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As filed with the Securities and Exchange Commission on December 23, 2013

Registration No. 333-                

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM F-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Gates Global Inc.

(Exact name of registrant as specified in its charter)

 

 

 

British Virgin Islands   3714   Not applicable

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification No.)

Ritter House, 5th Floor, P.O. Box 3200

Road Town, Tortola, British Virgin Islands

(Address, including zip code, and telephone number, including area code, of the registrant’s principal executive offices)

 

 

Thomas C. Reeve

Executive Vice President and General Counsel

Gates Global Inc.

1551 Wewatta Street

Denver, Colorado 80202

(303) 744-1911

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Rachel W. Sheridan

Shagufa R. Hossain

Latham & Watkins LLP

555 Eleventh Street, NW

Washington, DC 20004

(202) 637-2200

 

Daniel J. Bursky

Andrew B. Barkan

Fried, Frank, Harris, Shriver & Jacobson LLP

One New York Plaza

New York, New York 10004

(212) 859-8000

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ¨

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of each class of

securities to be registered

 

Proposed

maximum

aggregate
offering price(a)(b)

  Amount of
registration fee

Ordinary shares, $0.01 par value per share

  $100,000,000   $12,880

 

 

(a) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(o) promulgated under the Securities Act of 1933, as amended.
(b) Includes additional ordinary shares, if any, that may be purchased by the underwriters. See “Underwriting.”

 

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended or until this registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this preliminary prospectus is not complete and may be changed. The selling shareholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

Subject to Completion

Preliminary Prospectus dated December 23, 2013

PROSPECTUS

Ordinary Shares

 

LOGO

Gates Global Inc.

 

 

This is Gates Global Inc.’s initial public offering. The selling shareholders are offering                      ordinary shares, par value $0.01 per share, in this offering. We will not receive any proceeds from the sale of shares held by the selling shareholders. The selling shareholders in this offering include affiliates of Onex Corporation and Canada Pension Plan Investment Board.

We expect the public offering price to be between $             and $             per share. Currently, no public market exists for our ordinary shares. We intend to apply for listing of our ordinary shares on              under the symbol “            .”

 

 

Investing in the ordinary shares involves risks that are described in the “Risk Factors” section beginning on page 19 of this prospectus.

 

     Per Share      Total  

Public Offering Price

   $                    $                

Underwriters’ Discounts and Commissions(1)

   $         $     

Proceeds to the Selling Shareholders

   $         $     

 

(1) See “Underwriting” for a detailed description of compensation payable to the underwriters.

The underwriters may also purchase up to an additional                      ordinary shares from the selling shareholders at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The ordinary shares will be ready for delivery on or about                     , 2014.

 

 

 

BofA Merrill Lynch   Citigroup   Goldman, Sachs & Co.

 

Barclays   Credit Suisse   J.P. Morgan   RBC Capital Markets

 

Deutsche Bank Securities   Morgan Stanley   Nomura   UBS Investment Bank   KeyBanc Capital Markets

 

 

The date of this prospectus is                     , 2014.


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TABLE OF CONTENTS

 

     Page  

Prospectus Summary

     1   

Risk Factors

     19   

Forward-Looking Statements

     38   

Use of Proceeds

     40   

Dividend Policy

     41   

Capitalization

     42   

Dilution

     43   

Selected Historical Financial Information

     44   

Unaudited Pro Forma Condensed Consolidated Financial Information

     46   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     54   

Business

     119   

Management

     139   

Certain Relationships and Related Party Transactions

     149   

Principal and Selling Shareholders

     151   

Description of Share Capital

     154   

Shares Eligible For Future Sale

     168   

Taxation

     170   

Enforceability of Civil Liabilities

     178   

Underwriting

     179   

Expenses Related to the Offering

     187   

Validity of Ordinary Shares

     188   

Experts

     188   

Where You Can Find Additional Information

     188   

Index to Consolidated Financial Statements

     F-1   

 

 

We are responsible for the information contained in this prospectus and in any related free-writing prospectus we prepare or authorize and you should only rely on such information. We, the selling shareholders and the underwriters have not authorized anyone to give you any other information, and we, the selling shareholders and the underwriters take no responsibility for any other information that others may give you. The selling shareholders are offering to sell, and seeking offers to buy, shares of our ordinary shares only in jurisdictions where offers and sales are permitted. The information in this prospectus is only be accurate as of the date of this prospectus, regardless of its time of delivery or of any sales of shares of our ordinary shares. Our business, financial condition, results of operations or cash flows may have changed since such date. This prospectus has not been, and will not be, registered under the laws and regulations of the British Virgin Islands, nor has any regulatory authority in the British Virgin Islands passed comment upon or approved the accuracy or adequacy of this prospectus.

 

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BASIS OF PRESENTATION AND OTHER INFORMATION

GATES

Unless the context otherwise requires, all references to “Gates,” the “Company,” “we,” “us” and “our” refer to Gates Global Inc., a British Virgin Islands, or BVI, business company (limited by shares) incorporated under the laws of the BVI on December 12, 2013, together with the entities that will become its consolidated subsidiaries prior to completion of the offering contemplated hereby. The entities that will become the consolidated subsidiaries of Gates consist of the subsidiaries currently held indirectly by Pinafore Cooperatief U.A., which we refer to as the Coop, and its wholly owned direct subsidiary, Pinafore Holdings B.V., which we refer to as Pinafore. Prior to completion of the offering contemplated hereby and upon completion of the Distribution Transactions (defined below) the Coop will be contributed by its existing shareholders to Gates in exchange for ordinary shares of Gates. Thereafter, the Coop will be liquidated, and Gates will become the direct parent of Pinafore.

In addition, prior to the completion of the offering, certain non-core assets of Pinafore will be distributed from Pinafore to its existing ultimate shareholders. The non-core assets that will be distributed are:

 

    the Aquatic group, which manufactures baths and whirlpools for the residential and hotel and resort development markets in North America;

 

    various parcels of real estate held by a number of real estate companies; and

 

    equity interests in the Schrader group, which were retained after the April 2012 disposition of Schrader by Pinafore.

We collectively refer to these non-core assets as the “Non-Gates Assets,” and the distribution of these assets to the existing ultimate shareholders as the “Distribution Transactions.”

As Gates will have no other interest in any operations other than those of Pinafore, the historical financial information presented in this prospectus is that of Pinafore, and with respect to the historical and pro forma financial information and other data presented in this prospectus, including under the headings “Prospectus Summary—Summary Historical Audited and Unaudited Condensed Consolidated Financial Information,” “Capitalization,” “Selected Historical Financial Information,” “Unaudited Pro Forma Condensed Consolidated Financial Information” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our financial statements and related notes thereto included elsewhere in this prospectus, all references to the “Company,” “we,” “us” or “our” refer to Pinafore.

PINAFORE

All references to “Pinafore,” the “Group” and “Successor” refer to Pinafore, a private company with limited liability (besloten vennootschap met beperkte aansprakelijkheid) incorporated under the laws of The Netherlands, and its consolidated subsidiaries. Pinafore draws up its annual financial statements to December 31. Although Pinafore was incorporated on September 1, 2010, it had no assets or liabilities (other than the proceeds of the ordinary shares issued on incorporation) and no operations prior to the acquisition of Tomkins plc, or Tomkins, on September 29, 2010, which we refer to as the Acquisition. Accordingly, this prospectus contains audited Successor consolidated financial statements that present the results of the Successor’s operations for the year from January 1, 2012 to December 31, 2012, or Fiscal 2012, the year from January 1, 2011 to December 31, 2011, or Fiscal 2011, and the 14-week period from September 25, 2010 to December 31, 2010, or Q4 2010.

As a consequence of the Acquisition, financial information in this prospectus includes “Predecessor” information relating to Tomkins and its subsidiaries. Prior to the Acquisition, Tomkins plc drew up its annual financial statements to the Saturday nearest December 31. Accordingly, Predecessor consolidated financial statements are presented for the period from January 3, 2010 to September 24, 2010, or 9M 2010. The Predecessor financial statements do not reflect the effects of the accounting for, or the financing of, the Acquisition.

 

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We have included in this prospectus the unaudited condensed consolidated financial statements of Pinafore for the 39-week period from January 1, 2013 to September 28, 2013, which we refer to as the 9M 2013, with comparative information for the 39-week period from January 1, 2012 to September 29, 2012, which we refer to as the 9M 2012.

During 2011 and 2012, Pinafore exited a significant number of its non-core businesses. Pinafore distinguishes within its continuing operations between those of its operating segments that are ongoing, which are referred to as “ongoing,” and those that have been exited but do not meet the conditions to be classified as discontinued operations under International Financial Reporting Standards, or IFRS, which are referred to as “exited businesses.”

Effective January 1, 2013, Pinafore adopted a number of IFRS accounting pronouncements. The only one of these that had any significant impact on the results or financial position of Pinafore during the periods presented in this prospectus was the retrospective application of IAS 19 “Employee Benefits (2011),” which we refer to as IAS 19R. The retrospective adoption of this pronouncement had no impact on the consolidated balance sheet as of December 31, 2012 or December 31, 2011, but did impact Pinafore’s results from operations for Fiscal 2012, 9M 2012, Fiscal 2011, 9M 2010 and Q4 2010, the effects of which are summarized in note 3A to the audited consolidated financial statements and note 1 to the unaudited condensed consolidated financial statements included elsewhere in this prospectus. Comparative information for all periods is therefore presented on a comparable basis.

Pinafore also reclassified certain comparative numbers to present more appropriately Pinafore’s expenses based on their function. Cost of sales in each comparative period have been reduced and a corresponding adjustment have been made to distribution expenses and to administrative expenses. These reclassifications, which are set out in detail in note 3A to the audited consolidated financial statements and note 1 to the unaudited condensed, consolidated financial statements included elsewhere in this prospectus, have had no impact on operating profit for the periods affected.

In addition to the items outlined above, Pinafore has re-presented its comparative financial information for revisions to its segmental reporting as described in note 5 to the audited consolidated financial statements and note 2 to the unaudited condensed consolidated financial statements included elsewhere in this prospectus.

For the twelve months ended September 28, 2013, the Non-Gates Assets accounted for approximately 4% of Pinafore’s continuing sales, 0.2% of Adjusted EBITDA and a loss for the period of $9.3 million. The Non-Gates Assets are reflected in the financial statements included elsewhere in this prospectus. To reflect the distribution of the Non-Gates Assets to the ultimate shareholders of Pinafore, which constitutes a common control transaction, pro forma financial information has been presented in “Unaudited Pro Forma Condensed Consolidated Financial Information” included elsewhere in this prospectus to identify the results and financial position of Pinafore as if the distribution of the Non-Gates Assets had occurred on September 28, 2013 for purposes of the unaudited pro forma condensed consolidated balance sheet and as of January 1, 2010 for purposes of unaudited pro forma condensed consolidated income statements for 9M 2013, Fiscal 2012, Fiscal 2011 and Fiscal 2010. The unaudited pro forma financial information has been prepared in accordance with the Securities and Exchange Commission, or the SEC, Regulation S-X Article 11 and incorporates adjustments that give effect to the distribution of the Non-Gates Assets. The unaudited pro forma financial information does not comply with IFRS or accounting principles generally accepted in the United States of America, or US GAAP, and does not purport either to represent actual results or to be indicative of results we might achieve in future periods.

The financial statements appearing in this prospectus are presented in US dollars and are prepared in accordance with IFRS as issued by the International Accounting Standards Board, or IASB, which differs in certain respects from US GAAP.

 

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NON-GAAP METRICS

We assess the performance of our businesses using a variety of measures. Certain of these measures are not explicitly defined under IFRS and are therefore termed Non-GAAP measures. Under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Measures” we identify and explain the relevance of each of the Non-GAAP measures referenced herein, show how they are calculated and present a reconciliation to the most directly comparable measure defined under IFRS. We do not regard these Non-GAAP measures as a substitute for, or superior to, the equivalent measures defined under IFRS. The Non-GAAP measures that we use may not be directly comparable with similarly-titled measures used by other companies.

MARKET AND INDUSTRY DATA

The market data and other statistical information used throughout this prospectus are based on independent industry publications, reports by market research firms or other published independent sources. Some market data and statistical information are also based on our good faith estimates, which are derived from management’s knowledge of our industry and such independent sources referred to above. Certain market, ranking and industry data included elsewhere in this prospectus, including the size of certain markets and our size or position and the positions of our competitors within these markets, including our services relative to our competitors, are based on estimates of our management. These estimates have been derived from our management’s knowledge and experience in the markets in which we operate, as well as information obtained from surveys, reports by market research firms, our customers, distributors, suppliers, trade and business organizations and other contacts in the markets in which we operate. Unless otherwise noted, all of our market share and market position information presented in this prospectus is an approximation. Our market share and market position in each of our businesses and divisions, unless otherwise noted, is based on our sales relative to the estimated sales in the markets we served. References herein to our being a leader in a market or product category refer to our belief that we have a leading market share position in each specified market, unless the context otherwise requires. As there are no publicly available sources supporting this belief, it is based solely on our internal analysis of our sales as compared to our estimates of sales of our competitors. In addition, the discussion herein regarding our various end markets is based on how we define the end markets for our products, which products may be either part of larger overall end markets or end markets that include other types of products and services.

Certain monetary amounts, percentages and other figures included elsewhere in this prospectus have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables or charts may not be the arithmetic aggregation of the figures that precede them, and figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated may not be the arithmetic aggregation of the percentages that precede them.

TRADEMARKS

We own or have rights to trademarks, service marks or trade names that we use in connection with the operation of our business. In addition, our names, logos and website domain names and addresses are our service marks or trademarks. We do not intend our use or display of other companies’ trademarks, service marks, copyrights or trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies. The trademarks we own or have the right to use include, among others, Gates and Tomkins. We also own or have the rights to copyrights that protect the content of our literature, be it in print or electronic form. Solely for convenience, the trademarks, service marks, tradenames and copyrights referred to in this prospectus are listed without the ©, ® and symbols, but we will assert, to the fullest extent under applicable law, our rights to these trademarks, service marks and tradenames.

 

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CERTAIN DEFINITIONS

In this prospectus, unless otherwise indicated or the context otherwise requires, the following terms have the following meanings:

First-fit, refers to the sale of our products as pre-qualified components on original equipment.

Fluid Power, refers to the category of products sold by Gates that includes:

 

    high-pressure, reinforced rubber hydraulic hoses;

 

    metal hydraulic hose couplings and other fittings;

 

    hoses used in a wide variety of industrial fluid transfer applications;

 

    curved and molded hoses used to convey fluids in commercial and light vehicle engines; and

 

    high-performance hoses used in the oil and gas industry. Gates’ hose maintenance services business is also included in this category.

Power Transmission, refers to the category of products sold by Gates that includes:

 

    rubber V-belts;

 

    rubber ribbed V-belts;

 

    rubber synchronous timing belts;

 

    polyurethane belts;

 

    metal tensioners and idler pulleys;

 

    accessory belt drive kits; and

 

    timing belt kits.

 

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PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus. Because this is only a summary, it does not contain all of the information that may be important to you. You should read this entire prospectus and should consider, among other things, the matters set forth under “Risk Factors,” “Selected Historical Financial Information” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our financial statements and related notes thereto appearing elsewhere in this prospectus before making your investment decision. Unless the context otherwise requires or otherwise provided herein, all references to “Gates,” the “Company,” “we,” “us” and “our” refer to Gates Global Inc., together with the entities that will become its consolidated subsidiaries prior to the completion of this offering. See “Basis of Presentation and Other Information.”

Company Overview

We are the world’s leading manufacturer of power transmission belts and a premier global manufacturer of fluid power products. We estimate that for the twelve months ended September 28, 2013 approximately 55% of our sales were derived from products and geographies in which we have the leading market share position and approximately 85% in which we maintain a top three position. Our highly engineered products are critical components used in diverse industrial and automotive applications where the cost of failure is very high relative to the cost of our products. We provide a differentiated value proposition to our customers by offering a complete portfolio of premium product and service solutions for both replacement and first-fit applications across our targeted end markets, which encompass process and specialty, construction, agriculture, energy, transportation and automotive. For the twelve months ended September 28, 2013, approximately 63% of our sales were generated from a diverse set of replacement markets globally, which provide significant earnings resiliency. We sell our products globally under the Gates brand, which is recognized by distributors, original equipment manufacturers, or OEMs, and installers as the premium brand for quality and technological innovation, a reputation which we have built for over a century since the Company’s founding in 1911. For the twelve months ended September 28, 2013, we generated $2.9 billion of sales, $25 million of profit attributable to equity shareholders, $536 million of Adjusted EBITDA and $196 million of Adjusted Net Income.

We are diversified by product, customer, geography and end market. Our product portfolio consists of over 580,000 stock keeping units, or SKUs, which we believe represents the broadest range of power transmission belts and fluid power products in the markets we serve. We maintain long-standing relationships with the leading distributors of replacement industrial and automotive parts, as well as OEMs, in every region of the world, with some of our longest customer relationships exceeding 50 years. Our top 10 customers represented less than 30% of our sales for each of 2012 and 2011. Our products are sold in over 120 countries around the world, with our largest region, North America, representing approximately 47% of our sales for the twelve months ended September 28, 2013. We also have a long-established and growing presence in emerging markets, and we believe we are well-positioned to capitalize on the growth trends in these regions. In addition to our geographical diversification, we serve a number of diverse industrial end markets with exposure to a variety of demand drivers that in aggregate enhance our earnings stability.

We believe that our premier global brand, market leadership and differentiated value proposition allow us to generate sales growth in excess of our end market growth. We plan to enhance our growth profile with continued expansion in existing industrial end markets with applications that leverage our global brand, existing product portfolio, and manufacturing and distribution capabilities. Continuous new product innovation and our long-standing presence in emerging markets will also drive incremental growth. We generate strong margins by selling highly engineered products at premium prices and running a lean organization with a low-cost footprint. We further enhance our margins with a culture of continuous improvement. Our capital light business model maintains substantial operating leverage, which yields strong free cash flow and attractive returns on invested capital.

 

 

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We believe that we are at an inflection point in the history of our company. From 1911 to 2013, our business was either a private family-owned company or part of a broader conglomerate. Today, we are operating as a completely stand-alone business and our executive management team can focus exclusively on achieving Gates’ strategic goals.

The charts below highlight our sales composition by segment, application and product category for the twelve months ended September 28, 2013.

 

LOGO

Our Solutions

We sell our high performance power transmission and fluid power products both as replacement components and as pre-qualified components on original equipment, or first-fit, to customers worldwide. For the twelve months ended September 28, 2013, approximately 63% of our sales were generated from a diverse set of replacement markets globally, which provide significant earnings resiliency. A significant portion of our replacement sales are derived from applications where we were not the first-fit provider. Our replacement business is bolstered by our first-fit business, which provides market validation from OEMs, increases brand visibility in our end markets and enhances our replacement sales. Where we are not the first-fit manufacturer, we experience strong pull-through demand from end users in the replacement market who specifically request Gates-branded products. Our mix of replacement sales to first-fit sales varies by region based on our market strategy and the development of the replacement channel in each region. For example, in emerging markets such as China, our business is characterized by a higher first-fit presence given the relatively underdeveloped industrial and automotive replacement channels, and we believe that our first-fit market presence will drive future growth in our replacement business. In North America and EMEA, where there are long-established replacement markets, approximately 72% and 64%, respectively, of our sales for the twelve months ending September 28, 2013 were derived from higher margin replacement channels.

Our highly engineered products are typically used in a wide range of end-uses for applications that involve motion. Our products are critical to the functioning of the equipment, process or system in which they are a component, creating a dynamic where the cost of failure is very high relative to the individual cost of our products. In addition, the cost of our products is low relative to the cost of the overall system in which they operate. As a result, our products are not only replaced as a result of normal wear and tear due to the harsh environments in which they often operate, but also to take advantage of labor efficiencies, which accelerate replacement (for example, our parts may be replaced as part of ongoing maintenance to the broader systems in which they are a part of), and risk mitigation as our component cost is significantly lower relative to the cost of application failure.

 

 

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Power Transmission

  

Fluid Power

LOGO

   LOGO    LOGO    LOGO      LOGO  

•    Synchronous belts (timing belts)

•    Accessory drive belts (V-belts)

•    Front end accessory drive belts (serpentine or Micro-V belts)

  

•    V-ribbed belts

•    Metal drive components

•    Accessory belt drive kits

•    Timing belt kits

  

•    Hydraulic hose and couplings


•    Industrial hose

•    Engine hose and assemblies

We believe that our value proposition extends beyond the premium quality products we offer. Our sales and marketing organization offers customer training on installation and early identification of wear and tear on components. We also work closely with OEMs to develop new products and technologies that eventually carry over to the replacement market. We believe that we provide industry-leading delivery times for our products, and have the broadest portfolio of power transmission and fluid power products in the end markets we serve. Distributors and installers require timely access to a wide range of products as they need the correct component in order to serve their customers, and if distributors and installers do not have access to that component, they lose the sale. We believe that through our long history of devoting considerable focus on customer engagement and training, product innovation and best-in-class order fulfillment, we consistently maintain high levels of customer satisfaction, which we believe further entrenches our customer loyalty.

We offer all of our products in each of our four operating segments, which are organized by region: North America, Europe, Middle East and Africa, or Gates EMEA, Asia and the Pacific regions, or Gates APAC, and South America. While we characterize our products as replacement or first-fit, our global manufacturing footprint, processes and tooling allow us to manufacture products for each of these channels interchangeably. We are able to make similar products regardless of the end market served (for example, for industrial or automotive end markets) within the same facilities, which greatly enhances our flexibility to address market demand and minimizes capital expenditures. Our global footprint provides us with a “close to customer” local mindset and our vast distribution network in each of our geographies strengthens our customer relationships by accelerating response times relative to our competition.

Our Markets

We serve a diverse set of end markets, encompassing both industrial and automotive applications, selling through both replacement and first-fit channels globally. For each of the last three fiscal years, approximately 60% of our sales are generated from replacement markets, with the remaining sales, totaling approximately 40%, from first-fit applications. Within industrial, our end market focus includes process and specialty, construction, agriculture, energy, transportation and others. Our total sales to industrial end markets have grown over the last three years, a trend we believe will continue. Our automotive end market encompasses light-vehicle applications, with more than 60% of our global automotive sales derived from replacement products positioned at the premium end of the market in each of the last three fiscal years.

Industrial Markets (47% of sales)

Our industrial end markets represented 47% of our sales for the twelve months ended September 28, 2013. More than 60% of our industrial sales, or 29% of our total sales, for the twelve months ended September 28, 2013, were generated from products sold to the industrial replacement market. The harsh environment in which our

 

 

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critical components often operate drives our robust product replacement business. Our products are generally replaced due to a number of key factors, including normal wear and tear, accelerated replacement to take advantage of labor efficiencies (for example, our parts may be replaced as part of ongoing maintenance to the broader systems in which they are a part of) and risk mitigation as the cost of our components is low relative to the cost of application failure.

We generated 18% of sales for the twelve months ended September 28, 2013 from products sold to the industrial first-fit market. This market is driven by global OEM production volumes across our core end markets. In developed markets, OEM production volumes are expected to benefit from the continued improvement in industrial production and other end market-specific factors such as increased demand for energy efficient products. In emerging markets, we expect the first-fit market to benefit from continued investment in infrastructure and general economic development.

The large, diverse and global nature of the industrial markets we serve provides attractive opportunities for growth. We focus on end markets that we believe have significant addressable growth potential and allow us to leverage our global brand, existing manufacturing capacity and distribution capabilities. Our industrial sales and marketing function is organized by specific end-use verticals in order to provide industry-specific solutions and expertise to customers and to gain insights into customer needs in current and adjacent applications. Based on estimates from industry sources, as well as our own analysis, we estimate our incremental sales opportunity in industrial markets in which we have existing products and customers to be approximately $12 billion. In 2013, we have generated over $250 million of annual run-rate sales from new business wins in our targeted industrial markets.

We believe that we have significant opportunity to grow sales in many industrial markets. For example, sales growth in the global construction equipment end market is driven by the continuing urbanization of emerging markets. We also believe we have significant opportunities to grow sales in process and specialty end markets, which include general manufacturing, lawn and garden, food processing and other markets. Due to our global presence, we are well positioned to take advantage of a pickup in industrial production, a key driver of our general manufacturing end market. Similarly, we are positioned to grow within truck and bus end markets, particularly in Europe, due to our existing relationships with key OEM customers. We believe that underinvestment in truck fleets during the recession, as well as the need to comply with ever-higher standards of emissions and efficiency will drive continued replacement and first-fit demand. Finally, we also see significant opportunities in agriculture, energy and mining end markets. We believe increased demand for food production as well as farm mechanization will drive higher spend on agricultural equipment (particularly hydraulics), while a trend towards natural resource extraction in harsher environments, as well as technological advances such as hydraulic fracturing will drive higher spend on extraction equipment.

Automotive Replacement Markets (34% of sales)

For the twelve months ended September 28, 2013, we generated 34% of sales from the automotive replacement market. We are the leading provider of replacement automotive belts globally, and we believe we are well-positioned to benefit from favorable end market trends. The size and age of the global car parc are key drivers of our automotive replacement sales. In developed markets, the decline in auto sales during the recent recession has resulted in higher average vehicle age. According to industry sources, the average age of light vehicles in the US stands at a record 11.3 years. In Europe, the average age of light vehicles has followed a similar trend and currently stands at 8.4 years, as measured by ACEA. Additionally, our long-standing presence in emerging markets such as China, India, Eastern Europe and Russia, among others, positions us well to benefit from high growth in these regions as their replacement channels continue to develop. For example, according to industry sources, the car parc in China is expected to grow at a compound annual growth rate, or CAGR, of 12% through 2020.

 

 

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Automotive First-Fit Markets (19% of sales)

For the twelve months ended September 28, 2013, we generated 19% of sales from the automotive first-fit end market, principally from belts and related metal drive products. Demand for our products in this end market is directly related to vehicle production in the geographic regions where our strategy includes having a more significant automotive first-fit presence. For the twelve months ended September 28, 2013, 86% of our automotive first-fit sales were to customers located outside of North America, primarily in Asia and Europe. A large portion of our automotive first-fit sales are from emerging markets where replacement channels are less developed. We believe our first-fit presence provides high visibility, brand validation, a growing installed base and positions us to benefit from growth in the car parc of emerging markets.

Our Competitive Strengths

We are a premium diversified industrial company, serving a wide range of end markets globally, with business characteristics that we believe provide us with a differentiated and sustainable competitive advantage and have allowed us to become the world’s leading manufacturer of power transmission belts and a premier global manufacturer of fluid power products. Our competitive strengths include:

Premier Global Brand

We offer our products and services under a single brand across every end market and geography. Since 1911, Gates has been recognized by distributors, installers and OEMs as a premier brand for power transmission and fluid power products and is known for premium quality, reliability, customer service, technology and breadth of offering. In our replacement businesses, we experience strong pull-through demand from end users who specifically request Gates-branded products.

