Avery Dennison : Credit Suisse Basic Materials Presentation -- September 2020

Credit Suisse Basic Materials Conference

Greg Lovins, SVP & Chief Financial Officer

September 16, 2020

Forward-Looking Statements

Certain statements contained in this document are "forward-looking statements" intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements, and financial or other business targets, are subject to certain risks and uncertainties. We believe that the most significant risk factors that could affect our financial performance in the near-term include: (1) the impacts to our business from global economic conditions, political uncertainty, and changes in governmental regulations, including as a result of the coronavirus/COVID-19 pandemic; (2) competitors' actions, including pricing, expansion in key markets, and product offerings; (3) the degree to which higher costs can be offset with productivity measures and/or passed on to customers through price increases, without a significant loss of volume; and (4) the execution and integration of acquisitions.

Actual results and trends may differ materially from historical or anticipated results depending on a variety of factors, including but are not limited to, risks and uncertainties relating to the following: the coronavirus/COVID-19 pandemic; fluctuations in demand affecting sales to customers; worldwide and local economic and market conditions; changes in political conditions; fluctuations in foreign currency exchange rates and other risks associated with foreign operations, including in emerging markets; changes in our markets due to competitive conditions, technological developments, laws and regulations, and customer preferences; fluctuations in the cost and availability of raw materials and energy; changes in governmental laws and regulations; the impact of competitive products and pricing; the financial condition and inventory strategies of customers; our ability to generate sustained productivity improvement; our ability to achieve and sustain targeted cost reductions; loss of significant contracts or customers; collection of receivables from customers; selling prices; business mix shift; execution and integration of acquisitions; product and service quality; timely development and market acceptance of new products, including sustainable or sustainably-sourced products; investment in development activities and new production facilities; amounts of future dividends and share repurchases; customer and supplier concentrations or consolidations; fluctuations in interest and tax rates; changes in tax laws and regulations, and uncertainties associated with interpretations of such laws and regulations; retention of tax incentives; outcome of tax audits; successful implementation of new manufacturing technologies and installation of manufacturing equipment; disruptions in information technology systems, including cyber-attacks or other intrusions to network security; successful installation of new or upgraded information technology systems; data security breaches; volatility of financial markets; impairment of capitalized assets, including goodwill and other intangibles; credit risks; our ability to obtain adequate financing arrangements and maintain access to capital; the realization of deferred tax assets; fluctuations in interest rates; compliance with our debt covenants; fluctuations in pension, insurance, and employee benefit costs; goodwill impairment; the impact of legal and regulatory proceedings, including with respect to environmental, health and safety, anti-corruption and trade compliance; protection and infringement of intellectual property; the impact of epidemiological events on the economy and our customers and suppliers; acts of war, terrorism, and natural disasters; and other factors.

For a more detailed discussion of the more significant of these factors, see "Risk Factors" and "Management's Discussion and Analysis of Results of Operations and Financial Condition" in our 2019 Form 10-K, filed with the Securities and Exchange Commission on February 26, 2020, and subsequent quarterly reports on Form 10-Q.

The forward-looking statements included in this document are made only as of the date of this document, and we undertake no obligation to update these statements to reflect subsequent events or circumstances, other than as may be required by law.

Use of Non-GAAP Financial Measures

This presentation contains certain non-GAAP financial measures as defined by SEC rules. We report our financial results in conformity with accounting principles generally accepted in the United States of America, or GAAP, and also communicate with investors using certain non-GAAP financial measures. These non-GAAP financial measures are not in accordance with, nor are they a substitute for or superior to, the comparable GAAP financial measures. These non-GAAP financial measures are intended to supplement presentation of our financial results that are prepared in accordance with GAAP. Based upon feedback from investors and financial analysts, we believe that the supplemental non-GAAP financial measures we provide are useful to their assessment of our performance and operating trends, as well as liquidity. In accordance with Regulation G, reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures, including limitations associated with these non-GAAP financial measures, are provided in Appendix C of this document.

