
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)

(Former name, former address and former fiscal year, if changed since last report)

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 ~~August 6, 2021,~~May 2, 2022, there were ~~291,854,218~~289,611,180 ordinary shares of $0.01 par value outstanding.

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 ~~2, 2021~~1, 2022 (the “annual report”), as filed with the Securities and Exchange Commission (the “SEC”), which include the following: ~~conditions in~~economic, political and other risks associated with international operations (including those related to the ~~global and regional economy and the major end markets we serve;~~Russia-Ukraine conflict); severe disruptions in the global economy due to the ~~coronavirus (“COVID-19”) pandemic and uncertainty regarding recovery from the~~ongoing COVID-19 pandemic; ~~economic, political and other risks associated with international operations;~~ availability of raw materials or other manufacturing inputs at favorable prices ~~and~~ in sufficient ~~quantities;~~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; ~~exchange rate fluctuations in the international markets; terrorist acts, conflicts and wars; competition in all areas of our business;~~ pricing pressures from our customers; continued operation of our manufacturing ~~facilities;~~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 ~~product~~ 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; ~~our ability to successfully integrate acquired businesses~~pursuit of strategic transactions, including acquisitions, divestitures, restructurings, joint ventures, strategic alliances or ~~assets;~~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; ~~insurance coverage of future losses we may incur; losses to our facilities, supply chains, distribution systems or information technology systems due to catastrophe or other events;~~ loss or financial instability of any significant customer; societal responses to sustainability issues, including those related to climate change; litigation, legal orand regulatory proceedings ~~brought against us;~~and obligations, and the availability and coverage of insurance; infringement on the intellectual property of others; failure to adequately protect or enforce of 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, ~~that may prohibit, restrict or burden~~including but not limited to those relating to HSE concerns, and the sale of aftermarket ~~products; environmental, health and safety laws and regulations that may impact the sale of our~~ products; cyber-security vulnerabilities, threats, and more sophisticated and targeted computer ~~crime;~~crimes; failure of information systems; highly complex and rapidly evolving global privacy, data protection and data security ~~requirements may increase our costs; failure of information systems;~~requirements; loss of senior management or key personnel; work stoppages and other labor matters; ~~we may be required~~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; and the significant influence of our majority shareholders, affiliates of ~~The~~ Blackstone ~~Group~~ 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.

As used in this quarterly report, unless otherwise noted or the context requires otherwise:

•“Gates,” the “Company,” “we,” “us” and “our” refer ~~unless the context requires otherwise,~~ to Gates Industrial Corporation plc and its consolidated subsidiaries; and

•“Blackstone” or “our Sponsor” refer to investment funds affiliated with ~~The~~ Blackstone ~~Group~~ 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 Six months ended
(dollars in millions, except per share amounts) July 3, 2021 June 27, 2020 July 3, 2021 June 27, 2020
Net sales $ 915.1 $ 576.5 $ 1,796.4 $ 1,286.6
Cost of sales 548.4 373.0 1,084.2 827.3
Gross profit 366.7 203.5 712.2 459.3
Selling, general and administrative expenses 214.2 182.9 425.8 376.3
Transaction-related expenses (income) 0.2 0 2.6 (0.2)
Asset impairments 0 3.7 0 3.7
Restructuring expenses 3.7 17.2 6.6 19.1
Other operating income (0.5) (3.7) (0.5) (1.4)
Operating income from continuing operations 149.1 3.4 277.7 61.8
Interest expense 33.3 34.3 67.7 71.0
Other income (1.2) (3.7) (2.4) (5.8)
Income (loss) from continuing operations before taxes 117.0 (27.2) 212.4 (3.4)
Income tax expense (benefit) 11.6 0.6 30.5 (15.5)
Net income (loss) from continuing operations 105.4 (27.8) 181.9 12.1
(Gain) loss on disposal of discontinued operations, net of tax, respectively, of $0, $0, $0 and $0 (0.4) 0.2 (0.3) 0.2
Net income (loss) 105.8 (28.0) 182.2 11.9
Less: non-controlling interests 8.9 (5.6) 18.0 (1.3)
Net income (loss) attributable to shareholders $ 96.9 $ (22.4) $ 164.2 $ 13.2
Earnings (loss) per share
Basic
Earnings (loss) per share from continuing operations $ 0.33 $ (0.08) $ 0.56 $ 0.05
Earnings per share from discontinued operations 0 0 0 0
Earnings (loss) per share $ 0.33 $ (0.08) $ 0.56 $ 0.05
Diluted
Earnings (loss) per share from continuing operations $ 0.33 $ (0.08) $ 0.55 $ 0.05
Earnings per share from discontinued operations 0 0 0 0
Earnings (loss) per share $ 0.33 $ (0.08) $ 0.55 $ 0.05


	Three months ended
(dollars in millions, except per share amounts)	April 2, 2022		April 3, 2021
Net sales	$	893.4	$	881.3
Cost of sales	588.5		535.8
Gross profit	304.9		345.5
Selling, general and administrative expenses	235.2		211.6
Transaction-related expenses	0.8		2.4

Restructuring expenses	0.5		2.9

Operating income from continuing operations	68.4		128.6
Interest expense	32.6		34.4
Other expenses (income)	0.6		(1.2)
Income from continuing operations before taxes	35.2		95.4
Income tax (benefit) expense	(2.2)		18.9
Net income from continuing operations	37.4		76.5
Loss on disposal of discontinued operations, net of tax, respectively, of $0 and $0	0.1		0.1
Net income	37.3		76.4
Less: non-controlling interests	6.4		9.1
Net income attributable to shareholders	$	30.9	$	67.3

Earnings per share
Basic
Earnings per share from continuing operations	$	0.11	$	0.23
Earnings per share from discontinued operations	—		—
Earnings per share	$	0.11	$	0.23

Diluted
Earnings per share from continuing operations	$	0.10	$	0.23
Earnings per share from discontinued operations	—		—
Earnings per share	$	0.10	$	0.23

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 Six months ended
(dollars in millions) July 3, 2021 June 27, 2020 July 3, 2021 June 27, 2020
Net income (loss) $ 105.8 $ (28.0) $ 182.2 $ 11.9
Other comprehensive income (loss)
Foreign currency translation:
—Net translation gain (loss) on foreign operations, net of tax expense, respectively, of $0, $0, $0 and $0 32.6 46.2 (35.4) (160.8)
—(Loss) gain on net investment hedges, net of tax expense, respectively, of $0, $0, $0 and $0 (2.7) (5.8) 15.5 (1.8)
Total foreign currency translation movements 29.9 40.4 (19.9) (162.6)
Cash flow hedges (Interest rate derivatives):
—(Loss) gain arising in the period, net of tax benefit (expense), respectively, of $0.4, $1.2, $(1.5) and $3.7 (3.2) (9.4) 4.6 (22.8)
—Reclassification to net income, net of tax expense, respectively, of $(1.7), $0, $(2.7) and $0 3.7 1.9 8.0 3.6
Total cash flow hedges movements 0.5 (7.5) 12.6 (19.2)
Post-retirement benefits:
—Reclassification of prior year actuarial movements to net income, net of tax expense, respectively, of $0, $0, $0 and $0 0 0 0 (0.1)
Total post-retirement benefits movements 0 0 0 (0.1)
Other comprehensive income (loss) 30.4 32.9 (7.3) (181.9)
Comprehensive income (loss) for the period $ 136.2 $ 4.9 $ 174.9 $ (170.0)
Comprehensive income (loss) attributable to shareholders:
—Income (loss) arising from continuing operations $ 123.7 $ 7.4 $ 163.4 $ (164.4)
—Income (loss) arising from discontinued operations 0.4 (0.2) 0.3 (0.2)
124.1 7.2 163.7 (164.6)
Comprehensive income (loss) attributable to non-controlling interests 12.1 (2.3) 11.2 (5.4)
$ 136.2 $ 4.9 $ 174.9 $ (170.0)


	Three months ended
(dollars in millions)	April 2, 2022		April 3, 2021
Net income	$	37.3	$	76.4
Other comprehensive income (loss)
Foreign currency translation:
—Net translation loss on foreign operations, net of tax expense, respectively, of $0 and $0	(27.5)		(68.0)
—Gain on net investment hedges, net of tax benefit, respectively, of $0.9 and $0	11.2		18.2
Total foreign currency translation movements	(16.3)		(49.8)
Cash flow hedges (interest rate derivatives):
—Gain arising in the period, net of tax expense, respectively, of $(8.3) and $(1.9)	25.1		7.8
—Reclassification to net income, net of tax expense, respectively, of $(1.4) and $(1.0)	4.1		4.3
Total cash flow hedges movements	29.2		12.1
Post-retirement benefits:

—Reclassification of prior year actuarial movements to net income, net of tax benefit, respectively, of $0.1 and $0	(0.1)		—
Total post-retirement benefits movements	(0.1)		—
Other comprehensive income (loss)	12.8		(37.7)
Comprehensive income for the period	$	50.1	$	38.7

Comprehensive income attributable to shareholders:
—Income arising from continuing operations	$	50.8	$	39.7
—Loss arising from discontinued operations	(0.1)		(0.1)
	50.7		39.6
Comprehensive income attributable to non-controlling interests	(0.6)		(0.9)
	$	50.1	$	38.7

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)	(dollars in millions, except share numbers and per share amounts)	As of July 3, 2021		As of January 2, 2021		(dollars in millions, except share numbers and per share amounts)	As of April 2, 2022		As of January 1, 2022
Assets	Assets					Assets
Current assets	Current assets					Current assets
Cash and cash equivalents	Cash and cash equivalents	$	473.3	$	521.4	Cash and cash equivalents	$	406.8	$	658.2
Trade accounts receivable, net	Trade accounts receivable, net	852.4		695.0		Trade accounts receivable, net	790.7		708.1
Inventories	Inventories	588.5		508.2		Inventories	718.3		682.6
Taxes receivable	Taxes receivable	27.2		28.6		Taxes receivable	32.8		19.1
Prepaid expenses and other assets	Prepaid expenses and other assets	181.1		153.4		Prepaid expenses and other assets	258.0		210.7
Total current assets	Total current assets	2,122.5		1,906.6		Total current assets	2,206.6		2,278.7
Non-current assets	Non-current assets					Non-current assets
Property, plant and equipment, net	Property, plant and equipment, net	692.8		705.0		Property, plant and equipment, net	665.4		670.3
Goodwill	Goodwill	2,102.6		2,120.2		Goodwill	2,049.9		2,063.0
Pension surplus	Pension surplus	71.6		69.3		Pension surplus	74.0		75.5
Intangible assets, net	Intangible assets, net	1,716.4		1,788.6		Intangible assets, net	1,603.5		1,642.2
Right-of-use assets	Right-of-use assets	124.1		120.9		Right-of-use assets	122.4		124.2
Taxes receivable	Taxes receivable	14.8		26.5		Taxes receivable	14.7		15.7
Deferred income taxes	Deferred income taxes	635.8		672.6		Deferred income taxes	610.0		639.3
Other non-current assets	Other non-current assets	18.3		16.6		Other non-current assets	52.6		24.1
Total assets	Total assets	$	7,498.9	$	7,426.3	Total assets	$	7,399.1	$	7,533.0
Liabilities and equity	Liabilities and equity					Liabilities and equity
Current liabilities	Current liabilities					Current liabilities
Debt, current portion	Debt, current portion	$	39.1	$	42.7	Debt, current portion	$	29.4	$	38.1
Trade accounts payable	Trade accounts payable	479.7		417.4		Trade accounts payable	494.5		506.6
Taxes payable	Taxes payable	37.0		14.0		Taxes payable	27.1		34.1
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	285.0		252.2		Accrued expenses and other current liabilities	237.5		277.1
Total current liabilities	Total current liabilities	840.8		726.3		Total current liabilities	788.5		855.9
Non-current liabilities	Non-current liabilities					Non-current liabilities
Debt, less current portion	Debt, less current portion	2,559.6		2,666.0		Debt, less current portion	2,573.2		2,526.5
Post-retirement benefit obligations	Post-retirement benefit obligations	136.3		142.5		Post-retirement benefit obligations	102.5		106.2
Lease liabilities	Lease liabilities	117.2		113.6		Lease liabilities	111.9		116.4
Taxes payable	Taxes payable	103.5		111.5		Taxes payable	103.4		103.7
Deferred income taxes	Deferred income taxes	311.4		360.4		Deferred income taxes	267.7		283.7
Other non-current liabilities	Other non-current liabilities	66.1		121.0		Other non-current liabilities	75.7		59.2
Total liabilities	Total liabilities	4,134.9		4,241.3		Total liabilities	4,022.9		4,051.6
Commitments and contingencies (note 18)	Commitments and contingencies (note 18)	0		0		Commitments and contingencies (note 18)	0		0
Shareholders’ equity	Shareholders’ equity					Shareholders’ equity
—Shares, par value of $0.01 each - authorized shares: 3,000,000,000; outstanding shares: 291,842,659 (January 2, 2021: authorized shares: 3,000,000,000; outstanding shares: 290,853,067)		2.9		2.9
—Shares, par value of $0.01 each - authorized shares: 3,000,000,000; outstanding shares: 288,578,963 (January 1, 2022: authorized shares: 3,000,000,000; outstanding shares: 291,282,137)						—Shares, par value of $0.01 each - authorized shares: 3,000,000,000; outstanding shares: 288,578,963 (January 1, 2022: authorized shares: 3,000,000,000; outstanding shares: 291,282,137)	2.9		2.9
—Additional paid-in capital	—Additional paid-in capital	2,471.2		2,456.8		—Additional paid-in capital	2,504.7		2,484.1
—Accumulated other comprehensive loss	—Accumulated other comprehensive loss	(805.9)		(805.4)		—Accumulated other comprehensive loss	(805.4)		(825.2)
—Treasury shares						—Treasury shares	(121.9)		—
—Retained earnings	—Retained earnings	1,315.6		1,151.4		—Retained earnings	1,414.8		1,437.9
Total shareholders’ equity	Total shareholders’ equity	2,983.8		2,805.7		Total shareholders’ equity	2,995.1		3,099.7
Non-controlling interests	Non-controlling interests	380.2		379.3		Non-controlling interests	381.1		381.7
Total equity	Total equity	3,364.0		3,185.0		Total equity	3,376.2		3,481.4
Total liabilities and equity	Total liabilities and equity	$	7,498.9	$	7,426.3	Total liabilities and equity	$	7,399.1	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


		Six months ended					Three months ended
(dollars in millions)	(dollars in millions)	July 3, 2021		June 27, 2020		(dollars in millions)	April 2, 2022		April 3, 2021
Cash flows from operating activities	Cash flows from operating activities					Cash flows from operating activities
Net income	Net income	$	182.2	$	11.9	Net income	$	37.3	$	76.4
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	112.7		109.6		Depreciation and amortization	55.1		55.8
Foreign exchange and other non-cash financing expenses	Foreign exchange and other non-cash financing expenses	13.3		3.7		Foreign exchange and other non-cash financing expenses	9.2		7.3

