Edgar Filing: AVERY DENNISON CORPORATION

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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the fiscal year ended December 29, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________

Commission file number 1-7685

AVERY DENNISON CORPORATION
(Exact name of registrant as specified in its charter)

Delaware 95-1492269
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

150 North Orange Grove Boulevard
Pasadena, California 91103
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (626) 304-2000

Securities registered pursuant to Section 12(b) of the Act:

Name of each
Title of Each Class exchange on which registered
------------------- ----------------------------

Common stock, $1 par value New York Stock Exchange
Pacific Exchange

Preferred Share Purchase Rights New York Stock Exchange
Pacific Exchange

Securities registered pursuant to Section 12(g) of the Act:
Not applicable.

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_].

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

The aggregate market value of voting stock held by non-affiliates as of
February 25, 2002 was approximately $6,161,846,457.

Number of shares of common stock, $1 par value, outstanding as of February
25, 2002: 109,864,032.

The following documents are incorporated by reference into the Parts of
this report below indicated:

Document Incorporated by reference into:
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Annual Report to Shareholders for fiscal year ended
December 29, 2001 (the "2001 Annual Report")...................... Parts I, II
Definitive Proxy Statement for Annual Meeting of Stockholders to
be held April 25, 2002 (the "2002 Proxy Statement")............... Parts III, IV

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PART I

Item 1. BUSINESS

Avery Dennison Corporation ("Registrant") was incorporated in 1977 in the
state of Delaware as Avery International Corporation, the successor corporation
to a California corporation of the same name which was incorporated in 1946. In
1990, Registrant merged one of its subsidiaries into Dennison Manufacturing
Company ("Dennison"), as a result of which Dennison became a wholly owned
subsidiary of Registrant, and in connection with which Registrant's name was
changed to Avery Dennison Corporation.

The business of Registrant and its subsidiaries (Registrant and its
subsidiaries are sometimes hereinafter referred to as the "Company") includes
the production of pressure-sensitive adhesives and materials and the production
of consumer and converted products. Some pressure-sensitive adhesives and
materials are "converted" into labels and other products through embossing,
printing, stamping and die-cutting, and some are sold in unconverted form as
base materials, tapes and reflective sheeting. The Company also manufactures and
sells a variety of consumer and converted products and other items not involving
pressure-sensitive components, such as notebooks, three-ring binders, organizing
systems, markers, fasteners, business forms, reflective highway safety products,
tickets, tags, and imprinting equipment.

A pressure-sensitive, or self-adhesive, material is one that adheres to a
surface by mere press-on contact. It generally consists of four elements--a face
material, which may include paper, metal foil, plastic film or fabric; an
adhesive, which may be permanent or removable; a release coating; and a backing
material to protect the adhesive against premature contact with other surfaces,
and which can also serve as the carrier for supporting and dispensing individual
labels. When the products are to be used, the release coating and protective
backing are removed, exposing the adhesive, and the label or other face material
is pressed or rolled into place.

Self-adhesive materials may initially cost more than materials using heat
or moisture activated adhesives, but the use of self-adhesive materials often
effects cost savings because of their easy and instant application, without the
need for adhesive activation. They also provide consistent and versatile
adhesion, minimum adhesive deterioration and are available in a large selection
of materials in nearly any size, shape or color.

International operations, principally in Western Europe, constitute a
significant portion of the Company's business. In addition, the Company is
currently expanding its operations in Asia Pacific, Latin America and Eastern
Europe. As of December 29, 2001, the Company manufactured and sold its products
from approximately 200 manufacturing facilities and sales offices located in 42
countries, and employed a total of approximately 17,300 persons worldwide.

On September 7, 2001, the Company announced an agreement to acquire the
Jackstadt GmbH pressure-sensitive adhesive materials business. Jackstadt is a
privately-held manufacturer of pressure-sensitive adhesive materials based in
Germany. Jackstadt, with consolidated revenues of approximately $400 million in
2000, has a global customer base and generates approximately 80 percent of its
sales outside of Germany. The transaction is subject to a number of closing
conditions, including regulatory approvals. Completion of the acquisition had
been delayed pending further review by the German Federal Cartel Office, which
has raised specific issues with respect to market definition and market share in
that country. The Company is responding to the concerns, but the timing and
ultimate outcome of the final regulatory review remain uncertain. As of year end
2001, the Company had capitalized approximately $9 million for direct costs
related to this pending acquisition. If these issues cannot be overcome, the
proposed transaction may be renegotiated or terminated, in which case some or
all of these costs may be expensed depending on the outcome of the regulatory
review.

In the fourth quarter of 2001, the Company recorded a pretax charge of
approximately $2.6 million related to the currency devaluation in Argentina.
Operations in Argentina are not significant to the Company's financial results,
and represented less than $25 million in sales in 2001. The majority of the
Company's operations in Argentina are reported in the Pressure-sensitive
Adhesives and Materials segment.

The Company wishes to take advantage of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995, and is subject to certain
risks referred to in Exhibit 99 hereto, including those normally attending
international and

domestic operations, such as changes in economic or political conditions,
currency fluctuation, exchange control regulations and the effect of
international relations and domestic affairs of foreign countries on the conduct
of business, legal proceedings, and the availability and pricing of raw
materials.

Except as set forth below, no material part of the Company's business is
dependent upon a single customer or a few customers. However, sales and related
accounts receivable of the Company's U.S. consumer products business are
concentrated in a small number of major customers, principally discount office
products superstores and distributors (see Note 4 of Notes to Consolidated
Financial Statements on page 41 of the 2001 Annual Report, which is incorporated
by reference). United States export sales are not a significant part of the
Company's business. Backlogs are not considered material in the industries in
which the Company competes.

Pressure-sensitive Adhesives and Materials Segment

The Pressure-sensitive Adhesives and Materials segment manufactures and
sells Fasson- and Avery Dennison-brand pressure-sensitive base materials,
specialty tapes, graphic films, reflective highway safety products, and
chemicals. Base materials consist primarily of papers, plastic films, metal
foils and fabrics, which are primed and coated with Company-developed and
purchased adhesives, and then laminated with specially coated backing papers and
films for protection. They are sold in roll or sheet form with either solid or
patterned adhesive coatings, and are available in a wide range of face
materials, sizes, thicknesses and adhesive properties. Except for certain
highway safety products, the business of this segment is generally not seasonal.

Base material products, which consist of a wide range of pressure-sensitive
coated papers, films and foils, are sold to label printers and converters for
labeling, decorating, fastening, electronic data processing and special
applications. Other product offerings include paper and film stock for use in a
variety of industrial, commercial and consumer applications. The Company also
manufactures and sells proprietary film face stocks.

Specialty tape products are single- and double-coated tapes and transfer
adhesives for use in non-mechanical fastening systems in various industries and
are sold to industrial and medical converters, original equipment manufacturers
and disposable-diaper producers worldwide.

Graphic products consist of a variety of films and other products sold to
the worldwide automotive, architectural, commercial sign, digital printing, and
other related markets. The Company also sells durable cast and reflective films
to the construction, automotive, fleet transportation, sign and industrial
equipment markets, and reflective films and highway safety products for traffic
and safety applications. In addition, the Company sells specialty print-
receptive films to the industrial label market, metallic dispersion products to
the packaging industry and proprietary woodgrain film laminates for housing
exteriors and automotive applications. The Company's graphics businesses are
organized on a worldwide basis to serve the expanding commercial graphic arts
market, including wide-format digital printing applications.

Chemical products include a range of solvent- and emulsion-based acrylic
polymer adhesives, top coats, protective coatings and binders for internal uses
as well as for sale to other companies.

In the first quarter of 2001, the Company acquired Dunsirn Industries,
Inc., based in Wisconsin, a leading supplier of non-adhesive materials to the
narrow web-printing industry as well as a provider of customized slitting and
distributing services for roll pressure-sensitive materials manufacturers.

In the fourth quarter of 2001, the Company sold its non-strategic specialty
coatings business (see Item 7. Management's Discussion and Analysis, Results of
Operations by Operating Segment under Pressure-sensitive Adhesives and Materials
page 9).

In this segment, the Company competes, both domestically and
internationally, with a number of medium to large firms. Entry of competitors
into the field of pressure-sensitive adhesives and materials is limited by high
capital requirements and a need for sophisticated technical know-how. The
Company believes that its ability to serve its customers with a broad product
line of quality products and the development and commercialization of new
products are among the more significant factors in developing and maintaining
its competitive position.

Consumer and Converted Products Segment

The Consumer and Converted Products segment manufactures and sells a wide
range of Avery-brand consumer products, custom label products, high performance
specialty films and labels, automotive applications and fasteners. The business
of this segment is generally not seasonal, except for certain consumer products
sold during the back-to-school season.

The Company's principal consumer products are generally sold worldwide
through wholesalers and dealers, mass market channels of distribution, and
discount superstores. The Company manufactures and sells a wide range of Avery-
brand products for home, school and office uses, including copier, laser and
ink-jet printer labels, related computer software, presentation and organizing
systems, laser-printer card and index products, data-processing labels,
notebooks, notebook and presentation dividers, three-ring binders, sheet
protectors, and various vinyl and heat-sealed products. A wide range of other
stationery products is offered, including writing instruments, markers,
adhesives and specialty products under brand names such as Avery, Stabilo,
Marks-A-Lot and HI-LITER, and accounting products, note pads and presentation
products under the National brand name. The extent of product offerings varies
by geographic market. Operations in Europe distribute a broad range of these
types of products under the Avery and Zweckform brands. Operations in Latin
America and Asia Pacific have been established to market and distribute the
Avery-brand line of stock self-adhesive products, including copier, laser and
ink-jet labels and related software, laser printed card products and other
unprinted labels.

Custom label products in North America primarily consist of custom
pressure-sensitive and heat-transfer labels for automotive and durable goods
industries and custom pressure-sensitive labels and specialty combination
products for the electronic data-processing market. These products are sold
directly to manufacturers and packagers and retailers, as well as through
international subsidiaries and distributors. Label products in Europe include
custom and stock labels, labeling machinery and data printing systems, which are
marketed to a wide range of industrial and retail users.

