Gates Industrial Corp plc

Previous wording

During the three months ended March 30, 2024, sales into replacement channels accounted for approximately 66% of our total net sales. Our replacement sales cover a very broad range of applications and industries and, accordingly, are highly correlated with industrial activity and utilization and not a single end market. Replacement products are principally sold through distribution partners that may carry a very broad line of products or may specialize in products associated with a smaller set of end market applications.

Current wording

During the six months ended June 29, 2024, sales into replacement channels accounted for approximately 67% of our total net sales. Our replacement sales cover a very broad range of applications and industries and, accordingly, are highly correlated with industrial activity and utilization and not a single end market. Replacement products are principally sold through distribution partners that may carry a very broad line of products or may specialize in products associated with a smaller set of end market applications.

Previous wording

During the three months ended March 30, 2024, sales into first-fit channels accounted for approximately 34% of our total net sales. First-fit sales are to a variety of industrial and automotive customers. Our industrial first-fit customers cover a diverse range of industries and applications and many of our largest first-fit customers manufacture construction and agricultural equipment.

Current wording

During the six months ended June 29, 2024, sales into first-fit channels accounted for approximately 33% of our total net sales. First-fit sales are to a variety of industrial and automotive customers. Our industrial first-fit customers cover a diverse range of industries and applications and many of our largest first-fit customers manufacture construction and agricultural equipment.

Previous wording

Global conflicts, such as the conflict between Russia and Ukraine and the sanctions and counter-sanctions imposed in response to it, created increased economic uncertainty and operational complexity both in Europe, Middle East and Africa (“EMEA”) and globally, the impacts of which we cannot fully predict. Gates had a single distribution center in Russia that sold primarily to customers based in Russia. In early July 2022, we suspended our operations in Russia. The Russia-Ukraine and other global conflicts did not have a significant adverse impact on our operating results during the three months ended March 30, 2024. We will continue to monitor if the Russia-Ukraine and other conflicts impact global economic conditions or our business.

Current wording

Global conflicts, such as the conflict between Russia and Ukraine and the sanctions and counter-sanctions imposed in response to it, created increased economic uncertainty and operational complexity both in Europe, Middle East and Africa (“EMEA”) and globally, the impacts of which we cannot fully predict. Gates had a single distribution center in Russia that sold primarily to customers based in Russia. In early July 2022, we suspended our operations in Russia. The Russia-Ukraine and other global conflicts did not have a significant adverse impact on our operating results during the three and six months ended June 29, 2024. We will continue to monitor if the Russia-Ukraine and other conflicts impact global economic conditions or our business.

Previous wording

Results for the three months ended March 30, 2024 compared to the results for the three months ended April 1, 2023

Current wording

Results for the three and six months ended June 29, 2024 compared to the results for the three and six months ended July 1, 2023

Previous wording

Net sales during the three months ended March 30, 2024 were $862.6 million, compared to $897.7 million during the prior year period, a decrease of 3.9%, or $35.1 million, driven primarily by lower volumes, partially offset by a $14.5 million benefit from pricing. Our net sales for the three months ended March 30, 2024 were adversely impacted by movements in average currency exchange rates of $2.8 million compared to the prior year period, principally due to the strengthening of the U.S. dollar against a number of currencies, primarily Chinese Renminbi, Turkish Lira and Japanese Yen, partially offset by the weakening of the U.S. dollar against the Mexican Peso and the Euro. As such, core sales decreased by $32.3 million, or 3.6%, during the three months ended March 30, 2024 compared to the prior year period.

Current wording

Net sales during the three months ended June 29, 2024 were $885.5 million, compared to $936.3 million during the prior year period, a decrease of 5.4%, or $50.8 million, driven primarily by the impact of lower sales volume, partially offset by a $9.8 million benefit from pricing. Our net sales for the three months ended June 29, 2024 were adversely impacted by movements in average currency exchange ratesof $13.1 million compared to the prior year period, principally due to the strengthening of the U.S. dollar against a number of currencies, in particular the Japanese Yen, Chinese Renminbi, and the Turkish Lira. As such, core sales decreased by $37.7 million, or 4.0%, during the three months ended June 29, 2024 compared to the prior year period.

