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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 30, 2024
or
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to ____

Commission file number 001-38366
Gates Industrial Corporation plc
(Exact Name of Registrant as Specified in its Charter)
England and Wales98-1395184
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
1144 Fifteenth Street, Denver, Colorado 80202
(Address of principal executive offices)(Zip Code)
(303) 744-1911
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Ordinary Shares, $0.01 par value per shareGTESNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ☒ No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  ☒ No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ☐ No  
As of April 29, 2024, there were 261,380,261 ordinary shares of $0.01 par value outstanding.


Table of Contents
TABLE OF CONTENTS
Part I – Financial Information
Item 1.
Item 2.
Item 3.
Item 4.
Part II – Other Information
Item 1.
Item 1A.
Item 2.
Item 5.
Item 6.



Table of Contents
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q (this “quarterly report” or “report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that reflect our current views with respect to, among other things, our operations and financial performance. Forward-looking statements include all statements that are not historical facts. In some cases, you can identify these forward-looking statements by the use of words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “predicts,” “intends,” “trends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those expressed in or implied by our forward-looking statements, including but not limited to the factors described in Item 1A. “Risk Factors” in Part I of the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2023 (the “annual report”), as filed with the Securities and Exchange Commission (the “SEC”), which include the following: economic, political and other risks associated with international operations; availability of raw materials or other manufacturing inputs at favorable prices in sufficient quantities, or at a given time; changes in our relationships with, or the financial condition, performance, purchasing power or inventory levels of, key channel partners; catastrophic events, including global pandemics; dependence on the continued operation of our manufacturing facilities, supply chains, distribution systems and information technology systems; our ability to forecast demand or meet significant increases in demand; our cost-reduction actions; market acceptance of new product introductions and innovations; longer lives of products used in our end markets may affect demand for some of our replacement products; development of the replacement market in emerging markets may limit our ability to grow; pursuit of strategic transactions, including acquisitions, divestitures, restructurings, joint ventures, strategic alliances or investments, which could create risks and present unforeseen integration obstacles or costs; our investments in joint ventures; loss or financial instability of any significant customer; societal responses to sustainability issues, including those related to climate change; the ability to maintain and enhance our strong brand; pricing pressures from customers; cyber-security vulnerabilities, threats, and more sophisticated and targeted computer crimes; failure of information systems; highly complex and rapidly evolving global privacy, data protection and data security requirements; existing or new laws and regulations, including but not limited to those relating to health, safety, and environmental concerns, and the sale of aftermarket products; failure to comply with anti-corruption laws and other laws governing our international operations; recalls, product liability claims or product warranties claims; failure to develop, obtain, enforce and protect our intellectual property rights in all jurisdictions throughout the world; infringement on the intellectual property of others; litigation, legal and regulatory proceedings and obligations, and the availability and coverage of insurance; loss of senior management or key personnel; work stoppages and other labor matters; potential requirement to make additional cash contributions to our defined benefit pension plans; change in our effective tax rates or additional tax liabilities; change in tax laws; tax authorities may no longer treat us as being exclusively a resident of the U.K. for tax purposes; our substantial leverage, including interest rate risk; and the significant influence of our Sponsor (as defined herein) over us, as such factors may be updated from time to time in the Company’s periodic filings with the SEC. Investors are urged to consider carefully the disclosure in this report and our other filings with the SEC, which are accessible on the SEC’s website at www.sec.gov. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this report and in our other periodic filings. Gates undertakes no obligation to update or supplement any forward-looking statements as a result of new information, future events or otherwise, except as required by law.
Website Disclosure
We use our website (www.gates.com) as a channel of distribution of company information. The information we post through this channel may be deemed material. Accordingly, investors should monitor this channel, in addition to following our press releases, SEC filings and public conference calls, and webcasts. In addition, you may automatically receive email alerts and other information about Gates Industrial Corporation when you enroll your email address by visiting the “Investor Resources—Email Alerts” section of our website at https://investors.gates.com. The contents of our website and any alerts are not, however, a part of this report.


Table of Contents
ABOUT THIS QUARTERLY REPORT
Financial Statement Presentation
Gates Industrial Corporation plc is a public limited company that was incorporated under the Companies Act 2006 on September 25, 2017 and is registered in England and Wales.
Certain monetary amounts, percentages and other figures included elsewhere in this quarterly report 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.
All amounts in this quarterly report are expressed in United States of America (the “U.S.”) dollars, unless indicated otherwise.
Certain Definitions
As used in this quarterly report, unless otherwise noted or the context requires otherwise:
“Gates,” the “Company,” “we,” “us” and “our” refer to Gates Industrial Corporation plc and its consolidated subsidiaries;
“Blackstone” or “our Sponsor” refer to investment funds affiliated with Blackstone Inc., which together own approximately 27.6% of our outstanding ordinary shares as of March 30, 2024; and
•    “Board” refers to the board of directors of Gates Industrial Corporation plc.


Table of Contents
PART I — FINANCIAL INFORMATION
Item 1: Financial Statements (unaudited)
Gates Industrial Corporation plc
Unaudited Condensed Consolidated Statements of Operations
Three months ended
(dollars in millions, except per share amounts)
March 30,
2024
April 1,
2023
Net sales$862.6 $897.7 
Cost of sales532.6 572.6 
Gross profit330.0 325.1 
Selling, general and administrative expenses211.7 232.1 
Transaction-related expenses0.4 0.2 
Restructuring expenses1.2 5.5 
Operating income from continuing operations116.7 87.3 
Interest expense37.5 40.8 
Other (income) expenses(1.5)0.3 
Income from continuing operations before taxes80.7 46.2 
Income tax expense34.5 15.3 
Net income from continuing operations46.2 30.9 
Loss on disposal of discontinued operations, net of tax, respectively, of $0 and $0
0.1 0.3 
Net income46.1 30.6 
Less: non-controlling interests6.1 4.2 
Net income attributable to shareholders$40.0 $26.4 
Earnings per share
Basic
Earnings per share from continuing operations$0.15 $0.09 
Earnings per share from discontinued operations  
Earnings per share$0.15 $0.09 
Diluted
Earnings per share from continuing operations$0.15 $0.09 
Earnings per share from discontinued operations  
Earnings per share$0.15 $0.09 
The accompanying notes form an integral part of these condensed consolidated financial statements.
