in the United States of America. These financialstatements are the responsibility of the Company’s management.  Our responsibility is to express an opinionon these financial statements based on our audits.  We conducted our audits of these statementsin accordance with the standards of the Public Company Accounting OversightBoard (United States).  Those standardsrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement.  An audit of financial statements includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements, assessing the accounting principles used andsignificant estimates made by management, and evaluating the overall financialstatement presentation.  We believe thatour audits provide a reasonable basis for our opinion.

As described in Note 6, effective December 31, 2006, the Company adoptedthe provisions of Financial Accounting Standards Board Statement No. 158, *Employers’ Accounting for Defined Benefit Pension andOther Postretirement Plans*.

Internal control over financial reporting

Also, in our opinion, management’s assessment, included in the “Management’sReport on Internal Control Over Financial Reporting” appearing under Item 9A,that the Company maintained effective internal control over financial reportingas of December 31, 2006 based on criteria established in *Internal Control - Integrated Framework* issued by theCommittee of Sponsoring Organizations of the Treadway Commission (COSO), isfairly stated, in all material respects, based on those criteria.  Furthermore, in our opinion, the Companymaintained, in all material respects, effective internal control over financialreporting as of December 31, 2006, based on *InternalControl - Integrated Framework* issued by the COSO.  The Company’s management is responsible formaintaining effective internal control over financial reporting and for itsassessment of the effectiveness of internal control over financialreporting.  Our responsibility is toexpress opinions on management’s assessment and on the effectiveness ofthe Company’s internal control over financial reporting based on our audit. Weconducted our audit of internal control over financial reporting in accordancewith the standards of the Public Company Accounting Oversight Board (UnitedStates).  Those standards require that weplan and perform the audit to obtain reasonable assurance about whethereffective internal control over financial reporting was maintained in allmaterial respects.  An audit of internalcontrol over financial reporting includes obtaining an understanding ofinternal control over financial reporting, evaluating management’s assessment,testing and evaluating the design and operating effectiveness of internalcontrol, and performing such other procedures as we consider necessary in thecircumstances.  We believe that our auditprovides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a processdesigned to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles.  A company’s internal control over financialreporting includes those policies and procedures that (i) pertain to themaintenance of records that, in reasonable detail, accurately and fairly reflectthe transactions and dispositions of the assets of the company;(ii) provide reasonable assurance that transactions are recorded asnecessary to permit preparation of financial statements in accordance withgenerally accepted accounting principles, and that receipts and expenditures ofthe company are being made only in accordance with authorizations of managementand directors of the company; and (iii) provide reasonable assuranceregarding prevention or timely detection of unauthorized acquisition, use, ordisposition of the company’s assets that could have a material effect on thefinancial statements.

Because of its inherent limitations, internal control over financialreporting may not prevent or detect misstatements.  Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls maybecome inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.
| PricewaterhouseCoopers LLP |   |
|----------------------------|--------|
| Minneapolis,  Minnesota    |   |
| February 28,  2007         |   |

 

19

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**BEMIS COMPANY, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENT OF INCOME**

***(in thousands, except per share amounts)***
| **For the years ended December 31,** | ** ** | **2006**  | ** ** | **2005**  | ** ** | **2004**  | ** ** |
|---------------------------------------------------------------|------------|-----------|------------|-----------|------------|-----------|------------|
| Net sales                                                     |       | $         | 3,639,363  |      | $          | 3,473,950 |       | $ | 2,834,394 |   |
|                                                          |       |      |       |      |       |      |       |
| Costs and expenses:                                           |       |      |       |      |       |      |       |
| Cost of products  sold                                        |       | 2,942,650 |       | 2,798,326 |       | 2,238,694 |       |
| Selling,  general, and administrative expenses                |       | 336,409   |       | 330,881   |       | 284,991   |       |
| Research and  development.                                    |       | 25,024    |       | 23,528    |       | 21,138    |       |
| Interest expense                                              |       | 49,252    |       | 38,737    |       | 15,503    |       |
| Other costs  (income), net                                    |       | (3,308    | )          | 112       |       | (20,088   | )          |
| Minority  interest in net income                              |       | 3,540     |       | 5,937     |       | 489       |       |
|                                                          |       |      |       |      |       |      |       |
| Income before income  taxes                                   |       | 285,796   |       | 276,429   |       | 293,667   |       |
|                                                          |       |      |       |      |       |      |       |
| Provision for  income taxes                                   |       | 109,500   |       | 113,900   |       | 113,700   |       |
|                                                          |       |      |       |      |       |      |       |
| Net income                                                    |       | $         | 176,296    |      | $          | 162,529   |       | $ | 179,967 |   |
|                                                          |       |      |       |      |       |      |       |
| Basic earnings per  share of common stock                     |       | $         | 1.68       |      | $          | 1.53      |       | $ | 1.68 |   |
|                                                          |       |      |       |      |       |      |       |
| Diluted earnings per share of common stock                    |       | $         | 1.65       |      | $          | 1.51      |       | $ | 1.67 |   |

 

*See accompanying notes to consolidated financial statements.*

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**BEMIS COMPANY, INC. AND SUBSIDIARIES**

**CONSOLIDATED BALANCE SHEET**

***(dollars in thousands, except per share amounts)***
| **As of December 31,**                                                                         | ** ** | **2006**  | ** ** | **2005**  | ** ** |
|---------------------------------------------------------------------------------------------------------------|------------|-----------|------------|-----------|------------|
| **ASSETS**                                                                                                    |       |      |       |      |       |
| Current assets:                                                                                               |       |      |       |      |       |
| Cash                                                                                                          |       | $         | 112,160    |      | $          | 91,125 |   |
| Accounts  receivable, net                                                                                     |       | 448,382   |       | 436,035   |       |
| Inventories                                                                                                   |       | 467,853   |       | 420,950   |       |
| Prepaid expenses                                                                                              |       | 65,317    |       | 39,700    |       |
| Total current  assets                                                                                         |       | 1,093,712 |       | 987,810   |       |
|                                                                                                          |       |      |       |      |       |
| Property and equipment:                                                                                       |       |      |       |      |       |
| Land and land  improvements                                                                                   |       | 50,590    |       | 43,641    |       |
| Buildings and  leasehold improvements                                                                         |       | 447,521   |       | 419,095   |       |
| Machinery and  equipment                                                                                      |       | 1,513,531 |       | 1,488,256 |       |
| Total property  and equipment                                                                                 |       | 2,011,642 |       | 1,950,992 |       |
| Less accumulated  depreciation                                                                                |       | (835,683  | )          | (807,453  | )          |
| Net property and  equipment                                                                                   |       | 1,175,959 |       | 1,143,539 |       |
|                                                                                                          |       |      |       |      |       |
| Other long-term assets:                                                                                       |       |      |       |      |       |
| Goodwill                                                                                                      |       | 603,691   |       | 581,419   |       |
| Other intangible  assets                                                                                      |       | 102,123   |       | 105,580   |       |
| Deferred charges  and other assets                                                                            |       | 63,524    |       | 146,252   |       |
| Total other  long-term assets                                                                                 |       | 769,338   |       | 833,251   |       |
| TOTAL ASSETS                                                                                                  |       | $         | 3,039,009  |      | $          | 2,964,600 |   |
|                                                                                                          |       |      |       |      |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                |       |      |       |      |       |
| Current liabilities:                                                                                          |       |      |       |      |       |
| Current portion  of long-term debt                                                                            |       | $         | 16,345     |      | $          | 3,907 |   |
| Short-term  borrowings                                                                                        |       | 51,232    |       | 50,107    |       |
| Accounts payable                                                                                              |       | 383,351   |       | 327,569   |       |
| Accrued  liabilities:                                                                                         |       |      |       |      |       |
| Salaries and  wages                                                                                           |       | 94,220    |       | 79,056    |       |
| Income taxes                                                                                                  |       | 3,141     |       | 4,801     |       |
| Other                                                                                                         |       | 7,166     |       | 8,880     |       |
| Total current  liabilities                                                                                    |       | 555,455   |       | 474,320   |       |
|                                                                                                          |       |      |       |      |       |
| Long-term debt, less  current portion                                                                         |       | 722,211   |       | 790,107   |       |
| Deferred taxes                                                                                                |       | 134,168   |       | 168,447   |       |
| Other liabilities and  deferred credits                                                                       |       | 125,974   |       | 154,679   |       |
| Total  liabilities                                                                                            |       | 1,537,808 |       | 1,587,553 |       |
|                                                                                                          |       |      |       |      |       |
| Minority interest                                                                                             |       | 29,185    |       | 27,692    |       |
|                                                                                                          |       |      |       |      |       |
| Commitments and  contingencies                                                                                |       |      |       |      |       |
|                                                                                                          |       |      |       |      |       |
| Stockholders’ equity:                                                                                    |       |      |       |      |       |
| Common stock,  $10 par value:   Authorized - 500,000,000 shares   Issued - 116,114,347 and 115,978,746 shares |       | 11,611    |       | 11,598    |       |
| Capital in  excess of par value                                                                               |       | 317,177   |       | 267,274   |       |
| Retained  earnings                                                                                            |       | 1,431,747 |       | 1,337,590 |       |
| Accumulated  other comprehensive income                                                                       |       | 29,098    |       | 32,706    |       |
| Common stock  held in treasury,   11,272,771 and 10,672,771 shares, at cost                                   |       | (317,617  | )          | (299,813  | )          |
| Total  stockholders’ equity                                                                              |       | 1,472,016 |       | 1,349,355 |       |
|                                                                                                          |       |      |       |      |       |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY                                                               |       | $         | 3,039,009  |      | $          | 2,964,600 |   |

 

*Seeaccompanying notes to consolidated financial statements.*

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**BEMIS COMPANY, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENT OF CASH FLOWS**

***(in thousands)***
| **For the years ended December 31,**                      | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Cash flows from  operating activities:                                             |       |     |       |     |       |     |       |
| Net income                                                                         |       | $        | 176,296    |     | $          | 162,529  |       | $ | 179,967 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |       |     |       |     |       |     |       |
| Depreciation and amortization                                                      |       | 152,375  |       | 150,779  |       | 130,846  |       |
| Minority interest in net income                                                    |       | 3,540    |       | 5,937    |       | 489      |       |
| Excess tax benefit from share-based payment  arrangements                          |       | (926     | )          |     |       |     |       |
| Share-based compensation                                                           |       | 11,694   |       | 14,199   |       | 11,908   |       |
| Deferred income taxes                                                              |       | (7,930   | )          | 2,360    |       | 25,332   |       |
| Income of unconsolidated affiliated companies                                      |       | (32      | )          | (874     | )          | (8,807   | )          |
| (Gain) loss on sale of property and equipment                                      |       | 896      |       | (667     | )          | (4,667   | )          |
| Restructuring related activities                                                   |       | 13,145   |       | (896     | )          | (2,408   | )          |
| Proceeds from cash flow hedge                                                      |       |     |       | 6,079    |       |     |       |
| Changes in operating assets and liabilities, net of  acquisitions:                 |       |     |       |     |       |     |       |
| Accounts receivable                                                                |       | 9,709    |       | (13,404  | )          | (9,424   | )          |
| Inventories                                                                        |       | (31,387  | )          | (783     | )          | (73,989  | )          |
| Prepaid expenses                                                                   |       | (23,505  | )          | 500      |       | 583      |       |
| Accounts payable                                                                   |       | 36,720   |       | (8,967   | )          | 42,557   |       |
| Accrued salaries and wages                                                         |       | 15,694   |       | 7,542    |       | 15,774   |       |
| Accrued income taxes                                                               |       | (438     | )          | (6,105   | )          | 8,892    |       |
| Accrued other taxes                                                                |       | (1,730   | )          | (3,179   | )          | 300      |       |
| Changes in other liabilities and deferred credits                                  |       | 2,329    |       | (14,516  | )          | (24,989  | )          |
| Changes in deferred charges and other investments                                  |       | (7,491   | )          | (20,117  | )          | (20,819  | )          |
| Net cash  provided by operating activities                                         |       | 348,959  |       | 280,417  |       | 271,545  |       |
|                                                                               |       |     |       |     |       |     |       |
| Cash flows from  investing activities:                                             |       |     |       |     |       |     |       |
| Additions to property and equipment                                                |       | (158,837 | )          | (186,965 | )          | (134,511 | )          |
| Business acquisitions, net of cash acquired                                        |       | (10,800  | )          | (237,992 | )          | (30,733  | )          |
| Proceeds from sales of property, equipment, and  other assets                      |       | 1,373    |       | 1,900    |       | 13,239   |       |
| Proceeds from sale of restructuring related assets                                 |       | 2,116    |       | 2,985    |       | 8,191    |       |
| Increased investment in unconsolidated affiliated  company                         |       |     |       |     |       | (7,065   | )          |
| Net cash used in  investing activities                                             |       | (166,148 | )          | (420,072 | )          | (150,879 | )          |
|                                                                               |       |     |       |     |       |     |       |
| Cash flows from  financing activities:                                             |       |     |       |     |       |     |       |
| Proceeds from issuance of long-term debt, net                                      |       |     |       | 296,548  |       |     |       |
| Repayment of long-term debt                                                        |       | (41,859  | )          | (6,183   | )          | (776     | )          |
| Net repayment of commercial paper                                                  |       | (31,254  | )          | (48,426  | )          | (41,120  | )          |
| Net borrowing (repayment) of short-term debt                                       |       | 7,364    |       | 32,859   |       | (1,185   | )          |
| Cash dividends paid to stockholders                                                |       | (82,139  | )          | (76,634  | )          | (68,423  | )          |
| Common stock purchased for the treasury                                            |       | (17,804  | )          | (49,469  | )          |     |       |
| Excess tax benefit from share-based payment  arrangements                          |       | 926      |       |     |       |     |       |
| Stock incentive programs                                                           |       | 51       |       | 1,366    |       | 411      |       |
| Net cash  provided (used) by financing activities                                  |       | (164,715 | )          | 150,061  |       | (111,093 | )          |
|                                                                               |       |     |       |     |       |     |       |
| Effect of  exchange rates on cash                                                  |       | 2,939    |       | (13,179  | )          | 7,849    |       |
|                                                                               |       |     |       |     |       |     |       |
| Net (decrease)  increase in cash                                                   |       | 21,035   |       | (2,773   | )          | 17,422   |       |
| Cash balance at  beginning of year                                                 |       | 91,125   |       | 93,898   |       | 76,476   |       |
|                                                                               |       |     |       |     |       |     |       |
| Cash balance at  end of year                                                       |       | $        | 112,160    |     | $          | 91,125   |       | $ | 93,898 |   |
|                                                                               |       |     |       |     |       |     |       |
| Supplemental  disclosure of cash flow information:                                 |       |     |       |     |       |     |       |
| Business acquisitions, net of divestures and cash:                                 |       |     |       |     |       |     |       |
| Working capital acquired (net)                                                     |       | $        | (147       | )        | $          | 23,672   |       | $ | 9,921 |   |
| Property acquired                                                                  |       |     |       | 157,667  |       | 19,546   |       |
| Goodwill and intangible assets (divested) or  acquired, net                        |       | 8,398    |       | 151,952  |       | (1,059   | )          |
| Deferred charges and other assets acquired                                         |       |     |       | 28,018   |       | 3,031    |       |
| Long-term debt, deferred taxes, and other  liabilities                             |       | 2,549    |       | (123,317 | )          | (706     | )          |
| Cash used for acquisitions                                                         |       | $        | 10,800     |     | $          | 237,992  |       | $ | 30,733 |   |
|                                                                               |       |     |       |     |       |     |       |
| Interest paid  during the year                                                     |       | $        | 46,396     |     | $          | 38,731   |       | $ | 15,735 |   |
| Income taxes paid  during the year                                                 |       | $        | 116,520    |     | $          | 120,496  |       | $ | 78,515 |   |

 

*Seeaccompanying notes to consolidated financial statements*

22

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**BEMISCOMPANY, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY**