Previous wording

Cost of sales for the three months ended March 30, 2024 was $532.6 million, compared to $572.6 million for the prior year period, a decrease of 7.0%, or $40.0 million. The decrease was primarily attributable to a combined impact of lower volumes and enterprise initiatives which favorably impacted manufacturing performance, totaling $37.3 million, for the three months ended March 30, 2024 compared to the prior period.

Current wording

Cost of sales for the six months ended June 29, 2024 was $1,060.7 million, compared to $1,156.2 million for the prior year period, a decrease of 8.3%, or $95.5 million. The decrease was primarily attributable to a $69.1 million combined impact of lower volumes and enterprise initiatives that favorably impacted manufacturing performance and $13.3 million due to favorable movements in average currency exchange rates.

Previous wording

As a result of the factors described above, gross profit for the three months ended March 30, 2024 was $330.0 million, compared to $325.1 million for the prior year period, an increase of 1.5% or $4.9 million. Our gross profit margin improved by 210 basis points to 38.3% for the three months ended March 30, 2024, up from 36.2% for the prior year period.

Current wording

As a result of the factors described above and improved mix of replacement channel sales to first-fit channel sales, gross profit for the three months ended June 29, 2024 was $357.4 million, compared to $352.7 million for the prior year period, an increase of 1.3% or $4.7 million. Our gross profit margin improved by 270 basis points to 40.4% for the three months ended June 29, 2024.

Previous wording

SG&A expenses for the three months ended March 30, 2024 were $211.7 million compared to $232.1 million for the prior year period. This decrease of $20.4 million was primarily attributable to a $10.6 million charge related to the credit loss due to a customer bankruptcy incurred during the prior year period. The decrease was also driven by lower labor and benefits expenditures and higher corporate-owned life insurance related income, totaling $10.0 million for the three months ended March 30, 2024.

Current wording

SG&A expenses for the six months ended June 29, 2024 were $430.0 million compared to $452.8 million for the prior year period. This decrease of $22.8 million was primarily attributable to an $11.3 million charge related to the credit loss due to a customer bankruptcy incurred during the prior year period. The decrease was further driven by the $7.1 million gain from disposal of property, plant and equipment, and higher corporate-owned life insurance related income, partially offset by increased outbound freight costs.

Previous wording

Restructuring expenses of $1.2 million were incurred during the three months ended March 30, 2024, related to legal and consulting expenses, relocation of certain production activities in Mexico, and other restructuring costs associated with prior period facility closures or relocations in several countries.

Current wording

Restructuring and other strategic initiatives during the three and six months ended June 29, 2024 included $0.8 million and $1.6 million, respectively, of costs related to the relocation of certain production activities in Mexico. Other restructuring costs incurred during the three and six months ended June 29, 2024 included legal and consulting expenses, and costs associated with prior period facility closures or relocations in several countries.

Previous wording

Details of our long-term debt are presented in Note 12 to the condensed consolidated financial statements included elsewhere in this report. Interest on debt for the three months ended March 30, 2024 decreased when compared to the equivalent prior year period, primarily due to the favorable impact of derivatives partially offset by higher interest rates applicable on the floating rate Dollar Term Loans. Amortization of deferred issuance costs during the three months ended March 30, 2024 included the accelerated amortization of $1.0 million due to the $100.0 million repayment against our Existing Dollar Term Loans (as defined below) in February 2024.

