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What changed in Gates Industrial Corp plc's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Gates Industrial Corp plc's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+305 added−317 removedSource: 10-K (2025-02-06) vs 10-K (2024-02-08)

Top changes in Gates Industrial Corp plc's 2024 10-K

305 paragraphs added · 317 removed · 227 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

44 edited+19 added−18 removed56 unchanged
Biggest changeOversight and Governance Our Board, with the assistance of its compensation committee, is actively engaged in the oversight of the Company’s human capital management, including reviewing the following topics: the Company’s workforce overview; the Company’s stock incentive plans; the Company’s performance relative to the acquisition and retention of talent, leadership and development programs, development planning for executives and critical roles, employee engagement, culture and diversity, equity & inclusion initiatives as well as other initiatives and plans to help ensure that we have talent positioned to deliver on our strategy.
Biggest changeThis includes reviewing the Company’s workforce overview, stock incentive plans, talent acquisition and retention performance, leadership and talent development programs, executive and critical role development planning, employee engagement, culture, and diversity, equity & inclusion initiatives. Additionally, the Board and its compensation committee manage continuity planning, including evaluating succession plans for the CEO and other executive officers.
In industrial end markets, asynchronous belts have a wide variety of applications, including use in pump drives, manufacturing lines, HVAC systems, industrial, truck, bus and marine engines, forestry and mining equipment and many other applications. CVT systems often found in scooters, power sports vehicles and other applications use a specialized V-belt known as a CVT belt.
In industrial end markets, asynchronous belts have a wide variety of applications, including use in pump drives, manufacturing lines, HVAC systems, industrial, truck, bus and marine engines, forestry and mining equipment and many other applications. CVT systems often found in scooters, power sports vehicles and a variety of industrial applications use a specialized V-belt known as a CVT belt.
Within our Fluid Power segment, we offer solutions across the following key application platforms: • Stationary hydraulics: applications within stationary machinery, such as an injection molding machine or a manufacturing press; • Mobile hydraulics: applications used to power various implements in mobile equipment used in construction, agriculture, mining and other heavy industries; • Vehicle systems: applications in thermal management, emissions reduction, turbocharger, air intake and other systems for electric, hybrid and internal combustion passenger and commercial vehicles; and • Other industrial: applications in which hoses are used to convey fluids, gases or granular material across several industries such as food and beverage, other process industries, and oil and gas drilling and refining.
Within our Fluid Power segment, we offer solutions across the following key application platforms: • Stationary hydraulics: applications within stationary machinery, such as an injection molding machine or a manufacturing press; • Mobile hydraulics: applications used to power various implements in mobile equipment used in construction, agriculture, mining and other heavy industries; • Vehicle systems: applications in thermal management, emissions reduction, turbocharger, air intake and other systems for electric, hybrid and internal combustion passenger and commercial vehicles; and • Other industrial: applications in which hoses are used to convey fluids, gases or granular material across several industries such as food and beverage, other process industries, oil and gas drilling and refining, and data centers.
Our Diverse End Markets Our products play essential roles in a diverse range of applications across a wide variety of end markets including the following: • automotive replacement and first-fit end markets; • diversified industrial applications from automated manufacturing and logistics systems to everyday consumer applications such as printers, power washers, automatic doors and vacuum cleaners; • industrial off-highway applications such as agriculture and construction; • industrial on-highway commercial vehicles such as heavy-duty trucks and buses; 9 Table of Contents • energy and resources markets such as oil, gas and mining; and • personal mobility such as scooters, motorcycles, bicycles, all-terrain vehicles (ATVs) and snowmobiles.
Our Diverse End Markets Our products play essential roles in a diverse range of applications across a wide variety of end markets including the following: • automotive replacement and OEM end markets; • diversified industrial applications from automated manufacturing and logistics systems to everyday consumer applications such as printers, power washers, automatic doors and vacuum cleaners; • industrial off-highway applications such as agriculture and construction; • industrial on-highway commercial vehicles such as heavy-duty trucks and buses; 9 Table of Contents • energy and resources markets such as oil, gas and mining; and • personal mobility such as scooters, motorcycles, bicycles, all-terrain vehicles (ATVs) and snowmobiles.
In addition to our power transmission replacement business, we also serve a wide variety of well-known first-fit customers across all of our end markets. Fluid Power. Our fluid power solutions are used in applications in which hoses and rigid tubing assemblies either transfer power hydraulically or convey fluids, gases or granular materials from one location to another.
In addition to our power transmission replacement business, we also serve a wide variety of well-known OEM customers across all of our end markets. Fluid Power. Our fluid power solutions are used in applications in which hoses and rigid tubing assemblies either transfer power hydraulically or convey fluids, gases or granular materials from one location to another.
We provide a full selection of hose sizes and construction types for use in a wide variety of operating requirements and conditions. Hydraulic hoses are made of elastomers reinforced with steel wire or a textile-based yarn, and typically 8 Table of Contents operate at very high pressures, often in extreme environmental conditions.
We provide a full selection of hose sizes and construction types for use in a wide variety of operating requirements and conditions. Hydraulic hoses are made of elastomers reinforced with steel wire or a textile-based yarn, and typically operate at very high pressures, often in extreme environmental conditions.
Item 1. Business 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 manufacturers (“first-fit”) as specified components, with the majority of our revenue coming from replacement channels.
Item 1. Business 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 manufacturers (“OEM”) as specified components, with the majority of our revenue coming from replacement channels.
We have power transmission and fluid power operations in each commercial region and typically manufacture products for both first-fit customers and replacement customers in the same factory, which provides for sharing of raw material inputs, improved factory loading and demand leveling, as well as optimization of capital expenditures.
We have power transmission and fluid power operations in each commercial region and typically manufacture products for both OEM customers and replacement customers in the same factory, which provides for sharing of raw material inputs, improved factory loading and demand leveling, as well as optimization of capital expenditures.
We also manufacture “ribbed” V-belts, which are belts with lengthwise V-shaped grooves, which we market under the Micro-V® name. This design results in a thinner belt for the same drive surface, making it more flexible and offering improved efficiency.
We also manufacture “ribbed” V-belts, which are belts with lengthwise V-shaped grooves, which we market under the Micro-V® name. This design results in a thinner and narrower belt for the same drive performance, making it more flexible and offering improved efficiency.
We also assist with customer training on product installation and early identification of wear-and-tear on components, which helps drive sales for our channel customers while mitigating the risk of equipment failure for end users. First-Fit.
We also assist with customer training on product installation and early identification of wear-and-tear on components, which helps drive sales for our channel customers while mitigating the risk of equipment failure for end users. OEM.
We operate manufacturing facilities and service centers as well as several major technical centers giving us a presence in 30 countries throughout the world.
We operate manufacturing facilities and service centers as well as several major technical centers giving us a presence in 31 countries throughout the world.
Our mix of replacement channel sales to first-fit sales varies by region based on our market strategy and the maturity of the equipment fleet and channel. For example, in emerging markets such as China and India, replacement channels are developing.
Our mix of replacement channel sales to OEM sales varies by region based on our market strategy and the maturity of the equipment fleet and channel. For example, in emerging markets such as China and India, replacement channels are developing.
Among the all-new programs is the industry-first Mobility Drive Analysis tool aimed at making it easier for engineers from bicycle, scooter, motorcycle, and power sports Original Equipment Manufacturers (“OEM”) to design Gates’ clean, quiet, durable and low-maintenance Carbon Drive belt systems into their next-generation vehicles to further accelerating conversion from chain and other technologies.
Among the all-new programs is the industry-first Mobility Drive Analysis tool aimed at making it easier for engineers from bicycle, scooter, motorcycle, and power sports OEMs to design Gates’ clean, quiet, durable and low-maintenance Carbon Drive belt systems into their next-generation vehicles to further accelerating conversion from chain and other technologies.
We selectively participate in first-fit projects, focusing on opportunities where we are able to differentiate with technology and innovative solutions. Customers We maintain long-standing relationships with many customers, who range from regional or local distributors to large, global multinational distributors and OEMs. No single customer accounted for more than 10% of our Fiscal 2023 net sales.
We selectively participate in OEM projects, focusing on opportunities where we are able to differentiate with technology and innovative solutions. Customers We maintain long-standing relationships with many customers, who range from regional or local distributors to large, global multinational distributors and OEMs. No single customer accounted for more than 10% of our Fiscal 2024 net sales.
Our industrial hoses are used to transfer a wide range of substances - chemicals, food, beverages, petroleum, fuels, bulk materials, water, steam and air - to meet the requirements of a diverse range of applications, including manufacturing, mining, oil and gas drilling, marine, agriculture, industrial cleaning and construction.
Our industrial hoses are used to transfer a wide range of substances - chemicals, food, beverages, petroleum, fuels, bulk materials, water, steam and air - to meet the requirements of a diverse range of applications, including manufacturing, mining, oil and gas drilling, marine, agriculture, industrial cleaning, construction, and liquid-cooled data centers.
Our power transmission products are used in a broad range of applications in end markets including: automotive replacement and first-fit, diversified industrial, industrial off-highway, industrial on-highway, energy and resources, and personal mobility. The majority of our Fiscal 2023 net sales came from replacement channels, which provide high-margin, recurring revenue streams and are driven by attractive market trends.
Our power transmission products are used in a broad range of applications in end markets including: automotive replacement and OEM, diversified industrial, industrial off-highway, industrial on-highway, energy and resources, and personal mobility. The majority of our Fiscal 2024 net sales came from replacement channels, which provide high-margin, recurring revenue streams and are driven by attractive market trends.
We believe that enhancing our brand visibility, including through our first-fit presence in these emerging markets will allow us to better develop the replacement channels as they mature over time.
We believe that enhancing our brand visibility, including through our OEM presence in these emerging markets will allow us to better develop the replacement channels as they mature over time.
Government Regulation Our operations, products and properties are subject to extensive U.S. and foreign federal, state, local, and provincial laws and regulations relating to health, safety and environment (“HSE”) protection, including laws and regulations governing air emissions, wastewater discharges, waste management and disposal, substances in products, trade control laws, anti-corruption laws, data protection and privacy laws, and workplace health and safety, as well as the investigation and clean-up of contaminated sites.
Government Regulation Our operations, products and properties are subject to extensive U.S. and foreign federal, state, local, and provincial laws, regulations and executive actions, including those related to health, safety and environment (“HSE”) protection, such as laws and regulations governing air emissions, wastewater discharges, waste management and disposal, substances in products and workplace health and safety as well as the investigation and clean-up of contaminated sites, laws, regulations and executive actions governing trade control laws, anti-corruption laws, data protection and privacy laws.
Subsequently, we launched the MXG line of hydraulic hose, a flexible, light-weight solution with increased durability and temperature performance, designed to replace conventional spiral hoses typically used in the most demanding applications. We also launched a smart e-crimper, which is a machine used to attach fittings to hydraulic hoses.
Subsequently, we launched the MXG line of hydraulic hose, a flexible, light-weight solution with increased durability and temperature performance, designed to replace conventional spiral hoses typically used in the most demanding applications. We continue to broaden the MXT and MXG product lines. We also launched a smart e-crimper, which is a machine used to attach fittings to hydraulic hoses.
Our kits are convenient for service technicians as they eliminate the need for more complicated product sourcing. On a comparable quantity basis, kits typically sell at a premium to a loose belt and the individual related components.
Our kits are convenient for service technicians as they eliminate the need for more complicated product sourcing and provide a more efficient replacement job. On a comparable quantity basis, kits typically sell at a premium to a loose belt and the individual related components.
Gates employs agency contractors, temporary employees and contract employees as a relatively small percentage of our workforce. The number of associates in these categories typically varies with demand on our factories and distribution centers. Gates employs a small number of part-time associates across the globe.
Gates employs agency contractors, temporary employees and contract employees as a relatively small percentage of our workforce. The number of associates in these categories typically varies with demand on our factories and distribution centers.
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. Key indicators include industrial production, industrial sales and manufacturer shipments.
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. Key indicators of our performance include manufacturing Purchasing Managers' Index, industrial production, industrial sales and manufacturer shipments.
Gates’ business is well-balanced and diversified across products, channels and geographies, as highlighted in the following charts showing breakdowns of our Fiscal 2023 net sales of $3,570.2 million. 5 Table of Contents Our History In 1911, Charles Gates, Sr. purchased the Colorado Tire and Leather Company, a manufacturer of steel-studded bands of leather that attached to tires to extend their mileage.
Gates’ business is well-balanced and diversified across products, channels and geographies, as highlighted in the following charts showing breakdowns of our Fiscal 2024 net sales of $3,408.2 million. 5 Table of Contents Our History In 1911, Charles Gates, Sr. purchased the Colorado Tire and Leather Company, a manufacturer of steel-studded bands of leather that attached to wheels to extend their life.
Gates was acquired by Blackstone in July 2014 and in 2015 established a new executive leadership team with Ivo Jurek as Chief Executive Officer. In January 2018, Gates completed an initial public offering (“IPO”), listing on the New York Stock Exchange (“NYSE”).
Gates was acquired by certain investment funds affiliated with Blackstone Inc. (“Blackstone”) in July 2014 and in 2015 established a new executive leadership team with Ivo Jurek as Chief Executive Officer. In January 2018, Gates completed an initial public offering (“IPO”), listing on the New York Stock Exchange (“NYSE”).
We work closely with our first-fit customers (also referred to as OEMs) by providing application engineering expertise to assist them with equipment design and selecting the right products to optimize performance. Close interactions between our research and development (“R&D”) organization and customer technical teams provide input into our innovation and product development processes.
We work closely with our OEM customers by providing application engineering expertise to assist them with equipment design and selecting the right products to optimize performance. Close interactions between our research and development (“R&D”) organization and customer technical teams provide input into our innovation and product development processes.
Power transmission products represented approximately 61% of our total net sales for Fiscal 2023. Our Fluid Power segment includes hoses, tubing and fittings designed to convey hydraulic fluid at high pressures in both mobile and stationary applications, and other high-pressure and fluid transfer hoses. Our fluid power products represented approximately 39% of our net sales for Fiscal 2023.
Power transmission products represented approximately 62% of our total net sales for Fiscal 2024. Our Fluid Power segment includes hoses, tubing and fittings designed to convey hydraulic fluid at high pressures in both mobile and stationary applications, and other high-pressure and fluid transfer hoses. Our fluid power products represented approximately 38% of our net sales for Fiscal 2024.
We are currently performing environmental investigations and/or remediation at a number of former and current facilities in the U.S. and Canada and are incurring costs in relation to a number of offsite waste disposal sites. For more information, see “Item 1A.
We are currently performing environmental investigations and/or remediation at a number of former and current facilities in the U.S. and Canada and are incurring costs in relation to a number of offsite waste disposal sites. For more information, see “Item 1A. Risk Factors - Risks Related to Legal and Regulatory Matters”.
By contrast, in North America and EMEA, where there are long-established replacement markets, approximately 67% and 70% of our Fiscal 2023 net sales, respectively, were derived from these higher-margin replacement channels. Replacement.
By contrast, in North America and EMEA, where there are long-established replacement markets, approximately 71% and 74% of our Fiscal 2024 net sales, respectively, were derived from these higher-margin replacement channels. Replacement.
Our Channels We sell our power transmission and fluid power products both as replacement components and as specified components on original equipment to customers worldwide. During Fiscal 2023, approximately 64% of our net sales were generated from replacement channels and 36% from first-fit channels globally.
Our Channels We sell our power transmission and fluid power products both as replacement components and as specified components on original equipment to customers worldwide. During Fiscal 2024, approximately 68% of our net sales were generated from replacement channels and 32% from OEM channels globally.
Where You Can Find More Information We file annual, quarterly and current reports, proxy statements and other information with the SEC. Our SEC filings are available to the public over the internet at the SEC’s website at http://www.sec.gov.
This ensures the Board possesses the necessary expertise and includes members with diverse and independent backgrounds. 12 Table of Contents Where You Can Find More Information We file annual, quarterly and current reports, proxy statements and other information with the SEC. Our SEC filings are available to the public over the internet at the SEC’s website at http://www.sec.gov.
The ultimate performance of a hydraulic assembly, in which our products function as part of a hydraulic circuit, depends not only on how well the components are made, but also on how well they complement each other.
The high-pressure nature of hydraulic systems requires that these products have high levels of performance similar to those found in our hydraulic hoses. The ultimate performance of a hydraulic assembly, in which our products function as part of a hydraulic circuit, depends not only on how well the components are made, but also on how well they complement each other.
Approximately 68% of our work force consists of production employees, while approximately 24% of our global workforce was female and 76% male. Of approximately 1,200 managerial employees, 19% were female, and 40% of our executive officers were female.
Approximately 66% of our work force consists of production employees, while approximately 25% of our global workforce was female and 75% male. Of approximately 1,500 managerial employees, 21% were female, and 40% of our executive officers were female.
Our products are used in applications across numerous end markets, including: automotive replacement and first-fit; diversified industrial; industrial off-highway; industrial on-highway; and personal mobility. 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.
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.
