Good morning ladies and gentlemen, thank you for standing by and welcome to the Avery Dennison Corporation Earnings Conference Call for the fourth quarter and full year ended January 1, 2011. During the presentation all participants will be in a listen-only mode. Afterwards we will conduct a question-and-answer session. (Operator Instructions) This call is being recorded and will be available for replay from 11:00 am Pacific Time, today through midnight Pacific Time February 6th. To access the replay please dial 800-633-8284 or 402-97-9140, for international callers; the conference ID Number is 21496533. I would now like to turn the conference over to Mr. 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 'Fourth Quarter and Full Year 2010 Financial Review and Analysis.' Both documents were furnished today with our 8-K and posted at the Investors section of our website at www.investors.averydennison.com. We remind you that these results are preliminary as we've 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. Restructuring charges tend to be fairly disparate in amount, frequency, and timing. In light of the nature of these items, we'll focus our margin commentary on pre-tax results before their effect and before interest expense. These numbers are reconciled with GAAP in schedules A2 to A5 of the financial statements accompanying today's earnings release. We also remind you that we'll 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 2009 Form 10-K and 2010 Forms 10-Q address certain risk factors that could cause actual results to differ from our expectations. On the call today are Dean Scarborough, Chairman, President and Chief Executive Officer and Mitch Butier, Senior Vice President and CFO. I will now turn the call over to Dean.

Thanks Eric, and hello everyone. 2010 was a year of solid improvement. We delivered on all key measures for the full year and we made progress on our longer term goals as well. We say strong top-line growth in our two largest segment, Pressure-sensitive Materials and Retail Information Services, which more than offset the decline in office and consumer products. Both segments benefited from our strong position in emerging markets and an increased focus on marketing to end customers. We expanded margins year-over-year. However, margins came under pressure in the second half of the year as raw material inflation outpaced price increases. While we narrowed the gap in the fourth quarter, we didn’t close it. Our number one priority right now is to close that gap in the face of additional inflation, by raising prices, as well as accelerating material substitution and taking productivity actions. The highlight of the year was our improved financial strength. We generated $379 million of free cash flow, which we used to reduce debt by nearly $300 million, exceeding our targeted net debt to EBITDA ratio. The radiation team hasn’t proved their outlook. We also contributed more than required to our action plan $78 million and continued to invest in growth and in infrastructure. Putting ourselves in a position to return more cash to shareholders was a key objective for 2010.and we achieved our goal. As we announced this morning, we increased our quarterly dividend by 25% and we have a new authorization per share repurchases. During the fourth quarter, we repurchase 3 million shares, offsetting dilution and the board has authorized us to repurchase an additional 5 million shares. Now, turning to the businesses, pressure sensitive materials had low double digit organic sales growth with strength in all regions. Operating margins was up year-over-year,…

Thanks, Dean. Starting with slide six and talking through to slide nine. Sales in the fourth quarter were up organically about 9%. As Dean mentioned, Pressure Sensitive Materials and Retail Information Services again delivered solid growth in all regions and more than offset the decline in office products. Our operating margin increased in the fourth quarter as expected to 5.9%, as the benefit of higher volume was more than offset the impact of the price inflation gap, reduced margin in Office Products and increased investments in growth and infrastructure. While raw materials came in the fourth quarter pretty much as expected, inflationary pressure did pick up in December and that pressure has carried into this year. We previously said that we anticipated narrowing the price inflation gap early in 2011. The continued rise in raw material cost however, has further delayed the timing of when we expect to close the price inflation gap. This inflation affects all of our segments. The majority of it though, is in Pressure Sensitive Material and the Other Specialty Converting businesses. I’ll provide more color on that in a moment. Before getting into the segments I want to point out that the discrete tax planning event that we flagged in October came in at $0.42. This benefit will be realized to lower cash tax payments over the coming years and without this benefit our effective tax rate for the year would have been 23%. Turning to slide 10, our Pressure Sensitive Material segment again delivered strong organic revenue growth of 11%, driven primarily by volume gains in all of our raw materials business. While PSM’s operating margin in the quarter was up 30 basis points year-over-year, margin versus in the third quarter was down half a point due to the raw material inflation. The inflation…

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

Thanks, hi guys, good morning.

