Ladies and gentlemen, thank you for standing by. Welcome to the Avery Dennison fourth quarter 2007 and year-end conference call. (Operator Instructions) I would now like to turn the conference over to Cynthia Guenther, Vice President, Investor Relations. Please go ahead, Ms. Guenther.

Thank you. Hello, everyone and thank you for joining us. I have just a few announcements. First I would like to direct you to a document titled Fourth Quarter and Full Year 2007 Financial Review and Analysis. You’ll find that at our investor section of the website. Our discussion will generally follow this handout and refer to information contained in the slides, so I encourage you to have that document in front of you as you listen to our remarks. As we mentioned in our news release, we changed our accounting methodology for inventories for certain U.S.-based businesses this past quarter, moving all businesses to the first-in, first-out method. This change was made primarily to simplify financial reporting, eliminating a time-consuming step in our process that generally has little impact on reported financial results. We have restated prior period figures to conform to the revised accounting treatment; that is, adjusting all numbers as though we had never used the LIFO method. This restatement had no impact on earnings for the fourth quarter of 2007 and had a negligible impact on earnings reported for the first three quarters of the year. However, the adjustment did increase prior year reported EPS by $0.03 for the fourth quarter and $0.06 for the full year. We’ve included a summary of prior period adjustments related to this accounting change on slide 20 of the handout and we’ve posted a supplemental analysis of the effects by segment at our website. As usual, we have included references to GAAP operating margin in our news release, which includes interest expense, restructuring, and other charges included in the other expense net line of our P&L, as well as transition costs associated with the Paxar integration that show up this quarter in MG&A expense. Restructuring charges and integration transition costs tend to be fairly disparate in amount, frequency, and timing. In light of the nature of these items, we will focus our margin commentary on pretax results before their effect and before interest expense, as detailed in schedules A3 to A5 of the financial statements accompanying our earnings news release for the quarter. We’ve also included a reconciliation of margin change in slides 18 and 19 of the handout to help you see the impact of the Paxar acquisition on gross margin and operating expense ratios. Finally, let me remind you that we will make certain predictive statements that reflect our current views and estimates about our future performance and financial results. These statements are based on certain assumptions and expectations of future events that are subject to uncertainty. Item 1A and the MD&A section of our most recent Form 10-Q discuss some of the most important risk factors that could cause actual results to differ from our expectations. Dean Scarborough, President and Chief Executive Officer; Dan O'Bryant, Executive Vice President and Chief Financial Officer; and Mitchell Butier, Vice President and Controller, are here for today’s call. Now I will turn this over to Dean.

Thanks, Cyndi. I’m pleased to report that we beat our earnings target for the fourth quarter, notwithstanding continued weakness in end market demand through December. The benefit of productivity improvement actions we’ve been implementing all year, along with highly disciplined expense control, put us over the high end of our revised guidance. That said, for the full year we came in about $0.10, or 2.5%, below the low end of our original pro forma earnings guidance range, missing our internal targets for both sales growth and margin improvement. It was a challenging year but it’s created a renewed sense of urgency for 2008, some of which was demonstrated by the better-than-expected Q4 results. We clearly faced some tough headwinds during the past year. The slowdown in the U.S. retail environment hurt top line sales growth for RIF and for office products, as retailers lower inventories in the face of slowing consumer demand. Our Roll Materials business in North America and Europe also experienced soft market conditions, especially in the second half of the year. These conditions, combined with capacity and demand imbalances, impacted pricing in these markets as well. Our productivity initiatives were not able to offset soft demand, a tougher pricing environment, and additional raw material inflation. We’ve been responding to the changes in the economic outlook and market conditions by clamping down on expenses and intensifying our drive for productivity through enterprise lean sigma, or ELS, restructuring, and other efforts. Over the past five quarters, we’ve announced actions to drive nearly $50 million in savings from restructuring efforts alone. That’s on top of the savings we’ll get from the Paxar integration and other programs to drive out costs. We’ve also been applying productivity tools to more effectively manage our asset base -- in effect, finding ways to do…