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Gates Industrial Corporation plc
Unaudited Condensed Consolidated Statements of Comprehensive Income
Three months ended
(dollars in millions)
March 30,
2024
April 1,
2023
Net income$46.1 $30.6 
Other comprehensive (loss) income
Foreign currency translation:
—Net translation (loss) gain on foreign operations, net of tax benefit (expense), respectively, of $3.1 and $(2.0)
(69.4)82.1 
—Gain (loss) on net investment hedges, net of tax (expense) benefit, respectively, of $(3.0) and $1.7
16.0 (10.5)
Total foreign currency translation movements(53.4)71.6 
Cash flow hedges (interest rate derivatives):
—Gain (loss) arising in the period, net of tax (expense) benefit, respectively, of $(3.4) and $2.5
10.2 (7.5)
—Reclassification to net income, net of tax benefit, respectively, of $2.2 and $0.6
(6.8)(1.8)
Total cash flow hedges movements3.4 (9.3)
Post-retirement benefits:
—Reclassification of prior year actuarial movements to net income, net of tax benefit, respectively, of $0.2 and $0.2
(0.4)(0.7)
Total post-retirement benefits movements(0.4)(0.7)
Other comprehensive (loss) income(50.4)61.6 
Comprehensive (loss) income for the period$(4.3)$92.2 
Comprehensive income attributable to shareholders:
—Income arising from continuing operations$2.7 $87.5 
—Loss arising from discontinued operations(0.1)(0.3)
2.6 87.2 
Comprehensive (loss) income attributable to non-controlling interests(6.9)5.0 
$(4.3)$92.2 
The accompanying notes form an integral part of these condensed consolidated financial statements.

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Gates Industrial Corporation plc
Unaudited Condensed Consolidated Balance Sheets
(dollars in millions, except share numbers and per share amounts)
As of
March 30, 2024
As of
December 30, 2023
Assets
Current assets
Cash and cash equivalents$522.2 $720.6 
Trade accounts receivable, net 797.7 768.2 
Inventories677.2 647.2 
Taxes receivable44.2 30.4 
Prepaid expenses and other assets245.8 234.9 
Total current assets2,287.1 2,401.3 
Non-current assets
Property, plant and equipment, net619.2 630.0 
Goodwill2,012.5 2,038.7 
Pension surplus8.4 8.6 
Intangible assets, net1,347.0 1,386.1 
Right-of-use assets120.9 120.1 
Taxes receivable18.3 18.5 
Deferred income taxes607.4 622.4 
Other non-current assets25.1 28.8 
Total assets$7,045.9 $7,254.5 
Liabilities and equity
Current liabilities
Debt, current portion$27.9 $36.5 
Trade accounts payable451.4 457.7 
Taxes payable44.9 36.6 
Accrued expenses and other current liabilities223.7 248.5 
Total current liabilities747.9 779.3 
Non-current liabilities
Debt, less current portion2,313.1 2,415.0 
Post-retirement benefit obligations81.6 83.8 
Lease liabilities112.0 110.6 
Taxes payable83.3 79.4 
Deferred income taxes114.3 119.4 
Other non-current liabilities98.3 123.1 
Total liabilities3,550.5 3,710.6 
Commitments and contingencies (Note 18)
Shareholders’ equity
—Shares, par value of $0.01 each - authorized shares: 3,000,000,000; outstanding shares: 261,244,776 (December 30, 2023: authorized shares: 3,000,000,000; outstanding shares: 264,259,788)
2.6 2.6 
—Additional paid-in capital2,590.1 2,583.8 
—Accumulated other comprehensive loss(865.9)(828.5)
—Retained earnings1,451.8 1,462.3 
Total shareholders’ equity3,178.6 3,220.2 
Non-controlling interests316.8 323.7 
Total equity3,495.4 3,543.9 
Total liabilities and equity$7,045.9 $7,254.5 
The accompanying notes form an integral part of these condensed consolidated financial statements.
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Gates Industrial Corporation plc
Unaudited Condensed Consolidated Statements of Cash Flows
Three months ended
(dollars in millions)
March 30,
2024
April 1,
2023
Cash flows from operating activities
Net income$46.1 $30.6 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
54.6 54.5 
Foreign exchange and other non-cash financing (income) expenses(11.1)9.7 
Share-based compensation expense
8.6 9.5 
Decrease in post-employment benefit obligations, net
(2.2)(3.0)
Deferred income taxes
(1.1)(3.1)
Other operating activities
(4.8)1.0 
Changes in operating assets and liabilities:
—Accounts receivable(38.7)(27.7)
—Inventories(36.9)6.5 
—Accounts payable(0.4)(22.6)
—Prepaid expenses and other assets3.7 4.8 
—Taxes payable(2.3)(9.2)
—Other liabilities(36.5)1.5 
Net cash (used in) provided by operating activities(21.0)52.5 
Cash flows from investing activities
Purchases of property, plant and equipment(16.0)(11.8)
Purchases of intangible assets(2.1)(2.8)
Cash paid under company-owned life insurance policies(4.1)(17.0)
Cash received under company-owned life insurance policies2.7 1.5 
Proceeds from the sale of property, plant and equipment 0.2 
Net cash used in investing activities(19.5)(29.9)
Cash flows from financing activities
Issuance of shares 2.5 11.3 
Repurchase of shares(50.3) 
Payments of long-term debt(104.9)(4.9)
Debt issuance costs paid (0.3)
Other financing activities3.8 (8.2)
Net cash used in financing activities(148.9)(2.1)
Effect of exchange rate changes on cash and cash equivalents and restricted cash(8.9)(4.1)
Net (decrease) increase in cash and cash equivalents and restricted cash(198.3)16.4 
Cash and cash equivalents and restricted cash at the beginning of the period724.0 581.4 
Cash and cash equivalents and restricted cash at the end of the period$525.7 $597.8 
Supplemental schedule of cash flow information
Interest paid$45.5 $45.9 
Income taxes paid$36.5 $27.3 
Accrued capital expenditures$1.6 $2.0 
The accompanying notes form an integral part of these condensed consolidated financial statements.
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Gates Industrial Corporation plc
Unaudited Condensed Consolidated Statements of Shareholders’ Equity
Three Months Ended March 30, 2024
(dollars in millions)Share
capital
Additional
paid-in capital
Accumulated
other
comprehensive
loss
Retained
earnings
Total
shareholders’ equity
Non-
controlling
interests
Total
equity 
As of December 30, 2023$2.6 $2,583.8 $(828.5)$1,462.3 $3,220.2 $323.7 $3,543.9 
Net income— — — 40.0 40.0 6.1 46.1 
Other comprehensive income— — (37.4)— (37.4)(13.0)(50.4)
Total comprehensive (loss) income  (37.4)40.0 2.6 (6.9)(4.3)
Other changes in equity:
—Issuance of shares— 2.5 — — 2.5 — 2.5 
—Shares withheld for employee taxes— (2.4)— — (2.4)— (2.4)
—Repurchase and cancellation of shares— — — (50.5)(50.5)— (50.5)
—Share-based compensation— 6.2 — — 6.2  6.2 
As of March 30, 2024$2.6 $2,590.1 $(865.9)$1,451.8 $3,178.6 $316.8 $3,495.4 
Three Months Ended April 1, 2023
(dollars in millions)Share
capital
Additional
paid-in capital
Accumulated
other
comprehensive
loss
Retained
earnings
Total
shareholders’
equity
Non-
controlling
interests
Total
equity
As of December 31, 2022$2.8 $2,542.1 $(917.8)$1,482.9 $3,110.0 $333.6 $3,443.6 
Net income— — — 26.4 26.4 4.2 30.6 
Other comprehensive income— — 60.8 — 60.8 0.8 61.6 
Total comprehensive income  60.8 26.4 87.2 5.0 92.2 
Other changes in equity:
—Issuance of shares— 11.3 — — 11.3 — 11.3 
—Shares withheld for employee taxes— (1.6)— — (1.6)— (1.6)
—Share-based compensation— 8.1 — — 8.1  8.1 
As of April 1, 2023$2.8 $2,559.9 $(857.0)$1,509.3 $3,215.0 $338.6 $3,553.6 

The accompanying notes form an integral part of these condensed consolidated financial statements.