Leading Market Position in Diversified End Markets and Geographies

We estimate that approximately 55% of our sales are derived from products and geographies in which we have the leading market share position and approximately 85% in which we maintain a top three position. Our reach is global and our replacement and first-fit products are used in a diverse set of industrial applications, including process and specialty, construction, agriculture, energy, transportation, as well as, automotive replacement and first-fit applications. We believe that we have achieved leading market positions through our premium global brand, SKU breadth, ability to meet product availability requirements, strong customer support, global presence, technical expertise and best-in-class quality. Our market leadership supports our strong margins while our diversity enhances earnings stability.

Well-Calibrated Replacement and First-Fit Market Revenue Mix

For the twelve months ended September 28, 2013, approximately 63% of our sales were generated from a diverse set of replacement markets globally, which provide significant earnings resiliency. Our first-fit business validates our brand, and builds on our installed base. We leverage our reputation for quality with first-fit customers to drive a resilient stream of on-going, high margin replacement component sales. Our replacement business reduces cyclicality and generates stable free cash flow. Our well-established sales and marketing infrastructure, product breadth and extensive distributor relationships are difficult to replicate and essential to our success.

Compelling Customer Value Proposition and Product Innovation

Our products, which are low cost relative to the overall cost of the systems in which they operate, are used in critical applications where the cost of failure is high relative to the cost of our components. Our customers value

 

 

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high levels of product performance and customer service that minimize the probability of failure. Our products typically meet or exceed customer standards, while our service offering further reduces potential costs associated with failure and application downtime. Our customers recognize our value proposition, and are willing to pay a premium for our high-quality product and integrated service offering. To uphold these standards and expectations of premium quality, we have extensive research and development capabilities and have spent approximately 2% of sales during each of the last three fiscal years for on-going research and development, or R&D, activities. We hold approximately 2,500 patents covering our innovative products, and we believe that we are recognized as the technology leader in the markets we serve.

Deeply Rooted Customer and Distributor Relationships

We have cultivated long-standing customer relationships with leading distributors and OEMs globally due to our strong brand reputation, SKU breadth, ability to meet highly demanding product fulfillment requirements, global presence, technical expertise and best-in-class quality. The length of our customer relationships often exceeds 35 years, and the relationships with some of our largest customers spans over 50 years. We believe our extensive distribution network, comprehensive portfolio and first-fit quality products are a competitive advantage relative to local competitors in the geographies and end markets in which we operate.

Global, Flexible Manufacturing Footprint

We benefit from substantial operating leverage given our flexible and efficient manufacturing model. Our tooling can be utilized to manufacture a variety of products for diverse end markets and applications without significant capital expenditures. We operate highly sophisticated manufacturing facilities that we believe exceed efficiency, cost and safety standards for the industry. Our in-country manufacturing presence reduces transport time, freight costs and transactional foreign exchange exposure. We have a strong culture of continuous improvement across our global operations that we expect will continue to generate on-going efficiency and cost improvements. Our culture facilitates the sharing of best practices by exporting efficiency initiatives from local plants across our global footprint.

Well-Positioned to Capture Incremental Market Share as Our End Markets Grow

We have identified numerous growth opportunities across our industrial end markets that are addressable with existing products and manufacturing capabilities. Our sales to industrial end markets have grown since 2010, and we have identified multiple applications where our business is growing. Our first-fit presence positions us well for growth and market share gain in rapidly expanding, automotive replacement markets in emerging economies such as China and Eastern Europe. Additionally, we believe there are acquisition opportunities across the various regions we serve that may provide additional growth.

Strong and Proven Management Team

We are led by an experienced, high-caliber management team that has developed a strong culture. Under the leadership of our executive team, with an average 25 years of industry experience, we have grown the Gates business and executed significant restructuring programs that have optimized our business portfolio and cost structure. We believe the overall talent level throughout our organization is a competitive strength that differentiates Gates for our stakeholders, including employees, customers and shareholders.

 

 

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Our Strategy

Our objective is to continue to be a market leader by providing superior products and services to our customers. We have invested significant resources over time to develop differentiated services for our customers, improve our operational efficiency and enhance our global distribution network. We believe these investments provide a solid foundation for profitable sales growth and shareholder return. Our strategy is to:

Further Penetrate Industrial Verticals

We are targeting specific opportunities within our existing industrial end markets. Approximately 47% of our sales for the twelve months ended September 28, 2013 was generated from industrial replacement and first-fit end markets. We continue to see a significant opportunity to further deepen our penetration into industrial verticals utilizing our global brand, existing plant capacity, distribution capability and existing product portfolio. These verticals include construction, agriculture and energy, among others, which we have selectively targeted given their expected long-term growth prospects. By leveraging our application engineering capabilities and working with our customers to innovate, we continue to identify new opportunities for our products and solutions. We estimate the incremental sales opportunity for our existing product portfolio in these end markets exceeds $12 billion. During 2013, we generated new business representing over $250 million of annual run-rate sales in our existing industrial verticals. Furthermore, we have aligned our global footprint and resources to efficiently capitalize on the continued growth in the emerging markets driven by infrastructure development, increased industrial production and expanded vehicle ownership.

Grow Automotive Replacement Business in Emerging Markets

Our long-standing presence in emerging markets such as China, India, Eastern Europe and Russia, among others, and the strength of our global brand, positions us to benefit from significant long-term growth as replacement channels in these regions continue to develop. Our market strategy is to provide the leading OEMs in these regions with our highly engineered products. We believe that our first-fit presence and growing installed base validate our brand, which, together with growing car parcs and increasing average vehicle age in these regions, will drive our future long-term replacement growth. For example, in China, we currently provide first-fit products to leading automotive OEMs, such as Shanghai General Motors and Chery Automobile Co. For the twelve months ended September 28, 2013, we generated approximately $45 million of sales in the Chinese automotive replacement channel. According to industry sources, the car parc in China is expected to grow at a CAGR of 12% through 2020, and by then is expected to be the largest car parc in the world.

Develop New, Technologically Advanced, Market Relevant Products

We have a long history of successful innovation, from commercializing the V-belt in 1917 to pioneering the use of synthetic rubber in a broad range of industrial applications. We have spent approximately 2% of sales during each of the last three fiscal years on on-going R&D activities. We employ over 400 engineers that are dedicated to product and technology development around the world. Our R&D group works closely with our sales and marketing team to ensure that our new product efforts are closely tied to our customer-driven growth initiatives. Our year to date sales from products introduced in the last three years represent 10% to 12% of our global sales.

Enhance Margins Through Operational Excellence

We have developed a culture that drives ongoing cost reduction and efficiency improvements and facilitates the sharing of best practices globally. We will continue to leverage our scale and global presence to enable streamlined procurement and sourcing processes. In addition to our continuous improvement initiatives, we have optimized our manufacturing footprint and executed rationalization projects that have supported significant margin enhancement over the last five years. We continue to seek and act on opportunities to improve our cost structure and will benefit from significant operating leverage as we expand production.

 

 

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Maximize Return on Invested Capital and Generate Strong Free Cash Flow

Our strong gross margin performance is supported by favorable pricing dynamics created by high product quality and brand strength and operating efficiencies. This high level of profitability, combined with our low level of capital intensity, translates into an attractive free cash flow profile and return on invested capital. We evaluate growth opportunities with the aim to achieve a high return on invested capital, and we continue to see many opportunities that will further enhance our strong financial profile. Our existing production footprint can accommodate meaningful volume growth with minimal capital investment, which we believe will further improve our return profile. We believe the long-term resiliency of our earnings and free cash flow is enhanced by our higher margin replacement revenue sources and long-standing customer relationships.

Pursue Strategic Acquisitions

We are well-positioned to capitalize on complementary acquisition opportunities. We will continue to analyze and selectively pursue strategic opportunities where we can add value by leveraging our core competencies and realize synergies by applying our global brand, distribution capabilities or operating culture. Since 2004, we have successfully completed eight bolt-on acquisitions that have expanded our product offering and access to new end markets.

 

 

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Risks Related to Our Business

Investing in our ordinary shares involves substantial risk. You should carefully consider all of the information in this prospectus prior to investing in our ordinary shares. There are several risks related to our business that are described under “Risk Factors” elsewhere in this prospectus. Among these important risks are the following:

 

    global and general economic conditions, including those specific to our end markets;

 

    significant global operations and global expansion;

 

    regulations applicable to our global operations;

 

    our ability to compete successfully with other companies in our industries;

 

    the cost and availability of raw materials;

 

    the potential loss of key personnel;

 

    product liability claims against us;

 

    the sufficiency of our insurance policies to cover losses, including liabilities arising from litigation;

 

    failure to develop and maintain intellectual property rights;

 

    the demand for our products by industrial manufacturers and automakers;

 

    our ability to integrate acquired companies into our business and the success of our acquisition strategy;

 

    environmental, health and safety laws and regulations;

 

    currency fluctuations from our international sales;

 

    labor shortages, labor costs and collective bargaining agreements;

 

    equipment failures, explosions and adverse weather;

 

    the impact of natural disasters and terrorist attacks;

 

    potential inability to obtain necessary capital;

 

    the dependence on our subsidiaries for cash to meet our debt obligations;

 

    risks related to our substantial indebtedness;

 

    the ability of Onex Corporation, or Onex, and Canada Pension Plan Investment Board, or CPPIB, to control our ordinary shares;

 

    other risks and uncertainties, including those listed under the caption “Risk Factors.”

 

 

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Our Corporate Structure

Following the completion of the offering contemplated hereby, our corporate structure will be as shown below.

 

LOGO

 

* To be liquidated following the completion of this offering.

Our Sponsors

On September 14, 2010, Onex and CPPIB acquired Pinafore and currently own 97% of the equity of Pinafore.

With offices in Toronto, New York and London, Onex is one of the oldest and most successful private equity firms. Onex acquires and builds high-quality businesses in partnership with talented management teams. Onex makes private equity investments through the Onex Partners and ONCAP families of funds and has completed approximately 420 acquisitions with a total value of approximately $50 billion. Over Onex’s history, it has had extensive experience investing in industrial businesses. Onex’s current and previous industrial investments include Allison Transmission Holdings, Inc., Spirit AeroSystems, Inc., JELD-WEN Holdings, Inc., and Husky

 

 

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International Ltd. Onex’s businesses generate annual revenues of $34 billion, have assets of $44 billion and employ approximately 229,000 people worldwide. Onex shares trade on the Toronto Stock Exchange under the stock symbol OCX.

CPPIB is one of the largest and fastest growing institutional investors in the world. It invests the funds not needed by the Canada Pension Plan to pay current benefits on behalf of 18 million Canadian contributors and beneficiaries. Headquartered in Toronto, with offices in London and Hong Kong, CPPIB is governed and managed independently of the Canada Pension Plan and at arm’s length from governments. At September 30, 2013, the Fund’s assets totaled C$193 billion, of which approximately C$48 billion is invested through the Private Investments group. A team of 135 dedicated Private Investment professionals manages investment activities in Direct Private Equity, Private Debt, Infrastructure, and Funds, Secondaries & Co-Investments. Direct Private Equity manages an approximately C$10 billion portfolio of investments and focuses on majority or shared control investments, typically alongside an existing fund partner, across multiple industry sectors worldwide. Current and previous industrial investments include Air Distribution Technologies Inc. and Generac Holdings Inc.

Company Information

Our principal US executive offices are located at 1551 Wewatta Street, Denver Colorado 80202, and our telephone number is (303) 744-1911. Our website address is www.gates.com. Information on, or accessible through, our website is not part of this prospectus, nor is such content incorporated by reference herein. You should rely only on the information contained in this prospectus when making a decision as to whether to invest in our ordinary shares.

 

 

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The Offering

 

Issuer

Gates Global Inc.

 

Ordinary shares offered by the selling shareholders

                     shares

 

 

Ordinary shares outstanding after this offering

                     shares

 

 

Option to purchase additional shares

The selling shareholders have granted the underwriters a 30-day option from the date of this prospectus to purchase up to an additional              ordinary shares at the initial public offering price, less underwriting discounts and commissions.

 

Use of proceeds

We will not receive any net proceeds from the sale of shares by the selling shareholders, including with respect to the underwriters’ overallotment option to purchase additional ordinary shares. See “Use of Proceeds.”

 

Proposed stock exchange symbol

“            .”

 

Risk factors

See “Risk Factors” beginning on page 19 of this prospectus for a discussion of factors you should carefully consider before deciding to invest in our ordinary shares.

The number of shares of our ordinary shares to be outstanding after completion of this offering is based on ordinary shares outstanding as of                     , 2014, which excludes:

 

                         ordinary shares issuable upon the exercise of options outstanding at a weighted average exercise price of $             per share;

 

                         ordinary shares reserved for issuance under our 2014 Incentive Plan, or our 2014 Plan, which we plan to adopt in connection with this offering.

Unless we specifically state otherwise, all information in this prospectus assumes:

 

    no exercise of the option to purchase additional ordinary shares by the underwriters;

 

    an initial offering price of $             per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus;

 

    the filing and registration of our amended and restated memorandum and articles of association, which we refer to as the memorandum and articles, prior to the completion of this offering; and

 

    completion of the Distribution Transactions.

 

 

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Summary Historical Audited and Unaudited Consolidated Financial Information

The following table sets forth our summary historical audited and unaudited consolidated financial information for the periods and dates indicated. The balance sheet data as of December 31, 2012 and 2011 and the income statement and cash flow data for Fiscal 2012, Fiscal 2011, Q4 2010 and 9M 2010 have been derived from the audited consolidated financial statements of our business included elsewhere in this prospectus. The balance sheet data as of September 28, 2013 and the income statement and cash flow data for 9M 2013 and 9M 2012 have been derived from the unaudited condensed consolidated financial statements of our business included elsewhere in this prospectus. The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of our management, include all adjustments, consisting only of normal and recurring adjustments, necessary for a fair presentation of the information set forth herein. Interim financial results are not necessarily indicative of results that may be expected for the full fiscal year or any future reporting period.

Included in the table below, is financial information for Tomkins plc prior to the Acquisition, representing 9M 2010. The Predecessor financial statements do not reflect the effects of the accounting for, or the financing of, the Acquisition. Although Pinafore was incorporated on September 1, 2010, it had no assets or liabilities (other than the proceeds of the ordinary shares issued on incorporation) and no operations prior to the Acquisition.

In addition to the income statement and balance sheet data presented below, which has been derived from Pinafore’s audited consolidated financial statements and Pinafore’s unaudited condensed consolidated financial statements, we also present certain of these line items further bifurcated between Gates and Other Pinafore Assets (comprised of the Non-Gates Assets and exited businesses). We believe that this non-GAAP presentation more clearly presents Gates’ results and financial position.

The following information is only a summary and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the audited consolidated financial statements and the unaudited condensed consolidated financial statements and notes thereto included elsewhere in this prospectus, as well as the other financial information included elsewhere in this prospectus.

With the exception of the 9M 2013 period, all information below has been retrospectively recast for the adoption on January 1, 2013 of IAS 19R and the reclassification of certain expenses.

 

 

 

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    Successor          Predecessor  
(dollars and shares in millions, except per share data)   9M
2013
    9M
2012
    Fiscal
2012
    Fiscal
2011
    Q4
2010
         9M
2010
 

Income statement data:

               

Sales

  $ 2,327.8      $ 2,331.6      $ 3,037.3      $ 3,426.4      $ 900.2          $ 2,443.4   

Gates(1)

    2,227.1        2,243.8        2,922.8        2,956.0        734.6            1,943.6   

Other Pinafore Assets(2)

    100.7        87.8        114.5        470.4        165.6            499.8   

Cost of sales

    (1,446.9     (1,485.5     (1,944.4     (2,269.1     (728.7         (1,625.9
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

 

Gross profit

    880.9        846.1        1,092.9        1,157.3        171.5            817.5   

Gates(1)

    845.3        815.0        1,052.5        1,065.2        150.7            746.4   

Other Pinafore Assets(2)

    35.6        31.1        40.4        92.1        20.8            71.1   

Distribution costs

    (274.6     (272.1     (358.0     (376.0     (101.2         (271.4

Administrative expenses

    (358.3     (392.4     (530.7     (572.1     (190.5         (272.5

Transaction costs

    —          —          —          (0.6     (78.2         (40.1

Impairments

    (2.4     (3.1     (3.1     (38.0     —              —     

Restructuring costs

    (18.5     (17.5     (26.8     (38.8     (3.6         (8.0

Net (loss)/gain on disposals and on exit of businesses

    (0.3     0.1        (0.6     60.8        —              7.1   

Share of (loss)/profit of associates

    (0.1     0.4        0.4        1.5        1.3            1.3   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

 

Operating profit/(loss)

    226.7        161.5        174.1        194.1        (200.7         233.9   

Gates(1)

    232.6        174.7        191.3        155.2        (199.6         214.1   

Other Pinafore Assets(2)

    (5.9     (13.2     (17.2     38.9        (1.1         19.8   

Interest expense

    (101.7     (159.8     (208.3     (276.0     (75.5         (21.4

Investment income

    1.4        1.7        2.9        4.7        2.4            3.3   

Other finance income/(expense)

    1.3        (78.3     (73.6     (16.7     (29.3         (16.7
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

Net finance costs

    (99.0     (236.4     (279.0     (288.0     (102.4         (34.8
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

 

Profit/(loss) before tax

    127.7        (74.9     (104.9     (93.9     (303.1         199.1   

Income tax (expense)/benefit

    (28.3     107.2        77.7        19.0        22.5            (57.1
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

 

Profit/(loss) for the period from continuing operations

    99.4        32.3        (27.2     (74.9     (280.6         142.0   

Discontinued operations:

               

Profit for the period from discontinued operations

    5.5        179.2        775.8        119.0        7.7            93.5   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

 

Profit/(loss) for the period

    104.9        211.5        748.6        44.1        (272.9         235.5   

Non-controlling interests

    (20.3     (17.5     (23.1     (29.3     (0.9         (26.2
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

 

Profit/(loss) for the period attributable to equity shareholders

  $ 84.6      $ 194.0      $ 725.5      $ 14.8      $ (273.8       $ 209.3   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

 

Pro forma earnings (loss) per share:

               

Basic

               

Diluted

               

Pro forma weighted average shares outstanding:

               

Basic

               

Diluted

               

 

 

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     Successor  
(dollars in millions)    As at
September 28,
2013
     As at
December 31,
2012
     As at
December 31,
2011
 

Balance sheet data:

        

Cash and cash equivalents

   $ 323.2       $ 431.3       $ 480.0   

Property, plant and equipment

     656.2         693.2         902.9   

Gates(1)

     618.3         651.9         679.4   

Other Pinafore Assets(2)

     37.9         41.3         223.5   

Total assets

     5,013.4         5,083.6         6,705.2   

Total debt(3)

     1,797.0         1,927.1         2,822.7   

Net debt(4)

     1,461.3         1,481.6         2,324.8   

Shareholders’ equity

     1,770.0         1,694.6         2,074.9   

 

    Successor           Predecessor  
(dollars in millions, except for margin and
per share data)
  9M
2013
    9M
2012
    Fiscal
2012
    Fiscal
2011
    Q4
2010
          9M
2010
 

Cash flow data:

                

Operating activities

  $ 153.3      $ 322.0      $ 438.0      $ 521.9      $ 45.4           $ 194.7   

Investing activities

    (49.5     417.4        1,849.2        347.7        (4,098.8          (103.0

Financing activities

    (212.0     (1,002.6     (2,334.6     (845.7     4,551.2             (42.1
 

Other financial data:

                

Total capital expenditures

  $ 57.8      $ 79.1      $ 109.8      $ 116.2      $ 60.2           $ 95.7   

Gates(1)

    55.3        78.1        81.9        77.3        38.0             50.2   

Other Pinafore Assets(2)

    2.5        1.0        27.9        38.9        22.2             45.5   

Depreciation and amortization

    162.2        180.9        236.9        262.1        72.8             94.3   

EBITDA(5)

    388.9       342.4       411.0       456.2       (127.9          328.2   

Adjusted EBITDA(5)(6)

    427.8        401.0        508.6        551.1        143.0             385.3   

Gates(1)

    427.6        407.7        515.6        507.8        123.3             344.2   

Other Pinafore Assets(2)

    0.2        (6.7     (7.0     43.3        19.7             41.1   

Adjusted EBITDA margin(5)

    18.4     17.2     16.7     16.1     15.9          15.8

Gates(1)

    19.2     18.2     17.6     17.2     16.8          17.7

Other Pinafore Assets(2)

    0.2     (7.6 )%      (6.1 )%      9.2     11.9          8.2

Adjusted Net Income(7)

    $183.5        $11.1        $16.0        $62.8        $(278.0)             $153.5   

Gates(1)

    188.3        21.1        29.2        30.0        (281.5)             107.6   

Other Pinafore Assets(2)

    (4.8)        (10.0)        (13.2)        32.8        3.5             45.9   

Pro Forma Adjusted EPS(6)(7):

                

Basic

                

Diluted

                

 

(1) Consists of the four regional Gates operating segments and the Group’s corporate operating segment, but excludes various parcels of real estate held by a number of real estate companies.
(2) Consists of Non-Gates Assets and exited businesses. Exited businesses refers to the Powertrain, Other I&A and Doors & Windows businesses that were included in continuing operations for the periods presented, but are classified as exited segments. Powertrain, which was sold in Fiscal 2011, specializes in powder metal and engineered powertrain components. The Other I&A businesses, Ideal, Dexter Chassis and Plews, were sold during Fiscal 2011. They manufacture a range of industrial and automotive products including gear clamps, chassis components and automotive lubrication products and repair tools. The Doors & Windows segment comprises a business that was closed during 2009.
(3) Total debt comprises the principal amounts of bank overdrafts, bank and other loans and obligations under finance leases.

 

 

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(4) Net debt is a non-GAAP measure. Management uses net debt rather than the narrower measure of net cash and cash equivalents which forms the basis for the consolidated cash flow statement, as a measure of the Group’s liquidity and in assessing the strength of the Group’s balance sheet.

Net debt represents the net total of:

 

    the principal amount of the Group’s borrowings (bank overdrafts and bank and other loans); and

 

    the carrying amount of finance lease obligations; less

 

    the carrying amount of cash and cash equivalents and collateralized cash (included in trade and other receivables); and

 

    the fair value of the foreign currency derivatives that are held to hedge foreign currency translation exposures.

For an analysis and reconciliation of the components of Net Debt, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Measures.”

 

(5) EBITDA and Adjusted EBITDA are non-GAAP measures. EBITDA represents profit or loss for the period attributable to equity shareholders before the impact of profit or loss from discontinued operations, non-controlling interests, net finance costs, income taxes, depreciation and amortization. We present EBITDA because it is widely used by securities analysts, investors and other interested parties to evaluate the profitability of companies. EBITDA eliminates potential differences in performance caused by variations in capital structures (affecting net finance costs), tax positions (such as the availability of net operating losses against which to relieve taxable profits), the cost and age of tangible assets (affecting relative depreciation expense) and the extent to which intangible assets are identifiable (affecting relative amortization expense).

Adjusted EBITDA represents EBITDA before additional specific items that are considered to hinder comparison of the trading performance of our businesses either year-on-year or with other businesses. Adjusted EBITDA is the measure used by us, to assess the trading performance of our businesses and is therefore the measure of segment profit that we present under IFRS. Adjusted EBITDA is also presented on a consolidated basis (which includes the results and cash flows of our controlled, but non-100% owned, subsidiaries) because management believes it is important to consider our profitability on a basis consistent with that of its operating segments. Management believes that Adjusted EBITDA should, therefore, be made available to securities analysts, investors and other interested parties to assist in their assessment of the trading performance of our businesses.

During the periods under review, the items excluded from EBITDA in arriving at Adjusted EBITDA were:

 

    the effect on cost of sales of the uplift to the carrying amount of inventory held by Tomkins on its acquisition by Pinafore;

 

    the compensation expense in relation to share-based incentives;

 

    transaction costs incurred in relation to business combinations;

 

    impairments, comprising impairments of goodwill and material impairments of other assets;

 

    restructuring costs;

 

    the net gain or loss on disposals and on the exit of businesses; and

 

    compensation paid to share plan participants for the impact on their awards of the return of capital made during Fiscal 2012.

 

 

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EBITDA and Adjusted EBITDA therefore exclude items that may have a significant effect on the Group’s profit or loss and should, therefore, be used in conjunction with, not as substitutes for, profit or loss for the period. Management compensates for these limitations by separately monitoring profit or loss for the period.

For further information and reconciliations on the use of Non-GAAP measures see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Measures.”

The following table reconciles the profit for the period from continuing operations, a directly comparable GAAP measure, to Adjusted EBITDA for each of the periods presented:

 

    Successor           Predecessor  
(dollars in millions, except for margin data)   9M
2013
    9M
2012
    Fiscal
2012
    Fiscal
2011
    Q4
2010
          9M
2010
 

Profit/(loss) for the period attributable to equity shareholders

  $ 84.6      $ 194.0      $ 725.5      $ 14.8      $ (273.8        $ 209.3   

Non-controlling interests

    20.3        17.5        23.1        29.3        0.9             26.2   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

  

 

 

 

Profit/(loss) for the period

    104.9        211.5        748.6        44.1        (272.9          235.5   

Profit for the period from discontinued operations

    (5.5     (179.2     (775.8     (119.0     (7.7          (93.5
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

  

 

 

 

Profit/(loss) for the period from continuing operations

    99.4       32.3       (27.2     (74.9     (280.6          142.0   

Income tax expense/(benefit)

    28.3       (107.2     (77.7     (19.0     (22.5          57.1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

        

 

 

 

Profit/(loss) before tax

    127.7       (74.9     (104.9     (93.9     (303.1          199.1   

Net finance costs

    99.0       236.4       279.0        288.0        102.4             34.8   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

        

 

 

 

Operating profit/(loss)

    226.7       161.5       174.1        194.1        (200.7          233.9   

Amortization

    89.9       93.5       124.2        128.0        35.4             11.2   

Depreciation

    72.3       87.4       112.7        134.1        37.4             83.1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

        

 

 

 

EBITDA

    388.9       342.4       411.0        456.2        (127.9          328.2   

Inventory uplift

    —         —         —         —         125.7             —    

Share-based incentives

    17.7       38.1       44.4        78.3        63.4             16.1   

Transaction costs

    —         —         —         0.6        78.2             40.1   

Impairments

    2.4       3.1       3.1        38.0        —              —    

Restructuring costs

    18.5       17.5       26.8        38.8        3.6             8.0   

Net loss/(gain) on disposals and on the exit of businesses

    0.3       (0.1     0.6        (60.8     —              (7.1

Compensation for the impact of the return of capital on share-based awards

    —         —         22.7        —         —              —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

        

 

 

 

Adjusted EBITDA

  $ 427.8     $ 401.0     $ 508.6      $ 551.1      $ 143.0           $ 385.3   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

        

 

 

 

Adjusted EBITDA margin

    18.4     17.2     16.7     16.1     15.9          15.8

 

(6) Adjusted EBITDA margin and Pro Forma Adjusted EPS are non-GAAP measures. Adjusted EBITDA margin is calculated using sales from continuing operations and Adjusted EBITDA. Pro Forma Adjusted EPS is calculated on the basis of Adjusted EBITDA and the pro forma weighted average shares outstanding for the relevant periods. As these measures are based, in part, on Adjusted EBITDA, they are similarly impacted by the limitations referenced in (5) above and also should not be considered in isolation or as a substitute for IFRS measures.
(7) Adjusted Net Income is a non-GAAP measure, which represents profit or loss for the period attributable to equity shareholders before the impact of profit or loss from discontinued operations, amortization of Acquisition-related intangible assets, amortization of deferred debt costs, income tax charge or benefit less net cash income taxes paid, restructuring costs and certain other specific items (such as severance costs, fees paid to the sponsors and legal costs unrelated to normal operations) that are considered to hinder comparison of the trading performance of our businesses either year-on-year or with other businesses.