Current wording

Details of our long-term debt are presented in Note 12 to the condensed consolidated financial statements included elsewhere in this report. Interest on debt increased by $4.6 million for the three months ended June 29, 2024 when compared to the equivalent prior year period, primarily due to $14.8 million accelerated amortization of deferred issuance costs related to the debt refinancing that occurred in June 2024. Interest expenses on the principal amount of debt for the three months ended June 29, 2024 decreased from the prior year period primarily due to the favorable impact of derivatives. Interest on debt increased by $1.3 million for the six months ended June 29, 2024 when compared to the equivalent prior year period. Amortization of deferred issuance costs during the six months ended June 29, 2024 also included the accelerated amortization of $1.0 million due to the $100.0 million repayment against our “2021 Dollar Term Loans” in February 2024. Interest expenses on the principal amount of debt decreased for the six months ended June 29, 2024 primarily due to favorable impact of derivatives.

Previous wording

Other income for the three months ended March 30, 2024 was $1.5 million, compared to $0.3 million expense in the prior year period. This change was driven primarily by the impact of higher interest income on bank deposits compared to the prior year period due to higher interest rates, and net movements in foreign currency exchange rates on net debt and hedging instruments. The increase was partially offset by foreign currency remeasurement loss related to translation adjustments for entities that operate in highly inflationary economies, specifically Argentina and Türkiye, and higher costs incurred in relation to our trade accounts receivable factoring program due to an increase in the discount rate.

Current wording

Other (income) expenses for the three and six months ended June 29, 2024 were income of $3.1 million and $4.6 million, respectively, compared to expenses of $3.7 million and $4.0 million, respectively, in the prior year periods. These changes were primarily driven by the impact of net movements in foreign currency exchange rates on net debt and hedging instruments and foreign currency remeasurement loss related to translation adjustments for entities that operate in highly inflationary economies, specifically Argentina and Türkiye, for the three months ended June 29, 2024 compared to the prior year period. The change was also attributed to the increased interest income on our bank deposits for the six months ended June 29, 2024 compared to the prior year period.

Previous wording

For the three months ended March 30, 2024, we had an income tax expense of $34.5 million on pre-tax income of $80.7 million, which resulted in an effective tax rate of 42.8%, compared to an income tax expense of $15.3 million on pre-tax income of $46.2 million, which resulted in an effective tax rate of 33.1% for the three months ended April 1, 2023.

Current wording

For the three months ended June 29, 2024, we had income tax expense of $12.3 million on pre-tax income of $90.2 million, which resulted in an effective tax rate of 13.6%, compared to an income tax expense of $9.6 million on pre-tax income of $80.9 million, which resulted in an effective tax rate of 11.9% for the three months ended July 1, 2023.

Previous wording

For the three months ended March 30, 2024 the effective tax rate was driven primarily by the jurisdictional mix of earnings and by discrete expenses of $11.7 million, of which $9.1 million related to changes in the realizability of certain deferred tax assets, $1.4 million related to net unrecognized tax benefits, and $1.2 million related to other net discrete expenses. For the three months ended April 1, 2023, the effective tax rate was driven primarily by discrete tax expenses of $6.4 million, of which $2.6 million related to the impacts of tax law changes primarily in Türkiye and Belgium, $1.9 million related to undistributed foreign earnings, and $2.9 million related to other net discrete expenses, partially offset by $1.0 million of net unrecognized tax benefits.

Current wording

For the three months ended June 29, 2024, the effective tax rate was driven primarily by discrete tax benefits of $12.2 million, of which $13.8 million related to unrecognized tax benefits due to audit closures offset by $1.6 million of discrete expenses related to changes in the realizability of certain deferred tax assets. For the three months ended July 1, 2023, the effective tax rate was driven primarily by a discrete tax benefit of $6.4 million related to the adjustments in various foreign jurisdictions in which returns were filed, and $1.8 million of net unrecognized tax benefits, primarily related to audit settlements in India.

Previous wording

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. Under such rules, a minimum effective tax rate of 15% would apply to multinational companies with consolidated revenue above €750 million. Under the Pillar Two rules, a company would be required to determine a combined effective tax rate for all entities located in a jurisdiction. If the jurisdictional effective tax rate determined under the Pillar Two rules is less than 15%, a top-up tax will be due to bring the jurisdictional effective tax rate up to 15%. We are continuing to monitor the pending implementation of Pillar Two by individual countries and the potential effects of Pillar Two on our business. We do not expect the provisions effective in 2024 to have a materially adverse impact on our results of operations, financial position or cash flows.

