1. Bank of America 2007
BASics/Industrials Conference
Dean A. Scarborough
President and Chief Executive Officer
May 9, 2007
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2. Forward-Looking Statements
Certain information provided in this presentation may constitute “forward-looking” statements. These statements and financial
or other business targets 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 currency exchange rates;
worldwide and local economic conditions; impact of competitive products and pricing; selling prices; impact of legal
proceedings, including the Canadian Department of Justice and the 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 or of the concluded investigations by the U.S. Department of Justice (“DOJ”) and the European
Commission (including purported class actions seeking treble damages for alleged unlawful competitive practices, and a
purported class action related to alleged disclosure and fiduciary duty violations pertaining to alleged unlawful competitive
practices, which were filed after the announcement of the DOJ investigation), as well as the 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 acquisitions; financial condition and inventory strategies of
customers; timely development and market acceptance of new products; fluctuations in demand affecting sales to customers;
and other matters referred to in the Company’s SEC filings.
Forward looking statements pertaining to Avery Dennison’s pending acquisition and integration of Paxar include statements
relating to expected synergies, cost savings, timing, and execution of integration plans. Risks, uncertainties and assumptions
pertaining to the transaction include the possibility that the market for and development of certain products and services may
not proceed as expected; that the Paxar acquisition does not close or that the companies may be required to modify aspects of
the transaction to achieve regulatory approval; that prior to the closing of the proposed acquisition, the businesses of the
companies suffer due to uncertainty or diversion of management attention; that the parties are unable to successfully execute
their integration strategies, or achieve planned synergies and cost reductions, in the time and at the cost anticipated or at all;
acquisition of unknown liabilities; effects of increased leverage; and other matters that are referred to in the parties’ SEC filings.
The Company believes that the most significant risk factors that could affect its ability to achieve its stated financial
expectations in the near-term include (1) the impact of economic conditions on underlying demand for the Company’s products;
(2) the impact of competitors’ actions, including expansion in key markets, product offerings and pricing; (3) potential adverse
developments in legal proceedings and/or investigations regarding competitive activities, including possible fines, penalties,
judgments or settlements; and (4) the ability of the Company to achieve and sustain targeted productivity initiatives.
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.
3. Overview of Today’s Portfolio
Revenue by Segment
(after intercompany eliminations)
2006 Actual Proforma, With Paxar
Other Specialty
Other Specialty
Converting
Converting
Retail
Information
Retail
Services
Information
Services
Pressure- Pressure-
sensitive
Office and sensitive
Materials
Consumer Materials
Products
Office and
Consumer
Products
2006 Net Sales = $5.6 billion
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4. Overview of Today’s Portfolio
2006 Revenue by Region
(before intergeographic eliminations)
Other*
Latin
America
Asia
U.S.
Eastern
Europe
Western
Europe
* “Other” includes Canada, Australia, and South Africa
4
5.
