Avery Dennison Reports 4th Quarter and Year-End 2005 Results

Avery Dennison Corporation (NYSE:AVY) today reported aloss for the fourth quarter of $0.07 per share on a fully dilutedbasis, compared with fully diluted earnings per share of $0.83 a yearago. Reported results included the impact of previously announcedrestructuring actions, product line divestitures and discontinuedoperations, as well as the effects of a legal accrual related to apatent lawsuit and gain on sale of a leased asset. Excluding thesecosts, fourth quarter diluted earnings per share were $0.92 comparedwith $0.83 a year ago, above the Company's guidance for the quarter.(See Attachment A-3: "Preliminary Reconciliation of GAAP to Non-GAAPMeasures".)

Compared to the prior year fourth quarter, earnings beforerestructuring and divestiture-related charges increased on lower salesdue to improved profitability, primarily related to reductions inoperating expense and the tax rate. Severance and non-cash chargesassociated with the restructuring actions and divestitures totaled$130 million before tax in the fourth quarter, or $98 million aftertax.

"We made significant progress in 2005 to improve the profitabilityof our businesses," said Dean A. Scarborough, president and chiefexecutive officer of Avery Dennison. "The charges that reduced fourthquarter reported earnings reflect our steps to fine-tune our portfolioand improve our global operating efficiencies. These actions willenhance our ability to meet both our top-line growth and marginimprovement objectives."

Pre-tax charges associated with restructuring actions include $28million in severance costs for a previously announced reduction inheadcount of approximately 700 employees, and $14 million in asset andlease impairments, with actions impacting all of the Company'ssegments and most regions. Pre-tax savings associated with theseactions are expected to total $50 to $60 million in 2006, increasingto a total of $65 to $70 million per year when fully implemented.

The Company anticipates additional restructuring actions in 2006,which could result in further headcount reductions totaling anestimated 80 to 100 positions, with restructuring charges in the rangeof $10 to $15 million expected to be incurred during the first half of2006. These actions are expected to yield a further $15 to $20 millionin savings per year when fully implemented.

Pending divestitures include several non-strategic, low marginproduct lines. Pre-tax costs recognized in the fourth quarter inconnection with these divestitures include $6 million in severance fora reduction in headcount of approximately 150 employees, and $83million in non-cash charges associated with the impairment of goodwilland other assets. (See Pending divestitures, below, for moreinformation.)

A portion of the benefits from restructuring actions anddivestitures will be used to fund investments in ongoing Horizonsinitiatives and future growth opportunities, as well as actions todrive additional productivity gains.

Other financial highlights from continuing operations for thefourth quarter of 2005:

-- Sales declined by approximately 4 percent from the prior year
to $1.36 billion due to a reduction in unit volume. The unit
volume reduction reflected an extra week of sales which
benefited the fourth quarter of the prior year, as well as an
increase in year-end orders by several large customers in the
Office and Consumer Products segment, which likewise benefited
the prior year.

Excluding the estimated benefit of the extra week and advance
orders, unit volume was comparable to the prior year.

-- Gross profit margin improved by 10 basis points compared to
the fourth quarter of 2004, reflecting the benefits of pricing
actions and productivity gains, offset by the impact of lower
sales, unfavorable segment mix, and higher spending associated
with the development of the Company's radio frequency
identification (RFID) business.

Gross profit margin improved by 130 basis points compared to
the third quarter of 2005, reflecting favorable product mix.
The benefit of product mix was partially offset by
sequentially higher raw material costs, which the Company
expects to mitigate with price increases during the first
quarter of 2006.

-- Marketing, general and administrative expenses as a percent of
sales improved by 50 basis points compared to the same quarter
a year ago, reflecting spending controls implemented during
the year.

-- Excluding restructuring and asset impairment costs, gain on
sale of a leased asset, and a legal accrual related to a
patent suit in the fourth quarter of 2005, operating margin
improved by 60 basis points over the fourth quarter of 2004,
due to improved gross profit margin and the reduction in
marketing, general and administrative expenses as a percentage
of sales. (See Attachment A-3: "Preliminary Reconciliation of
GAAP to Non-GAAP Measures".)