Share-based compensation expense	Share-based compensation expense	12.8		8.6		Share-based compensation expense	24.1		6.3
Decrease in post-employment benefit obligations, net	Decrease in post-employment benefit obligations, net	(7.6)		(3.4)		Decrease in post-employment benefit obligations, net	(4.6)		(4.2)
Deferred income taxes	Deferred income taxes	(34.2)		(11.6)		Deferred income taxes	(12.3)		(9.6)
Asset impairments		0.1		5.1

Other operating activities	Other operating activities	3.8		4.1		Other operating activities	3.1		2.0
Changes in operating assets and liabilities, net of effects of acquisitions:	Changes in operating assets and liabilities, net of effects of acquisitions:					Changes in operating assets and liabilities, net of effects of acquisitions:
—(Increase) decrease in accounts receivable		(161.0)		25.0
—Increase in accounts receivable						—Increase in accounts receivable	(88.4)		(131.8)
—Increase in inventories	—Increase in inventories	(85.3)		(39.3)		—Increase in inventories	(37.8)		(36.2)
—Increase (decrease) in accounts payable		66.2		(49.1)
—(Decrease) increase in accounts payable						—(Decrease) increase in accounts payable	(8.6)		29.2
—Increase in prepaid expenses and other assets	—Increase in prepaid expenses and other assets	(14.9)		(0.4)		—Increase in prepaid expenses and other assets	(24.2)		(5.8)
—Increase (decrease) in taxes payable		28.1		(35.7)
—(Decrease) increase in other liabilities		(4.4)		43.1
Net cash provided by operating activities		111.8		71.6
—(Decrease) increase in taxes payable						—(Decrease) increase in taxes payable	(19.5)		7.1
—Decrease in other liabilities						—Decrease in other liabilities	(38.8)		(20.5)
Net cash used in operating activities						Net cash used in operating activities	(105.4)		(24.0)
Cash flows from investing activities	Cash flows from investing activities					Cash flows from investing activities
Purchases of property, plant and equipment	Purchases of property, plant and equipment	(40.3)		(23.1)		Purchases of property, plant and equipment	(17.4)		(18.1)
Purchases of intangible assets	Purchases of intangible assets	(3.7)		(4.5)		Purchases of intangible assets	(0.6)		(2.1)

Cash paid under corporate-owned life insurance policies	Cash paid under corporate-owned life insurance policies	(10.1)		(9.8)		Cash paid under corporate-owned life insurance policies	(10.3)		(10.1)
Cash received under corporate-owned life insurance policies	Cash received under corporate-owned life insurance policies	1.9		0		Cash received under corporate-owned life insurance policies	3.0		0.9

Other investing activities	Other investing activities	1.6		0.3		Other investing activities	0.3		0.2
Net cash used in investing activities	Net cash used in investing activities	(50.6)		(37.1)		Net cash used in investing activities	(25.0)		(29.2)
Cash flows from financing activities	Cash flows from financing activities					Cash flows from financing activities
Issuance of shares	Issuance of shares	3.7		2.7		Issuance of shares	0.2		1.7

Buy-back of shares						Buy-back of shares	(175.2)		—
Proceeds from long-term debt						Proceeds from long-term debt	70.0		—
Payments of long-term debt	Payments of long-term debt	(80.4)		(12.4)		Payments of long-term debt	(5.3)		(5.5)

Debt issuance costs paid	Debt issuance costs paid	(8.6)		(0.3)		Debt issuance costs paid	(0.1)		(7.8)
Dividends paid to non-controlling interests		(10.3)		(9.9)

Other financing activities	Other financing activities	(7.3)		1.0		Other financing activities	(5.4)		(3.5)
Net cash used in financing activities	Net cash used in financing activities	(102.9)		(18.9)		Net cash used in financing activities	(115.8)		(15.1)
Effect of exchange rate changes on cash and cash equivalents and restricted cash	Effect of exchange rate changes on cash and cash equivalents and restricted cash	(6.4)		(11.5)		Effect of exchange rate changes on cash and cash equivalents and restricted cash	(4.7)		(5.8)
Net (decrease) increase in cash and cash equivalents and restricted cash		(48.1)		4.1
Net decrease in cash and cash equivalents						Net decrease in cash and cash equivalents	(250.9)		(74.1)
Cash and cash equivalents and restricted cash at the beginning of the period	Cash and cash equivalents and restricted cash at the beginning of the period	524.1		636.6		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	Cash and cash equivalents and restricted cash at the end of the period	$	476.0	$	640.7	Cash and cash equivalents and restricted cash at the end of the period	$	410.0	$	450.0
Supplemental schedule of cash flow information	Supplemental schedule of cash flow information					Supplemental schedule of cash flow information
Interest paid	Interest paid	$	62.0	$	48.5	Interest paid	$	37.6	$	39.8
Income taxes paid	Income taxes paid	$	36.5	$	16.6	Income taxes paid	$	29.6	$	21.5
Accrued capital expenditures	Accrued capital expenditures	$	0.6	$	0.9	Accrued capital expenditures	$	0.5	$	0.4

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 July 3, 2021															Three months ended April 2, 2022

(dollars in millions)	(dollars in millions)	Share capital		Additional paid-in capital		Accumulated other comprehensive loss		Retained earnings		Total shareholders’ equity		Non- controlling interests		Total equity		(dollars in millions)	Share capital		Additional paid-in capital		Treasury Shares		Accumulated other comprehensive loss		Retained earnings		Total shareholders’ equity		Non- controlling interests		Total equity
As of April 3, 2021		$	2.9	$	2,463.1	$	(833.1)	$	1,218.7	$	2,851.6	$	378.4	$	3,230.0
As of January 1, 2022																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	Net income	—		—		—		96.9		96.9		8.9		105.8		Net income	—		—		—		—		30.9		30.9		6.4		37.3
Other comprehensive income		—		—		27.2		—		27.2		3.2		30.4
Total comprehensive income		—		—		27.2		96.9		124.1		12.1		136.2
Other comprehensive income (loss)																Other comprehensive income (loss)	—		—		—		19.8		—		19.8		(7.0)		12.8
Total comprehensive income (loss)																Total comprehensive income (loss)	—		—		—		19.8		30.9		50.7		(0.6)		50.1
Other changes in equity:	Other changes in equity:															Other changes in equity:
—Issuance of shares	—Issuance of shares	—		2.0		—		—		2.0		—		2.0		—Issuance of shares	—		0.2		—		—		—		0.2		—		0.2

—Shares withheld for employee taxes																—Shares withheld for employee taxes	—		(1.3)		—		—		—		(1.3)		—		(1.3)
—Buy-back of shares																—Buy-back of shares	—		—		(121.9)		—		(54.0)		(175.9)		—		(175.9)
—Share-based compensation	—Share-based compensation	—		6.1		—		—		6.1		—		6.1		—Share-based compensation	—		21.7		—		—		—		21.7		—		21.7

—Dividends paid to non-controlling interests		—		—		—		—		—		(10.3)		(10.3)

As of July 3, 2021		$	2.9	$	2,471.2	$	(805.9)	$	1,315.6	$	2,983.8	$	380.2	$	3,364.0

As of April 2, 2022																As of April 2, 2022	$	2.9	$	2,504.7	$	(121.9)	$	(805.4)	$	1,414.8	$	2,995.1	$	381.1	$	3,376.2

Three months ended June 27, 2020
(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 March 28, 2020 $ 2.9 $ 2,440.1 $ (1,065.8) $ 1,107.6 $ 2,484.8 $ 356.6 $ 2,841.4
Net loss — — — (22.4) (22.4) (5.6) (28.0)
Other comprehensive income — — 29.6 — 29.6 3.3 32.9
Total comprehensive income (loss) — — 29.6 (22.4) 7.2 (2.3) 4.9
Other changes in equity:
—Issuance of shares — 0.6 — — 0.6 — 0.6
—Share-based compensation — 4.7 — — 4.7 — 4.7
—Dividends paid to non-controlling
interests
— — — — — (9.9) (9.9)
As of June 27, 2020 $ 2.9 $ 2,445.4 $ (1,036.2) $ 1,085.2 $ 2,497.3 $ 344.4 $ 2,841.7

~~Gates Industrial Corporation plc~~

~~Unaudited Condensed Consolidated Statements of Shareholders’ Equity (Continued)~~

Six months ended July 3, 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 — — — 164.2 164.2 18.0 182.2
Other comprehensive loss — — (0.5) — (0.5) (6.8) (7.3)
Total comprehensive (loss) income — — (0.5) 164.2 163.7 11.2 174.9
Other changes in equity:
—Issuance of shares — 3.0 — — 3.0 — 3.0
—Share-based compensation — 11.4 — — 11.4 — 11.4
—Dividends paid to non-controlling
interests
— — — — — (10.3) (10.3)
As of July 3, 2021 $ 2.9 $ 2,471.2 $ (805.9) $ 1,315.6 $ 2,983.8 $ 380.2 $ 3,364.0

—Dividends paid to non-controlling

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

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 sheet is presented as of ~~July 3, 2021~~April 2, 2022 and January ~~2, 2021~~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 January 2, 2022 to April ~~4, 2021 to July 3, 2021,~~2, 2022, with comparative information for the 91 day period from ~~March 29, 2020 to June 27, 2020 and for the 182 day period from~~ January 3, 2021 to ~~July~~April 3, ~~2021, with comparative information for the 182 day period from December 29, 2019 to June 27, 2020.~~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 ~~July 3, 2021~~April 2, 2022 and the results of its operations and cash flows for the periods ended ~~July~~April 2, 2022 and April 3, ~~2021 and June 27, 2020.~~2021. Interim period results are not necessarily indicative of the results to be expected for the full fiscal year.

~~The first quarter of 2020 marked~~We continue to contend with the ~~beginning of an unprecedented environment for the global economy, as governments, companies and communities implemented strict measures to minimize the spread~~ongoing implications of the novel coronavirus (“COVID-19”) pandemic. AsWhile we have generally seen a ~~result~~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, ~~there~~ may behave ongoing implications for our business which may vary from time to ~~time, and the impact~~time. Some of ~~the pandemic on the Company’s operations~~these impacts may ~~continue to~~ 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 ~~July 3, 2021,~~April 2, 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 ~~2, 2021.~~1, 2022. The condensed consolidated balance sheet as of January ~~2, 2021~~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 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 April 2, 2022, the collection of $105.4 million of our trade accounts receivable had been accelerated under this program. During the three ~~and six~~ months ended ~~July 3, 2021,~~April 2, 2022, we ~~sold $48.0 million~~incurred costs in respect of ~~trade accounts receivable under~~ this program ~~and incurred costs~~ of ~~$0.2~~$0.6 million, which are recorded under other ~~income.~~expenses (income).

These condensed consolidated financial statements should be read in conjunction with the audited annual consolidated financial statements and related notes for the year ended January ~~2, 2021~~1, 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, except for the adoption on the first day of the ~~2021~~2022 fiscal year of the following new Accounting Standard ~~Updates (each, an “ASU”~~Update (“ASU”):

•ASU ~~2019-12 “Simplifying the Accounting for Income Taxes”~~2021-10 “Government Assistance (Topic ~~740)~~832): ~~Income Taxes~~Disclosures by Business Entities about Government Assistance”

In ~~December 2019,~~November 2021, the ~~FASB~~Financial Accountant Standards Board (“FASB”) issued anthis ASU to ~~simplify and reduce~~increase the ~~complexity~~transparency of ~~general principles in Topic 740: Income Taxes. Such simplifications include~~government assistance, including the ~~elimination~~disclosure of ~~certain exceptions to: 1)~~(i) the ~~incremental approach for intraperiod tax allocation, 2) the requirement to recognize a deferred income tax liability for equity method investments when a foreign subsidiary becomes~~types of assistance, (ii) an equity method investment, 3) the ability not to recognize a deferred income tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary, and 4) the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated lossentity’s accounting for the ~~year.~~assistance, and (iii) the effect of the assistance on an entity’s financial statements. This update requires certain annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy, including (i) information about the nature of the transactions and the related accounting policy used to account for them, (ii) the line items on the balance sheet and income statement that are affected by the transactions, and the amounts applicable to each line item, and (iii) significant terms and conditions of the transactions, including commitments and contingencies.

The amendments are effective for fiscal years beginning after December 15, ~~2020, and interim periods within those fiscal years.~~2021. The adoption of this ASU did not have any significant impact on our consolidated financial statements.

2. Recent accounting pronouncements not yet adopted

3. Segment information

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 base~~asset-based measure.

C. Segment net sales and disaggregated net sales

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.

North America, excluding U.S.

EMEA(1), excluding U.K.

North America, excluding U.S.

EMEA(1), excluding U.K.

(1) Europe, Middle East and Africa (“EMEA”).

~~Table of Contents~~


	Three months ended
(dollars in millions)	April 2, 2022		April 3, 2021
Developed	$	573.1	$	555.0
Emerging	320.3		326.3
Net sales	$	893.4	$	881.3

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 expenses (income) ~~expenses,~~, 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:

• ~~the~~ non-cash charges in relation to share-based compensation;

•transaction-related expenses ~~(income)~~ 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; and

• ~~the net gain or loss~~inventory adjustments related to certain inventories accounted for on ~~disposals and on the exit~~a Last-in First-out (“LIFO”) basis.

Table of ~~businesses; and~~Contents

~~• fees paid to our private equity sponsor for monitoring, advisory and consulting services.~~

Adjusted EBITDA by segment was as follows:


		Three months ended				Six months ended				Three months ended
(dollars in millions)	(dollars in millions)	July 3, 2021		June 27, 2020		July 3, 2021		June 27, 2020			(dollars in millions)	April 2, 2022		April 3, 2021
Power Transmission	Power Transmission	$	149.6	$	57.7	$	282.3	$	137.2		Power Transmission	$	97.8	$	132.7
Fluid Power	Fluid Power	66.4		25.5		130.0		66.8			Fluid Power	59.0		63.6
Continuing operations	Continuing operations	$	216.0	$	83.2	$	412.3	$	204.0		Continuing operations	$	156.8	$	196.3

Reconciliation of net income ~~(loss)~~ from continuing operations to Adjusted EBITDA:
Three months ended Six months ended
(dollars in millions) July 3, 2021 June 27, 2020 July 3, 2021 June 27, 2020
Net income (loss) from continuing operations $ 105.4 $ (27.8) $ 181.9 $ 12.1
Income tax expense (benefit) 11.6 0.6 30.5 (15.5)
Income (loss) from continuing operations before taxes 117.0 (27.2) 212.4 (3.4)
Interest expense 33.3 34.3 67.7 71.0
Other income (1.2) (3.7) (2.4) (5.8)
Operating income from continuing operations 149.1 3.4 277.7 61.8
Depreciation and amortization 56.9 54.7 112.7 109.6
Transaction-related expenses (income) (1)
0.2 0 2.6 (0.2)
Asset impairments 0 3.7 0 3.7
Restructuring expenses 3.7 17.2 6.6 19.1
Share-based compensation expense 6.5 5.7 12.8 8.6
Sponsor fees (included in other operating expense) 0 0 0 1.7
Inventory impairments (included in cost of sales) 0.1 1.4 0.1 1.4
Severance expenses (included in cost of sales) 0 0.5 0 0.6
Severance expenses (included in SG&A) 0 0.3 0.3 0.8
Other items not directly related to current operations (0.5) (3.7) (0.5) (3.1)
Adjusted EBITDA $ 216.0 $ 83.2 $ 412.3 $ 204.0


	Three months ended
(dollars in millions)	April 2, 2022		April 3, 2021
Net income from continuing operations	$	37.4	$	76.5
Income tax (benefit) expense	(2.2)		18.9
Income from continuing operations before taxes	35.2		95.4
Interest expense	32.6		34.4
Other expenses (income)	0.6		(1.2)
Operating income from continuing operations	68.4		128.6
Depreciation and amortization	55.1		55.8
Transaction-related expenses (1)	0.8		2.4

Restructuring expenses	0.5		2.9

Share-based compensation expense	24.1		6.3


Inventory impairments and adjustments (2) (included in cost of sales)	7.6		—


Severance expenses (included in SG&A)	0.3		0.3

Adjusted EBITDA	$	156.8	$	196.3

(1) Transaction-related expenses ~~(income)~~ 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.