Hi George.

The question I had and I realized this is a difficult to pinpoint this because it all depends on when input costs stop increasing and at what rate they’ve increased over this period. But when do you think given you have a view the world right now and the price increases that you have contemplated for 2011 that you will actually catch up and then narrow the price cost gap in PSM to zero?

Well, George, you actually said it, it depends on much inflation keeps going, that’s the big wild card. I’d say our goal assuming the inflation that we put into the guidance is to do that by the second quarter.

Okay. So run rate in second quarter and in terms of the actual results third quarter?

Is basically -- it’s one of the key factors of the range of our guidance. So if all other things being equal, you could assume -- the higher end of the range assumed, that’s earlier next year, early second quarter and the lower end of the guidance is later than that.

Okay. Thanks all, I’ll turn it over.

The next question comes from Ghansham Panjabi with Robert W. Baird. Please go ahead with your question.

Hi, guys good morning.

Good morning.

I am just curious on RIS, were your numbers during the quarter in line with your expectations, because it seems like retail apparel sales were very, very stronger in the fourth quarter and it seems like it should translate into your RIS lines more significantly or was that something we should expect for 2Q of 2011? Thanks.

Yes. Ghansham, recall that everything that was sold in the fourth quarter was already billed by us in the second quarter, and part of the third quarter. So we tend to be -- before the products are shipped is when we are doing the billing. So, our expectations during the quarter was, it was pretty good apparel season. The inventory to sales ratio, remained at historically low levels. So, I'm pretty optimistic about 2011 for Retail Information Services.

So, just to clarify, just given how the strong the quarter was for your customers, has that translated into increased order flow for '011?

We wont really see that until -- we had a good fourth quarter. So, some of the spring season orders are already in there, but really the real strength in the business, we’ll start to see that in the March-April-May timeframe. That tends to be a really heavy season for RIS.

Got you. Okay, thank you.

Sure.

Our next question comes from the line of John E. Roberts of Buckingham Research Group. Please go ahead with you question.

Good morning or afternoon.

Hi, John.

In the 6% sales growth target, how much is price and how much is volume?

About a third of the overall growth is estimated to be price.

And then, in the fourth quarter just reported, did you give price for the various segments?

I don’t think we want to comment on the actual pricing that we saw within the various segments for specifically, for a particular quarter a year. But overall what we've been saying is that inflation really, sort of ramping up in Q2 and built in Q3 and Q4 and now we are seeing built in Q1, and our pricing has been about a quarter lag from that.

Okay. I'll get back in the queue.

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

Yeah, hi. Just a couple quick questions. In the Pressure-Sensitive area, you put through some pretty sizeable price increases. Did you see what you would view as an appropriate competitive response in the industry?

Yes, I mean, our competitors are raising prices and there certainly incentive to, I think one difference between our input cost and sort of our competitors is that a lot of the intensity last year came on the monomer and adhesive side. So we tended to see that inflation may be a quarter before our competitors did which, they would get buffered because they buy their refuses on the outside. But it certainly is now showing up in there in their margin. So I can see and we’ll see an increase in center for competitors to increase prices.

Okay, great. And then just one quick question on the new share repurchase plan for $5 million shares. Is it something that we should be thinking about in terms of simply covers future dilution or is it something where we should see the share counts start coming down and is there any assumption for that in your EPS guidance? Thanks.

Well, we really don’t comment on the timing of share repurchases but overall our intent is to return more cash to shareholders. Obviously, we’ve done that with the dividend and our intent is to devote more of our free cash flow to buying back shares as well.