6. Snapshot of Pressure-sensitive Materials
Adj. Organic Sales Growth(1) Operating Margin(2)
2006 2005 2004 2006 2005
2006 Sales 2004
$3.2 B + 3.6% + 3.1% + 9.6% 9.6% 9.0% 8.6%
Excluding currency, acquisitions, and divestitures – see Appendix for detail
(1)
Excluding restructuring charges and other items – see Appendix for detail
(2)
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7. PSM Strategy and Outlook
• Leverage global and regional scale advantages;
backward integration in films and adhesives
• Expand in faster-growing international markets
– International sales nearly 65% of segment sales*
– Emerging markets 25% of segment sales*, growing
15%+ annually
• Drive increased PS penetration of food and beverage
segments (shift from glue-applied labels) through
product innovation and marketing
• Recapture share in North America
Targeting 5-7% organic top-line growth;
10-12% operating margin
* Before intergeographic eliminations
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8. Strategy for Mature Markets
• Growth Priorities:
– Enhance customer value:
• Competitive differentiators – breadth of product offerings (films, paper,
various adhesives) and innovation… combined with superior service
and quality
• “Contract for Value” and Fasson Optimum Performance
– Pursue aggressive marketing / new product
development efforts:
• Food and beverage applications
• Low end durable applications
• New, affordable films (i.e. GCX)
• State of the art R&D facility in Mentor, Ohio
• Re-align supply chain in North America
• Addition of new films coater allows us to refocus our “bulk” assets
• Optimize production of “fighting core” products (already underway)
• Consolidate manufacturing, as needed (strategic option)
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9. Snapshot of Office and Consumer Products
Adj. Organic Sales Growth(1) Operating Margin(2)
2006 2005 2004 2006 2005
2006 Sales 2004
$1.1 B - 0.4% - 0.6% - 5.1% 16.5% 16.7% 15.9%
Excluding currency, acquisitions, and divestitures – see Appendix for detail
(1)
Excluding restructuring charges and other items – see Appendix for detail
(2)
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10. OCP Strategy and Outlook
• Grow Printable Media categories
– Under-penetrated categories
– Share recapture through feature differentiation
• Manage other categories for margin
• Expand operating margin:
– Mix improvement
– Ongoing restructuring and productivity improvement
Targeting ~ flat organic top-line growth;
18-20% operating margin
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11. Snapshot of Retail Information Services
Adj. Organic Sales Growth(1) Operating Margin(2)
2006 2005 2004 2006 2005
2006 Sales 2004
$0.7 B + 4.8% + 3.1% + 9.8% 8.4% 7.2% 7.4%
Excluding currency, acquisitions, and divestitures – see Appendix for detail
(1)
Excluding restructuring charges and other items – see Appendix for detail
(2)
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12. RIS Strategy and Outlook
• Industry consolidation driving share gain for global
providers… customers want global quality (data
integrity, color consistency) and speed
• Labels and tags are low cost / high value to retailers
• Rapid growth in Asia (China, India, other countries in
region) – proximity to manufacturers is key to success
• Paxar acquisition – a perfect fit
Targeting 6-8% organic top-line growth;
10-12% operating margin
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13. Acquisition... Value Drivers:
• Enhances top-line growth potential
– Increases our presence (more than doubles RIS sales) in
the expanding, highly fragmented, retail information and
brand identification market
– Combines complementary strengths… broadens our range
of product and service capabilities
– Improves ability to meet customer demands for product
innovation and improved quality and speed of service
– Facilitates expansion into new product and geographic
segments
• $90 to $100 mil. of cost synergies
– Similar infrastructure – areas of overlap include SG&A
(e.g., corporate overhead, back office support) and
production
– Proven track record with acquisition integration on global
scale… high degree of confidence in ability to quickly
achieve the savings (within 24 months of close)
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14. Revenue growth target of 4-6% is achievable
over the medium to long-term
Adjusted Organic Sales Growth*
5.9%
Target =
4.9% 4% to
6%
2.8%
2.5%
2.5%
2002 2003 2004 2005 2006 Target
* Excluding currency, acquisitions, divestitures, and other issues of comparability
(extra week in 2004, exited business, etc.) – see Appendix for detail
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15. Strong pipeline of growth opportunities for the
medium to long-term…
Organic Sources of Change in Sales
2009 vs. Today
Target =
4% - 6%
organic
growth
$5,576M
2006 Emerging Markets Horizon Two Mature Market Growth Exited Business 2009
(before H2) / Roll NA Share
Gain
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16. … and we target substantial margin expansion
over the medium-term
Sources of Change in Operating Margin, Ex-RFID
2008 vs. Today
11.0%
9.8%
2006 Volume and Restructuring Elim. of LIFO / IT Investments Segment Mix Other 2008
Productivity (Net of Other
Inflation)
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17. Earnings Outlook (ex- acquisition impact)
Pro-forma Earnings Per Share, Fully Diluted*
4 year CAGR ~ 12%
$4.05 - $4.30
2007 guidance includes
estimated $25 to $30 mil. net $3.77
loss related to development
$3.44
of RFID business
$3.04
$2.70
2003 2004 2005 2006 2007 Guidance
Target: double-digit EPS growth post ‘07
* Excludes restructuring charges, gains on sale of assets, and other items – see Appendix for detail.