Thanks, Dean. Let’s begin the financial overview on slide five and six of the handout. Net sales were up 21% due to the benefits of the Paxar acquisition and currency translation. On an organic basis, sales declined modestly compared to the prior year. Operating margin before charges and transition costs increased by 20 basis points, or about 60 basis points if you adjust for the addition of the base Paxar business. The margin in that business is currently below the average for the company but we are quickly addressing that with the integration. At 19.1%, the tax rate for the year was in line with our recent guidance. We continue to believe a tax rate in the range of 18% to 20% will be sustainable for at least the next few years, reflecting geographic income mix, reductions in the statutory rates in a few countries, as well as benefits from tax planning, particularly with respect to Paxar. I’ll speak to the restructuring and asset impairment charges later in the context of our productivity improvement efforts, so if you turn to slide seven I’ll walk you through the story on top line sales. As I said, reported sales were up about 21% compared to the prior year. You may notice on this slide that we are no longer breaking part volume growth from price and mix changes. These statistics have always been a challenge for us, given the diverse mix of businesses across our portfolio. The statistics have become even less meaningful with the expansion of the retail information services business. That’s really a custom business with a relatively small percentage of repeat SKUs, metrics like unit volume and average selling price have little meaning. We will continue to provide color on the effects of price changes and product mix, as…

Thanks, Dan. To sum up, we enter 2008 with a sense of urgency but also a high degree of confidence in our ability to effectively manage what is under our control and respond quickly to changes outside of our control. Our priorities are straightforward. We will capture the synergies from the Paxar acquisition and begin to deliver on the growth promise as well. We will change the trajectory of our pressure-sensitive materials business by driving accelerated productivity, price realization, and continued growth in emerging markets. We will continue to invest in growing new applications. In office products, we intend to renovate and develop new products that will focus on those areas close to our core and on projects that have rapid pay-back. We will accelerate our ELS efforts to improve productivity and to enhance our service and quality for customers, and we will deliver better cash flow this year, with a reduced capital budget and focused targets on working capital improvement. Now we’ll be happy to take your questions.

(Operator Instructions) Our first question comes from the line of George Staphos from Banc of America Securities. Please go ahead.

Cyndi, congratulations on the new role. We’ll miss you. Are you going to bring Wayne back or what?

No, he’s happily retired at the beach.

Well, in any event, a couple of things to start -- the office and consumer margin, could you give us a bit more detail in terms of how you were able to generate that performance? I mean, it was admirable given the volume decline and really the question behind the question -- how sustainable do you think it is into 2008 if we see continued volume declines?

First of all, I just would say that the management team did a superb job of managing in an increasingly difficult environment in the back half of the year, as customers continuously lowered their order demands from us. The main benefits were accelerated productivity, a lot of belt tightening, we lowered a lot of our marketing spend, as there were fewer consumers coming to the stores. And of course, with lower volumes our rebates were lower as well. We are going to keep our targets for office and consumer products and I expect they will be in the 18% to 19% range for next year.

And that would assume a flat volume environment do you think, Dean? Or if you saw a continuation of the back half ’07, might that be a bit tough?

I think we’ll get hopefully back to a more normal environment of down to the very low single digits per year.

Okay. Separately, as you look out and look at your January trends, and we’ve seen this from some of the other companies as well, where January was a pick-up after a relatively slow end of fourth quarter. What visibility do you have into whether your shipments and your customers’ refilling of the supply chain is actually being mirrored by better or improving point of sale shipments and customer demand, really?

I’d say the one, or a couple of pieces of anecdotal evidence, George, in the North American roll business is a lot of activity on new packaging programs related to our films products. So it’s not necessarily related to POS but perhaps just related to companies coming into a new budget year and once again having the budget to start to implement some of these packaging programs.

Last question and then I’ll turn it over -- just with Paxar, where do you stand do you think in the game as far as the European customers perhaps moving or migrating their production to potentially lower cost regions, or do you think that’s not going to be as big of a factor in Europe as we might have seen in North America over the last five years?