Tensioners are devices that maintain a constant tension in the belt drive system, thereby ensuring proper function and preventing loss of power or system failure. Tensioners typically employ a spring-loaded arm and a damping mechanism to help control tension in a belt drive system. Idlers, which sometimes also perform as tensioners, are used to take up extra belt length.
These products are designed and engineered to work efficiently with our belts. Tensioners are devices that maintain a constant tension in the belt drive system, thereby ensuring proper function and preventing loss of power or system failure. Tensioners typically employ a spring-loaded arm and a damping mechanism to help control tension in a belt drive system.
Risk Factors - Risks Related to Legal and Regulatory Matters”. 11 Table of Contents Human Capital As of December 30, 2023, we employed approximately 14,700 full time employees worldwide. Approximately 6,800 of our employees are in North America, 4,300 in EMEA, 2,800 in Greater China and East Asia & India, and 800 in South America.
Human Capital As of December 28, 2024, we employed approximately 14,100 full time employees worldwide. Approximately 6,200 of our employees are in North America, 4,300 in EMEA, 2,900 in Greater China and East Asia & India, and 700 in South America.
We also offer a wide range of couplings to provide complete assembly solutions. Our fluid power products are used in numerous applications in end markets including automotive replacement and first-fit; diversified industrial; industrial off-highway; industrial on-highway; energy and resources; and personal mobility. The largest portion of our Fiscal 2023 fluid power revenue came from replacement markets.
Our fluid power products are used in numerous applications in end markets including automotive replacement and OEM, diversified industrial, industrial off-highway, industrial on-highway, and energy and resources. The largest portion of our Fiscal 2024 fluid power revenue came from replacement markets. Within these replacement markets, the majority of our revenue came from industrial applications.
We also have commercialization and field application engineering teams in all of our regions that are located close to customers in support of their businesses. As of December 30, 2023, we held more than 2,100 patents and patent applications and 3,500 trademarks in various jurisdictions, and have elected to protect a variety of technologies and processes as trade secrets.
As of December 28, 2024, we held more than 2,200 patents and patent applications and 3,500 trademarks in various jurisdictions, and have elected to protect a variety of technologies and processes as trade secrets.
Gates’ pulleys and sprockets are precisely engineered for positive press fit, designed to optimize the performance and durable working service life of the belt drive system. Kits . Our kits for the automotive replacement channel include all of the parts needed by an automotive service shop to perform a replacement of one of our products.
Our kits for the automotive replacement channel include all of the parts needed by an automotive service shop to perform a replacement of one or more of our products.
In Fiscal 2023, Gates announced the launch of the mobile version of Gates Design Power, putting advanced digital design tools to support the engineering of belt drive systems on customers’ mobile devices. Additionally, Gates expanded its G-Force product portfolio by introducing the G-Force 7 Table of Contents Workhorse CVT belt for specialty and recreation vehicles.
In Fiscal 2023, Gates launched the mobile version of Gates Design Power, putting advanced digital design tools to support the engineering of belt drive systems on customers’ mobile devices. 7 Table of Contents Metal Drive Components. We source, manufacture and sell tensioners, idlers, pulleys, sprockets and other components used in belt drive systems.
Research, Development and Intellectual Property Advanced R&D is performed primarily at certain R&D centers in the U.S. and Western Europe. These teams focus on developing advanced materials, product constructions and manufacturing processes in support of new and improved products.
We generally differentiate ourselves on the basis of product performance and quality, innovation, breadth of portfolio, customer support and training, service level, fill rates and product availability. Research, Development and Intellectual Property Advanced R&D is performed primarily at certain R&D centers in the U.S. and Western Europe.
Consequently, we have many competitors across our various markets and product offerings. These competitors and the degree of competition vary by product line, geography, end market and channel. Although each of our markets and product offerings has many competitors, no single competitor competes with us across all of our products, solutions, channels and end markets.
Consequently, we have many competitors across our various markets and product offerings. These competitors and the degree of competition vary by product line, geography, end market and channel. Our global presence and the importance of product availability make it difficult for smaller, regional and low-cost country manufacturers to penetrate our markets.
These improvements enable tighter pulley configurations and reduced drive bending losses as compared to previous belt technologies; lower losses result in benefits such as reduced energy consumption, CO 2 emissions and heat generation. Synchronous Belts . Synchronous belts, also known as timing belts, are non-slipping mechanical drive belts. They have molded teeth and run over matching toothed pulleys or sprockets.
These improvements enable tighter pulley configurations and reduced drive bending losses as compared to previous belt technologies; lower losses result in benefits such as reduced energy consumption, CO 2 emissions and heat generation. Additionally, Gates expanded its G-Force product portfolio by introducing the G-Force Workhorse CVT belt for specialty and recreation vehicles.
These products are designed for applications that require high levels of quality and durability. Our hydraulic couplings, fittings and tubing are engineered to match the product performance of our hydraulic hoses. The high-pressure nature of hydraulic systems requires that these products have high levels of performance similar to those found in our hydraulic hoses.
These products are designed for applications that require high levels of quality and durability.
Globally, we offer the opportunity to earn short-term and long-term incentive awards to eligible employees, including manufacturing incentive programs to many of our production employees. Employee development and training Gates is committed to developing and unlocking the potential of our people and we make significant investments in training and professional development.
We provide competitive and equitable compensation and benefit programs that appropriately reward employees for their contributions to our success. Globally, we provide opportunities for eligible employees to earn short-term and long-term incentive awards, including manufacturing incentive programs for many of our production employees.
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In recent years, Gates also launched the PowerGrip ® GT ® 4, a high-torque synchronous belt for industrial applications. This new belt leverages Gates’ materials science and process engineering capabilities, to provide a belt construction that replaces chloroprene-based elastomers with an advanced ethylene elastomer formulation that is more environmentally friendly.
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Our products are used in applications across numerous end markets, including automotive replacement, automotive OEM, diversified industrial, industrial off-highway, industrial on-highway, energy and resources, and personal mobility.
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It has the highest power-carrying capacity in its segment, a wider operating temperature range and increased chemical resistance, allowing for narrower drives and a broad range of applications to be served with both first-fit and replacement channel customers.
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The G-Force Workhorse belt offers more longevity and increased compatibility for end users relative to its predecessor. In 2024, we launched our Quad Power 4 in North America. Quad Power 4 is a maintenance-free, bandless V-belt that utilizes minimal stretch cord technology and is designed to extend product life and eliminate downtime.
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The G-Force Workhorse belt offers more longevity and increased compatibility for end users relative to its predecessor. Metal Drive Components. We source, manufacture and sell tensioners, idlers, pulleys, sprockets and other components used in belt drive systems. These products are designed and engineered to work efficiently with our belts.
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We also launched timing chain component kits in the United States and India supporting a wide array of vehicles in operation, enhancing value and convenience for both service technicians and consumers. Synchronous Belts . Synchronous belts, also known as timing belts, have molded teeth and run over matching toothed pulleys or sprockets.
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Within these replacement markets, the majority of our revenue came from industrial applications.
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Idlers, which sometimes also perform as tensioners, are used to take up extra belt length. Gates’ pulleys and sprockets are designed to optimize the performance and working service life of the belt drive system. Kits .
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Our global presence and the importance of product availability make it difficult for smaller, regional and low-cost country manufacturers to penetrate our markets. We generally differentiate ourselves on the basis of product performance and quality, innovation, breadth of portfolio, customer support and training, service level, fill rates and product availability.
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In Fiscal 2024, we launched the PRO™ Series ProFlex™ hydraulic hose, which can be applied in a variety of applications while offering lighter weight and more flexibility relative to the key competition. 8 Table of Contents Our hydraulic couplings, fittings and tubing are engineered to match the product performance of our hydraulic hoses.
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Our Board and its compensation committee also oversee the management continuity planning process, including reviewing, and evaluating the succession plans relating to our chief executive officer and other executive officer positions. Health and safety We care about our employees and we believe that our commercial success is linked to a safe and healthy workforce.
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In Fiscal 2024, we introduced our Data Master™ line of hoses designed to support liquid-cooled data centers. During the year, we also launched our Clean Master™ Plus line of pressure washer hoses, which is meaningfully more flexible and lighter relative to traditional 6,000 psi hoses. We also offer a wide range of couplings to provide complete assembly solutions.
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We are therefore committed to responsible business practices through the establishment, implementation, and maintenance of the Gates Global HSE Standards Manual. We strive for zero injuries and an incident-free workplace and have achieved significant progress towards this goal through targeted risk reduction activities, improved case management, increased accountability to corrective action identification and closure, and more effective safety observation programs.
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These teams focus on developing advanced materials, product constructions and manufacturing processes in support of new and improved products. We also have commercialization and field application engineering teams in all of our regions that are located close to customers in support of their businesses.
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Total rewards Our compensation philosophy is to offer a compensation program that enables us to attract, motivate, reward and retain high-caliber employees who are capable of creating and sustaining value for our shareholders over the long-term and to design compensation and benefit programs that provide a fair and competitive compensation opportunity in order to appropriately reward employees for their contributions to our success.
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Gates employs a small number of part-time associates across the globe. 11 Table of Contents Oversight and Governance Our Board, with support from its compensation committee, actively oversees the Company’s human capital management.
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Our learning and development framework supports the development of leadership and professional skills in three ways: on-the-job, learning from others, and participating in formal training programs.
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Health and safety We prioritize our employees' well-being, recognizing that our commercial success is closely tied to a safe and healthy workforce. To this end, we are dedicated to responsible business practices, guided by the Gates Global HSE Standards Manual. Our goal is to achieve zero injuries and maintain an incident-free workplace.
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Some of the specific global and regional development experiences we offer include: a global mentoring program that promotes a diverse and inclusive culture and knowledge transfer opportunities between our mentors and mentees; a six-tiered leadership development program beginning with a program for those who aspire to be leaders, to first-time managers and continues through a career journey up to a program that supports our senior executives in their roles; structured development and succession planning process that identifies key talent and develops our employees to continue working toward their career goals; and early career programs designed to develop talent in different areas of the business, such as engineering and commercial.
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We've made significant strides towards this objective through targeted risk reduction, enhanced case management, increased accountability for corrective actions, and more effective safety observation programs. Total rewards Our compensation philosophy aims to attract, motivate, reward, and retain top-tier employees who can generate and maintain long-term value for our shareholders.
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For our production employees, we provide skills-based training and certification opportunities. Diversity, equity and inclusion The Gates management team is committed to creating and sustaining an inclusive workplace that understands and values individual differences across demographics, experiences and perspectives.
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Employee development and training To attract, develop, engage and retain the best talent, we invest in our employees and focus on building a workplace and culture that drives innovation, embraces diverse perspectives, encourages collaboration, fosters well-being, and enables growth and opportunity.
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We strive to foster an environment where every employee has an equal opportunity to be heard, can contribute their thoughts, and be recognized for their individual efforts. We want to ensure 12 Table of Contents that collaborative and respectful business practices in a performance-based, supportive environment enable every employee to realize their career ambitions.
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We empower employees to own their careers and unlock their potential to position us to effectively deliver on priorities with real world application. Our development programs are focused on helping employees build the knowledge and skills needed to support current business priorities and secure future business success.
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To that end, we have a Diversity, Equity & Inclusion (“DE&I”) Steering Committee, consisting of executive leadership, which works with our DE&I Council, consisting of highly talented and collaborative non-executive team members, to foster a culture of belonging that embraces our workforce's unique backgrounds, talents, and viewpoints.
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Gates supports a culture of continuous learning and encourages employees to pursue internal and external educational opportunities as part of their professional development path. In 2024, we streamlined our Performance & Talent process and launched a new year-end review process that includes evaluating employee annual performance, assessing learning agility and potential to grow their career.
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In 2022, the DE&I Council formalized three main committees to drive our multi-year DE&I strategy and deliver awareness and best practices: Communications, Culture & Branding; Diversity Recruitment; and Career & Leadership Development.
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We reduced our annual processes and aligned compensation to recognize the potential of our employees as well as their performance. Additionally, this streamlined process provides greater focus on succession and development plans to help employees achieve their career goals. Our global mentoring program facilitates knowledge transfer between mentors and mentees and fosters a diverse and inclusive culture.
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The DE&I Council also launched three Business Resource Groups in North America (Pan-Asian American, LGBTQ+, and Veterans & Families) to continue creating an environment that encourages relationship building and accepts each of our employees' individual attributes and experiences.
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For our production employees, we offer skills-based training and certification opportunities. Diversity, equity and inclusion Our inclusive environment fosters adaptability, innovation, and creativity, enabling us to deliver the most relevant, innovative, and trusted products and services. This is vital for our continued success and helps unlock the full potential of our employees, customers, partners, and communities.
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Additionally, the DE&I Council also created a 2023 calendar of North America diversity events, refreshed our DE&I website, updated our global mentoring program, and established relationships with minority-serving institutions for future engagement. Our leadership team conducted roundtables to determine plans to expand our DE&I initiatives outside of North America for 2024.
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We recognize that an engaged workforce directly enhances the value we provide to our customers and strengthens the connections we build in the communities where we live and operate. As a global company, we celebrate local, relevant, and meaningful events that allow colleagues to share their expertise and cultures with one another.
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Our ongoing efforts aim to drive awareness on the importance of DE&I and engage employees across our communities through a variety of partnerships and outreach to identify opportunities for meaningful connection and support of local efforts.
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In 2024, as part of our ongoing efforts to raise awareness of the importance of diversity, equity and inclusion, each region developed action plans and strategies to improve gender diversity.
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Additionally, the charter for the Nominating and Governance Committee of our Board requires that such committee review and make recommendations regarding the composition and size of the Board to ensure the Board has the requisite expertise and its membership consists of persons with sufficiently diverse and independent backgrounds.
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Key highlights of these plans include promoting inclusive hiring practices, offering training on unconscious bias, forming strategic partnerships with schools and organizations, participating in networking events, implementing blind resume reviews, and ensuring diverse interview panels.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThe evolution of laws to restrict specific chemical substances in our products or impose labeling and other requirements, such as the EU’s Registration, Evaluation, Authorization, and Restriction of Chemical Substances (“REACH”) Regulation, and rising global concerns around microplastics, extended producer responsibility, plastic packaging or hazardous chemicals such as per-and polyfluoroalkyl substances (“PFAS”) could result in significant costs to us or limit our access to certain markets. 19 Table of Contents We have incurred, and will continue to incur, both operating and capital costs to comply with HSE, sustainability related and other laws and regulations, including costs associated with the investigation and clean-up of some of our current and former properties and offsite disposal locations.
Biggest changeThe evolution of laws to restrict specific chemical substances in our products or impose labeling and other requirements, such as the EU’s Registration, Evaluation, Authorization, and Restriction of Chemical Substances (“REACH”) Regulation, and rising global concerns around microplastics, extended producer responsibility, plastic packaging or hazardous chemicals such as per-and polyfluoroalkyl substances (“PFAS”) could result in significant costs to us or limit our access to certain markets.
Concerns over sustainability issues, including ESG issues and the impacts of climate change, have led and will continue to lead to governmental, private, and consumer efforts around the world to reduce or mitigate those issues.
Concerns over sustainability and ESG issues, including the impacts of climate change, have led and will continue to lead to governmental, private, and consumer efforts around the world to reduce or mitigate those issues.
If these information technology systems suffer severe damage or disruption and the issues are not resolved in a timely manner, our business, financial condition and operations could be materially adversely affected. Global privacy, data protection and data security requirements are highly complex, evolving rapidly, and may increase our costs to comply.
If these information technology systems suffer severe damage or disruption and the issues are not resolved in a timely manner, our business, financial condition and operations could be materially adversely affected. Global data privacy, data protection and data security requirements are highly complex, evolving rapidly, and may increase our costs to comply.
To conduct our operations, we regularly move data across national borders, and consequently we are subject to a variety of continuously evolving and developing laws and regulations in the U.S. and abroad regarding privacy, data protection and data security.
To conduct our operations, we regularly move data across national borders, and consequently we are subject to a variety of continuously evolving and developing laws and regulations in the U.S. and abroad regarding data privacy, data protection and data security.
Accordingly, our business and results of operations, as well as the business and results of operations of our vendors and customers, are subject to risks associated with doing business internationally, including: • changing economic conditions in the global and regional end markets we serve, which could impact the level of demand for our products, as a portion of our revenues are derived from customers in cyclical industries that typically are adversely affected by downward economic cycles; • macroeconomic factors beyond the Company’s control, such as recent significant volatility around material and logistics availability, inflation, supply chain and labor challenges; • political, social or economic instability, civil unrest, terrorist attacks, conflicts or war (such as the ongoing conflicts in Eastern Europe and the Middle East), public health crises (including pandemics), natural disasters (including as a result of climate change), widespread cybersecurity incidents, and other catastrophic events may disrupt economic activities (including demand for and production and distribution of our products) and our workforce in affected countries or globally; • imposition of additional sanctions, tariffs or other trade restrictions or embargoes, as well as import and export licensing and control requirements; • volatility of global financial markets, including interest rate fluctuations and hyperinflation or deflation in the countries in which we operate; • exchange rate fluctuations, as well as currency restructurings, the imposition of currency restrictions, and limitations on repatriation of earnings, that could affect our ability to realize a profit or our ability to readily access global cash balances; • partial or total expropriation by local, state or national governments; • compliance with or effect of complying with complex and changing laws, regulations and policies of foreign governments, including differing and, in some cases, more stringent labor, sustainability (such as environmental, social, and governance (“ESG”) related) and HSE regulations as well as limitations on our ability to enforce our legal rights and remedies; 14 Table of Contents • differing local product preferences and product requirements; and • difficulties involved in staffing and managing widespread operations, including challenges in enforcing corporate policies, which may be different than the normal business practices of local cultures.
