Welcome to Avery Dennison’s earnings conference call for the third quarter ended October 3, 2009. (Operator Instructions) I would now like to turn the call over to Eric Leeds, Avery Dennison's Head of Investor Relations. Please go right ahead, Sir.

Thank you. Welcome, everyone. Our discussion today will reference the earnings release that we issued earlier, along with the slide presentation titled third quarter 2009 financial review and analysis. Both documents were furnished today with our 8K and posted at the investor section of our website at www.investors.averydennison.com. We remind you that these results are preliminary as we have not yet filed our 10Q. 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 integrations. 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 pre-tax results before their effect and before interest expense. This detail is in schedules A2 to A5 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. On the call 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 and thanks to all of you for joining us today. In the third quarter we delivered a solid performance in the face of continued tough economic conditions demonstrating the strength of our franchise businesses and the effectiveness of or operating model. Demand in all of our end markets remained soft and volumes and sales in all segments declined over the prior year quarter. Even so, we expanded our operating margin and held net income virtually flat compared with last year. Organic net sales were down 6% compared with mid-teens declines in the first and the second quarter. We attributed this slower rate of volume decline to the fact that inventory levels in many markets appear to be stabilizing and while we did see some increases in demand in some emerging markets, it’s too early to declare a robust recovery. Given the volume headwinds, I am pleased with the operating performance of our businesses. The 300 basis point increase in gross margin over last year to 28.1% suggests that we maintained our competitive advantages in all of our core businesses. Our businesses demonstrated some real operating excellence as well. We more than offset the impact of lower volumes with restructuring and productivity improvements and we expanded operating margin to 7.3%. We increased our variable margins, generated free cash flow at about the same level as last year, made solid progress on debt reduction, and significantly improved working capital while at the same time we invested in new products and processes for a long-term growth. I should note that pricing and inflation trends also contributed to the operating margin improvement. As you know, our pricing was lagging inflation throughout 2008. We’ve closed that gap and we intend to keep prices in line with future inflationary pressures. Our pressure sensitive businesses…

Thanks, Dean. Let’s start with a summary of the preliminary results for the third quarter on slides five and six of the handout. Starting on slide five on an organic basis in the third quarter, sales declined about 6% with the decline attributable to lower volume. Throughout my comments, all references to organic sales include results before the impact of acquisitions, foreign currency translation, and the extra week in our 2009 fiscal calendar. Reported sales for the third quarter of 2009 were down 10% and currency translation reduced reported sales growth by 4%. As Dean mentioned, the rate of decline in our sales improved versus the first half of the year but we attribute this more to slow downs in inventory reductions than to end market demand, which remains soft. We experienced sequential improvement in every major region. Emerging markets actually showed growth compared to prior year if you exclude RIF, which almost entirely serves the U.S. and Western Europe. Third quarter operating margin before restructuring charges and other items increased to 7.3% as restructuring and productivity initiatives, including those to optimize our usage of raw materials, more than offset the operating margin impact of the volume decline. In addition, the effect of pricing and material cost trends offset the cumulative impact of 2008 inflation, which contributed to year-on-year margin improvement for the quarter. It’s worth noting that despite a $175 million reduction in sales, we held operating profits essentially flat in the quarter, which speaks to the success of the actions we are taking to deal with the slow economy. We are seeing some inflationary pressures beginning to build, which may put some pressure on fourth quarter margins but we are pleased with the underlying margin trend. Turning to slide six, we are on target to achieve $160 million…

Thanks, Dan. To sum up the third quarter, thanks to excellent work by our employees, we delivered a solid performance in soft markets and challenging conditions with expansion of operating margin thanks to excellent work on costs and productivity. We kept free cash flow flat compared to last year and made solid progress on debt reduction. And on the fourth quarter, as Dan noted, we’ll be watching both volumes and raw material prices very carefully. And on the future, please don’t mistake our caution for pessimism -- yes, the economy has a way to go. We need employment and the consumer to come back. None of us have enough information yet to forecast the pace and the strength of an economic recovery but we have a strong franchise, an excellent operating model, and terrific employees. We are well-positioned for profitable growth when markets improve. Thanks for listening and we are now ready to take your questions.