 

     We use Adjusted Net Income to measure our overall profitability as it reflects more clearly our cash earnings generation by capturing the actual cash tax paid or received rather than our tax charge or benefit as presented in the income statement. It also excludes the non-cash impacts of the amortization of intangible assets recognized as a result of the Acquisition and the amortization of deferred debt costs. We therefore believe that the presentation of Adjusted Net Income enhances the overall understanding of the financial performance of our business.

 

 

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     Adjusted Net Income excludes items that may have a significant effect on our profit or loss and should, therefore, be used in conjunction with, not as substitutes for, profit or loss for the period attributable to equity shareholders. Management compensates for these limitations by separately monitoring this comparable IFRS metric.

 

     For further information on the use of Non-GAAP measures see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Measures.”

The following table reconciles the profit/(loss) for the period attributable to equity shareholders, a directly comparable GAAP measure, to Adjusted Net Income/(Loss) for each of the periods presented:

 

     Successor           Predecessor  
(dollars in millions)    9M
2013
    9M 2012     Fiscal
2012
    Fiscal
2011
    Q4 2010           9M
2010
 

Profit/(loss) for the period attributable to equity shareholders

   $ 84.6      $ 194.0      $ 725.5      $ 14.8      $ (273.8        $ 209.3   

Profit for the period from discontinued operations

     (5.5     (179.2     (775.8     (119.0     (7.7          (93.5

Amortization of Acquisition intangible assets

     87.2        89.5        119.3        121.7        32.4             —    

Amortization of deferred debt costs

     25.0        43.9        61.6        91.0       2.9             —    

Income tax expense/(benefit)

     28.3        (107.2     (77.7     (19.0     (22.5          57.1   

Net cash income taxes paid

     (60.9     (44.9     (63.1     (82.1     (14.6          (27.8

Restructuring costs

     18.5        17.5        26.8        38.8        3.6             8.0   

Other net income adjustments

     6.3        (2.5     (0.6     16.6        1.7             0.4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

  

 

 

 

Adjusted Net Income/(Loss)

   $ 183.5      $ 11.1      $ 16.0      $ 62.8      $ (278.0        $ 153.5   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

  

 

 

 

 

 

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RISK FACTORS

An investment in our ordinary shares involves a high degree of risk. You should consider carefully the following risks, together with the information under the caption “Business” and the other information contained in this prospectus before you decide whether to buy our ordinary shares. If any of the events contemplated by the following discussion of risks should occur, our business, results of operations, financial condition and cash flows could suffer significantly. As a result, the market price of our ordinary shares could decline, and you may lose all or part of the money you paid to buy our ordinary shares. The following is a summary of all the material risks known to us.

Risks Related to Our Strategy and the Competitiveness of Our Operations

Our strategy to expand our geographical reach may be impacted by economic, political and other risks associated with international operations, and this could adversely affect our business.

One of our key strategies is to expand our geographic reach, and as a result, a substantial portion of our operations are conducted and located outside North America. For the twelve months ended September 28, 2013, approximately 53% of sales from continuing operations originated from outside of North America. We have manufacturing, sales and service facilities spanning five continents and sell to customers in over 120 countries. Moreover, a significant amount of our manufacturing functions and sources of our raw materials and components are from Asia, principally China. Accordingly, our business and results of operations, as well as the business and results of operations of our vendors, suppliers and customers, are subject to risks associated with doing business internationally, including:

 

    changes in foreign currency exchange rates;

 

    trade protection measures, such as tariff increases, and import and export licensing and control requirements;

 

    the complexities of operating within multiple tax jurisdictions, including potentially negative consequences from changes in tax laws or from tax examinations, which may, in addition, require an extended period of time to resolve;

 

    instability in a specific country’s or region’s political, economic or social conditions;

 

    difficulty in staffing and managing widespread operations;

 

    difficulty of enforcing agreements and collecting receivables through some foreign legal systems;

 

    differing and, in some cases, more stringent labor regulations;

 

    partial or total expropriation;

 

    differing protection of intellectual property;

 

    unexpected changes in regulatory requirements and required compliance with a variety of foreign laws, including environmental regulations and laws;

 

    the burden of complying with multiple and possibly conflicting laws and any unexpected changes in regulatory requirements;

 

    differing local product preferences and product requirements;

 

    strong competition from companies that are already established in the markets we seek to enter;

 

    inability to repatriate income or capital; and

 

    difficulty in administering and enforcing corporate policies, which may be different than the normal business practices of local cultures.

 

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Dependence on the continued operation of our manufacturing facilities.

While we are not heavily dependent on any single manufacturing facility, major disruptions at a number of our manufacturing facilities, due to labor unrest, natural disasters, terrorist attacks, significant mechanical failure of our facilities, or other catastrophic event, could result in significant interruption of our business and a potential loss of customers and sales or could significantly increase our operating costs.

We are subject to anti-corruption laws in various jurisdictions, as well as other laws governing our international operations. If we fail to comply with these laws we could be subject to civil or criminal penalties, other remedial measures, and legal expenses, which could adversely affect our business, financial condition and results of operations.

Our international operations are subject to one or more anti-corruption laws in various jurisdictions, such as the US Foreign Corrupt Practices Act of 1977, as amended, or FCPA, the UK Bribery Act of 2010 and other anticorruption laws. The FCPA and these other laws generally prohibit employees and intermediaries from bribing or making other prohibited payments to foreign officials or other persons to obtain or retain business or gain some other business advantage. We operate in a number of jurisdictions that pose a high risk of potential FCPA violations, and we participate in joint ventures and relationships with third parties whose actions could potentially subject us to liability under the FCPA. In addition, we cannot predict the nature, scope or effect of future regulatory requirements to which our international operations might be subject or the manner in which existing laws might be administered or interpreted.

We are also subject to other laws and regulations governing our international operations, including regulations administered by the US Department of Commerce’s Bureau of Industry and Security, the US Department of Treasury’s Office of Foreign Asset Control, and various non-US government entities, including applicable export control regulations, economic sanctions on countries and persons, customs requirements, currency exchange regulations, and transfer pricing regulations. We refer to these laws and regulations as Trade Control laws.

We have instituted policies, procedures and ongoing training of certain employees with regard to business ethics, designed to ensure that we and our employees comply with the FCPA, other anticorruption laws and Trade Control laws. However, there is no assurance that our efforts have been and will be completely effective in ensuring our compliance with all applicable anti-corruption laws, including the FCPA, or other legal requirements. If we are not in compliance with the FCPA, other anti-corruption laws or Trade Control laws, we may be subject to criminal and civil penalties, disgorgement and other sanctions and remedial measures, and legal expenses, which could have an adverse impact on our business, financial condition, results of operations and liquidity. Likewise, any investigation of any potential violations of the FCPA or other anti-corruption laws by US or foreign authorities could also have an adverse impact on our business, financial condition and results of operations.

We face competition in all areas of our business and may not be able to successfully compete with our competitors, which could lead to lower levels of profits and reduce the amount of cash we generate.

We are subject to competition from other producers of products that are similar to ours. Our customers often demand delivery of our products on a tight time schedule and in a number of geographic markets. If our quality of service declines or we cannot meet the demands of our customers, they may utilize the services or products of our competitors. Our competitors include manufacturers that may be better capitalized, may have a more extensive low-cost sourcing strategy and presence in low-cost regions or may receive significant governmental support and as a result, may be able to offer more aggressive pricing. If we are unable to continue to provide technologically superior or better quality products or to price our products competitively, our ability to compete could be harmed and we could lose customers or market share.

We are subject to risks from litigation that may materially impact our operations.

We face an inherent business risk of exposure to various types of claims and lawsuits. We are involved in various intellectual property, product liability, product warranty, environmental claims and lawsuits, and other legal

 

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proceedings arising in the ordinary course of our business. Although it is not possible to predict with certainty the outcome of every claim and lawsuit and the range of probable loss, we believe these lawsuits and claims will not individually or in the aggregate have a material impact on our results. However, we could, in the future, be subject to various lawsuits, including, amongst others, intellectual property, product liability, product warranty, environmental claims and antitrust claims, and we may incur judgments or enter into settlements of lawsuits and claims that could have a material adverse effect on our results of operations in any particular period.

Our insurance may not fully cover all future losses we may incur.

Manufacturers of products such as ours are subject to inherent risks. We maintain an amount of insurance protection that we consider adequate, but we cannot provide any assurance that our insurance will be sufficient or provide effective coverage under all circumstances and against all hazards or liabilities to which we may be subject. Specifically, our insurance may not be sufficient to replace facilities or equipment that are damaged in part or in full. Damages or third party claims for which we are not fully insured could hurt our financial results and materially harm our financial condition. Further, due to rising insurance costs and changes in the insurance markets, insurance coverage may not continue to be available at all or at rates or on terms similar to those presently available. Additionally, our insurance may subject us to significant deductibles, self-insured retentions, retrospectively rated premiums or similar costs. Any losses not covered by insurance could have a material adverse effect on us. We typically purchase business interruption insurance for our facilities. However, if we have a stoppage, our insurance policies may not cover every contingency and may not be sufficient to cover all of our lost revenues. In the future, we may be unable to purchase sufficient business interruption insurance at desirable costs.

We supply products to industries that are subject to inherent risks, including equipment defects, malfunctions and failures and natural disasters, which could result in unforeseen and damaging events. These risks may expose us, as an equipment operator and supplier, to liability for personal injury, wrongful death, property damage, and pollution and other environmental damage. The insurance we carry against many of these risks may not be adequate to cover our claims or losses. Further, insurance covering the risks we expect to face or in the amounts we desire may not be available in the future or, if available, the premiums may not be commercially justifiable. If we were to incur substantial liability and such damages were not covered by insurance or were in excess of policy limits, or if we were to incur liability at a time when we were not able to obtain liability insurance, our business, results of operations, cash flows and financial condition could be negatively impacted. If our clients suffer damages as a result of the occurrence of such events, they may reduce their business with us.

Failure to develop, obtain and protect intellectual property rights could adversely affect our competitive position.

Our success depends on our ability to develop technologies and inventions used in our products and to brand such products, to obtain intellectual property rights in such technologies, inventions, and brands, and to protect and enforce such intellectual property rights. In this regard, we rely on US and foreign trademark, patent, copyright, and trade secret laws, as well as license agreements, nondisclosure agreements, and confidentiality and other contractual provisions. Nevertheless, the technologies and inventions developed by our engineers in the future may not prove to be as valuable as those of competitors, or competitors may develop similar or identical technologies and inventions independently of us and before we do.

We may not be able to obtain patents or other intellectual property rights in our new technologies and inventions or, if we do, the scope of such rights may not be sufficiently broad to afford us any significant commercial advantage over our competitors. Owners of intellectual property rights that we need to conduct our business as it evolves may be unwilling to license such intellectual property rights to us on terms we consider reasonable. Competitors and others may successfully challenge the ownership, validity, and/or enforceability of our intellectual property rights. In the past, pirates have counterfeited certain of our products and sold them under our trademarks, which has led to loss of sales. It is difficult to police such counterfeiting, particularly on a worldwide basis, and the efforts we take to stop such counterfeiting may not be effective.

 

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Our other efforts to enforce our intellectual property rights against infringers may not prove successful and will likely be time consuming and expensive and may divert management’s attention from the day-to-day operation of our business. Adequate remedies may not be available in the event of an unauthorized use or disclosure of our trade secrets and manufacturing expertise. If we fail to successfully enforce our intellectual property rights, our competitive position could suffer, which could harm our business, financial condition, results of operations and cash flows. We operate in industries with respect to which there are many patents, and it is not possible for us to ascertain that none of our products infringes any patents. If we were found to infringe any patent rights or other intellectual property rights of others, we could be required to pay substantial damages or we could be enjoined from offering certain products and services.

Our information technology systems are decentralized, which may lead to certain security risks and make access to our applications cumbersome.

In general our information technology systems are decentralized. This decentralization may lead to security risks and makes access to common applications cumbersome. We are in the midst of several large-scale information technology projects, including with respect to Enterprise Resource Planning, or ERP, systems and consolidation of applications and servers. The costs of such projects may exceed the amounts we have budgeted for them, and any material failures in the execution of such projects may hinder our day-to-day operations.

Pricing pressures from our customers may adversely affect our business.

We face the greatest pricing pressure from our customers in the automotive first-fit end market. Virtually all vehicle manufacturers seek price reductions in both the initial bidding process and during the term of the award. We are also, from time to time, subject to pricing pressures from customers in our other end markets. If we are not able to offset price reductions through improved operating efficiencies and reduced expenditures or new product introduction, those price reductions may have a material adverse effect on our results of operations.

We may in the future acquire related businesses, which we may not be able to successfully integrate, and we may be unable to recoup our investment in these businesses.

We consider strategic acquisitions of complementary businesses to expand our product portfolio and geographic presence on an ongoing basis, and regularly have discussions concerning potential acquisitions, certain of which may be material and which may be consummated following the completion of this offering. Acquisitions, particularly investments in emerging markets, involve legal, economic and political risks. We also encounter risks in the selection of appropriate investment and disposal targets, execution of the transactions and integration of acquired businesses.

While we believe we have successfully integrated the operations we have acquired, we may not be able to effectively integrate future acquisitions or successfully implement appropriate operational, financial and management systems and controls to achieve the benefits expected to result from these acquisitions. As a result, we may not be able to recoup our investment in those acquisitions or achieve the economic benefits that we anticipate from these acquisitions. Our efforts to integrate these businesses could be affected by a number of factors beyond our control, such as general economic conditions and increased competition. In addition, the process of integrating these businesses could cause the interruption of, or loss of momentum in, the activities of our existing business and the diversion of management’s attention. These impacts and any delays or difficulties encountered in connection with the integration of these businesses could negatively impact our business and results of operations.

Environmental compliance costs and liabilities and responses to concerns regarding climate change could affect our financial condition, results of operations and cash flows adversely.

Our operations, products and properties are subject to stringent US and foreign, federal, state, local and provincial laws and regulations relating to environmental protection, including laws and regulations governing

 

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the investigation and clean up of contaminated properties as well as air emissions, water discharges, waste management and disposal, product safety and workplace health and safety. Such laws and regulations affect all of our operations, are continually changing, generally vary by jurisdiction and can impose substantial fines and sanctions for violations. Further, they may require substantial clean-up costs for our properties (many of which are sites of long-standing manufacturing operations) or other sites where we have operated or disposed waste, and the installation of costly pollution control equipment or operational changes to limit pollution emissions and/or decrease the likelihood of accidental releases of regulated materials. We must conform our operations, products and properties to these laws and adapt to regulatory requirements in all jurisdictions as these requirements change.

We have experienced, and expect to continue to experience costs and liabilities relating to environmental laws and regulations, including costs and liabilities associated with the clean-up and investigation of some of our current and former properties and offsite disposal locations as well as personal injury and/or property damage lawsuits alleging damages arising from exposure to hazardous materials associated with our current or former operations, facilities or products. In addition, environmental, health and safety laws and regulations applicable to our business and the business of our customers, and the interpretation or enforcement of these laws and regulations, are constantly evolving and it is impossible to predict accurately the effect that changes in these laws and regulations, or their interpretation or enforcement, may have upon our business, financial condition or results of operations. Such developments, as well as the discovery of previously unknown contamination, the imposition of new clean-up requirements, or new claims for property damage, personal injury or damage to natural resources arising from environmental matters, or claims arising from exposure to hazardous materials used, or alleged to be used, by us in the past, including in our operations, facilities or products, could require us to incur costs or become the basis for new or increased liabilities that could have a material adverse effect on our business, financial condition and results of operations.

In addition, increasing global efforts to control emissions of carbon dioxide, methane and other greenhouse gases, or GHG, have the potential to impact our facilities, products or customers. Certain countries, states, provinces, regulatory agencies and multinational and international authorities with jurisdiction over our operations have implemented measures, or are in the process of evaluating options, including so-called “cap and trade” systems, to regulate GHG emissions. The stringency of these measures varies among jurisdictions where we have operations. GHG regulation could increase the price of the energy and raw materials we purchase, require us to purchase allowances to offset our own emissions, or negatively impact the market for the products we distribute. GHG regulation could also negatively affect our customers, in particular those in the oil and gas industry, which is a key demand driver of our industrial end markets and has been a focus of GHG regulation by the US EPA. These effects of GHG regulation could significantly increase our costs, reduce our competitiveness in a global economy or otherwise negatively affect our business, operations or financial results. See “Risk Factors—Risks Related to Our Products—We may be subject to recalls, product liability claims or may incur costs related to product warranties or changes to product regulations that may materially and adversely affect our business” for additional risks relating to environmental, health and safety regulations applicable to our products.

We have taken, and continue to take, cost reduction actions, which may expose us to additional production risk and we may not be able to maintain the level of cost reductions that we have achieved.

We have been reducing costs in all of our businesses and have discontinued product lines, exited businesses, consolidated manufacturing operations and reduced our employee population. The impact of these cost reduction actions on our sales and profitability may be influenced by many factors and we may not be able to maintain the level of cost savings that we have achieved depending on our ability to successfully complete these efforts. In connection with the implementation and maintenance of our cost reduction measures, we may face delays in implementation of anticipated workforce reductions, a decline in employee morale and a potential inability to meet operational targets due to an inability to retain or recruit key employees.

 

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We are exposed to exchange rate fluctuations in the international markets in which we operate.

We conduct operations in many areas of the world involving transactions denominated in a variety of functional currencies. We are subject to currency exchange rate risk to the extent that our costs may be denominated in currencies other than those in which we earn and report revenues and vice versa. In addition, a decrease in the value of any of these currencies relative to the US dollar could reduce our profits from non-US operations and the translated value of the net assets of our non-US operations when reported in US dollars in our financial statements. This could have a negative impact on our business, financial condition or results of operations as reported in US dollars. Fluctuations in currencies may also make it more difficult to perform period-to-period comparisons of our reported results of operations.

We anticipate that there will be instances in which costs and revenues will not be exactly matched with respect to currency denomination. As a result, to the extent we expand geographically, we expect that increasing portions of our revenues, costs, assets and liabilities will be subject to fluctuations in foreign currency valuations. We may experience economic loss and a negative impact on earnings or net assets solely as a result of foreign currency exchange rate fluctuations. Further, the markets in which we operate could restrict the removal or conversion of the local or foreign currency, resulting in our inability to hedge against these risks.

We also face risks arising from the imposition of exchange controls and currency devaluations. Exchange controls may limit our ability to convert foreign currencies into US dollars or to remit dividends and other payments by our foreign subsidiaries or businesses located in or conducted within a country imposing controls. Currency devaluations result in a diminished value of funds denominated in the currency of the country instituting the devaluation. Actions of this nature, if they occur or continue for significant periods of time, could have an adverse effect on our results of operations and financial condition in any given period.

Terrorist acts, conflicts and wars may materially adversely affect our business, financial condition and results of operations.

As we have a large international footprint, we are subject to increased risk of damage or disruption to us, our employees, facilities, partners, suppliers, distributors, resellers or customers due to terrorist acts, conflicts and wars, wherever located around the world. The potential for future attacks, the national and international responses to attacks or perceived threats to national security, and other actual or potential conflicts or wars have created many economic and political uncertainties. Although it is impossible to predict the occurrences or consequences of any such events, they could result in a decrease in demand for our products, make it difficult or impossible to deliver products to our customers or to receive components from our suppliers, create delays and inefficiencies in our supply chain and result in the need to impose employee travel restrictions, and thereby adversely affect our business, financial condition, results of operations and cash flows.

Risks Related to Our Markets

Conditions in the global economy and the major end markets we serve may materially and adversely affect the business and results of operations of our businesses should they deteriorate.

Our business and operating results have been, and will continue to be, affected by worldwide economic conditions, including conditions in the general industrial and automotive end markets we serve. As a result of continuing effects from the slowdown in global economic growth, the credit market crisis, weak consumer and business confidence, high levels of unemployment, reduced levels of capital expenditures, fluctuating commodity prices, bankruptcies and other challenges affecting the global economy, some of our customers may experience the deterioration of their businesses, cash flow shortages or difficulty obtaining financing. As a result, existing or potential customers may delay or cancel plans to purchase our products and services and may not be able to fulfill their obligations to us in a timely fashion.

Further, our vendors may be experiencing similar conditions, which may impact their ability to fulfill their obligations to us. If the global economic slowdown continues for a significant period or there is significant

 

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further deterioration in the global economy, our results of operations, financial position and cash flows could be materially adversely affected.

Longer product lives of automotive parts are adversely affecting demand for some of our replacement products.

The average useful life of automotive parts has steadily increased in recent years due to innovations in products, technologies and manufacturing processes. The longer product lives allow vehicle owners to replace parts of their vehicles less often. As a result, a portion of sales in the replacement market has been displaced. This has adversely impacted, and could continue to adversely impact, our replacement market sales. Also, any additional increases in the average useful lives of automotive parts would further adversely affect the demand for our replacement market products.

We may not be able to accurately forecast demand or meet significant increases in demand for our products.

Certain of our businesses operate with short lead times and we order raw materials and supplies and plan production based on discussions with our customers and internal forecasts of demand. If we are unable to accurately forecast demand for our products, in terms of both volume and specific products, or react appropriately to abrupt changes in demand, we may experience delayed product shipments and customer dissatisfaction. Additionally, if demand increases significantly from current levels, both we and our suppliers may have difficulty meeting such demand, particularly if such demand increases occur rapidly. Failure to accurately forecast demand or meet significant increases in demand could have an adverse impact on our business, financial condition and operating results.

Risks Related to Our Products

If we are unable to obtain raw materials at favorable prices in sufficient quantities, or at the time we require them, our operating margins and results of operations may be adversely affected.

We purchase our energy, steel, aluminum, rubber and rubber-based materials, and other key manufacturing inputs from outside sources. We do not traditionally have long-term pricing contracts with raw material suppliers. The costs of these raw materials have been volatile historically and are influenced by factors that are outside our control. In recent years, the prices for energy, metal alloys, polymers and certain other of our raw materials have fluctuated significantly. While we strive to avoid this risk through the use of price escalation mechanisms with respect to our raw materials in our customer contracts and we seek to offset our increased costs with gains achieved through operational efficiencies, if we are unable to pass increases in the costs of our raw materials on to our customers, our operating margins and results of operations may be adversely affected if operational efficiencies are not achieved.

Additionally, our businesses compete globally for key production inputs. The availability of qualified suppliers and of certain raw materials, energy or other key inputs may be disrupted by any number of geopolitical factors, including political unrest and significant weather events. Such disruptions may require additional capital or operating expenditure by us or force reductions in our production volumes.

We may be subject to recalls, product liability claims or may incur costs related to product warranties that may materially and adversely affect our business.

Meeting or exceeding many government-mandated safety standards is costly and requires manufacturers to remedy defects related to product safety through recall campaigns if the products do not comply with safety standards. If we, customers or government regulators determine that a product is defective or does not comply with safety standards prior to the start of production, the launch of a product could be delayed until such defect is remedied. The costs associated with any protracted delay of a product launch or a recall campaign to remedy defects in products that have been sold could be substantial.

 

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We face an inherent risk of product liability claims if product failure results in any claim for injury or loss. Litigation is inherently unpredictable and these claims, regardless of their outcome, may be costly, divert management attention and adversely affect our reputation. Supplier consolidation and the increase in low-cost country sourcing may increase the likelihood of receiving defective materials, thereby increasing the risk of product failure and resulting liability claims. In addition, even if we are successful in defending against a claim relating to our products, claims of this nature could cause our customers to lose confidence in our products and us.

From time to time, we receive product warranty claims from our customers, pursuant to which we may be required to bear costs of repair or replacement of certain of our products. Vehicle manufacturers are increasingly requiring their outside suppliers to participate in the warranty of their products and to be responsible for the operation of these component products in new vehicles sold to consumers. Warranty claims may range from individual customer claims to full recalls of all products in the field. It cannot be assured that costs associated with providing product warranties will not be material.

We are dependent on market acceptance of new product introductions and product innovations for continued revenue growth.

The markets in which we operate are subject to technological change. Our long-term operating results depend substantially upon our ability to continually develop, introduce, and market new and innovative products, to modify existing products, to respond to technological change, and to customize certain products to meet customer requirements and evolving industry standards. There are numerous risks inherent in this process, including the risks that we will be unable to anticipate the direction of technological change or that we will be unable to develop and market new products and applications in a timely fashion to satisfy customer demands.

New regulations related to conflict minerals could adversely impact our business.

The Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, contains provisions to improve transparency and accountability concerning the supply of certain minerals, known as conflict minerals, deemed to be financing conflict in the Democratic Republic of Congo, or the DRC, and adjoining countries. As a result, in August 2012 the SEC adopted annual disclosure and reporting requirements for those companies who use conflict minerals mined from the DRC and adjoining countries in their products. These new requirements will require due diligence efforts in Fiscal 2014, with initial disclosure requirements beginning in May 2014. We have incurred costs associated with diligence efforts to confirm the applicability of this legislation, and have concluded that we will not face further disclosure obligations. We continue to incur costs associated with responding to customer requests regarding conflict minerals, and to ensure that our supply chain remains free from conflict minerals.

Risks Related to Our People

If we lose our senior management or key personnel, our business may be materially and adversely affected.

The success of our business is largely dependent on our senior management team, as well as on our ability to attract and retain other qualified key personnel. In addition, there is significant demand in our industry for skilled workers. It cannot be assured that we will be able to retain all of our current senior management personnel and to attract and retain other necessary personnel, including skilled workers, necessary for the development of our business. The loss of the services of senior management and other key personnel or the failure to attract additional personnel as required could have a material adverse effect on our business, financial condition and results of operations.

We may be adversely impacted by work stoppages and other labor matters.

