item 14 exhibits financial statement schedules reports form 8k financial statements financial statement schedules exhibits 1 2 financial statements financial statement schedules filed part report listed accompanying index financial statements financial statement schedules 3 exhibits filed part report listed exhibit index follows financial statements schedules referred management contract compensatory plan arrangement required filed exhibit form 10k pursuant item 14c identified exhibit index b reports form 8k filed registrant fourth quarter 1993 c exhibits index thereto required filed item 601 regulation sk attached hereto financial statement schedules required regulation sx excluded registrants 1993 annual report rule 14a3b1 required filed financial statement schedules report indicated accompanying index financial statements financial statement schedules signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized avery dennison corporation r gregory jenkins r gregory jenkins senior vice president finance chief financial officer dated march 18 1994 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated avery dennison corporation index financial statements financial statement schedules omitted since required information present amounts sufficient require submission schedule information required included consolidated financial statements notes thereto s1 report independent certified public accountants board directors shareholders avery dennison corporation report consolidated financial statements avery dennison corporation subsidiaries incorporated reference form 10k page 53 1993 annual report shareholders avery dennison corporation connection audits financial statements also audited related financial statement schedules listed index page s1 form 10k opinion financial statement schedules referred considered relation basic financial statements taken whole present fairly material respects information required included therein coopers lybrand los angeles california january 31 1994 s2 avery dennison corporation subsidiaries schedule vproperty plant equipment millions primarily represents impact changes foreign currency exchange rates reported balances s3 avery dennison corporation subsidiaries schedule viaccumulated depreciation depletion amortization property plant equipment millions primarily represents impact changes foreign currency exchange rates reported balances schedule viiivaluation qualifying accounts reserves millions s4 avery dennison corporation subsidiaries schedule ixshortterm borrowings millions average amount shortterm debt outstanding weighted average interest rate year based average monthend balances schedule xsupplementary income statement information millions s5 consent independent accountants consent incorporation reference registration statements avery dennison corporation form s8 file nos 247617 260937 282207 331132 333645 333637 3327275 333599501 3341238 3345376 report includes explanatory paragraph regarding companys adoption provisions financial accounting standards boards statement financial accounting standards sfas 106 employers accounting postretirement benefits pensions sfas 109 accounting income taxes sfas 112 employers accounting postemployment benefits 1993 dated january 31 1994 appears page 53 1993 annual report shareholders incorporated reference annual report form 10k also consent incorporation reference report financial statement schedules listed index page s1 coopers lybrand los angeles california march 17 1994 s6 avery dennison corporation exhibit index year ended january 1 1994 incorporated reference management contract compensatory plan arrangement required filed exhibit form 10k pursuant item 14c management contract compensatory plan arrangement required filed exhibit form 10k pursuant item 14c management contract compensatory plan arrangement required filed exhibit form 10k pursuant item 14c management contract compensatory plan arrangement required filed exhibit form 10k pursuant item 14c submitted herewith management contract compensatory plan arrangement required filed exhibit form 10k pursuant item 14c statement agreement regarding long term debt registrant except indicated registrant instrument respect long term debt securities authorized thereunder equal exceed 10 total assets registrant subsidiaries consolidated basis registrant agrees furnish copy longterm debt instruments commission upon request logo avery dennisonitem 14 exhibits financial statement schedules reports form 8k financial statements financial statement schedules exhibits 1 2 financial statements financial statement schedules filed part report listed accompanying index financial statements financial statement schedules 3 exhibits filed part report listed exhibit index follows financial statements schedules referred management contract compensatory plan arrangement required filed exhibit form 10k pursuant item 14c identified exhibit index b reports form 8k reports form 8k filed three months ended december 30 1995 c exhibits index thereto required filed item 601 regulation sk attached hereto financial statement schedules required regulation sx excluded registrants 1995 annual report rule 14a3b1 required filed financial statement schedules report indicated accompanying index financial statements financial statement schedules signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized avery dennison corporation r gregory jenkins r gregory jenkins senior vice president finance chief financial officer dated march 28 1996 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated avery dennison corporation index financial statements financial statement schedules omitted since required information present amounts sufficient require submission schedule information required included consolidated financial statements notes thereto s1 report independent certified public accountants board directors shareholders avery dennison corporation report consolidated financial statements avery dennison corporation subsidiaries incorporated reference form 10k page 53 1995 annual report shareholders avery dennison corporation connection audits financial statements also audited related financial statement schedule listed index page s1 form 10k opinion financial statement schedule referred considered relation basic financial statements taken whole presents fairly material respects information required included therein coopers lybrand llp los angeles california january 30 1996 s2 schedule iivaluation qualifying accounts reserves millions s3 consent independent accountants consent incorporation reference registration statements avery dennison corporation form s8 file nos 247617 260937 2 82207 331132 333645 333637 3327275 333599501 3341238 3345376 3354411 3358921 3363979 report includes explanatory paragraph regarding companys adoption provisions financial accounting standards boards statement financial accounting standards sfas 106 employers accounting postretirement benefits pensions sfas 109 accounting income taxes sfas 112 employers accounting postemployment benefits 1993 dated january 30 1996 appears page 53 1995 annual report shareholders incorporated reference annual report form 10k also consent incorporation reference report financial statement schedule listed index page s1 coopers lybrand llp los angeles california march 28 1996 s4 avery dennison corporation exhibit index year ended december 30 1995 incorporated reference management contract compensatory plan arrangement required filed exhibit form 10k pursuant item 14c submitted herewith management contract compensatory plan arrangement required filed exhibit form 10k pursuant item 14c statement agreement regarding longterm debt registrant except indicated registrant instrument respect long term debt securities authorized thereunder equal exceed 10 total assets registrant subsidiaries consolidated basis registrant agrees furnish copy longterm debt instruments commission upon request logo avery dennisonitem 14 exhibits financial statement schedules reports form 8k financial statements financial statement schedules exhibits 1 2 financial statements financial statement schedules filed part report listed accompanying index financial statements financial statement schedules 3 exhibits filed part report listed exhibit index follows financial statements schedules referred management contract compensatory plan arrangement required filed exhibit form 10k pursuant item 14c identified exhibit index b reports form 8k registrant filed two reports form 8k three months ended december 28 1996 form 8k dated december 16 1996 respect execution certain agreements connection medium term notes series registration 33316375 form 8k dated october 24 1996 respect execution certain agreements connection employee stock benefit trust c exhibits index thereto required filed item 601 regulation sk attached hereto financial statement schedules required regulation sx excluded registrants 1996 annual report rule 14a3b1 required filed financial statement schedules report indicated accompanying index financial statements financial statement schedules signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized avery dennison corporation r gregory jenkins r gregory jenkins senior vice president finance chief financial officer dated march 27 1997 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated avery dennison corporation index financial statements financial statement schedules omitted since required information present amounts sufficient require submission schedule information required included consolidated financial statements notes thereto s1 report independent certified public accountants board directors shareholders avery dennison corporation report consolidated financial statements avery dennison corporation subsidiaries incorporated reference form 10k page 57 1996 annual report shareholders avery dennison corporation connection audits financial statements also audited related financial statement schedule listed index page s1 form 10k opinion financial statement schedule referred considered relation basic financial statements taken whole presents fairly material respects information required included therein coopers lybrand llp los angeles california january 28 1997 s2 schedule iivaluation qualifying accounts reserves millions s3 consent independent accountants consent incorporation reference registration statements avery dennison corporation form s8 file nos 247617 260937 2 82207 331132 333645 333637 3327275 3335995013341238 3345376 3354411 3358921 3363979 report appears page 57 1996 annual report shareholders incorporated reference annual report form 10k also consent incorporation reference report financial statement schedule listed index page s1 coopers lybrand llp los angeles california march 28 1997 s4 avery dennison corporation exhibit index year ended december 28 1996 incorporated reference management contract compensatory plan arrangement required filed exhibit form 10k pursuant item 14c submitted herewith management contract compensatory plan arrangement required filed exhibit form 10k pursuant item 14c statement agreement regarding longterm debt registrant except indicated registrant instrument respect longterm debt securities authorized thereunder equal exceed 10 total assets registrant subsidiaries consolidated basis registrant agrees furnish copy longterm debt instruments commission upon requestitem 14 exhibits financial statement schedules reports form 8k financial statements financial statement schedules exhibits 1 2 financial statements financial statement schedules filed part report listed accompanying index financial statements financial statement schedules 3 exhibits filed part report listed exhibit index follows financial statements schedules referred management contract compensatory plan arrangement required filed exhibit form 10k pursuant item 14c identified exhibit index b reports form 8k registrant filed one report form 8k three months ended december 27 1997 form 8k dated october 24 1997 connection 1997 rights plan c exhibits index thereto required filed item 601 regulation sk attached hereto financial statement schedules required regulation sx excluded registrants 1997 annual report rule 14a3b1 required filed financial statement schedules report indicated accompanying index financial statements financial statement schedules signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized avery dennison corporation robert calderoni robert calderoni senior vice president finance chief financial officer dated march 26 1998 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated avery dennison corporation index financial statements financial statement schedules omitted since required information present amounts sufficient require submission schedule information required included consolidated financial statements notes thereto s1 report independent certified public accountants board directors shareholders avery dennison corporation report consolidated financial statements avery dennison corporation subsidiaries incorporated reference form 10k page 49 1997 annual report shareholders avery dennison corporation connection audits financial statements also audited related financial statement schedule listed index page s1 form 10k opinion financial statement schedule referred considered relation basic financial statements taken whole presents fairly material respects information required included therein coopers lybrand llp los angeles california january 27 1998 s2 schedule iivaluation qualifying accounts reserves millions s3 consent independent accountants consent incorporation reference registration statements avery dennison corporation form s3 file nos 33316375 33338905 form s8 file nos 331132 333645 3327275 333599501 3341238 33 45376 3354411 3358921 3363979 33338707 33338709 report dated january 27 1998 appears page 49 1997 annual report shareholders incorporated reference annual report form 10k also consent incorporation reference report financial statement schedule listed index page s1 coopers lybrand llp los angeles california march 26 1998 s4 avery dennison corporation exhibit index year ended december 27 1997 incorporated reference management contract compensatory plan arrangement required filed exhibit form 10k pursuant item 14c submitted herewith management contract compensatory plan arrangement required filed exhibit form 10k pursuant item 14c statement agreement regarding longterm debt registrant except indicated registrant instrument respect longterm debt securities authorized thereunder equal exceed 10 total assets registrant subsidiaries consolidated basis registrant agrees furnish copy longterm debt instruments commission upon requestitem 14 exhibits financial statement schedules reports form 8k financial statements financial statement schedules exhibits 1 2 financial statements financial statement schedules filed part report listed accompanying index financial statements financial statement schedules 3 exhibits filed part report listed exhibit index follows financial statements schedules referred management contract compensatory plan arrangement required filed exhibit form 10k pursuant item 14c identified exhibit index b reports form 8k registrant filed reports form 8k three months ended january 2 1999 company file one report form 8k january 1999 form 8k dated january 26 1999 connection companys january 26 1999 news release concerning companys 4th quarter yearend results realignment companys cost structure c exhibits index thereto required filed item 601 regulation sk attached hereto financial statement schedules required regulation sx excluded registrants 1998 annual report rule 14a3b1 required filed financial statement schedules report indicated accompanying index financial statements financial statement schedules signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized avery dennison corporation robert calderoni robert calderoni senior vice president finance chief financial officer dated march 30 1999 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated avery dennison corporation index financial statements financial statement schedules omitted since required information present amounts sufficient require submission schedule information required included consolidated financial statements notes thereto s1 report independent certified public accountants board directors shareholders avery dennison corporation report consolidated financial statements avery dennison corporation subsidiaries incorporated reference form 10k page 49 1998 annual report shareholders avery dennison corporation connection audits financial statements also audited related financial statement schedule listed index page s1 form 10k opinion financial statement schedule referred considered relation basic financial statements taken whole presents fairly material respects information required included therein pricewaterhousecoopers llp los angeles california january 26 1999 s2 schedule iivaluation qualifying accounts reserves millions s3 consent independent accountants consent incorporation reference registration statements avery dennison corporation form s3 file nos 33316375 33338905 form s8 file nos 331132 333645 3327275 333599501 3341238 33 45376 3354411 3358921 3363979 33338707 33338709 report dated january 26 1999 appears page 49 1998 annual report shareholders incorporated reference annual report form 10k also consent incorporation reference report financial statement schedule listed index page s1 pricewaterhousecoopers llp los angeles california march 30 1999 s4 avery dennison corporation exhibit index year ended december 27 1997 incorporated reference management contract compensatory plan arrangement required filed exhibit form 10k pursuant item 14c submitted herewith management contract compensatory plan arrangement required filed exhibit form 10k pursuant item 14c statement agreement regarding longterm debt registrant except indicated registrant instrument respect longterm debt securities authorized thereunder equal exceed 10 total assets registrant subsidiaries consolidated basis registrant agrees furnish copy longterm debt instruments commission upon request logo avery dennison corporationitem 14 exhibits financial statement schedules reports form 8k financial statements financial statement schedules exhibits 1 2 financial statements financial statement schedules filed part report listed accompanying index financial statements financial statement schedules 3 exhibits filed part report listed exhibit index follows financial statements schedules referred management contract compensatory plan arrangement required filed exhibit form 10k pursuant item 14c identified exhibit index b reports form 8k registrant file reports form 8k three months ended december 30 2000 c exhibits index thereto required filed item 601 regulation sk attached hereto financial statement schedules required regulation sx excluded registrants 2000 annual report rule 14a3b1 required filed financial statement schedules report indicated accompanying index financial statements financial statement schedules signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized avery dennison corporation daniel r obryant daniel r obryant senior vice president finance chief financial officer dated march 29 2001 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated avery dennison corporation index financial statements financial statement schedules individual financial statements 50 less owned entities accounted equity method omitted considered aggregate single subsidiary constitute significant subsidiary exception consolidated financial statements accountants report thereon listed index certain information referred items 1 5 6 information included 2000 annual report incorporated herein reference 2000 annual report deemed filed part report schedules omitted since required information present amounts sufficient require submission schedule information required included consolidated financial statements notes thereto s1 report independent accountants financial statement schedule board directors shareholders avery dennison corporation audits consolidated financial statements referred report dated january 22 2001 appearing 2000 annual report shareholders avery dennison corporation report consolidated financial statements incorporated reference annual report form 10k also included audit financial statement schedule listed item 14a2 form 10k opinion financial statement schedule presents fairly material respects information set forth therein read conjunction related consolidated financial statements pricewaterhousecoopers llp los angeles california january 22 2001 s2 schedule iivaluation qualifying accounts reserves millions s3 consent independent accountants hereby consent incorporation reference registration statements form s3 file 33338905 form s8 file nos 331132 33 3645 3327275 3341238 3345376 3354411 3358921 3363979 33338707 33338709 avery dennison corporation report dated january 22 2001 relating financial statements appears 2000 annual report shareholders incorporated annual report form 10k also consent incorporation reference report dated january 22 2001 relating financial statement schedule appears form 10k pricewaterhousecoopers llp los angeles california march 28 2001 s4 avery dennison corporation exhibit index year ended december 30 2000 incorporated reference management contract compensatory plan arrangement required filed exhibit form 10k pursuant item 14c submitted herewith management contract compensatory plan arrangement required filed exhibit form 10k pursuant item 14c statement agreement regarding longterm debt registrant except indicated registrant instrument respect long term debt securities authorized thereunder equal exceed 10 total assets registrant subsidiaries consolidated basis registrant agrees furnish copy longterm debt instruments commission upon requestitem 14 exhibits financial statement schedules reports form 8k financial statements financial statement schedules exhibits 1 2 financial statements financial statement schedules filed part report listed accompanying index financial statements financial statement schedules 3 exhibits filed part report listed exhibit index follows financial statements schedules referred management contract compensatory plan arrangement required filed exhibit form 10k pursuant item 14c identified exhibit index b reports form 8k registrant file reports form 8k three months ended december 29 2001 c exhibits index thereto required filed item 601 regulation sk attached hereto financial statement schedules required regulation sx excluded registrants 2001 annual report rule 14a3b1 required filed financial statement schedules report indicated accompanying index financial statements financial statement schedules signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized avery dennison corporation daniel r obryant daniel r obryant senior vice president finance chief financial officer dated february 28 2002 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated avery dennison corporation index financial statements financial statement schedules individual financial statements 50 less owned entities accounted equity method omitted considered aggregate single subsidiary constitute significant subsidiary exception consolidated financial statements accountants report thereon listed index certain information referred items 1 5 6 information included 2001 annual report incorporated herein reference 2001 annual report deemed filed part report schedules omitted since required information present amounts sufficient require submission schedule information required included consolidated financial statements notes thereto s1 report independent accountants financial statement schedule board directors shareholders avery dennison corporation audits consolidated financial statements referred report dated january 21 2002 appearing 2001 annual report shareholders avery dennison corporation report consolidated financial statements incorporated reference annual report form 10k also included audit financial statement schedule listed item 14a2 form 10k opinion financial statement schedule presents fairly material respects information set forth therein read conjunction related consolidated financial statements pricewaterhousecoopers llp los angeles california january 21 2002 s2 schedule iivaluation qualifying accounts reserves millions s3 consent independent accountants hereby consent incorporation reference registration statements form s3 file nos 33338905 33364558 form s8 file nos 331132 333645 3327275 3341238 3345376 3354411 3358921 33 63979 33338707 33338709 avery dennison corporation report dated january 21 2002 relating financial statements appears 2001 annual report shareholders incorporated annual report form 10k also consent incorporation reference report dated january 21 2002 relating financial statement schedule appears form 10k pricewaterhousecoopers llp los angeles california february 28 2002 s4 avery dennison corporation exhibit index year ended december 29 2001 incorporated reference management contract compensatory plan arrangement required filed exhibit form 10k pursuant item 14c submitted herewith exhibit item 32 bylaws amended october 25 2001 10282 amendment 2 edrp 10291 amendment 1 elcp 10301 amendment 1 selcp 10313 amendment 2 evdrp 10321 amended restated brp 10343 amendment 2 cap 12 computation ratio earnings fixed changes 13 portions annual report shareholders fiscal year ended december 29 2001 21 list subsidiaries 23 consent independent accountants see page s4 99 cautionary statement purposes safe harbor provisions private securities litigation reform act 1995 management contract compensatory plan arrangement required filed exhibit form 10k pursuant item 14c statement agreement regarding longterm debt registrant except indicated registrant instrument respect long term debt securities authorized thereunder equal exceed 10 total assets registrant subsidiaries consolidated basis registrant agrees furnish copy longterm debt instruments commission upon requestitem 14 controls procedures company maintains disclosure controls procedures defined exchange act rule 13a 14c designed ensure information required disclosed company’s exchange act reports recorded processed summarized reported within time periods specified sec’s rules forms information accumulated communicated company’s management including chief executive officer chief financial officer appropriate allow timely decisions regarding required disclosure designing evaluating disclosure controls procedures management recognizes controls procedures matter well designed operated provide reasonable assurance achieving desired control objectives management necessarily required apply judgement evaluating costbenefit relationship possible controls procedures company’s disclosure controls system based upon global chain financial general business reporting lines converge company’s headquarters pasadena california within 90 days prior filing date report company carried evaluation supervision participation company’s management including company’s chief executive officer company’s chief financial officer effectiveness design operation company’s disclosure controls procedures based foregoing company’s chief executive officer chief financial officer concluded company’s disclosure controls procedures functioning effectively provide reasonable assurance company meet disclosure requirements significant changes company’s internal controls factors could significantly affect internal controls subsequent date company completed evaluation part iv item 15item 14 principal accounting fees services information called items 11 12 13 14 incorporated reference pages 5 24 2006 proxy statement filed securities exchange commission pursuant regulation 14a within 120 days end fiscal year covered report part iv item 15item 14 principal accounting fees services information called items 11 12 13 14 incorporated reference page 5 end audit committee report 2007 proxy statement filed securities exchange commission pursuant regulation 14a within 120 days end fiscal year covered report part iv item 15item 14 principal accounting fees services information called items 11 12 13 14 incorporated reference page 5 end audit committee report 2008 proxy statement filed securities exchange commission pursuant regulation 14a within 120 days end fiscal year covered report part iv item 15item 14 principal accounting fees services information called items 11 12 13 14 incorporated reference 2009 proxy statement filed securities exchange commission pursuant regulation 14a within 120 days end fiscal year covered report part iv item 15item 14 principal accounting fees services information called item incorporated reference 2010 proxy statement filed securities exchange commission pursuant regulation 14a within 120 days end fiscal year covered report part iv item 15item 14 principal accountant fees services information called item incorporated reference 2011 proxy statement filed sec pursuant regulation 14a within 120 days end fiscal year covered report part iv item 15item 14 principal accounting fees services information called item incorporated reference 2013 proxy statement part iv item 15item 14 principal accounting fees services information called item incorporated reference 2014 proxy statement part iv item 15item 14 principal accounting fees services information called item incorporated reference 2015 proxy statement part iv item 15item 14 principal accounting fees services information called item incorporated reference 2016 proxy statement part iv item 15item 14 principal accounting fees services information called item incorporated reference 2018 proxy statement part iv item 15item 14 principal accounting fees services information called item incorporated reference 2019 proxy statement part iv item 15item 14 principal accounting fees services information called item incorporated reference 2020 proxy statement part iv item 15item 14 principal accountant fees services information called items 11 12 13 14 incorporated reference pages 5 25 2004 proxy statement filed securities exchange commission pursuant regulation 14a within 120 days end fiscal year covered report part iv item 15 item 7 managements discussion analysis financial condition results operations results operations sales decreased less 1 percent 1993 261 billion 262 billion 1992 sales 1992 reflected 3 percent increase l991 sales 255 billion excluding impact changes foreign currency 1993 sales increased 2 percent 1992 sales increased 2 percent l991 however foreign currency effect 1992 offset impact divestitures discontinued products companys 1993 1992 fiscal years 52 weeks compared 53 weeks 1991 gross profit margins years ended 1993 1992 1991 314 percent 320 percent 313 percent respectively 1993 gross margins negatively affected lower average selling prices increased promotional spending incentives us office products lower benefits reduction lifo inventories negative currency effects within europe improvement 1992 1991 primarily result improved profit margins pressuresensitive adhesives materials businesses marketing general administrative expense percent sales 246 percent 1993 254 percent 1992 257 percent 1991 decrease 1993 primarily due cost reduction efforts throughout company decrease 1992 1991 primarily due cost reduction efforts european businesses lower marketing expense percent sales result operating profit percent sales 1993 increased 67 percent compared 66 percent 56 percent 1992 1991 respectively interest expense percent sales 17 percent 1993 16 percent 1992 15 percent 1991 increase interest expense 1993 compared 1992 entirely due higher interest rates brazil 1992 interest expense increased 1991 due higher interest rates brazil lower capitalized interest due decreased capital spending effective tax rate 37 percent 1993 385 percent 1992 399 percent 1991 lower effective tax rates 1993 1992 primarily due composition net foreign taxable income taxes percent sales 51 percent 1993 50 percent 1992 41 percent 1991 first quarter 1993 company adopted three accounting standards issued financial accounting standards board result increase net income 11 million 02 per share implementation statement financial accounting standard sfas 109 relating accounting income taxes resulted onetime cumulative increase net income 163 million 28 per share however increase offset adoption sfas 106 accounting postretirement benefits sfas 112 accounting postemployment benefits implementation sfas 106 resulted cumulative charge 23 million 142 million net tax 24 per share implementation sfas 112 resulted cumulative charge 15 million 1 million net tax 02 per share net income 844 million 146 per share 1993 excluding cumulative effects changes accounting principles net income 833 million 144 per share compared 801 million 133 per share 1992 net income 63 million 102 per share 1991 improvement earnings per share 1993 primarily result lower operating expenses lower tax rate fewer shares outstanding net income percent sales 32 percent 1993 31 percent 1992 25 percent 1991 return average shareholders equity 110 percent 1993 97 percent 1992 77 percent 1991 return average total capital three years 93 percent 83 percent 67 percent respectively 1993 pressuresensitive adhesives materials segment reported solid profitability improvement modest increase sales us operations reported significant sales profitability growth year growth attributable successful new product introductions increased market share effective cost reduction programs improvements us operations partially offset declines european materials automotive businesses negative effects foreign currency pricing pressures recessionary european economies adversely impacted sales profitability european operations sales profitability pressuresensitive adhesives materials segment improved 1992 1991 primary contributors sales profitability growth 1992 us european roll paper films businesses specialty tape businesses well us marking film business additionally new product introductions improved customer service bankruptcy major competitor european roll business contributed improved sales 1992 profitability increased primarily due increased worldwide sales aggressive cost reduction efforts european businesses office products segment reported flat sales significant decline profitability 1993 compared 1992 us increased sales market share gains kmbrand binders averybrand products partially offset declines us businesses profitability us negatively affected increased promotional spending incentives lower benefits reduction lifo inventories lifo benefits expected continue decline future years european sales profitability declined significantly particularly france due recessionary european economies negative effects foreign currency translation 1992 office products segment reported increased profits slightly increased sales compared 1991 increased sales profits us businesses offset lower sales profits europe canada averybrand business showed significant improvements sales profitability 1992 primarily due increased sales new products profitability avery dennison businesses also positively affected reduction lifo inventories fire avery guidex plant england curtailed operations several weeks 1992 significant impact overall performance office products segment 1993 product identification control systems segment showed significant profitability improvement decreased sales elimination unprofitable lines business decreased combined sales soabar tag ticketing businesses effective cost control measures resulted significant combined profitability improvements international converting businesses reported significant decline sales due recessionary european economies negative effects foreign currency translation however profitability improved significantly due effective cost reduction programs despite negative effects foreign currency translation north american label businesses reported flat sales decreased profitability year segment profitability positively affected 1993 greater reduction lifo inventories 1992 however benefits reductions expected lower future years 1992 product identification control systems segment reported lower profitability slightly decreased sales compared 1991 continued weakness domestic apparel retail markets 1992 resulted sales profitability declines us soabar businesses despite aggressive downsizing efforts declines partially offset solid sales profitability growth overseas service bureau hong kong addition positive impact profitability reduction lifo inventories greater 1991 1992 label businesses north america experienced slight sales increase significantly improved profitability 1992 along fastener business also reported increased sales profits international converting businesses negatively affected depressed european economies 1992 financial condition average working capital excluding shortterm debt percent sales 123 percent 1993 152 percent 1992 169 percent 1991 excludes net impact restructuring costs average number days sales receivables 57 1993 59 1992 1991 average inventory turnover rate 87 1993 compared 75 1992 64 1991 net cash flow operating activities 2392 million 1993 1678 million 1992 increase net cash flow attributable continued reduction inventory levels increase accrued liabilities net tax liabilities total debt decreased 30 million year end 1992 even though 29 million shares treasury stock purchased 829 million 1993 company issued 100 million principal amount mediumterm notes average interest rate 66 maturities ranging may 2000 may 2005 longterm debt percent total longterm capital increased 302 percent year end 1993 compared 294 percent year end 1992 total debt total capital 356 percent year end 1993 compared 348 percent year end 1992 shareholders equity decreased 7191 million 1993 8026 million 1992 due primarily effects foreign currency translation repurchase treasury stock previously discussed company like us corporations periodically received notices us environmental protection agency state environmental agencies alleging company potentially responsible party prp past future cleanup costs hazardous waste sites company received requests information notices andor claims respect 17 waste sites company ownership interest environmental investigatory remediation projects also undertaken property presently owned company accrued liabilities sites probable loss incurred amount loss reasonably estimated however uncertainties associated environmental assessment remediation activities future expense remediate currently identified sites could identified future cleanup could higher liability currently accrued liquidity capital resources addition cash flow operations company adequate financing arrangements competitive rates conduct operations capital expenditures increased 1006 million 1993 878 million 1992 capital expenditures 1994 currently expected approximately 125 million annual dividends per share increased 90 1993 82 1992 76 1991 company believes whereas costs expenses rise inflation effects offset productivity improvements increases prices generally sufficient absorb impact inflation item 8item 7 managements discussion analysis financial condition results operations results operations sales increased 311 billion 1995 9 percent increase 1994 sales 286 billion fourth quarter 1995 company sold portion north american label converting operations businesses accounted approximately 2 percent companys total sales excluding impact business divestitures changes foreign currency exchange rates 1995 sales increased approximately 7 percent 1994 sales increased 10 percent 1993 sales 261 billion changes foreign currency little effect 1994 total year sales companys 1995 1994 1993 fiscal years consisted 52 weeks companys sales growth rate may moderate 1996 slower economic growth gross profit margins years ended 1995 1994 1993 307 percent 318 percent 314 percent respectively decrease 1995 primarily due shift product mix plant major production line startups 16 million expense related lifo inventories compared benefit 400000 1994 gross profit margins 1994 improved compared 1993 primarily due productivity improvements throughout company improved product mix increased sales gross profit margin 1994 increased despite plant startup costs number large facilities rising raw material prices business sectors almost benefit reduction lifo inventories compared benefit 114 million 1993 marketing general administrative expense percent sales 222 percent 1995 242 percent 1994 246 percent 1993 ongoing improvement 1995 primarily attributable benefits companys cost reduction programs shift product mix increased sales improvement 1994 1993 primarily attributable cost reduction efforts throughout company increased sales achieved despite major investments geographic expansion business realignment new product programs business restructuring actions taken fourth quarter 1995 resulting net pretax gain 15 million consistent companys strategic plan order improve future profitability company took specific actions restructure certain operations including sale certain nonstrategic north american label converting businesses certain businesses longer met companys strategy converting technology sold 95 million 407 million pretax gain sale businesses offset companys current restructuring program estimated cost 392 million restructuring program included closure four plants reorganization certain manufacturing distribution administrative sites costs consisted severance related costs approximately 400 positions worldwide 162 million discontinuance product lines related asset writeoffs 131 million plant closure costs 99 million companys restructuring programs expected take approximately 9 18 months complete result estimated annual savings 14 17 million fully implemented programs integral part companys ongoing effort identify opportunities improve administrative manufacturing cost structures interest expense percent sales 14 percent 1995 15 percent 1994 17 percent 1993 interest expense increased 1995 due higher debt levels offset impact increased sales decrease 1994 due comparable interest expense increased sales income taxes percent sales 72 percent 1995 61 percent 1994 51 percent 1993 improvement 1995 primarily due lower operating interest expenses percent sales increase 1994 1993 primarily due improved gross profit margins lower operating expenses percent sales effective tax rate 36 percent 1995 367 percent 1994 37 percent 1993 net income increased 1437 million 1995 compared 1094 million 1994 844 million 1993 reflecting 31 percent increase 1994 companys fifth consecutive year improved profitability earnings per share reached record high 270 1995 compared 197 1994 37 percent increase excluding effect accounting changes net income 1993 833 million 144 per share net income percent sales 46 percent 38 percent 32 percent 1995 1994 1993 respectively results operations business sector pressuresensitive adhesives materials pressuresensitive adhesives materials sector reported increased sales profitability 1995 compared 1994 profitability sector increased 1995 despite 151 million restructuring charges taken fourth quarter us operations reported significant increase sales due unit volume growth pricing actions profitability improvement primarily due sales growth lower operating expenses percent sales partially offset plant major equipment startup costs capacity expansion reorganization certain manufacturing sites sales european operations increased significantly primarily result volume growth improved economic conditions 1994 pricing actions changes foreign currency rates profitability increased despite costs taken restructuring programs primarily result sales growth lower operating expenses percent sales favorable product mix pressuresensitive adhesives materials sector reported significant sales profitability improvements 1994 compared 1993 us operations reported significant sales increase due improved economic conditions major markets revenue unit volume growth result new products pricing actions solid profitability improvement primarily due sales growth cost reduction programs improved economic conditions pricing actions volume growth led significant sales increase european operations sales growth coupled productivity improvements cost reduction programs resulted significant profitability increases european operations company experienced significant adverse effects mexican currency devaluation 1994 office products office products sector reported solid sales profitability growth 1995 compared 1994 sector profitability 1995 impacted 156 million restructuring charges recorded fourth quarter us operations reported increased sales profitability 1995 significant sales growth averybrand labels indexes partially offset elimination lower margin business profitability increased us operations due successful new products improved product mix cost reduction actions including consolidations distribution warehouses sales forces us european operations reported significant sales growth due new products improved economic conditions changes foreign currency rates favorable product mix coupled cost reduction actions taken previous years led significant profitability increases europe 1994 office products sector reported solid sales profitability growth 1994 compared 1993 us sales profitability increased primarily result successful new products promotional programs improved product mix profitability improved us operations despite significantly lower benefits reduction lifo inventories 1994 compared 1993 higher costs related consolidations distribution warehouses sales forces european office products businesses reported significantly improved profitability decreased sales compared 1993 decreased sales primarily due effects non core product pruning weak french economy early 1994 profitability improved significantly primarily result cost reduction actions taken previous years improved product mix achieved despite costs related continuous business improvement programs converted products converted products sector reported increased sales 1995 compared 1994 profitability 1995 included 407 million gain sale certain nonstrategic north american label converting operations offset 85 million restructuring charges taken early december excluding net gain sale restructuring actions us converting operations reported increased sales decreased profitability 1995 new products improved european economy changes foreign currency rates increased sales international converting businesses improved product mix lower operating expenses percent sales resulted significantly higher profitability converted products sector reported significant profitability improvements solid sales growth 1994 compared 1993 profitability increased despite costs incurred improve operations significantly lower benefits reduction lifo inventories 1994 compared 1993 sales soabar fastener businesses increased due improving retail apparel markets new products profitability significantly primarily due increased sales coupled elimination unprofitable product lines lower operating expenses result cost reduction actions international converting businesses reported modest sales growth decreased profitability 1994 effects improved european economy sales partially offset sales lost elimination unprofitable lines business costs incurred improve operations us label businesses reported solid increase sales significant profitability gains due primarily increased sales automotive durable consumer goods markets lower operating expenses percent sales financial condition average working capital excluding shortterm debt percent sales 96 percent 1995 10 percent 1994 123 percent 1993 decrease primarily due higher sales increase current liabilities average inventory turnover 90 turns 1995 93 turns 1994 87 1993 average number days sales outstanding accounts receivable 55 days 1995 1994 compared 57 days 1993 net cash flow operating activities 1879 million 1995 265 million 1994 decrease primarily due change working capital requirements partially offset increase net income total debt increased 287 million 4494 million compared year end 1994 total debt total capital 355 percent year end 1995 compared 366 percent year end 1994 longterm debt percent total long term capital decreased 29 percent 323 percent year end 1994 1995 company issued 100 million principal amount medium term notes average interest rate 73 percent maturities ranging 2005 2025 portion mediumterm notes used retire shortterm debt shareholders equity increased 8158 million 729 million year end 1994 1995 company repurchased 852000 shares common stock cost 351 million cost treasury stock held net shares reissued companys stock option incentive plans year end 1995 increased 265 million 2799 million year end 1994 january 1995 board directors authorized repurchase additional five million shares companys outstanding common stock aggregate 152 million shares authorized repurchase year end 1995 cumulative 108 million shares common stock purchased authorization return average shareholders equity 186 percent 1995 148 percent 1994 11 percent 1993 improvements 1995 1994 primarily due significant increase profitability companys share repurchase program return average total capital three years 144 percent 121 percent 93 percent respectively increases 1995 1994 primarily due profitability improvements effective utilization companys assets company like us corporations periodically received notices us environmental protection agency state environmental agencies alleging company potentially responsible party prp past future cleanup costs hazardous waste sites company received requests information notices andor claims respect 16 waste sites company ownership interest litigation initiated governmental authority respect three sites company believe proceedings result imposition monetary sanctions environmental investigatory remediation projects also undertaken property presently owned company accrued liabilities sites probable loss incurred amount loss reasonably estimated however uncertainties associated environmental assessments remediation activities future expense remediate currently identified sites could identified future cleanup could higher liability currently accrued liquidity capital resources addition cash flow operations company adequate financing arrangements competitive rates conduct operations companys 1995 restructuring program included sale certain nonstrategic north american label converting businesses sale proceeds 95 million used general corporate purposes including funding capital spending debt repayment share repurchase profit improvement programs restructuring programs estimated cost 392 million 245 million remained accrued year end related primarily employee severance plant closure costs total cash expenditures restructuring program estimated 197 million year end 1995 approximately 15 million paid primarily employee severance related costs company continues expand operations asia pacific latin america europe companys future results subject changes economic conditions impact fluctuations foreign currency exchange interest rates manage exposure fluctuations company may enter currency interest rate contracts appropriate capital expenditures increased 1903 million 1995 1633 million 1994 1995 capital spending directed primarily pressure sensitive adhesives materials businesses capital expenditures 1996 expected approximately 225 million annual dividends per share increased 111 1995 99 1994 90 1993 1995 company experienced moderate increases raw materials prices inflationary pressures expected decrease 1996 substantially offset pricing actions productivity improvements future accounting requirements march 1995 financial accounting standards board issued statement financial accounting standards sfas 121 accounting impairment longlived assets longlived assets disposed sfas 121 requires company review carrying amounts longlived assets certain identifiable intangible assets impairment determined carrying amount asset recoverable company required recognize impairment loss accounting standard implemented first quarter 1996 however loss yet determined item 8item 7 managements discussion analysis results operations financial condition results operations sales increased 35 percent 322 billion 1996 compared 311 billion 1995 excluding impact business divestitures changes foreign currency exchange rates sales increased 64 percent 1995 sales increased 9 percent 1994 sales 286 billion excluding impact sales divested operations changes foreign currency exchange rates 1995 sales increased approximately 7 percent fourth quarter 1995 company sold portion north american label converting operations businesses accounted approximately 2 percent companys 1995 total sales companys 1996 1995 1994 fiscal years consisted 52 weeks gross profit margins years ended 1996 1995 1994 316 percent 307 percent 318 percent respectively gross profit margins 1996 improved compared 1995 due primarily improved product mix new products cost reduction control programs increased capacity utilization also 32 million lifo benefit reported 1996 decline gross profit percentage 1995 primarily due shift product mix plant major production line startups 16 million expense related lifo inventories compared benefit 400000 1994 marketing general administrative expense percent sales 221 percent 1996 222 percent 1995 242 percent 1994 improvement 1996 1995 primarily attributable cost control reduction efforts throughout company achieved despite major investments geographic expansion business realignment new product programs improvement 1995 primarily attributable benefits companys cost reduction programs shift product mix increased sales third quarter 1996 restructuring actions taken resulting net pretax gain 21 million company sold equity interest label operation japan 284 million resulting pretax gain 179 million company also recorded 158 million restructuring charges included asset impairment writedown 63 million longlived assets held companys consumer converted products sector restructuring program also included reorganization certain manufacturing distribution administrative sites costs consisted severance related costs approximately 200 positions worldwide 74 million discontinuance product lines related asset writeoffs 21 million actions expected completed 1997 expected result estimated annual savings approximately 9 million 11 million fully implemented business restructuring actions taken fourth quarter 1995 resulted net pretax gain 15 million certain businesses longer met companys strategy converting technology sold 95 million 407 million pretax gain sale businesses offset restructuring charges 392 million included closure four plants reorganization certain manufacturing distribution administrative sites costs consisted severance related costs approximately 400 positions worldwide 162 million discontinuance product lines related asset writeoffs 131 million plant closure costs 99 million program also expected completed 1997 expected result estimated annual savings 14 million 17 million fully implemented 1996 1995 programs integral part companys ongoing effort identify opportunities improve administrative manufacturing cost structures interest expense percent sales 12 percent 1996 14 percent 1995 15 percent 1994 decrease 1996 primarily due expiration interest rate swap agreements fourth quarter 1995 overall lower cost borrowing interest expense increased 1995 due higher debt levels offset impact increased sales income taxes percent sales 84 percent 1996 72 percent 1995 61 percent 1994 improvement 1996 primarily due higher gross profit margins lower interest expense percent sales improvement 1995 primarily due lower operating interest expenses percent sales effective tax rate 35 percent 1996 36 percent 1995 367 percent 1994 net income increased 1759 million 1996 compared 1437 million 1995 reflecting 22 percent increase 1995 net income 1994 1094 million net income percent sales 55 percent 46 percent 38 percent 1996 1995 1994 respectively net income per common share reached 168 1996 compared 135 1995 24 percent increase prior year net income per common share 98 1994 primarily due significant increase companys stock price 1996 share repurchases company required report net income per share fullydiluted basis net income per fullydiluted common share 162 1996 131 1995 96 1994 results operations business sector effective fourth quarter 1996 company realigned reporting businesses three sectors twopressuresensitive adhesives materials consumer converted products realignment reflects broadening related scope companys consumer businesses include products battery labels postage stamps childrens school supplies addition certain businesses previously pressuresensitive adhesives materials sector emphasize converting technology reclassified consumer converted products sector change effectively aligns companys financial reporting manufacturing processes end markets sector information 1995 1994 reclassified conform 1996 sector presentation pressuresensitive adhesives materials pressuresensitive adhesives materials sector reported increased sales profits 1996 compared 1995 sectors income results include restructuring charges 71 million 1996 151 million 1995 us operations reported sales growth year primarily due increased volume new products profitability improved result cost reduction actions increased capacity utilization improved operating efficiencies international businesses reported increased sales primarily due geographic expansion emerging markets increased volume profitability international businesses increased primarily due extent restructuring charges taken 1995 compared 1996 increase partially offset costs related continued investments geographic expansion major equipment startup costs pressuresensitive adhesives materials sector reported increased sales profitability 1995 compared 1994 profitability sector increased despite 151 million restructuring charges taken 1995 us operations reported significant increase sales due unit volume growth pricing actions profitability improvement primarily due sales growth lower operating expenses percent sales partially offset plant major equipment startup costs capacity expansion reorganization certain manufacturing sites sales european operations increased significantly primarily result volume growth improved economic conditions 1994 pricing actions changes foreign currency rates profitability increased despite costs taken restructuring programs primarily result sales growth lower operating expenses percent sales favorable product mix consumer converted products consumer converted products sector reported increased sales profitability 1996 compared 1995 sectors income results include restructuring charges 87 million 1996 compared 166 million net gain divestitures restructuring charges 1995 us operations reported increased sales primarily due growth battery label business averybrand products profitability improved primarily due increased sales volume new products operating improvements including improved logistics international businesses reported higher sales due geographic expansion growth office label businesses however sales increase partially offset sales declines portion french operations profitability 1996 international businesses comparable 1995 profit improvements cost control programs product pruning offset lower sales one french operations startup costs related geographic expansion consumer converted products sector reported increased sales profits 1995 compared 1994 profits 1995 included 407 million gain sale certain nonstrategic north american label converting operations partially offset 241 million restructuring charges us operations reported increased sales 1995 primarily due sales growth averybrand postage stamp businesses profitability increased us operations due successful new products improved product mix cost reduction actions including consolidations distribution warehouses sales forces united states international businesses reported increased sales result new products improved european economy changes foreign currency rates favorable product mix coupled cost reduction actions taken previous years lower operating expenses percent sales resulted significantly higher profitability 1994 financial condition average working capital excluding shortterm debt percent sales 91 percent 1996 96 percent 1995 10 percent 1994 decrease 1996 primarily due higher sales increase current liabilities average inventory turnover 93 1996 90 1995 93 1994 average number days sales outstanding accounts receivable 55 days 1996 1995 1994 net cash flow operating activities 304 million 1996 1879 million 1995 265 million 1994 increase net cash flow 1996 due primarily change working capital requirements companys improved profitability decrease 1995 primarily due change working capital requirements partially offset increase net income total debt increased 175 million 4669 million compared year end 1995 total debt total capital 359 percent year end 1996 compared 355 percent year end 1995 longterm debt percent total long term capital increased 308 percent 29 percent year end 1995 october 1996 company established avery dennison corporation employee stock benefit trust fund portion companys obligations arising various current future employee benefit plans result company sold 18 million shares treasury stock trust fair market value transaction impact companys financial condition trust 15year life utilize stock satisfy certain company obligations shareholders equity increased 832 million 8158 million year end 1995 1996 company repurchased 38 million shares common stock cost 1093 million cost treasury stock held sale shares trust net shares reissued companys stock option incentive plans year end 1996 decreased 2124 million 675 million year end 1995 january 1995 board directors authorized repurchase additional ten million shares companys outstanding common stock aggregate 304 million shares authorized repurchase year end 1996 cumulative 254 million shares common stock purchased authorization return average shareholders equity 214 percent 1996 186 percent 1995 148 percent 1994 improvements 1996 1995 primarily due significant increase profitability impact share repurchases return average total capital three years 164 percent 144 percent 121 percent respectively increases years primarily due profitability improvements effective utilization companys assets company like us corporations periodically received notices us environmental protection agency state environmental agencies alleging company potentially responsible party prp past future cleanup costs hazardous waste sites company received requests information notices andor claims respect 17 waste sites company ownership interest litigation initiated governmental authority respect four sites company believe proceedings result imposition monetary sanctions environmental investigatory remediation projects also undertaken property presently owned company accrued liabilities sites probable loss incurred minimum cost amount loss reasonably estimated however uncertainties associated environmental assessments remediation activities future expense remediate currently identified sites could identified future cleanup could higher liability currently accrued based current site assessments management believes potential liability amounts currently accrued would materially affect company liquidity capital resources addition cash flow operations company adequate financing arrangements competitive rates conduct operations fourth quarter 1996 company registered securities exchange commission 150 million principal amount medium term notes year end 1996 notes issued proceeds mediumterm notes used reduce debt general corporate purposes companys currently outstanding mediumterm notes maturities 1997 2025 weightedaverage interest rate 72 percent companys restructuring programs included 1996 284 million sale equity interest label operation japan 1995 95 million sale certain nonstrategic label converting businesses restructuring programs estimated cost 158 million 392 million 1996 1995 respectively year end 1996 1995 16 million 245 million respectively remained accrued programs related primarily employee severance plant closure costs year end 1996 1995 total cash expenditures paid restructuring programs totalled 145 million 15 million respectively related primarily employee severance plant closure costs capital expenditures 1876 million 1996 1903 million 1995 capital expenditures 1997 expected approximately 190 200 million annual dividend rate per share increased 62 1996 55 1995 50 1994 company continues expand operations asia pacific latin america europe companys future results subject changes economic conditions impact fluctuations foreign currency exchange interest rates manage exposure fluctuations company may enter forward exchange interest rate contracts appropriate effective 1997 mexico treated hyperinflationary economy accounting purposes due cumulative inflation rate past three years result functional currency subsidiaries operating mexico change peso dollar translation gains losses included net income operations including located brazil also operate hyperinflationary economy significant companys consolidated financial position future accounting requirements july 1996 financial accounting standards board issued statement financial accounting standards 125 accounting transfers servicing financial assets extinguishments liabilities standard revised guidelines recognition measurement disclosure transfers servicing financial assets extinguishment debt effective transactions occurring december 31 1996 company implement standard first quarter 1997 applicable however impact yet determined item 8item 7 managements discussion analysis results operations financial condition results operations sales increased 38 percent 335 billion 1997 compared 322 billion 1996 excluding changes foreign currency exchange rates sales increased 66 percent 1996 sales increased 35 percent 1995 sales 311 billion excluding impact business divestitures changes foreign currency exchange rates 1996 sales increased 64 percent fourth quarter 1995 company sold portion north american label converting operations businesses accounted approximately 2 percent companys 1995 total sales gross profit margins years ended 1997 1996 1995 324 percent 316 percent 307 percent respectively improvement 1997 1996 primarily due increased productivity cost control improved product mix improvement 1996 1995 primarily attributable improved product mix new products cost reduction control programs increased capacity utilization gross profit margins also impacted 42 million 32 million lifo benefit reported 1997 1996 respectively marketing general administrative expense percent sales 221 percent 1997 1996 222 percent 1995 expense 1997 benefited cost control lower costs certain employee benefit plans however benefits offset increased expenditures marketing research development activities improvement 1996 1995 primarily attributable cost control reduction efforts throughout company achieved despite major investments geographic expansion business realignment new product programs third quarter 1996 restructuring actions taken resulting net pretax gain 21 million company sold equity interest label operation japan 284 million resulting pretax gain 179 million company also recorded 158 million restructuring charges included asset impairment writedown 63 million longlived assets held companys consumer converted products sector restructuring program also included reorganization certain manufacturing distribution administrative sites costs consisted severance related costs approximately 200 positions worldwide 74 million discontinuance product lines related asset writeoffs 21 million actions completed third quarter 1997 expected result estimated annual savings approximately 9 million 11 million business restructuring actions taken fourth quarter 1995 resulted net pretax gain 15 million certain businesses longer met companys strategy converting technology sold 95 million 407 million pretax gain sale businesses offset restructuring charges 392 million included closure four plants reorganization certain manufacturing distribution administrative sites costs consisted severance related costs approximately 400 positions worldwide 162 million discontinuance product lines related asset writeoffs 131 million plant closure costs 99 million program completed yearend 1997 expected result estimated annual savings 14 million 17 million interest expense years ended 1997 1996 1995 317 million 374 million 443 million respectively decrease 1997 primarily due lower weightedaverage interest rates lower average borrowings decrease 1996 primarily due expiration interest rate swap agreements fourth quarter 1995 overall lower cost borrowing income taxes percent sales 93 percent 1997 84 percent 1996 72 percent 1995 improvement 1997 1996 primarily due higher gross profit margins lower interest expense percent sales effective tax rate 342 percent 1997 35 percent 1996 36 percent 1995 decrease 1997 primarily due utilization foreign tax loss carryforwards increase us tax credits research experimentation company estimates effective tax rate 1998 34 to35 percent net income increased 2048 million 1997 compared 1759 million 1996 reflecting 164 percent increase 1996 net income 1995 1437 million net income percent sales 61 percent 55 percent 46 percent 1997 1996 1995 respectively net income per common share increased 199 1997 compared 168 1996 185 percent improvement net income per common share 135 1995 net income per common share assuming dilution 193 1997 compared 163 1996 184 percent increase net income per common share assuming dilution 132 1995 company adopted statement financial accounting standards sfas 128 earnings per share fourth quarter 1997 prior year net income per share data shown restated accordance new standard results operations business sector pressuresensitive adhesives materials pressuresensitive adhesives materials sector reported increased sales profitability 1997 compared 1996 us operations sales growth primarily led increased sales volume products pharmaceutical variable imprint graphics businesses however sales partially impacted paper price deflation product mix income us operations benefited improved capacity utilization extent restructuring charges taken 1996 compared 1997 international businesses reported increased sales profitability primarily due higher unit volume geographic expansion partially offset changes foreign currency rates pressuresensitive adhesives materials sector reported increased sales income 1996 compared 1995 sectors income results include restructuring charges 71 million 1996 151 million 1995 us operations reported sales growth year primarily due increased volume new products profitability improved result cost reduction actions increased capacity utilization improved operating efficiencies international businesses reported increased sales primarily due geographic expansion emerging markets increased volume profitability international businesses increased primarily due extent restructuring charges taken 1995 compared 1996 increase partially offset costs related continued investments geographic expansion major equipment startup costs consumer converted products consumer converted products sector reported increased sales profitability 1997 compared 1996 increased sales us operations continued led growth averybrand products new products consumer products profitability us businesses improved primarily result averybrand products new products improved product mix sales international businesses 1997 comparable 1996 sales 1997 benefited geographic expansion however increase offset changes foreign currency rates sales declines certain european operations profitability international businesses primarily impacted operations france decreased sales select european operations due softness certain economies investment market expansion new products consumer converted products sector reported increased sales profitability 1996 compared 1995 sectors income results include restructuring charges 87 million 1996 compared 166 million net gain divestitures restructuring charges 1995 us operations reported increased sales primarily due growth battery label business averybrand products profitability improved primarily due increased sales volume new products operating improvements including lower distribution expenses international businesses reported higher sales due geographic expansion growth office label businesses however sales increase partially offset sales declines portion french operations profitability 1996 international businesses comparable 1995 profit improvements cost control programs product pruning offset lower sales one french operations startup costs related geographic expansion financial condition average working capital excluding shortterm debt percent sales 8 percent 1997 91 percent 1996 96 percent 1995 decrease 1997 primarily due increased sales reduced days sales outstanding accounts receivable improved inventory turnover better payables management programs decrease 1996 primarily due higher sales increase current liabilities average inventory turnover 95 turns 1997 93 turns 1996 9 turns 1995 average number days sales outstanding accounts receivable 52 days 1997 55 days 1996 1995 net cash flow operating activities 3684 million 1997 304 million 1996 1879 million 1995 increase net cash flow 1997 1996 primarily due changes working capital requirements companys improved profitability total debt decreased 192 million 4477 million compared year end 1996 total debt total capital 348 percent year end 1997 compared 359 percent year end 1996 longterm debt percent total long term capital increased 326 percent 308 percent year end 1996 october 1996 company established avery dennison corporation employee stock benefit trust esbt fund portion companys obligations arising various current future employee benefit plans result company sold 18 million shares treasury stock esbt fair market value transaction impact companys financial condition esbt 15year life utilize stock satisfy certain company obligations market value shares held esbt issuance shares companys stock incentive plans increased 854 million 7297 million year end 1996 shareholders equity increased 8372 million 832 million year end 1996 1997 company repurchased 25 million shares common stock cost 993 million year end 1997 cumulative 279 million shares common stock purchased since 1991 25 million shares remained available repurchase board directors authorization return average shareholders equity 248 percent 1997 214 percent 1996 186 percent 1995 return average total capital three years 181 percent 164 percent 144 percent respectively improvements 1997 1996 returns primarily due increase profitability effective utilization companys assets impact share repurchases company like us corporations periodically received notices us environmental protection agency state environmental agencies alleging company potentially responsible party prp past future cleanup costs hazardous waste sites company received requests information notices andor claims respect 15 waste sites company ownership interest litigation initiated governmental authority respect two sites company believe proceedings result imposition monetary sanctions environmental investigatory remediation projects also undertaken property presently owned company accrued liabilities sites probable loss incurred minimum cost amount loss reasonably estimated however uncertainties associated environmental assessments remediation activities future expense remediate currently identified sites could identified future cleanup could higher liability currently accrued based current site assessments management believes potential liability amounts currently accrued would materially affect company liquidity capital resources addition cash flow operations company adequate financing arrangements competitive rates conduct operations fourth quarter 1996 company registered securities exchange commission 150 million principal amount uncollaterized mediumterm notes 60 million notes issued year end 1997 proceeds mediumterm notes used reduce debt general corporate purposes companys currently outstanding mediumterm notes maturities 2000 2025 weightedaverage interest rate 71 percent companys restructuring programs completed 1997 included 1996 284 million sale equity interest label operation japan 1995 95 million sale certain nonstrategic label converting businesses restructuring programs cost 158 million 392 million 1996 1995 respectively capital expenditures 1773 million 1997 1876 million 1996 capital expenditures 1998 expected approximately 175 million 200 million annual dividend rate per share increased 72 1997 62 1996 55 1995 company continues expand operations asia pacific latin america europe companys future results subject changes economic conditions impact fluctuations foreign currency exchange interest rates manage exposure fluctuations company may enter foreign exchange forward option contracts interest rate contracts appropriate recent turmoil certain asian financial markets immaterial effect companys 1997 results 1997 companys operations located mexico brazil treated hyperinflationary economies accounting purposes due cumulative inflation rate past three years result translation gains losses included net income operations significant companys consolidated financial position beginning 1998 brazil longer treated hyperinflationary economy accounting purposes result asset liability accounts companys brazilian operations translated us dollars current rates recorded directly component shareholders equity gains losses resulting foreign currency transactions included net income currently future accounting requirements june 1997 financial accounting standards board fasb issued sfas 130 reporting comprehensive income standard establishes guidelines reporting display comprehensive income components financial statements comprehensive income includes items foreign currency translation adjustments minimum pension liability currently presented components shareholders equity companies required report total comprehensive income interim periods beginning first quarter 1998 disclosure comprehensive income components required beginning fiscal year end 1998 also june 1997 fasb issued sfas 131 disclosures segments enterprise related information standard establishes guidelines reporting information operating segments interim annual financial statements new rules effective 1998 fiscal year abbreviated quarterly disclosure required beginning first quarter 1999 include 1999 1998 information company believe new standard material impact reporting segments year 2000 year 2000 issue result computer programs written using two digits rather four define applicable year companys computer programs datesensitive software may recognize date using 00 year 1900 rather year 2000 could result system failures miscalculations company currently working resolve year 2000 issue established processes evaluating managing risks costs associated issue company utilize internal external resources reprogram replace test software year 2000 modifications addition company communicating suppliers customers company business coordinate year 2000 conversion company plans complete year 2000 project fiscal year end 1998 based current assessments costs addressing year 2000 issue expected material impact companys future financial results safe harbor statement except historical information contained herein matters discussed managements discussion analysis results operations financial condition marketsensitive instruments risk management sections annual report contain forwardlooking statements within meaning private securities reform act 1995 statements historical fact may contain estimates assumptions projections andor expectations regarding future events forwardlooking statements financial business targets subject certain risks uncertainties could cause actual results differ materially future results performance achievements company expressed implied forwardlooking statements risks uncertainties include limited risks uncertainties relating investment new production facilities timely development successful marketing new products impact competitive products pricing customer supplier manufacturing concentrations changes customer order patterns increased competition litigation risks fluctuations foreign exchange rates risks associated foreign operations changes economic political conditions factors forwardlooking statements considered light factors detailed exhibit 99 companys annual report form 10k years ended december 27 1997 december 28 1996 companys forwardlooking statements represent judgment dates statements made making forwardlooking statements company assumes duty update reflect new changed unanticipated events circumstances item 7aitem 7 managements discussion analysis results operations financial condition results operations sales increased 34 percent 346 billion 1998 compared 335 billion 1997 excluding changes foreign currency exchange rates sales increased 48 percent companys 1998 fiscal year reflected 53week period compared 52week periods 1997 1996 extra week 1998 reflected fourth quarter however slow shipping period due holidays carried full week expense result impact profit immaterial 1997 sales increased 38 percent 1996 sales 322 billion excluding impact changes foreign currency exchange rates 1997 sales increased 66 percent gross profit margins years ended 1998 1997 1996 331 percent 324 percent 316 percent respectively improvements 1998 1997 primarily due increased productivity cost control improved product mix marketing general administrative expense percent sales 223 percent 1998 221 percent 1997 1996 