A Perfect Fit
Dean Scarborough
President & CEO
Rob van der Merwe
Chairman, President & CEO
Investor Presentation
March 23, 2007
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Forward-Looking Statements
This presentation contains forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995,
including statements about Avery Dennison's anticipated acquisition of Paxar and statements about projected future financial and operating results. These
statements are based on current expectations and beliefs and are subject to a number of risks, uncertainties and assumptions that could cause actual results to
differ materially from those described in the forward-looking statements. All statements other than statements of historical fact are statements that could be
deemed forward-looking statements.
Risks, Uncertainties and Assumptions – Avery Dennison
Risks, uncertainties, and assumptions pertaining to Avery Dennison include, but are not limited to, the impact of economic conditions on underlying demand for the
Company’s products; the impact of competitors’ actions, including expansion in key markets, product offerings and pricing; the degree to which higher raw material
and energy-related costs can be passed on to customers through selling price increases (and previously implemented selling price increases can be sustained),
without a significant loss of volume; potential adverse developments in legal proceedings and/or investigations, including those regarding competitive activities, and
including possible fines, penalties, judgments or settlements; the ability of Avery Dennison to achieve and sustain targeted cost reductions; credit risks; ability to
obtain adequate financing arrangements; changes in governmental regulations; foreign currency exchange rates and other risks associated with foreign operations;
impact of war, terror, natural disasters and epidemiological events on the economy and Avery Dennison’s customers and suppliers; successful integration of
acquisitions; financial condition and inventory strategies of customers; changes in customer order patterns; loss of significant contract(s) or customer(s); timely
development and market acceptance of new products; fluctuations in demand affecting sales to customers; and other matters referred to in Avery Dennison’s SEC
filings.
Risks, Uncertainties and Assumptions - Paxar
Risks, uncertainties and assumptions pertaining to Paxar include, but are not limited to, the ability of Paxar to achieve and sustain targeted cost reductions, for
example, those related to its global apparel realignment plan and other restructuring/reorganization initiatives; changes in foreign currency exchange rates; political
or economic instability in Paxar’s major markets; the impact of competitive products and pricing; fluctuations in cost and availability of petroleum-based raw
materials; fluctuations in retail and apparel industry demand affecting sales to customers; and other matters referred to in Paxar’s SEC filings.
Risks, Uncertainties and Assumptions - The Transaction
Forward looking statements pertaining to Avery Dennison’s acquisition and integration of Paxar include statements relating to or of expected synergies, cost
savings, accretion, timing, industry size, execution of integration plans and management and organizational structure. 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.
For a more detailed discussion of these and other factors, see “Risk Factors” and “Management’s Discussion and Analysis of Results of Operations and Financial
Condition” in Avery Dennison’s and Paxar’s reports on Form 10-K both of which were filed on February 28, 2007 with the SEC.
Forward-looking statements included in this presentation are made only as of the date of this presentation, and the companies undertake no obligation to update
the forward-looking statements to reflect subsequent events or circumstances except as may be required by law.
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.
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Transaction Overview
$30.50 per Paxar share, a 27% premium to closing price on 3/22/07
$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
Substantial value creation through $90 - $100M of annualized cost
synergies
EPS-accretive (excluding integration-related charges) in 12 months
following close
EVA-positive (exceeds cost of capital) for the third year following
close; turns EVA-positive by the end of the second year excluding
integration-related charges
Principal conditions to closing:
Paxar shareholder approval
Regulatory clearances
* 2006 Adjusted EBITDA excludes gain on lawsuit settlement and integration/restructuring and other
costs – see Appendix for detail
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Market Overview
Global retail information and brand identification market estimated to
represent over $15 billion in annual revenue, including:
All varieties of tags and labels, branded packaging, and printers for
exterior and interior labeling
Tags and labels for softgoods (e.g., linens) and footwear
Applications outside of apparel and softgoods (e.g., jewelry, toys,
sporting goods, office products, etc.)… we serve customers in virtually
all of these categories today
Rapidly expanding opportunities for domestic consumption in emerging
economies (e.g., China, India, etc.)