(Operator Instructions) And our first question comes from the line of George Staphos of Banc of America Merrill Lynch.

A couple of questions on top line and I’ll turn it over -- do you have any details on physical volume for the quarter? You gave a lot of good detail on organic sales but do you have any volume numbers for any of the segments or any of the businesses that you could share at this time? Also on FX, while it’s reasonably doable to parse what the total was across the segments, do you have any specifics on that for the segments?

Well, volumes were generally down. We’ve provided the organic numbers. As you pointed out, the overall price is still up about a percent or so from the prior year, which is carrying forward from what we did mostly clear back in the first quarter of last year and the fourth quarter, so -- but it’s hanging in there. Prices have held pretty well despite the tough market. So that’s been healthy but generally in all of our segments with the exception of emerging markets in the materials business, volumes continue to be down. On the currency front, there’s about 4% gap against the Euro from our accounting rates third quarter to third quarter, so still a headwind. At current rates, it would be a slight tailwind for the fourth quarter. We didn’t have any substantial transaction issues during the quarter. It was mostly just a translation issue.

Okay. A couple of follow-ons -- from what I remember from roll label, the organic sales were down I don’t know, low double-digits in the first quarter, down call it mid-single-digits 6%, 7%, somewhere in that range 2Q. Third quarter you saw a further improvement. Early in the fourth quarter, are you continuing to see that same sequential improvement in PSM roll label?

You know, it looks -- you know, it’s been improving just as you said and we saw a general improvement during the quarter. That’s continuing. The big question mark is December. This quarter because of the extra week, we actually have two holiday weeks in the quarter and I am also anticipating if anybody wants to adjust their inventories down, any customer wants to do that, they are going to choose to use the last couple of weeks of the year to do it and so it’s really difficult for us to forecast that month.

I wasn’t asking you to forecast, Dean, that’s great. I was just trying to get a sense for what you have seen early in the quarter and it sounds like we are continuing along that path then.

No, it’s still continuing and again, I would characterize -- I was at the label expo show in Brussels and I was stunned actually by the amount of participation. The halls were filled with people and I certainly had a chance to talk to a lot of customers and all of them were relatively busy. And -- but said the customers hadn’t changed their behavior much. They are still ordering smaller order sizes more frequently, so they didn’t sense that anybody was building inventories, that they had probably gotten them down to a level that was more consistent with end demand.

All right, thanks. I’ll turn it over.

Your next question comes from the line of Ghansham Panjabi from Robert W. Baird.

Looking at operating profit 3Q versus the second quarter, it looks like the delta is about $23 million. Can you isolate for us in different buckets cost savings, volume, sequential improvement, FX, et cetera, as to what drove that incremental upside?

Well, the big driver has been productivity. Obviously the restructuring program that we are going through got a lot of traction during the quarter and as I pointed out, we moved to the 70% completion mark by the end of the quarter, so that had some significant impact. That was the big one. You know, the volume declines weren’t quite as bad, so sequentially we picked up some dollar revenue and that was useful as well.

Did you quantify the volume improvement sequentially?

Well, we didn’t do it on a volume basis but our -- we obviously published --

Sales were up $100 million from the second quarter to the third quarter. You know, that obviously had a huge impact on as we reduced our fixed costs. That was the single biggest lever, actually and most of that is volume and some of it is currency.

Okay, and just Dean, in terms of post Paxar, we really haven’t had a clean call it macro year, so what does the fourth quarter in a normal year typically look like relative to the other three quarters? Thanks.

The fourth quarter, generally the RIS business has its strongest volumes in Q2, its second strongest in Q4 because that’s when we see orders for the spring season and then its softest quarter in Q1 and then Q3 is obviously number three on that list. The thing that I watch is the inventory to sales ratio for soft goods and we are making progress but we are not quite at the trough level in prior quarters, so we have seen a bit of an up-tick now in terms of sales, so sales are declining less in the retail and the clothing accessories category, but I still think we are probably a couple of quarters away from seeing any kind of robust turnaround and a lot of this is going to depend on consumer behavior in Christmas. I will say this -- retailers are all singing from the same hymnal right now and that is they would rather be out of stock than market something down and so I think that’s going to be their behavior for a while until they see positive comps in their same-store sales.

