v3.24.3
Segment information
 9 Months Ended
Sep. 28, 2024
Segment Reporting [Abstract]  
Segment information Segment information
A. Background
The segment information provided in these condensed consolidated financial statements reflects the information that is used by the chief operating decision maker for the purposes of making decisions about allocating resources and in assessing the performance of each segment. The chief executive officer (“CEO”) of Gates serves as the chief operating decision maker. These decisions are based on net sales and Adjusted EBITDA (defined below).
B. Operating segments and segment assets
Gates manufactures a wide range of power transmission and fluid power products and components for a large variety of industrial and automotive applications, both in the aftermarket and original equipment manufacturer (“OEM”) channels, throughout the world.
Our reportable segments are identified on the basis of our primary product lines, as this is the basis on which information is provided to the CEO for the purposes of allocating resources and assessing the performance of Gates’ businesses. Our operating and reporting segments are therefore Power Transmission and Fluid Power.
Segment asset information is not provided to the chief operating decision maker and therefore segment asset information has not been presented. Due to the nature of Gates’ operations, cash generation and profitability are viewed as the key measures rather than an asset-based measure.
C. Segment net sales and disaggregated net sales
Sales between reporting segments and the impact of such sales on Adjusted EBITDA for each segment are not included in internal reports presented to the CEO and have therefore not been included below.
Three months endedNine months ended
(dollars in millions)
September 28,
2024		September 30,
2023		September 28,
2024		September 30,
2023
Power Transmission$513.4 $536.4 $1,588.1 $1,658.4 
Fluid Power317.3 336.5 990.7 1,048.5 
Continuing operations$830.7 $872.9 $2,578.8 $2,706.9 
Our commercial function is organized by region and therefore, in addition to reviewing net sales by our reporting segments, the CEO also reviews net sales information disaggregated by region, including between emerging and developed markets.
The following table summarizes our net sales by key geographic region of origin:
Three months ended
September 28,
2024		September 30,
2023
(dollars in millions)
Power Transmission
Fluid Power
Power Transmission
Fluid Power
U.S.$140.9 $168.1 $150.3 $179.3 
North America, excluding U.S.
56.6 49.2 60.7 55.3 
United Kingdom (“U.K.”)9.1 16.0 10.0 14.8 
EMEA(1), excluding U.K.
137.5 46.1 145.4 50.9 
East Asia and India70.4 18.5 69.8 19.4 
Greater China72.6 8.8 72.0 5.8 
South America26.3 10.6 28.2 11.0 
Net sales$513.4 $317.3 $536.4 $336.5 
Nine months ended
September 28,
2024		September 30,
2023
(dollars in millions)
Power Transmission
Fluid Power
Power Transmission
Fluid Power
U.S.$425.8 $524.1 $450.7 $552.2 
North America, excluding U.S.
182.0 153.0 172.0163.0
U.K.29.6 50.7 34.354.9
EMEA(1), excluding U.K.
449.1 144.9 481.5158.9
East Asia and India205.6 58.3 214.559.4
Greater China214.7 30.3 222.427.6
South America81.3 29.4 83.032.5
Net sales$1,588.1 $990.7 $1,658.4 $1,048.5 
(1)    Europe, Middle East and Africa (“EMEA”).
The following table summarizes our net sales into emerging and developed markets:
Three months endedNine months ended
(dollars in millions)
September 28,
2024		September 30,
2023		September 28,
2024		September 30,
2023
Developed$533.9 $570.0 $1,663.4 $1,784.1 
Emerging296.8302.9 915.4 922.8 
Net sales$830.7 $872.9 $2,578.8 $2,706.9 
D. Measure of segment profit or loss
The CEO uses Adjusted EBITDA, as defined below, to measure the profitability of each segment. Adjusted EBITDA is, therefore, the measure of segment profit or loss presented in Gates’ segment disclosures.
“EBITDA” represents net income from continuing operations for the period before net interest and other expense, income taxes, depreciation and amortization.