The Company designs, fabricates and sells a wide variety of tags and
labels, including bar-coded tags and labels, and a line of machines for
imprinting, dispensing and attaching preprinted roll tags and labels. The
machine products are generally designed for use with tags and labels as a
complete system. The Company also designs, assembles and sells labeling systems
for integration into a customer's shipping and receiving operations. Principal
markets include apparel, retail and industrial for identification, tracking and
control applications principally in North America, Europe and Asia Pacific.
Fastener products include plastic tying and attaching products for retail and
industrial users.

The Company also manufactures and sells self-adhesive battery labels to
battery manufacturers, and self-adhesive stamps to the U.S. and international
postal services. The Company is an integrated supplier of adhesive coating,
security printing and converting technologies for postage stamp production.
Specialty automotive films products are used for interior and exterior vehicle
finishes, striping decoration and identification. Other products include
pressure-sensitive sheeted and die-cut papers and films, which are sold through
distributors.

In the first quarter of 2001, the Company acquired CD Stomper, a leading
product line of CD and DVD labels, software and a label applicator, which
expands the Company's presence and distribution channels for these label
products.

In this segment, the Company competes, both domestically and
internationally, with a number of small to large firms (among the principal
competitors are Esselte AB, Fortune Brands, Inc., and Minnesota Mining and
Manufacturing Co.). The Company believes that its ability to serve its customers
with an extensive product line, its distribution strength, its ability to
develop and to commercialize new products, and its diverse technical foundation,
including a range of electronic imprinting and automatic labeling systems, are
among the more significant factors in developing and maintaining its competitive
position.

Research and Development

Many of the Company's current products are the result of its own research
and development efforts. The Company expended $69.9 million, $67.8 million and
$64.3 million, in 2001, 2000 and 1999, respectively, on research-related
activities by operating units and the Avery Research Center (the "Research
Center"), located in Pasadena, California. A substantial amount of the Company's
research and development activities are conducted at the Research Center. Much
of the effort of the Research Center applies to both of the Company's operating
segments.

The operating units' research efforts are directed primarily toward
developing new products and processing operating techniques and improving
product performance, often in close association with customers. The Research
Center supports the operating units' patent and product development work, and
focuses on research and development in new adhesives, materials and coating
processes, as well as new product applications and ventures. Research and
development generally focuses on

projects affecting more than one operating segment in such areas as printing and
coating technologies, and adhesive, release, coating and ink chemistries.

The loss of the Company's individual patents or licenses would not be
material to the business of the Company taken as a whole, nor to either one of
the Company's operating segments. The Company's principal trademarks are Avery,
Fasson and Avery Dennison. These trademarks are significant in the markets in
which the Company's products compete.

Three-Year Summary of Segment Information

The Business Segment Information and financial information by geographical
areas of the Company's operations for the three years ended December 29, 2001,
which appear in Note 11 of Notes to Consolidated Financial Statements on pages
46 and 47 of the 2001 Annual Report, are incorporated herein by reference.

Other Matters

The raw materials used by the Company are primarily paper, plastic and
chemicals, which are purchased from a variety of commercial and industrial
sources and are subject to pricing fluctuations. Although from time to time
shortages could occur, these raw materials are currently generally available.

At present, the Company produces a majority of its self-adhesive materials
using non-solvent technology. However, a significant portion of the Company's
manufacturing process for self-adhesive materials utilizes certain evaporative
organic solvents which, unless controlled, would be emitted into the atmosphere.
Emissions of these substances are regulated by agencies of federal, state, local
and foreign governments. During the past decade, the Company has made a
substantial investment in solvent capture and control units and solvent-free
systems. Installation of these units and systems have substantially reduced
atmospheric hydrocarbon emissions.

Efforts have been directed toward development of new adhesives and solvent-
free adhesive processing systems. Emulsion, hot-melt adhesives or solventless
silicone systems have been installed in the Company's facilities in Peachtree
City, Georgia; Fort Wayne and Greenfield, Indiana; Quakertown, Pennsylvania;
Rodange, Luxembourg; Turnhout, Belgium; Hazerswoude, The Netherlands;
Cramlington, England; and Gotha, Germany as well as other plants in the United
States, Argentina, Australia, Brazil, China, Colombia, France, Germany, India,
Korea, and Thailand.

Based on current information, the Company does not believe that the costs
of complying with applicable laws regulating the discharge of materials into the
environment, or otherwise relating to the protection of the environment, will
have a material effect upon the capital expenditures, earnings or competitive
position of the Company.

For information regarding the Company's potential responsibility for
cleanup costs at certain hazardous waste sites, see "Legal Proceedings" (Part I,
Item 3) and "Management's Discussion and Analysis of Results of Operations and
Financial Condition" (Part II, Item 7).

Item 2. PROPERTIES

At December 29, 2001, the Company operated approximately 34 principal
manufacturing facilities in excess of 100,000 square feet and totaling
approximately 5 million square feet. The following sets forth the locations of
such principal facilities and the operating segments for which they are
presently used:

Pressure-sensitive Adhesives and Materials Segment

Domestic--Peachtree City, Georgia; Greenfield, Fort Wayne, Lowell, and
Schererville, Indiana; Chicopee, Massachusetts (2 facilities);
Greensboro, North Carolina (2 facilities); Painesville and Fairport,
Ohio; Quakertown, Pennsylvania; and Neenah, Wisconsin.

Foreign--Turnhout, Belgium; Vinhedo, Brazil; Ajax, Canada; Kunshan, China;
Cramlington, England; Champ-sur-Drac, France; Gotha, Germany; Rodange,
Luxembourg; Rayong, Thailand; and Hazerswoude, The Netherlands.

Consumer and Converted Products Segment

Domestic--Gainesville, Georgia; Chicopee and Framingham, Massachusetts;
Meridian, Mississippi; Philadelphia, Pennsylvania; and Clinton, South
Carolina.

Foreign--Hong Kong, China; La Monnerie, France; Oberlaidern, Germany;
Juarez and Tijuana, Mexico; Utrecht, The Netherlands; and Maidenhead,
U.K.

In addition to the Company's principal manufacturing facilities described
above, the Company's other principal facilities include its corporate
headquarters facility and research center in Pasadena, California, and offices
located in Maidenhead, England; Leiden, The Netherlands; Concord, Ohio and
Framingham, Massachusetts.

All of the Company's principal properties identified above are owned in fee
except the facilities in Juarez, Mexico; and La Monnerie, France, which are
leased.

All of the buildings comprising the facilities identified above were
constructed after 1954, except parts of the Framingham, Massachusetts plant and
office complex. All buildings owned or leased are well maintained and of sound
construction, and are considered suitable and generally adequate for the
Company's present needs. The Company plans to expand capacity and provide
facilities to meet future increased demand as needed. Owned buildings and plant
equipment are insured against major losses from fire and other usual business
risks. The Company knows of no material defects in title to, or significant
encumbrances on its properties except for certain mortgage liens.

Item 3. LEGAL PROCEEDINGS

The Company, like other U.S. corporations, has periodically received
notices from the U.S. Environmental Protection Agency ("EPA") and state
environmental agencies alleging that the Company is a potentially responsible
party ("PRP") for past and future cleanup costs at hazardous waste sites. The
Company has been designated by the EPA and/or other responsible state agencies
as a PRP at nine waste disposal or waste recycling sites which are the subject
of separate investigations or proceedings concerning alleged soil and/or
groundwater contamination and for which no settlement of the Company's liability
has been agreed upon. Litigation has been initiated by a governmental authority
with respect to one of these sites, but the Company does not believe that any
such proceedings will result in the imposition of monetary sanctions. The
Company is participating with other PRPs at all such sites, and anticipates that
its share of cleanup costs will be determined pursuant to remedial agreements
entered into in the normal course of negotiations with the EPA or other
governmental authorities. The Company has accrued liabilities for all sites,
including sites in which governmental agencies have designated the Company as a
PRP, where it is probable that a loss will be incurred and the minimum cost or
amount of the loss can be reasonably estimated. However, because of the
uncertainties associated with environmental assessment and remediation
activities, future expense to remediate the currently identified sites, and
sites which could be identified in the future for cleanup, could be higher than
the liability currently accrued. Amounts currently accrued are not significant
to the consolidated financial position of the Company and, based upon current
information, management believes that it is unlikely that final resolution of
these matters will significantly impact the consolidated financial position and
operations of the Company.

The Registrant and its subsidiaries are involved in various other lawsuits,
claims and inquiries, most of which are routine to the nature of the business.
In the opinion of the Company's management, the resolution of these matters will
not materially affect the Company.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.

EXECUTIVE OFFICERS OF THE REGISTRANT/(1)/

Served as
Executive Former Positions and
Name Age Officer since Offices with Registrant
---- --- ------------------- -----------------------------------------------------------------

Philip M. Neal..................... 61 January 1974 1990-1998 President and Chief Operating Officer
Chairman and Chief
Executive Officer 1998-2000 President and Chief Executive Officer
(also Director of Registrant)

Dean A. Scarborough................ 46 August 1997 1997-1999 Group V.P., Fasson Roll North America and Europe
President and Chief
Operating Officer 1999-2000 Group V.P., Fasson Roll Worldwide
(also Director of Registrant)

Robert G. van Schoonenberg......... 55 December 1981 1997-2000 S.V.P., General Counsel and Secretary
Executive Vice President,
General Counsel and Secretary

Daniel R. O'Bryant................. 44 January 2001 1997-1999 General Manager, Business Forms Division, Fasson
Senior Vice President, Finance Roll N.A.
and Chief Financial Officer 1999-2000 V.P. and General Manager, Product Identification
Division, Fasson Roll N.A.
2000-2001 V.P. and General Manager, Fasson Roll N.A.

Diane B. Dixon..................... 50 December 1985 1997-2000 V.P., Worldwide Communications and Advertising
Senior Vice President,
Worldwide Communications
and Advertising

Robert M. Malchione/(2)/........... 44 August 2000 1997-2000 V.P., Boston Consulting Group
Senior Vice President,
Corporate Strategy and 2000-2001 S.V.P., Corporate Strategy
Technology

Karyn E. Rodriguez................. 42 June 2001 1997-1999 Director, Corporate Finance and Investments
Vice President and Treasurer
1999-2001 Assistant Treasurer, Corporate Finance

Michael A. Skovran................. 43 January 2002 1997-1998 Director, Finance, Asia Pacific Group
Vice President and Controller
1998-2001 V.P., Finance, Worldwide Office Products

Christian A. Simcic................ 45 May 2000 1997-2000 V.P. and Managing Director, Asia Pacific
Group Vice President,
Fasson Roll Worldwide

Timothy S. Clyde................... 39 February 2001 1997-1998 General Manager, Binders Office Products N.A.
Group Vice President,
Worldwide Office Products 1998-1999 General Manager, OF&P Division, Office Products
N.A.
1999-2000 V.P. and General Manager OF&P Division, Office
Products N.A.
2000-2001 V.P. and General Manager Office Products N.A.