• Credit Suisse Basic Materials Conference September 16, 2020

OVERVIEW

Creating superior long-term value

• #1 player in primary businesses, leveraging strong competitive advantages in large, growing, diverse end markets
• Catalysts for consistent GDP+ growth with top-quartile returns
• Successfully executing key strategies:
• • Driving outsized growth in high value categories
  • Growing profitably in our base business
  • Attaining 2025 sustainability goals
• Relentless focus on innovation, productivity, and highly disciplined capital allocation… driving consistent progress toward achievement of long-term goals

• Credit Suisse Basic Materials Conference September 16, 2020

OVERVIEW

Key takeaways for the short-term

• Safety and well-being of employees remains our top priority during continuing global health crisis
• Q3 sales to-date (as of Sept 11) trending better than expected, with solid sequential improvement across all segments and most regions (see Appendix, Slide 24)
• • Businesses are resilient across economic cycles
• Executing well against cost saving plans, both structural and temporary
• • Now targeting $60 mil. to $70 mil. of net restructuring savings + ~$150 mil. of temporary savings in 2020
• Strong balance sheet (net debt to adj. EBITDA ratio of 2.1) and ample liquidity
• Free cash flow strong across wide range of scenarios… targeting ~$500 mil. for 2020
• Strategic priorities are unchanged; ringfencing key investments in high value categories, including RFID, while driving long-term profitable growth in the base

• Credit Suisse Basic Materials Conference September 16, 2020

Avery Dennison at a glance

• Recognized industry leader
• • More than 30,000 employees
  • Operations in more than 50 countries
  • Manufacturer of pressure-sensitive adhesive materials for diverse end markets, as well as converted products (tickets, tags and labels) for retail apparel and other end markets
• Sustainable competitive advantages
• • Global scale; 180+ operating locations
  • Materials science capabilities focused on pressure-sensitive adhesives
  • Innovative process technology
  • Operational and commercial excellence

Sales by Segment(1)

LGM

and Graphic

RBIS

Branding and

Solutions

IHM

and Materials

Net Sales

1 billion

1. Pie chart based on FY 2019 net sales

• Credit Suisse Basic Materials Conference September 16, 2020

Catalysts for consistent GDP+ top line growth

Portfolio Shift (% of total sales(1))

20102019

	High Value		•	Secular trends drive GDP+ growth
	Categories		•	Tapes, RFID, Graphics,
	~$2.7B			Specialty Labels

Emerging

Markets

~$2.3B(2)

• Further penetration of self-adhesive label technology
• Increased per capita consumption

~60% of total sales tied to one or both of these two categories

1. Constant currency
2. Approximately one-third of emerging market sales are in high value categories, which are included in the ~$2.7B above.

• Credit Suisse Basic Materials Conference September 16, 2020

INTELLIGENT LABELS

RFID adoption driving significant growth

(1) Source: IDTechEx

• $500+ mil. revenue platform incl. Smartrac, targeted to grow 15-20%, adding ~1 point to annual Company growth
• Significant investment to sustain leading position in rapidly growing market
• • Ongoing capex and operating expense investment to support organic growth
  • Acquisition of Smartrac inlay division
  • Equity investments in Wiliot and PragmatIC
• Apparel is leading market for UHF RFID today
• • Key enabler for omni-channel retailing
  • AVY has >50% share in this segment
• Promising early stage developments outside apparel
• • Multiple end markets, including food, beauty, aviation, logistics
  • Channel access through LGM converters

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Strong track record of delivering against long-term financial targets

	2017 - 2021	2017 - 2019
	TARGETS	RESULTS
Sales Growth	4%+ Organic(1)	3.9% Organic(3)
5%+ Ex. Currency(1,2)	5.7% Ex. Currency(3)
Operating Margin	11%+ in 2021	10.9% in 2019
Adj(4): 11.7% in 2019
Adjusted EPS Growth	10%+(1)	18.0%(3)
Return on Total Capital (ROTC)	17%+ in 2021	11.9% in 2019
Adj(5): 19.6% in 2019
Net Debt to Adjusted EBITDA	2.3x to 2.6x(6)	1.7x at Y/E 2019

