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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 September 30, 2023
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 filer☒Accelerated filer☐
Non-accelerated filer☐Smaller 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 October 31, 2023, there were 264,108,781 ordinary shares of $0.01 par value outstanding.



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 31, 2022 (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; evolving corporate governance and public disclosure regulations and expectations could expose us to numerous risks; 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.

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; and
•“Blackstone” or “our Sponsor” refer to investment funds affiliated with Blackstone Inc., which together own approximately 43.0% of our outstanding ordinary shares as of September 30, 2023.

PART I — FINANCIAL INFORMATION
Item 1: Financial Statements (unaudited)
Gates Industrial Corporation plc
Unaudited Condensed Consolidated Statements of Operations
Three months endedNine months ended
(dollars in millions, except per share amounts)
September 30,
2023		October 1,
2022		September 30,
2023		October 1,
2022
Net sales$872.9 $860.7 $2,706.9 $2,660.9 
Cost of sales529.5 551.2 1,685.7 1,720.3 
Gross profit343.4 309.5 1,021.2 940.6 
Selling, general and administrative expenses213.4 199.7 666.2 644.0 
Transaction-related expenses1.3 0.7 2.1 2.0 
Asset impairments0.1 0.5 0.1 1.1 
Restructuring expenses2.6 4.7 10.3 8.4 
Other operating expense0.1 0.1 0.2 0.2 
Operating income from continuing operations125.9 103.8 342.3 284.9 
Interest expense39.5 33.3 124.8 98.9 
Other (income) expense(0.2)3.1 3.8 11.8 
Income from continuing operations before taxes86.6 67.4 213.7 174.2 
Income tax expense1.0 11.4 25.9 21.5 
Net income from continuing operations85.6 56.0 187.8 152.7 
Loss on disposal of discontinued operations, net of tax, respectively, of $0, $0, $0, and $0
0.1 — 0.5 0.3 
Net income85.5 56.0 187.3 152.4 
Less: non-controlling interests6.8 4.1 17.3 16.5 
Net income attributable to shareholders$78.7 $51.9 $170.0 $135.9 
Earnings per share
Basic
Earnings per share from continuing operations$0.30 $0.18 $0.62 $0.48 
Earnings per share from discontinued operations— — — — 
Earnings per share$0.30 $0.18 $0.62 $0.48 
Diluted
Earnings per share from continuing operations$0.29 $0.18 $0.61 $0.47 
Earnings per share from discontinued operations— — — — 
Earnings per share$0.29 $0.18 $0.61 $0.47 
The accompanying notes form an integral part of these condensed consolidated financial statements.
1
Gates Industrial Corporation plc
Unaudited Condensed Consolidated Statements of Comprehensive Income
Three months endedNine months ended
(dollars in millions)
September 30,
2023		October 1,
2022		September 30,
2023		October 1,
2022
Net income$85.5 $56.0 $187.3 $152.4 
Other comprehensive (loss) income
Foreign currency translation:
—Net translation loss on foreign operations, net of tax benefit (expense), respectively, of $4.0, $0.2, $1.8 and $(0.8)
(87.7)(149.6)(5.4)(341.4)
—Gain on net investment hedges, net of tax (expense) benefit, respectively, of $(3.7), $(0.1), $0.1 and $0.8
20.2 16.7 1.9 49.8 
Total foreign currency translation movements(67.5)(132.9)(3.5)(291.6)
Cash flow hedges (interest rate derivatives):
— Gain arising in the period, net of tax expense, respectively, of $(2.9), $(6.8), $(6.3) and $(15.6)
8.5 20.1 18.7 46.9 
—Reclassification to net income, net of tax benefit (expense), respectively, of $2.2, $(0.7), $3.8 and $(3.5)
(6.7)2.3 (11.3)10.5 
Total cash flow hedges movements1.8 22.4 7.4 57.4 
Post-retirement benefits:
—Reclassification of prior year actuarial movements to net income, net of tax benefit, respectively, of $0.3, $0.1, $0.7 and $0.2
(0.6)(0.1)(1.9)(0.5)
Total post-retirement benefits movements(0.6)(0.1)(1.9)(0.5)
Other comprehensive (loss) income(66.3)(110.6)2.0 (234.7)
Comprehensive income (loss) for the period$19.2 $(54.6)$189.3 $(82.3)
Comprehensive income (loss) attributable to shareholders:
—Income (loss) arising from continuing operations$18.3 $(31.1)$201.9 $(36.4)
—Loss arising from discontinued operations(0.1)— (0.5)(0.3)
18.2 (31.1)201.4 (36.7)
Comprehensive income (loss) attributable to non-controlling interests1.0 (23.5)(12.1)(45.6)
$19.2 $(54.6)$189.3 $(82.3)
The accompanying notes form an integral part of these condensed consolidated financial statements.