increase 1998 1997 primarily due extra week expenses incurred 1998 expense 1997 benefited cost control lower costs certain employee benefit plans however benefits offset increased expenditures marketing research development activities third quarter 1996 restructuring actions taken resulting net pretax gain 21 million company sold equity interest label operation japan 284 million resulting pretax gain 179 million company also recorded 158 million restructuring charges included asset impairment writedown 63 million longlived assets held companys consumer converted products sector restructuring program also included reorganization certain manufacturing distribution administrative sites costs consisted severance related costs approximately 200 positions worldwide 74 million discontinuance product lines related asset writeoffs 21 million actions completed third quarter 1997 interest expense years ended 1998 1997 1996 346 million 317 million 374 million respectively increase 1998 compared 1997 primarily due higher average borrowings support aggressive share repurchase program decrease 1997 compared 1996 primarily due lower weightedaverage interest rates lower average borrowings income taxes percent sales 97 percent 1998 93 percent 1997 84 percent 1996 improvement 1998 primarily due higher gross profit margins improvement 1997 compared 1996 primarily due higher gross profit margins lower interest expense percent sales effective tax rate 337 percent 1998 342 percent 1997 35 percent 1996 decrease 1998 primarily due increase us tax credits research experimentation decrease 1997 compared 1996 primarily due utilization foreign tax loss carryforwards increase us tax credits research experimentation company estimates effective tax rate 1999 34 percent 345 percent net income increased 2233 million 1998 compared 2048 million 1997 reflecting 9 percent increase 1997 net income 1996 1759 million net income percent sales 65 percent 61 percent 55 percent 1998 1997 1996 respectively net income per common share increased 106 percent 220 1998 compared 199 1997 net income per common share 168 1996 net income per common share assuming dilution increased 114 percent 215 1998 compared 193 1997 net income per common share assuming dilution 163 1996 results operations business sector pressuresensitive adhesives materials pressuresensitive adhesives materials sector reported increased sales 1998 compared 1997 sales increased us operations primarily due strong unit volume growth core us roll materials business income total us operations sector decreased slightly primarily due changes product mix startup costs new products however operating margins core roll materials business 1998 remained constant relative prior year total international operations sector reported increased sales reflecting strong unit volume growth europe geographic expansion efforts increase sales partially offset changes foreign currency rates income international operations slightly prior year mainly due pricing pressures europe costs associated new plant startups fourth quarter 1998 company increased investment argentine business largest base material company region company substantial majority venture pressuresensitive adhesives materials sector reported increased sales profitability 1997 compared 1996 us operations sales growth primarily led increased sales volume products pharmaceutical variable imprint graphics businesses however sales partially impacted paper price deflation product mix income us operations benefited improved capacity utilization extent restructuring charges taken 1996 compared 1997 international businesses reported increased sales profitability primarily due higher unit volume geographic expansion partially offset changes foreign currency rates consumer converted products consumer converted products sector reported increased sales profits 1998 compared 1997 increased sales us operations led growth averybrand products despite several major retailers implementing inventory reduction programs company experienced negative impact programs last half 1998 expects inventory reduction programs continue 1999 however pointofsale data obtained customers february 1999 continued show strong demand averybrand products increased sales us operations also attributed growth high performance films businesses including avloybrand products income us operations increased primarily result consumer packaging high performance films office products businesses international operations reported increased sales primarily due strong unit volume growth european office products operations ticketing business asian latin american businesses increase sales partially offset changes foreign currency rates income increased international operations primarily due improved performance european converting office products operations ticketing businesses fourth quarter 1998 company acquired spartan international inc spartan privately held specialty converting company based holt michigan spartan supplies pressuresensitive products commercial graphics sign making vehicle marking automotive markets consumer converted products sector reported increased sales profitability 1997 compared 1996 increased sales us operations continued led growth averybrand products new products consumer products profitability us businesses improved primarily result averybrand products new products improved product mix sales international businesses 1997 comparable 1996 sales 1997 benefited geographic expansion however increase offset changes foreign currency rates sales declines certain european operations profitability international businesses primarily impacted operations france decreased sales select european operations due softness certain economies investment market expansion new products financial condition average working capital excluding shortterm debt percent sales 71 percent 1998 8 percent 1997 91 percent 1996 decrease 1998 primarily due improved payables management decrease 1997 compared 1996 primarily due increased sales reduced days sales outstanding accounts receivable improved inventory turnover better payables management programs average inventory turnover 99 turns 1998 95 turns 1997 93 turns 1996 average number days sales outstanding accounts receivable 52 days 1998 1997 55 days 1996 total debt increased 895 million 5372 million compared year end 1997 total debt total capital increased 392 percent year end 1998 compared 348 percent year end 1997 longterm debt percent total longterm capital increased 359 percent 326 percent year end 1997 shareholders equity decreased 8333 million 8372 million year end 1997 1998 company repurchased 4 million shares common stock cost 1926 million year end 1998 cumulative 319 million shares common stock repurchased since 1991 35 million shares remained available repurchase board directors authorization market value shares held employee stock benefit trust issuance shares companys stock incentive plans decreased 527 million 6776 million year end 1997 return average shareholders equity 267 percent 1998 248 percent 1997 214 percent 1996 return average total capital three years 19 percent 181 percent 164 percent respectively improvements 1998 1997 returns primarily due increase profitability effective utilization companys assets impact share repurchases company like us corporations periodically received notices us environmental protection agency state environmental agencies alleging company potentially responsible party prp past future cleanup costs hazardous waste sites company received requests information notices andor claims respect 17 waste sites company ownership interest litigation initiated governmental authority respect two sites company believe proceedings result imposition monetary sanctions environmental investigatory remediation projects also undertaken property presently owned company accrued liabilities sites probable loss incurred minimum cost amount loss reasonably estimated however uncertainties associated environmental assessments remediation activities future expense remediate currently identified sites could identified future cleanup could higher liability currently accrued based current site assessments management believes potential liability amounts currently accrued would materially affect company liquidity capital resources net cash flow operating activities 4228 million 1998 3684 million 1997 304 million 1996 increase net cash flow 1998 1997 primarily due changes working capital requirements companys improved profitability addition cash flow operations company adequate financing arrangements competitive rates conduct operations fourth quarter 1996 company registered securities exchange commission 150 million principal amount uncollaterized mediumterm notes 50 million 60 million notes issued 1998 1997 respectively notes issued 1996 proceeds mediumterm notes used refinance shortterm debt general corporate purposes companys outstanding mediumterm notes maturities 2000 2025 weighted average interest rate 695 percent companys 1996 restructuring program completed 1997 included 284 million sale equity interest label operation japan restructuring program cost 158 million capital expenditures 1597 million 1998 1773 million 1997 capital expenditures 1999 expected approximately 150 million annual dividend per share increased 87 1998 72 1997 62 1996 23rd consecutive year company increased dividends company continues expand operations europe latin america asia pacific companys future results subject changes political economic conditions impact fluctuations foreign currency exchange interest rates reduce exposure fluctuations company may enter foreign exchange forward option swap contracts interest rate contracts appropriate available 1998 1997 companys mexican operations treated hyperinflationary economy accounting purposes due cumulative inflation rate past three years 1998 companys brazilian operations longer treated hyperinflationary economy 1997 operations hyperinflationary economies translation gains losses included net income operations significant companys consolidated financial position beginning 1999 mexico longer treated hyperinflationary economy accounting purposes result asset liability accounts companys mexican operations translated us dollars current rates related losses gains recorded directly component comprehensive income gains losses resulting foreign currency transactions included net income current basis subsequent events january 12 1999 company completed transaction steinbeis holding gmbh combine substantially companys office products businesses europe zweckform buroprodukte gmbh zweckform german office products supplier zweckform produces labels films specialty papers use personal computers desktop printers copiers zweckform sales approximately 120 million 1997 company substantial majority position venture january 26 1999 company announced plans major realignment cost structure increase operating efficiencies improve profitability restructuring program include closure eight manufacturing facilities consumer converted products pressure sensitive adhesives materials sectors result elimination approximately 1500 positions nine percent companys current workforce addition portion restructuring program involve consolidation office products manufacturing facilities new facility northern mexico involve addition positions year 2000 restructuring program expected result onetime pretax charge 60 million 65 million 40 42 per diluted share tax first quarter 1999 approximately twothirds total estimated charge related severance costs remainder charge represents related asset writeoffs onetime costs taxes cash requirements fund restructuring range 20 million 25 million 1999 restructuring program funded operating cash flow company plans complete restructuring program year 2000 significant portion actions planned next four quarters cost savings associated restructuring begin recognized second quarter 1999 company expects 1999 pretax savings range 15 million 18 million year fully implemented company expects annual pretax savings 58 million 62 million future accounting requirements june 1998 financial accounting standards board issued statement financial accounting standards 133 accounting derivative instruments hedging activities statement requires derivative instruments recorded balance sheet fair value changes fair value derivatives recorded period current earnings comprehensive income new rules effective first quarter 2000 company process determining impact new standard based current market conditions anticipates material impact companys financial results effective year 2000 year 2000 y2k issue result computer programs written microprocessors using two digits rather four define applicable year company computer programs datesensitive software may recognize date using 00 year 1900 rather year 2000 could result system failures miscalculations company currently working mitigate y2k issue established processes assessing risks associated costs company categorizes y2k efforts follows hardware software embedded processors vendors customers progress assessing remediating information technology systems hardware software non information technology systems embedded processors continues tracked phases including assessment identification noncompliant systems remediation testing verification hardware software embedded processors assessed remediation progress companys y2k project progressing large portion internal remediation work completed year end 1998 company using internal external resources remediate test systems company initiated communications significant vendors customers coordinate y2k issue process determining companys vulnerability companies fail remediate y2k issues guarantee systems companies timely remediated companies failure remediate y2k issues would material adverse effect company continues develop contingency plans mitigate risks associated y2k issue costs incurred date addressing y2k issue expensed incurred material based current information total cost remediate test companys systems expected material company presently believes remediation y2k risks mitigated although company currently aware material internal operational financial y2k related issues company cannot provide assurances computer systems products services systems upon company depends y2k ready schedule costs y2k program become material companys contingency plans adequate company currently unable evaluate accurately magnitude y2k related issues arising companys vendors customers risks either respect company vendors customers materialize company could experience serious consequences business could material adverse effects companys financial condition results operations liquidity euro conversion january 1 1999 single currency called euro introduced europe eleven fifteen member countries european union adopted euro common legal currency date fixed conversion rates countries existing currencies legacy currencies euro established date legacy currencies scheduled remain legal tender participating countries january 1 1999 july 1 2002 transition period parties may settle transactions using either euro participating countrys legacy currency certain companys european facilities adopted euro functional currency january 1999 cost system modifications accommodate euro material based currently available information euro conversion material adverse impact companys business financial condition safe harbor statement except historical information contained herein matters discussed managements discussion analysis results operations financial condition marketsensitive instruments risk management sections annual report contain forwardlooking statements within meaning private securities reform act 1995 statements historical fact may contain estimates assumptions projections andor expectations regarding future events forwardlooking statements financial business targets subject certain risks uncertainties could cause actual results differ materially future results performance achievements company expressed implied forwardlooking statements certain risks uncertainties discussed detail companys annual report form 10k year ended december 27 1997 include limited risks uncertainties relating investment new production facilities timely development successful marketing new products impact competitive products pricing customer supplier manufacturing concentrations changes customer order patterns inventory levels increased competition impact year 2000 issues euro conversion legal proceedings fluctuations foreign exchange rates risks associated foreign operations changes economic political conditions factors forward looking statements also considered light factors detailed exhibit 99 companys annual report form 10k years ended january 2 1999 december 27 1997 companys forwardlooking statements represent judgment dates statements made making forwardlooking statements company assumes duty update reflect new changed unanticipated events circumstances item 7aitem 7 managements discussion analysis results operations financial condition results operations sales increased 33 percent 389 billion 2000 compared 377 billion 1999 excluding changes foreign currency exchange rates sales increased 74 percent acquisitions contributed 27 percentage points sales growth 2000 companys 2000 1999 fiscal years reflected 52week periods compared 53week period 1998 1999 sales increased 89 percent 1998 sales 346 billion excluding impact currency sales increased 103 percent 1999 gross profit margins years ended 2000 1999 1998 342 percent 34 percent 331 percent respectively improvement 2000 due manufacturing cost reductions improved productivity related primarily 1999 restructuring productivity improvement programs increase 1999 primarily due sales growth cost reduction initiatives productivity improvements marketing general administrative expense percent sales 219 percent 2000 224 percent 1999 223 percent 1998 improvement 2000 due increased sales spending controls first quarter 1999 company announced major realignment cost structure designed increase operating efficiencies improve profitability realignment resulted pretax restructuring charge 65 million 42 per diluted share aftertax basis restructuring involved consolidation manufacturing distribution capacity companys operating segments 65 million charge reflected costs close manufacturing distribution facilities elimination approximately 1500 positions principally manufacturing initiatives exit activities restructuring charge consisted employee severance related costs 351 million asset writedowns 299 million severance related costs represented cash paid employees terminated program asset writedowns principally related equipment represented noncash charges required reduce carrying value assets disposed net realizable value planned date disposal year end 1999 123 million remained accrued severance related costs 67 million remained accrued asset writedowns 2000 company completed 1999 restructuring program utilized amounts accrued purposes identified realignment plan company realized approximately 40 million cumulative pretax savings program 2000 completion restructuring program company estimates cumulative pretax savings program total approximately 60 million 2001 results operations certain key financial measures 1999 shown discussion without impact restructuring charge additional pro forma financial information excludes restructuring charge accordance generally accepted accounting principles provided comparative purposes interest expense years ended 2000 1999 1998 546 million 434 million 346 million respectively increases 2000 1999 primarily due increased debt fund acquisitions capital expenditures share repurchases income taxes percent sales 109 percent 2000 88 percent 1999 97 percent 1998 excluding restructuring charge income taxes percent sales 105 percent 1999 improvement 2000 reflects benefits manufacturing cost reductions improved profitability improvement marketing general administrative expense ratio percent sales improvement 1999 excluding restructuring charge mainly attributable higher gross profit margins effective tax rate 335 percent 2000 348 percent 1999 337 percent 1998 decrease 2000 primarily due improved profitability emerging markets favorable tax rates increase 1999 primarily due change geographic mix income company estimates effective tax rate 2001 approximately 335 percent net income totaled 2835 million 2000 2154 million 1999 2233 million 1998 excluding restructuring charge 1999 net income 2578 million net income 2000 increased 10 percent 1999 excluding restructuring charge net income percent sales 73 percent 57 percent 65 percent 2000 1999 1998 respectively excluding restructuring charge net income percent sales 68 percent 1999 net income per common share 288 2000 compared 217 prior year excluding restructuring charge net income per common share 260 1999 net income per common share 2000 increased 108 percent 1999 excluding restructuring charge net income per common share 220 1998 net income per common share assuming dilution 284 2000 compared 213 1999 excluding restructuring charge net income per common share assuming dilution increased 118 percent 254 1999 net income per common share assuming dilution 215 1998 results operations operating segment pressuresensitive adhesives materials pressuresensitive adhesives materials segment reported increased sales income 2000 compared 1999 sales increased 55 percent 214 billion 2000 compared 203 billion 1999 driven primarily growth international markets acquisition stimsonite us offset slow growth core domestic markets excluding changes foreign currency exchange rates sales increased 107 percent segments 1999 income results include pretax restructuring charge 251 million 154 million us operations 97 million international operations increased sales us operations primarily driven acquisition stimsonite third quarter 1999 domestic sales growth negatively impacted slowdown north american economy increasingly competitive environment companys roll materials business slowdown roll materials business began second quarter 2000 initially driven packaging graphics changes planned consumer product companies buy labels companys converting customers well general reduction inventory levels retailers consumer product companies impacted demand packaging labels slowdown north american economy also negatively impacted demand products manufactured companys graphics specialty tapes businesses company expects slower economic environment volume trends continue first half 2001 sales international operations increased result strong volume growth asia latin america europe well recent acquisition adespan europe sales growth europe partially offset changes foreign currency rates segments 2000 income increased three percent 2124 million 1999 excluding restructuring charge income us operations negatively impacted slowdown north american economy increasingly competitive environment companys roll materials graphics specialty tapes businesses negative impact caused slowdown north american economy partially offset improvements cost reduction actions six sigma program designed improve productivity quality reducing costs restructuring programs income international operations increased compared 1999 excluding restructuring charge primarily due volume growth improved profitability asian latin american businesses income growth segments european operations offset changes foreign currency rates first quarter 2000 company acquired adespan pressure sensitive materials operation panini spa european printing publishing company based italy adespan sales approximately 75 million 1999 adespan business operates within companys fasson roll materials business europe pressuresensitive adhesives materials segment reported increased sales income 1999 compared 1998 sales increased us operations primarily due unit volume growth us roll materials business particularly sales film specialty products acquisition stimsonite income us operations improved primarily due sales growth margin improvement us roll materials business attributed cost reduction actions six sigma restructuring programs well acquisition stimsonite sales international operations increased result worldwide unit volume growth increase international sales significantly offset changes foreign currency rates income international operations increased primarily due increased sales profitability asian latin american businesses third quarter 1999 company acquired stimsonite based niles illinois leading manufacturer reflective safety products transportation highway safety markets company paid approximately 150 million including assumption approximately 20 million debt stimsonite primarily funded issuance debt stimsonite sales 87 million 1998 excess costbasis fair value net tangible assets acquired 1247 million fourth quarter 1999 company acquired remaining minority stake argentine business largest pressuresensitive materials operation country consumer converted products consumer converted products segment reported increased sales income 2000 compared 1999 sales increased 6 percent 19 billion 2000 1999 sales 189 billion excluding impact changes foreign currency rates sales increased 37 percent segments 1999 income results include pretax restructuring charge 376 million 243 million us operations 133 million international operations increased sales us operations primarily driven sales growth averybrand office products domestic sales growth negatively impacted decreased volume unfavorable product mix shift companys converting businesses converting businesses experienced slowdown attributable slowing north american economy customer efforts reduce inventory levels company expects slower economic environment continue first half 2001 addition slowdown north american economy three factors may negatively impact volume growth domestic office products business 2001 closing approximately 120 office product retail stores companys customers fewer new office product superstore openings planned companys customers several large purchases made customers late fourth quarter 2000 strong volume growth international businesses including worldwide ticketing business particular offset unfavorable changes foreign currency rates result total sales international operations decreased slightly compared 1999 segments 2000 income increased 117 percent 2932 million 1999 excluding restructuring charge income us operations increased 2000 primarily due sales growth office products business well manufacturing cost reductions improved productivity related 1999 restructuring income partially impacted decreased volume unfavorable product mix shift companys converting businesses income international operations increased compared 1999 primarily due growth worldwide ticketing business improved profitability european asian office products businesses consumer converted products segment reported increased sales 1999 compared 1998 excluding restructuring charge segments 1999 income increased 146 percent 1998 sales increased us operations result acquisitions solid sales growth averybrand product lines high performance films income us operations excluding restructuring charge improved primarily due unit volume growth avery brand products high performance films international operations reported increased sales compared 1998 due zweckform venture sales growth worldwide ticketing business acquisitions international operations sales increase partially offset changes foreign currency rates income international operations excluding restructuring charge increased primarily due zweckform venture growth office products businesses europe operations asia segment also impacted 1999 decreased sales income battery label business key customer business made product mix change battery lines resulting partial shift higherpriced tester labels standard battery labels first quarter 1999 company completed transaction steinbeis holding gmbh combine substantially companys office products businesses europe zweckform buroprodukte gmbh zweckform german office products supplier companys aggregate cost basis venture financed available cash resources approximately 23 million assumption obligation reported longterm obligation line consolidated balance sheet intention company pay entire obligation 2004 excess costbasis fair value net tangible assets acquired 1046 million fourth quarter 1998 company acquired spartan international inc spartan privately held specialty converting company based holt michigan spartan supplies pressuresensitive products commercial graphics sign making vehicle marking automotive markets financial condition average working capital excluding shortterm debt percent sales 64 percent 2000 5 percent 1999 71 percent 1998 increase 2000 reflects increase accounts receivable average inventory decrease current liabilities related 1999 restructuring decrease 1999 primarily attributable higher sales increase current liabilities average inventory turnover 88 turns 2000 95 turns 1999 99 turns 1998 decrease inventory turns 2000 primarily due higher inventory levels associated recently acquired companies well temporary increase certain office products inventories maintain service levels production moved new manufacturing facilities result restructuring average number days sales outstanding accounts receivable 56 days 2000 52 days 1999 1998 increase 2000 reflects longer payment terms associated increased international sales recent acquisitions year end purchases several companys large office products customers several companys largest domestic customers operate highly competitive retail business environment impacted slowing economy north america year end 2000 1999 approximately 26 percent 27 percent respectively trade accounts receivable nine domestic customers company require customers provide collateral financial position operations customers monitored ongoing basis although company may exposed losses event nonpayment anticipate losses time total debt increased 1415 million 8272 million compared year end 1999 primarily due debt issuances fund acquisitions capital expenditures share repurchases total debt total capital increased 50 percent year end 2000 compared 458 percent year end 1999 longterm debt percent total longterm capital increased 483 percent 433 percent year end 1999 shareholders equity increased 8281 million 8099 million year end 1999 2000 company repurchased 24 million shares companys common stock cost 1344 million year end 2000 cumulative 367 million shares companys common stock repurchased since 1991 37 million shares remained available repurchase board directors authorization market value shares held employee stock benefit trust decreased 3141 million 6999 million year end 1999 due effect change companys share price issuance shares companys stock incentive plans return average shareholders equity 346 percent 2000 271 percent 1999 267 percent 1998 return average total capital three years 196 percent 17 percent 19 percent respectively 1999 excluding impact restructuring charge return average shareholders equity return average total capital 311 percent 195 percent respectively improvement returns 2000 1999 primarily due increase profitability company like us corporations periodically received notices us environmental protection agency state environmental agencies alleging company potentially responsible party past future cleanup costs hazardous waste sites company received requests information notices andor claims respect nine waste sites company ownership interest litigation initiated governmental authority respect two sites company believe proceedings result imposition monetary sanctions environmental investigatory remediation projects also undertaken property presently owned company accrued liabilities sites probable loss incurred minimum cost amount loss reasonably estimated however uncertainties associated environmental assessments remediation activities future expense remediate currently identified sites could identified future cleanup could higher liability currently accrued based current site assessments management believes potential liability amounts currently accrued would materially affect company liquidity capital resources net cash flow operating activities 4099 million 2000 4269 million 1999 4195 million 1998 decrease 2000 due changes working capital requirements improvement 1999 due companys improved profitability changes working capital requirements addition cash flow operations company adequate financing arrangements competitive rates conduct operations company previously registered securities exchange commission 150 million principal amount uncollateralized mediumterm notes 150 million notes issued year end 2000 proceeds mediumterm notes used refinance shortterm debt general corporate purposes companys outstanding mediumterm notes maturities 2002 2025 weightedaverage interest rate 7 percent capital expenditures 1983 million 2000 1777 million 1999 capital expenditures 2001 expected approximately 150 million annual dividend per share increased 111 2000 99 1999 87 1998 25th consecutive year company increased dividends per share company continues expand operations europe latin america asia pacific companys future results subject changes political economic conditions impact fluctuations foreign currency exchange interest rates reduce exposure fluctuations company may enter foreign exchange forward option swap contracts interest rate contracts appropriate available translation gains losses operations hyperinflationary economies included net income operations treated hyperinflationary economy accounting purposes due cumulative inflation rate past three years operations hyperinflationary economies consist companys operations turkey 2000 1999 mexico 1998 operations significant companys consolidated financial position subsequent events february 1 2001 company announced acquired dunsirn industries inc privately held company based wisconsin dunsirn industries leading supplier nonpressure sensitive materials narrow web printing industry well provider customized slitting distribution services roll materials manufacturers dunsirn operation become separate business unit within companys fasson roll materials business company expects generate approximately 60 million net sales acquisition february 13 2001 company announced acquired cd stomper leading product line cd dvd labels software label applicator stomp inc software developer manufacturer based california sales 2000 cd stomper product line approximately 20 million recent accounting requirements december 1999 securities exchange commission issued staff accounting bulletin sab 101 revenue recognition financial statements sab 101 provides guidance applying generally accepted accounting principles revenue recognition issues financial statements effective fourth quarter 2000 implementation guidance material impact companys financial results future accounting requirements financial accounting standards board fasb issued statement financial accounting standards sfas 133 accounting derivative instruments hedging activities related amendments statement requires derivative instruments recorded balance sheet fair value changes fair value derivatives required recorded period current earnings comprehensive income depending upon type hedging transaction hedge effectiveness company formed implementation team drawn internal external resources reviewed companys derivative contracts existing hedge relationships developed appropriate hedge effectiveness models updated accounting reporting procedures ensure proper measurement recording reporting derivative instruments hedge items company adopt sfas 133 first quarter 2001 based current market conditions company anticipates impact new standard result transition adjustment approximately 5 million decrease net income september 2000 fasb issued sfas 140 accounting transfers servicing financial assets extinguishments liabilities replacement fasb statement 125 statement revises standards accounting securitizations transfers financial assets collateral statement effective companys 2001 fiscal year company believe new standard material impact companys financial results future outlook based current january 2001 exchange rates company expects foreign exchange rates negative impact sales net income first quarter 2001 compared first quarter 2000 company projects foreign exchange rates negatively impact sales approximately 3 percent earnings per share assuming dilution approximately 02 compared period 2000 based current foreign exchange rates effect currency expected immaterial operations second third quarters compared periods 2000 current exchange rates favorable existed fourth quarter 2000 expected provide benefit sales earnings per share assuming dilution approximately 25 percent 02 respectively compared fourth quarter 2000 summary based current foreign exchange rates impact currency expected negligible full year 2001 compared prior year fourth quarter 2000 first quarter 2001 two companys largest domestic customers consumer converted products segment announced plans close total 120 office product retail stores including store closures three office product superstores still plan adding net 75 retail stores slower rate expansion past company estimates impact slower new store growth could impact companys total sales first quarter onehalf percent lesser impact thereafter addition store closures slower rate expansion announced several office product retail store customers company believes two additional factors may negatively impact volume growth domestic office products business 2001 slowdown north american economy several large purchases made customers late fourth quarter 2000 company anticipates slowdown north american economy continue impact results first half 2001 volume growth expected remain soft companys domestic operations result company anticipates comparable sales low singledigit sales growth first quarter 2001 earnings per share assuming dilution projected range 65 70 first quarter 2001 assuming improvement north american economic environment full year reported revenue growth 2001 projected range 4 percent 6 percent earnings per share assuming dilution projected range 290 305 significant profit improvement initiatives benefit companys 2001 results companys 1999 restructuring program six sigma projects procurement initiatives manufacturing cost reductions generate incremental savings 2001 addition company plans eliminating approximately 300 positions year order cut costs principally domestic pressuresensitive adhesives materials segment safe harbor statement except historical information contained herein matters discussed managements discussion analysis results operations financial condition sections annual report contain forwardlooking statements within meaning private securities litigation reform act 1995 statements historical fact may contain estimates assumptions projections andor expectations regarding future events words anticipate assume believe estimate expect plan project expressions refer future events trends identify forwardlooking statements forwardlooking statements financial business targets subject certain risks uncertainties could cause actual results differ materially future results performance achievements company expressed implied forwardlooking statements certain risks uncertainties discussed detail companys annual report form 10k year ended december 30 2000 include limited risks uncertainties relating investment new production facilities timely development successful market acceptance new products price availability raw materials impact competitive products pricing business mix shift customer supplier manufacturing concentrations financial condition inventory strategies customers changes customer order patterns increased competition loss significant contracts customers euro conversion legal proceedings fluctuations foreign exchange rates risks associated foreign operations changes economic political conditions factors forwardlooking statements also considered light factors detailed exhibit 99 companys annual report form 10k years ended december 30 2000 january 1 2000 companys forwardlooking statements represent judgment dates statements made making forwardlooking statements company assumes duty update reflect new changed unanticipated events circumstances item 7aitem 7 managements discussion analysis results operations financial condition results operations sales decreased 23 percent 38 billion 2001 compared 389 billion 2000 excluding changes foreign currency exchange rates sales decreased 6 percent 2000 sales increased 33 percent 1999 sales 377 billion excluding impact currency sales increased 74 percent 2000 acquisitions contributed 843 million 971 million sales 2001 2000 respectively sales operations divested end 2001 485 million 926 million 923 million 2001 2000 1999 respectively gross profit margins years ended 2001 2000 1999 326 percent 342 percent 34 percent respectively decrease 2001 due negative change business mix driven lower sales highermargin office products business product mix shift within roll materials business well reduced leverage fixed costs across companys businesses improvement 2000 due manufacturing cost reductions improved productivity related primarily 1999 cost reduction program productivity improvement programs marketing general administrative expense percent sales 218 percent 2001 219 percent 2000 224 percent 1999 improvement 2001 due reduced spending driven weak economic conditions marketing general administrative expense negatively impacted 26 million charge late 2001 related currency devaluation argentina improvement 2000 due increased sales spending controls fourth quarter 2001 company sold nonstrategic specialty coatings business reported within pressuresensitive adhesives materials segment cash proceeds 115 million notes receivables received part sale resulted pretax gain approximately 202 million net sales business 267 million ten months 2001 377 million 2000 357 million 1999 company also recorded charge fourth quarter 2001 relating cost reduction actions 2001 charge involves cost reduction programs reorganization manufacturing administrative facilities companys operating segments cost reduction efforts resulted pretax charge 199 million consisted employee severance related costs 131 million approximately 400 positions worldwide asset write downs 68 million positions eliminated include approximately 170 employees pressuresensitive adhesives materials segment 210 employees consumer converted products segment 20 corporate employees severance related costs represent cash paid employees terminated program asset writedowns represent noncash charges required reduce carrying value assets disposed net realizable value planned date disposal year end 2001 11 million remained accrued severance related costs included accrued payroll employee benefits 37 million remained accrued asset writedowns included accrued liabilities consolidated balance sheet end 2001 400 positions actions approximately 145 employees left company expects complete cost reduction program 2002 fully implemented company estimates annualized pretax savings approximately 15 million first quarter 1999 company announced major realignment cost structure designed increase operating efficiencies improve profitability realignment resulted pretax cost reduction charge 65 million 42 per diluted share aftertax basis cost reduction program involved consolidation manufacturing distribution capacity companys operating segments 65 million charge reflected costs close manufacturing distribution facilities elimination approximately 1500 positions principally manufacturing initiatives exit activities cost reduction charge consisted employee severance related costs 351 million asset writedowns 299 million severance related costs represented cash paid employees terminated program asset writedowns principally related equipment represented noncash charges required reduce carrying value assets disposed net realizable value planned date disposal 2000 company completed 1999 cost reduction program utilized amounts accrued purposes identified realignment plan cumulative pretax savings program approximately 60 million 2001 interest expense years ended 2001 2000 1999 502 million 546 million 434 million respectively decrease 2001 due lower interest rates increase 2000 primarily due increased debt fund acquisitions capital expenditures share repurchases income taxes percent sales 95 percent 2001 109 percent 2000 88 percent 1999 decrease 2001 primarily due lower gross profit margin improvement 2000 reflects benefits manufacturing cost reductions associated cost reduction charge recorded 1999 improved profitability improvement marketing general administrative expense ratio percent sales effective tax rate 324 percent 2001 335 percent 2000 348 percent 1999 decrease 2001 reflects beneficial geographic mix profits utilization various tax credits worldwide structural operational changes reduced taxes decrease 2000 primarily due improved profitability emerging markets favorable tax rates company estimates effective tax rate 2002 range 31 percent 32 percent net income totaled 2432 million 2001 2835 million 2000 2154 million 1999 net income 1999 included 65 million pretax cost reduction charge net income 2001 decreased 142 percent 2000 net income 2000 increased 316 percent 1999 net income percent sales 64 percent 73 percent 57 percent 2001 2000 1999 respectively net income per common share 249 2001 compared 288 2000 217 1999 net income per common share 2001 decreased 135 percent 2000 net income per common share 2000 increased 327 percent 1999 net income per common share assuming dilution 247 2001 compared 284 2000 213 1999 net income per common share assuming dilution 2001 decreased 13 percent 2000 net income per common share assuming dilution 2000 increased 333 percent 1999 results operations operating segment pressuresensitive adhesives materials pressuresensitive adhesives materials segment reported increase sales decrease income 2001 compared 2000 sales increased 25 percent 219 billion 2001 compared 214 billion 2000 driven share gain us growth international markets sales increased us operations primarily due dunsirn acquisition benefit new business obtained closure competitors plant new supply agreement company decided outsource manufacturing certain roll label materials domestic sales increase partially offset slowdown north american economy resulting negative impact volume graphics specialty tapes businesses sales increased internationally primarily result adespan acquisition 2000 unit volume growth roll materials business europe asia increase partially offset slowdown certain european markets served companys graphics specialty tapes businesses sales declines latin america negative impact foreign currency rates segments 2001 income decreased 97 percent 1918 million 2000 income 2001 impacted three nonrecurring items fourth quarter pretax gain approximately 202 million sale non strategic business us 76 million charge relating cost reduction actions 39 million us operations 37 million international operations 23 million charge related currency devaluation argentina income us international operations also decreased due economic slowdown impacted sales across segments businesses addition integration costs associated dunsirn acquisition reduced leverage fixed costs competitive pricing environment onetime costs associated startup new coater us also contributed income reduction savings cost reduction actions taken throughout year well six sigma effort designed improve productivity quality reducing costs partially offset negative effects factors fourth quarter 2001 company sold nonstrategic specialty coatings business reported within pressuresensitive adhesives materials segment cash proceeds 115 million notes receivables received part sale resulted pretax gain approximately 202 million net sales business 267 million ten months 2001 377 million 2000 357 million 1999 first quarter 2001 company acquired dunsirn industries inc privatelyheld company based wisconsin dunsirn industries leading supplier nonadhesive materials narrowweb printing industry well provider customized slitting distribution services roll pressuresensitive materials manufacturers sales 2000 dunsirn industries approximately 68 million including sales company excess costbasis fair value net tangible assets acquired 211 million pressuresensitive adhesives materials segment reported increased sales income 2000 compared 1999 sales increased 55 percent 214 billion 2000 compared 203 billion 1999 driven primarily growth international markets acquisition stimsonite us offset slow growth core domestic markets excluding changes foreign currency exchange rates sales increased 107 percent segments 1999 income results include pretax cost reduction charge 251 million 154 million us operations 97 million international operations increased sales us operations primarily driven acquisition stimsonite third quarter 1999 domestic sales growth negatively impacted slowdown north american economy increasingly competitive environment companys roll materials business slowdown roll materials business began second quarter 2000 initially driven packaging graphics changes planned consumer product companies buy labels companys converting customers well general reduction inventory levels retailers consumer product companies impacted demand packaging labels slowdown north american economy also negatively impacted demand products manufactured companys graphics specialty tapes businesses sales international operations increased result strong volume growth asia latin america europe well acquisition adespan europe sales growth europe partially offset changes foreign currency rates segments 2000 income increased 18 percent 2124 million 1999 income us operations negatively impacted slowdown north american economy increasingly competitive environment companys roll materials graphics specialty tapes businesses negative impact caused slowdown north american economy partially offset productivity improvements six sigma cost reduction programs income international operations increased compared 1999 excluding 1999 cost reduction charge primarily due volume growth improved profitability asian latin american businesses income growth segments european operations offset changes foreign currency rates first quarter 2000 company acquired adespan pressure sensitive materials operation panini spa european printing publishing company based italy adespan sales approximately 75 million 1999 excess costbasis fair value net tangible assets acquired 241 million third quarter 1999 company acquired stimsonite based niles illinois leading manufacturer reflective safety products transportation highway safety markets company paid approximately 150 million including assumption approximately 20 million debt stimsonite primarily funded issuance debt stimsonite sales 87 million 1998 excess costbasis fair value net tangible assets acquired 1247 million fourth quarter 1999 company acquired remaining minority stake argentine business largest pressuresensitive materials operation country consumer converted products consumer converted products segment reported decreased sales income 2001 compared 2000 sales decreased 6 percent 178 billion 2001 compared 19 billion 2000 sales us operations negatively impacted several factors slowdown north american economy particularly affected companys office products business industrial automotive business customer inventory reductions consolidation office product retail stores companys customers weak retail environment also negatively impacted sales 2001 domestic sales office products business also negatively impacted several large purchases made major customers late fourth quarter 2000 pulled sales normally would occurred first quarter 2001 addition domestic sales growth negatively impacted decreased volume unfavorable product mix shift companys converting businesses sales international operations decreased primarily due negative impact foreign currency exchange rates economic slowdown impacting companys businesses europe segments 2001 income decreased 166 percent 2446 million income 2001 impacted 94 million charge relating cost reduction actions 54 million us operations 4 million international operations addition impact cost reduction charge segments net income decreased compared prior year primarily due overall decline sales cost reduction actions productivity initiatives partially offset negative impact sales decline first quarter 2001 company acquired cd stomper leading product line cd dvd labels software label applicator stomp inc software developer manufacturer based california sales 2000 cd stomper product line approximately 20 million excess costbasis fair value net tangible assets acquired 226 million consumer converted products segment reported increased sales income 2000 compared 1999 sales increased 3 percent 19 billion 2000 1999 sales 189 billion excluding impact changes foreign currency rates sales increased 34 percent segments 1999 income results include pretax cost reduction charge 376 million 243 million us operations 133 million international operations increased sales us operations primarily driven sales growth averybrand office products domestic sales growth negatively impacted decreased volume unfavorable product mix shift companys converting businesses converting businesses experienced slowdown attributable slowing north american economy customer actions reduce inventory levels strong volume growth international businesses including worldwide ticketing business particular offset unfavorable changes foreign currency rates result total sales international operations decreased slightly compared 1999 segments 2000 income increased 31 percent 2932 million 1999 income us operations increased 2000 primarily due sales growth office products business well manufacturing cost reductions improved productivity related 1999 cost reduction program income partially impacted decreased volume unfavorable product mix shift companys converting businesses income international operations increased compared 1999 primarily due growth worldwide ticketing business improved profitability european asian office products businesses first quarter 1999 company completed transaction steinbeis holding gmbh combine substantially companys office products businesses europe zweckform buroprodukte gmbh zweckform german office products supplier companys aggregate cost basis venture financed available cash resources approximately 23 million assumption obligation reported longterm obligation line consolidated balance sheet obligation guaranteed standby letter credit intention company pay entire obligation 2004 excess costbasis fair value net tangible assets acquired 1046 million financial condition average working capital excluding shortterm debt percent sales 79 percent 2001 64 percent 2000 5 percent 1999 increase 2001 reflects increase cash decrease accounts payable accrued liabilities increase 2000 reflects increase accounts receivable average inventory decrease current liabilities related 1999 cost reduction program average inventory turnover 88 turns 2001 2000 95 turns 1999 decrease inventory turns 2000 primarily due higher inventory levels associated acquired companies well temporary increase certain office products inventories maintain service levels production moved new manufacturing facilities result 1999 cost reduction program average number days sales outstanding accounts receivable 58 days 2001 56 days 2000 52 days 1999 increase 2001 reflects longer payment terms associated increased international sales increase 2000 reflects longer payment terms associated increased international sales acquisitions year end purchases several companys large office products customers several companys largest domestic customers operate highly competitive retail business environment impacted slowing economy north america year end 2001 2000 approximately 23 percent 26 percent respectively trade accounts receivable nine domestic customers company require customers provide collateral financial position operations customers monitored ongoing basis company may exposed losses event nonpayment companys assets balance increased 2001 primarily due increases software deferred charges increase cash surrender value corporateowned life insurance contracts capitalized costs related pending acquisition total debt increased 225 million 8497 million compared year end 2000 primarily due debt issuances fund acquisitions capital expenditures total debt total capital decreased 478 percent year end 2001 compared 50 percent year end 2000 longterm debt percent total longterm capital decreased 403 percent 483 percent year end 2000 shareholders equity increased 9294 million 8281 million year end 2000 2001 company repurchased approximately 356000 shares companys common stock cost 179 million year end 2001 cumulative 371 million shares companys common stock repurchased since 1991 33 million shares remained available repurchase board directors authorization market value shares held employee stock benefit trust decreased 254 million 6745 million year end 2000 due effect change companys share price issuance shares companys stock incentive plans return average shareholders equity 274 percent 2001 346 percent 2000 271 percent 1999 return average total capital three years 162 percent 196 percent 17 percent respectively decrease returns 2001 primarily due decrease profitability increases returns 2000 compared 1999 primarily due increase profitability company like us corporations periodically received notices us environmental protection agency state environmental agencies alleging company potentially responsible party past future cleanup costs hazardous waste sites company received requests information notices andor claims respect nine waste sites company ownership interest litigation initiated governmental authority respect one sites company believe proceedings result imposition monetary sanctions environmental investigatory remediation projects also undertaken property presently owned company accrued liabilities sites probable loss incurred minimum cost amount loss reasonably estimated however uncertainties associated environmental assessments remediation activities future expense remediate currently identified sites could identified future cleanup could higher liability currently accrued amounts currently accrued significant consolidated financial position company based upon current information management believes unlikely final resolution matters significantly impact consolidated financial position operations company liquidity capital resources net cash flow operating activities 3755 million 2001 4099 million 2000 4269 million 1999 decrease 2001 primarily due decrease net income decrease 2000 due changes working capital requirements addition cash flow operations company adequate financing arrangements competitive rates conduct operations company finances operations using commercial paper bank lines credit callable commercial notes longterm debt including medium term notes company 526 million borrowings outstanding shortterm lines credit weighted average interest rate 83 percent year end 2001 december 2001 company issued 150 million oneyear callable commercial notes weighted average interest rate 21 percent december 29 2001 company additional available shortterm lines credit totaling 5237 million available lines credit included 364day revolving credit facility five domestic banks provide 200 million borrowings december 12 2002 company may annually extend revolving period due date approval banks financing available agreement used commercial paper backup facility finance corporate requirements debt outstanding agreement year end 2001 company also revolving credit agreement four domestic banks provide 250 million borrowings july 1 2006 company may annually extend revolving period due date approval banks financing available agreement used needed commercial paper backup facility finance corporate requirements debt outstanding agreement year end 2001 companys longterm debt including mediumterm notes 6267 million 7729 million end 2001 2000 respectively maturities longterm debt years 2002 2006 204 million classified current 73 million 857 million 73 million 235 million respectively 160 million maturing thereafter company mediumterm notes 448 million year end 2001 2000 mediumterm notes maturities 2002 2025 accrue interest fixed floating rates company issued 40 million medium term notes 2000 proceeds issuance used refinance shortterm debt general corporate purposes terms various loan agreements effect year end require company maintain specified ratios consolidated debt consolidated interest expense relation certain measures income loan agreements consolidated debt ratio consolidated earnings interest taxes depreciation amortization may exceed 35 10 companys ratio year end 2001 15 10 consolidated earnings interest taxes ratio consolidated interest may less 35 10 companys ratio year end 2001 82 10 assets pledged collateral commitment fees relating longterm financing arrangements significant third quarter 2001 company filed shelf registration statement securities exchange commission permit issuance 600 million debt equity securities proceeds shelf offering may used general corporate purposes including repaying redeeming repurchasing existing debt working capital expenditures acquisitions securities issued since filing credit ratings significant factor companys ability raise shortterm longterm financing determining credit rating agencies place significant weight companys competitive position consistency cash flows geographic dispersion management team ratings assigned company also impact interest rates commercial paper borrowings event ratings downgrade within investment grade category company expects still access commercial paper market bank facilities would impacted higher interest costs company believes likelihood downgrade debt rating high moodys investors service standard poors issue ratings company currently credit rating firms assigned shortterm ratings a1p1 longterm ratings aa2 company first quarter 1999 company completed transaction steinbeis holding gmbh combine substantially companys office products businesses europe zweckform german office products supplier companys aggregate cost basis venture financed available cash resources approximately 23 million assumption obligation reported longterm obligation line consolidated balance sheet obligation guaranteed standby letter credit intention company pay entire obligation 2004 company enters operating leases primarily office warehouse space electronic data processing transportation equipment terms leases impose significant restrictions unusual obligations minimum annual rental commitments operating leases initial remaining noncancellable lease terms excess one year years 2002 2006 365 million 305 million 262 million 215 million 19 million respectively 265 million minimum commitments thereafter companys obligations relating debt leases year end 2001 follows companys committed credit availability year end 2001 follows addition company uncommitted lines credit approximately 1263 million year end 2001 companys uncommitted lines credit commitment expiration date may cancelled time company banks capital expenditures 1354 million 2001 1983 million 2000 capital expenditures 2002 expected approximately 150 million annual dividend per share increased 123 2001 111 2000 99 1999 26th consecutive year company increased dividends per share company continues expand operations europe latin america asia pacific companys future results subject changes political economic conditions impact fluctuations foreign currency exchange interest rates reduce exposure fluctuations company may enter foreign exchange forward option swap contracts interest rate contracts appropriate available translation gains losses operations hyperinflationary economies included net income operations treated hyperinflationary economy accounting purposes based cumulative inflation rate past three years operations hyperinflationary economies consist companys operations turkey 2001 2000 1999 operations significant companys consolidated financial position results operations pending acquisition september 7 2001 company announced agreement acquire jackstadt gmbh pressuresensitive adhesive materials business jackstadt privatelyheld manufacturer pressuresensitive adhesive materials based germany jackstadt consolidated revenues approximately 400 million 2000 global customer base generates approximately 80 percent sales outside germany transaction subject number closing conditions including regulatory approvals completion acquisition delayed pending review german federal cartel office raised specific issues respect market definition market share country company responding concerns timing ultimate outcome final regulatory review remain uncertain year end 2001 company capitalized approximately 9 million direct costs related pending acquisition issues cannot overcome proposed transaction may renegotiated terminated case costs may expensed depending outcome regulatory review related party transactions time company enters transactions normal course business related parties company believes transactions armslength terms would obtained unaffiliated third parties one companys directors mr peter w mullin chairman chief executive officer director mc insurance services inc mc mullin insurance services inc minc pwm insurance services inc pwm executive compensation benefit consultants insurance agents mr mullin also largest stockholder mc majority stockholder minc pwm 2001 company paid insurance companies premiums life insurance placed mc minc pwm 2001 prior years connection various company employee benefit plans 2001 2000 1999 mc minc pwm earned commissions insurance companies aggregate amounts approximately 17 million 16 million 1 million respectively placement renewal insurance mr mullin direct indirect interests related commissions approximately 1 million 2001 2000 7 million 1999 none transactions significant financial position results operations company critical accounting policies preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions reporting period financial statement date estimates assumptions affect reported amounts assets liabilities disclosure contingent liabilities reported amounts revenues expenses actual results could differ amounts critical accounting policies important portrayal companys financial condition results require management make difficult subjective andor complex judgements critical accounting policies cover accounting matters inherently uncertain future resolution matters unknown company believes critical accounting policies include accounting sales rebates accounting allowances doubtful accounts accounting inventory reserves sales rebates discounts common practice industries company operates volume promotional price cash discounts customer incentives accounted reduction gross sales rebates discounts estimated recorded sales products made rebates discounts adjusted necessary additional information becomes available management required make judgements based historical experience future expectations collectibility accounts receivable allowances doubtful accounts sales returns represent allowances customer trade accounts receivable estimated partially entirely uncollectible allowances used reduce gross trade receivables net realizable value company records allowances based estimates related following factors customer specific allowances ii amounts based upon aging schedule iii estimated amount based companys historical experience issues yet identified inventories stated lower cost market value categorized raw materials workinprogress finished goods inventory reserves recorded damaged obsolete excess slowmoving inventory management uses estimates record reserves slowmoving inventory reviewed category may partially fully reserved depending type product length time product included inventory future accounting requirements july 2001 financial accounting standards board fasb issued statement financial accounting standards sfas 141 business combinations supersedes accounting principles board apb opinion 16 business combinations statement requires business combinations accounted purchase method establishes specific criteria recognition intangible assets separately goodwill provisions statement apply business combinations initiated june 30 2001 business combinations accounted using purchase method july 1 2001 provisions statement effective first quarter 2002 upon adoption company expects separately state goodwill intangible assets currently shown consolidated balance sheet intangibles resulting business acquisitions net july 2001 fasb issued sfas 142 goodwill intangible assets supersedes apb opinion 17 intangible assets statement addresses accounting reporting goodwill intangible assets subsequent acquisition sfas 142 provides goodwill indefinitelived intangible assets longer amortized ii impairment measured using various valuation techniques based discounted cash flows iii goodwill tested impairment least annually reporting unit level iv intangible assets deemed indefinite life tested impairment least annually v intangible assets finite lives amortized useful lives statement provides specific guidance testing goodwill intangible assets impairment requires reporting units identified purpose assessing potential future impairments goodwill intangible assets acquired june 30 2001 subjected provisions statement provisions statement effective first quarter 2002 utilizing internal external resources company process adopting sfas 142 identifying reporting units amounts goodwill intangible assets liabilities allocated reporting units sfas 142 requires goodwill tested annually impairment using twostep process first step identify potential impairment transition step must measured beginning fiscal year however companies six months date adoption complete first step company expects complete first step goodwill impairment test first quarter 2002 second step goodwill impairment test measures amount impairment loss measured beginning year adoption must completed end 2002 intangible assets deemed indefinite life tested impairment using onestep process compares fair value carrying amount asset beginning year process completed first quarter 2002 company process completing impairment tests goodwill intangible assets based current information anticipate transitional impairment losses company expects adoption sfas 142 benefit earnings per share assuming dilution approximately 13 compared 2001 august 2001 fasb issued sfas 143 accounting asset retirement obligations addresses financial accounting reporting obligations associated retirement tangible longlived assets associated asset retirement costs statement requires fair value liability asset retirement obligation recognized period incurred reasonable estimate fair value made associated asset retirement costs capitalized part carrying amount longlived asset provisions statement effective beginning fiscal 2003 company process determining impact standard companys financial results effective october 2001 fasb issued sfas 144 accounting impairment disposal longlived assets statement supersedes sfas 121 accounting impairment longlived assets longlived assets disposed amends apb opinion 30 reporting effects disposal segment business extraordinary unusual infrequently occurring events transactions statement requires longlived assets disposed sale measured lower book value fair value less costs sell sfas 144 retains fundamental provisions sfas 121 recognition measurement impairment longlived assets held used b measurement longlived assets disposed sale statement also retains apb opinion 30s requirement companies report discontinued operations separately continuing operations provisions statement effective first quarter 2002 adoption standard expected significant impact companys financial results company currently reviewing requirements emerging issues task force eitf issue 0014 accounting certain sales incentives eitf consensus addresses recognition measurement income statement classification sales incentives offered vendor without charge customer result single exchange transaction provisions consensus effective first quarter 2002 application consensus expected significant impact companys financial results company currently reviewing requirements eitf issue 00 25 vendor income statement characterization consideration paid reseller vendors products eitf consensus addresses whether certain consideration vendor reseller vendors products adjustment selling prices cost provisions consensus effective first quarter 2002 application consensus expected significant impact companys financial results outlook companys results 2001 reflect challenging economic environment us international markets events september 11 2001 compounded negative impact economic slowdown already experienced first half year slowdown affected sales volume profitability segments may continue current national global economic conditions continue companys revenue net income impacted economic market conditions third fourth quarters 2001 company experienced positive sales trends pressuresensitive adhesives materials segment may continue 2002 encouraging volume trends seen certain core operations including improvement fasson roll materials business north america second half 2001 resulted stronger volume growth fourth quarter internationally certain businesses pressuresensitive business asia continued see volume growth company currently plans open new facilities expand operations asia near future company continued experience weak sales trends however graphics specialty tapes businesses 2001 sales consumer converted products segment negatively impacted inventory reductions among companys large office products customers partially reflecting slowdown new retail store openings decreased sales segment also due general economic weakness impacted companys businesses serving automotive industrial markets later impacted office products ticketing retail apparel currently company expect significant disruptions sales due inventory reductions 2002 fourth quarter 2001 company recorded pretax charge approximately 26 million related currency devaluation argentina argentine peso longer pegged us dollar onetoone basis instead peso floated foreign exchange market allowing fluctuations currency exchange rates us dollar transactions denominated us dollars subject gains losses changes currency exchange rates political regulatory economic business conditions argentina including countrys current recession availability cash consumer spending likely negatively impact revenue earnings argentina 2002 compared 2001 operations argentina significant companys financial results represented less 25 million sales 2001 majority companys operations argentina reported pressuresensitive adhesives materials segment international operations principally western europe constitute significant portion companys business company exposed foreign currency exchange rate risk changes foreign exchange rates impact companys financial results recent accounting pronouncements also impact companys earnings 2002 company expects adoption sfas 142 benefit earnings per share assuming dilution approximately 13 compared 2001 new accounting standard company longer amortize goodwill indefinitelived intangible assets uncertain global economic environment company remains focused cost management efforts believes wellpositioned resume previous growth trends economic conditions improve 2002 expected another challenging year company reduced costs expects continue benefit implementation productivity improvement initiatives addition driving costs company continues pursue longterm growth initiatives include acquisitions entry new markets development new products geographic expansion safe harbor statement except historical information contained herein matters discussed managements discussion analysis results operations financial condition sections annual report contain forward looking statements within meaning private securities litigation reform act 1995 statements historical fact may contain estimates assumptions projections andor expectations regarding future events words anticipate assume believe estimate expect plan project expressions refer future events trends identify forwardlooking statements forwardlooking statements financial business targets subject certain risks uncertainties could cause actual results differ materially future results performance achievements company expressed implied forwardlooking statements certain risks uncertainties described exhibit 99 companys annual report form 10k year ended december 29 2001 forwardlooking statements considered light factors referred exhibit 99 incorporated herein reference companys forwardlooking statements represent judgment dates statements made making forwardlooking statements company assumes duty update reflect new changed unanticipated events circumstances may required law item 7aitem 7 management’s discussion analysis results operation financial condition overview outlook company’s results 2002 reflect growth completion three acquisitions well sales new products applications variety consumer industrial markets improved profitability achieved cost reduction productivity improvement programs six sigma program designed improve productivity quality pressuresensitive adhesives materials segment reported increased sales 2002 compared 2001 worldwide roll materials business graphics reflective business outside us domestic international specialty tapes business reported sales growth graphics reflective business us however continued negatively impacted generally weak economic conditions contributing growth segment acquisition may 2002 jackstädt gmbh “jackstädt” manufacturer pressuresensitive materials based germany acquisition company’s largest decade jackstädt strengthens company’s business many developing markets growth areas around world including asia latin america eastern europe integration jackstädt business progressing majority integration actions including cost headcount reductions expected completed end second quarter 2004 consumer converted products segment reported increased sales 2002 compared 2001 retail information services reported increased sales 2002 compared 2001 primarily result fourth quarter acquisitions rvl packaging inc “rvl” provider brand identification products apparel manufacturers retailers le packaging “le” one rvl’s suppliers well worldwide ticketing industrial automotive products also reported increased sales 2002 compared 2001 although office products business north america posted modest sales growth 2002 european office products business reported slight downturn sales relative prior year office products environment challenging past two years superstores closing stores reducing inventory white collar layoffs reduced enduser demand company recorded charges totaling 321 million third fourth quarters 2002 severance 107 million impairment property plant equipment 175 million lease cancellation costs 39 million approximately 40 percent 107 million severance charge related elimination avery dennison positions result jackstädt integration remainder associated announcement closure office products’ manufacturing facility cost reduction actions approximately 50 percent 214 million charge asset impairments lease cancellation costs related integration jackstädt remainder charge primarily related reflective business company expects additional headcount reductions approximately 700 positions 2003 2004 company expects take charges totaling approximately 20 million first quarter 2004 balance severance costs related jackstädt acquisition interest expense 437 million 2002 compared 502 million 2001 reflecting lower interest rates company’s shortterm floating rate debt company entered forward starting interest rate swap may 2002 secure interest rate company’s anticipated longterm debt issuance finance acquisition jackstädt principal amount hedged 250 million shift interest rates unrealized loss approximately 374 million related swap included comprehensive loss end 2002 january 2003 company issued 250 million 10year 150 million 30year notes purpose refinancing shortterm obligations longterm basis connection issuance notes company settled interest rate swap loss approximately 325 million loss amortized interest expense term debt interest expense increase result refinancing subsequent announcement rvl le acquisitions standard poor’s rating services “sp” moody’s investors service “moody’s” reviewed company’s debt ratings sp reaffirmed company’s “a1” shortterm rating “a” longterm rating “negative” outlook moody’s downgraded company’s shortterm rating “p1” “p2” longterm rating “a2” “a3” changed outlook company “negative” “stable” downgrade increase interest rates company’s debt beginning 2003 based current interest rates current level debt increased interest cost associated downgrade estimated aftertax impact range approximately 1 million 3 million per year effective tax rate 295 percent 2002 company estimates effective tax rate approximately 295 percent 2003 subject structural operational changes impact acquisitions geographic mix income international operations constitute approximately 45 percent company’s business company exposed foreign currency exchange rate risk changes foreign exchange rates impact company’s financial results weakness equity markets lower interest rate environment resulted modifications company’s 2002 pension assumptions negatively impacting pretax operating income 4 million 2002 compared 2001 continued weakness equity markets lower interest rate environment resulted adjustments 2003 pension assumptions result changes forecasted pension expense 2003 expected negatively impact