AVERY DENNISON CORPORATION Management's Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, provides management's views on our financial condition and results of operations and should be read in conjunction with the accompanying unaudited Condensed Consolidated Financial Statements and related notes. NON-GAAP FINANCIAL MEASURES We report our financial results in conformity with accounting principles generally accepted inthe United States of America , or GAAP, and also communicate with investors using certain non-GAAP financial measures. These non-GAAP financial measures are not in accordance with, nor are they a substitute for or superior to, the comparable GAAP financial measures. These non-GAAP financial measures are intended to supplement the presentation of our financial results that are prepared in accordance with GAAP. Based upon feedback from investors and financial analysts, we believe that the supplemental non-GAAP financial measures we provide are useful to their assessments of our performance and operating trends, as well as liquidity. Our non-GAAP financial measures exclude the impact of certain events, activities or strategic decisions. The accounting effects of these events, activities or decisions, which are included in the GAAP financial measures, may make it difficult to assess our underlying performance in a single period. By excluding the accounting effects, positive or negative, of certain items (e.g., restructuring charges, outcome of certain legal proceedings, certain effects of strategic transactions and related costs, losses from debt extinguishments, gains or losses from curtailment or settlement of pension obligations, gains or losses on sales of certain assets, gains or losses on investments and other items), we believe that we are providing meaningful supplemental information that facilitates an understanding of our core operating results and liquidity measures. While some of the items we exclude from GAAP financial measures recur, they tend to be disparate in amount, frequency, or timing. We use these non-GAAP financial measures internally to evaluate trends in our underlying performance, as well as to facilitate comparison to the results of competitors for a single period and full year, as applicable. We use the following non-GAAP financial measures in this MD&A:
? Sales change ex. currency
refers to the increase or decrease in net sales, excluding the estimated
impact of foreign currency translation, and, where applicable, the calendar
shift resulting from the extra week in the prior fiscal year and currency
adjustment for transitional reporting of highly inflationary economies. The
estimated impact of foreign currency translation is calculated on a constant
currency basis, with prior period results translated at current period average
exchange rates to exclude the effect of currency fluctuations.
? Organic sales change
refers to sales change ex. currency, excluding the estimated impact of product
line exits, acquisitions and divestitures.
We believe that sales change ex. currency and organic sales change assist investors in evaluating the sales change from the ongoing activities of our businesses and enhance their ability to evaluate our results from period to period.
? Free cash flow
refers to cash flow provided by operating activities, less payments for
property, plant and equipment, software and other deferred charges, plus
proceeds from sales of property, plant and equipment, plus (minus) net
proceeds from insurance and sales (purchases) of investments. We believe that
free cash flow assists investors by showing the amount of cash we have
available for debt reductions, dividends, share repurchases and acquisitions.
? Operational working capital as a percentage of annualized current quarter net
sales
refers to trade accounts receivable and inventories, net of accounts payable,
and excludes cash and cash equivalents, short-term borrowings, deferred taxes,
other current assets and other current liabilities, as well as net current
assets or liabilities
held-for-sale
divided by annualized current quarter net sales. We believe that operational
working capital as a percentage of annualized current quarter net sales
assists investors in assessing our working capital requirements because it
excludes the impact of fluctuations attributable to our financing and other
activities (which affect cash and cash equivalents, deferred taxes, other
current assets, and other current liabilities) that tend to be disparate in
amount, frequency, or timing, and that may increase the volatility of working
capital as a percentage of sales from period to period. The items excluded
from this measure are not significantly influenced by our
day-to-day
activities managed at the operating level and do not necessarily reflect the
underlying trends in our operations.
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Avery Dennison Corporation
OVERVIEW AND OUTLOOK
COVID-19 Update
Uncertainty surrounding the global health crisis remains elevated as many parts
of the world are experiencing a resurgence in cases related to the
coronavirus/COVID-19 pandemic ("COVID-19"). The safety and well-being of
employees has been and continues to be our top priority. We have taken steps to
ensure employee safety, quickly implementing world-class safety protocols and
continuing to adapt guidelines as the pandemic evolves. Where appropriate, we
may take further actions required by international, federal, state or local
authorities or that we determine are in the best interests of our employees,
customers, suppliers and shareholders.
