Avery Dennison Reports Second Quarter 2005 Results

Avery Dennison Corporation (NYSE:AVY) today reportedsecond quarter diluted earnings per share of $0.89, compared with$0.68 for the second quarter of 2004. The second quarter 2005 earningsinclude a negative impact of $0.02 per share from asset impairments,transition costs associated with a previously announced plantshutdown, and restructuring costs, while prior-year second quarterearnings include a negative impact of $0.10 per share from arestructuring charge primarily related to the integration of anacquisition. Excluding these costs, second quarter earnings per shareincreased by more than 16 percent over the comparable quarter. (SeeAttachment A-3: "Preliminary Reconciliation of GAAP to Non-GAAPMeasures".)

Sales for the second quarter of $1.4 billion were in line with theCompany's expectations, an increase of approximately 7 percent overthe same quarter a year ago, with core unit volumes increasing byapproximately 1 percent. Profitability increased due to both improvedgross profit margin and control of operating expenses.

"Our disciplined pricing actions and focus on expense managementhave proven effective in the short term, particularly in light of softmarket conditions," said Dean A. Scarborough, president and chiefexecutive officer of Avery Dennison. "We remain committed to ourlong-term strategies to accelerate top-line growth and continueproductivity improvement."

Financial highlights for the second quarter of 2005:

-- Earnings per share, on a diluted basis, were $0.89, compared with $0.68 in the same quarter a year ago, including the negative impact of restructuring, asset impairment and plant transition costs totaling $0.02 per share and $0.10 per share in the current and prior years, respectively. While results for the second quarter of 2005 include a $0.04 per share benefit from a reduction in the tax rate compared with the first quarter of 2005, the effective tax rate for the second quarter was comparable to the same period a year ago.

-- Net income was $89.4 million, compared with $68.5 million in the second quarter of 2004, including the after-tax impact of restructuring, asset impairment and plant transition costs totaling $2.4 million and $10.0 million in the current and prior years, respectively.

-- Sales grew approximately 7 percent over the prior year, reaching $1.4 billion for the second quarter of 2005, compared with $1.3 billion in the second quarter of 2004. The impact of currency translation contributed approximately 45 percent of the sales growth during the quarter, while price and mix contributed approximately 30 percent. Local currency sales in the emerging markets of Asia, Latin America, and Eastern Europe were up 13 percent over the same period last year.

-- Core unit volume grew an estimated 1 percent over the prior-year second quarter, below the Company's expectations, reflecting generally weak industry conditions and share loss related to price increases in several businesses.

-- Gross profit margin improved 50 basis points compared with the second quarter of 2004 due to the completion of the European manufacturing consolidation in the prior year and other productivity improvement efforts. Higher raw material costs were fully offset with selling price increases.

-- Marketing, general and administrative expenses as a percent of sales improved by 10 basis points compared to the same quarter a year ago, and 110 basis points compared to the first quarter of 2005, due in part to spending controls implemented during the quarter.

-- Operating margin improved by 70 basis points over the second quarter of 2004, excluding restructuring, asset impairment and plant transition costs recognized in both periods, due to the factors affecting gross profit margin and marketing, general and administrative expenses described above. (See Attachment A-3: "Preliminary Reconciliation of GAAP to Non-GAAP Measures".)

-- The tax rate for the second quarter was 22.7 percent, reflecting a reduction of 200 basis points in the year-to-date tax rate due to geographic income mix and other factors.

Financial highlights for the first six months of 2005:

-- Earnings per share, on a diluted basis, were $1.46, compared with $1.21 for the first half of 2004. Excluding restructuring, asset impairment and plant transition costs (offset by a small gain on sale of assets in the first quarter of 2005), earnings per share were $1.52, compared with $1.46 for the first six months of 2004. (See Attachment A-3: "Preliminary Reconciliation of GAAP to Non-GAAP Measures".)