pretax operating income approximately 10 million relative 2002 2003 weightedaverage assumptions return plan assets discount rate us pension plans 9 percent 7 percent respectively 2003 weightedaverage assumptions return plan assets discount rate international plans 66 percent 55 percent respectively adoption statement financial accounting standards sfas 142 “goodwill intangibles” beginning fiscal 2002 benefited earnings per share assuming dilution approximately 14 2002 accounting standard company longer amortizes goodwill amortization expense related intangible assets increased approximately 9 million fiscal 2002 result increases capitalized software deferred charges identifiable intangibles resulting 2002 acquisitions full year amortization expense identifiable intangibles 2002 acquisitions expected approximately 4 million 2003 company expects continued growth 2003 year company introducing new products pressuresensitive adhesives materials consumer converted products segments company also expects growth acquisitions completed 2002 company reduced costs continue cost management initiatives designed improve margins company continues pursue longterm growth initiatives emphasis new product development growth emerging markets particularly asia pacific latin american eastern european regions results operations sales increased 106 percent 421 billion 2002 compared 38 billion 2001 excluding changes foreign currency exchange rates sales increased 10 percent 2001 sales decreased 23 percent 2000 sales 389 billion excluding impact currency sales decreased 6 percent 2001 acquisitions made years 2002 2001 2000 contributed additional sales approximately 270 million 2002 843 million 2001 971 million 2000 contribution acquisitions 2002 estimated given integration jackstädt acquisition company’s existing business gross profit margins years ended 2002 2001 2000 322 percent 326 percent 342 percent respectively company’s gross profit margins individual products within business units vary significantly decrease 2002 due lower gross profit margin jackstädt business partially offset reduced expenses cost reduction programs productivity initiatives decrease 2001 due lower sales highermargin office products business shift sales within roll materials business lowermargin products well resulting increase fixed costs percentage sales across company’s businesses fixed costs reduced commensurate overall decline sales marketing general administrative expense percent sales 217 percent 2002 218 percent 2001 219 percent 2000 november 5 2002 company acquired rvl provider brand identification products apparel manufacturers retailers rvl designs markets distributes woven printed labels graphic tags specialty packaging products day company also acquired assets le one rvl’s suppliers le offers broad range printing products tailored specific needs apparel retail industries transactions included acquisition certain related entities purchase price net cash acquired transactions approximately 222 million consisting approximately 175 million cash approximately 47 million shares avery dennison common stock funds complete acquisitions derived shortterm borrowings combined basis unaudited revenues rvl le affiliated companies approximately 175 million 2001 operations acquired companies included company’s consumer converted products segment may 17 2002 company acquired jackstädt manufacturer pressuresensitive adhesive materials based germany jackstädt international customer base consolidated revenues approximately 400 million 2001 purchase price net cash acquired approximately 311 million included approximately 211 million cash assumed debt approximately 100 million jackstädt business included company’s pressuresensitive adhesives materials segment jackstädt complements company’s operations europe latin america asia north america jackstädt enhances company’s international presence enables offer broader selection products services integration jackstädt business progressing reduction year end approximately 315 estimated 1000 positions eliminated company recorded charge fourth quarter 2002 relating cost reduction actions 2002 charge involved cost reduction programs reorganization manufacturing administrative facilities company’s operating segments cost reduction efforts resulted pretax charge 107 million consisted employee severance related costs approximately 300 positions worldwide charge shown “other expense” line consolidated statement income positions eliminated included approximately 80 employees pressuresensitive adhesives materials segment approximately 220 employees consumer converted products segment severance related costs represented cash paid employees terminated program year end 2002 98 million remained accrued severance related costs included “accrued payroll employee benefits” consolidated balance sheet end 2002 approximate 300 positions affected actions approximately 50 employees 10 employees consumer converted products segment 40 employees pressuresensitive adhesives materials segment left company expects complete cost reduction program 2003 fourth quarter 2002 company recorded 62 million pretax charge planned disposition fixed assets comprised machinery equipment related reduction costs reflective business well jackstädt integration charge shown “other expense” line consolidated statement income related entirely assets owned company prior acquisition jackstädt third quarter 2002 company recorded 152 million pretax charge disposition fixed assets land buildings machinery equipment lease cancellation costs associated integration jackstädt operations well planned closure plant facility costs exit leases asset impairments related businesses approximately 60 percent charge related integration jackstädt charge shown “other expense” line consolidated statement income related entirely assets leases owned company prior acquisition jackstädt 152 million charge approximately 113 million related asset impairments property plant equipment 13 million buildings 10 million machinery equipment 39 million related lease cancellation costs company expects pay lease cancellation costs 2011 lease contracts extend period eight years time accruals leases fully utilized table details lease cancellation cost activity fourth quarter 2001 company sold specialty coatings business reported within pressuresensitive adhesives materials segment cash proceeds 115 million notes receivables received part sale resulted pretax gain approximately 202 million net sales business 267 million ten months 2001 377 million 2000 company also recorded charge fourth quarter 2001 relating cost reduction actions 2001 charge involved cost reduction programs reorganization manufacturing administrative facilities company’s operating segments cost reduction efforts resulted pretax charge 199 million consisted employee severance related costs 131 million approximately 400 positions worldwide asset impairments 68 million positions eliminated included approximately 170 employees pressuresensitive adhesives materials segment 210 employees consumer converted products segment 20 corporate employees severance related costs represented cash paid employees terminated program asset impairments represented noncash charges required reduce carrying value assets disposed net realizable value planned date disposal year end 2002 19 million remained accrued severance related costs included “accrued payroll employee benefits” consolidated balance sheet associated longterm severance contracts paid 2004 amounts related asset impairments utilized interest expense years ended 2002 2001 2000 437 million 502 million 546 million respectively decrease 2002 due lower interest rates shortterm floating rate debt partially offset additional interest debt used fund jackstädt acquisition second quarter well rvl le acquisitions fourth quarter decrease 2001 due impact lower interest rates company’s shortterm debt income taxes percent sales 87 percent 2002 95 percent 2001 109 percent 2000 percentage decrease 2002 reflected total third fourth quarter pretax charges 321 million lower gross profit margin percent sales decrease partially offset lower interest expense elimination goodwill amortization lower marketing general administrative expenses percent sales percentage decrease 2001 primarily due lower gross profit margin effective tax rate 295 percent 2002 324 percent 2001 335 percent 2000 decrease effective tax rate 2002 principally due structural operational changes impact acquisitions geographic mix income change accounting goodwill percentage decrease 2001 reflected change geographic mix profits utilization various tax credits worldwide structural operational changes reduced taxes company estimates effective tax rate 2003 approximately 295 percent net income totaled 2572 million 2002 2432 million 2001 2835 million 2000 net income 2002 increased 58 percent 2001 net income 2001 decreased 142 percent 2000 net income percent sales 61 percent 64 percent 73 percent 2002 2001 2000 respectively net income per common share 261 2002 compared 249 2001 288 2000 net income per common share 2002 increased 48 percent 2001 net income per common share 2001 decreased 135 percent 2000 net income per common share assuming dilution 259 2002 compared 247 2001 284 2000 net income per common share assuming dilution 2002 increased 49 percent 2001 net income per common share assuming dilution 2001 decreased 13 percent 2000 results operations operating segment pressuresensitive adhesives materials pressure sensitive adhesives materials segment reported increased sales income 2002 compared 2001 sales increased approximately 379 million 173 percent 257 billion 2002 compared 219 billion 2001 driven strong sales domestic international operations domestic sales including intrasegment sales increased approximately 56 million 4 percent due strong sales roll materials business approximately 92 million increase resulted part market share gain business obtained closure competitor’s plant estimated 11 million supply agreement company outsourced manufacturing certain roll label materials estimated 23 million well factors including industry consolidation new products service programs new applications additionally domestic sales increased due increase specialty tapes business approximately 8 million driven introduction new applications products medical industrial markets increases 2002 sales partially offset reduction sales sale specialty coatings business fourth quarter 2001 sales approximately 27 million well sales declines graphics reflective business approximately 10 million sales increased internationally including intrasegment sales approximately 344 million 34 percent principally due acquisition jackstädt second quarter 2002 total 2002 impact sales estimated approximately 262 million addition excluding sales jackstädt business international sales reflected strong sales growth roll materials asia approximately 34 million higher sales roll materials graphics businesses europe approximately 33 million due favorable impact changes foreign currency exchange rates segment’s income increased 31 percent 198 million compared 2001 income domestic operations slightly approximately 4 million compared 2001 decrease income domestic operations 2002 reflected charge approximately 9 million related 2002 restructuring asset impairments lease cancellation costs compared charge 39 million cost reduction actions 2001 202 million pretax gain sale business 2001 excluding impact items income domestic operations increased approximately 21 million 20 percent primarily due higher income roll materials business driven volume growth profitability achieved cost reduction productivity improvement programs additionally domestic income reflected benefit change accounting goodwill approximately 4 million income international operations increased approximately 10 million due sales growth improved profitability achieved cost reductions productivity gains positive impact change accounting goodwill amortization approximately 2 million international income reduced charge approximately 13 million related 2002 restructuring asset impairments lease cancellation costs pressuresensitive adhesives materials segment reported increase sales decrease income 2001 compared 2000 sales increased 25 percent 219 billion 2001 compared 214 billion 2000 driven market share gain us growth international markets sales increased us operations due acquisition dunsirn industries inc “dunsirn” discussed approximately 48 million benefit new business obtained closure competitor’s plant estimated 10 million new supply agreement company outsourced manufacturing certain roll label materials estimated 12 million factors domestic sales increase partially offset slowdown north american economy resulting negative impact sales graphics specialty tapes businesses approximately 31 million sales increased internationally primarily result adespan acquisition 2000 discussed approximately 19 million unit volume growth roll materials business europe asia pacific increase partially offset slowdown certain european markets served company’s graphics specialty tapes businesses sales declines latin america negative impact foreign currency exchange rates approximately 46 million segment’s 2001 income decreased 96 percent 1921 million 2000 income 2001 impacted three nonrecurring items fourth quarter pretax gain approximately 202 million sale business us 76 million charge relating cost reduction actions 39 million us operations 37 million international operations 23 million charge related currency devaluation argentina income us international operations also decreased due economic slowdown impacted sales across segment’s businesses addition integration costs associated dunsirn acquisition negative impact gross profit margins reduced ratio sales fixed costs competitive pricing environment onetime costs associated startup new coater us also contributed income reduction savings cost reduction actions taken throughout year well six sigma partially offset negative effects factors fourth quarter 2001 company sold specialty coatings business cash proceeds 115 million notes receivables received conjunction sale resulted pretax gain approximately 202 million net sales business 267 million ten months 2001 377 million 2000 first quarter 2001 company acquired dunsirn supplier nonadhesive materials narrowweb printing industry well provider customized slitting distribution services pressuresensitive roll materials manufacturers customized slitting distribution services refer process cutting bulk rolls material sizes requested customers shipping materials customers sales 2000 dunsirn approximately 68 million including sales company excess cost basis fair value net tangible assets acquired 308 million included identified intangible assets 55 million first quarter 2000 company acquired adespan pressuresensitive materials operation panini spa european printing publishing company based italy adespan sales approximately 75 million 1999 excess cost basis fair value net tangible assets acquired 254 million included identified intangible assets 124 million consumer converted products consumer converted products segment reported increased sales income 2002 compared 2001 sales increased approximately 28 million 16 percent 181 billion compared 178 billion 2001 sales domestic operations including intrasegment sales increased approximately 22 million principally due increases retail information services group approximately 13 million including operations rvl le acquired fourth quarter contributed approximately 9 million sales strong sales industrial automotive products business approximately 75 million sales us office products business flat 2002 compared 2001 office products environment challenging past two years superstores closing stores reducing inventory white collar layoffs reduced enduser demand sales international operations including intrasegment sales increased approximately 24 million 4 percent principally due acquisitions rvl le fourth quarter contributed incremental sales approximately 26 million additionally international businesses benefited strong sales growth ticketing business asia approximately 15 million segment’s 2002 income comparable 2001 income domestic operations decreased approximately 4 million included charge 6 million related restructuring asset impairments lease cancellation costs 2002 benefit change accounting goodwill approximately 5 million income international operations increased approximately 5 million driven principally strong sales ticketing business asia approximately 7 million results international operations also included charge 4 million related restructuring asset impairments lease cancellation costs 2002 positive impact change accounting goodwill approximately 4 million consumer converted products segment reported decreased sales income 2001 compared 2000 sales decreased 6 percent 178 billion 2001 compared 19 billion 2000 sales us operations negatively impacted several factors slowdown north american economy particularly affected company’s office products business industrial automotive business customer inventory reductions consolidation office product retail stores company’s customers weak retail environment also negatively impacted sales 2001 domestic sales office products business also negatively impacted purchases approximately 14 million made major customers december 2000 order increase payout rebate programs accelerated sales normally would occurred first quarter 2001 addition domestic sales growth negatively impacted decreased volume shift sales lowermargin products company’s converting businesses sales international operations decreased primarily due negative impact foreign currency exchange rates economic slowdown impacting company’s businesses europe segment’s 2001 income decreased 166 percent 2444 million income 2001 impacted 94 million charge relating cost reduction actions 54 million us operations 4 million international operations decline operating income disproportionate decline sales cost reduction charge fixed costs reduced commensurate overall decline sales cost reduction actions productivity initiatives partially offset negative impact sales decline first quarter 2001 company acquired cd stomper product line consisting cd dvd labels software label applicator stomp inc software developer manufacturer based california sales 2000 cd stomper product line approximately 20 million excess costbasis fair value net tangible assets acquired 226 million included identified intangible assets 97 million financial condition discussion working capital section based upon average working capital employed year “liquidity capital resources” section discussion working capital changes based upon beginning ending balances year average working capital excluding shortterm debt percent sales 71 percent 2002 79 percent 2001 64 percent 2000 decrease 2002 principally due higher balances accounts payable current liabilities approximately 270 million including amounts resulting acquisitions approximately 105 million increased balances accounts payable approximately 64 million hedge liabilities approximately 38 million accrued payroll benefits approximately 34 million accrued rebates approximately 18 million increase 2001 reflected increase cash decrease accounts payable accrued liabilities average inventory turnover 86 turns 2002 88 turns 2001 2000 decrease inventory turns 2002 due higher inventory levels driven 2002 acquisitions higher inventory levels response stronger sales year average number days sales outstanding accounts receivable 61 days 2002 58 days 2001 56 days 2000 increase 2002 2001 reflected longer payment terms associated increased international sales increase 2002 also due part longer payment terms associated newly acquired businesses although average number days sales outstanding accounts receivable increasing company anticipate trend continue several company’s largest domestic customers operate competitive retail business environment impacted economic conditions north america year end 2002 2001 approximately 17 percent 23 percent respectively trade accounts receivable nine retail customers company’s office products business company require customers provide collateral financial position operations customers monitored ongoing basis goodwill net accumulated amortization increased 3355 million 2002 principally due acquisitions jackstädt approximately 141 million rvl le approximately 170 million addition increase also reflected foreign currency exchange impact approximately 9 million intangibles resulting business acquisitions net accumulated amortization increased 279 million 2002 due acquisitions jackstädt approximately 11 million rvl le approximately 20 million increase also reflected foreign currency exchange impact approximately 6 million increases partially offset amortization expense recorded 2002 approximately 97 million company’s “other assets” balance increased 2002 due increases cash surrender value corporate owned life insurance contracts approximately 11 million capitalized software net accumulated amortization approximately 11 million pension assets approximately 5 million total debt increased 2945 million 114 billion compared year end 2001 due debt incurred fund acquisitions ratio total debt total capital increased 52 percent year end 2002 compared 478 percent year end 2001 longterm debt percent total longterm capital increased 442 percent 403 percent year end 2001 shareholders’ equity increased 106 billion 9294 million year end 2001 2002 company issued approximately 743000 shares company’s common stock approximately 47 million connection acquisition le addition company repurchased approximately 173000 shares company’s common stock cost 108 million year end 2002 cumulative 372 million shares company’s common stock repurchased since 1991 32 million shares remained available repurchase board directors’ authorization accumulated comprehensive loss increased 685 million 2002 due additional pension liability 872 million us international pension plans result changes assumptions negative return plan assets 2002 addition accumulated comprehensive loss reflected unrealized loss approximately 374 million resulted shift interest rates forward starting interest rate swap used secure interest rate company’s anticipated longterm debt issuance finance acquisition jackstädt connection issuance 250 million senior notes january 2003 company settled interest rate swap loss approximately 325 million losses partially offset benefit change foreign currency translation 2002 approximately 117 million return average shareholders’ equity 257 percent 2002 274 percent 2001 346 percent 2000 return average total capital 158 percent 2002 162 percent 2001 196 percent 2000 respectively decrease returns 2002 primarily due increase shareholders’ equity decreases returns 2001 compared 2000 primarily due decrease profitability company designated us environmental protection agency epa andor responsible state agencies potentially responsible party prp eight waste disposal waste recycling sites subject separate investigations proceedings concerning alleged soil andor groundwater contamination settlement company’s liability agreed upon company participating prps sites anticipates share cleanup costs determined pursuant remedial agreements entered normal course negotiations epa governmental authorities company accrued liabilities sites including sites governmental agencies designated company prp probable loss incurred minimum cost amount loss reasonably estimated however uncertainties associated environmental assessment remediation activities future expense remediate currently identified sites could identified future cleanup could higher liability currently accrued amounts currently accrued significant consolidated financial position company based upon current information management believes unlikely final resolution matters significantly impact consolidated financial position operations company participates international receivable financing program financial institution whereby advances may requested financial institution advances guaranteed company december 28 2002 company guaranteed 18 million company subsidiaries involved various lawsuits claims inquiries routine nature business opinion management resolution matters materially affect company provides estimate costs may incurred basic limited warranty time product revenue recognized costs primarily include materials labor associated service sale product factors affect company’s warranty liability include number units installed sold historical anticipated rate warranty claims units cost per claim satisfy company’s warranty obligation factors impacted actual experience future expectations company assesses adequacy recorded warranty liability adjusts amounts necessary liquidity capital resources described “financial condition” section discussion working capital changes section based upon beginning ending balances year section compares working capital two distinct points time rather average amounts employed year historically company’s primary source capital resources cash flows operations debt financing augmented 2002 limited stock issuance conjunction le acquisition company continues maintain adequate financing arrangements competitive rates financing arrangements consist commercial paper bank lines credit callable commercial notes longterm debt including mediumterm notes january 2003 company refinanced 400 million commercial paper borrowings offering 250 million senior notes due 2013 150 million senior notes due 2033 net cash flow operating activities 5228 million 2002 3755 million 2001 4099 million 2000 increase cash flows operating activities 2002 due increases net income changes working capital balances reflecting increases accounts payable accrued liability balances partially offset increases accounts receivable inventory balances increase accounts payable accrued liabilities primarily associated increases accounts payable balances 64 million result negotiating longer payment terms vendors increases payroll benefits 34 million result higher bonus accruals timing payroll payments increases accrued trade rebates 18 million result increased sales increase accounts receivable driven higher sales levels increase average number days sales outstanding 58 2001 61 2002 increase inventory balances associated higher sales levels 2002 slight reduction inventory turnover due integration complexities acquired businesses decrease cash flows 2001 primarily due decrease net income average number days sales outstanding receivables increased 2001 ending balance receivables lower prior year due unusual customer purchasing patterns late 2000 repeated 2001 capital expenditures 1518 million 2002 1354 million 2001 funded primarily cash flows operations capital expenditures 2003 expected range 175 million 200 million projected increase capital expenditures expected funded operating cash flows 2002 company continued plan implementing new information systems software company’s existing businesses expenditures related capitalized software 201 million 2002 503 million 2001 expenditures 2003 related capitalized software expected remain 2002 levels 2002 company completed acquisitions resulting total cash payments 3974 million payments funded commercial paper borrowings total commercial paper borrowings december 28 2002 5122 million weightedaverage interest rate 187 percent january 2003 company refinanced 400 million commercial paper borrowings offering 250 million 4875 percent senior notes due 2013 150 million 6 percent senior notes due 2033 aggregate 400 million refinancing issued company’s existing shelf registration statement filed securities exchange commission third quarter 2001 permitting company issue 600 million debt equity securities issuance 400 million remaining 200 million available general corporate purposes including acquisitions capital expenditures repaying redeeming repurchasing existing debt working capital remaining commercial paper borrowings company intend repay within next year ability refinance longterm revolving credit agreement discussed classified longterm liabilities company 805 million borrowings outstanding shortterm lines credit weightedaverage interest rate 77 percent 2002 december 2002 company issued 150 million oneyear callable commercial notes weightedaverage interest rate 25 percent issuance replaced december 2001 issuance 150 million oneyear callable commercial notes weightedaverage interest rate 21 percent company’s longterm debt including mediumterm notes 9137 million 6471 million end 2002 2001 respectively maturities longterm debt years 2003 2007 765 million classified current 865 million 761 million 1126 million 604 million respectively 5016 million maturing thereafter company mediumterm notes 388 million 448 million year end 2002 2001 respectively mediumterm notes maturities 2003 2025 accrue interest fixed rates terms various loan agreements effect year end require company maintain specified ratios consolidated debt consolidated interest expense relation certain measures income loan agreements consolidated debt ratio consolidated earnings interest taxes depreciation amortization may exceed 35 10 company’s ratio year end 2002 20 10 consolidated earnings interest taxes ratio consolidated interest may less 35 10 company’s ratio year end 2002 93 10 company revolving credit agreement four domestic banks provide 250 million borrowings july 1 2006 company may annually extend revolving period due date approval banks financing available agreement used commercial paper backup facility finance corporate requirements debt outstanding agreement year end 2002 available financing arrangements debt outstanding year end 2002 included additional shortterm lines credit totaling 5581 million available lines credit included 364day revolving credit facility eight domestic foreign banks provide 200 million borrowings december 5 2003 company may annually extend revolving period due date approval banks may convert loan oneyear term loan company’s option financing available agreement used commercial paper backup facility finance corporate requirements company also bridge credit agreement two domestic financial institutions provide 200 million borrowings january 31 2003 commitment fees relating financing arrangements significant debt assumed connection acquisition jackstädt securitized acquired assets december 28 2002 total jackstädt debt balance approximately 332 million fair value company’s debt estimated based discounted amount future cash flows using current rates offered company debts remaining maturities year end 2002 2001 fair value company’s total debt including shortterm borrowings 118 billion 8576 million respectively company standby letters credit outstanding 1827 million 2179 million end 2002 2001 respectively aggregate contract amount outstanding standby letters credit approximated fair value company guaranteed 3493 million foreign subsidiaries’ lines credit foreign exchange lines well 159 million foreign subsidiaries’ certain obligations suppliers december 28 2002 credit ratings significant factor company’s ability raise shortterm longterm financing determining credit rating agencies place significant weight company’s competitive position consistency cash flows debt level geographic dispersion management team ratings assigned company also impact interest rates commercial paper borrowings subsequent announcement rvl le acquisitions standard poor’s rating services “sp” moody’s investors service “moody’s” reviewed company’s debt ratings sp reaffirmed company’s “a1” shortterm rating “a” longterm rating “negative” outlook moody’s downgraded company’s shortterm rating “p1” “p2” longterm rating “a2” “a3” changed outlook company “negative” “stable” downgrade increase interest rates company’s debt beginning 2003 based current interest rates current level debt increased interest cost associated downgrade estimated aftertax impact range approximately 1 million 3 million per year first quarter 1999 company recorded obligation associated transaction steinbeis holding gmbh combined substantially company’s office products businesses europe zweckform büroprodukte gmbh german office products supplier obligation 845 million amount reported “other longterm obligation” line consolidated balance sheet obligation guaranteed standby letter credit intention company pay entire obligation early 2004 company enters operating leases primarily office warehouse space electronic data processing transportation equipment terms leases impose significant restrictions unusual obligations minimum annual rental commitments operating leases initial remaining noncancellable lease terms excess one year years 2003 2007 thereafter included following table company’s obligations relating debt leases year end 2002 follows 1 january 2003 company refinanced 400 million commercial paper borrowings offering 250 million 4875 percent senior notes due 2013 150 million 6 percent senior notes due 2033 aggregate 400 million refinancing reflected “thereafter” payment period remaining shortterm borrowings company intend repay within next year ability refinance longterm revolving credit agreement classified longterm liabilities reflected 2006 payment period consistent current expiration company’s longterm credit agreement timing company’s current repayment intentions company’s committed credit availability year end 2002 follows addition company uncommitted lines credit approximately 2374 million year end 2002 company’s uncommitted lines credit commitment expiration date may cancelled time company banks annual dividend per share increased 135 2002 123 2001 27th consecutive year company increased dividends per share company continues expand operations europe latin america asia pacific company’s future results subject changes political economic conditions impact fluctuations foreign currency exchange interest rates 2002 sales favorably impacted currency fluctuations approximately 20 million 2001 changes exchange rates euro pound sterling negatively impacted company impact foreign currency fluctuations net income smaller impact net sales company’s products generally sourced currencies sold specifically negative impact foreign rates sales would matched partially offsetting positive impact reported expenses thereby reducing impact foreign currency fluctuations net income reduce exposure currency fluctuations company may enter foreign exchange forward option swap contracts interest rate contracts appropriate available translation gains losses operations hyperinflationary economies included net income operations treated hyperinflationary economy accounting purposes based cumulative inflation rate past three years operations hyperinflationary economies consist company’s operations turkey 2002 2001 2000 operations significant company’s consolidated financial position results operations related party transactions time company enters transactions normal course business related parties company believes transactions arm’slength terms would obtained unaffiliated third parties one company’s directors mr peter w mullin chairman chief executive officer director mc insurance services inc “mc” mullin insurance services inc “minc” pwm insurance services inc “pwm” executive compensation benefit consultants insurance agents mr mullin also majority stockholder mc minc pwm 2002 2001 company paid insurance companies premiums life insurance placed mc minc pwm connection various company employee benefit plans 2002 2001 2000 mc minc pwm earned commissions insurance companies aggregate amounts approximately 13 million 17 million 16 million respectively placement renewal insurance mr mullin direct indirect interests related commissions approximately 9 million 2002 1 million years 2001 2000 majority commissions allocated used mcp insurance services llc affiliate mc another affiliate administer benefit plans provide benefit statements participants various company employee benefit plans none transactions significant financial position results operations company critical accounting policies estimates preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions reporting period financial statement date estimates assumptions affect reported amounts assets liabilities disclosure contingent liabilities reported amounts revenues expenses actual results could differ amounts critical accounting policies important portrayal company’s financial condition results require management make difficult subjective andor complex judgements critical accounting policies cover accounting matters inherently uncertain future resolution matters unknown company believes critical accounting policies include accounting sales rebates accounting allowances doubtful accounts accounting inventory reserves sales rebates discounts common practice industries company operates volume promotional price cash discounts customer incentives accounted reduction gross sales rebates discounts recorded based upon management’s best estimates products sold estimates based upon historical experience similar programs products management reviews rebates discounts ongoing basis accruals rebates discounts adjusted necessary additional information becomes available management required make judgements based historical experience future expectations collectibility accounts receivable allowances doubtful accounts sales returns represent allowances customer trade accounts receivable estimated partially entirely uncollectible allowances used reduce gross trade receivables net realizable value company records allowances based estimates related following factors customer specific allowances ii amounts based upon aging schedule iii estimated amount based company’s historical experience issues yet identified addition approximately 17 percent 23 percent trade receivables nine retail customers company’s office products business 2002 2001 respectively financial position operations customers monitored ongoing basis inventories stated lower cost market value categorized raw materials workinprogress finished goods inventory reserves recorded damaged obsolete excess slowmoving inventory management uses estimates record reserves slowmoving inventory reviewed category may partially fully reserved depending type product length time product included inventory future accounting requirements january 2003 financial accounting standards board fasb issued interpretation 46 “consolidation variable interest entitiesan interpretation arb 51” interpretation clarifies application accounting research bulletin 51 “consolidated financial statements” certain entities equity investors characteristics controlling financial interest sufficient equity risk entity finance activities without additional subordinated financial support parties provisions interpretation effective enterprises variable interests variable interest entities created january 31 2003 adoption interpretation expected significant impact company’s financial results december 2002 fasb issued sfas 148 “accounting stockbased compensationtransition disclosure” statement amends sfas 123 “accounting stockbased compensation” provide alternative methods transition entity voluntarily changes fair valuebased method accounting stockbased employee compensation also amends disclosure provisions statement require prominent disclosure effects reported net income entity’s accounting policy decisions respect stockbased employee compensation finally statement amends accounting principles board apb opinion 28 “interim financial reporting” require disclosure effects interim financial information provisions statement effective financial statements interim annual periods ending december 15 2002 company continued use intrinsic value method accounting stockbased compensation 2002 accordance apb opinion 25 company however adopted disclosure provisions sfas 148 presented note 1 consolidated financial statements year ended december 28 2002 november 2002 fasb issued interpretation 45 “guarantor’s accounting disclosure requirements guarantees including indirect guarantees indebtedness others” interpretation clarifies requirements guarantor’s accounting disclosures certain guarantees issued outstanding interpretation also clarifies requirements related recognition liability guarantor inception guarantee obligations guarantor undertaken issuing guarantee disclosure provisions interpretation effective financial statements interim annual periods ending december 15 2002 company adopted disclosure provisions interpretation disclosed notes 1 4 8 consolidated financial statements initial recognition initial measurement provisions interpretation applicable prospective basis guarantees issued modified december 31 2002 company currently process determining impact interpretation company’s financial results provisions effective 2003 july 2002 fasb issued sfas 146 “accounting costs associated exit disposal activities” statement addresses financial accounting reporting costs associated exit disposal activities nullifies emerging issues task force eitf issue 943 “liability recognition certain employee termination benefits costs exit activity including certain costs incurred restructuring” eitf issue 943 liability exit cost recognized date entity commits exit plan sfas 146 eliminates definition requirements recognition exit costs eitf issue 943 requires liability cost associated exit disposal activity recognized liability incurred statement also establishes fair value objective initial measurement liability provisions statement effective december 31 2002 adoption sfas 146 affect timing recognition future costs associated exit disposal activities affect previous charges related activities may 2002 fasb issued sfas 145 “rescission fasb statements 4 44 64 amendment fasb statement 13 technical corrections” statement rescinds sfas 4 “reporting gains losses extinguishment debt” amendment statement sfas 64 “extinguishments debt made satisfy sinkingfund requirements” statement amends sfas 13 “accounting leases” eliminate inconsistency required accounting saleleaseback transactions required accounting certain lease modifications economic effects similar saleleaseback transactions statement also amends existing authoritative pronouncements make various technical corrections clarify meanings describe applicability changed conditions provisions statement related rescission sfas 4 effective beginning 2003 provisions effective may 16 2002 provisions adopted effective may 16 2002 significant impact company’s financial results adoption statement provisions effective 2003 expected significant impact company’s financial results august 2001 fasb issued sfas 144 “accounting impairment disposal longlived assets” statement effective company december 30 2001 supersedes sfas 121 “accounting impairment longlived assets longlived assets disposed of” amends apb opinion 30 “reporting results operationsreporting effects disposal segment business extraordinary unusual infrequently occurring events transactions” statement requires longlived assets disposed sale measured lower book value fair value less costs sell sfas 144 retains fundamental provisions sfas 121 recognition measurement impairment longlived assets held used b measurement longlived assets disposed sale statement also retains apb opinion 30’s requirement companies report discontinued operations separately continuing operations year ended december 28 2002 company divested operations whose results including gainloss asset sales significant impact income statement therefore reflected discontinued operations company’s consolidated statement income august 2001 fasb issued sfas 143 “accounting asset retirement obligations” addresses financial accounting reporting obligations associated retirement tangible longlived assets associated asset retirement costs statement requires fair value liability asset retirement obligation recognized period incurred reasonable estimate fair value made associated asset retirement costs capitalized part carrying amount longlived asset provisions statement effective beginning fiscal 2003 adoption statement expected significant impact company’s financial results company currently reviewing requirements eitf issue 0021 “accounting revenue arrangements multiple deliverables” eitf issue 0021 addresses certain aspects accounting vendor arrangements perform multiple revenuegenerating activities specifically eitf issue 0021 addresses determine whether arrangement involving multiple deliverables contains one unit accounting provisions eitf issue 0021 effective fiscal periods beginning june 15 2003 company process determining impact eitf issue 0021 company’s financial results effective safe harbor statement except historical information contained herein matters discussed management’s discussion analysis results operations financial condition sections annual report contain “forwardlooking statements” within meaning private securities litigation reform act 1995 statements historical fact may contain estimates assumptions projections andor expectations regarding future events words “anticipate” “assume” “believe” “estimate” “expect” “plan” “project” “will” expressions refer future events trends identify forwardlooking statements forwardlooking statements financial business targets subject certain risks uncertainties could cause actual results differ materially future results performance achievements company expressed implied forwardlooking statements certain risks uncertainties described exhibit 991 company’s annual report form 10k year ended december 28 2002 include limited risks uncertainties relating investment new production facilities timely development successful market acceptance new products price availability raw materials impact competitive products pricing business mix shift credit risks successful integration new acquisitions customer supplier manufacturing concentrations financial condition inventory strategies customers changes customer order patterns increased competition loss significant contracts customers legal proceedings fluctuations foreign exchange rates risks associated foreign operations changes economic political conditions acts war terrorism natural disasters factors forwardlooking statements also considered light factors detailed exhibit 99 company’s annual report form 10k years ended december 28 2002 december 29 2001 company’s forwardlooking statements represent judgment dates statements made making forwardlooking statements company assumes duty update reflect new changed unanticipated events circumstances may required law item 7aitem 7 management’s discussion analysis results operations financial condition overview outlook overview sales continuing operations increased 3 2005 compared 12 growth 2004 reflecting factors summarized following table core unit volume measure sales performance excludes estimated impact acquisitions divestitures changes product mix pricing currency translation use measure evaluate underlying demand products services assess sales trends time decrease core unit volume 2005 reflects following factors • loss market share north american roll materials business following implementation selling price increases offset higher raw material costs • impact extra week 2004 fiscal year • accelerated purchases office consumer products customers advance 2005 selling price increases contributed higher growth 2004 addition factors noted 2004 core unit volume also benefited year additional sales retail information services segment result customer preparation increased exports china following elimination apparel manufacturing quotas january 2005 improvement pricing product mix 2005 primarily due impact selling price increases implemented offset higher raw material costs cost reduction actions 2005 initiated companywide cost reduction efforts expected improve global operating efficiencies actions include reductions headcount impact businesses geographic regions expected divestitures lowmargin businesses product lines connection actions recorded cash noncash charges related severance employeerelated costs well asset impairments charges detailed “cost reduction actions” result expected sale business 2006 manufactures raised reflective pavement markers divestiture package label converting business europe october 2003 discussed “acquisitions divestitures” discussions follow generally reflect summary results continuing operations unless otherwise noted however net income net income per share discussions include impact discontinued operations net income net income decreased 533 million 19 2005 compared 2004 negative factors affecting change net income included • restructuring asset impairment charges 2005 exceeded charges taken 2004 • incremental spending growth initiatives including development radio frequency identification “rfid” business • higher pension medical costs • writeoff inventories primarily related product launch positive factors affecting change net income included • higher sales • cost savings productivity improvement initiatives including actions taken 2005 closure two european plants first six months 2004 • benefit lower effective tax rate summary results segment 1 operating income refers income taxes segment operating income refers income interest taxes pressuresensitive materials 57 net sales pressuresensitive materials segment reported 4 increase sales 2005 compared 2004 approximately 60 incremental sales due positive impact changes pricing product mix reflecting increased selling prices implemented offset higher raw material costs benefit partially offset decrease core unit volume due part impact extra week 2004 decline core unit volume north america reflected market share loss related price increases partially offset growth international sales foreign currency translation also contributed sales growth segment operating income segment increased 38 million 17 2005 reflecting cost savings productivity improvement initiatives including closure two european plants first six months 2004 operating income segment included charges related restructuring costs asset impairment 2005 2004 impact higher raw material costs offset selling price increases office consumer products 21 net sales office consumer products segment reported 3 decrease sales 2005 compared 2004 decrease sales primarily due impact accelerated purchases 2004 customers advance 2005 selling price increases impact extra week 2004 decrease core unit volume partially offset positive impact changes pricing product mix favorable impact foreign currency translation operating income segment decreased 18 million 10 reflecting lower sales volume writeoff inventories equipment primarily due product launch operating income segment included charge related restructuring costs asset impairment charges 2005 decreases partially offset cost savings productivity improvement initiatives 2005 selling price increases offset cumulative effect raw material inflation since beginning 2004 retail information services 12 net sales retail information services segment reported 6 increase sales 2005 compared 2004 approximately 40 increase due core unit volume growth reflecting continued growth business asia latin america benefit core unit volume partially offset additional sales 2004 result customer preparation increased exports china following elimination apparel manufacturing quotas january 2005 balance growth reflected incremental sales acquisitions favorable impact foreign currency translation operating income segment decreased 5 million 11 due charges restructuring asset impairments 2005 higher spending associated growth initiatives partially offsetting factors benefit productivity improvement actions including ongoing migration production hong kong lower cost facilities mainland china specialty converting businesses 10 net sales specialty converting businesses reported 5 increase sales 2005 compared 2004 due core unit volume growth well favorable impact foreign currency translation operating income businesses decreased 26 million 73 reflecting costs related development rfid business charges related restructuring costs asset impairments 2005 due commercialization rfid business included rfid group businesses financial results group restated years presented herein reflect change sales growth region excluding impact acquisitions divestitures foreign currency translation estimate sales growth decline major regions operation follows us decrease 2005 partially due market share loss slow market pressuresensitive materials well accelerated purchases 2004 office consumer products customers advance 2005 selling price increases negative factors partially offset selling price increases weaker demand us also reflected practice among end users products move manufacturing outside us shift offset growth emerging markets manufacturing moved asia pace growth 2005 moderated throughout region including china comparison 2004 also affected additional sales retail information services segment 2004 result customer preparation increased exports china following elimination apparel manufacturing quotas january 2005 latin america roll materials business affected market share loss result selling price increases although benefit higher selling prices addition factors impact extra week 2004 also affected comparisons growth 2005 2004 regions cost reduction actions expense fourth quarter 2005 announced cost reduction actions related restructuring anticipated product line divestitures discussed “acquisitions divestitures” recorded charges related severance related costs noncash charges asset impairments included table actions impact businesses geographic regions expected completed end 2006 restructuring actions including anticipated charges early 2006 expected result annualized pretax savings 80 million 90 million completed expect reinvest savings future growth opportunities addition fourth quarter charges recorded earlier 2005 including closure gainesville georgia label converting plant completed third quarter 2005 also included “other expense” 2005 accrual legal expenses related patent lawsuit offset gains sale assets restructuring charges associated severance asset impairments recorded 2004 related completion integration 2002 acquisition jackstädt existing businesses closed manufacturing facility france first quarter 2004 manufacturing facility italy second quarter 2004 2003 restructuring charges related integration jackstädt productivity improvement initiatives see also note 10 “components income expense” consolidated financial statements detail effective rate taxes income effective tax rate 204 full year 2005 compared 251 full year 2004 2005 tax rate included benefits • changes geographic mix income • continued improvements global tax structure • several favorable tax audit settlements benefits partially offset incremental expense associated repatriation accumulated foreign earnings american jobs creation act 2004 effective tax rate 2004 included benefits changes geographic mix income continued improvements global tax structure several favorable global tax audit settlements free cash flow free cash flow 2005 decreased 63 million due primarily lower net income changes assets liabilities partially offset lower cash spending capital 2005 see “analysis results operations” “liquidity” information free cash flow refers cash flow operating activities less spending property plant equipment software use free cash flow measurement tool assess cash flow available corporate purposes dividends debt service repurchase common stock acquisitions divestitures december 2005 announced plan sell business consisting raised reflective pavement markers sales approximately 23 million 2005 based estimated value business concluded associated goodwill intangible assets acquisition business impaired resulting pretax charge approximately 74 million results business accounted discontinued operations years presented herein business previously included pressuresensitive materials segment december 2005 also announced expected divestiture two lowmargin product lines one divestitures impacts office consumer products segment completed february 2006 product line estimated sales 60 million 2005 minimal impact income expected divestiture second product line would reduce annual sales approximately 10 million minimal impact income operations part expected divestitures recorded charges approximately 6 million severance employeerelated costs asset impairments approximately 9 million included “other expense” line consolidated statement income third quarter 2004 acquired rinke etiketten “rinke” privately held company germany incremental impact acquisition net sales approximately 9 million 2004 additional impact approximately 18 million 2005 business reported retail information services segment october 2003 completed sale package label converting business europe consisted two package label converting facilities denmark package label converting facility france combined represented approximately 30 million sales first nine months 2003 results business accounted discontinued operations 2003 investigations april 2003 notified us department justice’s antitrust division “doj” initiated criminal investigation competitive practices label stock industry august 15 2003 doj issued subpoena us connection investigation may 2004 european commission “ec” initiated inspections obtained documents pressuresensitive materials facilities netherlands germany seeking evidence unlawful anticompetitive activities july 2004 notified competition law division department justice canada seeking information connection label stock investigation august 2005 notified australian competition consumer commission seeking information connection label stock investigation cooperating investigations named defendant purported class actions us seeking treble damages relief alleged unlawful competitive practices filed announcement doj investigation also named defendant purported class actions us seeking damages relief alleged disclosure fiduciary duty violations pertaining alleged unlawful competitive practices discovered instances improper conduct certain employees european operations constituted infringement ec competition law accordingly expect ec impose fine us investigation completed discovered instances conduct certain employees china potentially violate us foreign corrupt practices act reported conduct authorities us accordingly expect fines penalties may incurred unable predict effect matters time although effect could well adverse material matters reported note 8 “contingencies” consolidated financial statements outlook 2006 anticipate unit volume growth range 2 3 outlook based expected underlying growth approximately 4 5 partially offset impact product line divestitures withdrawal lowmargin private label business expect positive impact price mix offset negative effect foreign currency translation expectations subject changes economic market conditions price increases early 2006 expected offset raw material inflation incurred end 2005 early 2006 expect restructuring business realignment efforts reduce costs 80 million 90 million completed estimate 60 70 savings achieved 2006 however expect reinvest savings growth opportunities across company addition anticipate transitional costs related productivity improvement actions approximately 15 million 20 million incurred 2006 transitional costs include accelerated depreciation assets expected retired end 2006 costs moving equipment related costs comply provisions reissued statement financial accounting standards “sfas” 123r “sharebased payment” begin recognizing expense stock options 2006 expect pretax expense approximately 17 million 2006 based unvested stock options outstanding year end 2005 estimated 12 per share impact earnings tax expect increase pretax expenses related pension plans approximately 7 million due changes actuarial assumptions us international plans expect continued improvement marketing general administrative expenses percent sales additionally 2006 classifying shipping handling costs element cost goods sold businesses align businesses around standard methodology 2005 several businesses included costs marketing general administrative expenses totaling approximately 145 million refer shipping handling costs section note 1 “summary significant accounting policies” consolidated financial statements information pretax loss rfid business 2006 expected approximately 2 million 7 million lower 2005 due increase revenue reduced spending estimate pretax interest expense 55 million 60 million 2006 assuming expected interest rate increases offset expected reductions debt anticipate annual effective tax rate range 20 23 2006 subject changes geographic mix income potentially wide variances quarter expect free cash flow capital spending purchases software approximately 300 million 350 million 2006 expect capital expenditures 2006 approximately 175 million 200 million funded operating cash flow major projects 2006 include new investments expansion china india serving materials retail information services businesses well spending new films coater us analysis results operations income continuing operations taxes sales increased 3 2005 compared increase 12 2004 decrease core unit volume 2005 partially reflected loss market share north american roll materials business following implementation selling price increases offset higher raw material costs 2005 volume decline also reflected impact extra week 2004 fiscal year accelerated purchases office consumer products customers advance 2005 selling price increases contributed higher growth 2004 combined accelerated purchases extra week 2004 represented estimated 60 million 70 million change sales two years realized selling price increases 2005 estimated 100 million related higher raw material costs however experienced related share loss north american roll materials business previously described 2004 core unit volume also benefited higher sales retail information services segment result customer preparation increased exports china following january 2005 elimination apparel manufacturing quotas benefits partially offset impact share loss one major customer office consumer products segment late 2003 estimated 30 million foreign currency translation favorable impact change sales approximately 77 million 2005 approximately 207 million 2004 incremental sales acquisitions net product line divestitures contributed approximately 19 million 2005 2004 product line divestitures offset incremental sales acquisitions net impact reduced sales approximately 33 million gross profit gross profit margin 2005 2004 benefited ongoing productivity improvement initiatives including completion integration jackstädt business mid2004 cost reduction actions 2005 unfavorable segment mix faster growth segments lower gross profit margin percent sales raw material inflation partially offset benefits years 2005 gross profit margin also negatively impacted • writeoff inventories approximately 12 million approximately half related product launch • costs related rfid business approximately 9 million 2004 gross profit margin also negatively impacted declining selling prices first half year estimated 38 million marketing general administrative expenses marketing general administrative expense percent sales 2005 2004 reflected benefit productivity improvement initiatives cost reduction actions offsetting benefit productivity improvements marketing general administrative expenses increased 2005 due • higher pension medical expenses approximately 14 million • impact foreign currency translation approximately 11 million • additional spending development rfid business approximately 8 million well longterm growth initiatives • additional spending associated acquisitions approximately 6 million 2004 marketing general administrative expenses increased due factors impacted 2005 well higher insurance costs interest expense interest expense decreased slightly 2005 unchanged 2004 decrease 2005 due reduction total debt outstanding partially offset increase interest rates expense restructuring cost reduction actions 2005 expense consisted charges cost reduction actions restructuring associated several expected product line divestitures well items • severance employeerelated costs approximately 38 million • asset impairment lease cancellation costs approximately 28 million • gain sales assets partially offset costs legal accrual net gain approximately 2 million 2004 expense consisted charges productivity improvement actions primarily related completion jackstädt integration actions • severance employeerelated costs approximately 24 million • impairment assets approximately 12 million 2003 expense consisted charges restructuring related integration jackstädt productivity improvement initiatives net losses associated several product line divestitures well items • severance employeerelated costs approximately 22 million • impairment planned disposition property plant equipment lease cancellation costs approximately 8 million • net losses associated several product line divestitures associated costs approximately 4 million • gain settlement lawsuit partially offset net losses disposition fixed assets costs associated plant closure net gain approximately 4 million refer note 10 “components income expense” consolidated financial statements information net income taxes income 2005 tax rate included benefit changes geographic mix income continued improvements global tax structure 9 million benefit several favorable global tax audit settlements benefits partially offset incremental expense 135 million associated repatriation accumulated foreign earnings american jobs creation act 2004 effective tax rate included benefit changes geographic mix income continued improvements global tax structure several favorable global tax audit settlements reduced tax expense approximately 8 million income loss discontinued operations income loss discontinued operations includes raised reflective pavement markers business 2005 2004 2003 well package label converting business europe 2003 based estimated value raised reflective pavement markers business expecting sell 2006 concluded associated goodwill intangible assets acquisition business impaired resulting pretax impairment charge approximately 74 million 2005 income discontinued operations included net sales approximately 23 million 2005 approximately 24 million 2004 net income discontinued operations 2003 included gain sale business 197 million net tax 58 million income discontinued operations included net sales approximately 70 million 2003 refer discontinued operations section note 1 “summary significant accounting policies” consolidated financial statements information change net income earnings per share results operations segment pressuresensitive materials segment net sales pressuresensitive materials segment increased 4 2005 compared 17 2004 decline core unit volume 2005 reflected loss market share north america following implementation selling price increases partially offset growth internationally benefit core unit volume growth 2004 resulting extra week fiscal year partially contributed slower growth 2005 sales growth 2005 also affected slow market conditions north america sales growth 2005 reflected positive impact pricing product mix resulting increased selling prices implemented offset higher raw material costs increased sales roll materials business approximately 112 million reflected increased selling prices partially offset decline core unit volume north american roll materials business experienced decline sales approximately 3 due share loss related higher selling prices roll materials business europe experienced sales growth approximately 7 local currency resulting volume growth region stronger growth emerging markets eastern europe market expansion contributed sales growth roll materials business asia although pace growth moderated region compared prior year latin america loss market share selling price increases loss sales large customer affected growth partially offset selling price increases sales graphics reflective business comparable 2004 increased sales roll materials business approximately 365 million reflected core unit volume growth including extra week fiscal year north america strong growth new film products selling price increases contributed sales growth approximately 9 europe strong growth emerging markets eastern europe benefit selling price increases contributed sales growth approximately 9 local currency strong market growth share gain contributed sales growth local currency asia latin america sales growth 2004 graphics reflective business approximately 63 million reflected market growth new applications customers geographic expansion included increases favorable impact foreign currency translation approximately 58 million 2005 approximately 146 million 2004 operating income increased operating income years reflected higher sales cost savings productivity improvement initiatives including two plant closures related jackstädt integration first half 2004 also reflected operating income charges related restructuring asset impairments lease cancellations 2005 2004 segment experienced rising raw material costs throughout year selling price increases partially offset increased costs net impact reduced operating income year contrast 2005 impact higher raw material costs offset selling price increases office consumer products segment net sales office consumer products segment decreased 3 2005 sales increased less 1 2004 higher usual volume fourth quarter due part customers’ accelerated purchases advance selling price increases effective january 1 2005 well benefit extra week 2004 fiscal year shift volume late 2004 contributed decline core unit volume 2005 customers depleted related inventories 2005 positive impact selling price increases partially offset decrease core unit volume selling prices increased offset higher raw material costs 2004 increased volume resulting accelerated purchases extra week offset share loss one major customer late 2003 estimated 30 million impact 2004 loss sales discontinued product line approximately 14 million reduced prices continued erosion market share averybrand products favor private label brands foreign currency translation favorable impact change sales approximately 8 million 2005 approximately 35 million 2004 operating income operating income reflected charges related restructuring asset impairment net losses associated product line divestitures 2005 2003 2004 operating income negatively affected lower selling prices rising raw material costs 2005 selling price increases offset cumulative effect raw material inflation twoyear period changes operating income reflected benefit continued cost reduction efforts well writeoff inventories approximately 9 million equipment primarily related product launch retail information services segment net sales retail information services segment increased 6 2005 compared 15 2004 increase years result core unit volume growth incremental sales acquisitions volume growth reflected continued growth business asia latin america new product introductions sales 2004 also reflected relatively weak results 2003 related slow industry conditions impact extra week 2004 fiscal year higher sales result customer preparation increased exports china following january 2005 elimination apparel manufacturing quotas impact acquisitions net product line divestitures approximately 21 million 2005 2004 incremental sales acquisitions offset loss sales product line divestitures foreign currency translation contributed increase sales approximately 7 million 2005 approximately 12 million 2004 operating income operating income reflected charges related restructuring asset impairment lease cancellation 2005 2003 2005 operating income benefited productivity improvement actions including ongoing migration production hong kong lower cost facilities mainland china partially offset higher costs associated growth initiatives increase 2004 also reflected sales growth successful integration 2002 acquisitions specialty converting businesses net sales specialty converting businesses increased 5 2005 compared 12 2004 benefit core unit volume growth 2004 resulting extra week fiscal year partially contributed slower growth 2005 growth 2004 partially offset loss sales divested product lines approximately 15 million foreign currency translation favorable impact change sales approximately 4 million 2005 approximately 14 million 2004 operating income decreases operating income 2005 2004 primarily reflect incremental costs related development rfid business operating income also reflects charges related restructuring asset impairment 2005 2003 financial condition liquidity cash flow provided operating activities cash flow purposes changes assets liabilities exclude impact foreign currency translation impact acquisitions divestitures certain noncash transactions discussed “analysis selected balance sheet accounts” section cash flow provided operating activities 2005 negatively impacted changes working capital shown uses cash • accounts receivable reflected higher sales timing collections partially offset decrease average days sales outstanding • income taxes reflected timing payments made well current year tax accrual • longterm retirement benefits liabilities reflected contributions approximately 46 million pension postretirement health benefit plans 2005 partially offset benefit payments • inventory reflected higher raw material purchases support growth business expansion sources cash • accounts payable accrued liabilities reflected timing payments accruals well accrual restructuring charges 2005 cash flow provided operating activities negatively impacted changes working capital shown uses cash • longterm retirement benefits liabilities reflected contributions approximately 36 million pension postretirement health benefit plans 2004 sources cash • income taxes reflected timing refunds received well current year tax accrual • accounts payable accrued liabilities reflected timing payments increased activity support higher sales pressuresensitive materials retail information services segments cash flow used investing activities capital spending major capital projects 2005 included investments growth asia latin america equipment investments rfid business productivity growth projects north american roll materials operations including development work related addition capacity meet growing demand beverage labels proceeds sale businesses proceeds sale business related sale package label converting business europe 2003 cash flow used financing activities borrowings repayment debt year end 2005 borrowings outstanding foreign shortterm lines credit 1083 million weightedaverage interest rate 66 compared 708 million year end 2004 60 million oneyear callable commercial notes issued january 2004 paid maturity 2005 june 2005 issued 75 million oneyear callable commercial notes variable rate 35 called paid notes november 2005 mediumterm notes 160 million 233 million outstanding year end 2005 2004 respectively decreases result payments maturity mediumterm notes maturities 2007 2025 accrue interest fixed rates ranging 59 75 august 2004 issued 150 million floating rate senior notes due 2007 2001 shelf registration statement filed securities exchange commission “sec” notes callable par february 2004 paid obligation related 1999 transaction steinbeis holding gmbh “steinbeis” approximately 106 million obligation result combination office products business europe zweckform büroprodukte gmbh shareholders’ equity shareholders’ equity 151 billion year end 2005 compared 155 billion year end 2004 annual dividend per share increased 153 2005 149 2004 fourth quarter 2005 repurchased 698505 shares 41 million agreement related le packaging “le” acquisition recorded amount treasury stock see section “contractual obligations commitments offbalance sheet arrangements” details year end 2005 cumulative 379 million shares common stock repurchased since 1991 25 million shares remain available repurchase board directors’ authorization analysis selected balance sheet accounts longlived assets goodwill decreased 38 million 2005 due foreign currency translation approximately 36 million purchase price allocation adjustments associated acquisition rinke settlement claims associated acquisition rvl packaging inc partially offset goodwill related acquisition 2005 approximately 1 million net intangibles resulting business acquisitions decreased 17 million 2005 due amortization expense recorded 2005 approximately 12 million impact foreign currency translation approximately 8 million partially offset purchase price allocation adjustments associated acquisition rinke approximately 3 million assets decreased approximately 78 million 2005 due primarily impairment goodwill intangibles business held sale refer “discontinued operations” section note 1 consolidated financial statements shareholders’ equity accounts employee stock benefit trusts decreased 67 million due decrease market value shares held trust 48 million 2005 well issuance shares stock incentive plans 2005 approximately 19 million effect foreign currency international operations generate approximately 55 net sales future results subject changes political economic conditions impact fluctuations foreign currency exchange interest rates reduce income statement exposure transactions foreign currencies enter foreign exchange forward option swap contracts available appropriate impact foreign currency translation benefit foreign currency translation 2005 decreased significantly 2005 compared prior years due strengthening us dollar benefit 2005 reflected strength euro brazilian real canadian dollar korean us dollar impact foreign currency fluctuations net income smaller impact net sales products generally sourced currencies sold result impact foreign exchange rates sales matched partially offsetting impact reported expenses thereby reducing impact foreign currency fluctuations net income translation gains losses operations hyperinflationary economies included net income operations treated hyperinflationary economy accounting purposes based cumulative inflation rate past three years operations hyperinflationary economies consist operations turkey dominican republic operations significant consolidated financial position results operations analysis selected financial ratios utilize certain financial ratios assess financial condition operating performance discussed detail working capital ratio working capital current assets minus current liabilities percent net sales decreased 2005 primarily due increase shortterm debt working capital continuing operations percent net sales shown use nongaap measure tool assess working capital requirements excludes impact fluctuations due financing activities timing financing activities necessarily related current operations would tend distort working capital ratio period objective minimize investment working capital operations reducing ratio maximize cash flow return investment working capital continuing operations 2005 increase working capital continuing operations percent sales primarily due changes accounts payable income taxes payable cash equivalents refundable income taxes partially offset change accrued liabilities trade accounts receivable changes included impact currency accounts receivable ratio average number days sales outstanding 58 days 2005 compared 60 days 2004 calculated using fourquarter average accounts receivable balance decrease reflects improved collections efforts across businesses inventory ratio average inventory turnover 85 2005 2004 calculated using fourquarter average inventory balance purposes comparability ratio calculated using 52week year 2004 debt ratios decrease total debt total capital due decrease total debt outstanding various loan agreements effect year end require maintain specified ratios consolidated debt consolidated interest expense relation certain measures income compliance covenants shown table fair value debt estimated based discounted amount related cash flows using current rates offered us debt remaining maturities year end 2005 2004 fair value total debt including shortterm borrowings 11 billion 132 billion respectively shareholders’ equity ratios decreases returns 2005 compared 2004 primarily due lower net income ratios computed using actual net income fivequarter average denominator equity total debt accounts capital resources capital resources include cash flows operations debt financing maintain adequate financing arrangements competitive rates financing arrangements consist commercial paper programs us europe committed uncommitted bank lines credit countries operate callable commercial notes longterm debt including mediumterm notes capital debt total debt decreased approximately 124 million 2005 109 billion compared 121 billion year end 2004 reflecting payments debt effect foreign currency translation july 2004 entered revolving credit agreement ten domestic foreign banks total commitment 525 million expiring july 16 2009 use financing available agreement commercial paper backup facility finance corporate requirements debt outstanding agreement year end 2005 addition 364day revolving credit facility foreign bank provide euro 30 million 356 million borrowings july 19 2006 may extend revolving period due date approval bank annual basis intention renegotiate extension facility 2006 financing agreement used finance cash requirements european operations year end 2005 154 million outstanding agreement standby letters credit outstanding 812 million 81 million end 2005 2004 respectively uncommitted lines credit approximately 409 million year end 2005 uncommitted lines credit commitment expiration date may cancelled banks us time fourth quarter 2004 filed shelf registration statement sec permit issuance 500 million debt equity securities