As supply chains remain tight, we continue to actively manage through a dynamic
supply and demand environment. We are leveraging our global scale and working
closely with customers and suppliers to continue delivering industry-leading
products and services. We are mitigating risk to keep supply chain disruptions
negligible and demonstrating agility and preparedness through robust scenario
planning.
Net Sales
The factors impacting reported net sales change, as compared to the prior-year
period, are shown in the table below.
Three Months Ended
April 3, 2021
Reported sales change 19 %
Foreign currency translation (4 )
Extra week impact (4 )
Sales change ex. currency
(1) 11
Acquisitions and product line exit (2 )
Organic sales change
(1) 9 %
(1) Totals may not sum due to rounding
In the three months endedApril 3, 2021 , net sales increased on an organic basis compared to the same period in the prior year primarily due to higher volume/mix. Net Income Net income increased from approximately$134 million in the first three months of 2020 to approximately$210 million in the first three months of 2021. Major factors affecting the change in net income included the following: ? Higher volume/mix ? Lower allowances for credit losses ? Benefits from productivity initiatives, including savings from restructuring actions, net of transition costs
Offsetting factors:
? Higher employee-related costs ? Net impact of pricing and raw material input costs
Acquisitions
OnMarch 18, 2021 , we completed our acquisition of the net assets ofZippyYum, LLC ("ZippyYum"), aCalifornia -based developer of software products used in the food service and food preparation industries. We believe this acquisition enhances our product portfolio in our Retail Branding and Information Solutions ("RBIS") reportable segment. OnMarch 1, 2021 , we completed our stock acquisition ofJDC Solutions, Inc. ("JDC"), aTennessee -based manufacturer of pressure sensitive specialty tapes. We believe this acquisition expands the product portfolio in our Industrial and Healthcare Materials ("IHM") reportable segment. The acquisitions of ZippyYum and JDC are referred collectively as the "2021 Acquisitions." The aggregate purchase consideration for the 2021 Acquisitions, which is subject to customary post-closing adjustments, was approximately$42 million . The 2021 Acquisitions were funded using cash and existing credit facilities. In addition to the cash paid at closing, the sellers in one of these acquisitions are eligible for earn-out payments of up to approximately$13 million subject to their achievement of certain performance targets. Based on our estimates, we have accrued approximately$12 million for these earn-out payments, which has been included in the$42 million of aggregate purchase consideration. Consistent with the allowable time to complete our assessment, the valuation of certain acquired assets and liabilities, including tangible and intangible assets, environmental liabilities and income taxes, are currently pending. These acquisitions were not material, individually or in the aggregate, to the unaudited Condensed Consolidated Financial Statements. 19
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Cost Reduction Actions
2019/2020 Actions
During
the three months ended April 3, 2021 , we recorded $2.7 million in restructuring
charges related to our 2019/2020 actions. These charges consisted of severance
and related costs for the reduction of approximately 100 positions at numerous
locations across our company, which primarily included actions in our RBIS
reportable segment. The actions were primarily related to global headcount and
footprint reductions, with some actions accelerated and expanded in response to
COVID-19.
Restructuring charges were included in "Other expense (income), net" in the
unaudited Condensed Consolidated Statements of Income. Refer to Note 6, "Cost
Reduction Actions," to the unaudited Condensed Consolidated Financial Statements
for more information.
Cash Flow
Three Months Ended
(In millions) April 3, 2021 March 28, 2020
Net cash provided by operating activities $ 209.3 $ 4.4
Purchases of property, plant and equipment (25.2 ) (33.2 )
Purchases of software and other deferred charges (2.3 ) (6.2 )
Proceeds from sales of property, plant and equipment .7 -
Proceeds from insurance and sales (purchases) of
investments, net (.5 ) (.3 )
Free cash flow $ 182.0 $ (35.3 )
During the first three months of 2021, net cash provided by operating activities increased compared to the same period last year primarily due to changes in operational working capital and higher net income. During the first three months of 2021, free cash flow increased compared to the same period last year primarily due to an increase in net cash provided by operating activities and a decrease in purchases of property, plant and equipment. Outlook In addition to the continued uncertain impact on COVID-19 on our businesses, certain factors that we believe may contribute to our 2021 results are described below.