-- Net income was $147.1 million, compared with $121.1 million for the first six months of 2004, including the after-tax impact of restructuring, asset impairment and plant transition costs (offset by a small gain on sale of assets in the first quarter of 2005) totaling $5.5 million and $25.5 million in the current and prior years, respectively.

-- Sales grew approximately 8 percent to $2.8 billion, compared with $2.6 billion in the first half of the prior year. The impact of currency translation contributed approximately 40 percent of the sales growth during the first six months, while price and mix contributed approximately 30 percent.

-- Core unit volume rose approximately 2 percent compared with the same period a year ago.

Segment results

The Company's Pressure-sensitive Materials segment reported salesof approximately $806 million, up nearly 9 percent over the secondquarter of 2004. Slightly more than half of the increase in segmentrevenue reflects unit volume growth and a positive contribution fromprice and mix. The balance of the growth is attributable to the impactof currency translation, primarily the Euro.

Before the effects of currency translation, sales in the NorthAmerican pressure-sensitive roll materials business declined byapproximately 3 percent, with the benefit of price increases more thanoffset by a decline in volume. The volume decline affected mostbusiness segments within the North American pressure-sensitive rollmaterials business with the exception of films, which continued tobenefit from growth in the beverage label market.

Sales in the European pressure-sensitive roll materials businessgrew approximately 12 percent in local currency, driven by strong unitvolume growth, due in part to share gain related to a paper industrystrike in Finland that negatively affected some of the Company'scompetitors. Strong growth in the Eastern European region alsocontributed to this result. The roll materials business in Asiareported double digit growth in local currency sales, while thisbusiness in Latin America grew at a high single digit rate. Sales inthe graphics and reflective materials business declined byapproximately 2 percent before the effect of currency.

Excluding restructuring and asset impairment costs, operatingmargin for the segment increased to 9.4 percent compared with 8.6percent a year ago, due to productivity improvement initiatives,including a plant closure completed in Europe during the secondquarter of 2004, as well as spending controls. The benefit of priceincreases covered higher raw material costs. (See Attachment A-4:"Preliminary Supplementary Information, Reconciliation of GAAP toNon-GAAP Supplementary Information".)

The Office and Consumer Products segment reported sales ofapproximately $300 million, an increase of more than 4 percent overthe second quarter of 2004. Slightly more than half of the revenuegrowth for the segment reflects selling price increases. The balanceof the sales growth is attributable to the impact of currencytranslation, primarily the Euro.

The segment benefited from earlier than usual shipment ofback-to-school orders. An estimated $10 million in customer ordersrelated to the back-to-school season were shipped earlier than theprior year, shifting an estimated $0.03 of earnings per share from thethird quarter into the second.

Excluding restructuring and plant transition costs, operatingmargin for the segment increased to 17.0 percent compared with 14.1percent a year ago, reflecting productivity improvement efforts andspending controls. Price increases, effective January 1 of this year,have covered cumulative raw material cost inflation for the segment.(See Attachment A-4: "Preliminary Supplementary Information,Reconciliation of GAAP to Non-GAAP Supplementary Information".)

The Retail Information Services segment reported sales ofapproximately $182 million, an increase of slightly more than 10percent over the second quarter of 2004. Approximately two-thirds ofthe growth is due to the combined effect of the Rinke acquisition andcurrency translation, with the balance due to core unit volume growth.Excluding restructuring costs, operating margin for the segmentincreased to 10.4 percent in the second quarter, compared with 10.1percent a year ago, reflecting productivity improvement efforts,including movement of production from Hong Kong to lower costoperations in mainland China, as well as spending controls. (SeeAttachment A-4: "Preliminary Supplementary Information, Reconciliationof GAAP to Non-GAAP Supplementary Information".)

Businesses in the other specialty converting group reported salesof approximately $131 million, comparable to the prior year. Excludingasset impairment, operating margin for these businesses declined to1.9 percent from 8.4 percent a year ago, largely due to higherspending related to the Company's radio frequency identification(RFID) division. (See Attachment A-4: "Preliminary SupplementaryInformation, Reconciliation of GAAP to Non-GAAP SupplementaryInformation".)