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Gates Industrial Corporation plc
Notes to the Unaudited Condensed Consolidated Financial Statements
1. Introduction
A. Background
Gates Industrial Corporation plc (the “Company”) is a public limited company that was registered in England and Wales on September 25, 2017.
In these condensed consolidated financial statements and related notes, all references to “Gates,” “we,” “us,” and “our” refer, unless the context requires otherwise, to the Company and its consolidated subsidiaries.
B. Accounting periods
The Company prepares its annual consolidated financial statements for the period ending on the Saturday nearest December 31. Accordingly, the condensed consolidated balance sheet is presented as of March 30, 2024 and December 30, 2023 and the related condensed consolidated statements of operations, comprehensive income, cash flows, and shareholders’ equity are presented, where relevant, for the 91 day period from December 31, 2023 to March 30, 2024, with comparative information for the 91 day period from January 1, 2023 to April 1, 2023.
C. Basis of preparation
The condensed consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and are presented in U.S. dollars unless otherwise indicated. The condensed consolidated financial statements and related notes contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the Company’s financial position as of March 30, 2024 and the results of its operations and cash flows for the periods ended March 30, 2024 and April 1, 2023. Interim period results are not necessarily indicative of the results to be expected for the full fiscal year.
The preparation of consolidated financial statements under U.S. GAAP requires us to make assumptions and estimates concerning the future that affect the reported amounts of assets, liabilities, revenue and expenses. Estimates and assumptions are particularly important in accounting for items such as revenue, rebates, impairment of long-lived assets, intangible assets and goodwill, inventory valuation, financial instruments, expected credit losses, product warranties, income taxes and post-retirement benefits. Estimates and assumptions used are based on factors such as historical experience, observance of trends in the industries in which we operate and information available from our customers and other outside sources.
These condensed consolidated financial statements are unaudited and have been prepared on substantially the same basis as Gates’ audited annual consolidated financial statements and related notes for the year ended December 30, 2023. The condensed consolidated balance sheet as of December 30, 2023 has been derived from those audited financial statements.
During 2021, the Company implemented a program with an unrelated third party under which we may periodically sell trade accounts receivable from one of our aftermarket customers with whom we have extended payment terms as part of a commercial agreement. The purpose of using this program is to generally offset the working capital impact resulting from this terms extension. All eligible accounts receivable from this customer are covered by the program, and any factoring is solely at our option. Following the factoring of a qualifying receivable, because we maintain no continuing involvement in the underlying receivable, and collectability risk is fully transferred to the unrelated third party, we account for these transactions as a sale of a financial asset and derecognize the asset. Cash received under the program is classified as operating cash inflows in the consolidated statement of cash flows. As of March 30, 2024, the collection of $119.3 million of our trade accounts receivable had been accelerated under this program, compared to the accelerated collection of $112.4 million as of December 30, 2023. During the three months ended March 30, 2024, we incurred costs in respect of this program of $3.2 million, which are recorded under other (income) expenses. During the three months ended April 1, 2023 we incurred costs in respect of this program of $1.4 million.
These condensed consolidated financial statements should be read in conjunction with the audited annual consolidated financial statements and related notes for the year ended December 30, 2023 included in the Company’s Annual Report on Form 10-K.
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The accounting policies used in preparing these condensed consolidated financial statements are the same as those applied in the prior year.
2. Recent accounting pronouncements not yet adopted
None.
3. Segment information
A. Background
The segment information provided in these condensed consolidated financial statements reflects the information that is used by the chief operating decision maker for the purposes of making decisions about allocating resources and in assessing the performance of each segment. The chief executive officer (“CEO”) of Gates serves as the chief operating decision maker. These decisions are based principally on net sales and Adjusted EBITDA (defined below).
B. Operating segments and segment assets
Gates manufactures a wide range of power transmission and fluid power products and components for a large variety of industrial and automotive applications, both in the aftermarket and first-fit channels, throughout the world.
Our reportable segments are identified on the basis of our primary product lines, as this is the basis on which information is provided to the CEO for the purposes of allocating resources and assessing the performance of Gates’ businesses. Our operating and reporting segments are therefore Power Transmission and Fluid Power.
Segment asset information is not provided to the chief operating decision maker and therefore segment asset information has not been presented. Due to the nature of Gates’ operations, cash generation and profitability are viewed as the key measures rather than an asset-based measure.
C. Segment net sales and disaggregated net sales
Sales between reporting segments and the impact of such sales on Adjusted EBITDA for each segment are not included in internal reports presented to the CEO and have therefore not been included below.
Three months ended
(dollars in millions)
March 30, 2024April 1, 2023
Power Transmission$532.8 $548.1 
Fluid Power329.8 349.6 
Continuing operations$862.6 $897.7 
Our commercial function is organized by region and therefore, in addition to reviewing net sales by our reporting segments, the CEO also reviews net sales information disaggregated by region, including between emerging and developed markets.
The following table summarizes our net sales by key geographic region of origin:
Three months ended March 30, 2024Three months ended April 1, 2023
(dollars in millions)
Power Transmission
Fluid Power
Power Transmission
Fluid Power
U.S.$141.0 $172.0 $144.8 $181.8 
North America, excluding U.S.
63.1 50.5 54.8 51.8 
United Kingdom (“U.K.”)10.6 15.8 10.5 20.4 
EMEA(1), excluding U.K.
153.0 52.0 167.7 53.9 
East Asia and India68.6 19.9 74.0 19.8 
Greater China68.7 10.4 70.0 11.3 
South America27.8 9.2 26.3 10.6 
Net sales$532.8 $329.8 $548.1 $349.6 
(1)    Europe, Middle East and Africa (“EMEA”).
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The following table summarizes our net sales into emerging and developed markets:
Three months ended
(dollars in millions)
March 30, 2024April 1, 2023
Developed$557.0 $581.2 
Emerging305.6 316.5 
Net sales$862.6 $897.7 
D. Measure of segment profit or loss
The CEO uses Adjusted EBITDA, as defined below, to measure the profitability of each segment. Adjusted EBITDA is, therefore, the measure of segment profit or loss presented in Gates’ segment disclosures.
“EBITDA” represents net income from continuing operations for the period before net interest and other (income) expense, income taxes, depreciation and amortization.