And the overall assumption, our EPS guidance is relatively flat to share accounts on average, if you think about that an averaging effect throughout the year?

Okay, great. Thanks very much.

Our next question comes from the line of Jeff Zekauskas with JPMorgan Securities.

Hi, good day. Would you borrow to repurchase shares or would you use just the cash which is on your balance sheet?

Quarter-by-quarter, it would vary but overall the expectations that we’d be using cash and cash flow for repurchase of shares.

Okay. And so this is an authorization that you expect to complete say over a two to three year-period?

We don’t want to comment on the timing of when we’re going to do the share repurchases. But this is not something I had expected to be done in that timeframe overall.

Okay. And then, lastly in other specialty converting, why did you lose money in the quarter and what are the prospects for next year?

Yes, that business is a mix of different businesses, our tapes business is the largest entity in there, and they had bit of a tough year in terms of catching along raw material inflation. But then we have a number of new startup businesses in that sector as well. So RFID business is in there and we’ve got couple of other small converting businesses in there as well. So is pretty small and I do expect it to be better in 2011.

Okay. Thanks very much.

Thank you and good morning. I was hoping you could help us to break down the $175 million of capital, is there much there for IS information spending and then the growth capital. How much of that is emerging markets and can you share how you are thinking about which markets hold the most promise?

Sure. So at a high level is basically three major components to the $175 million of capital. But a third of it for investments in growth, principally in emerging markets, a vast majority of that is for emerging market investments. Another third of it is for productivity related investments and maintenance capital within mature markets and the last third is for IT infrastructure. So, in emerging market CapEx we’re adding a significant amount of capacity in India for our Pressure Sensitive materials business. We are also adding investments and capacity in Asia for Retail Information Services as well as raw material business; so, China and other places in South Asia.

And is there anything noteworthy on the IT infrastructure side, in terms of, what you are doing there? Is that kind of an ongoing maintenance type number or is there something specific that you are ramping?

Well, there are couple of things we call that for Retail Information Services. We had announced after the acquisition of Paxar that we needed to invest in IT systems to allow us to integrate a lot of disparate systems. During the recession we said no, we'll wait, and so now is the time to make that investment and now that the business has got really good traction. Also there is some systems that are getting at the end of life that we need to replace. So, I think we are getting back to “more normalized level” of IT spending.

And I am sorry. This is just last to clarify on that, is that capital that’s going to get returned or is that really more of a required expenditure?

Well, the RIS expenditures have a nice return. So, I am excited about that. Some of the other ones are like replacing things like financial systems don’t necessarily have a return, and it's just maintenance capital.

Very helpful, thank you very much.

Sure.

Our next question is a follow-up question from George Staphos, Bank of America. Please go ahead with your question.

Yeah, hi. Thanks. I guess my next question is, as you think about your key customers within Pressure-Sensitive Materials and really here I’m thinking about the label converters. How have they progressed in the last 12 months? What kind of shape are they and to ultimately pass along input cost inflation from you and elsewhere and are you seeing any kinds of interesting developments and innovations in label converting that may be help accelerate growth where will it be more less running round on what the volume trend are within the CPG sector. Thanks.

Yeah, it’s a good question, George. I think last year the label converters were getting fatigued by the price increases and I believe it’s because many of them during 2010 were kind of locked into fixed price contracts for the year with a number of their customers across many sectors. And we’ve done, I think, the best job we could in educating that marketplace is to say that’s not really a good idea in this environment. So my sense in talking to a lot of label converters is that they’re reluctant now to sign up for full year price guarantees, because we can’t give them any kind of protection on raw material inflation. So I think 2011 will be a bit of a different game for most label converters. From my perspective, the innovation in the marketplace is really being driven by our end-use marketing efforts in terms of coming up with new solutions like the Curvy container product and thinner liner material innovation, which allows us to explore other types of applications that typically are not that pressure-sensitive. So, we’ve got a number of innovations that we’ll be watching later this year at the Label Expo. So, yes, I think 2010 was a tough year. But I think people now in the industry realize that this inflation is going to be with us for while and I anticipate label converters actually having raw material price through contracts with their customers as best as they can.