Current wording

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. Under such rules, a minimum effective tax rate of 15% would apply to multinational companies with consolidated revenue above €750 million. Under the Pillar Two rules, a company would be required to determine a combined effective tax rate for all entities located in a jurisdiction. If the jurisdictional effective tax rate determined under the Pillar Two rules is less than 15%, a top-up tax will be due to bring the jurisdictional effective tax rate up to 15%. We are continuing to monitor the pending implementation of Pillar Two by individual countries and the potential effects of Pillar Two on our business. In response to the expected implementation of Pillar Two in 2024, we took steps in 2023 to mitigate cash tax impacts of Pillar Two that had the effect of increasing our estimated annual effective tax rate by three to five percentage points starting from 2024.

Previous wording

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 maintain our positions with regard to future realization of deferred tax assets, including those with respect to which we continue maintaining valuation allowances, until there is sufficient new evidence to support a change in expectations. Such a change in expectations could arise due to many factors, including those impacting our forecasts of future earnings, as well as changes in the international tax laws under which we operate and tax planning. It is not reasonably possible to forecast any such changes at the present time, but it is possible that, should they arise, our view of their effect on the future realization of deferred tax assets may materially impact our financial statements.

Current wording

As of each reporting date, we consider new evidence, both positive and negative, that could impact our view with regard to the future realization of deferred tax assets. We will maintain our positions with regard to future realization of deferred tax assets, including those with respect to which we continue maintaining valuation allowances, until there is sufficient new evidence to support a change in expectations. Such a change in expectations could arise due to many factors, including those impacting our forecasts of future earnings, as well as changes in the international tax laws under which we operate and tax planning. It is not reasonably possible to forecast any such changes at the present time, but it is possible that, should they arise, our view of their effect on the future realization of deferred tax assets may materially impact our financial statements.

Previous wording

After weighing all of the evidence, giving more weight to the evidence that was objectively verifiable, we determined that, as of March 30, 2024, it is more likely than not that deferred tax assets in the U.S., Germany, and China totaling $12.3 million are not realizable. Accordingly, we discretely recognized $9.1 million expense from deferred tax assets that are no longer realizable, while the remaining $3.2 million will be recognized during the year through the effective tax rate. As a result of changes in our Sponsor’s ownership in us and estimates of future taxable profits against which net operating losses and foreign tax credits can be utilized, our position and judgment regarding the realizability of these deferred tax assets changed.

Current wording

After weighing all of the evidence, giving more weight to the evidence that was objectively verifiable, we determined during the three months ended June 29, 2024 that it is more likely than not that deferred tax assets of $6.8 million, primarily in Poland, Mexico, and other jurisdictions, are not realizable. Accordingly, we recognized $4.1 million of discrete expense, while the remaining $2.7 million is recognized as part of the annual effective tax rate.

Previous wording

Adjusted EBITDA for the three months ended March 30, 2024 was $195.6 million, compared to $174.5 million for the prior year period, an increase of 12.1% or $21.1 million. Adjusted EBITDA margin was 22.7% for the three months ended March 30, 2024, a 330 basis point improvement from the prior year period margin of 19.4%. The increase in Adjusted EBITDA was largely the result of enterprise initiatives which favorably impacted manufacturing performance, benefits from pricing and favorable movements in average currency exchange rates, partially offset by lower volumes.

Current wording

Adjusted EBITDA for the three months ended June 29, 2024 was $202.2 million, compared to $197.3 million in the prior year period, an increase of 2.5% or $4.9 million. Adjusted EBITDA margin was 22.8% for the three months ended June 29, 2024, a 170 basis point increase from the prior year period margin of 21.1%. The increase in Adjusted EBITDA was largely the result of enterprise initiatives that favorably impacted manufacturing performance and a $9.8 million benefit from pricing, partially offset by lower volumes.

