LehmanBrothers2006Speech

Lehman Brothers Industrial Select Conference – February 14, 2006

Lehman Brothers
Industrial Select Conference
February 14, 2006

Cynthia S. Guenther
Vice President, Investor Relations

Forward-Looking Statements
Certain 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 Measures
This 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.

1


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

Pro-forma earnings per share, fully diluted*
$3.45 - $3.80

$3.44

$3.04

$2.82
$2.70

$2.46

2001 2002 2003 2004 2005 2006
Guidance
* 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?

2


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

We serve a diverse set of end markets

Transportation
Health Care
Food/Beverage/
Personal Care
Apparel

Industrial/
Durable
Applications

Logistics/
Office
Shipping
Products

3


Three Operating Segments…and “Other Specialty”

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

Other Specialty
Converting
Businesses
Retail
Information
Services

Pressure-
sensitive
Materials
Office and
Consumer
Products

Pressure-sensitive Materials

Organic Sales Growth(1) Operating Margin(2)
2005 2004 2005 2004
2005 Sales 2003

$3.1 B +10.6% 9.1% 8.6%
+ 2.4% 7.6%
Excluding currency, acquisitions, and divestitures
(1)

Excluding restructuring charges
(2)

4


Office and Consumer Products

2005 2004 2005 2004
2005 Sales 2003

$1.1 B - 2.5% 16.9% 15.9% 17.2%
- 3.7%
(1)

(2)

Retail Information Services

2005 2004 2005 2004
2005 Sales 2003

$0.7 B + 10.8% 7.4% 7.6%
+ 2.2% 5.7%
(1)

(2)

5


Other Specialty Converting Businesses

2005 2004 2005 2004
2005 Sales 2003

$0.5 B + 9.5% 2.9% 6.8%
+ 3.8% 9.8%
(1)

(2)

We are market leaders in all of our key businesses

Global
Business Market/Categories Market Position
Roll Materials Paper/film roll materials #1 (3x larger than next
for labels largest competitor)
(Fasson)
• Printable media
Avery Office #1
Products (labels, dividers)
• Binders, sheet #1 or “close #2”
protectors (North
America only)
• Other products Varies by product, region
Retail Tickets and tags for One of two global players
Information retail apparel
Services

6


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

2005 Revenues
by Region
Latin (before intergeographic
Other*
America eliminations)
Asia

Eastern
U.S.
Europe

Western
Europe

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

We’ve increased our participation in the rapidly
growing emerging markets…
Emerging Markets Share of Total Sales

2000 2005 2010

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

Emerging Markets

Local Management Leveraging Global Capabilities

7


… and these markets are contributing
significantly to our profit growth and returns
Operating Profit from Emerging Markets*
($ millions)
> 200

~ 115

~ 40

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).

Largest single growth platform today

Organic sales growth has been more volatile of late

Organic Sales Growth*
7.4%

4.9%
4.7%

2.5%

1.2%

2000 2001 2002 2003 2004 2005

-1.8%
* Excluding currency, acquisitions, and divestitures

8


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

quot;Corequot; Operating Margin*
10.5
10.0
9.5
9.0
8.5
8.0
7.5
7.0
6.5
6.0
Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4-
03 03 03 03 04 04 04 04 05 05 05 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

9


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?

10


Pressure-Sensitive Materials

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

Opportunities Challenges
Emerging markets Sustaining price increases
necessary to offset raw
Beverage market conversion
material inflation
Durables share gain
Optimizing volume / price / mix
RFID adoption driving carton equation
labeling penetration

Packaging trends favor transition to pressure-
sensitive labeling technology

11


New applications fuel growth

Pressure-sensitive will continue to grow at the
expense of alternative decorating technologies…
Pressure Sensitive Other Labeling Technologies
10 0 %

90%

80%

70 %

60%

50 %

40%
75
73 73
70
56
30%

20%
35
29
19
10 %

5
0%

Food Wine Beer Other Durables Personal Household Pharma Variable Info
Beverage Care

North America

Pressure Sensitive Other Labeling Technologies
10 0 %

90%

80%

70 %

60%

50 %

40%
74 74
69
60
30%
48
46
20%
35
10 %
10 6
0%

Food Wine Beer Other Durables Personal Household Pharma Variable Info
Beverage Care

World

12


… and emerging markets will continue to expand

PS Consumption/Capita relative to GDP/Capita

14.0 United Kingdom

Netherlands
12.0
New Zealand
Australia United States
10.0
PS/Capita (m2)

Germany/France/Sweden
Spain

Japan/Finland/Italy
Taiwan
8.0

Singapore
6.0 Czech Republic

Canada
Malaysia/South Africa/
South Korea
Poland/Chile
4.0
Hungary
Indonesia/
Greece
Vietnam/
Phillipines
Turkey/
2.0 Venezula Argentina
Thailand/Russia/Brazil/Mexico
India
China/Columbia
0.0
$0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000