***(dollars in thousands, except per share amounts)***
| ** **                                                                                              | ** ** | ** ** | ** ** | ** **          | ** ** | ** **   | ** ** | **Accumulated**        | ** ** | ** **           | ** ** | ** **             | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|------------|------------|---------------------|------------|--------------|------------|------------------------|------------|----------------------|------------|------------------------|------------|
| ** **                                                                                              | ** ** | ** ** | ** ** | **Capital In** | ** ** | ** **   | ** ** | **Other**              | ** ** | **Common**           | ** ** | **Total**              | ** ** |
| ** **                                                                                              | ** ** | **Common** | ** ** | **Excess of**  | ** ** | **Retained** | ** ** | **Comprehensive**      | ** ** | **Stock Held**  | ** ** | **Stockholders’** | ** ** |
| ** **                                                                                              | ** ** | **Stock**  | ** ** | **Par Value**  | ** ** | **Earnings** | ** ** | **Income (Loss)** | ** ** | **In Treasury** | ** ** | **Equity**             | ** ** |
| Balance at December  31, 2003                                                                           |       | $          | 11,505     |                | $          | 249,609      |       | $                      | 1,140,151  |                 | $          | (12,188                | )          | $ | (250,344 | ) | $ | 1,138,733 |   |
|                                                                                                    |       |       |       |                |       |         |       |                   |       |                 |       |                   |       |
| Net income                                                                                              |       |       |       |                |       | 179,967      |       |                   |       |                 |       | 179,967                |       |
| Translation  adjustment                                                                                 |       |       |       |                |       |         |       | 39,780                 |       |                 |       | 39,780                 |       |
| Pension  liability adjustment, net of tax effect $(1,433)                                               |       |       |       |                |       |         |       | (2,071                 | )          |                 |       | (2,071                 | )          |
| Total  comprehensive income                                                                             |       |       |       |                |       |         |       |                   |       |                 |       | 217,676                |       |
| Cash dividends  paid on common stock $0.64 per share                                                    |       |       |       |                |       | (68,423      | )          |                   |       |                 |       | (68,423                | )          |
| Recognition of  cumulative translation adjustment related to divesture of investment in  foreign entity |       |       |       |                |       |         |       | 6,153                  |       |                 |       | 6,153                  |       |
| Stock incentive  programs and related tax effects (705,082 shares)                                      |       | 70         |       | 13,657              |       |         |       |                   |       |                 |       | 13,727                 |       |
|                                                                                                    |       |       |       |                |       |         |       |                   |       |                 |       |                   |       |
| Balance at  December 31, 2004                                                                           |       | 11,575     |       | 263,266             |       | 1,251,695    |       | 31,674                 |       | (250,344             | )          | 1,307,866              |       |
|                                                                                                    |       |       |       |                |       |         |       |                   |       |                 |       |                   |       |
| Net income                                                                                              |       |       |       |                |       | 162,529      |       |                   |       |                 |       | 162,529                |       |
| Unrecognized  gain on derivative, net of tax $2,371                                                     |       |       |       |                |       |         |       | 3,708                  |       |                 |       | 3,708                  |       |
| Unrecognized  gain reclassified to earnings, net of tax $(266)                                          |       |       |       |                |       |         |       | (417                   | )          |                 |       | (417                   | )          |
| Translation  adjustment                                                                                 |       |       |       |                |       |         |       | 4,178                  |       |                 |       | 4,178                  |       |
| Pension  liability adjustment, net of tax effect $(4,322)                                               |       |       |       |                |       |         |       | (6,437                 | )          |                 |       | (6,437                 | )          |
| Total  comprehensive income                                                                             |       |       |       |                |       |         |       |                   |       |                 |       | 163,561                |       |
| Cash dividends  paid on common stock $0.72 per share                                                    |       |       |       |                |       | (76,634      | )          |                   |       |                 |       | (76,634                | )          |
| Stock incentive  programs and related tax effects (228,557 shares)                                      |       | 23         |       | 4,008               |       |         |       |                   |       |                 |       | 4,031                  |       |
| Purchase of  1,869,710 shares of common stock                                                           |       |       |       |                |       |         |       |                   |       | (49,469              | )          | (49,469                | )          |
|                                                                                                    |       |       |       |                |       |         |       |                   |       |                 |       |                   |       |
| Balance at  December 31, 2005                                                                           |       | 11,598     |       | 267,274             |       | 1,337,590    |       | 32,706                 |       | (299,813             | )          | 1,349,355              |       |
|                                                                                                    |       |       |       |                |       |         |       |                   |       |                 |       |                   |       |
| Net income                                                                                              |       |       |       |                |       | 176,296      |       |                   |       |                 |       | 176,296                |       |
| Unrecognized  gain reclassified to earnings, net of tax $(337)                                          |       |       |       |                |       |         |       | (526                   | )          |                 |       | (526                   | )          |
| Translation  adjustment                                                                                 |       |       |       |                |       |         |       | 60,850                 |       |                 |       | 60,850                 |       |
| Pension  liability adjustment, net of tax effect $(15,988)                                              |       |       |       |                |       |         |       | 24,794                 |       |                 |       | 24,794                 |       |
| Total  comprehensive income                                                                             |       |       |       |                |       |         |       |                   |       |                 |       | 261,414                |       |
| Adjustment to  initially apply FAS No 158, net of tax $55,076                                           |       |       |       |                |       |         |       | (88,726                | )          |                 |       | (88,726                | )          |
| Cash dividends  paid on common stock $0.76 per share                                                    |       |       |       |                |       | (82,139      | )          |                   |       |                 |       | (82,139                | )          |
| Stock incentive  programs and related tax effects (135,601 shares)                                      |       | 13         |       | 2,914               |       |         |       |                   |       |                 |       | 2,927                  |       |
| Impact of  adopting FAS No 123(R)                                                                       |       |       |       | 35,295              |       |         |       |                   |       |                 |       | 35,295                 |       |
| Share-based  compensation                                                                               |       |       |       | 11,694              |       |         |       |                   |       |                 |       | 11,694                 |       |
| Purchase of  600,000 shares of common stock                                                             |       |       |       |                |       |         |       |                   |       | (17,804              | )          | (17,804                | )          |
|                                                                                                    |       |       |       |                |       |         |       |                   |       |                 |       |                   |       |
| Balance at December 31,  2006                                                                           |       | $          | 11,611     |                | $          | 317,177      |       | $                      | 1,431,747  |                 | $          | 29,098                 |       | $ | (317,617 | ) | $ | 1,472,016 |   |

* *

*See accompanying notes toconsolidated financial statements.*

 

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**NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS**

### **Note 1 —BUSINESS DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES**

***Description of the business: ***Bemis Company, Inc., a Missouri corporation,was founded in 1858 and incorporated in 1885 as Bemis Bro. Bag Company.  In 1965 the name was changed to BemisCompany, Inc. (the Company).  Based inNeenah, Wisconsin, the Company employs approximately 15,700 individuals and has55 manufacturing facilities located in the United States and ten othercountries around the world.  The Companyis a manufacturer of flexible packaging products and pressure sensitivematerials selling to customers throughout the Americas and Europe, with agrowing presence in Asia Pacific.

The Company’s business activities are organized around its two businesssegments, Flexible Packaging, which accounted for approximately 82 percent of2006 net sales, and Pressure Sensitive Materials, which accounted for theremaining net sales.  The Company’sflexible packaging business has a strong technical base in polymer chemistry,film extrusion, coating, laminating, printing, and converting.  The Company’s pressure sensitive materialsbusiness specializes in adhesive technologies. The primary markets for the Company’s products are in the food industry,which accounted for approximately 60 percent of 2006 net sales.  The Company’s flexible packaging products arewidely diversified among food categories and can be found in nearly every aisleof the grocery store.  Other marketsinclude chemical, agribusiness, medical, pharmaceutical, personal careproducts, electronics, automotive, construction, graphic industries, and otherconsumer goods.  All markets areconsidered to be highly competitive as to price, innovation, quality, andservice.

***Principles of consolidation: ***The consolidated financial statements includethe accounts of the Company and its majority owned subsidiaries.  All intercompany transactions and accountshave been eliminated.  Joint ventures areaccounted for by the equity method of accounting with earnings ($32,000 and$874,000 for Laminor in 2006 and 2005, respectively; and $11,698,000 for ItapBemis Ltda. in 2004) included in other costs (income), net, on the accompanyingconsolidated statement of income.  TheLaminor joint venture interest was acquired as part of the January 2005acquisition of Dixie Toga S.A. Investments in joint ventures are included in deferred charges and otherassets on the accompanying consolidated balance sheet.  Results of Itap Bemis were consolidated in2006 and 2005.

***Estimates and assumptions required:***  Thepreparation of financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the reporting period.  Actual results could differ from thoseestimates.

***Translation of foreign currencies:***** **The Company considersthe local currency to be the reporting currency for all foreignsubsidiaries.  Assets and liabilities aretranslated at the exchange rate as of the balance sheet date.  All revenue and expense accounts aretranslated at average exchange rates in effect during the year.  Translation gains or losses are recorded inthe foreign currency translation component in accumulated other comprehensiveincome (loss) in stockholders’ equity. Foreign currency transaction gains (losses) of $(849,000) $(5,434,000),and $1,002,000, in 2006, 2005, and 2004, respectively, are included as acomponent of other costs (income), net.

***Revenue recognition:***** **Sales and related costs of sales arerecognized upon shipment of products or when all of the conditions of theSecurities and Exchange Commission’s Staff Accounting Bulletin No. 104 arefulfilled.  All costs associated withrevenue, including customer rebates and discounts, are recognized at the timeof sale.  Customer rebates are accrued inaccordance with EITF No. 01-9, *Accounting forConsideration Given by a Vendor to a Customer* and recorded as areduction to sales.  Shipping andhandling costs are classified as a component of costs of sales while amountsbilled to customers for shipping and handling are classified as a component of sales.  The Company accrues for estimated warrantycosts when specific issues are identified and the amounts are determinable.

***Environmental cost:***** **The Company is involved in a number ofenvironmental related disputes and claims. The Company accrues for environmental costs when it is probable thatthese costs will be incurred and can be reasonably estimated.  At December 31, 2006 and 2005, reserves were$830,500 and $786,000, respectively. Adjustments to the reserve accounts and costs which were directly expensedfor environmental remediation matters resulted in charges to the incomestatements for 2006, 2005, and 2004 of $128,000, $14,000, and  $174,000, net of third party reimbursementstotaling $102,000, $11,000, and $79,000, for 2006, 2005, and 2004, respectively.

***Earnings per share: ***Basic earnings per common share is computed bydividing net income by the weighted-average number of common shares outstandingduring the year.  Diluted earnings pershare is computed by dividing net income by the weighted-average number ofcommon shares outstanding during the year and dilutive shares relating to stockincentive plans.  The following tablepresents information necessary to compute basic and diluted earnings per commonshare:
| **(in thousands, except per share amounts)**            | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|----------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Weighted average  common shares outstanding — basic                         |       | 104,865  |       | 106,433  |       | 106,892  |       |
| Dilutive shares                                                                  |       | 1,902    |       | 1,386    |       | 1,050    |       |
| Weighted average  common and common equivalent shares outstanding — diluted |       | 106,767  |       | 107,819  |       | 107,942  |       |
| Net income for  basic and diluted earnings per share computation                 |       | $        | 176,296    |     | $          | 162,529  |       | $ | 179,967 |   |
| Earnings per  common share — basic                                          |       | $        | 1.68       |     | $          | 1.53     |       | $ | 1.68 |   |
| Earnings per common  share — diluted                                        |       | $        | 1.65       |     | $          | 1.51     |       | $ | 1.67 |   |

 

Certain options outstanding at December 31, 2005 (2,494 shares) were notincluded in the computation of diluted earnings per share above because theywould not have had a dilutive effect.

***Research and development: ***Research and development expenditures areexpensed as incurred.

24

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***Taxes on undistributed earnings:***** **No provision is madefor U.S. income taxes on earnings of non-U.S. subsidiary companies which theCompany controls but does not include in the consolidated federal income taxreturn as it is management’s practice and intent to indefinitely reinvest theearnings.

***Accounting for Stock-Based Compensation:***** **Effective January 1, 2006, the Company adopted Statement of FinancialAccounting Standards No. 123(R), *Share-BasedPayment* (FAS 123(R)), which significantly changed accountingpractice with respect to employee stock options.  FAS 123(R) requires that the Companymeasure the cost of equity-based service awards based on the grant-date fairvalue of the award.  The impact ofadopting this standard on January 1, 2006, was insignificant to the Company’sresults of operations since no new stock option awards have been granted since2003 and all stock options outstanding at December 31, 2005, are fully orpartially vested.  Prior toadopting FAS 123(R), the Company applied the recognition and measurementprinciples of APB No. 25, *Accounting for StockIssued to Employees*.  Theintrinsic value method is used to account for stock-based compensationplans.  If compensation expense had beendetermined based on the fair value method with the pro forma compensationexpense reflected over the vesting period, net income and income per sharewould have been adjusted to the pro forma amounts indicated below:
| (in thousands, except per share amounts)                                          | ** ** | **2005** | ** ** | **2004** | ** ** |
|------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Net income - as  reported                                                                                  |       | $        | 162,529    |     | $          | 179,967 |   |
| Add: Stock-based  compensation expense included in net income, net of related tax effects                  |       | 8,655    |       | 7,297    |       |
| Deduct: Total  stock-based compensation expense under fair value-based method, net of  related tax effects |       | (8,996   | )          | (7,790   | )          |
| Net income - pro  forma                                                                                    |       | $        | 162,188    |     | $          | 179,474 |   |
|                                                                                                       |       |     |       |     |       |
| Basic earnings  per share - as reported                                                                    |       | $        | 1.53       |     | $          | 1.68 |   |
| Basic earnings  per share - pro forma                                                                      |       | $        | 1.52       |     | $          | 1.68 |   |
| Diluted earnings  per share - as reported                                                                  |       | $        | 1.51       |     | $          | 1.67 |   |
| Diluted earnings per  share - pro forma                                                                    |       | $        | 1.50       |     | $          | 1.66 |   |

 

Compensation expense for pro forma purposes was reflected over thevesting period.  Note 8 contains thesignificant assumptions used in determining the underlying fair value ofoptions.

***Cash Equivalents:***** **The Company considers all highly liquidtemporary investments with a maturity of three months or less when purchased tobe cash equivalents.  Cash equivalentsare carried at cost which approximates market value.

***Accounts Receivable:***** **Trade accounts receivable are stated at theamount the Company expects to collect, which is net of an allowance fordoubtful accounts for estimated losses resulting from the inability of itscustomers to make required payments.  Thefollowing factors are considered when determining the collectibility ofspecific customer accounts:  customercreditworthiness, past transaction history with the customer, and changes incustomer payment terms or practices.  Inaddition, overall historical collection experience, current economic industrytrends, and a review of the current status of trade accounts receivable areconsidered when determining the required allowance for doubtful accounts.  Based on management’s assessment, the Companyprovides for estimated uncollectible amounts through a charge to earnings and acredit to valuation allowance.  Balancesthat remain outstanding after the Company has used reasonable collectionefforts are written off through a charge to the valuation allowance and acredit to accounts receivable.  Accountsreceivable are presented net of an allowance for doubtful accounts of$20,287,000 and $19,120,000 at December 31, 2006 and 2005, respectively.

***Inventory valuation:*** Inventories are valued at thelower of cost, as determined by the first-in, first-out (FIFO) method, or market.  Inventories are summarized at December 31, asfollows:
| (in thousands)                 | ** ** | **2006** | ** ** | **2005** | ** ** |
|-------------------------------------|------------|----------|------------|----------|------------|
| Raw materials  and supplies         |       | $        | 169,914    |     | $          | 161,110 |   |
| Work in process  and finished goods |       | 316,482  |       | 276,331  |       |
| Total  inventories, gross           |       | 486,396  |       | 437,441  |       |
| Less inventory  write-downs         |       | (18,543  | )          | (16,491  | )          |
| Total inventories, net              |       | $        | 467,853    |     | $          | 420,950 |   |

 

***Property and equipment: ***Property and equipment are stated atcost.  Maintenance and repairs that donot improve efficiency or extend economic life are expensed as incurred.  Plant and equipment are depreciated forfinancial reporting purposes principally using the straight-line method overthe estimated useful lives of assets as follows:  land improvements, 15-30 years; buildings,15-45 years; leasehold and building improvements, 8-20 years; and machinery andequipment, 3-16 years.  For tax purposes,the Company generally uses accelerated methods of depreciation.  The tax effect of the difference between bookand tax depreciation has been provided as deferred income taxes.  Depreciation expense was $144,058,000,$142,599,000, and $126,082,000 for 2006, 2005, and 2004, respectively.  On sale or retirement, the asset cost and relatedaccumulated depreciation are removed from the accounts and any related gain orloss is reflected in income.  Interestcosts, which are capitalized during the construction of major capital projects,totaled $2,871,000 in 2006, $993,000 in 2005, and $178,000 in 2004.

The Company reviews its long-lived assets for impairment when events orchanges in circumstances indicate that the carrying amount of the assets maynot be recoverable.  If impairmentindicators are present and the estimated future undiscounted cash flows areless than the carrying value of the assets, the carrying values are reduced tothe estimated fair value.

25

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The Company capitalizes direct costs (internal and external) ofmaterials and services used in the development and purchase of internal-usesoftware.  Amounts capitalized areamortized on a straight-line basis over a period of three to seven years andare reported as a component of machinery and equipment within property andequipment.

***Goodwill:***** **Goodwill represents the excess of cost over the fair value of net assetsacquired in business combinations.  EffectiveJanuary 1, 2002, the Company adopted the reporting requirements of Statement ofFinancial Accounting Standards (FAS) No. 141, *BusinessCombinations,* and FAS No. 142, *Goodwill and OtherIntangible Assets,* and as required, has applied its requirements toacquisitions made after June 30, 2001. In accordance with FAS No. 142, goodwill and indefinite-lived intangibleassets are no longer amortized, but are reviewed at least annually forimpairment.  The Company tests goodwilland indefinite-lived intangible assets for impairment on an annual basis, orwhenever there is an impairment indicator, using a fair-value based approach.

***Intangible assets: ***Contractual or separable intangible assetsthat have finite useful lives are being amortized against income using thestraight-line method over their estimated useful lives, with periods rangingfrom one to 30 years. The straight-line method of amortization reflects anappropriate allocation of the costs of the intangible assets to earnings inproportion to the amount of economic benefits obtained by the Company in eachreporting period.  The Company testsfinite-lived intangible assets for impairment whenever there is an impairmentindicator.  Intangible assets are testedfor impairment by comparing anticipated undiscounted future cash flows fromoperations to net book value.

***Financial Instruments:***** **The Company recognizes all derivativeinstruments on the balance sheet at fair value. Derivatives that are not hedges are adjusted to fair value throughincome.  If the derivative is a hedge,depending on the nature of the hedge, changes in the fair value of derivativesare either offset against the change in fair value of the hedged assets,liabilities, or firm commitments through earnings or recognized in stockholders’equity through other comprehensive income until the hedged item isrecognized.  Gains or losses, if any,related to the ineffective portion of any hedge are recognized through earningsin the current period.  Note 14 containsexpanded details relating to specific derivative instruments included on theCompany’s balance sheet, such as forward foreign currency exchange contractsand interest rate swap arrangements.

***Accumulated other comprehensive income (loss):***** **The components ofaccumulated other comprehensive income (loss) are as follows as of December 31:
| **(in thousands)**                                                                 | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|-----------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Foreign currency  translation                                                           |       | $        | 122,454    |     | $          | 61,604   |       | $ | 57,426 |   |
| Minimum pension  liability, net of deferred tax benefit of $4,590, $20,580, and $16,258 |       | (7,395   | )          | (32,189  | )          | (25,752  | )          |
| Adjustment to  initially apply FAS No. 158, net of tax $55,076                          |       | (88,726  | )          |     |       |     |       |
| Unrecognized  gain on derivative, net of deferred tax benefit of $1,768 and $2,105      |       | 2,765    |       | 3,291    |       |     |       |
| Accumulated other  comprehensive income (loss)                                          |       | $        | 29,098     |     | $          | 32,706   |       | $ | 31,674 |   |

 

***Treasury Stock:***** **Repurchased common stock is stated at cost andis presented as a separate reduction of stockholders’ equity.  At December 31, 2006, 2.2 million commonshares can be repurchased, at management’s discretion, under authority grantedby the Company’s Board of Directors in 2000. In February 2007, the Board of Directors authorized an additional 3million shares for repurchase.

