Bemis 10-Q 2008 Q1 Quarterly report

EXHIBIT 19

FINANCIAL STATEMENTS - UNAUDITED

BEMIS COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME

(in thousands, except per share amounts)

	Three Months Ended March 31,
	2008			2007
Net sales	$	947,282		$	909,130
Costs and expenses:
Cost of products sold	784,313			731,979
Selling, general, and administrative expenses	88,744			85,476
Research and development	5,828			6,225
Interest expense	9,029			12,490
Other costs (income), net	(9,105		)	(5,185		)
Minority interest in net income	1,340			589
Income before income taxes	67,133			77,556
Provision for income taxes	24,800			29,300
Net income	$	42,333		$	48,256
Basic earnings per share of common stock	$	0.42		$	0.46
Diluted earnings per share of common stock	$	0.42		$	0.45
Cash dividends paid per share of common stock	$	0.22		$	0.21
Weighted-average common shares outstanding	100,117			105,053
Weighted-averaged common shares and common stock equivalent outstanding	100,919			106,535

See accompanying notes to consolidated financial statements.

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FINANCIAL STATEMENTS — UNAUDITED

BEMIS COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(dollars in thousands)

	March 31,			December 31,
	2008			2007
ASSETS
Cash and cash equivalents	$	157,196		$	147,409
Accounts receivable, net	484,161			448,200
Inventories, net	498,198			478,727
Prepaid expenses	68,734			62,607
Total current assets	1,208,289			1,136,943
Property and equipment, net	1,248,678			1,248,456
Goodwill	647,321			642,507
Other intangible assets, net	102,488			103,756
Deferred charges and other assets	59,047			59,734
Total	808,856			805,997
TOTAL ASSETS	$	3,265,823		$	3,191,396
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current portion of long-term debt	$	7,330		$	1,758
Short-term borrowings	52,689			66,047
Accounts payable	377,407			384,673
Accrued salaries and wages	66,418			70,248
Accrued income and other taxes	32,179			11,824
Total current liabilities	536,023			534,550
Long-term debt, less current portion	815,776			775,456
Deferred taxes	156,684			155,871
Deferred credits and other liabilities	128,907			124,261
Total liabilities	1,637,390			1,590,138
Minority interest	40,779			38,926
Stockholders’ equity:
Common stock issued (117,051,314 and 116,941,126 shares)	11,705			11,694
Capital in excess of par value	331,316			327,387
Retained income	1,543,278			1,523,659
Accumulated other comprehensive income	199,696			171,162
Common stock held in treasury at cost (17,422,771 and 16,422,771 shares)	(498,341		)	(471,570		)
Total stockholders’ equity	1,587,654			1,562,332
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	3,265,823		$	3,191,396

See accompanying notes to consolidated financial statements.

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FINANCIAL STATEMENTS - UNAUDITED

BEMIS COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(in thousands)

	Three Months Ended March 31,
	2008			2007
Cash flows from operating activities
Net income	$	42,333		$	48,256
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	41,838			39,677
Minority interest in net income	1,340			589
Excess tax benefit from share-based payment arrangements	(56		)	(5,612		)
Share-based compensation	4,677			3,831
Deferred income taxes	(346		)	1,343
Income of unconsolidated affiliated company	(509		)	(263		)
Loss (gain) on sales of property and equipment	777			(772		)
Non-cash restructuring related activities				(519		)
Changes in working capital, net of effects of acquisitions	(41,559		)	(36,787		)
Net change in deferred charges and credits	7,098			23,366
Net cash provided by operating activities	55,593			73,109
Cash flows from investing activities
Additions to property and equipment	(28,393		)	(47,298		)
Business acquisitions and adjustments, net of cash acquired				(97		)
Proceeds from sales of property and equipment	290			7,339
Net cash used in investing activities	(28,103		)	(40,056		)
Cash flows from financing activities
Repayment of long-term debt	(8,898		)	(1,975		)
Net borrowing of commercial paper	47,750			54,550
Net (repayment) borrowing of short-term debt	(9,367		)	10,142
Cash dividends paid to stockholders	(22,714		)	(22,729		)
Common stock purchased for the treasury	(26,771		)	(34,150		)
Excess tax benefit from share-based payment arrangements	56			5,612
Stock incentive programs and related withholdings	(1,364		)	(13,567		)
Net cash used in financing activities	(21,308		)	(2,117		)
Effect of exchange rates on cash and cash equivalents	3,605			(248		)
Net increase in cash and cash equivalents	9,787			30,688
Cash and cash equivalents balance at beginning of year	147,409			112,160
Cash and cash equivalents balance at end of period	$	157,196		$	142,848

See accompanying notes to consolidated financial statements.