Okay, thanks Dean, I’ll turn it over.

Our next question comes from the line of Ghansham Panjabi, Robert W. Baird. Please go ahead with your question.

Hi, guys, hi, again. You know Dean, as we look back over the last few years, ’08 was clearly a year market dislocation, ’09 perhaps is best characterized as cost cutting and maybe a modest recovery, ’10 was a year of volume improvement by higher inflation. How would you qualify ‘011 as you see it right now? Is the year of margin catch up?

Yes, again it depends -- here is the way I look at this. So, the last time we went through major inflation and I think there was already a gap for us to catch up, our trust is actually higher than it was before. So over the cycle I think we’ve been definitely making progress. And what we’re gearing up for this year, is dividing volumes will be good. That’s our sense, especially in emerging markets where we have a good position. We expect inflation to continue and we’re going to be aggressive about catching up with that. But also we’re going to get aggressive with suppliers on material substitution side. We’ve been working over the last 18 months very hard to bring new supplier to the marketplace, especially in emerging markets and some of that is going bear fruit this year. So, in that respect we are able to take a little more control

Okay, thanks. Good luck in the quarter.

Thanks.

Our next question is a follow up question from John E. Roberts, Buckingham Research Group. Please go ahead with your question.

Alright, thank you. Given the importance of apparel to the RIS business, is there record high fiber cost that apparel makers facing causing them to time their volumes or do anything with their volumes that might affect the labels that go on apparel?

Not really. I think that, you know, the apparel guys will change for the fibers they use. They will use more polyester cotton blends than just pure cotton because cotton is at a record high. They still have to get product into the stores for the normal season. So, I don’t anticipate any issues there and so, I don’t sense that. If anything, I think, there is still a tremendous opportunity for us to gain share in this business. Because apparel companies want to enhance their brands, they are looking for more sustainable products with a lot of solutions that we can offer retailers and brand owners that help them improve their gross profit margin. Their position.

I may have asked this before but are there placements of RIS machines that act as a leading indicator of your business or something like that that you can talk about? That the ticketing machine installations are up year-over-year or something like that?

Yeah, we are already everywhere we need to be. So, there is no really leading indicator there for us. You know, we kind of get a lead indicator on how retailers are feeling about the upcoming season because, they order, obviously, months in advance when the product has to be in the stores. And again we'll see that -- actually though we had a pretty good fourth quarter. For me, retailers were optimistic about consumers wanting to spend and they spent on parallel. And we’ll see in a few months about how folks feel about the Fall season with the orders coming in and again in the March-April timeframe.

Great. Thank you.

Our next question is a follow-up question from Jeff Zekauskas from JPMorgan Securities. Please go ahead with your question.

So my understand, Dean, is that acrylics prices keep moving up in fourth quarter. If acrylics hasn’t moved up in the first quarter, would you have caught up to the raw material cost inflation that you felt in the fourth quarter and the first quarter?

Yeah. Within the first quarter we would catch-up. Towards the middle of the first quarter, we would be expecting the catch-up. We did not have this latest round of inflation which is we would not be planning the current price increase for spring.

Okay and in your commentary on Office Products, did you -- you said that you would still be under a little bit of pressure. Were there any usually good items in the fourth quarter that is, was the volume a little bit better than you expected and for next year it sounds like you’re expecting down operating profit for the year? Is that correct?

Yeah. So first on the fourth quarter. We did see more volume coming through and basically that was some customer did some pre-buying to, I think help their yearend. They improved their rebate levels a little bit. We see this varying from year-to-year but it’s a little more than what expected in Q4. Here is my expectation for 2011 for Office Products. And that is we’ll be investing in demand creation and new product development and that’s where -- and plus we’re going feel the full year impact of the losses that we had in the label category in 2010. But I expect sales to level up because we’ll start to see product placement for lot of our new product categories and then we’ll really start with back-to-school period and in the fall. So that’s when we really see the benefit of the investments we are making there.