Previous wording

Power Transmission (61.8% of Gates’ net sales for the three months ended March 30, 2024)

Current wording

Power Transmission (61.2% and 61.5%, respectively, of Gates’ net sales for the three and six months ended June 29, 2024)

Previous wording

Net sales in Power Transmission for the three months ended March 30, 2024 decreased by 2.8%, or $15.3 million, compared to the prior year period driven primarily by a $17.8 million decrease in volume, partially offset by $8.4 million from favorable pricing. In addition, Power Transmission’s net sales were adversely impacted by movements in average currency exchange rates of $5.9 million. As such, core sales decreased by 1.7%, or $9.4 million.

Current wording

Net sales in Power Transmission for the six months ended June 29, 2024 decreased by 4.2%, or $47.3 million, compared to the prior year period, driven primarily by a decrease in volume, partially offset by a $12.4 million benefit from pricing. Our net sales for the six months ended June 29, 2024 were adversely impacted by movements in average currency exchange rates of $18.1 million. As such, core sales decreased by 2.6%, or $29.2 million, compared to the prior year period,

Previous wording

Power Transmission Adjusted EBITDA for the three months ended March 30, 2024 increased by 10.5%, or $11.3 million, compared to the prior period. This increase was driven primarily by a combination of benefits from pricing, enterprise initiatives which favorably impacted manufacturing performance, and lower inflation costs, partially offset by lower volume. As a result, Adjusted EBITDA margin for the three months ended March 30, 2024 was 22.3%, a 270 basis point increase from the prior year period Adjusted EBITDA margin of 19.6%.

Current wording

Power Transmission Adjusted EBITDA for the three months ended June 29, 2024 increased by 4.0%, or $4.8 million, compared to the prior year period, driven primarily by enterprise initiatives which favorably impacted manufacturing performance and benefit from pricing, partially offset by lower volumes. As a result, Adjusted EBITDA margin was 22.8%, a 210 basis point improvement from the prior year period.

Previous wording

Fluid Power (38.2% of Gates’ net sales for the three months ended March 30, 2024)

Current wording

Fluid Power (38.8% and 38.5%, respectively, of Gates’ net sales for the three and six months ended June 29, 2024)

Previous wording

Net sales in Fluid Power for the three months ended March 30, 2024 decreased by 5.7%, or $19.8 million driven primarily by lower volumes, partially offset by a $6.1 million benefit from pricing. In addition, Fluid Power’s net sales were favorably impacted by movements in average currency exchange rates of $3.1 million. As such, core sales decreased by 6.6%, or $22.9 million, compared to the prior year period.

Current wording

Net sales in Fluid Power for the six months ended June 29, 2024 decreased by 5.4%, or $38.6 million, compared to the prior year period, driven primarily by a decrease in volume, partially offset by an $11.6 million benefit from pricing. Our net sales were favorably impacted by movements in average currency exchange rates of $2.2 million. As such, core sales decreased by 5.7%, or $40.8 million, compared to the prior year period.

Previous wording

Cash used in operating activities was $21.0 million during the three months ended March 30, 2024 compared to cash provided by operating activities of $52.5 million during the prior year period, driven primarily by an increase of $32.2 million in trade working capital movement compared to the prior year period, an increased amount of bonus payments compared to the prior year period, and an increase of $9.2 million in income taxes paid compared to the prior year period.

Current wording

Cash provided by operating activities was $72.8 million during the six months ended June 29, 2024 compared to cash provided by operating activities of $183.9 million during the prior year period, driven primarily by $80.2 million in trade working capital movement compared to the prior year period and an increase of $13.4 million in income taxes paid compared to the prior year period.

