LehmanBrothers2006Speech

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Lehman Brothers Industrial Select Conference – February 14, 2006

Lehman BrothersIndustrial Select ConferenceFebruary 14, 2006

Cynthia S. GuentherVice President, Investor Relations

Forward-Looking StatementsCertain information provided in this presentation may constitute “forward-looking” statements. These statements are subject to certain risks and uncertainties. Actual results and trends may differ materially from historical or expected results depending on a variety of factors, including but not limited to fluctuations in cost and availability of raw materials; ability of the Company to achieve and sustain targeted cost reductions; foreign exchange rates; worldwide and local economic conditions; selling prices; impact of legal proceedings, including the U.S. Department of Justice (“DOJ”) criminal investigation, as well as the European Commission (“EC”), Canadian Department of Justice, and Australian Competition and Consumer Commission investigations, into industry competitive practices and any related proceedings or lawsuits pertaining to these investigations or to the subject matter thereof (including purported class actions seeking treble damages for alleged unlawful competitive practices, and purported class actions related to alleged disclosure violations pertaining to alleged unlawful competitive practices, which were filed after the announcement of the DOJ investigation, as well as a likely fine by the EC in respect of certain employee misconduct in Europe); impact of potential violations of the U.S. Foreign Corrupt Practices Act based on issues in China; impact of epidemiological events on the economy and the Company’s customers and suppliers; successful integration of acquired companies; financial condition and inventory strategies of customers; development, introduction and acceptance of new products; fluctuations in demand affecting sales to customers; and other matters referred to in the Company’s SEC filings. The Company assumes no obligation to update any forward-looking statements made in this presentation as a result of new information or future events or developments.

Use of Non-GAAP Financial MeasuresThis presentation contains certain non-GAAP measures as defined by SEC rules. As required by these rules, we have provided a reconciliation of non-GAAP measures to the most directly comparable GAAP measures, included in the Appendix section of this presentation.

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$3.45 - $3.80

$3.44

$3.04

$2.70$2.82

$2.46

2001 2002 2003 2004 2005 2006Guidance

Applying balanced approach to top-line growth and margin expansion to drive sustained value creation

Pro-forma earnings per share, fully diluted*

* Excludes restructuring charges, gains on sale of assets, and other items – see Appendix for detail.

Discussion Outline

• Who are we?• How do we grow?• What’s our competitive advantage?

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Pressure-sensitive (“self-stick”) technology is used everywhere… on objects both large and small

We serve a diverse set of end markets

Food/Beverage/Personal CareApparel

Health CareTransportation

Industrial/Durable

Applications

Office Products

Logistics/Shipping

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2005 Net Sales (cont. ops) = $5.5 billion

Office and Consumer Products

Retail Information

Services

Pressure-sensitive Materials

Other Specialty Converting Businesses

Three Operating Segments…and “Other Specialty”

$3.1 B2005 Sales

Organic Sales Growth(1)

2005 2004Operating Margin(2)

+10.6% 9.1% 8.6%(1) Excluding currency, acquisitions, and divestitures(2) Excluding restructuring charges

Pressure-sensitive Materials

2005 2004 2003

7.6%+ 2.4%

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$1.1 B2005 Sales 2005 2004

- 2.5% 16.9% 15.9%


2005 2004 2003

17.2%- 3.7%

Organic Sales Growth(1) Operating Margin(2)

(1) Excluding currency, acquisitions, and divestitures(2) Excluding restructuring charges

$0.7 B2005 Sales 2005 2004

+ 10.8% 7.4% 7.6%

Retail Information Services

2005 2004 2003

5.7%+ 2.2%



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$0.5 B2005 Sales 2005 2004

+ 9.5% 2.9% 6.8%


2005 2004

9.8%+ 3.8%


2003


We are market leaders in all of our key businesses

Business Market/CategoriesGlobal

Market PositionRoll Materials (Fasson)

Paper/film roll materials for labels

#1 (3x larger than next largest competitor)