It’s going to continue to be a strong factor because the penetration of Asian suppliers is lower in Europe. And also, frankly, the very strong Euro gives retailers and brand owners even more incentive to source from Asian economies, many of whom are still relatively dollar-based, so they are still seeing a lot of incentive to move volume there.

Thank you. Our next question comes from the line of Ghansham Panjabi. Please proceed with your question.

Ghansham? Operator, it looks like we lost him. Can you put someone else on and we’ll hopefully catch up?

Thank you. Our next question comes from the line of -- I apologize. Just one moment, please -- Mr. Reik W. Read.

Dan, I just want to go back to something that you had talked about with the range on the accretion for Paxar, and maybe asking a little bit different -- you guys are talking about $60 million, $70 million in cost savings. Can you talk a little bit about what the growth expectations are to hit those? And then can you also talk a little bit about Chinese labor costs and the increases there that might be impacting costs?

We’ve been relatively conservative in the expectations for top line growth coming out of the RIS sector for the coming year. We’ve modeled between 1% and 3% growth, which is well below our longer term expectations, well below the historical rate. But as we pointed out, we really didn’t get any growth in the quarter with North America negative and Europe positive. So we’re taking a conservative approach at this. Of course, we’re benefiting on the bottom line by the fact that a slowing economy is reducing interest rates, which offsets some of the negative top line impact, so at least over the two to three year period, we expect the accretion to be what we said it would be. And we get again some benefit on the interest line while we are carrying all of this debt. I’m going to let Dean talk about the inflationary environment in China.

The major impacts actually in the Pearl River delta in south China, that’s where you see the most impact of the higher labor rates. So there’s a couple things that are happening. One is, as you might expect, there are other parts of Asia where apparel sourcing is going to grow at a much faster rate. So north China, for example, other locations along the coast, South Asia, including Bangladesh, Sri Lanka, India, Vietnam’s another attractive location. And fortunately, we’re there. In fact, we just opened a new north China site, very large expansion just a couple of quarters ago. And that business is growing very nicely. And then of course the second thing we work on is to drive productivity and driving productivity is something new for a lot of Chinese factory managers because all they’ve been managing for most of their career is growth. So we put a lot of energy into our ELS programs there and in fact, I was just there two weeks ago and we’re making great traction at both the ex-Paxar sites as well as the Avery Dennison sites.

Okay, and then a question on the RFID side. You talked about your goal being $50 million and if I attempt to back out the large apparel contract, it’s probably still in the neighborhood of $30 million, $35 million that you need. It would seem like you would have to sell something along the lines of 450 million to 500 million inlays. Is this a reasonable assumption in terms of how you see the market unfolding?

I’d prefer not to give that number.

Maybe I’ll try it a different way -- can you talk at least a little bit about where you are seeing the activity, and I would think apparel would be first and foremost with you guys, but it also seems like aviation, there’s some renewed emphasis on compliance and then there’s some other closed loop activity. Can you just talk about how each of those are moving forward?

What I would say is what we have done is reprioritize the business, so there are four specific areas we are looking to make sure we are gaining traction in the inlays business. One is item level tagging at retail, which is gaining a lot of activity and we’re involved in a lot of pilot programs there, so there we catch it on the retail information services side and we capture it obviously on the inlay side at the same time. Second is transportation, as you mentioned. So specifically airlines; third is compliance labeling, the carton labeling business which continues to grow. Obviously not to the extent that folks had thought it was a few years ago. And then finally, other closed loop systems, like pharmaceutical, for example, is another area where we are doing some piloting work and some development work. But you know, I expect next year to be another great year for the inlay business and volumes should be substantially higher.

Can you talk to -- I know that you guys have tried to right-size that business but you are obviously making investments because you see some growth there. Can you talk a little bit about where those investments are going at this point?

We’re not having to put that much cash into the business. We have plenty of capacity. I think we’ve got a couple of small pieces of equipment we have to add to our base, but it’s even $5 million. So not a lot of investment on our part is required to get that lift.

Okay, great. Thank you so much.

Operator, are there any questions?