-- Continued improvements in the Company's global tax structure
reduced the quarterly effective tax rate on income from
continuing operations to 19.7 percent, while the tax effect of
restructuring and divestiture-related charges reduced the rate
further to 2.4 percent, compared to 23.9 percent in the same
quarter a year ago.

Segment results from continuing operations

Sales for the Company's Pressure-sensitive Materials segmentdeclined by approximately 3 percent from the prior year to $763million due to a reduction in unit volume, reflecting the extra weekof sales which benefited the fourth quarter of the prior year.Excluding the benefit of the extra week in the prior year, unit volumeincreased by an estimated 1 percent.

Before the effects of restructuring and asset impairment costs andthe legal accrual, operating margin for the segment improved to 8.6percent compared with 8.0 percent a year ago, reflecting productivityimprovement initiatives and spending controls. With the exception ofcost inflation incurred during the fourth quarter of 2005, the benefitof price increases covered higher raw material costs. (See AttachmentA-4: "Preliminary Supplementary Information, Reconciliation of GAAP toNon-GAAP Supplementary Information".)

Sales for the Office and Consumer Products segment declined byapproximately 11 percent from the prior year to $293 million due to areduction in unit volume, primarily reflecting the extra week of salesand increased year-end orders by large customers, both of whichbenefited the fourth quarter of the prior year. Excluding thesefactors, unit volume declined by an estimated 3 percent.

Before the effects of restructuring and asset impairment costs,operating margin for the segment increased to 22.4 percent comparedwith 19.7 percent a year ago, reflecting the benefit of productivityimprovement efforts, spending controls and pricing. Price increases,effective January 1, 2005, have covered cumulative raw materialinflation for the segment over the past two years. (See AttachmentA-4: "Preliminary Supplementary Information, Reconciliation of GAAP toNon-GAAP Supplementary Information".)

Sales for the Retail Information Services segment declined byapproximately 3 percent from the prior year to $170 million due to areduction in unit volume, reflecting the extra week of sales whichbenefited the fourth quarter of the prior year. Excluding the benefitof the extra week in the prior year, unit volume was up slightly.Before the effects of restructuring, asset impairment and leasecancellation charges, operating margin for the segment increased to8.0 percent in the fourth quarter, compared with 7.0 percent a yearago, reflecting productivity improvement efforts, including movementof production from Hong Kong to lower cost operations in mainlandChina, as well as spending controls. (See Attachment A-4: "PreliminarySupplementary Information, Reconciliation of GAAP to Non-GAAPSupplementary Information".)

Businesses in the Other Specialty Converting group reported salesof approximately $138 million, up approximately 1 percent compared tothe fourth quarter of 2004 due to unit volume growth. Excluding thebenefit of the extra week in the prior year, unit volume increased byan estimated 5 percent. Before the effects of restructuring and assetimpairment costs, operating margin for these businesses decreased to1.7 percent from 2.1 percent a year ago, due to higher spendingrelated to the Company's radio frequency identification (RFID)division, partially offset by the benefit of productivity initiatives.(See Attachment A-4: "Preliminary Supplementary Information,Reconciliation of GAAP to Non-GAAP Supplementary Information".)

Financial highlights for the year:

-- Earnings per share, on a diluted basis, were $2.25, compared with $2.78 per share in 2004. Net income was $226.4 million, compared with $279.7 million in 2004. Excluding restructuring and divestiture-related charges and transition costs, the incremental tax expense associated with the repatriation of earnings of certain foreign subsidiaries, expense accrual related to a patent infringement case, and gain on sale of assets, annual earnings per share and net income were $3.46 and $348.0 million, respectively. On a comparable basis, earnings per share and net income grew 13 percent. (See Attachment A-3: "Reconciliation of GAAP to Non-GAAP Measures").

-- Reported sales from continuing operations grew approximately 3 percent to $5.47 billion, compared with $5.32 billion in 2004.

-- Excluding restructuring, asset impairment and plant transition costs, as well as gain on sale of assets and an expense accrual related to a patent infringement case, operating margin improved by 20 basis points compared with 2004. (See Attachment A-3: "Reconciliation of GAAP to Non-GAAP Measures").