2
Gates Industrial Corporation plc
Unaudited Condensed Consolidated Balance Sheets
(dollars in millions, except share numbers and per share amounts)
As of
September 30, 2023
As of
December 31, 2022
Assets
Current assets
Cash and cash equivalents$556.8 $578.4 
Trade accounts receivable, net 821.9 808.6 
Inventories646.1 656.2 
Taxes receivable50.0 13.0 
Prepaid expenses and other assets243.1 221.2 
Total current assets2,317.9 2,277.4 
Non-current assets
Property, plant and equipment, net615.7 637.5 
Goodwill1,984.3 1,981.1 
Pension surplus9.8 10.1 
Intangible assets, net1,399.6 1,490.4 
Right-of-use assets121.3 132.2 
Taxes receivable15.1 15.1 
Deferred income taxes607.8 600.3 
Other non-current assets37.8 47.5 
Total assets$7,109.3 $7,191.6 
Liabilities and equity
Current liabilities
Debt, current portion$27.7 $36.6 
Trade accounts payable441.1 469.6 
Taxes payable68.3 23.5 
Accrued expenses and other current liabilities243.3 222.6 
Total current liabilities780.4 752.3 
Non-current liabilities
Debt, less current portion2,417.7 2,426.4 
Post-retirement benefit obligations72.3 76.2 
Lease liabilities111.9 121.9 
Taxes payable65.0 79.5 
Deferred income taxes165.5 192.0 
Other non-current liabilities84.2 99.7 
Total liabilities3,697.0 3,748.0 
Commitments and contingencies (Note 18)
Shareholders’ equity
—Shares, par value of $0.01 each - authorized shares: 3,000,000,000; outstanding shares: 264,094,061 (December 31, 2022: authorized shares: 3,000,000,000; outstanding shares: 282,578,917)
2.6 2.8 
—Additional paid-in capital2,575.7 2,542.1 
—Accumulated other comprehensive loss(886.4)(917.8)
—Retained earnings1,399.3 1,482.9 
Total shareholders’ equity3,091.2 3,110.0 
Non-controlling interests321.1 333.6 
Total equity3,412.3 3,443.6 
Total liabilities and equity$7,109.3 $7,191.6 
The accompanying notes form an integral part of these condensed consolidated financial statements.
3
Gates Industrial Corporation plc
Unaudited Condensed Consolidated Statements of Cash Flows
Nine months ended
(dollars in millions)
September 30,
2023		October 1,
2022
Cash flows from operating activities
Net income$187.3 $152.4 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
162.5 164.1 
Foreign exchange and other non-cash financing expenses33.8 31.0 
Share-based compensation expense
19.6 34.8 
Decrease in post-employment benefit obligations, net
(7.0)(11.5)
Deferred income taxes
(39.2)(53.2)
Asset impairments
0.1 1.4 
Other operating activities
4.0 4.7 
Changes in operating assets and liabilities:
—Change in accounts receivable(22.9)(147.2)
—Change in inventories12.0 (50.8)
—Change in accounts payable(24.4)(17.3)
—Change in prepaid expenses and other assets12.8 (15.6)
—Change in taxes payable(5.8)(23.0)
—Change in other liabilities(41.1)(51.0)
Net cash provided by operating activities291.7 18.8 
Cash flows from investing activities
Purchases of property, plant and equipment(39.6)(59.0)
Purchases of intangible assets(7.6)(6.7)
Cash paid under corporate-owned life insurance policies(18.2)(11.6)
Cash received under corporate-owned life insurance policies6.6 4.6 
Proceeds from the sale of property, plant and equipment0.8 — 
Other investing activities— 1.2 
Net cash used in investing activities(58.0)(71.5)
Cash flows from financing activities
Issuance of shares 17.5 15.1 
Buy-back of shares(251.7)(175.8)
Proceeds from long-term debt100.0 70.0 
Payments of long-term debt(114.7)(45.5)
Debt issuance costs paid(0.4)(0.3)
Dividends paid to non-controlling interests(0.5)(28.7)
Other financing activities8.1 (11.8)
Net cash used in financing activities(241.7)(177.0)
Effect of exchange rate changes on cash and cash equivalents and restricted cash(13.3)(32.8)
Net decrease in cash and cash equivalents and restricted cash(21.3)(262.5)
Cash and cash equivalents and restricted cash at the beginning of the period581.4 660.9 
Cash and cash equivalents and restricted cash at the end of the period$560.1 $398.4 
Supplemental schedule of cash flow information
Interest paid$125.8 $95.2 
Income taxes paid$70.9 $97.7 
Accrued capital expenditures$1.4 $1.9 
The accompanying notes form an integral part of these condensed consolidated financial statements.