PART II

Item 5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS

The information called for by this item appears on page 52 of Registrant's
2001 Annual Report and is incorporated herein by reference.

__________________________
/(1)/ All officers are elected to serve a one-year term and until their
successors are elected and qualify.
/(2)/ Business experience during past 5 years prior to service with
Registrant.

Item 6. SELECTED FINANCIAL DATA

Selected financial data for each of Registrant's last five fiscal years
appears on pages 22 and 23 of Registrant's 2001 Annual Report and is
incorporated herein by reference.

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION

Results of Operations

(In millions) 2001 2000 1999
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Net sales.............................................................. $3,803.3 $3,893.5 $3,768.2
Cost of products sold.................................................. 2,563.1 2,561.3 2,486.8
-------- -------- --------
Gross profit........................................................... 1,240.2 1,332.2 1,281.4
Marketing, general and administrative expense.......................... 830.5 851.3 842.6
Other (income) and expense, net........................................ (.3) -- 65.0
-------- -------- --------
Earnings before interest, taxes and accounting change.................. $ 410.0 $ 480.9 $ 373.8

Sales decreased 2.3 percent to $3.8 billion in 2001, compared to $3.89
billion in 2000. Excluding changes in foreign currency exchange rates, sales
decreased .6 percent. In 2000, sales increased 3.3 percent over 1999 sales of
$3.77 billion. Excluding the impact of currency, sales increased 7.4 percent in
2000. Acquisitions contributed $84.3 million and $97.1 million in sales during
2001 and 2000, respectively. Sales from operations which were divested by the
end of 2001 were $48.5 million, $92.6 million and $92.3 million for 2001, 2000
and 1999, respectively.

Gross profit margins for the years ended 2001, 2000 and 1999 were 32.6
percent, 34.2 percent and 34 percent, respectively. The decrease in 2001 was due
to a negative change in business mix driven by lower sales in the higher-margin
office products business and product mix shift within the roll materials
business, as well as reduced leverage of fixed costs across most of the
Company's businesses. The improvement in 2000 was due to manufacturing cost
reductions and improved productivity related primarily to the 1999 cost
reduction program and other productivity improvement programs.

Marketing, general and administrative expense as a percent of sales was
21.8 percent in 2001, 21.9 percent in 2000 and 22.4 percent in 1999. The
improvement in 2001 was due to reduced spending driven by weak economic
conditions. Marketing, general and administrative expense was negatively
impacted by a $2.6 million charge late in 2001 related to the currency
devaluation in Argentina. The improvement in 2000 was due to increased sales and
spending controls.

In the fourth quarter of 2001, the Company sold its non-strategic specialty
coatings business, reported within the Pressure-sensitive Adhesives and
Materials segment. Cash proceeds and $11.5 million in notes and receivables were
received as part of the sale, which resulted in a pretax gain of approximately
$20.2 million. Net sales from this business were $26.7 million for ten months in
2001, $37.7 million in 2000 and $35.7 million in 1999.

The Company also recorded a charge in the fourth quarter of 2001 relating
to cost reduction actions. The 2001 charge involves cost reduction programs and
the reorganization of manufacturing and administrative facilities in both of the
Company's operating segments. The cost reduction efforts resulted in a pretax
charge of $19.9 million, which consisted of employee severance and related costs
of $13.1 million for approximately 400 positions worldwide, and asset write-
downs of $6.8 million. The positions to be eliminated include approximately 170
employees in the Pressure-sensitive Adhesives and Materials segment, 210
employees in the Consumer and Converted Products segment and 20 Corporate
employees. Severance and related costs represent cash paid or to be paid to
employees terminated under the program. Asset write-downs represent non-cash
charges required to reduce the carrying value of assets to be disposed of to net
realizable value as of the planned date of disposal. At year end 2001, $11
million remained accrued for severance and related costs (included in "Accrued
payroll and employee benefits") and $3.7 million remained accrued for asset
write-downs (included in "Other accrued liabilities") in the Consolidated
Balance Sheet. At the end of 2001, of the 400 positions under the actions,
approximately 145 employees had left the Company. The Company expects to
complete this cost reduction program in 2002. When fully implemented, the
Company estimates annualized pretax savings of approximately $15 million.

In the first quarter of 1999, the Company announced a major realignment of
its cost structure designed to increase operating efficiencies and improve
profitability. The realignment resulted in a pretax cost reduction charge of $65
million, or $.42 per diluted share on an after-tax basis. The cost reduction
program involved the consolidation of manufacturing and distribution capacity in
both of the Company's operating segments. The $65 million charge reflected the
costs to close manufacturing and distribution facilities, the elimination of
approximately 1,500 positions (principally in manufacturing), and

other initiatives to exit activities. The cost reduction charge consisted of
employee severance and related costs of $35.1 million and asset write-downs of
$29.9 million. Severance and related costs represented cash paid to employees
terminated under the program. Asset write-downs, principally related to
equipment, represented non-cash charges required to reduce the carrying value of
the assets to be disposed of to net realizable value as of the planned date of
disposal. During 2000, the Company completed the 1999 cost reduction program and
utilized amounts accrued for purposes identified in the realignment plan.
Cumulative pretax savings from the program were approximately $60 million in
2001.

Interest expense for the years ended 2001, 2000 and 1999 was $50.2 million,
$54.6 million and $43.4 million, respectively. The decrease in 2001 was due to
lower interest rates. The increase in 2000 was primarily due to increased debt
to fund acquisitions, capital expenditures and share repurchases.

Income before taxes, as a percent of sales, was 9.5 percent in 2001, 10.9
percent in 2000 and 8.8 percent in 1999. The decrease in 2001 was primarily due
to the lower gross profit margin. The improvement in 2000 reflects the benefits
of manufacturing cost reductions (some of which were associated with the cost
reduction charge recorded in 1999), improved profitability, and improvement in
the marketing, general and administrative expense ratio as a percent of sales.
The effective tax rate was 32.4 percent in 2001, 33.5 percent in 2000 and 34.8
percent in 1999. The decrease in 2001 reflects a more beneficial geographic mix
of profits, utilization of various tax credits worldwide and both structural and
operational changes that reduced taxes. The decrease in 2000 was primarily due
to improved profitability in the emerging markets, which have more favorable tax
rates. The Company estimates that the effective tax rate for 2002 will be in the
range of 31 percent to 32 percent.

(In millions, except per share amounts) 2001 2000 1999
------ ------ ------

Net income............................................................. $243.2 $283.5 $215.4
Net income per common share............................................ 2.49 2.88 2.17
Net income per common share, assuming dilution......................... 2.47 2.84 2.13

Net income totaled $243.2 million in 2001, $283.5 million in 2000 and
$215.4 million in 1999. Net income for 1999 included a $65 million pretax cost
reduction charge. Net income for 2001 decreased 14.2 percent from 2000. Net
income for 2000 increased 31.6 percent over 1999. Net income, as a percent of
sales, was 6.4 percent, 7.3 percent and 5.7 percent in 2001, 2000 and 1999,
respectively.

Net income per common share was $2.49 in 2001 compared to $2.88 in 2000 and
$2.17 in 1999. Net income per common share for 2001 decreased 13.5 percent from
2000. Net income per common share in 2000 increased 32.7 percent over 1999.

Net income per common share, assuming dilution, was $2.47 in 2001 compared
to $2.84 in 2000 and $2.13 in 1999. Net income per common share, assuming
dilution, for 2001 decreased 13 percent from 2000. Net income per common share,
assuming dilution, in 2000 increased 33.3 percent from 1999.

Results of Operations by Operating Segment

Pressure-sensitive Adhesives and Materials:

(In millions) 2001 2000 1999
-------- -------- --------

Net sales.............................................................. $2,189.4 $2,136.4 $2,025.0
Income from operations before interest and taxes....................... 191.8 212.4 180.0

The Pressure-sensitive Adhesives and Materials segment reported an increase
in sales and a decrease in income for 2001 compared to 2000. Sales increased 2.5
percent to $2.19 billion in 2001, compared to $2.14 billion in 2000, driven by
share gain in the U.S. and growth in international markets. Sales increased in
the U.S. operations primarily due to the Dunsirn acquisition, the benefit of new
business obtained from the closure of a competitor's plant and a new supply
agreement with a company that decided to outsource its manufacturing of certain
roll label materials. The domestic sales increase was partially offset by the
slowdown in the North American economy, and the resulting negative impact on
volume in the graphics and specialty tapes businesses. Sales increased
internationally, primarily as a result of the Adespan acquisition in 2000 and
unit volume growth in the roll materials business in Europe and Asia. This
increase was partially offset by a slowdown in certain European markets served
by the Company's graphics and specialty tapes businesses, sales declines in
Latin America, and the negative impact of foreign currency rates.

The segment's 2001 income decreased 9.7 percent to $191.8 million from
2000. Income for 2001 was impacted by three non-recurring items in the fourth
quarter: a pretax gain of approximately $20.2 million on the sale of a non-
strategic business in the U.S., a $7.6 million charge relating to cost reduction
actions ($3.9 million in the U.S. operations and $3.7 million in the
international operations), and a $2.3 million charge related to the currency
devaluation in Argentina. Income in the U.S. and international operations also
decreased due to the economic slowdown which has impacted sales across most of
the segment's businesses. In addition, integration costs associated with the
Dunsirn acquisition, reduced leverage of fixed costs, a more competitive pricing
environment and one-time costs associated with the start-up of a new coater in
the U.S. also contributed to the income reduction. Savings from cost reduction
actions taken throughout the year, as well as from Six Sigma (an effort designed
to improve productivity and quality, while reducing costs) partially offset the
negative effects of these factors.