-- The full-year effective tax rate on income from continuing operations was 20.4 percent, down 470 basis points compared with last year. The full-year tax rate includes $14 million of incremental expense associated with the repatriation of foreign earnings under the Homeland Investment Act; this cost was more than offset by favorable global tax audit settlements of $9 million in the third quarter of 2005, $7 million of restructuring-related tax savings, as well as the benefit of geographic income mix and continued improvements in our global tax structure. The 2004 tax rate included a favorable tax audit settlement of $4 million in the second quarter of that year.

Pending divestitures:

The Company is currently in discussions to sell a businessconsisting of raised reflective pavement markers. The financialresults for this business have been included as discontinuedoperations. Sales for the approximately break-even business were $23million in 2005. Divestiture of this business would not impact theCompany's reflective films business; the Company will continue tomanufacture and market reflective films for the graphics and highwayand traffic safety markets, utilizing its proprietary glass beaded andmicroreplication technology.

In addition, the Company is also negotiating the sale of twoproduct lines, which would reduce annual sales by approximately $70million, with minimal impact to earnings from operations.

Outlook for 2006

Avery Dennison announced that it expects fully diluted earningsfor 2006 to be in the range of $3.45 to $3.80 per share. This rangeincludes an estimated $0.12 per share impact from stock optionexpense, not included in 2005 reported earnings. The Company'sexpectation for stock option expense is below its previous estimatedrange of $0.13 to $0.18 per share, following the finalization of itsaccounting methodology.

The Company's expected range in earnings excludes the impact ofadditional restructuring charges related to plans that have not yetbeen finalized. Based on plans to date, these charges could reducefull year earnings by $0.08 to $0.12 per share; this range mayincrease as planning continues.

The Company's earnings expectations reflect an assumption ofreported revenue growth from continuing operations in the range of 2to 3 percent, including an estimated 3 percent negative impactprimarily from currency translation and product line divestitures.

"Even though we faced a challenging business environment in 2005,we built momentum through disciplined cost control and rigorouspricing execution," said Scarborough. "We will maintain that tightdiscipline going forward, driving solid margin improvement in 2006,while simultaneously pursuing growth opportunities, includingexpansion in the rapidly growing emerging markets, as well as newproduct and service innovations out of our Horizons pipeline."

"We are especially pleased with the progress we have made indeveloping our RFID business this past year," added Scarborough. "Wecontinue to improve the operating efficiency of our new high-speedmanufacturing process, and are seeing good traction with customers whoare moving to the Gen 2 RFID chip standard. We believe that we arevery well positioned to achieve our market share objectives asindustry demand accelerates."

Avery Dennison is a global leader in pressure-sensitive labelingmaterials, office products and retail tag, ticketing and brandingsystems. Based in Pasadena, Calif., Avery Dennison is a FORTUNE 500company with 2005 sales of $5.5 billion. Avery Dennison employs morethan 22,000 individuals in 48 countries worldwide who apply theCompany's technologies to develop, manufacture and market a wide rangeof products for both consumer and industrial markets.

Products offered by Avery Dennison include Avery-brand officeproducts and graphics imaging media, Fasson-brand self-adhesivematerials, peel-and-stick postage stamps, reflective highway safetyproducts, labels for a wide variety of automotive, industrial anddurable goods applications, brand identification and supply chainmanagement products for the retail and apparel industries, andspecialty tapes and polymers.

Forward-Looking Statements

Certain information presented in this news release may constitute"forward-looking" statements. These statements are subject to certainrisks and uncertainties. Actual results and trends may differmaterially from historical or expected results depending on a varietyof factors, including but not limited to fluctuations in cost andavailability of raw materials; ability of the Company to achieve andsustain targeted cost reductions; foreign exchange rates; worldwideand local economic conditions; selling prices; impact of legalproceedings, including the U.S. Department of Justice ("DOJ") criminalinvestigation, as well as the European Commission ("EC"), CanadianDepartment of Justice, and Australian Competition and ConsumerCommission investigations, into industry competitive practices and anyrelated proceedings or lawsuits pertaining to these investigations orto the subject matter thereof (including purported class actionsseeking treble damages for alleged unlawful competitive practices, andpurported class actions related to alleged disclosure violationspertaining to alleged unlawful competitive practices, which were filedafter the announcement of the DOJ investigation, as well as a likelyfine by the EC in respect of certain employee misconduct in Europe);impact of potential violations of the U.S. Foreign Corrupt PracticesAct based on issues in China; impact of epidemiological events on theeconomy and the Company's customers and suppliers; successfulintegration of acquired companies, financial condition and inventorystrategies of customers; development, introduction and acceptance ofnew products; fluctuations in demand affecting sales to customers; andother matters referred to in the Company's SEC filings.