Accordingly, our business and results of operations, as well as the business and results of operations of our vendors and customers, are subject to risks associated with doing business internationally, including: • changing economic conditions in the global and regional end markets we serve, which could impact the level of demand for our products, as a portion of our revenues are derived from customers in cyclical industries that typically are adversely affected by downward economic cycles; • macroeconomic factors beyond the Company’s control, such as recent significant volatility around inflation, material and logistics availability, supply chain and labor challenges; • political, social or economic instability, civil unrest, terrorist attacks, conflicts or war (such as the ongoing conflicts in Eastern Europe and the Middle East), public health crises (including pandemics), natural disasters (including as a result of climate change), widespread cybersecurity incidents, and other catastrophic events may disrupt economic activities (including demand for and production and distribution of our products) and our workforce in affected countries or globally; • trade wars and the imposition of additional sanctions, tariffs or other trade restrictions or embargoes, as well as import and export licensing and control requirements; • volatility of global financial markets, including interest rate fluctuations and hyperinflation or deflation in the countries in which we operate; • exchange rate fluctuations, as well as currency restructurings, the imposition of currency restrictions, and limitations on repatriation of earnings, that could affect our ability to realize a profit or our ability to readily access global cash balances; • partial or total expropriation by local, state or national governments; • compliance with or effect of complying with complex and changing laws, regulations and policies of foreign governments, including differing and, in some cases, more stringent labor, sustainability, environmental, social, and governance (“ESG”) and HSE-related regulations as well as limitations on our ability to enforce our legal rights and remedies; 14 Table of Contents • differing local product preferences and product requirements; and • difficulties involved in staffing and managing widespread operations, including challenges in enforcing corporate policies, which may be different than the normal business practices of local cultures.
In addition, the Organization for Economic Co-operation and Development (“OECD”), which represents a coalition of member countries, has recommended fundamental tax reforms affecting the taxation of multinational corporations, including the Base Erosion and Profit Shifting project, which in part aims to address international corporate tax avoidance. Countries have already enacted significant measures in this regard.
In addition, the Organization for Economic Co-operation and Development (“OECD”), which represents a coalition of member countries, has recommended fundamental tax reforms affecting the taxation of multinational corporations, including the Base Erosion and Profit Shifting (“BEPS”) project, which in part aims to address international corporate tax avoidance. Countries have already enacted significant measures in this regard.
Risks Related to Legal and Regulatory Matters Existing or new laws and regulations, including but not limited to those relating to HSE and sustainability matters, may prohibit, burden, restrict or make significantly more costly the sale of our products and the operation of our business.
Risks Related to Legal and Regulatory Matters Existing or new laws and regulations, including but not limited to those relating to HSE, sustainability, and ESG matters, may prohibit, burden, restrict or make significantly more costly the sale of our products and the operation of our business.
The laws and regulations in these jurisdictions are inherently complex and the Company and its subsidiaries will be obliged to make judgments and interpretations about the application of these laws and regulations to the Company and its subsidiaries and their operations and businesses, including those related to any restructuring of intercompany operations, holdings or financings; the valuation of intercompany services; cross-border payments between affiliated companies; and the related effects on income tax, value added tax (“VAT”) and transfer tax.
The laws and regulations in these jurisdictions are inherently complex and the Company and its subsidiaries are obliged to make judgments and interpretations about the application of these laws and regulations to the Company and its subsidiaries and their operations and businesses, including those related to any restructuring of intercompany operations, holdings or financings; the valuation of intercompany services; cross-border payments between affiliated companies; and the related effects on income tax, value added tax (“VAT”) and transfer tax.
Our operations, products and properties are subject to extensive foreign, federal, state, local and provincial laws and regulations relating to HSE and sustainability matters around the world.
Our operations, products and properties are subject to extensive foreign, federal, state, local and provincial laws and regulations relating to HSE, sustainability, and ESG matters around the world.
We and our customers and suppliers will need to respond to new laws and regulations as well as changes in consumer and customer behaviors, which could add substantial costs to our operations and those of our customers and partners. We may also experience a drop in demand for our products and services, particularly in certain sectors.
We and our customers and suppliers will need to respond to new laws and regulations as well as changes in consumer and customer behaviors, which have added costs and could add substantial costs to our operations and those of our customers and partners. We may also experience a drop in demand for our products and services, particularly in certain sectors.
These evolving compliance and operational requirements impose significant costs that are likely to increase over time as the breadth and complexity of regulations continues to evolve internationally. We continue to monitor these developments and adjust our data handling practice in accordance with applicable law.
These evolving compliance and operational requirements impose significant costs that are likely to increase over time as the breadth and complexity of regulations continues to evolve internationally. We continue to monitor these developments and adjust our data processing practice in accordance with applicable law.
We attempt to mitigate these risks by employing a number of measures, including employee training, monitoring and testing, and maintenance of protective systems and contingency plans, but we remain potentially vulnerable to additional known or unknown threats. There is no assurance the financial or operational impact from such threats will not be material.
We attempt to mitigate these risks by employing a number of measures, including employee training, monitoring and testing, and maintenance of protective systems and contingency plans, but we remain potentially 18 Table of Contents vulnerable to additional known or unknown threats. There is no assurance the financial or operational impact from such threats will not be material.
If additional laws prohibiting or restricting the use of aftermarket products are passed, it could have an adverse impact on our aftermarket products business. Certain organizations test the quality and safety of vehicle replacement products.
If additional laws prohibiting or restricting the use of aftermarket products are passed or if our certifications are revoked, it could have an adverse impact on our aftermarket products business. Certain organizations test the quality and safety of vehicle replacement products.
Any claim relating to intellectual property infringement that is successfully asserted against us may require us to pay substantial damages, including treble damages (if we are found to be willfully infringing another party’s patents) for past use of the asserted intellectual property, and royalties and other consideration going forward if we are forced to take a license.
Any claim relating to intellectual property infringement, misappropriation or other violation that is successfully asserted against us may require us to pay substantial damages, including treble damages (if we are found to be willfully infringing another party’s patents) for past use of the asserted intellectual property, and royalties and other consideration going forward if we are forced to take a license.
If there is an event of default under any of the agreements relating to our outstanding indebtedness, the holders of the defaulted debt could cause all amounts outstanding with respect to that debt to be due and payable immediately.
If there were an event of default under any of the agreements relating to our outstanding indebtedness, the holders of the defaulted debt could cause all amounts outstanding with respect to that debt to be due and payable immediately.
An attack on our systems or those of certain of our vendors could result in security breaches, theft, lost or corrupted data, misappropriation of sensitive, confidential or personal data or information, loss of trade secrets and commercially valuable information, production downtimes and operational disruptions. We defend against attempted 18 Table of Contents cyber-attacks in the normal course of our business.
An attack on our systems or those of certain of our vendors could result in security breaches, theft, lost or corrupted data, misappropriation of sensitive, confidential or personal data or information, loss of trade secrets and commercially valuable information, production downtimes and operational disruptions. We defend against attempted cyber-attacks in the normal course of our business.
Meeting or exceeding many government-mandated product safety and stewardship standards is costly and requires manufacturers to remedy defects, including through recall campaigns if the products do not comply with HSE standards.
Meeting or exceeding many government-mandated product safety and stewardship standards is costly and requires manufacturers to remedy defects, including through recall campaigns if the products do not comply with applicable standards.
The costs of these raw materials have been volatile historically and are influenced by factors that are outside of our control. In recent years, the prices and availability of energy, metal alloys, polymers and certain other of our raw materials have fluctuated significantly, exacerbated by inflation and global disruptions such as the Russia-Ukraine conflict.
The costs of these raw materials have been volatile historically and are influenced by factors that are outside of our control, including the imposition of tariffs. In recent years, the prices and availability of energy, metal alloys, polymers and certain other of our raw materials have fluctuated significantly, exacerbated by inflation and global disruptions such as the Russia-Ukraine conflict.
Conversely, third parties may assert infringement or other misappropriation claims against us based on their patents, trademarks or other intellectual property rights. For example, first-fit manufacturers continue to seek and obtain utility and design patents to support claims of intellectual property infringement against manufacturers and distributors of aftermarket products in efforts to restrict or eliminate the sale of aftermarket products.
Conversely, third parties may assert infringement or other misappropriation claims against us based on their patents, trademarks or other intellectual property rights. For example, OEM manufacturers continue to seek and obtain utility and design patents to support claims of intellectual property infringement against manufacturers and distributors of aftermarket products in efforts to restrict or eliminate the sale of aftermarket products.
The loss of one or more of these customers or other major customers, a deterioration in our relationship with any of them, 17 Table of Contents or their failure to pay amounts due to us could have a material adverse effect on our business, financial condition, results of operations or cash flows.
The loss of one or more of these customers or other major customers, a deterioration in our relationship with any of them, or their failure to pay amounts due to us could have a material adverse effect on our business, financial condition, results of operations or cash flows.
Specifically, our high level of debt could have important consequences, including the following: • making it more difficult for us to satisfy our obligations with respect to our debt; • limiting our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions or other general corporate requirements; • requiring a substantial portion of our cash flows to be dedicated to debt service payments instead of other purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures, acquisitions and other general corporate purposes; • increasing our vulnerability to general adverse economic and industry conditions; • exposing us to the risk of increased interest rates as certain of our borrowings are at variable rates of interest; • limiting our flexibility in planning for and reacting to changes in the industry in which we compete; • placing us at a disadvantage compared to other, less leveraged competitors; and • increasing our cost of borrowing.
Our level of debt could have important consequences, including the following: • making it more difficult for us to satisfy our obligations with respect to our debt; 24 Table of Contents • limiting our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions or other general corporate requirements; • requiring a significant portion of our cash flows to be dedicated to debt service payments instead of other purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures, acquisitions and other general corporate purposes; • increasing our vulnerability to general adverse economic and industry conditions; • exposing us to the risk of increased interest rates as certain of our borrowings are at variable rates of interest; • limiting our flexibility in planning for and reacting to changes in the industry in which we compete; • placing us at a disadvantage compared to other, less leveraged competitors; and • increasing our cost of borrowing.
Risks Related to Cybersecurity and Information Systems Cyber-security vulnerabilities, threats and more sophisticated and targeted computer crimes could pose a risk to our systems, networks, products, solutions, services and data.
Risks Related to Cybersecurity and Information Systems Cybersecurity vulnerabilities, threats and more sophisticated and targeted computer crimes could pose a risk to our systems, networks, products, solutions, services and data.
For Fiscal 2023, approximately 63% of our net sales originated from outside of the U.S. We have manufacturing, sales and service facilities spanning five continents and sell to customers in over 130 countries. Moreover, a significant amount of our manufacturing functions and sources of our raw materials and components are from emerging markets such as China, India and Eastern Europe.
For Fiscal 2024, approximately 63% of our net sales originated from outside of the U.S. We have manufacturing, sales and service facilities spanning six continents and sell to customers in over 130 countries. Moreover, a significant amount of our manufacturing functions and sources of our raw materials and components are from emerging markets such as China, India and Eastern Europe.
Our contracted backlog is comprised of future orders for our products from a broad number of customers. Defaults by any of the customers that have placed significant orders with us could have a significant adverse effect on our net sales, profitability and cash flow.
Our contracted backlog is comprised of future orders for our products from a broad number of customers. Defaults by any of the customers that have placed significant orders with us could have a significant adverse effect on our net sales, profitability and cash 17 Table of Contents flow.
Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”), the U.K. Bribery Act of 2010, and other anti-corruption laws that generally prohibit employees and intermediaries from making improper payments for the purpose of obtaining or retaining business or gaining some other business advantage.
Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”) and the U.K. Bribery Act of 2010 that generally prohibit employees and intermediaries from making improper payments for the purpose of obtaining or retaining business or gaining some other business advantage.
Increased unionization, new labor legislation or changes in regulations could disrupt our operations, reduce our profitability, or interfere with the ability of our management to focus on executing our business strategies. Additionally, we have experienced, and may continue to experience, labor shortages, turnover and increased labor costs due to general macroeconomic factors.
Furthermore, increased unionization, new labor legislation or changes in regulations has disrupted and could further disrupt our operations, reduce our profitability, or interfere with the ability of our management to focus on executing our business strategies. Additionally, we have experienced, and may continue to experience, labor shortages, turnover and increased labor costs due to general macroeconomic factors.
Earnings from these subsidiaries are our primary source of funds for debt payments and operating expenses. If our subsidiaries are restricted from making distributions, our ability to meet our debt service obligations or otherwise fund our operations may be impaired.
Earnings from these subsidiaries are a significant source of funds for debt payments and operating expenses. If our subsidiaries are restricted from making distributions, our ability to meet our debt service obligations or otherwise fund our operations may be impaired.
Increased global cyber security vulnerabilities, threats, computer viruses and more sophisticated and targeted cyber-related attacks (such as the recent increasing use of “ransomware” and phishing attacks), as well as cyber-security failures resulting from human error, catastrophic events (such as fires, floods, hurricanes and tornadoes), and technological errors, pose a risk to our systems (including third-party systems utilized by us), products and data as well as potentially to our employees’, customers', partners', suppliers' and third-party service providers' systems and data.
Increased global cybersecurity vulnerabilities, threats, computer viruses and more sophisticated and targeted cyber-related attacks (such as the recent increasing use of ransomware, social engineering, and phishing attacks), as well as cybersecurity failures resulting from human error, catastrophic events (such as fires, floods, hurricanes and tornadoes), and technological errors, pose a risk to our systems (including third-party systems utilized by us), products and data as well as potentially to our employees’, customers', partners', suppliers' and third-party service providers' systems and data.
We may be involved in tax, intellectual property, product liability, product warranty, environmental and antitrust claims and lawsuits, and other legal, antitrust and regulatory proceedings arising in the ordinary course of our business.
We have been, and may in the future be, involved in tax, intellectual property, product liability, product warranty, environmental and antitrust claims and lawsuits, and other legal, antitrust and regulatory proceedings arising in the ordinary course of our business.
However, there is no assurance that our efforts have been and will be effective in ensuring that we will comply with all applicable anti-corruption laws or other legal requirements.
However, there is no assurance that our efforts have been and will be effective in ensuring compliance with all applicable anti-corruption laws or other legal requirements.
We are also subject to U.K. corporate criminal laws governing the failure to prevent the facilitation of tax evasion pursuant to the Criminal Finances Act 2017 (“Criminal Finances Act”). 20 Table of Contents We have instituted policies, procedures and ongoing training of employees with regard to business ethics, designed to ensure that we and our employees comply with anti-corruption laws, Trade Control Laws and the Criminal Finances Act.
We are also subject to U.K. corporate criminal laws governing the failure to prevent the facilitation of tax evasion pursuant to the Criminal Finances Act 2017 (“Criminal Finances Act”). 20 Table of Contents We have instituted policies, procedures and ongoing training of employees designed to ensure that we and our employees engage in ethical business conduct and comply with anti-corruption laws, Trade Control Laws and the Criminal Finances Act.
Risks Related to Our Indebtedness Our substantial leverage and subsidiary structure could adversely affect our financial condition, our ability to raise additional capital to fund our operations, our ability to operate our business, our ability to react to changes in the economy, or our industry or our ability to pay our debts, and could divert our cash flow from operations to debt payments.
Risks Related to Our Indebtedness Our indebtedness and subsidiary structure could adversely affect our financial condition, our ability to raise additional capital to fund our operations, to operate our business, to capitalize on business opportunities, to react to changes in the economy or our industry, or to pay our debts, and could divert our cash flow from operations to debt payments.
There are numerous risks inherent in this process, including the risks that we will be unable to anticipate the direction of technological change or that we will be unable to develop and market new products and applications in a timely fashion to satisfy customer demands.
There are numerous risks inherent in this process, including the risks that we will be unable to anticipate the direction of technological change (including those related to the utilization of artificial intelligence) or that we will be unable to develop and market new products and applications in a timely fashion to satisfy customer demands.
Because we have no current plans to pay dividends on our ordinary shares, our shareholders may not receive any return on their investments unless they sell their ordinary shares for a price greater than that which they paid. We have no current plans to pay dividends on our ordinary shares.
Risks Related to the Ownership of our Ordinary Shares Because we have no current plans to pay dividends on our ordinary shares, our shareholders may not receive any return on their investments unless they sell their ordinary shares for a price greater than that which they paid. We have no current plans to pay dividends on our ordinary shares.
For example, the enactment of the EU’s Carbon Border Adjustment Mechanism could increase the cost of materials we need for production in the EU or reduce the demand for our products manufactured for the EU market.