Thank you. Our next question comes from the line of Jeffrey Zekauskas from J.P. Morgan Securities. Please proceed with your question.

In your estimation, how disruptive has been the addition of the new PSA capacity that UPM has? And in what way have all of the players attempted to reduce capacity in other areas to make up for the capacity addition?

Are you specifically talking about North America, Jeff?

Yes, I am.

I think everybody probably runs with the same playbook and basically it’s how it is executed and the playbook, at least from our perspective, is you drive productivity, you make sure that you are loading up your most productive assets, widest, fastest assets. We’re doing a lot of materials reengineering, so creating new products or product variations with the same or better functionality at lower cost. And continuously looking for ways to take out costs out of every process that we have across the company. So it’s -- that’s one part of it. And then there’s continuing to invest in growth and invest in the customers with our Fasson optimum performance programs, which our customers like. And some new products, especially in the films area and in the consumer durables area.

I guess maybe if I could try it a different way -- you know, prices have been under pressure and now there is some raw material price inflation and it sounds like what you wish to do is to increase prices, or get higher price realizations.

Absolutely. Actually, this sounds maybe a little counter-intuitive, but the inflation rate is much higher in North America than we had projected even just a few months ago, and it’s clear that the whole industry is feeling that, so with that kind of intense pressure, I do believe we’ll start to see price -- well, we’ve already announced a price increase and I believe industry prices will go up in 2008.

Do you believe that you are taking market share in North America?

Well, we did last year. We took about a point of share.

I guess just one other final question; I was looking at your free cash flow estimates for 2008, which are $400 million to $450 million. Does that include whatever working capital you might use?

Yeah, it does. We’ve got improvements planned in working capital but with the growth, particularly in emerging markets, working capital will still be a small use of cash to us in the $20 million to $30 million range.

And the cash restructuring charges related to Paxar I think are $65 million for ’08 -- forgive me, what were they for ’07?

Let me find that -- you know what, it would be about 45% of that total and I don’t have the number right in front of me. Let me just calculate it real quick -- so basically about $75 million.

About $75 million, so that would be 140 in total, so that would mean that in 2009 there would only be about $10 million in cash restructuring charges?

Actually, yes, it’s actually on slide 12. We said about 15% to 20% of the total is going to hit us in 2009. That would include any addition capital or IT spending that we have to do, so yes, we’re looking for about $30 million of the total cash costs of getting integration done hitting in ’09.

Okay. Thank you very much.

Thank you. Our next question comes from the line of Ghansham Panjabi of Wachovia Securities. Please go ahead, sir.

Can you hear me now, guys? Sorry about that. In terms of your comments on Europe, I don’t know if you covered this or not, but the European PSM business, it seems like it got a little bit better sequentially. Was that a function of the market improving or was it a function of share gain in your opinion? Thanks.

I don’t know if it was share gain. I do think the market was slightly better in Q4 than Q3 but it’s just a conjecture.

Okay, and so most of what we should expect in terms of your top line growth on a core basis for ’08, maybe in the first half especially is probably more skewed towards price versus volume? Because the last two quarters of last year, 3Q and 4Q, were negative from a core sales basis. Is that the right way to think about it?

Certainly the comps will be easier in the back half of the year.

Right, but for the first half, is it more skewed by price versus volume?

Last year the organic numbers reported had a lot more negative price impact than we anticipated in the coming year, so that helps the reported sales level. But as Dean said before, we are seeing some improvement in North America. We’ve got about a month of data where volumes have improve. North America certainly slowed down first and if this is sustained, will prove to follow a typical pattern where it also improves first. But the normal pattern also means that many of our other businesses that are somewhat more economically sensitive have slowed in the fourth quarter as well. So right now, we are still seeing mix numbers but if the North American volume continues at the level it is, that will have improved and hopefully spell better things for the back half of the year.

Okay. Thanks so much.

Thank you. Our next question comes from the line of John P. McNulty from Credit Suisse. Please go ahead with your question.