4
Gates Industrial Corporation plc
Unaudited Condensed Consolidated Statements of Shareholders’ Equity
Three months ended September 30, 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 July 1, 2023$2.6 $2,573.1 $(825.9)$1,320.6 $3,070.4 $320.6 $3,391.0 
Net income— — — 78.7 78.7 6.8 85.5 
Other comprehensive loss— — (60.5)— (60.5)(5.8)(66.3)
Total comprehensive (loss) income— — (60.5)78.7 18.2 1.0 19.2 
Other changes in equity:
—Issuance of shares— 0.1 — — 0.1 — 0.1 
—Shares withheld for employee taxes— (1.5)— — (1.5)— (1.5)
—Share-based compensation— 4.0 — — 4.0 — 4.0 
—Dividends paid to non-controlling
interests
— — — — — (0.5)(0.5)
As of September 30, 2023$2.6 $2,575.7 $(886.4)$1,399.3 $3,091.2 $321.1 $3,412.3 
Three months ended October 1, 2022
(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 July 2, 2022$2.8 $2,524.1 $(914.8)$1,346.1 $2,958.2 $345.1 $3,303.3 
Net income— — — 51.9 51.9 4.1 56.0 
Other comprehensive loss— — (83.0)— (83.0)(27.6)(110.6)
Total comprehensive (loss) income— — (83.0)51.9 (31.1)(23.5)(54.6)
Other changes in equity:
—Issuance of shares— 1.2 — — 1.2 — 1.2 
—Shares withheld for employee taxes— (0.1)— — (0.1)— (0.1)
—Share-based compensation— 7.8 — — 7.8 0.1 7.9 
—Dividends paid to non-controlling
interests
— — — — — (14.2)(14.2)
As of October 1, 2022$2.8 $2,533.0 $(997.8)$1,398.0 $2,936.0 $307.5 $3,243.5 
5
Nine months ended September 30, 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— — — 170.0 170.0 17.3 187.3 
Other comprehensive income (loss)— — 31.4 — 31.4 (29.4)2.0 
Total comprehensive income (loss)— — 31.4 170.0 201.4 (12.1)189.3 
Other changes in equity:
—Issuance of shares— 17.5 — — 17.5 — 17.5 
—Shares withheld for employee taxes— (3.2)— — (3.2)— (3.2)
—Buy-back and cancellation of shares(0.2)— — (253.6)(253.8)— (253.8)
—Share-based compensation— 19.3 — — 19.3 0.1 19.4 
—Dividends paid to non-controlling
interests		— — — — — (0.5)(0.5)
As of September 30, 2023$2.6 $2,575.7 $(886.4)$1,399.3 $3,091.2 $321.1 $3,412.3 
Nine months ended October 1, 2022
(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 January 1, 2022$2.9 $2,484.1 $(825.2)$1,437.9 $3,099.7 $381.7 $3,481.4 
Net income— — — 135.9 135.9 16.5 152.4 
Other comprehensive loss— — (172.6)— (172.6)(62.1)(234.7)
Total comprehensive (loss) income— — (172.6)135.9 (36.7)(45.6)(82.3)
Other changes in equity:
—Issuance of shares— 15.1 — — 15.1 — 15.1 
—Shares withheld for employee taxes— (1.4)— — (1.4)— (1.4)
—Buy-back and cancellation of shares(0.1)— — (175.8)(175.9)— (175.9)
—Share-based compensation— 35.2 — — 35.2 0.1 35.3 
—Dividends paid to non-controlling interests— — — — — (28.7)(28.7)
As of October 1, 2022$2.8 $2,533.0 $(997.8)$1,398.0 $2,936.0 $307.5 $3,243.5 
6
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 Gates Industrial Corporation plc 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 sheets as of September 30, 2023 and December 31, 2022, 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 July 2, 2023 to September 30, 2023, with comparative information for the 91-day period from July 3, 2022 to October 1, 2022 and for the 273-day period from January 1, 2023 to September 30, 2023, with comparative information for the 273-day period from January 2, 2022 to October 1, 2022.