For example, we anticipate the enactment of the EU’s Carbon Border Adjustment Mechanism will increase the cost of materials we need for production in the EU and could reduce the demand for our products manufactured for the EU market.
For example, we expect measuring and reporting information and metrics in compliance with the EU’s recently enacted Corporate Sustainability Reporting Directive to be costly, difficult and time consuming.
For example, measuring and reporting information and metrics in compliance with the EU’s recently enacted Corporate Sustainability Reporting Directive has been, and we expect will continue to be, costly, difficult and time consuming.
Further, our industry has been impacted by the ongoing uncertainty surrounding tariffs and international trade relations, particularly with China, and it is difficult for us to predict the impact future trade measures will have on our business and operations in the future.
Further, our industry has been impacted by the ongoing uncertainty surrounding tariffs and international trade relations, and it is difficult for us to predict future trade measures and the impact they will have on our business and operations.
In these markets, we have focused on establishing brand visibility, including by building a first-fit presence in the end markets we serve.
In these markets, we have focused on establishing brand visibility, including by building a OEM presence in the end markets we serve.
Such events could adversely affect our business. We are also subject to new and proposed rules and regulations of a number of governmental and self-regulatory bodies and organizations, such as the SEC, the NYSE, the EU, and the U.K. government, that require increased public disclosure of data related to sustainability issues and mandate additional requirements for sustainability related marketing claims.
We are also subject to new and proposed rules and regulations of a number of governmental and self-regulatory bodies and organizations, such as the SEC, the NYSE, the EU, and the U.K. government, that require increased public disclosure of data related to sustainability and ESG issues and mandate additional requirements for sustainability and ESG related marketing claims.
Labor is a primary component of operating our business. As of December 30, 2023, we had approximately 14,700 full time employees worldwide. Certain of our employees are represented by various unions under collective bargaining agreements, or by various regional works councils.
Labor is a primary component of operating our business. As of December 28, 2024, we had approximately 14,100 full time employees worldwide. Certain of our employees are represented by various unions under collective bargaining agreements, or by various regional works councils.
Certain of our employees in the U.S., the U.K., Canada, Mexico, Germany and Japan are participants in defined benefit pension plans which we sponsor and/or to which we have contribution obligations. As of December 30, 2023, the net pension obligation of our underfunded defined benefit pension plans globally was $61.7 million on a Topic 715 “Compensation-Retirement Benefits” basis.
Certain of our employees in the U.S., the U.K., Canada, Mexico, Germany and Japan are participants in defined benefit pension plans which we sponsor and/or to which we have contribution obligations. As of December 28, 2024, the net pension obligation of our underfunded defined benefit pension plans globally was $58.5 million on a Topic 715 “Compensation-Retirement Benefits” basis.
Our revenue growth may be dependent on market acceptance of new product introductions and product innovations. The markets in which we operate are subject to technological change.
Our revenue growth may be dependent on market acceptance of new product introductions and product innovations. The markets in which we operate, or seek to operate, are subject to technological change and, in some cases, developing.
We have been implementing cost reduction and restructuring actions in all of our businesses and have discontinued product lines, consolidated or relocated manufacturing operations and reduced our employee population in some locations.
We have been implementing cost reduction and restructuring actions in all of our businesses, such as our ongoing footprint optimization plan, and have discontinued product lines, consolidated or relocated manufacturing operations and reduced our employee population in some locations.
Commission adopted a Directive to implement Pillar Two in the E.U. and required all 27 EU member states to adopt local legislation during 2023 to implement Pillar Two rules, which are to apply in respect of the fiscal years beginning from December 31, 2023.
In December 2021, the OECD published its Pillar Two model rules and, in December 2022, the EU Commission adopted a Directive to implement Pillar Two in the EU and required all 27 EU member states to adopt local legislation during 2023 to implement Pillar Two rules, which are to apply in respect of the fiscal years beginning from December 31, 2023.
HSE and sustainability related laws and regulations have become increasingly stringent and new laws and regulations or stricter interpretation or enforcement of existing laws and regulations could adversely affect our business, financial condition and results of our operations and product demand.
In addition, these laws and regulations have become increasingly stringent and new laws and regulations or stricter interpretation or enforcement of existing laws and regulations could adversely affect our business, financial condition and results of our operations and product demand.
HSE and sustainability laws vary by jurisdiction but generally govern air emissions, wastewater discharges, material handling and transportation, waste management and disposal, product stewardship, toxicity and hazardous substances, and workplace health and safety, as well as the investigation and clean-up of contaminated sites.
These laws vary by jurisdiction but generally govern air emissions, wastewater discharges, material handling and transportation, waste management and disposal, product stewardship and packaging requirements, toxicity and hazardous substances, supplier due diligence and standards, and workplace health and safety, as well as the investigation and clean-up of contaminated sites.
If this trend continues, it could adversely impact our replacement market sales. Competition in the replacement market in emerging markets may limit our ability to grow in those markets. In emerging markets such as China, India, and Eastern Europe, the replacement markets are still nascent as compared to those in more developed nations.
Competition in the replacement market in emerging markets may limit our ability to grow in those markets. In emerging markets such as China, India, and Eastern Europe, the replacement markets are still nascent as compared to those in more developed nations.
In addition, our efforts to mitigate these risks, including by investing in sustainability initiatives, may not be successful in achieving their desired outcomes, which may include cost savings. We may not be able to maintain and enhance our strong brand on which we depend.
Moreover, there has been a rise in “anti-ESG” activism, which could impact our efforts. In addition, our efforts to mitigate these risks, including by investing in sustainability initiatives, may not be successful in achieving their desired outcomes, which may include cost savings. We may not be able to maintain and enhance our strong brand on which we depend.
Our shareholders adopted a resolution authorizing our Board to allot our ordinary shares and to grant rights to subscribe for or convert any security into such shares for the consideration and on the terms and conditions established by our Board in its sole discretion, whether in connection with acquisitions or otherwise.
In 2024, our shareholders adopted a resolution authorizing our Board to allot up to approximately 20% of our issued share capital as of April 22, 2024 and to grant rights to subscribe for or convert any security into such shares for the consideration and on the terms and conditions established by our Board in its sole discretion, whether in connection with acquisitions or otherwise.
Other countries such as China, India, Thailand, Brazil and Argentina have enacted or are enacting data localization and privacy laws that require data to stay within their borders, as well as requiring that data subjects provide clear and concise consent on how collected data will be utilized.
Other countries such as China, India, Thailand, Brazil and Argentina have enacted or are enacting data privacy laws that restrict cross-border data transfers, as well as requiring that data subjects provide clear and concise consent on how collected data will be utilized.
The third-party insurance coverage that we maintain will vary from time to time in both type and amount depending on cost, availability and our decisions regarding risk retention, and may be unavailable or insufficient to protect us against losses.
These risks could be exacerbated to the extent our disaster recovery plans do not adequately address the event. The third-party insurance coverage that we maintain will vary from time to time in both type and amount depending on cost, availability and our decisions regarding risk retention, and may be unavailable or insufficient to protect us against losses.
Additionally, we have reserved 19.0 million ordinary shares for issuance under our Omnibus Incentive Plan, including 8.2 million shares available for grant as of December 30, 2023.
Additionally, we have reserved 19.0 million ordinary shares for issuance under our Omnibus Incentive Plan, including 7.3 million shares available for grant as of December 28, 2024.
Vehicle manufacturers are increasingly requiring their outside suppliers to participate in the warranty of their products and to be responsible for the operation of these component products in new vehicles sold to consumers. Warranty claims may range from individual customer claims to full recalls of all products in the field.
Vehicle manufacturers are increasingly requiring their outside suppliers to provide a warranty for the manufacturers’ products that contain such supplier’s components, and to share responsibility for the operation of these component products in new vehicles sold to consumers. Warranty claims may range from individual customer claims to full recalls of all products in the field.
If we, our customers or government regulators determine that a product is defective or does not comply with such standards prior to the start of production, the launch of a product could be delayed until such defect is remedied.
If we, our customers or government regulators determine that a product is defective or does not comply with such standards prior to the start of production, the launch of a product could be delayed until such defect is remedied. Extended delays in product launches or a recall campaign to address defects in sold products could result in significant costs.
The U.K. has implemented certain elements of the Pillar Two proposal with effect in relation to accounting periods commencing on or after December 31, 2023, and during 2023 the U.K. released draft legislation to (i) implement further elements of the OECD agreed Pillar Two model rules in the U.K. and (ii) make proposed amendments to the Pillar Two rules 23 Table of Contents that have already been implemented.
The U.K. has implemented certain elements of the Pillar Two proposal with effect in relation to accounting periods commencing on or after December 31, 2023, and the U.K. government announced in the Autumn Budget that (i) further 23 Table of Contents elements of the OECD agreed Pillar Two model rules will be implemented in the U.K., with the effect in relation to accounting periods beginning on or after December 31, 2024 and (ii) further amendments would be made to the Pillar Two rules that have already been implemented.
Further work is currently being undertaken by the OECD on its proposal to reform international allocation of taxing rights by allocating a greater share of taxing rights to countries where consumers are located, regardless of the physical presence of a business (“Pillar One”), and to implement a global minimum tax (“Pillar Two”).
The broad objectives of this project are to reform international allocation of taxing rights by allocating a greater share of taxing rights to countries where consumers are located, regardless of the physical presence of a business (“Pillar One”), and to implement a global minimum tax (“Pillar Two”).
Virtually all vehicle manufacturers seek price reductions in both the initial bidding process and during the term of the award. If we are not able to offset price reductions through improved operating efficiencies, reduced expenditures, or new product introductions, those price reductions may have a material adverse effect on our results of operations.
If we are not able to offset price reductions through improved operating efficiencies, reduced expenditures, or new product introductions, those price reductions may have a material adverse effect on our results of operations.
Certain of our debt agreements impose significant operating and financial restrictions on our subsidiaries and us that could prevent us from capitalizing on business opportunities. The credit agreements that govern our senior secured term loan facilities and the indenture that governs our notes impose significant operating and financial restrictions on our subsidiaries.
Additionally, the credit agreements that govern our senior secured term loan facilities and the indenture that governs our notes impose significant operating and financial restrictions on our subsidiaries.
Any ordinary shares that we issue, including under our Omnibus Incentive Plan or other equity incentive plans that we may adopt in the future, would dilute the percentage ownership held by the holders of our ordinary shares.
Any ordinary shares that we issue, including under our Omnibus Incentive Plan or other equity incentive plans that we may adopt in the future, would dilute the percentage ownership held by the holders of our ordinary shares. 26 Table of Contents We may issue a new class or classes of shares whose terms could adversely affect the voting power or value of our ordinary shares.
We cannot ensure that we will be able to maintain compliance with these covenants in the future and, if we fail to do so, that we will be able to obtain waivers from the lenders or amend the covenants.
We cannot ensure that we will be able to maintain compliance with these covenants in the future and, if we fail to do so, that we will be able to obtain waivers from the lenders or amend the covenants. Further, our consolidated assets are owned by, and our business is conducted through, many of our subsidiaries.
During Fiscal 2023, our top ten customers accounted for approximately 23% of our consolidated net sales and accounted for approximately 27% of our trade accounts receivable balance as of December 30, 2023, and our largest customer accounted for approximately 4% and 13% of our Fiscal 2023 consolidated net sales and trade accounts receivable balance as of December 30, 2023, respectively.
During Fiscal 2024, our top ten customers accounted for approximately 22% of our consolidated net sales and accounted for approximately 29% of our trade accounts receivable balance as of December 28, 2024, and our largest customer accounted for approximately 9% and 6% of our Fiscal 2024 consolidated net sales and trade accounts receivable balance as of December 28, 2024, respectively.
Accordingly, our margins could suffer if our customers are no longer willing to pay a premium for our product and service offerings. We continue to face pricing pressure from our customers in the automotive first-fit end market as well as other end markets.
Accordingly, our margins could suffer if our customers are no longer willing to pay a premium for our product and service offerings. We continue to face pricing pressure from our customers in OEM end markets as well as other end markets. Many manufacturers seek price reductions in both the initial bidding process and during the term of the award.
In addition, the consolidation of channel partners and customers in certain of our end markets could adversely impact our profitability. 15 Table of Contents Risks Related to Our Business and Industry We are dependent on the continued operation of our manufacturing facilities, supply chains, distribution systems and information technology systems, and a major disruption or closure, including as a result of a catastrophic event, could have a material adverse effect on our business.
The levels of inventory maintained by our distributors and other channel partners, and changes in those levels, such as destocking, can also significantly impact our results of operations in any given period. 15 Table of Contents Risks Related to Our Business and Industry We are dependent on the continued operation of our manufacturing facilities, supply chains, distribution systems and information technology systems, and a major disruption or closure, including as a result of a catastrophic event, could have a material adverse effect on our business.
In addition, customers, investors, employees and other stakeholders are increasingly focused on sustainability matters and related disclosures and marketing claims. These changing rules, regulations and stakeholder expectations have resulted in, and are likely to continue to result in, increased general and administrative expenses and increased management time and attention to comply with or meet those regulations and expectations.
These changing and inconsistent rules, regulations and stakeholder expectations have resulted in, and are likely to continue to result in, increased general and administrative expenses and increased management time and attention to comply with or meet those regulations and expectations.
Lack of certification may negatively impact us because many major insurance companies recommend or require the use of aftermarket products only if they have been certified by an independent certifying organization.
Additional legislation of this kind may be introduced in the future. Moreover, many major insurance companies recommend or require the use of aftermarket products only if they have been certified by an independent certifying organization.
As the present and former operator of industrial properties that use and generate hazardous materials, we could be subject to additional liability for environmental contamination in the future, regardless of whether we caused such contamination. Additionally, most U.S. states have passed laws that regulate or limit the use of aftermarket products in certain types of repair work.
As the present and former operator of industrial properties that use and generate 19 Table of Contents hazardous materials, we could be subject to additional liability for environmental contamination in the future, regardless of whether we caused such contamination.
As of December 30, 2023, the total principal amount of our debt was $2,471.9 million.
As of December 28, 2024, the total principal amount of our debt was $2,363.5 million.
Even if infringement claims against us are without merit, we will likely incur significant expenses investigating and defending such claims and, even if we prevail, may divert management attention from other business concerns. In addition, certification by independent organizations of certain of our aftermarket products may be revoked or adversely affected by first-fit manufacturer claims.
Even if infringement claims against us are without merit, we will likely incur significant expenses investigating and defending such claims and, even if we prevail, may divert management attention from other business concerns.
These laws include requirements relating to consumer disclosure, owner’s consent regarding the use of aftermarket products in the repair process, and the requirement to have aftermarket products certified by an independent testing organization. Additional legislation of this kind may be introduced in the future.
Additionally, most U.S. states have passed laws that regulate or limit the use of aftermarket products in certain types of repair work. These laws include requirements relating to consumer disclosure, owner’s consent regarding the use of aftermarket products in the repair process, and the requirement to have aftermarket products certified by an independent testing organization.
For example, the increased adoption of electric vehicles may result in application requirements that are not supported by our current technologies.
For example, the increased adoption of electric vehicles and demand for data centers may result in application requirements that are not supported by our current technologies. If we are unable to adapt to these changes, our business and results of operations may be adversely affected.
This may lead to increased tax costs when paying dividends and interest intra-group. Other developments to the tax regime in the U.K., the U.S. or in other countries in which we operate could materially affect our tax burden and/or have a negative impact on our ability to compete in the global marketplace.
These and other developments to the tax regime in the countries in which we operate could materially affect our tax burden and/or have a negative impact on our ability to compete in the global marketplace. Relevant tax authorities may no longer treat us as being exclusively a resident of the U.K. for tax purposes.
The average useful life of certain parts used in our end markets has increased in recent years due to innovations in technologies and manufacturing processes. Extending the life or durability of these parts may allow end users to replace parts less often depending on operating conditions. As a result, a portion of our sales in replacement markets may be displaced.
Extending the life or durability of these parts may allow end users to replace parts less often depending 16 Table of Contents on operating conditions. As a result, a portion of our sales in replacement markets may be displaced. If this trend continues, it could adversely impact our replacement market sales.
These restrictions also do not prevent us from incurring obligations, such as trade payables, that do not constitute indebtedness as defined under our debt instruments. To the extent new debt is added to our current debt levels, the substantial leverage risks described in the immediately preceding risk factor would increase.
These restrictions also do not prevent us from incurring obligations, such as trade payables, that do not constitute indebtedness as defined under our debt instruments.
Although we have liability insurance, we cannot be certain that this insurance coverage will continue to be available to us at a reasonable cost or will be adequate. In addition, even if we are successful in defending against a claim relating to our products, claims of this nature could cause our customers to lose confidence in our products and us.
In addition, even if we are successful in defending against a claim relating to our products, claims of this nature could cause our customers to lose confidence in our products and us. Such costs and adverse reputational effects could have a material adverse effect on our business.
However, the details of the proposals are complex and are subject to significant uncertainty, and consultation in respect of certain aspects of the proposals is ongoing. While the impact on the Company will need to be determined by reference to the final rules, we do not currently anticipate a material impact.