The financial information presented in this news releaserepresents preliminary financial results, but the audit has not yetbeen completed. Under Section 404 of the Sarbanes-Oxley Act,integrated audit requirements will not be met until the Company hascompleted all of the steps necessary to file these financialstatements with the SEC.

The Company believes that the most significant risk factors thatcould affect its ability to achieve its stated financial expectationsin the near-term include (1) potential adverse developments in legalproceedings and/or investigations regarding competitive activities;(2) the degree to which higher raw material costs can be passed on tocustomers through selling price increases (and previously implementedselling price increases can be sustained), without a significant lossof volume; (3) the impact of economic conditions on underlying demandfor the Company's products; and (4) ability of the Company to achieveand sustain targeted cost reductions.

For more information and to listen to a live broadcast or an audioreplay of the 4th Quarter conference call with analysts, visit theAvery Dennison Web site at www.investors.averydennison.com

AVERY DENNISON A-1
PRELIMINARY CONSOLIDATED STATEMENT OF INCOME
(In millions, except per share amounts)

(UNAUDITED)

Three Months Ended Twelve Months Ended
--------------------- ---------------------

Dec. 31, Jan. 01, Dec. 31, Jan. 01,
2005 2005 2005 2005
(14 Weeks) (53 Weeks)
------------------------------------------------ ---------------------

Net sales $ 1,364.0 $ 1,427.8 $ 5,473.5 $ 5,317.0

Cost of products sold 949.4 995.7 3,852.4 3,742.0

-------------------------- --------------------- ---------------------

Gross profit 414.6 432.1 1,621.1 1,575.0

Marketing, general &
administrative expense 286.2 306.3 1,132.8 1,105.8

Interest expense 13.0 15.4 57.9 58.7

Other expense, net (1) 56.9 -- 63.6 35.2

-------------------------- --------------------- ---------------------

Income from continuing
operations before taxes 58.5 110.4 366.8 375.3

Taxes on income 1.4 26.4 75.0 94.3

-------------------------- --------------------- ---------------------

Income from continuing
operations 57.1 84.0 291.8 281.0

Loss from discontinued
operations, net of taxes (64.0) (0.4) (65.4) (1.3)

-------------------------- --------------------- ---------------------

Net Income (Loss) $ (6.9)$ 83.6 $ 226.4 $ 279.7

-------------------------- --------------------- ---------------------

Per share amounts:
Income (Loss) per common share,
assuming dilution

Continuing operations $ 0.57 $ 0.83 $ 2.90 $ 2.79

Discontinued operations (0.64) --- (0.65) (0.01)

-------------------------- --------------------- ---------------------

Net Income (Loss) $ (0.07)$ 0.83 $ 2.25 $ 2.78

-------------------------- --------------------- ---------------------

Average common shares
outstanding, assuming
dilution 100.4 100.6 100.5 100.5
-------------------------- --------------------- ---------------------
Common shares outstanding
at period end 99.7 100.1 99.7 100.1
-------------------------- --------------------- ---------------------

Certain prior year amounts have been reclassified to conform with the
2005 financial statement presentation.

(1) Other expense, net, for the fourth quarter of 2005 includes
restructuring costs, asset impairment and lease cancellation
charges of $55.5 and legal accrual related to a patent lawsuit of
$3.8, partially offset by gain on sale of a leased asset of
($2.4).

Other expense, net, for 2005 YTD includes restructuring costs,
asset impairment and lease cancellation charges of $65.6 and legal
accrual related to a patent lawsuit of $3.8, partially offset by
gain on sale of assets of ($5.8).

Other expense for 2004 YTD includes $35.2 of restructuring costs,
asset impairment and lease cancellation charges.