In the first quarter of 2001, the Company acquired Dunsirn Industries,
Inc., a privately-held company based in Wisconsin. Dunsirn Industries is a
leading supplier of non-adhesive materials to the narrow-web printing industry,
as well as a provider of customized slitting and distribution services for roll
pressure-sensitive materials manufacturers. Sales in 2000 for Dunsirn Industries
were approximately $68 million, including sales to the Company. The excess of
the cost-basis over the fair value of net tangible assets acquired was $21.1
million.

The Pressure-sensitive Adhesives and Materials segment reported increased
sales and income for 2000 compared to 1999. Sales increased 5.5 percent to $2.14
billion in 2000, compared to $2.03 billion in 1999, driven primarily by growth
in international markets and the acquisition of Stimsonite in the U.S., and
offset by slow growth in the core domestic markets. Excluding changes in foreign
currency exchange rates, sales increased 10.7 percent. The segment's 1999 income
results include a pretax cost reduction charge of $25.1 million ($15.4 million
in the U.S. operations and $9.7 million in the international operations).
Increased sales in the U.S. operations were primarily driven by the acquisition
of Stimsonite in the third quarter of 1999. Domestic sales growth was negatively
impacted by the slowdown in the North American economy and by an increasingly
competitive environment for the Company's roll materials business. The slowdown
in the roll materials business began in the second quarter of 2000 and was
initially driven by packaging and graphics changes planned by consumer product
companies that buy labels from the Company's converting customers, as well as a
general reduction of inventory levels at some retailers and consumer product
companies that impacted demand for packaging labels. The slowdown in the North
American economy also negatively impacted demand for products manufactured by
the Company's graphics and specialty tapes businesses. Sales for the
international operations increased as a result of strong volume growth in Asia,
Latin America and Europe, as well as the acquisition of Adespan in Europe. Sales
growth in Europe was partially offset by changes in foreign currency rates.

The segment's 2000 income increased 18 percent to $212.4 million from 1999.
Income from U.S. operations was negatively impacted by the slowdown in the North
American economy and by an increasingly competitive environment for the
Company's roll materials, graphics and specialty tapes businesses. The negative
impact caused by the slowdown in the North American economy was partially offset
by productivity improvements from Six Sigma and other cost reduction programs.
Income from the international operations increased compared to 1999, excluding
the 1999 cost reduction charge, primarily due to volume growth and improved
profitability in the Asian and Latin American businesses. Income growth in the
segment's European operations was more than offset by changes in foreign
currency rates.

In the first quarter of 2000, the Company acquired the Adespan pressure-
sensitive materials operation of Panini S.p.A., a European printing and
publishing company based in Italy. Adespan had sales of approximately $75
million in 1999. The excess of the cost-basis over the fair value of net
tangible assets acquired was $24.1 million.

In the third quarter of 1999, the Company acquired Stimsonite, based in
Niles, Illinois, a leading manufacturer of reflective safety products for the
transportation and highway safety markets. The Company paid approximately $150
million (including the assumption of approximately $20 million in debt) for
Stimsonite, which was primarily funded with the issuance of debt. Stimsonite had
sales of $87 million in 1998. The excess of the cost-basis over the fair value
of net tangible assets acquired was $124.7 million.

In the fourth quarter of 1999, the Company acquired the remaining minority
stake in its Argentine business, the largest pressure-sensitive materials
operation in that country.

Consumer and Converted Products:

(In millions) 2001 2000 1999
-------- -------- --------

Net sales................................................................ $1,784.6 $1,898.3 $1,892.3
Income from operations before interest and taxes......................... 244.6 293.2 223.8

The Consumer and Converted Products segment reported decreased sales and
income for 2001 compared to 2000. Sales decreased 6 percent to $1.78 billion in
2001, compared to $1.9 billion in 2000. Sales in the U.S. operations were
negatively impacted by several factors. The slowdown in the North American
economy particularly affected the Company's office products business and the
industrial and automotive business. Customer inventory reductions, consolidation
of office product retail stores by the Company's customers and a weak retail
environment also negatively impacted sales in 2001. Domestic sales for the
office products business were also negatively impacted by several large
purchases made by major customers late in the fourth quarter of 2000, which
pulled sales that normally would have occurred in the first quarter of 2001. In
addition, domestic sales growth was negatively impacted by decreased volume and
an unfavorable product mix shift in the Company's converting businesses. Sales
in international operations decreased primarily due to the negative impact of
foreign currency exchange rates and the economic slowdown impacting some of the
Company's businesses in Europe.

The segment's 2001 income decreased 16.6 percent to $244.6 million. Income
for 2001 was impacted by a $9.4 million charge relating to cost reduction
actions ($5.4 million in the U.S. operations and $4 million in the international
operations). In addition to the impact from the cost reduction charge, the
segment's net income decreased compared to the prior year primarily due to the
overall decline in sales. Cost reduction actions and productivity initiatives
partially offset the negative impact of the sales decline.

In the first quarter of 2001, the Company acquired CD Stomper, a leading
product line of CD and DVD labels, software and a label applicator, from Stomp
Inc., a software developer and manufacturer based in California. Sales in 2000
for the CD Stomper product line were approximately $20 million. The excess of
the cost-basis over the fair value of net tangible assets acquired was $22.6
million.

The Consumer and Converted Products segment reported increased sales and
income for 2000 compared to 1999. Sales increased .3 percent to $1.9 billion in
2000 over 1999 sales of $1.89 billion. Excluding the impact of changes in
foreign currency rates, sales increased 3.4 percent. The segment's 1999 income
results include a pretax cost reduction charge of $37.6 million ($24.3 million
in the U.S. operations and $13.3 million in the international operations).
Increased sales in the U.S. operations were primarily driven by sales growth for
Avery-brand office products. Domestic sales growth was negatively impacted by
decreased volume and an unfavorable product mix shift in the Company's
converting businesses. The converting businesses experienced a slowdown
attributable to the slowing North American economy and customer actions to
reduce inventory levels. Strong volume growth in international businesses,
including the worldwide ticketing business in particular, was more than offset
by the unfavorable changes in foreign currency rates. As a result, total sales
from international operations decreased slightly compared to 1999.

The segment's 2000 income increased 31 percent to $293.2 million from 1999.
Income from U.S. operations increased in 2000 primarily due to sales growth in
the office products business, as well as manufacturing cost reductions and
improved productivity related to the 1999 cost reduction program. Income was
partially impacted by decreased volume and an unfavorable product mix shift in
the Company's converting businesses. Income from international operations
increased compared to 1999, primarily due to growth in the worldwide ticketing
business and improved profitability in the European and Asian office products
businesses.

In the first quarter of 1999, the Company completed a transaction with
Steinbeis Holding GmbH to combine substantially all of the Company's office
products businesses in Europe with Zweckform Buro-Produkte GmbH (Zweckform), a
German office products supplier. The Company's aggregate cost basis in this
venture was financed through available cash resources of approximately $23
million and the assumption of an obligation as reported in the "Other long-term
obligation" line on the Consolidated Balance Sheet. The obligation is guaranteed
by a standby letter of credit and it is the intention of the Company to pay the
entire obligation in 2004. The excess of the cost-basis over the fair value of
net tangible assets acquired was $104.6 million.

Financial Condition

Average working capital, excluding short-term debt, as a percent of sales
was 7.9 percent in 2001, 6.4 percent in 2000 and 5 percent in 1999. The increase
in 2001 reflects the increase in cash and the decrease in accounts payable and
other accrued

liabilities. The increase in 2000 reflects an increase in accounts receivable
and average inventory and a decrease in current liabilities related to the 1999
cost reduction program. Average inventory turnover was 8.8 turns in 2001 and
2000, and 9.5 turns in 1999. The decrease in inventory turns in 2000 was
primarily due to higher inventory levels associated with acquired companies, as
well as a temporary increase in certain office products inventories to maintain
service levels as production moved to new manufacturing facilities as a result
of the 1999 cost reduction program. The average number of days sales outstanding
in accounts receivable was 58 days in 2001, 56 days in 2000 and 52 days in 1999.
The increase in 2001 reflects longer payment terms associated with increased
international sales. The increase in 2000 reflects longer payment terms
associated with increased international sales, acquisitions and some year end
purchases by several of the Company's large office products customers.

Several of the Company's largest domestic customers operate in a highly
competitive retail business environment, which has been impacted by the slowing
economy in North America. As of year end 2001 and 2000, approximately 23
percent and 26 percent, respectively, of trade accounts receivable were from
nine of these domestic customers. The Company does not require its customers to
provide collateral, but the financial position and operations of these customers
are monitored on an ongoing basis. The Company may be exposed to losses in the
event of nonpayment.

The Company's "Other assets" balance increased during 2001 primarily due to
increases in software and other deferred charges, an increase in the cash
surrender value of corporate-owned life insurance contracts and capitalized
costs related to a pending acquisition.

Total debt increased $22.5 million to $849.7 million compared to year end
2000 primarily due to debt issuances to fund acquisitions and capital
expenditures. Total debt to total capital decreased to 47.8 percent at year end
2001 compared to 50 percent at year end 2000. Long-term debt as a percent of
total long-term capital decreased to 40.3 percent from 48.3 percent at year end
2000.

Shareholders' equity increased to $929.4 million from $828.1 million at
year end 2000. During 2001, the Company repurchased approximately 356,000 shares
of the Company's common stock at a cost of $17.9 million. As of year end 2001, a
cumulative 37.1 million shares of the Company's common stock had been
repurchased since 1991 and 3.3 million shares remained available for repurchase
under the Board of Directors' authorization. The market value of shares held in
the employee stock benefit trust decreased by $25.4 million to $674.5 million
from year end 2000, due to the effect of the change in the Company's share price
and the issuance of shares under the Company's stock and incentive plans.

Return on average shareholders' equity was 27.4 percent in 2001, 34.6
percent in 2000 and 27.1 percent in 1999. Return on average total capital for
those three years was 16.2 percent, 19.6 percent and 17 percent, respectively.
The decrease in these returns in 2001 was primarily due to the decrease in
profitability. Increases in these returns for 2000 compared to 1999 was
primarily due to an increase in profitability.