proceeds shelf offering may used general corporate purposes including repaying redeeming repurchasing existing debt working capital expenditures acquisitions december 31 2005 securities issued 2004 registration statement credit ratings significant factor ability raise shortterm longterm financing determining credit rating agencies place significant weight competitive position business outlook consistency cash flows debt level liquidity geographic dispersion management team credit ratings assigned us also impact interest rates commercial paper borrowings credit ratings year end 2005 contractual obligations commitments offbalance sheet arrangements contractual obligations year end 2005 1 interest floating rate debt estimated using index rate effect december 31 2005 enter operating leases primarily office warehouse space equipment electronic data processing transportation terms leases impose significant restrictions unusual obligations except facility mentor ohio noted table includes minimum annual rental commitments operating leases initial remaining noncancellable lease terms one year include purchase obligations open purchase orders year end 2005 table contractual obligations impracticable us either obtain information provide reasonable estimate due decentralized nature purchasing systems january 2006 contributed 25 million domestic pension plan amount required us governmental agencies 2006 industry investigations april 2003 notified doj initiated criminal investigation competitive practices label stock industry august 15 2003 doj issued subpoena us connection investigation may 2004 ec initiated inspections obtained documents pressuresensitive materials facilities netherlands germany seeking evidence unlawful anticompetitive activities july 2004 notified competition law division department justice canada seeking information connection label stock investigation august 2005 notified australian competition consumer commission seeking information connection label stock investigation cooperating investigations named defendant purported class actions us seeking treble damages relief alleged unlawful competitive practices filed announcement doj investigation also named defendant purported class actions us seeking damages relief alleged disclosure fiduciary duty violations pertaining alleged unlawful competitive practices discovered instances improper conduct certain employees european operations constituted infringement ec competition law accordingly expect ec impose fine us investigation completed unable predict effect matters time although effect could well adverse material matters reported note 8 “contingencies” consolidated financial statements environmental designated us environmental protection agency “epa” andor responsible state agencies potentially responsible party “prp” fourteen waste disposal waste recycling sites subject separate investigations proceedings concerning alleged soil andor groundwater contamination settlement liability agreed upon participating prps sites anticipate share cleanup costs determined pursuant remedial agreements entered normal course negotiations epa governmental authorities accrued liabilities sites including sites governmental agencies designated us prp probable loss incurred cost amount loss reasonably estimated however uncertainties associated environmental assessment remediation activities future expense remediate currently identified sites could identified future cleanup could higher liability currently accrued amounts currently accrued significant consolidated financial position based upon current information believe unlikely final resolution matters significantly impact consolidated financial position results operations cash flows contacted relevant authorities us reported results internal investigation potential violations us foreign corrupt practices act transactions issue carried small number employees reflectives business china involved among things impermissible payments attempted impermissible payments attempted payments contracts associated appear relatively minor amount limited duration corrective disciplinary actions taken sales reflectives business china 2005 approximately 7 million based findings date changes previously filed financial statements warranted result matters however expect fines penalties may incurred unable predict financial operating impact fines penalties believe behavior detecting investigating responding voluntarily disclosing matters authorities viewed favorably subsidiaries involved various lawsuits claims inquiries routine nature business based upon current information believe resolution matters materially affect us provide estimate costs may incurred basic limited warranty time product revenue recognized costs primarily include materials labor associated service sale products factors affect warranty liability include number units installed sold historical anticipated rate warranty claims units cost per claim satisfy warranty obligation availability insurance coverage factors impacted actual experience future expectations assess adequacy recorded warranty liability adjust amounts necessary september 9 2005 completed lease financing commercial facility located mentor ohio facility new headquarters roll materials worldwide division consist generally land buildings equipment office furnishings equipment “facility” lease facility operating lease arrangement contains residual value guarantee 334 million expect residual value facility less amount guaranteed participate receivable financing programs domestically internationally several financial institutions whereby may request advances financial institutions december 31 2005 guaranteed approximately 19 million advances guaranteed approximately 21 million certain foreign subsidiaries’ obligations suppliers december 31 2005 connection le acquisition 2002 issued 743108 shares 6308 per share also entered agreement le whereby event value common shares fell price shares issued le adjusted dividends received period january 1 2005 december 31 2007 le option exercise trueup right upon exercise trueup right option 1 pay difference value le form cash b common shares 2 repurchase shares issued share price adjusted dividends paid trueup obligation reduced shares sold le third parties 2005 le sold 44603 shares third parties october 20 2005 le notified us exercising trueup right agreement remaining 698505 shares repurchased remaining shares agreement 41 million fourth quarter 2005 related party transactions time enter transactions normal course business related parties believe transactions arm’slength terms would obtained unaffiliated third parties one directors peter w mullin chairman chief executive officer director mc insurance services inc “mc” mullin insurance services inc “minc” pwm insurance services inc “pwm” executive compensation benefit consultants insurance agents mr mullin also majority stockholder mc minc pwm collectively referred “mullin companies” paid premiums insurance carriers life insurance placed mullin companies connection several employee benefit plans mullin companies advised us earned commissions insurance carriers placement renewal insurance majority commissions allocated used mc insurance agency services llc affiliate mc administer benefit plans provide benefit statements participants several employee benefit plans mullin companies minority interest financial holdings inc “mfh” substantially life insurance policies placed mullin companies 2005 prior years issued insurance carriers participate reinsurance agreements entered insurance carriers life insurance company “m life” whollyowned subsidiary mfh reinsurance returns earned life determined annually insurance carriers negative positive depending upon results life’s aggregate reinsurance pool consists insured lives reinsured life mullin companies advised us participated net reinsurance gains life none transactions significant financial position results operations summary related party activity critical accounting policies estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions reporting period financial statement date estimates assumptions affect reported amounts assets liabilities disclosure contingent liabilities reported amounts revenue expense actual results could differ estimates critical accounting policies important portrayal financial condition results require us make difficult subjective andor complex judgments critical accounting policies cover accounting matters inherently uncertain future resolution matters unknown believe critical accounting policies include accounting revenue recognition sales returns allowances accounts receivable allowances inventory reserves longlived asset impairments pensions postretirement benefits income taxes restructuring severance costs litigation revenue recognition sales recognized persuasive evidence arrangement exists product delivery occurred pricing fixed determinable collection reasonably assured sales provisions estimated sales returns cost products sold recorded time title transfers customers actual product returns charged estimated sales return allowances sales rebates discounts common practice industries operate volume promotional price cash discounts customer incentives accounted reduction gross sales rebates discounts recorded based upon estimates time products sold estimates based upon historical experience similar programs products review rebates discounts ongoing basis accruals rebates discounts adjusted necessary additional information becomes available sales returns allowances sales returns allowances represent credits grant customers affiliated nonaffiliated return unsatisfactory product negotiated allowance lieu return accrue returns allowances based upon gross price products sold historical experience products record allowances based following factors customer specific allowances ii estimated amount based historical experience issues yet identified accounts receivable allowances required make judgments collectibility accounts receivable based established aging policy historical experience future expectations allowances doubtful accounts represent allowances customer trade accounts receivable estimated partially entirely uncollectible allowances used reduce gross trade receivables net realizable value record allowances based estimates related following factors customer specific allowances ii amounts based upon aging schedule iii estimated amount based historical experience issues yet identified single customer represented 10 net sales trade receivables year end 2005 2004 however ten largest customers year end 2005 represented approximately 20 trade accounts receivable consisted six customers office consumer products segment three customers pressuresensitive materials segment one customer segments financial position operations customers monitored ongoing basis inventory reserves inventories stated lower cost market value categorized raw materials workinprogress finished goods inventory reserves recorded damaged obsolete excess slowmoving inventory use estimates record reserves slowmoving inventory reviewed category may partially fully reserved depending type product length time product included inventory longlived asset impairments record impairment charges carrying amounts longlived assets determined recoverable impairment measured assessing usefulness asset comparing carrying value asset fair value fair value typically determined using quoted market prices available estimate undiscounted future cash flows expected result use asset eventual disposition amount impairment loss calculated excess carrying value fair value changes market conditions management strategy historically caused us reassess carrying amount longlived assets pensions postretirement benefits assumptions used determining projected benefit obligations fair value plan assets pension plan postretirement benefits plans evaluated management consultation outside actuaries relied upon experts event determine changes warranted assumptions used discount rate expected long term rate return health care costs future pension postretirement benefit expenses could increase decrease due changing market conditions changes participant population actuarial assumptions use may differ actual results could significant impact pension postretirement liability related cost discount rate consultation actuaries annually review determine discount rates used connection postretirement obligations assumed discount rate pension plan reflects market rates high quality corporate bonds currently available us discount rate determined evaluating several yield curves consisting large populations high quality corporate bonds projected pension benefit payment streams matched bond portfolios determine rate reflected liability duration unique plans longterm return assets determine longterm rate return assumption plan assets reviewing historical expected returns equity fixed income markets taking consideration assets higher volatility typically generate greater return long run additionally current market conditions interest rates evaluated peer data reviewed check reasonability appropriateness healthcare cost trend rate practice fund cost postretirement benefits cash basis measurement purposes 8 annual rate increase per capita cost covered health care benefits assumed 2006 rate expected decrease approximately 5 2009 income taxes deferred tax liabilities assets reflect temporary differences amounts assets liabilities financial tax reporting purposes amounts adjusted appropriate reflect changes tax rates expected effect temporary differences reverse valuation allowance recorded reduce deferred tax assets amount likely realized establishing valuation allowance consider future sources income forecasted earnings mix earnings jurisdictions operate prudent feasible tax planning event determine would able realize deferred tax assets future valuation adjustment deferred tax assets charged earnings period make determination likewise later determined likely deferred tax assets would realized would reverse previously provided valuation allowance calculate current deferred tax provisions based estimates assumptions could differ actual results reflected income tax returns filed following year adjustments based filed returns recorded identified subsequent year amount income taxes pay subject ongoing audits federal state foreign tax authorities estimate potential outcome uncertain tax issue subject management’s assessment relevant risks facts circumstances existing time believe adequately provided reasonably foreseeable outcomes related matters however future results may include favorable unfavorable adjustments estimated tax liabilities period assessments made resolved may impact effective tax rate quarterly basis restructuring severance costs account restructuring costs including severance costs associated exit disposal activities following guidance provided sfas 112 “accounting postemployment benefits” sfas 146 “accounting costs associated exit disposal activities” us severance pay plan “pay plan” provides eligible employees severance payments event involuntary termination due qualifying cost reduction actions calculate severance pay using severance benefits formula pay plan accordingly record provisions amounts related exit costs probable estimable set forth sfas 112 absence pay plan liability severance employeerelated costs recognized liability incurred follow guidance sfas 146 litigation currently involved various lawsuits claims inquiries routine nature business accordance sfas 5 “accounting contingencies” accrue estimates probable estimable losses resolution claims ultimate resolution claims could affect future results operations particular quarterly annual period exposure materially different earlier estimates liabilities incurred previously accrued recent accounting requirements 2005 adopted several accounting financial disclosure requirements financial accounting standards board “fasb” emerging issues task force “eitf” financial interpretations fasb none significant impact financial results operations financial position refer note 1 “summary significant accounting policies” consolidated financial statements information january 2006 adopted recognition provisions sfas 123r “sharebased payment” following guidance modified prospective application expect associated expense approximately 17 million 2006 based unvested stock options outstanding year end 2005 expense estimated 12 per share impact earnings tax risk factors safe harbor statement matters discussed management’s discussion analysis financial condition results operations sections annual report contain “forwardlooking statements” within meaning private securities litigation reform act 1995 statements historical fact may contain estimates assumptions projections andor expectations regarding future events may occur words “aim” “anticipate” “assume” “believe” “continue” “could” “estimate” “expect” “guidance” “intend” “may” “objective” “plan” “potential” “project” “seek” “shall” “should” “target” “will” “would” variations thereof expressions refer future events trends identify forwardlooking statements forwardlooking statements financial business targets subject certain risks uncertainties could cause actual results differ materially expected results performance achievements company expressed implied forwardlooking statements certain risks uncertainties discussed detail part 1 item 1a “risk factors” include limited risks uncertainties relating investment development activities new production facilities timely development successful market acceptance new products fluctuations cost availability raw materials ability company achieve sustain targeted cost reductions impact competitive products pricing business mix shift credit risks ability obtain adequate financing arrangements fluctuations pension insurance employee benefit costs successful integration acquisitions successful implementation new manufacturing technologies installation manufacturing equipment customer supplier concentrations financial condition inventory strategies customers changes customer order patterns loss significant contracts customers legal proceedings including doj criminal investigation well european commission “ec” canadian department justice australian competition consumer commission investigations industry competitive practices related proceedings lawsuits pertaining investigations subject matter thereof including purported class actions seeking treble damages alleged unlawful competitive practices purported class actions related alleged disclosure fiduciary duty violations pertaining alleged unlawful competitive practices filed announcement doj investigation well likely fine ec respect certain employee misconduct europe impact potential violations us foreign corrupt practices act based issues china changes governmental regulations fluctuations interest rates fluctuations foreign currency exchange rates risks associated foreign operations changes economic political conditions acts war terrorism natural disasters impact epidemiological events economy company’s customers suppliers factors company believes significant risk factors could affect ability achieve stated financial expectations nearterm include 1 potential adverse developments legal proceedings andor investigations regarding competitive activities including possible fines penalties judgments settlements 2 impact economic conditions underlying demand company’s products 3 impact competitors actions including expansion key markets product offerings pricing 4 degree higher raw material costs passed customers selling price increases previously implemented selling price increases sustained without significant loss volume 5 ability company achieve sustain targeted cost reductions forwardlooking statements also considered light factors detailed part 1 item 1a “risk factors” company’s forwardlooking statements represent judgment dates statements made making forwardlooking statements company assumes duty update reflect new changed unanticipated events circumstances may required law item 7aitem 7 management’s discussion analysis results operations financial condition management’s discussion analysis provides narrative concerning financial performance condition read conjunction accompanying financial statements includes following sections definition terms discussion financial results includes several nongaap measures provide additional information concerning avery dennison corporation’s “the company’s” performance nongaap financial measures accordance substitute gaap financial measures nongaap financial measures intended supplement presentation financial results prepared accordance gaap refer “uses limitations nongaap measures” use following terms • organic sales growth refers change sales excluding estimated impact currency translation acquisitions divestitures • core unit volume refers measure sales performance excludes estimated impact currency translation acquisitions divestitures well changes product mix pricing • segment operating income refers income interest taxes • free cash flow refers cash flow operations less payments capital expenditures software deferred charges • working capital continuing operations refers working capital excluding shortterm debt current assets current liabilities heldforsale businesses segment structure remained reported prior year 2006 transferred business media division retail information services segment specialty converting businesses align change internal reporting structure prior year amounts included herein reclassified conform current year presentation result sale raised reflective pavement marker business 2006 discussed “acquisitions divestitures” discussions follow generally reflect summary results continuing operations unless otherwise noted however net income net income per share discussions include impact discontinued operations overview outlook overview sales continuing operations increased 2 2006 compared growth 3 2005 reflecting factors summarized following table organic sales growth 2006 reflected increases businesses outside us particularly emerging markets asia eastern europe latin america us sales approximately even prior year north american roll materials business reduced market share first quarter 2006 reflecting share loss related price increases implemented 2005 early 2006 offset higher raw material costs well generally slow market conditions offset share gain second half 2006 benefit growth averybrand products strong backtoschool season office consumer products segment us offset loss sales exiting certain lowmargin private label business segment organic sales growth 2005 reflected favorable changes pricing product mix primarily due impact selling price increases implemented offset higher raw material costs benefit partially offset decrease core unit volume 2005 reflecting following factors • loss market share north american roll materials business following implementation selling price increases 2005 offset higher raw material costs • impact extra week 2004 fiscal year • accelerated purchases office consumer products customers advance 2005 selling price increases shifted sales fourth quarter 2004 net income net income increased 141 million 2006 compared 2005 positive factors affecting change net income included • higher sales • reduced restructuring asset impairment charges 2006 compared 2005 included asset impairment charges related discontinued operations • cost savings productivity improvement initiatives across segments corporate including restructuring actions taken 2006 late 2005 • tax benefit gain divestiture business • benefit lower effective tax rate continuing operations negative factors affecting change net income included • stockbased compensation employeerelated costs • transition costs associated 2006 restructuring actions • increased investment information technology marketing • accrual environmental remediation costs summary results segment pressuresensitive materials 58 net sales pressuresensitive materials segment reported 4 increase sales 2006 compared 2005 organic sales growth approximately 3 reflecting growth roll materials graphics reflective businesses asia europe latin america operating income segment increased 17 2006 reflecting higher sales cost savings restructuring productivity improvement initiatives operating income segment included restructuring costs asset impairments 2006 2005 transition costs 2006 office consumer products 19 net sales office consumer products segment reported 6 decrease sales 2006 compared 2005 organic basis sales declined approximately 1 reflecting loss sales exiting certain lowmargin private label business decreased volume europe declines partially offset growth north america averybrand products strong backtoschool season accelerated purchases customers advance 2007 selling price increases certain product lines operating income segment increased 7 2006 including benefit cost savings productivity improvement restructuring initiatives operating income segment included restructuring costs asset impairments transition costs 2006 2005 retail information services 12 net sales retail information services segment reported 6 increase sales 2006 compared 2005 organic sales growth approximately 5 reflecting continued growth business asia latin america europe operating income segment increased 19 2006 reflecting higher sales cost savings restructuring productivity improvement initiatives operating income segment included restructuring costs asset impairments transition costs 2006 2005 specialty converting businesses 11 net sales specialty converting businesses reported 1 increase sales 2006 compared 2005 organic sales growth approximately 2 reflecting solid growth specialty tape business partially offset weakness businesses operating income businesses increased 22 2006 reflecting sales growth cost savings restructuring productivity improvement initiatives operating income businesses included restructuring costs asset impairments 2006 2005 organic sales growth region estimate organic sales growth decline major regions operation follows discussed sales us approximately even prior year due slow market conditions pressuresensitive materials segment impact prior year share loss roll materials business loss sales exiting lowmargin private label business office consumer products segment organic growth europe reflected strong growth east modest growth west growth asian latin american businesses due continued market expansion cost reduction actions late 2005 2006 implemented cost reduction actions related restructuring improved global operating efficiencies expected result annualized pretax savings 90 million 100 million estimate approximately 50 million savings net transition costs achieved 2006 balance benefit 2007 restructuring actions resulted headcount reductions approximately 1150 positions impacted segments geographic regions completed 2006 reinvesting savings future growth opportunities additional restructuring actions identified fourth quarter 2006 actions expected completed 2007 savings expected benefit 2008 2005 also incurred charges related planned divestitures several lowmargin businesses product lines discussed “divestitures acquisitions” restructuring charges associated severance asset impairments recorded 2004 related completion integration 2002 acquisition jackstädt existing businesses closed manufacturing facility france first quarter 2004 manufacturing facility italy second quarter 2004 refer note 10 “cost reduction actions” consolidated financial statements detail effective rate taxes income effective tax rate 172 full year 2006 compared 204 full year 2005 effective tax rate years included benefits • changes geographic mix income • continued improvements global tax structure • several favorable global tax audit settlements closure certain tax years • release certain valuation allowances 2005 benefits partially offset incremental expense associated repatriation accumulated foreign earnings american jobs creation act 2004 free cash flow free cash flow nongaap measure used measure funds available corporate purposes dividends debt reduction acquisitions repurchase common stock refer “uses limitations nongaap measures” increase free cash flow 2006 62 million reflects changes assets liabilities higher net income compared 2005 see “analysis results operations” “liquidity” information divestitures acquisitions december 2005 announced plan sell raised reflective pavement marker business sales approximately 23 million 2005 divestiture business completed second quarter 2006 resulted tax benefit due capital losses arising sale business results business accounted discontinued operations years presented herein business previously included pressuresensitive materials segment december 2005 also announced divestiture two product lines divestitures completed first quarter 2006 first product line included office consumer products segment estimated sales 60 million 2005 minimal impact income operations second product line included specialty converting businesses annual sales approximately 10 million 2005 minimal impact income operations part divestitures 2005 recorded severance employeerelated charges approximately 6 million asset impairments approximately 9 million charges included “other expense net” line consolidated statement income noted “cost reduction actions” third quarter 2004 acquired rinke etiketten privately held company germany incremental impact acquisition net sales approximately 9 million 2004 additional impact approximately 18 million 2005 business included retail information services segment investigations legal proceedings october 19 2006 notified us department justice’s antitrust division “doj” doj decided close criminal investigation initiated april 2003 competitive practices label stock industry without action november 15 2006 announced notified european commission “ec” ec closed investigation initiated may 2004 competitive activities label stock industry action july 2004 notified competition law division department justice canada seeking information connection label stock investigation august 2005 notified australian competition consumer commission seeking information connection label stock investigation cooperating investigations named defendant purported class actions us seeking treble damages relief alleged unlawful competitive practices filed announcement doj investigation also named defendant purported class action us seeking damages relief alleged disclosure fiduciary duty violations pertaining alleged unlawful competitive practices discovered instances conduct certain employees china potentially violate us foreign corrupt practices act reported conduct authorities us accordingly expect fines penalties may incurred unable predict effect matters time although effect could adverse material matters reported note 8 “contingencies” consolidated financial statements outlook 2007 expect low mid singledigit revenue growth including modest positive effect foreign currency translation revenue expectations subject changes economic market conditions anticipate continued benefit productivity improvement initiatives particular estimate restructuring business realignment efforts reduce costs additional 45 million compared 2006 however plan reinvest savings productivity improvements growth initiatives reinvestment includes incremental spending approximately 12 million 15 million related investments information technology estimate pretax interest expense approximately even 2006 subject changes average debt outstanding expect total restructuring asset impairment charges 2007 lower charges taken 2006 anticipate increase annual effective tax rate 2007 subject changes tax laws geographic mix income potentially wide variances quarter reflecting assumptions expect increase annual earnings free cash flow comparison 2006 additionally effect share repurchase benefit earnings per share 2007 expect capital expenditures 2007 approximately 160 million 165 million approximately 210 million 225 million including software investments funded operating cash flows major capital projects 2007 include expansion china india serving materials retail information services businesses major software investments relate customer service standardization initiatives analysis results operations income continuing operations taxes sales increased 2 2006 compared increase 3 2005 organic sales growth approximately 3 2006 compared approximately 1 2005 organic sales growth 2006 reflected increases businesses asia europe latin america organic growth europe reflected strong growth east modest growth west growth asian latin american businesses due continued market expansion organic basis sales us approximately even 2006 compared decrease approximately 3 2005 north american roll materials business reduced market share first quarter 2006 reflecting share loss related price increases implemented 2005 early 2006 offset higher raw material costs well generally slow market conditions offset share gain second half 2006 benefit growth averybrand products strong backtoschool season office consumer products segment us offset loss sales exiting certain lowmargin private label business approximate impact 22 million segment sales growth 2005 negatively impacted extra week 2004 fiscal year accelerated purchases office consumer products customers advance 2005 selling price increases contributed higher growth 2004 combined accelerated purchases extra week 2004 represented estimated 60 million 70 million change sales 2005 2004 loss market share north american roll materials business also affected sales growth 2005 foreign currency translation favorable impact change sales approximately 21 million 2006 compared approximately 77 million 2005 product line divestitures net incremental sales acquisitions reduced sales approximately 54 million 2006 incremental sales acquisitions net divestitures contributed approximately 19 million 2005 gross profit gross profit margin 2006 2005 benefited ongoing productivity improvement cost reduction actions 2006 benefits partially offset • unfavorable segment mix faster growth segments lower gross profit margin percent sales • energyrelated cost inflation approximately 9 million • change lastin firstout “lifo” inventory reserves approximately 9 million refer “critical accounting policies estimates” • transition costs associated restructuring approximately 9 million 2005 benefits partially offset • unfavorable segment mix • raw material inflation excess selling price increases • higher costs related radio frequency identification “rfid” business approximately 9 million 2006 reclassified shipping handling costs “cost products sold” align businesses around standard accounting policy 2005 several businesses included costs marketing general administrative expenses approximately 143 million 2006 145 million 2005 148 million 2004 previous results included herein reclassified comparability current year marketing general administrative expenses marketing general administrative expense percent sales 2006 2005 reflected benefit productivity improvement initiatives cost reduction actions 2006 benefits offset • recognition stock option expense approximately 21 million • increased spending information systems marketing approximately 19 million • increase pension medical employeerelated costs approximately 12 million 2005 benefits offset • higher pension medical expenses approximately 14 million • impact foreign currency translation approximately 11 million • additional spending development rfid business approximately 8 million well longterm growth initiatives • additional spending associated acquisitions approximately 6 million interest expense interest expense decreased 2006 2005 decreases due reduction debt outstanding partially offset increase interest rates expense 2006 2005 “other expense net” consisted charges restructuring including severance employeerelated costs asset impairment charges related cost reduction actions divestitures well items discussed late 2005 2006 implemented cost reduction actions related restructuring improved global operating efficiencies expected result annualized pretax savings 90 million 100 million estimate approximately 50 million savings net transition costs achieved 2006 restructuring actions resulted headcount reduction approximately 1150 positions impacted segments geographic regions completed 2006 reinvesting savings future growth opportunities refer note 10 “cost reduction actions” consolidated financial statements information items included “other expense net” 2006 included • accrual environmental remediation costs 13 million refer environmental section “financial condition” • costs related patent lawsuit divestiture 8 million • gain sale assets 53 million • gain curtailment settlement pension obligation 16 million • gain sale investment 105 million partially offset charitable contribution avery dennison foundation 10 million 2005 items included “other expense net” consisted gain sale assets partially offset costs related patent lawsuit 2004 “other expense net” consisted charges productivity improvement actions primarily related completion jackstädt integration actions net income taxes income 2006 effective tax rate included benefit changes geographic mix income continued improvements global tax structure well following • net benefit several favorable global tax audit settlements approximately 81 million • release certain valuation allowances approximately 52 million 2005 effective tax rate included benefit changes geographic mix income continued improvements global tax structure well following • release certain valuation allowances approximately 156 million • net benefit several favorable global tax audit settlements approximately 9 million 2005 benefits partially offset incremental expense 135 million associated repatriation accumulated foreign earnings american jobs creation act 2004 income loss discontinued operations income loss discontinued operations includes divestiture raised reflective pavement markers business noted overview section divestiture business completed 2006 resulted tax benefit 149 million due capital losses arising sale business gain sale 13 million based estimated value raised reflective pavement markers business 2005 concluded associated goodwill intangible assets acquisition business impaired resulting pretax impairment charge approximately 74 million 2005 income discontinued operations included net sales approximately 7 million 2006 23 million 2005 24 million 2004 refer discontinued operations section note 1 “summary significant accounting policies” consolidated financial statements information results operations segment pressuresensitive materials segment net sales pressuresensitive materials segment increased 4 2006 2005 organic sales growth approximately 3 2006 2 2005 organic sales growth 2006 reflected growth roll materials graphics reflective businesses asia latin america europe organic growth 2005 reflected positive impact pricing product mix resulting increased selling prices implemented offset higher raw material costs extra week 2004 fiscal year contributed slower growth 2005 north american roll materials business 2005 sales declined organic basis low singledigit rate 2006 sales even prior year loss market share following implementation selling price increases 2005 early 2006 contributed decline years also affected generally slow market conditions share gain second half 2006 offset factors roll materials business europe experienced low singledigit organic sales growth 2006 reflecting strong growth east 2005 business experienced high singledigit organic sales growth reflecting solid growth west stronger growth east market expansion contributed doubledigit organic sales growth roll materials business asia 2006 2005 roll materials business latin america experienced high singledigit organic sales growth 2006 resulting market expansion 2005 region experienced low singledigit organic sales growth due market expansion selling price increases partially offset loss market share selling price increases loss sales large customer graphics reflective business experienced mid singledigit organic sales growth 2006 strong international growth partially offset decline us organic basis sales business unchanged 2005 changes reported sales segment included favorable impact foreign currency translation approximately 15 million 2006 approximately 58 million 2005 operating income increased operating income 2006 2005 reflected higher sales cost savings restructuring productivity improvement initiatives operating income years reflected restructuring asset impairment lease cancellation charges 2006 operating income also impacted transition costs associated restructuring stock option expense office consumer products segment net sales office consumer products segment decreased 6 2006 sales decreased 3 2005 decline reported sales 2006 reflected impact product line divestiture europe approximately 51 million foreign currency translation favorable impact change reported sales approximately 1 million 2006 8 million 2005 organic basis sales declined approximately 1 2006 decline reflected loss sales exiting certain lowmargin private label business end 2005 approximately 22 million partially offset growth averybrand products strong backtoschool season north america accelerated purchases customers late 2006 advance 2007 selling price increases certain product lines 2005 sales organic basis declined 4 reflecting shift volume late 2004 due customers’ accelerated purchases advance selling price increases effective january 1 2005 well benefit extra week 2004 fiscal year declines core unit volume 2005 partially offset increased selling prices implemented offset higher raw material costs operating income operating income 2006 reflected cost savings productivity improvement restructuring actions partially offset associated transition costs higher raw material energyrelated costs increased marketing costs increase lifo reserve stock option expense operating income 2005 reflected charges related restructuring asset impairment net losses associated product line divestitures partially offset cost savings restructuring productivity initiatives selling price increases 2005 offset cumulative effect raw material inflation 2004 2005 period retail information services segment net sales retail information services segment increased 6 2006 2005 increase years reflected continued growth business asia latin america europe well incremental sales acquisitions net product line divestitures organic sales growth approximately 5 2006 2 2005 impact acquisitions net product line divestitures approximately 3 million 2006 21 million 2005 foreign currency translation contributed increase sales approximately 3 million 2006 7 million 2005 operating income operating income 2006 2005 benefited productivity improvement actions including migration production hong kong lower cost facilities mainland china benefits productivity initiatives offset increased spending information systems stock option expense incremental employeerelated costs 2006 higher costs associated growth initiatives 2005 operating income years included charges restructuring asset impairment lease cancellation specialty converting businesses net sales specialty converting businesses increased 1 2006 4 2005 product line divestiture reduced reported sales approximately 7 million 2006 organic sales growth approxi mately 2 2006 reflecting solid growth specialty tape business partially offset weakness businesses 2005 organic sales growth 4 reflected growth businesses foreign currency translation favorable impact change sales approximately 1 million 2006 4 million 2005 operating income operating income businesses increased 2006 reflecting cost savings restructuring productivity improvement initiatives partially offset stock option expense operating income years included charges restructuring asset impairment change operating income 2005 primarily reflected incremental costs related development rfid business financial condition liquidity cash flow provided operating activities cash flow purposes changes assets liabilities exclude impact foreign currency translation impact acquisitions divestitures certain noncash transactions discussed “analysis selected balance sheet accounts” 2006 cash flow provided operating activities negatively impacted changes working capital shown uses cash • current assets primarily reflected timing collection valueadded tax receivables europe • inventories reflected increased purchases support higher sales customer service initiatives • longterm retirement benefits liabilities reflected benefit payments partially offset contributions approximately 39 million pension postretirement health benefit plans sources cash • accounts payable accrued liabilities reflected timing payments increased inventory 2005 cash flow provided operating activities negatively impacted changes working capital shown uses cash • accounts receivable reflected higher sales timing collections partially offset decrease average days sales outstanding • income taxes reflected timing payments made well current year tax accrual • longterm retirement benefits liabilities reflected contributions approximately 46 million pension postretirement health benefit plans partially offset benefit payments • inventory reflected higher raw material purchases support growth business expansion sources cash • accounts payable accrued liabilities reflected timing payments accruals including accrual restructuring charges cash flow used investing activities capital spending major capital projects 2006 included investments expansion china india serving materials retail information services businesses well spending related new films coater us major information technology projects 2006 included system improvements retail information services segment materials businesses proceeds sale businesses 2006 sold longterm investment divested product line europe raised reflective pavement marker business cash flow used financing activities borrowings repayment debt year end 2006 borrowings outstanding foreign shortterm lines credit 1015 million weightedaverage interest rate 96 compared 1083 million year end 2005 weightedaverage interest rate 66 shortterm variable rate commercial paper borrowings 1544 million december 30 2006 weightedaverage interest rate 50 compared 2553 million december 31 2005 weightedaverage interest rate 23 mediumterm notes 160 million outstanding year end 2006 2005 mediumterm notes 73 million paid maturity outstanding mediumterm notes maturities 2007 2025 accrue interest fixed rates ranging 59 75 august 2004 issued 150 million floating rate senior notes due 2007 2001 shelf registration statement filed securities exchange commission “sec” notes callable par shareholders’ equity shareholders’ equity 168 billion year end 2006 compared 151 billion year end 2005 annual dividend per share increased 157 2006 153 2005 share repurchases october 26 2006 board directors authorized additional 5 million shares company’s stock repurchase program resulting total authorization approximately 74 million shares company’s stock date fourth quarter 2006 repurchased approximately 25 million shares december 30 2006 approximately 49 million shares available repurchase board directors’ authorization fourth quarter 2005 repurchased approximately 7 million shares agreement related le packaging “le” acquisition recorded amount treasury stock see section “contractual obligations commitments offbalance sheet arrangements” details analysis selected balance sheet accounts longlived assets goodwill increased 43 million 2006 primarily due foreign currency translation approximately 32 million goodwill associated acquisition approximately 10 million intangibles resulting business acquisitions decreased 3 million 2006 due amortization expense recorded 2006 approximately 11 million partially offset impact foreign currency translation approximately 6 million acquired intangibles associated acquisition approximately 2 million assets decreased approximately 64 million 2006 due primarily decrease assets related pension postretirement benefits approximately 68 million refer note 6 “pensions postretirement benefits” consolidated financial statements information change accounting pension postretirement benefits result adoption statement financial accounting standards “sfas” 158 shareholders’ equity accounts value employee stock benefit trusts increased 51 million 2006 due increase market value shares held trusts approximately 122 million partially offset issuance shares stock incentive plans approximately 71 million accumulated comprehensive loss increased approximately 39 million due foreign currency translation partially offset aftertax impact adoption sfas 158 approximately 57 million refer note 6 “pensions postretirement benefits” consolidated financial statements effect foreign currency international operations generate approximately 55 net sales future results subject changes political economic conditions impact fluctuations foreign currency exchange interest rates reduce income statement exposure transactions foreign currencies enter foreign exchange forward option swap contracts available appropriate impact foreign currency translation benefit foreign currency translation 2006 benefit lower compared prior years benefit sales 2006 primarily reflected benefit currencies canada brazil korea china partially offset negative impact euro currencies south africa australia impact foreign currency fluctuations net income smaller impact net sales products generally sourced currencies sold result impact foreign exchange rates sales matched partially offsetting impact reported expenses thereby reducing impact foreign currency fluctuations net income net income 2005 2004 included translation gains losses operations hyperinflationary economies included turkey accounting purposes operations treated hyperinflationary economy based cumulative inflation rate past three years operations hyperinflationary economies consist operations dominican republic use us dollar functional currency operations significant consolidated financial position results operations 2006 turkey removed hyperinflationary status analysis selected financial ratios utilize certain financial ratios assess financial condition operating performance discussed working capital ratio working capital current assets minus current liabilities excluding working capital heldforsale business percent net sales decreased 2006 primarily due increase shortterm debt working capital continuing operations percent net sales shown use nongaap measure tool assess working capital requirements excludes impact fluctuations due financing activities refer “uses limitations nongaap measures” timing financing activities necessarily related current operations would tend distort working capital ratio period objective minimize investment working capital operations reducing ratio maximize cash flow return investment working capital continuing operations percent sales working capital continuing operations 2006 weakened compared 2005 2006 change primarily reflected decrease cash equivalents income taxes payable working capital changes included impact currency accounts receivable ratio average number days sales outstanding 58 days 2006 2005 calculated using fourquarter average accounts receivable balance divided average daily sales year inventory ratio average inventory turnover 85 2006 compared 88 2005 calculated using annual cost sales divided fourquarter average inventory balance decrease due higher average inventory levels primarily support customer service initiatives debt ratios decrease total debt total capital ratio 2006 due decrease total debt outstanding increase shareholders’ equity various loan agreements effect year end require maintain specified ratios consolidated debt consolidated interest expense relation certain measures income compliance covenants shown table fair value debt estimated based discounted amount related cash flows using current rates offered us debt remaining maturities year end fair value total debt including shortterm borrowings 963 million 2006 11 billion 2005 shareholders’ equity ratios increases ratios 2006 compared 2005 primarily due higher net income ratios computed using actual net income fivequarter average denominator equity total debt accounts capital resources capital resources include cash flows operations debt financing maintain adequate financing arrangements competitive rates financing arrangements consist commercial paper programs us europe committed uncommitted bank lines credit countries operate callable commercial notes longterm debt including mediumterm notes capital debt total debt decreased approximately 120 million 2006 968 million compared year end 2005 reflecting payments debt partially offset impact foreign currency translation july 2004 entered revolving credit agreement ten domestic foreign banks total commitment 525 million expiring july 16 2009 use financing available agreement commercial paper backup facility finance corporate requirements debt outstanding agreement year end 2006 2005 addition 364day revolving credit facility foreign bank provide euro 30 million 396 million borrowings july 31 2007 approval bank may extend revolving period due date annual basis intention negotiate extension facility 2007 financing agreement used finance cash requirements european operations year end 2006 263 million outstanding agreement standby letters credit outstanding 771 million 812 million end 2006 2005 respectively uncommitted lines credit approximately 359 million year end 2006 uncommitted lines credit commitment expiration date may cancelled banks us time fourth quarter 2004 filed shelf registration statement sec permit issuance 500 million debt equity securities proceeds shelf offering may used general corporate purposes including repaying redeeming repurchasing existing debt working capital expenditures acquisitions december 30 2006 securities issued registration statement credit ratings significant factor ability raise shortterm longterm financing credit ratings assigned us also impact interest rates commercial paper borrowings determining credit rating agencies place significant weight competitive position business outlook consistency cash flows debt level liquidity geographic dispersion management team credit ratings year end 2006 contractual obligations commitments offbalance sheet arrangements contractual obligations year end 2006 1 interest floating rate debt estimated using index rate effect december 30 2006 enter operating leases primarily office warehouse space equipment electronic data processing transportation terms leases impose significant restrictions unusual obligations except facility mentor ohio noted table includes minimum annual rental commitments operating leases initial remaining noncancelable lease terms one year september 9 2005 completed lease financing commercial facility “facility” located mentor ohio used primarily new headquarters research center roll materials division facility consists generally land buildings equipment office furnishings leased facility operating lease arrangement contains residual value guarantee 334 million expect residual value facility less amount guaranteed include purchase obligations open purchase orders year end 2006 table contractual obligations impracticable us either obtain information provide reasonable estimate due decentralized nature purchasing systems investigations legal proceedings october 19 2006 notified doj decided close criminal investigation initiated april 2003 competitive practices label stock industry without action november 15 2006 announced notified ec closed investigation initiated may 2004 company’s competitive activities label stock industry action july 2004 notified competition law division department justice canada seeking information connection label stock investigation august 2005 notified australian competition consumer commission seeking information connection label stock investigation cooperating investigations named defendant purported class actions us seeking treble damages relief alleged unlawful competitive practices filed announcement doj investigation also named defendant purported class action us seeking damages relief alleged disclosure fiduciary duty violations pertaining alleged unlawful competitive practices unable predict effect matters time although effect could adverse material matters reported note 8 “contingencies” consolidated financial statements environmental designated us environmental protection agency “epa” andor responsible state agencies potentially responsible party “prp” fourteen waste disposal waste recycling sites subject separate investigations proceedings concerning alleged soil andor groundwater contamination settlement liability agreed upon participating prps sites anticipate share cleanup costs determined pursuant remedial agreements entered normal course negotiations epa governmental authorities accrued liabilities certain sites including sites governmental agencies designated us prp probable loss incurred cost amount loss reasonably estimated however uncertainties associated environmental assessment remediation activities future expense remediate currently identified sites could identified future cleanup could higher liability currently accrued third quarter 2006 recognized additional liability 13 million estimated environmental remediation costs former operating facility 2 million accrued second quarter 2006 amount accrued represents lower end current estimated range 15 million 17 million costs expected incurred considered additional information provided outside consultants revising previous estimates expected costs estimate could change depending various factors modification currently planned remedial actions change site conditions change estimated time complete remediation change laws regulations affecting remediation requirements factors amounts currently accrued significant consolidated financial position based upon current information believe unlikely final resolution matters significantly impact consolidated financial position results operations cash flows 2005 contacted relevant authorities us reported results internal investigation potential violations us foreign corrupt practices act transactions issue carried small number employees reflectives business china involved among things impermissible payments attempted impermissible payments attempted payments contracts associated appear relatively minor amount limited duration corrective disciplinary actions taken sales reflectives business china 2005 approximately 7 million based findings date changes previously filed financial statements warranted result matters however expect fines penalties may incurred unable predict financial operating impact fines penalties believe behavior detecting investigating responding voluntarily disclosing matters authorities viewed favorably subsidiaries involved various lawsuits claims inquiries routine nature business based upon current information believe resolution matters materially affect us provide estimate costs may incurred basic limited warranty time product revenue recognized costs primarily include materials labor associated service sale products factors affect warranty liability include number units installed sold historical anticipated rate warranty claims units cost per claim satisfy warranty obligation availability insurance coverage factors impacted actual experience future expectations assess adequacy recorded warranty liability adjust amounts necessary participate receivable financing programs domestically internationally several financial institutions whereby may request advances financial institutions december 30 2006 guaranteed approximately 22 million advances also guaranteed approximately 22 million certain foreign subsidiaries’ obligations suppliers december 30 2006 connection le acquisition 2002 issued approximately 7 million shares 6308 per share also entered agreement le whereby event value common shares fell price shares issued le adjusted dividends received period january 1 2005 december 31 2007 le option exercise trueup right upon exercise trueup right option 1 pay difference value le form cash b common shares 2 repurchase shares issued share price adjusted dividends paid trueup obligation reduced shares sold le third parties 2005 le sold 44603 shares third parties october 20 2005 le notified us exercising trueup right agreement remaining approximately 7 million shares repurchased remaining shares agreement 41 million fourth quarter 2005 uses limitations nongaap measures presented nongaap financial measures exclude impact certain events activities strategic decisions accounting effects events activities decisions included gaap measures may make difficult assess underlying performance company single period excluding certain accounting effects positive negative example divestitures acquisitions certain gaap measures management believes providing meaningful supplemental information facilitate understanding company’s “core” “underlying” operating results nongaap measures used internally evaluate trends underlying business well facilitate comparison results competitors single period limitations associated use nongaap measures include 1 exclusion foreign currency translation impact acquisitions divestitures calculation organic sales growth 2 exclusion mandatory debt service requirements well exclusion uses cash generated operating activities directly immediately support underlying business discretionary debt reductions dividends share repurchase acquisitions etc calculation free cash flow 3 exclusion shortterm debt calculation working capital ratio continuing operations items company excludes gaap measures recur items tend disparate amount timing based upon feedback investors financial analysts believe supplemental nongaap measures provide information useful assessment company’s performance operating trends related party transactions time enter transactions normal course business related parties believe transactions arm’s length terms would obtained unaffiliated third parties one directors peter w mullin chairman chief executive officer director mc insurance services inc “mc” mullin insurance services inc “minc” pwm insurance services inc “pwm” executive compensation benefit consultants insurance agents mr mullin also majority stockholder mc minc pwm collectively referred “mullin companies” paid premiums insurance carriers life insurance placed mullin companies connection several employee benefit plans mullin companies advised us earned commissions insurance carriers placement renewal insurance approximately 50 commissions allocated used mc insurance agency services llc mullintbg insurance agency services affiliates mc administer benefit plans provide benefit statements participants several employee benefit plans mullin companies minority interest financial holdings inc “mfh” substantially life insurance policies placed mullin companies 2006 prior years issued insurance carriers participate reinsurance agreements entered insurance carriers life insurance company “m life” whollyowned subsidiary mfh reinsurance returns earned life determined annually insurance carriers negative positive depending upon results life’s aggregate reinsurance pool consists insured lives reinsured life mullin companies advised us participated net reinsurance gains life none transactions significant financial position results operations summary related party activity critical accounting policies estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions reporting period financial statement date estimates assumptions affect reported amounts assets liabilities disclosure contingent liabilities reported amounts revenue expense actual results could differ estimates critical accounting policies important portrayal financial condition results require us make difficult subjective andor complex judgments critical accounting policies cover accounting matters inherently uncertain future resolution matters unknown believe critical accounting policies include accounting revenue recognition sales returns allowances accounts receivable allowances inventory reserves longlived asset impairments pensions postretirement benefits income taxes stockbased compensation restructuring severance costs litigation revenue recognition sales recognized persuasive evidence arrangement exists pricing determinable collection reasonably assured furthermore sales provisions estimated returns cost products sold recorded time title transfers customers assume risks rewards ownership sales terms generally fob free board shipping point fob destination depending upon local business customs regions operate fob shipping point terms utilized sales recorded time shipment title risk loss transferred certain regions notably europe fob destination terms generally utilized sales recorded products delivered customer’s delivery site title risk loss transferred actual product returns charged estimated sales return allowances sales rebates discounts common practice industries operate volume promotional price cash discounts customer incentives accounted reduction gross sales rebates discounts recorded based upon estimates time products sold estimates based upon historical experience similar programs products review rebates discounts ongoing basis accruals rebates discounts adjusted necessary additional information becomes available sales returns allowances sales returns allowances represent credits grant customers affiliated nonaffiliated return unsatisfactory product negotiated allowance lieu return accrue returns allowances based upon gross price products sold historical experience products record allowances based following factors customer specific allowances ii estimated amount based historical experience issues yet identified accounts receivable allowances required make judgments collectibility accounts receivable based established aging policy historical experience future expectations allowances doubtful accounts represent allowances customer trade accounts receivable estimated partially entirely uncollectible allowances used reduce gross trade receivables net realizable value record allowances based estimates related following factors customer specific allowances ii amounts based upon aging schedule iii estimated amount based historical experience issues yet identified single customer represented 10 net sales trade receivables year end 2006 2005 however ten largest customers year end 2006 represented approximately 18 trade accounts receivable consisted six customers office consumer products segment three customers pressuresensitive materials segment one customer segments financial position operations customers monitored ongoing basis inventory reserves inventories stated lower cost market value categorized raw materials workinprogress finished goods cost determined using methods approximate firstin firstout “fifo” lastin firstout “lifo” methods inventories valued using lifo method comprised 29 32 inventories lifo adjustment year end 2006 2005 respectively company’s international operations fifo basis inventory cost accounting us operations use fifo lifo limited use lifo valuation methodology reflects taxbasis election place time previous acquisitions businesses us inventory reserves recorded damaged obsolete excess slowmoving inventory use estimates record reserves slowmoving inventory reviewed category may partially fully reserved depending type product length time product included inventory longlived asset impairments record impairment charges carrying amounts longlived assets determined recoverable impairment measured assessing usefulness asset comparing carrying value asset fair value fair value typically determined using quoted market prices available estimate undiscounted future cash flows expected result use asset eventual disposition amount impairment loss calculated excess carrying value fair value changes market conditions management strategy historically caused us reassess carrying amount longlived assets pensions postretirement benefits december 2006 adopted provisions sfas 158 “employers’ accounting defined benefit pension postretirement plans amendment fasb statements 87 88 106 132r” recognition funded status company’s defined benefit postretirement benefit plan corresponding reversal minimum pension liability sfas 87 b recognition gains losses prior service costs credits transition assets obligations remaining initial application sfas nos 87 106 component accumulated comprehensive income net tax c measurement defined benefit plan assets obligations company’s fiscal year end disclosure additional information effects amortization gains losses prior service costs credits transition assets obligations remaining initial application sfas nos 87 106 net periodic benefit cost next fiscal year assumptions used determining projected benefit obligations fair value plan assets pension plan postretirement benefit plans evaluated management consultation outside actuaries event determine changes warranted assumptions used discount rate expected long term rate return health care costs future pension postretirement benefit expenses could increase decrease due changing market conditions changes participant population actuarial assumptions use may differ actual results could significant impact pension postretirement liability related cost discount rate consultation actuaries annually review determine discount rates used connection postretirement obligations assumed discount rate pension plan reflects market rates high quality corporate bonds currently available us discount rate determined evaluating several yield curves consisting large populations high quality corporate bonds projected pension benefit payment streams matched bond portfolios determine rate reflects liability duration unique plans longterm return assets determine longterm rate return assumption plan assets reviewing historical expected returns equity fixed income markets taking consideration assets higher volatility typically generate greater return long run additionally current market conditions interest rates evaluated peer data reviewed check reasonability appropriateness healthcare cost trend rate practice fund cost postretirement benefits cash basis measurement purposes 9 annual rate increase per capita cost covered health care benefits assumed 2007 rate expected decrease approximately 5 2011 income taxes deferred tax assets liabilities reflect temporary differences amounts assets liabilities financial tax reporting purposes amounts adjusted appropriate reflect changes tax rates expected effect temporary differences reverse valuation allowance recorded reduce deferred tax assets amount likely realized establishing valuation allowance consider future sources income forecasted earnings mix earnings jurisdictions operate prudent feasible tax planning event determine would able realize deferred tax assets future valuation adjustment deferred tax assets charged earnings period make determination likewise later determined likely deferred tax assets would realized would release previously provided valuation allowance calculate current deferred tax provisions based estimates assumptions could differ actual results reflected income tax returns filed following years adjustments based filed returns recorded identified subsequent years amount income taxes pay subject ongoing audits federal state foreign tax authorities estimate potential outcome uncertain tax issue subject management’s assessment relevant risks facts circumstances existing time believe adequately provided reasonably foreseeable outcomes related matters however future results may include favorable unfavorable adjustments estimated tax liabilities period assessments made resolved may impact effective tax rate quarterly basis stockbased compensation effective january 1 2006 began recognizing expense stockbased compensation comply provisions reissued sfas 123r using modified prospective application transition method permitted transition method results prior periods restated addition continued recognize compensation cost related outstanding unvested awards december 31 2005 original provisions sfas 123 stockbased compensation expense awards granted december 31 2005 based grant date fair value estimated accordance sfas 123r valuation stock options stockbased compensation expense estimated fair value options granted amortized straightline basis requisite service period fair value stock option awards estimated date grant using blackscholes optionpricing model requires input assumptions expected dividend yield expected volatility riskfree interest rate expected life options expected dividend yield based current annual dividend divided 12month average monthly stock price prior grant expected volatility options granted 2006 based historical implied volatility expected volatility options granted prior 2006 based historical volatility stock price riskfree rate based average weekly tbond rate expected option term expected term determined based historical experience stock option plans forfeiture rate assumption determined based historical data stock option forfeitures last twelve years certain assumptions used based management’s estimates factors change factors require us change assumptions estimates stockbased compensation expense could significantly different future capitalized costs associated stockbased compensation accounting income taxes stockbased compensation elected use shortcut method calculate historical pool windfall tax benefits related employee stockbased compensation awards restructuring severance costs account restructuring costs including severance costs associated exit disposal activities following guidance provided sfas 112 “accounting postemployment benefits” sfas 146 “accounting costs associated exit disposal activities” us severance pay plan “pay plan” provides eligible employees severance payments event involuntary termination due qualifying cost reduction actions calculate severance pay using severance benefit formula pay plan accordingly record provisions amounts related exit costs probable estimable set forth sfas 112 absence pay plan liability severance employeerelated costs recognized liability incurred follow guidance sfas 146 litigation environmental currently involved various lawsuits claims inquiries routine nature business accordance sfas 5 “accounting contingencies” accrue estimates probable estimable losses resolution claims ultimate resolution claims could affect future results operations exposure materially different earlier estimates liabilities incurred previously accrued recent accounting requirements 2006 adopted several accounting financial disclosure requirements financial accounting standards board “fasb” emerging issues task force “eitf” financial interpretations staff fasb requirements significant impact reissued sfas 123r “sharebased payment” sfas 158 “employers’ accounting defined benefit pension postretirement plans amendment fasb statements 87 88 106 132r” refer note 1 “summary significant accounting policies” consolidated financial statements information safe harbor statement matters discussed management’s discussion analysis financial condition results operations sections annual report contain “forwardlooking statements” within meaning private securities litigation reform act 1995 statements historical fact may contain estimates assumptions projections andor expectations regarding future events may occur words “aim” “anticipate” “assume” “believe” “continue” “could” “estimate” “expect” “guidance” “intend” “may” “objective” “plan” “potential” “project” “seek” “shall” “should” “target” “will” “would” variations thereof expressions refer future events trends identify forwardlooking statements forwardlooking statements financial business targets subject certain risks uncertainties could cause actual results differ materially expected results performance achievements company expressed implied forwardlooking statements certain risks uncertainties discussed detail part item 1a “risk factors” company’s annual report form 10k year ended december 30 2006 include limited risks uncertainties relating investment development activities new production facilities timely development successful market acceptance new products fluctuations cost availability raw materials ability company achieve sustain targeted cost reductions impact competitive products pricing business mix shift credit risks ability obtain adequate financing arrangements fluctuations pension insurance employee benefit costs successful integration acquisitions successful implementation new manufacturing technologies installation manufacturing equipment customer supplier concentrations financial condition inventory strategies customers changes customer order patterns loss significant contracts customers legal proceedings including canadian department justice australian competition consumer commission investigations industry competitive practices related proceedings lawsuits pertaining investigations subject matter thereof recently concluded investigations doj ec including purported class actions seeking treble damages alleged unlawful competitive practices purported class action related alleged disclosure fiduciary duty violations pertaining alleged unlawful competitive practices filed announcement doj investigation impact potential violations us foreign corrupt practices act based issues china changes governmental regulations fluctuations interest rates fluctuations foreign currency exchange rates risks associated foreign operations changes economic political conditions acts war terrorism natural disasters impact epidemiological events economy company’s customers suppliers factors company believes significant risk factors could affect ability achieve stated financial expectations nearterm include 1 impact economic conditions underlying demand company’s products 2 impact competitor’s actions including expansion key markets product offerings pricing 3 impact changes raw material energyrelated costs associated changes selling prices 4 potential adverse developments legal proceedings andor investigations regarding competitive activities including possible fines penalties judgments settlements 5 ability company achieve sustain targeted cost reductions company’s forwardlooking statements represent judgment dates statements made making forwardlooking statements company assumes duty update reflect new changed unanticipated events circumstances may required law item 7aitem 7 management’s discussion analysis results operations financial condition organization information management’s discussion analysis provides narrative concerning financial performance condition read conjunction accompanying financial statements includes following sections definition terms discussion financial results includes several nongaap measures provide additional information concerning avery dennison corporation’s “company’s” performance nongaap financial measures accordance substitute gaap financial measures nongaap financial measures intended supplement presentation financial results prepared accordance gaap refer “uses limitations nongaap measures” use following terms • organic sales growth refers change sales excluding estimated impact currency translation acquisitions divestitures • segment operating income refers income interest taxes • free cash flow refers cash flow operations less payments capital expenditures software deferred charges • operational working capital refers trade accounts receivable inventories net accounts payable change accounting method beginning fourth quarter 2007 changed method accounting inventories us operations combination use firstin firstout “fifo” lastin firstout “lifo” methods fifo method inventories international operations continue valued using fifo method believe change preferable fifo method better reflects current value inventories consolidated balance sheet provides better matching revenue expense consolidated statement income provides uniformity across operations respect method inventory accounting enhances comparability peers furthermore application fifo method consistent accounting inventories us income tax purposes result accounting change discussed sale raised reflective pavement marker business 2006 discussed “divestitures” discussions follow reflect restated results accounting change well summary results continuing operations unless otherwise noted however net income net income per share discussions include impact discontinued operations overview outlook overview sales continuing operations increased 13 2007 compared growth 2 2006 driven primarily acquisition paxar corporation “paxar” currency translation due diverse mix businesses expansion retail information services segment allocation organic sales growth components volume growth price mix become less useful analysis continue provide information segments useful 1 columns may sum due rounding organic sales growth 1 2007 3 2006 reflected increases businesses outside us particularly emerging markets asia eastern europe latin america organic sales growth decline major regions operation follows outside us sales increased organic basis 4 5 2007 2006 respectively due market expansion share gain certain businesses us sales organic basis declined 4 2007 due primarily slowdown us retail environment particularly retail information services office consumer products segments retailers lowered inventories face slowing consumer demand roll materials businesses north america europe also experienced soft market conditions especially second half year conditions combined capacity demand imbalances impacted pricing markets well 2006 us sales approximately even 2005 north american roll materials