? We expect net sales to increase by approximately 10% to 12%, including an
increase of 2% from the effect of foreign currency translation and a
decrease of 1% related to the calendar shift resulting from the extra week
in 2020.
? Based on recent exchange rates, we expect foreign currency translation to
increase our operating income by approximately $25 million .
? We expect incremental savings from restructuring actions, net of transition
costs, of approximately $70 million .
? We expect our full year effective tax rate to be in the mid-twenty percent
range.
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ANALYSIS OF RESULTS OF OPERATIONS FOR THE FIRST QUARTER Income Before Taxes
Three Months Ended
(In millions, except percentages) April 3, 2021 March 28, 2020
Net sales $ 2,051.3 $ 1,723.0
Cost of products sold 1,454.3 1,237.9
Gross profit 597.0 485.1
Marketing, general and administrative expense 312.3 281.0
Other expense (income), net .9 4.9
Interest expense 16.2 18.8
Other non-operating expense (income), net (1.3 ) (.5 )
Income before taxes $ 268.9 $ 180.9
Gross profit margin 29.1 % 28.2 %
Gross Profit Margin
Gross profit margin for the first three months of 2021 increased from the same
period last year primarily due to higher volume, partially offset by higher
employee-related costs.
Marketing, General and Administrative Expense
Marketing, general and administrative expense increased in the first three
months of 2021 compared to the same period last year primarily due to higher
employee-related costs, partially offset by lower allowances for credit losses
and benefits from productivity initiatives, including savings from restructuring
actions, net of transition costs.
Other Expense (Income), Net
Three Months Ended
(In millions) April 3, 2021 March 28, 2020
Other expense (income), net, by type
Restructuring charges:
Severance and related costs $ 2.4 $ 2.4
Asset impairment charges and lease cancellation costs .5 -
Other items:
Outcome of legal proceedings 2.1 -
Transaction and related costs .7 2.5
Gain on sale of product line (4.8 ) -
Other expense (income), net $ .9 $ 4.9
Refer to Note 6, "Cost Reduction Actions," to the unaudited Condensed
Consolidated Financial Statements for more information regarding restructuring
charges.
Interest Expense
Interest expense decreased in the first three months of 2021 compared to the
same period last year reflecting lower borrowing rates on outstanding
indebtedness.
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Net Income and Earnings per Share
Three Months Ended
(In millions, except per share amounts and percentages)
$ 268.9 $ 180.9
Provision for (benefit from) income taxes 58.1 46.3
Equity method investment (losses) gains (1.3 ) (.4 )
Net income $ 209.5 $ 134.2
Per share amounts:
Net income per common share $ 2.52 $ 1.61
Net income per common share, assuming dilution 2.50 1.60
Effective tax rate 21.6 % 25.6 %
Provision for (Benefit from) Income Taxes
Our effective tax rate for the three months ended April 3, 2021 was 21.6%
compared to 25.6% in the same period last year. The tax rate for the three
months ended April 3, 2021 primarily reflected a return-to-provision benefit
related to an election made on our amended 2018 U.S. tax return filed subsequent
to the end of our first quarter of 2021. Refer to Note 8, "Taxes Based on
Income," to the unaudited Condensed Consolidated Financial Statements for more
information.
We estimate our effective tax rate for fiscal year 2021 to be in the mid-twenty
percent range. Our effective tax rate can vary from quarter to quarter due to a
variety of factors, such as changes in the mix of earnings in countries with
differing statutory tax rates, changes in tax reserves, settlements of income
tax audits, changes in tax laws and regulations,
return-to-provision
adjustments, tax impacts related to stock-based payments and execution of tax
planning strategies.
