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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 October 1, 2022
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 Wales | | 98-1395184 |
(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 class | Trading Symbol(s) | Name of each exchange on which registered |
Ordinary Shares, $0.01 par value per share | GTES | New 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, 2022, there were 282,448,393 ordinary shares of $0.01 par value outstanding.
TABLE OF CONTENTS | | | | | | | | |
Part I – Financial Information | |
| | |
Item 1. | | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
| | |
Part II – Other Information | |
| | |
Item 1. | | |
Item 1A. | | |
| | |
| | |
Item 6. | | |
| |
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 January 1, 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 (including those related to the Russia-Ukraine conflict); macroeconomic factors beyond our control including exchange rate fluctuations; severe disruptions in the global economy due to the ongoing COVID-19 pandemic; 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; pricing pressures from our customers; 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 ability to maintain and enhance our strong brand; market acceptance of new product introductions and innovations; our cost-reduction actions; longer lives of products used in our end markets may affect demand for some of our replacement markets; 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; liabilities with respect to businesses that we have divested in the past; loss or financial instability of any significant customer; societal responses to sustainability issues, including those related to climate change; litigation, legal and regulatory proceedings and obligations, and the availability and coverage of insurance; infringement on the intellectual property of others; failure to adequately protect or enforce our intellectual property rights against counterfeiting activities; failure to develop, obtain, enforce and protect our intellectual property rights in all jurisdictions throughout the world; recalls, product liability claims or product warranties claims; failure to comply with anti-corruption laws and other laws governing our international operations; 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; 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; 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 majority shareholders, affiliates of Blackstone Inc., 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.
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, although no individual fund owns a controlling interest in us, together represent our current majority owners.
PART I — FINANCIAL INFORMATION
Item 1: Financial Statements (unaudited)
Gates Industrial Corporation plc
Unaudited Condensed Consolidated Statements of Operations | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | | Nine months ended |
(dollars in millions, except per share amounts) | October 1, 2022 | | October 2, 2021 | | October 1, 2022 | | October 2, 2021 | | |
Net sales | $ | 860.7 | | | $ | 862.4 | | | $ | 2,660.9 | | | $ | 2,658.8 | | | |
Cost of sales | 551.2 | | | 521.7 | | | 1,720.3 | | | 1,605.9 | | | |
Gross profit | 309.5 | | | 340.7 | | | 940.6 | | | 1,052.9 | | | |
Selling, general and administrative expenses | 199.7 | | | 217.4 | | | 644.0 | | | 643.2 | | | |
Transaction-related expenses | 0.7 | | | 0.2 | | | 2.0 | | | 2.8 | | | |
Asset impairments | 0.5 | | | — | | | 1.1 | | | — | | | |
Restructuring expenses | 4.7 | | | 1.9 | | | 8.4 | | | 8.5 | | | |
Other operating expense (income) | 0.1 | | | (9.3) | | | 0.2 | | | (9.8) | | | |
Operating income from continuing operations | 103.8 | | | 130.5 | | | 284.9 | | | 408.2 | | | |
Interest expense | 33.3 | | | 33.1 | | | 98.9 | | | 100.8 | | | |
Other expenses (income) | 3.1 | | | 1.9 | | | 11.8 | | | (0.5) | | | |
Income from continuing operations before taxes | 67.4 | | | 95.5 | | | 174.2 | | | 307.9 | | | |
Income tax expense | 11.4 | | | 17.3 | | | 21.5 | | | 47.8 | | | |
Net income from continuing operations | 56.0 | | | 78.2 | | | 152.7 | | | 260.1 | | | |
Loss (gain) on disposal of discontinued operations, net of tax, respectively, of $0, $0, $0 and $0 | — | | | 0.2 | | | 0.3 | | | (0.1) | | | |
Net income | 56.0 | | | 78.0 | | | 152.4 | | | 260.2 | | | |
Less: non-controlling interests | 4.1 | | | 7.8 | | | 16.5 | | | 25.8 | | | |
Net income attributable to shareholders | $ | 51.9 | | | $ | 70.2 | | | $ | 135.9 | | | $ | 234.4 | | | |
| | | | | | | | | |
Earnings per share | | | | | | | | | |
Basic | | | | | | | | | |
Earnings per share from continuing operations | $ | 0.18 | | | $ | 0.24 | | | $ | 0.48 | | | $ | 0.80 | | | |
Earnings per share from discontinued operations | — | | | — | | | — | | | — | | | |
Earnings per share | $ | 0.18 | | | $ | 0.24 | | | $ | 0.48 | | | $ | 0.80 | | | |
| | | | | | | | | |
Diluted | | | | | | | | | |
Earnings per share from continuing operations | $ | 0.18 | | | $ | 0.23 | | | $ | 0.47 | | | $ | 0.79 | | | |
Earnings per share from discontinued operations | — | | | — | | | — | | | — | | | |
Earnings per share | $ | 0.18 | | | $ | 0.23 | | | $ | 0.47 | | | $ | 0.79 | | | |
The accompanying notes form an integral part of these condensed consolidated financial statements.