As of September 28, 2013, we had approximately 14,300 employees worldwide. Certain of our employees are represented by various unions under collective bargaining agreements. While we have no reason to believe we

 

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will be impacted by work stoppages and other labor matters, we cannot assure that future issues with our labor unions will be resolved favorably or that we will not encounter future strikes, work stoppages, or other types of conflicts with labor unions or our employees. Any of these factors may have an adverse effect on us or may limit our flexibility in dealing with our workforce. In addition, many of our customers have unionized workforces. If one or more of our customers experience a material work stoppage, it could similarly have a material adverse effect on our business, results of operations and financial condition.

Risks Related to Our Capital Structure

We are dependent upon lenders for financing to execute our business strategy and meet our liquidity needs and the lack of adequate financing could negatively impact our business.

We may require capital to expand our business, implement our strategic initiatives and remain competitive. In the current volatile credit market, exacerbated by Eurozone sovereign debt concerns, there is risk that any lenders, even those with strong balance sheets and sound lending practices, could fail or refuse to honor their legal commitments and obligations under existing credit commitments, including but not limited to: extending credit up to the maximum permitted by a credit facility, allowing access to additional credit features and otherwise accessing capital and/or honoring loan commitments. If our lenders failed to honor their legal commitments under our senior secured revolving credit facility, it could be difficult in this environment to replace our senior secured revolving credit facility on similar terms.

Failure to obtain sufficient funding to meet our liquidity requirements may result in our losing business opportunities or in the curtailment of capital spending, research and development and other important strategic programs.

Restrictions on the availability of credit may cause some of our customers to be slower in settling the amounts that they owe to us, thereby reducing our own liquidity or, indeed, may cause them to be unable to pay the amounts that they owe to us. Restrictions on the availability of credit also increase the risk that some of our suppliers may fail, which could cause disruption in the supply of critical inputs to our manufacturing processes. If there were any interruption in the supply of our products to any of our customers, we may lose sales to those customers and there would be the risk that some of them would migrate to other suppliers.

If management’s plans or assumptions regarding the funding requirements change, we may need to seek other sources of financing, such as additional lines of credit with commercial banks or vendors or public financing, or to renegotiate existing bank facilities. It is possible that additional funding may not be available on commercially acceptable terms or at all.

We have substantial indebtedness, the size and terms of which could affect our ability to meet our debt obligations and may otherwise restrict our activities

As of September 28, 2013, we had total principal debt outstanding of $1,797.0 million. We are permitted by the terms of our debt instruments to incur substantial additional indebtedness, subject to the restrictions therein. Our inability to generate sufficient cash flow to satisfy our debt obligations, or to refinance our obligations on commercially reasonable terms, would have a material adverse effect on our business, financial condition and results of operations.

Our substantial indebtedness could have important consequences, for example, it could:

 

    make it more difficult for us to satisfy our obligations under our indebtedness;

 

    limit our ability to borrow money for our working capital, capital expenditures, debt service requirements or other corporate purposes;

 

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    require us to dedicate a substantial portion of our cash flow to payments on our indebtedness, which would reduce the amount of cash flow available to fund working capital, capital expenditures and other corporate requirements;

 

    increase our vulnerability to general adverse economic and industry conditions;

 

    limit our ability to respond to business opportunities; and

 

    subject us to financial and other restrictive covenants, which, if we fail to comply with these covenants and our failure is not waived or cured, could result in an event of default under our debt.

In addition, our existing debt obligations contain, and any future indebtedness of ours would likely contain, a number of restrictive covenants that will impose significant operating and financial restrictions on us, including, amongst others, restrictions on our ability to incur or guarantee additional debt, make certain investments and engage in sales of assets and subsidiary stock.

A failure to comply with the covenants contained in our debt agreements could result in an event of default, which, if not cured or waived, could have a material adverse effect on our business, financial condition and results of operations. In the event of any default, the lenders:

 

    will not be required to lend any additional amounts to us;

 

    could elect to declare all borrowings outstanding, together with accrued and unpaid interest and fees, to be due and payable;

 

    may have the ability to require us to apply all of our available cash to repay these borrowings; or

 

    may prevent us from making debt service payments under our other agreements.

Such actions by lenders could cause cross defaults under our other indebtedness.

We have pledged and will pledge substantially all of our assets as collateral under our senior secured credit facilities and the indenture governing our $330.0 million 9% senior secured second lien notes due 2018, or Second Lien Notes, subject to certain exceptions. If any of the holders of our indebtedness accelerate the repayment of such indebtedness, there can be no assurance that we will have sufficient assets to repay our indebtedness. If we were unable to repay those amounts, the holders of our secured indebtedness could proceed against the collateral granted to them to secure that indebtedness.

We may not be able to generate sufficient cash to service all of our indebtedness, and may be forced to take other actions to satisfy our obligations under our indebtedness that may not be successful.

Our ability to satisfy our debt obligations will depend upon, among other things:

 

    our future financial and operating performance, which will be affected by prevailing economic conditions and financial, business, regulatory and other factors, many of which are beyond our control; and

 

    the future availability of borrowings under our senior secured credit facilities, which depends on, among other things, our complying with the covenants in those facilities.

It cannot be assured that our business will generate sufficient cash flow from operations, or that future borrowings will be available to us under our senior secured credit facilities or otherwise, in an amount sufficient to fund our liquidity needs.

If our cash flows and capital resources are insufficient to service our indebtedness, we may be forced to reduce or delay capital expenditures, sell assets, seek additional capital or restructure or refinance our indebtedness. These

 

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alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. In addition, the terms of existing or future debt agreements, may restrict us from adopting some of these alternatives. In the absence of such operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. We may not be able to consummate those dispositions for fair market value or at all, and any proceeds that we could realize from any such dispositions may not be adequate to meet our debt service obligations then due.

The terms of our debt agreements may restrict our current and future operations, particularly our ability to respond to changes in our business or to take certain actions.

The credit agreement governing our senior secured credit facilities and the indenture governing the Second Lien Notes contain, and any future indebtedness of ours would likely contain, a number of restrictive covenants that will impose significant operating and financial restrictions on us, including restrictions on our ability to, among other things:

 

    incur or guarantee additional debt;

 

    issue qualified stock and preferred stock;

 

    pay dividends and make other restricted payments;

 

    create or incur certain liens;

 

    make certain investments;

 

    engage in sales of assets and subsidiary stock;

 

    enter into transactions with affiliates;

 

    transfer all or substantially all of our assets or enter into merger or consolidation transactions; and

 

    make capital expenditures.

In addition, our senior secured credit facilities require us to maintain certain financial ratios. As a result of these covenants, we will be limited in the manner in which we conduct our business, and we may be unable to engage in favorable business activities or finance future operations or capital needs. Our ability to meet those financial ratios can be affected by events beyond our control, and there can be no assurance that we will meet those ratios. An adverse development affecting our business could require us to seek waivers or amendments of covenants, alternative or additional sources of financing or reductions in expenditures. Such waivers, amendments or alternative or additional financings might not be on terms acceptable to us.

A failure to comply with the covenants contained in our senior secured credit facilities or the indenture governing the Second Lien Notes could result in an event of default under our debt agreements, which, if not cured or waived, could have a material adverse effect on our business, financial condition and results of operations.

We have pledged and will pledge substantially all of our assets as collateral under our senior secured credit facilities and the indenture governing the Second Lien Notes subject to certain exceptions. If any of the holders of our indebtedness accelerate the repayment of such indebtedness, there can be no assurance that we will have sufficient assets to repay our indebtedness. If we were unable to repay those amounts, the holders of our secured indebtedness could proceed against the collateral granted to them to secure that indebtedness.

 

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Risks Related to this Offering and Ownership of our Ordinary Shares

Because a significant portion of our operations is conducted through our subsidiaries and joint ventures, we are largely dependent on our receipt of distributions or other payments from our subsidiaries and joint ventures for cash to fund all of our operations and expenses, including to make future dividend payments, if any.

A significant portion of our operations is conducted through our subsidiaries and joint ventures. As a result, our ability to service our debt or to make future dividend payments, if any, is largely dependent on the earnings of our subsidiaries and joint ventures and the payment of those earnings to us in the form of dividends, loans or advances and through repayment of loans or advances from us. Payments to us by our subsidiaries and joint ventures will be contingent upon our subsidiaries’ or joint ventures’ earnings and other business considerations and may be subject to statutory or contractual restrictions. We do not currently expect to declare or pay dividends on our ordinary shares for the foreseeable future; however, to the extent that we determine in the future to pay dividends on our ordinary shares, the credit agreement governing our senior secured credit facilities and the indenture governing the Second Lien Notes significantly restrict the ability of our subsidiaries to pay dividends or otherwise transfer assets to us. In addition, BVI law provides that (subject to any additional restrictions, conditions or limitations which may be contained in our memorandum and articles) we may not pay dividends or other distributions to holders of our ordinary shares (and any other shares) except where the Company will, immediately after the dividend or distribution, satisfy the solvency test. The Company will satisfy the solvency test if (i) the value of the Company’s assets exceeds its liabilities; and (ii) the Company is able to pay its debts as they fall due. Further, there may be significant tax and other legal restrictions on the ability of foreign subsidiaries or joint ventures to remit money to us.

There is no existing market for our ordinary shares, and we do not know if one will develop to provide you with adequate liquidity to sell our ordinary shares at prices equal to or greater than the price you paid in this offering.

Prior to this offering, there has not been a public market for our ordinary shares. We cannot predict the extent to which investor interest in us will lead to the development of an active trading market on the stock exchange on which we intend to list our ordinary shares or otherwise or how liquid that market might become. If an active trading market does not develop, you may have difficulty selling any of our ordinary shares that you buy. The initial public offering price for the ordinary shares will be determined by negotiations between us and the representatives of the underwriters and may not be indicative of prices that will prevail in the open market following this offering. Consequently, you may not be able to sell our ordinary shares at prices equal to or greater than the price you paid in this offering, or at all.

We may incur increased costs as a result of operating as a publicly traded company, and our management may be required to devote substantial time to new compliance initiatives.

As a publicly traded company, we may incur additional legal, accounting and other expenses that we did not previously incur. Although we are currently unable to estimate these costs with any degree of certainty, they may be material in amount. In addition, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, the Dodd-Frank Act and the rules of the SEC, and the stock exchange on which our ordinary shares are listed, have imposed various requirements on public companies. Our management and other personnel may need to devote a substantial amount of time to these compliance initiatives as well as investor relations. Moreover, these rules and regulations may increase our legal and financial compliance costs and may make some activities more time-consuming and costly. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to incur additional costs to maintain the same or similar coverage.

Furthermore, if we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, the market price of our ordinary shares could decline and we could be subject to potential

 

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delisting by the stock exchange on which our ordinary shares are listed and review by such exchange, the SEC or other regulatory authorities, which would require the expenditure by us of additional financial and management resources. As a result, our shareholders could lose confidence in our financial reporting, which would harm our business and the market price of our ordinary shares.

The price of our ordinary shares may fluctuate significantly, and you could lose all or part of your investment.

Volatility in the market price of our ordinary shares may prevent you from being able to sell your ordinary shares at or above the price you paid for your ordinary shares. The market price of our ordinary shares could fluctuate significantly for various reasons, including:

 

    our operating and financial performance and prospects;

 

    our quarterly or annual earnings or those of other companies in our industries;

 

    the public’s reaction to our press releases, our other public announcements and our filings with the SEC;

 

    changes in, or failure to meet, earnings estimates or recommendations by research analysts who track our ordinary shares or the stock of other companies in our industries;

 

    the failure of research analysts to cover our ordinary shares;

 

    strategic actions by us, our customers or our competitors, such as acquisitions or restructurings;

 

    increased competition;

 

    new laws or regulations or new interpretations of existing laws or regulations applicable to us and our business;

 

    changes in accounting standards, policies, guidance, interpretations or principles;

 

    material litigation or government investigations;

 

    default on our indebtedness;

 

    changes in general conditions in the US and global economies or financial markets, including those resulting from war, incidents of terrorism, natural disasters, severe weather or responses to such events;

 

    reactions to changes in the markets for the raw materials or key inputs that impact our production or our industries generally;

 

    changes in key personnel;

 

    sales of ordinary shares by us, Onex, CPPIB or members of our management team;

 

    waiver, termination or expiration of lock-up agreements with our management team and principal shareholders;

 

    the granting or exercise of employee stock options;

 

    volume of trading in our ordinary shares; and

 

    the realization of any risks described under this “Risk Factors” section.

In addition, in recent years, the stock market has experienced significant price and volume fluctuations. This volatility has had a significant impact on the market price of securities issued by many companies, including companies in the end markets we serve. The changes frequently appear to occur without regard to the operating performance of the affected companies. Hence, the price of our ordinary shares could fluctuate based upon factors that have little or nothing to do with us, and these fluctuations could materially reduce our share price and cause you to lose all or part of your investment. Further, in the past, market fluctuations and price declines in a

 

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company’s stock have led to securities class action litigations. If such a suit were to arise, it could have a substantial cost and divert our resources regardless of the outcome.

If we fail to maintain proper and effective internal controls over financial reporting, our ability to produce accurate and timely financial statements could be impaired and investors’ views of us could be harmed.

The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures. In particular, we must perform system and process evaluation and testing of our internal control over financial reporting to allow management and our independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, with auditor attestation of the effectiveness of our internal controls, beginning with our annual report on Form 20-F for the fiscal year ending December 31, 2015. If we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of ordinary shares could decline and we could be subject to sanctions or investigations by the stock exchange on which we intend to list our ordinary shares, the SEC or other regulatory authorities, which would require additional financial and management resources.

Our ability to successfully implement our business plan and comply with Section 404 of the Sarbanes-Oxley Act requires us to be able to prepare timely and accurate financial statements. Any delay in the implementation of, or disruption in the transition to, new or enhanced systems, procedures or controls, may cause our operations to suffer and we may be unable to conclude that our internal control over financial reporting is effective and to obtain an unqualified report on internal controls from our auditors. Moreover, we cannot be certain that these measures would ensure that we implement and maintain adequate controls over our financial processes and reporting in the future. Even if we were to conclude, and our auditors were to concur, that our internal control over financial reporting provided reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS, because of its inherent limitations, internal control over financial reporting may not prevent or detect fraud or misstatements. This, in turn, could have an adverse impact on trading prices for our ordinary shares, and could adversely affect our ability to access the capital markets.

We are controlled by Onex and CPPIB whose interests in our business may be different than yours.

As of September 28, 2013, Onex and CPPIB owned 55.9% and 41.5%, respectively, of the Class B shares of Pinafore Holdings B.V. and are able to control our affairs in all cases. Following this offering, Onex and CPPIB will continue to own approximately         % and         %, respectively, of our ordinary shares, respectively (or         % and         %, respectively, if the underwriters exercise their option to purchase additional shares in full). Pursuant to a shareholders agreement, a majority of the Board will be designated by Onex and CPPIB and will be affiliated with Onex and CPPIB. See “Certain Relationships and Related Party Transactions—Stockholders Agreement.” As a result, Onex and CPPIB or their respective nominees to the Board will (to the extent these are matters within the powers of the Board pursuant to the laws of the BVI and the memorandum and articles of the Company) have the ability to control or otherwise influence the appointment of our management, the entering into of mergers, sales of substantially all of our assets and other extraordinary transactions and influence amendments to our memorandum and articles. So long as Onex and CPPIB continue to own a majority of our ordinary shares, they will (subject to, and in accordance with, our memorandum and articles) have the ability to control the vote in any election of directors and will have the ability to prevent any transaction that requires shareholder approval regardless of whether others believe the transaction is in our best interests. In any of these matters, the interests of Onex and CPPIB may differ from or conflict with your interests. Moreover, this concentration of share ownership may also adversely affect the trading price for our ordinary shares to the extent investors perceive disadvantages in owning shares of a company with a controlling shareholder. In addition, we have historically paid Onex and CPPIB an annual fee for certain advisory and consulting services pursuant to a

 

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management agreement. See “Certain Relationships and Related Party Transactions—Stockholders Agreement.” We will pay Onex and CPPIB a fee to terminate the management services agreement in connection with the consummation of this offering. In addition, Onex and CPPIB are in the business of making investments in companies and may, from time to time, acquire interests in businesses that directly or indirectly compete with our business, as well as businesses that are significant existing or potential customers. Onex and CPPIB may acquire or seek to acquire assets that we seek to acquire and, as a result, those acquisition opportunities may not be available to us or may be more expensive for us to pursue.

We have no plans to pay regular dividends on our ordinary shares, so you may not receive funds without selling your ordinary shares.

We have no plans to pay regular dividends on our ordinary shares. We generally intend to invest our future earnings, if any, to fund our growth. Any payment of future dividends will be at the discretion of our Board of Directors, or Board, (subject to, and in accordance with, our memorandum and articles) and will depend on, among other things, our earnings, financial condition, capital requirements, level of indebtedness, statutory and contractual restrictions applying to the payment of dividends and other considerations that our Board deems relevant. The senior secured credit facilities and the indenture governing the Second Lien Notes also effectively limit our ability to pay dividends. Accordingly, you may have to sell some or all of your ordinary shares after price appreciation in order to generate cash flow from your investment. You may not receive a gain on your investment when you sell your ordinary shares and you may lose the entire amount of the investment.

You may suffer immediate and substantial dilution.

The initial public offering price per share of our ordinary shares is substantially higher than our net tangible book value per ordinary share immediately after the offering. As a result, you may pay a price per share that substantially exceeds the tangible book value of our assets after subtracting our liabilities. At an offering price of $         per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, you may incur immediate and substantial dilution in the amount of $         per share. We also had              ordinary shares issuable upon the exercise of options outstanding as of              at a weighted average exercise price of $         per share. To the extent these options are exercised, there may be further dilution. See “Dilution.”

Future sales of our ordinary shares in the public market could lower our share price, and any additional capital raised by us through the sale of equity or convertible debt securities may dilute your ownership in us and may adversely affect the market price of our ordinary shares.

We and substantially all of our current shareholders may sell additional ordinary shares in subsequent public offerings. We may also issue additional ordinary shares or preferred shares or convertible debt securities to finance future acquisitions. After the consummation of this offering, we will be authorized to issue a maximum of              ordinary shares and              ordinary shares will be outstanding. This number includes              ordinary shares that the selling shareholders are selling in this offering, which may be resold immediately in the public market. Of the remaining ordinary shares,             , or     % of our total outstanding ordinary shares, are restricted from immediate resale under the lock-up agreements between our current stockholders and the underwriters described in “Underwriting,” but may be sold into the market in the near future. These shares and any shares which may be issued upon exercise of outstanding options will become available for sale following the expiration of the lock-up agreements, which, without the prior consent of                     , is 180 days after the date of this prospectus, subject to compliance with the applicable requirements under Rule 144 of the Securities Act of 1933, as amended, or the Securities Act.

We cannot predict the size of future issuances of our ordinary shares or the effect, if any, that future issuances and sales of our ordinary shares will have on the market price of our ordinary shares. Sales of substantial amounts of our ordinary shares (including sales pursuant to Onex’s and CPPIB’s registration rights and ordinary

 

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shares issued in connection with an acquisition), or the perception that such sales could occur, may adversely affect prevailing market prices for our ordinary shares. See “Certain Relationships and Related Party Transactions” and “Shares Eligible for Future Sale.”

We are a foreign private issuer and a “controlled company” within the meaning of the rules of the stock exchange on which we intend to list our ordinary shares and, as a result, expect to qualify for, and intend to rely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to stockholders of companies that are subject to such requirements.

The corporate governance rules of the stock exchange on which we intend to list our shares require listed companies to have, among other things, a majority of independent board members and independent director oversight of executive compensation, nomination of directors and corporate governance matters. However, as a foreign private issuer, we are permitted to, and we may, follow home country practice in lieu of the above requirements, subject to certain exceptions. As long as we rely on the foreign private issuer exemption to certain of these corporate governance standards, a majority of our Board are not required to be independent directors, our Remuneration Committee is not required to be comprised entirely of independent directors and we will not be required to have a Nominating and Corporate Governance Committee. Therefore, our Board’s approach to governance may be different from that of a board of directors consisting of a majority of independent directors, and, as a result, management oversight may be more limited than if we were subject to all of the corporate governance standards of the stock exchange on which we intend to list our ordinary shares.

Following the consummation of this offering, we expect Onex and CPPIB will continue to control a majority of the voting power of our outstanding ordinary shares. As a result, we also expect to be a “controlled company” within the meaning of the corporate governance standards of the stock exchange on which we intend to list our ordinary shares. Under these rules, a company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including:

 

    the requirement that a majority of the Board consist of independent directors;

 

    the requirement that we have a nominating and corporate governance committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities;

 

    the requirement that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and

 

    the requirement for an annual performance evaluation of the nominating and corporate governance committee and compensation committee.

In the event we no longer qualify as a foreign private issuer, we may utilize these exemptions if we continue to qualify as a “controlled company.” If we do utilize the controlled company exemption, we will not have a majority of independent directors and our Nominating and Corporate Governance and Remuneration Committees will not consist entirely of independent directors and such committees will not be subject to annual performance evaluations. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the stock exchange on which we list our ordinary shares.

As a foreign private issuer, we are exempt from a number of rules under the US securities laws and are permitted to file less information with the SEC than a US company; our ordinary shares are not listed, and we do not intend to list our shares, on any market in BVI, our home country. This may limit the information available to holders of the ordinary shares.

As a foreign private issuer, we are not subject to all of the disclosure requirements applicable to public companies organized within the United States. For example, we are exempt from certain rules under the

 

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Exchange Act, that regulate disclosure obligations and procedural requirements related to the solicitation of proxies, consents or authorizations applicable to a security registered under the Exchange Act, including the US proxy rules under Section 14 of the Exchange Act. In addition, our officers and directors are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and related rules with respect to their purchases and sales of our securities. Moreover, while we expect to submit quarterly interim consolidated financial data to the SEC under cover of the SEC’s Form 6-K, we will not be required to file periodic reports and financial statements with the SEC as frequently or as promptly as US public companies and will not be required to file quarterly reports on Form 10-Q or current reports on Form 8-K under the Exchange Act. Furthermore, our ordinary shares are not listed and we do not currently intend to list our ordinary shares on any market in BVI, our home country. As a result, we are not subject to the reporting and other requirements of companies listed in BVI. For instance, we are not required to publish quarterly or semi-annual financial statements. Accordingly, there will be less publicly available information concerning our company than there would be if we were a US domestic issuer.

We may lose our foreign private issuer status in the future, which could result in significant additional cost and expense.

We are a foreign private issuer, as such term is defined in Rule 405 under the Securities Act, however, under Rule 405, the determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter and, accordingly, the next determination will be made with respect to us on June 30, 2014.

In the future, we would lose our foreign private issuer status if a majority of our shareholders, directors or management are US citizens or residents and we fail to meet additional requirements necessary to avoid loss of foreign private issuer status. Although we have elected to comply with certain US regulatory provisions, our loss of foreign private issuer status would make such provisions mandatory. The regulatory and compliance costs to us under US securities laws as a US domestic issuer may be significantly higher. If we are not a foreign private issuer, we will be required to file periodic reports and registration statements on US domestic issuer forms with the SEC, which are more detailed and extensive than the forms available to a foreign private issuer. For example, the annual report on Form 10-K requires domestic issuers to disclose executive compensation information on an individual basis with specific disclosure regarding the domestic compensation philosophy, objectives, annual total compensation (base salary, bonus, equity compensation) and potential payments in connection with change in control, retirement, death or disability, while the annual report on Form 20-F permits foreign private issuers to disclose compensation information on an aggregate basis. We will also have to mandatorily comply with US federal proxy requirements, and our officers, directors and principal shareholders will become subject to the short-swing profit disclosure and recovery provisions of Section 16 of the Exchange Act. We may also be required to modify certain of our policies to comply with good governance practices associated with US domestic issuers. Such conversion and modifications will involve additional costs. In addition, we may lose our ability to rely upon exemptions from certain corporate governance requirements on US stock exchanges that are available to foreign private issuers.

It may be difficult to enforce a US judgment against us, our directors and officers and certain experts named in this prospectus outside the United States, or to assert US securities law claims outside of the United States.

The majority of our directors and executive officers are not residents of the United States, and the majority of our assets and the assets of these persons are located outside the United States. As a result, it may be difficult or impossible for investors to effect service of process upon us within the United States or other jurisdictions, including judgments predicated upon the civil liability provisions of the federal securities laws of the United States. See “Enforceability of Civil Liabilities.” Additionally, it may be difficult to assert US securities law claims in actions originally instituted outside of the US. Foreign courts may refuse to hear a US securities law claim because foreign courts may not be the most appropriate forums in which to bring such a claim. Even if a foreign court agrees to hear a claim, it may determine that the law of the jurisdiction in which the foreign court

 

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resides, and not US law, is applicable to the claim. Further, if US law is found to be applicable, the content of applicable US law must be proved as a fact, which can be a time-consuming and costly process, and certain matters of procedure would still be governed by the law of the jurisdiction in which the foreign court resides.

In particular, investors should be aware that there is uncertainty as to whether the courts of BVI would recognize and enforce judgments of US courts obtained against us or our directors or management as well as against the selling shareholders predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States or entertain original actions brought in BVI courts against us or our directors or officers as well as against the selling shareholders predicated upon the securities laws of the United States or any state in the United States. As a result of the difficulty associated with enforcing a judgment against us, you may not be able to collect any damages awarded by either a US or foreign court.

Certain types of class or derivative actions generally available under US law may not be available as a result of the fact that we are incorporated in the BVI. As a result, the rights of shareholders may be limited.

BVI companies may not have standing to initiate a shareholder derivative action in a federal court of the United States. The circumstances in which any such action may be brought, and the procedures and defenses that may be available in respect to any such action, may result in the rights of shareholders of a BVI company being more limited than those of shareholders of a company organized in the United States. Accordingly, shareholders may have fewer alternatives available to them if they believe that corporate wrongdoing has occurred. The BVI courts are also unlikely to recognize or enforce against us judgments of courts in the United States based on certain liability provisions of US securities law; and to impose liabilities against us, in original actions brought in the BVI, based on certain liability provisions of US securities laws that are penal in nature.

We are not subject to the supervision of the Financial Services Commission of the BVI. As a result, our shareholders are not protected by any regulatory inspections in the BVI.

We are not an entity subject to any regulatory supervision in the BVI by the Financial Services Commission. As a result, shareholders are not protected by any regulatory supervision or inspections by any regulatory agency in the BVI and we are generally not required to observe any restrictions in respect of our conduct under BVI law, except as otherwise disclosed in this prospectus, under the BVI Act, or our memorandum and articles of association. There are no approval, filing or registration requirements currently in force in the BVI with respect to this offering.

As the rights of shareholders under BVI law differ from those under US law, you may have fewer protections as a shareholder.