Avery Office Products

• Printable media (labels, dividers)

• Binders, sheet protectors (North America only)

• Other products

#1

#1 or “close #2”

Varies by product, regionRetail Information Services

Tickets and tags for retail apparel

One of two global players

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Other*

Asia

U.S.EasternEurope

WesternEurope

LatinAmerica

More than half of all sales originate outside the US…> 20% from the fastest growing emerging markets

2005 Revenues by Region

(before intergeographiceliminations)

* “Other” includes Canada, Australia, and South Africa

2000 2005 2010

We’ve increased our participation in the rapidly growing emerging markets…

Local Management Leveraging Global Capabilities

Emerging Markets

Emerging Markets Share of Total Sales

Contribution to Overall Growth: 0.2 pts. 2.4 pts. 3.5 pts.

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… and these markets are contributing significantly to our profit growth and returns

Largest single growth platform today

Operating Profit from Emerging Markets*($ millions)

2000 2005 2010* Figures are approximate. Estimates do not include allocation of expenses incurred in North America

and Europe for direct support of businesses in emerging markets (particularly significant for RIS).

~ 40

~ 115

> 200

Organic sales growth has been more volatile of late

1.2%

7.4%

2.5%

4.9%

-1.8%

4.7%

2000 2001 2002 2003 2004 2005

* Excluding currency, acquisitions, and divestitures

Organic Sales Growth*

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In light of soft sales growth and inflationary pressures, we’ve heightened our focus on margin improvement

"Core" Operating Margin*

6.06.57.07.58.08.59.09.5

10.010.5

Q1-03

Q2-03

Q3-03

Q4-03

Q1-04

Q2-04

Q3-04

Q4-04

Q1-05

Q2-05

Q3-05

Q4-05

* Excludes restructuring charges and RFID spending

Actions That Drove 2005 Margin Improvement

• Disciplined pricing– Optimizing price / volume / mix– Increased focus and accountability

• Ongoing productivity improvement actions, e.g.:– Roll Materials: full year benefit of Jac integration

savings; leveraging investments in wider, faster coaters– Office Products: Reconfiguration of North American

supply chain (including plant closure)– RIS: Transition of manufacturing from Hong Kong to

Mainland China• Tight control of operating expenses

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New Productivity Initiatives Announced

• Targeting $80 to $90 million of annual savings from restructuring actions currently underway– 60%-70% of savings expected to be realized in 2006… offset by

transitional costs in the range of $15 to $20 mil.– Portion of net savings reinvested for future growth and productivity

improvement– One-time cost (severance, asset write-offs): $38 to $43 mil.

(largely recognized in Q4-05)

• Divesting several non-strategic businesses– Annual sales of approx. $90 mil. (break-even operating profit)– One-time cost (primarily asset write-offs): $89 mil.

(recognized in Q4-05)

• Planning continues for additional restructuring actions

How do we grow?What’s our competitive advantage?

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OpportunitiesEmerging marketsBeverage market conversionDurables share gainRFID adoption driving carton labeling penetration

Market leader

Global scale advantages… technology development, raw material sourcing, global customers

Regional scale advantages… higher service (Exact, Next Day Delivery), lower cost asset configuration and utilization

Pressure-Sensitive Materials

ChallengesSustaining price increases necessary to offset raw material inflationOptimizing volume / price / mix equation

Packaging trends favor transition to pressure-sensitive labeling technology

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New applications fuel growth

Pressure-sensitive will continue to grow at the expense of alternative decorating technologies…

295

5670

35

73

19

75 73

0 %

10 %

2 0 %

3 0 %

4 0 %

50 %

6 0 %

70 %

8 0 %

9 0 %

10 0 %

Food Wine Beer OtherBeverage

Durables PersonalCare

Household Pharma Variable Info

Pressure Sensitive Other Labeling Technologies

World

North America

356

7460 4846

10

69 74

0 %

10 %

2 0 %

3 0 %

4 0 %

50 %

6 0 %

70 %

8 0 %

9 0 %

10 0 %

Food Wine Beer OtherBeverage

Durables PersonalCare

Household Pharma Variable Info

Pressure Sensitive Other Labeling Technologies

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… and emerging markets will continue to expand