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BEMIS COMPANY, 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, 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
Net income						181,554									181,554
Unrecognized gain reclassified to earnings, net of tax $(337)									(527		)				(527		)
Translation adjustment									122,387						122,387
Pension liability adjustment, net of tax effect ($11,942)									20,204						20,204
Total comprehensive income															323,618
Adjustment to initially apply FIN 48						167									167
Cash dividends paid on common stock $0.84 per share						(89,809		)							(89,809		)
Stock incentive programs and related tax effects (826,779 shares)	83		(14,745		)										(14,662		)
Excess tax benefit from share-based compensation arrangements			6,908												6,908
Share-based compensation			18,047												18,047
Purchase of 5,150,000 shares of common stock												(153,953		)	(153,953		)
Balance at December 31, 2007	11,694		327,387			1,523,659			171,162			(471,570		)	1,562,332
Net income						42,333									42,333
Unrecognized gain reclassified to earnings, net of tax $(83)									(132		)				(132		)
Translation adjustment									27,661						27,661
Pension liability adjustment, net of tax effect $(594)									1,005						1,005
Total comprehensive income															70,867
Cash dividends paid on common stock $0.22 per share						(22,714		)							(22,714		)
Stock incentive programs and related tax effects (110,188 shares)	11		(1,364		)										(1,353		)
Excess tax benefit from share-based compensation arrangements			56												56
Share-based compensation			5,237												5,237
Purchase of 1,000,000 shares of common stock												(26,771		)	(26,771		)
Balance at March 31, 2008	$	11,705	$	331,316		$	1,543,278		$	199,696		$	(498,341	)	$	1,587,654

See accompanying notes to consolidated financial statements.

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FINANCIAL STATEMENTS - UNAUDITED

BEMIS COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared by Bemis Company, Inc. (the Company) in accordance with accounting principles for interim financial information generally accepted in the United States and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position and results of operations.  It is management’s opinion, however, that all material adjustments (consisting of normal recurring accruals) have been made which are necessary for a fair financial statement presentation.  The results for the interim period are not necessarily indicative of the results to be expected for the year.  For further information, refer to the consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.

Note 2 – Subsequent Event

On April 29, 2008, we entered into two new revolving credit agreements to replace the existing $500 million backup credit facility that would have matured in September 2009.  The $500 million backup credit facility was replaced with a $425 million backup credit facility that expires in April 2013 and a $75 million 364-day backup credit facility that expires in April 2009.  With these new agreements in place, we have the capacity to borrow up to $425 million through April 2013 and an additional $75 million though April 2009, including a $100 million multicurrency limit to support the financing needs of our international subsidiaries.  These two facilities are primarily used to support our issuance of commercial paper.  In addition, we continue to have the capability of also issuing up to $100 million of Extendable Commercial Notes (ECNs), which are short-term instruments whose maturity can be extended to 390 days from the date of issuance.

Note 3 – New Accounting Pronouncements

In March 2008, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (FAS) No. 161, The Disclosures about Derivative Instruments and Hedging Activities (FAS No. 161), which requires enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under FAS No. 133, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows.  This Statement is effective for fiscal years and interim periods beginning after November 15, 2008.  We are currently evaluating the impact of adopting FAS No. 161 on our consolidated financial position, results of operations, and cash flows.

In December 2007, the FASB issued FAS No. 160, Noncontrolling Interest in Consolidated Financial Statements, an amendment of ARB No. 51 (FAS No. 160), which amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary.  The standard is effective for the Company on January 1, 2009.  We are currently evaluating the impact of adopting FAS No. 160 on our consolidated financial position, results of operations, and cash flows.