Our corporate affairs will be governed by our memorandum and articles of association, the BVI Act and the common law of the BVI. The rights of shareholders to take legal action against our directors, actions by minority shareholders and the fiduciary responsibilities of our directors under BVI law are to a large extent governed by the common law of the BVI and by the BVI Act. The common law of the BVI is derived in part from comparatively limited judicial precedent in the BVI as well as from English common law, which has persuasive, but not binding, authority on a court in the BVI. The rights of our shareholders and the fiduciary responsibilities of our directors under BVI law are not as clearly established as they would be under statutes or judicial precedents in some jurisdictions in the United States. In particular, the British Virgin Islands has a less developed body of securities laws as compared to the United States, and some states (such as Delaware) have more fully developed and judicially interpreted bodies of corporate law. As a result of the foregoing, holders of our ordinary shares may have more difficulty in protecting their interests through actions against our management, directors or major shareholders than they would as shareholders of a US company.

 

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The laws of the BVI provide limited protection for minority shareholders, so minority shareholders will have limited or no recourse if they are dissatisfied with the conduct of our affairs.

Under the laws of the BVI, there is limited statutory law for the protection of minority shareholders other than the provisions of the BVI Act dealing with shareholder remedies (as summarized under “Description of Share Capital”). The principal protection under statutory law is that shareholders may bring an action to enforce the constituent documents of the Company and are entitled to have the affairs of the Company conducted in accordance with the BVI Act and the memorandum and articles of association of the Company. As such, if those who control the Company have persistently disregarded the requirements of the BVI Act or the provisions of the Company’s memorandum and articles of association, then the courts will likely grant relief. Generally, the areas in which the courts will intervene are the following: (i) an act complained of which is outside the scope of the authorized business or is illegal or not capable of ratification by the majority; (ii) acts that constitute fraud on the minority where the wrongdoers control the Company; (iii) acts that infringe on the personal rights of the shareholders, such as the right to vote; and (iv) acts where the Company has not complied with provisions requiring approval of a special or extraordinary majority of shareholders, which are more limited than the rights afforded minority shareholders under the laws of many states in the United States.

 

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FORWARD-LOOKING STATEMENTS

Any statements made in this prospectus that are not statements of historical fact, including statements about our beliefs and expectations, are forward-looking statements and should be evaluated as such. Forward-looking statements include information concerning possible or assumed future results of operations, including descriptions of our business plan and strategies. These statements often include words such as “anticipate,” “expect,” “suggests,” “plan,” “believe,” “intend,” “estimate,” “target,” “project,” “should,” “could,” “would,” “may,” “will,” “forecast,” and other similar expressions. These forward-looking statements are contained throughout this prospectus, including the sections entitled “Prospectus Summary,” “Risk Factors,” “Capitalization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” We base these forward-looking statements or projections on our current expectations, plans and assumptions that we have made in light of our experience in the industry, as well as our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances and at such time. As you read and consider this prospectus, you should understand that these statements are not guarantees of performance or results. The forward-looking statements and projections are subject to and involve risks, uncertainties and assumptions and you should not place undue reliance on these forward-looking statements or projections. Although we believe that these forward-looking statements and projections are based on reasonable assumptions at the time they are made, you should be aware that many factors could affect our actual financial results or results of operations and could cause actual results to differ materially from those expressed in the forward-looking statements and projections. Factors that may materially affect such forward-looking statements and projections include:

 

    global and general economic conditions, including those specific to our end markets;

 

    significant global operations and global expansion;

 

    regulations applicable to our global operations;

 

    our ability to compete successfully with other companies in our industries;

 

    the cost and availability of raw materials;

 

    the potential loss of key personnel;

 

    product liability claims against us;

 

    the sufficiency of our insurance policies to cover losses, including liabilities arising from litigation;

 

    failure to develop and maintain intellectual property rights;

 

    the demand for our products by industrial manufacturers and automakers;

 

    our ability to integrate acquired companies into our business and the success of our acquisition strategy;

 

    environmental, health and safety laws and regulations;

 

    currency fluctuations from our international sales;

 

    labor shortages, labor costs and collective bargaining agreements;

 

    equipment failures, explosions and adverse weather;

 

    the impact of natural disasters and terrorist attacks;

 

    potential inability to obtain necessary capital;

 

    the dependence on our subsidiaries for cash to meet our debt obligations;

 

    our ability to comply with new regulations related to conflict minerals;

 

    substantial indebtedness and maintaining compliance with debt covenants;

 

    our ability to incur additional indebtedness;

 

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    cash requirements to service indebtedness;

 

    ability and willingness of our lenders to fund borrowings under their credit commitments;

 

    changes in capital availability or costs, such as changes in interest rates, security ratings and market perceptions of the businesses in which we operate, or the ability to obtain capital on commercially reasonable terms or at all;

 

    continued global economic weakness and uncertainties and disruption in the capital, credit and commodities markets;

 

    the amount of the costs, fees, expenses and charges related to this initial public offering and the related costs of being a public company;

 

    any statements of belief and any statements of assumptions underlying any of the foregoing;

 

    other factors disclosed in this prospectus; and

 

    other factors beyond our control.

These cautionary statements should not be construed by you to be exhaustive and are made only as of the date of this prospectus. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

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USE OF PROCEEDS

All of the ordinary shares offered by this prospectus are being sold by the selling shareholders. The selling shareholders in this offering include Onex and CPPIB. We will not receive any of the proceeds from the sale of shares in this offering, including from any exercise by the underwriters of their option to purchase additional ordinary shares, if any. For information about the selling shareholders, see “Principal and Selling Shareholders.”

 

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DIVIDEND POLICY

We do not intend to pay any cash dividends for the foreseeable future. Any determination to pay dividends in the future will be at the discretion of our Board (in accordance with our memorandum and articles) and will depend upon our results of operations, cash requirements, financial condition, contractual restrictions, restrictions imposed by the senior secured credit facilities and the indenture governing the Second Lien Notes, or any future indebtedness, or applicable laws and other factors that our Board may deem relevant. Our existing indebtedness effectively limits our ability to pay dividends and make distributions to our shareholders. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Borrowings.”

 

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CAPITALIZATION

The following table sets forth our consolidated cash and cash equivalents, collateralized cash and capitalization as of September 28, 2013. The information in this table should be read in conjunction with “Selected Historical Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes thereto included elsewhere in this prospectus.

 

     As of September 28,
2013
 
(dollars in millions, except per share data)    (Unaudited)  

Cash and cash equivalents(1)

   $ 323.2   

Collateralized cash

     12.4   
  

 

 

 
   $ 335.6   
  

 

 

 

Debt:

  

Senior secured credit facilities, consisting of the following(2):

  

Term Loan A

   $ 92.3   

Term Loan B

     1,335.5   

Revolving credit facility

     —     

Second Lien Notes

     330.0   

Other indebtedness(3)

     39.2   
  

 

 

 

Total debt

     1,797.0   

Total shareholders’ equity:

  

Ordinary A shares, $3,600 par value per share: 10 shares authorized; 2 shares issued and outstanding

     —     

Ordinary B shares, $0.01 par value per share: 5,400,000 shares authorized; 1,091,117 shares issued and outstanding

     —     

Share premium account

     984.0   

Accumulated surplus

     819.9   

Other reserves

     (23.8

Own shares, at cost: 3,671 shares

     (10.1
  

 

 

 

Total shareholders’ equity

     1,770.0   
  

 

 

 

Total capitalization

   $ 3,567.0   
  

 

 

 

 

(1) Does not reflect $         million of estimated fees and expenses expected to be incurred in connection with this offering.
(2) The senior secured credit facilities consist of (a) a $300.0 million Term Loan A facility maturing in September 2015, of which $207.7 million has been permanently repaid, (b) a $1,700.0 million Term Loan B facility maturing in September 2016, of which $364.5 million has been permanently repaid and (c) a $300.0 million revolving credit facility maturing in September 2015. As of September 28, 2013, we had no outstanding borrowings under our revolving credit facility and approximately $249.0 million in additional borrowing capacity available under that facility, after giving effect to $51.0 million of outstanding letters of credit. The numbers presented above do not reflect the impact of costs incurred on the issue of the senior secured credit facilities and the Second Lien Notes due October 2018 and the fair value on inception of the interest rate floor (an embedded derivative) that applies to amounts drawn down under the senior secured credit facilities.
(3) Other indebtedness includes $21.2 million outstanding under a Euro Medium Term Note Programme that was in place prior to the Acquisition and $9.0 million of loan notes held by certain shareholders in Tomkins who elected to receive loan notes rather than cash in respect of all or part of the consideration payable on the purchase of their shares in Tomkins at the time of the Acquisition. Other indebtedness also includes bank overdrafts of $5.7 million, obligations under finance leases of $2.5 million and other unsecured loans of $0.8 million.

 

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DILUTION

If you invest in our ordinary shares, your interest will be diluted to the extent of the difference between the initial public offering price per share and the net tangible book value per share after this offering.

Net tangible book value represents total tangible assets less total liabilities. As of             , 2014, we had net tangible book value of approximately $             million, or $             per share. Net tangible book value per share represents total tangible assets less total liabilities divided by the number of ordinary shares outstanding. After deducting estimated offering expenses payable by us in connection with this offering, our net tangible book value as of             , 2013 would have been approximately $             million, or $            per share. This represents an immediate decrease in net tangible book value of $             per share to existing shareholders and an immediate dilution of $             per share to new investors purchasing ordinary shares in this offering. The following table illustrates this dilution on a per share basis:

 

     Per Share  

Assumed initial public offering price per share

      $                

Net tangible book value per share as of             , 2014

   $                   

in net tangible book value per share attributable to the exercise of stock options and estimated offering costs

     
  

 

 

    

As adjusted net tangible book value per share after this offering

     
     

 

 

 

Dilution per share to new investors

      $                
     

 

 

 

The following table sets forth, as of             , 2014, the total number of ordinary shares owned by existing shareholders and to be owned by new investors, the total consideration paid, and the average price per share paid by our existing shareholders and to be paid by new investors purchasing ordinary shares in this offering. The calculation below is based on an assumed initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus, before deducting the assumed underwriting discounts and commissions and other estimated offering expenses payable by us.

 

(in thousands, other than shares and
percentages)

   Shares Purchased     Total Consideration     Average
Price Per
Share
 
   Number    Percent     Amount      Percent    

Existing shareholders

                       $                                     $                

New investors

            
  

 

  

 

 

   

 

 

    

 

 

   

Total

        100   $                      100   $                
  

 

  

 

 

   

 

 

    

 

 

   

A $1.00 increase (decrease) in the assumed initial offering price would increase (decrease) total consideration paid by new investors, total consideration paid by all shareholders and average price per share paid by all shareholders by $             million, $             million and $             per share, respectively. An increase (decrease) of 1.0 million in the number of shares offered by the selling shareholders would increase (decrease) total consideration paid by new investors, total consideration paid by all shareholders and average price per share paid by all shareholders by $             million, $             million and $             per share, respectively.

The tables and calculations above assume no exercise of outstanding options. As of             , there were              ordinary shares issuable upon exercise of outstanding options at a weighted average exercise price of approximately $             per share. To the extent that the outstanding options are exercised, there will be further dilution to new investors purchasing ordinary shares in the offering.

 

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SELECTED HISTORICAL FINANCIAL INFORMATION

The following table sets forth our summary historical audited and unaudited consolidated financial information for the periods and dates indicated, prepared in accordance with IFRS. The balance sheet data as of December 31, 2012 and 2011 and the income statement data for Fiscal 2012, Fiscal 2011, Q4 2010 and 9M 2010 have been derived from Pinafore’s audited consolidated financial statements included elsewhere in this prospectus. The historical financial information as of January 2, 2010 and January 3, 2009 and for the years ended January 2, 2010, or Fiscal 2009, January 3, 2009, or Fiscal 2008 are derived from the Predecessor’s consolidated financial statements not separately presented in this prospectus and for Fiscal 2009 and Fiscal 2008 after restatement for retrospective application of IAS 19R.

The balance sheet data as of September 28, 2013 and the statements of operations and cash flow data for 9M 2013 and 9M 2012 have been derived from Pinafore’s unaudited condensed consolidated financial statements included elsewhere in this prospectus. The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of our management, include all adjustments, consisting only of normal and recurring adjustments, necessary for a fair presentation of the information set forth herein. Interim financial results are not necessarily indicative of results that may be expected for the full fiscal year or any future reporting period.

Included in the table below, is financial information for Tomkins prior to the Acquisition, representing 9M 2010 Fiscal 2009 and Fiscal 2008. The Predecessor financial statements do not reflect the effects of the accounting for, or the financing of, the Acquisition. Although Pinafore was incorporated on September 1, 2010, it had no assets or liabilities (other than the proceeds of the ordinary shares issued on incorporation) and no operations prior to the Acquisition.

The following information is only a summary and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” Pinafore’s audited consolidated financial statements and unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this prospectus, as well as the other financial information included elsewhere in this prospectus.

 

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With the exception of the 9M 2013 period, all information below has been retrospectively recast for the adoption on January 1, 2013 of IAS 19R.

 

    Successor          Predecessor  
   

9M

   

9M

    Fiscal     Fiscal     Q4          9M     Fiscal     Fiscal  
(dollars and shares in millions,
except per share data)
  2013     2012     2012     2011     2010          2010     2009     2008  

Income statement data:

                   

Sales from continuing operations

  $ 2,327.8      $ 2,331.6      $ 3,037.3      $ 3,426.4      $ 900.2          $ 2,443.4      $ 2,795.7      $ 3,742.4   

Ongoing operations

    2,327.8        2,331.6        3,037.3        3,062.3        761.7            2,035.3        2,338.2        2,986.6   

Exited businesses

    —          —          —          364.1        138.5            408.1        457.5        755.8   

Operating profit/(loss)

    226.7        161.5        174.1        194.1        (200.7         233.9        18.8        (49.8

Profit/(loss) for the period from continuing operations

    99.4        32.3        (27.2     (74.9     (280.6         142.0        (29.6     (122.0

Profit for the period from discontinued operations

    5.5        179.2        775.8        119.0        7.7            93.5        25.3        60.1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

 

Profit/(loss) for the period

    104.9        211.5        748.6        44.1        (272.9         235.5        (4.3     (61.9

Profit/(loss) for the period attributable to equity shareholders

    84.6        194.0        725.5        14.8        (273.8         209.3        (25.9     (80.0

Dividend per share paid or proposed during the period:

                   

Interim (cents per share)

    —          —          —          —          —              —          3.50        11.02   

Final (cents per share)

    —          —          —          —          —              —          6.50        2.00   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

 

Balance sheet data:

    —          —          —          —          —              —        $ 10.00      $ 13.02   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

 

Total assets

  $ 5,013.4      $ 6,187.7      $ 5,083.6      $ 6,705.2      $ 7,552.3          $ 3,950.9      $ 3,673.6      $ 3,770.7   

Total debt

    (1,797.0     (2,063.0     (1,927.1     (2,822.7     (3,370.8         (650.9     (655.5     (755.9

 

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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

Introduction

The unaudited pro forma condensed consolidated financial information has been prepared to reflect the Distribution Transactions as outlined below:

Certain non-core assets of Pinafore Holdings B.V., or Pinafore, will be distributed to the existing ultimate shareholders of Pinafore, or the Shareholders, in proportion to their existing shareholdings. The non-core assets that will be distributed are:

 

    the Aquatic Group, or Aquatic, a leading manufacturer of bathtubs and shower enclosures in the United States, including an extensive range of luxury whirlpools, which constitutes an operating segment of Pinafore;

 

    various parcels of real estate held by a number of real estate companies; and

 

    a non-controlling equity interest retained in the business that acquired the Schrader Electronics and Schrader International businesses, or Schrader, from Pinafore in April 2012, or the Schrader Interest.

Hereinafter, we have collectively referred to the aforementioned non-core assets as the “Non-Gates Assets.”

Upon completion of the Distribution Transactions and in connection with this offering, Gates will become the direct parent company of Pinafore. As Gates will have no other interest in any operations other than those of Pinafore, the historical financial information presented in this prospectus and the unaudited pro forma condensed consolidated financial information presented herein is that of Pinafore. As the Distribution Transactions are a common control transaction and Aquatic will be presented as discontinued operations, the unaudited pro forma condensed consolidated financial information is presented for each fiscal and interim period for which historical financial statements have been provided.

Basis of Preparation

The unaudited pro forma condensed consolidated financial information comprises:

 

    the unaudited pro forma consolidated income statements of Pinafore for the nine months ended September 28, 2013, or 9M 2013, and the years ended December 31, 2012, or Fiscal 2012, December 31, 2011, or Fiscal 2011, and for the period from September 1, 2010 to December 31, 2010, or Q4 2010, (the “Successor”) and for the period from January 3, 2010 to September 24, 2010, or 9M 2010 (the “Predecessor”); and

 

    the unaudited pro forma consolidated balance sheet as of September 28, 2013.

The unaudited condensed pro forma financial information is derived from Pinafore’s unaudited condensed consolidated financial statements and from its audited consolidated financial statements both of which are included elsewhere in this prospectus.

The unaudited condensed pro forma adjustments described in the accompanying notes give effect to the Distribution Transactions as if they had occurred on January 1, 2010 for purposes of the unaudited pro forma condensed consolidated income statements and September 28, 2013 in the case of the unaudited condensed consolidated balance sheet. The unaudited pro forma adjustments are based on currently available information and certain assumptions that we believe are reasonable and supportable.

All financial data in the unaudited condensed pro forma financial information is presented in US dollars, and unless otherwise indicated, has been prepared under International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB.

 

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The unaudited condensed pro forma financial information does not give effect to items of expense that will be or have been incurred in connection with the Distribution Transactions, but which would not have a continuing impact for us beyond the twelve months following completion of the Distribution Transactions.

The unaudited condensed pro forma financial information is presented solely for informational purposes and is not intended to represent or be indicative of the consolidated income statement or consolidated balance sheet of Pinafore had the Distribution Transactions been completed as of the dates set out above, nor is it necessarily indicative of future results.

 

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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT

Nine months ended September 28, 2013

(dollars in millions)

 

           Pro forma adjustments     Pro forma      
     9M 2013     Distribution of
Aquatic
    Distribution of
Other Non-Gates
Assets
    9M 2013      
       (A     (B    

Sales

   $ 2,327.8     $ 100.7      $ —       $ 2,227.1    

Cost of sales

     (1,446.9     (65.1     —         (1,381.8  
  

 

 

   

 

 

   

 

 

   

 

 

   

Gross profit

     880.9       35.6        —         845.3    

Distribution costs

     (274.6     (32.7     —         (241.9  

Administrative expenses

     (358.3     (6.7     (0.9     (350.7  

Impairments

     (2.4     —         —         (2.4  

Restructuring costs

     (18.5     (0.1     —         (18.4  

Net loss on disposals and on the exit of businesses

     (0.3     —         (0.1     (0.2  

Share of loss of associates

     (0.1     —         —         (0.1  
  

 

 

   

 

 

   

 

 

   

 

 

   

Operating profit/(loss)

     226.7       (3.9     (1.0     231.6     

Interest expense

     (101.7     —         —         (101.7    

Investment income

     1.4       —         —         1.4       

Other finance income

     1.3       —         —         1.3       

Net finance costs

     (99.0     —         —         (99.0  
  

 

 

   

 

 

   

 

 

   

 

 

   

Profit/(loss) before tax

     127.7       (3.9     (1.0     132.6     

Income tax (expense)/benefit

     (28.3     1.0        (0.2     (29.1  
  

 

 

   

 

 

   

 

 

   

 

 

   

Profit/(loss) for the period from continuing operations

   $ 99.4     $ (2.9   $ (1.2   $ 103.5     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT

Year ended December 31, 2012

(dollars in millions)

 

           Pro forma adjustments     Pro forma  
     Fiscal 2012*     Distribution of
Aquatic
    Distribution of
Other Non-Gates
Assets
    Fiscal 2012  
       (A     (B  

Sales

   $ 3,037.3     $ 114.5      $ —        $ 2,922.8  

Cost of sales

     (1,944.4     (73.4 )     —          (1,871.0
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     1,092.9       41.1        —          1,051.8   

Distribution costs

     (358.0     (38.1 )     —          (319.9

Administrative expenses

     (530.7     (17.0 )     (1.6     (512.1

Impairments

     (3.1     —          (0.1     (3.0

Restructuring costs

     (26.8     (0.7 )     —          (26.1

Net loss on disposals and on the exit of businesses

     (0.6     —          —          (0.6

Share of profit of associates

     0.4       —          —          0.4   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit/(loss)

     174.1       (14.7 )     (1.7     190.5   

Interest expense

     (208.3     —          —          (208.3

Investment income

     2.9       —          —          2.9   

Other finance expense

     (73.6     —          —          (73.6

Net finance costs

     (279.0     —          —          (279.0
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before tax

     (104.9     (14.7 )     (1.7     (88.5

Income tax benefit

     77.7       3.4        0.4        73.9   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss for the period from continuing operations

   $ (27.2   $ (11.3   $ (1.3   $ (14.6
  

 

 

   

 

 

   

 

 

   

 

 

 

 

* Presented on a comparable basis (see note 3A to the audited consolidated financial statements included elsewhere in this prospectus)

 

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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT

Year ended December 31, 2011

(dollars in millions)

 

           Pro forma adjustments     Pro forma  
     Fiscal 2011*     Distribution of
Aquatic
    Distribution of
Other Non-Gates
Assets
    Fiscal 2011  
       (A     (B  

Sales

   $ 3,426.4     $ 106.3      $ —       $ 3,320.1   

Cost of sales

     (2,269.1     (72.0 )     —         (2,197.1
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     1,157.3        34.3        —         1,123.0   

Distribution costs

     (376.0     (37.3 )     —         (338.7

Administrative expenses

     (572.1     (10.6 )     (0.5     (561.0

Transaction costs

     (0.6     —         —         (0.6

Impairments

     (38.0     (37.5 )     —         (0.5

Restructuring costs

     (38.8     0.1        —         (38.9

Net gain on disposals and on the exit of businesses

     60.8       —         —         60.8   

Share of profit of associates

     1.5       —         —         1.5   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit/(loss)

     194.1        (51.0 )     (0.5     245.6   

Interest expense

     (276.0     —         —         (276.0

Investment income

     4.7        —         —         4.7   

Other finance expense

     (16.7     —         —         (16.7

Net finance costs

     (288.0     —         —         (288.0
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before tax

     (93.9     (51.0 )     (0.5     (42.4

Income tax benefit

     19.0        6.6        0.8        11.6   
  

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) profit for the period from continuing operations

   $ (74.9   $ (44.4   $ 0.3      $ (30.8
  

 

 

   

 

 

   

 

 

   

 

 

 

 

* Presented on a comparable basis (see note 3A to the audited consolidated financial statements included elsewhere in this prospectus)

 

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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT

Year ended December 31, 2010

(dollars in millions)

 

     Successor          Predecessor     Pro forma adjustments     Pro forma  
     Q4 2010*          9M 2010*     Distribution of
Aquatic
    Distribution of
Other Non-Gates
Assets
    Fiscal 2010  
             (A     (B  

Sales

   $ 900.2         $ 2,443.4     $ 118.8      $ —        $ 3,224.8   

Cost of sales

     (728.7         (1,625.9     (75.9     —          (2,278.7
  

 

 

       

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     171.5            817.5       42.9        —          946.1   

Distribution costs

     (101.2         (271.4     (43.8     —          (328.8

Administrative expenses

     (190.5         (272.5     (9.0     (0.5     (453.5

Transaction costs

     (78.2         (40.1     (0.1     —          (118.2

Restructuring costs

     (3.6         (8.0     (0.1     (0.1     (11.4

Net gain on disposals and on the exit of businesses

     —              7.1       3.2        —          3.9   

Share of profit of associates

     1.3           1.3       —          —          2.6   
  

 

 

       

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss)/profit

     (200.7         233.9        (6.9     (0.6     40.7   

Interest expense

     (75.5         (21.4     —         —          (96.9

Investment income

     2.4            3.3        —         —          5.7   

Other finance expense

     (29.3         (16.7     —         —          (46.0

Net finance costs

     (102.4         (34.8     —         —          (137.2
  

 

 

       

 

 

   

 

 

   

 

 

   

 

 

 

(Loss)/profit before tax

     (303.1         199.1        (6.9     (0.6     (96.5

Income tax benefit/(expense)

     22.5           (57.1     2.4        0.5        (37.5
  

 

 

       

 

 

   

 

 

   

 

 

   

 

 

 

(Loss)/profit for the period from continuing operations

   $ (280.6       $ 142.0      $ (4.5   $ (0.1   $ (134.0
  

 

 

       

 

 

   

 

 

   

 

 

   

 

 

 

 

* Presented on a comparable basis (see note 3A to the audited consolidated financial statements included elsewhere in this prospectus)

 

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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

As at September 28, 2013

(dollars in millions)

 

           Pro forma adjustments     Pro forma  
     As at
September 28,
2013
    Distribution of
Aquatic
    Disposal of Other
Non-Gates Assets
    As at
September 28,
2013
 

Non-current assets

       (A     (B  

Goodwill

   $ 1,314.8     $ —        $ —        $ 1,314.8   

Other intangible assets

     1,352.8       36.1        —         1,316.7   

Property, plant and equipment

     656.2       28.0        9.9        618.3   

Investments in associates

     5.9       —         —         5.9   

Trade and other receivables

     16.8       —         —         16.8   

Deferred tax assets

     5.1       —         2.0        3.1   

Post-employment benefit surpluses

     6.8       —         —         6.8   
  

 

 

   

 

 

   

 

 

   

 

 

 
     3,358.4       64.1        11.9        3,282.4   

Current assets

        

Inventories

     492.9       6.9        —         486.0   

Trade and other receivables

     806.7       11.9        0.7        794.1   

Income tax recoverable

     5.6       1.2        0.1        4.3   

Available-for-sale investments

     17.2       —         14.4        2.8   

Cash and cash equivalents

     323.2       —         —         323.2   
  

 

 

   

 

 

   

 

 

   

 

 

 
     1,645.6       20.0        15.2        1,610.4   

Assets held for sale

     9.4       —         1.3        8.1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 5,013.4     $ 84.1      $ 28.4      $ 4,900.9   
  

 

 

   

 

 

   

 

 

   

 

 

 

Current liabilities

        

Bank overdrafts

   $ (5.7   $ —       $ —       $ (5.7

Bank and other loans

     (32.7     —         —         (32.7

Obligations under finance leases

     (0.2     —         —         (0.2

Trade and other payables

     (453.7     (12.5 )     (0.2 )     (441.0

Income tax liabilities

     (111.4     —         —         (111.4

Provisions

     (47.4     (1.1 )     —         (46.3
  

 

 

   

 

 

   

 

 

   

 

 

 
     (651.1     (13.6 )     (0.2 )     (637.3

Non-current liabilities

        

Bank and other loans

     (1,684.2     —         —         (1,684.2

Obligations under finance leases

     (2.3     —         —         (2.3

Trade and other payables

     (36.9     —         —         (36.9

Post-employment benefit obligations

     (173.0     (0.5 )     —         (172.5

Deferred tax liabilities

     (422.4     (7.9 )     —         (414.5

Provisions

     (25.4     (10.1 )     (0.5 )     (14.8
  

 

 

   

 

 

   

 

 

   

 

 

 
     (2,344.2     (18.5 )     (0.5 )     (2,325.2
  

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

     (2,995.3     (32.1 )     (0.7 )     (2,962.5
  

 

 

   

 

 

   

 

 

   

 

 

 

Net assets

   $ 2,018.1     $ 52.0      $ 27.7      $ 1,938.4   
  

 

 

   

 

 

   

 

 

   

 

 

 

Capital and reserves

        

Shareholders’ equity

   $ 1,770.0     $ 52.0      $ 27.7      $ 1,690.3   

Non-controlling interests

     248.1       —         —         248.1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total equity

   $ 2,018.1     $ 52.0      $ 27.7      $ 1,938.4   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

(A) Distribution of Aquatic

Prior to the completion of this offering, it is the intention of Pinafore to distribute to its current shareholders the net assets of the Aquatic group of companies. This distribution will be made in the same proportion as the ownership interests existing at the time of the distribution.