~~Table of Contents~~

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.

Table of Contents

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				Six months ended				Three months ended
(dollars in millions)	(dollars in millions)	July 3, 2021		June 27, 2020		July 3, 2021		June 27, 2020			(dollars in millions)	April 2, 2022		April 3, 2021
Restructuring expenses:	Restructuring expenses:										Restructuring expenses:
—Severance expenses	—Severance expenses	$	0.4	$	13.6	$	0.9	$	13.8		—Severance expenses	$	—	$	0.5
—Non-severance labor and benefit expenses	—Non-severance labor and benefit expenses	0.6		0		1.4		0			—Non-severance labor and benefit expenses	0.1		0.8
—Consulting expenses	—Consulting expenses	0.8		0.7		1.5		0.9			—Consulting expenses	—		0.7
—Other restructuring expenses		1.9		2.9		2.8		4.4
—Other net restructuring expenses											—Other net restructuring expenses	0.4		0.9
		3.7		17.2		6.6		19.1
Restructuring expenses in asset impairments:
—Impairment of fixed assets		0		3.7		0		3.7

Restructuring expenses in cost of sales:

—Impairment of inventory		0.1		1.4		0.1		1.4

Total restructuring expenses	Total restructuring expenses	$	3.8	$	22.3	$	6.7	$	24.2		Total restructuring expenses	$	0.5	$	2.9

Expenses related to other strategic initiatives:	Expenses related to other strategic initiatives:										Expenses related to other strategic initiatives:
—Severance expenses included in cost of sales		$	0	$	0.5	$	0	$	0.6

—Severance expenses included in SG&A	—Severance expenses included in SG&A	0		0.3		0.3		0.8			—Severance expenses included in SG&A	0.3		0.3

Total expenses related to other strategic initiatives	Total expenses related to other strategic initiatives	$	0	$	0.8	$	0.3	$	1.4		Total expenses related to other strategic initiatives	$	0.3	$	0.3

Restructuring and other strategic initiatives during the three ~~and six~~ months ended ~~July~~April 2, 2022 related primarily to severance and other labor and benefit costs, and facility closures or relocations in several countries.

Expenses incurred in connection with our restructuring and other strategic initiatives during the three months ended April 3, 2021 included ~~$2.1~~$1.2 million ~~and $2.9 million, respectively, of primarily severance and other labor-related expenses~~ related to our European reorganization involving office and distribution center closures or downsizings and the implementation of a regional shared service center, $0.9 million related to the optimization of our Middle East business, and ~~$0.7~~$0.8 million ~~and $1.5 million, respectively,~~ of additional costs related to the closure in 2020 of a manufacturing facility in Korea. ~~In addition, during the six months ended July 3, 2021, we recognized $1.0 million of expenses related to the consolidation of certain of our Middle East businesses.~~

Expenses incurred in connection with our restructuring and other strategic initiatives during the three and six months ended June 27, 2020 related primarily to the June 2020 announcement of plans to close a manufacturing facility in Korea, the closure of 2 North American manufacturing facilities and reductions in workforce, primarily in the U.S., Mexico and Greater China. The closure of the Korean facility, the most significant restructuring activity during the period, resulted in an accrual for severance costs of $12.8 million, an impairment of inventory of $1.4 million (recognized in cost of sales) and an impairment of fixed assets of $3.6 million, included in the asset impairments line in the unaudited condensed consolidated statement of operations.

~~Table of Contents~~

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				Six months ended				Three months ended
(dollars in millions)	(dollars in millions)	July 3, 2021		June 27, 2020		July 3, 2021		June 27, 2020			(dollars in millions)	April 2, 2022		April 3, 2021
Power Transmission	Power Transmission	$	3.0	$	19.8	$	4.6	$	20.0		Power Transmission	$	0.3	$	1.6
Fluid Power	Fluid Power	0.8		2.5		2.1		4.2			Fluid Power	0.2		1.3
Continuing operations	Continuing operations	$	3.8	$	22.3	$	6.7	$	24.2		Continuing operations	$	0.5	$	2.9

The following summarizes the reserve for restructuring expenses for the ~~six~~three months ended ~~July~~April 2, 2022 and April 3, 2021, ~~and June 27, 2020,~~ respectively:


		Six months ended				Three months ended
(dollars in millions)	(dollars in millions)	July 3, 2021		June 27, 2020			(dollars in millions)	April 2, 2022		April 3, 2021
Balance as of the beginning of the period	Balance as of the beginning of the period	$	17.9	$	2.9		Balance as of the beginning of the period	$	6.5	$	17.9
Utilized during the period	Utilized during the period	(12.3)		(4.9)			Utilized during the period	(2.3)		(7.0)
Net charge for the period		7.1		19.6
Charge for the period							Charge for the period	0.5		3.8
Released during the period	Released during the period	(0.5)		(0.5)			Released during the period	—		(0.9)
Foreign currency translation	Foreign currency translation	(0.5)		0.1			Foreign currency translation	(0.2)		(0.6)
Balance as of the end of the period	Balance as of the end of the period	$	11.7	$	17.2		Balance as of the end of the period	$	4.5	$	13.2

Restructuring reserves, which are expected to be utilized during ~~2021~~2022 and ~~2022,~~2023, are included in the condensed consolidated balance sheet within the accrued expenses and other current liabilities line.

Table of Contents

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 ~~July 3, 2021,~~April 2, 2022, we had an income tax ~~expense~~benefit of ~~$11.6~~$2.2 million on pre-tax income of ~~$117.0~~$35.2 million, which resulted in an effective tax rate of ~~9.9%~~(6.3)%, compared to an income tax expense of ~~$0.6~~$18.9 million on pre-tax ~~loss~~income of ~~$27.2~~$95.4 million, which resulted in an effective tax rate of ~~(2.2)%~~19.8% for the three months ended ~~June 27, 2020.~~

~~For the six months ended July~~April 3, 2021, we had an income tax expense of $30.5 million on pre-tax income of $212.4 million, which resulted in an effective tax rate of 14.4%, compared to an income tax benefit of $15.5 million on pre-tax loss of $3.4 million, which resulted in an effective tax rate of 455.9% for the six months ended June 27, 2020.2021.

For the three months ended ~~July 3, 2021,~~April 2, 2022 the effective tax rate was driven primarily by discrete tax benefits of ~~$8.3~~$10.7 million, of which $8.2 million related to the partial ~~release of a~~ valuation allowance release on deferred tax assets for U.S. foreign tax credits, ~~and $6.6 million related to tax law changes enacted in the U.K. during the period.~~offset partially by jurisdictional mix of taxable earnings. For the three months ended ~~June 27, 2020, the effective tax rate was driven primarily by $18.5 million of non-operating costs for which no tax benefit was recognized.~~

~~For the six months ended July~~April 3, 2021, the effective tax rate was driven primarily by ~~the same factors as described above for the three month period. For the six months ended June 27, 2020, the effective tax rate was driven primarily by $21.6 million~~jurisdictional mix of ~~net~~taxable earnings with no significant discrete ~~tax benefits related to audit resolutions and tax law changes, partially offset by $18.5 million of non-operating costs for which no tax benefit was recognized.~~items.

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.

~~Table of Contents~~

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 will 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 impact materially our financial statements.

After weighing all of the evidence, giving more weight to the evidence that was objectively verifiable, we determined during the three months ended April 2, 2022, that ~~as of July 3, 2021,~~ it is more likely than not that deferred tax assets in the U.S. totaling ~~$8.3~~$8.2 million are realizable. As a result of changes in estimates of future taxable profits against which the foreign tax credits can be utilized, our judgment changed regarding valuation allowances on these deferred tax assets.

6. Earnings ~~(loss)~~ per share

Basic earnings ~~(loss)~~ per share represents net income ~~(loss)~~ attributable to shareholders divided by the weighted average number of shares outstanding during the period. Diluted earnings ~~(loss)~~ 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 ~~(loss)~~ per share is presented below:
Three months ended Six months ended
(dollars in millions, except share numbers and per share amounts) July 3, 2021 June 27, 2020 July 3, 2021 June 27, 2020
Net income (loss) attributable to shareholders $ 96.9 $ (22.4) $ 164.2 $ 13.2
Weighted average number of shares outstanding 291,696,946 290,732,375 291,432,153 290,566,743
Dilutive effect of share-based awards 6,077,196 0 5,524,477 1,149,764
Diluted weighted average number of shares outstanding 297,774,142 290,732,375 296,956,630 291,716,507
Number of anti-dilutive shares excluded from the diluted
earnings (loss) per share calculation 2,200,770 6,317,804 4,340,852 5,597,575
Basic earnings (loss) per share $ 0.33 $ (0.08) $ 0.56 $ 0.05
Diluted earnings (loss) per share $ 0.33 $ (0.08) $ 0.55 $ 0.05

~~7. Inventories~~
(dollars in millions)
As of
July 3, 2021
As of
January 2, 2021
Raw materials and supplies $ 172.4 $ 135.1
Work in progress 40.2 34.3
Finished goods 375.9 338.8
Total inventories $ 588.5 $ 508.2

~~8. Goodwill~~
(dollars in millions) Power
Transmission Fluid
Power Total
Cost and carrying amount
As of January 2, 2021 $ 1,434.4 $ 685.8 $ 2,120.2
Foreign currency translation (18.3) 0.7 (17.6)
As of July 3, 2021 $ 1,416.1 $ 686.5 $ 2,102.6


	Three months ended
(dollars in millions, except share numbers and per share amounts)	April 2, 2022		April 3, 2021
Net income attributable to shareholders	$	30.9	$	67.3

Weighted average number of shares outstanding	290,448,906		291,166,994
Dilutive effect of share-based awards	5,789,306		5,196,273
Diluted weighted average number of shares outstanding	296,238,212		296,363,267

Number of anti-dilutive shares excluded from diluted earnings per share calculation	4,683,085		4,387,520

Basic earnings per share	$	0.11	$	0.23
Diluted earnings per share	$	0.10	$	0.23

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7. Inventories


(dollars in millions)	As of April 2, 2022		As of January 1, 2022
Raw materials and supplies	$	211.8	$	199.6
Work in progress	49.4		43.4
Finished goods	457.1		439.6
Total inventories	$	718.3	$	682.6

8. Goodwill


(dollars in millions)	Power Transmission		Fluid Power		Total
Cost and carrying amount
As of January 1, 2022	$	1,388.1	$	674.9	$	2,063.0

Foreign currency translation	(16.0)		2.9		(13.1)
As of April 2, 2022	$	1,372.1	$	677.8	$	2,049.9

9. Intangible assets


		As of July 3, 2021						As of January 2, 2021							As of April 2, 2022						As of January 1, 2022
(dollars in millions)	(dollars in millions)	Cost		Accumulated amortization and impairment		Net		Cost		Accumulated amortization and impairment		Net		(dollars in millions)	Cost		Accumulated amortization and impairment		Net		Cost		Accumulated amortization and impairment		Net
Finite-lived:	Finite-lived:													Finite-lived:
—Customer relationships	—Customer relationships	$	2,057.2	$	(852.0)	$	1,205.2	$	2,073.0	$	(796.9)	$	1,276.1	—Customer relationships	$	2,020.2	$	(926.3)	$	1,093.9	$	2,031.7	$	(901.6)	$	1,130.1
—Technology	—Technology	91.0		(89.0)		2.0		90.9		(88.5)		2.4		—Technology	90.8		(89.4)		1.4		90.9		(89.4)		1.5
—Capitalized software	—Capitalized software	92.7		(52.9)		39.8		89.9		(49.2)		40.7		—Capitalized software	98.1		(59.3)		38.8		97.8		(56.6)		41.2
		2,240.9		(993.9)		1,247.0		2,253.8		(934.6)		1,319.2			2,209.1		(1,075.0)		1,134.1		2,220.4		(1,047.6)		1,172.8
Indefinite-lived:	Indefinite-lived:													Indefinite-lived:
—Brands and trade names	—Brands and trade names	513.4		(44.0)		469.4		513.4		(44.0)		469.4		—Brands and trade names	513.4		(44.0)		469.4		513.4		(44.0)		469.4
Total intangible assets	Total intangible assets	$	2,754.3	$	(1,037.9)	$	1,716.4	$	2,767.2	$	(978.6)	$	1,788.6	Total intangible assets	$	2,722.5	$	(1,119.0)	$	1,603.5	$	2,733.8	$	(1,091.6)	$	1,642.2

During the three months ended ~~July 3, 2021,~~April 2, 2022, the amortization expense recognized in respect of intangible assets was ~~$33.2~~$33.0 million, compared to ~~$31.7~~$33.4 million for the three months ended ~~June 27, 2020. In addition, movements in foreign currency exchange rates resulted in an increase in the net carrying value of total intangible assets of $5.7 million for the three months ended July~~April 3, ~~2021, compared to an increase of $11.2 million for the three months ended June 27, 2020.~~

~~During the six months ended July 3, 2021, the amortization expense recognized in respect of intangible assets was $66.6 million, compared to $63.9 million for the six months ended June 27, 2020.~~2021. In addition, movements in foreign currency exchange rates resulted in a decrease in the net carrying value of total intangible assets of ~~$9.3~~$6.5 million for the ~~six~~three months ended ~~July 3, 2021,~~April 2, 2022, compared to a decrease of ~~$27.2~~$15.0 million for the ~~six~~three months ended ~~June 27, 2020.~~April 3, 2021.

10. Derivative financial instruments

We are exposed to certain 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.