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20. Paxar Acquisition: Transaction Overview
• $30.50 per Paxar share
• $1.34 billion Enterprise Value, including $5 million of debt (net
of cash)
– 14.2x adjusted 2006 EBITDA* before cost synergies
– 6.9 - 7.3x adjusted 2006 EBITDA* after cost synergies
• EPS-accretive (excluding integration-related charges) within 12
months following close
• EVA-positive (excluding integration-related charges) within 24
months following close
• Principal conditions to closing:
– Paxar shareholder approval
– Regulatory clearances outside U.S.
* 2006 Adjusted EBITDA excludes gain on lawsuit settlement and integration/restructuring and
other costs – see Slide 22
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21. Paxar Acquisition: Financial Summary
• Key factors underlying financial targets:
– $90 to $100 mil. in annualized cost synergies realized within 24 months
following close of transaction
– Estimated $70 to $80 mil. of incremental annual interest expense during first
36 months following close
– Estimated $15 mil. incremental annual expense related to amortization of
intangibles (included in EPS projections)
– Modestly negative impact on Company’s tax rate
• Anticipated EPS Impact:
– Modest EPS dilution (less than $0.05) for the first twelve months, before
transaction and integration-related costs
– EPS accretive (ex-integration-related costs) before the end of first twelve
months
– $0.60 to $0.70 of annual EPS accretion 24 months following close
• Financing:
– Transaction to be financed with debt; structure determined prior to close
– Company is committed to retaining a strong investment grade credit rating,
and returning financial ratios to pre-transaction levels
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21
22. 2006 Adjusted Paxar EBITDA
($ in millions, except as noted)
Operating income, as reported* $88.9
Non-GAAP adjustments:
Gain on lawsuit settlement* (39.4)
Integration/restructuring and other costs* 10.0
Adjusted non-GAAP operating income 59.5
Depreciation and amortization* 34.6
Adjusted non-GAAP EBITDA 94.1
Annualized cost synergies 90 - 100
Enterprise Value (EV) $1.338B
EV/EBITDA before cost synergies 14.2x
EV/EBITDA after cost synergies 6.9x - 7.3x
* Per Paxar 2006 10-K
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27. Organic Sales Growth by Segment: 2006
Pressure Office and Retail Other Specialty
Sensitive Consumer Information Converting
Materials Products Services Businesses
2005 GAAP Sales* $3,114.5 $1,136.1 $630.4 $592.5
Impact of 2006 Currency Changes $15.4 $1.2 $3.4 $0.6
2005 Adjusted Non-GAAP Sales $3,129.9 $1,137.3 $633.8 $593.1
2006 GAAP Sales $3,236.3 $1,072.0 $667.7 $599.9
Est. Impact of Acq.& Divestitures $0.0 ($51.0) $3.2 ($6.6)
Other Comparability Adjustments ($5.0) ($10.2) $0.0 $0.0
2006 Adjusted Non-GAAP Sales $3,241.3 $1,133.2 $664.5 $606.5
GAAP Sales Growth 3.9% -5.6% 5.9% 1.2%
Adj. Organic Sales Growth 3.6% -0.4% 4.8% 2.3%
* 2005 GAAP sales have been re-stated for Business Media reporting change from RIS to Other Specialty Converting.