Sources: 1) GDP / Capita – CIA – The World Factbook 2) Population – Population Reference Bureau 3) Market Size Estimates – Avery Dennison

PS Consumption/Capita relative to GDP/CapitaPS

/Cap

ita (m

2)

GDP/Capita

$0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000

14.0

12.0

10.0

8.0

6.0

4.0

2.0

0.0

United States

United Kingdom

Netherlands

Australia

Canada

Japan/Finland/Italy

Singapore

Germany/France/Sweden

New Zealand

Spain

Taiwan

South Korea

Greece

Czech Republic

Hungary

Malaysia/South Africa/Poland/Chile

Indonesia/Vietnam/

Phillipines Turkey/Venezula Argentina

Thailand/Russia/Brazil/Mexico

China/ColumbiaIndia

Branded Printable Media –innovator of highly differentiated, proprietary productsManage for Growth

Filing and Other – low cost providerManage for Margin

OpportunitiesNew sources of growth for Branded MediaExpansion of under-penetrated categories Cost reduction for Filing business


ChallengesKey growth drivers have slowedCustomer concentrationPrivate label growth eroding share

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OpportunitiesIndustry consolidation driving share gainElimination of quotas benefiting China / India Leveraging full portfolio of products and services

One of two global providersComplex supply chainLabels and tags low cost/high value to retail/apparel companiesCustomers demand:• Global quality, data

integrity, color consistency• Fast, reliable sampling and

order fulfillment

Retail Information Services

Challenges

Increased vendor power

Retailer consolidation

Achieving scale in Latin America and Europe

RFID Is Avery Dennison’s #1 growth opportunity

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The Opportunity

≈ 5 years• Retail carton labels (announced mandates alone):

Wal*Mart + Target + Albertsons + Tesco + Best Buy + Metro ≈ 10 billion labels/yr ≈ $1.0B to 1.5B

• DoD (announced mandate) ≈ $1B• Pharma (FDA mandate expected): $500MM

5-10 years• Retail apparel/footwear >$20 per item: $1B• Automotive: $200M • Many others…

We are ideally positioned to capture a meaningful share of this large, new market

Chip Design

RFID Service Bureau

(worldwide)Label

ConvertingSilicon

ManufacturingAntenna

Manufacturing

Inlay Assembly User (Factory / DC)

RFID Printers/

Applicators

Chip Assembly

Avery Dennison RFID Division

Avery Dennison - Retail Information Services

Converting/Printing Partners

Chip Partners

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We’re developing multiple sources of competitive advantage that leverage our strengths

• Outstanding product performance and testing capabilities

• Good linkages to all points in value chain

• Superior roll-to-roll manufacturing capability

• Superior commercial approach

• Corporate credibility / financial strength

2005 Milestones

• Began volume production on industry’s first and only high-speed inlay manufacturing process

• Joined Intermec’s Rapid Start Licensing program to address IP barrier for customers

• Significantly lowered price of world’s first high-volume Gen 2 tag to enable widespread adoption

• Released white paper to drive industry progress in tag testing

• Chosen as inlay supplier by major end users

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Key unknowns continue to affect timing

• Technological hurdles, including commercialization of Gen 2 chips

• Complex intellectual property environment• Business case attractiveness varies widely by

application / user• Infrastructure costs still high• Real implementation experience / expertise not

widely available

“When”… Not “If”!