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The period end fair values of derivative financial instruments were as follows:


		As of July 3, 2021										As of January 2, 2021											As of April 2, 2022										As of January 1, 2022
(dollars in millions)	(dollars in millions)	Prepaid expenses and other assets		Other non- current assets		Accrued expenses and other current liabilities		Other non- current liabilities		Net		Prepaid expenses and other assets		Other non- current assets		Accrued expenses and other current liabilities		Other non- current liabilities		Net		(dollars in millions)	Prepaid expenses and other assets		Other non- current assets		Accrued expenses and other current liabilities		Other non- current liabilities		Net		Prepaid expenses and other assets		Other non- current assets		Accrued expenses and other current liabilities		Other non- current liabilities		Net
Derivatives designated as hedging instruments:	Derivatives designated as hedging instruments:																					Derivatives designated as hedging instruments:
—Currency swaps	—Currency swaps	$	0	$	—	$	(31.5)	$	0	$	(31.5)	$	1.1	$	—	$	—	$	(42.6)	$	(41.5)	—Currency swaps	$	5.1	$	—	$	—	$	(19.4)	$	(14.3)	$	—	$	—	$	(19.8)	$	—	$	(19.8)
—Interest rate caps	—Interest rate caps	—		—		(1.3)		(1.3)		(2.6)		—		—		(1.4)		(2.0)		(3.4)		—Interest rate caps	—		—		(1.2)		—		(1.2)		—		—		(1.3)		(0.5)		(1.8)
—Interest rate swaps	—Interest rate swaps	—		1.3		(13.4)		(32.2)		(44.3)		—		—		(13.4)		(43.6)		(57.0)		—Interest rate swaps	5.8		33.4		(10.7)		(24.2)		4.3		—		7.7		(12.9)		(26.9)		(32.1)

Derivatives not designated as hedging instruments:	Derivatives not designated as hedging instruments:																					Derivatives not designated as hedging instruments:

—Currency forward contracts	—Currency forward contracts	1.5		—		(0.2)		—		1.3		0.6		—		(1.9)		—		(1.3)		—Currency forward contracts	3.7		—		(0.4)		—		3.3		2.9		—		(0.6)		—		2.3
		$	1.5	$	1.3	$	(46.4)	$	(33.5)	$	(77.1)	$	1.7	$	0	$	(16.7)	$	(88.2)	$	(103.2)		$	14.6	$	33.4	$	(12.3)	$	(43.6)	$	(7.9)	$	2.9	$	7.7	$	(34.6)	$	(27.4)	$	(51.4)

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 operations. As of ~~July 3, 2021~~April 2, 2022 and January ~~2, 2021,~~1, 2022, the notional principal amount of these contracts was $270.0 million. During ~~July 2019,~~March 2022, we extended ~~the maturity of~~ these ~~contracts from~~swaps, which originally matured on March ~~2020~~2022, to now mature on March ~~2022.~~31, 2027. In addition, we have designated €147.0 million of our Euro-denominated debt as a net investment hedge of certain of our European operations.

The fair value ~~(losses)~~ gains before tax recognized in OCI in relation to the instruments designated as net investment hedging instruments were as follows:


		Three months ended				Six months ended					Three months ended
(dollars in millions)	(dollars in millions)	July 3, 2021		June 27, 2020		July 3, 2021		June 27, 2020		(dollars in millions)		April 2, 2022		April 3, 2021
Net fair value (losses) gains recognized in OCI in relation to:
Net fair value gains recognized in OCI in relation to:										Net fair value gains recognized in OCI in relation to:
—Euro-denominated debt	—Euro-denominated debt	$	(1.0)	$	(2.1)	$	5.7	$	(0.6)	—Euro-denominated debt		$	5.1	$	6.7
—Designated cross currency swaps	—Designated cross currency swaps	(1.7)		(3.7)		9.8		(1.2)		—Designated cross currency swaps		5.2		11.5
Total net fair value (losses) gains		$	(2.7)	$	(5.8)	$	15.5	$	(1.8)
Total net fair value gains										Total net fair value gains		$	10.3	$	18.2

During the three ~~and six~~ months ended ~~July 3, 2021,~~April 2, 2022, a net gain of ~~$0.4~~$0.6 million ~~and $0.9 million, respectively,~~ 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 ~~$1.3~~$0.5 million ~~and $2.9 million, respectively,~~ during the three ~~and six~~ months ended ~~June 27, 2020.~~April 3, 2021.

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 ~~July 3, 2021~~both April 2, 2022 and January ~~2, 2021,~~1, 2022, we held pay-fixed, receive-floating interest rate swaps with an aggregate notional amount of $870.0 million, which run from June 30, 2020 through June 30, 2025.

Our interest rate caps involve the receipt of variable rate payments from a counterparty if interest rates rise above the strike rate on the contract in exchange for a premium. As of both ~~July 3, 2021~~April 2, 2022 and January ~~2, 2021,~~1, 2022, the notional amount of ~~our~~the interest rate caps outstanding was ~~€425.0~~€425 million, covering the period from July 1, 2019 to June 30, 2023.

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The movements before tax recognized in OCI in relation to our cash flow hedges were as follows:


		Three months ended				Six months ended					Three months ended
(dollars in millions)	(dollars in millions)	July 3, 2021		June 27, 2020		July 3, 2021		June 27, 2020		(dollars in millions)		April 2, 2022		April 3, 2021
Movement recognized in OCI in relation to:	Movement recognized in OCI in relation to:									Movement recognized in OCI in relation to:
—Fair value (loss) gain on cash flow hedges		$	(3.6)	$	(10.6)	$	6.1	$	(26.5)
—Fair value gain on cash flow hedges										—Fair value gain on cash flow hedges		$	33.4	$	9.7
—Amortization to net income of prior period fair value losses	—Amortization to net income of prior period fair value losses	4.5		0		8.9		0		—Amortization to net income of prior period fair value losses		4.4		4.4
—Deferred premium reclassified from OCI to net income		0.9		1.9		1.8		3.6
—Reclassification from OCI to net income										—Reclassification from OCI to net income		1.1		0.9
Total movement	Total movement	$	1.8	$	(8.7)	$	16.8	$	(22.9)	Total movement		$	38.9	$	15.0

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 ~~July 3, 2021~~April 2, 2022 and January ~~2, 2021,~~1, 2022, there were no outstanding currency swaps.

As of ~~July 3, 2021,~~April 2, 2022, the notional amount of outstanding currency forward contracts that are used to manage operational foreign exchange exposures was ~~$126.7~~$174.7 million, compared to ~~$87.6~~$171.9 million as of January ~~2, 2021.~~1, 2022.

The fair value gains ~~(losses)~~ recognized in net income in relation to derivative instruments that have not been designated as hedging instruments were as follows:


		Three months ended				Six months ended					Three months ended
(dollars in millions)	(dollars in millions)	July 3, 2021		June 27, 2020		July 3, 2021		June 27, 2020		(dollars in millions)		April 2, 2022		April 3, 2021
Fair value gains (losses) recognized in relation to:
Fair value gains recognized in relation to:										Fair value gains recognized in relation to:
—Currency forward contracts recognized in SG&A	—Currency forward contracts recognized in SG&A	$	0.2	$	(0.8)	$	2.0	$	(0.5)	—Currency forward contracts recognized in SG&A		$	2.5	$	1.8
—Currency swaps recognized in other income		0		0.4		0		0.9

Total	Total	$	0.2	$	(0.4)	$	2.0	$	0.4	Total		$	2.5	$	1.8

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.

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The carrying amount and fair value of our debt are set out below:


		As of July 3, 2021				As of January 2, 2021					As of April 2, 2022				As of January 1, 2022
(dollars in millions)	(dollars in millions)	Carrying amount		Fair value		Carrying amount		Fair value		(dollars in millions)	Carrying amount		Fair value		Carrying amount		Fair value
Current	Current	$	39.1	$	38.8	$	42.7	$	42.3	Current	$	29.4	$	29.0	$	38.1	$	37.9
Non-current	Non-current	2,559.6		2,592.6		2,666.0		2,700.0		Non-current	2,573.2		2,565.8		2,526.5		2,553.0
		$	2,598.7	$	2,631.4	$	2,708.7	$	2,742.3		$	2,602.6	$	2,594.8	$	2,564.6	$	2,590.9

Debt is comprised principally of borrowings under the secured credit facilities and the unsecured senior notes. Loans under the secured credit facilities pay interest at floating rates, subject to a 0.75% LIBOR floor on the Dollar Term Loan and a 0% EURIBOR floor on the Euro Term Loan. 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.

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)	(dollars in millions)	Quoted prices in active markets (Level 1)		Significant observable inputs (Level 2)		Total		(dollars in millions)	Quoted prices in active markets (Level 1)		Significant observable inputs (Level 2)		Total
As of July 3, 2021
As of April 2, 2022								As of April 2, 2022
Equity investments	Equity investments	$	1.4	$	0	$	1.4	Equity investments	$	0.6	$	—	$	0.6
Derivative assets	Derivative assets	$	0	$	2.8	$	2.8	Derivative assets	$	—	$	48.0	$	48.0
Derivative liabilities	Derivative liabilities	$	0	$	(79.9)	$	(79.9)	Derivative liabilities	$	—	$	(55.9)	$	(55.9)

As of January 2, 2021
As of January 1, 2022								As of January 1, 2022
Equity investments	Equity investments	$	2.1	$	0	$	2.1	Equity investments	$	0.6	$	—	$	0.6
Derivative assets	Derivative assets	$	0	$	1.7	$	1.7	Derivative assets	$	—	$	10.6	$	10.6
Derivative liabilities	Derivative liabilities	$	0	$	(104.9)	$	(104.9)	Derivative liabilities	$	—	$	(62.0)	$	(62.0)

Equity investments represent equity securities that are traded in an active market and therefore are measured using quoted prices in an active market. Derivative assets and liabilities included in Level 2 represent foreign currency exchange forward and swap contracts, and interest rate derivative contracts.

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. ~~NaN~~No significant impairment was recognized during either the three ~~and six~~ months ended ~~July~~April 2, 2022 or the three months ended April 3, 2021. Impairments of property, plant and equipment of $3.7 million were recognized in relation to restructuring and other strategic initiatives, primarily the closure of our manufacturing facility in Korea, for the three and six months ended June 27, 2020.

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12. Debt


(dollars in millions)	(dollars in millions)	As of July 3, 2021		As of January 2, 2021		(dollars in millions)	As of April 2, 2022		As of January 1, 2022
Secured debt:	Secured debt:					Secured debt:
—Dollar Term Loan	—Dollar Term Loan	$	1,370.5	$	1,377.4	—Dollar Term Loan	$	1,360.2	$	1,363.7
—Euro Term Loan	—Euro Term Loan	677.4		775.2		—Euro Term Loan	625.8		647.5
—Asset-backed revolver						—Asset-backed revolver	70.0		—
Unsecured debt:	Unsecured debt:					Unsecured debt:
—6.25% Dollar Senior Notes due 2026	—6.25% Dollar Senior Notes due 2026	568.0		568.0		—6.25% Dollar Senior Notes due 2026	568.0		568.0
—Other loans		0		0.2

Total principal of debt	Total principal of debt	2,615.9		2,720.8		Total principal of debt	2,624.0		2,579.2
Deferred issuance costs	Deferred issuance costs	(34.8)		(29.4)		Deferred issuance costs	(29.8)		(31.5)
Accrued interest	Accrued interest	17.6		17.3		Accrued interest	8.4		16.9
Total carrying value of debt	Total carrying value of debt	2,598.7		2,708.7		Total carrying value of debt	2,602.6		2,564.6
Debt, current portion	Debt, current portion	39.1		42.7		Debt, current portion	29.4		38.1
Debt, less current portion	Debt, less current portion	$	2,559.6	$	2,666.0	Debt, less current portion	$	2,573.2	$	2,526.5

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 redemptions~~

During June 2021, we made a principal debt repayment of €58.7 million ($69.5 million) against our Euro Term Loan facility. As a result of this repayment, we accelerated the recognition of $0.4 million of deferred issuance costs (recognized in interest expense).

Dollar and Euro Term Loans

Our secured credit facilities include a Dollar Term Loan credit facility and a Euro Term Loan credit facility that were drawn on July 3, 2014. 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, LIBOR plus an applicable margin. The Euro Term Loan matures on March 31, 2024. ~~During~~On February 24, 2021, we made amendments to the Dollar Term Loan credit agreement, including extending the maturity date of the Dollar Term Loan, from March 31, 2024 to March 31, 2027, reducing the floor applicable to the Dollar Term Loan from 1.00% to 0.75% and modifying the applicable interest rate margin for the Dollar Term Loan to include a 0.25% reduction if our consolidated total net leverage ratio (as defined in the credit agreement) is less than or equal to 3.75 times. In connection with ~~this amendment,~~these amendments, we paid accrued interest up to the date of the ~~amendment~~amendments of $3.7 million, in addition to fees of $8.6 million, of which $6.9 million qualified for deferral and will be amortized to interest expense over the new remaining term of the Dollar Term Loan using the effective interest method.

The Dollar Term Loan interest rate is currently LIBOR, subject to a floor of 0.75%, plus a margin of ~~2.75%~~2.50%, and as of ~~July 3, 2021,~~April 2, 2022, borrowings under this facility bore interest at a rate of ~~3.50%~~3.25% per annum. The Dollar Term Loan interest rate is re-set on the last business day of each month.

As of ~~July 3, 2021,~~April 2, 2022, the Euro Term Loan bore interest at EURIBOR, which is currently below 0%, subject to a floor of 0%, plus a margin of 3.00%. The Euro Term Loan interest rate is re-set on the last business day of each quarter.

Both 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 ~~six~~three months ended ~~July~~April 2, 2022, we made amortization payments against the Dollar Term Loan and the Euro Term Loan of $3.4 million and $1.8 million, respectively. During the three months ended April 3, 2021, we made amortization payments against the Dollar Term Loan and the Euro Term Loan of ~~$6.9~~$3.5 million and ~~$3.9~~$1.9 million, respectively. ~~During the six months ended June 27, 2020, we made amortization payments against the Dollar Term Loan and the Euro Term Loan of $8.7 million and $3.7 million, respectively.~~

~~Table of Contents~~

Under the terms of the credit agreement, we are obligated 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 ~~2020~~2021 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 ~~2021.~~2022.

Table of Contents

During the periods presented, foreign exchange ~~(losses)~~ gains were recognized in respect of the Euro Term Loans as summarized in the table below. As a portion of the facility was designated as a net investment hedge of certain of our Euro investments, a corresponding portion of the foreign exchange ~~(losses)~~ gains were recognized in OCI.
Three months ended Six months ended
(dollars in millions) July 3, 2021 June 27, 2020 July 3, 2021 June 27, 2020
(Loss) gain recognized in statement of operations $ (3.4) $ (6.9) $ 18.7 $ (2.0)
(Loss) gain recognized in OCI (1.0) (2.1) 5.7 (0.6)
Total (loss) gain $ (4.4) $ (9.0) $ 24.4 $ (2.6)


	Three months ended
(dollars in millions)	April 2, 2022		April 3, 2021
Gain recognized in statement of operations	$	14.7	$	22.1
Gain recognized in OCI	5.1		6.7
Total gain	$	19.8	$	28.8

The above net foreign exchange ~~(losses)~~ gains recognized in the other ~~income~~expenses (income) line of the condensed consolidated statement of operations have been substantially offset by net foreign exchange movements on Euro-denominated intercompany loans as part of our overall hedging strategy.