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28. Total Company Operating Margin
FY 2003 FY 2004 FY 2005 FY 2006
($ in millions, except as noted)
Net Sales 4,736.8 5,317.0 5,473.5 5,575.9
Operating income, as reported 397.1 434.0 424.7 481.1
Operating margin, as reported (GAAP) 8.4% 8.2% 7.8% 8.6%
Non-GAAP adjustments:
Restructuring costs, asset impairment, lease
cancellation costs, and environmental
remediation, net of gains on asset sales 30.5 35.2 63.6 36.2
Adjusted non-GAAP operating income 427.6 469.2 488.3 517.3
Adjusted non-GAAP operating margin 9.0% 8.8% 8.9% 9.3%
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29. OPERATING MARGIN BY SEGMENT
FY 2004 FY 2005 FY 2006
($ in millions, except as noted)
Pressure Sensitive Materials
Net Sales 2,984.8 3,114.5 3,236.3
Operating income, as reported 221.4 258.1 301.2
Operating margin, as reported 7.4% 8.3% 9.3%
Non-GAAP adjustments:
Restructuring costs, asset impairment, and
lease cancellation costs, net of gains on asset
sales 34.4 23.0 9.3
Adjusted non-GAAP operating income 255.8 281.1 310.5
Adjusted non-GAAP operating margin 8.6% 9.0% 9.6%
Office and Consumer Products
Net Sales 1,172.5 1,136.1 1,072.0
Operating income, as reported 186.4 168.0 179.0
Operating margin, as reported 15.9% 14.8% 16.7%
Non-GAAP adjustments:
Restructuring costs, asset impairment, and
lease cancellation costs, net of gains on asset
sales 0.5 21.8 (2.3)
Adjusted non-GAAP operating income 186.9 189.8 176.7
Adjusted non-GAAP operating margin 15.9% 16.7% 16.5%
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30. OPERATING MARGIN BY SEGMENT
FY 2004 FY 2005 FY 2006
($ in millions, except as noted)
Retail Information Services
Net Sales 592.7 630.4 667.7
Operating income, as reported 43.4 37.7 45.0
Operating margin, as reported 7.3% 6.0% 6.7%
Non-GAAP adjustments:
Restructuring costs, asset impairment, and
lease cancellation costs, net of gains on asset
sales 0.3 7.5 11.2
Adjusted non-GAAP operating income 43.7 45.2 56.2
Adjusted non-GAAP operating margin 7.4% 7.2% 8.4%
Other Specialty Converting Businesses
Net Sales 567.0 592.5 599.9
Operating income, as reported 39.9 14.1 17.2
Operating margin, as reported 7.0% 2.4% 2.9%
Non-GAAP adjustments:
Restructuring costs, asset impairment, and
lease cancellation costs, net of gains on asset
sales 0.0 6.2 3.7
Adjusted non-GAAP operating income 39.9 20.3 20.9
Adjusted non-GAAP operating margin 7.0% 3.4% 3.5%
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31. Historical Earnings Per Share, GAAP vs. Pro-Forma
2003 2004 2005 2006
2.68 2.78 2.25 3.66
GAAP EPS
Restructuring & asset impairment, increase
0.26 0.26 1.07 0.33
to environmental reserve
Gains on sale of business/assets, legal
(0.24) - (0.02) (0.22)
settlements, and other items
- - 0.14 -
Tax Expense on Repatriated Earnings
2.70 3.04 3.44 3.77
Pro-forma EPS
Note: Historical figures have NOT been adjusted to remove the contribution from businesses
subsequently divested or discontinued.
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32. 2007 Earnings and Free Cash Flow Guidance
(excludes acquisition impact)
2007
Guidance
(updated 4/24/07)
Reported (GAAP) Earnings Per Share $3.95 - $4.25
Add Back:
Estimated Restructuring and Asset Impairment Charges* $0.05 - $0.10
Adjusted (non-GAAP) Earnings Per Share $4.05 to $4.30
Capital Expenditures & Investments in Software $210 to $225 mil.
Free Cash Flow (before acquisitions and share repurchase) $350 to $400 mil.
* Subject to upward revision as plans are finalized
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