Welcome to Avery Dennison’s earnings conference call for the first quarter ended April 4th, 2009. This call is being recorded and will be available for replay from 2 p.m. Pacific Time today through midnight Pacific Time, May 1st, 2009. To access the replay, please dial 800-633-8284, or 402-977-9140 for international callers. The conference ID number is 21411860. I would now like to turn the call over to Eric Leeds, Avery Dennison’s Head of Investor Relations. Please go ahead, sir.

Thank you. Welcome everyone. Our discussion today will reference the earnings release that we issued earlier along with the slide presentation titled, First Quarter 2009 Financial Review and Analysis. Both documents were furnished today with our 8-K and posted at the Investor's Section of our Web site at www.investors.averydennison.com. We remind you that these results are preliminary as we have not yet filed our 10-Q. Our news release references GAAP operating margin, which includes interest expense, restructuring, and other charges included in the other expense line of our P&L. Also referenced are transition costs associated with acquisition integration. Restructuring charges and integration transition costs tend to be fairly discrete in amount, frequency, and timing. In light of the nature of these items, we will focus our margin commentary on pre-tax results before their effect and before interest expense. These details and schedules A3 and A4 of the financial statements accompanying today’s earning’s release. We also 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. The Safe Harbor statement included in the documents that we provided today, along with our 2008 form 10-K, address certain risk factors that could cause actual results to differ from our expectations. Here today are Dean Scarborough, President and CEO; Dan O’Bryant, Executive Vice President and CFO; and, Mitch Butier, Corporate Vice President of Global Finance. I’ll now turn the call over to Dean.

Thanks, Eric. As expected, the first quarter was an acceleration of the worsening trends we experienced in Q4. Continued soft end-user demand and inventory de-stocking caused sales to decline more than 14%. The quarter began with a very weak January, and then run rates improved for the balance of the quarter. The slowdown impacted every business segment and as well as in every geographic region. Price increases and productivity, while positive factors, were not able to offset the impact of lower volumes, causing operating margins to fall. While admittedly difficult to find a silver lining in this quarter’s performance, I’d like to point out that despite a greater than expected shortfall in revenues, we beat our internal targets for earnings from operations. The first quarter is seasonally a weak quarter anyway. But we reacted quickly to a soft January by accelerating restructuring plans and adjusting our other expenses downward. Business conditions in retail information services and other specialty converting were very tough, reflecting the difficult conditions in retail, automotive, and housing markets. Our pressure sensitive material segment was negatively impacted by very soft sales in our graphics and reflective products division. Products in this business are driven by promotional spending, and that's obviously been dramatically cut by businesses just about everywhere. After an extended period of significant raw material inflation, we did get some relief in the office and consumer products segment through a combination of price increases and productivity initiatives. I do believe we’re in a good position to weather the storm. We are accelerating our cost out actions and are planning additional actions, if necessary. And we're continuing our focus on cash generation. We have reduced capital spending and increased our focus on working capital reduction. And we intend to generate an up-cash flow to pay down debt,…

Thank you, ladies and gentlemen. (Operator instructions) Our first question, from the line of George Staphos from Banc of America Securities/Merrill Lynch. You may go ahead, sir. George Staphos – Banc of America Securities/Merrill Lynch: Thanks. Hi, everyone. Good morning and good afternoon.

Hi, George. George Staphos – Banc of America Securities/Merrill Lynch: First question, I just want to make sure – Dean you said and I’m paraphrasing here – that you have a number of things that you expect you’ll be able accomplish with the generation of the strong free cash flow – a solid free cash flow, as you termed it. And one of them was to pay a dividend. You’re not saying that you won’t – wanted to maintain the dividend or is there some chance you might not be able to maintain the dividend at the current level?

George Staphos – Banc of America Securities/Merrill Lynch: Okay. Just want to double check on that.

No hidden message, George George Staphos – Banc of America Securities/Merrill Lynch: Okay. Fair enough. Second question, can you comment, at all, in terms of what the sequential volume trends would look like over the course of the quarter? And as we exit it and enter into the second quarter?

Yes, well– George Staphos – Banc of America Securities/Merrill Lynch: Particularly in RIS and PSM.

Well, RIS, of course is very seasonal so sequential trends really don’t tell us much. I would say that the – It looked to me like the year-over-year declines were a little bit worse in the first quarter than in the fourth quarter. Especially in some of the businesses in retail information services that tend to be more hardware related like our printer systems division. The actual apparel business years-over-year declines were roughly consistent. But the – some of the other businesses, pressure sensitive – I think sequentially, above flat. And the other specialties on converting businesses were worst on year-over-year basis. Really starting to get much hit – much harder by automotive and construction. Office products, again, very seasonal, but I would say on a year-over-year basis because our customers did not reduce inventory as much in the first quarter as they did in the fourth quarter –you would say, we have a little bit of a benefit there. George Staphos – Banc of America Securities/Merrill Lynch: Okay.