However, the details of the proposals are complex and are subject to significant uncertainty, and consultation in respect of certain aspects of the proposals is ongoing.
In addition, any event of default or declaration of acceleration under one debt instrument could also result in an event of default under one or more of our other debt instruments. 25 Table of Contents Risks Related to the Ownership of our Ordinary Shares Our Sponsor has significant influence over us and its interests may conflict with ours in the future.
In addition, any event of default or declaration of acceleration under one debt instrument could also result in an event of default under one or more of our other debt instruments.
As a result, interest rates on our credit facility or other variable rate debt could be higher or lower than current levels. As of December 30, 2023, after taking into account our interest rate derivatives, $648.9 million (equivalent), or 26.3%, of our outstanding debt had variable interest rates.
As of December 28, 2024, after taking into account our interest rate derivatives, $608.5 million (equivalent), or 25.7%, of our outstanding debt had variable interest rates.
If we are unable to adapt to these changes, our business and results of operations may be adversely affected. 16 Table of Contents Longer lives of parts used in our end markets may adversely affect demand for some of our replacement products.
Longer lives of parts used in our end markets may adversely affect demand for some of our replacement products. The average useful life of certain parts used in our end markets has increased in recent years due to innovations in technologies and manufacturing processes.
The likelihood of receiving defective materials and related product failure and resulting liability claims may increase due changes in our supplier network, such as low-cost country sourcing. Litigation is inherently unpredictable and these claims, regardless of their outcome, may be costly, divert management attention and adversely affect our reputation.
We face an inherent risk of product liability claims if an alleged product failure results in a claim for injury or loss. Changes in our supplier network, such as low-cost country sourcing, may increase the likelihood of receiving defective materials, leading to product failures and associated liability claims.
Relevant tax authorities may no longer treat us as being exclusively a resident of the U.K. for tax purposes. We are a company incorporated in the U.K.
We are a company incorporated in the U.K.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeItem 1C. Cybersecurity Risk Management and Strategy The Company’s cybersecurity program is designed to ensure our technology environment is operating and maintained in accordance with best practices, utilizing the National Institute of Standards and Technology framework as a key component of its approach to risk management.
Biggest changeItem 1C. Cybersecurity Risk Management and Strategy The Company’s cybersecurity program is designed to ensure our technology environment is operating and maintained in accordance with best practices, utilizing the International Organization for Standardization framework as a key component of its approach to risk management.
To identify, assess, and manage cybersecurity threat risks, the Company: • maintains a 24-hour cybersecurity team to continuously monitor its technology systems and emerging threat types and to respond to identified vulnerabilities; • deploys a variety of defenses, including automatic blocking of potential cybersecurity threats; 28 Table of Contents • utilizes third-party system scanning tools, cybersecurity threat intelligence reports as well as cybersecurity threat reports from its business partners, each of which assists our monitoring efforts; • utilizes a scoring system to prioritize non-urgent mitigation activities; • completes annual third-party testing, the results of which are discussed with the Company’s Audit Committee, and periodic third-party table-top exercises and gap assessments; • maintains a mandatory internal educational program for employees, including phishing simulations, required courses at the time of hire and annually thereafter, and microlearning courses throughout the year, to ensure continual awareness of new and emerging threats; • has adopted information technology policies applicable to its employees, including the Company’s Acceptable Use Policy, Dual Use Device Policy, Information Security Policy, Password Policy and Security Incident Response Plan (“SIRP”).
To identify, assess, and manage cybersecurity threat risks, the Company: • maintains a 24-hour cybersecurity team to continuously monitor its technology systems and emerging threat types and to respond to identified vulnerabilities; • deploys a variety of defenses, including automatic blocking of potential cybersecurity threats; 28 Table of Contents • utilizes third-party system scanning tools, cybersecurity threat intelligence reports as well as cybersecurity threat reports from its business partners, each of which assists our monitoring efforts; • utilizes a scoring system to prioritize non-urgent mitigation activities; • completes annual third-party testing, the results of which are discussed with the Company’s Audit Committee, and periodic third-party table-top exercises and gap assessments; • maintains a mandatory internal educational program for employees, including phishing simulations, required courses at the time of hire, and microlearning courses throughout the year, to ensure continual awareness of new and emerging threats; • has adopted information technology policies applicable to its employees, including the Company’s Acceptable Use Policy, Dual Use Device Policy, Information Security Policy, Password Policy and Security Incident Response Plan (“SIRP”).
He holds a Certified Information Systems Security Professional certification and a master’s degree in information technology management, with an emphasis on cybersecurity. He has also completed several supplemental courses on cyber incident response, including SANS 504 - Hacker Tools, Techniques, and Incident Handling. Our CIO has over 20 years of experience in cybersecurity.
He holds a Certified Information Systems Security Professional (CISSP) certification and a master’s degree in information technology management, with an emphasis on cybersecurity. He has also completed several supplemental courses on cyber incident response, including SANS 504 - Hacker Tools, Techniques, and Incident Handling. Our CIO has over 20 years of experience in cybersecurity.
He founded and built Internet start-ups and Internet Service Providers, protecting them from threats, and responding to cybersecurity events. He has rebuilt and directed cybersecurity departments in global public companies for the last six years. He is an advisory board member for various cybersecurity and technology companies and holds a B.S. in Computer Science and an MBA.
He founded and built Internet start-ups and Internet Service Providers, protecting them from threats, and responding to cybersecurity events. He has rebuilt and directed cybersecurity departments in global public companies for the last seven years. He is an advisory board member for various cybersecurity and technology companies and holds a B.S. in Computer Science and an MBA.
In addition, to ensure cybersecurity risks are considered within the Company’s ERM process, our CIO serves on our Enterprise Risk Committee which directs the ERM process. Our CISO has over 11 years of experience assisting organizations in responding to cybersecurity incidents, serving as a chief information security officer for the past five years.
In addition, to ensure cybersecurity risks are considered within the Company’s ERM process, our CIO serves on our Enterprise Risk Committee which directs the ERM process. Our CISO has over 12 years of experience assisting organizations in responding to cybersecurity incidents, serving as a chief information security officer for the past six years.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeIncluded in our property, plant and equipment are land and buildings with a net carrying amount of $212.4 million as of December 30, 2023, compared to $214.0 million as of December 31, 2022, representing manufacturing facilities, service centers, 29 Table of Contents distribution centers and offices located throughout the world, but predominantly in North America.
Biggest changeIncluded in our property, plant and equipment are land and buildings with a net carrying amount of $192.9 million as of December 28, 2024, compared to $212.4 million as of December 30, 2023, representing manufacturing facilities, service centers, 29 Table of Contents distribution centers and offices located throughout the world, but predominantly in North America.
Item 2. Properties We operate from over 100 locations in 30 countries across the Americas, Europe, Asia, Australia and Africa. Our corporate headquarters is located in Denver, Colorado, and we also maintain regional headquarters in Denver, Luxembourg, Shanghai, and Singapore.
Item 2. Properties We operate from over 100 locations in 31 countries across the Americas , Europe, Asia, Australia and Africa. Our corporate headquarters is located in Denver, Colorado, and we also maintain regional headquarters in Denver, Luxembourg, Shanghai, and Singapore.
As of December 30, 2023, Gates owned 30 of these facilities, including 23 manufacturing or service centers. We also lease a number of locations around the world, primarily distribution centers and offices, none of which is individually material to our operations.
As of December 28, 2024, Gates owned 29 of these facilities, including 23 manufacturing or service centers. We also lease a number of locations around the world, primarily distribution centers and offices, none of which is individually material to our operations.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities Market Information Our ordinary shares are traded on the NYSE under the symbol “GTES”. As of February 5, 2024, there were three holders of record of our ordinary shares.
Biggest changeItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities Market Information Our ordinary shares are traded on the NYSE under the symbol “GTES”. As of February 3, 2025, there were three holders of record of our ordinary shares.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeItem 6. [Reserved] 31 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 32 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 48 Item 8. Financial Statements and Supplementary Data 50 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 50 Item 9A. Controls and Procedures 51 Item 9B.
Biggest changeItem 6. [Reserved] 31 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 32 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 47 Item 8. Financial Statements and Supplementary Data 50 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 50 Item 9A. Controls and Procedures 51 Item 9B.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

85 edited+37 added−44 removed59 unchanged
Biggest changeNet debt was as follows: (dollars in millions) As of December 30, 2023 As of December 31, 2022 Principal amount of debt $ 2,471.9 $ 2,491.4 Less: Cash and cash equivalents (720.6) (578.4) Net debt $ 1,751.3 $ 1,913.0 44 Table of Contents The principal amount of debt is reconciled to the carrying amount of debt as follows: (dollars in millions) As of December 30, 2023 As of December 31, 2022 Principal amount of debt $ 2,471.9 $ 2,491.4 Accrued interest 17.0 17.1 Deferred issuance costs (37.4) (45.5) Carrying amount of debt $ 2,451.5 $ 2,463.0 Adjusted EBITDA adjustments for ratio calculation purposes The financial maintenance ratio in our revolving credit agreement and other ratios related to incurrence-based covenants (measured only upon the taking of certain actions, including the incurrence of additional indebtedness) under our revolving credit facility, our term loan facility and the indenture governing our outstanding notes are calculated in part based on financial measures similar to Adjusted EBITDA as presented elsewhere in this report, which financial measures are determined at the Gates Global LLC level and adjust for certain additional items such as severance costs, the pro forma impacts of acquisitions and the pro forma impacts of cost-saving initiatives.
Biggest changeFor the year ended December 28, 2024 (dollars in millions) Power Transmission Fluid Power Total Net sales for the year ended December 28, 2024 $ 2,108.1 $ 1,300.1 $ 3,408.2 Impact on net sales of movements in currency rates 31.7 4.7 36.4 Core sales for the year ended December 28, 2024 2,139.8 1,304.8 3,444.6 Net sales for the year ended December 30, 2023 2,191.2 1,379.0 3,570.2 Decrease in net sales $ (83.1) $ (78.9) $ (162.0) Decrease in net sales on a core basis (core sales) $ (51.4) $ (74.2) $ (125.6) Net sales decline (3.8) % (5.7) % (4.5) % Core sales decline (2.3) % (5.4) % (3.5) % For the year ended December 30, 2023 (dollars in millions) Power Transmission Fluid Power Total Net sales for the year ended December 30, 2023 $ 2,191.2 $ 1,379.0 $ 3,570.2 Impact on net sales of movements in currency rates 18.9 (10.0) 8.9 Core sales for the year ended December 30, 2023 2,210.1 1,369.0 3,579.1 Net sales for the year ended December 31, 2022 2,173.7 1,380.5 3,554.2 Decrease in net sales $ 17.5 $ (1.5) $ 16.0 Increase (decrease) in net sales on a core basis (core sales) $ 36.4 $ (11.5) $ 24.9 Net sales growth (decline) 0.8 % (0.1) % 0.5 % Core sales growth (decline) 1.7 % (0.8) % 0.7 % 43 Table of Contents Adjusted EBITDA adjustments for ratio calculation purposes The financial maintenance ratio in our credit agreement and other ratios related to incurrence-based covenants (measured only upon the taking of certain actions, including the incurrence of additional indebtedness) under our credit agreement governing our revolving credit facility and our term loan facility and the indenture governing our outstanding notes are calculated in part based on financial measures similar to Adjusted EBITDA as presented elsewhere in this report, which financial measures are determined at the Gates Industrial Holdco Limited level and adjust for certain additional items such as severance costs, the pro forma impacts of acquisitions and the pro forma impacts of cost-saving initiatives.
The economies of Türkiye and Argentina are both designated as highly inflationary economies under U.S. GAAP. The functional currencies for a portion of our Türkiye operations and our Argentina operations were each previously changed from their local currency to the U.S. dollar as a result of applying highly-inflationary accounting treatment.
The economies of Türkiye and Argentina are both designated as highly inflationary economies under U.S. GAAP. The functional currencies for a portion of our Türkiye and Argentina operations were each previously changed from their local currency to the U.S. Dollar as a result of applying highly inflationary accounting treatment.
Non-GAAP Measures EBITDA and Adjusted EBITDA “EBITDA” is a non-GAAP measure that represents net income or loss from continuing operations for the period before the impact of income taxes, net interest and other expenses, depreciation and amortization. EBITDA is widely used by securities analysts, investors and other interested parties to evaluate the profitability of companies.
Non-GAAP Financial Measures EBITDA and Adjusted EBITDA “EBITDA” is a non-GAAP measure that represents net income or loss from continuing operations for the period before the impact of income taxes, net interest and other expenses, depreciation and amortization. EBITDA is widely used by securities analysts, investors and other interested parties to evaluate the profitability of companies.
In addition, any such purchases made at prices below the “adjusted issue price” (as defined for U.S. federal income tax purposes) may result in taxable cancellation of indebtedness income to us, which may be material, and result in related adverse tax consequences to us.
In addition, any such purchases of debt made at prices below the “adjusted issue price” (as defined for U.S. federal income tax purposes) may result in taxable cancellation of indebtedness income to us, which may be material, and result in related adverse tax consequences to us.
Deferred Income 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.
Deferred Income Tax Assets and Liabilitie s 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.
(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 FIFO values because LIFO measurement results in the more recent inflated costs being matched against current sales while historical, lower costs are retained in inventories.
(3) 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 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.
On March 1, 2023, we amended the Existing Dollar Term Loans, revolving credit facility and asset-backed revolver, which bore interest at LIBOR plus an applicable margin. The amendments modified the reference rates for borrowings in dollar from LIBOR to Term SOFR or Adjusted Term SOFR, as applicable.
On March 1, 2023, we amended the 2021 Dollar Term Loans, revolving credit facility and asset-backed revolver, which bore interest at LIBOR plus an applicable margin. The amendments modified the reference rates for borrowings in dollar from LIBOR to Term SOFR or Adjusted Term SOFR, as applicable.
Changes in assumptions or circumstances could result in an additional impairment in the period in which the change occurs and in future years. 46 Table of Contents Indefinite-Lived Assets Other than Goodwill To identify a potential impairment of indefinite-lived assets other than goodwill, the fair value of the asset is compared to its carrying amount.
Changes in assumptions or circumstances could result in an additional impairment in the period in which the change occurs and in future years. 45 Table of Contents Indefinite-Lived Assets Other than Goodwill To identify a potential impairment of indefinite-lived assets other than goodwill, the fair value of the asset is compared to its carrying amount.
We do not have any meaningful debt maturities until 2026; however, we regularly evaluate market conditions, our liquidity profile, and various financing alternatives for opportunities to enhance our capital structure, and may refinance all or a portion of our indebtedness on or before maturity.
We do not have any meaningful debt maturities until 2029; however, we regularly evaluate market conditions, our liquidity profile, and various financing alternatives for opportunities to enhance our capital structure, and may refinance all or a portion of our indebtedness on or before maturity.
Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with our audited consolidated financial statements and related notes thereto included elsewhere in this annual report. This discussion and analysis addresses Fiscal 2023 compared to Fiscal 2022.
Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with our audited consolidated financial statements and related notes thereto included elsewhere in this annual report. This discussion and analysis addresses Fiscal 2024 compared to Fiscal 2023.
For discussion and analysis of our financial condition and results of operations for Fiscal 2022 compared to Fiscal 2021, see Management's Discussion and Analysis of Financial Condition and Results of Operations, in Part II, Item 7 of our Annual Report on Form 10-K for Fiscal 2022, which is incorporated herein by reference.
For discussion and analysis of our financial condition and results of operations for Fiscal 2023 compared to Fiscal 2022, see Management's Discussion and Analysis of Financial Condition and Results of Operations, in Part II, Item 7 of our Annual Report on Form 10-K for Fiscal 2023, which is incorporated herein by reference.
We present core revenue growth because it allows for a meaningful comparison of year-over-year performance without the volatility caused by foreign currency gains or losses or the incomparability that would be caused by impacts of acquisitions or disposals.
We present core sales growth because it allows for a meaningful comparison of year-over-year performance without the volatility caused by foreign currency gains or losses or the incomparability that would be caused by impacts of acquisitions or disposals.
Settlement discounts that may apply to unpaid invoices are estimated based on the settlement histories of the relevant customers. 45 Table of Contents Our transaction prices often include variable consideration, usually in the form of discounts and rebates that may apply to issued invoices.
Settlement discounts that may apply to unpaid invoices are estimated based on the settlement histories of the relevant customers. 44 Table of Contents Our transaction prices often include variable consideration, usually in the form of discounts and rebates that may apply to issued invoices.
Net Sales We derive our net sales primarily from the sale of 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.
Net Sales We derive our net sales primarily from the sale of 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 OEM channels, throughout the world.
In each case, the discount rate was determined using a capital asset pricing model adjusted for a premium to reflect the higher risk specific to the nature of the intangible asset. The discount rate used in Fiscal 2023 impairment test was 12.9%. As a result of the impairment testing, no impairment was recognized during Fiscal 2023.
In each case, the discount rate was determined using a capital asset pricing model adjusted for a premium to reflect the higher risk specific to the nature of the intangible asset. The discount rate used in Fiscal 2024 impairment test was 12.0%. As a result of the impairment testing, no impairment was recognized during Fiscal 2024.