Adjusted EBITDA represents EBITDA before certain items that are considered to hinder comparison of the performance of our businesses on a period-over-period basis or with other businesses. During the periods presented, the items excluded from EBITDA in computing Adjusted EBITDA primarily included:
non-cash charges in relation to share-based compensation;
transaction-related expenses incurred in relation to major corporate transactions, including the acquisition of businesses and related integration activities, and equity and debt transactions;
restructuring expenses, including severance-related expenses;
credit loss related to a customer bankruptcy;
cybersecurity incident expenses; and
inventory adjustments related to certain inventories accounted for on a Last-in First-out (“LIFO”) basis.
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Adjusted EBITDA by segment was as follows:
Three months ended
(dollars in millions)
March 30, 2024April 1, 2023
Power Transmission$119.0 $107.7 
Fluid Power 76.6 66.8 
Continuing operations$195.6 $174.5 
Reconciliation of net income from continuing operations to Adjusted EBITDA:
Three months ended
(dollars in millions)
March 30, 2024April 1, 2023
Net income from continuing operations$46.2 $30.9 
Income tax expense34.5 15.3 
Income from continuing operations before taxes80.7 46.2 
Interest expense37.5 40.8 
Other (income) expenses(1.5)0.3 
Operating income from continuing operations116.7 87.3 
Depreciation and amortization54.6 54.5 
Transaction-related expenses (1)
0.4 0.2 
Restructuring expenses1.2 5.5 
Share-based compensation expense8.6 9.5 
Inventory impairments and adjustments (included in cost of sales) (2)
13.9 0.6 
Severance expenses (included in cost of sales) 0.5 
Severance expenses (included in SG&A)0.1 0.6 
Credit loss related to customer bankruptcy (included in SG&A) (3)
0.1 10.7 
Cybersecurity incident expenses (4)
 5.1 
Adjusted EBITDA$195.6 $174.5 
(1)    Transaction-related expenses relate primarily to advisory fees and other costs recognized in respect of major corporate transactions, including the acquisition of businesses, and equity and debt transactions.
(2)    Inventory impairments and adjustments include the reversal of the adjustment to remeasure certain inventories on a LIFO basis.
(3)    On January 31, 2023, one of our customers filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. In connection with the bankruptcy proceedings, we preliminarily evaluated our potential risk and exposure relating to our outstanding pre-petition accounts receivable balance from the customer and recorded an initial pre-tax charge to reflect our estimated recovery. Based on further developments in the bankruptcy proceedings, we recorded an additional $0.1 million pre-tax charge during the three months ended March 30, 2024. We will continue to monitor the circumstances surrounding the bankruptcy in determining whether adjustments to this recovery estimate are necessary.
(4)    On February 11, 2023, Gates determined that it was the target of a malware attack. Cybersecurity incident expenses include legal, consulting, and other costs incurred as a direct result of this incident, some of which may be partially offset by insurance recoveries.
4. Restructuring and other strategic initiatives
Gates continues to undertake various restructuring and other strategic initiatives to drive increased productivity in all aspects of our operations. These actions include efforts to consolidate our manufacturing and distribution footprint, scale operations to current demand levels, streamline our selling, general and administrative (“SG&A”) back-office functions and relocate certain operations to lower cost locations.
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Overall costs associated with our restructuring and other strategic initiatives have been recognized in the condensed consolidated statements as set forth below. Expenses incurred in relation to certain of these actions qualify as restructuring expenses under U.S. GAAP.
Three months ended
(dollars in millions)
March 30,
2024
April 1,
2023
Restructuring expenses:
—Severance (income) expense$(0.6)$4.1 
—Non-severance labor and benefit expenses 0.3 
—Consulting expenses1.0 0.5 
—Other net restructuring expenses 0.8 0.6 
Total restructuring expenses$1.2 $5.5 
Expenses related to other strategic initiatives:
—Severance expenses included in cost of sales$ $0.5 
—Severance expenses included in SG&A0.1 0.6 
Total expenses related to other strategic initiatives$0.1 $1.1 
Restructuring and other strategic initiatives during the three months ended March 30, 2024 related to legal and consulting expenses, relocation of certain production activities in Mexico, and other restructuring costs associated with prior period facility closures or relocations in several countries.
Restructuring and other strategic initiatives during the three months ended April 1, 2023 related primarily to severance and other non-labor costs related to relocating certain production activities in China, Mexico and Europe.
Restructuring activities
As indicated above, restructuring expenses, as defined under U.S. GAAP, form a subset of our total expenses related to restructuring and other strategic initiatives. These expenses include the impairment of inventory, which is recognized in cost of sales. Analyzed by segment, our restructuring expenses were as follows:
Three months ended
(dollars in millions)
March 30,
2024
April 1,
2023
Power Transmission$0.3 $4.7 
Fluid Power0.9 0.8 
Continuing operations$1.2 $5.5 
The following summarizes the reserve for restructuring expenses for the three months ended March 30, 2024 and April 1, 2023, respectively:
Three months ended
(dollars in millions)
March 30,
2024
April 1,
2023
Balance as of the beginning of the period$5.1 $7.5 
Utilized during the period(2.7)(6.7)
Charge for the period1.9 5.6 
Released during the period(0.7)(0.1)
Foreign currency translation(0.1) 
Balance as of the end of the period$3.5 $6.3 
Restructuring reserves, which are expected to be utilized during 2024, are included in the condensed consolidated balance sheet within the accrued expenses and other current liabilities line.
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5. Income taxes
We compute the year-to-date income tax provision by applying our estimated annual effective tax rate to our year-to-date pre-tax income and adjust for discrete tax items in the period in which they occur.
For the three months ended March 30, 2024, we had an income tax expense of $34.5 million on pre-tax income of $80.7 million, which resulted in an effective tax rate of 42.8%, compared to an income tax expense of $15.3 million on pre-tax income of $46.2 million, which resulted in an effective tax rate of 33.1% for the three months ended April 1, 2023.
For the three months ended March 30, 2024, the effective tax rate was driven primarily by the jurisdictional mix of earnings and by discrete tax expenses of $11.7 million, of which $9.1 million related to changes in the realizability of certain deferred tax assets, $1.4 million related to net unrecognized tax benefits, and $1.2 million related to other net discrete expenses. For the three months ended April 1, 2023, the effective tax rate was driven primarily by discrete tax expenses of $6.4 million, of which $2.6 million related to the impacts of tax law changes primarily in Turkey and Belgium, $1.9 million related to undistributed foreign earnings, and $2.9 million related to other net discrete expenses, partially offset by $1.0 million of net unrecognized tax benefits.
Deferred Tax Assets and Liabilities
We recognize deferred tax assets and liabilities for future tax consequences arising from differences between the carrying amounts of existing assets and liabilities under U.S. GAAP and their respective tax bases, and for net operating loss carryforwards and tax credit carryforwards. We evaluate the recoverability of our deferred tax assets, weighing all positive and negative evidence, and are required to establish or maintain a valuation allowance for these assets if we determine that it is more likely than not that some or all of the deferred tax assets will not be realized.