A-2

Reconciliation of Non-GAAP Financial Measures in Accordance with SEC
Regulation G


Avery Dennison reports financial results in accordance with U.S. GAAP,
and herein provides some non-GAAP measures. These non-GAAP measures
are not in accordance with, nor are they a substitute for, GAAP
measures. These non-GAAP measures are intended to supplement the
Company's presentation of its financial results that are prepared in
accordance with GAAP.

Avery Dennison uses the non-GAAP measures presented to evaluate and
manage the Company's operations internally. Avery Dennison is also
providing this information to assist investors in performing
additional financial analysis that is consistent with financial models
developed by research analysts who follow the Company.

The reconciliation set forth below is provided in accordance with
Regulations G and S-K and reconciles the non-GAAP financial measures
with the most directly comparable GAAP financial measures.


AVERY DENNISON A-3
PRELIMINARY RECONCILIATION OF GAAP TO NON-GAAP MEASURES
(In millions, except per share amounts)


(UNAUDITED)

Three Months Ended Twelve Months Ended
-------------------- --------------------

Dec. 31, Jan. 01, Dec. 31, Jan. 01,
2005 2005 2005 2005
(14 Weeks) (53 Weeks)
------------------------------------------------ --------------------

Reconciliation of GAAP to
Non-GAAP Operating Margin:

Net sales $ 1,364.0 $ 1,427.8 $ 5,473.5 $ 5,317.0

-------------------- --------------------

Income from continuing
operations before taxes $ 58.5 $ 110.4 $ 366.8 $ 375.3

--------------------------- -------------------- --------------------

GAAP Operating Margin 4.3% 7.7% 6.7% 7.1%

------------------------------------------------ --------------------



Income from continuing
operations before taxes $ 58.5 $ 110.4 $ 366.8 $ 375.3

Non-GAAP adjustments:

Restructuring and
transition costs (1) 32.9 --- 39.8 23.6

Asset impairment and
lease cancellation
charges 22.6 --- 28.1 11.6

Other (2) 1.4 --- (2.0) ---

Interest expense 13.0 15.4 57.9 58.7

-------------------- --------------------

Adjusted non-GAAP operating
income before taxes and
interest expense $ 128.4 $ 125.8 $ 490.6 $ 469.2

------------------------------------------------ --------------------

Adjusted Non-GAAP Operating
Margin 9.4% 8.8% 9.0% 8.8%

------------------------------------------------ --------------------

Reconciliation of GAAP to Non-GAAP Net Income:


As reported net income
(loss) $ (6.9)$ 83.6 $ 226.4 $ 279.7

Non-GAAP adjustments, net of taxes:

Restructuring and
transition costs 20.6 --- 25.9 17.6

Asset impairment and
lease cancellation
charges 14.1 --- 18.4 8.7

Tax expense on
repatriated earnings --- --- 13.6 ---

Other 0.9 --- (1.7) ---

Loss from discontinued
operations 64.0 0.4 65.4 1.3

--------------------------- -------------------- --------------------

Adjusted Non-GAAP Net
Income $ 92.7 $ 84.0 $ 348.0 $ 307.3

------------------------------------------------ --------------------

Reconciliation of GAAP to Non-GAAP Earnings Per Share:

As reported income (loss)
per common share, assuming
dilution $ (0.07)$ 0.83 $ 2.25 $ 2.78

Non-GAAP adjustments per
share, net of taxes:

Restructuring and
transition costs 0.20 --- 0.26 0.18

Asset impairment and
lease cancellation
charges 0.14 --- 0.18 0.09

Tax expense on
repatriated earnings --- --- 0.14 ---

Other 0.01 --- (0.02) ---

Loss from discontinued
operations 0.64 --- 0.65 0.01

--------------------------- -------------------- --------------------

Adjusted Non-GAAP income
per common share, assuming
dilution $ 0.92 $ 0.83 $ 3.46 $ 3.06

------------------------------------------------ --------------------
Average common shares
outstanding, assuming
dilution 100.4 100.6 100.5 100.5
------------------------------------------------ --------------------

Certain prior year amounts have been reclassified to conform with the
2005 financial statement presentation.

(1) 2005 QTD includes restructuring costs of $32.9.
2005 YTD includes restructuring and transition costs of $37.5 and
$2.3, respectively, primarily related to plant closures.