During Fiscal 2023, sales into replacement channels accounted for approximately 64% 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.
During Fiscal 2024, sales into replacement channels accounted for approximately 68% 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.
During the periods presented, the items excluded from EBITDA in computing Adjusted EBITDA primarily included: • non-cash charges in relation to share-based compensation; • transaction-related expenses incurred in relation to major corporate transactions, including the acquisition of businesses, and equity and debt transactions; • asset impairments; • 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 the LIFO basis.
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 equity and debt transactions; • asset impairments; • restructuring expenses, including severance-related expenses; 41 Table of Contents • credit loss related to a customer bankruptcy; • cybersecurity incident expenses; and • inventory adjustments related to certain inventories accounted for on the LIFO basis.
Any such purchases may relate to a substantial amount of a particular tranche of debt, with a corresponding reduction, where relevant, in the trading liquidity of that debt.
Any such purchases of debt securities or loans may relate to a substantial amount of a particular tranche of debt, with a corresponding reduction, where relevant, in the trading liquidity of that debt.
Debt drawings and redemptions During May 2023, we drew $100.0 million under our asset-backed revolving credit facility to partially fund the purchase of shares under our share repurchase program, as discussed further in Note 19 to the consolidated financial statements included elsewhere in this annual report.
In May 2023, we drew $100.0 million under our asset-backed revolving credit facility to partially fund the purchase of shares under our share repurchase program, as discussed further in Note 19 to the consolidated financial statements included elsewhere in this annual report.
The table below excludes our gross liability for uncertain tax positions of $79.4 million because the timing of cash settlement, if any, is unknown at this time. Floating interest payments and payments and receipts on interest rate derivatives are estimated based on market interest rates prevailing at the balance sheet date.
The table below excludes our gross liability for uncertain tax positions of $82.2 million because the timing of cash settlement, if any, is unknown at this time. 40 Table of Contents Floating interest payments and payments and receipts on interest rate derivatives are estimated based on market interest rates prevailing at the balance sheet date.
Floating rate interest payments are estimated based on forward market interest rates and terms prevailing as of December 30, 2023. (2) Post-retirement benefit obligations represent our expected cash contributions to defined benefit pension and other post-retirement benefit plans in 2024.
Floating rate interest payments are estimated based on forward market interest rates and terms prevailing as of December 28, 2024. (2) Post-retirement benefit obligations represent our expected cash contributions to defined benefit pension and other post-retirement benefit plans in Fiscal 2025.
Subject to any applicable limitations contained in the agreements governing our indebtedness, any such purchases may be funded by existing cash or by incurring new secured or unsecured debt, including borrowings under our credit facilities. The amounts involved in any such purchase transactions, individually or in the aggregate, may be material.
Subject to any applicable limitations contained in the agreements governing our indebtedness, any such purchases of ordinary shares or other securities or loans may be funded by existing cash or by incurring new secured or unsecured debt, including borrowings under our credit facilities. The amounts involved in any such purchase transactions, individually or in the aggregate, may be material.
Fiscal 2023 outflows were primarily related to the $251.7 million paid to acquire shares under a share repurchase program through an intermediary from Blackstone as further described in Note 19 to the consolidated financial statements included elsewhere in this report, as compared to $175.9 million paid to acquire shares under a share repurchase program in Fiscal 2022.
Fiscal 2024 outflows were primarily related to the $176.1 million paid to acquire shares under a share repurchase program through an intermediary from Blackstone as further described in Note 19 to the consolidated financial statements included elsewhere in this report, as compared to $251.7 million paid to acquire shares under a share repurchase program in Fiscal 2023.
Non-guarantor subsidiaries The majority of the Company’s U.S. subsidiaries are guarantors of the senior secured credit facilities. For the twelve months ended December 30, 2023, before intercompany eliminations, our non-guarantor subsidiaries represented approximately 74% of our net sales and 73% of our EBITDA as defined in the financial covenants attaching to the senior secured credit facilities.
Non-guarantor subsidiaries The majority of the Company’s U.S. subsidiaries are guarantors of the senior secured credit facilities. For the twelve months ended December 28, 2024, before intercompany eliminations, our non-guarantor subsidiaries represented approximately 73% of our net sales and 65% of our EBITDA as defined in the financial covenants attaching to the senior secured credit facilities.
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 Fiscal 2023, sales into first-fit channels accounted for approximately 36% of our total net sales. First-fit sales are to a variety of industrial and automotive customers.
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 Fiscal 2024, sales into OEM channels accounted for approximately 32% of our total net sales. OEM sales are to a variety of industrial and automotive customers.
Dollar Term Loan credit agreement amendments On October 10, 2023, we amended the New Dollar Term Loans’ interest rate to be, at our option, either Term SOFR, subject to a floor of 0.50%, plus a margin of 3.00% per annum, or the base rate, subject to a 1.50% per annum floor, plus 2.00% per annum.
On October 10, 2023, we amended the 2022 Dollar Term Loans’ interest rate to be, at our option, either Term SOFR, subject to a floor of 0.50%, plus a margin of 3.00% per annum, or the base rate, subject to a 1.50% per annum floor, plus 2.00% per annum.
In Fiscal 2022 we determined that it was more likely than not that deferred income tax assets in the U.S. related to foreign tax credits totaling $15.3 million are realizable as a result of changes in estimates of taxable profits against which these credits can be utilized.
Similarly, we determined in Fiscal 2024 that it is more likely than not that deferred income tax assets in the U.S. related to foreign tax credits totaling $3.2 million are realizable as a result of changes in estimates of taxable profits against which these credits can be utilized.
We offer a broad portfolio of products to diverse replacement channel customers, and to original equipment manufacturers (“first-fit”) as specified components, with the majority of our revenue coming from replacement channels. Our products are used in applications across numerous end markets, including: automotive replacement and first-fit; diversified industrial; industrial off-highway; industrial on-highway; and personal mobility.
We offer a broad portfolio of products to diverse replacement channel customers, and to original equipment manufacturers (“OEM”) as specified components, with the majority of our revenue coming from replacement channels. Our products are used in applications across numerous end markets, including automotive replacement, automotive OEM, diversified industrial, industrial off-highway, industrial on-highway, energy and resources, and personal mobility.
After weighing all of the evidence, giving more weight to the evidence that was objectively verifiable, we determined in Fiscal 2023 that it was more likely than not that deferred income tax assets in the U.S. related to net operating losses totaling $2.1 million are realizable as a result of changes in estimates of taxable profits against which these losses can be utilized.
In Fiscal 2023 we determined that it was more likely than not that deferred income tax assets in the U.S. related to net operating losses totaling $2.1 million are realizable as a result of changes in estimates of taxable profits against which these losses can be utilized.
EBITDA eliminates potential differences in performance caused by variations in capital structures (affecting net finance costs), tax positions (such as the availability of net operating losses against which to relieve taxable profits), the cost and age of tangible assets (affecting relative depreciation expense) and the extent to which intangible assets are identifiable (affecting relative amortization expense). 41 Table of Contents Management uses “Adjusted EBITDA” as its key profitability measure.
EBITDA eliminates potential differences in performance caused by variations in capital structures (affecting net finance costs), tax positions (such as the availability of net operating losses against which to relieve taxable profits), the cost and age of tangible assets (affecting relative depreciation expense) and the extent to which intangible assets are identifiable (affecting relative amortization expense).
The discount rates used in the impairment tests of goodwill during Fiscal 2023 were 12.1% and 11.5% for the Power Transmission and Fluid Power reporting units, respectively. For both reporting units, the fair values exceeded the carrying values and no goodwill impairments were therefore recognized during Fiscal 2023.
The discount rates used in the impairment tests of goodwill during Fiscal 2024 were 11.3% and 10.7% for the Power Transmission and Fluid Power reporting units, respectively. For both reporting units, the fair values exceeded the carrying values and no goodwill impairments were therefore recognized during Fiscal 2024.
This is a non-GAAP measure that 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.
Management uses “Adjusted EBITDA” as its key profitability measure. This is a non-GAAP measure that 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.
As a leading designer, manufacturer and marketer of highly engineered, mission-critical products, we have become an industry leader across most of our end markets and the regions in which we operate.
As a leading designer, manufacturer and marketer of highly engineered, mission-critical products, we have become an industry leader across most of our end markets and the regions in which we operate. Business Trends The diversification of our business limits our exposure to trends in any given end market.
Net cash used in financing activities was $258.3 million during Fiscal 2023, compared to $253.1 million in the prior year period.
Net cash used in financing activities was $286.7 million during Fiscal 2024, compared to $258.3 million in the prior year period.
During Fiscal 2022, we paid down the borrowings on the asset-backed revolver and had no remaining outstanding balance as of December 31, 2022.
During Fiscal 2023, we paid down the borrowings on the asset-backed revolver and had no outstanding borrowings as of December 30, 2023.
(4) On February 11, 2023, Gates determined that it was the target of a malware attack. Cybersecurity incident expenses include legal, consulting, and other costs incurred as a direct result of this incident, some of which may be partially offset by insurance recoveries.
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.
Income tax expense (benefit) For Fiscal 2023, we had an income tax expense of $28.3 million on pre-tax income of $285.3 million, which resulted in an effective tax rate of 9.9% compared to an income tax expense of $14.9 million on pre-tax income of $257.8 million, which resulted in an effective tax rate of 5.8% for Fiscal 2022.
Income tax expense For Fiscal 2024, we had an income tax expense of $107.5 million on pre-tax income of $328.0 million, which resulted in an effective tax rate of 32.8% compared to an income tax expense of $28.3 million on pre-tax income of $285.3 million, which resulted in an effective tax rate of 9.9% for Fiscal 2023.
Transaction-related expenses Transaction-related expenses of $2.2 million were incurred during Fiscal 2023, related primarily to the secondary offerings completed in May, August, and December of 2023, fees for amending the New Dollar Term Loans in October 2023 and certain other corporate transactions.
Transaction-related expenses of $2.2 million were incurred during the prior year, related primarily to the three secondary offerings completed in 2023, fees for amending the 2022 Dollar Term Loans (as defined below) in October 2023, and certain other corporate transactions.
EBITDA and Adjusted EBITDA exclude items that can have a significant effect on our profit or loss and should, therefore, be used in conjunction with, not as substitutes for, profit or loss for the period.
EBITDA and Adjusted EBITDA exclude items that can have a significant effect on our profit or loss and should, therefore, be used in conjunction with, not as substitutes for, profit or loss for the period. Management compensates for these limitations by separately monitoring net income from continuing operations for the period.
During March 2022, we drew $70.0 million under our asset-backed revolving credit facility to partially fund the purchase of shares under our share repurchase program, as discussed further in Note 19 to the consolidated financial statements included elsewhere in this annual report.
Debt issuances and redemptions In August 2024, we drew $40.0 million under our revolving credit facility to partially fund the purchase of our ordinary shares under our 2024 share repurchase program, as discussed further in Note 19 to the consolidated financial statements included elsewhere in this annual report.
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. 36 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 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.
Additional deferred issuance costs incurred from issuing the New Dollar Term Loans in November 2022 added to amortization expense in Fiscal 2023. 35 Table of Contents Other expenses (income) For the year ended (dollars in millions) December 30, 2023 December 31, 2022 Interest income on bank deposits $ (17.5) $ (3.6) Foreign currency loss (gain) on net debt and hedging instruments 4.2 (10.2) Net adjustments related to post-retirement benefits (3.0) (6.5) Foreign currency loss on hyperinflation remeasurement 22.6 2.4 Other 7.8 4.7 $ 14.1 $ (13.2) Other expenses for Fiscal 2023 were $14.1 million, compared to an income of $13.2 million in the prior year.
Other (income) expenses For the year ended (dollars in millions) December 28, 2024 December 30, 2023 Interest income on bank deposits $ (13.7) $ (17.5) Foreign currency (gain) loss on net debt and hedging instruments (13.7) 4.2 Net adjustments related to post-retirement benefits (2.6) (3.0) Foreign currency loss on hyperinflation remeasurement 6.7 22.6 Other 5.5 7.8 $ (17.8) $ 14.1 Other (income) expenses for Fiscal 2024 was an income of $17.8 million, compared to a loss of $14.1 million in the prior year.
As of December 30, 2023, our total committed borrowing headroom was $470.3 million, in addition to cash balances of $720.6 million. 40 Table of Contents Tabular Disclosure of Contractual Obligations Our consolidated contractual obligations and commercial commitments are summarized in the following table which includes aggregate information about our contractual obligations as of December 30, 2023 and the periods in which payments are due, based on the earliest date on which we could be required to settle the liabilities.
Tabular Disclosure of Contractual Obligations Our consolidated contractual obligations and commercial commitments are summarized in the following table which includes aggregate information about our contractual obligations as of December 28, 2024 and the periods in which payments are due, based on the earliest date on which we could be required to settle the liabilities.
Management compensates for these limitations by separately monitoring net income from continuing operations for the period. 42 Table of Contents The following table reconciles net income from continuing operations, the most directly comparable GAAP measure, to EBITDA and Adjusted EBITDA: For the year ended (dollars in millions) December 30, 2023 December 31, 2022 January 1, 2022 Net income from continuing operations $ 257.0 $ 242.9 $ 331.3 Income tax expense 28.3 14.9 18.4 Net interest and other expenses 177.3 126.2 134.4 Depreciation and amortization 217.5 217.2 222.6 EBITDA 680.1 601.2 706.7 Transaction-related expenses (1) 2.2 2.1 3.7 Asset impairments 0.1 1.1 0.6 Restructuring expenses 11.6 9.5 7.4 Share-based compensation expense 27.4 44.3 24.6 Inventory impairments and adjustments (2) (included in cost of sales) 7.4 20.9 1.4 Severance expenses (included in cost of sales) 0.4 0.8 — Severance expenses (included in SG&A) 1.0 0.5 0.7 Credit loss related to customer bankruptcy (included in SG&A) (3) 11.4 — — Cybersecurity incident expenses (4) 5.2 — — Other items not directly related to current operations 0.2 0.2 (9.3) Adjusted EBITDA $ 747.0 $ 680.6 $ 735.8 (1) Transaction-related expenses relate primarily to advisory fees and other costs recognized in respect of major corporate transactions, including the acquisition of businesses, and equity and debt transactions.
The following table reconciles net income from continuing operations, the most directly comparable GAAP measure, to EBITDA and Adjusted EBITDA: For the year ended (dollars in millions) December 28, 2024 December 30, 2023 December 31, 2022 Net income $ 219.9 $ 256.4 $ 242.5 Loss on disposal of discontinued operations 0.6 0.6 0.4 Net income from continuing operations 220.5 257.0 242.9 Income tax expense 107.5 28.3 14.9 Net interest and other expenses 138.0 177.3 126.2 Depreciation and amortization 216.9 217.5 217.2 EBITDA 682.9 680.1 601.2 Loss on deconsolidation of Russian subsidiary (1) 12.7 — — Transaction-related expenses (2) 3.3 2.2 2.1 Asset impairments — 0.1 1.1 Restructuring expenses 6.5 11.6 9.5 Share-based compensation expense 28.8 27.4 44.3 Inventory impairments and adjustments (3) (included in cost of sales) 22.3 7.4 20.9 Restructuring related expenses (included in cost of sales) 1.8 0.4 0.8 Restructuring related expenses (included in SG&A) 2.9 1.0 0.5 Credit (gain) loss related to customer bankruptcy (included in SG&A) (4) (0.1) 11.4 — Cybersecurity incident expenses (5) — 5.2 — Other items not directly related to current operations — 0.2 0.2 Adjusted EBITDA $ 761.1 $ 747.0 $ 680.6 42 Table of Contents (1) In July 2022, Gates suspended our operations in Russia.
These increases in operating cash flows are partially offset by an increase of $36.4 million cash paid for interest in the current year period. Net cash used in investing activities during Fiscal 2023 was $81.8 million, compared to $90.7 million in the prior year period.
These increases in operating cash outflows were partially offset by a decrease of $22.5 million cash paid for interest in the current year period and improved operating performance in Fiscal 2024. Net cash used in investing activities during Fiscal 2024 was $104.4 million, compared to $81.8 million in the prior year period.
Automotive growth during Fiscal 2023 was focused in EMEA, South America and Greater China, which experienced core sales growth of 15.4%, 16.6% and 6.3%, respectively, compared to the prior year period. The overall growth in power transmission core sales was partially offset by a 7.6% decline of sales in the industrial channel during Fiscal 2023, compared to the prior year.
The decline in the automotive channel during Fiscal 2024 was focused in EMEA and Greater China, which experienced core sales declines of 2.0% and 11.6%, respectively, compared to the prior year period. This was partially offset by core sales growth in the automotive channel in North America, South America and East Asia.
The effective tax rate for Fiscal 2023 was driven primarily by tax benefits related to $13.3 million of manufacturing incentives, $12.3 million of unrecognized tax benefits primarily due to audit settlement, $9.9 million of company-owned life insurance deductions, $8.8 million of change in valuation allowance, and $4.4 million of state tax provision (net of federal benefit); offset by tax expense related to $7.4 million of tax on international operations, $1.7 million of currency exchange rate movements and $1.0 million of net other expense.