Gates Industrial Corporation plc
Unaudited Condensed Consolidated Statements of Comprehensive Income | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | | Nine months ended |
(dollars in millions) | October 1, 2022 | | October 2, 2021 | | October 1, 2022 | | October 2, 2021 | | |
Net income | $ | 56.0 | | | $ | 78.0 | | | $ | 152.4 | | | $ | 260.2 | | | |
Other comprehensive loss | | | | | | | | | |
Foreign currency translation: | | | | | | | | | |
—Net translation loss on foreign operations, net of tax benefit (expense), respectively, of $0.2, $0, $(0.8) and $0 | (149.6) | | | (57.5) | | | (341.4) | | | (92.9) | | | |
—Gain on net investment hedges, net of tax (expense) benefit, respectively, of $(0.1), $0, $0.8 and $0 | 16.7 | | | 9.7 | | | 49.8 | | | 25.2 | | | |
Total foreign currency translation movements | (132.9) | | | (47.8) | | | (291.6) | | | (67.7) | | | |
Cash flow hedges (interest rate derivatives): | | | | | | | | | |
—Gain (loss) arising in the period, net of tax expense, respectively, of $(6.8), $0, $(15.6) and $(1.5) | 20.1 | | | (0.2) | | | 46.9 | | | 4.4 | | | |
—Reclassification to net income, net of tax expense, respectively, of $(0.7), $(1.3), $(3.5) and $(4.0) | 2.3 | | | 4.1 | | | 10.5 | | | 12.1 | | | |
Total cash flow hedges movements | 22.4 | | | 3.9 | | | 57.4 | | | 16.5 | | | |
Post-retirement benefits: | | | | | | | | | |
| | | | | | | | | |
—Reclassification of prior year actuarial movements to net income, net of tax benefit, respectively, of $0.1, $0, $0.2 and $0 | (0.1) | | | — | | | (0.5) | | | — | | | |
Total post-retirement benefits movements | (0.1) | | | — | | | (0.5) | | | — | | | |
Other comprehensive loss | (110.6) | | | (43.9) | | | (234.7) | | | (51.2) | | | |
Comprehensive (loss) income for the period | $ | (54.6) | | | $ | 34.1 | | | $ | (82.3) | | | $ | 209.0 | | | |
| | | | | | | | | |
Comprehensive (loss) income attributable to shareholders: | | | | | | | | | |
—(Loss) income arising from continuing operations | $ | (31.1) | | | $ | 26.9 | | | $ | (36.4) | | | $ | 190.3 | | | |
—(Loss) income arising from discontinued operations | — | | | (0.2) | | | (0.3) | | | 0.1 | | | |
| (31.1) | | | 26.7 | | | (36.7) | | | 190.4 | | | |
Comprehensive (loss) income attributable to non-controlling interests | (23.5) | | | 7.4 | | | (45.6) | | | 18.6 | | | |
| $ | (54.6) | | | $ | 34.1 | | | $ | (82.3) | | | $ | 209.0 | | | |
The accompanying notes form an integral part of these condensed consolidated financial statements.