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 September 30, 2023 and the results of its operations and cash flows for the periods ended September 30, 2023 and October 1, 2022. 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 31, 2022. The condensed consolidated balance sheet as of December 31, 2022 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 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 September 30, 2023, the collection of $85.9 million of our trade accounts receivable had been accelerated under this program, compared to the accelerated collection of $108.2 million as of December 31, 2022. During the three and nine months ended September 30, 2023, we incurred costs in respect of this program of $2.1 million and $5.1 million, respectively, which are recorded under other (income) expense. During the three and nine months ended October 1, 2022, we incurred costs in respect of this program of $1.5 million and $2.9 million, respectively.
7
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 31, 2022 included in the Company’s Annual Report on Form 10-K.
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 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 endedNine months ended
(dollars in millions)
September 30,
2023		October 1,
2022		September 30,
2023		October 1,
2022
Power Transmission$536.4 $522.5 $1,658.4 $1,621.1 
Fluid Power336.5 338.2 1,048.5 1,039.8 
Continuing operations$872.9 $860.7 $2,706.9 $2,660.9 
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.
8
The following table summarizes our net sales by key geographic region of origin:
Three months ended
September 30,
2023		October 1,
2022
(dollars in millions)
Power Transmission
Fluid Power
Power Transmission
Fluid Power
U.S.$150.3 $179.3 $150.2 $189.6 
North America, excluding U.S.
60.7 55.3 52.6 52.9 
United Kingdom (“U.K.”)10.0 14.8 11.4 15.7 
EMEA(1), excluding U.K.
145.4 50.9 132.8 40.9 
East Asia and India69.8 19.4 70.6 17.2 
Greater China72.0 5.8 81.4 8.7 
South America28.2 11.0 23.5 13.2 
Net sales$536.4 $336.5 $522.5 $338.2 
Nine months ended
September 30,
2023		October 1,
2022
(dollars in millions)
Power Transmission
Fluid Power
Power Transmission
Fluid Power
U.S.$450.7 $552.2 $476.0 $553.3 
North America, excluding U.S.
172.0 163.0 153.8157.8
U.K.34.3 54.9 34.150.0
EMEA(1), excluding U.K.
481.5 158.9 444.4150.2
East Asia and India214.5 59.4 218.957.2
Greater China222.4 27.6 226.233.2
South America83.0 32.5 67.738.1
Net sales$1,658.4 $1,048.5 $1,621.1 $1,039.8 
(1)    Europe, Middle East and Africa (“EMEA”).
The following table summarizes our net sales into emerging and developed markets:
Three months endedNine months ended
(dollars in millions)
September 30,
2023		October 1,
2022		September 30,
2023		October 1,
2022
Developed$570.0 $555.9 $1,784.1 $1,716.1 
Emerging302.9304.8 922.8 944.8 
Net sales$872.9 $860.7 $2,706.9 $2,660.9 
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 for the period before net interest and other 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;
•    asset impairments;
•    restructuring expenses, including severance-related expenses;
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•    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.
Adjusted EBITDA by segment was as follows:
Three months endedNine months ended
(dollars in millions)
September 30,
2023		October 1,
2022		September 30,
2023		October 1,
2022
Power Transmission$116.5 $101.9 $343.2 $302.1 
Fluid Power 72.9 75.8 218.0 212.5 
Continuing operations$189.4 $177.7 $561.2 $514.6 
Reconciliation of net income from continuing operations to Adjusted EBITDA:
Three months endedNine months ended
(dollars in millions)
September 30,
2023		October 1,
2022		September 30,
2023		October 1,
2022
Net income from continuing operations$85.6 $56.0 $187.8 $152.7 
Income tax expense1.0 11.4 25.9 21.5 
Income from continuing operations before taxes86.6 67.4 213.7 174.2 
Interest expense39.5 33.3 124.8 98.9 
Other (income) expense(0.2)3.1 3.8 11.8 
Operating income from continuing operations125.9 103.8 342.3 284.9 
Depreciation and amortization54.0 53.2 162.5 164.1 
Transaction-related expenses (1)
1.3 0.7 2.1 2.0 
Asset impairments0.1 0.5 0.1 1.1 
Restructuring expenses2.6 4.7 10.3 8.4 
Share-based compensation expense3.3 7.2 19.6 34.8 
Inventory impairments and adjustments (2) (included in cost of sales)
2.2 7.5 6.3 18.7 
Severance expenses (included in cost of sales)(0.1)— 0.4 — 
Severance expenses (included in SG&A)— — 0.9 0.4 
Credit loss related to customer bankruptcy (included in SG&A) (3)
— — 11.4 — 
Cybersecurity incident expenses (4)
— — 5.1 — 
Other items not directly related to current operations0.1 0.1 0.2 0.2 
Adjusted EBITDA$189.4 $177.7 $561.2 $514.6 
(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. The recent inflationary environment has caused LIFO values to drop below First-in, First-out (“FIFO”) values because LIFO measurement results in the more recent inflated costs being matched against current sales while historical, lower costs are retained in inventories.