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


Branded Printable Media –
innovator of highly
differentiated, proprietary
products
Manage for Growth
Filing and Other – low cost
provider
Manage for Margin

New sources of growth for Key growth drivers have
Branded Media slowed
Expansion of under-penetrated Customer concentration
categories
Private label growth eroding
Cost reduction for Filing share
business

13



One of two global providers
Complex supply chain
Labels and tags low cost/high
value to retail/apparel
companies
Customers demand:
• Global quality, data
integrity, color consistency
• Fast, reliable sampling and
order fulfillment

Industry consolidation driving
Increased vendor power
share gain
Retailer consolidation
Elimination of quotas
benefiting China / India
Achieving scale in Latin
Leveraging full portfolio of America and Europe
products and services

RFID Is Avery Dennison’s #1 growth opportunity

14


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 Chip Inlay Assembly RFID User
Assembly Printers/ (Factory / DC)
Applicators RFID
Silicon Antenna Label Service Bureau
Manufacturing Manufacturing Converting (worldwide)

Avery Dennison
RFID Division
Avery Dennison - Retail
Information Services

Chip Converting/
Partners Printing Partners

15


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

16


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

17


Expect continued modest increase to dividend

$1.80
30 consecutive years of dividend increase…
$1.60
~ 13% compound annual growth
$1.40

$1.20
Dividends per share

$1.00

$0.80

$0.60

$0.40

$0.20

$0.00
'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

18


APPENDIX
Reconciliation of Non-GAAP
Financial Measures to GAAP

Earnings per share, fully diluted (GAAP)

$3.20
$2.84
$2.78
$2.80 $2.68
$2.59
$2.47
$2.40 $2.25
$2.15 $2.13
$1.93
$2.00
$1.63
$1.60
$1.32

$1.20 $0.97

$0.72
$0.80 $0.66

$0.40

$0.00
'92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05

19


GAAP EPS to Pro-forma EPS*

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

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

Total Company Organic Sales Growth

2000 2001 2002 2003 2004 2005*

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

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

Less Impact of
Acquisitions, Net of
Divestitures 2.6% 1.2% 5.1% 6.0% 0.1% 0.3%

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

* From continuing operations

20


2005 Organic Sales Growth by Segment

Estimated
2004 Adjusted
Impact of 2005 2005 Adjusted
Impact of Non-GAAP
2004 GAAP Currency Non GAAP 2005 GAAP GAAP Sales
Acquisitions & Non-GAAP Organic Sales
Sales Changes Sales Sales Divestitures Sales Growth Growth

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

Office and
Consumer
Products $1,172.5 $7.7 $1,180.2 $1,136.1 $0.0 $1,136.1 -3.1% -3.7%

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

Other Specialty
Converting
Businesses $523.8 $4.4 $528.2 $548.1 $0.0 $548.1 4.6% 3.8%

2004 Organic Sales Growth by Segment

Estimated
2003 Adjusted
Impact of 2004 2004 Adjusted
Impact of Non-GAAP
Currency Non GAAP 2004 GAAP GAAP Sales
2003 GAAP Acquisitions & Non-GAAP Organic Sales
Sales Changes Sales Sales Divestitures Sales Growth Growth

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

Office and
Consumer
Products $1,168.1 $35.1 $1,203.2 $1,172.5 $0.0 $1,172.5 0.4% -2.5%

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

Other Specialty
Converting
Businesses $469.2 $14.5 $483.7 $523.8 ($5.3) $529.1 11.6% 9.5%

21


Operating Margin by Segment
FY2003* FY2004* FY2005
Pressure Sensitive Materials
Net Sales $2,546.8 $2,984.5 $3,114.5
Operating income, as reported $180.3 $221.4 $259.6
Operating margin, as reported 7.1% 7.4% 8.3%
Non-GAAP adjustments:
Restructuring costs, asset impairment
and lease cancellation costs $13.6 $34.4 $23.0
Adjusted non-GAAP operating income $193.9 $255.8 $282.6
Adjusted non-GAAP operating margin 7.6% 8.6% 9.1%

Net Sales $1,168.1 $1,172.5 $1,136.1
* Prior periods restated to include the impact of 2005 discontinued operations in Pressure Sensitive segment.

Operating Margin by Segment
FY2003* FY2004* FY2005
Net Sales $552.7 $636.1 $674.8

Other Specialty Converting Businesses
Net Sales $469.2 $523.8 $548.1
* Prior periods restated to include the impact of RFID spending in Other Specialty Converting segment.

22


Total Company Operating Margin

Q1-03* Q2-03* Q3-03* Q4-03* Q1-04 Q2-04 Q3-04 Q4-04 Q1-05 Q2-05 Q3-05 Q4-05
Net 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
$0.0 ($4.0) $0.2 $34.3 $21.4 $13.8 $0.0 $0.0 $4.1 $3.2 $1.7 $56.9
cancellation costs,
gain on sale of
assets
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%

* 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.

23

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