• First committed externally to long-term targets in 2012
• Targets designed to deliver above-average cumulative EVA growth vs. capital market peers and superior TSR
• Substantially met or exceeded all long-term goals for last two cycles (2012-2015and 2014-2018)

1. Reflects five-year compound annual growth rate, with 2016 as the base period
2. Impact of closed acquisitions as of 3/8/2017 is approximately 1 point of growth
3. Reflects three-year compound annual growth rate, with 2016 as the base period
4. Excluding restructuring charges and other items
5. Excluding impact of U.S. pension plan termination
6. Reflects adjustment of target (from a range of 1.7x to 2.0x) in July 2018, following decision to fully fund and terminate our U.S. pension plan. See Form 8-K filed July 11, 2018.

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Disciplined approach to capital allocation

• Credit Suisse Basic Materials Conference September 16, 2020

Progress vs. Long-Term Sustainability Targets

In 2015, we set out to reach eight sustainability goals by 2025 and we have since made steady progress toward nearly all of them. Here are some highlights:

2025 Goals

We will reduce absolute greenhouse gas emissions by 3% year-over-year, with at least a 26% reduction compared to our 2015 baseline.

We will source 100% certified paper, of which at least 70% will be Forest Stewardship Council® (FSC)-certified.

Our operations will be 95% landfill-free, with 75% of our waste repurposed.

We will maintain world class safety and engagement scores.

We will cultivate a diverse workforce with 40% of leadership positions filled by women.

2019 Progress

As of September 30, 2019, we reduced emissions by more than 30% against our baseline.

Over 88% of our paper is certified. Close to 79% of our face paper is FSC-certified.

As of November 2019, 94% of waste from our operations was diverted from landfills and we recycled 65% of our waste.

We achieved a world-class Recordable Incident Rate of 0.23. We achieved a first-rate82% employee engagement score.

34% of our manager level and above positions were filled by women, up from 27% in 2015.

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Creating Value For All Our Stakeholders (annual update)

Customers

Employees

Community

Shareholders

• Deliver industry leading

• Engage and develop our people

• Reduce greenhouse gas emissions

• Deliver superior total

service, quality, and

• Maintain a safe working

• Responsibly source paper, films,

shareholder return

innovation

environment

and chemicals

• Strong corporate

• Eliminate waste

governance

1

2

Q1-17

96.7%

82%

Q1-18

Q1-19

96%

96%

81%

81%

93%

91.9%

91.4%

1. Measure of stock delivery flexibility for Label and Packaging Materials.
2. Energy Intensity measured in megawatt hours per million square meters produced in the Material businesses. Customer Service Flexibility and Energy Intensity 2019 figures are year to date.

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Appendix A:

Segment Overview

Materials Conference September 16, 2020

Broad exposure to diverse end markets, with ~60% tied to non-durable consumer goods, logistics & shipping, and medical products

2019 Sales by Product Category

-durable consumer goods

Apparel

Industrial / Durable

Logistics, Shipping, & Variable Information

Medical / Healthcare

Non-durable Consumer Goods

Vast majority of these sales tied to labeling of food, beverage, and home and personal care (HPC) products.

Growth catalysts: Emerging markets (increased use of packaged goods with rising middle class) and labeling technology shifts to pressure-sensitive

Logistics, Shipping & Other Variable Information Growth catalysts: Increase in e-commerce benefits our businesses serving variable information needs, including non-apparel RFID

Retail Apparel "Discretionary staple". Growth catalyst: expansion of omni-channel retailing

Industrial / Durable

Cyclical.

Growth catalyst: shift from mechanical to adhesive-based fastening

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Diversified geographic exposure

2019 Sales by Manufacturing Location		2019 Sales by End Market, estimated

U.S.