Shareholder Value Focus

• “Value-based management” at AVY… all management processes aligned with value creation

• Management incentives tied to growth… in top-line sales, earnings, EVA… and share price (stock options)

• Resuming share repurchase program– Actively repurchased shares from 1991 – 2000– Modest activity following large acquisitions– Repurchased ~ 700,000 shares in Q4-05

• Long history of dividend increase

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$0.00

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

$1.40

$1.60

$1.80

'75 '76 '77 '78 '79 '80 '81 '82 '83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05

Div

iden

ds p

er s

hare

30 consecutive years of dividend increase…30 consecutive years of dividend increase…~ ~ 13% compound annual growth13% compound annual growth

Expect continued modest increase to dividend

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APPENDIXReconciliation of Non-GAAP Financial Measures to GAAP

Earnings per share, fully diluted (GAAP)

$0.66 $0.72

$0.97

$1.32

$1.63

$1.93

$2.15 $2.13

$2.84

$2.47$2.59

$2.68$2.78

$2.25

$0.00

$0.40

$0.80

$1.20

$1.60

$2.00

$2.40

$2.80

$3.20

'92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05

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GAAP EPS to Pro-forma EPS*

* Historical figures have NOT been adjusted to remove the contribution from businesses subsequently divested or discontinued.

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

GAAP EPS 0.66 0.72 0.97 1.32 1.63 1.93 2.15 2.13 2.84 2.47 2.59 2.68 2.78 2.25

Restructuring & asset impairment - - - 0.24 0.10 - - 0.41 - 0.14 0.23 0.26 0.26 1.07

Gains on sale of business/assets, legal settlements, and other items - - - (0.24) (0.11) - - - - (0.15) - (0.24) - (0.02)

Tax Expense on Repatriated Earnings - - - - - - - - - - - - - 0.14

Pro-forma EPS 0.66 0.72 0.97 1.32 1.62 1.93 2.15 2.54 2.84 2.46 2.82 2.70 3.04 3.44

1.2%7.4%2.5%4.9%(1.8)4.7%Organic Sales Growth

0.3%0.1%6.0%5.1%1.2%2.6%

Less Impact of Acquisitions, Net of Divestitures

1.4%4.7%6.1%0.6%(1.7%)(4.1%)Less Impact of Currency

2.9%12.1%14.6%10.6%(2.3%)3.3%Reported Sales Growth

2005*20042003200220012000

* From continuing operations

Total Company Organic Sales Growth

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3.8%4.6%$548.1 $0.0$548.1 $528.2 $4.4 $523.8


2.2%6.1%$657.0$17.8 $674.8 $642.8 $6.7$636.1 Retail Information Services

-3.7%-3.1%$1,136.1 $0.0 $1,136.1 $1,180.2 $7.7 $1,172.5


2.4%4.4%$3,114.5 $0.0 $3,114.5 $3,042.3 $57.8 $2,984.5

Pressure Sensitive Materials

Non-GAAP Organic Sales

GrowthGAAP Sales

Growth

2005 AdjustedNon-GAAP

Sales

EstimatedImpact of

Acquisitions & Divestitures

2005 GAAPSales

2004 Adjusted Non GAAP

Sales

Impact of 2005 CurrencyChanges

2004 GAAPSales

2005 Organic Sales Growth by Segment

9.5%11.6%$529.1 ($5.3)$523.8 $483.7 $14.5 $469.2


10.8%15.1%$626.0 $10.1 $636.1 $565.1 $12.3 $552.7 Retail Information Services

-2.5%0.4%$1,172.5 $0.0 $1,172.5 $1,203.2 $35.1 $1,168.1


10.6%16.9%$3,008.5 $0.0 $3,008.5 $2,718.1 $145.6 $2,572.6

Pressure Sensitive Materials

Non-GAAP Organic Sales

GrowthGAAP Sales

Growth

2004 AdjustedNon-GAAP

Sales

EstimatedImpact of

Acquisitions & Divestitures

2004 GAAPSales

2003 Adjusted Non GAAP

Sales

Impact of 2004 CurrencyChanges

2003 GAAPSales

2004 Organic Sales Growth by Segment

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9.1%8.6%7.6%Adjusted non-GAAP operating margin$282.6 $255.8 $193.9 Adjusted non-GAAP operating income$23.0 $34.4 $13.6 and lease cancellation costs