***Preferred Stock Purchase Rights:***  OnJuly 29, 1999, the Company’s Board of Directors adopted a Shareholder RightsPlan by declaring a dividend of one preferred share purchase right for eachoutstanding share of common stock.  Undercertain circumstances, a right may be exercised to purchase one four-hundredthof a share of Series A Junior Preferred Stock for $60, subject toadjustment.  The rights becomeexercisable if, subject to certain exceptions, a person or group acquiresbeneficial ownership of 15 percent or more of the Company’s outstanding commonstock or announces an offer which would result in such person acquiringbeneficial ownership of 15 percent or more of the Company’s outstanding commonstock.  If a person or group acquiresbeneficial ownership of 15 percent or more of the Company’s outstanding commonstock, subject to certain exceptions, each right will entitle its holder to buyfrom the Company, common stock of the Company having a market value of twicethe exercise price of the right.  Therights expire August 23, 2009, and may be redeemed by the Company for $.001 perright at any time before a person becomes a beneficial owner of 15 percent ormore of the Company’s outstanding common stock. The Company’s Board of Directors has designated 600,000 shares of SeriesA Junior Preferred Stock with a par value of $1 per share that relate to theShareholder Rights Plan.  At December 31,2006, none of these shares were issued or outstanding.

**Note 2 — NEW ACCOUNTING PRONOUNCEMENTS**

In September 2006, the Financial Accounting Standards Board (FASB)issued Statement of Financial Accounting Standards (FAS) No. 157, *Fair Value Measurements*, which defines fair value,establishes a framework for measuring fair value in generally acceptedaccounting principles (GAAP), and expands disclosures about fair valuemeasurements.  FAS No. 157 will applywhenever another standard requires (or permits) assets or liabilities to bemeasured at fair value.  The standarddoes not expand the use of fair value to any new circumstances, and iseffective beginning after December 31, 2007. The Company currently evaluating the impact of adopting FAS No. 157 onits financial position and results of operations.

In June 2006, the FASB issued FASB Interpretation (FIN) No. 48, *Accounting for Uncertainty in Income Taxes, aninterpretation of FASB Statement No. 109* (FIN 48).  FIN 48 clarifies the accounting for uncertaintax positions in accordance with FAS No. 109,* Accounting for Income Taxes*. The Company will be required to recognize, in its financial statements,the largest tax benefit of a tax position that is “more-likely-than-not” to besustained on audit based solely on the technical merits of the position as ofthe reporting 

26

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date.  In addition, FIN 48 provides guidance on newdisclosure requirements, reporting and accrual of interest and penalties,accounting in interim periods, and transition. FIN 48 is effective for the Company beginning January 1, 2007, with thecumulative effect of initially applying FIN 48 recognized as a change inaccounting principle recorded as an adjustment to opening retained earnings.  The Company does not expect a material impactto the financial statements as a result of adopting this standard.

**Note 3 — GOODWILL AND OTHER INTANGIBLE ASSETS**

Changes in the carrying amount of goodwillattributable to each reportable operating segment follow:
| ** **                                                           | ** ** | **Flexible Packaging** | ** ** | **Pressure Sensitive** | ** ** | ** ** | ** ** |
|----------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|------------|------------|
| **(in thousands)**                                              | ** ** | **Segment**                 | ** ** | **Materials Segment**  | ** ** | **Total**  | ** ** |
| Reported balance  at December 31, 2004                               |       | $                           | 391,473    |                        | $          | 50,708     |       | $ | 442,181 |   |
|                                                                 |       |                        |       |                        |       |       |       |
| Business  acquisitions                                               |       | 111,114                     |       |                        |       | 111,114    |       |
| Goodwill  associated with Itap Bemis Ltda. which is now consolidated |       | 11,396                      |       |                        |       | 11,396     |       |
| Currency  translation adjustment                                     |       | 16,728                      |       |                        |       | 16,728     |       |
| Reported balance  at December 31, 2005                               |       | 530,711                     |       | 50,708                      |       | 581,419    |       |
|                                                                 |       |                        |       |                        |       |       |       |
| Business  acquisitions and purchase price adjustments                |       | 6,497                       |       | 2,168                       |       | 8,665      |       |
| Currency  translation adjustment                                     |       | 13,540                      |       | 67                          |       | 13,607     |       |
| Reported balance at  December 31, 2006                               |       | $                           | 550,748    |                        | $          | 52,943     |       | $ | 603,691 |   |

 

The components of amortized intangible assets follow:
| **(in thousands)**    | ** ** | **December 31, 2006** | ** ** | **December 31, 2005** | ** ** |
|----------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| ** **                 | ** ** | **Gross Carrying**         | ** ** | **Accumulated**                 | ** ** | **Gross Carrying** | ** ** | **Accumulated** | ** ** |
| **Intangible Assets** | ** ** | **Amount**                      | ** ** | **Amortization**                | ** ** | **Amount** | ** ** | **Amortization** | ** ** |
| Contract based             |       | $                               | 15,447     |                            | $          | (8,055 | ) | $ | 15,447 |   | $ | (6,930 | ) |
| Technology based           |       | 52,609                          |       | (16,548                         | )          | 52,047 |   | (13,513 | ) |
| Marketing  related         |       | 21,405                          |       | (5,441                          | )          | 19,659 |   | (3,677 | ) |
| Customer based             |       | 55,933                          |       | (13,227                         | )          | 50,395 |   | (7,848 | ) |
| Reported balance           |       | $                               | 145,394    |                            | $          | (43,271 | ) | $ | 137,548 |   | $ | (31,968 | ) |

 

Amortization expense for intangible assets during 2006, 2005, and 2004was $9.2 million, $8.9 million, and $5.8 million, respectively.  Estimated annual amortization expense is $9.1million for 2007, $9.0 million for 2008 through 2010, and $8.7 million for2011.  The Company completed its annualimpairment tests in the fourth quarter of 2006 with no indications ofimpairment of goodwill found.

**Note 4 — BUSINESS ACQUISITIONS**

On January 5, 2005, the Company acquired majority ownership of DixieToga S.A., headquartered in São Paulo, Brazil. Dixie Toga recorded annual net sales in excess of $300 million in 2004.  In this transaction, the Company acquiredsubstantially all of the outstanding voting common stock and 43 percent of theoutstanding non-voting preferred stock of Dixie Toga for a total cash price ofapproximately $250 million, which was initially financed with commercialpaper.  During 2005 and 2006, Dixie Togarepurchased additional publicly traded preferred shares on the Bovespa StockExchange in São Paulo, Brazil, thereby effectively increasing Bemis’ preferredshare ownership to 54 percent at December 31, 2006.  The remaining non-voting preferred shares notacquired are traded publicly on the Brazilian Bovespa Exchange.  Dixie Toga is a leading packaging company inSouth America, specializing in flexible packaging, thermoformed and injectionmolded containers, laminated plastic tubes, printed labels, and printed foldingcartons.  Dixie Toga employs nearly 4,000people in South America and operates nine manufacturing plants in Brazil andone in Argentina.

The net cash purchase price of $235.3 million, paid in 2005, has beenaccounted for under the purchase method of accounting reflecting the provisionsof FAS Nos. 141 and 142 and includes the allocations as follows:  $249.2 million to tangible assets, $40.1million to intangible assets, $164.4 million to liabilities assumed, and $110.4million to tax deductible goodwill.  Acontingent contractual post-closing adjustment increased the purchase price andrelated goodwill by $4.2 million in 2006. Intangible assets acquired have a weighted-average useful life ofapproximately 18 years and include $0.3 million for contract-based intangibleswith a useful life of 1 year, $9.3 million for marketing related intangibleswith a useful life of 30 years, and $30.5 million for customer-basedintangibles with a useful life of 15 years. Results of operations from the date of acquisition are included in thesefinancial statements.  Pro forma incomestatement results for the comparative fourthquarter (unaudited) and year-to-dateperiods ended December 31, 2004, as if this acquisition had occurred atthe beginning of 2004, would have reflected net sales as $821.9 million and $3,164.0 million,respectively; net income as $48.7million and $180.9 million, respectively; and diluted earnings per shareas $0.45 and $1.68, respectively.

The Company and Dixie Toga had operated a flexible packaging jointventure in Brazil since 1998.  Prior tothe acquisition the Company owned 45 percent of the joint venture and accountedfor it on an equity basis for the year 2004 and earlier (see description belowregarding the 2004 acquisition of an additional interest in Itap BemisLtda.).  The pre-existing values forproperty, intangible assets, and goodwill imbedded in the Company’s equityinvestment at the date of the Dixie Toga acquisition were $1.7 million, $3.6million, and $11.4 million, respectively. These amounts were subsequently included as components of the Company’sconsolidated property, intangible assets, and goodwill.

On February 17, 2005, the Company acquired certain assets of RaytonPackaging Inc., Calgary, Alberta, Canada for a cash purchase price of $2.7million.  The net cash purchase price hasbeen accounted for under the purchase method of accounting reflecting theprovisions of FAS Nos. 141 and 142 and includes the preliminary allocations asfollows:  $1.2 million to tangibleassets, $0.8 million 

27

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tointangible assets, and $0.7 million to goodwill.  Intangible assets acquired include $0.4million for customer-based intangibles and $0.4 million for technology-basedintangibles each with a useful life of 10 years.

On May 25, 2004, the Company and its Mexican partner, Corporacion JMA,S.A. de C.V., acquired the Tultitlan, Mexico plant operation of Masterpak, S.A.de C.V. for $30.7 million.  Annual salesrelated to the assets purchased were approximately $35.0 million.  Although the Company’s ownership share wasinitially only 51 percent, the Company financed its Mexican partner’s portionof the purchase price and as such 100 percent of results of operation of thisentity were consolidated by the Company at December 31, 2005 and 2004.  The total purchase price was accounted forunder the purchase method of accounting, reflecting the provisions of FAS Nos.141 and 142, and includes:  workingcapital, $9.9 million; property, $19.5 million; intangible assets, deferredcharges, and goodwill $2.0 million; and long-term liabilities, $0.7million.  Results of operations from thedate of acquisition are included in these financial statements.  During 2005 and 2006 the Company acquired thejoint venture partner’s interest and now owns 100 percent of the entity.  Because the Company was already consolidating100 percent of the entity the subsequent acquisition of the remaining jointventure interest had an inconsequential accounting impact.

On May 4, 2006, the Company also acquired the remaining 49 percentminority interest in MACtac Mexico, S.A. de C.V. and Bolsas Bemis S.A. de C.V.for a total consideration of $6.8 million. The net cash purchase price has been accounted for under the purchasemethod of accounting reflecting the provisions of FAS Nos. 141 and 142 andincludes an allocation as follows:  $3.1million to net tangible assets, $0.6 million to liabilities assumed, $0.7million to intangible assets and $3.6 million to goodwill.

Effective January 1, 2004, the Company contributed its 90 percentownership interest in Curwood Itap Ltda., its shrink bags business in Brazil,to its Brazilian flexible packaging joint venture, Itap Bemis Ltda., inexchange for an additional 12 percent ownership interest.  Assets and liabilities of Curwood Itap Ltda.(consolidated at December 31, 2003) contributed included:  working capital, $14.7 million, includingcash of $7.1 million; property, $3.7 million; intangible assets and deferredcharges, $8.4 million; and minority interest, $2.7 million.  In exchange for this contribution, theCompany’s ownership interest in Itap Bemis Ltda. increased from 33 percent to45 percent.  In addition, the Companyrecorded a $6.2 million charge related to previously deferred cumulativetranslation losses which substantially offset the gain on the divesture ofassets described above.  The net increasein the investment in Itap Bemis Ltda. was $30.5 million, including a net gainof $0.2 million on this transaction. During 2004, the joint venture has been accounted for on the equitymethod and equity earnings have been included as a component of other costs(income), net.  In connection with thebusiness acquisition described above, this joint venture, Itap Bemis Ltda., isnow majority owned and controlled (effective January 5, 2005) and has beenconsolidated beginning in 2005.

**Note 5 — RESTRUCTURING OF OPERATIONS**

***2003 Restructuring Plan***

In July 2003, the Company committed to a plan to close three flexiblepackaging plants:  Murphysboro, Illinois;Union City, California; and Prattville, Alabama.  The closure of these plants, together withrelated support staff and capacity reductions within the flexible packagingbusiness segment, has reduced fixed costs and improved capacity utilizationelsewhere in the Company.  During thethird quarter 2003, manufacturing activity at the three plants was concludedwith customer order fulfillment absorbed by other facilities within theflexible packaging segment.

During 2004, the Company incurred charges of $0.1 million foraccelerated depreciation, $0.4 million for equipment and employee relocation,and $0.2 million for other related costs. In addition during 2004, the Company realized a $1.4 million gain on thedisposition of the Union City, California plant.  During 2005, the Company incurred charges of$0.6 million principally on the sale of an idled facility.  This restructuring effort is complete.

In October 2003, the Company committed to a plan to close two pressuresensitive materials plants:  North LasVegas, Nevada, and Brampton, Ontario, Canada. The closure of these plants, together with related support staff andcapacity reductions within the pressure sensitive materials business segment,has reduced fixed costs and improved capacity utilization elsewhere in thisbusiness segment.  During 2004, theCompany incurred charges of $0.3 million for employee severance, $1.0 millionfor accelerated depreciation, $1.0 million for equipment and employee relocation,and $0.8 million for other related costs. During 2005, the Company incurred charges of $0.6 million for employeepension termination costs and $0.2 million for other related costs.  In addition during 2005, the Company realizeda $2.3 million gain on the disposition of an idled facility and land.  This restructuring effort is complete.

For the year 2004, a total of $2.6 million has been charged to othercosts (income), $1.1 million has been charged to cost of products sold, and$0.1 million has been charged to selling, general and administrative expensewithin the consolidated statement of income. In addition, the $1.4 million gain on the first quarter 2004 sale of theUnion City, California plant (which was closed in the third quarter of 2003) isincluded in other costs (income).  Forthe year 2005, a total of $1.4 million has been charged to other costs (income)within the consolidated statement of income. In addition during 2005, the $2.3 million gain on the disposition of anidled facility and land is included in other costs (income) within theconsolidated statement of income.  Theaccrued liability remaining at December 31, 2005, was not significant and waspaid in 2006.

28

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An analysis of the restructuring and related costs activity follows:
| ** **                            | ** ** | ** **   | ** ** | **Facilities**         | ** ** | ** **        | ** ** | ** **       | ** ** | **Total**                       | ** ** |
|---------------------------------------|------------|--------------|------------|------------------------|------------|-------------------|------------|------------------|------------|---------------------------------|------------|
| ** **                            | ** ** | **Employee** | ** ** | **Consolidation**      | ** ** | **Total**         | ** ** | **Accelerated**  | ** ** | **Restructuring**               | ** ** |
| **(in thousands)**               | ** ** | **Costs**    | ** ** | **or Relocation** | ** ** | **Restructuring** | ** ** | **Depreciation** | ** ** | **and Related Costs** | ** ** |
| Reserve balance  at December 31, 2003 |       | $            | (3,125     | )                      | $          | (59               | )          | $                | (3,184     | )                               | $          | 0 |   | $ | (3,184 | ) |
|                                  |       |         |       |                   |       |              |       |             |       |                            |       |
| **2004  Activity**                    |       |         |       |                   |       |              |       |             |       |                            |       |
| Total net  expense accrued            |       |         |       |                   |       |              |       |             |       |                            |       |
| Flexible Packaging                    |       | $            | (69        | )                      | $          | 793               |       | $                | 724        |                            | $          | (72 | ) | $ | 652 |   |
| Pressure Sensitive                    |       | (279         | )          | (1,800                 | )          | (2,079            | )          | (1,022           | )          | (3,101                          | )          |
|                                  |       |         |       |                   |       |              |       |             |       |                            |       |
| Charges to  accrual account           |       |         |       |                   |       |              |       |             |       |                            |       |
| Flexible Packaging                    |       | 1,651        |       | (793                   | )          | 858               |       | 72               |       | 930                             |       |
| Pressure Sensitive                    |       | 1,618        |       | 1,829                  |       | 3,447             |       | 1,022            |       | 4,469                           |       |
| Reserve balance  at December 31, 2004 |       | $            | (204       | )                      | $          | (30               | )          | $                | (234       | )                               | $          | 0 |   | $ | (234 | ) |
|                                  |       |         |       |                   |       |              |       |             |       |                            |       |
| **2005  Activity**                    |       |         |       |                   |       |              |       |             |       |                            |       |
| Total net  expense accrued            |       |         |       |                   |       |              |       |             |       |                            |       |
| Flexible Packaging                    |       | $            | 0          |                   | $          | (560              | )          | $                | (560       | )                               | $          | 0 |   | $ | (560 | ) |
| Pressure Sensitive                    |       | (632         | )          | 2,088                  |       | 1,456             |       |             |       | 1,456                           |       |
|                                  |       |         |       |                   |       |              |       |             |       |                            |       |
| Charges to  accrual account           |       |         |       |                   |       |              |       |             |       |                            |       |
| Flexible Packaging                    |       | 145          |       | 560                    |       | 705               |       |             |       | 705                             |       |
| Pressure Sensitive                    |       | 632          |       | (2,088                 | )          | (1,456            | )          |             |       | (1,456                          | )          |
| Reserve balance  at December 31, 2005 |       | $            | (59        | )                      | $          | (30               | )          | $                | (89        | )                               | $          | 0 |   | $ | (89 | ) |
|                                  |       |         |       |                   |       |              |       |             |       |                            |       |
| **2006  Activity**                    |       |         |       |                   |       |              |       |             |       |                            |       |
| Charges to  accrual account           |       |         |       |                   |       |              |       |             |       |                            |       |
| Flexible Packaging                    |       | $            | 59         |                   | $          | 0                 |       | $                | 59         |                            |       |   | $ | 59 |   |
| Pressure Sensitive                    |       | 0            |       | 30                     |       | 30                |       |             |       | 30                              |       |
| Reserve balance at  December 31, 2006 |       | $            | 0          |                   | $          | 0                 |       | $                | 0          |                            | $          | 0 |   | $ | 0 |   |

 

***2006 Restructuring Plan***

In January 2006, the Company committed to a plan to close five flexiblepackaging plants:  Peoria, Illinois;Denmark and Neenah, Wisconsin; Georgetown, Ontario, Canada; and Epernon,France.  The closure of these plants,together with related support staff and capacity reductions within the flexiblepackaging business segment, is expected to reduce fixed costs and improvecapacity utilization elsewhere in the Company. During 2006, the Company incurred charges of $11.6 million for employeeseverance, $12.3 million for accelerated depreciation, and $5.1 million forother related costs.

Also in January 2006, the Company committed to a plan to close apressure sensitive materials plant located in Hopkins, Minnesota.  The closure of this plant, together withrelated support staff and capacity reductions within the pressure sensitivematerials business segment, is expected to reduce fixed costs and improvecapacity utilization.  During  2006, the Company incurred charges of $0.5million for employee severance and $0.5 million for other related costs.