(2) 2005 QTD includes legal accrual related to a patent lawsuit of
$3.8, partially offset by gain on sale of a leased asset of
($2.4).
2005 YTD includes gain on sale of assets of ($5.8), partially
offset by legal accrual related to a patent lawsuit of $3.8.


AVERY DENNISON A-4
PRELIMINARY SUPPLEMENTARY INFORMATION
(In millions)


(UNAUDITED)

Fourth Quarter Ended
-------------------------------------------------

NET SALES OPERATING INCOME OPERATING
MARGINS
------------------ ---------------- -------------

2005 2004 2005 (1) 2004 2005 2004
(14 (14 (14
Weeks) Weeks) Weeks)
------------------ -------- ------- ----- -------

Pressure-sensitive
Materials $763.2 $788.2 $43.9 $62.9 5.8% 8.0%
Office and Consumer
Products 292.9 327.8 48.2 64.6 16.5% 19.7%
Retail Information
Services 170.3 175.2 6.1 12.3 3.6% 7.0%
Other specialty
converting
businesses 137.6 136.6 (3.0) 2.9 -2.2% 2.1%
Corporate Expense N/A N/A (23.7) (16.9) N/A N/A
Interest Expense N/A N/A (13.0) (15.4) N/A N/A
------------------ -------- ------- ----- -------

TOTAL FROM CONTINUING
OPERATIONS $1,364.0 $1,427.8 $58.5 $110.4 4.3% 7.7%
================== ======== ======= ===== =======


(1) Operating income for the fourth quarter of 2005 includes
restructuring costs, asset impairment and lease cancellation charges
of $55.5 and legal accrual related to a patent lawsuit of $3.8,
partially offset by gain on sale of a leased asset of ($2.4), of
which the Pressure-sensitive Materials segment recorded $21.4, the
Office and Consumer Products segment recorded $17.5, the Retail
Information Services segment recorded $7.5, other specialty
converting businesses recorded $5.4 and Corporate recorded $5.1.

Certain prior year amounts have been reclassified to conform with the
2005 financial statement presentation.



RECONCILIATION OF GAAP TO NON-GAAP SUPPLEMENTARY INFORMATION

Fourth Quarter Ended
-----------------------------------
OPERATING INCOME OPERATING MARGINS

-----------------------------------

2005 2004 2005 2004
-------- -------- -------- --------
Pressure-sensitive Materials
----------------------------
Operating income, as reported $ 43.9 $ 62.9 5.8% 8.0%
Non-GAAP adjustments:
Legal accrual related to a patent
lawsuit 3.8 --- 0.5% ---
Restructuring costs 15.1 --- 2.0% ---
Asset impairment charges 2.5 --- 0.3% ---
-------- -------- -------- --------

Adjusted non-GAAP operating income $ 65.3 $ 62.9 8.6% 8.0%
======== ======== ======== ========

Office and Consumer Products
----------------------------
Operating income, as reported $ 48.2 $ 64.6 16.5% 19.7%
Non-GAAP adjustments:
Restructuring costs 6.8 --- 2.3% ---
Asset impairment charges 10.7 --- 3.6% ---
-------- -------- -------- --------

Adjusted non-GAAP operating income $ 65.7 $ 64.6 22.4% 19.7%
======== ======== ======== ========

Retail Information Services
---------------------------
Operating income, as reported $ 6.1 $ 12.3 3.6% 7.0%
Non-GAAP adjustments:
Restructuring costs 5.6 --- 3.3% ---
Asset impairment and lease
cancellation charges 1.9 --- 1.1% ---
-------- -------- -------- --------

Adjusted non-GAAP operating income $ 13.6 $ 12.3 8.0% 7.0%
======== ======== ======== ========

Other specialty converting businesses
-------------------------------------
Operating income (loss), as
reported $ (3.0)$ 2.9 -2.2% 2.1%
Non-GAAP adjustments:
Restructuring costs 2.5 --- 1.8% ---
Asset impairment charges 2.9 --- 2.1% ---
-------- -------- -------- --------

Adjusted non-GAAP operating income $ 2.4 $ 2.9 1.7% 2.1%
======== ======== ======== ========