I would add, George, that as the months progress, most of our businesses felt the greatest weakness in January, as I’ve mentioned. And it improved, but even by the time we got to March we were still down in lower double-digits. So we don’t have enough of April to declare that it has changed and it was kind of like March. So it improved to different levels in January. And we saw an underlying point of sale data improved in our products – in the office products store as the quarter progress, as well. So things got better at sales, like January with a bottom, but time will tell and we’re happier to be where we are than what we where in the month of January, anyway. But it was a tough quarter right through the end. George Staphos – Banc of America Securities/Merrill Lynch: Okay. And just to confirm, March for most of your businesses were still – we’re still down low-double digits. So sequentially, some improvements still not a great place to be?

Yes. That’s right. George Staphos – Banc of America Securities/Merrill Lynch: Okay. I’ll turn it over there. I’ll be back. Thanks

Our next question is from the line of Jeff Zekauskas from JP Morgan Securities. Please proceed. Jeff Zekauskas – JP Morgan Securities: Hi. Good afternoon. I hope I didn’t – I hope I’m not asking George’s question a second time. Previously, I think you said that free cash flow for 2009 would be $260 million to $300 million. Has that changed?

We did not provide guidance. In the January teleconference we provided a couple of scenarios with different sales declines. Not being in position to forecast the year, those two scenarios did have a – I think it was a $260 million free cash flow and a $300 million, but we indicated that those were not guidance and have not updated that at this time. Jeff Zekauskas – JP Morgan Securities: Okay. That was not guidance–

That was not guidance. We have not felt and still don’t feel like we’re in a position to call the volume for the year. So certainly, our free cash flow is going to be impacted by that. But we expect that the free cash flow to be more stable than our earnings have been, certainly. And that was the case in the first quarter. And we still expect to have adequate cash flow for our dividend end to pay some debt down. And we’ll leave it at that, for now until we better view of the outlook for the year.

The whole purpose of that – those scenarios that we put out were to show that subject to significant differences and revenue declines we would have differences in EPS declines, but not much difference free cash flow declines or changes in free cash flow – to show that free cash flow is a lot more stable than revenue earnings would be. Just to show some activity (inaudible) around guidance. Jeff Zekauskas – JP Morgan Securities: Second thing in – and again, I hope I’m not asking the same question again. In retail information systems, usually you have a pretty good idea of what the second quarter would be like by the order of pattern that you see in March and April. What is the order pattern in March and April tells you about the second quarter?

I think it’s going to be consistent with what we’ve seen for the last couple of quarters. Retailers are reducing inventories, other sales are down. I think apparel import into the US hit a record low in the fourth quarter of 2008. And I expect those trends to continue for the balance of the year. Jeff Zekauskas – JP Morgan Securities: Okay. And in terms of your SG&A expense, it was only down a little bit? Why wouldn’t that – why would your SG&A have come down more given how much yourself decreased?

Down, I think the number was $24 million year-on-year and there were some factors involved, but we’re early on our restructuring process and there is more SG&A coming out as the year progresses. But it did come down on an annualized basis, $100 million or so for the first quarter. So it’s moving in the right direction. Jeff Zekauskas – JP Morgan Securities: Okay. I’ll get back in the queue. Thank you very much.

Okay.

Our next question is from the line of Peter Ruschmeier from Barclays Capital. Go ahead Sir. Peter Ruschmeier – Barclays Capital: Thanks and good morning.

Good morning. Peter Ruschmeier – Barclays Capital: Question, maybe for Dan, coming back to the dividend, I want to just clarify a point. I believe in your slide 13 you indicated free cash flow definition of – I believe is before dividends. And I think that you’ve said you’d have enough free cash flow to pay the dividend next year and to pay down debt. Could just elaborate the debts you’re – at least comfortable in earning the dividend and paying down some debt? Dan O’Bryant: Well, we have always had cash flow generation engraved in our dividend over the period of the year, not in quarter because of the seasonality. And so we’re highly focused on the cash flow number and expecting to have working capital as a source of cash. And so, yes, as things stand right now, we’re still pretty intent on having excess cash after paying the dividend. Again, the economy is going to determine some of that, but that is our target for the year and that’s what we’re working for. Peter Ruschmeier – Barclays Capital: And I believed if I’m not mistaken – I believe you’ve paid the dividend for decades and without interruption. I’m curious if you got to a period where you would not earn the dividend. Is that something meaningful or how do you think about it? Do you think about it over a two or three-year period? Dan O’Bryant: Well, first, I’ll say it’s a Board decision whether we paid dividend and how much. Our view and our discussions with the Board have to do with our ability to support the dividend over time, not in a quarter, perhaps, even in a year. They, of course would be concern, as any Board should be, if we are not earning the…