Adjusted EBITDA represents EBITDA before certain items that are considered to hinder comparison of the performance of our businesses on a period-over-period basis or with other businesses. During the periods presented, the items excluded from EBITDA in computing Adjusted EBITDA primarily included:
•    loss on deconsolidation of previously controlled subsidiary;
•    non-cash charges in relation to share-based compensation;
•    transaction-related expenses incurred in relation to major corporate transactions, including the acquisition of businesses and related integration activities, and equity and debt transactions;
•    restructuring expenses, including severance-related expenses;
•    credit loss related to a customer bankruptcy;
•    cybersecurity incident expenses; and
•    inventory adjustments related to certain inventories accounted for on a Last-in First-out (“LIFO”) basis.
Adjusted EBITDA by segment was as follows:
Three months endedNine months ended
(dollars in millions)
September 28,
2024		September 30,
2023		September 28,
2024		September 30,
2023
Power Transmission$113.0 $116.5 $355.8 $343.2 
Fluid Power 69.5 72.9 224.5 218.0 
Continuing operations$182.5 $189.4 $580.3 $561.2 
Reconciliation of net income from continuing operations to Adjusted EBITDA:
Three months endedNine months ended
(dollars in millions)
September 28,
2024		September 30,
2023		September 28,
2024		September 30,
2023
Net income from continuing operations$55.2 $85.6 $179.3 $187.8 
Income tax expense14.0 1.0 60.8 25.9 
Income from continuing operations before taxes69.2 86.6 240.1 213.7 
Interest expense35.1 39.5 121.7 124.8 
Loss on deconsolidation of Russian subsidiary (1)
12.8 — 12.8 — 
Other (income) expenses(3.9)(0.2)(8.5)3.8 
Operating income from continuing operations113.2 125.9 366.1 342.3 
Depreciation and amortization53.7 54.0 162.8 162.5 
Transaction-related expenses (2)
0.5 1.3 2.1 2.1 
Asset impairments— 0.1 — 0.1 
Restructuring expenses2.2 2.6 5.0 10.3 
Share-based compensation expense6.4 3.3 20.2 19.6 
Inventory impairments and adjustments (3) (included in cost of sales)
4.4 2.2 21.7 6.3 
Severance expenses (included in cost of sales)0.9 (0.1)0.9 0.4 
Severance expenses (included in SG&A)1.4 — 1.5 0.9 
Credit (gain) loss related to customer bankruptcy (included in SG&A) (4)
(0.2)— (0.1)11.4 
Cybersecurity incident expenses (5)
— — — 5.1 
Other items not directly related to current operations (6)
— 0.1 0.1 0.2 
Adjusted EBITDA$182.5 $189.4 $580.3 $561.2 

(1)    In July 2022, as a result of the conflict between Russia and Ukraine, Gates suspended our operations in Russia. As of September 28 2024, we deconsolidated the Russian subsidiary upon loss of control and recognized a deconsolidation loss.
(2)    Transaction-related expenses relate primarily to advisory fees and other costs recognized in respect of major corporate transactions, including the acquisition of businesses, and equity and debt transactions.
(3)    Inventory impairments and adjustments include the reversal of the adjustment to remeasure certain inventories on a LIFO basis.
(4)    On January 31, 2023, one of our customers filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. In connection with the bankruptcy proceedings, we preliminarily evaluated our potential risk and exposure relating to our outstanding pre-petition accounts receivable balance from the customer and recorded an initial pre-tax charge to reflect our estimated recovery. We continue to monitor the circumstances surrounding the bankruptcy and adjust our estimate as necessary.
(5)    On February 11, 2023, Gates determined that it was the target of a malware attack. Cybersecurity incident expenses include legal, consulting, and other costs incurred as a direct result of this incident, some of which may be partially offset by insurance recoveries.
(6)    Other items not directly related to current operations include other charges.