The effective tax rate for Fiscal 2023 was primarily driven by $38.7 million net tax benefits related to $13.3 million of manufacturing incentives, $12.3 million in unrecognized tax benefits primarily due to audit settlement, $9.9 million of company-owned life insurance deductions, $8.8 million of change in valuation allowance, and $4.4 million of state tax provision (net federal benefit); offset by $10.1 million net tax expense related to $7.4 million of tax on international operations, $1.7 million of currency exchange rate movements and $1.0 million of net other expense. 35 Table of Contents Numerous foreign jurisdictions, including the U.K., have enacted or are in the process of enacting legislation to adopt a minimum effective tax rate described in the Global Anti-Base Erosion, or Pillar Two, model rules issued by the Organization for Economic Co-operation and Development, or OECD.
As market conditions warrant, we and/or our Sponsor may from time to time seek to repurchase securities that we have issued or loans that we have borrowed in privately negotiated or open market transactions, by tender offer or otherwise.
Similarly, from time to time, we may enter into interest rate derivatives to maintain the desired mix of floating and fixed rate debt. 37 Table of Contents As market conditions warrant, we may from time to time seek to repurchase securities that we have issued or loans that we have borrowed in privately negotiated or open market transactions, by tender offer or otherwise.
Results for the year ended December 30, 2023 compared to the results for the year ended December 31, 2022 Summary Gates Performance For the year ended (dollars in millions) December 30, 2023 December 31, 2022 Net sales $ 3,570.2 $ 3,554.2 Cost of sales 2,211.3 2,303.6 Gross profit 1,358.9 1,250.6 Selling, general and administrative expenses 882.2 853.7 Transaction-related expenses 2.2 2.1 Asset impairments 0.1 1.1 Restructuring expenses 11.6 9.5 Other operating expenses 0.2 0.2 Operating income from continuing operations 462.6 384.0 Interest expense 163.2 139.4 Other expense (income) 14.1 (13.2) Income from continuing operations before taxes 285.3 257.8 Income tax expense 28.3 14.9 Net income from continuing operations $ 257.0 $ 242.9 Adjusted EBITDA (1) $ 747.0 $ 680.6 Adjusted EBITDA margin 20.9 % 19.1 % (1) See “—Non-GAAP Measures” for a reconciliation of Adjusted EBITDA to net income from continuing operations, the closest comparable GAAP measure, for each of the periods presented. 33 Table of Contents Net sales Net sales during Fiscal 2023 were $3,570.2 million, compared to $3,554.2 million during the prior year, an increase of 0.5%, or $16.0 million, driven primarily by a $200.4 million benefit from pricing, partially offset by the impact of lower volumes.
Results for the year ended December 28, 2024 compared to the results for the year ended December 30, 2023 Summary Gates Performance For the year ended (dollars in millions) December 28, 2024 December 30, 2023 Net sales $ 3,408.2 $ 3,570.2 Cost of sales 2,049.7 2,211.3 Gross profit 1,358.5 1,358.9 Selling, general and administrative expenses 870.0 882.2 Transaction-related expenses 3.3 2.2 Asset impairments — 0.1 Restructuring expenses 6.5 11.6 Other operating expenses — 0.2 Operating income from continuing operations 478.7 462.6 Interest expense 155.8 163.2 Loss on deconsolidation of Russian subsidiary 12.7 — Other (income) expense (17.8) 14.1 Income from continuing operations before taxes 328.0 285.3 Income tax expense 107.5 28.3 Net income from continuing operations $ 220.5 $ 257.0 Adjusted EBITDA (1) $ 761.1 $ 747.0 (1) See “—Non-GAAP Financial Measures” for a reconciliation of Adjusted EBITDA to net income from continuing operations, the closest comparable GAAP measure, for each of the periods presented.
The only significant difference between the results of operations and net assets that would be shown in the consolidated financial statements of Gates Global LLC and those for the Company that are included elsewhere in this report is a payable of $333.6 million due to Gates Global LLC and its subsidiaries from indirect parent entities of Gates Global LLC as of December 30, 2023, compared to a payable of $117.3 million as of December 31, 2022, and additional cash and cash equivalents held by the Company and other indirect parent entities of Gates Global LLC of $3.5 million and $6.4 million as of December 30, 2023 and December 31, 2022, respectively.
The only significant differences between the results of operations and net assets that would be shown in the consolidated financial statements of Gates Industrial Holdco Limited and those for the Company that are included elsewhere in this report are (i) additional net intercompany loan payable due to Gates Industrial Holdco Limited and its subsidiaries from the Company, which was $258.4 million and $333.6 million as of December 28, 2024 and December 30, 2023, respectively, (ii) additional intercompany payables due to Gates Industrial Holdco Limited and its subsidiaries from the Company attributable to UK tax group relief of $6.6 million and $26.6 million as of December 28, 2024 and December 30, 2023, respectively, and (iii) additional cash and cash equivalents held by the Company, which was $10.6 million and $3.5 million as of December 28, 2024 and December 30, 2023, respectively.
However, while the detail of the proposals is subject to change and the impact on the Company will need to be determined by reference to the final rules, we do not currently anticipate a material impact.
While the impact on the Company will need to be determined by reference to the final rules, we currently do not expect any material impact as of December 28, 2024, and do not expect a material impact in future years.
Deferred income tax is provided on certain taxable temporary differences arising on investments in foreign subsidiaries, except where we intend, and are able, to reinvest such amounts on a permanent basis or to remit such amounts in a tax-free manner.
Deferred income tax is provided on certain taxable temporary differences arising on investments in foreign subsidiaries, except where we intend, and are able, to reinvest such amounts on a permanent basis or to remit such amounts in a tax-free manner. 46 Table of Contents We have recorded valuation allowances against certain of our deferred income tax assets and we intend to continue maintaining such valuation allowances until there is sufficient evidence to support the reduction of all or some portion of these allowances.
Issuance discounts and costs totaling approximately $23.2 million related to the issuance of the New Dollar Term Loan have been deferred and will be amortized to interest expense over the remaining term of the related borrowings using the effective interest method.
We issued the 2024 Dollar Term Loans with no discount and incurred third party costs totaling approximately $9.5 million, which have been deferred and will be amortized to interest expense over the remaining term of the related borrowings using the effective interest method.
During Fiscal 2023, the foreign currency remeasurement loss related to translation adjustments for entities that operate in highly inflationary economies increased by $20.2 million compared to the prior year period.
During Fiscal 2024, the foreign currency remeasurement loss related to translation adjustments for the associated entities decreased by $15.9 million compared to the prior year period.
Interest expense For the year ended (dollars in millions) December 30, 2023 December 31, 2022 Debt: —Dollar Term Loans $ 113.7 $ 71.2 —Euro Term Loan — 19.0 —Dollar Senior Notes 35.5 35.4 —Other loans 1.8 1.0 151.0 126.6 Amortization of deferred issuance costs 9.1 10.0 Other interest expense 3.1 2.8 $ 163.2 $ 139.4 Details of our long-term debt are presented in Note 15 to the consolidated financial statements included elsewhere in this report.
Interest expense For the year ended (dollars in millions) December 28, 2024 December 30, 2023 Debt: —Dollar Term Loans $ 88.8 $ 113.7 —Dollar Senior Notes 34.7 35.5 —Revolving credit facility 0.4 1.8 123.9 151.0 Amortization of deferred issuance costs 23.1 9.1 Other interest expense 8.8 3.1 $ 155.8 $ 163.2 Details of our long-term debt are presented in Note 15 to the consolidated financial statements included elsewhere in this report. 34 Table of Contents Interest on debt for Fiscal 2024 decreased by $27.1 million when compared to the prior year, primarily due to lower interest rates applicable on the floating rate Dollar Term Loans and the favorable impact of derivatives.
The decrease of cash used in investing activities was primarily driven by decreased capital expenditures of $15.6 million in Fiscal 2023 compared to the prior year period, partially offset by a $6.0 million increase in net cash paid under company-owned life insurance policies.
The increase of cash used in investing activities was primarily driven by increased capital expenditures of $35.3 million, a $12.5 million cash derecognition from the deconsolidation of our Russian subsidiary, and higher investment purchases in Fiscal 2024 compared to the prior year period, partially offset by a $20.7 million increase in net cash received under company-owned life insurance policies.
Fluid Power Adjusted EBITDA for Fiscal 2023 increased by 3.5%, or $9.8 million compared to the prior year period, driven primarily by pricing, partially offset by lower volumes and increased labor and benefits cost. As a result, the Adjusted EBITDA margin was 20.8%, an 80 basis point improvement from the prior year.
Power Transmission Adjusted EBITDA for Fiscal 2024 increased by 1.8% or $8.1 million compared to the prior year, driven primarily by enterprise initiatives that favorably impacted manufacturing performance and pricing, partially offset by lower volumes. As a result, the Adjusted EBITDA margin for Fiscal 2024 was 22.2%, a 120 basis point increase from the prior year.
During Fiscal 2022, we determined that it was more likely than not that certain deferred income tax assets in the U.S. totaling $15.3 million were realizable. 47 Table of Contents Accounting Pronouncements Not Yet Adopted Recently issued accounting pronouncements that may be relevant to our operations but have not yet been adopted are outlined in Note 3 to our audited consolidated financial statements included elsewhere in this annual report.
Accounting Pronouncements Not Yet Adopted Recently issued accounting pronouncements that may be relevant to our operations but have not yet been adopted are outlined in Note 3 to our audited consolidated financial statements included elsewhere in this annual report.
The decline within the industrial channel was focused in EMEA and North America, with core sales declines of 17.9% and 8.4%, respectively, compared to the prior year period. Personal mobility and diversified industrial experienced declines of 26.9% and 7.8%. respectively, compared to the prior year period, primarily in North America and EMEA.
The decline in industrial sales was partially offset by core sales growth in the automotive channel of 7.9% compared to the prior year period. Growth of automotive channel sales was primarily contributed by North America and EMEA.
Restructuring expenses Our restructuring initiatives are 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. 34 Table of Contents Restructuring and other strategic initiatives during Fiscal 2023 related primarily to relocating certain production activities in China and Mexico, which included severance and other costs of $4.5 million and $3.0 million, respectively.
Restructuring and other restructuring related initiatives during Fiscal 2023 related primarily to relocating certain production activities in China and Mexico, which included severance and other costs of $4.5 million and $3.0 million, respectively.
In connection with the bankruptcy proceedings, we evaluated our potential risk and exposure relating to our outstanding pre-petition accounts receivable balance from the customer and recorded a $11.4 million pre-tax charge during Fiscal 2023 to reflect our estimated recovery. We continue to monitor the circumstances surrounding the bankruptcy in determining whether adjustments to this recovery estimate are necessary.
(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.
Earliest period in which payments are due (dollars in millions) Total 2024 2025 and 2026 2027 and 2028 2029 and beyond Debt: —Principal $ 2,471.9 $ 19.5 $ 607.0 $ 1,306.3 $ 539.1 —Interest payments (1) 582.2 180.4 275.6 92.2 34.0 Finance leases 1.7 0.8 0.9 — — Operating leases 161.1 28.0 45.3 31.7 56.1 Post-retirement benefits (2) 10.3 10.3 — — — Purchase obligations (3) 45.4 27.3 14.0 4.1 — Total $ 3,272.6 $ 266.3 $ 942.8 $ 1,434.3 $ 629.2 (1) Future interest payments include payments on fixed and floating rate debt.
Earliest period in which payments are due (dollars in millions) Total 2025 2026 and 2027 2028 and 2029 2030 and beyond Debt: —Principal $ 2,363.5 $ 23.4 $ 37.6 $ 1,070.9 $ 1,231.6 —Interest payments (1) 700.0 154.2 246.9 229.0 69.9 Finance leases 2.4 1.0 1.1 0.3 — Operating leases 203.3 31.6 53.0 41.2 77.5 Post-retirement benefits (2) 11.8 11.8 — — — Purchase obligations (3) 76.8 50.3 21.2 5.3 — Total $ 3,357.8 $ 272.3 $ 359.8 $ 1,346.7 $ 1,379.0 (1) Future interest payments include payments on fixed and floating rate debt.
Cost of sales Cost of sales for Fiscal 2023 was $2,211.3 million, compared to $2,303.6 million for the prior year, a decrease of 4.0%, or $92.3 million.
Net sales Net sales during Fiscal 2024 were $3,408.2 million, compared to $3,570.2 million during the prior year, a decrease of 4.5%, or $162.0 million.
We have historically relied on our cash flow from operations and various debt and equity financings for liquidity. From time to time, we enter into currency derivative contracts to manage currency transaction exposures. Similarly, from time to time, we may enter into interest rate derivatives to maintain the desired mix of floating and fixed rate debt.
We expect to finance our future cash requirements with cash on hand, cash flows from operations and, where necessary, borrowings under our secured revolving credit facility. We have historically relied on our cash flow from operations and various debt and equity financings for liquidity. From time to time, we enter into currency derivative contracts to manage currency transaction exposures.
These additional adjustments during the last 12 months, as calculated pursuant to such agreements, resulted in a net benefit to Adjusted EBITDA for ratio calculation purposes of $4.6 million. Gates Industrial Corporation plc is not an obligor under our revolving credit facility, our term loan facility or the indenture governing our outstanding notes.
These additional adjustments during the last 12 months, as calculated pursuant to such agreements, resulted in a net benefit to Adjusted EBITDA for ratio calculation purposes of $8.5 million as of December 28, 2024.
For a reconciliation of net income to Adjusted EBITDA for each of the periods presented and the calculation of the Adjusted EBITDA margin, see “—Non-GAAP Measures.” Analysis by Operating Segment Power Transmission (61.4% of Gates’ net sales for the year ended December 30, 2023) For the year ended (dollars in millions) December 30, 2023 December 31, 2022 Period over period change Net sales $ 2,191.2 $ 2,173.7 0.8 % Adjusted EBITDA $ 460.6 $ 404.0 14.0 % Adjusted EBITDA margin 21.0 % 18.6 % Net sales in Power Transmission for Fiscal 2023 increased by 0.8%, or $17.5 million, driven primarily by a $116.3 million benefit from pricing, partially offset by the impact of lower volumes.
Analysis by Operating Segment Power Transmission (61.9% of Gates’ net sales for the year ended December 28, 2024) For the year ended (dollars in millions) December 28, 2024 December 30, 2023 Period over period change Net sales $ 2,108.1 $ 2,191.2 (3.8 %) Adjusted EBITDA $ 468.7 $ 460.6 1.8 % Adjusted EBITDA margin 22.2 % 21.0 % Net sales in Power Transmission for Fiscal 2024 decreased by 3.8%, or $83.1 million, driven by lower volumes of $74.6 million and adverse movements in average currency exchange rates of $31.7 million.
Transaction-related expenses of $2.1 million were incurred during the prior year, related primarily to the secondary offering completed in March 2022 and certain other corporate transactions.
Transaction-related expenses Transaction-related expenses of $3.3 million were incurred during Fiscal 2024, related primarily to the debt agreement amendments and refinancings that occurred in June 2024 and December 2024, the four secondary offerings completed in 2024, and certain other corporate transactions.
Other restructuring costs incurred during the period related to facility relocations and other legal and consulting costs.
Other costs related to restructuring and restructuring related initiatives incurred during Fiscal 2024 included legal and consulting expenses, and costs associated with prior period facility closures or relocations in several countries.
Gates Global LLC, an indirect subsidiary of Gates Industrial Corporation plc, is the borrower under our revolving credit facility and our term loan facility and the issuer of our outstanding notes.
Gates Industrial Corporation plc is not an obligor under our revolving credit facility, our term loans or the indenture governing our outstanding notes. Gates Industrial Holdco Limited, a direct wholly-owned subsidiary of Gates Industrial Corporation plc, is the parent guarantor under our revolving credit facility, our term loans, and our outstanding notes.
The effective tax rate for Fiscal 2022 was driven primarily by tax benefits related to $53.1 million of changes in valuation allowance (offset by $53.1 million of tax on international operations) including $15.3 million for the partial release of valuation allowance on deferred tax assets for U.S. foreign tax credits , $25.2 million of unrecognized tax benefits primarily due to $26.4 million of lapsed statute of limitations, $10.0 million of manufacturing incentives, $8.1 million of company-owned life insurance deductions, and $0.6 million of state tax provision (net of federal benefit); offset by tax expense related to $53.1 million of tax on international operations, $5.4 million of net other expense and $4.8 million related to currency exchange rate movement.
The effective tax rate for Fiscal 2024 was primarily driven by $91.5 million net tax expense related to $68.0 million of change in deferred tax assets for Luxembourg net operating losses related to a reduction in the Luxembourg corporate income tax rate enacted in 2024, $10.7 million of tax on international operations, $9.6 million of currency exchange rate movements primarily related to Luxembourg currency revaluation on indefinite-lived net operating losses, and $3.2 million of net other expense; offset by $66.0 million of net tax benefits related to $45.5 million of change in valuation allowance primarily related to a reduction in the Luxembourg corporate income tax rate enacted in 2024, $10.2 million of company-owned life insurance deductions, and $10.3 million of unrecognized tax benefits primarily due to audit settlement.