Manufacturing activity has been concluded at the six manufacturingplants identified for closure with customer order fulfillment absorbed by otherfacilities within the Company.  Whiletermination of manufacturing activity at these facilities has beenaccomplished, final relocation of equipment and employees, disposal ofmanufacturing sites, and final settlement of pension related issues willcontinue until after 2006.

During 2006, a total of $18.3 million has been charged to other costs(income) and $12.9 million has been charged to cost of products sold within theconsolidated statement of income.  Theaccrued liability at December 31, 2006, is $0.4 million.  Total costs of $35.0 million are expected forthis restructuring effort, of which $31.0 million will be incurred by theflexible packaging segment, $1.8 million for the pressure sensitive materialssegment, and $2.2 million for corporate relocation.  Net cash cost is expected to be $18.3 millionand non-cash cost is expected to total $16.7 million.

An analysis of the 2006 restructuring plan and related costs activityfollows:
| ** **                             | ** ** | ** **   | ** ** | **Facilities**         | ** ** | ** **       | ** ** | **Total**                       | ** ** |
|----------------------------------------|------------|--------------|------------|------------------------|------------|------------------|------------|---------------------------------|------------|
| ** **                             | ** ** | **Employee** | ** ** | **Consolidation**      | ** ** | **Accelerated**  | ** ** | **Restructuring**               | ** ** |
| **(in thousands)**                | ** ** | **Costs**    | ** ** | **or Relocation** | ** ** | **Depreciation** | ** ** | **and Related Costs** | ** ** |
| **2006  Activity — Year-To-Date** |       |         |       |                   |       |             |       |                            |       |
| Reserve balance  at December 31, 2005  |       | $            | 0          |                   | $          | 0                |       | $                               | 0          |   | $ | 0 |   |
| Total net  expense accrued             |       |         |       |                   |       |             |       |                            |       |
| Corporate                              |       |         |       | (1,288                 | )          |             |       | (1,288                          | )          |
| Flexible Packaging                     |       | (11,555      | )          | (5,136                 | )          | (12,262          | )          | (28,953                         | )          |
| Pressure Sensitive                     |       | (519         | )          | (416                   | )          | (47              | )          | (982                            | )          |
| Charges to  accrual account            |       |         |       |                   |       |             |       |                            |       |
| Corporate                              |       |         |       | 1,288                  |       |             |       | 1,288                           |       |
| Flexible Packaging                     |       | 11,170       |       | 5,136                  |       | 12,262           |       | 28,568                          |       |
| Pressure Sensitive                     |       | 519          |       | 416                    |       | 47               |       | 982                             |       |
| Reserve balance at  December 31, 2006  |       | $            | (385       | )                      | $          | 0                |       | $                               | 0          |   | $ | (385 | ) |

 

29

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**Note 6 - PENSION PLANS**

The Company has defined contribution planswhich cover employees at nine manufacturing, warehousing, or salesadministrative locations with contributions based upon the contractual terms ofeach respective plan.  Total contributionexpense for these plans was $1,311,000 in 2006, $1,191,000 in 2005, and$1,262,000 in 2004.  Multiemployer planscover employees at two different manufacturing locations and provide forcontributions to a union administered defined benefit pension plan.  Amounts charged to pension cost andcontributed to the multiemployer plans in 2006, 2005, and 2004 totaled$740,000, $741,000, and $1,700,000, respectively.  The 2004 expense included a multiemployerplan withdrawal charge of $995,000 (included in other costs (income) on theconsolidated statement of income) associated with the 2003 closure of theMurphysboro, Illinois facility.

The Company also has defined benefit pension plans covering the majorityof U.S. employees, along with non-US defined benefit plans covering selectemployees in various international locations. The benefits under the plans are based on years of service and salarylevels.  Certain plans covering hourlyemployees provide benefits of stated amounts for each year of service.  In addition, the Company also sponsors anunfunded supplemental retirement plan to provide senior management withbenefits in excess of limits under the federal tax law and increased benefitsto reflect a service adjustment factor.

Effective December 31, 2006, the Company adopted Statement of FinancialAccounting Standards No. 158 *Employers’Accounting for Defined Benefit Pension and Other Postretirement Plans — AnAmendment of FASB Statements No. 87, 88, 106, and 132 (R)* (FAS158).  As a result of the adoption of FAS158, the Company has recorded a cumulative effect adjustment as a component ofother comprehensive income within stockholders’ equity (also see Note 7).  The Company’s disclosures for the fiscal yearended 2006 also reflect the revised accounting and disclosure requirements ofFAS 158.  Reported items for fiscal years2005 and 2004 were not affected.

The adoption of FAS 158 on December 31, 2006, resulted in incrementaladjustments to the following individual line items in the Consolidated BalanceSheet:
| ** **                                       | ** ** | **Before**              | ** ** | ** **      | ** ** | **After**               | ** ** |
|--------------------------------------------------|------------|-------------------------|------------|-----------------|------------|-------------------------|------------|
| ** **                                       | ** ** | **Application of** | ** ** | ** **      | ** ** | **Application of** | ** ** |
| **(in thousands)**                          | ** ** | **FAS 158**        | ** ** | **Adjustments** | ** ** | **FAS 158**        | ** ** |
| Deferred charges  and other assets               |       | $                       | 188,748    |            | $          | (125,224                | )          | $ | 63,524 |   |
| Total assets                                     |       | 3,164,233               |       | (125,224        | )          | 3,039,009               |       |
| Deferred taxes                                   |       | 189,244                 |       | (55,076         | )          | 134,168                 |       |
| Other  liabilities and deferred credits          |       | 107,396                 |       | 18,578          |       | 125,974                 |       |
| Total  stockholders’ equity                 |       | 1,560,742               |       | (88,726         | )          | 1,472,016               |       |
| Total liabilities and  stockholders’ equity |       | 3,164,233               |       | (125,224        | )          | 3,039,009               |       |
|                                                  |            |                         |            |                 |            |                         |            |  |  |  |

 

Net periodic pension cost for defined benefit plans included thefollowing components for the years ended December 31, 2006, 2005, and 2004:
| **(in thousands)**                             | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|-----------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Service cost -  benefits earned during the year     |       | $        | 14,572     |     | $          | 20,541   |       | $ | 18,448 |   |
| Interest cost on  projected benefit obligation      |       | 30,726   |       | 28,943   |       | 28,374   |       |
| Expected return  on plan assets                     |       | (41,626  | )          | (36,401  | )          | (34,675  | )          |
| Settlement  (gain) loss                             |       |     |       | 634      |       |     |       |
| Curtailment                                         |       | 667      |       | 1,737    |       |     |       |
| Amortization of  unrecognized transition obligation |       | 158      |       | 205      |       | 404      |       |
| Amortization of  prior service cost                 |       | 2,352    |       | 2,600    |       | 2,244    |       |
| Recognized  actuarial net (gain) or loss            |       | 10,802   |       | 10,156   |       | 7,483    |       |
| Net periodic pension  (income) cost                 |       | $        | 17,651     |     | $          | 28,415   |       | $ | 22,278 |   |

 

Changes in benefit obligations and plan assets, and a reconciliation ofthe funded status at December 31, 2006 and 2005, are as follows:
| ** **                                             | ** ** | **U.S. pension plans** | ** ** | **Non-U.S. pension plans** | ** ** |
|--------------------------------------------------------|------------|----------------------------------|------------|--------------------------------------|------------|
| **(in thousands)**                                | ** ** | **2006**                         | ** ** | **2005**                             | ** ** | **2006** | ** ** | **2005** | ** ** |
| **Change  in Benefit Obligation:**                     |       |                             |       |                                 |       |   |   |   |   |
| Benefit  obligation at the beginning of the year       |       | $                                | 515,387    |                                 | $          | 467,005 |   | $ | 62,174 |   | $ | 58,003 |   |
| Service cost                                           |       | 11,466                           |       | 17,707                               |       | 3,106 |   | 2,834 |   |
| Interest cost                                          |       | 27,669                           |       | 26,178                               |       | 3,056 |   | 2,765 |   |
| Participant contributions                              |       |                             |       |                                 |       | 533 |   | 506 |   |
| Plan amendments                                        |       | 1,140                            |       | 2,562                                |       | 517 |   |   |   |
| Plan curtailments                                      |       |                             |       |                                 |       | (534 | ) |   |   |
| Plan settlements                                       |       |                             |       |                                 |       |   |   | (1,765 | ) |
| Acquisitions                                           |       |                             |       |                                 |       | 3,076 |   |   |   |
| Benefits paid                                          |       | (21,874                          | )          | (21,231                              | )          | (2,057 | ) | (1,516 | ) |
| Actuarial (gain) or loss                               |       | (23,125                          | )          | 23,166                               |       | (1,480 | ) | 6,645 |   |
| Foreign currency  exchange rate changes                |       |                             |       |                                 |       | 6,655 |   | (5,298 | ) |
| Benefit  obligation at the end of the year             |       | $                                | 510,663    |                                 | $          | 515,387 |   | $ | 75,046 |   | $ | 62,174 |   |
|                                                   |       |                             |       |                                 |       |   |   |   |   |
| Accumulated benefit  obligation at the end of the year |       | $                                | 460,611    |                                 | $          | 461,634 |   | $ | 59,296 |   | $ | 49,874 |   |

 

30

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** **
| **Change  in Plan Assets:**                                       |   |    |    |    |   |    |   |   |    |
|-------------------------------------------------------------------|--------|---------|---------|---------|--------|---------|--------|--------|---------|
| Fair value of  plan assets at the beginning of the year           |   | $       | 435,142 |    | $      | 405,134 |   | $      | 46,025  |   | $ | 43,893 |   |
| Actual return on plan assets                                      |   | 46,222  |    | 15,227  |   | 3,580   |   | 5,023  |    |
| Employer contributions                                            |   | 25,077  |    | 36,012  |   | 3,576   |   | 3,508  |    |
| Participant contributions                                         |   |    |    |    |   | 533     |   | 506    |    |
| Plan settlements                                                  |   |    |    |    |   |    |   | (1,765 | )       |
| Plan combinations                                                 |   |    |    |    |   | 173     |   |   |    |
| Benefits paid                                                     |   | (21,874 | )       | (21,231 | )      | (2,057  | )      | (1,516 | )       |
| Foreign currency exchange rate changes                            |   |    |    |    |   | 4,711   |   | (3,624 | )       |
| Fair value of  plan assets at the end of the year                 |   | $       | 484,567 |    | $      | 435,142 |   | $      | 56,541  |   | $ | 46,025 |   |
|                                                              |   |    |    |    |   |    |   |   |    |
| **Reconciliation  of Funded Status:**                             |   |    |    |    |   |    |   |   |    |
| Funded (unfunded) status                                          |   | $       | (26,096 | )       | $      | (80,245 | )      | $      | (18,505 | ) | $ | (16,149 | ) |
| Unrecognized actuarial net (gain) or loss                         |   | 126,379 |    | 167,606 |   | 12,325  |   | 13,722 |    |
| Unrecognized transition obligation                                |   |    |    |    |   | 3,020   |   | 2,850  |    |
| Unrecognized prior service cost                                   |   | 14,675  |    | 16,426  |   | 409     |   | 53     |    |
| Net amount  recognized in consolidated balance sheet              |   | $       | 114,958 |    | $      | 103,787 |   | $      | (2,751  | ) | $ | 476 |   |
|                                                              |   |    |    |    |   |    |   |   |    |
| **Amount  recognized in consolidated balance sheet consists of:** |   |    |    |    |   |    |   |   |    |
| Prepaid benefit cost, non-current                                 |   | $       | 9,845   |    | $      | 88,330  |   | $      | 342     |   |   |   |
| Accrued benefit liability, current                                |   | (1,813  | )       |    |   |    |   |   |    |
| Accrued benefit liability, non-current                            |   | (34,128 | )       | (42,546 | )      | (18,846 | )      | (5,293 | )       |
| Intangible asset                                                  |   |    |    | 10,642  |   |    |   | 361    |    |
| Deferred tax                                                      |   | 54,024  |    | 18,471  |   | 6,033   |   | 2,109  |    |
| Accumulated other comprehensive income                            |   | 87,030  |    | 28,890  |   | 9,720   |   | 3,299  |    |
| Net amount recognized  in consolidated balance sheet              |   | $       | 114,958 |    | $      | 103,787 |   | $      | (2,751  | ) | $ | 476 |   |

 

Accumulatedother comprehensive income related to pension benefit plans is as follows:
|                                                             | ** ** | ** **                       | ** ** | **Non-U.S.**           | ** ** |
|-------------------------------------------------------------|------------|----------------------------------|------------|------------------------|------------|
| ** **                                                  | ** ** | **U.S. Pension Plans** | ** ** | **Pension Plans** | ** ** |
| **(in thousands)**                                     | ** ** | **2006**                         | ** ** | **2006**               | ** ** |
| Unrecognized net  actuarial losses                          |       | $                                | 126,379    |                   | $          | 12,324 |   |
| Unrecognized net  prior service costs (benefits)            |       | 14,675                           |       | 409                    |       |
| Unrecognized net  transition costs                          |       |                             |       | 3,020                  |       |
| Tax expense  (benefit)                                      |       | (54,024                          | )          | (6,033                 | )          |
| Accumulated other  comprehensive loss (income), end of year |       | $                                | 87,030     |                   | $          | 9,720 |   |

 

Estimatedamounts in accumulated other comprehensive income expected to be reclassifiedto net period cost during 2007 are as follows:
|                                     | ** ** | ** **                       | ** ** | **Non-U.S.**           | ** ** |
|-------------------------------------|------------|----------------------------------|------------|------------------------|------------|
| ** **                          | ** ** | **U.S. Pension Plans** | ** ** | **Pension Plans** | ** ** |
| **(in thousands)**             | ** ** | **2006**                         | ** ** | **2006**               | ** ** |
| Net actuarial  losses               |       | $                                | 7,273      |                   | $          | 518 |   |
| Net prior  service costs (benefits) |       | 2,262                            |       | 26                     |       |
| Net transition  costs               |       |                             |       | 231                    |       |
| Total                               |       | $                                | 9,535      |                   | $          | 775 |   |

 

The accumulated benefit obligation for all defined benefit pension planswas $519,907,000 and $511,508,000 at December 31, 2006, and 2005, respectively.

Presented below are the projected benefit obligation, accumulatedbenefit obligation, and fair value of plan assets for pension plans withprojected benefit obligations in excess of plan assets and pension plans withaccumulated benefit obligations in excess of plan assets as of December 31,2006 and 2005.
| ** **                      | ** ** | **Projected Benefit Obligation**                                     | ** ** | **Accumulated Benefit Obligation**                                   | ** ** |
|---------------------------------|------------|--------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------|------------|
| ** **                      | ** ** | **Exceeds the Fair Value of Plan’s Assets** | ** ** | **Exceeds the Fair Value of Plan’s Assets** | ** ** |
| ** **                      | ** ** | **U.S. Plans**                                                            | ** ** | **Non-U.S. Plans**                                                        | ** ** | **U.S. Plans** | ** ** | **Non-U.S. Plans** | ** ** |
| **(in thousands)**         | ** ** | **2006**                                                                       | ** ** | **2005**                                                                       | ** ** | **2006** | ** ** | **2005** | ** ** | **2006** | ** ** | **2005** | ** ** | **2006** | ** ** | **2005** | ** ** |
| Projected  benefit obligation   |       | $                                                                              | 385,127    |                                                                           | $          | 515,387 |   | $ | 71,314 |   | $ | 62,174 |   | $ | 35,205 |   | $ | 160,368 |   | $ | 64,653 |   | $ | 59,566 |   |
| Accumulated  benefit obligation |       | 335,075                                                                        |       | 461,634                                                                        |       | 52,482 |   | 49,874 |   | 28,723 |   | 154,596 |   | 52,482 |   | 47,863 |   |
| Fair value of plan  assets      |       | 349,186                                                                        |       | 435,142                                                                        |       | 53,880 |   | 46,025 |   | 0 |   | 112,051 |   | 48,910 |   | 43,578 |   |
|                                 |            |                                                                                |            |                                                                                |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

The Company’s general funding policy is to make contributions asrequired by applicable regulations and when beneficial to the Company for taxand planning purposes.  The employercontributions for the years ended December 31, 2006 and 2005, were 

31

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$28,653,000and $39,520,000, respectively.  Theexpected cash contribution for 2007 is $5,711,000 which is expected to satisfyplan funding requirements and regulatory funding requirements.

Total multiemployer plan, defined contribution, and defined benefitpension expense in 2006, 2005, and 2004 was $28,026,000, $30,347,000, and$25,240,000, respectively.  In additionto these plans, the Company also sponsors a 401(k) savings plan forsubstantially all U.S. employees.  TheCompany contributes $0.50 for every pre-tax $1.00 an employee contributes onthe first two percent of eligible compensation plus $0.25 for every pre-tax$1.00 an employee contributes on the next six percent of eligiblecompensation.  Company contributions areinvested in Company stock and are fully vested after three years ofservice.  Total Company contributions for2006, 2005, and 2004 were $5,830,000, $4,596,000, and $6,667,000.

For each of the years ended December 31, 2006 and 2005, the U.S. pensionplans represented approximately 90 percent of the Company’s total plan assetsand approximately 87 percent of the Company’s total projected benefitobligation.  Considering the significanceof the U.S. pension plans in comparison with the Company’s total pension plans,we separately present and discuss the critical pension assumptions related tothe U.S. pension plans and the non-U.S. pension plans.