In December 2007, the FASB issued FAS No. 141 (Revised 2007), Business Combinations (FAS 141(R)).  FAS 141(R) establishes principles and requirements for how an acquirer in a business combination recognizes and measures in its financial statements, the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree. The statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of business combinations. FAS 141(R) is effective on a prospective basis for financial statements issued for fiscal years beginning after December 15, 2008.  Accordingly, any business combination we enter into and/or close after December 31, 2008 will be subject to this new standard.

In February 2007, the FASB issued FAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement No. 115 (FAS No. 159), which permits entities to choose to measure many financial instruments and certain other items at fair value.  The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions.  The standard was effective for the Company on January 1, 2008 and, as permitted, the Company has not elected the “fair value option” for its financial assets and financial liabilities.

In September 2006, the FASB issued FAS No. 157, Fair Value Measurements (FAS No. 157), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements.  FAS No. 157 will apply whenever another standard requires (or permits) assets or liabilities to be measured at fair value.  The standard does not expand the use of fair value to any new circumstances.  In early 2008, the FASB issued Staff Position (FSP) FAS157-2, which delays by one year the effective date of FAS No. 157 for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on at least an annual basis.  The Company adopted FAS No. 157 on January 1, 2008, as required, with no effect on the measurement of the Company’s financial assets and financial liabilities or on its consolidated financial position and results of operations.  We are continuing to evaluate the impact the standard will have on the determination of fair value related to non-financial assets and non-financial liabilities in years after 2008.

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Note 4 – Financial Assets and Financial Liabilities Measured at Fair Value

The fair values of the Company’s financial assets and financial liabilities listed below reflect the amounts that would be received to sell the assets or paid to transfer the liabilities in an orderly transaction between market participants at the measurement date (exit price). The fair value of the items listed below was determined based on data provided by the counterparties.

				Significant Other
	Balance at			Observable Inputs
(in thousands)	March 31, 2008			(Level 2)
Fixed-to-floating interest rate swaps – asset position	$	3,344		$	3,344
Long-term debt converted to floating interest rate by interest rate swaps	$	(3,344	)	$	(3,344	)

Note 5 – Accounting for Stock-Based Compensation

Options were granted at prices equal to fair market value on the date of the grant and are exercisable, upon vesting, over varying periods up to ten years from the date of grant.  Options for directors vest immediately, while options for Company employees generally vest over three years (one-third per year).  The following table summarizes all stock option plan activity from December 31, 2007 to March 31, 2008:

	Aggregate			Per Share	Weighted-Average
	Intrinsic		Number of	Option Price	Exercise Price
	Value		Shares	Range	Per Share
Outstanding at December 31, 2007	$	13,238,000	1,684,082	$15.86 - $26.95	$	19.52
Exercised
Outstanding and Exercisable at March 31, 2008	$	9,954,000	1,684,082	$15.86 - $26.95	$	19.52

The following table summarizes information about outstanding and exercisable stock options at March 31, 2008:

	Options Outstanding and Exercisable
	Number	Weighted-Average
Range of	Outstanding	Remaining	Weighted-Average
Exercise Prices	at 3/31/08	Contractual Life	Exercise Price
$ 15.86 - $18.81	1,259,612	1.8 years	$	17.77
$ 22.04 - $26.95	424,470	4.4 years	$	24.71
	1,684,082	2.4 years	$	19.52

Stock options have not been granted since early 2003.  The fair value of each stock option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:  dividend yield 2.3%, expected volatility 29.2%, 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 key employees and directors.  The 1994, 2001, and 2007 (adopted in 2006) Plans provide for the issuance of up to 4,000,000, 5,000,000, and 6,000,000 shares, respectively.  Each Plan expires 10 years after its inception, at which point no further stock options or restricted stock units may be granted.  Since 1994, 3,932,910, 3,677,162, and 1,508,722 grants of either stock options or restricted stock units have been made under the 1994, 2001, and 2007 Plans, respectively.  Distribution of the restricted stock units is made in the form of shares of the Company’s common stock on a one for one basis.  Distribution of the shares will normally be made not less than three years, nor more than six years, from the date of the restricted stock unit grant.  All restricted stock units granted under the plan are subject to restrictions as to continuous employment, except in the case of death, permanent disability, or retirement.  In addition, cash payments are made during the grant period on outstanding restricted stock units equal to the dividend on Bemis common stock.  The cost of the award is based on the fair market value of the stock on the date of grant.  The cost of the awards is charged to income over the requisite service period.