Western Europe

China

Other Asia (ex-China)

E. Europe & MENA

Latin America

Other(1)

1. Other includes Canada, South Africa, Australia, and New Zealand

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LGM at a glance

2019 Financial Snapshot

Sales	$4.7 bil.
Organic Sales Change	1.2%
Adjusted Operating Margin	13.3%

High Value Categories

~37%

Emerging

Markets

~39%

Sales by Product

Base Label Specialty / Durables

Graphics

Reflectives

Sales by Geography

.S.

Western Europe

Asia Pacific

Latin America

. Europe & MENA

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LGM delivers growth and high returns

• Leader in growing self-adhesive labels industry (~2.5X next largest competitor)
• Clear and sustainable competitive advantages
• • Global scale, materials science, and process technology
  • Operational and commercial excellence
  • • Superior end-user and application insights
    • Leader in customer service, responsiveness and technical support
• Catalysts for growth above GDP and the industry
• • Industry leading innovations driving decoration transfer and sustainability
  • Unparalleled presence in emerging markets
  • Leveraging strengths to win in high value product categories
  • Disciplined approach to profitable growth in base business
• Relentless focus on productivity and capital efficiency

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IHM at a glance

2019 Financial Snapshot

Sales	$674 mil.
Organic Sales Change	0.4%
Adjusted Operating Margin	10.3%

Sales by Product

Automotive

Other Industrial

Healthcare

Retail

Sales by Geography

U.S.

Europe

Asia Pacific

Latin America

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IHM positioned for superior long-term value creation

• Application-based,specified functional materials businesses serving common markets
• Share gain opportunity in large, attractive markets
• • Favorable secular trends drive GDP+ growth
  • Custom engineered solutions support higher margins and strong customer retention rate
• Strong core capabilities; leveraging LGM's manufacturing/R&D strengths
• Compelling opportunity to invest and acquire; expanding scale/capabilities

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RBIS at a glance

2019 Financial Snapshot

Sales	$1.7 bil.
Organic Sales Change	5.1%
Adjusted Operating Margin	12.5%

Sales by Product

Apparel Tags & Labels

RFID

Ext. Embellishments

PSD (ex. RFID)

Sales by Geography markets, estimated)

U.S.

Europe

Asia Pacific

Others

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RBIS has delivered on promise

• Leading global player in branding and information solutions for apparel
• Attractive growth catalysts in RFID and external embellishments
• Base apparel business positioned for sustained profitable growth over the long-term
• • Dramatically improved delivery cycle times; flexibility now a competitive advantage
  • Significant reductions to fixed cost structure enhanced margin and competitiveness
  • Continued focus on cost reduction through productivity initiatives and localized material sourcing
  • Core volume growth ahead of apparel unit imports, as new business model has resonated with customers

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RFID - Industry benefits and RBIS competitive advantages

Apparel Supply Chain

In-Store + Web/Mobile

PROCESS

RFID BENEFITS

• Reduced errors, cost, losses
• Seamless integration into existing trim
• 80% improvement on ship/pack accuracy

• 99+% inventory accuracy (vs. ~65% without RFID)
• 60-80%reduction in out-of-stock items
• 2-12%overall sales lift, 10% shrink reduction
• Enables omni-channel retail and Internet of Things

COMPETITIVE ADVANTAGES

			• Proven five-step adoption process
•	1700+ RFID patents
• Global service bureaus, world-class quality		•	Most experienced market development team
•	In-plant capabilities for speed advantage		•	Global PMO, piloting, advance ROI model

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Appendix B:

Second Quarter Review

Monthly Sales Trends

COVID Update

2020 Outlook

Materials Conference September 16, 2020

Second Quarter Review

Reported EPS of $0.95; adj. EPS (non-GAAP) of $1.27, above our expectations in April

• Reported sales declined 14.9%
• • Sales change ex. currency (non-GAAP) of (12.0%)
  • Organic sales change (non-GAAP) of (13.7%)
  • Solid sequential improvement through the quarter overall, driven by RBIS and Graphics
• Reported operating margin down 350 bps to 8.1%
• • Adj. EBITDA margin (non-GAAP) down 60 bps to 14.0%
  • Adj. operating margin (non-GAAP) down 140 bps to 10.7%
• YTD free cash flow of $109 mil.