Outlook

Reflecting improved profitability and the reduction in its taxrate, Avery Dennison is raising its earnings-per-share guidance forthe full year to $2.95 to $3.20, from its previously announcedexpectation of $2.85 to $3.15. The Company's earnings guidanceexcludes the impact of restructuring and asset impairment charges.Year-to-date charges and transition costs, net of gain on sale ofassets, total $0.06 per share. Additionally, the Company anticipatesmodest costs associated with restructuring actions in the thirdquarter of 2005, with the possibility of more significant actions inthe fourth quarter of 2005. The Company said its outlook anticipatescontinued weakness in core volume growth, with the expectation ofrelatively stable raw material costs.

"Given modest expectations for unit volume growth in the shortterm, we will continue to focus on expense management and we are inthe process of evaluating new opportunities for reducing our coststructure," said Scarborough. "While some of the second quarterspending cuts are not sustainable over the long term, we expect tosecure additional sources of cost savings as a result of a number ofkey initiatives currently underway across the Company."

"Our long-term opportunities for growth are excellent. We areconfident that improved economic conditions, our leadership positionin growing emerging markets, innovations from our Horizons growthprogram and the expansion of our RFID business will accelerate demandfor our products and services in the future," said Scarborough.

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 2004 sales of $5.3 billion. Avery Dennison employs morethan 21,000 individuals in 47 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") and CanadianDepartment of Justice investigations, into industry competitivepractices and any related proceedings or lawsuits pertaining to theseinvestigations or to the subject matter thereof (including purportedclass actions seeking treble damages for alleged unlawful competitivepractices, and purported class actions related to alleged disclosureviolations pertaining to alleged unlawful competitive practices, whichwere filed after the announcement of the DOJ investigation, as well asa likely fine by the EC in respect of certain employee misconduct inEurope); impact of epidemiological events on the economy and theCompany's customers and suppliers; successful integration of acquiredcompanies, financial condition and inventory strategies of customers;development, introduction and acceptance of new products; fluctuationsin demand affecting sales to customers; and other matters referred toin the Company's SEC filings.

The financial information presented in this news releaserepresents preliminary financial results.

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 2nd Quarter conference call with analysts, visit theAvery Dennison Web site at www.investors.averydennison.com

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

(UNAUDITED)

Three Months Ended Six Months Ended
--------------------- -------------------

July 02, June 26, July 02, June 26,
2005 2004 2005 2004

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

Net sales $ 1,418.6 $1,324.0 $2,764.9 $2,570.7

Cost of products sold 992.6 933.4 1,951.1 1,813.6

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

Gross profit 426.0 390.6 813.8 757.1

Marketing, general &
administrative expense 292.5 274.0 584.5 531.7

Interest expense 15.8 14.1 30.3 29.0

Other expense, net (1) 2.1 13.8 5.4 35.2

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

Income before taxes 115.6 88.7 193.6 161.2

Taxes on income 26.2 20.2 46.5 40.1

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

Net Income $ 89.4 $ 68.5 $ 147.1 $ 121.1

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

Per share amounts:

Income per common share,
assuming dilution $ 0.89 $ 0.68 $ 1.46 $ 1.21

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

Average common shares outstanding,
assuming dilution 100.6 100.5 100.6 100.4
--------------------------- ---------------------- -------------------
Common shares outstanding
at period end 100.2 99.9 100.2 99.9
--------------------------- ---------------------- -------------------

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

(1) Other expense for the second quarter of 2005 includes $2.1 of
asset impairment charges and restructuring costs.

Other expense for the second quarter of 2004 includes $13.8 of
restructuring costs, asset impairment and lease cancellation
charges.

Other expense, net, for 2005 YTD includes $8.8 of restructuring
costs and asset impairment charges, partially offset by gain on
sale of assets of $(3.4).