The adjustments reflected in the unaudited pro forma condensed consolidated income statements and balance sheet represent the historical results of operations for the Aquatic group of companies and the carrying amounts of those businesses as they are reflected in the consolidated financial statements of Pinafore.

Details of the costs associated with these intended distributions and any impact on Pinafore’s income statements and balance sheet over and above the removal of the Aquatic group of companies’ net assets are not included, as they will have no continuing impact. The tax impacts of the Distribution Transactions have not been included in the unaudited condensed pro forma financial information as they are not currently determinable.

(B) Distribution of Other Non-Gates Assets

The Non-Gates Assets other than the Aquatic group of companies (see (A) above), are comprised of various parcels of real estate held by a number of real estate companies and certain equity interests in the Schrader group retained after the April 2012 disposition of Schrader by Pinafore.

The adjustments reflected in the unaudited pro forma condensed consolidated income statements and balance sheet represent the historical results of operations for the Non-Gates Assets other than the Aquatic group of companies (see (A) above) and the carrying amounts of those businesses as they are reflected in the consolidated financial statements of Pinafore.

Details of the costs associated with these intended distributions and any impact on Pinafore’s income statements and balance sheet over and above the removal of the above described Non-Gates Assets’ net assets are not included, as they will have no continuing impact. The tax impacts of the Distribution Transactions have not been included in the unaudited condensed pro forma financial information as they are not currently determinable.

 

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Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The statements in the discussion and analysis regarding industry outlook, our expectations regarding the performance of our business and the forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in “Risk Factors” and “Forward-Looking Statements.” Our actual results may differ materially from those contained in or implied by any forward-looking statements. You should read the following discussion together with the sections entitled “Risk Factors,” “Forward-Looking Statements, “Summary—Summary Historical Audited and Unaudited Consolidated Financial Information,” “Selected Historical Financial Information,” “Unaudited Pro Forma Condensed Consolidated Financial Information “and the historical audited consolidated financial statements and unaudited condensed consolidated financial statements, including the related notes, appearing elsewhere in this prospectus. All references to years, unless otherwise noted, refer to our fiscal years, which end on December 31 for each of 2012 and 2011. For purposes of this section, all references to “the Group” refer to Pinafore Holdings B.V. and its consolidated subsidiaries (including the Non-Gates Assets described below) in periods after the Acquisition and to Tomkins and its subsidiaries in periods prior to the Acquisition.

Gates

We are the world’s leading manufacturer of power transmission belts and a premier global manufacturer of fluid power products. We estimate that for the twelve months ended September 28, 2013 that approximately 55% of our sales are derived from products and geographies in which we have the leading market share position and approximately 85% in which we maintain a top three position. Our highly engineered products are critical components used in diverse industrial and automotive applications where the cost of failure is very high relative to the cost of our products. We provide a differentiated value proposition to our customers by offering a complete portfolio of premium product and service solutions for both replacement and first-fit applications across our targeted end markets, which encompass process and specialty, construction, agriculture, energy, transportation and automotive. For the twelve months ended September 28, 2013, approximately 63% of our sales were generated from a diverse set of replacement markets globally, which provide significant earnings resiliency. We sell our products globally under the Gates brand, which is recognized by distributors, original equipment manufacturers, or OEMs, and installers as the premium brand for quality and technological innovation, a reputation which we have built for over a century since the Company’s founding in 1911.

Upon completion of this offering, Gates will have no other interest in any operations other than those of Pinafore. As a result, the historical financial information presented in the audited consolidated financial statements and the unaudited condensed consolidated financial statements included elsewhere in this prospectus and which is discussed in this section reflect the Group.

 

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The table below summarizes the key metrics for Gates, excluding Other Pinafore Assets (comprised of the Non-Gates Assets and exited businesses):

 

($ millions, except for margin data)    Q3 2013 LTM     9M 2013     9M 2012     Fiscal 2012     Fiscal 2011  

Sales

   $ 2,906.1      $ 2,227.1      $ 2,243.8      $ 2,922.8      $ 2,956.0   

Gross profit

     1,082.8        845.3        815.0        1,052.5        1,065.2   

Gross margin

     37.6     38.0     36.3     36.0     36.0

Operating profit

     249.2        232.6        174.7        191.3        155.2   

Profit for the period attributable to equity shareholders

     25.0        84.6        24.9        (34.7     28.8   

Adjusted EBITDA

     535.5        427.6        407.7        515.6        507.8   

Adjusted EBITDA margin

     18.4     19.2     18.2     17.6     17.2

Adjusted Net Income

   $ 196.4      $ 188.3      $ 21.1      $ 29.2      $ 30.0   

Capital expenditures

     59.1        55.3        78.1        81.9        77.3   

A reconciliation of Adjusted EBITDA and Adjusted Net Income to the most directly comparable measure defined under IFRS for each of the periods presented above is included under the heading “—Non-GAAP Measures.”

The chart below shows sales for Gates, excluding Other Pinafore Assets, from Fiscal 2001 through the twelve months ended September 28, 2013:

 

LOGO

Where relevant, the discussion in this section will include discussion of Gates’ performance, in addition to that of the Group.

Gates’ Segments

We sell our high performance power transmission and fluid power products both as replacement components and as pre-qualified components on original equipment to customers worldwide. Our business is comprised of four key operating segments: Gates North America, Gates EMEA, Gates APAC and Gates South America.

Highlighting the diversity of the end markets in which our ongoing segments operate, our sales for the twelve months ended September 28, 2013 analyzed by end market were as follows:

 

$ million    Industrial
replacement
     Industrial
first-fit
     Automotive
replacement
market
     Automotive
first-fit
     Total  

Gates:

              

—Gates North America

   $ 447.7       $ 301.9       $ 521.8       $ 81.3       $ 1,352.7   

—Gates EMEA

     197.8         98.8         273.5         173.1         743.2   

—Gates APAC

     143.4         103.1         126.0         276.7         649.2   

—Gates South America

     62.8         31.9         44.0         22.3         161.0   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 851.7       $ 535.7       $ 965.3       $ 553.4       $ 2,906.1   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

Discussion Regarding Financial Results for the Group

Industry Trends

For the Group’s twelve months ended September 28, 2013 sales, industrial markets accounted for 45.7%, with 28.1% to the industrial replacement market and 17.6% to the industrial first-fit market.

US industrial production, as measured by the US Federal Reserve Industrial Production index, experienced modest year-over-year increases during the first eleven months of 2013 relative to 2012 and in November 2013 was 3.2% higher than November 2012. European Industrial Production, as measured by the Eurostat Industrial Production index, experienced a modest year-over-year decline during the first ten months of 2013 relative to 2012 and in October 2013 was 0.2% higher than October 2012. Industrial production in China, as measured by the National Bureau of Statistics, experienced year-over-year growth for the first eleven months of 2013 and was 9.7% higher than the first eleven months of 2012. Sales to the industrial markets in North America, Europe and Asia accounted for 24.9%, 8.0% and 7.0%, respectively, of the Group’s total sales for the twelve months ended September 28, 2013.

The automotive replacement market, which comprised 31.8% of the Group’s sales for the twelve months ended September 28, 2013, grew modestly relative to Fiscal 2012. In the United States, miles driven, a key driver of vehicle repair, experienced year-over-year growth of 0.4% for the nine months ended September 2013 and experienced year-over-year growth of 1.5% in the three months ended September 2013. The average price of gasoline in the United States, another factor influencing the amount of spending on car maintenance, was $3.53/gallon over the first eleven months of 2013, 3.1% lower than the average price over the same period in 2012. Sales to the automotive replacement market in North America, Europe and Asia accounted for 17.3%, 8.6% and 3.5%, respectively, of the Group’s total sales for the twelve months ended September 28, 2013.

The automotive first-fit market accounted for 18.9% of the Group’s sales for the twelve months ended September 28, 2013. For the first nine months of 2013, global production volumes as measured by industry sources were up by 2.7% compared with the first nine months of 2012, driven by growth in China and North and South America, where volumes were up by 12.3%, 4.6% and 10.8%, respectively. This growth was partially offset by declines in Europe, Japan and Korea. As we only target selected automotive first-fit business, our sales growth is not entirely dependent on increases or decreases in global and regional automotive production volumes. Sales to the automotive first-fit market in Asia, Europe, and North America, accounted for 9.0%, 5.7% and 2.6%, respectively, of the Group’s total sales for the twelve months ended September 28, 2013.

Seasonality

Sales to industrial OEMs are strongest from October to April for outdoor power equipment and from February to June for agricultural equipment. Equipment sales to the agricultural industry experience moderate seasonality due to crop-related seasonal activities, while sales to the construction industry decline in the summer months followed by a resurgence of activity in the late fall, early winter and spring. The remaining markets served by the Gates business do not exhibit significant seasonal patterns. Sales to automotive OEMs tend generally not to exhibit seasonal patterns, although there are slow-downs in summer and around the calendar year end due to shut-downs in Europe and, to a lesser extent, North America. Sales into the replacement market are generally stronger during the winter months reflecting higher levels of demand for replacement parts for vehicles during those months.

 

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Table of Contents

Nine Months 2013 Results Compared With Nine Months 2012 Results

Summary

 

$ million    9M 2013     9M 2012*  

Sales

   $ 2,327.8     $ 2,331.6  

Cost of sales

     (1,446.9     (1,485.5
  

 

 

   

 

 

 

Gross profit

     880.9       846.1  
  

 

 

   

 

 

 

Adjusted EBITDA

     427.8       401.0  

Depreciation and amortization

     (162.2     (180.9

Share-based incentives

     (17.7     (38.1

Impairments

     (2.4     (3.1

Restructuring costs

     (18.5     (17.5

Net (loss)/gain on disposals and on the exit of businesses

     (0.3     0.1  
  

 

 

   

 

 

 

Operating profit

     226.7       161.5  

Net finance costs

     (99.0     (236.4

Income tax (expense)/benefit

     (28.3     107.2  
  

 

 

   

 

 

 

Profit for the period

   $ 99.4     $ 32.3  
  

 

 

   

 

 

 

Gross profit margin

     37.8     36.3

Adjusted EBITDA margin

     18.4     17.2

 

* Presented on a comparable basis (see note 1 to the unaudited condensed consolidated financial statements included elsewhere in this prospectus)

Sales

Sales in 9M 2013 were $2,327.8 million, compared with sales of $2,331.6 million in 9M 2012. The Group achieved strong sales growth in the automotive replacement market, particularly in Europe and North America, driven primarily by higher volumes, and also benefited from an improvement in the US construction markets, with sales to the residential new build end market increasing by $9.5 million compared with 9M 2012. These gains were partially offset by the adverse impact of movements in average currency translation rates of $18.6 million, principally the Japanese Yen in Gates APAC segment and also by the continued softness in most regional industrial markets, principally weak demand in the construction, agriculture and transportation sectors in North America, where sales were down by $15.6 million in 9M 2013 compared with 9M 2012. Excluding the impact of movements in average currency translation rates, sales for 9M 2013 were $14.8 million higher, compared with 9M 2012.

Gates’ sales in 9M 2013 were $1.9 million higher compared with 9M 2012, after adjusting for the impact of currency translation rates. This growth was focused in Gates South America, which increased by $14.6 million compared with 9M 2012 due primarily to growth in the industrial end markets. Gates EMEA improved by $4.5 million compared with 9M 2012, driven primarily by pricing gains. Offsetting these improvements were lower sales volumes in Gates APAC, which was $9.3 million lower compared with 9M 2012, due particularly to the continued challenging first-fit end market conditions in Japan. In addition, Gates North America was $7.9 million lower in 9M 2013 compared with 9M 2012, due primarily to lower industrial end market sales volumes. Overall, Gates’ sales to the replacement end markets grew by $22.1 million across all regions, except for Asia.

Aquatic’s sales rose by $12.9 million during 9M 2013 compared with 9M 2012, driven by the strengthening of the US residential housing market and market share gains.

 

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Cost of Sales

Cost of sales in 9M 2013 was $1,446.9 million, compared with $1,485.5 million in 9M 2012. This decrease of 2.6% was driven primarily by a combination of continuous improvement initiatives in our manufacturing processes and lower material costs resulting from lower commodity prices and the benefits of our procurement and strategic sourcing initiatives.

Gross Profit

Gross profit was $880.9 million in 9M 2013, compared with $846.1 million in 9M 2012. Our gross profit margin for 9M 2013 was 37.8% for 9M 2013, compared with 36.3% in 9M 2012, driven primarily from our lower cost of sales and our disciplined focus on pricing.

Distribution Costs

Distribution costs, which tend to move in proportion to sales, were $274.6 million in Fiscal 2013, compared with $272.1 million in 9M 2012. 9M 2013 distribution costs as a percentage of sales remained broadly stable during 9M 2013 at 11.8%, compared with 11.7% in 9M 2012.

Administrative Expenses

Administrative expenses in 9M 2013 were $358.3 million, compared with $392.4 million in 9M 2012. The decrease in administrative expenses in 9M 2013 compared with 9M 2012 was due to a combination of the benefit of cost reduction and expense management initiatives and a decrease in the charge relating to share-based incentives.

Impairments

In 9M 2013, the Group recognized impairments of $2.4 million, $1.7 million of which was in relation to property, plant and equipment as a result of the closure of the plant in Ashe County, North Carolina within Gates North America. Also included in impairments in 9M 2013 was an amount of $0.3 million recognized in relation to a vacant property in the US that is no longer required by the Group for its manufacturing operations.

During 9M 2012, the Group recognized impairments of $3.1 million, including $2.7 million in respect of property, plant and equipment in relation to the closure of the Charleston plant within Gates North America.

Restructuring Costs

In June 2013, we commenced our Project 25 initiative to further enhance our profitability and streamline our corporate overhead. Primarily as a result of Project 25, restructuring costs in 9M 2013 were $18.5 million and included $7.2 million recognized in respect of the closure of our facility in Ashe County, North Carolina and $4.7 million in respect of business and executive severance and reorganization costs, largely in Gates North America. Also during 9M 2013, restructuring costs of $5.0 million were recognized in relation to the planned closure of the London corporate center and the transfer of the majority of those functions to the Group’s corporate center in Denver, Colorado.

Restructuring costs for 9M 2012 were $17.5 million and related principally to our Project Sierra initiative that focused on continuous identification and implementation of cost reduction opportunities and efficiency improvements across the Gates businesses.

Net Gain on Disposals and on the Exit of Businesses

During 9M 2013, the Group recognized a net loss of $0.3 million in relation to disposals and the exit of businesses, including losses of $2.0 million arising from movements in environmental, restructuring and

 

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workers’ compensation reserves relating to businesses disposed of in prior years, partially offset by gains totaling $1.8 million in relation to the disposal of non-operating property, plant and equipment. During 9M 2012, the Group recognized a net gain of $0.1 million, representing minor gains and losses in relation to businesses disposed of in prior years.

Operating Profit

Operating profit in 9M 2013 was $226.7 million, compared with $161.5 million in 9M 2012.

Adjusted EBITDA

Adjusted EBITDA for 9M 2013 was $427.8 million, compared with $401.0 million for 9M 2012. Excluding the adverse impact of movements in average currency translation rates of $1.3 million, Adjusted EBITDA grew across all regions by $28.1 million in total. This underlying increase was driven by a combination of lower cost of sales, higher gross profit, lower administrative costs and disciplined expense management. The Aquatic business contributed an additional $6.9 million improvement over 9M 2012, reflecting the improved US housing market. The Adjusted EBITDA margin was up slightly at 18.4% for 9M 2013, compared with 17.2% in 9M 2012.

A reconciliation of operating profit or loss to Adjusted EBITDA for each of the periods under review and for each of the Group’s continuing segments is presented under the heading “—Non-GAAP Measures.”

Interest Expense

The interest expense for 9M 2013 was $101.7 million, compared with $159.8 million for 9M 2012. Our interest expense may be analyzed as follows:

 

$ million    9M 2013     9M 2012*  

Interest on bank and other loans:

    

—Term loans

   $ 61.7      $ 80.1   

—Other bank loans

     2.1        2.2   

—Second Lien Notes

     32.6        65.2   

—2015 Notes

     0.8        1.0   
  

 

 

   

 

 

 
     97.2        148.5   

Interest element of finance lease rentals

     —          0.3   

Net (gain)/loss on financial liabilities held at amortized cost

     (1.2     6.2   

Other interest payable

     5.7        4.8   
  

 

 

   

 

 

 
   $ 101.7      $ 159.8   
  

 

 

   

 

 

 

 

* Presented on a comparable basis (see note 1 to the unaudited condensed consolidated financial statements included elsewhere in this prospectus)

The decrease in interest expense during 9M 2013 compared with 9M 2012 was due largely to a combination of a decrease in the principal amount of debt outstanding as a result of debt repayments during the 9M 2012 (particularly the repayment of $590.0 million of the Second Lien Notes) and, effective January 18, 2013, the re-pricing of Term Loan A and Term Loan B.

During both 9M 2013 and 9M 2012, the Group changed its estimates of the future cash flows relating to certain of its borrowings that are held at amortized cost. The changes were driven primarily by the impacts of the various debt reductions made during the periods and expected to be made in future periods. As a result of these changes the amortized cost of the affected borrowings decreased by $1.2 million in 9M 2013 and increased by $6.2

 

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million in 9M 2012. A gain and a loss corresponding to each of these adjustments was recognised in interest expense in 9M 2013 and in 9M 2012, respectively.

Investment Income

Investment income for 9M 2013 was $1.4 million, compared with $1.7 million for 9M 2012. The increase in investment income during 9M 2013, compared with 9M 2012 was due primarily to the higher average value of cash and cash equivalents held during the 9M 2013. Investment income may be analyzed as follows:

 

$ million    9M 2013      9M 2012*  

Interest on bank deposits

   $ 1.3       $ 1.6   

Other interest receivable

     0.1         0.1   
  

 

 

    

 

 

 
   $ 1.4       $ 1.7   
  

 

 

    

 

 

 

 

* Presented on a comparable basis (see note 1 to the unaudited condensed consolidated financial statements included elsewhere in this prospectus)

Other Finance Income/(Expense)

Other finance income for 9M 2013 was $1.3 million, compared with an expense of $78.3 million for 9M 2012. Our other finance expense may be analyzed as follows:

 

$ million    9M 2013     9M 2012*  

Gain/(loss) on embedded derivatives

   $ 8.3      $ (11.3

Currency translation gain on hedging instruments

     1.2        2.1   

Costs incurred on the prepayment of borrowings

     (3.5     (63.9

Net interest recognized in respect of post-employment benefits

     (4.7     (5.2
  

 

 

   

 

 

 
   $ 1.3      $ (78.3
  

 

 

   

 

 

 

 

* Presented on a comparable basis (see note 1 to the unaudited condensed consolidated financial statements included elsewhere in this prospectus)

The decrease during 9M 2013 compared with 9M 2012 was attributable principally to costs of $59.2 million recognized in 9M 2012 in relation to the fully-subscribed $475 million tender offer completed in July 2012. During both 9M 2013 and 9M 2012, costs of $3.5 million were incurred in respect of a 10% call option on the Second Lien Notes exercised during September of each year.

In addition, a net gain of $8.3 million on the movement in the fair value of the embedded interest rate floor derivatives was recognized during 9M 2013, compared with a net loss of $11.3 million in 9M 2012.

Income Tax Expense

During the 9M 2013, the income tax expense attributable to continuing operations was $28.3 million on a profit before tax of $127.7 million, compared to a benefit of $107.2 million for the 9M 2012 on a loss before tax of $74.9 million.

Our effective tax rate in 9M 2013 was lower than the statutory tax rates that are applicable in the jurisdictions in which we operate, primarily as a result of a number of discrete tax items that may occur in any given year, but are not consistent from year to year, such as a reduction in withholding taxes for amendments to existing treaties and legislative changes to statutory tax rates.

 

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Analysis by Operating Segment

As discussed in note 2 to the accompanying financial statements, following the disposal in 2011 and 2012 of a number of the Group’s non-core businesses and the consequent re-focus on the Gates business, the Board has revised the way in which it reviews and manages the Group’s corporate costs. Previously, the Gates North America segment included certain US income and expenses that related to the worldwide operations (including items relating to royalties, research and development, global marketing, information technology, human resources and other global services). These items are now reallocated across all the Gates segments to ensure comparability of reporting between segments.

In addition, costs incurred at a Group level (including management oversight, accounting, treasury, tax, information services and legal services) have been previously partially allocated across all of the Group’s segments. These costs are now no longer allocated and are presented within the Corporate segment, providing a clearer view of the controllable performance of the individual operational segments.

Comparative information for 9M 2012 has been re-presented to reflect these segmental reporting revisions.

Furthermore, as discussed in note 1 to the accompanying financial statements, the comparative information for 9M 2012 has been recast for the retrospective impact of the adoption of IAS 19 “Employee Benefits (2011),” which had the following impacts on the Group’s continuing operations:

 

    An increase in administrative expenses of $1.9 million in 9M 2012.

 

    Reversal in 9M 2012 of $40.7 million previously included in interest expense and $49.2 million previously included in investment income, both in relation to post-employment benefits, and the inclusion in 9M 2012 in other finance (expense)/income of a net interest charge of $5.2 million as determined in accordance with IAS 19R.

 

    A corresponding adjustment to other comprehensive income in respect of the above two adjustments.

 

    A corresponding switch between tax recognized in profit or loss and tax recognized in other comprehensive income in relation to the above adjustments.

 

     Sales      Adjusted EBITDA  
$ millions    9M 2013      9M 2012      9M 2013     9M 2012*  

Gates:

          

—Gates North America

   $ 1,046.1       $ 1,051.3       $ 245.3     $ 241.1  

—Gates EMEA

     575.5         565.7         101.4       90.5  

—Gates APAC

     481.9         512.2         104.5       104.5  

—Gates South America

     123.6         114.6         15.9       10.9  
  

 

 

    

 

 

    

 

 

   

 

 

 
     2,227.1         2,243.8         467.1       447.0  

Aquatic

     100.7         87.8         1.5       (5.4

Corporate

     —           —           (39.8     (39.6
  

 

 

    

 

 

    

 

 

   

 

 

 

Total ongoing

     2,327.8         2,331.6         428.8       402.0  

Exited businesses

     —           —           (1.0     (1.0

Total continuing operations

   $ 2,327.8       $ 2,331.6       $ 427.8      $ 401.0   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

  * Presented on a comparable basis (see note 1 to the unaudited condensed consolidated financial statements included elsewhere in this prospectus)

 

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Summary Ongoing Segment Performance

 

 

    

% of 9M 2013 sales

  

9M Adjusted EBITDA margin (%)

          2013    2012

Gates North America

   45.0%    23.4%    22.9%
        

Sales during the 9M 2013 were $1,046.1 million, down 0.5% (approximately 1% lower excluding movements in average currency translation rates), compared with 9M 2012 sales of $1,051.3 million. Sales were lower across all end markets with the exception of the automotive replacement market, which accounted for 38.9% of Gates North America’s 9M 2013 sales and grew by 3.5% (approximately 3% higher excluding movements in average currency translation rates) due principally to volume increases in both the US and Canada. Sales to the automotive first-fit market (5.7% of Gates North America’s 9M 2013 sales) were lower by 2.4% (approximately 1% lower excluding movements in average currency translation rates) and sales to the industrial replacement and first-fit markets, which accounted for 32.9% and 22.5% of Gates North America’s 9M 2013 sales, decreased by 2.2% and 4.1% (approximately 3% and 4% lower, respectively, excluding movements in average currency translation rates), respectively, driven by weak demand from construction, agriculture and transportation sectors. Overall, changes in volume accounted for $11.6 million of decreased sales, partially offset by favorable pricing actions of $6.5 million. Currency translation rate movements positively impacted sales by $2.7 million.

Operating expenses in our Gates North America segment totaled $895.4 million for the 9M 2013, compared with $916.6 million in 9M 2012. The principal component of operating expenses was cost of sales.

Cost of sales were $615.6 million for 9M 2013, compared to $630.4 million for 9M 2012, a decrease of 2.3%, driven principally by lower raw material and other input costs of $14.2 million, resulting from lower commodity prices and the benefits of our procurement initiatives. Efficiency improvements and other benefits arising from restructuring contributed an additional decrease of $12.1 million. These decreases were partially offset by labor-related inflation of $3.4 million and lower absorption of fixed costs on lower production volumes of $12 million.

In addition to the movements in cost of sales, operating expenses for 9M 2013 decreased by $2 million as a result of lower warranty expenses compared to 9M 2012. The compensation expense in respect of share-based incentives was also lower at $2.4 million for 9M 2013, compared with $5.5 million in 9M 2012. Restructuring costs related to our Project 25 initiative in 9M 2013 were $12.1 million, compared with $11.1 million in 9M 2012 related to Project Sierra, and related principally to costs incurred in relation to the closure of our facility in Ashe County, North Carolina ($7.2 million) and costs associated with executive severance and reorganization costs ($4.7 million).

Our Gates North America segment recognized an operating profit of $150.7 million for 9M 2013, compared with an operating profit for 9M 2012 of $134.7 million.

Adjusted EBITDA was $245.3 million for 9M 2013, compared with $241.1 million for 9M 2012, the increase being largely driven by lower raw material costs resulting from lower commodity prices and the benefits of our procurement initiatives ($14.2 million), higher selling prices of $6.5 million and the realization of restructuring benefits. Partially offsetting the increase were lower volumes ($11.6 million) and lower absorption of fixed costs on lower production volumes. The Adjusted EBITDA margin increased to 23.4% for 9M 2013 from 22.9% for 9M 2012.