LGM expanded adj. operating margin by 100 bps despite top line challenge; sales down 5% organically, reflecting combined Graphics and Reflective Solutions decline of ~30%

RBIS sales down 36% organically due to closure of retail stores and apparel manufacturing hubs; modestly positive adj. operating income, as expected, as relatively high variable margin was partially offset by aggressive cost management

IHM sales down 21% organically on reduced industrial demand, most notably in automotive

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Monthly Sales Trends (comparison to prior year; unaudited)

			Organic Growth
	March	April	May	June	July	Aug
LGM	5%	(4%)	(2%)	(8%)	(6%)	(1%)
LPM	7%	7%	2%	(6%)	(5%)	0%
Graphics & Reflective	(8%)	(55%)	(26%)	(16%)	(10%)	(8%)
RBIS*	2%	(54%)	(38%)	(17%)	(5%)	(5%)
IHM	(6%)	(17%)	(25%)	(21%)	(15%)	(5%)
Total Company	3%	(17%)	(13%)	(11%)	(7%)	(2%)
Total Company, Ex Curr Growth	5%	(16%)	(11%)	(10%)	(4%)	0%

* Enterprise RFID sales up more than 20% on an organic basis in Q3 through Sep 11, and up over 70% including Smartrac acquisition.

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Operations / Market Update in Light of COVID-19(updated July 27, 2020)

Label and Graphic Materials (LGM)	Retail Branding and Info. Solutions (RBIS)	Industrial and Healthcare Materials (IHM)
67% of 2019 sales	23% of 2019 sales	10% of 2019 sales
● Most plants operational throughout crisis, with	● Government-mandated closures continued to	● All plants now operational, some with limited
exception of sites in India, which are now up	impact operations in many countries during April	production
and running	and first few weeks of May; all sites now	● Demand for industrial categories (~60% of IHM
	operational
● LPM volume surge in NA/EU mid-March through	○ Our global footprint providing significant	sales in 2019) weakened further during Q2
April, driven by food, hygiene, and	competitive advantage during pandemic; key	reflecting global decline in industrial production
pharmaceutical product labeling, as well as	to meeting retailer/brand owner needs as	(though timing for our business impacted by
variable information (e.g., e-commerce labels),	they ramp back up (Smartrac acquisition	customers building some inventory in early
followed by slowdown in June. Portion of	further strengthening our advantage)	stages of pandemic due to supply chain
volume surge and subsequent slowdown due to		uncertainty)
inventory build/destocking throughout supply	● Sharp decline in demand from apparel retailers	● Medical division (~15% of IHM sales in 2019),
chain	and brands, reflecting widespread closure of
● Though China demand for label materials	malls and other retail outlets	historically focused on advanced wound care,
	has commercialized new personal protective
improved following decline in Jan/Feb, balance	● Enterprise-wide sales of RFID products up over	equipment (PPE) solutions to address urgent
of emerging markets deteriorated as lockdowns	10% ex. currency in Q2 with benefit of Smartrac	need
spread across the globe and continued through	acquisition; down 20% organically, as increased
much of Q2, with India particularly hard hit early	penetration of market was more than offset by
in the quarter	decline in existing programs tied to apparel
● Sharp decline in demand for Graphics &	○ Project pipeline continues to expand
(engagements up >35% since start of year)
Reflective Solutions and material for durable	○ Current environment underscoring value of
label applications (e.g., consumer appliances,	RFID as key technology to improve supply
tires, etc.) beginning in March; sequential	chains and support customer automation over
improvement monthly since April	the long-term

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Agile teams effectively managing

through crisis (updated July 27, 2020)

Supporting

Our

Communities

• Shifted resources to produce PPE and handsanitizer to donate to local communities
• Avery Dennison Foundation increasing grantsto provide employee assistance andrapid community response

Ensuring

Safety and

Well-being of

Our Team

• Continue to adapt safety protocols based on new information; focus has shifted to ensuring safe "back to work" environment
• During initial weeks of facility closures, company ensured that employees continued to receive full pay
• Extended salary continuation in jurisdictions with weaker social safety nets