How much business have you lost or how much business did you lose in 2010?

You know, it wasn’t that much. In label category, remember this is about $200 million category. I think on a rate basis we lost six or seven share points in total. We actually only lost placement at one retailer and we didn’t lose it in the catalogue. And we still have the high volume skews in that retailer. So from my perspective the team did really good job of defending our market share position. Of course, it cost us some money, but it was absolutely the right thing to do.

Okay, thank you very much.

Sure.

And our next question is a follow up question from George Staphos, Bank of America. Please go ahead with your question.

Thanks. Hi, guys. Putting all of that commentary together to Jeff’s questions and the fact that, you get the leveling off and the leverage in the second half of the year when you get back to back-to-school season, and earlier when we were talking about Pressure-sensitive Material price pass through and the you’ll, more or less catch up at some point in the second quarter, given what you know the world right now with input costs. Does it seems logical then that in terms of the quarterly progressions that the first half of the year, the company is running perhaps flat-to-down versus last year, given the comparisons and would you really get the earnings growth in the second half of 2011?

Yes, so overall -- let me just put this in the frame this up around what we expecting in Graphics Products. We are investing in this business and we -- turn reverse. The trajectories have been full from the top-to-bottom line. We are expecting 2011 to further erode, both top and bottom lines. But the pace of erosion to slow down on the top line and then in the middle of the year, particular with PCs and Back-to-School, we will be able to launce a number of new products and we will be able to start to see the sales coming through from that. It will still be relatively small on how you measure from a financial perspective. In 2011, it is really going to provide a great pace for moving into 2012. So, you think about how things play out throughout the year. Overall, you should be thinking about Office Products still showing some erosion on the topline but it is slowing down our pace and margins too, as I said earlier, further erode as well full-year and --.

Yes, I guess, but my question was -- with more than aggregate Avery Dennison with the sample. In other words, if I say the trends and comparisons in Office and the price cost pass through, battled year, you got underway right now with Pressure Sensitive Materials. But it sounds like at least from our vantage point first half of 2011 for Avery Dennison, an aggregate earnings were probably more likely to be flat-to-down. Obviously, you have given us guidance for an up year and more than 100% of the growth should come in the second half. Would that be a fair assessment?

The gross and…

…earnings.

On a company-wide level, yes, you would expect more of that to be back half. Remember also when you think about that the RIS in their second quarter, seasonally the high-end. So, the significant amount of earnings usually about a third of a full-year earnings come in the second quarter, all other things being equal because of RIS’ seasonality. But aside from that point you're right, second half is when you would expect more of the profit to come through.

Okay. Fair point on that as well. Mitch, thanks very much. Good luck in the year.

Thank you. Thanks.

And our last question comes from the line of John E. Roberts, Buckingham Research Group. Please go ahead with your question.

The 100% growth that you had in RFID Q4 over Q4, was that broad-based and/or did it include a major ramp by any U.S. retailer?

It’s certainly a big part of the growth was in apparel RFID tags. So, we also had growth in other segments where we sell RFID inlays. So from that perspective it was pretty broad-based. And we did have a couple of customers in the U.S. ramp up their RFID programs.

Okay. Thank you.

There are no further questions at this time. I would now like to turn the call back over to Dean Scarborough.

Well, thanks for joining the call today and to sum up, we have solid 2010 and we feel good about 2011. As I noted earlier, our priorities for the year are to close the price inflation gap and expand margins, drive sales growth with our investments in marketing and innovation and continue to generate strong free cash flow, enabling us to return more cash to shareholders. Thanks everyone for joining and we look forward to speaking with you again.

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