The Company’s actuarial valuation date is December 31.  The weighted-average discount rates and ratesof increase in future compensation levels used in determining the actuarialpresent value of the projected benefit obligation for the years ended December31 are as follows:
| ** **                                      | ** ** | **U.S. pension plans** | ** ** | **Non-U.S. pension plans** | ** ** |
|-------------------------------------------------|------------|----------------------------------|------------|--------------------------------------|------------|
| ** **                                      | ** ** | **2006**                         | ** ** | **2005**                             | ** ** | **2006** | ** ** | **2005** | ** ** |
| Weighted-average  discount rate                 |       | 5.75                             | %          | 5.50                                 | %          | 4.87 | % | 4.56 | % |
| Rate of increase in  future compensation levels |       | 4.75                             | %          | 4.75                                 | %          | 3.83 | % | 3.83 | % |

 

The weighted-average discount rates, expected returns on plan assets,and rates of increase in future compensation levels used to determine the netbenefit cost for the years ended December 31 are as follows:
| ** **                                      | ** ** | **U.S. pension plans** | ** ** | **Non-U.S. pension plans** | ** ** |
|-------------------------------------------------|------------|----------------------------------|------------|--------------------------------------|------------|
| ** **                                      | ** ** | **2006**                         | ** ** | **2005**                             | ** ** | **2004** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
| Weighted-average  discount rate                 |       | 5.50                             | %          | 5.75                                 | %          | 6.25 | % | 4.53 | % | 5.25 | % | 5.57 | % |
| Expected return  on plan assets                 |       | 8.75                             | %          | 8.75                                 | %          | 9.00 | % | 6.56 | % | 6.66 | % | 6.85 | % |
| Rate of increase in  future compensation levels |       | 4.75                             | %          | 4.75                                 | %          | 4.75 | % | 3.83 | % | 4.14 | % | 4.55 | % |

 

The weighted-average plan asset allocation at December 31, 2006, and2005, and target allocation for 2007, are as follows:
| ** **              | ** ** | **U.S. pension plans** | ** ** | **Non-U.S. pension plans** | ** ** |
|-------------------------|------------|----------------------------------|------------|--------------------------------------|------------|
| ** **              | ** ** | **2007**                         | ** ** | **Percentage**                       | ** ** | **2007** | ** ** | **Percentage** | ** ** |
| ** **              | ** ** | **Target**                       | ** ** | **of plan assets**         | ** ** | **Target** | ** ** | **of plan assets** | ** ** |
| **Asset Category** | ** ** | **Allocation**                   | ** ** | **2006**                             | ** ** | **2005** | ** ** | **Allocation** | ** ** | **2006** | ** ** | **2005** | ** ** |
| Equity  Securities      |       | 80                               | %          | 79                                   | %          | 80 | % | 45 | % | 47 | % | 47 | % |
| Debt Securities         |       | 20                               | %          | 20                                   | %          | 20 | % | 29 | % | 25 | % | 29 | % |
| Other                   |       |                             |       | 1                                    | %          |   |   | 26 | % | 28 | % | 24 | % |
| Total                   |       | 100                              | %          | 100                                  | %          | 100 | % | 100 | % | 100 | % | 100 | % |

 

Thefollowing benefit payments, which reflect expected future service, asappropriate, are expected to be paid:
| (in thousands) | ** ** | **U.S. pension plans** | ** ** | **Non-U.S. pension plans** | ** ** |
|---------------------|------------|----------------------------------|------------|--------------------------------------|------------|
| 2007                |       | $                                | 24,180     |                                 | $          | 1,334 |   |
| 2008                |       | 25,139                           |       | 2,102                                |       |
| 2009                |       | 27,418                           |       | 1,575                                |       |
| 2010                |       | 29,228                           |       | 2,955                                |       |
| 2011                |       | 35,290                           |       | 2,859                                |       |
| Years 2012-2016     |       | 174,414                          |       | 25,901                               |       |
|                     |            |                                  |            |                                      |            |  |  |

 

As of January 1, 2007, we have assumed that the expected long-term rateof return on plan assets will be 8.75 percent. This is consistent with the 8.75 percent level assumed for 2006.  To develop the expected long-term rate ofreturn on assets assumption, we considered historical returns and futureexpectations.  Using historical long-terminvestment periods of 10, 15, and 20 years, our pension plan assets have earnedcompound annual rates of return of****7.8 percent,8.7 percent, and 9.4 percent, respectively. We selected an 8.75 percent long-term rate of return on assetsassumption as of January 1, 2007.  Usingour target asset allocation for plan assets of 80 percent equity securities and20 percent fixed income securities, our outside actuaries have used theirindependent economic model to calculate a range of expected long-term rates ofreturn and have determined our assumptions to be reasonable.

At the end of each year, we determine the discount rate to be used tocalculate the present value of pension plan liabilities.  This discount rate is an estimate of thecurrent interest rate at which pension liabilities could be effectively settledat the end of the year.  In estimatingthis rate, we look to rates of return on high quality, fixed income investmentsthat receive one of the two highest ratings given by a recognized ratingsagency.  At December 31, 2006, wedetermined this rate to be 5.75 percent, an increase of one fourth of onepercent from the rate used at December 31, 2005.

32

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For our non-U.S. pension plans we follow similarmethodologies in determining the appropriate expected rates of return on assetsand discount rates, to be used in our actuarial calculations for the pensionplans offered in each individual country. We tailor each of these assumptions in accordance with the historicalmarket performance and prevailing market expectations for each respectivecountry.  As a result, each pension plancontains unique assumptions, which reflect the general market environment withineach respective country, and are often quite different from the correspondingassumptions applied to our U.S. pension plans.

**Note 7 - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS**

The Company sponsors several defined postretirementbenefit plans that cover a majority of salaried and a portion of nonunionhourly employees.  These plans providehealth care benefits and, in some instances, provide life insurancebenefits.  Except for one closed-groupplan, which is noncontributory, postretirement health care plans arecontributory, with retiree contributions adjusted annually.  Life insurance plans are noncontributory.

Net periodic postretirement benefit costs includedthe following components for the years ended December 31, 2006, 2005, and 2004.
| **(in thousands)**                                         | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|-----------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Service cost - benefits  earned during the year                 |       | $        | 1,107      |     | $          | 658      |       | $ | 614 |   |
| Interest cost on  accumulated postretirement benefit obligation |       | 1,569    |       | 1,157    |       | 1,298    |       |
| Amortization of prior  service cost                             |       | 691      |       | (51      | )          | 72       |       |
| Recognized actuarial net  (gain) or loss                        |       | 16       |       | 37       |       | 95       |       |
| Net periodic postretirement benefit cost                        |       | $        | 3,383      |     | $          | 1,801    |       | $ | 2,079 |   |

 

Changes in benefit obligation and plan assets, and areconciliation of the funded status at December 31, 2006 and 2005, are asfollows:
| **(in thousands)**                                           | ** ** | **2006** | ** ** | **2005** | ** ** |
|-------------------------------------------------------------------|------------|----------|------------|----------|------------|
| **Change in Benefit Obligation**                                  |       |     |       |     |       |
| Benefit obligation at  the beginning of the year                  |       | $        | 29,299     |     | $          | 20,748 |   |
| Service  cost                                                     |       | 1,107    |       | 658      |       |
| Interest  cost                                                    |       | 1,569    |       | 1,157    |       |
| Participant  contributions                                        |       | 1,439    |       |     |       |
| Plan  amendments                                                  |       | (3,950   | )          | 6,897    |       |
| Actuarial  (gain) or loss                                         |       | (5,956   | )          | 657      |       |
| Medicare  subsidies received                                      |       | 80       |       |     |       |
| Benefits  paid                                                    |       | (2,534   | )          | (818     | )          |
| Benefit obligation at  the end of the year                        |       | $        | 21,054     |     | $          | 29,299 |   |
| **Change in Plan Assets**                                         |       |     |       |     |       |
| Fair value of plan  assets at the beginning of the year           |       | $        | 0          |     | $          | 0 |   |
| Employee  contributions                                           |       | 1,439    |       |     |       |
| Employer  contribution                                            |       | 1,015    |       | 818      |       |
| Medicare  subsidies received                                      |       | 80       |       |     |       |
| Benefits  paid                                                    |       | (2,534   | )          | (818     | )          |
| Fair value of plan  assets at the end of the year                 |       | $        | 0          |     | $          | 0 |   |
| **Reconciliation of Funded Status**                               |       |     |       |     |       |
| Funded (unfunded) status                                          |       | $        | (21,054    | )        | $          | (29,299 | ) |
| Unrecognized net  actuarial (gain) or loss                        |       | (2,855   | )          | 3,117    |       |
| Unrecognized transition  obligation                               |       |     |       |     |       |
| Unrecognized prior  service cost                                  |       | 1,835    |       | 6,476    |       |
| Accrued postretirement  benefit liability                         |       | $        | 22,074     |     | $          | (19,706 | ) |
| **Amount recognized in  consolidated balance sheet consists of:** |       |     |       |     |       |
| Prepaid benefit cost,  non-current                                |       | $        |       |     |       |   |
| Accrued benefit  liability, current                               |       | (1,144   | )          |     |       |
| Accrued benefit  liability, non-current                           |       | (19,910  | )          |     |       |
| Deferred tax                                                      |       | (391     | )          |     |       |
| Accumulated other  comprehensive income                           |       | (629     | )          |     |       |
| Net amount recognized in consolidated balance sheet               |       | $        | (22,074    | )        |       |   |

 

Accumulatedother comprehensive income for other postretirement benefit plan activity is asfollows:
| **(in thousands)**                                                                                      | ** ** | **2006** | ** ** |
|--------------------------------------------------------------------------------------------------------------|------------|----------|------------|
| Accumulated  other comprehensive loss (income), beginning of year                                            |       | $        |       |   |
| Recognition of  additional minimum pension liability                                                         |       |     |       |
| Cumulative  effect adjustment of change in accounting — adoption of FAS 158 to recognize  funded status |       | (1,020   | )          |
| Tax benefit                                                                                                  |       | 391      |       |
| Other  comprehensive loss (income)                                                                           |       | $        | (629       | ) |
| Accumulated other  comprehensive loss (income), end of year                                                  |       | $        | (629       | ) |

 

33

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Accumulated other comprehensive income related to other postretirmentbenefit plans is as follows:
| **(in thousands)**                                     | ** ** | **2006** | ** ** |
|-------------------------------------------------------------|------------|----------|------------|
| Unrecognized net  actuarial losses (gains)                  |       | $        | (2,855     | ) |
| Unrecognized net  prior service costs/(benefits)            |       | 1,835    |       |
| Unrecognized net  transition costs                          |       |     |       |
| Tax expense  (benefit)                                      |       | 391      |       |
| Accumulated other  comprehensive loss (income), end of year |       | $        | (629       | ) |

 

Estimated amounts in accumulated other comprehensive income expected tobe reclassified to net period cost during 2007 are as follows:
| **(in thousands)**             | ** ** | **2006** | ** ** |
|-------------------------------------|------------|----------|------------|
| Net actuarial  (gains) losses       |       | $        | (61        | ) |
| Net prior  service costs/(benefits) |       | 214      |       |
| Net transition  costs               |       |     |       |
| Total                               |       | $        | 153        |   |

 

The following benefitpayments, which reflect expected future service, as appropriate, are expectedto be paid:
| (in thousands) | ** ** | **Benefit Payments** | ** ** |
|---------------------|------------|---------------------------|------------|
| 2007                |       | $                         | 1,144      |   |
| 2008                |       | 1,206                     |       |
| 2009                |       | 1,331                     |       |
| 2010                |       | 1,350                     |       |
| 2011                |       | 1,498                     |       |
| 2012-2016           |       | 9,116                     |       |
|                     |            |                           |            |  |

 

The employer contributions for the years endedDecember 31, 2006 and 2005, were $1,015,000 and $818,000, respectively.  The expected plan asset contribution for 2007is $1,144,000 which is expected to satisfy plan funding requirements.

The health care cost trendrate assumption has a significant effect on the amounts reported.  For measurement purposes, a 7.0 percent and10.0 percent annual rate of increase in the per capita cost of covered healthcare benefits was assumed for 2006 and 2005, respectively; each year’sestimated rate was assumed to decrease gradually to 5.0 percent in annual onepercent increments and remain at that level thereafter.  A one-percentage point change in assumedhealth care trends would have the following effects:
| ** **                                                        | ** ** | **One Percentage** | ** ** | **One Percentage** | ** ** |
|-------------------------------------------------------------------|------------|-------------------------|------------|-------------------------|------------|
| **(in thousands)**                                           | ** ** | **Point Increase** | ** ** | **Point Decrease** | ** ** |
| Effect on total  of service and interest cost components for 2006 |       | $                       | 333        |                    | $          | (286 | ) |
| Effect on  postretirement benefit obligation at December 31, 2006 |       | $                       | 2,064      |                    | $          | (1,805 | ) |

 

The Company’s actuarial valuation date is December 31.  The weighted-average discount rates used todetermine the actuarial present value of the net postretirement projectedbenefit obligation for the years ended December 31, 2006 and 2005 are 5.75percent and 5.50 percent, respectively. The weighted-average discount rates used to determine the netpostretirement benefit cost for the years ended December 31, 2006, 2005, and2004 are 5.75 percent, 5.75 percent, and 6.25 percent, respectively.

**Note 8 — STOCK OPTION AND INCENTIVE PLANS**

Since 1987, the Company’s stock option and stockaward plans have provided for the issuance of up to 19,800,000 shares of commonstock to key employees.  As of December31, 2006, 2005, and 2004, respectively, 7,389,928, 1,664,071, and 2,020,520shares were available for future grants under these plans.  Shares forfeited by the employee becomeavailable for future grants.  No newstock option awards have been granted since 2003 and all stock options outstandingat December 31, 2006, were fully vested.

Options were granted at prices equal to fair marketvalue on the date of the grant and are exercisable, upon vesting, over varyingperiods up to ten years from the date of grant. Options for directors vest immediately, while options for Companyemployees generally vest over three years (one-third per year).  Details of the stock option plans at December31, 2006, 2005, and 2004, are:
| ** **                        | ** ** | **Aggregate  Intrinsic Value** | ** ** | **Number of Shares** | ** ** | **Per Share  Option Price  Range** | ** **     | **Weighted-Average  Exercise Price  Per Share** | ** ** |
|-----------------------------------|------------|--------------------------------|------------|---------------------------|------------|----------------------------------------------|----------------|-----------------------------------------------------------|------------|
| Outstanding at  December 31, 2003 |       |                           |       | 2,772,548                 |       | $                                            | 11.03 - $26.95 |                                                      | $          | 18.73 |   |
| Exercised in  2004                |       |                           |       | (392,168                  | )          | $                                            | 11.03 - $17.36 |                                                      | $          | 14.10 |   |
| Outstanding at  December 31, 2004 |       |                           |       | 2,380,380                 |       | $                                            | 15.86 - $26.95 |                                                      | $          | 19.49 |   |
| Exercisable at  December 31, 2004 |       |                           |       | 2,082,629                 |       | $                                            | 15.86 - $26.95 |                                                      | $          | 18.90 |   |
|                              |       |                           |       |                      |       |                                         |           |                                                      |       |
| Exercised in  2005                |       |                           |       | (237,002                  | )          | $                                            | 16.16 - $22.04 |                                                      | $          | 17.40 |   |
| Outstanding at  December 31, 2005 |       |                           |       | 2,143,378                 |       | $                                            | 15.86 - $26.95 |                                                      | $          | 19.72 |   |
| Exercisable at  December 31, 2005 |       |                           |       | 2,027,983                 |       | $                                            | 15.86 - $26.95 |                                                      | $          | 19.43 |   |
|                              |       |                           |       |                      |       |                                         |           |                                                      |       |
| Exercised in  2006                |       | $                              | 1,870,000  |                      | (132,200   | )                                            | $              | 16.16 - $22.0                                             | 4          | $ | 16.64 |   |
| Outstanding at  December 31, 2006 |       | $                              | 28,269,000 |                      | 2,011,178  |                                         | $              | 15.86 - $26.95                                            |       | $ | 19.92 |   |
| Exercisable at December  31, 2006 |       | $                              | 27,884,000 |                      | 1,969,178  |                                         | $              | 15.86 - $26.95                                            |       | $ | 19.82 |   |

 

34

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The following table summarizesinformation about outstanding and exercisable stock options at December 31,2006.
| ** **               | ** ** | **Options Outstanding** | ** ** | **Options Exercisable** | ** ** |
|--------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **               | ** ** | **Number**                   | ** ** | **Weighted-Average**         | ** ** | **Number** | ** ** | **Weighted-** | ** ** | ** ** | ** ** |
| **Range of**        | ** ** | **Outstanding**              | ** ** | **Remaining**                | ** ** | **Weighted-Average** | ** ** | **Exercisable** | ** ** | **Average** | ** ** |
| **Exercise Prices** | ** ** | **at 12/31/06**         | ** ** | **Contractual Life**    | ** ** | **Exercise Price** | ** ** | **at 12/31/06** | ** ** | **Exercise Price** | ** ** |
| $15.86 - $18.81          |       | 1,296,708                    |       | 3.0 years                    |       | $ | 17.80 |   | 1,296,708 |   | $ | 17.80 |   |
| $22.04 - $26.95          |       | 714,470                      |       | 3.6 years                    |       | $ | 23.78 |   | 672,470 |   | $ | 23.72 |   |
|                     |       | 2,011,178                    |       | 3.2 years                    |       | $ | 19.92 |   | 1,969,178 |   | $ | 19.82 |   |

 

Stock options have not been granted since early 2003.  The fair value of each stock option grant wasestimated on the date of grant using the Black-Scholes option-pricing modelwith the following weighted-average assumptions:  dividend yield 2.3%, expected volatility29.2%, risk-free interest rate 6.75%, and expected life 10.0 years.

In 1994, 2001, and in 2006, the Company adopted  Stock Incentive Plans for certain keyemployees.  The 1994, 2001, and 2007Plans (adopted in 2006) provide for the issuance of up to 4,000,000, 5,000,000,and 6,000,000 grants, respectively.  EachPlan expires 10 years after its inception, at which point no further stockoptions or performance units may be granted. Since 1994, 3,932,910 and 3,677,162 grants of either stock options orperformance units (commonly referred to as restricted stock) have been madeunder the 1994 and 2001 plans, respectively. Distribution of the performance units is made in the form of shares ofthe Company’s common stock on a one for one basis.  Distribution of the shares will normally bemade not less than three years, nor more than six years, from the date of theperformance unit grant.  All performanceunits granted under the plan are subject to restrictions as to continuousemployment, except in the case of death, permanent disability, orretirement.  In addition, cash paymentsare made during the grant period on outstanding performance units equal to thedividend on Bemis common stock.  The costof the award is based on the fair market value of the stock on the date ofgrant.  The cost of the awards is chargedto income over the requisite service period.

Total compensation expense related to Stock Incentive Plans was$11,694,000 in 2006, $16,464,000 in 2005, and $13,776,000 in 2004.

As of December 31, 2006, the unrecorded compensationcost for performance units is $27,481,000 and will be recognized over theremaining vesting period for each grant which ranges between December 31, 2006and December 31, 2010.  The remaining weighted-averagelife of all performance units outstanding is 1.3 years.  Prior to the adoption of FAS 123(R) theCompany maintained liability balances of $37,629,000 related to the portion ofperformance units for which compensation expense had been previouslyrecognized.  As these awards areconsidered equity-based awards under FAS 123(R), the Company has reclassifiedthis balance from a liability classification to a component of additional paidin capital.