A wholly-owned U.S. subsidiary of Gates Global LLC ~~(the term loan borrower and an indirect subsidiary of Gates Industrial Corporation plc)~~ is the principal obligor under the ~~term loans~~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 ~~July 3, 2021,~~April 2, 2022, 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.

On and after January 15, 2022, we may redeem the Dollar Senior Notes, at our option, in whole at any time or in part from time to time, at the following redemption prices (expressed as a percentage of the principal amount), plus accrued and unpaid interest to the redemption date:


	Redemption price
During the year commencing:
—2022	103.125	%
—2023	101.563	%
—2024 and thereafter	100.000	%

Additionally, net cash proceeds from an equity offering can be utilized at any time prior to January 15, 2022, to redeem up to 40% of the notes at a redemption price equal to 106.250% of the principal amount thereof, plus accrued and unpaid interest through 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~~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 ~~also~~ have a secured revolving credit facility ~~maturing on January 29, 2023,~~ that provides for multi-currency revolving ~~loans up~~loans. On November 18, 2021, we amended the credit agreement governing this facility to, ~~an aggregate principal amount~~among other things, increase the size of the facility from $185.0 million ~~with a~~to $250.0 million, extend the maturity date from January 29, 2023 to November 18, 2026 (subject to certain springing maturities related to our Euro Term Loan and Unsecured Senior Notes if more than $500.0 million is outstanding in respect of either such facility 91 days prior to their respective maturities), and increase the letter of credit sub-facility from $20.0 million to $75.0 million.

In connection with these amendments, we paid fees of ~~$20.0 million.~~$2.0 million, which have been deferred and will, together with existing deferred issuance costs related to this facility, be amortized to interest expense over the new term of the facility on a straight-line basis.

As of both ~~July 3, 2021~~April 2, 2022 and January ~~2, 2021,~~1, 2022, there were 0no drawings for cash under the revolving credit facility and there were 0no 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, LIBOR, plus an applicable margin.

1917

Table of Contents

Asset-backed revolver

We also have a revolving credit facility ~~maturing on January 29, 2023,~~ backed by certain of our assets in North America. ~~The~~On November 18, 2021, we amended the credit agreement governing this facility ~~allows for loans of up~~ to, aamong other things, reduce the maximum offacility size from $325.0 million to $250.0 million ($~~256.3~~250.0 million as of ~~July 3, 2021,~~April 2, 2022, compared to ~~$230.2~~$240.4 million as of January ~~2, 2021,~~1, 2022, based on the values of the secured assets on those dates) ~~with~~, and extended the maturity date from January 29, 2023 to November 18, 2026 (subject to certain springing maturities related to our Euro Term Loan and Unsecured Senior Notes if more than $500.0 million is outstanding in respect of either such facility 91 days prior to their respective maturities). The facility also allows for a letter of credit sub-facility of $150.0 million within the $250.0 million maximum.

In connection with these amendments, we paid fees of $1.3 million, which have been deferred and will, together with existing deferred issuance costs related to this ~~maximum.~~facility, be amortized to interest expense over the new term of the facility on a straight-line basis.

As of ~~both July 3, 2021 and~~April 2, 2022, we had a balance of $70.0 million outstanding under the asset-backed revolver following a drawing in March 2022 to facilitate the share repurchase transaction discussed further in note 15. As of January ~~2, 2021,~~1, 2022, there were 0no drawings for cash under ~~the asset-backed revolver, but there were~~this facility. The letters of credit outstanding ~~of $29.1~~under this facility were $41.9 million and ~~$28.5~~$45.3 million as of April 2, 2022 and January 1, 2022, respectively.

Debt under the 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, LIBOR, plus an applicable margin.

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 ~~(income)~~ cost

The components of the net periodic benefit ~~(income)~~ cost for pensions and other post-retirement benefits were as follows:
Three months ended July 3, 2021 Three months ended June 27, 2020
(dollars in millions) Pensions Other post-retirement benefits Total Pensions Other post-retirement benefits Total
Reported in operating income:
—Employer service cost $ 1.0 $ 0 $ 1.0 $ 1.4 $ 0 $ 1.4
Reported outside of operating income:
—Interest cost 3.4 0.3 3.7 4.5 0.4 4.9
—Expected return on plan assets (4.8) 0 (4.8) (5.4) 0 (5.4)
—Net amortization of prior period losses (gains) 0.3 (0.3) 0 0.2 (0.4) (0.2)
Net periodic benefit (income) cost $ (0.1) $ 0 $ (0.1) $ 0.7 $ 0 $ 0.7
Contributions $ 2.2 $ 1.0 $ 3.2 $ 1.5 $ 0.9 $ 2.4


		Six months ended July 3, 2021						Six months ended June 27, 2020							Three months ended April 2, 2022						Three months ended April 3, 2021
(dollars in millions)	(dollars in millions)	Pensions		Other post-retirement benefits		Total		Pensions		Other post-retirement benefits		Total		(dollars in millions)	Pensions		Other post-retirement benefits		Total		Pensions		Other post-retirement benefits		Total
Reported in operating income:	Reported in operating income:													Reported in operating income:
—Employer service cost	—Employer service cost	$	2.1	$	0	$	2.1	$	2.8	$	0	$	2.8	—Employer service cost	$	0.9	$	—	$	0.9	$	1.1	$	—	$	1.1
Reported outside of operating income:	Reported outside of operating income:													Reported outside of operating income:
—Interest cost	—Interest cost	6.8		0.6		7.4		9.1		0.8		9.9		—Interest cost	4.0		0.3		4.3		3.4		0.3		3.7
—Expected return on plan assets	—Expected return on plan assets	(9.7)		0		(9.7)		(10.9)		0		(10.9)		—Expected return on plan assets	(5.7)		—		(5.7)		(4.9)		—		(4.9)
—Net amortization of prior period losses (gains)	—Net amortization of prior period losses (gains)	0.7		(0.7)		0		0.5		(0.7)		(0.2)		—Net amortization of prior period losses (gains)	0.3		(0.5)		(0.2)		0.4		(0.4)		—

Net periodic benefit (income) cost		$	(0.1)	$	(0.1)	$	(0.2)	$	1.5	$	0.1	$	1.6
Net periodic benefit cost														Net periodic benefit cost	$	(0.5)	$	(0.2)	$	(0.7)	$	—	$	(0.1)	$	(0.1)

Contributions	Contributions	$	5.1	$	2.3	$	7.4	$	3.2	$	2.1	$	5.3	Contributions	$	2.0	$	1.2	$	3.2	$	2.9	$	1.3	$	4.2

The components of the above net periodic benefit ~~(income)~~ cost for pensions and other post-retirement benefits that are reported outside of operating income are all included in the other ~~income~~expenses (income) line in the condensed consolidated statement of operations.

For ~~2021~~2022 as a whole, we expect to contribute approximately ~~$10.6~~$10 million to our defined benefit pension plans and approximately ~~$5.8~~$4 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 ~~and six~~ months ended ~~July 3, 2021,~~April 2, 2022, we recognized a charge of ~~$6.5~~$24.1 million, ~~and $12.8 million, respectively,~~ compared to ~~$5.7~~$6.3 million ~~and $8.6 million, respectively,~~ in the ~~six~~three months ended ~~June 27, 2020.~~April 3, 2021.

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. No new awards have been granted under this plan since 2017. The options are 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 our majority owners, who are various investment funds managed by affiliates of ~~The~~ Blackstone ~~Group~~ 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 be 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. In connection with this vesting, a one-time share-based compensation charge of $16.1 million was recognized. The performance hurdles for the Tier III awards have not yet been met and these options therefore remain unvested as of April 2, 2022.

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 RSUs.

New awards and movements in existing awards granted under this plan are summarized in the tables below.

As of ~~July 3, 2021,~~April 2, 2022, the aggregate intrinsic value of options that were exercisable was $70.7 million, and these options had a weighted average remaining contractual term of 4.2 years. As of April 2, 2022, the aggregate intrinsic value of options that were vested or expected to vest was ~~$47.9~~$73.9 million, and these options had a weighted average remaining contractual term of ~~6.6 years. As of July 3, 2021, the aggregate intrinsic value of options that were exercisable was $32.6 million, and these options had a weighted average remaining contractual term of 5.5~~4.6 years.

As of ~~July 3, 2021,~~April 2, 2022, the unrecognized compensation charge relating to the nonvested options other than Tier ~~II, Tier~~ III ~~and Tier IV~~ options, was ~~$9.5~~$4.1 million, which is expected to be recognized over a weighted-average period of ~~1.8~~1.4 years. The unrecognized compensation charge relating to the nonvested Tier ~~II, Tier~~ III ~~and Tier IV~~ options was ~~$23.8~~$7.2 million, which will be recognized if certain specified investment returns are achieved by Blackstone prior to the expiration of the performance period of these options on ~~occurrence of a liquidity event as described above.~~July 3, 2022.

During the three ~~and six~~ months ended ~~July 3, 2021,~~April 2, 2022, cash of ~~$2.0~~$0.2 million ~~and $3.7 million, respectively,~~ was received in relation to the exercise of vested options, compared to ~~$0.6~~$1.7 million ~~and $2.7 million, respectively,~~ during the three ~~and six~~ months ended ~~June 27, 2020.~~April 3, 2021. The aggregate intrinsic value of options exercised during the three ~~and six~~ months ended ~~July 3, 2021~~April 2, 2022 was ~~$2.4~~$0.1 million, ~~and $4.3 million, respectively,~~ compared to ~~$0.1~~$1.9 million ~~and $2.1 million, respectively,~~ during the three ~~and six~~ months ended ~~June 27, 2020.~~April 3, 2021.

Summary of movements in RSUs and PRSUs outstanding


		Six months ended July 3, 2021			Three months ended April 2, 2022
		Number of awards	Weighted average grant date fair value $				Number of awards	Weighted average grant date fair value $
Outstanding at the beginning of the period:	Outstanding at the beginning of the period:					Outstanding at the beginning of the period:
—RSUs	—RSUs	1,583,910	$	12.88		—RSUs	1,744,405	$	13.98
—PRSUs	—PRSUs	571,650	$	16.45		—PRSUs	883,978	$	16.98
		2,155,560	$	13.83			2,628,383	$	14.99
Granted during the period:	Granted during the period:					Granted during the period:
—RSUs	—RSUs	891,212	$	15.10		—RSUs	1,271,922	$	15.76
—PRSUs	—PRSUs	325,052	$	17.92		—PRSUs	425,670	$	17.23
		1,216,264	$	15.86			1,697,592	$	16.13
Forfeited during the period:	Forfeited during the period:					Forfeited during the period:
—RSUs	—RSUs	(99,747)	$	13.54		—RSUs	(38,598)	$	13.59
—PRSUs	—PRSUs	(12,724)	$	16.97		—PRSUs	(120,458)	$	22.47
		(112,471)	$	13.93			(159,056)	$	20.31

Vested during the period:	Vested during the period:					Vested during the period:
—RSUs	—RSUs	(617,056)	$	13.12		—RSUs	(752,208)	$	13.79

—PRSUs						—PRSUs	(80,308)	16.46
		(617,056)	$	13.12			(832,516)	$	14.04
Outstanding at the end of the period:	Outstanding at the end of the period:					Outstanding at the end of the period:
—RSUs	—RSUs	1,758,319	$	13.89		—RSUs	2,225,521	$	15.07
—PRSUs	—PRSUs	883,978	$	16.98		—PRSUs	1,108,882	$	16.52
		2,642,297	$	14.92			3,334,403	$	15.55

As of ~~July 3, 2021,~~April 2, 2022, the unrecognized compensation charge relating to nonvested RSUs and PRSUs was ~~$23.0~~$36.9 million, which is expected to be recognized over a weighted average period of ~~1.9~~2.1 years, subject, where relevant, to the achievement of the performance conditions described above. The total fair value of RSUs and PRSUs vested during the three ~~and six~~ months ended ~~July 3, 2021~~April 2, 2022 was ~~$0.4~~$11.7 million, ~~and $8.1 million, respectively,~~ compared to $0$3.1 million ~~and $2.7 million, respectively,~~ during the three ~~and six~~ months ended ~~June 27, 2020.~~April 3, 2021.

Valuation of awards granted during the period

The Company has 1 class of authorized and issued shares, with a par value of $0.01, and each share has equal voting rights.

In November 2021, the Company established a repurchase program allowing for up to $200 million in authorized share repurchases. During the three months ended April 2, 2022, Gates repurchased 11,465,917 shares at an aggregate cost of $174.7 million, and incurred an additional $1.2 million of costs related directly to these repurchases. All shares repurchased were cancelled, except for 8,000,000 shares repurchased in March 2022 as described further below, which remained uncancelled at April 2, 2022, and are accordingly reflected as treasury shares. These shares are expected to be cancelled during May 2022.

On March 24, 2022, the Company, certain selling shareholders affiliated with Blackstone Inc. and Citigroup Global Markets Inc. (“Citigroup”) entered into an underwriting agreement pursuant to which the selling shareholders agreed to sell to Citigroup 5,000,000 ordinary shares of the Company at a price of $15.14 per ordinary share (the “Offering”). The selling shareholders also granted to Citigroup an option to purchase up to 750,000 additional ordinary shares of the Company; this option was exercised in full on March 25, 2022. The Company did not receive any proceeds from the sale of ordinary shares in the Offering, which closed on March 30, 2022.

In connection with the Offering, the Company repurchased 8,000,000 ordinary shares through Citigroup from the same selling shareholders at a price of $15.14 per ordinary share for an aggregate consideration of $121.1 million, plus costs directly related to the transaction of $0.8 million. This repurchase was funded by cash on hand and a borrowing of $70.0 million under Gates’ asset-backed revolving credit facility.