RESULTS OF OPERATIONS BY REPORTABLE SEGMENT FOR THE FIRST QUARTER
Operating income refers to income before taxes, interest and other
non-operating
expense (income), net.
Label and Graphic Materials
Three Months Ended
(In millions) April 3, 2021 March 28, 2020
Net sales including intersegment sales $ 1,398.6 $ 1,195.9
Less intersegment sales (21.6 ) (22.4 )
Net sales $ 1,377.0 $ 1,173.5
Operating income
(1) 226.2 172.5
(1)
Included charges associated with restructuring actions
and transaction and related costs in both years, and
outcome of legal proceedings and gain on sale of
product line in 2021 $ (1.9 ) $ 1.1
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Avery Dennison Corporation Net Sales The factors impacting reported net sales change are shown in the table below. Three Months EndedApril 3, 2021 Reported sales change 17 % Foreign currency translation (5 ) Extra week impact (4 ) Sales change ex. currency (1) 8 Acquisitions and product line exit (1 ) Organic sales change (1) 8 %
(1) Totals may not sum due to rounding
In the first three months of 2021, net sales increased on an organic basis compared to the same period in the prior year due to higher volume/mix. On an organic basis, net sales increased by a mid-teens rate in emerging markets and low-single digit rates inNorth America andWestern Europe . Operating Income Operating income increased in the first three months of 2021 compared to the same period last year primarily due to favorable volume/mix, lower allowances for credit losses, favorable foreign currency translation and benefits from productivity initiatives, including savings from restructuring actions, net of transition costs. These benefits were partially offset by higher employee-related costs and the net impact of pricing and raw material costs. Retail Branding and Information Solutions Three Months Ended (In millions) April 3, 2021 March 28, 2020 Net sales including intersegment sales $ 491.0 $ 408.4 Less intersegment sales (8.3 ) (6.5 ) Net sales $ 482.7 $ 401.9 Operating income (1) 60.0 30.9 (1)
Included charges associated with restructuring actions and transaction and related costs in both years, and loss on sale of asset in 2021
$ 2.1 $ 3.3
Net Sales
The factors impacting reported net sales change are shown in the table below.
Three Months Ended
April 3, 2021
Reported sales change 20 %
Foreign currency translation (2 )
Extra week impact (3 )
Sales change ex. currency
(1) 15
Acquisitions (6 )
Organic sales change
(1) 9 %
(1) Totals may not sum due to rounding
In the first three months of 2021, sales ex. currency increased compared to the same period in the prior year due to an increase of approximately 40% of our radio-frequency identification ("RFID") solutions, including the benefit of the acquisition of Smartrac's Transponder (RFID Inlay) division ("Smartrac"), and a mid-single digit rate increase in the base business. The substantial majority of our sales of Intelligent Labels are reported within our RBIS reportable segment. On an organic basis, net sales in the segment related to Intelligent Labels increased by a high-teens rate. Company-wide, sales of Intelligent Labels solutions increased on an organic basis by approximately 20%.
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Avery Dennison Corporation Operating Income Operating income increased in the first three months of 2021 compared to the same period last year primarily due to higher volume, lower allowances for credit losses and benefits from productivity initiatives, including savings from restructuring actions, net of transition costs, partially offset by higher employee-related costs and growth investments. Industrial and Healthcare Materials Three Months Ended (In millions) April 3, 2021 March 28, 2020 Net sales including intersegment sales $ 193.7 $ 149.2 Less intersegment sales (2.1 ) (1.6 ) Net sales $ 191.6 $ 147.6 Operating income (1) 23.5 14.9 (1)
Included transaction and related costs and gain on sale of assets in 2021 and charges associated with restructuring actions in 2020
$ .1 $ .5
Net Sales
The factors impacting reported net sales change are shown in the table below.