Gates Industrial Corporation plc
Unaudited Condensed Consolidated Balance Sheets | | | | | | | | | | | |
(dollars in millions, except share numbers and per share amounts) | As of October 1, 2022 | | As of January 1, 2022 |
Assets | | | |
Current assets | | | |
Cash and cash equivalents | $ | 395.3 | | | $ | 658.2 | |
Trade accounts receivable, net | 805.4 | | | 708.1 | |
Inventories | 686.6 | | | 682.6 | |
Taxes receivable | 62.8 | | | 19.1 | |
Prepaid expenses and other assets | 266.8 | | | 210.7 | |
Total current assets | 2,216.9 | | | 2,278.7 | |
Non-current assets | | | |
Property, plant and equipment, net | 618.2 | | | 670.3 | |
Goodwill | 1,905.3 | | | 2,063.0 | |
Pension surplus | 64.4 | | | 75.5 | |
Intangible assets, net | 1,491.6 | | | 1,642.2 | |
Right-of-use assets | 130.2 | | | 124.2 | |
Taxes receivable | 14.7 | | | 15.7 | |
Deferred income taxes | 531.2 | | | 639.3 | |
Other non-current assets | 66.2 | | | 24.1 | |
Total assets | $ | 7,038.7 | | | $ | 7,533.0 | |
Liabilities and equity | | | |
Current liabilities | | | |
Debt, current portion | $ | 28.2 | | | $ | 38.1 | |
Trade accounts payable | 453.2 | | | 506.6 | |
Taxes payable | 47.9 | | | 34.1 | |
Accrued expenses and other current liabilities | 217.4 | | | 277.1 | |
Total current liabilities | 746.7 | | | 855.9 | |
Non-current liabilities | | | |
Debt, less current portion | 2,467.1 | | | 2,526.5 | |
Post-retirement benefit obligations | 91.3 | | | 106.2 | |
Lease liabilities | 122.6 | | | 116.4 | |
Taxes payable | 105.9 | | | 103.7 | |
Deferred income taxes | 210.5 | | | 283.7 | |
Other non-current liabilities | 51.1 | | | 59.2 | |
Total liabilities | 3,795.2 | | | 4,051.6 | |
Commitments and contingencies (note 18) | | | |
Shareholders’ equity | | | |
—Shares, par value of $0.01 each - authorized shares: 3,000,000,000; outstanding shares: 282,440,724 (January 1, 2022: authorized shares: 3,000,000,000; outstanding shares: 291,282,137) | 2.8 | | | 2.9 | |
—Additional paid-in capital | 2,533.0 | | | 2,484.1 | |
—Accumulated other comprehensive loss | (997.8) | | | (825.2) | |
| | | |
—Retained earnings | 1,398.0 | | | 1,437.9 | |
Total shareholders’ equity | 2,936.0 | | | 3,099.7 | |
Non-controlling interests | 307.5 | | | 381.7 | |
Total equity | 3,243.5 | | | 3,481.4 | |
Total liabilities and equity | $ | 7,038.7 | | | $ | 7,533.0 | |
The accompanying notes form an integral part of these condensed consolidated financial statements.