Okay. Thank you.

Your next question comes from the line of Jeffrey Zekauskas of J.P. Morgan Securities.

Your other specialty converting business earned about $6 million on an adjusted basis. Is that a sustainable level of operating profit?

Well, yes, most of that improvement in the operating margin came from restructuring costs and we’ve weighted our restructuring initiatives toward that business in part because the sales have been more impacted there by automotive and housing than elsewhere, so we’ve done a significant amount to reduce the ongoing fixed cost there and with a return to volume, I think our margins will improve.

That is still improved from where we are now or they will improve from where you were?

Well, both. They’ve been improving this quarter with a big step function in the right direction. There’s more margin improvement ahead of us.

The second thing is, is it the case that your average prices in pressure sensitive materials were up and your average prices in retail information systems down in the quarter?

That is correct. The -- sequentially our pricing and materials didn’t move much but year-on-year they are still up about a percent or a little bit better because of increases over the fourth quarter and first quarter of this year, so they are holding steady generally in the materials market. In retail, we have seen some pressure and prices have moved down probably a percent or so, hard to measure in a custom business like that one. But we haven’t raised prices recently in the materials business, as it’s carry-over from earlier actions that made up for that 2008 inflation that we were bearing.

How much were your raw materials down for the quarter versus the year-ago quarter, or sequentially? I know that you are on FIFO. Did finally some FIFO issues hit you positively this quarter?

FIFO was not a factor. We started seeing a bit of deflation in some areas and a bit of inflation in other areas in raw materials but the trend right now is toward inflation and so we are out in our materials markets talking about the need for a price increase to cover that in the beginning part of next year, so it’s moving higher as we speak. Oil prices were up and papers costs bottomed out and started up over the last quarter as well.

And then I guess lastly, do you still lose money in RFID and if you do, how much?

We actually just went through a little bit of restructuring in the inlay business so moving forward, it will lose a little bit of money on a book basis but be cash flow neutral. And then we make money in the RFID business that we sell in retail information services, so net net we make money in RFID.

Okay, thank you very much.

Your next question comes from the line of John Robert from Buckingham Research.

You had the caveat on slide six when you were talking about the tax rate ongoing to vary significantly from quarter to quarter. I can understand why it varied a lot this past year quarter to quarter but unless earnings were to reverse and go back down to the low levels we had earlier this year, would it still vary quarter to quarter a lot next year?

I’m afraid it will and a lot of that variation is created by events out there where we are settling issues that have been -- you know, we’ve been reserved against over the last few years or audits in foreign countries and that kind of thing, so we recognize in the GAAP tax accounting those events as they take place, not as they are anticipated so much. And so it causes that chunkiness in the tax rate.

So you know you have a lot of tax settlements or decisions coming up in the next four to six quarters?

We have a number of items like that and we also have tax planning that is going on that once a project is completed and we implement changes and so on, can have an effect on our rate in the quarter. So I think if you step back and look at it, we are still operating over the long-term at that 20% rate or so. But I think our tax function has done a great job of dealing with some of the opportunities around the world and the result of that is that we have been able to consistently hold the rate lower and I think as we stand right now, that’s probably going to be the case for a while but eventually, there’s an underlying rate there in the 20 range that we will move to over time.

Okay, and then secondly, last quarter when you cut the dividend, you talked about the pension as a potential funding issue coming up in the next couple of years and you put $25 million in this past quarter. Will the discount rate that you use in the upcoming year be materially lower than what you used last year, and should we expect a material adjustment in pension liability here?

Well, you know, interest rates are the big swing factors on pension, along with market movements. I’ve heard it said that inflation and higher rates is the ultimate solution for an underfunded pension, so I don’t know where they are going to go. We don’t have a significant change right now. They are down a bit for 2010 over 2009 but it’s less than a percentage point, so that is increasing our pension cost for next year but we have not yet made a contribution for the current year. We’re not required to. With our cash flow running as strong as it is, we may well decided before the end of the year to make a voluntary contribution but we do expect over the next two or three years to see some more substantial increases in the cash requirements to fund the pension unless the market really makes a turn.