 

 

    

% of 9M 2013 sales

  

9M Adjusted EBITDA margin (%)

          2013    2012

Gates EMEA

   24.7%    17.6%    16.0%
        

 

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Sales were $575.5 million for 9M 2013, an increase of 1.7% (approximately 1% higher excluding movements in average currency translation rates), compared with 9M 2012 sales of $565.7 million. Higher volumes and positive movements in average currency translation rates contributed $16.6 million and $5.3 million of the increase respectively. The growth in sales volumes were driven by the automotive and industrial replacement markets, which accounted for 36.7% and 26.5% of Gates EMEA’s 9M 2013 sales, respectively, and grew by 7.9% and 0.8% (approximately 7% higher and approximately 1% lower, respectively, excluding movements in average currency translation rates) year-on-year, driven by strong demand and market share gains throughout the region, particularly in Eastern Europe and the Middle East. Sales to the industrial first-fit market, which accounted for 12.3% of Gates EMEA’s 9M 2013 sales, declined by 3.4% (approximately 4% lower excluding movements in average currency translation rates), driven by weak demand for fluid power products within the construction sector. Sales to the automotive first-fit market (24.6% of Gates EMEA’s 9M 2013 sales) declined by 3.0% (approximately 4% lower excluding movements in average currency translation rates) due to lower end market volumes of $3.4 million and negative pricing impacts of $2.7 million. Overall, negative pricing impacts primarily related to new volume rebates accounted for a $13.4 million decline in sales, compared to 9M 2012.

Operating expenses in our Gates EMEA segment totaled $507.7 million for 9M 2013, compared with $516.5 million in 9M 2012. The principal component of operating expenses was cost of sales.

Cost of sales were $365.9 million for 9M 2103 compared to $372.1 million for 9M 2012, a decrease of 1.7%. Cost of sales for 9M 2013 increased by $9.2 million, compared to 9M 2012 due to higher production volumes, but this was more than offset by lower raw material and other input costs of $10.7 million resulting from lower commodity prices and the benefits of our procurement initiatives and cost-saving initiatives of $2.8 million.

In addition to the movements in cost of sales, operating expenses for 9M 2013 included compensation expense in respect of share-based incentives of $1.3 million, compared with $2.8 million for 9M 2012. Restructuring costs in 9M 2013 benefited operating expenses by $1.0 million, compared with expense of $2.2 million in 9M 2012, and related primarily to reductions in restructuring costs for executive severance. This decrease was partially offset by higher labor-related administrative costs of $2 million, compared with 9M 2012.

Our Gates EMEA segment recognized an operating profit of $67.8 million for 9M 2013, compared with an operating profit for 9M 2012 of $49.2 million.

Adjusted EBITDA was $101.4 million for 9M 2013, compared to $90.5 million for 9M 2012, the increase being largely driven by higher volumes of $6.1 million, lower material costs resulting from lower commodity prices and the benefits of our procurement initiatives ($10.7 million), and benefits of cost-saving initiatives of $3.7 million; somewhat offset by negative pricing impacts of $13.4 million. The Adjusted EBITDA margin increased to 17.6% for 9M 2013 from 16.0% for 9M 2012.

 

 

    

% of 9M 2013 sales

  

9M Adjusted EBITDA margin (%)

          2013    2012

Gates APAC

   20.7%    21.7%    20.4%
        

Sales were $481.9 million for 9M 2013, down 5.9% (approximately 2% lower excluding movements in average currency translation rates) compared with 9M 2012 sales of $512.2 million. The decline in sales is largely attributable to the adverse impact of average currency translation rates, which decreased 9M 2013 sales by $21.0 million, compared to 9M 2012, primarily driven by the Japanese Yen. Gates APAC’s sales decreased across all end markets, primarily due to declines in the automotive first-fit market of 6.7% and industrial first-fit market of 10.4% (approximately 2% and 4% lower, respectively, excluding movements in average currency translation rates). These two markets accounted for 41.4% and 16.5% of Gates APAC’s 9M 2013 sales, respectively. The volume decline is due to weakening market conditions, principally in Japan and China. Sales to the industrial

 

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replacement market (22.1% of Gates APAC’s 9M 2013 sales) declined 5.4% (approximately 2% lower excluding movements in average currency translation rates) due to lower volumes in Singapore and Australia. Sales to the automotive replacement market (20.1% of Gates APAC’s 9M 2013 sales) declined by 0.7% (approximately flat excluding movements in average currency translation rates). Overall, changes in volume accounted for a decrease in sales of $4.4 million, with a further $1.7 million attributed to negative pricing impacts.

Operating expenses in our Gates APAC segment totaled $417.9 million for 9M 2013, compared with $459.1 million in 9M 2012. The principal component of operating expenses was cost of sales.

Cost of sales were $309.0 million for 9M 2013, compared to $337.5 million for 9M 2012, a decrease of 8.4%. Cost of sales for 9M 2013 decreased primarily as result of average currency translation rates ($14 million), lower raw material and other input costs ($13.2 million) and lower production volumes ($2.0 million), partially offset by increases attributable to labor-related inflation of $2.3 million.

In addition to the movements in cost of sales, operating expenses for 9M 2013 included restructuring costs of $0.2 million, compared with $3.6 million for 9M 2012, primarily relating to costs incurred in relation to Project Sierra. The compensation expense in respect of share-based incentives was also lower at $1.6 million, compared with $2.8 million for 9M 2012. Depreciation and amortization costs of $38.3 million, compared with $45.4 million for 9M 2012.

Our Gates APAC segment recognized an operating profit of $64.0 million for 9M 2013, compared with an operating profit for 9M 2012 of $53.1 million.

Adjusted EBITDA was $104.5 million for 9M 2013, compared to $104.5 million for 9M 2012. Lower volumes ($2.4 million), negative pricing impacts ($1.7 million), and labor-related inflation ($4.1 million) in 9M 2013 compared to 9M 2012 were offset by lower raw material and other input costs resulting from lower commodity prices and the benefits of our procurement initiatives of $13.2 million. Adverse impacts related to average currency translation rates accounted for $3.4 million of the decrease. The Adjusted EBITDA margin increased to 21.7% for 9M 2013 from 20.4% for 9M 2012.

 

 

    

% of 9M 2013 sales

  

9M Adjusted EBITDA margin (%)

          2013    2012

Gates South America

   5.3%    12.9%    9.5%
        

Sales were $123.6 million for 9M 2013, up 7.8% (approximately 13% higher excluding movements in average currency translation rates), compared with 9M 2012 sales of $114.6 million. Sales increased despite the adverse impact of average currency translation rates which decreased 9M 2013 sales by $5.6 million, compared to 9M 2012. Gates South America’s sales increased across all end markets with the exception of the automotive first-fit market (14.1% of Gates South America’s 9M 2013 sales), which declined by 11.1% (approximately 7% lower excluding movements in average currency translation rates) due to volume reductions negatively impacting sales by $1.5 million. Sales to the industrial replacement and first-fit markets accounted for 20.2% and 39.0% of Gates South America’s 9M 2013 sales, respectively and grew by 25.5% and 12.9% (approximately 18% and 32% higher, respectively, excluding movements in average currency translation rates), respectively, driven by increases in volume of $9.5 million and favorable price increases of $3.5 million. Sales to the automotive replacement market (26.7% of Gates South America’s 9M 2013 sales) grew by 1.9% (approximately 7% higher excluding movements in average currency translation rates), benefitting from increased pricing of $2.0 million. Overall, changes in volume accounted for an increase in sales of $8.1 million, with a further $5.8 million attributed to pricing actions.

 

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Operating expenses in our Gates South America segment totaled $114.5 million for the 9M 2013, compared with $111.0 million in 9M 2012. The principal component of operating expenses was cost of sales.

Cost of sales were $91.3 million for 9M 2013, compared to $88.8 million for 9M 2012, an increase of 2.8%. Cost of sales for 9M 2013 increased primarily as result of higher production volumes ($6.2 million), partially offset by decreases attributable to cost-saving initiatives of $3.4 million, particularly related to procurement initiatives.

In addition to the movements in cost of sales, operating expenses for 9M 2013 decreased $0.8 million, compared with 9M 2012 as a result of lower restructuring costs driven by higher severance costs arising from reorganizations within the business for 9M 2012. Operating expenses also included depreciation and amortization of $6.2 million for 9M 2013, compared to $7.7 million for 9M 2012.

Our Gates South America segment recognized an operating profit of $9.1 million for 9M 2013, compared with an operating profit for 9M 2012 of $3.6 million.

Adjusted EBITDA was $15.9 million for 9M 2013, compared to $10.9 million for 9M 2012, the increase being largely driven by a combination of higher selling prices of $5.8 million and higher volumes ($1.4 million) compared to 9M 2012. Also contributing to the increase were cost-saving initiatives resulting in an improvement of $3.4 million. Offsetting these effects were raw material and other input cost inflation of $5.5 million. The Adjusted EBITDA margin increased to 12.9% for 9M 2013 from 9.5% for 9M 2012.

 

     

% of 9M 2013 sales

  

9M Adjusted EBITDA margin (%)

           2013    2012

Aquatic

   4.3%    1.5%    (6.2%)
                

Sales for 9M 2013 were $100.7 million, compared to $87.8 million in 9M 2012, an increase of 14.7% principally as a result of improved market conditions, new products, customer conversions, and stronger retail expansion.

Aquatic’s Adjusted EBITDA was $1.5 million for 9M 2013 compared to a loss of $5.4 million for 9M 2012. The increase was largely due to the inclusion in the 9M 2012 results of a one-time unfavorable adjustment of $7.2 million to the product liability provision related to the segment’s former installation business. Excluding that movement, Aquatic’s 9M 2013 Adjusted EBITDA was $0.3 million lower than the prior year due primarily to higher material pricing.

Prior to the completion of this offering the business comprising Aquatic segment will be distributed to our current shareholders. See “—Disposition of the Non-Gates Assets.”

Corporate

Adjusted EBITDA for our Corporate segment for 9M 2013 was a loss of $39.8 million, compared to $39.6 million in 9M 2012, the improvement compared with 9M 2012 was driven principally by headcount and cost reductions, particularly in relation to legal, consultancy and other professional fees.

 

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Fiscal 2012 Results Compared With Fiscal 2011 Results

Summary

 

$ million    Fiscal 2012*     Fiscal 2011*  

Sales

   $ 3,037.3     $ 3,426.4  

Cost of sales

     (1,944.4     (2.269.1
  

 

 

   

 

 

 

Gross profit

     1,092.9       1,157.3  

Distribution costs

     (358.0     (376.0

Administrative expenses

     (530.7     (572.1

Transaction costs

     —          (0.6

Impairments

     (3.1     (38.0

Restructuring costs

     (26.8     (38.8

Net (loss)/gain on disposals and on the exit of businesses

     (0.6     60.8  

Share of profit of associates

     0.4       1.5  
  

 

 

   

 

 

 

Operating profit

     174.1       194.1  

Interest expense

     (208.3     (276.0

Investment income

     2.9       4.7  

Other finance expense

     (73.6     (16.7

Net finance costs

     (279.0     (288.0
  

 

 

   

 

 

 

Loss before tax

     (104.9     (93.9

Income tax benefit

     77.7       19.0  
  

 

 

   

 

 

 

Loss for the period from continuing operations

   $ (27.2   $ (74.9
  

 

 

   

 

 

 

Adjusted EBITDA

     508.6        551.1   

Adjusted EBITDA margin

     16.7     16.1

 

* Presented on a comparable basis (see note 3A to our audited consolidated financial statements included elsewhere in this prospectus)

Sales

Sales in Fiscal 2012 were $3,037.3 million, compared with sales of $3,426.4 million in Fiscal 2011. During Fiscal 2011, the Group disposed of four businesses: the Powertrain segment, Plews, Dexter Chassis and Ideal (which together formed the Other I&A segment). These disposals reduced Fiscal 2012 sales by $359.9 million compared with Fiscal 2011. In addition, the Group’s sales for Fiscal 2012 were affected by an adverse movement of approximately $90 million due to changes in average currency translation rates (particularly the Euro, Brazilian Real and Mexican Peso) compared with Fiscal 2011. The acquisition of Du-Tex Inc., completed at the end of October 2011, contributed an additional $17.0 million to Fiscal 2012 sales compared with Fiscal 2011. Excluding these impacts from acquisitions, disposals and movements in currency translation rates, Fiscal 2012 sales were $42.7 million higher than in Fiscal 2011.

This underlying increase in sales was driven by higher selling prices, particularly in the industrial replacement and automotive replacement end markets, and almost entirely in North America. Sales volumes in our ongoing segments were broadly flat, as difficult trading conditions in Europe and Asia offset strong volume growth in North America.

Gates’ sales in Fiscal 2012 were $34.5 million higher compared with Fiscal 2011, after adjusting for the impact of acquisitions and currency translation rates. This growth was focused in Gates North America, which increased by $65.2 million compared with Fiscal 2011 due primarily to growth in the industrial end markets. Pricing and volume improvements contributed relatively equally to this growth. Volume decreases in Europe ($18.8 million, concentrated in the automotive end markets) and Asia ($22.2 million, primarily in the Japanese industrial and

 

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automotive first-fit end markets) partially offset this North American growth. Overall, Gates’ sales to the industrial end markets, particularly the industrial replacement end market, grew by $42.0 million across all regions, except for Japan and India. This growth was partially offset by a decrease of $12.4 million in sales to the automotive first-fit end market, driven by lower vehicle production in Europe and Japan.

Aquatic’s sales rose by $8.2 million during Fiscal 2012 compared with Fiscal 2011, driven by the strengthening of the US residential housing market and market share gains.

Cost of Sales

Cost of sales in Fiscal 2012 was $1,944.4 million, compared with $2,269.1 million in Fiscal 2011. This decrease of 14.3% was driven by a $307.8 million impact from the disposal of businesses during Fiscal 2011. In addition, raw material costs increased by $41.2 million, combined with a $20.4 million increase in volumes (including $11.5 million from the acquisitions in Fiscal 2011) were largely offset by benefits of $45.0 million arising from the Group’s efficiency and cost reduction initiatives.

Gross Profit

The gross profit for Fiscal 2012 was $1,092.9 million, compared with $1,157.3 million in Fiscal 2011. Our gross profit margin for Fiscal 2012 was 36.0%, up from 33.8% in Fiscal 2011, due principally to the disposal of lower-margin businesses in Fiscal 2011.

Distribution Costs

Distribution costs, which tend to move in proportion to sales, were $358.0 million in Fiscal 2012, compared with $376.0 million in Fiscal 2011. Fiscal 2012 distribution costs as a percentage of sales were higher at 11.8% compared with 11.0% in the prior year. Excluding the impact of the Fiscal 2011 disposals, the Fiscal 2011 percentage would have been 11.4%. The slight increase from Fiscal 2011 to Fiscal 2012 for the ongoing segments was largely attributable to higher freight costs.

Administrative Expenses

Administrative expenses in Fiscal 2012 were $530.7 million, compared with $572.1 million in Fiscal 2011. The decrease in administrative expenses in Fiscal 2012 compared with Fiscal 2011 was due principally to the decrease in the charge relating to share-based incentives ($34.3 million) and the impact of disposals during Fiscal 2011 ($25.8 million), partially offset by the payment of $22.7 million to holders of certain options over B Shares in compensation for the adverse impact of the return of capital on the value of those options.

Transaction Costs

During Fiscal 2012 $0 of transaction costs were recognized. In Fiscal 2011, costs of $0.6 million were recognized, largely in respect of the acquisition in October 2011 of Du-Tex Inc.

Impairments

In Fiscal 2012, the Group recognized impairments of $3.1 million, $2.7 million of which was in relation to the closure of the Charleston plant within Gates North America.

During Fiscal 2011, in light of the prolonged weakness of the US residential construction end market, the Group recognized an impairment of $36.9 million in relation to the Aquatic business, representing the entire goodwill allocated to this segment.

 

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Restructuring Costs

During Fiscal 2012, restructuring costs amounting to $26.8 million were recognized in continuing operations, of which $11.3 million related to Project Sierra. A further $5.6 million of restructuring costs were incurred in relation to the closure of the Charleston plant within Gates North America. Also during Fiscal 2012, $5.1 million of severance and related costs were incurred on business and executive reorganizations, primarily in North America.

Restructuring costs in Fiscal 2011 were $38.8 million, principally in relation to Project Sierra. These costs were partially offset by the release of a provision for restructuring costs of $10.6 million due to the reversal of the decision to close a division of the Powertrain segment, following the recovery in the demand for its products.

Net Gain on Disposals and on the Exit of Businesses

During Fiscal 2012, the Group recognized a net loss of $0.6 million in relation to the disposal of businesses in Fiscal 2011. During Fiscal 2011 we recognized a net gain on the disposal and on the exit of businesses of $60.8 million, principally in relation to the sale in October 2011 of the Ideal business.

Operating Profit

Operating profit in Fiscal 2012 was $174.1 million, compared with $194.1 million in Fiscal 2011.

Adjusted EBITDA

Adjusted EBITDA for Fiscal 2012 was $508.6 million, compared with $551.1 million for Fiscal 2011. The disposal of businesses during Fiscal 2011 reduced Adjusted EBITDA compared with Fiscal 2011 by $47.5 million, compounding the adverse impact of movements in average currency translation rates of $12.0 million. Excluding these two factors, and a $4.0 million contribution in Fiscal 2012 from acquisitions made in Fiscal 2011, Adjusted EBITDA grew by $11.9 million. This underlying increase was driven by higher selling prices of $38.0 million and the benefits from the Group’s restructuring and cost-saving initiatives of $48.5 million. Offsetting these improvements were higher material costs of $41.2 million, mainly in Europe and North America, increased labor-related costs of $24.2 million, primarily in North America and Asia, and lower volumes across most regions except North America ($8.1 million).

The Adjusted EBITDA margin was up slightly at 16.7%, compared with 16.1% in Fiscal 2011.

A reconciliation of operating profit or loss to Adjusted EBITDA for each of the periods under review and for each of our continuing segments is presented under the heading “—Non-GAAP Measures.”

 

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Interest Expense

The interest expense for Fiscal 2012 was $208.3 million, compared with $276.0 million for Fiscal 2011. Our interest expense may be analyzed as follows:

 

$ million    Fiscal 2012*      Fiscal 2011*  

Borrowings:

     

—Interest on bank overdrafts

   $ 0.1       $ 0.7   

—Interest on bank and other loans:

     

Term loans

     104.8         126.7   

Other bank loans

     2.7         2.7   

Second Lien Notes

     76.2         109.4   

2011 Notes

     —           6.2   

2015 Notes

     1.4         1.5   
  

 

 

    

 

 

 
     185.2         247.2   

Interest element of finance lease rentals

     0.2         0.2   

Net loss on financial liabilities held at amortized cost

     15.9         21.2   

Other interest payable

     7.0         7.4   
  

 

 

    

 

 

 

Total

   $ 208.3       $ 276.0   
  

 

 

    

 

 

 

 

* Presented on a comparable basis (see note 3A to our audited consolidated financial statements included elsewhere in this prospectus)

The decrease in interest expense during Fiscal 2012 compared with Fiscal 2011 was due largely to the repayments, including prepayments and redemptions, during Fiscal 2011 and Fiscal 2012 of a total of $1.2 billion of borrowings under the term loans and Second Lien Notes, as discussed under “—Liquidity and Capital Resources.” These repayments reduced interest expense by $55.1 million in Fiscal 2012 compared with Fiscal 2011.

When it was acquired, Tomkins had the following notes outstanding under a Euro Medium Term Note Programme: £150 million 8% notes repayable at par on December 20, 2011, or the 2011 Notes; and £250 million 6.125% notes repayable at par on September 16, 2015, or the 2015 Notes, and, together with the 2011 Notes, the Medium Term Notes. During 2011, a total of $172.6 million was repaid against the Medium Term Loans, including a final settlement of $158.3 million on the maturity of the 2011 Notes in December 2011. As a result of these transactions, the interest expense in relation to the Medium Term Notes decreased by $6.3 million to $1.4 million in Fiscal 2012.

During Fiscal 2012, the Group changed its estimates of the future cash flows relating to certain of its borrowings that are held at amortized cost. The changes were driven primarily by the impacts of the various debt reductions made during the current period and expected to be made in future periods. As a result of these changes and certain other adjustments relating to the Group’s borrowings, the amortized cost of the affected borrowings increased by $15.9 million in Fiscal 2012 compared to an increase of $21.2 million in Fiscal 2011: $21.2 million, and in each case a corresponding loss was recognized in interest expense.

In Fiscal 2012, interest on the benefit obligations of our defined benefit and post-employment heath care plans was $54.2 million, $4.1 million lower than in Fiscal 2011 due primarily to a decrease in the discount rates used in the actuarial valuations.

Investment Income

Investment income for Fiscal 2012 was $2.9 million, compared with $4.7 million for Fiscal 2011. The decrease in investment income during Fiscal 2012 compared with Fiscal 2011 was due primarily to lower average levels of

 

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cash and cash equivalents held during Fiscal 2012 compared with Fiscal 2011. Investment income may be analyzed as follows:

 

$ million    Fiscal 2012*      Fiscal 2011*  

Interest on bank deposits

   $ 2.3       $ 3.5   

Other interest receivable

     0.6         1.2   
  

 

 

    

 

 

 
   $ 2.9       $ 4.7   
  

 

 

    

 

 

 

 

* Presented on a comparable basis (see note 3A to our audited consolidated financial statements included elsewhere in this prospectus)

Other Finance Expense

Other finance expense for Fiscal 2012 was $73.6 million, compared with $16.7 million for Fiscal 2011. Our other finance expense may be analyzed as follows:

 

$ million    Fiscal 2012*     Fiscal 2011*  

Loss on embedded derivatives

   $ (5.4   $ (7.5

Currency translation gain on hedging instruments

     2.6        4.6   

Costs incurred on prepayment of borrowings

     (63.9     (3.8

Gain on early settlement of loan note receivable

     —          1.2   

Net interest recognized in respect to post-employment benefits

     (6.9     (11.2
  

 

 

   

 

 

 
   $ (73.6   $ (16.7
  

 

 

   

 

 

 

 

* Presented on a comparable basis (see notes 3A to our audited consolidated financial statements included elsewhere in this prospectus)

The increase during Fiscal 2012 compared with Fiscal 2011 was principally attributable to (i) a loss of $63.9 million in Fiscal 2012 compared to a loss of $3.8 million in Fiscal 2011, each recognized on the redemption of certain debt instruments and (ii) a reduction of $2.0 million in the currency translation gain on hedging instruments. These impacts were partially offset by a decrease of $2.1 million in the loss on the movement in the fair value of embedded derivatives.

As discussed under “—Liquidity and Capital Resources,” during Fiscal 2011 and 2012, the Group made repayments against the principal amounts outstanding under certain of its debt facilities. Costs and premiums associated with these repayments totaled $63.9 million, including $59.2 million in relation to the tender offer completed in July 2012, $4.5 million of which was capitalized as an increase to deferred financing costs. During both Fiscal 2012 and Fiscal 2011, the cost of debt repayments also included a premium of $3.5 million paid in respect of the 103% call option exercised in full by the Group in relation to the Second Lien Notes.

In Fiscal 2012, net interest recognized in respect of the Group’s defined benefit and post-employment heath care plans was $6.9 million compared with $11.2 million in Fiscal 2011, the decrease being driven by lower discount rates used in the actuarial valuations.

Income Tax Expense

During Fiscal 2012, the income tax benefit attributable to continuing operations was $77.7 million on a loss before tax of $104.9 million, compared to an income tax benefit attributable to continuing operations of $19.0 million in Fiscal 2011 on a loss before tax of $93.9 million.

Our effective tax rate for Fiscal 2012 was affected by items such as the compensation expense recognized on share-based payments that are not deductible for tax purposes in certain jurisdictions. In addition, a number of

 

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discrete tax items further impacted the effective tax rate compared with the statutory tax rates that are applicable in the jurisdictions in which we operate, the primary item being the recognition of deferred tax assets for tax losses that crystalized against gains on the sale of Dexter.

Our effective tax rate in Fiscal 2011 was significantly different from the statutory tax rates that are applicable in the jurisdictions in which we operate, principally due to the non-deductibility for tax purposes of the compensation expense recognized on share-based payments, the recognition of deferred tax liabilities on temporary differences associated with investments in subsidiaries and tax credits in relation to which we were unable to recognize deferred tax assets.

Effect of Inflation

Management does not believe that general inflation levels in any of the countries in which it operates have had a material effect on our financial condition or results of operations during 9M 2013, 9M 2012, Fiscal 2012, Fiscal 2011, Q4 2010 or 9M 2010. The specific impact of raw material and other input cost inflation is analyzed as part of our discussion of the year-on-year performance of our continuing operations.

Effect of Foreign Currency

The impact of movements in average currency translation rates on our sales is analyzed as part of our discussion of the year-on-year performance of our continuing operations. For further discussion of the impact of foreign currency exposure, please see “—Quantitative and Qualitative Disclosures about Market Risk” and Notes 33 and 34F to the Group’s consolidated financial statements included elsewhere in this prospectus.

Analysis by Operating Segment

 

    Sales     Adjusted EBITDA  
    Successor           Predecessor     Successor          Predecessor  
$ millions   Fiscal 2012     Fiscal 2011     Q4 2010           9M 2010     Fiscal 2012*     Fiscal 2011*     Q4 2010*          9M 2010*  

Gates:

                        

—Gates North America

  $ 1,357.9      $ 1,287.3      $ 308.4           $ 844.4      $ 301.2      $ 283.8      $ 66.9          $ 197.8   

—Gates EMEA

    733.4        803.3        205.4             541.8        115.6        117.1        21.4            60.9   

—Gates APAC

    679.5        708.7        183.1             447.9        137.0        147.7        39.4            99.1   

—Gates South America

    152.0        156.7        37.7             109.5        14.4        13.0        5.8            24.2   
    2,922.8        2,956.0        734.6             1,943.6        568.2        561.6        133.5            382.0   
 

 

 

   

 

 

   

 

 

        

 

 

   

 

 

   

 

 

   

 

 

       

 

 

 

Aquatic

    114.5        106.3        27.1             91.7        (5.8     (4.0     (0.8         (0.6

Corporate

    —          —          —               —          (52.9     (54.1     (10.3         (38.0
 

 

 

   

 

 

   

 

 

        

 

 

   

 

 

   

 

 

   

 

 

       

 

 

 

Total ongoing

  $ 3,037.3      $ 3,062.3      $ 761.7           $ 2,035.3      $ 509.5      $ 503.5      $ 122.4          $ 343.4   
 

 

 

   

 

 

   

 

 

        

 

 

   

 

 

   

 

 

   

 

 

       

 

 

 

 

* Presented on a comparable basis (see note 3A to our audited consolidated financial statements included elsewhere in this prospectus)

 

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Gates North America (44.7% of Fiscal 2012 Sales)

 

$ million    Fiscal 2012*     Fiscal 2011*  

Sales

   $ 1,357.9     $ 1,287.3  

Operating expenses

     (1,193.7     (1,150.6

Operating profit

     164.2       136.7  

Adjusted EBITDA

     301.2        283.8  

Adjusted EBITDA Margin

     22.2     22.0

 

* Presented on a comparable basis (see note 3A to our audited consolidated financial statements included elsewhere in this prospectus)

Sales were $1,357.9 million for Fiscal 2012 compared to $1,287.3 million for Fiscal 2011, an increase of 5.5% (approximately 6% higher excluding movements in average currency translation rates), or $70.6 million. Sales were higher across all end markets. Sales to the automotive replacement market (37.4% of Gates North America’s Fiscal 2012 sales) grew by 1.7% (approximately 3% higher excluding movements in average currency translation rates) and sales to the industrial replacement and first-fit markets (33.5% and 23.0% of Gates North America’s Fiscal 2012 sales respectively) grew by 6.5% and 8.4% (approximately 8% and 9% higher, respectively, excluding movements in average currency translation rates), respectively, driven by strong sales of fluid transfer products, particularly in the first half of 2012, and additional sales of $17.0 million from the acquisition of Du-Tex Inc. in October 2011. Sales in the automotive first-fit market, which accounted for 6.1% of Gates North America’s Fiscal 2012 sales and grew by 14.2% (approximately 16% higher excluding movements in average currency translation rates) due principally to $9.0 million of sales to new automotive first-fit programs. Overall, changes in Gates North America segment volume accounted for $51.0 million of increased sales, with a further $39.3 million attributed to pricing actions. Currency translation rate movements negatively impacted sales by approximately $11 million.