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


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


(UNAUDITED)

Three Months Ended Six Months Ended
-------------------- -----------------

July 02, June 26, July 02, June 26,
2005 2004 2005 2004

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

Reconciliation of GAAP to Non-
GAAP Operating Margin:

Net sales $ 1,418.6 $1,324.0 $2,764.9 $2,570.7

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

Income before taxes $ 115.6 $ 88.7 $ 193.6 $ 161.2

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

GAAP Operating Margin 8.1% 6.7% 7.0% 6.3%

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


Income before taxes $ 115.6 $ 88.7 $ 193.6 $ 161.2

Non-GAAP adjustments:

Restructuring and
transition costs (1) 1.7 7.7 6.5 23.6

Asset impairment and lease
cancellation charges 1.5 6.1 4.2 11.6

Gain on sale of assets --- --- (3.4) ---

Interest expense 15.8 14.1 30.3 29.0

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

Adjusted non-GAAP operating
income before taxes and
interest expense $ 134.6 $ 116.6 $ 231.2 $ 225.4

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

Adjusted Non-GAAP Operating
Margin 9.5% 8.8% 8.4% 8.8%

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


Reconciliation of GAAP to Non-GAAP Net Income:


As reported net income $ 89.4 $ 68.5 $ 147.1 $ 121.1

Non-GAAP adjustments, net of taxes:

Restructuring and
transition costs 1.3 5.6 4.9 17.1

Asset impairment and lease
cancellation charges 1.1 4.4 3.2 8.4

Gain on sale of assets --- --- (2.6) ---

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

Adjusted Non-GAAP Net Income $ 91.8 $ 78.5 $ 152.6 $ 146.6

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


Reconciliation of GAAP to Non-GAAP Earnings Per Share:


As reported income per common
share, assuming dilution $ 0.89 $ 0.68 $ 1.46 $ 1.21

Non-GAAP adjustments per
share, net of taxes:

Restructuring and
transition costs 0.01 0.06 0.05 0.17

Asset impairment and lease
cancellation charges 0.01 0.04 0.03 0.08

Gain on sale of assets --- --- (0.02) ---

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

Adjusted Non-GAAP income per
common share, assuming
dilution $ 0.91 $ 0.78 $ 1.52 $ 1.46

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

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

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

(1) 2005 QTD includes transition and restructuring costs of $1.1
and $.6, respectively, primarily related to plant closures.

2005 YTD includes restructuring and transition costs of $4.6 and
$1.9, respectively, primarily related to plant closures.


AVERY DENNISON
PRELIMINARY SUPPLEMENTARY INFORMATION
(In millions)


(UNAUDITED)

Second Quarter Ended
----------------------------------------------

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

2005 2004 2005(1) 2004(2) 2005 2004
------------------ ---------------- -----------

Pressure-sensitive
Materials $805.7 $739.7 $74.9 $50.7 9.3% 6.9%
Office and Consumer
Products 300.2 287.9 49.5 40.2 16.5% 14.0%
Retail Information
Services 181.5 164.9 18.8 16.4 10.4% 9.9%
Other specialty
converting businesses 131.2 131.5 1.8 11.0 1.4% 8.4%
Corporate Expense N/A N/A (13.6) (15.5) N/A N/A
Interest Expense N/A N/A (15.8) (14.1) N/A N/A
------------------ ---------------- -----------

TOTAL $1,418.6 $1,324.0 $115.6 $88.7 8.1% 6.7%
================== ================ ===========


(1) Operating income for the second quarter of 2005 includes $3.2
of asset impairment charges, transition and restructuring costs,
of which the Pressure-sensitive Materials segment recorded $1.1,
the Office and Consumer Products segment recorded $1.4 and Other
specialty converting businesses recorded $.7.