The Company, like other U.S. corporations, has periodically received
notices from the U.S. Environmental Protection Agency and state environmental
agencies alleging that the Company is a potentially responsible party for past
and future cleanup costs at hazardous waste sites. The Company has received
requests for information, notices and/or claims with respect to nine waste sites
in which the Company has no ownership interest. Litigation has been initiated by
a governmental authority with respect to one of these sites, but the Company
does not believe that any such proceedings will result in the imposition of
monetary sanctions. Environmental investigatory and remediation projects are
also being undertaken on property presently owned by the Company. The Company
has accrued liabilities for all sites where it is probable that a loss will be
incurred and the minimum cost or amount of the loss can be reasonably estimated.
However, because of the uncertainties associated with environmental assessments
and remediation activities, future expense to remediate the currently identified
sites, and sites which could be identified in the future for cleanup, could be
higher than the liability currently accrued. Amounts currently accrued are not
significant to the consolidated financial position of the Company and, based
upon current information, management believes that it is unlikely that final
resolution of these matters will significantly impact the consolidated financial
position and operations of the Company.

Liquidity and Capital Resources

Net cash flow from operating activities was $375.5 million in 2001, $409.9
million in 2000 and $426.9 million in 1999. The decrease in 2001 was primarily
due to the decrease in net income. The decrease in 2000 was due to changes in
working capital requirements.

In addition to cash flow from operations, the Company has more than
adequate financing arrangements, at competitive rates, to conduct its
operations. The Company finances its operations using commercial paper, bank
lines of credit, callable commercial notes and long-term debt, including medium-
term notes.

The Company had $52.6 million of borrowings outstanding under short-term
lines of credit with a weighted average interest rate of 8.3 percent at year end
2001. In December 2001, the Company issued $150 million of one-year callable
commercial notes at a weighted average interest rate of 2.1 percent.

As of December 29, 2001, the Company had additional available short-term
lines of credit totaling $523.7 million. These available lines of credit
included a 364-day revolving credit facility with five domestic banks to provide
up to $200 million in borrowings through December 12, 2002. The Company may
annually extend the revolving period and due date with the approval of the
banks. Financing available under this agreement will be used as a commercial
paper back-up facility and to finance other corporate requirements. There was no
debt outstanding under this agreement as of year end 2001.

The Company also has a revolving credit agreement with four domestic banks
to provide up to $250 million in borrowings through July 1, 2006. The Company
may annually extend the revolving period and due date with the approval of the
banks. Financing available under this agreement will be used, as needed, as a
commercial paper back-up facility and to finance other corporate requirements.
There was no debt outstanding under this agreement as of year end 2001.

The Company's long-term debt, including medium-term notes, was $626.7
million and $772.9 million at the end of 2001 and 2000, respectively. Maturities
of long-term debt during the years 2002 through 2006 are $20.4 million
(classified as current), $73 million, $85.7 million, $73 million and $235
million, respectively, with $160 million maturing thereafter.

The Company had medium-term notes of $448 million at year end 2001 and
2000. Medium-term notes have maturities from 2002 through 2025 and accrue
interest at fixed and floating rates. The Company issued $40 million of medium-
term notes during 2000. The proceeds from this issuance were used to refinance
short-term debt and for other general corporate purposes.

The terms of various loan agreements in effect at year end require that the
Company maintain specified ratios on consolidated debt and consolidated interest
expense in relation to certain measures of income. Under the loan agreements,
consolidated debt as a ratio to consolidated earnings before interest, taxes,
depreciation and amortization may not exceed 3.5 to 1.0. The Company's ratio at
year end 2001 was 1.5 to 1.0. Consolidated earnings before interest and taxes,
as a ratio to consolidated interest may not be less than 3.5 to 1.0. The
Company's ratio at year end 2001 was 8.2 to 1.0. Assets pledged as collateral
and commitment fees relating to long-term financing arrangements are not
significant.

In the third quarter of 2001, the Company filed a shelf registration
statement with the Securities and Exchange Commission to permit the issuance of
up to $600 million in debt and equity securities. Proceeds from the shelf
offering may be used for general corporate purposes, including repaying,
redeeming or repurchasing existing debt, and for working capital, capital
expenditures and acquisitions. No securities have been issued since the filing.

Credit ratings are a significant factor in the Company's ability to raise
short-term and long-term financing. When determining a credit rating, the
rating agencies place significant weight on the Company's competitive position,
consistency of cash flows, geographic dispersion and management team.

The ratings assigned to the Company also impact the interest rates on its
commercial paper and other borrowings. In the event of a ratings downgrade
within the investment grade category, the Company expects to still have access
to the commercial paper market and bank facilities, but would be impacted by
higher interest costs. The Company believes that the likelihood of a downgrade
to its debt rating is not high. Moody's Investors Service and Standard and
Poor's issue ratings on the Company. Currently, these credit rating firms have
assigned short-term ratings of A1/P1 and long-term ratings of A/A2 for the
Company.

In the first quarter of 1999, the Company completed a transaction with
Steinbeis Holding GmbH to combine substantially all of the Company's office
products businesses in Europe with Zweckform, a German office products supplier.
The Company's aggregate cost basis in this venture was financed through
available cash resources of approximately $23 million and the assumption of an
obligation as reported in the "Other long-term obligation" line on the
Consolidated Balance Sheet. The obligation is guaranteed by a standby letter of
credit and it is the intention of the Company to pay the entire obligation in
2004.

The Company enters into operating leases primarily for office and warehouse
space, electronic data processing and transportation equipment. The terms of
these leases do not impose significant restrictions or unusual obligations.
Minimum annual rental commitments on operating leases having initial or
remaining noncancellable lease terms in excess of one year

during the years 2002 through 2006 are $36.5 million, $30.5 million, $26.2
million, $21.5 million and $19 million, respectively, with $26.5 million in
minimum commitments thereafter.

The Company's obligations relating to debt and leases at year end 2001 were
as follows:

(In millions)
----------------------------------------------------------------------------------------------------------------
Payments Due by Period
----------------------------------------------------------------
Contractual Obligations Total 2002 2003 2004 2005 2006 Thereafter
----------------------------------------------------------------------------------------------------------------

Current portion of long-term debt $ 20.4 $ 20.4 - - - - -
Short-term lines of credit 52.6 52.6 - - - - -
Callable commercial notes 150.0 150.0 - - - - -
Long-term debt 626.7 - $ 73.0 $ 85.7 $73.0 $235.0 $160.0
Operating leases 160.2 36.5 30.5 26.2 21.5 19.0 26.5
Other long-term obligation 74.6 - - 74.6 - - -
----------------------------------------------------------------------------------------------------------------
Total contractual cash obligations $1,084.5 $259.5 $103.5 $186.5 $94.5 $254.0 $186.5
================================================================================================================

The Company's committed credit availability at year end 2001 was as
follows:

(In millions)
---------------------------------------------------------------------------------------------------------------------------
Total Amounts Amount of Commitment Expiration
-------------------------------------------------------
Committed 2002 2003 2004 2005 2006
---------------------------------------------------------------------------------------------------------------------------

Lines of credit - committed, unused $450.0 $200.0 - - - $250.0
Standby letters of credit outstanding:
General 15.7 15.7 - - - -
Deferred compensation 127.6 - - $23.8 $103.8 -
Zweckform obligation 74.6 - - 74.6 - -
---------------------------------------------------------------------------------------------------------------------------
Total $667.9 $215.7 - $98.4 $103.8 $250.0
===========================================================================================================================

In addition, the Company had uncommitted lines of credit of approximately
$126.3 million at year end 2001. The Company's uncommitted lines of credit do
not have a commitment expiration date, and may be cancelled at any time by the
Company or the banks.

Capital expenditures were $135.4 million in 2001 and $198.3 million in
2000. Capital expenditures for 2002 are expected to be approximately $150
million.

The annual dividend per share increased to $1.23 in 2001 from $1.11 in 2000
and $.99 in 1999. This was the 26th consecutive year the Company increased
dividends per share.

The Company continues to expand its operations in Europe, Latin America and
Asia Pacific. The Company's future results are subject to changes in political
and economic conditions and the impact of fluctuations in foreign currency
exchange and interest rates. To reduce its exposure to these fluctuations, the
Company may enter into foreign exchange forward, option and swap contracts, and
interest rate contracts, where appropriate and available.

All translation gains and losses for operations in hyperinflationary
economies were included in net income. Operations are treated as being in a
hyperinflationary economy for accounting purposes, based on the cumulative
inflation rate over the past three years. Operations in hyperinflationary
economies consist of the Company's operations in Turkey for 2001, 2000 and 1999.
These operations were not significant to the Company's consolidated financial
position or results of operations.

Pending Acquisition

Cartel Office, which has raised specific issues with respect to market
definition and market share in that country. The Company is responding to the
concerns, but the timing and ultimate outcome of the final regulatory review
remain uncertain. As of year end 2001, the Company had capitalized approximately
$9 million for direct costs related to this pending acquisition. If these issues
cannot be overcome, the proposed transaction may be renegotiated or terminated,
in which case some or all of these costs may be expensed depending on the
outcome of the regulatory review.

Related Party Transactions

From time to time, the Company enters into transactions in the normal
course of business with related parties. The Company believes that such
transactions are at arm's-length and for terms that would have been obtained
from unaffiliated third parties. One of the Company's directors, Mr. Peter W.
Mullin, is the chairman and chief executive officer and a director of MC
Insurance Services, Inc. ("MC"), Mullin Insurance Services, Inc. ("MINC") and
PWM Insurance Services, Inc. ("PWM"), executive compensation and benefit
consultants and insurance agents. Mr. Mullin is also the largest stockholder of
MC and the majority stockholder of MINC and PWM. During 2001, the Company paid
insurance companies premiums for life insurance placed by MC, MINC and PWM in
2001 and prior years in connection with various Company employee benefit plans.
In 2001, 2000 and 1999, MC, MINC and PWM earned commissions from such insurance
companies in aggregate amounts of approximately $1.7 million, $1.6 million and
$1 million, respectively, for the placement and renewal of this insurance. Mr.
Mullin had direct and indirect interests related to these commissions of
approximately $1 million in 2001 and 2000 and $.7 million in 1999. None of these
transactions are significant to the financial position or results of operations
of the Company.

Critical Accounting Policies

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions for the reporting period and as of the financial statement date.
These estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent liabilities and the reported amounts
of revenues and expenses. Actual results could differ from those amounts.