Restructuring costs, asset impairmentNon-GAAP adjustments:

8.3%7.4%7.1%Operating margin, as reported$259.6 $221.4 $180.3 Operating income, as reported

$3,114.5 $2,984.5 $2,546.8 Net SalesPressure Sensitive Materials

Office and Consumer ProductsNet Sales $1,168.1 $1,172.5 $1,136.1 Operating income, as reported $188.5 $186.4 $168.0 Operating margin, as reported 16.1% 15.9% 14.8%Non-GAAP adjustments:Restructuring costs, asset impairmentand lease cancellation costs $12.5 $0.5 $24.1 Adjusted non-GAAP operating income $201.0 $186.9 $192.1 Adjusted non-GAAP operating margin 17.2% 15.9% 16.9%

Operating Margin by SegmentFY2003* FY2004* FY2005

* Prior periods restated to include the impact of 2005 discontinued operations in Pressure Sensitive segment.

7.4%7.6%5.7%Adjusted non-GAAP operating margin$50.2 $48.0 $31.3 Adjusted non-GAAP operating income$7.5 $0.2 $7.0 and lease cancellation costs

Restructuring costs, asset impairmentNon-GAAP adjustments:

6.3%7.5%4.4%Operating margin, as reported$42.7 $47.8 $24.2 Operating income, as reported

$674.8 $636.1 $552.7 Net SalesRetail Information Services

Other Specialty Converting BusinessesNet Sales $469.2 $523.8 $548.1 Operating income, as reported $43.7 $35.5 $9.5 Operating margin, as reported 9.3% 6.8% 1.7%Non-GAAP adjustments:Restructuring costs, asset impairmentand lease cancellation costs $2.5 $0.0 $6.2 Adjusted non-GAAP operating income $46.2 $35.5 $15.7 Adjusted non-GAAP operating margin 9.8% 6.8% 2.9%

Operating Margin by Segment

* Prior periods restated to include the impact of RFID spending in Other Specialty Converting segment.

FY2003* FY2004* FY2005

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Total Company Operating Margin

* While the 2004 and 2005 data reflect results from continuing operations, the quarterly data for 2003 has not been restated to reflect the modest impact from 2005 discontinued operations.

Q1-03* Q2-03* Q3-03* Q4-03* Q1-04 Q2-04 Q3-04 Q4-04 Q1-05 Q2-05 Q3-05 Q4-05Net Sales as reported $1,135 $1,192 $1,204 $1,231 $1,243 $1,317 $1,329 $1,428 $1,343 $1,412 $1,355 $1,364

Operating income as reported $96.4 $95.4 $88.1 $54.1 $73.9 $88.7 $102.3 $110.4 $79.7 $115.8 $112.8 $58.5

Operating margin as reported 8.5% 8.0% 7.3% 4.4% 5.9% 6.7% 7.7% 7.7% 5.9% 8.2% 8.3% 4.3%

Non-GAAP Adjustments

Restructuring, asset impairment, lease cancellation costs, gain on sale of assets

$0.0 ($4.0) $0.2 $34.3 $21.4 $13.8 $0.0 $0.0 $4.1 $3.2 $1.7 $56.9

RFID expense $1.2 $1.0 $1.0 $1.2 $1.7 $2.3 $4.1 $8.0 $6.9 $8.0 $7.8 $9.8

Interest expense $14.9 $14.5 $13.9 $14.4 $15.0 $14.1 $14.2 $15.4 $14.5 $15.7 $14.7 $13.0

Adjusted non-GAAP operating income $112.7 $107.0 $103.5 $104.2 $112.0 $118.9 $120.6 $133.8 $105.2 $142.7 $137.0 $138.2

Adjusted non-GAAP operating margin 9.9% 9.0% 8.6% 8.5% 9.0% 9.0% 9.1% 9.4% 7.8% 10.1% 10.1% 10.1%

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LehmanBrothers2006Speech