Thank you.

Your next question comes from the line of John P. McNulty from Credit Suisse.

Just a question on the CapEx, where you are cutting your CapEx to about $100 million, which I believe is less than half of what you saw in ’08 and 2007 and I’m wondering, is it because -- just because you had such a big enough downturn where you’ve got plenty of excess capacity or is it just being conservative on it with regard to your cash flow for a while? What’s actually driving that CapEx and how should we think about it in say 2010? Admittedly you don’t have a formal forecast but are we going to be closer to 2009 levels or 2008 and 7 levels?

Yeah, John, $100 million is not sustainable over the long run for sure but I’d say there’s a number of factors involved. One is you are absolutely right -- we have ample capacity in most of our businesses, so we are not required to do that. And even where we run into the occasional capacity shortfall or issue, the first approach is to use our enterprise lean sigma techniques to figure out a way to de-bottleneck our supply chains without the use of capital. That being said, the other factor is and we were focused on generating free cash flow this year and so we deferred some stuff that could be deferred this year, so it’s likely to come up a bit and we haven’t actually done the planning yet or next year to know what range that will be in.

Okay, that’s helpful. Dean, also in your beginning comments, you had indicated that you thought you’d have more success going forward with regard to price versus inflation pressures on the raw material front. Is there something that’s change in the organization itself or in your systems that gives you that confidence that you can -- you know, if we do see a big surge in raw materials that you can keep up with them maybe better than you did in the past couple of years?

Well, I do think we have better controls over pricing in most of our businesses, so we definitely this last couple of years put enhanced pricing disciplines into the market, into our marketing functions around the world, so that is -- that’s good. And second is that frankly I think a lot of our competitors have really suffered through this last couple of years, as did we. We just happen to be sitting in a better relative position than most of our competition, so what I sense in the markets out there is our competitors have realized well I actually do have to make money, and so I don’t -- I don’t anticipate the same amount of inflationary pressure that we had in terms of intensity but we do intend to stay on top of it.

Okay, great. Thanks for taking my question.

Your next question comes from the line of Joseph A. [Naya] of UBS.

I was wondering, you mentioned that you would expect to see seasonally slower volume in the fourth quarter. Can you give us any help in terms of what sort of magnitude you would expect normally across the difference businesses?

Well, I’ll stop short of being too guidance oriented for the fourth quarter. We’ve given a couple of the factors, one is that that $50 million that we lose just because of the 53rd week which changes the timing of the fourth quarter, so that is going to be a bit of a headwind. Dean already talked about RIS being a relatively stronger quarter than the third quarter, so that will be a bit of a help but we are still expecting general softness out there and I am not going to get any closer than that to giving you a fourth quarter revenue forecast.

Sure, no, I was --

The biggest question really is going to be what companies do with their inventories at the end of the year and how they behave. Last year you’ll recall we saw a significant drop in December and specifically we saw an incredible drop in the last two weeks of the year and it’s just too early to tell how that is going to look. So I actually think the seasonal factors that are normally in play here really don’t matter all that much. It’s all about what people are going to do with their inventories and orders in December.

Okay, fair enough. In terms of -- I guess following up along that line, you kind of alluded to this, you discussed a little bit what you were hearing from your customers. I mean, have they offered any type of visibility in terms of what they are seeing or where they might be going with volume trends?

You know, it depends on the sector. I think as you walk through the rolled materials business there, there’s probably the most optimism I’d say from our direct customers. And that comes from the fact that their order books are stronger than they have been in the last 12 months and most of what I hear from them is that their customers that run their inventory down to a level sufficient to where the actual demand for the end products and the order rates are doing well. In office products, you know, if you again take out the impact of back to school, the big issue is on the commercial side of the business. Remember, we sell half retail, half commercial but the commercial side of the business has been down quite significantly this year and again that’s related to white collar unemployment. I don’t think we are going to see a huge magnitude of change there in the near-term. And then RIS, I think I talk specifically there about the inventory to sales ratio and right now retailers are all still using the same playbook which specifically means I am going to get my inventories done and be very cautious about what I put into the stores.