AVERY DENNISON A-5
PRELIMINARY SUPPLEMENTARY INFORMATION
(In millions)


(UNAUDITED)

Twelve Months Year-to-Date
---------------------------------------------------

NET SALES OPERATING INCOME OPERATING
MARGINS
------------------- ----------------- -------------

2005 2004 2005 (1) 2004 (2) 2005 2004
(53 (53 (53
Weeks) Weeks) Weeks)
--------- --------- -------- -------- ----- -------

Pressure-sensitive
Materials $3,114.5 $2,984.5 $259.6 $221.4 8.3% 7.4%
Office and
Consumer Products 1,136.1 1,172.5 168.0 186.4 14.8% 15.9%
Retail Information
Services 674.8 636.1 42.7 47.8 6.3% 7.5%
Other specialty
converting
businesses 548.1 523.9 9.5 35.5 1.7% 6.8%
Corporate Expense N/A N/A (55.1) (57.1) N/A N/A
Interest Expense N/A N/A (57.9) (58.7) N/A N/A
--------- --------- -------- -------- ----- -------

TOTAL FROM
CONTINUING
OPERATIONS $5,473.5 $5,317.0 $366.8 $375.3 6.7% 7.1%
========= ========= ======== ======== ===== =======


(1) Operating income for 2005 includes restructuring costs, asset
impairment charges, lease cancellation charges and transition costs
of $67.9 and legal accrual related to a patent lawsuit of $3.8,
partially offset by gain on sale of assets of ($5.8), of which the
Pressure-sensitive Materials segment recorded $23, the Office and
Consumer Products segment recorded $24.1, the Retail Information
Services segment recorded $7.5, other specialty converting businesses
recorded $6.2 and Corporate recorded $5.1.

(2) Operating income for 2004 includes $35.2 of restructuring costs,
asset impairment and lease cancellation charges, of which the
Pressure-sensitive Materials segment recorded $34.4, the Office and
Consumer Products segment recorded $.5 and the Retail Information
Services segment recorded $.3.

Certain prior year amounts have been reclassified to conform
with the 2005 financial statement presentation.




RECONCILIATION OF GAAP TO NON-GAAP SUPPLEMENTARY INFORMATION

Twelve Months Year-to-Date
----------------------------
OPERATING OPERATING
INCOME MARGINS
--------------- ------------

2005 2004 2005 2004
------ ------ ------ -----
Pressure-sensitive Materials
-----------------------------------------
Operating income, as reported $259.6 $221.4 8.3% 7.4%
Non-GAAP adjustments:
Legal accrual related to a patent lawsuit 3.8 --- 0.1% ---
Restructuring costs 15.5 22.8 0.5% 0.8%
Asset impairment and lease cancellation
charges 7.1 11.6 0.3% 0.4%
Gain on sale of assets (3.4) --- (0.1%) ---
------ ------ ------ -----

Adjusted non-GAAP operating income $282.6 $255.8 9.1% 8.6%
====== ====== ====== =====

Office and Consumer Products
-----------------------------------------
Operating income, as reported $168.0 $186.4 14.8% 15.9%
Non-GAAP adjustments:
Restructuring and transition costs (1) 13.4 0.5 1.2% ---
Asset impairment charges 10.7 --- 0.9% ---
------ ------ ------ -----

Adjusted non-GAAP operating income $192.1 $186.9 16.9% 15.9%
====== ====== ====== =====

Retail Information Services
-----------------------------------------
Operating income, as reported $ 42.7 $ 47.8 6.3% 7.5%
Non-GAAP adjustments:
Restructuring costs 5.6 0.3 0.8% 0.1%
Asset impairment and lease cancellation
charges 1.9 --- 0.3% ---
------ ------ ------ -----

Adjusted non-GAAP operating income $ 50.2 $ 48.1 7.4% 7.6%
====== ====== ====== =====

Other specialty converting businesses
-----------------------------------------
Operating income, as reported $ 9.5 $ 35.5 1.7% 6.8%
Non-GAAP adjustments:
Restructuring costs 2.5 --- 0.5% ---
Asset impairment charges 3.7 --- 0.7% ---
------ ------ ------ -----

Adjusted non-GAAP operating income $ 15.7 $ 35.5 2.9% 6.8%
====== ====== ====== =====

(1) For 2005, amount includes restructuring and transition costs of
$11.1 and $2.3, respectively, primarily related to plant closures.


