Management's Discussion and Analysis of Financial Condition and Results of
Operations, or MD&A, provides management's views on our financial condition and
results of operations and should be read in conjunction with the accompanying
unaudited Condensed Consolidated Financial Statements and related notes.

NON-GAAP FINANCIAL MEASURES



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 the presentation of our
financial results prepared in accordance with GAAP. Based on feedback from
investors and financial analysts, we believe that the supplemental non-GAAP
financial measures we provide are useful to their assessments of our performance
and operating trends, as well as liquidity.

Our non-GAAP financial measures exclude the impact of certain events, activities
or strategic decisions. The accounting effects of these events, activities or
decisions, which are included in the GAAP financial measures, may make it more
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, outcomes of certain legal proceedings, 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, gains or losses on venture investments 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 quarters and year-to-date periods, as applicable.

We use the non-GAAP financial measures described below in this MD&A.



•Sales change ex. currency refers to the increase or decrease in net sales,
excluding the estimated impact of foreign currency translation and the
reclassification of sales between segments, and, where applicable, an extra week
in our fiscal year and the calendar shift resulting from the extra week in the
prior fiscal year, and currency adjustment for transitional reporting of highly
inflationary economies. 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 acquisitions and product line divestitures.

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.



•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, certain acquisition-related transaction
costs. 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.
•Operational working capital as a percentage of annualized current quarter net
sales refers to trade accounts receivable and inventories, net of accounts
payable, and excludes cash and cash equivalents, short-term borrowings, deferred
taxes, other current assets and other current liabilities, as well as net
current assets or liabilities held-for-sale divided by annualized current
quarter net sales. We believe that operational working capital as a percentage
of annualized current quarter net sales assists investors in assessing our
working capital requirements because it excludes the impact of fluctuations
attributable to our financing and other activities (which affect cash and cash
equivalents, deferred taxes, other current assets and other current liabilities)
that tend to be disparate in amount, frequency or timing, and may increase the
volatility of working capital as a percentage of sales from period to period.
The items excluded from this measure are not significantly influenced by our
day-to-day activities managed at the operating level and do not necessarily
reflect the underlying trends in our operations.

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                                                      Avery Dennison Corporation

OVERVIEW AND OUTLOOK

Net Sales

The factors impacting the reported net sales change, as compared to the prior-year period, are shown in the table below.



                                                                 Three Months Ended           Six Months Ended
                                                                       July 2, 2022               July 2, 2022
Reported net sales change                                                     12  %                      13  %
Foreign currency translation                                                   5                          4
Sales change ex. currency(1)                                                  17                         17
Acquisitions                                                                  (5)                        (5)
Organic sales change(1)                                                       11  %                      12  %

(1) Totals may not sum due to rounding

In the three and six months ended July 2, 2022, net sales increased on an organic basis compared to the same period in the prior year due to pricing actions.

Net Income

Net income increased from approximately $393 million in the first six months of 2021 to approximately $413 million in the first six months of 2022. Major factors affecting the change in net income included the following:



•Net benefit of pricing, freight and raw material costs
•Higher income from business acquisitions, net of associated amortization of
other intangibles
•Higher organic volume/mix

Offsetting factors:
•Unfavorable foreign currency translation
•Growth investments
•Higher employee-related costs
•Higher tax provision

Acquisitions



During January 2022, we completed our acquisitions of TexTrace AG ("TexTrace"),
a Switzerland-based technology developer specializing in custom-made woven and
knitted radio-frequency identification ("RFID") products that can be sewn onto
or inserted into garments, and Rietveld Serigrafie B.V. and Rietveld
Screenprinting Serigrafi Baski Matbaa Tekstil Ithalat Ihracat Sanayi ve Ticaret
Limited Sirketi (collectively, "Rietveld"), a Netherlands-based provider of
external embellishment solutions and application and printing methods for
performance brands and team sports in Europe. These acquisitions expand the
product portfolio in our Retail Branding and Information Solutions ("RBIS")
reportable segment.

The acquisitions of TexTrace and Rietveld are referred to collectively as the "2022 Acquisitions."



The aggregate purchase consideration for the 2022 Acquisitions was approximately
$35 million. We funded the 2022 Acquisitions using cash and commercial paper
borrowings. In addition to the cash paid at closing, the sellers in one of these
acquisitions are eligible for earn-out payments of up to $30 million, subject to
the acquired company achieving certain post-acquisition performance targets. As
of the acquisition date, we include an estimate of the fair value of these
earn-out payments in the aggregate purchase consideration.

The 2022 Acquisitions were not material, individually or in the aggregate, to the unaudited Condensed Consolidated Financial Statements.

Refer to Note 2, "Acquisitions," to the unaudited Condensed Consolidated Financial Statements for more information.

Cost Reduction Actions



2019/2020 Actions
During the six months ended July 2, 2022, we recorded $4 million in
restructuring charges related to our 2019/2020 actions. These charges consisted
of severance and related costs for the reduction of approximately 220 positions
at numerous locations across our company. These actions, which were primarily
taken in our RBIS reportable segment, largely related to global headcount and
footprint reductions. Accruals for severance and related costs, as well as lease
cancellation costs, were not material as of July 2, 2022.

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