I think seasonally though back to school is going to be a significant factor. We are always lower in office products in the fourth quarter than we are in the third, so sales won't be as robust sequentially as they were. We get some help from currency. Those are the factors. I think that’s about as far as we can go.

Sure. Just one last question on the office products -- the piece that’s tied to white collar and direct fulfillment, is that -- does that tend to be steady through the year or do you see some seasonality there as well?

It’s pretty steady.

Okay. All right, thanks.

Your next question comes from the line of George Staphos of Banc of America Merrill Lynch.

Let’s deal with office products first. Within the commercial portion of the business, given what’s been happening with employment and for that matter, just given what’s been happening with the corporate budgets, do you anticipate anymore pricing pressure than what you have seen over the last two years, let’s say, within that portion of your business? Or do you think you can hold it from here? Demand will be what it will be but margins should hold relatively constantly?

I’m not sure we’ll see an intensity of margin pressure because of what’s happening in the corporate world. We get plenty of margin pressure just from what I would characterize as normal competition and competition from private label and other competitors. One of the things we are doing is doing a bit more innovation and kind of widening our -- the areas we are going into and I mentioned in the comments that we launched a new line of note tabs and label pads which are products that consumers seem to really like that don’t run through a printer, actually and we are actually targeting a different consumer base with those products and we are seeing some pretty good traction. So it could be that margins might be a little softer going forward but it probably would have more to do with investments in new products for the category rather than price pressure itself.

Dean, switching gears, if we look back over time, if pressure sensitive material starts to pick up, that would suggest that your customers are getting a bit more optimistic about ultimately what their retail sell-through will look like and to the extent that you might see an improvement in packaging demand, which is suggested by a pick-up in PSM, it means that maybe other things will follow, including perhaps retail. Is there an actual relationship that you’ve seen over time where PSM will lead your other businesses, including RIS even before Paxar or is it too difficult to call the relationship looking back over time?

I hate to make those kind of predictions because you know, RIS is a much smaller part of the portfolio but here’s how I see it -- so on pressure sensitive, it’s definitely tends to have been a reliable indicator of overall economic health in both Western Europe and the U.S. and that is a good thing. I really believe that the number one factor in RIS is all about the inventory to sales ratio for clothing and apparel accessories. That is where it is going to be and so I tend to look at those factors for that business. And then again for office and consumer products, it’s about white collar employment trends.

That’s fair, Dean. One last question and I’ll turn it over -- this year we should assume that you’ve got roughly $115 million of restructuring benefits -- would that be the fair read, the $40 million carryover plus the 75?

Yes, that’s right.

So that would suggest then you have roughly another $70 million plus next year, if I remember the restructuring program correctly, you are at 160 and most of that will show up next year?

Yes.

Okay. What’s the amount of net transition costs that affected you this year and would they normally dissipate after the first year of implementation?

Transition costs are about $20 million for the full program. They will dissipate over time, about 15 of that is expected in 2009.

Okay. Thanks for that. I’ll turn it over.

Your next question comes from the line of Jeffrey Zekauskas from J.P. Morgan Securities.

You said that the cash outlays for the restructuring are 110 this year and 20 next year. How much of the outlay has been through the first three quarters?

Through the first three quarters, total restructuring costs are about $115 million is what we have in the first three quarters of the year. That includes some impairment charges as well though.

No, what I was asking is what are the cash outlays to do the restructuring? I thought that what you said is that it would be 110 for this year and I was wondering how much you have already expended in your restructuring?

I’m not sure I can pull that number out of my hat this quick. I would be happy to answer that later on, if you like.

That’s fine. Maybe we can follow-up. Are there more restructuring charges to come?

Sure. There will be more this year and some during the first half of next year but beyond the program that we’ve talked about, we don’t have any substantial plans. There’s an ongoing level that happens all the time but we don’t have any plans beyond the 160. We are pretty busy with that portion right now.