AVERY DENNISON A-6
PRELIMINARY CONDENSED CONSOLIDATED BALANCE SHEET
(In millions)


(UNAUDITED)

ASSETS Dec. 31, Jan. 01,
2005 2005
----------------------------------------------------------------------

Current assets:
Cash and cash equivalents $ 105.5 $ 84.7
Trade accounts receivable, net 863.2 883.9
Inventories, net 439.7 431.9
Other current assets 149.9 141.9

----------------------------------------------------------------------

Total current assets 1,558.3 1,542.4

Property, plant and equipment, net 1,295.7 1,374.4
Goodwill 673.1 710.6
Intangibles resulting from business
acquisitions, net 98.7 115.8
Other assets 578.1 656.1

----------------------------------------------------------------------

$4,203.9 $4,399.3

----------------------------------------------------------------------


LIABILITIES AND SHAREHOLDERS' EQUITY

----------------------------------------------------------------------

Current
liabilities:
Short-term and current portion of long-term
debt $ 364.7 $ 204.5
Accounts payable 577.9 616.7
Other current liabilities 583.0 566.1

----------------------------------------------------------------------

Total current liabilities 1,525.6 1,387.3

Long-term debt 723.0 1,007.2
Other long-term liabilities 443.4 456.1
Shareholders'
equity:
Common stock 124.1 124.1
Capital in excess of par value 729.5 766.1
Retained earnings 1,945.3 1,887.6
Accumulated other comprehensive loss (89.1) (2.7)
Cost of unallocated ESOP shares (7.7) (9.7)
Employee stock benefit trusts (552.0) (619.1)
Treasury stock at cost (638.2) (597.6)


----------------------------------------------------------------------

Total shareholders' equity 1,511.9 1,548.7

----------------------------------------------------------- ----------

$4,203.9 $4,399.3

----------------------------------------------------------------------

Certain prior year amounts have been reclassified to conform with the
2005 financial statement presentation.



AVERY DENNISON A-7
PRELIMINARY CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)

(UNAUDITED)

Twelve Months Ended
--------------------------------
Dec. 31, 2005 Jan. 01, 2005
(53 Weeks)
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Operating Activities:

Net income $ 226.4 $ 279.7

Less: Loss from discontinued
operations, net of taxes (65.4) (1.3)
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Income from continuing operations 291.8 281.0

Adjustments to reconcile net income from
continuing operations to net cash
provided by operating activities:

Depreciation 154.2 145.8

Amortization 43.8 38.9

Deferred taxes (2.3) 91.9

Asset impairment and net (gain) loss on
sale of assets 33.5 11.7

Other non-cash items, net (7.5) (0.5)
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513.5 568.8

Changes in assets and liabilities (68.8) (56.2)
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Net cash provided by operating
activities 444.7 512.6
------- -------

Investing Activities:

Purchase of property, plant and
equipment (162.3) (177.3)

Purchase of software and other
deferred charges (25.8) (21.8)

Payments for acquisitions (2.8) (15.0)

Proceeds from sale of assets 21.8 8.2

Other 1.7 (9.4)
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Net cash used in investing activities (167.4) (215.3)
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Financing Activities:

Net increase/(decrease) in borrowings
(maturities of 90 days or less) 62.5 (37.2)

Additional borrowings (maturities
longer than 90 days) 75.7 302.8

Payments of debt (maturities longer
than 90 days) (214.9) (382.0)

Dividends paid (168.7) (164.6)

Purchase of treasury stock (40.9) (0.7)

Proceeds from exercise of stock
options, net 11.1 19.1

Other 18.5 18.2
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Net cash used in financing activities (256.7) (244.4)
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Effect of foreign currency translation
on cash balances 0.2 2.4
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Increase in cash and cash equivalents 20.8 55.3
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Cash and cash equivalents, beginning
of period 84.7 29.4
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Cash and cash equivalents, end of
period $ 105.5 $ 84.7
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Certain prior year amounts have been reclassified to conform with the
2005 financial statement presentation.