Critical accounting policies are those that are important to the portrayal
of the Company's financial condition and results, and which require management
to make difficult, subjective and/or complex judgements. Critical accounting
policies cover accounting matters that are inherently uncertain because the
future resolution of such matters is unknown. The Company believes that critical
accounting policies include accounting for sales rebates, accounting for
allowances for doubtful accounts and accounting for inventory reserves.

Sales rebates and discounts are common practice in the industries in which
the Company operates. Volume, promotional, price, cash and other discounts and
customer incentives are accounted for as a reduction to gross sales. Rebates and
discounts are estimated and recorded when sales of products are made. These
rebates and discounts are adjusted, if necessary, when additional information
becomes available.

Management is required to make judgements, based on historical experience
and future expectations, as to the collectibility of accounts receivable. The
allowances for doubtful accounts and sales returns represent allowances for
customer trade accounts receivable that are estimated to be partially or
entirely uncollectible. These allowances are used to reduce gross trade
receivables to their net realizable value. The Company records these allowances
based on estimates related to the following factors: i) customer specific
allowances; ii) amounts based upon an aging schedule and iii) an estimated
amount, based on the Company's historical experience, for issues not yet
identified.

Inventories are stated at the lower of cost or market value and are
categorized as raw materials, work-in-progress or finished goods. Inventory
reserves are recorded for damaged, obsolete, excess and slow-moving inventory.
Management uses estimates to record these reserves. Slow-moving inventory is
reviewed by category and may be partially or fully reserved for depending on the
type of product and the length of time the product has been included in
inventory.

Future Accounting Requirements

In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations," which supersedes Accounting Principles Board (APB) Opinion No.
16, "Business Combinations." This Statement requires that all business
combinations be accounted for by the purchase method and establishes specific
criteria for the recognition of intangible assets separately from goodwill. The
provisions of the Statement apply to business combinations initiated after June
30, 2001. For business combinations accounted for using the purchase

method before July 1, 2001, the provisions of this Statement will be effective
in the first quarter of 2002. Upon adoption, the Company expects to separately
state goodwill and intangible assets, which are currently shown on the
Consolidated Balance Sheet as "Intangibles resulting from business acquisitions,
net."

In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets," which supersedes APB Opinion No. 17, "Intangible Assets." This
Statement addresses the accounting and reporting of goodwill and other
intangible assets subsequent to their acquisition. SFAS No. 142 provides that
(i) goodwill and indefinite-lived intangible assets will no longer be amortized,
(ii) impairment will be measured using various valuation techniques based on
discounted cash flows, (iii) goodwill will be tested for impairment at least
annually at the reporting unit level, (iv) intangible assets deemed to have an
indefinite life will be tested for impairment at least annually and (v)
intangible assets with finite lives will be amortized over their useful lives.
The Statement provides specific guidance on testing goodwill and intangible
assets for impairment, and requires that reporting units be identified for the
purpose of assessing potential future impairments. Goodwill and intangible
assets acquired after June 30, 2001 were subjected to the provisions of this
Statement. All provisions of this Statement will be effective in the first
quarter of 2002. Utilizing internal and external resources, the Company is in
the process of adopting SFAS No. 142 and is identifying its reporting units and
the amounts of goodwill, intangible assets, other assets and liabilities to be
allocated to those reporting units.

SFAS No. 142 requires that goodwill be tested annually for impairment using
a two-step process. The first step is to identify a potential impairment and, in
transition, this step must be measured as of the beginning of the fiscal year.
However, companies have six months from the date of adoption to complete the
first step. The Company expects to complete the first step of the goodwill
impairment test during the first quarter of 2002. The second step of the
goodwill impairment test measures the amount of impairment loss (measured as of
the beginning of the year of adoption), if any, and must be completed by the end
of 2002. Intangible assets deemed to have an indefinite life will be tested for
impairment using a one-step process which compares the fair value to the
carrying amount of the asset as of the beginning of the year. This process will
be completed during the first quarter of 2002. The Company is in the process of
completing these impairment tests for goodwill and other intangible assets and,
based on current information, does not anticipate transitional impairment
losses. The Company expects the adoption of SFAS No. 142 to benefit earnings per
share, assuming dilution, by approximately $.13 compared to 2001.

In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," which addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. This Statement requires that the fair value
of a liability for an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made. The
associated asset retirement costs are capitalized as part of the carrying amount
of the long-lived asset. All provisions of this Statement will be effective at
the beginning of fiscal 2003. The Company is in the process of determining the
impact of this standard on the Company's financial results when effective.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This Statement supersedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" and amends APB Opinion No. 30, "Reporting the Effects
of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions." This Statement requires that
long-lived assets that are to be disposed of by sale be measured at the lower of
book value or fair value less costs to sell. SFAS No. 144 retains the
fundamental provisions of SFAS No. 121 for (a) recognition and measurement of
the impairment of long-lived assets to be held and used and (b) measurement of
long-lived assets to be disposed of by sale. This Statement also retains APB
Opinion No. 30's requirement that companies report discontinued operations
separately from continuing operations. All provisions of this Statement will be
effective in the first quarter of 2002. The adoption of this standard is not
expected to have a significant impact on the Company's financial results.

The Company is currently reviewing the requirements of Emerging Issues Task
Force (EITF) Issue No. 00-14, "Accounting for Certain Sales Incentives." This
EITF consensus addresses the recognition, measurement, and income statement
classification for sales incentives offered by a vendor without charge to a
customer as a result of a single exchange transaction. The provisions of this
consensus will be effective in the first quarter of 2002. The application of
the consensus is not expected to have a significant impact on the Company's
financial results.

The Company is currently reviewing the requirements of EITF Issue No. 00-
25, "Vendor Income Statement Characterization of Consideration Paid to a
Reseller of the Vendor's Products." This EITF consensus addresses whether
certain consideration from a vendor to a reseller of the vendor's products is an
adjustment to selling prices or cost. The provisions of this consensus will be
effective in the first quarter of 2002. The application of the consensus is not
expected to have a significant impact on the Company's financial results.

Outlook

The Company's results for 2001 reflect the challenging economic environment
in the U.S. and international markets. The events of September 11, 2001
compounded the negative impact of the economic slowdown already experienced
during the first half of the year. This slowdown has affected sales volume and
profitability for both segments and may continue if current national and global
economic conditions continue. The Company's revenue and net income are impacted
by both economic and market conditions.

In the third and fourth quarters of 2001, the Company experienced positive
sales trends in the Pressure-sensitive Adhesives and Materials segment that may
continue during 2002. Encouraging volume trends were seen in certain core
operations, including an improvement in the Fasson Roll materials business in
North America during the second half of 2001, which resulted in stronger volume
growth in the fourth quarter. Internationally, certain businesses, such as the
pressure-sensitive business in Asia, continued to see volume growth. The
Company currently has plans to open new facilities and expand its operations in
Asia in the near future. The Company continued to experience weak sales trends,
however, in the graphics and specialty tapes businesses.

In 2001, sales for the Consumer and Converted Products segment were
negatively impacted by inventory reductions among the Company's large office
products customers, partially reflecting a slowdown in new retail store
openings. Decreased sales for the segment were also due to the general economic
weakness that impacted the Company's businesses serving automotive and other
industrial markets, and later impacted office products and ticketing for retail
apparel. Currently, the Company does not expect significant disruptions in sales
due to inventory reductions in 2002.

In the fourth quarter of 2001, the Company recorded a pretax charge of
approximately $2.6 million related to the currency devaluation in Argentina.
The Argentine peso will no longer be pegged to the U.S. dollar on a one-to-one
basis. Instead, the peso will be floated in the foreign exchange market,
allowing for fluctuations in currency exchange rates with the U.S. dollar.
Transactions denominated in U.S. dollars will now be subject to gains and losses
from changes in currency exchange rates. Political, regulatory, economic and
other business conditions in Argentina (including the country's current
recession, availability of cash and consumer spending) are likely to negatively
impact revenue and earnings in Argentina for 2002 compared to 2001. Operations
in Argentina are not significant to the Company's financial results, and
represented less than $25 million in sales in 2001. The majority of the
Company's operations in Argentina are reported in the Pressure-sensitive
Adhesives and Materials segment.

Other international operations, principally in Western Europe, constitute a
significant portion of the Company's business. The Company is exposed to
foreign currency exchange rate risk, and changes to foreign exchange rates will
impact the Company's financial results.

Recent accounting pronouncements will also impact the Company's earnings in
2002. The Company expects the adoption of SFAS No. 142 to benefit earnings per
share, assuming dilution, by approximately $.13 compared to 2001. Under this
new accounting standard, the Company will no longer amortize goodwill or
indefinite-lived intangible assets.

In this uncertain global economic environment, the Company remains focused
on cost management efforts and believes it is well-positioned to resume previous
growth trends once economic conditions improve. While 2002 is expected to be
another challenging year, the Company has reduced costs and expects to continue
to benefit from the implementation of productivity improvement initiatives. In
addition to driving down costs, the Company continues to pursue long-term growth
initiatives. These initiatives include acquisitions, entry into new markets,
development of new products and geographic expansion.

Safe Harbor Statement

Except for historical information contained herein, the matters discussed
in the Management's Discussion and Analysis of Results of Operations and
Financial Condition and other sections of this annual report contain "forward-
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. These statements, which are not statements of historical
fact, may contain estimates, assumptions, projections and/or expectations
regarding future events. Words such as "anticipate," "assume," "believe,"
"estimate," "expect," "plan," "project," "will," and other expressions, which
refer to future events and trends, identify forward-looking statements. Such
forward-looking statements, and financial or other business targets, are subject
to certain risks and uncertainties which could cause actual results to differ
materially from future results, performance or achievements of the Company
expressed or implied by such forward-looking statements. Certain of such risks
and uncertainties are described in Exhibit 99 to the Company's Annual Report on
Form 10-K for the year ended December 29, 2001. Any forward-looking statements
should be considered in light of the factors referred to in Exhibit 99, which
are incorporated herein by reference.

The Company's forward-looking statements represent its judgment only on the
dates such statements were made. By making any forward-looking statements, the
Company assumes no duty to update them to reflect new, changed or unanticipated
events or circumstances, other than as may be required by law.

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market-sensitive Instruments and Risk Management

The Company is exposed to the impact of interest rate and foreign currency
exchange rate changes.

The Company generally does not hold or purchase any foreign currency or
interest rate contracts for trading purposes.