As of each reporting date, we consider new evidence, both positive and negative, that could impact our view with regard to the future realization of deferred tax assets. We maintain our positions with regard to future realization of deferred tax assets, including those with respect to which we continue maintaining valuation allowances, until there is sufficient new evidence to support a change in expectations. Such a change in expectations could arise due to many factors, including those impacting our forecasts of future earnings, as well as changes in the international tax laws under which we operate and tax planning. It is not reasonably possible to forecast any such changes at the present time, but it is possible that, should they arise, our view of their effect on the future realization of deferred tax assets may materially impact our financial statements.
After weighing all of the evidence, giving more weight to the evidence that was objectively verifiable, we determined that, as of March 30, 2024, it is more likely than not that deferred tax assets in the U.S, Germany, and China totaling $12.3 million are not realizable. Accordingly, we discretely recognized $9.1 million expense from deferred tax assets that are no longer realizable, while the remaining $3.2 million expense will be recognized during the year through the effective tax rate. As a result of changes in our Sponsor’s ownership in us and estimates of future taxable profits against which net operating losses and foreign tax credits can be utilized, our position and judgment regarding the realizability of these deferred tax assets changed.
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6. Earnings per share
Basic earnings per share represents net income attributable to shareholders divided by the weighted average number of shares outstanding during the period. Diluted earnings per share considers the dilutive effect of potential shares, unless the inclusion of the potential shares would have an anti-dilutive effect. The treasury stock method is used to determine the potential dilutive shares resulting from assumed exercises of equity-related instruments.
The computation of earnings per share is presented below:
Three months ended
(dollars in millions, except share numbers and per share amounts)
March 30,
2024
April 1,
2023
Net income attributable to shareholders
$40.0 $26.4 
Weighted average number of shares outstanding
262,674,227 283,520,302 
Dilutive effect of share-based awards
4,761,304 4,358,113 
Diluted weighted average number of shares outstanding
267,435,531 287,878,415 
Number of anti-dilutive shares excluded from diluted earnings per share calculation4,034,246 4,544,378 
Basic earnings per share
$0.15 $0.09 
Diluted earnings per share
$0.15 $0.09 

7. Inventories
(dollars in millions)
As of
March 30, 2024
As of
December 30, 2023
Raw materials and supplies$187.3 $168.2 
Work in progress50.1 43.3 
Finished goods439.8 435.7 
Total inventories$677.2 $647.2 

8. Goodwill
(dollars in millions)
Power
Transmission
Fluid
Power
Total
Cost and carrying amount
As of December 30, 2023$1,338.5 $700.2 $2,038.7 
Foreign currency translation(23.9)(2.3)(26.2)
As of March 30, 2024$1,314.6 $697.9 $2,012.5 

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9. Intangible assets
As of March 30, 2024As of December 30, 2023
(dollars in millions)
CostAccumulated
amortization and
impairment
NetCostAccumulated
amortization and
impairment
Net
Finite-lived:
—Customer relationships$1,983.8 $(1,145.9)$837.9 $2,003.6 $(1,127.7)$875.9 
—Technology90.5 (90.4)0.1 90.6 (90.3)0.3 
—Capitalized software 118.8 (79.2)39.6 117.3 (76.8)40.5 
2,193.1 (1,315.5)877.6 2,211.5 (1,294.8)916.7 
Indefinite-lived:
—Brands and trade names513.4 (44.0)469.4 513.4 (44.0)469.4 
Total intangible assets$2,706.5 $(1,359.5)$1,347.0 $2,724.9 $(1,338.8)$1,386.1 
During the three months ended March 30, 2024, the amortization expense recognized in respect of intangible assets was $32.5 million, compared to $32.1 million for the three months ended April 1, 2023. In addition, movements in foreign currency exchange rates resulted in a decrease in the net carrying value of total intangible assets of $8.8 million for the three months ended March 30, 2024, compared to an increase of $9.2 million for the three months ended April 1, 2023.
10. Derivative financial instruments
We are exposed to certain financial risks relating to our ongoing business operations. From time to time, we use derivative financial instruments, principally foreign currency swaps, forward foreign currency contracts, interest rate caps (options) and interest rate swaps, to reduce our exposure to foreign currency risk and interest rate risk. We do not hold or issue derivatives for speculative purposes and monitor closely the credit quality of the institutions with which we transact.
We recognize derivative instruments as either assets or liabilities in the condensed consolidated balance sheet. We designate certain of our currency swaps as net investment hedges and designate our interest rate caps and interest rate swaps as cash flow hedges. The gain or loss on the designated derivative instrument is recognized in other comprehensive income (“OCI”) and reclassified into net income in the same period or periods during which the hedged transaction affects earnings.
Derivative instruments that have not been designated in an effective hedging relationship are considered economic hedges, and their change in fair value is recognized in net income in each period.
The period end fair values of derivative financial instruments were as follows:
As of March 30, 2024As of December 30, 2023
(dollars in millions)
Prepaid expenses and other assetsOther non-
current
assets
Accrued expenses and other
current
liabilities
Other
non-
current
liabilities
NetPrepaid expenses and other assetsOther non-
current
assets
Accrued expenses and other
current
liabilities
Other 
non-
current
liabilities
Net
Derivatives designated as hedging instruments:
—Currency swaps
$9.9 $ $ $(60.1)$(50.2)$8.5 $ $ $(77.7)$(69.2)
—Interest rate swaps
32.4 8.6 (10.0)(5.8)25.2 29.9 11.8 (9.9)(13.6)18.2 
Derivatives not designated as hedging instruments:
—Currency forward contracts
2.7  (0.6) 2.1 3.9  (1.8) 2.1 
$45.0 $8.6 $(10.6)$(65.9)$(22.9)$42.3 $11.8 $(11.7)$(91.3)$(48.9)
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A. Instruments designated as net investment hedges
We hold cross currency swaps that have been designated as net investment hedges of certain of our European and Chinese operations. In November 2023, we executed a USD to Chinese Yuan fixed-to-fixed cross currency swap with a notional principal amount of ¥1,784.0 million with a contract term from November 30, 2023 to November 30, 2026. This has been designated as a net investment hedge of certain of our Chinese operations. In May 2023, we amended our existing cross currency swaps to transition from a floating rate based on the London Interbank Offered Rate (“LIBOR”) to a floating rate based on a term secured overnight financing rate (“Term SOFR”). During November 2022, we executed additional cross currency swaps that have been designated as net investment hedges of certain of our European operations, with the notional principal amount of €501.6 million and contract term from November 16, 2022 to November 16, 2027. During March 2022, we extended our cross currency swaps existing at that time, which originally matured in March 2022, to now mature on March 31, 2027. As of both March 30, 2024 and December 30, 2023, the aggregated notional principal amounts of the cross currency swaps were €756.1 million and ¥1,784.0 million.