Mitigating

Supply Chain

Risk

• Partnered with suppliers (and customers) to keep supply chains open (essential business)
• Negligible disruptions to supply chain throughout pandemic
• Global footprint with dual sourcing or available alternatives for most commodities
• Selective strategic inventory build

	● Adapted quickly to manage peak demand in
Meeting	label materials, as well as to address migration
of lockdowns impacting RBIS customers
Customer	● Leveraged operational excellence to maximize
production capacity in label materials
Needs	● Successfully executing large new RFID rollouts
	● Developed N95 masks which are being rapidly
	commercialized

	● Curtailed capital spending plans by ~$55 mil.;
Enabling		heightened focus on working capital
	management
Financial	● Initial $500 mil. drawdown of revolver in Q1 to
	mitigate dependence on CP markets (repaid in
Flexibility		Q2 as CP markets stabilized)
	●	Maintaining dividend rate
	● Temporary pause on share repurchases

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Our businesses are resilient through economic cycles

Organic growth trends* during 2009/2010

* Externally reported organic growth by segment during this period has been adjusted to reflect divestitures and transfers between segments.

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Key Cost Saving Initiatives (updated July 27, 2020)

• Continuing to execute long-term, strategic restructuring plans, reflecting our relentless focus on productivity
• Temporary sources of cost savings to weather the downturn:
• • Short-termbelt-tightening actions (travel reduction, no trade shows, etc.)
  • Actions focused on businesses experiencing significant decline in demand:
  • • Temporary production shutdowns
    • Overtime / temp reductions
    • Shift reductions / furloughs, including payroll costs covered by government incentives outside the
      US
    • Salary increase delay / headcount freeze
  • Incentive compensation

Anticipate savings from restructuring actions, net of transition costs, of $60 mil. to $70 mil.... carryover savings

of ~$70 mil. anticipated for 2021 (up ~$10 mil. since April outlook for both 2020 and 2021)

Targeting net temporary savings vs. 2019 of ~$150 mil. in 2020, the vast majority of which would be expected to be a headwind as markets recover; over half of FY targeted temporary savings have been realized in the first half of the year (largely in Q2)

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Strong Balance Sheet and Ample Liquidity (updated July 27, 2020)

Leverage @ 6/27/20
Total Debt Outstanding	$2.27 B
Cash and cash equivalents	$0.26 B
Net Debt	$2.00 B
Adjusted EBITDA, trailing 4 qtrs	$0.97 B
Net Debt to Adj. EBITDA (non-GAAP)	2.1 X

Debt / Liquidity Considerations

• Ample liquidity: $800 mil. available under revolving credit facility (through 2025), plus ~$260 mil. in cash and cash equivalents at quarter-end
• Laddered long-termdebt: Completed $500 mil. debt offering in March, as planned. Next maturity in 2023
• No foreseeable covenant constraints

Long-Term Debt Maturity Schedule @ 6/27/20

Wtd avg interest cost of 2.9%

* 500M Euro bond converted to USD at 1.10x + $30M medium term note

Near-term capital allocation priorities conserve cash while supporting long-term value creation goals:

• Ringfencing investments in high value categories
• Curtailed original (pre-COVID-19) 2020 capital spending plans by ~$55 mil., while heightening focus on working capital management
• Maintaining dividend rate; continued temporary pause on share repurchases in Q2

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2020 Outlook (updated July 27, 2020)

• FY sales down principally due to declining volumes and currency translation, with trough in Q2:
• • Anticipate Q3 sales decline ex. currency of 5% to 7% (organic sales decline of 7% to 9%)
  • FY currency translation headwind at recent rates of ~1.5%
• Currency translation headwind to FY operating income of ~$15 mil. at recent rates (compared to ~$28 mil. headwind in April)
• Incremental savings of $60 mil. to $70 mil. from restructuring actions, net of transition costs (up $10 mil. since April outlook). Additional net temporary savings vs. 2019 of ~$150 mil.
• Full year adjusted tax rate in the mid-twenty percent range
• Targeting free cash flow of ~$500 mil.
• • Fixed and IT capital spend of $165 mil. to $175 mil.
  • Cash impact of restructuring charges now ~$60 mil.