Our next question is from the line of John McNulty with Credit Suisse. You may proceed. John McNulty – Credit Suisse: Hi. Good afternoon, just a couple of quick questions. On the pressure sensitive side, you had talked about seeing price increased at this quarter and that they were offset on the volume side. Can you give us some color as to what the price increases were and if you expect that to become sustainable rate going through the rest of the year? Or if you’re starting to see push back on that now? Dan O’Bryant: Yes, a couple of factors there. We had a number of price increases related to raw material inflation catch up in the fourth quarter that we pushed through. And then in the first quarter we‘ve had currency related price increases. For example in the UK, and in Latin America where we’ve seen some pretty dramatic currency shifts, we’re waiting prices to offset those. Customers always want the lower prices and I don’t see anymore aggressive activity in that business than we’ve seen over the past few quarters. John McNulty – Credit Suisse: Okay. And then with regard to pricing in the RIS segment, can you give us some color as to what you saw in the past quarter there? Dan O’Bryant: Yes. That’s a tougher one, John, because it’s a custom business. I think one – we’ve seen two major factors. One is that customers are of course ordering less and what they are ordering is certainly smaller quantities per order. And then there’s probably more of a shift to customers trying to cut the cost of their tags and labels by making them smaller or using lower cost materials. John McNulty – Credit Suisse: Okay. That’s helpful. And then speaking of materials, with regard to your raw materials, can you comment on what kind of pressure you may have continue to see that’s lagged over from the fourth quarter in this past quarter and then where you expect raw materials to go throughout the rest of the year for you? Dan O’Bryant: Sure, while we saw inflation impacting us through the fourth, particularly and especially paper lines, it has peaked. We’ve started to see some relief in the first quarter, clearly not enough to offset the magnitude of inflation last year. So there’s still some progress on margins that we may need to make to get back to where we were. So the good new is we are starting to see the tide turn in many of our categories and slower then others. So I think for the year it’s hopefully going to be an improvement from where we were our outlook – not our outlook but our scenario that we had in Q1 assumed the neutrality between our pricing and our raw material inflation. It could get better than that before the year is over. We’ll watch and see. John McNulty – Credit Suisse: Okay. Great. Thanks a lot.

Thank you. Our next question is from the line of Tim Thein, Citigroup. Please go ahead, sir. Tim Thein – Citigroup: Yes. Thank you. First question was back on the RIS business, do you – in terms of the sequential trend there, would you – based on what you can see today, do you normally see a nice sequential improvement there? Do you you’ll be profitable in the second quarter in that business? Dan O’Bryant: Well we don’t give guidance, and we certainly don’t give it on a quarterly basis by business line. I certainly believe that buying will be higher in the second quarter for retail information services than the first quarter. It’s happened every year since I’ve been around here, and this business has high variable margins. So I do definitely anticipate our earnings will be better in the second quarter versus Q1. Tim Thein – Citigroup: Okay, and switching gears on the – back to the pricing question that you just alluded to, are you seeing more – I’m just thinking in context of a greater private label push that some of the apparel and some of the retailers are driving, are you seeing that? Have you seen that accelerate? And I guess you would see that not only in the cost in consumer, but maybe also in the RIS business. Can you just comment on that? Dan O’Bryant: Well, in RIS it really doesn’t impact us. I mean we make tags and labels for branded companies. They are private label products for major retailers. So it is really no different – it doesn’t make any difference to us in retail information services. In office products actually, it seems to me the last couple of quarters, the share of our products versus private labels actually relatively stable. We haven't lost any share to private label for the last couple of quarters. Tim Thein – Citigroup: Okay. Thanks a lot.

Our next question is from the line of Reik Read from Robert W. Baird and Co. Please go ahead, sir. Reik Read – Robert W. Baird & Co.: Could you guys just go on back to the cash flow? What kind of modeling assumptions, Dean, have you guys made that would get you to a breakeven cash flow and you know, i.e. if things continue to get worse? Just trying to get us an idea of when the issues you've talked of, you couldn't make dividends or debt payments.