As of March 31, 2008, the unrecorded compensation cost for restricted stock units is $55,061,000 and will be recognized over the remaining vesting period for each grant which ranges between May 5, 2008 and December 31, 2012.  The remaining weighted-average life of all restricted stock units outstanding is 3.8 years.

The following table summarizes all restricted stock unit activity from December 31, 2007 to March 31, 2008:

			Number of
	Aggregate		Restricted
	Intrinsic Value		Stock Units
Outstanding units at December 31, 2007			3,296,583
Restricted stock units granted			273,755
Restricted stock units paid			(160,997	)
Restricted stock units canceled			(18,000	)
Outstanding units at March 31, 2008	$	86,242,000	3,391,341

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Note 6 – Goodwill and Other Intangible Assets

Changes in the carrying amount of goodwill attributable to each reportable operating segment follow:

	Flexible Packaging		Pressure Sensitive
(in thousands)	Segment		Materials Segment			Total
Reported balance at December 31, 2006	$	550,748	$	52,943		$	603,691
Currency translation adjustment	38,841		(25		)	38,816
Reported balance at December 31, 2007	589,589		52,918			642,507
Currency translation adjustment	4,771		43			4,814
Reported balance at March 31, 2008	$	594,360	$	52,961		$	647,321

The components of amortized intangible assets follow:

	March 31, 2008					December 31, 2007
(in thousands)	Gross Carrying		Accumulated			Gross Carrying		Accumulated
Intangible Assets	Amount		Amortization			Amount		Amortization
Contract based	$	15,447	$	(9,443	)	$	15,447	$	(9,168	)
Technology based	52,613		(20,039		)	52,673		(19,383		)
Marketing related	25,782		(8,676		)	25,230		(8,125		)
Customer based	70,847		(24,043		)	69,444		(22,362		)
Reported balance	$	164,689	$	(62,201	)	$	162,794	$	(59,038	)

Amortization expense for intangible assets during the first three months of 2008 was $2.5 million.  Estimated amortization expense for the remainder of 2008 is $6.6 million; for 2009 and 2010 is $9.0 million each year; $8.7 million for 2011; $7.8 million for 2012; and $7.2 million for 2013.

Note 7 – Inventories

The Company’s inventories are valued at the lower of cost, determined by the first-in, first-out (FIFO) method, or market.  Inventories are summarized as follows:

	March 31,			December 31,
(in thousands)	2008			2007
Raw materials and supplies	$	166,972		$	169,687
Work in process and finished goods	352,010			328,758
Total inventories, gross	518,982			498,445
Less inventory write-downs	(20,784		)	(19,718		)
Total inventories, net	$	498,198		$	478,727

Note 8 – Components of Net Periodic Benefit Cost

Benefit costs for defined pension benefit plans are shown below.  Costs for other benefits include defined contribution pension plans and postretirement benefits other than pensions.  The funding policy and expectations disclosed in the Company’s 2007 Annual Report on Form 10-K are expected to continue unchanged throughout 2008.

	For the Quarter Ended March 31,
	Pension Benefits						Other Benefits
(in thousands)	2008			2007			2008			2007
Service cost – benefits earned during the period	$	3,294		$	3,400		$	3,238		$	2,741
Interest cost on projected benefit obligation	8,579			8,038			172			294
Expected return on plan assets	(11,122		)	(11,267		)
Amortization of unrecognized transition obligation	69			60
Amortization of prior service cost	590			570			(114		)	54
Recognized actuarial net (gain) or loss	1,183			1,941			(125		)	(15		)
Net periodic pension (income) cost	$	2,593		$	2,742		$	3,171		$	3,074