The Company's objective in managing the exposure to foreign currency
changes is to reduce the risk on earnings and cash flow associated with foreign
exchange rate changes. As a result, the Company enters into foreign exchange
forward, option and swap contracts to reduce risks associated with the value of
its existing foreign currency assets, liabilities, firm commitments and
anticipated foreign revenues and costs. The gains and losses on these contracts
are intended to offset changes in the related exposures. The Company does not
hedge its foreign currency exposure in a manner that would entirely eliminate
the effects of changes in foreign exchange rates on the Company's consolidated
net income.

The Company's objective in managing its exposure to interest rate changes
is to limit the impact of interest rate changes on earnings and cash flows and
to lower its overall borrowing costs. To achieve its objectives, the Company
will periodically use interest rate contracts to manage net exposure to interest
rate changes related to its borrowings. The Company had no significant interest
rate contracts outstanding at year end 2001.

In the normal course of operations, the Company also faces other risks that
are either nonfinancial or nonquantifiable. Such risks principally include
changes in economic or political conditions, other risks associated with foreign
operations, commodity price risk and litigation risks, which are not represented
in the analyses that follow.

Foreign Exchange Value-at-Risk

The Company uses a "Value-at-Risk" (VAR) model to determine the estimated
maximum potential one-day loss in earnings associated with both its foreign
exchange positions and contracts. This approach assumes that market rates or
prices for foreign exchange positions and contracts are normally distributed.
The VAR model estimates were made assuming normal market conditions. Firm
commitments, receivables and accounts payable denominated in foreign currencies,
which certain of these instruments are intended to hedge, were included in the
model. Forecasted transactions, which certain of these instruments are intended
to hedge, were excluded from the model. The VAR was estimated using a variance-
covariance methodology based on historical volatility for each currency. The
volatility and correlation used in the calculation were based on two-year
historical data obtained from one of the Company's domestic banks. A 95 percent
confidence level was used for a one-day time horizon.

The VAR model is a risk analysis tool and does not purport to represent
actual losses in fair value that could be incurred by the Company, nor does it
consider the potential effect of favorable changes in market factors.

The estimated maximum potential one-day loss in earnings for the Company's
foreign exchange positions and contracts was $2.6 million at year end 2001.

Interest Rate Sensitivity

An assumed 40 basis point move in interest rates (10 percent of the
Company's weighted-average floating rate interest rate) affecting the Company's
variable-rate borrowings would have had an immaterial effect on the Company's
2001 earnings.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information called for by this item is contained in Registrant's
Consolidated Financial Statements and the Notes thereto appearing on pages 32
through 47, and in the Report of Independent Accountants on page 49 of
Registrant's 2001 Annual Report and is incorporated herein by reference.

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information concerning directors called for by this item is
incorporated by reference from pages 2, 3 and 4 of the 2002 Proxy Statement,
which will be filed with the Securities and Exchange Commission pursuant to
Regulation 14A within 120 days of the end of the fiscal year covered by this
report. Information concerning executive officers called for by this item
appears in Part I of this report. The information concerning late filings under
Section 16(a) of the Securities Exchange Act of 1934, as amended, is
incorporated by reference from page 13 of the 2002 Proxy Statement.

Item 11. EXECUTIVE COMPENSATION

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information called for by items 11, 12 and 13 is incorporated by
reference from pages 5 through 19 of the 2002 Proxy Statement, which will be
filed with the Securities and Exchange Commission pursuant to Regulation 14A
within 120 days of the end of the fiscal year covered by this report.

PART IV

Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) Financial Statements, Financial Statement Schedules and Exhibits

(1) (2) Financial statements and financial statement schedules filed
as part of this report are listed in the accompanying Index to Financial
Statements and Financial Statement Schedules.

(3) Exhibits filed as a part of this report are listed in the Exhibit
Index, which follows the financial statements and schedules referred to
above. Each management contract or compensatory plan or arrangement
required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c)
is identified in the Exhibit Index.

(b) Reports on Form 8-K: Registrant did not file any Reports on Form 8-K
for the three months ended December 29, 2001.

(d) Those financial statement schedules required by Regulation S-X which
are excluded from Registrant's 2001 Annual Report by Rule 14a-3(b)(1), and which
are required to be filed as financial statement schedules to this report, are
indicated in the accompanying Index to Financial Statements and Financial
Statement Schedules.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

Avery Dennison Corporation

By /s/ Daniel R. O'Bryant
----------------------------------
Daniel R. O'Bryant
Senior Vice President, Finance
and Chief Financial Officer

Dated: February 28, 2002

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and as of the dates indicated.

Signature Title Date
--------- ----- ----

/s/ Philip M. Neal Chairman and Chief Executive February 28, 2002
------------------------------------- Officer, Director
Philip M. Neal

/s/ Dean A. Scarborough President and Chief Operating February 28, 2002
------------------------------------- Officer, Director
Dean A. Scarborough

/s/ Daniel R. O'Bryant Senior Vice President, Finance February 28, 2002
------------------------------------- and Chief Financial Officer
Daniel R. O'Bryant (Principal Financial Officer)

/s/ Michael A. Skovran Vice President and Controller February 28, 2002
------------------------------------- (Principal Accounting Officer)
Michael A. Skovran

Signature Title Date
--------- ----- ----

/s/ Dwight L. Allison, Jr. Director February 28, 2002
-------------------------------------
Dwight L. Allison, Jr.

/s/ John C. Argue Director February 28, 2002
-------------------------------------
John C. Argue

/s/ Joan T. Bok Director February 28, 2002
-------------------------------------
Joan T. Bok

/s/ Frank V. Cahouet Director February 28, 2002
-------------------------------------
Frank V. Cahouet

/s/ Richard M. Ferry Director February 28, 2002
-------------------------------------
Richard M. Ferry

/s/ Bruce E. Karatz Director February 28, 2002
-------------------------------------
Bruce E. Karatz

/s/ Kent Kresa Director February 28, 2002
-------------------------------------
Kent Kresa

/s/ Charles D. Miller Director February 28, 2002
-------------------------------------
Charles D. Miller

/s/ Peter W. Mullin Director February 28, 2002
-------------------------------------
Peter W. Mullin

/s/ Sidney R. Petersen Director February 28, 2002
-------------------------------------
Sidney R. Petersen

/s/ David E. I. Pyott Director February 28, 2002
-------------------------------------
David E. I. Pyott

AVERY DENNISON CORPORATION

INDEX TO FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULES

Reference (page)
---------------------------
Form
10-K Annual
Annual Report to
Report Shareholders
------------ -------------

Data incorporated by reference from the attached portions of the 2001 Annual
Report to Shareholders of Avery Dennison Corporation:
Report of Independent Accountants................................................. -- 49
Consolidated Balance Sheet at December 29, 2001 and December 30, 2000............. -- 32
Consolidated Statement of Income for 2001, 2000 and 1999.......................... -- 33
Consolidated Statement of Shareholders' Equity for 2001, 2000 and 1999............ -- 34
Consolidated Statement of Cash Flows for 2001, 2000 and 1999...................... -- 35
Notes to Consolidated Financial Statements........................................ -- 36-47

Individual financial statements of 50% or less owned entities accounted for
by the equity method have been omitted because, considered in the aggregate or
as a single subsidiary, they do not constitute a significant subsidiary.

With the exception of the consolidated financial statements and the
accountants' report thereon listed in the above index, and certain information
referred to in Items 1, 5 and 6, which information is included in the 2001
Annual Report and is incorporated herein by reference, the 2001 Annual Report is
not to be deemed "filed" as part of this report.

Data submitted herewith:
Report of Independent Accountants on Financial Statement Schedule................. S-2 --
Financial Statement Schedules (for 2001, 2000 and 1999):
II--Valuation and Qualifying Accounts and Reserves........................... S-3 --
Consent of Independent Accountants................................................ S-4 --

All other schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements and notes thereto.

S-1

REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE

To the Board of Directors and Shareholders
of Avery Dennison Corporation:

Our audits of the consolidated financial statements referred to in our
report dated January 21, 2002 appearing in the 2001 Annual Report to
Shareholders of Avery Dennison Corporation (which report and consolidated
financial statements are incorporated by reference in this Annual Report on Form
10-K) also included an audit of the financial statement schedule listed in Item
14(a)(2) of this Form 10-K. In our opinion, this financial statement schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.

PricewaterhouseCoopers LLP
Los Angeles, California
January 21, 2002

S-2

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

(In millions)

Additions
--------------------------------
Balance at Charged to Balance
Beginning Costs and From Deductions at End
of Year Expenses Acquisitions From Reserves of Year
-------------- -------------- -------------- --------------- --------------

2001
Allowance for doubtful accounts $19.4 $11.3 $.03 $(13.1) $17.9
Allowance for sales returns 18.0 9.8 -- (8.2) 19.6
Inventory reserve 30.4 15.5 1.0 (12.0) 34.9
2000
Allowance for doubtful accounts $19.5 $ 7.6 $0.2 $ (7.9) $19.4
Allowance for sales returns 21.6 8.6 0.7 (12.9) 18.0
Inventory reserve 28.6 10.9 0.8 (9.9) 30.4
1999
Allowance for doubtful accounts $16.5 $ 8.7 $2.4 $ (8.1) $19.5
Allowance for sales returns 19.5 10.9 0.1 (8.9) 21.6
Inventory reserve 24.5 11.3 2.3 (9.5) 28.6

S-3

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (File Nos. 333-38905 and 333-64558) and Form S-8 (File
Nos. 33-1132, 33-3645, 33-27275, 33-41238, 33-45376, 33-54411, 33-58921, 33-
63979, 333-38707 and 333-38709) of Avery Dennison Corporation of our report
dated January 21, 2002 relating to the financial statements, which appears in
the 2001 Annual Report to Shareholders, which is incorporated in this Annual
Report on Form 10-K. We also consent to the incorporation by reference of our
report dated January 21, 2002 relating to the financial statement schedule,
which appears in this Form 10-K.

PricewaterhouseCoopers LLP
Los Angeles, California
February 28, 2002

S-4

AVERY DENNISON CORPORATION

EXHIBIT INDEX

For the Year Ended December 29, 2001

INCORPORATED BY REFERENCE:

Originally
Exhibit Filed as
No. Item Exhibit No. Document
-------- ---- ----------- --------

(3.1) Restated Articles of Incorporation B Proxy Statement dated February 28, 1977
for Annual Meeting of Stockholders March 30, 1977;
located in File No. 0-225 at Securities and Exchange
Commission, 450 5th St., N.W., Washington, D.C.