16. Analysis of accumulated other comprehensive ~~loss~~(loss) income

Changes in accumulated other comprehensive ~~loss~~(loss) income by component, net of tax, were as follows:

(dollars in millions) Post- retirement benefits Cumulative translation adjustment Cash flow hedges Accumulated OCI attributable to shareholders Non-controlling interests Accumulated OCI
As of December 28, 2019 $ (9.3) $ (812.3) $ (36.8) $ (858.4) $ (46.0) $ (904.4)
Foreign currency translation 1.3 (159.8) — (158.5) (4.1) (162.6)
Cash flow hedges movements — — (19.2) (19.2) — (19.2)
Post-retirement benefit movements (0.1) — — (0.1) — (0.1)
Other comprehensive income (loss) 1.2 (159.8) (19.2) (177.8) (4.1) (181.9)
As of June 27, 2020 $ (8.1) $ (972.1) $ (56.0) $ (1,036.2) $ (50.1) $ (1,086.3)


(dollars in millions)	Post- retirement benefits		Cumulative translation adjustment		Cash flow hedges		Accumulated OCI attributable to shareholders		Non-controlling interests		Accumulated OCI
As of January 2, 2021	$	14.9	$	(770.2)	$	(50.1)	$	(805.4)	$	(18.1)	$	(823.5)
Foreign currency translation	—		(39.8)		—		(39.8)		(10.0)		(49.8)
Cash flow hedges movements	—		—		12.1		12.1		—		12.1

Other comprehensive (loss) income	—		(39.8)		12.1		(27.7)		(10.0)		(37.7)
As of April 3, 2021	$	14.9	$	(810.0)	$	(38.0)	$	(833.1)	$	(28.1)	$	(861.2)

17. Related party transactions

A. Entities affiliated with Blackstone

In January 2018, Gates and Blackstone Management Partners L.L.C. (“BMP”) and Blackstone Tactical Opportunities Advisors L.L.C., each affiliates of our Sponsor (the “Managers”), entered into a Transaction and Monitoring Fee Agreement (the “Monitoring Fee Agreement”). Under this agreement, which terminated in January 2020 upon the second anniversary of the closing date ofconnection with the initial public offering of Gates, the Company and certain of its direct and indirect subsidiaries (collectively the “Monitoring Service Recipients”) engaged the Managers to provide certain monitoring, advisory and consulting services.

In consideration of these oversight services, Gates agreed to pay BMP an annual fee of 1% of a covenant EBITDA measure defined under the agreements governing our senior secured credit facilities. In addition, the Monitoring Service Recipients agreed to reimburse the Managers for any related out-of-pocket expenses incurred by the Managers and their affiliates. During the three and six months ended July 3, 2021, and during the three months ended June 27, 2020, Gates incurred $0 million in respect of these oversight services and out-of-pocket expenses, but incurred $1.7 million during the first quarter of 2020. There was no amount owing at July 3, 2021 or January 2, 2021 in respect of these transactions.

~~In addition, in connection with the initial public offering,~~ we entered into a Support and Services Agreement with ~~BMP,~~Blackstone Management Partners L.L.C. (“BMP”) under which the Company and certain of its direct and indirect subsidiaries reimburse BMP for customary support services provided by Blackstone’s portfolio operations group to the Company at BMP’s direction. BMP will invoice the Company for such services based on the time spent by the relevant personnel providing such services during the applicable period and Blackstone’s allocated costs of such personnel. During the periods presented, no amounts were paid or were outstanding under this agreement. This agreement terminates on the date our Sponsor beneficially owns less than 5% of our ordinary shares and such shares have a fair market value of less than $25.0 million, or such earlier date as may be chosen by Blackstone.

~~In connection~~As described in note 15, the Company repurchased 8,000,000 ordinary shares through Citigroup from certain shareholders affiliated with Blackstone Inc. for an aggregate consideration of $121.1 million, plus costs directly related to the ~~extension~~transaction of the maturity of our Dollar Term Loan during February 2021, Blackstone Securities Partners L.P. and Blackstone Alternative Credit Advisors LP, both affiliates of Blackstone, received arrangement fees of $0.3 million and was an initial lender of $6.9 million of the Dollar Term Loan, respectively.

~~B. Commercial transactions with sponsor portfolio companies~~

Our Sponsor and its affiliates have ownership interests in a broad range of companies. We have entered and may in the future enter into commercial transactions in the ordinary course of our business with some of these companies, including the sale of goods and services and the purchase of goods and services.

During the periods presented, our Sponsor held an interest in Equity Healthcare L.L.C., a provider of healthcare vendor management and consulting services, and Blue Yonder Holding, Inc. (formerly, JDA Software), a provider of supply chain software. In addition, through to April 1, 2021, our Sponsor held a majority interest in Custom Truck One Source L.P., a provider of specialized truck and heavy equipment solutions in North America. Sales to and purchases from each of these related parties were as follows:

B. Equity method investees

Amounts outstanding in respect of these transactions were payables of ~~$0.8~~$1.1 million as of ~~July 3, 2021,~~April 2, 2022, compared to ~~$0.6~~payables of $1.0 million as of January ~~2, 2021.~~1, 2022. No dividends were received from our equity method investees during the periods presented.

C. Non-Gates entities controlled by non-controlling shareholders

Amounts outstanding in respect of these transactions were as follows:


(dollars in millions)	(dollars in millions)	As of July 3, 2021		As of January 2, 2021		(dollars in millions)	As of April 2, 2022		As of January 1, 2022
Receivables	Receivables	$	7.4	$	0.4	Receivables	$	6.7	$	5.4
Payables	Payables	$	(4.3)	$	(4.5)	Payables	$	(4.1)	$	(3.6)

18. Commitments and contingencies

A. Performance bonds, letters of credit and bank guarantees

As of ~~July 3, 2021,~~April 2, 2022, letters of credit totaling ~~$29.1~~$41.9 million were outstanding against the asset-backed revolving facility, compared to ~~$28.5~~$45.3 million as of January ~~2, 2021.~~1, 2022. Gates had additional outstanding performance bonds, letters of credit and bank guarantees amounting to ~~$6.1~~$8.7 million as of ~~July 3, 2021,~~April 2, 2022, compared to ~~$6.0~~$6.3 million as of January ~~2, 2021.~~

Gates is, from time to time, party to general legal proceedings and claims, which arise in the ordinary course of business. Gates is also, from time to time, party to legal proceedings and claims in respect of environmental obligations, product liability, intellectual property, commercial and contractual disputes, employment matters and other matters which arise in the ordinary course of business and against which management believes Gates has meritorious defenses available. When appropriate, management consults with legal counsel and other appropriate experts to assess claims. If, in management’s opinion, we have incurred a probable loss as set forth by GAAP, an estimate is made of the loss and the appropriate accrual is reflected in our consolidated financial statements. Currently, there are no material amounts accrued.

While it is not possible to quantify the financial impact or predict the outcome of all pending claims and litigation, management does not anticipate that the outcome of any current proceedings or known claims, either individually or in aggregate, will materially affect Gates’ financial position, results of operations or cash flows.

Item 2: Management’s Discussion and Analysis
of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the condensed consolidated financial statements and related notes thereto included elsewhere in this quarterly report. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from management’s expectations. Factors that could cause such differences are discussed in “Forward-Looking Statements” above and Part I, Item 1A. “Risk Factors” in our annual report.

We are a global manufacturer of innovative, highly engineered power transmission and fluid power solutions. We offer a broad portfolio of products to diverse replacement channel customers, and to original equipment (“first-fit”) manufacturers as specified components, with the majority of our revenue coming from replacement channels. Our products are used in applications across numerous end markets, ~~which include~~including industrial off-highway end markets such as construction and agriculture, industrial on-highway ~~mobility & recreation,~~end markets such as transportation, diversified industrial, energy &and resources, automotive, and ~~automotive.~~mobility and recreation. Our net sales have historically been, and remain, highly correlated with industrial activity and utilization, and not with any single end market given the diversification of our business and high exposure to replacement markets. We sell our products globally under the Gates brand, which is recognized by distributors, equipment manufacturers, installers and end users as a premium brand for quality and technological innovation; this reputation has been built ~~for~~ over ~~a century~~110 years since Gates’ founding in 1911.

Within the diverse end markets we serve, our highly engineered products are often critical components in applications for which the cost of downtime is high relative to the cost of our products, resulting in the willingness of end users to pay a premium for superior performance and availability. These applications subject our products to normal wear and tear, resulting in a natural, and often preventative, replacement ~~cycle~~cycles that ~~drives~~drive high-margin, recurring revenue. Our product portfolio represents one of the broadest ranges of power transmission and fluid power products in the markets we serve, and we maintain long-standing relationships with a diversified group of blue-chip customers throughout the world. As a leading designer, manufacturer and marketer of highly engineered, mission-critical products, we have become an industry leader across most of the regions and end markets in which we operate.

Our net sales have historically been, and remain, highly correlated with industrial activity and utilization and not with any single end market given the diversification of our business and high exposure to replacement channels. This diversification limits our exposure to trends in any given end market. In addition, a majority of our sales are generated from customers in replacement channels, who serve primarily a large base of installed equipment that follows a natural maintenance cycle that is somewhat less susceptible to various trends that affect our end markets. Such trends include infrastructure investment and construction activity, agricultural production and related commodity prices, commercial and passenger vehicle production, miles driven and fleet age, evolving regulatory requirements related to emissions and fuel economy and oil and gas prices and production. Key indicators of our performance include industrial production, industrial sales and manufacturer shipments.

During the ~~six~~three months ended ~~July 3, 2021,~~April 2, 2022, sales into replacement channels accounted for approximately 63% of our total net sales. Our replacement sales cover a very broad range of applications and industries and, accordingly, are highly correlated with industrial activity and utilization and not a single end market. Replacement products are principally sold through distribution partners that may carry a very broad line of products or may specialize in products associated with a smaller set of end market applications.

During the ~~six~~three months ended ~~July 3, 2021,~~April 2, 2022, sales into first-fit channels accounted for approximately 37% of our total net sales. First-fit sales are to a variety of industrial and automotive customers. Our industrial first-fit customers cover a diverse range of industries and applications and many of our largest first-fit customers manufacture construction and agricultural equipment. Among our automotive first-fit customers, a majority of our net sales are to emerging market customers, where we believe our first-fit presence provides us with a strategic advantage in developing those markets and ultimately increasing our higher margin replacement channel sales.

We continue to make progress on our restructuring program, which is primarily intended to optimize our manufacturing and distribution footprint over the mid-term by removing structural fixed costs and, to a lesser degree, streamlining our selling, general and administrative (“SG&A”) back-office functions. We anticipate that most of the costs associated with these actions will be incurred during 2021 and 2022. Some of these costs will, in accordance with U.S. GAAP, be classified in cost of sales, negatively impacting gross margin, but due to their nature and impact of hindering comparison of the performance of our businesses on a period-over-period basis or with other businesses, they will be excluded from Adjusted EBITDA, consistent with the treatment of similar costs in prior periods.

During the ~~first half of 2021,~~three months ended April 2, 2022, we ~~have experienced~~continued to experience challenges from raw material and freight ~~inflation. As far as possible,~~inflation, which we expect to continue ~~to remain~~in the near term. We have remained price/cost ~~positive~~neutral on a dollar basis relative to these ~~challenges for~~inflation impacts in the ~~balance~~first quarter of 2022 and expect additional pricing actions in all regions across all channels to support our goal of Adjusted EBITDA margin neutrality by the ~~year.~~end of 2022. In addition, we have experienced production disruptions and input shortages on labor, raw materials and ~~freight.~~freight in 2021 and continuing into 2022. We continue to prioritize supporting our customers and anticipate that the margin impact of incremental costs incurred as a result of doing so will be temporary. While we believe we can continue to manage through these ~~shortages,~~challenges, this may impact our ability to deliver products to our customers.

Russia-Ukraine conflict

As the military conflict between Russia and Ukraine continues to evolve, we are closely monitoring the impact on our business and our people. Gates has a single distribution center in Russia that sells primarily to customers based in Russia. We have not shipped additional product into Russia since late February 2022, but have continued to fulfill limited contractual obligations through this distribution center while complying with all current, applicable sanctions and regulations. However, the sanctions regime will make it prohibitive for us to continue our business in Russia in the near future and we have begun reviewing plans for the cessation of our commercial activities, which we do not expect to result in material charges. This crisis, and the sanctions and counter-sanctions imposed in response to it, have created increased economic uncertainty and operational complexity both in the region and globally, the impacts of which we cannot fully predict. Should the conflict continue or escalate, it could have a significant negative effect on our business and results in the future including continued inflationary pressures on raw materials, energy and transportation, supply chain and logistics disruptions, volatility in foreign exchange rates and interest rates, heightened cybersecurity threats and the possibility of recording restructuring charges. We currently anticipate a headwind of approximately 2% to our 2022 global revenues resulting directly from this conflict.

Impact of COVID-19 Pandemic

~~The first quarter~~In the third year of ~~2020 marked the beginning of an unprecedented environment for the global economy, which has continued into 2021, although to a lessening degree as it impacts our business. We~~COVID-19, we continue to ~~prioritize~~contend with the ongoing implications of the pandemic and prioritizing the health and safety of our employees and the communities in which we operate around the world, taking additional protective measures in our plants to safely maintain operational continuity in support of our global customer base.

We are adhering to local government mandates and guidance provided by health authorities and, where necessary, continue to implement quarantine protocols, social distancing policies, working from home arrangements, travel limitations, frequent and extensive disinfecting of our workspaces, provision of personal protective equipment, and mandatory temperature monitoring at our facilities. Where possible, we have made COVID-19 vaccines available to our employees, holding on-site vaccination clinics at a number of facilities. We may take further actions if required or recommended by government authorities or if we determine them to be in the best interests of our employees, customers, and suppliers.

Our operations are supported largely by local supply chains. Where necessary, we have taken steps to qualify additional suppliers to ensure we are able to maintain continuity of supply. Although we have not experienced any significant disruptions to date, certain Gates suppliers have, or may in the future, temporarily close operations, delay order fulfillment or limit production due to the pandemic. Continued disruptions, shipping delays or insolvency of key vendors in our supply chain could make it difficult or more costly for us to obtain the raw materials or other inputs we need for our operations, or to deliver products to our customers.

Gates employs an in-region, for-region manufacturing strategy, under which local operations primarily support local demand. In those cases where local production supports demand in other regions, contingency plans have been activated as appropriate. In addition to the handful of plants that were temporarily closed by government mandates, we have proactively managed our output to expected demand levels and occasionally suspended production at other plants for short periods of time, predominantly in the first half of 2020. ~~Although all~~During March 2022, an increase in COVID-19 related cases in certain parts of ~~our facilities are~~China resulted in the re-imposition of widespread shutdowns and restrictions in China, and resulted in a modest loss of production, sales and profitability. It is currently ~~operational,~~unclear how long this latest series of shutdowns will continue and we may experience future production disruptions where plants are temporarily closed or productivity is reduced by government mandates or as a result of supply chain or labor disruptions, which could place constraints on our ability to produce or deliver our products and meet customer demand or increase our costs.

As shelter-in-place requirements eased in various jurisdictions, we saw sequential quarterly improvements in the second half of 2020 and this ~~has~~ continued ~~through~~during the first half of 2021. We expect the pace of these improvements to slow as the global economy continues to ~~normalize.~~normalize, which we began to experience during the second half of 2021. During this crisis, we have maintained our ability to respond to demand improvements and we continue to fund key initiatives, which we believe will serve us well as our end markets continue to recover.

We have strength and flexibility in our liquidity position, which includes committed borrowing headroom of ~~$412.2~~$388.1 million under our lines of credit, ~~(none of which are currently expected to be drawn in the foreseeable future),~~ in addition to cash balances of ~~$473.3~~$406.8 million as of ~~July 3, 2021.~~April 2, 2022. In addition, our business ~~also~~ has a demonstrated ability to generate free cash flow even in challenging environments.