Gates Industrial Corporation plc
Unaudited Condensed Consolidated Statements of Cash Flows | | | | | | | | | | | | | |
| Nine months ended | | |
(dollars in millions) | October 1, 2022 | | October 2, 2021 | | |
Cash flows from operating activities | | | | | |
Net income | $ | 152.4 | | | $ | 260.2 | | | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation and amortization | 164.1 | | | 167.4 | | | |
Foreign exchange and other non-cash financing expenses | 31.0 | | | 23.7 | | | |
| | | | | |
| | | | | |
Share-based compensation expense | 34.8 | | | 18.5 | | | |
Decrease in post-employment benefit obligations, net | (11.5) | | | (11.9) | | | |
Deferred income taxes | (53.2) | | | (46.0) | | | |
Asset impairments | 1.4 | | | 0.1 | | | |
Other operating activities | 4.7 | | | 5.6 | | | |
Changes in operating assets and liabilities, net of effects of acquisitions: | | | | | |
—Increase in accounts receivable | (147.2) | | | (123.9) | | | |
—Increase in inventories | (50.8) | | | (154.8) | | | |
—(Decrease) increase in accounts payable | (17.3) | | | 49.8 | | | |
—Increase in prepaid expenses and other assets | (15.6) | | | (18.3) | | | |
—(Decrease) increase in taxes payable | (23.0) | | | 35.1 | | | |
—(Decrease) increase in other liabilities | (51.0) | | | 8.0 | | | |
Net cash provided by operating activities | 18.8 | | | 213.5 | | | |
Cash flows from investing activities | | | | | |
Purchases of property, plant and equipment | (59.0) | | | (56.4) | | | |
Purchases of intangible assets | (6.7) | | | (7.6) | | | |
| | | | | |
Cash paid under corporate-owned life insurance policies | (11.6) | | | (11.2) | | | |
Cash received under corporate-owned life insurance policies | 4.6 | | | 2.4 | | | |
| | | | | |
| | | | | |
Other investing activities | 1.2 | | | 2.2 | | | |
Net cash used in investing activities | (71.5) | | | (70.6) | | | |
Cash flows from financing activities | | | | | |
Issuance of shares | 15.1 | | | 4.3 | | | |
| | | | | |
Buy-back of shares | (175.8) | | | — | | | |
Proceeds from long-term debt | 70.0 | | | — | | | |
Payments of long-term debt | (45.5) | | | (85.7) | | | |
| | | | | |
Debt issuance costs paid | (0.3) | | | (8.6) | | | |
Dividends paid to non-controlling interests | (28.7) | | | (13.5) | | | |
Other financing activities | (11.8) | | | (10.5) | | | |
Net cash used in financing activities | (177.0) | | | (114.0) | | | |
Effect of exchange rate changes on cash and cash equivalents and restricted cash | (32.8) | | | (9.7) | | | |
Net (decrease) increase in cash and cash equivalents | (262.5) | | | 19.2 | | | |
Cash and cash equivalents and restricted cash at the beginning of the period | 660.9 | | | 524.1 | | | |
Cash and cash equivalents and restricted cash at the end of the period | $ | 398.4 | | | $ | 543.3 | | | |
Supplemental schedule of cash flow information | | | | | |
Interest paid | $ | 95.2 | | | $ | 100.7 | | | |
Income taxes paid | $ | 97.7 | | | $ | 58.7 | | | |
Accrued capital expenditures | $ | 1.9 | | | $ | 0.5 | | | |
| | | | | |
| | | | | |
The accompanying notes form an integral part of these condensed consolidated financial statements.
Gates Industrial Corporation plc
Unaudited Condensed Consolidated Statements of Shareholders’ Equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended October 2, 2021 |
| | | | | | | | | | | | | | | |
(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 3, 2021 | $ | 2.9 | | | $ | 2,471.2 | | | | | $ | (805.9) | | | $ | 1,315.6 | | | $ | 2,983.8 | | | $ | 380.2 | | | $ | 3,364.0 | |
| | | | | | | | | | | | | | | |
Net income | — | | | — | | | | | — | | | 70.2 | | | 70.2 | | | 7.8 | | | 78.0 | |
Other comprehensive income | — | | | — | | | | | (43.5) | | | — | | | (43.5) | | | (0.4) | | | (43.9) | |
Total comprehensive (loss) income | — | | | — | | | | | (43.5) | | | 70.2 | | | 26.7 | | | 7.4 | | | 34.1 | |
Other changes in equity: | | | | | | | | | | | | | | | |
—Issuance of shares | — | | | 0.6 | | | | | — | | | — | | | 0.6 | | | — | | | 0.6 | |
—Shares withheld for employee taxes | — | | | — | | | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | |
—Share-based compensation | — | | | 5.9 | | | | | — | | | — | | | 5.9 | | | 0.1 | | | 6.0 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