This large, growing market remains highly fragmented and
competitive
Combined market share for Avery Dennison/Paxar is less than 10%
Opportunity for growth through speed, quality, and global service
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Products, Solutions, and Services
Variable Data Labels and Tags
Brand Promotion and
Merchandising Tags
Woven and Printed Fabric
Labels
Brand Protection and Security
Products
In-Plant Printers, Accessories
and Supplies
Bar Code and RFID Printers
Handheld Labelers; Labels
and Tag Fasteners
Information Management
Software and Systems
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Our products support
top US/EU retailers
and brands…
… but > 20,000 factories
actually purchase our
products
Customers
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TIER 1
Retailers / Brand Owners
TIER 2
Buying Offices / Agents / Importers
TIER 3
Vendors / Factories / Contractors
Multi-Tier Supply Chain
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Retailer
Buying Office/
Agent
Domestic
Importer
Retailer Controlled
Outsourced
Contractors
Contractors
A
B
C
D
E
F
Front-end creative design services
Real-time electronic communication
In-country production support
local representation
price, quality, speed of delivery
advanced information management
systems linking trading partners
graphic design services and
product/program development
Tier 1
Tier 2
Tier 3
Each Tier Has Different Priorities
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Key Success Factors
Speed and responsiveness
Quality and global consistency
“Close to the needle”
New products and services
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Strategic Rationale:
(1) Enhances Revenue Growth Potential
Expands capabilities with above-average growth
opportunity
Increases our presence in the expanding retail information and
brand identification market, more than doubling revenues to over
$1.5 billion
Creates a leader in $15 billion-plus, highly fragmented global
market
Allows us to compete more effectively in complex, global
supply chain
Broadens range of product and service capabilities
Better able to meet customer demands for product innovation
and improved quality and speed of service, particularly at the
factory level
Facilitates expansion into new product and geographic
segments
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Strategic Rationale:
(1) Enhances Revenue Growth Potential (cont’d)
Combines complementary strengths
Improves access to European retailers and brand owners
Relative geographic strength at factory level is highly
complementary – Avery Dennison strong in Asia; Paxar strong in
Europe/Middle East/Africa and Latin America
Enhances our product offering in interior labels and hardware
solutions (bar code, printing and labeling systems)
Accelerates expansion into key Asian geographies, particularly
in south Asia, where Paxar has a strong foothold
Strengthens capabilities in rapidly growing apparel item-level
RFID segment
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Strategic Rationale:
(2) Estimated $90 To $100M of Annualized Cost Synergies
Similar infrastructure – areas of overlap include SG&A
(e.g., corporate overhead, back office support) and
production
High degree of visibility on sources of synergy – expect
to achieve substantially all of the targeted savings within
24 months following close of transaction
Proven track record of successfully integrating
international acquisitions and achieving substantial cost
synergies
Restructuring and asset impairment costs expected to
total $100 to $125 million
IT integration and other IT investments expected to total
at least $50 million
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Combining Complementary Strengths Will Better
Serve Customer Needs
Broader product line and improved service capabilities –
implement “best of breed” to benefit both manufacturers
and the retailers/brand owners they supply
Faster delivery times on new brand designs and products
Quicker access to information to shorten lead times in apparel
supply chain
New marking and branding solutions to enable customers to
better differentiate their products
Improved efficiency in product development and
delivery improved customer value
Expand customer base – beyond apparel, beyond
US/EU imports
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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 $.05) in Year 1, before transaction and integration-
related costs; turning accretive by end of first year
Accretive in Year 2, before integration-related costs
$0.60 to $0.70 EPS accretion in Year 3
Anticipated EVA / Cash Return Impact:
EVA-positive (exceeds cost of capital) for the third year following close; turns EVA-
positive by the end of the second year excluding integration-related charges
Free cash flow return on investment* > 10%
Financing:
Transaction to be financed with debt; structure determined prior to close
JPMorgan has committed $1.35 billion in acquisition financing and will also arrange
long-term financing
Company is committed to retaining a strong investment grade credit rating, and
returning financial ratios to pre-transaction levels
* [2006 Adjusted EBITDA – see Appendix for detail – plus cost synergies less capital/software investments] divided by
[Enterprise Value at time of purchase plus integration-related cash costs]
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Sources of Value Creation
Good premium paid to Paxar shareholders
Good value creation for Avery Dennison
shareholders:
Enhances top-line growth potential
Substantial cost synergies
High degree of visibility to potential savings
Proven track record with acquisition integration on global
scale… high degree of confidence in ability to quickly achieve
the savings
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APPENDIX
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2006 Adjusted Paxar EBITDA
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