Operating expenses in our Gates North America segment totaled $1,193.7 million in Fiscal 2012, compared with $1,150.6 million in Fiscal 2011. The principal component of operating expenses was cost of sales.

Fiscal 2012 cost of sales in our Gates North America segment was $820.3 million, compared with $768.7 million in Fiscal 2011. Cost of sales for Fiscal 2012 increased by $51.6 million compared with Fiscal 2011 due to higher volumes (including the impact of acquisitions of $11.5 million), by $15.3 million due to higher raw material and other input costs, particularly carbon black and polymers, and by a further $7.2 million due to labor-related inflation. These increases were somewhat offset by a combination of efficiency improvements and other benefits arising from restructuring projects of $19.2 million.

In addition to the movements in cost of sales, operating expenses for Fiscal 2012 increased by $9.0 million as a result of higher labor-related administrative costs compared with Fiscal 2011, and by a further $5.3 million due to increased warranty expenses, largely relating to updated methods and assumptions for determining the warranty provision. In Fiscal 2012, the compensation expense in respect of share-based incentives was $6.5 million, compared with $9.7 million in Fiscal 2011. Restructuring costs in Fiscal 2012 were also lower at $17.8 million, compared with $26.8 million for Fiscal 2011, and related principally to costs incurred in relation to the closure of the Charleston plant ($5.6 million) and costs associated with Project Sierra ($5.4 million). An impairment of $2.4 million was recognized by Gates North America in Fiscal 2012 primarily in relation to the Charleston closure, compared to an impairment of $0.1 million in Fiscal 2011.

Our Gates North America segment recognized an operating profit of $164.2 million for Fiscal 2012, compared with an operating profit for Fiscal 2011 of $136.7 million.

Adjusted EBITDA was $301.2 million for Fiscal 2012 compared to $283.8 million for Fiscal 2011, the increase being largely volume-driven. Higher selling prices contributed $40.1 million, but were more than offset by a number of cost increases, including raw material inflation of $12.6 million, higher labor-related costs of

 

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$16.2 million and increased warranty costs of $5.3 million. The Adjusted EBITDA margin grew to 22.2% in Fiscal 2012 from 22.0% in Fiscal 2011.

Gates EMEA (24.1% of Fiscal 2012 Sales)

 

$ million    Fiscal 2012*     Fiscal 2011*  

Sales

   $ 733.4     $ 803.3  

Operating expenses

     (671.3     (749.0

Operating profit

     62.1       54.3  

Adjusted EBITDA

     115.6       117.1  

Adjusted EBITDA Margin

     15.8     14.6

 

* Presented on a comparable basis (see note 3A to our audited consolidated financial statements included elsewhere in this prospectus)

Sales were $733.4 million for Fiscal 2012 compared to $803.3 million for Fiscal 2011, a decrease of 8.7% (approximately 3% lower excluding movements in average currency translation rates) or $69.9 million. Adverse movements in currency translation rates and lower volumes accounted for approximately $50 million and $19.6 million of the decrease, respectively. Sales to all markets declined except for the industrial replacement market, where sales were broadly unchanged. Sales to the industrial first-fit market (13.9% of Gates EMEA’s Fiscal 2012 sales) declined year-on-year by 8.8% (approximately 4% lower excluding movements in average currency translation rates) due primarily to the continued weakness in the region’s industrial markets, in addition to the negative exchange rate impact. Sales to the automotive replacement market, which accounted for 35.2% of Gates EMEA’s Fiscal 2012 sales, declined by 11.3% (approximately 5% lower excluding movements in average currency translation rates) due to a company initiative to in-source automotive replacement kits that reduced sales by $19.4 million, compared with Fiscal 2011, but improved EBITDA and profitability. Sales were also affected by adverse pricing impacts of $5.7 million, compared with Fiscal 2011. Sales to the automotive first-fit end market (24.2% of Gates EMEA’s Fiscal 2012 sales) declined by 13.6% (approximately 7% lower excluding movements in average currency translation rates) due to lower end market volumes.

Operating expenses in our Gates EMEA segment totaled $671.3 million in Fiscal 2012, compared with $749.0 million in Fiscal 2011. The principal component of operating expenses was cost of sales.

Fiscal 2012 cost of sales in our Gates EMEA segment was $482.7 million, compared with $530.2 million in Fiscal 2011. This decrease was due primarily to lower production volumes ($32.3 million) and the benefits of cost-saving initiatives offset ($10.2 million).

In addition to the movements in cost of sales described above, operating expenses for Fiscal 2012 included depreciation and amortization of $47.6 million, compared with $50.9 million in Fiscal 2011. Also in Fiscal 2012, restructuring costs were $2.5 million, compared with $11.0 million for Fiscal 2011.

Our Gates EMEA segment recognized an operating profit of $62.1 million for Fiscal 2012, compared with an operating profit for Fiscal 2011 of $54.3 million.

Adjusted EBITDA was $115.6 million, broadly compared with Fiscal 2011 at $117.1 million as higher material costs were largely offset by the benefits of cost-saving initiatives. The disproportionate impact of changes in currency exchange rates on sales compared with costs during Fiscal 2012 resulted in an increase in the Adjusted EBITDA margin from 14.6% in Fiscal 2011 to 15.8% in Fiscal 2012.

 

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Gates APAC (22.4% of Fiscal 2012 Sales)

 

$ million    Fiscal 2012*     Fiscal 2011*  

Sales

   $ 679.5     $ 708.7  

Operating expenses

     (610.4     (623.6

Operating profit

     69.1       85.1  

Adjusted EBITDA

     137.0       147.7  

Adjusted EBITDA Margin

     20.2     20.8

 

* Presented on a comparable basis (see note 3A to our audited consolidated financial statements included elsewhere in this prospectus)

Sales were $679.5 million, compared with $708.7 million in Fiscal 2011, a decrease of 4.1% (approximately 4% lower excluding movements in average currency translation rates). Sales to all end markets declined, driven by weakening end market conditions, particularly in the industrial first-fit end market (16.5% of Gates APAC’s Fiscal 2012 sales) to which our Fiscal 2012 sales were down by 10.6% (approximately 9% lower excluding movements in average currency translation rates) compared with Fiscal 2011. Sales to the industrial replacement markets (22.0% of Gates APAC’s Fiscal 2012 sales) declined by 4.0% (approximately 3% lower excluding movements in average currency translation rates), and sales to the automotive replacement and first-fit markets (18.6% and 42.9% of Gates APAC’s Fiscal 2012 sales) declined by 2.5% and 2.2% (approximately 2% lower in each market excluding movements in average currency translation rates), respectively. Lower volumes accounted for $32.5 million of the decrease in sales, principally in Japan and Korea, offset partially by continued volume growth of $10.3 million in China. Adverse movements in currency translation rates and the negative impact from pricing actions accounted for approximately $5 million and $2.8 million, respectively.

Operating expenses in our Gates APAC segment totaled $610.4 million in Fiscal 2012, compared with $623.6 million in Fiscal 2011. The principal component of operating expenses was cost of sales.

Fiscal 2012 cost of sales in our Gates APAC segment was $449.2 million, compared with $469.5 million in Fiscal 2011. Cost of sales for Fiscal 2012 increased by $20.3 million compared with Fiscal 2011 due to higher production volumes, but this was more than offset by benefits of $15.3 million from restructuring and cost-saving initiatives, predominantly Project Sierra.

In addition to the movements in cost of sales described above, operating expenses for Fiscal 2012 included restructuring costs of $5.4 million, compared with $3.9 million in Fiscal 2011, primarily relating to Project Sierra, depreciation and amortization costs of $59.1 million for Fiscal 2012 compared to $58.1 million for Fiscal 2011 and an increase in the compensation expense in respect of share-based incentives from $0.5 million in Fiscal 2011 to $3.4 million in Fiscal 2012.

Our Gates APAC segment recognized an operating profit of $69.1 million for Fiscal 2012, compared with an operating profit for Fiscal 2011 of $85.1 million.

Adjusted EBITDA was $137.0 million for Fiscal 2012 compared to $147.7 million for Fiscal 2011, a decrease of $10.7 million, which was driven principally by a combination of lower volumes ($14.7 million) and higher raw material costs of $8.4 million. Offsetting these effects were benefits of $15.3 million arising from restructuring initiatives and other cost-saving projects. The Adjusted EBITDA margin accordingly declined from 20.8% in Fiscal 2011 to 20.2% in Fiscal 2012.

 

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Gates South America (5.0% of Fiscal 2012 Sales)

 

$ million    Fiscal 2012*     Fiscal 2011*  

Sales

   $ 152.0     $ 156.7  

Operating expenses

     (149.4     (157.4

Operating profit

     2.6        (0.7

Adjusted EBITDA

     14.4       13.0  

Adjusted EBITDA Margin

     9.5     8.3

 

* Presented on a comparable basis (see note 3A to our audited consolidated financial statements included elsewhere in this prospectus)

Sales were $152.0 million for Fiscal 2012, compared with $156.7 million in Fiscal 2011, a decrease of 3.0% (approximately 10% higher excluding movements in average currency translation rates). Sales were impacted significantly by adverse currency translation rate movements, which decreased Fiscal 2012 sales by approximately $17 million compared with Fiscal 2011. Sales to all markets declined, with the exception of the industrial replacement market, which grew by 13.2% (approximately 31% higher excluding movements in average currency translation rates) as the effect of a reclassification of $14.4 million of sales from the automotive replacement market offset the negative impact of volume changes of $1.8 million. Sales to the industrial first-fit market (17.7% of Gates South America’s Fiscal 2012 sales) declined by 11.2% (approximately 1% higher excluding movements in average currency translation rates) due principally to currency movements, particularly the Brazilian Real. Sales to the automotive replacement market (28.5% of Gates South America’s Fiscal 2012 sales) declined by 2.0% (approximately 6% higher excluding movements in average currency translation rates). Overall, price actions accounted for an increase in sales of $2.1 million, which were more than offset by the impact of lower volumes of $4.0 million.

Operating expenses in our Gates South America segment totaled $149.4 million in Fiscal 2012, compared with $157.4 million in Fiscal 2011. The principal component of operating expenses was cost of sales.

Fiscal 2012 cost of sales in our Gates South America segment was $118.1 million, compared with $122.4 million in Fiscal 2011. Cost of sales for Fiscal 2012 decreased primarily as a result of the strengthening of local exchange rates against the US dollar, particularly in Brazil and Argentina.

In addition to the movements in cost of sales, operating expenses in Fiscal 2012 were $6.9 million lower than in Fiscal 2011 as a result of legal costs incurred in Fiscal 2011 that did not recur in Fiscal 2012. Restructuring costs were $1.1 million lower in Fiscal 2012 compared with Fiscal 2011, as the latter included severance costs arising on reorganizations within the business, and costs incurred in relation to Project Sierra, that did not recur in Fiscal 2012. Operating expenses also included depreciation and amortization of $9.8 million in Fiscal 2012, down from $11.2 million in Fiscal 2011.

Our Gates South America segment incurred an operating profit of $2.6 million for Fiscal 2012, compared with an operating loss for Fiscal 2011 of $0.7 million.

Aquatic (3.8% of Fiscal 2012 Sales)

 

$ million    Fiscal 2012*     Fiscal 2011*  

Sales

   $ 114.5      $ 106.3   

Operating expenses

     (129.2     (157.3

Operating profit

     (14.7     (51.0

Adjusted EBITDA

     (5.8     (4.0

Adjusted EBITDA Margin

     (5.1 )%      (3.8 )% 

 

* Presented on a comparable basis (see note 3A to our audited consolidated financial statements included elsewhere in this prospectus)

 

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Sales were $114.5 million for Fiscal 2012, compared with $106.3 million in Fiscal 2011, an increase of 7.7%. Aquatic sells primarily to the US residential construction and remodeling markets, which continued to recover year-on-year.

Operating expenses in our Aquatic segment totaled $129.2 million in Fiscal 2012, compared with $157.3 million in Fiscal 2011. The principal component of operating expenses was cost of sales.

Fiscal 2012 cost of sales in our Aquatic segment was $73.4 million, compared with $71.9 million in Fiscal 2011. Increases from higher production volumes and raw material cost inflation were largely offset by cost reductions.

In addition to the movements in cost of sales, operating expenses in Fiscal 2012 were impacted by a $7.2 million revision to its product liability provision recognized during the quarter. In light of the prolonged weakness of the US residential construction end market, the Group recognized an impairment of $36.9 million in Fiscal 2011 in relation to Aquatic, representing the entire goodwill allocated to this segment.

Our Aquatic segment incurred an operating loss of $14.7 million for Fiscal 2012, compared with an operating loss for Fiscal 2011 of $51.0 million.

The segment’s Adjusted EBITDA loss for Fiscal 2012 was $5.8 million, driven primarily by the revision to its product liability provision of $7.2 million, which was offset partially by improved sales volumes, compared with a loss of $4.0 million for Fiscal 2011. As a consequence, the Adjusted EBITDA margin dropped to negative 5.1% in Fiscal 2012, compared with negative 3.8% in Fiscal 2011.

Corporate

Corporate reported an operating loss of $108.4 million for Fiscal 2012, compared with an operating loss of $120.7 million for Fiscal 2011. In Fiscal 2012, the compensation expense in respect of share-based incentives was $30.3 million, compared with $66.1 million in Fiscal 2011. No restructuring costs were recognized in Fiscal 2012, but costs of $4.1 million were recognized in Fiscal 2011, principally in relation to Project Sierra. These decreases in corporate costs were partially offset by adverse movements in currency exchange rates of $2.5 million. A gain of $0 was recognized on disposals in Fiscal 2012, but a gain of $4.8 million was recognized in Fiscal 2011. In addition, Corporate includes a $22.7 million charge in relation to amounts payable to holders of certain options over B Shares in compensation for the adverse impact of the return of capital on the value of those options.

As a result, Corporate incurred an Adjusted EBITDA loss of $52.9 million for Fiscal 2012, compared with a loss of $54.1 million for Fiscal 2011.

Fiscal 2011 Results Compared With Pro Forma Fiscal 2010 Results

To facilitate a discussion of certain results of operations for Fiscal 2010, we refer in this section to our unaudited pro forma condensed consolidated income statement for Fiscal 2010 that is presented in “—2010 Acquisition and Related Transactions.”

 

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Summary

 

     Successor           Predecessor  
$ million    Fiscal 2011*     Q4 2010*           9M 2010*     Pro forma
adjustments
    Pro Forma
Fiscal 2010
 

Sales

   $ 3,426.4     $ 900.2          $ 2,443.4     $ —       $ 3,343.6  

Cost of sales

     (2,269.1     (728.7          (1,625.9     103.9       (2,250.7
  

 

 

   

 

 

        

 

 

   

 

 

   

 

 

 

Gross profit

     1,157.3       171.5             817.5       103.9       1,092.9  

Distribution costs

     (376.0     (101.2          (271.4     —          (372.6

Administrative expenses

     (572.1     (190.5          (272.5     (81.3     (544.3

Transaction costs

     (0.6     (78.2          (40.1     118.0       (0.3

Impairments

     (38.0     —               —          —          —     

Restructuring costs

     (38.8     (3.6          (8.0     —          (11.6

Net gain on disposals and on the exit of businesses

     60.8       —               7.1       —          7.1  

Share of profit of associates

     1.5       1.3            1.3       —         2.6  
  

 

 

   

 

 

        

 

 

   

 

 

   

 

 

 

Operating profit/(loss)

     194.1       (200.7          233.9       140.6       173.8  

Interest expense

     (276.0     (75.5          (21.4     (198.7     (295.6

Investment income

     4.7       2.4             3.3       —          5.7  

Other finance (expense)/income

     (16.7     (29.3          (16.7     55.1       9.1  

Net finance costs

     (288.0     (102.4          (34.8     (143.6     (280.8
  

 

 

   

 

 

        

 

 

   

 

 

   

 

 

 

(Loss)/profit before tax

     (93.9     (303.1          199.1       (3.0     (107.0

Income tax benefit/(expense)

     19.0       22.5            (57.1     63.9       29.3  
  

 

 

   

 

 

        

 

 

   

 

 

   

 

 

 

(Loss)/profit for the period

   $ (74.9   $ (280.6        $ 142.0     $ 60.9     $ (77.7
  

 

 

   

 

 

        

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

     551.1        143.0            385.3       (1.7     526.6  

Adjusted EBITDA margin

     16.1     15.9          15.8       15.7

 

* Presented on a comparable basis (see note 3A to our audited consolidated financial statements included elsewhere in this prospectus)

Sales

Sales in Fiscal 2011 were $3,426.4 million, compared with sales of $900.2 million in Q4 2010 and $2,443.4 million in 9M 2010. Pro forma sales in Fiscal 2010 were $3,343.6 million. During Fiscal 2011, the Group disposed of four businesses: the Powertrain segment, Plews, Dexter Chassis and Ideal (which together formed the Other I&A segment). These disposals reduced Fiscal 2011 sales by $217.2 million compared with pro forma Fiscal 2010. In addition, the Group’s continuing sales for Fiscal 2011 benefitted from a positive movement of approximately $90 million in average currency exchange rates (particularly the Euro, Canadian dollar and Japanese Yen) compared with pro forma Fiscal 2010. Acquisitions, which included Du-Tex in Fiscal 2011, contributed a further $4.9 million to the improvement in sales in Fiscal 2011 compared with pro forma Fiscal 2010. Excluding these impacts from acquisitions, disposals and currency exchange rate movements, Fiscal 2011 sales from continuing operations were $202.3 million higher than in pro forma Fiscal 2010.

Excluding segments that have been exited, the Group’s ongoing sales in Fiscal 2011 were $3,062.3 million (pro forma Fiscal 2010: $2,797.0 million), an increase of 9.5%. Higher sales volumes during Fiscal 2011 accounted for approximately $129 million of the increase in ongoing sales, while higher selling prices across most segments, particularly Gates North America, contributed approximately a further $43 million to the improvement over pro forma Fiscal 2010.

Gates’ underlying sales in Fiscal 2011 were 10.4% higher compared with pro forma Fiscal 2010, due mainly to improvements in the industrial replacement and first-fit markets and the automotive first-fit markets. Sales to the industrial markets grew by 16.1%, driven by growth in the Gates North America businesses. Sales to the

 

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automotive first-fit markets grew by 9.3%, of which 7.1% was from Europe and China. Sales to the automotive replacement market increased by 3.4% during Fiscal 2011 compared with pro forma Fiscal 2010, as strong growth in North America was partially offset by a slight weakening in European sales. Aquatic’s sales for Fiscal 2011 were down by $12.5 million compared with pro forma Fiscal 2010 due to the continued weakness in the US residential construction market.

Cost of Sales

Cost of sales in Fiscal 2011 was $2,269.1 million, compared with $728.7 million in Q4 2010 and $1,625.9 million in 9M 2010. Pro forma cost of sales for Fiscal 2010 was $2,250.7 million. The increase of 0.7% in cost of sales during Fiscal 2011 compared with pro forma Fiscal 2010 was driven principally by higher production volumes of approximately $85 million, combined with raw material cost increases of approximately $50 million across the Group. The majority of these increases were offset by the reduction in cost of sales as a result of the disposal of businesses during Fiscal 2011.

Gross Profit

The gross profit for Fiscal 2011 was $1,157.3 million, compared with $171.5 million in Q4 2010 and $817.5 million in 9M 2010. Pro forma gross profit for Fiscal 2010 was $1,092.9 million. Our gross profit margin for Fiscal 2011 was 33.8%, up from 32.6% in pro forma Fiscal 2010, due principally to higher selling prices which contributed approximately $50 million to gross profit.

Distribution Costs

Distribution costs in Fiscal 2011 were $376.0 million, compared with $101.2 million in Q4 2010 and $271.4 million in 9M 2010. Pro forma distribution costs in Fiscal 2010 were $372.6 million. Fiscal 2011 distribution costs as a percentage of sales remained broadly in line with the prior year at 11.0% (pro forma Fiscal 2010: 11.1%).

Administrative Expenses

Administrative expenses in Fiscal 2011 were $572.1 million, compared with $190.5 million in Q4 2010 and $272.5 million in 9M 2010. Pro forma administrative expenses in Fiscal 2010 were $544.3 million. The increase in administrative expenses in Fiscal 2011 compared with pro forma Fiscal 2010 was due principally to an increase in the charge relating to share-based incentives ($9.4 million) and an increase in variable operating costs of approximately $11 million.

Transaction Costs

Transaction costs of $0.6 million were recognized during Fiscal 2011, including costs of $0.2 million in relation to the acquisition of Du-Tex in October 2011.

The Group recognized transaction costs in relation to acquisitions of $78.2 million during Q4 2010 and of $40.1 million during 9M 2010, predominantly in respect of the Acquisition. Pro forma transaction costs for Fiscal 2010 amounted to $0.3 million.

Impairments

During Fiscal 2011, in light of the prolonged weakness of the US residential construction end market, the Group recognized an impairment of $36.9 million in relation to Aquatic, representing the entire goodwill allocated to this segment.

Recognition of impairments of long-lived assets in both Q4 2010 and 9M 2010 were $0.

 

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Restructuring Costs

Restructuring costs in Fiscal 2011 were $38.8 million principally in relation to Project Sierra, an initiative that focuses on identifying and implementing cost reduction opportunities and efficiency improvements across our businesses. These costs were partially offset by the release of a provision for restructuring costs of $10.6 million due to the reversal of the decision to close the Powertrain operating segment, following the recovery in the demand for its products.

We recognized restructuring costs of $3.6 million during Q4 2010 and $8.0 million during 9M 2010 in connection with a group-wide restructuring project launched in Fiscal 2009 to refocus our manufacturing footprint towards low-cost and high growth regions and within our most efficient facilities. In both periods, the costs related principally to the cessation of certain of Gates North America’s manufacturing facilities in North America, partially offset by gains on various asset disposals.

Net Gain on Disposals and on the Exit of Businesses

During Fiscal 2011 we recognized a net gain on the disposal and on the exit of businesses of $60.8 million, principally in relation to the sale in October 2011 of the Ideal business.

During 9M 2010, we recognized a net gain of $7.1 million on the disposal of property, plant and equipment, principally as a consequence of the restructuring of Aquatic and the closure of Doors & Windows, however $0 of gain on the disposal or exit of businesses was recognized during Q4 2010. Also included within this net gain was an additional loss of $3.3 million on the disposal of a subsidiary that took place in Fiscal 2008 and a loss on the disposal of Hydrolink’s operations in Kazakhstan.

Operating Profit

Operating profit in Fiscal 2011 was $194.1 million, compared with a loss of $200.7 million in Q4 2010 and a profit of $233.9 million in 9M 2010. Pro forma operating profit for Fiscal 2010 was $173.8 million.

Adjusted EBITDA

Adjusted EBITDA for Fiscal 2011 was $551.1 million, compared with $143.0 million for Q4 2010 and $385.3 million for 9M 2010. Pro forma Adjusted EBITDA for Fiscal 2010 was $526.6 million. The disposal of businesses during Fiscal 2011 reduced Adjusted EBITDA during Fiscal 2011 by $23.7 million, offset in part by a $17.2 million benefit from movements in average currency exchange rates. Excluding these two factors, and a small contribution in Fiscal 2011 from acquisitions, Adjusted EBITDA grew by $29.7 million, including an increase of approximately $40 million from the Group’s higher sales volumes, particularly in North American industrial first-fit markets. Increases in raw material and other input costs of approximately $55 million were largely offset by an $40 million benefit from higher selling prices.

The Adjusted EBITDA margin was up slightly at 16.1%, compared with 15.7% in pro forma Fiscal 2010.

A reconciliation of operating profit or loss to Adjusted EBITDA for each of the periods under review and for each of our continuing segments is presented under the heading “—Non-GAAP measures.”

 

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Interest Expense

The interest expense for Fiscal 2011 was $276.0 million, compared with $75.5 million for Q4 2010 and $21.4 million for 9M 2010. Pro forma interest expense for Fiscal 2010 was $295.6 million. Our interest expense may be analyzed as follows:

 

     Successor           Predecessor              
$ million    Fiscal 2011*      Q4 2010*           9M 2010*     Pro forma
adjustments
    Pro Forma
Fiscal 2010
 

Bank overdrafts

   $ 0.7       $ —             $ 6.0     $ —       $ 6.0  

Term loans

     126.7         38.4             —         120.1       158.5  

Other bank loans

     2.7         —               0.2       1.5       1.7  

Second Lien Notes

     109.4         27.9             —         83.8       111.7  

2011 Notes

     6.2         1.9             13.3       (8.5     6.7  

2015 Notes

     1.5         3.3             17.2       (18.9     1.6  

Net interest on interest rate swaps

     —           —               (19.0     19.0       —    
  

 

 

    

 

 

        

 

 

   

 

 

   

 

 

 
     247.2         71.5             17.7       197.0       286.2  

Finance leases

     0.2         —              0.2       —         0.2  

Net loss on financial liabilities held at amortized cost

     21.2         —              —         —         —    

Other

     7.4         4.0             3.5       1.7       9.2  
  

 

 

    

 

 

        

 

 

   

 

 

   

 

 

 
   $ 276.0       $ 75.5           $ 21.4     $ 198.7     $ 295.6