While we have generally seen a ~~result~~rebound in demand from the pandemic-induced declines of 2020, the evolving impact of the pandemic, including the emergence of ~~COVID-19~~ variants, and continuing measures being taken around the world to combat its spread, ~~there~~ may behave ongoing implications for our business which may vary from time to ~~time, and the impact~~time. Some of ~~the pandemic on Gates’ operations~~these impacts may ~~continue to~~ be ~~material.~~material but cannot be reasonably estimated at this time.

Results for the three ~~and six~~ months ended ~~July 3, 2021~~April 2, 2022 compared to the results for the three ~~and six~~ months ended ~~June 27, 2020~~April 3, 2021

Summary Gates Performance


		Three months ended						Six months ended							Three months ended
(dollars in millions)	(dollars in millions)	July 3, 2021			June 27, 2020			July 3, 2021			June 27, 2020			(dollars in millions)		April 2, 2022			April 3, 2021
Net sales	Net sales	$	915.1		$	576.5		$	1,796.4		$	1,286.6		Net sales		$	893.4		$	881.3
Cost of sales	Cost of sales	548.4			373.0			1,084.2			827.3			Cost of sales		588.5			535.8
Gross profit	Gross profit	366.7			203.5			712.2			459.3			Gross profit		304.9			345.5
Selling, general and administrative expenses	Selling, general and administrative expenses	214.2			182.9			425.8			376.3			Selling, general and administrative expenses		235.2			211.6
Transaction-related expenses (income)		0.2			—			2.6			(0.2)
Asset impairments		—			3.7			—			3.7
Transaction-related expenses														Transaction-related expenses		0.8			2.4

Restructuring expenses	Restructuring expenses	3.7			17.2			6.6			19.1			Restructuring expenses		0.5			2.9
Other operating income		(0.5)			(3.7)			(0.5)			(1.4)

Operating income from continuing operations	Operating income from continuing operations	149.1			3.4			277.7			61.8			Operating income from continuing operations		68.4			128.6
Interest expense	Interest expense	33.3			34.3			67.7			71.0			Interest expense		32.6			34.4
Other income		(1.2)			(3.7)			(2.4)			(5.8)
Income (loss) from continuing operations before taxes		117.0			(27.2)			212.4			(3.4)
Income tax expense (benefit)		11.6			0.6			30.5			(15.5)
Net income (loss) from continuing operations		$	105.4		$	(27.8)		$	181.9		$	12.1
Other expenses (income)														Other expenses (income)		0.6			(1.2)
Income from continuing operations before taxes														Income from continuing operations before taxes		35.2			95.4
Income tax (benefit) expense														Income tax (benefit) expense		(2.2)			18.9
Net income from continuing operations														Net income from continuing operations		$	37.4		$	76.5

Adjusted EBITDA(1)	Adjusted EBITDA(1)	$	216.0		$	83.2		$	412.3		$	204.0		Adjusted EBITDA(1)		$	156.8		$	196.3
Adjusted EBITDA margin	Adjusted EBITDA margin	23.6		%	14.4		%	23.0		%	15.9		%	Adjusted EBITDA margin		17.6		%	22.3		%

(1) See “—Non-GAAP Measures” for a reconciliation of Adjusted EBITDA to net income ~~(loss)~~ from continuing operations, the closest comparable GAAP measure, for each of the periods presented.

Net sales during the three months ended ~~July 3, 2021~~April 2, 2022 were ~~$915.1~~$893.4 million, compared to ~~$576.5~~$881.3 million during the prior year period, an increase of ~~58.7%~~1.4%, or ~~$338.6~~$12.1 million. Our net sales for the three months ended ~~July 3, 2021~~April 2, 2022 were ~~favorably~~adversely impacted by movements in average currency exchange rates of ~~$44.6~~$24.3 million compared to the prior year period, due principally to the ~~weakening~~strengthening of the U.S. dollar against a number of currencies, ~~in particular~~primarily the ~~Euro and Chinese Renminbi. Excluding t~~Euro. Ex~~his~~cluding this impact, core sales increased by ~~$294.0~~$36.4 million, or ~~51.0%~~4.1%, during the three months ended ~~July 3, 2021~~April 2, 2022 compared to the prior year period, driven primarily by ~~higher volumes, but with~~ a ~~$18.6~~$69.1 million benefit from favorable ~~pricing.~~pricing, offset partially by the impact of lower volumes.

Core sales in our Power Transmission and Fluid Power businesses increased by ~~51.1%~~2.9% and ~~50.8%~~6.3%, respectively, for the three months ended ~~July 3, 2021~~April 2, 2022 compared to the prior year period. These ~~improvements, predominantly a function of the significant economic impact from the COVID-19 pandemic in the prior year period,~~increases were driven primarily by ~~increases~~growth in sales to our industrial customers, ~~across all of our channels, but particularly in the industrial channels. Sales to our first-fit customers increased by 65.3% for the three months ended July 3, 2021~~which were 5.3% higher compared with the prior year period, ~~outpacing the 44.1% growth in sales to our replacement customers in the same period. The majority~~with most of this growth ~~was focused in North America and EMEA,~~coming from replacement sales, which grew by 40.9% and 81.1%, respectively, for the three months ended July 3, 2021 compared with the prior year period. Greater China grew by 17.5%, as it began to return to more normalized growth, due to the earlier start to the recovery in this region in 2020. The diversified industrial and automotive replacement end markets drove just over half of the growth in dollar terms9.2% during the three months ended ~~July 3, 2021~~April 2, 2022 compared ~~with~~to the prior year ~~period,~~period. Industrial growth was focused in the diversified industrial, agriculture and personal mobility end markets, which grew by 7.9%, 11.4% and 23.2%, respectively, during the three months ended April 2, 2022 compared to the prior year period. Regionally, this industrial growth was driven primarily by EMEA and North America, which grew across every end market and in total by 10.4% and 5.4%, respectively, during the three months ended April 2, 2022 compared to the prior year period. This growth was offset partially by a 21.3% decline in industrial sales in Greater China, driven by ~~strong performance~~the construction end market, due to the continued weakness in ~~North America~~the broader construction sector of the Chinese economy and exacerbated by the lockdowns throughout March 2022. Sales to automotive replacement customers grew in almost every region and by 5.6% in total, more than offsetting weakness in automotive first-fit sales, which declined by 4.3% during the three months ended April 2, 2022 compared to the prior year period. This automotive first-fit decline was primarily in EMEA, but this was somewhat offset by growth in ~~particular.~~

certain developing markets, particularly in Greater China and South America.

Net sales during the six months ended months ended July 3, 2021 were $1,796.4 million, compared to $1,286.6 million during the prior year period, an increase of 39.6%, or $509.8 million. Our net sales for the six months ended months ended July 3, 2021 were favorably impacted by movements in average currency exchange rates of $67.0 million compared to the prior year period, due principally to the weakening of the U.S. dollar against a number of currencies, in particular the Euro, Chinese Renminbi and Canadian dollar. ~~Excluding these impacts, core sales increased~~ by $442.8 million, or 34.4%, during the six months ended months ended July 3, 2021 compared to the prior year period, driven primarily by higher volumes, but with a $26.2 million benefit from favorable pricing.

Core sales in our Power Transmission and Fluid Power businesses increased by 35.9% and 32.0%, respectively, for the six months ended July 3, 2021 compared to the prior year period. The primary drivers of these improvements were similar to those described above for the three-month period, except that sales to industrial first-fit customers outpaced those to industrial replacement customers, driven by the stronger first half performance in Greater China relative to the prior year period.

Cost of sales for the three months ended ~~July 3, 2021~~April 2, 2022 was ~~$548.4~~$588.5 million, compared to ~~$373.0~~$535.8 million for the prior year period, an increase of ~~47.0%~~9.8%, or ~~$175.4~~$52.7 million. ~~Higher volumes contributed $161.6 million of this~~The increase ~~with~~is primarily attributable to higher inflation-related costs, including higher materials and ~~unfavorable~~inbound freight costs, of $71.7 million, in addition to a $7.6 million adjustment to remeasure certain inventories on a LIFO basis. These increases were offset partially by $18.6 million from favorable movements in average currency exchange ~~rates being largely~~rates. The decrease in cost of sales due to lower volumes was broadly offset by the ~~improved manufacturing performance due to the higher~~resulting lower absorption of fixed ~~costs on higher volumes.~~

Cost of sales for the six months ended months ended July 3, 2021 was $1,084.2 million, compared to $827.3 million for the prior year period, an increase of 31.1%, or $256.9 million, driven by the same factors as described above for the three month period.costs.

As a result of the factors described above, gross profit for the three months ended ~~July 3, 2021~~April 2, 2022 was ~~$366.7~~$304.9 million, compared to ~~$203.5~~$345.5 million for the prior year period, ~~an increase~~a decrease of ~~80.2%~~11.8% or ~~$163.2~~$40.6 million. Our gross profit margin ~~improved~~accordingly dropped by ~~480~~510 basis points to ~~40.1%~~34.1% for the three months ended ~~July 3, 2021, up~~April 2, 2022, down from ~~35.3%~~39.2% for the prior year period.

Gross profit for the six months ended months ended July 3, 2021 was $712.2 million, compared to $459.3 million for the prior year period, an increase of 55.1% or $252.9 million. Our gross profit margin improved by 390 basis points to 39.6% for the six months ended months ended July 3, 2021.

Selling, general and administrative expenses

SG&A expenses for the three months ended ~~July 3, 2021~~April 2, 2022 were ~~$214.2~~$235.2 million compared to ~~$182.9~~$211.6 million for the prior year period. This increase of ~~$31.3~~$23.6 million was driven primarily by higher stock compensation costs of $17.8 million, due largely to the vesting of certain pre-IPO options as discussed further in note 14 to the condensed consolidated financial statements included elsewhere in this report. The remainder of the increase was attributable to a combination of higher labor and benefits, travel and marketing costs, ~~of $11.1 million, combined with unfavorable~~offset partially by favorable movements in average currency exchange rates ~~and volume increases~~ of ~~approximately $7 million each.~~$6.6 million.

~~SG&A~~Transaction-related expenses

Transaction-related expenses for the ~~six~~three months ended ~~months ended July 3, 2021~~April 2, 2022 were ~~$425.8~~$0.8 million compared to ~~$376.3~~$2.4 million for the prior year period. ~~This increase of $49.5 million was driven primarily by the same factors as described above~~Expenses for the three ~~month period,~~months ended April 2, 2022 related primarily to the secondary offering completed in ~~addition to a $4.5 million benefit~~March 2022, and, in the prior year period, ~~from favorable legal settlements and an increase in the current year period of $4.2 million in the stock-based compensation expense compared to the prior year.~~

~~Transaction-related expenses (income)~~

~~Transaction-related expenses of $0.2 million and $2.6 million were incurred during the three and six months ended July 3, 2021, respectively, related primarily~~ to the Dollar Term Loan amendments completed in February 2021 and certain other corporate transactions. ~~No transaction-related~~

Restructuring expenses

Restructuring expenses of $0.5 million were incurred during the ~~prior year three-month period~~three months ended April 2, 2022 related primarily to severance and ~~income~~other labor and benefit costs, and facility closures or relocations in several countries.

Restructuring expenses of ~~$0.2~~$2.9 million ~~was~~were recognized induring the prior year ~~six-month period.~~

~~Restructuring expenses~~

As described further under the “Business Trends” section above, we continue to make progress on our previously announced restructuring program, which is primarily intended to optimize our manufacturing and distribution footprint over the mid-term by removing structural fixed costs, and to streamline our SG&A back-office functions.

~~Restructuring and other strategic initiatives during the three and six months ended July 3, 2021 included $2.1~~period, including $1.2 million ~~and $2.9 million, respectively, of primarily severance and other labor-related expenses~~ related to our European reorganization, involving office and distribution center closures or downsizings and the implementation of a regional shared service center, $0.9 million related to the optimization of our Middle East business, and ~~$0.7~~$0.8 million ~~and $1.5 million, respectively,~~ of additional costs related to the closure in 2020 of a manufacturing facility in Korea. ~~In addition, during the six months ended July 3, 2021, we recognized $1.0 million of expenses related to the consolidation of certain of our Middle East businesses.~~

Restructuring expenses, including asset impairments, of $22.3 million and $24.2 million were recognized during the prior year three and six month periods, respectively, related primarily to the June 2020 announcement of plans to close a manufacturing facility in Korea, the closure of two North American manufacturing facilities and reductions in workforce, primarily in the U.S., Mexico and Greater China.

Our interest expense was as follows:


		Three months ended				Six months ended					Three months ended
(dollars in millions)	(dollars in millions)	July 3, 2021		June 27, 2020		July 3, 2021		June 27, 2020		(dollars in millions)		April 2, 2022		April 3, 2021
Debt:	Debt:									Debt:
Dollar Term Loan	Dollar Term Loan	$	16.5	$	16.3	$	33.5	$	35.1	Dollar Term Loan		$	15.7	$	17.0
Euro Term Loan	Euro Term Loan	6.3		5.7		12.6		11.4		Euro Term Loan		5.3		6.3
Dollar Senior Notes	Dollar Senior Notes	8.9		8.8		17.9		17.6		Dollar Senior Notes		8.9		9.0

Other loans		—		0.1		—		0.1

		31.7		30.9		64.0		64.2				29.9		32.3
Amortization of deferred issuance costs	Amortization of deferred issuance costs	0.7		2.5		2.0		4.9		Amortization of deferred issuance costs		1.9		1.3
Other interest expense	Other interest expense	0.9		0.9		1.7		1.9		Other interest expense		0.8		0.8
		$	33.3	$	34.3	$	67.7	$	71.0			$	32.6	$	34.4

Details of our long-term debt are presented in note 12 to the condensed consolidated financial statements included elsewhere in this report. Interest on debt for the three ~~and six~~ months ended ~~July 3, 2021 was broadly flat~~April 2, 2022 decreased when compared to the equivalent prior year periods as the benefit from lower interest rates on the Dollar Term Loans were offset by a combination of the impact of derivatives and an increase in interest on the Euro Term Loans due to unfavorable movements in average currency exchange rates. Amortization of deferred issuance costs has decreased during the three and six months ended July 3, 2021period due primarily to the ~~extension of~~lower interest rates applicable on the ~~maturity of the~~floating rate Dollar Term ~~Loan completed in February 2021, offset partially by an accelerated recognition~~Loan.