The following table summarizes annual restricted stockunit activity for the three years ended December 31, 2006:
| ** **                                                   | ** ** | **2006**  | ** **  | **2005**  | ** ** | **2004**   | ** ** |
|--------------------------------------------------------------|------------|-----------|-------------|-----------|------------|------------|------------|
| Outstanding  shares granted at the beginning of the year     |       | 3,069,163 |        | 2,886,698 |       | 2,501,620  |       |
| Shares Granted                                               |       | 346,143   |        | 603,537   |       | 1,372,644  |       |
| Shares Paid                                                  |       | (142,869  | )           | (172,016  | )          | (849,258   | )          |
| Shares Canceled                                              |       | (72,000   | )           | (249,056  | )          | (138,308   | )          |
| Outstanding  shares granted at the end of the year           |       | 3,200,437 |        | 3,069,163 |       | 2,886,698  |       |
|                                                         |       |      |        |      |       |       |       |
| Aggregate intrinsic  value at year end of outstanding awards |       | $         | 108,751,000 |      | $          | 85,538,000 |       | $ | 83,974,000 |   |
|                                                              |            |           |             |           |            |            |            |  |  |  |

 

**Note 9 — LONG-TERM DEBT**

Debt consisted of the following at December 31,
| **(dollars in thousands)**                                                  | ** ** | **2006** | ** ** | **2005** | ** ** |
|---------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Commercial paper  payable through 2006 at a weighted-average interest rate of 5.4%    |       | $        | 80,700     |     | $          | 111,954 |   |
| Notes payable in  2008 at an interest rate of 6.5%                                    |       | 250,000  |       | 250,000  |       |
| Notes payable in  2012 at an interest rate of 4.875%                                  |       | 300,000  |       | 300,000  |       |
| Interest rate  swap (fair market value)                                               |       | 2,464    |       | 5,029    |       |
| Industrial  revenue bond payable through 2012 at an interest rate of 4.2%             |       | 8,000    |       | 8,000    |       |
| Debt of  subsidiary companies payable through 2013 at interest rates of 4.0% to 14.0% |       | 97,118   |       | 118,605  |       |
| Obligations  under capital leases                                                     |       | 274      |       | 426      |       |
|                                                                                  |       |     |       |     |       |
| Total debt                                                                            |       | 738,556  |       | 794,014  |       |
| Less current  portion                                                                 |       | 16,345   |       | 3,907    |       |
| Total long-term debt                                                                  |       | $        | 722,211    |     | $          | 790,107 |   |

 

35

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The commercial paper has been classified as long-termdebt, to the extent of available long-term backup credit agreements, inaccordance with the Company’s intent and ability to refinance such obligationson a long-term basis.  The weighted-averageinterest rate of commercial paper outstanding at December 31, 2006, was 5.4percent.  The maximum outstanding during2006 was $194,885,000, and the average outstanding during 2006 was$117,065,000.  The weighted-averageinterest rate during 2006 was 5.0 percent

The industrial revenue bond has a variable interestrate which is determined weekly by a “Remarketing Agent” based on similar debtthen available.  The interest rate atDecember 31, 2006, was 4.2 percent and the weighted-average interest rate during2006 was 3.8 percent.  Debt of subsidiarycompanies include $59.7 million and $37.4 million for European and SouthAmerican operations, respectively.

Long-term debt maturing in years 2007 through 2011 is$16,345,000, $250,594,000, $146,302,000, $1,041,000, and $0, respectively.  The Company is in compliance with all debtcovenant agreements.

Under the terms of a revolving credit agreement witheight banks, the Company may borrow up to $500.0 million through September 2,2009, including a $100 million multicurrency limit to support the financingneeds of our international subsidiaries. This credit facility is used primarily to support the Company’s issuanceof commercial paper.  The Companycurrently pays a facility fee of 0.09 percent annually on the entire amount ofthe commitment.  As of December 31, 2006,outstanding multicurrency borrowings under the credit facility totaled $59.7million.  Borrowings from the creditagreement mature in September 2009 and charge a variable interest rate.

The Company entered into three interest rate swapagreements with a total notional amount of $350.0 million in the third quarterof 2001, effectively converting a portion of the Company’s fixed interest rateexposure to a variable rate basis to hedge against the risk of higher borrowingcosts in a declining interest rate environment. During 2005 one of these swaps terminated with the repayment of theunderlying $100.0 million debt.  The Companydoes not enter into interest rate swap contracts for speculative or tradingpurposes.  The differential to be paid orreceived on the interest rate swap agreements is accrued and recognized as anadjustment to interest expense as interest rates change.  The remaining interest rate swap agreementshave been designated as hedges of the fair value of the Company’s fixed ratelong-term debt obligation of $250.0 million, 6.5 percent notes due August 15,2008.

The variable rate for each of the interest rate swapsis based on the six-month London Interbank Offered Rate (LIBOR), set in arrears,plus a fixed spread.  The variable ratesare reset semi-annually at each net settlement date.  The net settlement benefit to the Company,which is recorded as a reduction in interest expense, was $0.4 million, $4.3million, and $11.7 million in 2006, 2005, and 2004, respectively.  At December 31, 2006 and 2005, the fair valueof these interest rate swaps was $2.5 million and $5.0 million in the Company’sfavor, as determined by the respective counterparties using discounted cashflow or other appropriate methodologies, and is included with deferred chargesand other assets with a corresponding increase in long-term debt.

**Note 10 — INCOME TAXES**
| **(dollars in thousands)**                      | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|-----------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| U.S. income  before income taxes                          |       | $        | 214,311    |     | $          | 191,183  |       | $ | 240,151 |   |
| Non-U.S. income  before income taxes                      |       | 71,485   |       | 85,246   |       | 53,516   |       |
| Income before  income taxes                               |       | $        | 285,796    |     | $          | 276,429  |       | $ | 293,667 |   |
|                                                      |       |     |       |     |       |     |       |
| Income tax  expense consists of the following components: |       |     |       |     |       |     |       |
| Current tax expense:                                      |       |     |       |     |       |     |       |
| U.S. federal                                              |       | $        | 71,754     |     | $          | 66,395   |       | $ | 57,091 |   |
| Foreign                                                   |       | 31,374   |       | 32,902   |       | 16,614   |       |
| State and local                                           |       | 14,302   |       | 12,243   |       | 14,663   |       |
| Total current tax expense                                 |       | 117,430  |       | 111,540  |       | 88,368   |       |
| Deferred tax expense:                                     |       |     |       |     |       |     |       |
| U.S. federal                                              |       | (6,266   | )          | (2,122   | )          | 20,713   |       |
| Foreign                                                   |       | (796     | )          | 2,855    |       | 1,409    |       |
| State                                                     |       | (868     | )          | 1,627    |       | 3,210    |       |
| Total deferred tax expense                                |       | (7,930   | )          | 2,360    |       | 25,332   |       |
| Total income tax  expense                                 |       | $        | 109,500    |     | $          | 113,900  |       | $ | 113,700 |   |

 

Thetax effects of temporary differences that give rise to the deferred tax assetsand deferred tax liabilities are presented below.

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| **(dollars in thousands)**                                                                                 | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|----------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| **Deferred  Tax Assets:**                                                                                            |       |     |       |     |       |     |       |
| Accounts receivable, principally due to allowances  for returns and doubtful accounts                                |       | $        | 6,317      |     | $          | 3,651    |       | $ | 4,437 |   |
| Inventories, principally due to additional costs  inventoried for tax purposes                                       |       | 15,699   |       | 3,569    |       | 3,064    |       |
| Employee compensation and benefits accrued for  financial reporting purposes                                         |       | 54,402   |       | 18,077   |       | 14,273   |       |
| Foreign net operating losses                                                                                         |       | 12,596   |       | 10,179   |       |     |       |
| Other                                                                                                                |       | 8,003    |       | 880      |       | 2,685    |       |
| Total deferred  tax assets                                                                                           |       | 97,017   |       | 36,356   |       | 24,459   |       |
| Less valuation allowance                                                                                             |       | (6,701   | )          | (3,167   | )          |     |       |
| Total deferred  tax assets, after valuation allowance                                                                |       | $        | 90,316     |     | $          | 33,189   |       | $ | 24,459 |   |
|                                                                                                                 |       |     |       |     |       |     |       |
| **Deferred  Tax Liabilities:**                                                                                       |       |     |       |     |       |     |       |
| Plant and equipment, principally due to differences  in depreciation, capitalized interest, and capitalized overhead |       | $        | 127,817    |     | $          | 127,803  |       | $ | 144,391 |   |
| Goodwill and intangible assets, principally due to  differences in amortization                                      |       | 50,980   |       | 42,787   |       | 32,675   |       |
| Other                                                                                                                |       | 8,532    |       | 6,392    |       |     |       |
| Total deferred  tax liabilities                                                                                      |       | 187,329  |       | 176,982  |       | 177,066  |       |
|                                                                                                                 |       |     |       |     |       |     |       |
| Deferred tax  liabilities, net                                                                                       |       | $        | 97,013     |     | $          | 143,793  |       | $ | 152,607 |   |

 

Thenet deferred tax liabilities are reflected in the balance sheet as follows:
| **(dollars in thousands)**               | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|----------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Deferred tax  assets (included in prepaid expense) |       | $        | 37,155     |     | $          | 24,654   |       | $ | 21,265 |   |
| Deferred tax  liabilities                          |       | 134,168  |       | 168,447  |       | 173,872  |       |
| Net deferred tax  liabilities                      |       | $        | 97,013     |     | $          | 143,793  |       | $ | 152,607 |   |

TheCompany’s effective tax rate differs from the federal statutory rate due to thefollowing items:
| ** **                                                                          | ** ** | **2006**   | ** ** | **2005**            | ** ** | **2004**   | ** ** |
|-------------------------------------------------------------------------------------|------------|------------|------------|---------------------|------------|------------|------------|
| ** **                                                                          | ** ** | ** ** | ** ** | **% of**       | ** ** | ** ** | ** ** | **% of** | ** ** | ** ** | ** ** | **% of** | ** ** |
| ** **                                                                          | ** ** | ** ** | ** ** | **Income**          | ** ** | ** ** | ** ** | **Income** | ** ** | ** ** | ** ** | **Income** | ** ** |
| **(dollars in thousands)**                                                | ** ** | **Amount** | ** ** | **Before Tax** | ** ** | **Amount** | ** ** | **Before Tax** | ** ** | **Amount** | ** ** | **Before Tax** | ** ** |
| Computed  “expected” tax expense on income before taxes at statutory rate |       | $          | 100,029    |                | 35.0       | %          | $          | 96,750 |   | 35.0 | % | $ | 102,783 |   | 35.0 | % |
| Increase  (decrease) in taxes resulting from:                                       |       |       |       |                |       |       |       |   |   |   |   |   |   |
| State and local  income taxes net of federal income tax benefit                     |       | 8,732      |       | 3.1                 |       | 9,016      |       | 3.3 |   | 11,617 |   | 3.9 |   |
| Foreign tax rate differential                                                       |       | 3,930      |       | 1.4                 |       | 637        |       | 0.2 |   | (1,034 | ) | (0.4 | ) |
| Minority interest                                                                   |       | 1,239      |       | 0.4                 |       | 2,078      |       | 0.8 |   | 171 |   | 0.1 |   |
| Jobs Act repatriation                                                               |       |       |       |                |       | 6,000      |       | 2.2 |   |   |   |   |   |
| Domestic manufacturing deduction                                                    |       | (3,146     | )          | (1.1                | )          | (840       | )          | (0.4 | ) |   |   |   |   |
| Other                                                                               |       | (1,284     | )          | (0.5                | )          | 259        |       | 0.1 |   | 163 |   | 0.1 |   |
| Actual income tax expense                                                           |       | $          | 109,500    |                | 38.3       | %          | $          | 113,900 |   | 41.2 | % | $ | 113,700 |   | 38.7 | % |

 

As of December 31, 2006, the Company had foreign netoperating loss carryovers of approximately $35.5 million that are available tooffset future taxable income. Approximately $16.6 million of the carryover expires over the period2014-2016.  The balance of the losscarryovers have no expiration. FAS No. 109, *Accounting forIncome Taxes,*requires that a valuation allowance be establishedwhen it is more likely than not that all or a portion of deferred tax assetswill not be realized.  The Company’smanagement determined that a valuation allowance of $6.7 million against thedeferred tax assets associated with the foreign net operating loss carryoverwas necessary at December 31, 2006.

The Company’s federal income tax returns for theyears prior to 2004 have been audited and completely settled.  Provision has not been made for U.S. oradditional foreign taxes on $142,455,000 of undistributed earnings of foreignsubsidiaries because those earnings are considered to be indefinitelyreinvested in the operations of those subsidiaries.  It is not practical to estimate the amount oftax that might be payable on the eventual remittance of such earnings.

The American Jobs Creation Act of 2004 (the Jobs Act)provided U.S. corporations with a one-time opportunity to repatriate theundistributed earnings of non-U.S. subsidiaries at a potentially reduced U.S.tax cost.  During 2005, the Companyrepatriated approximately $105.0 million of foreign earnings to the UnitedStates pursuant to the provisions of the Jobs Act.  As a result, the Company recognizedadditional tax expense of approximately $6.0 million, net of available foreigntax credits, associated with the repatriation plan.

 

37

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**Note 11 — LEASES**

The Company has operating leases for manufacturing plants, land,warehouses, machinery and equipment, and administrative offices that expire atvarious times over the next 35 years. Under most leasing arrangements, the Company pays the property taxes,insurance, maintenance, and other expenses related to the leased property.  Total rental expense under operating leaseswas approximately $10,870,000 in 2006, $13,178,000 in 2005, and $13,137,000 in2004.

The Company has capitalized leases for a manufacturing site and somemachinery and equipment that expire at various times over the next fiveyears.  The present values of minimumfuture obligations shown in the following chart are calculated based on aninterest rate of approximately 4.0 percent, which is the lessor’s implicit rateof return.  Interest expense on theoutstanding obligations under capital leases was approximately $15,000 in 2006,$13,000 in 2005, and $21,000 in 2004.

Minimum future obligations on leases in effect at December 31, 2006,are:
| **(in thousands)**                   | ** ** | **Capital   Leases** | ** ** | **Operating   Leases** | ** ** |
|-------------------------------------------|------------|---------------------------|------------|-----------------------------|------------|
| 2007                                      |       | 202                       |       | 4,345                       |       |
| 2008                                      |       | 45                        |       | 2,902                       |       |
| 2009                                      |       | 42                        |       | 2,295                       |       |
| 2010                                      |       | 0                         |       | 1,867                       |       |
| 2011                                      |       | 0                         |       | 1,307                       |       |
| Thereafter                                |       | 0                         |       | 5,064                       |       |
| Total minimum  obligations                |       | $                         | 289        |                        | $          | 17,780 |   |
| Less amount  representing interest        |       | 15                        |       |                        |       |
| Present value of net  minimum obligations |       | $                         | 274        |                        |       |   |
| Less current  portion                     |       | 195                       |       |                        |       |
| Long-term obligations                     |       | $                         | 79         |                        |       |   |
|                                           |            |                           |            |                             |            |  |  |

** **

**Note 12 — SEGMENTS OF BUSINESS**

The Company’s business activities are organized around and aggregatedinto its two principal business segments, Flexible Packaging and PressureSensitive Materials.  Both internal andexternal reporting conform to this organizational structure, with nosignificant differences in accounting policies applied.  Minor intersegment sales are generally pricedto reflect nominal markups.  The Companyevaluates the performance of its segments and allocates resources to them basedprimarily on operating profit, which is defined as profit before generalcorporate expense, interest expense, income taxes, and minority interest.   While there are similarities in selectedtechnology and manufacturing processes utilized between the Company’s businesssegments, notable differences exist in products, application and distributionof products, and customer base.

Products produced within the Flexible Packaging business segment servicepackaging applications for markets such as food, medical devices, personalcare, agribusiness, chemicals, pet food, and tissue.  Products produced within the PressureSensitive Materials business segment include film, paper, and metalized plasticfilm printing stocks used for primary package labeling, promotional decoration,bar code inventory control labels, and laser printing for administrative officeand promotional applications.  Thissegment also includes micro-thin film adhesives used in delicate electronicparts assembly and graphic films for decorative signage.