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Appendix C:

Use of Non-GAAP Financial Measures

Materials Conference September 16, 2020

Use of Non-GAAP Financial Measures

This presentation contains certain non-GAAP financial measures as defined by SEC rules. We report our financial results in conformity with accounting principles generally accepted in the United States of America, or GAAP, and also communicate with investors using certain non-GAAP financial measures. These non-GAAP financial measures are not in accordance with, nor are they a substitute for or superior to, the comparable GAAP financial measures. These non-GAAP financial measures are intended to supplement presentation of our financial results that are prepared in accordance with GAAP. Based upon feedback from investors and financial analysts, we believe that the supplemental non-GAAP financial measures we provide are useful to their assessment of our performance and operating trends, as well as liquidity.

Our non-GAAP financial measures exclude the impact of certain events, activities or decisions. The accounting effects of these events, activities or decisions, which are included in the GAAP financial measures, may make it difficult to assess our underlying performance in a single period. By excluding the accounting effects, positive or negative, of certain items (e.g., restructuring charges, legal settlements, certain effects of strategic transactions and related costs, losses from debt extinguishments, gains or losses from curtailment or settlement of pension obligations, gains or losses on sales of certain assets, and other items), we believe that we are providing meaningful supplemental information that facilitates an understanding of our core operating results and liquidity measures. While some of the items we exclude from GAAP financial measures recur, they tend to be disparate in amount, frequency, or timing.

We use these non-GAAP financial measures internally to evaluate trends in our underlying performance, as well as to facilitate comparison to the results of competitors for a single period.We use the following non-GAAPfinancial measures in this presentation:

• Sales change ex. currency refers to the increase or decrease in net sales excluding the estimated impact of foreign currency translation, and, where applicable, currency adjustment for transitional reporting of highly inflationary economies (Argentina) and reclassification of sales between segments. The estimated impact of foreign currency translation is calculated on a constant currency basis, with prior period results translated at current period average exchange rates to exclude the effect of currency fluctuations.
• Organic sales change refers to sales change ex. currency, excluding the estimated impact of product line exits, acquisitions and divestitures, and, where applicable, the extra week in our fiscal year.

We believe that sales change ex. currency and organic sales change assist investors in evaluating the sales change from the ongoing activities of our businesses and enhance their ability to evaluate our results from period to period.

• Adjusted operating income refers to income before taxes, interest expense, other non-operating expense, and other expense, net.
• Adjusted EBITDA refers to net income before interest expense, other non-operating expense, taxes, equity method investment losses, other expense, net, and depreciation and amortization.
• Adjusted operating margin refers to adjusted operating income as a percentage of net sales.
• Adjusted EBITDA margin refers to adjusted EBITDA as a percentage of net sales.
• Adjusted tax rate refers to the projected full-year GAAP tax rate, adjusted to exclude certain unusual or infrequent events that are expected to significantly impact that rate, such as our U.S. pension plan termination, effects of certain discrete tax planning actions, impacts related to the enactment of the U.S. Tax Cuts and Jobs Act ("TCJA"), where applicable, and other items.
• Adjusted net income refers to income before taxes, tax-effected at the adjusted tax rate, and adjusted for tax-effected restructuring charges and other items.
• Adjusted net income per common share, assuming dilution (adjusted EPS) refers to adjusted net income divided by weighted average number of common shares outstanding, assuming dilution.

We believe that adjusted operating margin, adjusted EBITDA margin, adjusted net income, and adjusted EPS assist investors in understanding our core operating trends and comparing our results with those of our competitors.