(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 evaluated our potential risk and exposure relating to our outstanding pre-petition accounts receivable balance from the customer and recorded a $11.4 million pre-tax charge during the nine months ended September 30, 2023 to reflect our estimated recovery. We continue to monitor the circumstances surrounding the bankruptcy in determining whether adjustments to this recovery estimate are necessary.
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(4)    On February 11, 2023, Gates determined that it was the target of a malware attack. Cybersecurity incident expenses include legal, consulting, and other costs incurred as a direct result of this incident, some of which may be partially offset by insurance recoveries.
4. Restructuring and other strategic initiatives
Gates continues to undertake various restructuring and other strategic initiatives to drive increased productivity in all aspects of our operations. These actions include efforts to consolidate our manufacturing and distribution footprint, scale operations to current demand levels, streamline our selling, general and administrative (“SG&A”) back-office functions and relocate certain operations to lower cost locations.
Overall costs associated with our restructuring and other strategic initiatives have been recognized in the condensed consolidated statements as set forth below. Expenses incurred in relation to certain of these actions qualify as restructuring expenses under U.S. GAAP.
Three months endedNine months ended
(dollars in millions)
September 30,
2023		October 1,
2022		September 30,
2023		October 1,
2022
Restructuring expenses:
—Severance expenses$— $2.6 $4.4 $4.9 
—Non-severance labor and benefit expenses0.3 0.3 1.1 0.5 
—Consulting expenses0.8 0.7 1.7 1.1 
—Other net restructuring expenses 1.5 1.1 3.1 1.9 
2.6 4.7 10.3 8.4 
Restructuring expenses in asset impairments:
—Impairment of fixed and other assets0.1 0.5 0.1 1.1 
Restructuring expenses in cost of sales:
—Impairment of inventory0.1 — 0.1 0.3 
Total restructuring expenses$2.8 $5.2 $10.5 $9.8 
Expenses related to other strategic initiatives:
—Severance expenses included in cost of sales(0.1)— 0.4 — 
—Severance expenses included in SG&A— — 0.9 0.4 
Total expenses related to other strategic initiatives$(0.1)$— $1.3 $0.4 
Restructuring and other strategic initiatives during the three and nine months ended September 30, 2023 related primarily to severance and other non-labor costs related to relocating certain production activities in China, Mexico and Europe. During the three months ended September 30, 2023, we also incurred additional non-severance labor and benefit costs of $0.3 million related to relocation and integration of certain support functions into our regional shared service center in Europe. Other restructuring costs incurred during the three months ended September 30, 2023 related to legal and consulting expenses, as well as costs associated with prior period facility closures or relocations in several countries.
Restructuring and other strategic initiatives during the three and nine months ended October 1, 2022 related primarily to our ongoing European reorganization, including $2.2 million of labor and severance costs related to relocating certain production activities within Europe during the three months ended October 1, 2022, in addition to severance costs of $2.3 million during the nine months ended October 1, 2022 related to relocation and integration of certain support functions into our regional shared service center. We also incurred $1.4 million and $2.7 million of costs, respectively, during the three and nine months ended October 1, 2022 in relation to the suspension of our operations in Russia, which included severance costs of $0.7 million, an impairment of inventories of $0.3 million (recognized in cost of sales), and an impairment of fixed and other assets of $1.1 million (recognized in asset impairments) for the nine months ended October 1, 2022 . Other restructuring costs incurred during the period related to non-severance and other labor and benefit costs, prior period facility closures or relocations in several countries.
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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 endedNine months ended
(dollars in millions)
September 30,
2023		October 1,
2022		September 30,
2023		October 1,
2022
Power Transmission$1.5 $2.1 $7.2 $5.5 
Fluid Power1.3 3.1 3.3 4.3 
Continuing operations$2.8 $5.2 $10.5 $9.8 
The following summarizes the reserve for restructuring expenses for the nine months ended September 30, 2023 and October 1, 2022, respectively:
Nine months ended
(dollars in millions)
September 30,
2023		October 1,
2022
Balance as of the beginning of the period$