But the lion’s share is going to have occurred in 2009, as far as from the charges perspective.

Right, well how much more charges are there to go over the next nine months?

We’re expecting over the next nine months, we’re expecting it to be around $20 million or so.

Around 20 -- okay. Have you taken out enough costs in RIS yet to get it to break even for the fourth quarter?

That really depends on volume, of course. We do have restructuring that’s happening in Europe as we speak, which will begin to impact the fourth quarter but not -- you know, we won't see a substantial change really until 2010 for the European restructuring.

RIS broke even on the net income line this quarter. It was negative at the operating profit level but I -- we don’t expect that business to operate in the red over time. Q3 was seasonally soft. One thing to keep in mind here is that since we bought Paxar a couple of years ago, the variable margins on this business have been expanding pretty steadily by several hundred basis points, in fact, since we made that acquisition and they are north of 50%. We are very volume dependent here and as Dean said, when volume comes back, this business should do well better than break even. We are still sticking to our commitment that we can have a 12% operating profit in this business with time but we will have to get back a big chunk of the volume that’s dropped off since the downturn in the retail apparel markets.

Jeff, our focus as we execute this final phase of the RIS restructuring this year is really on volume and gaining sales. That is going to drive the most value for the business going forward.

Don’t you usually have a pretty good read on your fourth quarter volumes by this juncture in that? I mean, isn’t there a lot of advanced ordering in the RIS business so that you can sort of assess the way you’ll stand in the fourth quarter by now?

Not anymore. It’s amazing, and our order sizes in Asia have dropped anywhere -- it depends on the product line -- anywhere from 30% to 70% and it’s just indicative of how retailers are planning their future, so --

And we are seeing inventory movements among our customers shifting our volumes around by 10% to 20% in certain quarters and that’s not particularly predictable.

Okay. Thank you very much.

Your next question comes from the line of Peter Ruschmeier with Barclays Capital.

Thanks and good afternoon. I apologize if this question was asked already, I was juggling calls here but the question has to do with pressure sensitive. I thought it was very respectable result and on the cost side, in addition to the cost takeout that you have managed, I’m curious if you’ve been able to quantify some of the commodity cost pressures, whether they be transportation costs, energy costs, paper costs, adhesives, things like that, some sense either on a year-over-year basis or on a sequential basis what that may have contributed to the quarter.

We did cover that earlier. The short version of the answer I previously gave is that we have seen some deflation during the last quarter in material costs but right now the trend is higher, so we are seeing paper inflation, we’re seeing oil based commodities go up as well and anticipating some pressure on margins in the fourth quarter as a result of that, so we are gearing up for price increases.

Okay, I’ll look back at it -- I’ll review the transcript. Thanks very much.

Your next question comes from the line of John Robert from Buckingham Research.

You I believe place equipment in your RIS customers’ facilities. Is that capital spending de minimis right now or does that give you any indication about activity at the customers?

We actually had a pretty good third quarter in terms of our printer systems business in RIS, so we had sold some new applications at several retailers who actually used the equipment as a labor savings device in their stores, so what we see is retailers and apparel contractors spending money if they can get a pretty good and quick pay-back, so -- and the type of equipment we are selling isn’t all that expensive, actually, so it’s not major, millions and millions of dollars. It’s -- we’ve made good progress there and so I think again, there’s an appetite from our end customers to invest in things that have a quick pay-back, especially again if it’s got some labor savings component to it.

Okay, and then in the specialty converting businesses, you sell some wood grain laminates that are used in the automotive and housing markets. Was there a stimulus benefit related to the auto stimulus and the first-time home buyers credits that we might see the sales actually drop back down in specialty converting?

Well, we don’t have much in housing anymore. That’s extremely small. And -- but in the automotive business, frankly we exited the automotive laminates business. It just didn’t make sense for us given where we saw automotive volumes going long-term, so we’ve been phasing out of that product category over the last couple of quarters, so we didn’t -- if we did see a stimulus impact, it will be the last time we see it.