business weak due market share loss related price increases implemented 2005 early 2006 offset higher raw material costs well generally slow market conditions benefit growth averybrand products strong backtoschool season office consumer products segment us offset loss sales exiting certain lowmargin private label business segment net income net income decreased 70 million 2007 compared 2006 negative factors affecting net income included • higher interest expense amortization intangibles related paxar acquisition • transition costs related integration paxar operations restructuring actions • higher asset impairment restructuring charges including acquisitionrelated charges • competitive pricing environment unfavorable product mix roll materials business • higher raw material costs • higher effective tax rate positive factors affecting net income included • higher sales including sales paxar acquisition benefit foreign currency translation • cost savings productivity improvement initiatives including savings restructuring actions acquisitions june 15 2007 completed acquisition paxar corporation “paxar” global leader retail tag ticketing branding systems combination paxar business retail information services segment increases presence expanding fragmented retail information brand identification market combines complementary strengths broadens range product service capabilities improves ability meet customer demands product innovation improved quality service facilitates expansion new product geographic segments integration acquisition operations also expected result significant cost synergies refer “outlook” section herein information see note 2 “acquisitions” consolidated financial statements information divestitures december 2005 announced plan sell raised reflective pavement marker business sales approximately 23 million 2005 divestiture business completed second quarter 2006 resulted tax benefit due capital losses arising sale business results business accounted discontinued operations years presented herein business previously included pressuresensitive materials segment december 2005 also announced divestiture two product lines divestitures completed first quarter 2006 first product line included office consumer products segment estimated sales 60 million 2005 minimal impact income operations second product line included specialty converting businesses annual sales approximately 10 million 2005 minimal impact income operations part divestitures 2005 recorded severance employeerelated charges approximately 6 million asset impairments approximately 9 million charges included “other expense net” line consolidated statement income refer note 10 “cost reduction actions” consolidated financial statements detail cost reduction actions 1 includes severance asset impairment lease cancellation charges late 2006 end 2007 initiated new cost reduction actions expected yield annualized pretax savings 45 million 50 million addition cost synergies integration paxar discussed 2007 savings actions net transition costs approximately 5 million incremental savings 2008 associated actions expected approximately 30 million balance expected realized 2009 restructuring actions result headcount reductions approximately 555 positions impacting segments geographic regions 2007 2006 realized annualized pretax savings net transition costs 90 million resulting restructuring actions initiated fourth quarter 2005 restructuring actions resulted headcount reductions approximately 1150 positions impacted segments geographic regions completed 2006 2005 also incurred charges related planned divestitures several lowmargin businesses product lines discussed “divestitures” section refer note 10 “cost reduction actions” consolidated financial statements detail paxar acquisitionrelated actions 1 includes severance asset impairment lease cancellation charges 2007 cost synergies resulting integration paxar approximately 20 million incremental cost synergies expected achieved 2010 discussed “outlook” section integration actions result headcount reductions approximately 1055 positions retail information services segment refer note 2 “acquisitions” note 10 “cost reduction actions” consolidated financial statements detail effective rate taxes income effective tax rate 191 full year 2007 compared 176 full year 2006 unlike 2007 effective tax rate 2006 benefited following events • several favorable tax audit settlements various jurisdictions closure certain tax years • release certain valuation allowances free cash flow free cash flow nongaap measure refers cash flow operating activities less spending property plant equipment software deferred charges use free cash flow measure funds available corporate purposes dividends debt reduction acquisitions repurchases common stock management believes measure provides meaningful supplemental information investors assist financial analysis company management believes appropriate measure cash spending property plant equipment software deferred charges spending considered integral maintaining expanding underlying business measure intended represent residual cash available discretionary purposes refer “uses limitations nongaap measures” section information regarding limitations measure decrease free cash flow 2007 71 million reflects higher spending property plant equipment software deferred charges well lower net income compared 2006 see “analysis results operations” liquidity section “financial condition” information investigations legal proceedings previously announced notified european commission united states department justice “doj” competition law department justice canada australian competition consumer commission respective criminal investigations competitive practices label stock industry cooperated investigations except australian investigation continuing terminated without action authorities named defendant purported class actions us seeking treble damages relief alleged unlawful competitive practices filed announcement doj investigation discovered instances conduct certain employees china potentially violate us foreign corrupt practices act reported conduct authorities us believe possible fines penalties may incurred unable predict effect matters time although effect could adverse material matters reported note 8 “contingencies” consolidated financial statements outlook 2008 anticipate high singledigit low doubledigit rate revenue growth including benefit paxar acquisition approximately 65 benefit modest benefit foreign currency translation based year end exchange rates revenue assumptions subject changes economic market conditions estimate total annual cost synergies associated paxar integration range 115 million 125 million estimated 60 million 70 million cost synergies expected represent incremental savings 2008 accomplish synergy target incur pretax cash costs estimated range 165 million 180 million approximately 75 million costs incurred 2007 estimate approximately 60 million 70 million incurred 2008 anticipate continued benefit ongoing productivity improvement initiatives addition synergies resulting paxar integration described anticipate restructuring business realignment efforts yield incremental savings 2008 estimated 30 million net transition costs assume benefits productivity initiatives partially offset approximately 2 inflation raw material costs approximately 50 million 55 million based current commodity pricing trends well higher costs associated general inflation investments growth 2008 anticipate price increases 2008 least partially offset raw material inflation estimate interest expense range 125 million 135 million approximately 20 million 30 million higher 2007 driven acquisitionrelated debt estimate subject changes average debt outstanding changes market rates associated portion debt tied variable interest rates anticipate total restructuring asset impairment charges 2008 lower charges taken 2007 annual effective tax rate impacted future events including changes tax laws geographic income mix tax audits closure tax years legal entity restructuring release valuation allowances deferred tax assets effective tax rate potentially wide variances quarter resulting interim reporting requirements recognition discrete events anticipate capital software expenditures paxar integrationrelated activities approximately 195 million 2008 capital software expenditures related paxar integration expected total 40 million 45 million approximately 25 million 30 million expected incurred 2008 costs included total onetime cash cost estimate integration discussed reflecting foregoing assumptions expect increase annual earnings free cash flow comparison 2007 analysis results operations income continuing operations taxes 2006 reclassified shipping handling costs “marketing general administrative expense” “cost products sold” align businesses around standard accounting policy previous results included herein reclassified comparability current year sales increased 13 2007 compared increase 2 2006 benefit paxar acquisition net product line divestitures increased sales estimated 500 million 2007 product line divestitures net incremental sales acquisitions reduced sales approximately 54 million 2006 foreign currency translation favorable impact change sales approximately 232 million 2007 compared approximately 21 million 2006 organic sales growth approximately 1 2007 compared approximately 3 2006 organic sales growth 2007 reflected growth pressuresensitive materials segment specialty converting businesses driven expansion international markets international growth partially offset slower competitive market conditions north american roll materials business unit volume growth offset negative price mix organic sales growth pressuresensitive materials specialty converting businesses offset decline office consumer products segment due primarily customer inventory reductions retail information services segment experienced organic sales growth 1 2007 reflecting increased sales european retail market partially offset decline orders related apparel shipped north american retailers brand owners organic basis sales us approximately even 2006 compared decrease approximately 3 2005 north american roll materials business impacted slow market conditions share loss resulting price increases benefit growth averybrand products strong backtoschool season office consumer products segment us offset loss sales exiting certain lowmargin private label business approximate impact 22 million segment refer “results operations segment” information segments gross profit gross profit margin 2007 decreased due price competition unfavorable product mix roll materials business higher raw material costs negative effect factors partially offset addition higher gross profit margin paxar business well benefits ongoing productivity improvement cost reduction actions 2006 benefits productivity improvement cost reduction actions partially offset • unfavorable segment mix faster growth segments lower gross profit margin percent sales • energyrelated cost inflation • transition costs associated restructuring marketing general administrative expenses marketing general administrative expense 2007 increased 2006 savings restructuring actions cost reductions offset • costs associated paxar business related integration expense totaling approximately 185 million including 40 million integrationrelated transition costs 12 million amortization intangibles • impact foreign currency translation approximately 30 million marketing general administrative expense 2006 increased 2005 benefits productivity improvement initiatives cost reduction actions offset • recognition stock option expense approximately 21 million • increased spending information systems marketing approximately 19 million • increase pension medical employeerelated costs approximately 12 million interest expense interest expense increased 90 approximately 50 million 2007 compared 2006 due increase borrowings fund paxar acquisition well increase interest rates expense net 2007 2006 “other expense net” consisted charges restructuring including severance employeerelated costs asset impairment charges related cost reduction actions divestitures described “cost reduction actions” “paxar integration actions” sections herein refer also note 10 “cost reduction actions” consolidated financial statements information items included “other expense net” 2007 included • cash flow hedge loss 48 million • expenses related divestiture 3 million • reversal accrual related lawsuit 32 million items included “other expense net” 2006 included • accrual environmental remediation costs 13 million refer environmental section “financial condition” • costs related lawsuit divestiture 8 million • gain sale assets 53 million • gain curtailment settlement pension obligation 16 million • gain sale investment 105 million partially offset charitable contribution avery dennison foundation 10 million 2005 items included “other expense net” consisted gain sale assets 58 million partially offset costs related lawsuit 38 million net income taxes income 2007 2006 effective tax rates included benefits changes geographic mix income continued improvements global tax structure effective tax rate years includes impact several tax audit settlements various jurisdictions reflecting net expense 8 million 2007 net benefit 81 million 2006 income loss discontinued operations income loss discontinued operations includes divestiture raised reflective pavement markers business noted overview section divestiture business completed 2006 resulted tax benefit 149 million due capital losses arising sale business gain sale 13 million based estimated value raised reflective pavement markers business 2005 concluded associated goodwill intangible assets acquisition business impaired resulting pretax impairment charge approximately 74 million 2005 income discontinued operations included net sales approximately 7 million 2006 23 million 2005 refer discontinued operations section note 1 “summary significant accounting policies” consolidated financial statements information results operations segment pressuresensitive materials segment net sales pressuresensitive materials segment increased 8 2007 compared 4 growth 2006 organic sales growth 2007 2006 approximately 3 organic sales growth 2007 2006 reflected growth roll materials graphics reflective businesses asia latin america europe partially offset declines north american roll materials businesses years market expansion roll materials business contributed doubledigit organic sales growth asia mid singledigit organic sales growth latin america 2007 2006 roll materials business europe experienced low singledigit organic sales growth north american roll materials business 2007 sales organic basis declined low singledigit rate 2006 sales even prior year slow market conditions impacted years 2007 competitive environment due part capacity additions industry led price reductions maintain market share 2006 loss market share following implementation selling price increases 2005 early 2006 contributed decline business graphics reflective business experienced mid singledigit organic sales growth 2007 2006 strong international growth partially offset declines us changes reported sales segment included favorable impact foreign currency translation approximately 174 million 2007 approximately 15 million 2006 operating income increased operating income 2007 2006 reflected higher sales cost savings restructuring productivity improvement initiatives 2007 initiatives partially offset competitive pricing environment unfavorable product mix roll materials business higher raw material costs transition costs related restructuring actions 2006 initiatives partially offset stock option expense operating income three years reflected restructuring asset impairment charges 2007 operating income included reversal portion accrual related lawsuit 2006 operating income included gain sale assets legal fees related lawsuit lease cancellation charges 2005 operating income included accrual related lawsuit net gain sale assets retail information services segment net sales retail information services segment increased 76 2007 compared increase 6 2006 2007 increase reflected estimated 510 million sales paxar acquisition favorable impact foreign currency translation approximately 17 million 2006 increase reflected growth business asia latin america europe incremental sales acquisitions approximately 3 million favorable impact foreign currency translation approximately 3 million organic sales growth approximately 1 2007 reflected increased sales european retail market partially offset decline orders related apparel shipped north american retailers brand owners organic sales growth 5 2006 operating income operating loss 2007 reflected transition costs integrationrelated asset impairment charges associated paxar acquisition amortization acquisition intangibles higher expenses due investments growth asia including higher employeerelated costs higher operating costs partially offset higher sales savings restructuring productivity initiatives 2006 operating income benefited productivity improvement actions including migration production hong kong lower cost facilities mainland china benefits productivity initiatives offset increased spending information systems stock option expense incremental employeerelated costs 2006 operating income included integrationrelated software impairment charges 2007 restructuring costs asset impairment lease cancellation charges incurred three years office consumer products segment net sales office consumer products segment decreased 5 2007 6 2006 decline reported sales 2007 reflected lower sales organic basis well impact product line divestitures approximately 9 million decline reported sales 2006 reflected impact product line divestiture europe approximately 51 million foreign currency translation favorable impact change reported sales approximately 25 million 2007 1 million 2006 organic basis sales declined approximately 7 2007 decline reflected customer inventory reductions resulting part volume shift fourth quarter 2006 advance january 2007 selling price increases certain product lines loss sales exiting certain low margin business weaker backtoschool season compared prior year 2006 sales organic basis declined 1 reflecting loss sales exiting certain lowmargin private label business end 2005 approximately 22 million partially offset growth averybrand products strong backtoschool season north america accelerated purchases customers late 2006 advance 2007 selling price increases certain product lines operating income operating income 2007 reflected lower sales restructuring charges related transition costs higher raw material costs partially offset savings restructuring actions productivity initiatives operating income 2006 reflected cost savings productivity improvement restructuring actions partially offset associated transition costs higher raw material energyrelated costs increased marketing costs stock option expense operating income 2007 included lease cancellation costs expense related divestiture 2006 operating income included gain sale assets gain curtailment settlement pension obligation net gain product line divestiture asset impairment charges incurred 2005 2006 restructuring costs incurred three years specialty converting businesses net sales specialty converting businesses increased 3 2007 1 2006 2007 increase reflected favorable impact foreign currency translation approximately 16 million partially offset impact product line divestiture net small acquisition approximately 2 million 2006 product line divestiture reduced reported sales approximately 7 million foreign currency translation favorable impact change sales approximately 1 million organic sales growth approximately 1 2007 included negative effect exiting certain lowmargin products specialty tape business approximately 16 million loss sales offset solid growth parts specialty tape business well growth rfid division organic sales growth approximately 2 2006 reflected solid growth specialty tape business partially offset weakness businesses operating income operating income businesses increased 2007 reflecting higher sales savings restructuring productivity initiatives reduction operating loss rfid division operating income businesses increased 2006 reflecting cost savings restructuring productivity improvement initiatives partially offset stock option expense operating income years included restructuring asset impairment charges financial condition liquidity cash flow provided operating activities cash flow purposes changes assets liabilities exclude impact foreign currency translation impact acquisitions divestitures certain noncash transactions discussed “analysis selected balance sheet accounts” 2007 cash flow provided operating activities impacted lower net income changes working capital factors shown negative factors • accounts payable accrued liabilities reflected timing payments well shorter vendor payment terms positive factors • current assets primarily reflected timing collection valueadded tax receivables europe • longterm retirement benefits liabilities primarily reflected lower contributions pension plans partially offset benefit payments 2006 cash flow provided operating activities impacted higher net income changes working capital factors shown negative factors • current assets primarily reflected timing collection valueadded tax receivables europe • inventories reflected increased purchases support higher sales customer service initiatives • longterm retirement benefits liabilities reflected benefit payments partially offset contributions approximately 39 million pension postretirement health benefit plans positive factors • accounts payable accrued liabilities reflected timing payments increased inventory cash flow used investing activities payments acquisitions june 15 2007 completed acquisition paxar accordance terms acquisition agreement outstanding share paxar common stock par value 010 converted right receive 3050 cash total purchase price transaction approximately 13 billion including transaction costs approximately 15 million cash paid acquisitions reported net cash acquired approximately 47 million funds complete acquisition initially derived commercial paper borrowings supported bridge revolving credit facility refer note 2 “acquisitions” consolidated financial statements information payments acquisitions 2007 also include buyouts minority interest shareholders associated certain subsidiaries rvl packaging inc paxar approximately 4 million capital spending significant capital projects 2007 included investments expansion china india serving materials retail information services businesses significant information technology projects 2007 included customer service standardization initiatives proceeds sale businesses investments 2006 sold longterm investment proceeds approximately 16 million divested raised reflective pavement marker business us proceeds approximately 9 million divested product line europe proceeds approximately 4 million cash flow used financing activities borrowings repayment debt year end 2007 borrowings outstanding foreign shortterm lines credit 701 million weightedaverage interest rate 106 compared 1015 million year end 2006 weightedaverage interest rate 96 shortterm variable rate commercial paper borrowings 9902 million december 29 2007 weightedaverage interest rate 52 compared 1544 million december 30 2006 weightedaverage interest rate 50 2007 increased shortterm borrowings initially fund paxar acquisition noted “payments acquisitions” well support share repurchases change outstanding commercial paper also reflects positive cash flow operations mediumterm notes 100 million outstanding year end 2007 compared 160 million year end 2006 2007 mediumterm notes 60 million paid maturity outstanding mediumterm notes maturities 2008 2025 accrue interest fixed rates ranging 59 76 september 2007 one subsidiaries issued 250 million 10year senior notes guaranteed bearing interest rate 6625 per year due october 2017 net proceeds offering approximately 247 million used pay current longterm debt maturities 150 million reduce commercial paper borrowings 97 million initially used finance paxar acquisition november 2007 issued 400 million 7875 corporate himeds units mandatory convertible debt issue additional 40 million himeds units issued december 2007 result exercise overallotment allocation initial issuance himeds unit comprised two components purchase contract obligating holder purchase us certain number shares 2010 ranging approximately 68 million approximately 86 million shares depending stock price time senior note due 2020 net proceeds offering approximately 427 million used reduce commercial paper borrowings initially used finance paxar acquisition shareholders’ equity shareholders’ equity approximately 199 billion year end 2007 compared approximately 170 billion year end 2006 annual dividend per share increased 161 2007 157 2006 share repurchases october 26 2006 board directors authorized company purchase additional 5 million shares company’s stock existing stock repurchase program resulting total authorization approximately 74 million shares company’s stock date repurchased approximately 8 million 25 million shares 2007 2006 respectively cash payments repurchased shares approximately 63 million approximately 158 million 2007 2006 respectively included 2007 cash payments approximately 11 million related shares repurchased 2006 settled 2007 december 29 2007 approximately 41 million shares available repurchase board directors’ authorization 2005 repurchased approximately 7 million shares agreement related le packaging “le” acquisition recorded amount treasury stock analysis selected balance sheet accounts longlived assets goodwill increased 967 million 2007 primarily due preliminary valuation goodwill associated paxar acquisition completed june 2007 931 million buyouts minority interest shareholders 4 million associated certain subsidiaries rvl packaging inc paxar foreign currency translation 32 million partially offset tax adjustment related previous acquisition less 1 million intangibles resulting business acquisitions increased approximately 219 million 2007 due preliminary valuation intangible assets paxar acquisition 234 million impact foreign currency translation 5 million partially offset amortization expense 20 million refer note 2 “acquisitions” consolidated financial statements information assets increased approximately 63 million 2007 due primarily purchases software deferred charges 64 million increase cash surrender value corporateowned life insurance 17 million debt issuance costs associated current year issuances 15 million increase longterm pension assets 7 million increase assets 3 million impact foreign currency translation 6 million partially offset normal amortization software deferred charges 31 million software asset impairments 18 million shareholders’ equity accounts value employee stock benefit trust decreased 174 million 2007 due decrease market value shares held trust approximately 120 million issuance shares stock option incentive plans approximately 54 million accumulated comprehensive income loss changed approximately 135 million due foreign currency translation approximately 106 million well current year amortization recognition net pension transition obligation prior service cost net actuarial loss approximately 29 million impact foreign currency translation 2007 international operations generated approximately 63 net sales future results subject changes political economic conditions impact fluctuations foreign currency exchange interest rates benefit sales currency translation 2007 primarily reflected benefit sales denominated euros well sales currencies great britain australia brazil china partially offset negative impact sales currencies south africa hong kong translation gains losses operations hyperinflationary economies included net income period incurred operations treated hyperinflationary economy based cumulative inflation rate past three years 2007 operations hyperinflationary economies 2006 hyperinflationary economy operated dominican republic uses us dollar functional currency 2005 operations hyperinflationary economies consisted dominican republic turkey however impact net income operations significant effect foreign currency transactions impact net income transactions denominated foreign currencies mitigated costs products generally denominated currencies sold addition reduce income statement exposure transactions foreign currencies enter foreign exchange forward option swap contracts available appropriate analysis selected financial ratios utilize certain financial ratios assess financial condition operating performance discussed operational working capital ratio working capital current assets minus current liabilities excluding working capital heldforsale businesses percent net sales decreased 2007 primarily due increase shortterm debt february 8 2008 one subsidiaries entered credit agreement term loan credit facility fourteen domestic foreign banks total commitment 400 million maturing february 8 2011 proceeds term loan credit facility used reduce commercial paper borrowings included current liabilities initially used finance paxar acquisition operational working capital continuing operations percent net sales nongaap measure shown use nongaap measure tool assess working capital requirements excludes impact fluctuations due financing activities affect cash equivalents deferred taxes current assets current liabilities tend disparate amount timing therefore may increase volatility working capital ratio period additionally items excluded measure necessarily indicative underlying trends operations significantly influenced daytoday activities managed operating level refer “uses limitations nongaap measures” objective minimize investment operational working capital percentage sales reducing ratio maximize cash flow return investment operational working capital continuing operations percent sales operational working capital continuing operations 2007 increased compared 2006 primary factors contributing change includes impact currency translation discussed accounts receivable ratio average number days sales outstanding 62 days 2007 compared 58 days 2006 calculated using fourquarter average accounts receivable balance divided average daily sales year change primarily due acquisition paxar well timing sales collections inventory ratio average inventory turnover 78 2007 compared 81 2006 calculated using annual cost sales divided fourquarter average inventory balance change primarily due acquisition paxar accounts payable ratio average number days payable outstanding 58 days 2007 compared 61 days 2006 calculated using fourquarter average accounts payable balance divided average daily cost products sold year change primarily due timing payments europe partially offset acquisition paxar debt ratios increase total debt total capital ratio 2007 primarily due net increase debt related paxar acquisition share repurchases partially offset increase shareholders’ equity various loan agreements effect year end require maintain specified ratios consolidated debt consolidated interest expense relation certain measures income compliance covenants shown table fair value debt estimated based discounted amount related cash flows using current rates offered us debt remaining maturities year end fair value total debt including shortterm borrowings 22507 million 2007 963 million 2006 shareholders’ equity ratios decreases ratios 2007 compared 2006 primarily due lower net income well higher equity total debt outstanding ratios computed using actual net income fivequarter average denominator equity total debt accounts capital resources capital resources include cash flows operations debt financing maintain adequate financing arrangements competitive rates financing arrangements consist commercial paper programs us europe committed uncommitted bank lines credit countries operate callable commercial notes longterm debt including mediumterm notes capital debt total debt increased approximately 129 billion 2007 226 billion compared year end 2006 reflecting increased shortterm borrowings primarily related paxar acquisition second quarter 2007 share repurchases initially funded paxar acquisition issuing commercial paper supported bridge revolving credit facility “credit facility” entered june 2007 five domestic foreign banks credit facility initial total commitment 135 billion expiring june 11 2008 terms generally similar existing credit facilities financing available agreement permitted used working capital commercial paper backup general corporate purposes including acquisitions december 29 2007 outstanding commitment 715 million august 2007 amended existing revolving credit agreement increasing commitments 525 million 1 billion extending maturity august 2012 commitments provided twelve domestic foreign banks financing available agreement used commercial paper backup facility also available finance corporate requirements including acquisitions september 2007 one subsidiaries issued 250 million 10year senior notes guaranteed bearing interest rate 6625 per year due october 2017 net proceeds offering approximately 247 million used pay current longterm debt maturities 150 million reduce commercial paper borrowings 97 million initially used finance paxar acquisition credit facility revolving credit agreement subject customary financial covenants including maximum leverage ratio minimum interest coverage ratio compliance november 2007 issued 400 million 7875 corporate himeds units mandatory convertible debt issue additional 40 million himeds units issued december 2007 result exercise overallotment allocation initial issuance himeds unit comprised two components purchase contract obligating holder purchase us certain number shares 2010 ranging approximately 68 million approximately 86 million shares depending stock price time senior note due 2020 net proceeds offering approximately 427 million used reduce commercial paper borrowings initially used finance paxar acquisition addition 364day revolving credit facility foreign bank provides us euro 40 million 575 million borrowings july 31 2008 approval bank may extend revolving period due date annual basis financing agreement used finance cash requirements european operations debt outstanding agreement december 29 2007 263 million outstanding december 30 2006 standby letters credit outstanding 809 million including 73 million standby letters credit assumed paxar 771 million end 2007 2006 respectively aggregate contract amount outstanding standby letters credit approximated fair value connection paxar acquisition assumed additional debt approximately 5 million remains outstanding december 29 2007 uncommitted lines credit approximately 4482 million year end 2007 uncommitted lines credit commitment expiration date may cancelled banks us time fourth quarter 2007 filed shelf registration statement securities exchange commission permit issuance debt equity securities proceeds shelf offering may used general corporate purposes including repaying redeeming repurchasing existing debt working capital expenditures acquisitions shelf registration replaced shelf registration statement filed 2004 himeds units discussed issued registration statement discussed one subsidiaries entered credit agreement february 8 2008 term loan credit facility fourteen domestic foreign banks total commitment 400 million maturing february 8 2011 proceeds term loan credit facility used reduce commercial paper borrowings initially used finance paxar acquisition credit ratings significant factor ability raise shortterm longterm financing credit ratings assigned us also impact interest rates commercial paper borrowings determining credit rating agencies place significant weight competitive position business outlook consistency cash flows debt level liquidity geographic dispersion management team credit ratings year end 2007 1 refer note 14 “subsequent events” consolidated financial statements information december 29 2007 ratings review due recent acquisition paxar sp moody’s lowered longterm rating bbb a3 baa1 respectively due incremental debt incurred result paxar acquisition remain committed retaining solid investment grade rating contractual obligations commitments offbalance sheet arrangements contractual obligations year end 2007 1 interest floating rate debt estimated using index rate effect december 29 2007 enter operating leases primarily office warehouse space equipment electronic data processing transportation terms leases impose significant restrictions unusual obligations except facility mentor ohio noted table includes minimum annual rental commitments operating leases initial remaining noncancelable lease terms one year september 9 2005 completed lease financing commercial facility “facility” located mentor ohio used primarily new headquarters research center roll materials group facility consists generally land buildings equipment office furnishings leased facility operating lease arrangement contains residual value guarantee 334 million expect residual value facility less amount guaranteed include purchase obligations open purchase orders year end 2007 table contractual obligations impracticable us either obtain information provide reasonable estimate due decentralized nature purchasing systems table reflect unrecognized tax benefits 125 million timing uncertain except approximately 7 million may become payable 2008 refer note 11 “taxes based income” consolidated financial statements information unrecognized tax benefits investigations legal proceedings previously announced notified european commission united states department justice “doj” competition law department justice canada australian competition consumer commission respective criminal investigations competitive practices label stock industry cooperated investigations except australian investigation continuing terminated without action authorities named defendant purported class actions us seeking treble damages relief alleged unlawful competitive practices filed announcement doj investigation unable predict effect matters time although effect could adverse material matters reported note 8 “contingencies” consolidated financial statements environmental designated us environmental protection agency “epa” andor responsible state agencies potentially responsible party “prp” eighteen waste disposal waste recycling sites including paxar sites subject separate investigations proceedings concerning alleged soil andor groundwater contamination settlement liability agreed upon participating prps sites anticipate share cleanup costs determined pursuant remedial agreements entered normal course negotiations epa governmental authorities accrued liabilities certain sites including sites governmental agencies designated us prp probable loss incurred cost amount loss reasonably estimated however uncertainties associated environmental assessment remediation activities future expense remediate currently identified sites could identified future cleanup could higher liability currently accrued december 29 2007 estimated liability associated compliance remediation costs approximately 38 million including preliminary liabilities related acquisition paxar see also note 2 “acquisitions” consolidated financial statements 2006 recognized 15 million estimated environmental remediation costs former operating facility amount accrued represented lower end current estimated range 15 million 17 million costs expected incurred approximately 9 million remained accrued december 29 2007 considered additional information provided outside consultants revising previous estimates expected costs estimate could change depending various factors modification currently planned remedial actions changes site conditions change estimated time complete remediation changes laws regulations affecting remediation requirements factors amounts currently accrued significant consolidated financial position based upon current information believe unlikely final resolution matters significantly impact consolidated financial position results operations cash flows 2005 contacted relevant authorities us reported results internal investigation potential violations us foreign corrupt practices act transactions issue carried small number employees reflective business china involved among things impermissible payments attempted impermissible payments attempted payments contracts associated appear relatively minor amount limited duration corrective disciplinary actions taken sales reflective business china 2005 approximately 7 million based findings date changes previously filed financial statements warranted result matters however believe fines penalties could incurred unable predict financial operating impact fines penalties believe behavior detecting investigating responding voluntarily disclosing matters authorities viewed favorably subsidiaries involved various lawsuits claims inquiries routine nature business based upon current information believe resolution matters materially affect us provide estimate costs may incurred basic limited warranty time product revenue recognized costs primarily include materials labor associated service sale products factors affect warranty liability include number units installed sold historical anticipated rate warranty claims units cost per claim satisfy warranty obligation availability insurance coverage factors impacted actual experience future expectations assess adequacy recorded warranty liability adjust amounts necessary participate international receivable financing programs several financial institutions whereby advances may requested financial institutions advances guaranteed us december 29 2007 guaranteed approximately 17 million december 29 2007 guaranteed approximately 22 million certain foreign subsidiaries’ obligations suppliers well approximately 476 million certain subsidiaries’ lines credit various financial institutions november 2007 issued 400 million 7875 corporate himeds units mandatory convertible debt issue additional 40 million himeds units issued december 2007 result exercise overallotment allocation initial issuance himeds unit comprised two components purchase contract obligating holder purchase us certain number shares 2010 ranging approximately 68 million approximately 86 million shares depending stock price time senior note due 2020 net proceeds offering approximately 427 million used reduce commercial paper borrowings initially used finance paxar acquisition uses limitations nongaap measures use certain nongaap financial measures exclude impact certain events activities strategic decisions accounting effects events activities decisions included gaap measures may make difficult assess underlying performance company single period excluding certain accounting effects positive negative eg gains sales assets restructuring charges asset impairments etc certain gaap measures management believes providing meaningful supplemental information facilitate understanding company’s “core” “underlying” operating results nongaap measures used internally evaluate trends underlying business well facilitate comparison results competitors single period limitations associated use nongaap measures include 1 exclusion foreign currency translation impact acquisitions divestitures calculation organic sales growth 2 exclusion mandatory debt service requirements well exclusion uses cash generated operating activities directly immediately support underlying business discretionary debt reductions dividends share repurchase acquisitions etc calculation free cash flow 3 exclusion cash equivalents shortterm debt deferred taxes current assets current liabilities well current assets current liabilities heldforsale businesses calculation operational working capital items company excludes gaap measures recur items tend disparate amount timing based upon feedback investors financial analysts believe supplemental nongaap measures provide information useful assessment company’s performance operating trends related party transactions time enter transactions normal course business related parties believe transactions arm’s length terms would obtained unaffiliated third parties one directors peter w mullin chairman chief executive officer director mc insurance services inc “mc” mullin insurance services inc “minc” pwm insurance services inc “pwm” executive compensation benefit consultants insurance agents mr mullin also majority stockholder mc minc pwm collectively referred “mullin companies” paid premiums insurance carriers life insurance placed mullin companies connection various employee benefit plans mullin companies advised us earned commissions insurance carriers placement renewal insurance approximately 50 commissions allocated used mullintbg insurance agency services llc affiliate mc administer benefit plans provide benefit statements participants various employee benefit plans mullin companies minority interest financial holdings inc “mfh” substantially life insurance policies placed mullin companies 2007 prior years issued insurance carriers participate reinsurance agreements entered insurance carriers life insurance company “m life” whollyowned subsidiary mfh reinsurance returns earned life determined annually insurance carriers negative positive depending upon results life’s aggregate reinsurance pool consists insured lives reinsured life mullin companies advised us participated net reinsurance gains life addition mullin companies advised us also participated net reinsurance gains life subject risk forfeiture none transactions significant financial position results operations summary related party activity critical accounting policies estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions reporting period financial statement date estimates assumptions affect reported amounts assets liabilities disclosure contingent liabilities reported amounts revenue expense actual results could differ estimates critical accounting policies important portrayal financial condition results require us make difficult subjective andor complex judgments critical accounting policies cover accounting matters inherently uncertain future resolution matters unknown believe critical accounting policies include accounting revenue recognition sales returns allowances accounts receivable allowances inventory reserves longlived asset impairments pensions postretirement benefits income taxes stockbased compensation restructuring severance costs litigation environmental business combinations revenue recognition sales recognized persuasive evidence arrangement exists pricing determinable collection reasonably assured furthermore sales provisions estimated returns cost products sold recorded time title transfers customers assume risks rewards ownership sales terms generally fob free board shipping point fob destination depending upon local business customs regions operate fob shipping point terms utilized sales recorded time shipment title risk loss transferred certain regions notably europe fob destination terms generally utilized sales recorded products delivered customer’s delivery site title risk loss transferred actual product returns charged estimated sales return allowances sales rebates discounts common practice industries operate volume promotional price cash discounts customer incentives accounted reduction gross sales rebates discounts recorded based upon estimates time products sold estimates based upon historical experience similar programs products review rebates discounts ongoing basis accruals rebates discounts adjusted necessary additional information becomes available sales returns allowances sales returns allowances represent credits grant customers affiliated nonaffiliated return unsatisfactory product negotiated allowance lieu return accrue returns allowances based upon gross price products sold historical experience products record allowances based following factors customer specific allowances ii estimated amount based historical experience issues yet identified accounts receivable allowances required make judgments collectibility accounts receivable based established aging policy historical experience future expectations allowances doubtful accounts represent allowances customer trade accounts receivable estimated partially entirely uncollectible allowances used reduce gross trade receivables net realizable value record allowances based estimates related following factors customer specific allowances ii amounts based upon aging schedule iii estimated amount based historical experience issues yet identified single customer represented 10 net sales trade receivables year end 2007 2006 however ten largest customers year end 2007 represented approximately 17 trade accounts receivable consisted six customers office consumer products segment three customers pressuresensitive materials segment one customer segments financial position operations customers monitored ongoing basis inventory reserves inventories stated lower cost market value categorized raw materials workinprogress finished goods beginning fourth quarter 2007 changed method accounting inventories us operations combination use fifo lifo methods fifo method inventories international operations continue valued using fifo method believe change preferable fifo method better reflects current value inventories consolidated balance sheet provides better matching revenue expense consolidated statement income provides uniformity across operations respect method inventory accounting enhances comparability peers furthermore application fifo method consistent accounting inventories us income tax purposes change accounting method lifo fifo method completed accordance statement financial accounting standards “sfas” 154 “accounting changes error corrections” applied change accounting principle retrospectively restating prior years’ financial statements refer financial presentation inventories sections note 1 “summary significant accounting policies” consolidated financial statements information inventory reserves recorded damaged obsolete excess slowmoving inventory use estimates record reserves slowmoving inventory reviewed category may partially fully reserved depending type product length time product included inventory longlived asset impairments record impairment charges carrying amounts longlived assets determined recoverable impairment measured assessing usefulness asset comparing carrying value asset fair value fair value typically determined using quoted market prices available estimate undiscounted future cash flows expected result use asset eventual disposition key estimates applied preparing cash flow projections relate revenues gross margins economic life assets overheads taxation discount rates amount impairment loss calculated excess carrying value fair value changes market conditions management strategy historically caused us reassess carrying amount longlived assets pensions postretirement benefits december 2006 adopted provisions sfas 158 “employers’ accounting defined benefit pension postretirement plans amendment fasb statements 87 88 106 132r” recognition funded status company’s defined benefit postretirement benefit plan corresponding reversal minimum pension liability sfas 87 b recognition gains losses prior service costs credits transition assets obligations remaining initial application sfas nos 87 106 component accumulated comprehensive income net tax c measurement defined benefit plan assets obligations company’s fiscal year end disclosure additional information effects amortization gains losses prior service costs credits transition assets obligations remaining initial application sfas nos 87 106 net periodic benefit cost next fiscal year assumptions used determining projected benefit obligations fair value plan assets pension plan postretirement benefit plans evaluated management consultation outside actuaries event determine changes warranted assumptions used discount rate expected longterm rate return health care costs future pension postretirement benefit expenses could increase decrease due changing market conditions changes participant population actuarial assumptions use may differ actual results could significant impact pension postretirement liability related cost discount rate consultation actuaries annually review determine discount rates used connection postretirement obligations assumed discount rate pension plan reflects market rates high quality corporate bonds currently available us discount rate determined evaluating several yield curves consisting large populations high quality corporate bonds projected pension benefit payment streams matched bond portfolios determine rate reflects liability duration unique plans longterm return assets determine longterm rate return assumption plan assets reviewing historical expected returns equity fixed income markets taking consideration assets higher volatility typically generate greater return long run additionally current market conditions interest rates evaluated peer data reviewed check reasonability appropriateness healthcare cost trend rate practice fund cost postretirement benefits cash basis measurement purposes 8 annual rate increase per capita cost covered health care benefits assumed 2008 rate expected decrease approximately 5 2011 income taxes deferred tax assets liabilities reflect temporary differences amount assets liabilities financial tax reporting purposes amounts adjusted appropriate reflect changes tax rates expected effect temporary differences reverse valuation allowance recorded reduce deferred tax assets amount likely realized pursuant sfas 109 “accounting income taxes” establishing valuation allowance consider future sources taxable income “future reversals existing taxable temporary differences future taxable income exclusive reversing temporary differences carryforwards” “tax planning strategies” sfas 109 defines tax planning strategy “an action prudent feasible enterprise ordinarily might take would take prevent operating loss tax credit carryforward expiring unused would result realization deferred tax assets” event determine deferred tax assets realized future valuation adjustment deferred tax assets charged earnings period make determination also acquired certain net deferred tax assets existing valuation allowances later determined likely deferred tax assets realized release valuation allowance current earnings adjust purchase price allocation consistent manner origination calculate current deferred tax provision based estimates assumptions could differ actual results reflected income tax returns filed subsequent years adjustments based filed returns recorded identified amount income taxes pay subject ongoing audits federal state foreign tax authorities estimate potential outcome uncertain tax issue subject management’s assessment relevant risks facts circumstances existing time pursuant financial interpretation 48 “fin 48” “accounting uncertainty income taxes interpretation fasb statement 109” fin 48 requires morelikelythannot threshold financial statement recognition measurement tax positions taken expected taken tax return record liability difference benefit recognized measured pursuant fin 48 tax position taken expected taken tax return extent assessment tax positions changes change estimate recorded period determination made report taxrelated interest penalties component income tax expense stockbased compensation effective january 1 2006 began recognizing expense stockbased compensation comply provisions reissued sfas 123r using modified prospective application transition method permitted transition method results prior periods restated addition continued recognize compensation cost related outstanding unvested awards december 31 2005 original provisions sfas 123 stockbased compensation expense awards granted december 31 2005 based grant date fair value estimated accordance sfas 123r valuation stock options stockbased compensation expense estimated fair value options granted amortized straightline basis requisite service period fair value stock option awards estimated date grant using blackscholes optionpricing model requires input assumptions expected dividend yield expected volatility riskfree interest rate expected life options expected dividend yield based current annual dividend divided 12month average monthly stock price prior grant expected volatility options granted 2007 represented average implied historical volatility expected volatility options granted prior 2006 based historical volatility stock price riskfree rate based average 52week average treasurybond rate term corresponding expected option term expected term determined based historical experience stock option plans forfeiture rate assumption determined based historical data stock option forfeitures last twelve years prior 2007 certain assumptions used based management’s estimates factors change factors require us change assumptions estimates stockbased compensation expense could significantly different future capitalized costs associated stockbased compensation accounting income taxes stockbased compensation elected use shortcut method calculate historical pool windfall tax benefits related employee stockbased compensation awards addition elected follow tax ordering laws determine sequence deductions net operating loss carryforwards utilized well directonly approach calculating amount windfall shortfall tax benefits restructuring severance costs account restructuring costs including severance costs associated exit disposal activities following guidance provided sfas 112 “accounting postemployment benefits” sfas 146 “accounting costs associated exit disposal activities” us severance pay plan “pay plan” provides eligible employees severance payments event involuntary termination due qualifying cost reduction actions calculate severance pay using severance benefit formula pay plan accordingly record provisions amounts related exit costs probable estimable set forth sfas 112 absence pay plan established local practices overseas jurisdictions liability severance employeerelated costs recognized liability incurred following guidance sfas 146 litigation environmental currently involved various lawsuits claims inquiries routine nature business accordance sfas 5 “accounting contingencies” probable obligations incurred range cost compliance remediation estimated best estimate within range amount cannot determined likely low end range accrued ultimate resolution claims could affect future results operations exposure materially different earlier estimates liabilities incurred previously accrued environmental expenditures generally expensed however environmental expenditures newly acquired assets extend improve economic useful life existing assets capitalized amortized remaining asset life review reporting period estimates costs compliance environmental laws related remediation cleanup various sites including sites governmental agencies designated us potentially responsible party probable obligations incurred range cost compliance remediation estimated best estimate within range amount cannot determined likely low end range accrued potential insurance reimbursements offset potential liabilities discounted business combinations account business combinations using accounting requirements sfas 141 “business combinations” accordance sfas 141 record assets acquired liabilities assumed acquired businesses fair value make estimates assumptions determine fair values engage thirdparty valuation specialists assist us determining fair value estimates utilize variety assumptions estimates believed reasonable determining fair value assets acquired liabilities assumed assumptions estimates include estimated future cash flows growth rates current replacement cost similar capacity certain assets market rate assumptions certain obligations certain potential costs compliance environmental laws related remediation cleanup acquired properties also utilize information obtained management acquired businesses historical experience previous acquisitions apply significant assumptions estimates determining certain intangible assets resulting acquisitions customer relationships patents acquired technology trademarks trade names related applicable useful lives property plant equipment receivables inventories investments tax accounts environmental liabilities stock option awards lease commitments restructuring integration costs unanticipated events circumstances may occur may affect accuracy validity assumptions estimates actual results decreases fair value assets acquired liabilities assumed including cost estimates certain obligations liabilities recorded adjustment goodwill indefinitely whereas increases estimates recorded adjustment goodwill purchase price allocation period generally within one year acquisition date operating expenses thereafter recent accounting requirements 2007 adopted certain accounting financial disclosure requirements financial accounting standards board “fasb” emerging issues task force “eitf” financial interpretations staff fasb 2006 requirements significant impact reissued sfas 123r “sharebased payment” sfas 158 “employers’ accounting defined benefit pension postretirement plans amendment fasb statements 87 88 106 132r” refer note 1 “summary significant accounting policies” consolidated financial statements information safe harbor statement matters discussed management’s discussion analysis financial condition results operations sections annual report contain “forwardlooking statements” within meaning private securities litigation reform act 1995 statements historical fact may contain estimates assumptions projections andor expectations regarding future events may occur words “aim” “anticipate” “assume” “believe” “continue” “could” “estimate” “expect” “guidance” “intend” “may” “objective” “plan” “potential” “project” “seek” “shall” “should” “target” “will” “would” variations thereof expressions refer future events trends identify forwardlooking statements forwardlooking statements financial business targets subject certain risks uncertainties could cause actual results differ materially expected results performance achievements company expressed implied forwardlooking statements certain risks uncertainties discussed detail part item 1a “risk factors” company’s annual report form 10k year ended december 29 2007 include limited risks uncertainties relating investment development activities new production facilities fluctuations cost availability raw materials ability company achieve sustain targeted cost reductions including synergies integration paxar business time cost anticipated ability company generate sustained productivity improvement successful integration acquisitions successful implementation new manufacturing technologies installation manufacturing equipment financial condition inventory strategies customers customer supplier concentrations changes customer order patterns loss significant contracts customers timely development market acceptance new products impact competitive products pricing selling prices business mix shift credit risks ability company obtain adequate financing arrangements fluctuation interest rates fluctuation pension insurance employee benefit costs impact legal proceedings including australian competition consumer commission investigation industry competitive practices related proceedings lawsuits pertaining investigation subject matter thereof concluded investigations doj ec canadian department justice including purported class actions seeking treble damages alleged unlawful competitive practices filed announcement doj investigation well impact potential violations us foreign corrupt practices act based issues china changes governmental regulations changes political conditions fluctuations foreign currency exchange rates risks associated foreign operations worldwide local economic conditions impact epidemiological events economy company’s customers suppliers acts war terrorism natural disasters factors company believes significant risk factors could affect ability achieve stated financial expectations nearterm include 1 impact economic conditions underlying demand company’s products 2 degree higher raw material energyrelated costs passed customers selling price increases without significant loss volume 3 impact competitor’s actions including pricing expansion key markets product offerings 4 potential adverse developments legal proceedings andor investigations regarding competitive activities including possible fines penalties judgments settlements 5 ability company achieve sustain targeted cost reductions including expected synergies associated paxar acquisition company’s forwardlooking statements represent judgment dates statements made making forwardlooking statements company assumes duty update reflect new changed unanticipated events circumstances may required law item 7aitem 7 management’s discussion analysis results operations financial condition organization information management’s discussion analysis provides narrative concerning financial performance condition read conjunction accompanying financial statements includes following sections definition terms consolidated financial statements prepared conformity accounting principles generally accepted united states america gaap discussion financial results includes several nongaap measures provide additional information concerning avery dennison corporation’s “company’s” performance nongaap financial measures accordance substitute gaap financial measures nongaap financial measures intended supplement presentation financial results prepared accordance gaap refer “uses limitations nongaap measures” use following terms • organic sales growth decline refers change sales excluding estimated impact currency translation acquisitions divestitures • segment operating income loss refers income interest taxes • free cash flow refers cash flow operations net proceeds sale investments less payments property plant equipment software deferred charges • operational working capital refers trade accounts receivable inventories net accounts payable result sale raised reflective pavement marker business 2006 discussed “divestitures” discussions follow reflect restated results accounting change well summary results continuing operations unless otherwise noted however net income net income per share discussions include impact discontinued operations overview outlook overview sales continuing operations increased 6 2008 compared growth 13 2007 driven primarily acquisitions paxar corporation “paxar” dm label group “dm label” effect currency translation 1 totals may sum due rounding organic basis decline 3 2008 reflected worsening global economic conditions 2008 experienced first us western europe emerging markets asia eastern europe latin america organic sales growth 1 2007 reflected international growth partially offset slower competitive market conditions north america net income net income decreased 37 million 12 2008 compared 2007 negative factors affecting change net income included • reduced fixed cost leverage due sales decline organic basis • cost inflation including raw material energy costs • incremental interest expense amortization intangibles related paxar dm label acquisitions • carryover effect competitive pricing environment roll materials business prior year partially offset current year price increases positive factors affecting change net income included • cost savings productivity improvement initiatives including savings restructuring actions • benefits foreign currency translation acquisitions • lower effective tax rate • lower asset impairment restructuring charges related cost reduction actions • lower transition costs related integration paxar acquisitions completed paxar acquisition june 15 2007 combination paxar business retail information services segment increases presence retail information brand identification market combines complementary strengths broadens range product service capabilities improves ability meet customer demands product innovation improved quality service facilitates expansion new product geographic segments see “paxar acquisitionrelated actions” information cash costs incurred cost synergies achieved integration completed dm label acquisition april 1 2008 dm label operations included retail information services segment see note 2 “acquisitions” consolidated financial statements information paxar acquisitionrelated actions following integration actions resulted headcount reductions approximately 1695 positions retail information services segment 1 includes severance asset impairment lease cancellation charges applicable 2 recorded consolidated statement income year end paxar integration essentially complete cost synergies resulting integration approximately 20 million 2007 incremental 88 million 2008 expect realize incremental savings approximately 12 million 2009 refer note 2 “acquisitions” consolidated financial statements information cost reduction actions q4 2008 2009 actions response worsening market conditions undertaking new restructuring actions began fourth quarter 2008 expected impact approximately 10 company’s global workforce refer “outlook” section total estimated costs incurred annualized savings expected achieved actions fourth quarter 2008 recorded 123 million pretax charges related restructuring actions consisting severance related employee costs asset impairment charges lease cancellation costs severance employee related costs related approximately 700 positions impacting segments geographic regions expect realize savings approximately 18 million 2009 related charges q1 2008 q3 2008 actions first three quarters 2008 implemented cost reduction actions resulting pretax charges 228 million including severance employee related costs approximately 645 positions asset impairment charges lease cancellation costs expect achieve annualized savings approximately 20 million benefit 2009 result restructuring actions q4 2006 2007 actions incurred 314 million pretax charges related cost reduction actions initiated late 2006 end 2007 including severance employee related costs approximately 555 positions asset impairment charges lease cancellation costs savings restructuring actions net transition costs approximately 5 million 2008 32 million 2007 expect realize incremental savings 8 million 2009 q4 2005 q3 2006 actions 2007 2006 realized annualized pretax savings net transition costs 90 million resulting restructuring actions initiated fourth quarter 2005 restructuring actions resulted headcount reductions approximately 1150 positions impacted segments geographic regions completed 2006 refer note 10 “cost reduction actions” consolidated financial statements information divestitures divestiture raised reflective pavement marker business sales approximately 23 million 2005 completed second quarter 2006 resulted tax benefit due capital losses arising sale business results business accounted discontinued operations 2006 business previously included pressuresensitive materials segment addition divestitures two product lines completed first quarter 2006 first product line included office consumer products segment estimated sales 60 million 2005 minimal impact income operations second product line included specialty converting businesses annual sales approximately 10 million 2005 minimal impact income operations free cash flow use free cash flow measure funds available corporate purposes dividends debt reduction acquisitions repurchases common stock management believes measure provides meaningful supplemental information investors assist financial analysis company management believes appropriate measure cash flow including net proceeds sale investments spending property plant equipment software deferred charges spending considered integral maintaining expanding underlying business measure intended represent residual cash available discretionary purposes refer “uses limitations nongaap measures” information regarding limitations measure 1 net proceeds sale investments related sale securities held captive insurance company investments 2008 sale longterm investment 2006 increase free cash flow 2008 121 million primarily due increased cash flow provided operating activities reduced capital spending partially offset lower net income compared 2007 decrease free cash flow 2007 87 million reflects higher spending property plant equipment software deferred charges well lower net income compared 2006 see “analysis results operations” “liquidity” “financial condition” information legal proceedings named defendant purported class actions us seeking treble damages relief alleged unlawful competitive practices previously disclosed discovered instances conduct certain employees potentially violate us foreign corrupt practices act reported conduct authorities us believe possible fines penalties could incurred board directors created ad hoc committee comprised certain independent directors oversee foregoing matters unable predict effect matters time although effect could adverse material matters reported note 8 “contingencies” consolidated financial statements outlook certain statements contained section “forwardlooking statements” subject certain risks uncertainties refer “safe harbor statement” herein light global economic environment providing 2009 earnings forecast time current exchange rate trends continue would unfavorable effect earnings 2009 expect incremental pension employeerelated expenses contributions 2009 response increased uncertainty resulting worsening global economic conditions initiated new cost reduction actions target approximately 150 million annualized savings 2010 estimated 70 million net transition costs expected benefit 2009 expect incur approximately 120 million restructuring charges associated actions majority incurred 2009 addition savings new actions expect approximately 40 million savings previously implemented actions includes 12 million benefits paxar integration total incremental savings implemented cost reduction actions discussed expected 110 million 2009 anticipate higher charges related restructuring actions 2009 compared 2008 anticipate lower interest expense 2009 subject currently anticipated retirements andor refinancings currently outstanding indebtedness assuming continuation current market rates variable interest rate debt commercial paper annual effective tax rate impacted future events including changes tax laws geographic income mix tax audits closure tax years legal entity restructuring release accrual valuation allowances deferred tax assets effective tax rate potentially wide variances quarter resulting interim reporting requirements recognition discrete events anticipate capital software expenditures range 120 million 150 million 2009 analysis results operations income continuing operations taxes sales increased 6 2008 13 2007 driven primarily acquisitions effect currency translation acquisitions paxar dm label increased sales estimated 450 million 2008 acquisition paxar increased sales estimated 510 million 2007 foreign currency translation favorable impact change sales approximately 167 million 2008 compared approximately 232 million 2007 organic basis sales declined 3 2008 grew 1 2007 decline 2008 primarily reflected worsening global economic conditions 2008 experienced first us western europe emerging markets organic sales growth 1 2007 reflected international growth partially offset slower competitive market conditions north america organic sales growth decline major regions operation follows organic basis international sales roughly flat 2008 compared growth 4 2007 growth 2007 reflected increases businesses outside us particularly emerging markets us sales organic basis declined 7 2008 4 2007 due primarily slowdown us economy combined reduction inventories customers particularly office consumer products segment pressuresensitive materials segment soft market conditions experienced second half 2007 roll materials businesses north america europe continued 2008 spreading latin america asia retail information services segment continued experience weakness domestic retail apparel markets 2008 began experience weakness european retail markets specialty converting businesses also experienced declines 2008 primarily due lower volume products sold automotive housing construction industries refer “results operations segment” information segments gross profit gross profit margin 2008 decreased 2007 higher gross profit margin associated sales paxar business savings restructuring actions sources productivity offset carryover effect prior year price competition roll materials business higher raw material cost inflation negative product mix shifts lower sales higher gross profit margin products well reduced fixed cost leverage organic basis gross profit margin 2007 decreased 2006 due price competition unfavorable product mix roll materials business higher raw material costs negative effect factors partially offset addition higher gross profit margin paxar business well benefits ongoing productivity improvement cost reduction actions marketing general administrative expense marketing general administrative expense 2008 increased 2007 benefits productivity improvement initiatives lower net transition costs related paxar dm label acquisitions offset • costs associated acquired businesses totaling approximately 123 million including 15 million incremental amortization intangibles • negative impact fluctuations foreign currency approximately 13 million • higher employee costs marketing general administrative expense 2007 increased 2006 savings restructuring actions cost reductions offset • costs associated paxar business related integration expense totaling approximately 185 million including 40 million integrationrelated transition costs 12 million amortization intangibles • negative impact foreign currency translation approximately 30 million interest expense interest expense increased 10 approximately 11 million 2008 compared 2007 due increase borrowings fund paxar dm label acquisitions partially offset benefit lower interest rates expense net three years presented “other expense net” consisted charges restructuring including severance employeerelated costs asset impairment charges lease cancellation costs described “cost reduction actions” “paxar acquisitionrelated actions” sections herein refer also note 10 “cost reduction actions” consolidated financial statements information 2008 items included “other expense net” consisted gain sale investments 45 million 2007 items included “other expense net” included • cash flow hedge loss 48 million • expenses related divestiture 3 million • reversal accrual related lawsuit 32 million 2006 items included “other expense net” included • accrual environmental remediation costs 13 million • costs related lawsuit divestiture 8 million • gain sale assets 53 million • gain curtailment settlement pension obligation 16 million • gain sale investment 105 million partially offset charitable contribution avery dennison foundation 10 million net income provision income taxes effective tax rate approximately 2 2008 compared approximately 19 2007 2008 effective tax rate reflects 453 million benefit changes valuation allowance certain deferred tax assets favorable geographic income mix 248 million detriment accruals uncertain tax positions refer note 11 “taxes income” information income discontinued operations income discontinued operations includes divestiture raised reflective pavement markers business noted “overview” section divestiture business completed 2006 resulted tax benefit 149 million due capital losses arising sale business gain sale 13 million income discontinued operations included net sales approximately 7 million 2006 results operations segment pressuresensitive materials segment net sales pressuresensitive materials segment increased 4 2008 8 2007 increase reported sales segment included favorable impact foreign currency translation approximately 132 million 2008 approximately 174 million 2007 organic sales growth 1 2008 3 2007 reflected growth roll materials business asia latin america europe partially offset declines north american roll materials businesses growth resulting market expansion roll materials business asia latin america 2007 slowed 2008 asia roll materials business experienced high singledigit growth 2008 compared doubledigit growth 2007 latin america roll materials business experienced low singledigit growth 2008 compared mid singledigit growth 2007 roll materials business europe experienced low singledigit organic sales growth 2008 2007 north american roll materials business slow market conditions 2008 2007 resulted low singledigit decline sales organic basis 2007 competitive environment due part capacity additions industry led price reductions maintain market share graphics reflective business sales declined organic basis mid singledigit rate 2008 growth asia latin america offset declines us europe decline primarily reflected lower promotional spending graphic products businesses response weak market conditions 2007 graphics reflective business experienced mid singledigit organic sales growth strong international growth partially offset declines us operating income decreased operating income 2008 reflected negative effects raw material cost inflation prior year price reductions offset initial benefits recent price increases negative product mix partially offset higher unit volume cost savings restructuring productivity improvement initiatives increased operating income 2007 reflected higher sales cost savings restructuring productivity