A summary of the Company’s business activities reported by its twobusiness segments follows:
| **BUSINESS SEGMENTS (in millions)** | *** *** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|----------------------------------------------------|--------------|----------|------------|----------|------------|----------|------------|
| **Net Sales:**                                     |         |     |       |     |       |     |       |
| Flexible  Packaging                                |         | $        | 3,000.6    |     | $          | 2,856.2  |       | $ | 2,250.1 |   |
| Pressure  Sensitive Materials                      |         | 643.3    |       | 618.5    |       | 584.8    |       |
| **Intersegment Sales:**                            |         |     |       |     |       |     |       |
| Flexible  Packaging                                |         | (0.5     | )          | (0.4     | )          | (0.5     | )          |
| Pressure  Sensitive Materials                      |         | (4.0     | )          | (0.3     | )          |     |       |
| Net Sales to  Unaffiliated Customers               |         | $        | 3,639.4    |     | $          | 3,474.0  |       | $ | 2,834.4 |   |
| **Operating Profit and Pretax  Profit:**           |         |     |       |     |       |     |       |
| Flexible  Packaging                                |         | $        | 335.1      |     | $          | 332.7    |       | $ | 308.3 |   |
| Pressure  Sensitive Materials                      |         | 50.1     |       | 41.3     |       | 33.9     |       |
| Total operating  profit (1)                        |         | 385.2    |       | 374.0    |       | 342.2    |       |
| General  corporate expenses                        |         | (46.6    | )          | (53.0    | )          | (32.5    | )          |
| Interest expense                                   |         | (49.3    | )          | (38.7    | )          | (15.5    | )          |
| Minority  interest in net income                   |         | (3.5     | )          | (5.9     | )          | (0.5     | )          |
| Income before  income taxes                        |         | $        | 285.8      |     | $          | 276.4    |       | $ | 293.7 |   |
| **Identifiable Assets:**                           |         |     |       |     |       |     |       |
| Flexible Packaging                                 |         | $        | 2,579.5    |     | $          | 2,471.2  |       | $ | 1,869.8 |   |
| Pressure  Sensitive Materials                      |         | 339.9    |       | 347.0    |       | 428.2    |       |
| Total  identifiable assets (2)                     |         | 2,919.4  |       | 2,818.2  |       | 2,298.0  |       |
| Corporate assets  (3)                              |         | 119.6    |       | 146.4    |       | 188.7    |       |
| Total                                              |         | $        | 3,039.0    |     | $          | 2,964.6  |       | $ | 2,486.7 |   |
| **Depreciation and Amortization:**                 |         |     |       |     |       |     |       |
| Flexible  Packaging                                |         | $        | 138.4      |     | $          | 135.6    |       | $ | 113.6 |   |
| Pressure  Sensitive Materials                      |         | 13.1     |       | 13.9     |       | 15.4     |       |
| Corporate                                          |         | 0.9      |       | 1.3      |       | 1.8      |       |
| Total                                              |         | $        | 152.4      |     | $          | 150.8    |       | $ | 130.8 |   |
| **Expenditures for Property and  Equipment:**      |         |     |       |     |       |     |       |
| Flexible  Packaging                                |         | $        | 122.4      |     | 164.5      |     | $          | 120.9 |   |
| Pressure  Sensitive Materials                      |         | 10.2     |       | 10.3     |       | 13.5     |       |
| Corporate                                          |         | 26.2     |       | 12.2     |       | 0.1      |       |
| Total                                              |         | $        | 158.8      |     | $          | 187.0    |       | $          134.5 |   |

 

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| **OPERATIONS BY GEOGRAPHIC AREA (in millions)** | *** *** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|-------------------------------------------------|--------------|----------|------------|----------|------------|----------|------------|
| **Net Sales to Unaffiliated  Customers:**(4)    |         |     |       |     |       |     |       |
| United States                                   |         | $        | 2,400.5    |     | $          | 2,281.1  |       | $ | 2,140.1 |   |
| Canada                                          |         | 64.8     |       | 74.6     |       | 76.7     |       |
| Europe                                          |         | 595.9    |       | 580.9    |       | 553.6    |       |
| South America                                   |         | 491.3    |       | 454.3    |       |     |       |
| Other                                           |         | 86.9     |       | 83.1     |       | 64.0     |       |
| Total                                           |         | $        | 3,639.4    |     | $          | 3,474.0  |       | $ | 2,834.4 |   |
| **Identifiable Assets:**                        |         |     |       |     |       |     |       |
| United States                                   |         | $        | 1,706.6    |     | $          | 1,723.2  |       | $ | 1,722.4 |   |
| Canada                                          |         | 21.2     |       | 31.9     |       | 36.8     |       |
| Europe                                          |         | 419.0    |       | 370.5    |       | 471.7    |       |
| South America                                   |         | 696.1    |       | 622.9    |       |     |       |
| Other                                           |         | 76.5     |       | 69.7     |       | 67.1     |       |
| Total                                           |         | $        | 2,919.4    |     | $          | 2,818.2  |       | $ | 2,298.0 |   |

----

(1)                                  Operating profit is defined as profit beforegeneral corporate expense, interest expense, income taxes, and minorityinterest.

(2)                                  Identifiable assets by business segmentinclude only those assets that are specifically identified with each segment’soperations.

(3)                                  Corporate assets are principally prepaidexpenses, prepaid income taxes, prepaid pension benefit costs, investment inthe Brazilian joint venture (2004), fair value of the interest rate swapagreements, and corporate property.

(4)           Net sales are attributed to countriesbased on location of the Company’s manufacturing or selling operation.

**Note 13 —COMMITMENTS AND CONTINGENCIES**

The Company is involved in a number of lawsuits incidental to itsbusiness, including environmental related litigation.  Although it is difficult to predict theultimate outcome of these cases, management believes, except as discussedbelow, that any ultimate liability would not have a material adverse effectupon the Company’s financial condition or results of operations.

The Company is a potentiallyresponsible party (PRP) in twelve superfund sites around the UnitedStates.  The Company expects its futureliability relative to these sites to be insignificant, individually and in theaggregate.  The Company has reserved anamount that it believes to be adequate to cover its exposure.

Dixie Toga S.A., acquired by the Company on January 5, 2005, is involvedin a tax dispute with the City of São Paulo, Brazil.  The City imposes a tax on the rendering ofprinting services.  The City has assessedthis city services tax on the production and sale of printed labels andpackaging products.  Dixie Toga, alongwith a number of other packaging companies, disagree and contend that the cityservices tax is not applicable to its products and that the products aresubject only to the state value added tax (VAT).  Under Brazilian law, state VAT and cityservices tax are mutually exclusive and the same transaction can be subject toonly one of those taxes.  Based on aruling from the State of São Paulo, advice from legal counsel, and longstanding business practice, Dixie Toga appealed the city services tax andinstead continued to collect and pay only the state VAT.

The City of São Paulo disagreed and assessed Dixie Toga the cityservices tax for the years 1991-1995. The assessments for those years are estimated to be approximately $51.3million at the date the Company acquired Dixie Toga, translated to U.S. dollarsat the 2006 year end exchange rate. Dixie Toga challenged the assessments and ultimately litigated theissue.  A lower court decision in 2002cancelled all of the assessments for 1991-1995. The City of São Paulo, the State of São Paulo, and Dixie Toga have eachappealed parts of the lower court decision. The City continues to assert the applicability of the city services taxand has issued assessments for the subsequent years 1996-2001.  The assessments for those years for tax andpenalties (exclusive of interest) are estimated to be approximately $32.6million at the date of acquisition, translated to U.S. dollars at the 2006 yearend exchange rate.  In the event of anadverse resolution, these estimated amounts for all assessments could besubstantially increased for interest, monetary adjustments, and corrections.

The Company strongly disagrees with the City’s position and intends tovigorously challenge any assessments by the City of São Paulo.  The Company is unable at this time to predictthe ultimate outcome of the controversy and as such has not recorded anyliability related to this matter.  Anadverse resolution could be material to the results of operations and/or cashflows of the period in which the matter is resolved.

39

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The Company first disclosedin a Form 8-K filed with the Securities and Exchange Commission on April 23,2003, that the Department of Justice expected to initiate a criminal investigationinto competitive practices in the labelstock industry and the Company furtherdiscussed the investigation and disclosed that it expected to receive asubpoena in its Form 10-Q filed for the quarter ended June 30, 2003.  In a Form 8-K filed with the Securities andExchange Commission on August 15, 2003, the Company disclosed that it hadreceived a subpoena from the U.S. Department of Justice in connection with theDepartment’s criminal investigation into competitive practices in thelabelstock industry.  The Companyresponded to the subpoena and cooperated fully with the requests of the U.S.Department of Justice.  On October 20,2006, the Department of Justice informed the Company that it was closing theinvestigation without any further action.

The Company and itswholly-owned subsidiary, Morgan Adhesives Company, have been named asdefendants in fifteen civil lawsuits.  Five of these lawsuitspurport to represent a nationwide class of labelstock purchasers, and eachalleges a conspiracy to fix prices within the self-adhesive labelstockindustry.  On November 5, 2003, the Judicial Panel on MultiDistrictLitigation issued a decision consolidating all of the federal class actions forpretrial purposes in the United States District Court for the Middle Districtof Pennsylvania, before the Honorable Chief Judge Vanaskie.  JudgeVanaskie entered an order which called for discovery to be taken on the issuesrelating to class certification and briefing on plaintiffs’ motion for classcertification to be completed by March 1, 2007. At this time, a discovery cut-off and a trial date have not beenset.  The Company has also been named in four lawsuits filed inthe California Superior Court in San Francisco. Three of these lawsuits seek torepresent a class of all California indirect purchasers of labelstock and eachalleged a conspiracy to fix prices within the self-adhesive labelstockindustry.  These three lawsuits have beenconsolidated.  The fourth lawsuit seeksto represent a class of California direct purchasers of labelstock and allegesa conspiracy to fix prices within the self-adhesive labelstock industry. Finally, the Company has been named in one lawsuit in Vermont, seeking torepresent a class of all Vermont indirect purchasers of labelstock, one lawsuitin Ohio, seeking to represent a class of all Ohio indirect purchasers oflabelstock, one lawsuit in Nebraska seeking to represent a class of allNebraska indirect purchasers of labelstock, one lawsuit in Kansas seeking torepresent a class of all Kansas indirect purchasers of labelstock, one lawsuitin Tennessee, seeking to represent a class of purchasers of labelstock invarious jurisdictions, and one lawsuit in Arizona seeking to represent a classof Arizona indirect purchasers of labelstock, all alleging a conspiracy to fixprices within the self-adhesive labelstock industry.  The Companyintends to vigorously defend these lawsuits.

In a Form 8-K filed with theSecurities and Exchange Commission on May 25, 2004, the Company disclosed thatrepresentatives from the European Commission had commenced a search of businessrecords and interviews of certain Company personnel at its self-adhesivelabelstock operation in Soignies, Belgium to investigate possibleviolations of European competition law in connection with an investigation ofpotential anticompetitive activities in the European paper and forestryproducts sector.  The Company cooperatedfully with the requests of the European Commission.  On November 16, 2006, the European Commissioninformed the Company that it was closing the investigation without any furtheraction.

Given the ongoing status ofthe class-action civil lawsuits, the Company is unable to predict the outcomeof these matters although the effect could be material to the results of operationsand/or cash flows of the period in which the matter is resolved.  TheCompany is currently not otherwise subject to any pending litigation other thanroutine litigation arising in the ordinary course of business, none of which isexpected to have a material adverse effect on the business, results ofoperations, financial position, or liquidity of the Company.

**Note 14 — FINANCIAL INSTRUMENTS**

The Company enters into forward exchange contracts to manage foreigncurrency exchange rate exposures associated with certain foreign currencydenominated receivables and payables. Forward exchange contracts generally have maturities of less than ninemonths and relate primarily to major Western European currencies.  The Company has not designated these derivativeinstruments as hedging instruments.  AtDecember 31, 2006 and 2005, the Company had outstanding forward exchangecontracts with notional amounts aggregating $3,540,000 and $4,443,000,respectively.  The net settlement amount(fair value) related to active forward exchange contracts is recorded on thebalance sheet as part of accounts payable and as an expense element of othercosts (income), net, which offsets the related transaction gains or losses andwas not significant at December 31, 2006 and 2005.

The Company is exposed to changes in the fair value of its fixed-ratedebt resulting from interest rate fluctuations. To hedge this exposure, the Company entered into three fixed-to-variableinterest rate swaps during the third quarter of 2001, one of which settled in2005 when the related long-term debt matured and was repaid.  The remaining two interest rate swaps areaccounted for as a fair value hedge.  Theterms of the interest rate swap agreements have been specifically designed toconform to the applicable terms of the hedged items and with the requirementsof paragraph 68 of FAS No. 133 to support the assumption of no ineffectiveness(changes in fair value of the debt and the swaps exactly offset).  The fair value of these interest rate swapsis recorded within long-term debt. Changes in the payment of interest resulting from the interest rateswaps are recorded as an offset to interest expense.  See Note 9 for further discussion of theinterest rate swaps.

In connection with the issue of seven-year,$300 million notes in March 2005, we entered into a forward starting swap onFebruary 3, 2005, in order to lock in an interest rate in advance of thepricing date for the notes.   On March14, 2005, in connection with the pricing of the notes, we terminated the swapand recorded the resulting gain of $6.1 million (pre-tax) on the balance sheetas a component of other comprehensive income. This gain is being amortized as a component of interest expense over theterm of the notes.

The Company’s non-derivative financial instruments included cash andcash equivalents, accounts receivable, accounts payable, short-term borrowings,and long-term debt.  At December 31, 2006and 2005, the carrying value of these financial instruments, excludinglong-term debt, approximates fair value because of the short-term maturities ofthese instruments.  The fair value of theCompany’s long-term debt, including current maturities but excludingcapitalized leases, is estimated to be $749,002,000 and $803,760,000 atDecember 

40

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31, 2006 and 2005, respectively, using discounted cash flow analysesand based on the incremental borrowing rates currently available to the Companyfor similar debt with similar terms and maturity.

 

The Company is exposed to credit loss in the event of non-performance bycounterparties in interest rate swaps and forward exchange contracts.  Collateral is generally not required of thecounterparties or of the Company.  In theunlikely event a counterparty fails to meet the contractual terms of aninterest rate swap or foreign exchange forward contract, the Company’s risk islimited to the fair value of the instrument. The Company actively monitors its exposure to credit risk through theuse of credit approvals and credit limits, and by selecting major internationalbanks and financial institutions as counterparties.  The Company has not had any historicalinstances of non-performance by any counterparties, nor does it anticipate anyfuture instances of non-performance. Concentrations of credit risk with respect to trade accounts receivableare limited due to the large number of entities comprising the Company’scustomer base and their dispersion across many different industries andcountries. As of December 31, 2006 and 2005, the Company had no significant concentrationsof credit risk.

**Note 15 — QUARTERLY FINANCIAL INFORMATION — UNAUDITED**
| ** **                                                           | ** ** | **Quarter Ended** | ** ** | ** **       | ** ** |
|----------------------------------------------------------------------|------------|------------------------|------------|------------------|------------|
| **(in millions, except per share amounts)** | ** ** | **March 31**      | ** ** | **June 30** | ** ** | **September 30** | ** ** | **December 31** | ** ** | **Total** | ** ** |
| **2006**                                                             |       |                   |       |             |       |   |   |   |   |   |   |
| Net sales                                                            |       | $                      | 901.7      |             | $          | 933.8 |   | $ | 903.3 |   | $ | 900.6 |   | $ | 3,639.4 |   |
| Gross profit                                                         |       | 167.3                  |       | 186.3            |       | 174.1 |   | 169.0 |   | 696.7 |   |
| Net income                                                           |       | 37.8                   |       | 48.9             |       | 48.0 |   | 41.6 |   | 176.3 |   |
| Basic earnings  per common share                                     |       | 0.36                   |       | 0.47             |       | 0.46 |   | 0.40 |   | 1.68 |   |
| Diluted earnings  per common share                                   |       | 0.35                   |       | 0.46             |       | 0.45 |   | 0.39 |   | 1.65 |   |
|                                                                 |       |                   |       |             |       |   |   |   |   |   |   |
| **2005**                                                             |       |                   |       |             |       |   |   |   |   |   |   |
| Net sales                                                            |       | $                      | 831.9      |             | $          | 879.9 |   | $ | 870.1 |   | $ | 892.1 |   | $ | 3,474.0 |   |
| Gross profit                                                         |       | 155.3                  |       | 167.9            |       | 172.7 |   | 179.7 |   | 675.6 |   |
| Net income                                                           |       | 32.2                   |       | 41.2             |       | 44.2 |   | 44.9 |   | 162.5 |   |
| Basic earnings  per common share                                     |       | 0.30                   |       | 0.38             |       | 0.42 |   | 0.43 |   | 1.53 |   |
| Diluted earnings per common  share                                   |       | 0.30                   |       | 0.38             |       | 0.41 |   | 0.42 |   | 1.51 |   |

 

The summation of quarterly net income pershare may not equate to the calculation for the full year as quarterlycalculations are performed on a discrete basis.

**ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS**

**ONACCOUNTING AND FINANCIAL DISCLOSURE**

Notapplicable.

**ITEM 9A - CONTROLS ANDPROCEDURES**

**(a)  Management’sConclusion Regarding the Effectiveness of Disclosure Controls and Procedures**                 The Company’s management, under the direction, supervision, and involvementof the Chief Executive Officer and the Chief Financial Officer, has carried outan evaluation, as of the end of the period covered by this report, of theeffectiveness of the design and operation of the disclosure controls andprocedures (as defined in Exchange Act Rules 13a-15(e) under the SecuritiesExchange Act of 1934 (the “Exchange Act”)) of the Company.  Based on this evaluation, the Chief ExecutiveOfficer and the Chief Financial Officer have concluded that disclosure controlsand procedures in place at the Company are effective to ensure that informationrequired to be disclosed by the Company in the reports that it files or submitsunder the Exchange Act is recorded, processed, summarized, and reported withinthe time periods specified by the Securities and Exchange Commission’s rulesand forms.

**(b) Management’s Report on Internal Control OverFinancial Reporting**                 The management of Bemis Company, Inc. is responsible for establishingand maintaining adequate internal control over financial reporting, as suchterm is defined in Exchange Act Rule 13a-15(f).  Under the direction, supervision, andparticipation of the Chief Executive Officer and the Chief Financial Officer,the Company’s management conducted an evaluation of the effectiveness of internalcontrol over financial reporting based on the framework in *Internal Control - Integrated Framework*issuedby the Committee of Sponsoring Organizations of the Treadway Commission(COSO-Framework).  Based on the resultsof this evaluation management has concluded that internal control overfinancial reporting was effective as of December 31, 2006.

Management’s assessment,utilizing the COSO-Framework criteria, of the effectiveness of internal controlover financial reporting as of December 31, 2006, has been audited byPricewaterhouseCoopers LLP, the Company’s independent registered publicaccounting firm, as stated in their report which is included in Item 8 of thisAnnual Report on Form 10-K.

**(c)  Changes in Internal ControlOver Financial Reporting**                 There has been no change in the Company’s internal control overfinancial reporting during the most recent fiscal quarter that has materiallyaffected, or is likely to materially affect, the Company’s internal controlover financial reporting.

41

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**ITEM 9B - OTHER INFORMATION**

Not applicable.

**PART  III — ITEMS 10, 11, 12, 13, and 14**

**ITEM 10 - DIRECTORS,EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE**

The information required tobe submitted in response to this item with respect to directors is omittedbecause a definitive proxy statement containing such information will be filedwith the Securities and Exchange Commission pursuant to Regulation 14A within120 days after December 31, 2006, and such information is expresslyincorporated herein by reference.