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Note 9 – Segments of Business

The Company’s business activities are organized around and aggregated into its two principal business segments, Flexible Packaging and Pressure Sensitive Materials.  Both internal and external reporting conforms to this organizational structure, with no significant differences in accounting policies applied.  The Company evaluates the performance of its segments and allocates resources to them based primarily on operating profit, which is defined as profit before general corporate expense, interest expense, income taxes, and minority interest.  A summary of the Company’s business activities reported by its two business segments follows:

	For the Quarter Ended March 31,
Business Segments (in millions)	2008			2007
Net Sales to Unaffiliated Customers:
Flexible Packaging	$	781.8		$	743.3
Pressure Sensitive Materials	167.3			167.0
Intersegment Sales:
Flexible Packaging	(0.2		)	(0.1		)
Pressure Sensitive Materials	(1.6		)	(1.1		)
Total	$	947.3		$	909.1
Operating Profit and Pretax Profit:
Flexible Packaging	$	78.6		$	88.2
Pressure Sensitive Materials	11.9			14.3
Total operating profit	90.5			102.5
General corporate expenses	(13.0		)	(11.8		)
Interest expense	(9.0		)	(12.5		)
Minority interest in net income	(1.4		)	(0.6		)
Income before income taxes	$	67.1		$	77.6

	March 31,		December 31,
Business Segments (in millions)	2008		2007
Identifiable Assets:
Flexible Packaging	$	2,731.0	$	2,672.7
Pressure Sensitive Materials	372.3		358.0
Total identifiable assets	3,103.3		3,030.7
Corporate assets	162.5		160.7
Total	$	3,265.8	$	3,191.4

Note 10 – Earnings Per Share Computations

	Three Months Ended March 31,
(in thousands, except per share amounts)	2008		2007
Weighted average common shares outstanding – basic	100,117		105,053
Dilutive shares	802		1,482
Weighted average common and common equivalent shares outstanding – diluted	100,919		106,535
Net income for basic and diluted earnings per share computation	$	42,333	$	48,256
Earnings per common share – basic	$	0.42	$	0.46
Earnings per common share – diluted	$	0.42	$	0.45

Note 11 – Legal Proceedings

The Company 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 liability would not have a material adverse effect upon the Company’s consolidated financial condition or results of operations.

The Company is a potentially responsible party (PRP) pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (commonly known as “Superfund”) and similar state laws in proceedings associated with eleven sites around the United States.  These proceedings were instituted by the United States Environmental Protection Agency and certain state environmental agencies at various times beginning in 1983.  Superfund and similar state laws create liability for investigation and remediation in response to releases of hazardous substances in the environment. Under these statutes, joint and several liability may be imposed on waste generators, site owners and operators, and others regardless of fault.  Although these regulations could require the Company to remove or mitigate the effects on the environment at various sites, perform remediation work at such sites, or pay damages for loss of use and non-use values, we expect the Company’s liability in these proceedings to be limited to monetary damages. The Company expects its future liability relative to these sites to be insignificant, individually and in the aggregate.  The Company has reserved an amount that it believes to be adequate to cover its exposure.

Dixie Toga S.A., acquired by the Company on January 5, 2005, is involved in a tax dispute with the City of São Paulo, Brazil.  The City imposes a tax on the rendering of printing services.  The City has assessed this city services tax on the production and sale of printed

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labels and packaging products.  Dixie Toga, along with a number of other packaging companies, disagree and contend that the city services tax is not applicable to its products and that the products are subject only to the state value added tax (VAT).  Under Brazilian law, state VAT and city services tax are mutually exclusive and the same transaction can be subject to only one of those taxes.  Based on a ruling from the State of São Paulo, advice from legal counsel, and long standing business practice, Dixie Toga appealed the city services tax and instead continued to collect and pay only the state VAT.