Three Months Ended
April 3, 2021
Reported sales change 30 %
Foreign currency translation (7 )
Extra week impact (5 )
Sales change ex. currency
(1) 19
Acquisitions (3 )
Organic sales change
(1) 16 %
(1) Totals may not sum due to rounding
In the first three months of 2021, net sales increased on an organic basis
compared to the same period in the prior year primarily due to an increase of
approximately 20% in industrial categories, partially offset by a
low-single
digit rate decline in healthcare categories.
Operating Income
Operating income increased in the first three months of 2021 compared to the
same period last year primarily due to higher volume/mix, partially offset by
higher employee-related costs.
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Avery Dennison Corporation
FINANCIAL CONDITION
Liquidity
Operating Activities
Three Months Ended
(In millions) April 3, 2021 March 28, 2020
Net income $ 209.5 $ 134.2
Depreciation 40.0 36.8
Amortization 14.4 10.7
Provision for credit losses and sales returns 8.9 31.2
Stock-based compensation 9.9 6.3
Pension plan settlement loss .4 -
Deferred taxes and other
non-cash
taxes 1.5 6.4
Other
non-cash
expense and loss (income and gain), net 2.7 4.4
Changes in assets and liabilities and other adjustments (78.0 ) (225.6 )
Net cash provided by operating activities $ 209.3 $ 4.4
During the first three months of 2021, net cash provided by operating activities increased compared to the same period last year primarily due to changes in operational working capital and higher net income. Investing Activities
Three Months Ended
(In millions) April 3, 2021 March 28, 2020
Purchases of property, plant and equipment $ (25.2 ) $ (33.2 )
Purchases of software and other deferred charges (2.3 ) (6.2 )
Proceeds from sales of property, plant and equipment .7 -
Proceeds from insurance and sales (purchases) of
investments, net (.5 ) (.3 )
Proceeds from sale of product line 6.7 -
Payments for acquisitions, net of cash acquired, and investments in businesses
(30.6 ) (245.9 )
Net cash used in investing activities $ (51.2 ) $ (285.6 )
Purchases of Property, Plant and Equipment
During the first three months of 2021, we primarily invested in equipment to
support growth in the U.S. for our Labels and Graphic Materials ("LGM") and IHM
reportable segments and in certain countries in Asia for our RBIS reportable
segment. During the first three months of 2020, we primarily invested in
equipment and expanded manufacturing facilities to support growth in the U.S.
for our LGM reportable segment and in the U.S. and certain countries in Asia for
our RBIS reportable segment.
Purchases of Software and Other Deferred Charges
During the first three months of 2021, we invested in information technology
upgrades in the U.S. During the first three months of 2020, we invested in
information technology upgrades worldwide.
Proceeds from Sale of Product Line
During the first three months of 2021, proceeds from the sale of a product line
were in our LGM reportable segment.
Payments for Acquisitions, Net of Cash Acquired, and Investments in Businesses
During the first three months of 2021, we paid consideration, net of cash
acquired, of approximately $30 million for the 2021 Acquisitions, which we
funded using cash and existing credit facilities. During the first three months
of 2020, we paid consideration, net of cash acquired, of approximately
$246 million to acquire Smartrac, which we initially funded using commercial
paper borrowings. We also invested in certain strategic unconsolidated
businesses in both 2021 and 2020.
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Financing Activities
Three Months Ended
(In millions) April 3, 2021 March 28, 2020Net increase (decrease) in borrowings (maturities of three months or less)
$ 53.8 $ (106.0 )
Additional borrowings under revolving credit facility - 500.0
Additional long-term borrowings - 494.4
Repayments of long-term debt and finance leases (1.5 ) (1.1 )
Dividends paid (51.6 ) (48.4 )
Share repurchases (55.6 ) (45.2 )
Net (tax withholding) proceeds related to stock-based compensation
(25.3 ) (20.0 )
Net cash (used in) provided by financing activities $ (80.2 ) $ 773.7
Borrowings and Repayment of Debt
During the first three months of 2021 and 2020, our commercial paper borrowings
were used to fund dividend payments, share repurchases and capital expenditures,
and for other general corporate purposes. During the first quarter of 2020,
commercial paper borrowings were also used for the Smartrac acquisition, with
those borrowings subsequently repaid using the net proceeds of $494.4 million
from the $500 million of senior notes we issued in March 2020 . We used the
remaining proceeds from these notes to repay our $250 million aggregate
principal amount of senior notes that matured in April 2020 .