improvement initiatives partially offset competitive pricing environment unfavorable product mix roll materials business higher raw material costs transition costs related restructuring actions operating income three years reflected restructuring asset impairment charges 2008 operating income included lease cancellation charges 2007 operating income included reversal accrual related lawsuit 2006 operating income included gain sale assets legal fees related lawsuit lease cancellation charges retail information services segment net sales retail information services segment increased 32 2008 compared increase 76 2007 2008 increase reflected estimated 450 million sales paxar dm label acquisitions favorable impact foreign currency translation approximately 7 million 2007 increase reflected estimated 510 million sales paxar acquisition favorable impact foreign currency translation approximately 17 million organic basis sales declined 6 2008 reflecting continued weakness domestic retail apparel markets weakness experienced european retail markets organic sales growth approximately 1 2007 reflected increased sales european retail market partially offset decline orders related apparel shipped north american retailers brand owners operating income increased operating income 2008 reflected higher sales incremental synergies lower transition costs related paxar integration savings restructuring productivity improvement initiatives partially offset raw material cost inflation incremental amortization acquisition intangibles operating loss 2007 reflected transition costs integrationrelated asset impairment charges associated paxar acquisition amortization acquisition intangibles higher expenses due investments growth asia including higher employeerelated costs higher operating costs partially offset higher sales savings restructuring productivity improvement initiatives restructuring costs asset impairment lease cancellation charges incurred three years office consumer products segment net sales office consumer products segment decreased 8 2008 5 2007 decline reported sales years reflected lower sales organic basis partially offset favorable impact foreign currency translation approximately 12 million 2008 25 million 2007 decline included negative impact product line divestitures approximately 9 million organic basis sales declined approximately 9 2008 7 2007 declines reflected combination weak end market demand tighter inventory controls customers operating income decreased operating income 2008 reflected lower sales cost inflation partially offset price increases savings restructuring actions productivity improvement initiatives decreased operating income 2007 reflected lower sales higher raw material costs partially offset savings restructuring actions productivity improvement initiatives restructuring costs incurred three years asset impairment charges incurred 2008 2006 operating income 2007 included lease cancellation costs expense related divestiture 2006 operating income included gain sale assets gain curtailment settlement pension obligation net gain product line divestiture specialty converting businesses net sales specialty converting businesses decreased 6 2008 increased 3 2007 2008 decrease reflected lower sales organic basis partially offset favorable impact foreign currency translation approximately 17 million 2007 increase reflected favorable impact foreign currency translation approximately 16 million partially offset impact product line divestiture net small acquisition approximately 2 million organic basis sales declined 8 2008 reflecting lower volume products sold automotive housing construction industries negative effect exiting certain lowmargin products specialty tape business partially offset growth radiofrequency identification “rfid” division 2007 sales grew 1 organic basis loss sales exiting certain lowmargin products specialty tape business offset solid growth parts specialty tape business well growth rfid division operating income decreased operating income businesses 2008 reflected lower sales cost inflation partially offset benefit productivity improvement initiatives reduction operating loss rfid division increased operating income businesses 2007 reflected higher sales savings restructuring productivity improvement initiatives reduction operating loss rfid division operating income years included restructuring costs asset impairment charges financial condition liquidity cash flow operating activities cash flow purposes changes assets liabilities exclude impact foreign currency translation impact acquisitions divestitures certain noncash transactions discussed “analysis selected balance sheet accounts” 2008 cash flow provided operating activities improved compared 2007 due improved collection trade accounts receivable extended payment terms accounts payable decreased purchases better management inventory lower rebate payments lower income tax payments net refunds positive factors partially offset higher payments interest higher material costs 2007 cash flow provided operating activities decreased compared 2006 primarily due shorter vendor payment terms accounts payable higher payments income taxes negative factors partially offset collection valueadded tax receivables europe current assets lower contributions pension plans cash flow investing activities payments acquisitions april 1 2008 completed acquisition dm label june 15 2007 completed acquisition paxar acquisition initially funded commercial paper borrowings supported bridge revolving credit facility refer note 2 “acquisitions” consolidated financial statements information payments acquisitions 2007 also included buyouts minority interest shareholders associated certain subsidiaries rvl packaging inc paxar approximately 4 million capital software spending significant capital projects 2008 included investments expansion china india serving materials retail information services businesses significant information technology projects 2008 included customer service standardization initiatives proceeds sale businesses investments 2008 sold securities primarily held captive insurance company 2006 sold longterm investment proceeds approximately 16 million divested raised reflective pavement marker business us proceeds approximately 9 million divested product line europe proceeds approximately 4 million cash flow financing activities borrowings repayment debt year end 2008 borrowings outstanding foreign shortterm lines credit approximately 106 million weightedaverage interest rate 69 compared approximately 70 million year end 2007 weightedaverage interest rate 106 shortterm variable rate domestic borrowings 558 million december 27 2008 weightedaverage interest rate 09 compared 9902 million december 29 2007 weightedaverage interest rate 52 december 27 2008 shortterm variable rate domestic borrowings mix commercial paper revolving credit agreement 2007 increased shortterm borrowings initially fund paxar acquisition noted “payments acquisitions” well support share repurchases change outstanding commercial paper also reflects positive cash flow operations mediumterm notes 50 million outstanding year end 2008 compared 100 million year end 2007 2008 2007 mediumterm notes 50 million 60 million paid maturity respectively refer “capital resources” information 2008 2007 borrowings repayment debt shareholders’ equity shareholders’ equity approximately 175 billion year end 2008 compared approximately 199 billion year end 2007 annual dividend per share increased 164 2008 161 2007 share repurchases october 26 2006 board directors authorized company purchase additional 5 million shares company’s stock existing stock repurchase program resulting total authorization approximately 74 million shares company’s stock date repurchased approximately 2 million 8 million shares 2008 2007 respectively cash payments repurchased shares approximately 10 million approximately 63 million 2008 2007 respectively included 2007 cash payments approximately 11 million related shares repurchased 2006 settled 2007 december 27 2008 approximately 39 million shares available repurchase board directors’ authorization analysis selected balance sheet accounts longlived assets goodwill increased 33 million 2008 due preliminary identified goodwill associated dm label acquisition 45 million purchase price adjustments 10 million associated paxar acquisition completed june 2007 partially offset foreign currency translation 22 million intangibles resulting business acquisitions decreased 11 million 2008 reflected normal amortization expense 33 million impact foreign currency translation 5 million partially offset preliminary valuation intangible assets dm label acquisition 19 million incremental adjustments intangible assets paxar acquisition 8 million refer note 2 “acquisitions” consolidated financial statements information assets decreased 115 million 2008 due primarily decreases longterm pension assets 115 million cash surrender value corporateowned life insurance 23 million impact foreign currency translation 5 million partially offset increases purchases software deferred charges net related amortization 23 million assets 5 million shareholders’ equity accounts value employee stock benefit trust decreased 182 million 2008 due decrease market value shares held trust approximately 174 million issuance shares employee stock option incentive plans approximately 8 million accumulated comprehensive loss income reflected loss 367 million 2008 due primarily decline value pension assets current year recognition amortization net pension transition obligation prior service cost net actuarial losses us international pension postretirement plans 191 million well foreign currency translation 177 million impact foreign currency translation 2008 international operations generated approximately 67 net sales future results subject fluctuations foreign currency exchange interest rates influenced global economic political conditions benefit sales currency translation 2008 primarily reflected benefit sales denominated euros swiss francs well sales currencies china brazil australia partially offset negative impact sales currencies south korea great britain south africa translation gains losses operations hyperinflationary economies included net income period incurred operations treated hyperinflationary economy based cumulative inflation rate past three years 2008 2007 operations hyperinflationary economies 2006 hyperinflationary economy operated dominican republic uses us dollar functional currency effect foreign currency transactions impact net income transactions denominated foreign currencies may mitigated costs products generally denominated currencies sold addition reduce income statement cash flow exposure transactions foreign currencies may enter foreign exchange forward option swap contracts available appropriate analysis selected financial ratios utilize certain financial ratios assess financial condition operating performance discussed operational working capital ratio working capital current assets minus current liabilities percent net sales changed 2008 primarily due impact paxar acquisition decrease shortterm debt accrued liabilities partially offset decrease net trade accounts receivable inventories current deferred tax assets well net increase hedge liabilities income taxes payable february 2008 one subsidiaries entered credit agreement term loan credit facility fifteen domestic foreign banks total commitment 400 million guaranteed maturing february 8 2011 proceeds term loan credit facility used reduce commercial paper borrowings included current liabilities initially used finance paxar acquisition operational working capital percent net sales nongaap measure shown use nongaap measure tool assess working capital requirements excludes impact fluctuations due financing activities affect cash equivalents deferred taxes current assets current liabilities tend disparate amount timing therefore may increase volatility working capital ratio period additionally items excluded measure necessarily indicative underlying trends operations significantly influenced daytoday activities managed operating level refer “uses limitations nongaap measures” objective minimize investment operational working capital percentage sales reducing ratio maximize cash flow return investment operational working capital percent net sales operational working capital 2008 decreased compared 2007 primary factors contributing change includes impact paxar acquisition foreign currency translation discussed accounts receivable ratio average number days sales outstanding 61 days 2008 compared 62 days 2007 calculated using fourquarter average accounts receivable balance divided average daily sales year current year average number days sales outstanding benefited improved payment terms customers prior year average number days sales outstanding impacted primarily acquisition paxar well timing sales collections inventory ratio average inventory turnover 78 2008 2007 calculated using annual cost sales divided fourquarter average inventory balance current year average inventory turnover reflected continued improvement inventory management adjust demand customers prior year ratio impacted primarily acquisition paxar accounts payable ratio average number days payable outstanding 54 days 2008 compared 53 days 2007 calculated using fourquarter average accounts payable balance divided average daily cost products sold year current year average number days payable outstanding primarily due improved payment terms suppliers partially offset lower inventory purchases prior year average number days payable outstanding impacted primarily timing payments europe partially offset acquisition paxar debttocapital ratio increase debttocapital ratio 2008 primarily due lower shareholders’ equity reflected recognition net pension transition obligation prior service cost net actuarial losses us international pension postretirement plans negative impact foreign currency translation partially offset net decrease debt various loan agreements effect year end require maintain specified ratios total debt interest expense relation certain measures income loan agreements ratio total debt earnings interest taxes depreciation amortization noncash expenses recent twelvemonth fiscal period may exceed 35 10 addition earnings interest taxes noncash expenses ratio interest recent twelvemonth fiscal period may less 35 10 december 27 2008 compliance debt covenants january 2009 amended covenants included revolving credit agreement term loan agreement exclude certain restructuring charges adjust covenant levels adjusted covenant levels change quarterly revert back preamendment levels 2010 amendments also reflect increased pricing levels borrowings agreements consistent current pricing environment refer note 15 “subsequent events” consolidated financial statements information fair value debt estimated based discounted amount future cash flows using current rates offered us debt remaining maturities year end fair value total debt including shortterm borrowings 19442 million 2008 22507 million 2007 shareholders’ equity ratios decreases ratios 2008 compared 2007 primarily due lower net income well higher yearly average total debt outstanding shareholders’ equity ratios computed using actual net income fivequarter average denominator equity total debt accounts capital resources capital resources include cash flows operations cash equivalents debt financing year end 2008 cash equivalents 1055 million held accounts managed thirdparty financial institutions date experienced loss lack access invested cash equivalents however assurance access invested cash equivalents impacted adverse conditions financial markets 1 billion revolving credit facility supports commercial paper programs us europe matures 2012 based upon current outlook business market conditions believe facility addition committed uncommitted bank lines credit maintained countries operate provide liquidity fund operations recent turmoil financial markets experience interruptions access funding 5 million longterm debt maturities due 2009 exposed financial market risk resulting changes interest foreign currency rates possible liquidity credit risks counterparties total debt decreased 46 million 2008 221 billion compared 226 billion year end 2007 reflecting primarily decrease shortterm borrowings used general operational requirements partially offset increase shortterm borrowings associated dm label acquisition refer “borrowings repayment debt” “cash flow financing activities” section information august 2007 amended existing revolving credit agreement increasing commitments 525 million 1 billion extending maturity august 2012 commitments provided twelve domestic foreign banks financing available agreement used commercial paper backup facility also available finance corporate requirements january 2009 amended covenants related issuance described refer note 15 “subsequent events” consolidated financial statements information september 2007 one subsidiaries issued 250 million 10year senior notes guaranteed bearing interest rate 6625 per year due october 2017 net proceeds offering approximately 247 million used pay current longterm debt maturities 150 million reduce commercial paper borrowings 97 million initially used finance paxar acquisition fourth quarter 2007 filed shelf registration statement securities exchange commission permit issuance debt equity securities proceeds shelf offering may used general corporate purposes including repaying redeeming repurchasing existing debt working capital expenditures acquisitions shelf registration replaced shelf registration statement filed 2004 himeds units discussed issued registration statement fourth quarter 2007 issued 440 million 7875 corporate himeds units mandatory convertible debt issue himeds units comprised two components purchase contracts obligating holders purchase us certain number shares 2010 ranging approximately 68 million approximately 86 million shares depending stock price time senior notes due 2020 net proceeds offering approximately 427 million used reduce commercial paper borrowings initially used finance paxar acquisition february 2009 commenced offer exchange approximately 84 million units 95 himeds units stated amount 5000 per unit form corporate himeds units exchange mandatory assurance exchange occur part entirety refer note 15 “subsequent events” consolidated financial statements information february 2008 one subsidiaries entered credit agreement term loan credit facility fifteen domestic foreign banks total commitment 400 million guaranteed maturing february 8 2011 financing available agreement used working capital general corporate purposes used term loan credit facility reduce commercial paper borrowings previously issued fund acquisition paxar term loan credit facility subject customary financial covenants including maximum leverage ratio minimum interest coverage ratio january 2009 amended covenants described refer note 15 “subsequent events” consolidated financial statements information february 2008 terminated bridge revolving credit agreement dated june 13 2007 five domestic foreign banks addition 364day revolving credit facility foreign bank provides us euro 30 million 422 million borrowings march 5 2009 approval bank may extend revolving period due date annual basis financing agreement used finance cash requirements european operations december 27 2008 422 million debt outstanding agreement debt outstanding agreement december 29 2007 standby letters credit outstanding 706 million 809 million end 2008 2007 respectively aggregate contract amount outstanding standby letters credit approximated fair value uncommitted lines credit approximately 468 million year end 2008 uncommitted lines credit commitment expiration date may cancelled banks us time credit ratings significant factor ability raise shortterm longterm financing credit ratings assigned us also impact interest rates commercial paper borrowings determining credit rating agencies place significant weight competitive position business outlook consistency cash flows debt level liquidity geographic dispersion management team remain committed retaining investment grade rating credit ratings year end 2008 1 january 2009 longterm credit rating placed review moody’s possible downgrade moody’s expects review completed end april 2009 contractual obligations commitments offbalance sheet arrangements contractual obligations year end 2008 1 january 2009 entered amendment credit agreement 400 million term loan credit facility “credit facility” maturing february 8 2011 amendment provides partial repayment loans credit facility 15 million quarterly installments beginning april 2009 december 2010 280 million payable upon maturity amended agreement repayment longterm debt capital leases scheduled follows 605 million 2009 606 million 2010 2852 million 2011 0 2012 250 million 2013 889 million thereafter see note 15 “subsequent events” information 2 interest floating rate debt estimated using index rate effect december 27 2008 enter operating leases primarily office warehouse space equipment electronic data processing transportation terms leases impose significant restrictions unusual obligations except facility mentor ohio noted table includes minimum annual rental commitments operating leases initial remaining noncancelable lease terms one year september 9 2005 completed lease financing commercial facility “facility” located mentor ohio used primarily new headquarters research center roll materials division facility consists generally land buildings equipment office furnishings leased facility operating lease arrangement contains residual value guarantee 334 million estimate residual value facility less amount guaranteed include purchase obligations open purchase orders year end 2008 table contractual obligations impracticable us either obtain information provide reasonable estimate due decentralized nature purchasing systems table reflect unrecognized tax benefits approximately 23 million portion may become payable 2009 resolution balance contingent upon various unknown factors cannot reasonably estimated refer note 11 “taxes based income” consolidated financial statements information unrecognized tax benefits legal proceedings named defendant purported class actions us seeking treble damages relief alleged unlawful competitive practices board directors created ad hoc committee comprised certain independent directors oversee foregoing matters unable predict effect matters time although effect could adverse material matters reported note 8 “contingencies” consolidated financial statements environmental matters designated us environmental protection agency “epa” andor responsible state agencies potentially responsible party “prp” seventeen waste disposal waste recycling sites including former paxar sites subject separate investigations proceedings concerning alleged soil andor groundwater contamination settlement liability agreed upon participating prps sites anticipate share cleanup costs determined pursuant remedial agreements entered normal course negotiations epa governmental authorities accrued liabilities certain sites including sites governmental agencies designated us prp probable loss incurred cost amount loss reasonably estimated however uncertainties associated environmental assessment remediation activities future expense remediate currently identified sites could identified future cleanup could higher liability currently accrued environmental liabilities include costs associated compliance remediation follows december 27 2008 approximately 2 million associated environmental liabilities estimated paid within next 12 months estimates could change depending various factors modification currently planned remedial actions changes remediation technologies changes site conditions change estimated time complete remediation changes laws regulations affecting remediation requirements factors 2005 contacted relevant authorities us reported results internal investigation potential violations us foreign corrupt practices act transactions issue carried small number employees reflective business china involved among things impermissible payments attempted impermissible payments attempted payments contracts associated appear relatively minor amount limited duration corrective disciplinary actions taken sales reflective business china 2005 approximately 7 million based findings date changes previously filed financial statements warranted result matters however believe fines penalties could incurred unable predict financial operating impact fines penalties believe behavior detecting investigating responding voluntarily disclosing matters authorities viewed favorably addition october 10 2008 notified relevant authorities discovered questionable payments certain foreign customs regulatory officials employees recently acquired companies payments appear made purpose obtaining business governmental entity process conducting review taking remedial measures comply provisions us foreign corrupt practices act subsidiaries involved various lawsuits claims inquiries routine nature business based upon current information believe resolution matters materially affect us provide estimate costs may incurred basic limited warranty time product revenue recognized costs primarily include materials labor associated service sale products factors affect warranty liability include number units installed sold historical anticipated rate warranty claims units cost per claim satisfy warranty obligation availability insurance coverage factors impacted actual experience future expectations assess adequacy recorded warranty liability adjust amounts necessary participate international receivable financing programs several financial institutions whereby advances may requested financial institutions advances guaranteed us december 27 2008 guaranteed approximately 13 million december 27 2008 guaranteed approximately 22 million certain foreign subsidiaries’ obligations suppliers well approximately 556 million certain subsidiaries’ lines credit various financial institutions fourth quarter 2007 issued 440 million 7875 corporate himeds units mandatory convertible debt issue himeds units comprised two components purchase contracts obligating holders purchase us certain number shares common stock 2010 ranging approximately 68 million approximately 86 million shares depending quoted price per share common stock time senior notes due 2020 net proceeds offering approximately 427 million february 2009 commenced offer exchange approximately 84 million units 95 himeds units stated amount 5000 per unit form corporate himeds units exchange mandatory assurance exchange occur part entirety refer note 15 “subsequent events” consolidated financial statements information uses limitations nongaap measures use certain nongaap financial measures exclude impact certain events activities strategic decisions accounting effects events activities decisions included gaap measures may make difficult assess underlying performance company single period excluding certain accounting effects positive negative eg gains sales assets restructuring charges asset impairments etc certain gaap measures management believes providing meaningful supplemental information facilitate understanding company’s “core” “underlying” operating results nongaap measures used internally evaluate trends underlying business well facilitate comparison results competitors single period limitations associated use nongaap measures include 1 exclusion foreign currency translation impact acquisitions divestitures calculation organic sales growth 2 exclusion mandatory debt service requirements well exclusion uses cash generated operating activities directly immediately support underlying business discretionary debt reductions dividends share repurchases acquisitions etc calculation free cash flow 3 exclusion cash equivalents shortterm debt deferred taxes current assets current liabilities well current assets current liabilities heldforsale businesses calculation operational working capital items company excludes gaap measures recur items tend disparate amount timing based upon feedback investors financial analysts believe supplemental nongaap measures provide information useful assessment company’s performance operating trends related party transactions time enter transactions normal course business related parties believe transactions arm’s length terms would obtained unaffiliated third parties one directors peter w mullin chairman chief executive officer director mc insurance services inc “mc” mullin insurance services inc “minc” pwm insurance services inc “pwm” executive compensation benefit consultants insurance agents mr mullin also majority stockholder mc minc pwm collectively referred “mullin companies” october 2008 mullin companies’ executive benefit insurance agency related entities mc insurance agency service llc “mcia” mullintbg insurance agency services llc “mullintbg” mullintbg advisory services llc “mullintbg advisors” sold prudential financial “prudential” paid premiums insurance carriers life insurance placed mullin companies connection various employee benefit plans mullin companies prudential advised us earned commissions insurance carriers placement renewal insurance approximately 50 commissions allocated used mullintbg previous affiliate mc whollyowned affiliate prudential administer benefit plans provide benefit statement information participants various employee benefit plans 2008 mullintbg advisors provided financial advisory services participants certain employee benefit plans mullin companies minority interest financial holdings inc “mfh” substantially life insurance policies placed mullin companies 2008 prior years issued insurance carriers participate reinsurance agreements entered insurance carriers life insurance company “m life” whollyowned subsidiary mfh reinsurance returns earned life determined annually insurance carriers negative positive depending upon results life’s aggregate reinsurance pool consists insured lives reinsured life mullin companies advised us participated net reinsurance gains life addition mullin companies advised us also participated net reinsurance gains life subject risk forfeiture none transactions significant financial position results operations summary related party activity critical accounting policies estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions reporting period financial statement date estimates assumptions affect reported amounts assets liabilities disclosure contingent liabilities reported amounts revenue expense actual results could differ estimates critical accounting policies important portrayal financial condition results require us make difficult subjective andor complex judgments critical accounting policies cover accounting matters inherently uncertain future resolution matters unknown believe critical accounting policies include accounting revenue recognition sales returns allowances accounts receivable allowances inventory reserves longlived asset impairments goodwill pension postretirement benefits income taxes stockbased compensation restructuring severance costs litigation environmental matters business combinations revenue recognition sales recognized persuasive evidence arrangement exists pricing determinable collection reasonably assured furthermore sales provisions estimated returns cost products sold recorded time title transfers customers assume risks rewards ownership sales terms generally fob free board shipping point fob destination depending upon local business customs regions operate fob shipping point terms utilized sales recorded time shipment title risk loss transferred certain regions notably europe fob destination terms generally utilized sales recorded products delivered customer’s delivery site title risk loss transferred actual product returns charged estimated sales return allowances sales rebates discounts common practice industries operate volume promotional price cash discounts customer incentives accounted reduction gross sales rebates discounts recorded based upon estimates time products sold estimates based upon historical experience similar programs products review rebates discounts ongoing basis accruals rebates discounts adjusted necessary additional information becomes available sales returns allowances sales returns allowances represent credits grant customers affiliated nonaffiliated return unsatisfactory product negotiated allowance lieu return accrue returns allowances based upon gross price products sold historical experience products record allowances based following factors customer specific allowances ii estimated amount based historical experience issues yet identified accounts receivable allowances required make judgments collectibility accounts receivable based established aging policy historical experience future expectations allowances doubtful accounts represent allowances customer trade accounts receivable estimated partially entirely uncollectible allowances used reduce gross trade receivables net realizable value record allowances based estimates related following factors customer specific allowances ii amounts based upon aging schedule iii estimated amount based historical experience issues yet identified single customer represented 10 net sales trade receivables year end 2008 2007 however ten largest customers year end 2008 represented approximately 13 trade accounts receivable consisted five customers office consumer products segment four customers pressuresensitive materials segment one customer segments financial position operations customers monitored ongoing basis inventory reserves inventories stated lowerofcostormarket value categorized raw materials workinprogress finished goods cost determined using firstin firstout “fifo” method inventory reserves recorded matters damaged obsolete excess slowmoving inventory use estimates record reserves slowmoving inventory reviewed category may partially fully reserved depending type product length time product included inventory longlived asset impairments record impairment charges carrying amounts longlived assets determined recoverable impairment measured assessing usefulness asset comparing carrying value asset fair value fair value typically determined using quoted market prices available estimate undiscounted future cash flows expected result use asset eventual disposition key estimates applied preparing cash flow projections relate revenues gross margins economic life assets overheads taxation discount rates amount impairment loss calculated excess carrying value fair value changes market conditions management strategy historically caused us reassess carrying amount longlived assets goodwill reporting units purpose performing impairment tests goodwill consist roll materials retail information services office consumer products graphics reflective products industrial products business media purpose performing required impairment tests primarily apply present value discounted cash flow method determine fair value reporting units goodwill perform annual impairment test goodwill fourth quarter reporting units composed either discrete business aggregation businesses similar economic characteristics certain factors may result need perform impairment test prior fourth quarter including significant underperformance business relative expected operating results significant adverse economic industry trends significant decline market capitalization extended period time relative net book value decision divest individual business within reporting unit goodwill impairment determined using twostep process first step identify potential impairment exists comparing fair value reporting unit carrying amount including goodwill fair value reporting unit exceeds carrying amount goodwill reporting unit considered potential impairment second step impairment necessary however carrying amount reporting unit exceeds fair value second step performed determine goodwill impaired measure amount impairment loss recognize second step necessary compares implied fair value goodwill carrying amount goodwill implied fair value goodwill exceeds carrying amount goodwill considered impaired however carrying amount goodwill exceeds implied fair value impairment loss recognized amount equal excess estimate fair value reporting units using various valuation techniques primary technique discounted cash flow analysis discounted cash flow analysis requires us make various judgmental assumptions sales operating margins growth rates discount rates assumptions discount rates based weightedaverage cost capital comparable companies assumptions sales operating margins growth rates based forecasts business plans economic projections anticipated future cash flows marketplace data assumptions also made varying perpetual growth rates periods beyond longterm business plan period increased uncertainty resulting worsening global economic conditions revenue projections generally assumed reductions 2009 period recovery beginning 2010 first step impairment analysis 2008 indicated fair value reporting units exceeded carrying value fair values reporting units except retail information services reporting unit exceeded carrying amount 100 respective reporting unit’s book value goodwill december 27 2008 fair value retail information services reporting unit exceeded carrying value approximately 5 book value goodwill december 27 2008 approximately 12 billion evaluating fair value retail information services reporting unit assumed revenue declines 2009 2008 reflecting continuation weakness retail apparel markets assumed revenue 2010 increased levels comparable fiscal year 2007 including estimated sales paxar dm label adjusted foreign currency translation also assumed discount rate 118 perpetual growth rate 3 reflecting market conditions fourth quarter 2008 retail information services business seasonal higher volume second quarter may need perform impairment test second quarter 2009 revenues results reporting unit first second quarters 2009 estimates perpetual growth rate decreased 27 discount rate increases 12 key assumptions used fair value calculations fourth quarter 2008 change pension postretirement benefits effective december 2006 adopted provisions sfas 158 “employers’ accounting defined benefit pension postretirement plans amendment fasb statements 87 88 106 132r” assumptions used determining projected benefit obligations fair value plan assets pension plan postretirement benefit plans evaluated management consultation outside actuaries event determine changes warranted assumptions used discount rate expected longterm rate return health care costs future pension postretirement benefit expenses could increase decrease due changing market conditions changes participant population actuarial assumptions use may differ actual results could significant impact pension postretirement liability related cost discount rate consultation actuaries annually review determine discount rates used connection postretirement obligations assumed discount rate pension plan reflects market rates high quality corporate bonds currently available us discount rate determined evaluating several yield curves consisting large populations high quality corporate bonds projected pension benefit payment streams matched bond portfolios determine rate reflects liability duration unique plans longterm return assets determine longterm rate return assumption plan assets reviewing historical expected returns equity fixed income markets taking consideration assets higher volatility typically generate greater return long run additionally current market conditions interest rates evaluated peer data reviewed check reasonability appropriateness healthcare cost trend rate practice fund cost postretirement benefits cash basis measurement purposes 7 annual rate increase per capita cost covered health care benefits assumed 2009 rate expected decrease approximately 5 2011 income taxes deferred tax assets liabilities reflect temporary differences amount assets liabilities financial tax reporting purposes amounts adjusted appropriate reflect changes tax rates expected effect temporary differences reverse valuation allowance recorded reduce deferred tax assets amount likely realized changes tax laws accounting standards methods may affect recorded deferred taxes future periods income taxes provided certain undistributed earnings international subsidiaries earnings considered indefinitely reinvested pursuant sfas 109 “accounting income taxes” establishing valuation allowance consider future sources taxable income “future reversals existing taxable temporary differences future taxable income exclusive reversing temporary differences carryforwards” “tax planning strategies” sfas 109 defines tax planning strategy “an action prudent feasible enterprise ordinarily might take would take prevent operating loss tax credit carryforward expiring unused would result realization deferred tax assets” event determine deferred tax assets realized future valuation adjustment deferred tax assets charged earnings period make determination also acquired certain net deferred tax assets existing valuation allowances later determined likely deferred tax assets realized release valuation allowance current earnings adjust purchase price allocation calculate current deferred tax provision based estimates assumptions could differ actual results reflected income tax returns filed subsequent years adjustments based filed returns recorded identified amount income taxes pay subject ongoing audits federal state foreign tax authorities estimate potential outcome uncertain tax issue subject management’s assessment relevant risks facts circumstances existing time pursuant fasb interpretation 48 “fin 48” “accounting uncertainty income taxes interpretation fasb statement 109” fin 48 requires morelikelythannot threshold financial statement recognition measurement tax positions taken expected taken tax return record liability difference benefit recognized measured pursuant fin 48 tax position taken expected taken tax return extent assessment tax positions changes change estimate recorded period determination made report taxrelated interest penalties component income tax expense believe reasonable likelihood material change tax related balances valuation allowance balances however due complexity uncertainties ultimate resolution may materially different current estimate stockbased compensation recognize expense stockbased compensation accordance provisions sfas 123r “sharebased payment” valuation stock options stockbased compensation expense estimated fair value options granted amortized straightline basis requisite service period fair value stock option awards estimated date grant using blackscholes optionpricing model requires input assumptions expected dividend yield expected volatility riskfree interest rate expected life options expected dividend yield based current annual dividend divided 12month average monthly stock price prior grant expected volatility options determined based average implied historical volatility riskfree rate based average 52week average treasurybond rate term corresponding expected option term expected term determined based historical experience stock option plans forfeiture rate assumption determined based historical data stock option forfeitures certain assumptions used based management’s estimates factors change factors require us change assumptions estimates stockbased compensation expense could significantly different future capitalized costs associated stockbased compensation accounting income taxes stockbased compensation elected use shortcut method calculate historical pool windfall tax benefits related employee stockbased compensation awards addition elected follow tax ordering laws determine sequence deductions net operating loss carryforwards utilized well directonly approach calculating amount windfall shortfall tax benefits restructuring severance costs account restructuring costs including severance costs associated exit disposal activities following guidance provided sfas 112 “accounting postemployment benefits” sfas 146 “accounting costs associated exit disposal activities” us severance pay plan “pay plan” provides eligible employees severance payments event involuntary termination due qualifying cost reduction actions calculate severance pay using severance benefit formula pay plan accordingly record provisions amounts related exit costs probable estimable set forth sfas 112 absence pay plan established local practices overseas jurisdictions liability severance employeerelated costs recognized liability incurred following guidance sfas 146 litigation environmental matters currently involved various lawsuits claims inquiries routine nature business accordance sfas 5 “accounting contingencies” probable obligations incurred range cost compliance remediation estimated best estimate within range likely amount cannot determined low end range accrued ultimate resolution claims could affect future results operations exposure materially different earlier estimates liabilities incurred previously accrued environmental expenditures generally expensed however environmental expenditures newly acquired assets extend improve economic useful life existing assets capitalized amortized remaining asset life review reporting period estimates costs compliance environmental laws related remediation cleanup various sites including sites governmental agencies designated us potentially responsible party probable obligations incurred range cost compliance remediation estimated best estimate within range accrued best estimate within range cannot determined low end range accrued potential insurance reimbursements offset potential liabilities discounted business combinations account business combinations using accounting requirements sfas 141 “business combinations” accordance sfas 141 record assets acquired liabilities assumed acquired businesses fair value make estimates assumptions determine fair values utilize variety assumptions estimates believed reasonable determining fair value assets acquired liabilities assumed assumptions estimates include discounted cash flow analysis growth rates discount rates current replacement cost similar capacity certain assets market rate assumptions certain obligations certain potential costs compliance environmental laws related remediation cleanup acquired properties also utilize information obtained management acquired businesses historical experience previous acquisitions apply significant assumptions estimates determining certain intangible assets resulting acquisitions customer relationships patents acquired technology trademarks trade names related applicable useful lives property plant equipment receivables inventories investments tax accounts environmental liabilities stock option awards lease commitments restructuring integration costs unanticipated events circumstances may occur may affect accuracy validity assumptions estimates actual results increases estimates recorded adjustment goodwill purchase price allocation period generally within one year acquisition date operating expenses thereafter effective january 2009 adopt sfas 141r “business combinations” currently evaluating impact statement financial results operations financial position recent accounting requirements 2008 adopted certain accounting financial disclosure requirements financial accounting standards board “fasb” emerging issues task force “eitf” financial interpretations staff fasb none significant impact financial results operations financial position refer note 1 “summary significant accounting policies” consolidated financial statements information safe harbor statement matters discussed management’s discussion analysis financial condition results operations sections annual report contain “forwardlooking statements” within meaning private securities litigation reform act 1995 statements historical fact may contain estimates assumptions projections andor expectations regarding future events may occur words “aim” “anticipate” “assume” “believe” “continue” “could” “estimate” “expect” “guidance” “intend” “may” “might” “objective” “plan” “potential” “project” “seek” “shall” “should” “target” “will” “would” variations thereof expressions refer future events trends identify forwardlooking statements forwardlooking statements financial business targets subject certain risks uncertainties could cause actual results differ materially expected results performance achievements company expressed implied forwardlooking statements certain risks uncertainties discussed detail part item 1a “risk factors” company’s annual report form 10k year ended december 27 2008 include limited risks uncertainties relating investment development activities new production facilities fluctuations cost availability raw materials ability company achieve sustain targeted cost reductions ability company generate sustained productivity improvement successful integration acquisitions successful implementation new manufacturing technologies installation manufacturing equipment financial condition inventory strategies customers customer supplier concentrations changes customer order patterns loss significant contracts customers timely development market acceptance new products fluctuations demand retailers customers products impact competitive products pricing selling prices possible increases per unit product manufacturing costs due less full utilization manufacturing capacity result changing economic conditions factors possible increases payment time receivables result changing economic conditions factors business mix shift volatility capital credit markets credit risks ability company obtain adequate financing arrangements maintain access capital fluctuations interest rates fluctuations pension insurance employee benefit costs impact legal proceedings including previous government investigation industry competitive practices related proceedings lawsuits pertaining thereto subject matter thereof related concluded investigation us department justice “doj” including purported class actions seeking treble damages alleged unlawful competitive practices filed announcement doj investigation well impact potential violations us foreign corrupt practices act changes governmental regulations changes political conditions fluctuations foreign currency exchange rates risks associated foreign operations worldwide local economic conditions impact epidemiological events economy company’s customers suppliers acts war terrorism natural disasters factors company believes significant risk factors could affect financial performance nearterm include 1 impact economic conditions underlying demand company’s products 2 impact competitors’ actions including pricing expansion key markets product offerings 3 degree higher costs offset productivity measures andor passed customers selling price increases without significant loss volume 4 potential adverse developments legal proceedings andor investigations including possible fines penalties judgments settlements 5 ability company achieve sustain targeted cost reductions company’s forwardlooking statements represent judgment dates statements made making forwardlooking statements company assumes duty update reflect new changed unanticipated events circumstances may required law item 7aitem 7 management’s discussion analysis results operations financial condition information called item contained “management’s discussion analysis results operations financial condition” company’s 2009 annual report shareholders incorporated herein reference item 7aitem 7 management’s discussion analysis results operation financial condition information called item contained “management’s discussion analysis results operations financial condition” 2010 annual report incorporated herein reference item 7aitem 7 managements discussion analysis financial condition results operations information called item contained managements discussion analysis financial condition results operations 2012 annual report incorporated herein reference item 7aitem 7 managements discussion analysis financial condition results operations information called item contained managements discussion analysis financial condition results operations 2013 annual report incorporated herein reference item 7aitem 7 managements discussion analysis financial condition results operations information called item contained managements discussion analysis financial condition results operations 2014 annual report incorporated herein reference item 7aitem 7 managements discussion analysis financial condition results operations information called item contained managements discussion analysis financial condition results operations 2015 annual report incorporated herein reference item 7aitem 7 managements discussion analysis financial condition results operations information called item appears managements discussion analysis financial condition results operations 2017 annual report incorporated herein reference item 7aitem 7 managements discussion analysis financial condition results operations information called item appears managements discussion analysis financial condition results operations 2018 annual report incorporated herein reference item 7aitem 7 management’s discussion analysis financial condition results operations information called item appears “management’s discussion analysis financial condition results operations” 2019 annual report incorporated herein reference item 7aitem 7 management’s discussion analysis results operation financial condition overview outlook company’s sales continuing operations 2003 increased 15 percent compared 2002 476 billion primarily due incremental sales acquisitions completed 2002 benefit foreign currency translation net income diluted earnings per share increased 4 percent 3 percent respectively including impact charges taken 2003 2002 related restructuring asset impairments lease cancellation costs net losses associated several product line divestitures see productivity improvement programs well gain sale company’s european package label converting business 2003 slower rate growth earnings compared sales due decline company’s gross profit margin see “analysis results operations” year 2003 characterized weak industrial consumer demand many company’s businesses core unit volumes grew estimated 4 percent 2003 compared estimated 7 percent 8 percent 2002 core unit volume growth measure sales performance excludes estimated impact acquisitions divestitures changes product mix pricing currency translation management uses measure evaluate underlying demand company’s products services assess sales trends time year 2003 particularly challenging company’s office products business sales declined year due weak enduser demand fourth quarter office products business began reflect impact estimated 35 million loss annualized sales related one major customer addition weak underlying demand company’s north american western european markets created difficult pricing environment several company’s businesses europe example roll materials business unable secure adequate price increases offset negative margin impact british pound “gbp” weakening relative euro fourth quarter company experienced acceleration rate growth ongoing unit volumes compared rate growth experienced preceding three quarters resulted better expected net sales net income quarter acceleration growth experienced company’s businesses geographic regions competes company believes improvement underlying demand reflected generally improving economic market conditions affecting company’s businesses well success company’s growth initiatives discussed acquisitions divestitures 2003 company continued integrate operations 2002 acquisitions jackstädt gmbh “jackstädt” rvl packaging inc “rvl” le packaging “le” company’s existing businesses jackstädt integration actions included facility closures headcount reductions well addition new manufacturing capacity roll materials business europe support consolidation company’s operations region company expects complete integration actions 2004 october 2003 company completed sale package label converting business europe consisted two package label converting facilities denmark package label converting facility france combined represented approximately 50 million sales 2002 fourth quarter company recognized 197 million aftertax gain related sale results business previously reported company’s consumer converted products segment accounted discontinued operations periods presented company’s consolidated financial statements general discussions follow reflect summary results company’s continuing operations unless otherwise noted however net income net income per share discussions include impact discontinued operations summary results operating segment pressuresensitive adhesives materials segment reported 17 percent increase sales 2003 compared 2002 estimated 30 35 percent incremental sales 2003 result acquisition jackstädt may 2002 approximately 45 percent incremental sales 2003 due favorable impact foreign currency translation remaining 20 25 percent incremental sales attributable growth roll materials business primarily due stronger sales asia latin america eastern europe well increased sales businesses operating income operating income refers income interest taxes segment increased approximately 12 million 6 percent compared 2002 operating income reflected charge approximately 13 million 2003 compared approximately 22 million 2002 related restructuring asset impairments lease cancellation costs net losses associated several product line divestitures operating income segment also reflected higher sales partially offset competitive pricing environment startup costs new manufacturing equipment europe incremental costs associated growth initiatives 2003 consumer converted products segment reported 10 percent increase sales 2003 compared 2002 estimated 65 percent incremental sales 2003 resulted acquisitions rvl le november 2002 partially offset reduction sales divested lines business first quarter 2003 late 2002 balance incremental sales reflected favorable impact foreign currency translation operating income segment decreased approximately 10 million 4 percent compared 2002 operating income reflected charge approximately 22 million 2003 compared approximately 10 million 2002 related restructuring asset impairments lease cancellation costs net losses associated several product line divestitures operating income segment also reflected higher sales offset impact competitive pricing environment negative product mix office products business well higher manufacturing costs related reduction average order size retail information services business unanticipated incremental costs related backtoschool orders office products third quarter incremental costs associated growth initiatives 2003 sales growth region sales increased estimated 1 percent us estimated 15 percent asia estimated 15 percent latin america estimated 4 percent europe excluding impact acquisitions divestitures foreign currency translation impact currency exchange rates international operations constitute approximately 50 percent company’s net sales result company exposed foreign currency exchange rate risk changes foreign currency exchange rates impact company’s financial results previously noted 2003 company benefited foreign currency translation particularly strengthening euro us dollar representing approximately 235 million growth net sales compared 2002 benefit currency translation added approximately 014 diluted earnings per share 2003 partially offset reduction operating margin associated weakening gbp relative euro specifically operating margin products sold uk declined since selling prices gbpdenominated raw materials eurodenominated growth initiatives 2003 company implemented growth acceleration program “horizons” designed strengthen sales developing new products applications services end 2003 horizons program generated estimated incremental sales 50 million annualized basis company expects continued success initiative 2004 beyond 2003 company invested ongoing growth initiatives particular company continued expand presence emerging markets asia latin america eastern europe markets represented approximately 15 percent company’s total sales 2003 excluding effects foreign currency translation acquisitions productbased longterm growth initiatives include among others new line photo identification badges provide organizations easytouse system log track visitors heatactivated permanent care labels apparel market radiofrequency identification “rfid” labels label material productivity improvement programs company remains focused cost management efforts 2002 company recorded charges totaling 321 million cost reduction programs reorganization manufacturing administrative facilities company charges included employee severance related costs approximately 300 employees worldwide well charges related disposition fixed assets fourth quarter 2003 company announced cost reduction actions associated productivity improvement initiatives well ongoing integration jackstädt acquisition company recorded charges related actions totaling 343 million fourth quarter 2003 severance impairment planned disposition property plant equipment lease cancellation costs net losses associated several product line divestitures see “analysis results operations” discussed productivity improvement initiatives included headcount reductions approximately 420 positions approximately half office products business headcount reductions anticipated yield annualized savings approximately 25 million 30 million completed end 2004 addition jackstädt integration actions included headcount reductions 110 positions completion jackstädt integration 2004 includes headcount reduction approximately 500 positions final restructuring charges associated actions range 30 million 35 million expected recognized first half 2004 actions anticipated result annualized savings approximately 25 million 30 million company expects begin realizing second half 2004 addition cost reduction actions company expects continued profitability improvement ongoing six sigma efforts program designed improve productivity quality productivity initiatives operating expenses interest taxes marketing general administrative expenses increased 14 percent 103 billion 2003 compared 9052 million 2002 reflecting impact 2002 acquisitions foreign currency translation incremental costs associated growth initiatives addition insurance employee benefit costs including pension expense discussed increased approximately 15 million 2003 compared 2002 legal costs associated us department justice’s investigation label stock industry related matters approximately 4 million 2003 weakness equity markets 2002 lower interest rate environment resulted adjustments 2003 pension assumptions result changes pension expense 2003 increased approximately 11 million compared 2002 interest expense 577 million 2003 compared 44 million 2002 interest expense increased due higher debt levels resulting acquisitions 2002 well higher interest rates following company’s refinancing 400 million variable rate shortterm borrowings issuance longterm senior notes january 2003 effective tax rate 275 percent 2003 compared 295 percent 2002 due benefit structural operational changes geographic mix income free cash flow free cash flow 2003 decreased 227 million 134 million 2003 compared 361 million 2002 due net changes assets liabilities well higher capital expenditures 2003 see “liquidity” details free cash flow refers cash flow operating activities less spending property plant equipment us department justice investigation april 2003 company notified us department justice’s antitrust division initiated criminal investigation competitive practices label stock industry august 15 2003 us department justice issued subpoena company connection investigation company cooperating investigation company named defendant purported class actions seeking treble damages relief alleged unlawful competitive practices filed announcement investigation company also named defendant purported stockholder class actions seeking damages relief alleged disclosure violations pertaining alleged unlawful competitive practices company unable predict effect matters time although effect may adverse material matters reported note 9 “contingencies” consolidated financial statements item 3 legal proceedings herein outlook company anticipates improvement global economic market conditions 2004 increases sales net income result growth productivity improvement initiatives company also expects benefit foreign currency translation 2004 based expectation euro us dollar exchange rate remain average rate 2003 company believes benefit foreign currency translation may partially offset unable successfully increase prices recover operating margin loss due weaker gbp relative euro company expects higher earnings second half 2004 first half due timing savings associated cost reduction programs offsetting positive expectations company anticipates revenue growth constrained continued decline sales office products business primarily due market share loss previously described well factors impacting enduser demand annual pension medical insurance costs expected increase approximately 13 million 14 million taxes due part estimated increase 9 million pension expense resulting reduction weightedaverage discount rate assumption see note 12 “pensions postretirement benefits” consolidated financial statements additional information pension plan assumptions however increase could vary based upon impact foreign currency movements expense company also anticipates increased spending related certain longterm growth initiatives company estimates interest expense 2004 comparable 2003 anticipated increases interest rates expected offset debt reductions second half year company anticipates effective tax rate remain stable 2004 approximately 275 percent subject changes geographic mix income analysis results operations 2003 vs 2002 sales increased 15 percent 476 billion 2003 compared 416 billion 2002 increase sales 2003 reflected incremental sales acquisitions jackstädt may 2002 rvl le november 2002 estimated 310 million favorable impact foreign currency translation approximately 235 million growth existing businesses approximately 106 million impact incremental sales 2003 2002 acquisitions estimated due fact jackstädt rvl le acquisitions integrated company’s existing businesses increases partially offset reduction sales divested lines business 2002 sales approximately 45 million gross profit margins years ended 2003 2002 306 percent 321 percent respectively company’s gross profit margins individual products within business units vary significantly decrease 2003 partially due changes business product mix within company’s operations sales lower gross profit margin businesses product lines grew rapidly higher gross profit margin businesses product lines decrease also reflected competitive pricing environment including impact gbp weakening relative euro approximately 10 million startup costs new manufacturing equipment europe approximately 9 million higher manufacturing costs associated reduction average order size retail information services business approximately 4 million unanticipated incremental costs related backtoschool orders office products third quarter approximately 3 million marketing general administrative expense percent sales 217 percent 2003 218 percent 2002 ratio 2003 decreased partially due increased sales although absolute amount expenses increased increase expenses reflected incremental expenses resulting acquisitions 2002 well higher pension insurance employee benefit costs legal costs associated us department justice investigation label stock industry incremental costs associated growth initiatives year additionally expenses negatively impacted changes foreign currency exchange rates company recorded charges totaling 343 million fourth quarter 2003 321 million 2002 related restructuring asset impairments lease cancellation costs net losses associated several product line divestitures 2003 charges related severance approximately 22 million impairment planned disposition property plant equipment approximately 8 million lease cancellation costs net losses associated several product line divestitures approximately 4 million refer note 11 “components income expense” consolidated financial statements information interest expense years ended 2003 2002 577 million 44 million respectively interest expense 2003 increased due higher debt levels resulting acquisitions completed 2002 well higher interest rates following company’s refinancing 400 million variable shortterm borrowings issuance 250 million 10year 150 million 30year senior notes january 2003 connection issuance 10year senior note company settled related forward starting interest rate swap loss approximately 325 million currently amortized term related debt income taxes percent sales 7 percent 2003 85 percent 2002 percentage decrease 2003 reflected lower gross profit percent sales higher interest expense partially offset lower marketing general administrative expense percent sales effective tax rate 275 percent 2003 295 percent 2002 decrease effective tax rate 2003 due benefit structural operational changes geographic mix income net income discontinued operations 251 million 2003 included gain sale 197 million net tax 58 million compared 74 million 2002 income discontinued operations included net sales approximately 44 million nine months 2003 compared 51 million twelve months 2002 refer note 2 “discontinued operations” consolidated financial statements detail 2002 vs 2001 sales increased 11 percent 416 billion 2002 compared 376 billion 2001 increase sales included incremental sales acquisitions estimated 270 million increases existing businesses approximately 180 million favorable impact foreign currency translation approximately 20 million increases partially offset reduction sales 2002 divested lines business approximately 70 million gross profit margins years ended 2002 2001 321 percent 326 percent respectively decrease 2002 due lower gross profit margin jackstädt business partially offset reduced expenses result cost reduction programs productivity initiatives marketing general administrative expense percent sales 218 percent 2002 219 percent 2001 company also recorded charge fourth quarter 2002 relating cost reduction actions 2002 charge involved cost reduction programs reorganization manufacturing administrative facilities company’s operating segments cost reduction efforts resulted pretax charge 107 million consisted employee severance related costs approximately 300 positions worldwide also fourth quarter 2002 company recorded 62 million pretax charge disposition fixed assets comprised machinery equipment related reduction costs reflective business well jackstädt integration third quarter 2002 company recorded 152 million pretax charge disposition fixed assets land buildings machinery equipment lease cancellation costs associated integration jackstädt operations well planned closure plant facility costs exit leases asset impairments related businesses approximately 60 percent charge related integration jackstädt fourth quarter 2001 company sold specialty coatings business reported within pressuresensitive adhesives materials segment cash proceeds 115 million notes receivables received part sale resulted pretax gain approximately 202 million net sales business 267 million ten months 2001 377 million 2000 company recorded charge fourth quarter 2001 relating cost reduction actions 2001 charge involved cost reduction programs reorganization manufacturing administrative facilities company’s operating segments cost reduction efforts resulted pretax charge 199 million consisted employee severance related costs 131 million approximately 400 positions worldwide asset impairments 68 million final severance payments related action completed fourth quarter 2003 refer note 11 “components income expense” consolidated financial statements information interest expense years ended 2002 2001 44 million 507 million respectively decrease 2002 due lower interest rates shortterm floating rate debt partially offset additional interest debt used fund jackstädt acquisition second quarter 2002 well rvl le acquisitions fourth quarter 2002 income taxes percent sales 85 percent 2002 93 percent 2001 percentage decrease 2002 reflected total third fourth quarter pretax charges 321 million related cost reduction actions lower gross profit margin percent sales decrease partially offset lower interest expense elimination goodwill amortization lower marketing general administrative expenses percent sales effective tax rate 295 percent 2002 324 percent 2001 decrease effective tax rate 2002 principally due structural operational changes impact acquisitions geographic mix income change accounting goodwill net income earnings per share net income 2003 increased 42 percent compared 2002 net income 2002 increased 58 percent compared 2001 net income percent sales 56 percent 62 percent 65 percent 2003 2002 2001 respectively net income per common share 2003 increased 34 percent compared 2002 net income per common share 2002 increased 48 percent compared 2001 net income per common share assuming dilution 2003 increased 35 percent compared 2002 net income per common share assuming dilution 2002 increased 49 percent compared 2001 results operations operating segment pressuresensitive adhesives materials 2003 vs 2002 pressuresensitive adhesives materials segment reported increase sales income 2003 compared 2002 sales increased approximately 441 million 17 percent 301 billion 2003 compared 257 billion 2002 result higher sales domestic international operations operating income increased approximately 12 million 6 percent 207 million 2003 compared 195 million 2002 reflecting increases domestic international operations operating income segment also reflected charge approximately 13 million 2003 compared 22 million 2002 related restructuring asset impairments lease cancellation costs net losses associated several product line divestitures results domestic operations domestic sales including intrasegment sales increased approximately 43 million 3 percent due higher sales roll materials business approximately 14 million graphics reflective business approximately 13 million specialty tapes business approximately 10 million increased sales roll materials business reflected modest growth existing business higher sales graphics reflective business specialty tapes business included benefit new product launches applications result company’s horizons growth initiatives year income domestic operations increased approximately 8 million increase reflected charge approximately 1 million 2003 compared approximately 9 million 2002 related restructuring asset impairments lease cancellation costs net losses associated several product line divestitures excluding impact charges income domestic operations comparable 2002 reflecting higher sales roll materials business graphics reflective business specialty tapes business offset competitive pricing environment incremental costs associated growth initiatives 2003 results international operations international sales including intrasegment sales increased approximately 430 million 31 percent due higher sales roll materials business approximately 312 million graphics reflective business approximately 81 million specialty tapes business approximately 35 million included increases international sales favorable impact foreign currency translation approximately 181 million increases roll materials business graphics reflective business reflected incremental sales jackstädt acquisition may 2002 estimated 150 million well stronger sales roll materials business asia latin america eastern europe higher sales specialty tapes business included benefit new product launches applications result company’s horizons growth initiatives year income international operations increased approximately 4 million increase reflected charge approximately 12 million 2003 compared approximately 13 million 2002 related restructuring asset impairments lease cancellation costs net losses associated several product line divestitures excluding impact charges income international operations increased approximately 4 million due higher sales roll materials business graphics reflective business specialty tapes business well favorable impact foreign currency translation increases partially offset impact competitive pricing environment including impact gbp weakening relative euro startup costs new manufacturing equipment europe 2002 vs 2001 pressuresensitive adhesives materials segment reported increased sales income 2002 compared 2001 sales increased approximately 379 million 17 percent 257 billion 2002 compared 219 billion 2001 driven strong sales domestic international operations segment’s 2002 operating income increased 1 percent 195 million compared 2001 results domestic operations domestic sales including intrasegment sales increased approximately 61 million 5 percent due strong sales roll materials business approximately 92 million increase resulted part market share gain business obtained closure competitor’s plant estimated 11 million supply agreement company outsourced manufacturing certain roll label materials estimated 23 million well factors including industry consolidation new products service programs new applications additionally domestic sales increased due increase specialty tapes business approximately 8 million driven introduction new applications products medical industrial markets increases 2002 sales partially offset reduction sales sale specialty coatings business fourth quarter 2001 sales approximately 27 million well sales declines graphics reflective business approximately 10 million income domestic operations decreased approximately 3 million compared 2001 decrease income domestic operations 2002 reflected charge approximately 9 million related 2002 restructuring asset impairments lease cancellation costs compared charge 39 million cost reduction actions offset 202 million pretax gain sale business 2001 additionally domestic income reflected benefit change accounting goodwill approximately 4 million excluding impact items income domestic operations increased approximately 18 million primarily due higher income roll materials business driven volume growth profitability achieved cost reduction productivity improvement programs fourth quarter 2001 company sold specialty coatings business cash proceeds 115 million notes receivables received part sale resulted pretax gain approximately 202 million net sales business 267 million ten months 2001 results international operations international sales including intrasegment sales increased approximately 351 million 34 percent principally due acquisition jackstädt second quarter 2002 total 2002 impact sales estimated 262 million excluding sales jackstädt business international sales reflected strong sales growth roll materials asia approximately 34 million addition higher sales roll materials graphics businesses europe approximately 33 million due favorable impact foreign currency translation income international operations increased approximately 6 million included charge approximately 13 million 2002 compared approximately 4 million 2001 related restructuring asset impairments lease cancellation costs well positive impact change accounting goodwill approximately 2 million excluding impact items income international operations increased approximately 15 million due sales growth improved profitability achieved cost reductions productivity gains consumer converted products 2003 vs 2002 consumer converted products segment reported increased sales decrease operating income 2003 compared 2002 sales increased approximately 176 million 10 percent 194 billion 2003 compared 176 billion 2002 reflecting increases sales domestic international operations operating income decreased approximately 10 million 4 percent 226 million 2003 compared 235 million 2002 reflecting charge approximately 22 million 2003 compared 10 million 2002 related restructuring asset impairments lease cancellation costs net losses associated several product line divestitures segment operating income also reflected decline income domestic operations partially offset increase income international operations results domestic operations domestic sales including intrasegment sales increased approximately 24 million 2 percent 125 billion 2003 compared 123 billion 2002 reflecting higher sales retail information services business approximately 55 million partially offset decreased sales office products business approximately 14 million reduction sales divested line business first quarter 2003 approximately 17 million higher sales retail information services business reflected incremental sales rvl le acquisitions november 2002 lower sales office products business reflected weak economic conditions impacting enduser demand related white collar unemployment reductions direct mail marketing well continued erosion market share company’s averybrand products favor private label brands loss sales product line one major customer approximately 6 million 2003 estimated 35 million annualized sales income domestic operations decreased approximately 24 million decrease reflected charge approximately 10 million 2003 compared approximately 6 million 2002 related restructuring asset impairments lease cancellation costs net losses associated several product line divestitures excluding impact charges income domestic operations decreased