(3.1.1) Amendment to Certificate of Incorporation, 3.1.1 1983 Annual Report on Form 10-K
filed April 10, 1984 with Office of Delaware
Secretary of State

(3.1.2) Amendment to Certificate of Incorporation, 3.1.2 1984 Annual Report on Form 10-K
filed April 11, 1985 with Office of Delaware
Secretary of State

(3.1.3) Amendment to Certificate of Incorporation 3.1.3 1986 Annual Report on Form 10-K
filed April 6, 1987 with Office of
Delaware Secretary of State

(3.1.4) Amendment to Certificate of Incorporation Current Report on Form 8-K filed October 31, 1990
filed October 17, 1990 with Office of
Delaware Secretary of State

(3.1.5) Amendment to Certificate of Incorporation 3 First Quarterly report for 1997 on Form 10-Q
filed April 28, 1997 with Office of
Delaware Secretary of State

(3.2) By-laws, as amended 3(ii) Third Quarterly report for 2001 on Form 10-Q

(4.1) Rights Agreement dated as of October 23, Current Report on Form 8-K filed October 24, 1997
1997

(4.2) Indenture, dated as of March 15, 1991, Registration Statement on Form S-3
between Registrant and Security Pacific (File No. 33-39491)
National Bank, as Trustee (the "Indenture")

(4.2.1) Officers' Certificate establishing a series of 4.3 Current Report on Form 8-K filed March 25, 1991
Securities entitled "Medium-Term
Notes" under the Indenture

(4.2.2) First Supplemental Indenture, dated as of 4.4 Registration Statement on Form S-3
March 16, 1993, between Registrant and (File No. 33-59642)
BankAmerica National Trust Company,
as successor Trustee (the "Supplemental
Indenture")

(4.2.3) Officers' Certificate establishing a series of 4.5 Current Report on Form 8-K filed April 7, 1993
Securities entitled "Medium-Term
Notes" under the Indenture, as amended
by the Supplemental Indenture

(4.2.4) Officers' Certificate establishing a series of 4.6 Current Report on Form 8-K filed March 29, 1994
series of Securities entitled
"Medium-Term Notes, Series B" under the
Indenture, as amended by the Supplemental
Indenture

(4.2.5) Officers' Certificate establishing a series of 4.7 Current Report on Form 8-K filed May 12, 1995
Securities entitled "Medium-Term Notes,
Series C" under the Indenture, as amended
by the Supplemental Indenture

Originally
Exhibit Filed as
No. Item Exhibit No. Document
-------- ---- ----------- --------

(4.2.6) Officers' Certificate establishing a series of 4.8 Current Report on Form 8-K filed December 16, 1996
Securities entitled "Medium-Term Notes,
Series D" under the Indenture, as amended
by the Supplemental Indenture

(4.3) Indenture dated July 3, 2001 between 4.1 Registration Statement on Form S-3
Registrant and Chase Manhattan Bank and (File No. 333-64558)
Trust Company, N.A., as Trustee ("2001
Indenture")

(10.3) *Deferred Compensation Plan for Directors 10.3 1981 Annual Report on Form 10-K

(10.5) *Executive Medical and Dental Plan 10.5 1981 Annual Report on Form 10-K
(description)

(10.6) *Executive Financial Counseling Service 10.6 1981 Annual Report on Form 10-K
(description)

(10.8.2) *Agreement with P.M. Neal 10.8.2 1998 Annual Report on Form 10-K

(10.8.3) *Agreement with R.G. van Schoonenberg 10.8.3 1996 Annual Report on Form 10-K

(10.8.4) *Form of Employment Agreement 10.8.4 1997 Annual Report on Form 10-K

(10.9) *Executive Group Life Insurance Plan 10.9 1982 Annual Report on Form 10-K

(10.10) *Form of Indemnity Agreement between 10.10 1986 Annual Report on Form 10-K
Registrant and certain directors and
officers

(10.10.1) *Form of Indemnity Agreement between 10.10.1 1993 Annual Report on Form 10-K
Registrant and certain directors and
officers

(10.11) *Amended and Restated Supplemental 10.11.1 1998 Annual Report on From 10-K
Executive Retirement Plan ("SERP")

(10.11.2) *Letter of Grant to Philip M. Neal 10.11.2 1998 Annual Report on From 10-K
under SERP

(10.12) *Complete Restatement and Amendment of 10.12 1994 Annual Report on Form 10-K
Executive Deferred Compensation Plan

(10.13) *Fourth Amended Avery Dennison 10.13.2 1992 Annual Report on Form 10-K
Retirement Plan for Directors

(10.15) *1988 Stock Option Plan for Non- 10.15 1987 Annual Report on Form 10-K
Employee Directors ("Director Plan")

(10.15.1) *Amendment No. 1 to Director Plan 10.15.1 1994 Annual Report on Form 10-K

(10.15.2) *Form of Non-Employee Director Stock 10.15.2 1994 Annual Report on Form 10-K
Option Agreement under Director Plan

(10.15.3) *Amendment No. 2 to Director Plan 10.15.3 2000 Annual Report on Form 10-K

(10.16) *Complete Restatement and Amendment of 10.16 1994 Annual Report on Form 10-K
Executive Variable Deferred Compensation
Plan ("EVDCP")

(10.16.1) *Amendment No. 1 to EVDCP 10.16.1 1999 Annual Report on Form 10-K

(10.17) *Complete Restatement and Amendment of 10.17 1994 Annual Report on Form 10-K
Directors Deferred Compensation Plan

(10.18) *Complete Restatement and Amendment of 10.18 1994 Annual Report on Form 10-K
Directors Variable Deferred Compensation
Plan ("DVDCP")

(10.18.1) *Amendment No. 1 to DVDCP 10.18.1 1999 Annual Report on Form 10-K

Originally
Exhibit Filed as
No. Item Exhibit No. Document
-------- ---- ----------- --------

(10.19) *1990 Stock Option and Incentive Plan 10.19 1989 Annual Report on Form 10-K
("1990 Plan")

(10.19.1) *Amendment No. 1 to 1990 Plan 10.19.1 1993 Annual Report on Form 10-K

(10.19.2) *Form of Incentive Stock Option Agreement 10.19.2 1991 Annual Report on Form 10-K
for use under 1990 Plan

(10.19.3) *Form of Non-Qualified Stock Option 10.19.3 1994 Annual Report on Form 10-K
("NSO") Agreement under 1990 Plan

(10.19.4) *Form of NQSO Agreement under 1990 Plan 10.19.4 1999 Annual Report on Form 10-K

(10.19.5) *Amendment No. 2 to 1990 Plan 10.19.5 1996 Annual Report on Form 10-K

(10.21) *Amended and Restated 1996 Stock 10.21 1999 Annual Report on Form 10-K
Incentive Plan

(10.21.1) *Form of NQSO Agreement under 1996 Plan 10.21.1 1999 Annual Report on Form 10-K

(10.27) *Executive Long-Term Incentive Plan 10.27 1999 Annual Report on Form 10-K

(10.28) *Complete Restatement and Amendment of 10.28 1994 Annual Report on Form 10-K
Executive Deferred Retirement Plan
("EDRP")

(10.28.1) *Amendment No. 1 to EDRP 10.28.1 1999 Annual Report on Form 10-K

(10.29) *Executive Leadership Compensation Plan 10.29 1999 Annual Report on Form 10-K
("ELCP")

(10.30) *Senior Executive Leadership Compensation 10.30 1999 Annual Report on Form 10-K
Plan ("SELCP")

(10.31) *Executive Variable Deferred Retirement 10.31 Registration Statement on Form S-8
Plan ("EVDRP") (File No. 33-63979)

(10.31.1) *Amended and Restated EVDRP 10.31.1 1997 Annual Report on Form 10-K

(10.31.2) *Amendment No. 1 to EVDRP 10.31.2 1999 Annual Report on Form 10-K

(10.32) *Benefit Restoration Plan ("BRP") 10.32 1995 Annual Report on Form 10-K

(10.33) *Restated Trust Agreement for Employee 10.33.1 1997 Annual Report on Form 10-K
Stock Benefit Trust

(10.33.1) *Common Stock Purchase Agreement 10.2 Current Report on Form 8-K filed October 24, 1996

(10.33.2) *Restated Promissory Note 10.33.3 1997 Annual Report on Form 10-K

(10.34) *Amended and Restated Capital 10.34 1999 Annual Report on Form 10-K
Accumulation Plan ("CAP")

(10.34.1) *Trust under CAP 4.2 Registration Statement on Form S-8
(File No. 333-38707)

(10.34.2) *Amendment No. 1 to CAP 10.34.2 1999 Annual Report on Form 10-K

_________________
* Management contract or compensatory plan or arrangement required to be filed
as an Exhibit to this Form 10-K pursuant to Item 14(c).

SUBMITTED HEREWITH:

Exhibit No. Item
----------- ----

3.2 Bylaws, as amended on October 25, 2001

10.28.2 *Amendment No. 2 to EDRP

10.29.1 *Amendment No. 1 to ELCP

10.30.1 *Amendment No. 1 to SELCP

10.31.3 *Amendment No. 2 to EVDRP

10.32.1 *Amended and Restated BRP

10.34.3 *Amendment No. 2 to CAP

12 Computation of Ratio of Earnings to Fixed Changes

13 Portions of Annual Report to Shareholders for fiscal year ended
December 29, 2001

21 List of Subsidiaries

23 Consent of Independent Accountants (see page S-4)

99 Cautionary Statement for Purposes of the "Safe Harbor" Provisions of
the Private Securities Litigation Reform Act of 1995
______________
* Management contract or compensatory plan or arrangement required to be filed
as an Exhibit to this Form 10-K pursuant to Item 14(c).

STATEMENT AND AGREEMENT REGARDING
LONG-TERM DEBT OF REGISTRANT

Except as indicated above, Registrant has no instrument with respect to long-
term debt under which securities authorized thereunder equal or exceed 10% of
the total assets of Registrant and its subsidiaries on a consolidated basis.
Registrant agrees to furnish a copy of its long-term debt instruments to the
Commission upon request.