In the first quarter of 2020, in light of uncertainty as a result of
COVID-19
regarding the availability of commercial paper, which we typically rely upon to
fund our
day-to-day
operational needs, and the relatively favorable terms under our $800 million
revolving credit facility (the "Revolver"), we borrowed $500 million from the
Revolver with a
six-month
duration. This amount was repaid in June 2020 .
Dividends Paid
We paid dividends of $.62 per share in the first three months of 2021 compared
to $.58 per share in the same period last year. In April 2021 , subsequent to the
end of our first quarter of 2021, we increased our quarterly dividend rate to
$.68 per share, representing an increase of approximately 10% from our previous
dividend rate of $.62 per share.
Share Repurchases
During the first three months of 2021 and 2020, we repurchased approximately
.3 million and .4 million shares of our common stock, respectively.
Net (Tax Withholding) Proceeds Related to Stock-Based Compensation
During the first three months of 2021, tax withholding for stock-based
compensation increased compared to the same period last year primarily as a
result of equity awards vesting at higher share prices.
Analysis of Selected Balance Sheet Accounts
Long-lived Assets
In the three months ended April 3, 2021 , goodwill increased by approximately
$5 million to $1.14 billion , which reflected the preliminary valuation of
goodwill associated with the 2021 Acquisitions, partially offset by the impact
of foreign currency translation.
In the three months ended April 3, 2021 , other intangibles resulting from
business acquisitions, net, decreased by approximately $3 million to
$221.9 million , which reflected current year amortization expense and the impact
of foreign currency translation, partially offset by the valuation of other
intangibles from the 2021 Acquisitions.
Refer to Note 3, "Goodwill and Other Intangibles Resulting from Business
Acquisitions," to the unaudited Condensed Consolidated Financial Statements for
more information.
Shareholders' Equity Accounts
As of April 3, 2021 , the balance of our shareholders' equity was $1.58 billion .
Refer to Note 10, "Supplemental Equity and Comprehensive Income Information," to
the unaudited Condensed Consolidated Financial Statements for more information.
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Impact of Foreign Currency Translation
Three Months Ended
(In millions) April 3, 2021
Change in net sales $ 66
International operations generated approximately 77% of our net sales during the
three months ended April 3, 2021 . Our future results are subject to changes in
political and economic conditions in the regions in which we operate and the
impact of fluctuations in foreign currency exchange and interest rates.
The favorable impact of foreign currency translation on net sales in the first
three months of 2021 compared to the same period last year was primarily related
to euro-denominated sales and sales in China .
Effect of Foreign Currency Transactions
The impact on net income from transactions denominated in foreign currencies is
largely mitigated because the costs of our products are generally denominated in
the same currencies in which they are sold. In addition, to reduce our income
and cash flow exposure to transactions in foreign currencies, we enter into
foreign exchange forward, option and swap contracts where available and
appropriate. Refer to Note 7, "Financial Instruments," to the unaudited
Condensed Consolidated Financial Statements for more information.
Analysis of Selected Financial Ratios
We utilize the financial ratios discussed below to assess our financial
condition and operating performance. We believe this information assists our
investors in understanding the drivers of our cash flow other than net income
and capital expenditures.
Operational Working Capital Ratio
Operational working capital, as a percentage of annualized current-quarter net
sales, is reconciled to working capital below. Our objective is to minimize our
investment in operational working capital, as a percentage of annualized
current-quarter net sales, to maximize cash flow and return on investment.
Operational working capital, as a percentage of annualized current-quarter net
sales, in the first quarter of 2021 was lower compared to the first quarter of
2020.