(2) Operating income for the second quarter of 2004 includes
restructuring costs, asset impairment and lease cancellation
charges of $13.8, of which the Pressure-sensitive Materials
segment recorded $13, 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

Second Quarter Ended
---------------------------
OPERATING INCOME OPERATING
MARGINS
--------------- -----------

2005 2004 2005 2004
---------------- -----------
Pressure-sensitive Materials
----------------------------
Operating income, as reported $74.9 $50.7 9.3% 6.9%
Non-GAAP adjustments:
Restructuring costs 0.4 6.9 --- 0.9%
Asset impairment and
lease cancellation charges 0.7 6.1 0.1% 0.8%
---------------- -----------

Adjusted non-GAAP
operating income $76.0 $63.7 9.4% 8.6%
================ ===========

Office and Consumer Products
----------------------------
Operating income, as reported $49.5 $40.2 16.5% 14.0%
Non-GAAP adjustments:
Restructuring and
transition costs (1) 1.4 0.5 0.5% 0.1%
---------------- -----------

Adjusted non-GAAP
operating income $50.9 $40.7 17.0% 14.1%
================ ===========

Retail Information Services
---------------------------
Operating income, as reported $18.8 $16.4 10.4% 9.9%
Non-GAAP adjustments:
Restructuring costs --- 0.3 --- 0.2%
---------------- -----------

Adjusted non-GAAP
operating income $18.8 $16.7 10.4% 10.1%
================ ===========

Other specialty converting businesses
-------------------------------------
Operating income, as reported $1.8 $11.0 1.4% 8.4%
Non-GAAP adjustments:
Asset impairment charges 0.7 --- 0.5% ---
---------------- -----------

Adjusted non-GAAP
operating income $2.5 $11.0 1.9% 8.4%
================ ===========

(1) For 2005, amount includes transition and restructuring costs
of $1.1 and $.3, respectively, related to plant closures.


AVERY DENNISON
PRELIMINARY SUPPLEMENTARY INFORMATION
(In millions)


(UNAUDITED)

Six Months Year-to-Date
------------------------------------------------

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

2005 2004 2005(1) 2004(2) 2005 2004
------------------ ---------------- ------------

Pressure-sensitive
Materials $1,594.6 $1,468.0 $144.5 $88.4 9.1% 6.0%
Office and Consumer
Products 558.9 541.0 77.2 77.4 13.8% 14.3%
Retail Information
Services 338.9 303.1 24.6 25.4 7.3% 8.4%
Other specialty
converting
businesses 272.5 258.6 5.5 24.1 2.0% 9.3%
Corporate Expense N/A N/A (27.9) (25.1) N/A N/A
Interest Expense N/A N/A (30.3) (29.0) N/A N/A
------------------ ---------------- ------------

TOTAL $2,764.9 $2,570.7 $193.6 $161.2 7.0% 6.3%
================== ================ ============


(1) Operating income for 2005 includes $10.7 of restructuring
costs, asset impairment charges and transition costs, partially
offset by gain on sale of assets of $(3.4), of which the
Pressure-sensitive Materials segment recorded $.4, the Office and
Consumer Products segment recorded $6.2 and Other specialty
converting businesses recorded $.7.

(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

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

2005 2004 2005 2004
---------------- ------------
Pressure-sensitive Materials
----------------------------
Operating income, as reported $144.5 $88.4 9.1% 6.0%
Non-GAAP adjustments:
Restructuring costs 0.4 22.8 --- 1.6%
Asset impairment and
lease cancellation charges 3.4 11.6 0.2% 0.8%
Gain on sale of assets (3.4) --- (0.2%) ---
---------------- ------------

Adjusted non-GAAP
operating income $144.9 $122.8 9.1% 8.4%
================ ============

Office and Consumer Products
----------------------------
Operating income, as reported $77.2 $77.4 13.8% 14.3%
Non-GAAP adjustments:
Restructuring and
transition costs (1) 6.2 0.5 1.1% 0.1%
---------------- ------------

Adjusted non-GAAP
operating income $83.4 $77.9 14.9% 14.4%
================ ============

Retail Information Services
---------------------------
Operating income, as reported $24.6 $25.4 7.3% 8.4%
Non-GAAP adjustments:
Restructuring costs --- 0.3 --- 0.1%
---------------- ------------

Adjusted non-GAAP
operating income $24.6 $25.7 7.3% 8.5%
================ ============

Other specialty converting businesses
-------------------------------------
Operating income, as reported $5.5 $24.1 2.0% 9.3%
Non-GAAP adjustments:
Asset impairment charges 0.7 --- 0.3% ---
---------------- ------------

Adjusted non-GAAP
operating income $6.2 $24.1 2.3% 9.3%
================ ============

(1) For 2005, amount includes restructuring and transition costs
of $4.3 and $1.9, respectively, related to plant closures.