Other ~~income~~expenses (income)

Our other ~~income was~~expenses (income) were as follows:


		Three months ended				Six months ended					Three months ended
(dollars in millions)	(dollars in millions)	July 3, 2021		June 27, 2020		July 3, 2021		June 27, 2020		(dollars in millions)		April 2, 2022		April 3, 2021
Interest income on bank deposits	Interest income on bank deposits	$	(0.5)	$	(0.7)	$	(1.5)	$	(2.7)	Interest income on bank deposits		$	(0.8)	$	(1.0)
Foreign currency loss (gain) on net debt and hedging instruments		0.4		(2.2)		1.5		(1.9)
Foreign currency loss on net debt and hedging instruments										Foreign currency loss on net debt and hedging instruments		2.5		1.1

Net adjustments related to post-retirement benefits	Net adjustments related to post-retirement benefits	(1.1)		(0.7)		(2.3)		(1.2)		Net adjustments related to post-retirement benefits		(1.6)		(1.2)
Other	Other	—		(0.1)		(0.1)		—		Other		0.5		(0.1)
		$	(1.2)	$	(3.7)	$	(2.4)	$	(5.8)			$	0.6	$	(1.2)

Other ~~income~~expenses for the three ~~and six~~ months ended ~~July 3, 2021 was $1.2 million and $2.4~~April 2, 2022 were $0.6 million, compared to ~~$3.7~~an income of $1.2 million ~~and $5.8 million, respectively,~~ in the prior year ~~periods. These changes were~~period. This change was driven primarily by the impact of net movements in foreign currency exchange rates on net debt and hedging instruments in addition to fees incurred in ~~six months ended July 3, 2021, lower interest income on cash balances,~~relation to our trade accounts receivable factoring program that had not yet been implemented in the prior year period. These higher expenses were offset partially by higher ~~net interest income~~expected returns on post-retirement benefit ~~obligations, compared with~~plan assets based on the ~~prior year period.~~

~~Table of Contents~~

most recent actuarial valuations.

Income tax (benefit) expense

Deferred Tax Assets and Liabilities

Adjusted EBITDA for the three months ended ~~July 3, 2021~~April 2, 2022 was ~~$216.0~~$156.8 million, compared to ~~$83.2~~$196.3 million infor the prior year period, ~~an increase~~a decrease of ~~159.6%~~20.1% or ~~$132.8~~$39.5 million. ~~The~~ Adjusted EBITDA margin was ~~23.6%~~17.6% for the three months ended ~~July 3, 2021,~~April 2, 2022, a ~~920~~470 basis point ~~increase~~decrease from the prior year period margin of ~~14.4%~~22.3%. The ~~increase~~decrease in Adjusted EBITDA was driven primarily by ~~the increase in volumes and improvement in manufacturing performance, driving an increase in~~decreased gross profit of ~~$163.2~~$40.6 million, which was ~~offset partially by~~largely the result of higher ~~SG&A expenses~~inflation as ~~noted~~described above.

Adjusted EBITDA for the six months ended July 3, 2021 was $412.3 million, compared to $204.0 million in the prior year period, an increase of 102.1% or $208.3 million. Adjusted EBITDA margin was 23.0% for the six months ended July 3, 2021, a 710 basis point increase from the prior year period margin of 15.9%. The drivers of the increase in Adjusted EBITDA were similar to those described above for the three-month period.


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


Part I – Financial Information

Item 1.	Financial Statements (unaudited)	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2826
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	4138
Item 4.	Controls and Procedures	4138

Part II – Other Information

Item 1.	Legal Proceedings	4239
Item 1A.	Risk Factors	4239
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39

Item 6.	Exhibits	4240
Signatures		4341


			Six months ended July 3, 2021			Three months ended April 2, 2022
		Plan	Number of options	Weighted average exercise price $				Plan	Number of options	Weighted average exercise price $
Outstanding at the beginning of the period:	Outstanding at the beginning of the period:						Outstanding at the beginning of the period:
—Tier I	—Tier I	2014 Plan	3,165,482	$	6.93		—Tier I	2014 Plan	2,752,700	$	6.91
—Tier II	—Tier II	2014 Plan	3,779,467	$	6.89		—Tier II	2014 Plan	3,577,470	$	6.90
—Tier III	—Tier III	2014 Plan	3,779,467	$	6.89		—Tier III	2014 Plan	3,577,470	$	6.90
—Tier IV	—Tier IV	2014 Plan	3,779,467	$	10.34		—Tier IV	2014 Plan	3,577,470	$	10.35
—SARs	—SARs	Both plans	841,811	$	9.00		—SARs	Both plans	829,108	$	9.31
—Share options	—Share options	2018 Plan	2,565,066	$	14.75		—Share options	2018 Plan	3,254,097	$	14.84
—Premium-priced options	—Premium-priced options	2018 Plan	796,460	$	19.00		—Premium-priced options	2018 Plan	835,469	$	18.88
			18,707,220	$	9.28				18,403,784	$	9.63
Granted during the period:	Granted during the period:						Granted during the period:

—SARs	—SARs	2018 Plan	36,360	$	15.00		—SARs	2018 Plan	62,055	$	15.76
—Share options		2018 Plan	925,024	$	15.00
—Premium-priced options		2018 Plan	39,009	$	16.50

			1,000,393	$	15.06				62,055	$	15.76
Forfeited during the period:	Forfeited during the period:						Forfeited during the period:
—Tier I		2014 Plan	(10,343)	$	7.87
—Tier II		2014 Plan	(93,602)	$	6.92
—Tier III		2014 Plan	(93,602)	$	6.92
—Tier IV		2014 Plan	(93,602)	$	10.38

—Share options		2018 Plan	(77,780)	$	14.24

			(368,929)	$	9.37

—SARs							—SARs	2018 Plan	(4,668)	$	11.38
—Share options							—Share options	2018 Plan	(37,894)	$	14.39

									(42,562)	$	14.06
Expired during the period:							Expired during the period:

—SARs							—SARs	2018 Plan	(1,333)	$	10.46
—Share options							—Share options	2018 Plan	(8,077)	$	16.37

									(9,410)	$	15.53
Exercised during the period:	Exercised during the period:						Exercised during the period:
—Tier I	—Tier I	2014 Plan	(350,052)	$	6.81		—Tier I	2014 Plan	(2,000)	$	7.21

—SARs	—SARs	Both Plans	(47,730)	$	7.97		—SARs	Both Plans	(4,164)	$	11.00
—Share options	—Share options	2018 Plan	(86,442)	$	14.77		—Share options	2018 Plan	(15,828)	$	14.10

			(484,224)	$	8.35				(21,992)	$	12.89
Outstanding at the end of the period:	Outstanding at the end of the period:						Outstanding at the end of the period:
—Tier I	—Tier I	2014 Plan	2,805,087	$	6.94		—Tier I	2014 Plan	2,750,700	$	6.91
—Tier II	—Tier II	2014 Plan	3,685,865	$	6.89		—Tier II	2014 Plan	3,577,470	$	6.90
—Tier III	—Tier III	2014 Plan	3,685,865	$	6.89		—Tier III	2014 Plan	3,577,470	$	6.90
—Tier IV	—Tier IV	2014 Plan	3,685,865	$	10.34		—Tier IV	2014 Plan	3,577,470	$	10.35
—SARs	—SARs	Both plans	830,441	$	9.32		—SARs	Both plans	880,998	$	9.74
—Share options	—Share options	2018 Plan	3,325,868	$	14.83		—Share options	2018 Plan	3,192,298	$	14.85
—Premium-priced options	—Premium-priced options	2018 Plan	835,469	$	18.88		—Premium-priced options	2018 Plan	835,469	$	18.88
			18,854,460	$	9.61				18,391,875	$	9.63

Exercisable at the end of the period	Exercisable at the end of the period		3,966,409	$	9.68		Exercisable at the end of the period		12,852,598	$	9.66
Vested and expected to vest at the end of the period	Vested and expected to vest at the end of the period		7,759,147	$	11.83		Vested and expected to vest at the end of the period		14,805,088	$	10.28


		Six months ended						Three months ended
		July 3, 2021			June 27, 2020					April 2, 2022			April 3, 2021
Weighted average grant date fair value:	Weighted average grant date fair value:								Weighted average grant date fair value:
—SARs	—SARs	$	6.66		$	4.59			—SARs	$	6.94		$	6.66
—Share options	—Share options	$	6.66		$	4.78			—Share options	n/a			$	6.66
—Premium-priced options	—Premium-priced options	$	6.36		n/a				—Premium-priced options	n/a			$	6.36
—RSUs	—RSUs	$	15.10		$	11.81			—RSUs	$	15.76		$	15.00
—PRSUs	—PRSUs	$	17.92		$	14.41			—PRSUs	$	17.23		$	17.92

Inputs to the model:	Inputs to the model:								Inputs to the model:
—Expected volatility - SARs	—Expected volatility - SARs	46.1		%	37.7		%		—Expected volatility - SARs	43.5		%	46.1		%
—Expected volatility - share options	—Expected volatility - share options	46.1		%	37.6		%		—Expected volatility - share options	n/a			46.1		%
—Expected volatility - premium-priced options	—Expected volatility - premium-priced options	46.1		%	n/a				—Expected volatility - premium-priced options	n/a			46.1		%
—Expected volatility - PRSUs	—Expected volatility - PRSUs	50.8		%	40.4		%		—Expected volatility - PRSUs	49.1		%	50.8		%

—Expected option life for SARs (years)	—Expected option life for SARs (years)	6.0			6.0				—Expected option life for SARs (years)	6.0			6.0
—Expected option life for share options (years)	—Expected option life for share options (years)	6.0			6.0				—Expected option life for share options (years)	n/a			6.0
—Expected option life for premium-priced options (years)	—Expected option life for premium-priced options (years)	6.0			n/a				—Expected option life for premium-priced options (years)	n/a			6.0

—Risk-free interest rate:	—Risk-free interest rate:								—Risk-free interest rate:
SARs	SARs	0.95		%	1.25		%		SARs	1.91		%	0.95		%
Share options	Share options	0.95		%	1.33		%		Share options	n/a			0.95		%
Premium-priced options	Premium-priced options	0.95		%	n/a				Premium-priced options	n/a			0.95		%
PRSUs	PRSUs	0.27		%	1.29		%		PRSUs	1.72		%	0.27		%


		Six months ended			Three months ended
(number of shares)	(number of shares)	July 3, 2021	June 27, 2020	(number of shares)	April 2, 2022	April 3, 2021
Balance as of the beginning of the period	Balance as of the beginning of the period	290,853,067	290,157,299	Balance as of the beginning of the period	291,282,137	290,853,067

Exercise of share options	Exercise of share options	436,494	400,573	Exercise of share options	17,828	216,006
Vesting of restricted stock units, net of withholding taxes	Vesting of restricted stock units, net of withholding taxes	553,098	196,984	Vesting of restricted stock units, net of withholding taxes	744,915	529,909
Shares repurchased and cancelled				Shares repurchased and cancelled	(3,465,917)	—
Balance as of the end of the period	Balance as of the end of the period	291,842,659	290,754,856	Balance as of the end of the period	288,578,963	291,598,982


	Three months ended June 27, 2020

(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 March 28, 2020	$	2.9	$	2,440.1	$	(1,065.8)	$	1,107.6	$	2,484.8	$	356.6	$	2,841.4

Net loss	—		—		—		(22.4)		(22.4)		(5.6)		(28.0)
Other comprehensive income	—		—		29.6		—		29.6		3.3		32.9
Total comprehensive income (loss)	—		—		29.6		(22.4)		7.2		(2.3)		4.9
Other changes in equity:
—Issuance of shares	—		0.6		—		—		0.6		—		0.6

—Share-based compensation	—		4.7		—		—		4.7		—		4.7


—Dividends paid to non-controlling interests	—		—		—		—		—		(9.9)		(9.9)

As of June 27, 2020	$	2.9	$	2,445.4	$	(1,036.2)	$	1,085.2	$	2,497.3	$	344.4	$	2,841.7


		Carrying amount				Principal amount					Carrying amount				Principal amount
(dollars in millions)	(dollars in millions)	As of July 3, 2021		As of January 2, 2021		As of July 3, 2021		As of January 2, 2021		(dollars in millions)	As of April 2, 2022		As of January 2, 2021		As of April 2, 2022		As of January 2, 2021
Debt:	Debt:									Debt:
—Secured	—Secured									—Secured
Term Loans (U.S. dollar and Euro denominated)	Term Loans (U.S. dollar and Euro denominated)	$	2,020.7	$	2,131.2	$	2,047.9	$	2,152.6	Term Loans (U.S. dollar and Euro denominated)	$	1,962.6	$	1,986.1	$	1,986.0	$	2,011.2
Asset-backed revolver										Asset-backed revolver	70.0		—		70.0		—
—Unsecured	—Unsecured									—Unsecured
Senior Notes (U.S. dollar)	Senior Notes (U.S. dollar)	578.0		577.3		568.0		568.0		Senior Notes (U.S. dollar)	570.0		578.5		568.0		568.0
Other debt		—		0.2		—		0.2
		$	2,598.7	$	2,708.7	$	2,615.9	$	2,720.8
											$	2,602.6	$	2,564.6	$	2,624.0	$	2,579.2


Purchases of Equity Securities by Affiliated Purchasers(1)
Period	Total number of shares purchased	Average price paid per share	Total number of shares purchased as part of publicly announced plans or programs(2)	Maximum dollar value of shares that may yet be purchased under the plans or programs ($ million)
1/2/2022 - 1/29/2022	—	$—	—	$	189.5
1/30/2022 - 2/26/2022	1,430,917	$15.45	1,430,917	$	167.3
2/27/2022 - 4/2/2022	10,035,000	$15.20	10,035,000	$	14.8
Total	11,465,917	$15.23	11,465,917	$	14.8


Exhibit No.			Description
3.1			Certificate of Incorporation of Gates Industrial Corporation plc (incorporated by reference from Exhibit 3.1 to the registrant’s Amendment No. 1 to its Registration Statement on Form S-1, filed on January 8, 2018 (File No. 333-222310))
3.2			Articles of Association of Gates Industrial Corporation plc, effective October 7, 2019 (incorporated by reference from Exhibit 3.2 to the registrant’s Quarterly Report on Form 10-Q, filed on November 6, 2019)
31.1			Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
31.2			Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32.1			Certification by the Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
101			The following financial information from Gates Industrial Corporation’s Quarterly Report on Form 10-Q for the three ~~and six~~ months ended ~~July 3, 2021,~~April 2, 2022, formatted in inline Extensible Business Reporting Language (iXBRL): (i) Condensed Consolidated Statements of Operations for the three ~~and six~~ months ended ~~July~~April 2, 2022 and April 3, 2021, ~~and June 27, 2020,~~ (ii) Condensed Consolidated Statements of Comprehensive Income for the three ~~and six~~ months ended ~~July~~April 2, 2022 and April 3, 2021, ~~and June 27, 2020,~~ (iii) Condensed Consolidated Balance Sheets as of ~~July 3, 2021~~April 2, 2022 and January ~~2, 2021,~~1, 2022, (iv) Condensed Consolidated Statements of Cash Flows for the ~~six~~three months ended ~~July~~April 2, 2022 and April 3, 2021, ~~and June 27, 2020,~~ (v) Condensed Consolidated Statements of Shareholders’ Equity for the three ~~and six~~ months ended ~~July~~April 2, 2022 and April 3, 2021, ~~and June 27, 2020,~~ and (vi) Notes to the Condensed Consolidated Financial Statements*
104			Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit 101)