(In millions, except percentages) April 3, 2021 March 28, 2020
(A) Working capital $ 573.9 $ 353.5
Reconciling items:
Cash and cash equivalents (328.0 ) (742.0 )
Other current assets (216.3 ) (225.8 )
Short-term borrowings and current portion of
long-term debt and finance leases 116.9 832.3
Accrued payroll and employee benefits and other
current liabilities 763.6 697.0
(B) Operational working capital $ 910.1 $ 915.0
(C) First-quarter net sales, annualized $ 8,205.2 $ 6,892.0
Operational working capital, as a percentage of
annualized current-quarter net sales: (B) ÷ (C) 11.1 % 13.3 %
Accounts Receivable Ratio
The average number of days sales outstanding was 58 days in the first quarter of
2021 compared to 65 days in the first quarter of 2020, calculated using the
accounts receivable balance at
quarter-end
divided by the average daily sales in the first quarter of 2021 and 2020,
respectively. The decrease in the average number of days sales outstanding
primarily reflected the impact of focused collection efforts.
Inventory Ratio
Average inventory turnover was 7.4 in the first quarter of 2021 compared to 6.9
in the first quarter of 2020, calculated using the annualized first-quarter cost
of products sold in 2021 and 2020, respectively, and divided by the inventory
balance at
quarter-end.
The increase in average inventory turnover primarily reflected planned inventory
pre-build as a result of increasing raw material prices.
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Avery Dennison Corporation Accounts Payable Ratio The average number of days payable outstanding was 74 days in the first quarter of 2021 compared to 76 days in the first quarter of 2020, calculated using the accounts payable balance at quarter-end divided by the annualized first-quarter cost of products sold in 2021 and 2020, respectively. The decrease in the average number of days payable outstanding from the prior year primarily reflected the timing of vendor payments. Capital Resources Capital resources include cash flows from operations, cash and cash equivalents, and debt financing, including access to commercial paper supported by our Revolver. We use these resources to fund our operational needs. As ofApril 3, 2021 , we had cash and cash equivalents of$328 million held in accounts at third-party financial institutions. Our cash balances are held in numerous locations throughout the world. As ofApril 3, 2021 , the majority of our cash and cash equivalents was held by our foreign subsidiaries, primarily inEurope andAsia Pacific . To meetU.S. cash requirements, we have several cost-effective liquidity options available. These options include borrowing funds at reasonable rates, including borrowings from foreign subsidiaries, and repatriating foreign earnings and profits. However, if we were to repatriate foreign earnings and profits, a portion would be subject to cash payments of withholding taxes imposed by foreign tax authorities. AdditionalU.S. taxes may also result from the impact of foreign currency movements related to these earnings and profits. The Revolver, which matures inFebruary 2025 , is used as a back-up facility for our commercial paper program and can be used for other corporate purposes. No balance was outstanding under the Revolver as ofApril 3, 2021 orJanuary 2, 2021 . Capital from Debt The carrying value of our total debt increased by approximately$26 million in the first three months of 2021 to$2.14 billion , primarily reflecting a net increase in commercial paper borrowings. Credit ratings are a significant factor in our ability to raise short- and long-term financing. The credit ratings assigned to us also impact the interest rates we pay and our access to commercial paper, credit facilities, and other borrowings. A downgrade of our short-term credit ratings could impact our ability to access commercial paper markets. If our access to commercial paper markets were to become limited, as it did in the first quarter of 2020 as a result of COVID-19, we believe that the Revolver and our other credit facilities would be available to meet our short-term funding requirements. When determining a credit rating, we believe that rating agencies primarily consider our competitive position, business outlook, consistency of cash flows, debt level and liquidity, geographic dispersion and management team. There has been no change to the credit ratings assigned to us as a result of COVID-19. We remain committed to maintaining an investment grade rating. Off-Balance Sheet Arrangements, Contractual Obligations, and Other Matters Refer to Note 12, "Commitments and Contingencies," to the unaudited Condensed Consolidated Financial Statements for this information. Except as indicated therein, we have no material off-balance sheet arrangements as described in Item 303(b) of Regulation S-K. 28
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