• Net debt to adjusted EBITDA ratio refers to total debt (including finance leases) less cash and cash equivalents, divided by adjusted EBITDA. We believe that the net debt to adjusted EBITDA ratio assists investors in assessing our leverage position.
• Return on total capital (ROTC) refers to income from continuing operations excluding the expense and tax benefit of debt financing divided by the average of beginning and ending invested capital. Adjusted ROTC refers to ROTC adjusted for the impact of the TCJA and pension plan settlements. We believe that ROTC and adjusted ROTC assist investors in understanding our ability to generate returns from our capital.
• Free cash flow refers to cash flow provided by operating activities, less payments for property, plant and equipment, software and other deferred charges, plus proceeds from sales of property, plant and equipment, plus (minus) net proceeds from insurance and sales (purchases) of investments. Free cash flow is also adjusted for, where applicable, the cash contributions related to the termination of our U.S. pension plan. We believe that free cash flow assists investors by showing the amount of cash we have available for debt reductions, dividends, share repurchases, and acquisitions.

Organic Sales Change - Avery Dennison

1. Totals may not sum due to rounding.

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Organic Sales Change by Segment

1. Totals may not sum due to rounding.

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Organic Sales Change by Segment - Continued

1. Totals may not sum due to rounding.

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Oganic Sales Change By Segment, Second Quarter 2020 - Comparison to Prior Year

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Monthly Sales Trends - Comparison to Prior Year

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Monthly Sales Trends - Comparison to Prior Year - Continued

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Adjusted Net Income

The adjusted tax rate was 24.7% for the six months ended June 27, 2020 and 24.6%, 25%, and 28% for 2019, 2018, and 2017, respectively.

1. GAAP adjustments for 2015 reflect the previously disclosed impact of the third quarter of 2015 revision to certain benefit plan balances, which had an immaterial impact on the non-GAAP amounts.
2. Includes restructuring charges, Argentine peso remeasurement transition loss, other restructuring-related charge, transaction and related costs, reversal of acquisition-related contingent consideration, and gain on sales of assets, and other items.
3. Tax benefits from the deduction of the third quarter U.S. pension contributions on our 2017 U.S. income tax return.
4. In the fourth quarter of 2018, we finalized our provisional amounts as defined under SEC Staff Accounting Bulletin No. 118 related to the TCJA.

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Adjusted EPS

The adjusted tax rate was 24.7% for the six months ended June 27, 2020 and 24.6%, 25%, and 28% for 2019, 2018, and 2017, respectively.

1. GAAP adjustments for 2015 reflect the previously disclosed impact of the third quarter of 2015 revision to certain benefit plan balances, which had an immaterial impact on the non-GAAP amounts.
2. Includes restructuring charges, Argentine peso remeasurement transition loss, other restructuring-related charge, transaction and related costs, reversal of acquisition-related contingent consideration, and gain on sales of assets, and other items.
3. In the fourth quarter of 2018, we finalized our provisional amounts as defined under SEC Staff Accounting Bulletin No. 118 related to the TCJA.
4. Tax effect for full years 2015 to 2019 included in the restructuring charges and other items line above.

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Adjusted Operating Margin - Avery Dennison

(1) GAAP adjustments for 2015 reflect the previously disclosed impact of the third quarter of 2015 revision to certain benefit plan balances, which had an immaterial impact on the non-GAAP amounts.

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Adjusted Operating Margin - LGM

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Adjusted Operating Margin - RBIS

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Adjusted Operating Margin - IHM

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Return on Total Capital (ROTC)

1. "Provision for income taxes" for the fourth quarter of 2017 includes the estimated impact of TCJA enacted in the U.S. on December 22, 2017. In the fourth quarter of 2018, we finalized our provisional amounts as defined under SEC Staff Accounting Bulletin No. 118 related to TCJA.
2. Tax benefits resulting from the deduction of the third quarter 2018 pension contributions on our 2017 U.S. income tax return.
3. Interest expense, net of tax benefit for 2019, based on our GAAP tax rate of -22.7%, is not meaningful; Applying the adjusted tax rate of 24.6% removes the benefit of the negative tax rate from pension plan settlements and discrete foreign tax structuring and planning transactions.

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Free Cash Flow

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Net Debt to Adjusted EBITDA

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Thank you

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