The fair value gain (loss) before tax recognized in OCI in relation to the instruments designated as net investment hedging instruments were as follows:
Three months ended
(dollars in millions)
March 30, 2024April 1, 2023
Net fair value gain (loss) recognized in OCI in relation to:
—Designated cross currency swaps$19.0 $(12.2)
Total net fair value gain (loss)$19.0 $(12.2)
During the three months ended March 30, 2024, a net gain of $3.2 million was recognized in interest expense in relation to our cross currency swaps that have been designated as net investment hedges, compared to a net gain of $3.0 million during the three months ended April 1, 2023.
B. Instruments designated as cash flow hedges
We use interest rate swaps and interest rate caps as part of our interest rate risk management strategy to add stability to interest expense and to manage our exposure to interest rate movements. These instruments are all designated as cash flow hedges. As of both March 30, 2024 and December 30, 2023, we held pay-fixed, receive-floating interest rate swaps with an aggregate notional amount of $1,255.0 million. Interest rate swaps with a notional amount of $870.0 million have a contract term from June 30, 2020 through June 30, 2025, while interest rate swaps with a notional amount of $385.0 million have a contract term from November 16, 2022 to November 16, 2027.
The movements before tax recognized in OCI in relation to our cash flow hedges were as follows:
Three months ended
(dollars in millions)
March 30, 2024April 1, 2023
Movement recognized in OCI in relation to:
—Fair value gain (loss) on cash flow hedges$13.6 $(10.0)
—Amortization to net income of prior period fair value losses 4.5 
—Reclassification from OCI to net income(9.0)(6.9)
Total movement$4.6 $(12.4)
C. Derivative instruments not designated as hedging instruments
We do not designate our currency forward contracts, which are used primarily in respect of operational currency exposures related to payables, receivables and material procurement, or the currency swap contracts that are used to manage the currency profile of Gates’ cash, as hedging instruments for the purposes of hedge accounting.
As of March 30, 2024 and December 30, 2023, there were no outstanding currency swaps.
As of March 30, 2024, the notional amount of outstanding currency forward contracts that are used to manage operational foreign exchange exposures was $164.1 million, compared to $140.8 million as of December 30, 2023.
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The fair value gain recognized in net income in relation to derivative instruments that have not been designated as hedging instruments were as follows:
Three months ended
(dollars in millions)
March 30, 2024April 1, 2023
Fair value gain recognized in relation to:
—Currency forward contracts recognized in SG&A$2.1 $1.2 
Total$2.1 $1.2 

11. Fair value measurement
A. Fair value hierarchy
We account for certain assets and liabilities at fair value. Topic 820 “Fair Value Measurements and Disclosures” establishes the following hierarchy for the inputs that are used in fair value measurement:
“Level 1” inputs are unadjusted quoted prices in active markets for identical assets or liabilities;
“Level 2” inputs are those other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
“Level 3” inputs are not based on observable market data (unobservable inputs).
Assets and liabilities that are measured at fair value are categorized in one of the three levels on the basis of the lowest-level input that is significant to its valuation.
B. Financial instruments not held at fair value
Certain financial assets and liabilities are not measured at fair value; however, items such as cash and cash equivalents, restricted cash, drawings under revolving credit facilities and bank overdrafts generally attract interest at floating rates and accordingly their carrying amounts are considered to approximate fair value. Due to their short maturities, the carrying amounts of accounts receivable and accounts payable are also considered to approximate their fair values.
The carrying amount and fair value of our debt are set out below:
As of March 30, 2024As of December 30, 2023
(dollars in millions)
Carrying 
amount
Fair value
Carrying 
amount
Fair value
Current$27.9 $27.8 $36.5 $36.5 
Non-current2,313.1 2,340.0 2,415.0 2,444.7 
$2,341.0 $2,367.8 $2,451.5 $2,481.2 
Debt is comprised principally of borrowings under the secured credit facilities and the unsecured senior notes. The two dollar term loans under the secured credit facilities pay interest at floating rates, subject to a 0.75% and 0.50% Term SOFR floor as further described in Note 12. The fair values of the term loans are derived from a market price, discounted for illiquidity. The unsecured senior notes have fixed interest rates, are traded by “Qualified Institutional Buyers” and certain other eligible investors, and their fair value is derived from their quoted market price.
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C. Assets and liabilities measured at fair value on a recurring basis
The following table categorizes the assets and liabilities that are measured at fair value on a recurring basis:
(dollars in millions)
Quoted prices in active
markets (Level 1)
Significant observable
inputs (Level 2)
Total
As of March 30, 2024
Derivative assets$ $53.6 $53.6 
Derivative liabilities$ $(76.5)$(76.5)
Cash equivalents$21.3 $34.0 $55.3 
As of December 30, 2023
Derivative assets$ $54.1 $54.1 
Derivative liabilities$ $(103.0)$(103.0)
Cash equivalents$76.2 $52.8 $129.0 
Derivative assets and liabilities included in Level 2 represent foreign currency exchange forward and swap contracts, and interest rate derivative contracts. Cash equivalents included in Level 1 represent treasury bills and money market funds, while Level 2 represent certificates of deposit and commercial paper.
We value our foreign currency exchange derivatives using models consistent with those used by a market participant that maximize the use of market observable inputs including forward prices for currencies.
We value our interest rate derivative contracts using a widely accepted discounted cash flow valuation methodology that reflects the contractual terms of each derivative, including the period to maturity. The methodology derives the fair values of the derivatives using the market standard methodology of netting the discounted future cash payments and the discounted expected receipts. The inputs used in the calculation are based on observable market-based inputs, including interest rate curves, implied volatilities and credit spreads.
We incorporate credit valuation adjustments, which consider the impact of any credit enhancements to the contracts, to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements.
Transfers between levels of the fair value hierarchy
During the periods presented, there were no transfers between Levels 1 and 2, and Gates had no assets or liabilities measured at fair value on a recurring basis using Level 3 inputs.
D. Assets measured at fair value on a non-recurring basis
Gates has non-recurring fair value measurements related to certain assets, including goodwill, intangible assets, and property, plant, and equipment. No significant impairment was recognized during the three months ended March 30, 2024.
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12. Debt
(dollars in millions)
As of
March 30, 2024
As of
December 30, 2023
Secured debt:
—Dollar Term Loans$1,799.0 $1,903.9 
Unsecured debt:
6.25% Dollar Senior Notes due 2026
568.0 568.0 
Total principal of debt2,367.0 2,471.9 
Deferred issuance costs(34.4)(37.4)
Accrued interest8.4 17.0 
Total carrying value of debt2,341.0 2,451.5 
Debt, current portion27.9 36.5 
Debt, less current portion$2,313.1 $2,415.0 
Gates’ secured debt is jointly and severally, irrevocably and fully and unconditionally guaranteed by certain of its subsidiaries and is secured by liens on substantially all of their assets.