We do not anticipate any material long-term deterioration in our overall liquidity position in the foreseeable future, and believe that we have adequate liquidity and capital resources for the next twelve months. 38 Table of Contents Cash Flow Year ended December 30, 2023 compared to the year ended December 31, 2022 Cash provided by operating activities was $481.0 million during Fiscal 2023 compared to cash provided by operating activities of $265.8 million during the prior year period, driven primarily by an improvement of $194.6 million in trade working capital movement, combined with improved operating performance in Fiscal 2023 and a decrease of $7.3 million in taxes paid.
Cash Flow Year Ended December 28, 2024 compared to the year ended December 30, 2023 Cash provided by operating activities was $379.6 million during Fiscal 2024 compared to cash provided by operating activities of $481.0 million during the prior year period, driven primarily by a decrease of $135.5 million in trade working capital movement, combined with an increase of $11.8 million in taxes paid.
The New Dollar Term Loans have substantially similar terms as the then-outstanding Dollar Term Loans (the “Existing Dollar Term Loans”), except bearing interest at the borrower’s option at either Term SOFR (as defined in the credit agreement) plus 3.50% margin per annum, subject to a 0.50% per annum Term SOFR floor, or at the base rate plus 2.50% per annum, subject to a 1.50% per annum base rate floor.
The 2022 Dollar Term Loans and 2024 Dollar Term Loans bear interest, at our option at, either Term SOFR (subject to a floor of 0.50%), plus a margin of 1.75% per annum, or the base rate (subject to a floor of 1.50%) plus 0.75% per annum.
Details of our long-term debt are presented in Note 15 to the consolidated financial statements included elsewhere in this annual report.
The new tranche of dollar term loans that were issued on June 4, 2024 and repriced on December 10, 2024 are referred to as the “2024 Dollar Term Loans”, and the Dollar Term Loans that were issued on November 16, 2022 and repriced on June 4, 2024 and December 10, 2024 are referred to as the “2022 Dollar Term Loans.” Details of our long-term debt are presented in Note 15 to the consolidated financial statements included elsewhere in this annual report.
As a result, the Adjusted EBITDA margin for Fiscal 2023 was 21.0%, a 240 basis point increase from the prior year. 37 Table of Contents Fluid Power (38.6% of Gates’ net sales for the year ended December 30, 2023) For the year ended (dollars in millions) December 30, 2023 December 31, 2022 Period over period change Net sales $ 1,379.0 $ 1,380.5 (0.1 %) Adjusted EBITDA $ 286.4 $ 276.6 3.5 % Adjusted EBITDA margin 20.8 % 20.0 % Net sales in Fluid Power for Fiscal 2023 decreased by 0.1%, or $1.5 million, compared to the prior year, driven primarily by the impact of lower volumes, mostly offset by an $84.1 million benefit from pricing.
Fluid Power (38.1% of Gates’ net sales for the year ended December 28, 2024) For the year ended (dollars in millions) December 28, 2024 December 30, 2023 Period over period change Net sales $ 1,300.1 $ 1,379.0 (5.7 %) Adjusted EBITDA $ 292.4 $ 286.4 2.1 % Adjusted EBITDA margin 22.5 % 20.8 % Net sales in Fluid Power for Fiscal 2024 decreased by 5.7%, or $78.9 million, driven by lower volumes of $98.3 million and adverse movements in average currency exchange rates of $4.7 million.
Sales to industrial channels decreased by 1.0%, and automotive channels declined by 0.2%, respectively, compared to the prior year period. The decline of industrial sales were primarily in North America, South America and Greater China, which had declines of 1.3%, 18.5% and 13.2%, respectively, compared to the prior year period.
The decline of industrial sales were primarily in North America and EMEA, which had declines of 10.7% and 12.5%, respectively, compared to the prior year period. Construction and agriculture end markets drove most of the decline, with core sales that decreased by 9.1% and 18.4%, respectively, during Fiscal 2024 as compared to the prior year period.
The repayment of Euro Term Loan resulted in the accelerated recognition of $2.2 million deferred financing costs (recognized in interest expense).
As a result of this repayment, we accelerated the recognition of $1.0 million of deferred issuance costs (recognized in interest expense).
For the year ended (dollars in millions) December 30, 2023 December 31, 2022 January 1, 2022 Net sales $ 3,570.2 $ 3,554.2 $ 3,474.4 Adjusted EBITDA $ 747.0 $ 680.6 $ 735.8 Adjusted EBITDA margin 20.9 % 19.1 % 21.2 % 43 Table of Contents Core sales growth reconciliations Core sales growth is a non-GAAP measure that represents net sales for the period excluding the impacts of movements in average currency exchange rates and the first-year impacts of acquisitions and disposals, when applicable.
Core sales and core sales growth reconciliations Core sales is a non-GAAP measure that represents net sales for the period excluding the impacts of movements in average currency exchange rates and the first-year impacts of acquisitions and disposals, when applicable. Core sales growth is the change in core sales expressed as a percentage of prior period net sales.
Indebtedness Our long-term debt, consisting principally of two secured term loans and the U.S. dollar denominated unsecured notes, was as follows: Carrying amount Principal amount (dollars in millions) As of December 30, 2023 As of December 31, 2022 As of December 30, 2023 As of December 31, 2022 Debt: —Secured Dollar Term Loans $ 1,870.3 $ 1,883.3 $ 1,903.9 $ 1,923.4 —Unsecured Dollar Senior Notes 581.2 579.7 568.0 568.0 $ 2,451.5 $ 2,463.0 $ 2,471.9 $ 2,491.4 We refer to the term loans denominated in U.S. dollars as the “Dollar Term Loans” and the unsecured senior notes denominated in U.S. dollars as the “Dollar Senior Notes”.
The financing cash outflows in Fiscal 2024 also included $88.8 million higher debt repayments net of borrowings, and increased debt issuance costs paid of $20.3 million, compared to prior year periods. 38 Table of Contents Indebtedness Our long-term debt, consisting principally of two secured term loans and the U.S. dollar-denominated unsecured notes, was as follows: Carrying amount Principal amount (dollars in millions) As of December 28, 2024 As of December 30, 2023 As of December 28, 2024 As of December 30, 2023 Debt: —Secured —2024 Dollar Term Loans due June 4, 2031 $ 1,290.0 $ — $ 1,300.0 $ — —2022 Dollar Term Loans due November 16, 2029 548.0 547.8 563.5 567.8 —2021 Dollar Term Loans due November 16, 2029 — 1,322.5 — 1,336.1 —Unsecured —6.875% Dollar Senior Notes due July 1, 2029 512.6 — 500.0 — —6.250% Dollar Senior Notes due January 16, 2026 — 581.2 — 568.0 $ 2,350.6 $ 2,451.5 $ 2,363.5 $ 2,471.9 We refer to the term loans denominated in U.S. dollars as the “Dollar Term Loans” and the unsecured senior notes denominated in U.S. dollars as the “Dollar Senior Notes”.
Particularly, the diversified industrial end market experienced sales declines of 12.4%, 3.5% and 12.8%, respectively, in EMEA, North America and Greater China during Fiscal 2023 compared to the prior year. Personal mobility experienced sales declines of 28.5% and 28.8%, respectively, in North America and EMEA during Fiscal 2023 compared to the prior year.
Personal mobility, industrial off-highway, and diversified industrial end markets experienced declines of 22.4%, 6.9%, and 2.0%, respectively, compared to the prior year period, primarily in North America and EMEA. Automotive channel sales were relatively consistent compared to the prior year periods, declining by 0.4% during Fiscal 2024.
Power Transmission Adjusted EBITDA for Fiscal 2023 increased by 14.0% or $56.6 million compared to the prior year, driven primarily by the benefit from pricing, partially offset by lower volumes and higher inflation-related costs.
Fluid Power Adjusted EBITDA for Fiscal 2024 increased by 2.1%, or $6.0 million, compared to the prior year period, driven primarily by enterprise initiatives that favorably impacted manufacturing performance and pricing, and favorable mix of replacement channel sales to OEM channel sales. This was partially offset by lower volumes.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

8 edited+1 added−2 removed16 unchanged
Biggest changeThe following table summarizes the key terms of the active interest rate derivatives held by the Company: Notional principal amount (millions) Interest rate Payable Receivable Variable Fixed Variable Fixed Variable rate index As of December 30, 2023 Maturity date: —June 2025 $ 870.0 — % 2.5 % 5.4 % — % 1 month Term SOFR —November 2027 $ 385.0 — % 7.6 % 8.9 % — % 1 month Term SOFR As of December 31, 2022 Maturity date: —June 2025 $ 870.0 — % 2.5 % 4.4 % — % 1 month LIBOR —November 2027 $ 385.0 — % 7.6 % 7.8 % — % 1 month Term SOFR The interest rate profile of the Company’s financial assets and liabilities, after taking into account the effect of the interest rate hedging activities, was as follows: As of December 30, 2023 As of December 31, 2022 Interest-bearing Interest-bearing ( dollars in millions ) Floating rate Fixed rate Non-interest bearing Total Floating rate Fixed rate Non-interest bearing Total Financial assets: Available-for-sale investments $ — $ — $ — $ — $ — $ — $ — $ — Cash and cash equivalents 364.4 — 356.2 720.6 222.5 — 355.9 578.4 Restricted cash — — 3.4 3.4 — — 3.0 3.0 364.4 — 359.6 724.0 222.5 — 358.9 581.4 Financial liabilities: Debt (648.9) (1,823.0) — (2,471.9) (668.4) (1,823.0) — (2,491.4) Obligations under finance leases — (1.7) — (1.7) — (2.4) — (2.4) (648.9) (1,824.7) — (2,473.6) (668.4) (1,825.4) — (2,493.8) $ (284.5) $ (1,824.7) $ 359.6 $ (1,749.6) $ (445.9) $ (1,825.4) $ 358.9 $ (1,912.4) Liquidity risk Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities.
Biggest changeThe following table summarizes the key terms of the active interest rate derivatives held by the Company: Notional principal amount (millions) Interest rate Payable Receivable Variable Fixed Variable Fixed Variable rate index As of December 28, 2024 Maturity date: —June 2025 $ 870.0 — % 2.5 % 4.6 % — % 1 month Term SOFR —November 2027 $ 385.0 — % 7.6 % 8.1 % — % 1 month Term SOFR As of December 30, 2023 Maturity date: —June 2025 $ 870.0 — % 2.5 % 5.4 % — % 1 month Term SOFR —November 2027 $ 385.0 — % 7.6 % 8.9 % — % 1 month Term SOFR 48 Table of Contents The interest rate profile of the Company’s financial assets and liabilities, after taking into account the effect of the interest rate hedging activities, was as follows: As of December 28, 2024 As of December 30, 2023 Interest-bearing Interest-bearing ( dollars in millions ) Floating rate Fixed rate Non-interest bearing Total Floating rate Fixed rate Non-interest bearing Total Financial assets: Available-for-sale investments $ — $ — $ — $ — $ — $ — $ — $ — Cash and cash equivalents 244.7 — 437.3 682.0 364.4 — 356.2 720.6 Restricted cash — — 2.8 2.8 — — 3.4 3.4 244.7 — 440.1 684.8 364.4 — 359.6 724.0 Financial liabilities: Debt (608.5) (1,755.0) — (2,363.5) (648.9) (1,823.0) — (2,471.9) Obligations under finance leases — (2.2) — (2.2) — (1.7) — (1.7) (608.5) (1,757.2) — (2,365.7) (648.9) (1,824.7) — (2,473.6) $ (363.8) $ (1,757.2) $ 440.1 $ (1,680.9) $ (284.5) $ (1,824.7) $ 359.6 $ (1,749.6) Liquidity risk Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities.
Translational foreign exchange risks arise predominantly on the potential decreases in the value of our earnings, cash balances and other net assets denominated in euro and other currencies when translated to U.S. dollars. The currency profiles of our cash and debt are centrally managed as are decisions about the location of cash.
Translational foreign exchange risks arise predominantly on the potential decreases in the value of our earnings, cash balances and other net assets denominated in euro and other currencies when translated to U.S. dollars. 47 Table of Contents The currency profiles of our cash and debt are centrally managed as are decisions about the location of cash.
The credit risk on derivative financial instruments is limited because the counterparties are financial institutions with high credit-ratings assigned by international credit-rating agencies. To mitigate the credit risk attributable to our trade receivables, we perform credit verifications and monitor closely the creditworthiness of new and existing customers.
The credit risk on derivative financial instruments is limited because the counterparties are financial institutions with high credit-ratings assigned by international credit-rating agencies. 49 Table of Contents To mitigate the credit risk attributable to our trade receivables, we perform credit verifications and monitor closely the creditworthiness of new and existing customers.
We have established long-term credit ratings of B1 Stable with Moody’s and B+ Stable with Standard & Poor’s. Credit ratings are subject to regular review by the credit rating agencies and may change in response to economic and commercial developments.
We have established long-term credit ratings of Ba3 Stable with Moody’s and BB- Stable with Standard & Poor’s. Credit ratings are subject to regular review by the credit rating agencies and may change in response to economic and commercial developments.
As of December 30, 2023, the aggregated notional principal amount of the cross currency swaps was €756.1 million and ¥1,784.0 million compared to €756.1 million as of December 31, 2022.
As of December 28, 2024, the aggregated notional principal amount of the cross currency swaps was €1,033.5 million and ¥1,784.0 million compared to €756.1 million and ¥1,784.0 million as of December 30, 2023.
Two customers of our North America businesses accounted for 12.5% and 9.6%, respectively, of our total trade accounts receivable balance as of December 30, 2023, compared to 15.3% and 8.4%, respectively, as of December 31, 2022. These concentrations are due to the extended payment terms common in the industry in which these businesses operate.
Two customers of our North America businesses accounted for 13.7% and 6.1%, respectively, of our total trade accounts receivable balance as of December 28, 2024, compared to 12.5% and 9.6%, respectively, as of December 30, 2023. These concentrations are due to the extended payment terms common in the industry in which these businesses operate.
The currency profile of cash and debt, after taking into account the effect of the currency swaps and forwards used to manage those profiles, were as follows: (dollars in millions) As of December 30, 2023 As of December 31, 2022 Cash and cash equivalents by currency: —U.S. dollar $ 343.9 $ 244.6 —Chinese Yuan Renminbi 105.2 115.9 —Indian Rupee 27.7 17.4 —Euro 41.8 32.2 —Japanese Yen 37.3 29.6 —Other 164.7 138.7 $ 720.6 $ 578.4 Principal amount of debt by currency: —U.S. dollar $ 1,385.9 $ 1,684.9 —Euro 835.4 806.5 —Chinese Yuan Renminbi 250.6 — $ 2,471.9 $ 2,491.4 As described in Note 13 to the audited consolidated financial statements included elsewhere in this annual report, during Fiscal 2023 we executed a USD to Chinese Yuan fixed-to-fixed cross currency swap with a notional principal amount of ¥1,784.0 million, designated as a net investment hedge of certain of our Chinese operations.
The currency profile of cash and debt, after taking into account the effect of the currency swaps and forwards used to manage those profiles, were as follows: (dollars in millions) As of December 28, 2024 As of December 30, 2023 Cash and cash equivalents by currency: —U.S. dollar $ 280.0 $ 343.9 —Chinese Yuan Renminbi 136.3 105.2 —Indian Rupee 25.3 27.7 —Euro 47.9 41.8 —Japanese Yen 46.9 37.3 —Other 145.6 164.7 $ 682.0 $ 720.6 Principal amount of debt by currency: —U.S. dollar $ 1,041.9 $ 1,385.9 —Euro 1,077.2 835.4 —Chinese Yuan Renminbi 244.4 250.6 $ 2,363.5 $ 2,471.9 As described in Note 13 to the audited consolidated financial statements included elsewhere in this annual report, during Fiscal 2024 we executed a USD-EUR fixed-to-fixed cross currency swap with a notional principal amount of €277.4 million with a contract term, from August 2, 2024 to August 2, 2029.
Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations under Financing Arrangements and Other Commitments.” 49 Table of Contents Commodity Risk We source a wide variety of materials and components from a network of global suppliers.
For the expected timing of contractual cash flows relating to our financing arrangements, see the table set out above under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations under Financing Arrangements and Other Commitments.” Commodity Risk We source a wide variety of materials and components from a network of global suppliers.
Removed
During Fiscal 2022, we refinanced and replaced our Euro-denominated term loan with new U.S. Dollar term loans and executed additional cross currency swaps that have been designated as net investment hedges in the principal amount of €501.6 million, and as a result, the net investment hedging 48 Table of Contents designated on our Euro-denominated debt no longer exists.
Added
During Fiscal 2023, we executed a USD to Chinese Yuan fixed-to-fixed cross currency swap with a notional principal amount of ¥1,784.0 million with a contract term from November 30, 2023 to November 30, 2026.
Removed
For the expected timing of contractual cash flows relating to our financing arrangements, see the table set out above under “Item 7.

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