approximately 19 million reflecting declines sales office products business well competitive pricing environment negative product mix addition decrease income reflected higher manufacturing costs related decrease average order size retail information services business unanticipated incremental costs related backtoschool orders third quarter 2003 incremental costs associated growth initiatives results international operations international sales including intrasegment sales increased approximately 167 million 29 percent 746 million 2003 compared 579 million 2002 reflecting higher sales retail information services business approximately 152 million office products business approximately 45 million partially offset reduction sales divested line business late 2002 approximately 23 million included increases favorable impact foreign currency translation approximately 61 million higher sales retail information services business due incremental sales rvl le acquisitions november 2002 estimated 160 million well sales growth asian markets increased sales office products business due favorable impact foreign currency translation approximately 42 million partially offset weak economic conditions impacting enduser demand continued erosion market share company’s averybrand products favor private label brands income international operations increased approximately 14 million increase international operations reflected charge approximately 12 million 2003 compared approximately 4 million 2002 related restructuring asset impairments lease cancellation costs net losses associated several product line divestitures excluding impact charges operating income increased approximately 22 million reflecting higher sales retail information services business well favorable impact foreign currency translation increases partially offset incremental costs associated growth initiatives october 2003 company completed sale package label converting business europe previously reported consumer converted products segment results business accounted discontinued operations periods presented herein 2002 vs 2001 consumer converted products segment reported increased sales 2002 compared 2001 sales increased approximately 25 million 1 percent 176 billion 2002 compared 174 billion 2001 segment’s 2002 income comparable 2001 results domestic operations domestic sales including intrasegment sales increased approximately 22 million 2 percent principally due increases retail information services business approximately 13 million strong sales industrial automotive products business approximately 8 million sales retail information services business included operations rvl le acquired november 2002 contributed approximately 9 million sales domestic office products business flat 2002 compared 2001 office products environment challenging superstores closing stores reducing inventory white collar layoffs reduced enduser demand income domestic operations decreased approximately 4 million included charge approximately 6 million 2002 compared approximately 5 million 2001 related restructuring asset impairments lease cancellation costs benefit change accounting goodwill approximately 5 million results international operations international sales including intrasegment sales increased approximately 21 million 4 percent principally due acquisitions rvl le fourth quarter contributed incremental sales approximately 26 million additionally international businesses benefited strong sales growth ticketing business asia approximately 15 million increases partially offset reduction sales 2002 divested lines business approximately 30 million income international operations increased approximately 5 million results international operations also included charge approximately 4 million 2002 2001 related restructuring asset impairments lease cancellation costs positive impact change accounting goodwill approximately 4 million excluding effect items income international operations reflected strong sales ticketing business asia financial condition liquidity cash flow provided operating activities net cash flow provided operating activities 3349 million 2003 511 million 2002 3658 million 2001 cash flow operating activities 2003 negatively impacted changes assets liabilities approximately 90 million cash flow operating activities 2002 positively impacted changes assets liabilities approximately 68 million cash flow purposes changes assets liabilities exclude impact foreign currency translation impact acquisitions divestitures certain noncash transactions discussed detail “analysis selected balance sheet accounts” changes assets liabilities net effect business acquisitions divestitures decrease cash flow accounts receivable due higher sales late fourth quarter 2003 given timing sales management anticipates decline accounts receivable first quarter 2004 partially offset decrease average number days sales outstanding 61 2002 60 2003 see “accounts receivable ratios” discussed decrease cash flow inventory due continued growth asia well intentional inventory build europe mitigate potential supply chain disruptions associated jackstädt integration actions company expects reduce inventory levels europe 2004 completes integration actions increase cash flow accounts payable accrued liabilities due changes accounts payable increase approximately 61 million due increased inventory purchases well extended payment terms suppliers partially offset reduction payroll benefits decrease approximately 28 million result lower bonus vacation accruals decrease taxes income primarily due 30 million payment taxes fourth quarter 2003 result timing differences decrease longterm retirement benefits liabilities reflected contribution approximately 31 million company’s retirement plans 2003 decrease cash flow accounts receivable due higher sales levels increase average number days sales outstanding 58 2001 61 2002 reflecting longer payment terms associated international sales decrease cash flow inventory due higher inventory levels associated higher sales 2002 slight reduction inventory turnover due acquisition integration increase cash flow accounts payable accrued liabilities primarily associated increases accounts payable approximately 81 million result negotiating longer payment terms vendors increases payroll benefits approximately 34 million result higher bonus accruals timing payroll payments increases accrued liabilities including accrued trade rebates approximately 27 million result increased sales decrease cash flow longterm retirement benefits liabilities reflected contribution approximately 20 million company’s retirement plans 2002 cash flow used investing activities net cash flow used investing activities 1656 million 2003 5753 million 2002 2663 million 2001 capital spending capital expenditures 2003 2014 million compared 1504 million 2002 company’s major capital projects 2003 included two new coaters company’s roll materials business europe well expansions china regions asia expenditures related capitalized software 228 million 2003 201 million 2002 acquisitions divestitures 2003 payments acquisitions 69 million primarily due final settlement certain contingencies related achievement performance targets associated 2001 acquisition dunsirn industries inc “dunsirn” proceeds sale discontinued operations 588 million 2003 2002 payments acquisitions 3974 million primarily jackstädt rvl le cash flow used provided financing activities net cash flow used provided financing activities 1667 million 2003 687 million 2002 914 million 2001 borrowings repayment debt total commercial paper borrowings year end 2003 2817 million weightedaverage interest rate 216 percent 250 million classified longterm company’s available revolving credit agreement compared 5122 million classified longterm year end 2002 company 829 million borrowings outstanding foreign shortterm lines credit weightedaverage interest rate 89 percent 2003 compared 805 million outstanding year end 2002 april 2003 company issued 150 million oneyear callable commercial notes weightedaverage interest rate 171 percent replaced december 2002 issuance 150 million oneyear callable commercial notes weightedaverage interest rate 25 percent october 2003 company called 60 million notes issued april 2003 remaining 90 million outstanding year end january 2004 company reissued 60 million notes called october weightedaverage interest rate 13 percent company mediumterm notes 318 million 388 million year end 2003 2002 respectively mediumterm notes maturities 2004 2025 accrue interest fixed rates january 2003 company refinanced 400 million variable rate commercial paper borrowings offering 250 million 49 percent senior notes due 2013 150 million 6 percent senior notes due 2033 company’s repayment debt totaled approximately 448 million 2003 compared approximately 509 million 2002 shareholders’ equity shareholders’ equity increased 132 billion year end 2003 106 billion year end 2002 2003 company purchased approximately 5000 shares common stock cost approximately 3 million dividends paid 2003 totaled 1602 million compared 1485 million 2002 annual dividend per share increased 145 2003 135 2002 effect foreign currency translation company continues expand operations europe latin america asia pacific company’s future results subject changes political economic conditions impact fluctuations foreign currency exchange interest rates 2003 sales favorably impacted currency fluctuations approximately 235 million 2002 sales favorably impacted currency fluctuations approximately 20 million impact foreign currency fluctuations net income smaller impact net sales company’s products generally sourced currencies sold result impact foreign exchange rates sales matched partially offsetting impact reported expenses thereby reducing impact foreign currency fluctuations net income reduce exposure currency fluctuations company may enter foreign exchange forward option swap contracts interest rate contracts appropriate available translation gains losses operations hyperinflationary economies included net income operations treated hyperinflationary economy accounting purposes based cumulative inflation rate past three years operations hyperinflationary economies consist company’s operations turkey 2003 2002 2001 operations significant company’s consolidated financial position results operations effect foreign currency translation cash 41 million 2003 7 million 2002 4 million 2001 analysis selected balance sheet accounts longlived assets goodwill increased 98 million 2003 due foreign currency translation approximately 60 million payments made august february due meeting certain performance targets associated 2001 acquisition dunsirn approximately 6 million certain purchase price allocation adjustments associated acquisitions jackstädt approximately 20 million rvl le approximately 12 million intangibles resulting business acquisitions net accumulated amortization increased 34 million 2003 due foreign currency translation approximately 14 million certain purchase price allocation adjustments jackstädt approximately 3 million increase partially offset amortization expense recorded 2003 approximately 13 million assets increased approximately 20 million 2003 due increases cash surrender value corporate owned life insurance contracts approximately 14 million capitalized software net accumulated amortization approximately 9 million pension assets approximately 6 million addition increase assets reflected approximately 5 million deferred financing costs connection issuance 400 million senior notes january 2003 assets 2002 included assets held sale connection disposition company’s package label converting business europe accrued liabilities accrued liabilities increased approximately 98 million 2003 reflecting reclassification 1015 million longterm obligation shortterm 2003 see “commitment contingencies” discussed shareholders’ equity accounts market value shares held employee stock benefit trust decreased 48 million 2003 due changes stock price issuance shares trust total number shares issued company’s stock incentive plans 2003 valued approximately 15 million year end 2003 cumulative 372 million shares company’s common stock repurchased since 1991 32 million shares remained available repurchase board directors’ authorization analysis selected financial ratios management utilizes certain financial ratios assess financial condition operating performance discussed detail working capital ratio working capital current assets minus current liabilities percent net sales increased 12 percent 2003 21 percent 2002 management utilizes working capital continuing operations ratio measurement tool assess working capital requirements company eliminates impact fluctuations due financing activities company timing financing activities necessarily related current operations would tend distort working capital ratio period working capital continuing operations percent net sales shown increased 71 percent 2003 53 percent 2002 management’s objective minimize investment working capital operations reducing ratio maximize cash flow return investment working capital continuing operations consists increase working capital continuing operations 2003 percent sales due higher balances accounts receivable approximately 110 million inventory approximately 64 million lower balance hedge liabilities decrease 37 million partially offset increased balances accounts payable approximately 110 million included changes working capital balances prior year impact changes foreign currency translation higher accounts receivable balances end 2003 reflected increase sales late fourth quarter given timing sales management believes accounts receivable reduced first quarter 2004 increased inventory balances result continued growth asia well intentional inventory build europe mitigate potential supply chain disruptions associated jackstädt integration actions company expects reduce inventory levels europe 2004 completes integration actions decreased hedge liabilities due settlement forward starting interest swap connection issuance 250 million 10year senior notes january 2003 higher balances accounts payable due increased inventory purchases well extended payment terms suppliers 2003 accounts receivable ratios average number days sales outstanding accounts receivable decreased 60 days 2003 compared 61 days 2002 due improved terms customers well impact company’s receivable financing programs see “commitments contingencies” discussed several company’s largest domestic customers operate competitive retail business environment impacted economic conditions north america year end 2003 2002 approximately 15 percent 17 percent respectively trade accounts receivable eight customers company’s office products business company require customers provide collateral financial position operations customers monitored ongoing basis inventory ratio inventory turnover decreased 86 2002 84 2003 result intentional inventory build europe mitigate potential supply chain disruptions associated jackstädt integration actions debt ratios total debt total capital 472 percent year end 2003 compared 52 percent year end 2002 decrease due higher equity balances end 2003 fair value company’s debt estimated based discounted amount future cash flows using current rates offered company debts remaining maturities year end 2003 2002 fair value company’s total debt including shortterm borrowings 121 billion 118 billion respectively terms various loan agreements effect year end require company maintain specified ratios consolidated debt consolidated interest expense relation certain measures income 2003 company’s ratios within required ranges specifically loan agreements ratio consolidated debt consolidated earnings interest taxes depreciation amortization may exceed 35 10 company’s ratio year end 2003 20 10 consolidated earnings interest taxes ratio consolidated interest may less 35 10 company’s ratio year end 2003 73 10 shareholder’s equity ratios return average shareholders’ equity 223 percent 2003 257 percent 2002 274 percent 2001 return average total capital 143 percent 2003 158 percent 2002 162 percent 2001 decreases returns 2003 compared 2002 primarily due impact foreign currency translation comprehensive income see “capital equity” discussed capital resources historically company’s primary source capital resources cash flows operations debt financing augmented 2002 limited stock issuance conjunction le acquisition company continues maintain adequate financing arrangements competitive rates financing arrangements consist commercial paper programs us europe committed uncommitted bank lines credit throughout world callable commercial notes longterm debt including mediumterm notes capital debt total debt increased approximately 36 million 2003 118 billion compared year end 2002 increase reflected additional borrowings result timing company’s financing needs see also commitments contingencies discussed company’s committed credit availability year end 2003 follows company revolving credit agreement four domestic banks provide 250 million borrowings july 1 2006 intention management renegotiate agreement 2004 financing available agreement used commercial paper backup facility available finance corporate requirements debt outstanding agreement year end 2003 available lines credit also included 364day revolving credit facility eight domestic foreign banks provide 200 million borrowings december 3 2004 company may annually extend revolving period due date approval banks may convert loan oneyear term loan company’s option intention management renegotiate agreement 2004 financing available agreement used commercial paper backup facility available finance corporate requirements debt outstanding agreement year end 2003 addition company 364day revolving credit facility one foreign bank provide euro 30 million 369 million borrowings may 25 2004 company may annually extend revolving period due date approval bank intention management renegotiate agreement 2004 financing agreement used finance cash requirements europe 55 million outstanding agreement year end 2003 company standby letters credit outstanding 1955 million 1827 million end 2003 2002 respectively uncommitted lines credit approximately 314 million year end 2003 company’s uncommitted lines credit commitment expiration date may cancelled time company banks available shortterm financing arrangements year end 2003 totaled approximately 436 million aggregate 400 million refinancing january 2003 discussed “cash flow used provided financing activities” issued company’s existing shelf registration statement filed securities exchange commission third quarter 2001 permitting company issue 600 million debt equity securities issuance 400 million 200 million remaining available issuance general corporate purposes including acquisitions capital expenditures repaying redeeming repurchasing existing debt working capital credit ratings significant factor company’s ability raise shortterm longterm financing determining credit rating agencies place significant weight company’s competitive position business outlook consistency cash flows debt level liquidity geographic dispersion management team ratings assigned company also impact interest rates commercial paper borrowings company’s credit ratings follows capital equity company 1241 million common stock 1 par value 7037 million capital excess par end 2003 996 million shares outstanding end 2003 additionally company total retained earnings 177 billion included 2679 million net income less dividends paid 1602 million 2003 accumulated comprehensive loss decreased 1273 million 2003 due 1507 million benefit foreign currency translation year well net benefit 58 million resulting revaluation hedging transactions year benefits partially offset additional pension liability 278 million us international pension plans 14 million loss cash flow hedges recognized income 2003 increase pension liability result changes assumptions lower anticipated value pension plan assets end 2003 commitments contingencies company’s contractual obligations year end 2003 follows 1 purchase obligations include commitments purchase inventory services longterm supply agreements purchase orders items commitments included company enters operating leases primarily office warehouse space electronic data processing transportation equipment terms leases impose significant restrictions unusual obligations minimum annual rental commitments operating leases initial remaining noncancellable lease terms excess one year years 2004 2008 thereafter included table first quarter 1999 company recorded obligation associated transaction steinbeis holding gmbh combined substantially company’s office products businesses europe zweckform büroprodukte gmbh german office products supplier obligation 845 million reclassified “other longterm obligation” “other accrued liabilities” line consolidated balance sheet first quarter 2003 amount obligation increased 1015 million end 2003 reflecting impact changes foreign currency exchange rates company paid entire obligation february 2004 company designated us environmental protection agency “epa” andor responsible state agencies potentially responsible party “prp” eleven waste disposal waste recycling sites subject separate investigations proceedings concerning alleged soil andor groundwater contamination settlement company’s liability agreed upon company participating prps sites anticipates share cleanup costs determined pursuant remedial agreements entered normal course negotiations epa governmental authorities company accrued liabilities sites including sites governmental agencies designated company prp probable loss incurred cost amount loss reasonably estimated however uncertainties associated environmental assessment remediation activities future expense remediate currently identified sites could identified future cleanup could higher liability currently accrued amounts currently accrued significant consolidated financial position company based upon current information management believes unlikely final resolution matters significantly impact company’s consolidated financial position results operations cash flows company provides estimate costs may incurred basic limited warranty time product revenue recognized costs primarily include materials labor associated service sale product factors affect company’s warranty liability include number units installed sold historical anticipated rate warranty claims units cost per claim satisfy company’s warranty obligation factors impacted actual experience future expectations company assesses adequacy recorded warranty liability adjusts amounts necessary april 2003 company notified us department justice’s antitrust division initiated criminal investigation competitive practices label stock industry august 15 2003 us department justice issued subpoena company connection investigation company cooperating investigation company named defendant purported class actions seeking treble damages relief alleged unlawful competitive practices filed announcement investigation company also named defendant purported stockholder class actions seeking damages relief alleged disclosure violations pertaining alleged unlawful competitive practices company unable predict effect matters time although effect may adverse material matters reported note 9 “contingencies” consolidated financial statements item 3 legal proceedings herein company subsidiaries involved various lawsuits claims inquiries routine nature business based upon current information management believes resolution matters materially affect company participates receivable financing programs domestically internationally several financial institutions whereby advances may requested financial institutions advances guaranteed company december 27 2003 company guaranteed 84 million february 2003 company entered fiveyear operating lease equipment contains residual value guarantee 106 million opinion management amount guaranteed significantly impact consolidated financial position company guaranteed approximately 18 million certain foreign subsidiaries’ obligations suppliers december 27 2003 connection le acquisition company issued 743108 shares 6308 per share event value company’s common shares falls price shares issued le adjusted dividends received period january 1 2005 december 31 2007 company may obligated pay difference value form cash common shares le 2004 capital spending plan capital expenditures 2004 expected range 175 million 200 million company’s major projects 2004 include expansion company’s capacity asia well projects related productivity improvement company’s north american roll materials operation projected increase capital expenditures 2004 expected funded operating cash flows related party transactions time company enters transactions normal course business related parties company believes transactions arm’slength terms would obtained unaffiliated third parties one company’s directors mr peter w mullin chairman chief executive officer director mc insurance services inc “mc” mullin insurance services inc “minc” pwm insurance services inc “pwm” executive compensation benefit consultants insurance agents mr mullin also majority stockholder mc minc pwm 2003 2002 2001 company paid premiums insurance companies life insurance placed mc minc pwm connection various company employee benefit plans 2003 2002 2001 mc minc pwm earned commissions insurance companies aggregate amounts approximately 11 million 13 million 17 million respectively placement renewal insurance mr mullin direct indirect interests related commissions approximately 7 million 9 million 1 million 2003 2002 2001 respectively majority commissions allocated used mcp insurance services llc affiliate mc another affiliate administer benefit plans provide benefit statements participants various company employee benefit plans none transactions significant financial position results operations company critical accounting policies estimates preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions reporting period financial statement date estimates assumptions affect reported amounts assets liabilities disclosure contingent liabilities reported amounts revenues expenses actual results could differ estimates critical accounting policies important portrayal company’s financial condition results require management make difficult subjective andor complex judgments critical accounting policies cover accounting matters inherently uncertain future resolution matters unknown company believes critical accounting policies include accounting revenue recognition accounts receivable allowances customer complaint reserves inventory reserves longlived asset impairments pensions postretirement benefits revenue recognition sales provisions estimated sales returns cost products sold recorded time title transfers customers actual product returns charged estimated sales return allowances sales rebates discounts common practice industries company operates volume promotional price cash discounts customer incentives accounted reduction gross sales rebates discounts recorded based upon management’s best estimates products sold estimates based upon historical experience similar programs products management reviews rebates discounts ongoing basis accruals rebates discounts adjusted necessary additional information becomes available accounts receivable allowances customer complaint reserves management required make judgments based established aging policy historical experience future expectations collectibility accounts receivable allowances doubtful accounts sales returns represent allowances customer trade accounts receivable estimated partially entirely uncollectible allowances used reduce gross trade receivables net realizable value company records allowances based estimates related following factors customer specific allowances ii amounts based upon aging schedule iii estimated amount based company’s historical experience issues yet identified approximately 15 percent 17 percent trade receivables eight customers company’s office products business 2003 2002 respectively financial position operations customers monitored ongoing basis inventory reserves inventories stated lower cost market value categorized raw materials workinprogress finished goods inventory reserves recorded damaged obsolete excess slowmoving inventory management uses estimates record reserves slowmoving inventory reviewed category may partially fully reserved depending type product length time product included inventory longlived asset impairments company records impairment charges carrying amounts longlived assets determined recoverable impairment measured assessing usefulness asset comparing carrying value asset fair value fair value typically determined using estimate future cash flows expected result use asset eventual disposition changes market conditions management strategy historically caused company reassess carrying amount longlived assets pensions postretirement benefits assumptions used determining projected benefit obligations fair value plan assets company’s pension plan postretirement benefits plans evaluated management consultation outside actuaries relied upon experts event company determines changes warranted assumptions used discount rate expected longterm rate return health care costs future pension postretirement benefit expenses could increase decrease recent accounting requirements december 2003 financial accounting standards board fasb reissued interpretation 46 “consolidation variable interest entitiesan interpretation arb 51” interpretation clarifies application accounting research bulletin 51 “consolidated financial statements” certain entities equity investors characteristics controlling financial interest sufficient equity risk entity finance activities without additional subordinated financial support provisions interpretation effective company interim periods ending march 15 2004 adoption interpretation expected significant impact company’s financial results operations financial position since company interest variable interest entities december 27 2003 december 2003 fasb reissued statement financial accounting standards “sfas” 132 “employers’ disclosures pensions postretirement benefits amendment fasb statements 87 88 106” statement revises employers’ disclosures pension plans postretirement benefit plans change measurement recognition plans required sfas 87 “employers’ accounting pensions” sfas 88 “employers’ accounting settlements curtailments defined benefit pension plans termination benefits” sfas 106 “employers’ accounting postretirement benefits pensions” statement retains disclosure requirements contained original sfas 132 “employers’ disclosures pensions postretirement benefits” revised statement also requires additional disclosures assets obligations cash flows net periodic benefit cost defined benefit pension plans defined benefit postretirement plans provisions original sfas 132 remain effect provisions statement adopted certain new provisions effective financial statements fiscal years ending december 15 2003 provisions effective fiscal years ending june 15 2004 interim period disclosures effective interim periods beginning december 15 2003 see note 12 “pensions postretirement benefits” consolidated financial statements disclosures required revised sfas 132 august 2003 consensus emerging issues task force eitf issue 034 “determining classification benefit attribution method ‘cash balance’ pension plan” published eitf issue 034 determines purposes applying sfas 87 “employers’ accounting pensions” cash balance plan considered defined benefit plan provisions eitf issue 034 effective fourth quarter 2003 adoption guidance significant impact company’s financial results operations financial position may 2003 fasb issued sfas 150 “accounting certain financial instruments characteristics liabilities equity” statement establishes standards issuer classifies measures certain financial instruments characteristics liabilities equity fasb staff position fas 1503 “effective date mandatorily redeemable financial instruments certain nonpublic entities certain mandatorily redeemable noncontrolling interests fasb statement 150 accounting certain financial instruments characteristics liabilities equity” issued november 7 2003 fasb staff position deferred effective date classification measurement provisions certain mandatorily redeemable noncontrolling interests indefinite period provisions statement effective financial instruments entered modified may 31 2003 otherwise effective beginning first interim period beginning june 15 2003 adoption sfas 150 provisions effective current period significant impact company’s financial results operations financial position adoption provisions effective 2004 expected significant impact company’s financial results operations financial position april 2003 fasb issued sfas 149 “amendment statement 133 derivative instruments hedging activities” statement amends clarifies financial accounting reporting derivative instruments including certain derivative instruments embedded contracts collectively referred derivatives used hedging activities sfas 133 “accounting derivative instruments hedging activities” provisions statement effective contracts entered modified june 30 2003 hedging relationships designated june 30 2003 adoption statement significant impact company’s financial results operations financial position march 2003 consensus eitf issue 0216 “accounting customer including reseller cash consideration received vendor” published eitf issue 0216 addresses reseller vendor’s products account cash consideration received vendor provisions eitf issue 0216 effective new arrangements entered december 31 2002 adoption guidance significant impact company’s financial results operations financial position march 2003 consensus eitf issue 0021 “accounting revenue arrangements multiple deliverables” published eitf issue 0021 addresses certain aspects accounting vendor arrangements perform multiple revenuegenerating activities specifically eitf issue 0021 addresses determine whether arrangement involving multiple deliverables contains one unit accounting provisions eitf issue 0021 effective fiscal periods beginning june 15 2003 adoption guidance significant impact company’s financial results operations financial position december 2002 fasb issued sfas 148 “accounting stockbased compensationtransition disclosure” statement amends sfas 123 “accounting stockbased compensation” provide alternative methods transition entity voluntarily changes fair valuebased method accounting stockbased employee compensation also amends disclosure provisions statement require prominent disclosure effects reported net income entity’s accounting policy decisions respect stockbased employee compensation statement also amends apb opinion 28 “interim financial reporting” require disclosure effects interim financial information provisions statement effective financial statements interim annual periods ending december 15 2002 company continued use intrinsic value method accounting stockbased compensation 2003 accordance apb opinion 25 company however adopted disclosure provisions sfas 148 presented “stockbased compensation” note 1 “summary significant accounting policies” consolidated financial statements november 2002 fasb issued interpretation 45 “guarantor’s accounting disclosure requirements guarantees including indirect guarantees indebtedness others” interpretation clarifies requirements guarantor’s accounting disclosures certain guarantees issued outstanding interpretation also clarifies requirements related recognition liability guarantor inception guarantee obligations guarantor undertaken issuing guarantee disclosure provisions interpretation effective financial statements interim annual periods ending december 15 2002 applicable disclosures presented notes 1 3 5 9 consolidated financial statements initial recognition initial measurement provisions interpretation effective beginning fiscal 2003 adoption interpretation significant impact company’s financial results operations financial position june 2002 fasb issued sfas 146 “accounting costs associated exit disposal activities” statement addresses financial accounting reporting costs associated exit disposal activities nullifies eitf issue 943 “liability recognition certain employee termination benefits costs exit activity including certain costs incurred restructuring” eitf issue 943 liability exit cost recognized date entity commits exit plan sfas 146 eliminates definition requirements recognition exit costs eitf issue 943 requires liability cost associated exit disposal activity recognized liability incurred statement also establishes fair value objective initial measurement liability provisions statement effective new restructuring activities subsequent december 31 2002 adoption sfas 146 affects timing recognition future costs associated exit disposal activities affect previous charges related activities adoption statement impacted timing recognition liabilities associated fourth quarter 2003 integration productivity improvement initiatives detailed note 11 “components income expense” consolidated financial statements april 2002 fasb issued sfas 145 “rescission fasb statements 4 44 64 amendment fasb statement 13 technical corrections” statement rescinds sfas 4 “reporting gains losses extinguishment debt” amendment statement sfas 64 “extinguishments debt made satisfy sinkingfund requirements” statement amends sfas 13 “accounting leases” eliminate inconsistency required accounting saleleaseback transactions required accounting certain lease modifications economic effects similar saleleaseback transactions statement also amends existing authoritative pronouncements make various technical corrections clarify meanings describe applicability changed conditions provisions statement related rescission sfas 4 effective beginning 2003 provisions effective may 16 2002 adoption statement significant impact company’s financial results operations financial position june 2001 fasb issued sfas 143 “accounting asset retirement obligations” addresses financial accounting reporting obligations associated retirement tangible longlived assets associated asset retirement costs statement requires fair value liability asset retirement obligation recognized period incurred reasonable estimate fair value made associated asset retirement costs capitalized part carrying amount longlived asset provisions statement effective beginning fiscal 2003 adoption statement significant impact company’s financial results operations financial position safe harbor statement except historical information contained herein matters discussed management’s discussion analysis results operations financial condition sections annual report contain “forwardlooking statements” within meaning private securities litigation reform act 1995 statements historical fact may contain estimates assumptions projections andor expectations regarding future events words “anticipate” “assume” “believe” “could” “estimate” “expect” “may” “plan” “project” “will” expressions refer future events trends identify forwardlooking statements forwardlooking statements financial business targets subject certain risks uncertainties could cause actual results differ materially future results performance achievements company expressed implied forwardlooking statements certain risks uncertainties described detail exhibit 991 hereto incorporated reference include limited risks uncertainties relating worldwide local economic conditions investment new production facilities timely development successful market acceptance new products price availability raw materials impact competitive products pricing business mix shift credit risks fluctuations pension insurance benefit costs successful integration new acquisitions projections related estimated cost savings integration productivity improvement actions customer supplier manufacturing concentrations financial condition inventory strategies customers changes customer order patterns increased competition loss significant contracts customers legal proceedings including us department justice criminal investigation competitive practices label stock industry related proceedings pertaining subject matter including purported class actions related alleged disclosure violations pertaining alleged unlawful competitive practices filed announcement investigation changes governmental regulations fluctuations interest rates fluctuations foreign exchange rates ability estimate impact foreign currency financial results risks associated foreign operations changes economic political conditions acts war terrorism natural disasters impact severe acute respiratory syndrome “sars” economy company’s customers business factors forwardlooking statements also considered light factors detailed exhibit 991 company’s annual report form 10k year ended december 27 2003 company’s forwardlooking statements represent judgment dates statements made making forwardlooking statements company assumes duty update reflect new changed unanticipated events circumstances may required law item 7a nannannanitem 7a quantitative qualitative disclosures market risk marketsensitive instruments risk management company exposed impact interest rate foreign currency exchange rate changes company hold purchase foreign currency interest rate contracts trading purposes companys objective managing exposure foreign currency changes reduce risk earnings cash flow associated foreign exchange rate changes result company enters foreign exchange forward option contracts reduce risks associated value existing foreign currency assets liabilities firm commitments anticipated foreign revenues costs gains losses contracts intended offset changes related exposures company hedge foreign currency exposure manner would entirely eliminate effects changes foreign exchange rates companys consolidated net income companys objective managing exposure interest rate changes limit impact interest rate changes earnings cash flows lower overall borrowing costs achieve objectives company periodically use interest rate contracts manage net exposure interest rate changes related borrowings company interest rate contracts outstanding year end 1997 normal course operations company also faces risks either nonfinancial nonquantifiable risks principally include changes economic political conditions risks associated foreign operations commodity price risk litigation risk represented analyses follow foreign exchange valueatrisk company uses valueatrisk var model determine estimated maximum potential oneday loss earnings associated foreign exchange positions contracts approach assumes market rates prices foreign exchange positions contracts normally distributed var model estimates made assuming normal market conditions firm commitments receivables accounts payable denominated foreign currencies certain instruments intended hedge included model forecasted transactions certain instruments intended hedge excluded model var estimated using variancecovariance methodology based historical volatility currency volatility correlation used calculation based historical observations using one years data equal weightings data obtained publicly available jp morgan riskmetrics data set internet 95 percent confidence level used oneday time horizon var model risk analysis tool purport represent actual losses fair value could incurred company consider potential effect favorable changes market factors estimated maximum potential oneday loss earnings companys foreign exchange positions contracts would immaterial companys 1997 earnings interest rate sensitivity assumed 60 basis point move interest rates 10 percent companys weightedaverage floating rate interest rates affecting companys variablerate borrowings would immaterial effect companys 1997 earnings item 8item 7a quantitative qualitative disclosures market risk marketsensitive instruments risk management company exposed impact interest rate foreign currency exchange rate changes company hold purchase foreign currency interest rate contracts trading purposes companys objective managing exposure foreign currency changes reduce risk earnings cash flow associated foreign exchange rate changes result company enters foreign exchange forward option swap contracts reduce risks associated value existing foreign currency assets liabilities firm commitments anticipated foreign revenues costs gains losses contracts intended offset changes related exposures company hedge foreign currency exposure manner would entirely eliminate effects changes foreign exchange rates companys consolidated net income companys objective managing exposure interest rate changes limit impact interest rate changes earnings cash flows lower overall borrowing costs achieve objectives company periodically use interest rate contracts manage net exposure interest rate changes related borrowings company interest rate contracts outstanding year end 1998 normal course operations company also faces risks either nonfinancial nonquantifiable risks principally include changes economic political conditions risks associated foreign operations commodity price risk litigation risk represented analyses follow foreign exchange valueatrisk company uses valueatrisk var model determine estimated maximum potential oneday loss earnings associated foreign exchange positions contracts approach assumes market rates prices foreign exchange positions contracts normally distributed var model estimates made assuming normal market conditions firm commitments receivables accounts payable denominated foreign currencies certain instruments intended hedge included model forecasted transactions certain instruments intended hedge excluded model var estimated using variancecovariance methodology based historical volatility currency volatility correlation used calculation based historical observations using one years data equal weightings data obtained publicly available jp morgan riskmetrics data set internet 95 percent confidence level used oneday time horizon var model risk analysis tool purport represent actual losses fair value could incurred company consider potential effect favorable changes market factors estimated maximum potential oneday loss earnings companys foreign exchange positions contracts would immaterial companys 1998 earnings interest rate sensitivity assumed 50 basis point move interest rates 10 percent companys weightedaverage floating rate interest rates affecting companys variablerate borrowings would immaterial effect companys 1998 earnings item 8item 7a quantitative qualitative disclosures market risk marketsensitive instruments risk management company exposed impact interest rate foreign currency exchange rate changes company hold purchase foreign currency interest rate contracts trading purposes companys objective managing exposure foreign currency changes reduce risk earnings cash flow associated foreign exchange rate changes result company enters foreign exchange forward option swap contracts reduce risks associated value existing foreign currency assets liabilities firm commitments anticipated foreign revenues costs gains losses contracts intended offset changes related exposures company hedge foreign currency exposure manner would entirely eliminate effects changes foreign exchange rates companys consolidated net income companys objective managing exposure interest rate changes limit impact interest rate changes earnings cash flows lower overall borrowing costs achieve objectives company periodically use interest rate contracts manage net exposure interest rate changes related borrowings company significant interest rate contracts outstanding year end 2000 normal course operations company also faces risks either nonfinancial nonquantifiable risks principally include changes economic political conditions risks associated foreign operations commodity price risk litigation risks represented analyses follow foreign exchange valueatrisk company uses valueatrisk var model determine estimated maximum potential oneday loss earnings associated foreign exchange positions contracts approach assumes market rates prices foreign exchange positions contracts normally distributed var model estimates made assuming normal market conditions firm commitments receivables accounts payable denominated foreign currencies certain instruments intended hedge included model forecasted transactions certain instruments intended hedge excluded model var estimated using variancecovariance methodology based historical volatility currency volatility correlation used calculation based twoyear historical data obtained one companys domestic banks 95 percent confidence level used oneday time horizon var model risk analysis tool purport represent actual losses fair value could incurred company consider potential effect favorable changes market factors estimated maximum potential oneday loss earnings companys foreign exchange positions contracts would immaterial companys 2000 earnings interest rate sensitivity assumed 50 basis point move interest rates 10 percent companys weightedaverage floating rate interest rates affecting companys variable rate borrowings would immaterial effect companys 2000 earnings item 8item 7a quantitative qualitative disclosures market risk marketsensitive instruments risk management company exposed impact interest rate foreign currency exchange rate changes company generally hold purchase foreign currency interest rate contracts trading purposes companys objective managing exposure foreign currency changes reduce risk earnings cash flow associated foreign exchange rate changes result company enters foreign exchange forward option swap contracts reduce risks associated value existing foreign currency assets liabilities firm commitments anticipated foreign revenues costs gains losses contracts intended offset changes related exposures company hedge foreign currency exposure manner would entirely eliminate effects changes foreign exchange rates companys consolidated net income companys objective managing exposure interest rate changes limit impact interest rate changes earnings cash flows lower overall borrowing costs achieve objectives company periodically use interest rate contracts manage net exposure interest rate changes related borrowings company significant interest rate contracts outstanding year end 2001 normal course operations company also faces risks either nonfinancial nonquantifiable risks principally include changes economic political conditions risks associated foreign operations commodity price risk litigation risks represented analyses follow foreign exchange valueatrisk company uses valueatrisk var model determine estimated maximum potential oneday loss earnings associated foreign exchange positions contracts approach assumes market rates prices foreign exchange positions contracts normally distributed var model estimates made assuming normal market conditions firm commitments receivables accounts payable denominated foreign currencies certain instruments intended hedge included model forecasted transactions certain instruments intended hedge excluded model var estimated using variance covariance methodology based historical volatility currency volatility correlation used calculation based twoyear historical data obtained one companys domestic banks 95 percent confidence level used oneday time horizon var model risk analysis tool purport represent actual losses fair value could incurred company consider potential effect favorable changes market factors estimated maximum potential oneday loss earnings companys foreign exchange positions contracts 26 million year end 2001 interest rate sensitivity assumed 40 basis point move interest rates 10 percent companys weightedaverage floating rate interest rate affecting companys variablerate borrowings would immaterial effect companys 2001 earnings item 8item 7a quantitative qualitative disclosures market risk marketsensitive instruments risk management company exposed impact interest rate foreign currency exchange rate changes company’s policy hold purchase foreign currency interest rate contracts trading purposes company’s objective managing exposure foreign currency changes reduce risk earnings cash flow associated foreign exchange rate changes result company enters foreign exchange forward option swap contracts reduce risks associated value existing foreign currency assets liabilities firm commitments anticipated foreign revenues costs gains losses contracts intended offset changes related exposures company hedge foreign currency exposure manner would entirely eliminate effects changes foreign exchange rates company’s consolidated net income company’s objective managing exposure interest rate changes limit impact interest rate changes earnings cash flows achieve objectives company periodically use interest rate contracts manage net exposure interest rate changes related borrowings company entered forward starting interest rate swap may 2002 secure interest rate company’s anticipated longterm debt issuance principal amount hedged 250 million shift interest rates unrealized loss approximately 374 million included comprehensive loss end 2002 connection issuance 250 million 10year senior notes company settled interest rate swap loss approximately 325 million loss amortized interest expense 10 years corresponds term related debt normal course operations company also faces risks either nonfinancial nonquantifiable risks principally include changes economic political conditions risks associated foreign operations commodity price risk litigation risks represented analyses follow foreign exchange valueatrisk company uses “valueatrisk” var model determine estimated maximum potential oneday loss earnings associated foreign exchange positions contracts approach assumes market rates prices foreign exchange positions contracts normally distributed var model estimates made assuming normal market conditions firm commitments receivables accounts payable denominated foreign currencies certain instruments intended hedge included model forecasted transactions certain instruments intended hedge excluded model var estimated using variancecovariance methodology based historical volatility currency volatility correlation used calculation based twoyear historical data obtained one company’s domestic banks 95 percent confidence level used oneday time horizon var model risk analysis tool purport represent actual losses fair value could incurred company consider potential effect favorable changes market factors estimated maximum potential oneday loss earnings company’s foreign exchange positions contracts 14 million year end 2002 interest rate sensitivity assumed 38 basis point move interest rates 10 percent company’s weightedaverage floating rate interest rate affecting company’s variablerate borrowings would immaterial effect company’s 2002 earnings item 8item 7a quantitative qualitative disclosures market risk management exposed impact changes interest rates foreign currency exchange rates policy purchase hold foreign currency interest rate commodity contracts trading purposes objective managing exposure foreign currency changes reduce risk earnings cash flow associated foreign exchange rate changes result enter foreign exchange forward option swap contracts reduce risks associated value existing foreign currency assets liabilities firm commitments anticipated foreign revenues costs available appropriate gains losses contracts intended offset changes related exposures hedge foreign currency exposure manner would entirely eliminate effects changes foreign exchange rates consolidated net income objective managing exposure interest rate changes reduce impact interest rate changes earnings cash flows achieve objectives may periodically use interest rate contracts manage net exposure interest rate changes related borrowings connection issuance 250 million 10year senior notes 2003 settled forward starting interest rate swap loss approximately 325 million loss currently amortized interest expense 10 years corresponds term related debt additionally enter certain natural gas futures contracts reduce risks associated anticipated domestic natural gas used manufacturing operations amounts material financial statements normal course operations also face risks either nonfinancial nonquantifiable risks principally include changes economic political conditions risks associated foreign operations commodity price risk litigation risk represented analyses follow foreign exchange valueatrisk use valueatrisk “var” model determine estimated maximum potential oneday loss earnings associated foreign exchange positions contracts approach assumes market rates prices foreign exchange positions contracts normally distributed var model estimates made assuming normal market conditions firm commitments accounts receivable accounts payable denominated foreign currencies certain instruments intended hedge included model forecasted transactions certain instruments intended hedge excluded model var estimated using variancecovariance methodology based historical volatility currency volatility correlation used calculation based twoyear historical data obtained one domestic banks 95 confidence level used oneday time horizon var model risk analysis tool purport represent actual losses fair value could incurred us consider potential effect favorable changes market factors estimated maximum potential oneday loss earnings foreign exchange positions contracts approximately 45 million year end 2005 interest rate sensitivity assumed 28 basis point move interest rates 10 weightedaverage interest rate floating rate debt affecting variablerate borrowings would immaterial effect 2005 earnings item 8item 7a quantitative qualitative disclosures market risk management exposed impact changes interest rates foreign currency exchange rates policy purchase hold foreign currency interest rate commodity contracts trading purposes objective managing exposure foreign currency changes reduce risk earnings cash flow associated foreign exchange rate changes result enter foreign exchange forward option swap contracts reduce risks associated value existing foreign currency assets liabilities firm commitments anticipated foreign revenues costs available appropriate gains losses contracts intended offset changes related exposures hedge foreign currency exposure manner would entirely eliminate effects changes foreign exchange rates consolidated net income objective managing exposure interest rate changes reduce impact interest rate changes earnings cash flows achieve objectives may periodically use interest rate contracts manage net exposure interest rate changes related borrowings connection issuance 250 million 10year senior notes 2003 settled forward starting interest rate swap loss approximately 325 million loss currently amortized interest expense 10 years corresponds term related debt additionally enter certain natural gas futures contracts reduce risks associated anticipated domestic natural gas used manufacturing operations amounts material financial statements normal course operations also face risks either nonfinancial nonquantifiable risks principally include changes economic political conditions risks associated foreign operations commodity price risk litigation risk represented analyses follow foreign exchange valueatrisk use valueatrisk “var” model determine estimated maximum potential oneday loss earnings associated foreign exchange positions contracts approach assumes market rates prices foreign exchange positions contracts normally distributed var model estimates made assuming normal market conditions firm commitments accounts receivable accounts payable denominated foreign currencies certain instruments intended hedge included model forecasted transactions certain instruments intended hedge excluded model var estimated using variancecovariance methodology based historical volatility currency volatility correlation used calculation based twoyear historical data obtained one domestic banks 95 confidence level used oneday time horizon var model risk analysis tool purport represent actual losses fair value could incurred us consider potential effect favorable changes market factors estimated maximum potential oneday loss earnings foreign exchange positions contracts approximately 5 million year end 2006 interest rate sensitivity assumed 40 basis point move interest rates 10 weightedaverage interest rate floating rate debt affecting variablerate borrowings would immaterial effect 2006 earnings item 8item 7a quantitative qualitative disclosures market risk management exposed impact changes interest rates foreign currency exchange rates policy purchase hold foreign currency interest rate commodity contracts trading purposes objective managing exposure foreign currency changes reduce risk earnings cash flow associated foreign exchange rate changes result enter foreign exchange forward option swap contracts reduce risks associated value existing foreign currency assets liabilities firm commitments anticipated foreign revenues costs available appropriate gains losses contracts intended offset changes related exposures hedge foreign currency exposure manner would entirely eliminate effects changes foreign exchange rates consolidated net income objective managing exposure interest rate changes reduce impact interest rate changes earnings cash flows achieve objectives may periodically use interest rate contracts manage exposure interest rate changes related borrowings june 2007 august 2007 entered certain interest rate option contracts hedge exposure related interest rate increases connection anticipated longterm debt issuances debt issuances intended replace shortterm borrowings initially used finance paxar acquisition support refinancing current longterm debt maturities connection transactions paid 115 million option premiums 48 million recognized year cash flow hedge loss consolidated statement income 67 million amortized life related forecasted hedged transactions additionally enter certain natural gas futures contracts reduce risks associated anticipated domestic natural gas used manufacturing operations amounts material financial statements normal course operations also face risks either nonfinancial nonquantifiable risks principally include changes economic political conditions risks associated foreign operations commodity price risk litigation risk represented analyses follow foreign exchange valueatrisk use valueatrisk “var” model determine estimated maximum potential oneday loss earnings associated foreign exchange positions contracts approach assumes market rates prices foreign exchange positions contracts normally distributed var model estimates made assuming normal market conditions firm commitments accounts receivable accounts payable denominated foreign currencies certain instruments intended hedge included model forecasted transactions certain instruments intended hedge excluded model var estimated using variancecovariance methodology based historical volatility currency volatility correlation used calculation based twoyear historical data obtained one domestic banks 95 confidence level used oneday time horizon var model risk analysis tool purport represent actual losses fair value could incurred us consider potential effect favorable changes market factors estimated maximum potential oneday loss earnings foreign exchange positions contracts approximately 3 million year end 2007 interest rate sensitivity assumed 50 basis point move interest rates 10 weightedaverage interest rate floating rate debt affecting variablerate borrowings would estimated 5 million effect 2007 earnings item 8item 7a quantitative qualitative disclosures market risk management exposed impact changes interest rates foreign currency exchange rates policy purchase hold foreign currency interest rate commodity contracts trading purposes objective managing exposure foreign currency changes reduce risk earnings cash flow associated foreign exchange rate changes result enter foreign exchange forward option swap contracts reduce risks associated value existing foreign currency assets liabilities firm commitments anticipated foreign revenues costs available appropriate gains losses contracts intended offset changes related exposures hedge foreign currency exposure manner would entirely eliminate effects changes foreign exchange rates consolidated net income objective managing exposure interest rate changes reduce impact interest rate changes earnings cash flows achieve objectives may periodically use interest rate contracts manage exposure interest rate changes related borrowings june 2007 august 2007 entered certain interest rate option contracts hedge exposure related interest rate increases connection anticipated longterm debt issuances debt issuances intended replace shortterm borrowings initially used finance paxar acquisition support refinancing current longterm debt maturities connection transactions paid 115 million option premiums 48 million recognized 2007 cash flow hedge loss consolidated statement income 67 million amortized life related forecasted hedged transactions additionally enter certain natural gas futures contracts reduce risks associated anticipated domestic natural gas used manufacturing operations amounts material financial statements normal course operations also face risks either nonfinancial nonquantifiable risks principally include changes economic political conditions risks associated foreign operations commodity price risk litigation risk represented analyses follow foreign exchange valueatrisk use valueatrisk “var” model determine estimated maximum potential oneday loss earnings associated foreign exchange positions contracts approach assumes market rates prices foreign exchange positions contracts normally distributed var model estimates made assuming normal market conditions firm commitments accounts receivable accounts payable denominated foreign currencies certain instruments intended hedge included model forecasted transactions certain instruments intended hedge excluded model var estimated using variancecovariance methodology based historical volatility currency volatility correlation used calculation based twoyear historical data obtained one domestic banks 95 confidence level used oneday time horizon var model risk analysis tool purport represent actual losses fair value could incurred us consider potential effect favorable changes market factors estimated maximum potential oneday loss earnings foreign exchange positions contracts approximately 17 million year end 2008 interest rate sensitivity assumed 30 basis point move interest rates 10 weightedaverage interest rate floating rate debt affecting variablerate borrowings would estimated 4 million effect 2008 earnings item 8item 7a quantitative qualitative disclosures market risk information called item contained “marketsensitive instruments risk management” “management’s discussion analysis results operations financial condition” company’s 2009 annual report shareholders incorporated herein reference item 8item 7a quantitative qualitative disclosures market risk information called item contained “marketsensitive instruments risk management” “management’s discussion analysis results operations financial condition” 2010 annual report incorporated herein reference item 8item 7a quantitative qualitative disclosures market risk information called item contained marketsensitive instruments risk management managements discussion analysis financial condition results operations 2012 annual report incorporated herein reference item 8item 7a quantitative qualitative disclosures market risk information called item contained marketsensitive instruments risk management managements discussion analysis financial condition results operations 2013 annual report incorporated herein reference item 8item 7a quantitative qualitative disclosures market risk information called item contained marketsensitive instruments risk management managements discussion analysis financial condition results operations 2014 annual report incorporated herein reference item 8item 7a quantitative qualitative disclosures market risk information called item contained marketsensitive instruments risk management managements discussion analysis financial condition results operations 2015 annual report incorporated herein reference item 8item 7a quantitative qualitative disclosures market risk information called item contained marketsensitive instruments risk management managements discussion analysis financial condition results operations 2017 annual report incorporated herein reference item 8item 7a quantitative qualitative disclosures market risk information called item contained marketsensitive instruments risk management managements discussion analysis financial condition results operations 2018 annual report incorporated herein reference item 8item 7a quantitative qualitative disclosures market risk information called item contained ”marketsensitive instruments risk management” “management’s discussion analysis financial condition results operations” 2019 annual report incorporated herein reference item 8item 7a quantitative qualitative disclosures market risk marketsensitive instruments risk management risk management company exposed impact interest rate foreign currency exchange rate changes company’s policy hold purchase foreign currency interest rate contracts trading purposes company’s objective managing exposure foreign currency changes reduce risk earnings cash flow associated foreign exchange rate changes result company enters foreign exchange forward option swap contracts reduce risks associated value existing foreign currency assets liabilities firm commitments anticipated foreign revenues costs gains losses contracts intended offset changes related exposures company hedge foreign currency exposure manner would entirely eliminate effects changes foreign exchange rates company’s consolidated net income company’s objective managing exposure interest rate changes limit impact interest rate changes earnings cash flows achieve objectives company may periodically use interest rate contracts manage net exposure interest rate changes related borrowings connection issuance 250 million 10year senior notes company settled forward starting interest rate swap loss approximately 325 million loss currently amortized interest expense 10 years corresponds term related debt company entered interest rate swap may 2002 secure interest rate company’s anticipated longterm debt issuance principal amount hedged 250 million shift interest rates unrealized loss approximately 374 million included comprehensive loss end 2002 normal course operations company also faces risks either nonfinancial nonquantifiable risks principally include changes economic political conditions risks associated foreign operations commodity price risk litigation risks represented analyses follow foreign exchange valueatrisk company uses valueatrisk “var” model determine estimated maximum potential oneday loss earnings associated foreign exchange positions contracts approach assumes market rates prices foreign exchange positions contracts normally distributed var model estimates made assuming normal market conditions firm commitments receivables accounts payable denominated foreign currencies certain instruments intended hedge included model forecasted transactions certain instruments intended hedge excluded model var estimated using variancecovariance methodology based historical volatility currency volatility correlation used calculation based twoyear historical data obtained one company’s domestic banks 95 percent confidence level used oneday time horizon var model risk analysis tool purport represent actual losses fair value could incurred company consider potential effect favorable changes market factors estimated maximum potential oneday loss earnings company’s foreign exchange positions contracts 32 million year end 2003 interest rate sensitivity assumed 20 basis point move interest rates 10 percent company’s weightedaverage floating rate interest rate affecting company’s variablerate borrowings would immaterial effect company’s 2003 earnings item 8 item 8 financial statements supplementary data information called item contained registrants consolidated financial statements notes thereto appearing pages 36 51 page 53 registrants 1993 annual report incorporated herein reference item 9item 8 financial statements supplementary data information called item contained registrants consolidated financial statements notes thereto appearing pages 40 52 report independent certified accountants page 53 registrants 1995 annual report incorporated herein reference item 9item 8 financial statements supplementary data information called item contained registrants consolidated financial statements notes thereto appearing pages 42 56 report independent certified public accountants page 57 registrants 1996 annual report incorporated herein reference item 9item 8 financial statements supplementary data information called item contained registrants consolidated financial statements notes thereto appearing pages 34 48 report independent certified public accountants page 49 registrants 1997 annual report incorporated herein reference item 9item 8 financial statements supplementary data information called item contained registrants consolidated financial statements notes thereto appearing pages 34 48 report independent certified public accountants page 49 registrants 1998 annual report incorporated herein reference item 9item 8 financial statements supplementary data information called item contained registrants consolidated financial statements notes thereto appearing pages 44 56 report independent accountants page 57 registrants 2000 annual report incorporated herein reference item 9item 8 financial statements supplementary data information called item contained registrants consolidated financial statements notes thereto appearing pages 32 47 report independent accountants page 49 registrants 2001 annual report incorporated herein reference item 9item 8 financial statements supplementary data information called item contained registrant’s consolidated financial statements notes thereto appearing pages 38 56 report independent accountants page 57 registrant’s 2002 annual report incorporated herein reference item 9item 8 financial statements supplementary data information called item contained company’s 2005 annual report shareholders pages 36 65 including consolidated financial statements notes thereto appearing pages 36 63 statement management responsibility financial statements management’s report internal control financial reporting page 64 report independent registered public accounting firm page 65 incorporated herein reference item 9item 8 financial statements supplementary data information called item contained company’s 2006 annual report shareholders pages 36 69 including consolidated financial statements notes thereto appearing pages 36 67 statement management responsibility financial statements management’s report internal control financial reporting page 68 report independent registered public accounting firm page 69 incorporated herein reference item 9item 8 financial statements supplementary data information called item contained company’s 2007 annual report shareholders pages 37 77 including consolidated financial statements notes thereto appearing pages 37 75 statement management responsibility financial statements management’s report internal control financial reporting page 76 report independent registered public accounting firm page 77 incorporated herein reference item 9item 8 financial statements supplementary data information called item contained company’s 2008 annual report shareholders pages 39 74 including consolidated financial statements notes thereto appearing pages 39 72 statement management responsibility financial statements management’s report internal control financial reporting page 73 report independent registered public accounting firm page 74 incorporated herein reference item 9item 8 financial statements supplementary data information called item contained company’s 2009 annual report shareholders including consolidated financial statements notes thereto statement management responsibility financial statements management’s report internal control financial reporting report independent registered public accounting firm incorporated herein reference item 9item 8 financial statements supplementary data information called item contained 2010 annual report including consolidated financial statements notes thereto statement management responsibility financial statements management’s report internal control financial reporting report independent registered public accounting firm incorporated herein reference item 9item 8 financial statements supplementary data information called item contained 2012 annual report including consolidated financial statements notes thereto statement management responsibility financial statements managements report internal control financial reporting report independent registered public accounting firm incorporated herein reference item 9item 8 financial statements supplementary data information called item contained 2013 annual report including consolidated financial statements notes thereto statement management responsibility financial statements managements report internal control financial reporting report independent registered public accounting firm incorporated herein reference item 9item 8 financial statements supplementary data information called item contained 2014 annual report including consolidated financial statements notes thereto statement management responsibility financial statements managements report internal control financial reporting report independent registered public accounting firm incorporated herein reference item 9item 8 financial statements supplementary data information called item contained 2015 annual report including consolidated financial statements notes thereto statement management responsibility financial statements managements report internal control financial reporting report independent registered public accounting firm incorporated herein reference item 9item 8 financial statements supplementary data information called item contained 2017 annual report including consolidated financial statements notes thereto statement management responsibility financial statements managements report internal control financial reporting report independent registered public accounting firm incorporated herein reference item 9item 8 financial statements supplementary data information called item contained 2018 annual report including consolidated financial statements notes thereto statement management responsibility financial statements managements report internal control financial reporting report independent registered public accounting firm incorporated herein reference item 9item 8 financial statements supplementary data information called item contained 2019 annual report including consolidated financial statements notes thereto statement management responsibility financial statements management’s report internal control financial reporting report independent registered public accounting firm incorporated herein reference item 9item 8 financial statements supplementary data information called item contained avery dennison’s consolidated financial statements notes thereto appearing pages 47 74 report independent auditors page 75 avery dennison’s 2003 annual report incorporated herein reference item 9 nannannannannannannanitem 15 exhibits financial statement schedules reports form 8k financial statements financial statement schedules exhibits 1 2 financial statements financial statement schedules filed part report listed accompanying index financial statements financial statement schedules 3 exhibits filed part report listed exhibit index follows financial statements schedules referred management contract compensatory plan arrangement required filed exhibit form 10k pursuant item 15c identified exhibit index b reports form 8k form 8k dated november 12 2002 containing information pursuant 18 usc section 1350 created section 906 sarbanesoxley act 2002 related company’s chief executive officer chief financial officer certifications c exhibits index thereto required filed item 601 regulation sk attached hereto financial statement schedules required regulation sx excluded registrant’s 2002 annual report rule 14a3b1 required filed financial statement schedules report indicated accompanying index financial statements financial statement schedules signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized avery dennison corporation daniel r o’bryant daniel r o’bryant senior vice president finance chief financial officer dated march 28 2003 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated signature title date philip neal philip neal chairman chief executive officer director march 28 2003 dean scarborough dean scarborough president chief operating officer director march 28 2003 daniel r o’bryant daniel r o’bryant senior vice president finance chief financial officer principal financial officer march 28 2003 michael skovran michael skovran vice president controller principal accounting officer march 28 2003 peter k barker peter k barker director march 28 2003 frank v cahouet frank v cahouet director march 28 2003 richard ferry richard ferry director march 28 2003 bruce e karatz bruce e karatz director march 28 2003 kent kresa kent kresa director march 28 2003 charles miller charles miller director march 28 2003 peter w mullin peter w mullin director march 28 