—Dividends paid to non-controlling interests | — | | | — | | | | | — | | | — | | | — | | | (3.2) | | | (3.2) | |
| | | | | | | | | | | | | | | |
As of October 2, 2021 | $ | 2.9 | | | $ | 2,477.7 | | | | | $ | (849.4) | | | $ | 1,385.8 | | | $ | 3,017.0 | | | $ | 384.5 | | | $ | 3,401.5 | |
Gates Industrial Corporation plc
Unaudited Condensed Consolidated Statements of Shareholders’ Equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended October 2, 2021 |
| | | | | | | | | | | | | | | |
(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 2, 2021 | $ | 2.9 | | | $ | 2,456.8 | | | | | $ | (805.4) | | | $ | 1,151.4 | | | $ | 2,805.7 | | | $ | 379.3 | | | $ | 3,185.0 | |
| | | | | | | | | | | | | | | |
Net income | — | | | — | | | | | — | | | 234.4 | | | 234.4 | | | 25.8 | | | 260.2 | |
Other comprehensive loss | — | | | — | | | | | (44.0) | | | — | | | (44.0) | | | (7.2) | | | (51.2) | |
Total comprehensive (loss) income | — | |
| — | |
| | | (44.0) | |
| 234.4 | |
| 190.4 | |
| 18.6 | | | 209.0 | |
Other changes in equity: | | | | | | | | | | | | | | | |
—Issuance of shares | — | | | 4.3 | | | | | — | | | — | | | 4.3 | | | — | | | 4.3 | |
| | | | | | | | | | | | | | | |
—Shares withheld for employee taxes | — | | | (0.7) | | | | | — | | | — | | | (0.7) | | | — | | | (0.7) | |
—Share-based compensation | — | | | 17.3 | | | | | — | | | — | | | 17.3 | | | 0.1 | | | 17.4 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
—Dividends paid to non-controlling interests | — | | | — | | | | | — | | | — | | | — | | | (13.5) | | | (13.5) | |
| | | | | | | | | | | | | | | |
As of October 2, 2021 | $ | 2.9 | | | $ | 2,477.7 | | | | | $ | (849.4) | | | $ | 1,385.8 | | | $ | 3,017.0 | | | $ | 384.5 | | | $ | 3,401.5 | |
| | | | | | | | | | | | | | | |
The accompanying notes form an integral part of these condensed consolidated financial statements.
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 October 1, 2022 and January 1, 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 3, 2022 to October 1, 2022, with comparative information for the 91-day period from July 4, 2021 to October 2, 2021 and for the 273-day period from January 2, 2022 to October 1, 2022, with comparative information for the 273-day period from January 3, 2021 to October 2, 2021.
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 October 1, 2022 and the results of its operations and cash flows for the periods ended October 1, 2022 and October 2, 2021. Interim period results are not necessarily indicative of the results to be expected for the full fiscal year.
We continue to contend with the ongoing implications of the novel coronavirus (“COVID-19”) pandemic. While we have generally seen a rebound in demand from the pandemic-induced declines of 2020, the evolving impact of the pandemic, including the emergence of variants, and continuing measures being taken around the world to combat its spread, may have ongoing implications for our business which may vary from time to time. Some of these impacts may be material but cannot be reasonably estimated at this time.
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.
Due to the inherent uncertainty involved in making assumptions and estimates, events and changes in circumstances arising after October 1, 2022, including those resulting from the impacts of the COVID-19 pandemic, may result in actual outcomes that differ from those contemplated by our assumptions and estimates.
These condensed consolidated financial statements are unaudited and, except as noted below, have been prepared on substantially the same basis as Gates’ audited annual consolidated financial statements and related notes for the year ended January 1, 2022. The condensed consolidated balance sheet as of January 1, 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 October 1, 2022, the collection of $99.1 million of our trade accounts receivable had been accelerated under this program, compared to the accelerated collection of $106.9 million as of January 1, 2022. 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, which are recorded under other expenses (income). During the three and nine months ended October 2, 2021, we incurred costs in respect of this program of $0.4 million and $