AVERY DENNISON PRELIMINARY
CONDENSED CONSOLIDATED BALANCE SHEET
(In millions)


(UNAUDITED)

ASSETS July 02, June 26,
2005 2004
---------------------------------------------------------------------

Current assets:
Cash and cash equivalents $ 31.0 $ 28.0
Trade accounts receivable, net 899.6 868.3
Inventories, net 473.4 452.7
Other current assets 132.1 142.7

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

Total current assets 1,536.1 1,491.7

Property, plant and equipment, net 1,309.5 1,274.2
Goodwill 725.7 709.4
Intangibles resulting from business
acquisitions, net 134.9 143.4
Other assets 564.8 513.0

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

$4,271.0 $4,131.7

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


LIABILITIES AND SHAREHOLDERS' EQUITY

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

Current liabilities:
Short-term and current portion of
long-term debt $ 182.4 $ 445.0
Accounts payable 616.1 578.5
Other current liabilities 506.2 503.9

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

Total current
liabilities 1,304.7 1,527.4

Long-term debt 976.6 813.5
Other long-term liabilities 438.5 413.2
Shareholders' equity:
Common stock 124.1 124.1
Capital in excess of par value 697.4 802.4
Retained earnings 1,950.8 1,811.9
Accumulated other comprehensive loss (74.9) (83.4)
Cost of unallocated ESOP shares (9.7) (11.6)
Employee stock benefit trusts (539.2) (668.6)
Treasury stock at cost (597.3) (597.2)

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

Total shareholders' equity 1,551.2 1,377.6

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

$4,271.0 $4,131.7

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

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


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

(UNAUDITED)

Six Months Ended
------------------------
July 02, June 26,
2005 2004

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

Operating Activities:

Net income $ 147.1 $ 121.1

Adjustments to reconcile net income to net
cash provided by operating activities:

Depreciation 77.1 73.4

Amortization 23.1 19.2

Deferred taxes (1.2) 10.2

Asset impairment and net (gain) loss on
sale of assets 2.5 11.4
Other non-cash items, net (4.6) (3.3)
------- -------

244.0 232.0

Changes in assets and liabilities (155.9) (51.7)
------- -------

Net cash provided by operating
activities 88.1 180.3
------- -------

Investing Activities:

Purchase of property, plant and
equipment (76.8) (77.2)

Purchase of software and other assets (10.0) (8.8)

Payments for acquisitions (0.6) (2.3)

Proceeds from sale of assets 16.5 5.8

Other 4.1 (4.8)
------- -------

Net cash used in investing activities (66.8) (87.3)
------- -------

Financing Activities:

Net increase in borrowings (maturities of
90 days or less) 55.2 68.7

Additional borrowings (maturities longer
than 90 days) 76.2 151.0

Payments of debt (maturities longer than
90 days) (134.2) (254.0)

Dividends paid (83.9) (81.7)

Purchase of treasury stock --- (0.4)

Proceeds from exercise of stock options, net 3.1 14.0

Other 8.4 7.8
------- -------


Net cash used in financing activities (75.2) (94.6)
------- -------


Effect of foreign currency translation on
cash balances 0.1 0.1
------- -------

Decrease in cash and cash equivalents (53.8) (1.5)
------- -------

Cash and cash equivalents, beginning of
period 84.8 29.5
------- -------

Cash and cash equivalents, end of period $ 31.0 $ 28.0
======= =======

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