The following sets forth thename, age, and business experience for at least the last five years of theprincipal executive officers of the Company. With the exception of Mr. Seifert, each officer has been an employee ofthe Company for the last five years and the positions described relate topositions with the Company.
| Name (Age)                                                                                                                                                                                                                                                                  | ** ** | **Positions Held**                                                                  | ** ** | **Period The Position Was Held** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------|------------|------------------------------------------------------|
| William F. Austen (48) Vice President - Operations

President and  Chief Executive Officer - Morgan Adhesives Company (1)

General  Electric, various engineering, sales, marketing, and general management  positions                                                           |       | 2004 to present

2000 to present

1980 to 2000                                           |
|                                                                                                                                                                                                                                                                             |       |                                                                                     |       |                                                 |   |   |
| Jeffrey H. Curler (56) President, Chief Executive  Officer and Chairman of the Board

President and  Chief Executive Officer

President and  Chief Operating Officer

President

Executive Vice  President

Various R&D  and management positions within the Company         |       | 2005 to present

2000 to 2005

1998 to 2000

1996 to 1998

1991 to 1995

1973 to 1991    |
|                                                                                                                                                                                                                                                                             |       |                                                                                     |       |                                                 |   |   |
| Stanley A. Jaffy (58) Vice President and Controller

Vice President -  Tax and Assistant Controller

Corporate  Director of Tax                                                                                                                                                  |       | 2002 to present

1998 to 2002

1987 to 1998                                              |
|                                                                                                                                                                                                                                                                             |       |                                                                                     |       |                                                 |   |   |
| Melanie E.R. Miller (43) Vice President, Investor  Relations and Treasurer

Vice President,  Investor Relations and Assistant Treasurer

Director of  Investor Relations

Alliant  Techsystems, Inc., various finance and investor relations positions                           |       | 2005 to present

2002 to 2005

2000 to 2002

1992 to 2000                                |
|                                                                                                                                                                                                                                                                             |       |                                                                                     |       |                                                 |   |   |
| Eugene H. Seashore, Jr. (57) Vice President - Human  Resources

Vice President -  Purchasing, Curwood, Inc. (2) 

Various human  resource and management positions within the Company                                                                                            |       | 2000 to present

1999 to 2000

1980 to 1999                                              |
|                                                                                                                                                                                                                                                                             |       |                                                                                     |       |                                                 |   |   |
| James J. Seifert (50) Vice President, General  Counsel and Secretary

Tennant Company,  Vice President, General Counsel and Secretary                                                                                                                                            |       | 2002 to present

1999 to 2002                                                            |
|                                                                                                                                                                                                                                                                             |       |                                                                                     |       |                                                 |   |   |
| Henry J. Theisen (53) Director

Executive Vice  President and Chief Operating Officer

Vice President —  Operations

President -  Bemis High Barrier Products (2)

President -  Curwood, Inc. (2)

Various R&D,  marketing, and management positions within the Company |       | 2006 to present

2003 to present

2002 to 2003

2002 to 2003

1998 to 2003

1975 to 1998 |
|                                                                                                                                                                                                                                                                             |       |                                                                                     |       |                                                 |   |   |
| Gene C. Wulf (56) Director

Senior Vice  President and Chief Financial Officer

Vice President,  Chief Financial Officer and Treasurer

Vice President  and Controller

Vice President  and Assistant Controller

Various  financial and management positions within the Company |       | 2006 to present

2005 to present

2002 to 2005

1998 to 2002

1997 to 1998

1975 to 1997 |
|                                                                                                                                                                                                                                                                             |       |                                                                                     |       |                                                 |   |   |

----

(1)             Morgan AdhesivesCompany is a 100% owned subsidiary of the Company.

(2)             BemisHigh Barrier Products includes the following 100 percent owned subsidiaries ofthe Company:  Bemis Clysar, Inc., BemisEurope Holdings, S.A., Curwood, Inc., MacKay, Inc., Milprint, Inc., andPerfecseal, Inc.

 

TheCompany’s annual CEO certification to the NYSE for the previous year wassubmitted to the NYSE on May 19, 2006. The Company’s CEO and CFO executed the certifications required by Section302 of the Sarbanes-Oxley Act of 2002 which are filed as Exhibits 31.1 and 31.2to this Annual Report on Form 10-K.  Noqualifications were taken with respect to any of the certifications.

42

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**ITEM 11 -EXECUTIVE COMPENSATION**

The information required tobe submitted in response to this item is omitted because a definitive proxystatement containing such information will be filed with the Securities andExchange Commission pursuant to Regulation 14A within 120 days after December31, 2006, and such information is expressly incorporated herein by reference.

**ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS****AND MANAGEMENT AND RELATEDSTOCKHOLDER MATTERS**

The information required tobe submitted in response to this item is omitted because a definitive proxystatement containing such information will be filed with the Securities andExchange Commission pursuant to Regulation 14A within 120 days after December31, 2006, and such information is expressly incorporated herein by reference.

**ITEM 13 -CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**

The information required tobe submitted in response to this item is omitted because a definitive proxystatement containing such information will be filed with the Securities andExchange Commission pursuant to Regulation 14A within 120 days after December31, 2006, and such information is expressly incorporated herein by reference.

**ITEM 14 - PRINCIPALACCOUNTANT FEES AND SERVICES**

The information required tobe submitted in response to this item is omitted because a definitive proxystatement containing such information will be filed with the Securities andExchange Commission pursuant to Regulation 14A within 120 days after December31, 2006, and such information is expressly incorporated herein by reference.

**PART  IV — ITEM 15**

**ITEM 15 - EXHIBITS AND FINANCIAL STATEMENT SCHEDULES**

(a)           The following documents are filed as part of Item 8 ofthis Annual Report on Form 10-K:
|                                                                                                                                                      | ** ** | ** ** | ** ** | **Pages in   Form 10-K** |
|------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|--------------------------|
| **(**1)**Financial  Statements**                                                                                                                     |       |       |
| Management’s  Responsibility Statement                                                                                                          |       | 18         |
| Report of  Independent Registered Public Accounting Firm                                                                                             |       | 19         |
| Consolidated  Statement of Income for each of                                                                                                        |       |       |
| the Three Years  Ended December 31, 2006                                                                                                             |       | 20         |
| Consolidated  Balance Sheet at December 31, 2006 and 2005                                                                                            |       | 21         |
| Consolidated  Statement of Cash Flows for each of                                                                                                    |       |       |
| the Three Years  Ended December 31, 2006                                                                                                             |       | 22         |
| Consolidated  Statement of Stockholders’ Equity                                                                                                 |       |       |
| for each of the  Three Years Ended December 31, 2006                                                                                                 |       | 23         |
| Notes to  Consolidated Financial Statements                                                                                                          |       | 24-41      |
|                                                                                                                                                 |       |       |
| (2)**Financial Statement  Schedule for Years 2006, 2005, and 2004**                                                                                  |       |       |
| Schedule II -  Valuation and Qualifying Accounts and Reserves                                                                                        |       | 46         |
| Report of  Independent Registered Public Accounting Firm on Financial                                                                                |       |       |
| Statement  Schedule for each of the Three Years Ended December 31, 2006                                                                              |       | 46         |
|                                                                                                                                                 |       |       |
| All other  schedules are omitted because they are not applicable or the required information  is shown in the financial statements or notes thereto. |
|                                                                                                                                                 |
| (3)**Exhibits**                                                                                                                                      |       |       |
| The Exhibit  Index is incorporated herein by reference.                                                                                              |       |       |

 

43

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**SIGNATURES**

Pursuant to the requirements of Section 13 of the Securities ExchangeAct of 1934, the Registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.

BEMIS COMPANY, INC.
| By     | /s/ Gene C. Wulf                    |   | By                               | /s/ Stanley A. Jaffy |
|--------|-------------------------------------|--------|----------------------------------|----------------------|
|   | Gene C. Wulf, Senior Vice President |   | Stanley A. Jaffy, Vice President |
|   | and Chief  Financial Officer        |   | and Controller                   |
|   | Date February  28, 2007             |   | Date February  28, 2007          |

 

Pursuant to the requirements of the Securities Exchange Act of 1934,this report has been signed below by the following persons on behalf of theRegistrant and in the capacities and on the dates indicated.
| /s/ Gene C. Wulf                           |   | /s/ Stanley A. Jaffy                           |
|--------------------------------------------|--------|------------------------------------------------|
| Gene C. Wulf, Senior Vice President        |   | Stanley A.  Jaffy, Vice President              |
| and Chief  Financial Officer               |   | and Controller  (principal accounting officer) |
| Date February  28, 2007                    |   | Date February  28, 2007                        |
|                                       |   |                                           |
| /s/ Jeffrey H. Curler                      |   | /s/ William J. Bolton                          |
| Jeffrey H.  Curler, Chairman of the Board, |   | William J.  Bolton, Director                   |
| President, and  Chief Executive Officer    |   | Date February  28, 2007                        |
| Date February  28, 2007                    |   |                                           |
|                                       |   |                                           |
| /s/ David S. Haffner                       |   | /s/ Barbara L. Johnson                         |
| David S.  Haffner, Director                |   | Barbara L.  Johnson, Director                  |
| Date February  28, 2007                    |   | Date February  28, 2007                        |
|                                       |   |                                           |
| /s/ Timothy M. Manganello                  |   | /s/ Nancy Parsons McDonald                     |
| Timothy M.  Manganello, Director           |   | Nancy Parsons McDonald, Director               |
| Date February  28, 2007                    |   | Date February  28, 2007                        |
|                                       |   |                                           |
| /s/ Roger D. O’Shaughnessy            |   | /s/ Paul S. Peercy                             |
| Roger D.  O’Shaughnessy, Director     |   | Paul S. Peercy, Director                       |
| Date February  28, 2007                    |   | Date February  28, 2007                        |
|                                       |   |                                           |
| /s/ Edward N. Perry                        |   | /s/ William J. Scholle                         |
| Edward N. Perry,  Director                 |   | William J. Scholle, Director                   |
| Date February  28, 2007                    |   | Date February  28, 2007                        |
|                                       |   |                                           |
| /s/ Henry J. Theisen                       |   | /s/ Philip G. Weaver                           |
| Henry J.  Theisen, Director                |   | Philip G. Weaver, Director                     |
| Date February  28, 2007                    |   | Date February  28, 2007                        |
|                                       |   |                                           |
| /s/ Gene C. Wulf, Director                 |   |                                           |
| Gene C. Wulf,  Director                    |   |                                           |
| Date February  28, 2007                    |   |                                           |

 

44

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**Exhibit Index**
| Exhibit | ** ** | **Description** | ** **                                                                                                                                                                                       | **Form of Filing** |
|---------|------------|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------|
| 2       | (a)        |            | Dixie Toga S.A. Stock Purchase Agreement between  Bemis Company, Inc. as buyer and the therein listed sellers. (1)                                                                               |               |  

Incorporated by  Reference |
| 3       | (a)        |            | Restated Articles of Incorporation of the  Registrant, as amended. (2)                                                                                                                           |               | Incorporated by  Reference |
| 3       | (b)        |            | By-Laws of the Registrant, as amended through May 6,  2004. (2)                                                                                                                                  |               | Incorporated by  Reference |
| 4       | (a)        |            | Form of Indenture dated as of June 15, 1995, between  the Registrant and U.S. Bank Trust National Association (formerly known as  First Trust National Association), as   Trustee. (3)           |               |  

Incorporated by  Reference |
| 4       | (b)        |            | Certificate of Bemis Company, Inc. regarding Rights  Agreement. (4)                                                                                                                              |               | Incorporated by  Reference |
| 4       | (c)        |            | Rights Agreement, dated as of July 29, 1999, between  the Registrant and Wells Fargo Bank Minnesota, National Association (formerly  known as Norwest Bank Minnesota, National Association). (5) |               |  

 

Incorporated by  Reference |
| 10      | (a)        |            | Bemis Company, Inc. 2001 Stock Incentive Plan.* (6)                                                                                                                                              |               | Incorporated by  Reference |
| 10      | (b)        |            | Bemis Company, Inc. 1994 Stock Incentive Plan,  Amended and Restated as of August 4, 1999.* (7)                                                                                                  |               |  

Incorporated by  Reference |
| 10      | (c)        |            | Bemis Company, Inc. Form of Management Contract with  Principal Executive Officers.* (8)                                                                                                         |               | Incorporated by  Reference |
| 10      | (d)        |            | Bemis Retirement Plan, Amended and Restated as of  December 31, 2005.* (9)                                                                                                                       |               | Incorporated by  Reference |
| 10      | (e)        |            | Bemis Company, Inc. Supplemental Retirement Plan,  Amended and Restated as of January 1, 2005.*                                                                                                  |               | Filed Electronically |
| 10      | (f)        |            | Bemis Company, Inc. Supplemental Retirement Plan for  Senior Officers, Amended and Restated as of January 1, 2005.*                                                                              |               | Filed Electronically |
| 10      | (g)        |            | Bemis Company, Inc. Long Term Deferred Compensation  Plan, Amended and Restated as of August 4, 1999.* (7)                                                                                       |               | Incorporated by  Reference |
| 10      | (h)        |            | Bemis Executive Officer Incentive Plan as of October  29, 1999.* (10)                                                                                                                            |               | Incorporated by  Reference |
| 10      | (i)        |            | Bemis Company, Inc. 1997 Executive Officer  Performance Plan.* (11)                                                                                                                              |               | Incorporated by Reference |
| 10      | (j)        |            | Credit Agreement dated as of September 2, 2004,  among the Registrant, the various banks listed therein, and Bank One, NA, as  Administrative Agent. (12)                                        |               | Incorporated by  Reference |
| 10      | (k)        |            | Resolution Amending Bemis Company, Inc. 2001 Stock  Incentive Plan.* (4)                                                                                                                         |               | Incorporated by  Reference |
| 10      | (l)        |            | Bemis Investment Incentive Plan, Amended and  Restated Effective as of January 1, 2006.* (9)                                                                                                     |               | Incorporated by  Reference |
| 10      | (m)        |            | Bemis Company, Inc. 2007 Stock Incentive Plan.* (13)                                                                                                                                             |               | Incorporated by Reference |
| 14      |       |            | Financial Code of Ethics. (4)                                                                                                                                                                    |               | Incorporated by  Reference |
| 21      |       |            | Subsidiaries of the Registrant.                                                                                                                                                                  |               | Filed Electronically |
| 23      |       |            | Consent of PricewaterhouseCoopers LLP.                                                                                                                                                           |               | Filed Electronically |
| 31      | .1         |            | Rule 13a-14(a)/15d-14(a) Certification of CEO.                                                                                                                                                   |               | Filed Electronically |
| 31      | .2         |            | Rule 13a-14(a)/15d-14(a) Certification of CFO.                                                                                                                                                   |               | Filed Electronically |
| 32      |       |            | Section 1350 Certification of CEO and CFO.                                                                                                                                                       |               | Filed Electronically |

----

*                                         Management contract, compensatory plan orarrangement filed pursuant to Rule 601(b)(10)(iii)(A) of Regulation S-K underthe Securities Exchange Act of 1934.

  (1)         Incorporated by reference to theRegistrant’s Current Report on Form 8-K dated January 11, 2005 (File No.1-5277).

  (2)                           Incorporated by reference to the Registrant’s Quarterly Report on Form10-Q for the quarter ended June 30, 2004 (File No. 1-5277).

  (3)                           Incorporated by reference to the Registrant’s Current Report on Form 8-Kdated June 30, 1995 (File No. 1-5277).

  (4)                           Incorporated by reference to the Registrant’s Annual Report on Form 10-Kfor the year ended December 31, 2003 (File No. 1-5277).

  (5)                           Incorporated by reference to Exhibit 1 to the Registrant’s RegistrationStatement on Form 8-A filed on August 4, 1999 (File No. 1-5277).

  (6)                           Incorporated by reference to Exhibit B to the Registrant’s DefinitiveProxy Statement filed with the Securities and Exchange Commission on March 19,2001 (File No. 1-5277).

  (7)                           Incorporated by reference to the Registrant’s Quarterly Report on Form10-Q for the quarter ended June 30, 1999 (File No. 1-5277).

  (8)                           Incorporated by reference to the Registrant’s Quarterly Report on Form10-Q for the quarter ended September 30, 2005 (File No. 1-5277).

  (9)                           Incorporated by reference to the Registrant’s Annual Report on Form 10-Kfor the year ended December 31, 2005 (File No. 1-5277).

(10)                          Incorporated by reference to the Registrant’sQuarterly Report on Form 10-Q for the quarter ended September 30, 1999 (FileNo. 1-5277).

(11)                          Incorporated by reference to Exhibit B to theRegistrant’s Definitive Proxy Statement filed with the Securities and ExchangeCommission on March 21, 2005 (File No. 1-5277).

(12)                          Incorporated by reference to the Registrant’sQuarterly Report on Form 10-Q for the quarter ended September 30, 2004 (FileNo. 1-5277).

(13)                          Incorporated by reference to Exhibit B to the Registrant’s DefinitiveProxy Statement filed with the Securities and Exchange Commission on March 21,2006 (File No. 1-5277).

45

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** **

###### SCHEDULE II — VALUATION AND QUALIFYINGACCOUNTS AND RESERVES*****(in thousands)*

| **Year Ended   December 31,**   | ** ** | **Balance at   Beginning   of Year** | ** ** | **Additions   Charged to   Profit & Loss** | ** ** | **Writeoffs** | ** ** | **Foreign  Currency   Impact** | ** **   | **Other** | ** ** | **Balance   at Close   of Year** | ** ** |
|------------------------------------------------|------------|----------------------------------------------------------|------------|-------------------------------------------------------------------------|------------|---------------|------------|-------------------------------------|--------------|-----------|------------|------------------------------------------------------|------------|
|                                           |       |                                                     |       |                                                                    |       |          |       |                                |         |      |       |                                                 |       |
| RESERVES  FOR DOUBTFUL ACCOUNTS AND ALLOWANCES |       |                                                     |       |                                                                    |       |          |       |
| 2006                                           |       | $                                                        | 19,120     |                                                                    | $          | 12,599        |       | $                                   | (11,947) (2) |      | $          | 515                                                  |       |   |   | $ | 20,287 |   |
| 2005                                           |       | $                                                        | 16,935     |                                                                    | $          | 14,638        |       | $                                   | (14,009) (3) |      | $          | (181)                                                |       | $ | 1,737(1) |   | $ | 19,120 |   |
| 2004                                           |       | $                                                        | 14,949     |                                                                    | $          | 13,851        |       | $                                   | (12,204) (4) |      | $          | 339                                                  |       |   |   | $ | 16,935 |   |
|                                                |            |                                                          |            |                                                                         |            |               |            |                                     |              |           |            |                                                      |            |  |  |  |  |  |  |

----

(1)Acquired with business unit acquisition.

(2)Net of $245,000 collections on accounts previously written off.

(3)Net of $478,000 collections on accounts previously written off.

(4)Net of $254,000 collections on accounts previously written off.

 

 

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON FINANCIALSTATEMENT SCHEDULE**To the Board of Directors of Bemis Company, Inc:

Our audits of the consolidated financialstatements, of managements assessment of the effectiveness of internal controlover financial reporting, and the effectiveness of internal control overfinancial reporting referred to in our report dated February 28, 2007, whichreport, consolidated financial statements and assessment are included in thisAnnual Report on Form 10-K also included an audit of the financial statementschedule listed in Item 15(a)(2) of this Form 10-K.  In our opinion, this financial statementschedule presents fairly, in all material respects, the information set forththerein when read in conjunction with the related consolidated financialstatements.

Pricewaterhouse Coopers LLPMinneapolis,MinnesotaFebruary 28, 2007

 

46

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