With regard to the RIS integration, you had indicated I guess in the release that it was a seamless integration so far. Can you discuss how the customer retention is going relative to -- I believe you were looking for a 3% to 5% migration away, how that’s comparing to what you were looking for?

Yeah, we’ve done much better than that. We’ve -- in Europe, I’d say we didn’t miss a beat and in North America, we had -- some customers decided that they needed another supplier and have begun sourcing and in other places, we gained share. So I am very pleased with how the entire integration has transpired.

Would that indicate that there may be some upside to the synergy target that you were looking for then?

Well, we did raise our synergy estimates but given the soft retail environment, I don’t think we’re emboldened enough to raise them based on that. I mean, we’d like to see the market come back a bit.

I’ll tell you, the way that we would beat the numbers of synergy here, John, would be if the general economy remains slow enough to hold interest rates lower and we do better than that 2% top end of our guidance range for the business, then we could do better for this. But right now, we are still anticipating in the guidance we provided that the retail environment will remain fairly soft for the next couple of years.

Okay, fair enough. And then, with regard to the financing, I know you had indicated I guess last quarter that you were expecting an interest expense of 6.5% to 7%. Today it looks like it’s closer to 5%. Is the reason why the EPS accretion hasn’t gone up, is that the dilution tied to the convert that you’ve put in place, or can you walk us through how you are maintaining that same EPS accretion target?

No, it’s not related to the convert. We expect that by the time the convert does convert, that we’ll be in a share buy-back position because cash flows will be ramping up significantly over the next two or three years. It really has to do with the base underlying business. The accretion is coming in where we expected. Interest rates are lower than we expected right now but the base business without the normal growth is coming in softer, so the margins are a little bit lower than we expected.

Okay, fair enough. And then, just the last question with regard to the price increases that you said you announced in the PSA and in the office products area, have you seen much push-back on those yet? And if you haven’t, then what would get you to the low end of the organic growth rate that you’ve targeted for 2008?

As far as the price increases go, from what we can see so far, there’s been competitive support for the price increases and frankly, most customers aren’t surprised that the prices are going up, given the raw material environment and given the increases they’ve seen in other raw materials that they, or other products that they purchase. I’ll let you handle the guidance question.

Well, the low end of the guidance range is conservative and we’ve left a fairly wide range. I think there is a lot of uncertainty in the economy. If things continue as they are where the U.S. economy is giving us negative numbers, then we’re going to end up at the low end of the range. I think if our Roll business’ recent improvement continues, then other businesses in the U.S. will start to improve as well. But that’s really the key for the next three or four quarters, is what happens in the U.S. market. Europe usually lags by a few months whatever goes on in the U.S. and Asia has been doing extremely well, so I don’t think that’s where the story lies either. It’s about the U.S. and that’s going to be mostly retail driven.

Okay, great. Thanks a lot.

(Operator Instructions) Our next question comes from the line of Timothy W. Thein from Citigroup Global Markets. Please proceed with your question.

Thank you and congrats and good results in a seemingly tough macro backdrop. My question is, and a lot of them have been asked already, but when you went through on slide 12, I have scribbled down here that 1% organic volume growth equals $0.30 a share in net accretion and then $0.04 -- 4%, rather, is $0.45 of accretion. Is that -- and again, that’s ex, or on top of interest expense. Did I get that right?

I think Dan misspoke. I think -- you said $0.30, I think you meant $0.35 on the low end, reflecting the 1%. It was just a misstatement. And actually, 4% top line applies to the high end of that range for ’08, 4% top line growth.

Okay. When you look back at Paxar and then through your own experience with RIS, how variable was that top line growth in the past, in past slowdowns? Have you looked at that in -- I mean, were there negative periods in recessions or --

It’s not that -- it’s not -- this isn’t a highly cyclical business. I mean, apparel unit volume moves in a fairly tight range. I think where we get impacted is by inventory [change] more than anything else. That being said, I think the last quarter was one of the more severe quarters we’ve seen in a long time in terms of retail traffic and retail sales.