Gates is subject to covenants, representations and warranties under certain of its debt facilities. During the periods covered by these condensed consolidated financial statements, we were in compliance with the applicable financial covenants. Also under the agreements governing our debt facilities, our ability to engage in activities such as incurring certain additional indebtedness, making certain investments and paying certain dividends is dependent, in part, on our ability to satisfy tests based on measures determined under those agreements.
Debt issuances and redemptions
During February 2024, we made a voluntary principal debt repayment of $100.0 million against our Existing Dollar Term Loans (as defined below). As a result of this repayment, we accelerated the recognition of $1.0 million of deferred issuance costs (recognized in interest expense).
During May 2023, we drew $100.0 million under our asset-backed revolving credit facility to partially fund the purchase of shares under our 2023 share repurchase program. During Fiscal 2023, we paid down the borrowings on the asset-backed revolver and had no outstanding borrowings as of March 30, 2024 and December 30, 2023.
Dollar Term Loans
Our secured credit facilities consist of two loans (collectively, the “Dollar Term Loans”), one of which was originally drawn on July 3, 2014 and refinanced on February 24, 2021 (the “Existing Dollar Term Loans”), and a new $575.0 million tranche of dollar denominated term loans (the “New Dollar Term Loans”) drawn on November 16, 2022. These term loan facilities bear interest at a floating rate, which for U.S. dollar debt can be either a base rate as defined in the credit agreement plus an applicable margin, or at our option, Term SOFR plus an applicable margin. The Existing Dollar Term Loans mature on March 31, 2027, while the New Dollar Term Loans mature on November 16, 2029.
The Existing Dollar Term Loans’ interest rate is currently Adjusted Term SOFR, subject to a floor of 0.75%, plus a margin of 2.60%, and as of March 30, 2024, borrowings under this facility bore interest at a rate of 7.93% per annum. On March 1, 2023, Gates amended the Existing Dollar Term Loans’ reference rate from LIBOR to Term SOFR, with a credit spread adjustment of 0.10%. The Existing Dollar Term Loans interest rate is currently re-set on the last business day of each month based on the election of one month interest periods.
The New Dollar Term Loans’ interest rate is currently Term SOFR, subject to a floor of 0.50%, plus a margin of 3.00%, and as of March 30, 2024, borrowings under this facility bore interest at a rate of 8.33% per annum. The New Dollar Term Loans’ interest rate is currently re-set on the last business day of each month based on the election of one month interest periods. On October 10, 2023, we amended the New Dollar Term Loans’ interest rate to be, at our option, either Term SOFR, subject to a floor of 0.50%, plus a margin of 3.00% per annum, or the base rate, subject to a 1.50% per annum floor, plus 2.00% per annum
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Both Dollar Term Loans are subject to quarterly amortization payments of 0.25%, based on the original principal amount less certain repayments with the balance payable on maturity. During the three months ended March 30, 2024, we made amortization payments against the Existing Dollar Term Loans and New Dollar Term Loans of $3.5 million and $1.4 million, respectively.
Under the terms of the credit agreement, we are obliged to offer annually to the term loan lenders an “excess cash flow” amount as defined under the agreement, based on the preceding year’s final results. Based on our 2023 results, the leverage ratio as defined under the credit agreement was below the threshold above which payments are required, and therefore no excess cash flow payment is required to be made in 2024.
A wholly-owned U.S. subsidiary of Gates Global LLC is the principal obligor under the Dollar Term Loans for U.S. federal income tax purposes and makes the payments due on this tranche of debt. As a result, interest received by lenders of this tranche of debt is U.S. source income.
Unsecured Senior Notes
As of March 30, 2024, we had $568.0 million of Dollar Senior Notes outstanding that were issued in November 2019. These notes are scheduled to mature on January 15, 2026 and bear interest at an annual fixed rate of 6.25% with semi-annual interest payments.
As of January 15, 2024, we may redeem the Dollar Senior Notes, at our option, in whole at any time or in part from time to time, at 100% of the principal amount, plus accrued and unpaid interest to the redemption date. Upon the occurrence of a change of control or a certain qualifying asset sale, the holders of the notes will have the right to require us to make an offer to repurchase each holder's notes at a price equal to 101% (in the case of a change of control) or 100% (in the case of an asset sale) of their principal amount, plus accrued and unpaid interest.
Revolving credit facility
We have a secured revolving credit facility that provides for multi-currency revolving loans. On November 18, 2021, we amended the credit agreement governing this facility to, among other things, increase the size of the facility from $185.0 million to $250.0 million, extend the maturity date from January 29, 2023 to November 18, 2026 (subject to certain springing maturities related to our Unsecured Senior Notes if more than $500.0 million is outstanding 91 days prior to its maturity), and increase the letter of credit sub-facility from $20.0 million to $75.0 million.
As of both March 30, 2024 and December 30, 2023, there were no drawings for cash under the revolving credit facility and there were no letters of credit outstanding.
Debt under the revolving credit facility bears interest at a floating rate, which can be either a base rate as defined in the credit agreement plus an applicable margin or, at our option, the reference rate, plus an applicable margin. On March 1, 2023, Gates amended the secured revolving credit facility reference rate for borrowing in dollars from LIBOR to Term SOFR.
Asset-backed revolver
We also have a revolving credit facility backed by certain of our assets in North America. On November 18, 2021, we amended the credit agreement governing this facility to, among other things, reduce the maximum facility size from $325.0 million to $250.0 million ($250.0 million as of March 30, 2024 and December 30, 2023, based on the values of the secured assets on those dates), and extended the maturity date from January 29, 2023 to November 18, 2026 (subject to certain springing maturities related to our Unsecured Senior Notes if more than $500.0 million is outstanding 91 days prior to its maturity). The facility also allows for a letter of credit sub-facility of $150.0 million within the $250.0 million maximum.
As of March 30, 2024, there were no drawings for cash under this facility. The letters of credit outstanding under this facility were $28.6 million and $29.7 million as of March 30, 2024 and December 30, 2023, respectively.
Debt under the revolving credit facility bears interest at a floating rate, which can be either a base rate as defined in the credit agreement plus an applicable margin or, at our option, the reference rate, plus an applicable margin. On March 1, 2023, Gates amended our revolving credit facility reference rate for borrowing in dollars from LIBOR to Term SOFR.
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13. Post-retirement benefits
Gates provides defined benefit pension plans in certain of the countries in which it operates, in particular, in the U.S. and U.K. All of the defined benefit pension plans are closed to new entrants. In addition to the funded defined benefit pension plans, Gates has unfunded defined benefit obligations to certain current and former employees.
Gates also provides other post-retirement benefits, principally health and life insurance coverage, on an unfunded basis to certain of its employees in the U.S. and Canada.