2003 signature title date sidney r petersen sidney r petersen director march 28 2003 david e pyott david e pyott director march 28 2003 julia stewart julia stewart director march 28 2003 certification pursuant section 302 sarbanesoxley act 2002 certification philip neal certify 1 reviewed annual report form 10k avery dennison corporation 2 based knowledge report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered report 3 based knowledge financial statements financial information included report fairly present material respects financial condition results operations cash flows registrant periods presented report 4 registrant’s certifying officers responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a14 15d14 registrant designed disclosure controls procedures ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period report prepared b evaluated effectiveness registrant’s disclosure controls procedures date within 90 days prior filing date report “evaluation date” c presented report conclusions effectiveness disclosure controls procedures based evaluation date 5 registrant’s certifying officers disclosed based recent evaluation registrant’s auditors audit committee registrant’s board directors persons performing equivalent function significant deficiencies design operation internal controls could adversely affect registrant’s ability record process summarize report financial data identified registrant’s auditors material weaknesses internal controls b fraud whether material involves management employees significant role registrant’s internal controls 6 registrant’s certifying officers indicated report whether significant changes internal controls factors could significantly affect internal controls subsequent date recent evaluation including corrective actions regard significant deficiencies material weaknesses philip neal philip neal chairman chief executive officer march 28 2003 certification pursuant section 302 sarbanesoxley act 2002 certification daniel r o’bryant certify 1 reviewed annual report form 10k avery dennison corporation 2 based knowledge report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered report 3 based knowledge financial statements financial information included report fairly present material respects financial condition results operations cash flows registrant periods presented report 4 registrant’s certifying officers responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a14 15d14 registrant designed disclosure controls procedures ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period report prepared b evaluated effectiveness registrant’s disclosure controls procedures date within 90 days prior filing date report “evaluation date” c presented report conclusions effectiveness disclosure controls procedures based evaluation date 5 registrant’s certifying officers disclosed based recent evaluation registrant’s auditors audit committee registrant’s board directors persons performing equivalent function significant deficiencies design operation internal controls could adversely affect registrant’s ability record process summarize report financial data identified registrant’s auditors material weaknesses internal controls b fraud whether material involves management employees significant role registrant’s internal controls 6 registrant’s certifying officers indicated report whether significant changes internal controls factors could significantly affect internal controls subsequent date recent evaluation including corrective actions regard significant deficiencies material weaknesses daniel r o’bryant daniel r o’bryant senior vice president finance chief financial officer march 28 2003 avery dennison corporation index financial statements financial statement schedules consolidated financial statements include accounts majorityowned subsidiaries investments representing less 20 percent accounted using cost method accounting exception consolidated financial statements accountants’ report thereon listed index certain information referred items 1 5 6 information included 2002 annual report incorporated herein reference 2002 annual report deemed “filed” part report form 10k annual report annual report shareholders data submitted herewith report independent accountants financial statement schedule s2 financial statement schedules 2002 2001 2000 iivaluation qualifying accounts reserves s3 consent independent accountants s4 schedules omitted since required information present amounts sufficient require submission schedule information required included consolidated financial statements notes thereto s1 report independent accountants financial statement schedule board directors avery dennison corporation audits consolidated financial statements referred report dated january 27 2003 appearing 2002 annual report shareholders avery dennison corporation report consolidated financial statements incorporated reference annual report form 10k also included audit financial statement schedule listed item 15a2 form 10k opinion financial statement schedule presents fairly material respects information set forth therein read conjunction related consolidated financial statements pricewaterhousecoopers llp los angeles california january 27 2003 s2 schedule iivaluation qualifying accounts reserves millions s3 consent independent accountants hereby consent incorporation reference registration statements form s3 file nos 33338905 33364558 333103204 form s8 file nos 331132 333645 3341238 3345376 3354411 3358921 3363979 33338707 33338709 avery dennison corporation report dated january 27 2003 relating financial statements appears 2002 annual report shareholders incorporated reference annual report form 10k also consent incorporation reference report dated january 27 2003 relating financial statement schedule appears form 10k pricewaterhousecoopers llp los angeles california march 28 2003 s4 avery dennison corporation exhibit index year ended december 28 2002 incorporated reference exhibit item originally filed exhibit document1 31 restated certificate incorporation filed august 2 2002 office delaware secretary state 3i third quarterly report 2002 form 10q filed november 12 32 bylaws amended 3ii second quarterly report 2002 form 10q filed august 13 2002 41 rights agreement dated october 23 1997 current report form 8k filed october 23 1997 42 indenture dated march 15 1991 registrant security pacific national bank trustee “indenture” registration statement form s3 file 3339491 filed march 19 1991 421 officers’ certificate establishing series securities entitled “mediumterm notes” indenture 43 current report form 8k filed march 25 1991 422 first supplemental indenture dated march 16 1993 registrant bankamerica national trust company successor trustee “supplemental indenture” 44 registration statement form s3 file 3359642 filed march 17 1993 423 officers’ certificate establishing series securities entitled “mediumterm notes” indenture amended supplemental indenture 45 current report form 8k filed april 7 1993 424 officers’ certificate establishing series securities entitled “mediumterm notes series b” indenture amended supplemental indenture 46 current report form 8k filed march 29 1994 425 officers’ certificate establishing series securities entitled “mediumterm notes series c” indenture amended supplemental indenture 47 current report form 8k filed may 12 1995 426 officers’ certificate establishing series securities entitled “mediumterm notes series d” indenture amended supplemental indenture 48 current report form 8k filed december 16 1996 exhibit item originally filed exhibit document1 43 indenture dated july 3 2001 registrant jpmorgan trust company national association successor chase manhattan bank trust company national association trustee “2001 indenture” 41 registration statement form s3 file 33364558 filed july 3 2001 431 officers’ certificate establishing two series securities entitled “4875 notes due 2013” “6000 notes due 2033” respectively 2001 indenture 42 current report form 8k filed january 16 2003 432 4875 notes due 2013 43 current report form 8k filed january 16 2003 433 6000 notes due 2033 44 current report form 8k filed january 16 2003 103 deferred compensation plan directors 103 1981 annual report form 10k filed february 29 1982 105 executive medical dental plan description 105 1981 annual report form 10k filed february 29 1982 106 executive financial counseling service description 106 1981 annual report form 10k filed february 29 1982 1082 agreement pm neal 1082 1998 annual report form 10k filed march 31 1999 1083 agreement rg van schoonenberg 1083 1996 annual report form 10k filed march 28 1997 1084 form employment agreement 1084 1997 annual report form 10k filed march 26 1998 109 executive group life insurance plan 109 1982 annual report form 10k filed february 25 1983 1010 form indemnity agreement registrant certain directors officers 1010 1986 annual report form 10k filed february 27 1987 10101 form indemnity agreement registrant certain directors officers 10101 1993 annual report form 10k filed march 18 1994 1011 amended restated supplemental executive retirement plan “serp” 10111 1998 annual report 10k filed march 31 1999 10112 letter grant philip neal serp 10112 1998 annual report 10k filed march 31 1999 1012 complete restatement amendment executive deferred compensation plan 1012 1994 annual report form 10k filed march 30 1995 1013 fourth amended avery dennison retirement plan directors 10132 1992 annual report form 10k405 filed march 17 1993 exhibit item originally filed exhibit document1 1015 1988 stock option plan nonemployee directors “director plan” 1015 1987 annual report form 10k filed february 17 1988 10151 amendment 1 director plan 10151 1994 annual report form 10k filed march 30 1995 10152 form nonemployee director stock option agreement director plan 10152 1994 annual report form 10k filed march 30 1995 10153 amendment 2 director plan 10153 2000 annual report form 10k filed march 29 2001 1016 complete restatement amendment executive variable deferred compensation plan “evdcp” 1016 1994 annual report form 10k filed march 30 1995 10161 amendment 1 evdcp 10161 1999 annual report form 10k filed march 30 2000 1017 complete restatement amendment directors deferred compensation plan 1017 1994 annual report form 10k filed march 30 1995 1018 complete restatement amendment directors variable deferred compensation plan “dvdcp” 1018 1994 annual report form 10k filed march 30 1995 10181 amendment 1 dvdcp 10181 1999 annual report form 10k filed march 30 2000 1019 1990 stock option incentive plan “1990 plan” 1019 1989 annual report form 10k filed february 27 1990 10191 amendment 1 1990 plan 10191 1993 annual report form 10k filed march 18 1994 10192 form incentive stock option agreement use 1990 plan 10192 1991 annual report form 10k filed march 25 1992 10193 form nonqualified stock option “nso” agreement 1990 plan 10193 1994 annual report form 10k filed march 30 1995 10194 form nqso agreement 1990 plan 10194 1999 annual report form 10k filed march 30 2000 10195 amendment 2 1990 plan 10195 1996 annual report form 10k filed march 28 1997 1021 amended restated 1996 stock incentive plan “1996 plan” 1021 1999 annual report form 10k filed march 30 2000 10211 form nqso agreement 1996 plan 10211 1999 annual report form 10k filed march 30 2000 1027 executive longterm incentive plan 1027 1999 annual report form 10k filed march 30 2000 1028 complete restatement amendment executive deferred retirement plan “edrp” 1028 1994 annual report form 10k filed march 30 1995 exhibit item originally filed exhibit document1 10281 amendment 1 edrp 10281 1999 annual report form 10k filed march 30 2000 10282 amendment 2 edrp 10282 2001 annual report form 10k filed march 4 2002 1029 executive leadership compensation plan “elcp” 1029 1999 annual report form 10k filed march 30 2000 10291 amendment 1 elcp 10291 2001 annual report form 10k filed march 4 2002 1030 senior executive leadership compensation plan “selcp” 1030 1999 annual report form 10k filed march 30 2000 10301 amendment 1 selcp 10301 2001 annual report form 10k filed march 4 2002 1031 executive variable deferred retirement plan “evdrp” 1031 registration statement form s8 file 3363979 filed november 3 1995 10311 amended restated evdrp 10311 1997 annual report form 10k filed march 26 1998 10312 amendment 1 evdrp 10312 1999 annual report form 10k filed march 30 2000 10313 amendment 2 evdrp 10313 2001 annual report form 10k filed march 4 2002 1032 amended restated benefit restoration plan “brp” 10321 1995 annual report form 10k filed march 29 1996 1033 restated trust agreement employee stock benefit trust 10331 1997 annual report form 10k filed march 26 1998 10331 common stock purchase agreement 102 current report form 8k filed october 25 1996 10332 restated promissory note 10333 1997 annual report form 10k filed march 26 1998 1034 amended restated capital accumulation plan “cap” 1034 1999 annual report form 10k filed march 30 2000 10341 trust cap 42 registration statement form s8 file 33338707 filed october 24 1997 10342 amendment 1 cap 10342 1999 annual report form 10k filed march 30 2000 10343 amendment 2 cap 10343 2001 annual report form 10k filed march 4 2002 unless otherwise noted file number documents file 17685 management contract compensatory plan arrangement required filed exhibit form 10k pursuant item 15c submitted herewith exhibit item 32 bylaws amended december 5 2002 10131 retirement plan directors amended restated 10154 director equity plan amended restated 10196 employee stock option incentive plan amended restated 10197 forms nqso agreement 1990 plan 10212 stock incentive plan amended restated 10213 forms nqso agreement 1996 plan 10321 brp amended restated computation ratio earnings fixed changes portions annual report shareholders fiscal year ended december 28 list subsidiaries consent independent accountants see page s4 991 cautionary statement purposes “safe harbor” provisions private securities litigation reform act 1995 992 philip neal certification pursuant section 906 sarbanesoxley act 993 daniel r o’bryant certification pursuant section 906 sarbanesoxley act 2002 management contract compensatory plan arrangement required filed exhibit form 10k pursuant item 15c statement agreement regarding longterm debt registrant except indicated registrant instrument respect longterm debt securities authorized thereunder equal exceed 10 total assets registrant subsidiaries consolidated basis registrant agrees furnish copy longterm debt instruments commission upon requestitem 15 exhibits financial statement schedules financial statements financial statement schedule exhibits 1 2 financial statements financial statement schedule filed part report listed accompanying index financial statements financial statement schedule 3 exhibits filed part report listed exhibit index follows financial statements schedules referred management contract compensatory plan arrangement required filed exhibit form 10k pursuant item 15c identified exhibit index b exhibits index thereto required filed item 601 regulation sk attached hereto c financial statement schedules required regulation sx excluded company’s 2005 annual report rule 14a3b1 required filed financial statement schedule report indicated accompanying index financial statements financial statement schedule signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized avery dennison corporation daniel r o’bryant daniel r o’bryant executive vice president finance chief financial officer dated march 13 2006 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated avery dennison corporation index financial statements financial statement schedule consolidated financial statements include accounts majorityowned subsidiaries investments certain affiliates 20 percent 50 percent accounted equity method accounting investments representing less 20 percent accounted using cost method accounting exception consolidated financial statements statement management responsibility financial statements management’s report internal control financial reporting report independent registered public accounting firm thereon listed index certain information referred items 1 5 6 information included company’s 2005 annual report shareholders incorporated herein reference company’s 2005 annual report shareholders deemed “filed” part report schedules omitted since required information present amounts sufficient require submission schedule information required included consolidated financial statements notes thereto s1 report independent registered public accounting firm financial statement schedule board directors avery dennison corporation audits consolidated financial statements management’s assessment effectiveness internal control financial reporting effectiveness internal control financial reporting referred report dated march 13 2006 appearing 2005 annual report shareholders avery dennison corporation report consolidated financial statements assessment incorporated reference annual report form 10k also included audit financial statement schedule listed item 15a2 form 10k opinion financial statement schedule presents fairly material respects information set forth therein read conjunction related consolidated financial statements pricewaterhousecoopers llp pricewaterhousecoopers llp los angeles california march 13 2006 s2 schedule ii valuation qualifying accounts reserves millions s3 consent independent registered public accounting firm hereby consent incorporation reference registration statements form s3 file nos 33338905 33364558 333103204 333120239 form s8 file nos 331132 333645 3341238 3345376 3354411 3358921 3363979 33338707 33338709 333107370 333107371 333107372 333109814 avery dennison corporation report dated march 13 2006 relating financial statements management’s assessment effectiveness internal control financial reporting effectiveness internal control financial reporting appears 2005 annual report shareholders incorporated reference annual report form 10k year ended december 31 2005 also consent incorporation reference report dated march 13 2006 relating financial statement schedule appears form 10k pricewaterhousecoopers llp pricewaterhousecoopers llp los angeles california march 13 2006 s4 avery dennison corporation exhibit index year ended december 31 2005 incorporated reference ii iii iv 1 unless otherwise noted file number documents file 17685 management contract compensatory plan arrangement required filed exhibit form 10k pursuant item 15c v submitted herewith management contract compensatory plan arrangement required filed exhibit form 10k pursuant item 15c statement agreement regarding longterm debt registrant except indicated registrant instrument respect longterm debt securities authorized thereunder equal exceed 10 total assets registrant subsidiaries consolidated basis registrant agrees furnish copy longterm debt instruments commission upon request viitem 15 exhibits financial statement schedules financial statements financial statement schedule exhibits 1 2 financial statements financial statement schedule filed part report listed accompanying index financial statements financial statement schedule 3 exhibits filed part report listed exhibit index follows financial statements schedules referred management contract compensatory plan arrangement required filed exhibit form 10k pursuant item 15c identified exhibit index b exhibits index thereto required filed item 601 regulation sk attached hereto c financial statement schedules required regulation sx excluded company’s 2006 annual report rule 14a3b1 required filed financial statement schedule report indicated accompanying index financial statements financial statement schedule signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized avery dennison corporation daniel r o’bryant daniel r o’bryant executive vice president finance chief financial officer dated february 27 2007 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated avery dennison corporation index financial statements financial statement schedule consolidated financial statements include accounts majorityowned subsidiaries investments certain affiliates 20 percent 50 percent accounted equity method accounting investments representing less 20 percent accounted using cost method accounting exception consolidated financial statements statement management responsibility financial statements management’s report internal control financial reporting report independent registered public accounting firm thereon listed index certain information referred items 1 5 6 information included company’s 2006 annual report shareholders incorporated herein reference company’s 2006 annual report shareholders deemed “filed” part report schedules omitted since required information present amounts sufficient require submission schedule information required included consolidated financial statements notes thereto s1 report independent registered public accounting firm financial statement schedule board directors avery dennison corporation audits consolidated financial statements management’s assessment effectiveness internal control financial reporting effectiveness internal control financial reporting referred report dated february 22 2007 appearing 2006 annual report shareholders avery dennison corporation report consolidated financial statements assessment incorporated reference annual report form 10k also included audit financial statement schedule listed item 15a2 form 10k opinion financial statement schedule presents fairly material respects information set forth therein read conjunction related consolidated financial statements pricewaterhousecoopers llp pricewaterhousecoopers llp los angeles california february 22 2007 s2 schedule ii valuation qualifying accounts reserves millions s3 consent independent registered public accounting firm hereby consent incorporation reference registration statements form s3 file nos 33338905 33364558 333103204 333120239 form s8 file nos 331132 333645 3341238 3345376 3354411 3358921 3363979 33338707 33338709 333107370 333107371 333107372 333109814 avery dennison corporation report dated february 22 2007 relating financial statements management’s assessment effectiveness internal control financial reporting effectiveness internal control financial reporting appears 2006 annual report shareholders incorporated reference annual report form 10k year ended december 30 2006 also consent incorporation reference report dated february 22 2007 relating financial statement schedule appears form 10k pricewaterhousecoopers llp pricewaterhousecoopers llp los angeles california february 22 2007 s4 avery dennison corporation exhibit index year ended december 30 2006 incorporated reference ii iii iv 1 unless otherwise noted file number documents file 17685 management contract compensatory plan arrangement required filed exhibit form 10k pursuant item 15c v submitted herewith management contract compensatory plan arrangement required filed exhibit form 10k pursuant item 15c statement agreement regarding longterm debt registrant except indicated registrant instrument respect longterm debt securities authorized thereunder equal exceed 10 total assets registrant subsidiaries consolidated basis registrant agrees furnish copy longterm debt instruments commission upon request viitem 15 exhibits financial statement schedules financial statements financial statement schedule exhibits 1 2 financial statements financial statement schedule filed part report listed accompanying index financial statements financial statement schedule 3 exhibits filed part report listed exhibit index follows financial statements schedules referred management contract compensatory plan arrangement required filed exhibit form 10k pursuant item 15c identified exhibit index b exhibits index thereto required filed item 601 regulation sk attached hereto c financial statement schedules required regulation sx excluded company’s 2007 annual report rule 14a3b1 required filed financial statement schedule report indicated accompanying index financial statements financial statement schedule signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized avery dennison corporation daniel r o’bryant daniel r o’bryant executive vice president finance chief financial officer dated february 26 2008 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated avery dennison corporation index financial statements financial statement schedule consolidated financial statements include accounts majorityowned subsidiaries investments certain affiliates 20 percent 50 percent accounted equity method accounting investments representing less 20 percent accounted using cost method accounting exception consolidated financial statements statement management responsibility financial statements management’s report internal control financial reporting report independent registered public accounting firm thereon listed index certain information referred items 1 5 6 information included company’s 2007 annual report shareholders incorporated herein reference company’s 2007 annual report shareholders deemed “filed” part report schedules omitted since required information present amounts sufficient require submission schedule information required included consolidated financial statements notes thereto s1 report independent registered public accounting firm financial statement schedule board directors avery dennison corporation audits consolidated financial statements effectiveness internal control financial reporting referred report dated february 27 2008 appearing 2007 annual report shareholders avery dennison corporation report consolidated financial statements incorporated reference annual report form 10k also included audit financial statement schedule listed item 15a2 form 10k opinion financial statement schedule presents fairly material respects information set forth therein read conjunction related consolidated financial statements pricewaterhousecoopers llp pricewaterhousecoopers llp los angeles california february 27 2008 s2 schedule ii valuation qualifying accounts reserves millions s3 exhibit consent independent registered public accounting firm hereby consent incorporation reference registration statements form s3 file nos 33338905 33364558 333103204 333120239 333147369 form s8 file nos 331132 333645 3341238 3345376 3354411 3358921 3363979 33338707 33338709 333107370 33107371 333107372 333109814 333143897 avery dennison corporation report dated february 27 2008 relating financial statements effectiveness internal control financial reporting appears annual report shareholders incorporated annual report form 10k also consent incorporation reference report dated february 27 2008 relating financial statement schedule appears form 10k pricewaterhousecoopers llp pricewaterhousecoopers llp los angeles california february 27 2008 s4 avery dennison corporation exhibit index year ended december 29 2007 incorporated reference ii iii iv 1 unless otherwise noted file number documents file no17685 management contract compensatory plan arrangement required filed exhibit form 10k pursuant item 15c submitted herewith management contract compensatory plan arrangement required filed exhibit form 10k pursuant item 15c statement agreement regarding longterm debt registrant except indicated registrant instrument respect longterm debt securities authorized thereunder equal exceed 10 total assets registrant subsidiaries consolidated basis registrant agrees furnish copy longterm debt instruments commission upon request vitem 15 exhibits financial statement schedules financial statements financial statement schedule exhibits 1 2 financial statements financial statement schedule filed part report listed accompanying index financial statements financial statement schedule 3 exhibits filed part report listed exhibit index follows financial statements schedules referred management contract compensatory plan arrangement required filed exhibit form 10k pursuant item 15c identified exhibit index b exhibits index thereto required filed item 601 regulation sk attached hereto c financial statement schedules required regulation sx excluded company’s 2008 annual report rule 14a3b1 required filed financial statement schedule report indicated accompanying index financial statements financial statement schedule signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized avery dennison corporation daniel r o’bryant daniel r o’bryant executive vice president finance chief financial officer dated february 25 2009 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated avery dennison corporation index financial statements financial statement schedule consolidated financial statements include accounts majorityowned subsidiaries investments certain affiliates 20 percent 50 percent accounted equity method accounting investments representing less 20 percent accounted using cost method accounting exception consolidated financial statements statement management responsibility financial statements management’s report internal control financial reporting report independent registered public accounting firm thereon listed index certain information referred items 1 5 6 information included company’s 2008 annual report shareholders incorporated herein reference company’s 2008 annual report shareholders deemed “filed” part report schedules omitted since required information present amounts sufficient require submission schedule information required included consolidated financial statements notes thereto s1 report independent registered public accounting firm financial statement schedule board directors avery dennison corporation audits consolidated financial statements effectiveness internal control financial reporting referred report dated february 25 2009 appearing 2008 annual report shareholders avery dennison corporation report consolidated financial statements incorporated reference annual report form 10k also included audit financial statement schedule listed item 15a2 form 10k opinion financial statement schedule presents fairly material respects information set forth therein read conjunction related consolidated financial statements pricewaterhousecoopers llp pricewaterhousecoopers llp los angeles california february 25 2009 s2 schedule ii valuation qualifying accounts reserves millions s3 consent independent registered public accounting firm hereby consent incorporation reference registration statements form s3 file nos 33338905 33364558 333103204 333120239 333147369 form s8 file nos 3354411 3358921 3363979 33338707 33338709 333107370 33107371 333107372 333109814 333124495 333143897 333152508 avery dennison corporation report dated february 25 2009 relating financial statements effectiveness internal control financial reporting appears annual report shareholders incorporated annual report form 10k also consent incorporation reference report dated february 25 2009 relating financial statement schedule appears form 10k pricewaterhousecoopers llp pricewaterhousecoopers llp los angeles california february 25 2009 s4 avery dennison corporation exhibit index year ended december 27 2008 incorporated reference ii iii iv 1 unless otherwise noted file number documents file 17685 management contract compensatory plan arrangement required filed exhibit form 10k pursuant item 15 submitted herewith v management contract compensatory plan arrangement required filed exhibit form 10k pursuant item 15 statement agreement regarding longterm debt registrant except indicated registrant instrument respect longterm debt securities authorized thereunder equal exceed 10 total assets registrant subsidiaries consolidated basis registrant agrees furnish copy longterm debt instruments commission upon request viitem 15 exhibits financial statement schedules financial statements financial statement schedule exhibits 1 2 financial statements financial statement schedule filed part report listed accompanying index financial statements financial statement schedule 3 exhibits filed part report listed exhibit index follows financial statements schedules referred management contract compensatory plan arrangement required filed exhibit form 10k pursuant item 15c identified exhibit index b exhibits index thereto required filed item 601 regulation sk attached hereto c financial statement schedules required regulation sx excluded company’s 2009 annual report rule 14a3b1 required filed financial statement schedule report indicated accompanying index financial statements financial statement schedule signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized avery dennison corporation daniel r o’bryant daniel r o’bryant executive vice president finance chief financial officer dated february 26 2010 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated avery dennison corporation index financial statements financial statement schedule consolidated financial statements include accounts majorityowned subsidiaries investments certain affiliates 20 percent 50 percent accounted equity method accounting investments representing less 20 percent accounted using cost method accounting exception consolidated financial statements statement management responsibility financial statements management’s report internal control financial reporting report independent registered public accounting firm thereon listed certain information referred items 1 5 6 7 7a information included company’s 2009 annual report shareholders incorporated herein reference company’s 2009 annual report shareholders deemed “filed” part report schedules omitted since required information present amounts sufficient require submission schedule information required included consolidated financial statements notes thereto s1 report independent registered public accounting firm financial statement schedule board directors avery dennison corporation audits consolidated financial statements effectiveness internal control financial reporting referred report dated february 26 2010 appearing 2009 annual report shareholders avery dennison corporation report consolidated financial statements incorporated reference annual report form 10k also included audit financial statement schedule listed item 15a2 form 10k opinion financial statement schedule presents fairly material respects information set forth therein read conjunction related consolidated financial statements pricewaterhousecoopers llp pricewaterhousecoopers llp los angeles california february 26 2010 s2 schedule ii valuation qualifying accounts reserves millions deductions reserves include currency translation adjustments s3 consent independent registered public accounting firm hereby consent incorporation reference registration statements form s3 file nos 33338905 33364558 333103204 333120239 333147369 form s8 file nos 3354411 3358921 3363979 33338707 33338709 333107370 33107371 333107372 333109814 333124495 333143897 333152508 avery dennison corporation report dated february 26 2010 relating financial statements effectiveness internal control financial reporting appears annual report shareholders incorporated annual report form 10k also consent incorporation reference report dated february 26 2010 relating financial statement schedule appears form 10k pricewaterhousecoopers llp pricewaterhousecoopers llp los angeles california february 26 2010 s4 avery dennison corporation exhibit index year ended january 2 2010 incorporated reference ii iii iv 1 unless otherwise noted file number documents file 17685 management contract compensatory plan arrangement required filed exhibit form 10k pursuant item 15 v submitted herewith management contract compensatory plan arrangement required filed exhibit form 10k pursuant item 15 statement agreement regarding longterm debt registrant unless indicated registrant instrument respect longterm debt securities authorized thereunder equal exceed 10 total assets registrant subsidiaries consolidated basis registrant agrees furnish copy longterm debt instruments commission upon request viitem 15 exhibits financial statement schedules financial statements financial statement schedule exhibits 1 2 financial statements financial statement schedule filed part report listed accompanying index financial statements financial statement schedule 3 exhibits filed part report listed exhibit index follows financial statements schedules referred management contract compensatory plan arrangement required filed exhibit form 10k pursuant item 15c identified exhibit index b exhibits required filed item 601 regulation sk set forth accompanying exhibit index attached hereto incorporated herein reference c financial statement schedules required regulation sx excluded 2010 annual report rule 14a3b1 required filed financial statement schedule report set forth accompanying index financial statements financial statement schedule incorporated herein reference signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized avery dennison corporation mitchell r butier mitchell r butier senior vice president chief financial officer dated february 25 2011 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated avery dennison corporation index financial statements financial statement schedule consolidated financial statements include accounts majorityowned subsidiaries investments representing less 20 percent accounted using cost method accounting exception consolidated financial statements statement management responsibility financial statements management’s report internal control financial reporting report independent registered public accounting firm thereon listed certain information referred items 1 5 6 7 7a report information included company’s 2010 annual report shareholders incorporated herein reference company’s 2010 annual report shareholders deemed “filed” part report schedules omitted since required information present amounts sufficient require submission schedule information required included consolidated financial statements notes thereto s1 report independent registered public accounting firm financial statement schedule board directors avery dennison corporation audits consolidated financial statements effectiveness internal control financial reporting referred report dated february 25 2011 appearing 2010 annual report shareholders avery dennison corporation report consolidated financial statements incorporated reference annual report form 10k also included audit financial statement schedule listed item 15a2 form 10k opinion financial statement schedule presents fairly material respects information set forth therein read conjunction related consolidated financial statements pricewaterhousecoopers llp pricewaterhousecoopers llp los angeles california february 25 2011 s2 schedule valuation qualifying accounts reserves schedule ii valuation qualifying accounts reserves millions deductions reserves include currency translation adjustments s3 consent independent registered public accounting firm hereby consent incorporation reference registration statements form s3 file nos 33338905 33364558 333103204 333120239 333147369 333169954 form s8 file nos 3354411 3358921 3363979 33338707 33338709 333107370 33107371 333107372 333109814 333124495 333143897 333152508 333166832 333166836 333166837 avery dennison corporation report dated february 25 2011 relating financial statements effectiveness internal control financial reporting appears company’s 2010 annual report shareholders incorporated annual report form 10k also consent incorporation reference report dated february 25 2011 relating financial statement schedule appears form 10k pricewaterhousecoopers llp pricewaterhousecoopers llp los angeles california february 25 2011 s4 avery dennison corporation exhibit index year ended january 1 2011 incorporated reference ii iii iv 1 unless otherwise noted file number documents file 17685 management contract compensatory plan arrangement required filed exhibit form 10k pursuant item 15 v submitted herewith management contract compensatory plan arrangement required filed exhibit form 10k pursuant item 15 pursuant rule 406t regulation st xbrl related information exhibit 101 annual report form 10k shall deemed “filed” purposes section 18 exchange act otherwise subject liability section shall deemed part registration statement prospectus document filed securities act exchange act except may expressly set forth specific reference filings statement agreement regarding longterm debt registrant unless indicated registrant instrument respect longterm debt securities authorized thereunder equals exceed 10 total assets registrant subsidiaries consolidated basis registrant agrees furnish copy longterm debt instruments commission upon request viitem 15 exhibits financial statement schedules financial statements financial statement schedule exhibits 1 2 financial statements financial statement schedule filed part report listed accompanying index financial statements financial statement schedule 3 exhibits filed part report listed accompanying exhibit index management contract compensatory plan arrangement required filed exhibit form 10k identified exhibit index incorporated herein reference b exhibits required filed item 601 regulation sk set forth accompanying exhibit index incorporated herein reference c financial statement schedules required regulation sx excluded 2012 annual report rule 14a3b1 required filed report set forth accompanying index financial statements financial statement schedule incorporated herein reference signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized dated february 27 2013 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated power attorney know persons presents person whose signature appears hereby constitute appoint mitchell r butier susan c miller full power substitution true lawful attorneyinfact act capacities sign annual report form 10k amendments supplements thereto file exhibits thereto documents connection therewith securities exchange commission granting unto said attorneysinfact full power authority perform every act thing requisite necessary done order effectuate fully intents purposes could person hereby ratifying confirming said attorneysinfact substitutes may lawfully cause done virtue hereof pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated avery dennison corporation index financial statements financial statement schedule data incorporated reference attached portions 2012 annual report shareholders avery dennison corporation consolidated financial statements consolidated balance sheets december 29 2012 december 31 2011 consolidated statements income 2012 2011 2010 consolidated statements comprehensive income 2012 2011 2010 consolidated statements shareholders equity 2012 2011 2010 consolidated statements cash flows 2012 2011 2010 notes consolidated financial statements statement management responsibility financial statements managements report internal control financial reporting report independent registered public accounting firm except consolidated financial statements statement management responsibility financial statements managements report internal control financial reporting report independent registered public accounting firm listed certain information referred items 1 5 6 7 7a report information included 2012 annual report shareholders incorporated herein reference 2012 annual report shareholders deemed filed part report data submitted herewith report independent registered public accounting firm financial statement schedule s2 schedule ii valuation qualifying accounts reserves s3 consent independent registered public accounting firm s4 schedules omitted since required information present amounts sufficient require submission schedule information required included consolidated financial statements notes thereto s1 report independent registered public accounting firm financial statement schedule board directors avery dennison corporation audits consolidated financial statements effectiveness internal control financial reporting referred report dated february 27 2013 appearing 2012 annual report shareholders avery dennison corporation report consolidated financial statements incorporated reference annual report form 10k also included audit financial statement schedule listed item 15a2 form 10k opinion financial statement schedule presents fairly material respects information set forth therein read conjunction related consolidated financial statements pricewaterhousecoopers llp pricewaterhousecoopers llp los angeles california february 27 2013 s2 schedule ii valuation qualifying accounts reserves millions adeductions reserves include currency translation adjustments periods classification ocp business balances applicable held sale 2011 s3 consent independent registered public accounting firm hereby consent incorporation reference registration statements form s3 file 333169954 form s8 file nos 3354411 3358921 3363979 33338707 33338709 333107370 33107371 333107372 333109814 333124495 333143897 333152508 333166832 333166836 333166837 333181221 avery dennison corporation report dated february 27 2013 relating financial statements effectiveness internal control financial reporting appears annual report shareholders incorporated annual report form 10k also consent incorporation reference report dated february 27 2013 relating financial statement schedule appears form 10k pricewaterhousecoopers llp pricewaterhousecoopers llp los angeles california february 27 2013 s4 avery dennison corporation exhibit index year ended december 29 2012 ii iii iv v 1unless otherwise noted file number filings file 17685 management contract compensatory plan arrangement required filed exhibit form 10k pursuant item 15c form 10k filed herewith viitem 15 exhibits financial statement schedules financial statements financial statement schedule exhibits 1 2 financial statements financial statement schedule filed part report listed accompanying index financial statements financial statement schedule 3 exhibits filed part report listed accompanying exhibit index management contract compensatory plan arrangement required filed exhibit form 10k identified exhibit index incorporated herein reference b exhibits required filed item 601 regulation sk set forth accompanying exhibit index incorporated herein reference c financial statement schedules required regulation sx excluded 2013 annual report rule 14a3b1 required filed report set forth accompanying index financial statements financial statement schedule incorporated herein reference signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized dated february 26 2014 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated power attorney know persons presents person whose signature appears hereby constitute appoint mitchell r butier susan c miller full power substitution true lawful attorneyinfact act capacities sign annual report form 10k amendments supplements thereto file exhibits thereto documents connection therewith securities exchange commission granting unto said attorneysinfact full power authority perform every act thing requisite necessary done order effectuate fully intents purposes could person hereby ratifying confirming said attorneysinfact substitutes may lawfully cause done virtue hereof pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated avery dennison corporation index financial statements financial statement schedule data incorporated reference attached portions 2013 annual report shareholders avery dennison corporation consolidated financial statements consolidated balance sheets december 28 2013 december 29 2012 consolidated statements income 2013 2012 2011 consolidated statements comprehensive income 2013 2012 2011 consolidated statements shareholders equity 2013 2012 2011 consolidated statements cash flows 2013 2012 2011 notes consolidated financial statements statement management responsibility financial statements managements report internal control financial reporting report independent registered public accounting firm except consolidated financial statements statement management responsibility financial statements managements report internal control financial reporting report independent registered public accounting firm listed certain information referred items 1 5 6 7 7a report expressly incorporated herein reference 2013 annual report shareholders deemed filed part report data submitted herewith report independent registered public accounting firm financial statement schedule s2 schedule ii valuation qualifying accounts reserves s3 consent independent registered public accounting firm s4 schedules omitted since required information present amounts sufficient require submission schedule information required included consolidated financial statements notes thereto s1 report independent registered public accounting firm financial statement schedule board directors avery dennison corporation audits consolidated financial statements effectiveness internal control financial reporting referred report dated february 26 2014 appearing 2013 annual report shareholders avery dennison corporation report consolidated financial statements incorporated reference annual report form 10k also included audit financial statement schedule listed item 15a2 form 10k opinion financial statement schedule presents fairly material respects information set forth therein read conjunction related consolidated financial statements pricewaterhousecoopers llp pricewaterhousecoopers llp los angeles california february 26 2014 s2 schedule ii valuation qualifying accounts reserves millions adeductions reserves include currency translation adjustments periods classification ocp business balances applicable held sale 2011 sale des business 2013 s3 consent independent registered public accounting firm hereby consent incorporation reference registration statements form s3 file nos 333191228 333169954 form s8 file nos 3354411 3358921 3363979 33338707 33338709 333107370 33107371 333107372 333109814 333124495 333143897 333152508 333166832 333166836 333166837 333181221 avery dennison corporation report dated february 26 2014 relating financial statements effectiveness internal control financial reporting appears annual report shareholders incorporated annual report form 10k also consent incorporation reference report dated february 26 2014 relating financial statement schedule appears form 10k pricewaterhousecoopers llp pricewaterhousecoopers llp los angeles california february 26 2014 s4 avery dennison corporation exhibit index year ended december 28 2013 ii iii iv v 1unless otherwise noted file number filings file 17685 management contract compensatory plan arrangement required filed exhibit form 10k pursuant item 15b form 10k filed herewith viitem 15 exhibits financial statement schedules financial statements financial statement schedule exhibits 1 2 financial statements financial statement schedule filed part report listed accompanying index financial statements financial statement schedule 3 exhibits filed part report listed accompanying exhibit index management contract compensatory plan arrangement required filed exhibit form 10k identified exhibit index incorporated herein reference b exhibits required filed item 601 regulation sk set forth accompanying exhibit index incorporated herein reference c financial statement schedules required regulation sx excluded 2014 annual report rule 14a3b1 required filed report set forth accompanying index financial statements financial statement schedule incorporated herein reference signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized avery dennison corporation mitchell r butier mitchell r butier president chief operating officer chief financial officer dated february 25 2015 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated power attorney know persons presents person whose signature appears hereby constitute appoint mitchell r butier susan c miller full power substitution true lawful attorneyinfact act capacities sign annual report form 10k amendments supplements thereto file exhibits thereto documents connection therewith securities exchange commission granting unto said attorneysinfact full power authority perform every act thing requisite necessary done order effectuate fully intents purposes could person hereby ratifying confirming said attorneysinfact substitutes may lawfully cause done virtue hereof pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated avery dennison corporation index financial statements financial statement schedule data incorporated reference attached portions 2014 annual report shareholders avery dennison corporation consolidated financial statements consolidated balance sheets january 3 2015 december 28 2013 consolidated statements income 2014 2013 2012 consolidated statements comprehensive income 2014 2013 2012 consolidated statements shareholders equity 2014 2013 2012 consolidated statements cash flows 2014 2013 2012 notes consolidated financial statements statement management responsibility financial statements managements report internal control financial reporting report independent registered public accounting firm except consolidated financial statements statement management responsibility financial statements managements report internal control financial reporting report independent registered public accounting firm listed certain information referred items 1 5 6 7 7a report expressly incorporated herein reference 2014 annual report shareholders deemed filed part report data submitted herewith report independent registered public accounting firm financial statement schedule s2 schedule ii valuation qualifying accounts reserves s3 consent independent registered public accounting firm s4 schedules omitted since required information present amounts sufficient require submission schedule information required included consolidated financial statements notes thereto s1 report independent registered public accounting firm financial statement schedule board directors avery dennison corporation audits consolidated financial statements effectiveness internal control financial reporting referred report dated february 25 2015 appearing 2014 annual report shareholders avery dennison corporation report consolidated financial statements incorporated reference annual report form 10k also included audit financial statement schedule listed item 15a2 form 10k opinion financial statement schedule presents fairly material respects information set forth therein read conjunction related consolidated financial statements pricewaterhousecoopers llp pricewaterhousecoopers llp los angeles california february 25 2015 s2 schedule ii valuation qualifying accounts reserves millions adeductions reserves include currency translation adjustments periods sale des business 2013 s3 consent independent registered public accounting firm hereby consent incorporation reference registration statements form s3 file nos 333191228 333169954 form s8 file nos 3354411 3358921 3363979 33338707 33338709 333107370 333107371 333107372 333109814 333124495 333143897 333152508 333166832 333166836 333166837 333181221 333197631 avery dennison corporation report dated february 25 2015 relating financial statements effectiveness internal control financial reporting appears annual report shareholders incorporated annual report form 10k also consent incorporation reference report dated february 25 2015 relating financial statement schedule appears form 10k pricewaterhousecoopers llp pricewaterhousecoopers llp los angeles california february 25 2015 s4 avery dennison corporation exhibit index year ended january 3 2015 ii iii iv v 1unless otherwise noted file number filings file 17685 management contract compensatory plan arrangement required filed exhibit form 10k pursuant item 15b form 10k filed herewith viitem 15 exhibits financial statement schedules financial statements financial statement schedule exhibits 1financial statements filed part report listed accompanying index financial statements 2all financial statement schedules omitted since required information present amounts sufficient require submission schedule information required included consolidated financial statements notes thereto 3exhibits filed part report listed accompanying exhibit index management contract compensatory plan arrangement required filed exhibit form 10k identified exhibit index incorporated herein reference b exhibits required filed item 601 regulation sk set forth accompanying exhibit index incorporated herein reference signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized dated february 24 2016 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated power attorney know persons presents person whose signature appears hereby constitute appoint anne l bramman susan c miller full power substitution true lawful attorneyinfact act capacities sign annual report form 10k amendments supplements thereto file exhibits thereto documents connection therewith securities exchange commission granting unto said attorneysinfact full power authority perform every act thing requisite necessary done order effectuate fully intents purposes could person hereby ratifying confirming said attorneysinfact substitutes may lawfully cause done virtue hereof pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated avery dennison corporation data incorporated reference attached portions 2015 annual report shareholders avery dennison corporation consolidated financial statements consolidated balance sheets january 2 2016 january 3 2015 consolidated statements income 2015 2014 2013 consolidated statements comprehensive income 2015 2014 2013 consolidated statements shareholders equity 2015 2014 2013 consolidated statements cash flows 2015 2014 2013 notes consolidated financial statements statement management responsibility financial statements managements report internal control financial reporting report independent registered public accounting firm except consolidated financial statements statement management responsibility financial statements managements report internal control financial reporting report independent registered public accounting firm listed certain information referred items 1 5 6 7 7a report expressly incorporated herein reference 2015 annual report shareholders deemed filed part report s1 avery dennison corporation exhibit index year ended january 2 2016 ii iii iv v 1unless otherwise noted file number filings file 17685 management contract compensatory plan arrangement required filed exhibit form 10k pursuant item 15b form 10k filed herewith viitem 15 exhibits financial statement schedules financial statements financial statement schedule exhibits 1financial statements filed part report listed accompanying index financial statements 2all financial statement schedules omitted since required information present amounts sufficient require submission schedule information required included consolidated financial statements notes thereto 3exhibits filed part report listed accompanying exhibit index management contract compensatory plan arrangement required filed exhibit form 10k identified exhibit index incorporated herein reference b exhibits required filed item 601 regulation sk set forth following exhibit index incorporated herein reference item 16 form 10k summary none avery dennison corporation data incorporated reference attached portions 2017 annual report shareholders avery dennison corporation consolidated financial statements consolidated balance sheets december 30 2017 december 31 2016 consolidated statements income 2017 2016 2015 consolidated statements comprehensive income 2017 2016 2015 consolidated statements shareholders equity 2017 2016 2015 consolidated statements cash flows 2017 2016 2015 notes consolidated financial statements statement management responsibility financial statements managements report internal control financial reporting report independent registered public accounting firm except consolidated financial statements statement management responsibility financial statements managements report internal control financial reporting report independent registered public accounting firm listed certain information referred items 1 5 6 7 7a report expressly incorporated herein reference 2017 annual report shareholders deemed filed part report avery dennison corporation exhibit index year ended december 30 2017 1unless otherwise noted file number filings file 17685 management contract compensatory plan arrangement required filed exhibit form 10k pursuant item 15b form 10k filed herewith this certification furnished solely accompany report pursuant 18 usc 1350 filed purposes section 18 exchange act incorporated reference filing registrant whether made date hereof regardless general incorporation language filing furnished herewith pursuant rule 406t regulation st interactive data files exhibit 101 hereto deemed filed part registration statement prospectus purposes sections 11 12 securities act deemed filed purposes section 18 exchange act otherwise subject liability sections signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized dated february 21 2018 power attorney know persons presents person whose signature appears hereby constitute appoint gregory lovins susan c miller full power substitution true lawful attorneyinfact act capacities sign annual report form 10k amendments supplements thereto file exhibits thereto documents connection therewith securities exchange commission granting unto said attorneysinfact full power authority perform every act thing requisite necessary done order effectuate fully intents purposes could person hereby ratifying confirming said attorneysinfact substitutes may lawfully cause done virtue hereof pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicateditem 15 exhibits financial statement schedules financial statements financial statement schedule exhibits 1financial statements filed part report listed accompanying index financial statements 2all financial statement schedules omitted since required information present amounts sufficient require submission schedule information required included consolidated financial statements notes thereto 3exhibits filed part report listed accompanying exhibit index management contract compensatory plan arrangement required filed exhibit form 10k identified exhibit index incorporated herein reference b exhibits required filed item 601 regulation sk set forth following exhibit index incorporated herein reference item 16 form 10k summary none avery dennison corporation data incorporated reference attached portions 2018 annual report shareholders avery dennison corporation consolidated financial statements consolidated balance sheets december 29 2018 december 30 2017 consolidated statements income 2018 2017 2016 consolidated statements comprehensive income 2018 2017 2016 consolidated statements shareholders equity 2018 2017 2016 consolidated statements cash flows 2018 2017 2016 notes consolidated financial statements statement management responsibility financial statements managements report internal control financial reporting report independent registered public accounting firm except consolidated financial statements statement management responsibility financial statements managements report internal control financial reporting report independent registered public accounting firm listed certain information referred items 1 5 6 7 7a report expressly incorporated herein reference 2018 annual report shareholders deemed filed part report avery dennison corporation exhibit index year ended december 29 2018 1unless otherwise noted file number filings file 17685 management contract compensatory plan arrangement required filed exhibit form 10k pursuant item 15b form 10k filed herewith this certification furnished solely accompany report pursuant 18 usc 1350 filed purposes section 18 exchange act incorporated reference filing registrant whether made date hereof regardless general incorporation language filing furnished herewith pursuant rule 406t regulation st interactive data files exhibit 101 hereto deemed filed part registration statement prospectus purposes sections 11 12 securities act deemed filed purposes section 18 exchange act otherwise subject liability sections signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized dated february 27 2019 power attorney person whose signature appears hereby constitute appoint gregory lovins susan c miller full power substitution true lawful attorneyinfact act capacities sign annual report form 10k amendments supplements thereto file exhibits thereto documents connection therewith securities exchange commission granting unto said attorneysinfact full power authority perform every act thing requisite necessary done order effectuate fully intents purposes could person hereby ratifying confirming said attorneysinfact substitutes may lawfully cause done virtue hereof pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicateditem 15 exhibits financial statement schedules financial statements financial statement schedule exhibits 1financial statements filed part report listed accompanying index financial statements 2all financial statement schedules omitted since required information present amounts sufficient require submission schedule information required included consolidated financial statements notes thereto 3exhibits filed part report listed accompanying exhibit index management contract compensatory plan arrangement required filed exhibit form 10k identified exhibit index b exhibits required filed item 601 regulation sk set forth following exhibit index avery dennison corporation data incorporated reference attached portions 2019 annual report shareholders avery dennison corporation consolidated financial statements consolidated balance sheets december 28 2019 december 29 2018 consolidated statements income 2019 2018 2017 consolidated statements comprehensive income 2019 2018 2017 consolidated statements shareholders’ equity 2019 2018 2017 consolidated statements cash flows 2019 2018 2017 notes consolidated financial statements statement management responsibility financial statements management’s report internal control financial reporting report independent registered public accounting firm except consolidated financial statements statement management responsibility financial statements management’s report internal control financial reporting report independent registered public accounting firm listed certain information referred items 1 5 6 7 7a report expressly incorporated herein reference 2019 annual report shareholders deemed “filed” part report avery dennison corporation exhibit index year ended december 28 2019 exhibit name originally filed exhibit filing1 31i amended restated certificate incorporation filed april 28 2011 office delaware secretary state 31 current report form 8k filed april 29 2011 31ii amended restated bylaws effective december 7 2017 31ii current report form 8k filed december 8 2017 41 indenture dated march 15 1991 registrant security pacific national bank trustee “1991 indenture” 41 registration statement form s3 file 3339491 filed march 19 1991 42 first supplemental indenture dated march 16 1993 registrant bankamerica national trust company successor trustee “supplemental indenture” 44 registration statement form s3 file 3359642 filed march 17 1993 43 officers’ certificate establishing series securities entitled “mediumterm notes series c” 1991 indenture amended supplemental indenture 41 current report form 8k filed may 12 1995 44 officers’ certificate establishing series securities entitled “mediumterm notes series d” 1991 indenture amended supplemental indenture 41 current report form 8k filed december 16 1996 45 indenture dated july 3 2001 registrant chase manhattan bank trust company national association trustee “2001 indenture” 41 registration statement form s3 file 33364558 filed july 3 2001 46 officers’ certificate establishing securities entitled “6000 notes due 2033” 2001 indenture 42 current report form 8k filed january 16 2003 47 6000 notes due 2033 44 current report form 8k filed january 16 2003 48 indenture dated september 25 2007 among avery dennison office products company “adopc” registrant bank new york trust company na trustee “bank ny” 991 current report form 8k filed october 1 2007 49 form 6625 guaranteed notes due 2017 991 current report form 8k filed october 1 2007 410 indenture dated november 20 2007 registrant bank ny 42 current report form 8k filed november 20 2007 411 first supplemental indenture dated november 20 2007 registrant bank ny 43 current report form 8k filed november 20 2007 412 second supplemental indenture dated april 13 2010 registrant bank ny 42 current report form 8k filed april 13 2010 413 form 5375 senior notes due 2020 42 current report form 8k filed april 13 2010 414 third supplemental indenture dated april 8 2013 registrant bank ny 42 current report form 8k filed april 8 2013 415 form 335 senior notes due 2023 42 current report form 8k filed april 8 2013 exhibit name originally filed exhibit filing1 416 fourth supplemental indenture dated march 3 2017 registrant bank new york mellon trust company na “bny mellon” trustee including form 1250 senior notes due 2025 exhibit thereto 42 current report form 8k filed march 3 2017 417 fifth supplemental indenture dated december 6 2018 registrant bny melon trustee including form 4875 senior notes due 2028 exhibit thereto 42 current report form 8k filed december 6 2018 418 † description securities na 101 amended restated credit agreement dated february 8 2008 among adopc registrant bank america na banc america securities llc jp morgan securities inc “adopc credit agreement” 101 quarterly report form 10q filed august 7 2008 102 second amendment adopc credit agreement dated january 23 2009 994 current report form 8k filed january 27 2009 103 fifth amended restated credit agreement dated february 13 2020 among registrant bank america na citibank na jpmorgan chase bank na lenders party thereto 101 current report form 8k filed february 14 2020 104 amended restated supplemental executive retirement plan “serp” 10111 quarterly report form 10q filed august 12 2009 105 letter grant da scarborough serp 101121 quarterly report form 10q filed august 12 2009 106 letter agreement da scarborough regarding serp benefits 101121 current report form 8k filed december 15 2010 107 complete restatement amendment executive deferred compensation plan 1012 1994 annual report form 10k filed march 30 1995 108 form nonemployee director stock option agreement director plan 10151 2003 annual report form 10k filed march 11 2004 109 complete restatement amendment executive variable deferred compensation plan “evdcp” 1016 1994 annual report form 10k filed march 30 1995 1010 amendment 1 evdcp 10161 1999 annual report form 10k filed march 30 2000 1011 complete restatement amendment directors deferred compensation plan 1017 1994 annual report form 10k filed march 30 1995 1012 amended restated 2005 directors variable deferred compensation plan 10182 quarterly report form 10q filed may 10 2011 1013 amended restated stock option incentive plan “equity plan” 2012 proxy statement schedule 14a filed march 9 2012 1014 first amendment equity plan 1020 2014 annual report form 10k filed february 25 2015 exhibit name originally filed exhibit filing1 1015 2017 incentive award plan “2017 plan” b 2018 proxy statement schedule 14a filed march 10 2017 1016 annual incentive plan 1026 2014 annual report form 10k filed february 25 2015 1017 complete restatement amendment executive deferred retirement plan “edrp” 1028 1994 annual report form 10k filed march 30 1995 1018 amendment 1 edrp 10281 1999 annual report form 10k filed march 30 2000 1019 amendment 2 edrp 10282 2001 annual report form 10k filed march 4 2002 1020 2005 executive variable deferred retirement plan amended restated 101 quarterly report form 10q filed may 7 2013 1021 amended restated key executive change control severance plan 1029 2017 annual report form 10k filed february 21 2018 1022 amended restated executive severance plan 1030 2017 annual report form 10k filed february 21 2018 1023 form executive severance agreement 1031 2017 annual report form 10k filed february 21 2018 1024 longterm incentive unit plan “lti unit plan” 1043 2012 annual report form 10k filed february 27 2013 1025 form restricted stock unit agreement equity plan 1038 2013 annual report form 10k filed february 26 2014 1026 form performance unit agreement equity plan 1039 2013 annual report form 10k filed february 26 2014 1027 form marketleveraged stock unit agreement equity plan 1040 2013 annual report form 10k filed february 26 2014 1028 form longterm incentive unit agreement lti unit plan 1041 2013 annual report form 10k filed february 26 2014 1029 form director restricted stock unit agreement 2017 plan 102 quarterly report form 10q filed august 1 2017 1030 form employee marketleveraged stock unit agreement 2017 plan 103 quarterly report form 10q filed august 1 2017 1031 form employee performance unit agreement 2017 plan 104 quarterly report form 10q filed august 1 2017 1032 form employee restricted stock unit agreement 2017 plan 105 quarterly report form 10q filed august 1 2017 1033 form employee nonqualified stock option agreement 2017 plan 106 quarterly report form 10q filed august 1 2017 exhibit name originally filed exhibit filing1 1034 offer letter georges gravanis 101 quarterly report form 10q filed may 5 2015 1035 offer letter mitchell r butier 102 quarterly report form 10q filed may 3 2016 1036 localization letter georges gravanis 101 quarterly report form 10q filed august 2 2016 1037 offer letter gregory lovins 101 quarterly report form 10q filed august 1 2017 13† portions annual report shareholders fiscal year ended december 28 2019 na 21† list subsidiaries na 23† consent pricewaterhousecoopers llp independent registered public accounting firm na 24† power attorney see signatures power attorney na 311† certification chief executive officer pursuant section 302 sarbanesoxley act 2002 na 312† certification chief financial officer pursuant section 302 sarbanesoxley act 2002 na 321†† certification chief executive officer pursuant section 906 sarbanesoxley act 2002 na 322†† certification chief financial officer pursuant section 906 sarbanesoxley act 2002 na 101ins††† inline xbrl instance filing na 101sch††† inline xbrl extension schema filing na 101cal††† inline xbrl extension calculation linkbase filing na 101lab††† inline xbrl extension label linkbase filing na 101pre††† inline xbrl extension presentation linkbase filing na 101def††† inline xbrl extension definition linkbase filing na 104††† inline xbrl cover page annual report form 10k included part exhibit 101 inline xbrl document set 1unless otherwise noted file number filings file 17685 management contract compensatory plan arrangement required filed exhibit form 10k pursuant item 15b form 10k † filed herewith †† certification furnished solely accompany report pursuant 18 usc 1350 filed purposes section 18 exchange act incorporated reference filing registrant whether made date hereof regardless general incorporation language filing ††† furnished herewith pursuant rule 406t regulation st interactive data files exhibit 101 hereto deemed filed part registration statement prospectus purposes sections 11 12 securities act deemed filed purposes section 18 exchange act otherwise subject liability sections item 16 form 10k summary none signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized avery dennison corporation gregory lovins gregory lovins senior vice president chief financial officer dated february 26 2020 power attorney person whose signature appears hereby constitute appoint gregory lovins susan c miller full power substitution true lawful attorneyinfact act capacities sign annual report form 10k amendments supplements thereto file exhibits thereto documents connection therewith securities exchange commission granting unto said attorneysinfact full power authority perform every act thing requisite necessary done order effectuate fully intents purposes could person hereby ratifying confirming said attorneysinfact substitutes may lawfully cause done virtue hereof pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated signature title date mitchell r butier mitchell r butier chairman president chief executive officer february 26 2020 gregory lovins gregory lovins senior vice president chief financial officer principal financial officer february 26 2020 lori j bondar lori j bondar vice president controller treasurer chief accounting officer principal accounting officer february 26 2020 bradley alford bradley alford director february 26 2020 anthony k anderson anthony k anderson director february 26 2020 peter k barker peter k barker director february 26 2020 mark j barrenechea mark j barrenechea director february 26 2020 signature title date ken c hicks ken c hicks director february 26 2020 andres lopez andres lopez director february 26 2020 david e pyott david e pyott director february 26 2020 patrick siewert patrick siewert director february 26 2020 julia stewart julia stewart director february 26 2020 martha n sullivan martha n sullivan director february 26 2020item 15 exhibits financial statement schedule reports form 8k financial statements financial statement schedule exhibits 1 2 financial statements financial statement schedule filed part report listed accompanying index financial statements financial statement schedule 3 exhibits filed part report listed exhibit index follows financial statements schedules referred management contract compensatory plan arrangement required filed exhibit form 10k pursuant item 15c identified exhibit index b reports form 8k registrant furnished current report form 8k october 21 2003 providing copy news release relating financial results quarter ending september 27 2003 registrant furnished current report form 8k december 16 2003 announcing connection certain antitrust complaints registrant certain label stock manufacturers “defendants” defendants filed joint initial pretrial conference brief us federal district court middle district pennsylvania registrant furnished current report form 8k january 27 2004 providing copy news release relating financial results quarter ending december 27 2003 c exhibits index thereto required filed item 601 regulation sk attached hereto financial statement schedules required regulation sx excluded registrant’s 2003 annual report rule 14a3b1 required filed financial statement schedule report indicated accompanying index financial statements financial statement schedule signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized avery dennison corporation daniel r o’bryant daniel r o’bryant senior vice president finance chief financial officer dated march 11 2004 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated avery dennison corporation index financial statements financial statement schedule consolidated financial statements include accounts majorityowned subsidiaries investments representing less 20 percent accounted using cost method accounting investments certain affiliates 20 percent 50 percent accounted equity method accounting exception consolidated financial statements report independent auditors thereon listed index certain information referred items 1 5 6 information included 2003 annual report incorporated herein reference 2003 annual report deemed “filed” part report form 10k annual report annual report shareholders data submitted herewith report independent auditors financial statement schedule s2 financial statement schedules iivaluation qualifying accounts reserves s3 consent independent accountants s4 schedules omitted since required information present amounts sufficient require submission schedule information required included consolidated financial statements notes thereto s1 report independent auditors financial statement schedule board directors avery dennison corporation audits consolidated financial statements referred report dated january 27 2004 appearing 2003 annual report shareholders avery dennison corporation report consolidated financial statements incorporated reference annual report form 10k also included audit financial statement schedule listed item 15a2 form 10k opinion financial statement schedule presents fairly material respects information set forth therein read conjunction related consolidated financial statements pricewaterhousecoopers llp pricewaterhousecoopers llp los angeles california january 27 2004 s2 schedule iivaluation qualifying accounts reserves millions s3 consent independent accountants hereby consent incorporation reference registration statements form s3 file nos 33338905 33364558 333103204 form s8 file nos 331132 333645 3341238 3345376 3354411 3358921 3363979 33338707 33338709 333107370 333107371 333107372 333109814 avery dennison corporation report dated january 27 2004 relating financial statements appears 2003 annual report shareholders incorporated reference annual report form 10k also consent incorporation reference report dated january 27 2004 relating financial statement schedule appears form 10k pricewaterhousecoopers llp pricewaterhousecoopers llp los angeles california march 11 2004 s4 avery dennison corporation exhibit index year ended december 27 2003 incorporated reference ii iii 1 unless otherwise noted file number documents file 17685 management contract compensatory plan arrangement required filed exhibit form 10k pursuant item 15c iv submitted herewith management contract compensatory plan arrangement required filed exhibit form 10k pursuant item 15c statement agreement regarding longterm debt registrant except indicated registrant instrument respect longterm debt securities authorized thereunder equal exceed 10 total assets registrant subsidiaries consolidated basis registrant agrees furnish copy longterm debt instruments commission upon request