Okay. Thank you.

Your next question comes from the line of George Staphos of Banc of America Merrill Lynch.

Two last questions -- quickly, what inflation are you seeing in paper? To be precise, what grades are moving up on you?

We haven’t seen much yet. We’ve seen pulp prices bottom over the last few weeks and move up in relatively small percentages. That -- the paper side, we anticipate more impact next year but we haven’t seen too much. Most of it is really coming from the oil-based side, films and [inaudible] chemicals.

Right, you are buying specially graded paper, you are not buying pulp per se?

That’s right.

Okay, and then --

My sense is that some of the specialty paper suppliers are a little emboldened, so they -- because volumes have gotten relatively better over the last couple of months, their operating rates look a lot better right now, so they had a really tough first half of the year so I think they are testing the waters right now and in some cases, they will probably get some price increase.

There’s been some capacity closures too, so that’s another thing to be watchful for. Sorry, you were saying?

I was going to say that our strategy has been to offset some of those increases through internal productivity and material cost out programs and we’ve done an awful lot there over the last two or three quarters. In fact, even with softer volumes this year, the efforts we’ve put into engineering cost out have been substantial. The tide is beginning to turn. There’s only so much you can do in that respect and so paper is beginning to hit, though films right now are where most of the pressure is coming.

Last question I had, regarding RIS, certainly if you did mid-single-digit margin or high-single-digit margin, that would be a lot better than what we have been seeing the last couple of years, given the cycle. How do you determine whether the value proposition to your customers is the same relative to what might have been an appropriate target factor a couple of years ago of 12% margin? If consumers are buying less apparel through retail, does that to some degree either lessen the logistics value you bring or the security of supply and consistency of supply that you bring? Or does it not and you still think that your value prop is still the same as it ever was? Thanks, guys.

I actually think the value prop is better because what we have seen actually is our variable margins improve the last couple of years, which indicates that we can charge relatively more on a value-add basis than we did a couple of years ago. And the reason I think it is more is that the supply chain component of this is getting more difficult because order sizes are smaller, cycle times are reduced. You have to have a much higher level of responsiveness and that really plays into our sweet spot. And then on top of that, people are moving dormant production around much more rapidly than they were before. So it’s more difficult to be a supplier. I think the real upside for us comes in longer term from what I characterize as in-store solutions. You know, retailers today need to provide value but also give customers good customer service and they are kind of struggling with how do I do that while reducing labor costs. And still see a significant amount of interest in item level marketing for RFID and more pilots than ever, so I do think that again, we are well-positioned to capture that trend and I think the next couple of years are going to start to demonstrate that. It’s tough to show it right now, I understand that.

Thanks, guys. Good luck in the quarter.

Your next question comes from the line of Steven Chick from FBR.

Just within the office and consumer products category and I’m sorry if I missed this but the organic rate of decline, the improvement there from last quarter, I think it was down 11% to down 4%. Was that sequential improvement strictly related to the retail and the back-to-school level comments that you made with the commercial purchase activity being down the same amount? Can you speak to the mix there a bit?

That was clearly driven by back to school where we had a relatively good back to school season. The rest of the business leveled out a bit but it didn’t contribute much to sequential improvement in the sales growth.

Okay, so I guess as we move far beyond kind of the back to school level demand, I guess we should expect that kind of organic rate to kind of go back more towards a little bit of a steeper decline as a corporate purchase activity becomes a bigger piece? I mean, is that safe to say now that we are beyond the season?

Well, we clearly won't have the back to school impact in the fourth quarter and -- or the first quarter. I think Dean’s comments earlier about the swing factor here being what the retailers decide to do with inventory is going to decide this. We traditionally in the industry see inventory build in the fourth quarter but we are not anticipating it this year and that would have a dampening effect on fourth quarter revenue.

Okay. All right, thank you. That’s all.

Thank you very much, and there are no further questions on the phone line. Please continue with your presentation or closing remarks.

Okay, on behalf of all of us, thanks to everyone for joining and we look forward to speaking with you again.

Thank you very much. Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you disconnect your lines. Have a good day, everyone.