Maybe I can answer that. We've done a tremendous amount of modeling over the last six months. And we've modeled – we've tried to find revenue decline levels that would cause us to hit a breakeven point on pre-dividend free cash flow. You have to be a lot worst over a sustained period of time to get there than we've been so far. So we don't find that mark anywhere near business conditions or today's business conditions. We've modeled it all, Reik, and the nice thing about this company is we are a good cash generator in several of our businesses. Most of our businesses are. And So I don't think that is our issue. We're working to support the dividend. We are doing that so far quite successfully. And I think last year was a record cash flow year for the company and this year ought to be still a good cash flow year for us, unless we see something even more dramatic happen in the market place. So we've modeled it all, and the Board made sure we considered every contingency from the liquidity perspective to a solvency perspective. And as we sit here today, we're still happy that we're generating the cash flow that we are. Reik Read – Robert W. Baird & Co.: Okay. And then Dan, just going back to your comments before about the specialty paper and maybe it’s showing signs of turning. Is that simply capacity demand coming back in balance or there are some other factors that might be driving that? Dan O’Bryant: We've seen tight capacity from suppliers and some of those specially markets. But I think with the very weak demand across the industry, demand is coming down to where the capacity is. And so it's starting to have that influence. We’re seeing relief in a few places and hopefully, we'll sustain that for a few quarters here to make a difference to the industry. Reik Read – Robert W. Baird & Co.: Okay. Thank you.

Our next question is from the line of George Staphos of Banc of America Securities. Please go ahead, sir. George Staphos – Banc of America Securities/Merrill Lynch: Thanks. Hi, guys. A couple of follow-ons. You mentioned that the business was on plan this quarter in total, did that include RIS or was RIS off your plan? Dan O’Bryant: No. it included RIS, the overall company. We anticipated a very soft – remember, it’s a seasonally – it's our softest quarter by far. And we had planned – where we did make our plans on the top line. So our top line was worst than we anticipated. But frankly, our bottom line was a little better than we anticipated for the quarter so we we're able to adjust our spending in the short term to make our internal numbers. George Staphos – Banc of America Securities/Merrill Lynch: Okay. So the $12 million was little bit better than you would expect in terms of the operating loss given the volume hit? Dan O’Bryant: You got to remember, we came into the fourth quarter having declined by about 5% for the first two months. And then in December, the bottom fell out. So our expectations were that Q1 was going to be a very tough quarter. And late January, we said that as we started the quarter, it looked a lot like December. And January turned out to be a little bit worse than December. So our expectations were very conservative. We've been managing the company with those very conservative expectations and we continue to do so. George Staphos – Banc of America Securities/Merrill Lynch: Okay. Now, April is looking much – I don't want to put words in your mouth, but the suggestion to one of the questions that was asked before…

12% is the target that we're working towards. George Staphos – Banc of America Securities/Merrill Lynch: Okay. Last question. I’ll turn it over. The tax rate obviously was lower than model in the first quarter, you got in to 22% over the rest of the year. Do you think you can sustain this rate for the foreseeable future into 2010, 2011? What kind of conversations if any, have been you having with your representatives and elected official about potential plans by the government to begin to tax foreign earnings to a greater degree? Thanks, guys. Dan O’Bryant: I think in this particular quarter, the 2% tax rate is not that meaningful with earnings as low as they were. The percentages moved pretty dramatically without much change in the actual tax expense, but over time, yes I do continue to believe that the rate is sustainable and the in the low 20s we may have days or quarters better than that as well. So I think in low 20s with a bias toward the lower side would be my expectation over the future. We don't have any – not one of the tax authorities is asking our opinion on the tax law. So we’re not getting much indication. We’re obviously watching it closely as we a lot of overseas earnings. We’ve got planning in place, but we'll help in whatever situation takes place. But certainly, some of the things being discussed right now would have some impact on us if they actually become law.

We have planned out though to our legislative representative in the House and Senate, that taxing our earnings overseas will have a negative impact on employment in United States. So we've been very clear about that. George Staphos – Banc of America Securities/Merrill Lynch: Okay. I appreciate the thoughts, guys.

Our next question is from the line of John Roberts with Buckingham Research Group. Please proceed. John Roberts – Buckingham Research Group: Good afternoon, guys.