Okay, and lastly, when you look at -- you guys have been at this for quite a long time, but when you look at the situation in North American raw materials in terms of the capacity increase at a time when demand has been rather sluggish, have there been periods in the past where you can isolate cyclical patterns and say pricing was under pressure for four quarters, six quarters, whatever it is and kind of come up with a scenario now where you could say should demand rebound to some extent in the second half of the year, that pricing level should start to pick up, or -- where would you say we are in, you know, the baseball game analogy. Where do you think we are in terms of price pressure in the U.S. business?

I wish I could predict where raw materials would end up and then I could go with the baseball analogy. Here’s the way I look at the business. There’s two major factors impacting pricing in the market. The highest rates raw material costs because we all run with basically the same economics, which is a tremendously large part of our costs are based on raw materials. So if you look over the trendline, when raw material prices go up, so do prices for pressure-sensitive and laminate products and when they go down, it goes down the same way. That’s amplified or diminished by periods of more or less capacity. And my sense right now is we are in a period of time where raw material inflation is intense enough that just filling your [quarter] to try to get incremental margin actually doesn’t work as a strategy, and so that’s why I believe that we’ll start to see laminate prices going up.

Okay. All right, thanks. Good luck in the quarter.

Thank you. Our next question comes from the line of Todd Peters from American Century. Please proceed with your question.

Thank you. Good afternoon. Can you clarify please your comment on your capital spending? You said both it includes your capital for equipment and also software, so is the actual dollar amount on plant and equipment coming down meaningfully from ’07 into ’08?

Let me see if I can break it down in a little more detail for you and one point that either clarifies or confuses is that the Paxar part of the capital spending we’ve included on slide 12 in the Paxar integration costs. So as I’ll lay it out right now, it’s got the total capital numbers, so we’ve got about $170 million of CapEx, including some Paxar integration; we’ve got about $63 million of IT expense, including some Paxar integration. So all together, we’ll spend about 230. But don’t double count the extra 30 if you have it already built into the cost of integrating Paxar. That is slightly less than last year. Our underlying capital excluding Paxar last year came in about $190 million and will it drop to 160, so we’ve got capital productivity there. And IT excluding Paxar drops from the 60 range down to the mid 40 range, so it is coming down either way that you cut it.

All right. Thank you.

Our next question comes from the line of George Staphos, Banc of America Securities. Please proceed.

This question is on Paxar. I just wanted to finish up -- as you see customers move their production from Europe to lower cost locales, do you think it will actually help your margin within Paxar or within RIS over time? Do you think it will be net neutral because it’s a shift in production from one region where you are to another where you are, or it could be a negative? And then, where would you say we are in terms of that transition -- 20% done, 80% done? I’m guessing you are earlier in the stage of that transition. And then last, of the $0.35 of restructuring and Paxar integration costs, I realize that you don’t have it all tied down but how much of that will be just Paxar integration for 2008? Thanks, guys.

A couple of things for Europe -- it’s really tough to estimate the percentage of penetration. Our market share in Europe is still relatively low and where we pick up share is when people move business out of a local country to Asia because we are equipped to take the business. So I would say that we’ve got, I don’t know, five more years at least of growth just from that perspective, capturing share that way. There are also some geographies in Europe where we don’t have that high a penetration in terms of geographic coverage. That will give us another lift as well. And finally, it’s great news when people offshore the volume because that’s where we provide the value and that’s where our margins are the highest.

Fair enough, and on the integration costs, if you could -- if not precisely, give us a rough ballpark.

Let me do that -- so for total CapEx in software, I’ve got a number of about 220 for 2008; about 190 to 195 of that is the base business and about 25 to 30 of that is Paxar. And when we talk about including some capital and IT spending in 2007 for Paxar, it was pretty immaterial, less than $5 million of that total in 2007 was related to Paxar. Does that help?

Yes, I think so. Thanks, guys.

All right. I guess we’ll wrap up the call now. Thanks, everyone for joining us and we’ll look forward to seeing you in March. Dean and Dan will be there in New York to talk about our growth opportunities in more detail. Thank you.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you pleased disconnect your lines.