Net periodic benefit cost
The components of the net periodic benefit cost for pensions and other post-retirement benefits were as follows:
Three Months Ended March 30, 2024Three Months Ended April 1, 2023
(dollars in millions)
Pensions
Other post-retirement benefits
Total
Pensions
Other post-retirement benefits
Total
Reported in operating income:
—Employer service cost$1.0 $ $1.0 $1.0 $ $1.0 
Reported outside of operating income:
—Interest cost6.1 0.3 6.4 6.2 0.4 6.6 
—Expected return on plan assets(6.5) (6.5)(6.4) (6.4)
—Net amortization of prior period losses (gains)0.2 (0.8)(0.6) (0.9)(0.9)
Net periodic benefit cost$0.8 $(0.5)$0.3 $0.8 $(0.5)$0.3 
Cash Contributions$1.6 $1.0 $2.6 $2.1 $1.1 $3.2 
The components of the above net periodic benefit cost for pensions and other post-retirement benefits that are reported outside of operating income are all included in the other (income) expense line in the condensed consolidated statement of operations.
For 2024 as a whole, we expect to contribute approximately $7.3 million to our defined benefit pension plans and approximately $3.0 million to our other post-retirement benefit plans.
14. Share-based compensation
The Company operates a share-based incentive plan over its shares to provide incentives to Gates’ senior executives and other eligible employees. During the three months ended March 30, 2024, we recognized a charge of $8.6 million, compared to $9.5 million in the three months ended April 1, 2023.
Awards issued under the 2014 Omaha Topco Ltd. Stock Incentive Plan (the “2014 Plan”)
Gates has a number of share-based incentive awards issued under the 2014 Plan, which was assumed by the Company and renamed the Gates Industrial Corporation plc Stock Incentive Plan in connection with our initial public offering in January 2018 (our “IPO”). No new awards have been granted under this plan since 2017. The options granted prior to our IPO were split equally into four tiers, each with specific vesting conditions. Tier I options vest evenly over 5 years from the grant date, subject to the participant continuing to provide service to Gates on the vesting date. Tier II, III and IV options vest on achievement of specified investment returns by certain investment funds affiliated with Blackstone Inc. (“Blackstone” or our “Sponsor”) at the time of a defined liquidity event, which is also subject to the participant’s continued provision of service to Gates on the vesting date. The performance conditions associated with Tiers II, III and IV must have been achieved on or prior to July 3, 2022 in order for vesting to occur. All the options expire ten years after the date of grant.
During March 2022, a liquidity event as defined occurred following the sale by Blackstone of a certain portion of their interest in Gates and the Tier II and IV options vested as the specified investment returns related to these options had been met. On July 3, 2022, the performance period for the Tier III options expired and, as the specified investment returns were not achieved, all Tier III awards expired during Fiscal 2022.
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Due to Chinese regulatory restrictions on foreign stock ownership, awards granted under this plan to Chinese employees have been issued as stock appreciation rights (“SARs”). The terms of these SARs are identical to those of the options described above with the exception that no share is issued on exercise; instead, cash equivalent to the increase in the value of the shares from the date of grant to the date of exercise is paid to the employee. These awards are therefore treated as liability awards under Topic 718 “Compensation - Stock Compensation” and are revalued to their fair value at each period end. The SARs include option awards with the same vesting terms as the Tier II, III and IV option awards described above, and, due to the vesting event described above. All Tier III SARs expired on July 3, 2022 as the specific performance hurdle was not achieved.
Changes in the awards granted under this plan are summarized in the tables below.
Awards issued under the Gates Industrial Corporation plc 2018 Omnibus Incentive Plan (the “2018 Plan”)
In conjunction with the initial public offering in January 2018, Gates adopted the 2018 Plan, which is a market-based long-term incentive program that allows for the issue of a variety of equity-based and cash-based awards, including stock options, SARs and restricted stock units (“RSUs”).
The SARs issued under this plan take the form of options, except that no share is issued on exercise; instead, cash equivalent to the increase in the value of the shares from the date of grant to the date of exercise is paid to the employee. These awards are therefore treated as liability awards under Topic 718 “Compensation - Stock Compensation” and are revalued to their fair value at each period end. The SARs and the majority of the share options issued under this plan vest evenly over either three years or four years from the grant date. The remainder of the options, the premium-priced options, vest evenly over a three-year period, starting two years from the grant date. All options vest subject to the participant’s continued employment by Gates on the vesting date and expire ten years after the date of grant.
The RSUs issued under the plan consist of time-vesting RSUs and performance-based RSUs (“PRSUs”). The time-vesting RSUs vest evenly over either one or three years from the date of grant, subject to the participant’s continued provision of service to Gates on the vesting date. The PRSUs issued prior to 2022 provide that 50% of the award will generally vest if Gates achieves a certain level of average annual adjusted return on invested capital as defined in the plan (“Adjusted ROIC”) and the remaining 50% of the PRSUs will generally vest if Gates achieves certain relative total shareholder return (“Relative TSR”) goals, in each case, measured over a three-year performance period and subject to the participant’s continued employment through the end of the performance period. The total number of PRSUs that vest at the end of the performance period will range from 0% to 200% of the target based on actual performance against a pre-established scale. Starting in Fiscal 2022, the terms for PRSUs are identical, except that 75% of the award will generally vest based on the specified Adjusted ROIC achievement and the remaining 25% will generally vest based on Relative TSR goal attainment.
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New awards and movements in existing awards granted under this plan are summarized in the tables below.
Summary of movements in options outstanding
Three Months Ended March 30, 2024
PlanNumber of
options
Weighted average exercise price
$
Outstanding at the beginning of the period:
—Tier I2014 Plan1,828,327 $6.98 
—Tier II2014 Plan1,996,017 $7.01 
—Tier IV2014 Plan1,986,416 $10.52 
—SARsBoth plans735,221 $10.47 
—Share options2018 Plan2,345,520 $14.90 
—Premium-priced options2018 Plan835,469 $18.88 
9,726,970 $10.90 
Granted during the period:
—SARs2018 Plan22,100 $14.87 
22,100 $14.87 
Forfeited during the period:
—SARs2018 Plan(3,001)$13.40 
(3,001)$13.40 
Expired during the period:
—Share options2018 Plan(15,000)$14.99 
(15,000)$14.99 
Exercised during the period:
—Tier I2014 Plan(95,237)$6.80 
—Tier II2014 Plan(84,642)$6.88 
—Tier IV2014 Plan(71,783)$10.32 
—SARsBoth Plans(134,766)$9.23 
—Share options2018 Plan(37,081)$14.05 
(423,509)$8.82 
Outstanding at the end of the period:
—Tier I2014 Plan1,733,090 $6.99 
—Tier II2014 Plan1,911,375 $7.02 
—Tier IV2014 Plan1,914,633 $10.53 
—SARsBoth plans619,554 $10.88 
—Share options2018 Plan2,293,439 $14.91 
—Premium-priced options2018 Plan835,469 $18.88 
9,307,560 $11.00 
Exercisable at the end of the period9,215,590 $10.96 
Vested and expected to vest at the end of the period9,295,189