Hi, John. John Roberts – Buckingham Research Group: Where are you in your discussions with Moody’s? Are you all done and were just waiting in the next couple of days for them to say something before the end of the month? Dan O’Bryant: John Roberts – Buckingham Research Group: Are there any preparations you've made over the past couple of months in the event we get an adverse decision here? Dan O’Bryant: Well sure. And we've made quite a few preparations to work toward that not being the case. The high mids that we took down during the first quarter’s a pretty significant event, reduced our debt and our interest expense quite a bit. Gave us more headroom on our bank covenant, so that's all good. I think having had a relatively strong quarter given the seasonality factors on cash flow is good news. And I think we've got actions in place to ensure that we have the cash and liquidity that we need. If you look at this year, we're spending quite a bit of money on restructuring. That expenditure in 2009 turns to benefit in 2010, so there's good reason to expect our bottom-line performance to improve too. So we are sensitive to the credit rating. We’re doing all that is within our reach to protect it. If we don’t, it’s not the end of the world. It’ll cost us some money. But we’d like to see that not happen. And so we’re extremely focused on cash flow and intend to do all we can to protect the rating. John Roberts – Buckingham Research Group: And just lastly, the deferral and fall orders that you’re seeing, how far back can things get pushed before you can’t make it up even if the economy recovers before the fall? Dan O’Bryant: Yes. That’s probably a better question for our customers. That would actually be a good thing because what would happen is there’d be a lot of stock outs in retail stores. And then we would start to see retailers beginning to stabilize and then potentially even go inventory. And we see that in the next busy season for us which tends to be in the fall itself. John Roberts – Buckingham Research Group: Thank you.

Our next question is from the line of Jeff Zekauskas with JP Morgan Securities. Please go ahead, sir. Jeff Zekauskas – JP Morgan Securities: Just a few more small questions. What’s your CapEx and software spending this year? Dan O’Bryant: Jeff Zekauskas – JP Morgan Securities: So that is a little lower? Dan O’Bryant: It could do. There’s still unanswered questions on some key initiatives for the year that could change that number around. So we’d choose not to update it for the current quarter. We may by next quarter, but right now that looks like the range will be and perhaps will be for at the low end of that. Jeff Zekauskas – JP Morgan Securities: Okay. And in terms of your head count reduction wherein you said you were reducing your workforce about 10%, is the 10% reduction from the 35,700 as of the end of the year? Or is it from the 2007 total? What’s the base? Dan O’Bryant: It’s the end of the year 2008. Atop that 37,000 number. Jeff Zekauskas – JP Morgan Securities: Right. The 35,700 number? Dan O’Bryant: Yes. Right now we’re anticipating around 3,500 or a few more than that in total reduction as we go through ‘09 and early 2010. Jeff Zekauskas – JP Morgan Securities: And is that really mostly out of the RIS business? Or, do your other businesses really get touched as well? Dan O’Bryant: It’s weighted towards RIS. They’re the most head counted intensive business that we have certainly. So the savings and the headcount reductions are weighted in that direction. There’s quite a bit also happening in the specialty converting businesses. So all of our businesses are impacted, but it is weighted toward RIS and other specialty converting. Jeff Zekauskas – JP Morgan Securities: In the…

Our next question is from the line of George Staphos of Banc of America Securities. Please go ahead. George Staphos – Banc of America Securities/Merrill Lynch: Thanks. I guess two last questions to finish up. Within specialty converting, can you go back to what was the biggest source of negative variance or negative trend in the quarter? You might’ve mentioned it but I missed it, what’s the latest with RFID. And then the second question is, there have been other companies that have started to see some improvement and even as far as seeing sings of restocking. Within the supply chain I would imagine that at some point, Avery would see that as well if that was truly the trend. What are your thoughts on that? Thanks, guys. Good luck in the quarter. Dan O’Bryant: Thanks, George. In other specialty converting we have our highest concentration of automotive and housing related product categories. In some of the automotive categories frankly, we saw buying declines at its highest. 50% to 60%, given the fact that there weren’t very many cars being built in the US in the first quarter. And that’s really where the major impact is. We also have a number of industrial product categories. Again, some of them housing related. Other businesses, again automotive related, just a tough time. The only place I’ve seen some relief from the inventory de-stocking, really has been in office and consumer products. We saw a dramatic drop in our sales revenue in the fourth quarter. And it’s backed by – I actually believed we got a little bit of a pick up in Q1 because our customers reached unsustainable levels of inventory given their demand. And they had some stocks out that they needed to recover from. And POS, also in that business has started to improve. It’s still negative, but it looks to me like we turned the tide. So if there’s a light in the distance it’s probably that. George Staphos – Banc of America Securities/Merrill Lynch: And RFID? Dan O’Bryant: RFID was relatively flat year-over-year. We’re still on track in terms of – our business did pretty well last year. We definitely saw a slowdown but we’ve managed to capture some new application growth. George Staphos – Banc of America Securities/Merrill Lynch: Okay. Thanks very much.

Dan O’Bryant: Okay. Well, on behalf of all of us, thanks to everyone for joining. And we look forward to speaking with you again.