The City of São Paulo disagreed and assessed Dixie Toga the city services tax for the years 1991-1995.  The assessments for those years are estimated to be approximately $62.9 million at the date the Company acquired Dixie Toga, translated to U.S. dollars at the March 31, 2008, exchange rate.  Dixie Toga challenged the assessments and ultimately litigated the issue in two annulment actions filed on November 24, 1998 and August 16, 1999 in the Lower Tax Court in the City of São Paulo.  A decision by the Lower Tax Court in the City of São Paulo 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 the applicability of the city services tax and has issued assessments for the subsequent years 1996-2001.  All of the assessments for the years 1996-2001 were upheld at the administrative level.  Dixie Toga has filed two annulment actions on July 16, 2007 and November 29, 2007 in the Lower Tax Court in the City of São Paulo to challenge such assessments.  In pursuing its challenge through the courts, Dixie Toga is required to pledge certain fixed assets in São Paulo, Brazil, as security for the lawsuits.  Both lawsuits are pending a decision from the Lower Tax Court.  The assessments for these years for tax and penalties (exclusive of interest and monetary corrections) are estimated to be approximately $40.0 million at the date of acquisition, translated to U.S. dollars at the March 31, 2008, exchange rate.  In the event of an adverse resolution, the estimated amounts for all assessments for all years could be substantially increased for interest, monetary adjustments, and corrections.

The Company strongly disagrees with the City’s position and intends to vigorously challenge any assessments by the City of São Paulo.  The Company is unable at this time to predict the ultimate outcome of the controversy and as such has not recorded any liability related to this matter.  An adverse resolution could be material to the consolidated results of operations and/or cash flows of the period in which the matter is resolved.

On September 18, 2007, the Secretariat of Economic Law (SDE), a governmental agency in Brazil, initiated an investigation into possible anti-competitive practices in the Brazilian flexible packaging industry against a number of Brazilian companies including a Dixie Toga subsidiary.  The investigation relates to periods prior to the Company’s acquisition of control of Dixie Toga and its subsidiaries.  Given the preliminary nature of the proceedings the Company is unable at the present time to predict the outcome of this matter.

The Company and its subsidiary, Morgan Adhesives Company, have been named as defendants in thirteen civil lawsuits related to an investigation that was initiated and subsequently closed by the U.S. Department of Justice without any further action.  Six of these lawsuits purport to represent a nationwide class of labelstock purchasers, and each alleges a conspiracy to fix prices within the self-adhesive labelstock industry.  The first of these lawsuits was filed on May 27, 2003.  In these lawsuits, the plaintiffs seek actual damages for the period of the alleged conspiracy (January 1, 1996 through July 25, 2003) trebled, plus an award of attorneys’ fees and costs.  On November 5, 2003, the Judicial Panel on MultiDistrict Litigation issued a decision consolidating all of the federal class actions for pretrial purposes in the United States District Court for the Middle District of Pennsylvania, before the Honorable Chief Judge Vanaskie.  On November 20, 2007, the Court granted plaintiffs’ motion for class certification.  On March 6, 2008, the Third Circuit Court of Appeals denied Defendant’s petition for leave to appeal the district court’s decision granting class certification.  At this time, a discovery cut-off and a trial date have not been set.  The Company has also been named in three lawsuits filed in the California Superior Court in San Francisco. These three lawsuits, which have been consolidated, seek to represent a class of all California indirect purchasers of labelstock and each alleges a conspiracy to fix prices within the self-adhesive labelstock industry.  Finally, the Company has been named in one lawsuit in Vermont, seeking to represent a class of all Vermont indirect purchasers of labelstock, one lawsuit in Nebraska seeking to represent a class of all Nebraska indirect purchasers of labelstock, one lawsuit in Kansas seeking to represent a class of all Kansas indirect purchasers of labelstock, and one lawsuit in Tennessee, seeking to represent a class of purchasers of labelstock in various jurisdictions, all alleging a conspiracy to fix prices within the self-adhesive labelstock industry.  The Company intends to vigorously defend these lawsuits.

Given the ongoing status of the class-action civil lawsuits, the Company is unable to predict the outcome of these matters although the effect could be material to the results of operations and/or cash flows of the period in which the matter is resolved.  The Company is currently not otherwise subject to any pending litigation other than routine litigation arising in the ordinary course of business, none of which is expected to have a material adverse effect on the business, results of operations, financial position, or liquidity of the Company.

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