Previous wording

Net cash used in investing activities during the three months ended March 30, 2024 was $19.5 million, compared to $29.9 million in the prior year period. The decrease of cash used in investing activities was primarily driven by a $14.1 million decrease in net cash paid under company-owned life insurance policies, partially offset by increased capital expenditures of $3.5 million.

Current wording

Net cash used in investing activities during the six months ended June 29, 2024 was $40.1 million, compared to $41.1 million in the prior year period. The decrease of cash used in investing activities was primarily driven by a $17.6 million decrease in net cash paid under company-owned life insurance policies, and $10.1 million additional proceeds from the sale of property, plant and equipment, partially offset by increased capital expenditures of $15.5 million and higher investment purchases of $11.2 million.

Previous wording

Net cash used in financing activities was $148.9 million during the three months ended March 30, 2024, compared to $2.1 million in the prior year period. Current year outflows were primarily related to the $104.9 million debt repayment, and the $50.3 million paid to acquire shares under our share repurchase program, including shares repurchased through an intermediary from Blackstone as further described in Note 15 to the condensed consolidated financial statements included elsewhere in this report.

Current wording

Net cash used in financing activities was $157.6 million during the six months ended June 29, 2024, compared to $160.4 million in the prior year period. Current year outflows were primarily related to the $1,907.0 million debt repayment partially offset by the inflows of $1,800.0 million related to new debt issuance, and the $50.3 million paid to acquire shares under our share repurchase program, including shares repurchased through an intermediary from Blackstone as further described in Note 15 to the condensed consolidated financial statements included elsewhere in this report.

Previous wording

Our long-term debt, consisting principally of two secured term loans and the U.S. dollar denominated unsecured senior notes, was as follows:

Current wording

Our long-term debt, consisting principally of secured term loans and the U.S. dollar denominated unsecured senior notes, was as follows:

Previous wording

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 Dollar Term Loans that were originally drawn on July 3, 2014 and refinanced on February 24, 2021 are referred to as the “Existing Dollar Term Loans”, and the Dollar Term Loans that were issued on November 16, 2022 are referred to as the “New Dollar Term Loans.” Details of our long-term debt are presented in Note 12 to the condensed consolidated financial statements included elsewhere in this quarterly report.

Current wording

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 Dollar Term Loans that were issued on February 24, 2021 are referred to as the “2021 Dollar Term Loans”, which were extinguished on June 4, 2024. The new tranche of dollar term loans that were issued on June 4, 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 are referred to as the “2022 Dollar Term Loans.” Details of our long-term debt are presented in Note 12 to the condensed consolidated financial statements included elsewhere in this quarterly report.

Previous wording

During February 2024, we made a voluntary principal debt repayment of $100.0 million against our Existing Dollar Term Loans. As a result of this repayment, we accelerated the recognition of $1.0 million of deferred issuance costs (recognized in interest expense).

Current wording

During February 2024, we made a voluntary principal debt repayment of $100.0 million against our 2021 Dollar Term Loans. As a result of this repayment, we accelerated the recognition of $1.0 million of deferred issuance costs (recognized in interest expense).

Previous wording

During May 2023, we drew $100.0 million under our asset-backed revolving credit facility to partially fund the purchase of shares under our 2023 share repurchase program. During Fiscal 2023, we paid down the borrowings on the asset-backed revolver and had no remaining outstanding balance as of March 30, 2024 and December 30, 2023, as discussed further in Note 12 to the condensed consolidated financial statements included elsewhere in this quarterly report.

Current wording

During May 2023, we drew $100.0 million under our asset-backed revolving credit facility to partially fund the purchase of shares under our 2023 share repurchase program. During fiscal 2023, we paid down the borrowings on the asset-backed revolver and had no remaining outstanding balance as of June 29, 2024 and December 30, 2023.

Previous wording

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.

Current wording

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.

Previous wording

On March 1, 2023, we amended the Existing Dollar Term Loans, revolving credit facility and asset-backed revolver, which bore interests 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. For further information on the facilities, see Note 12 to the condensed consolidated financial statements included elsewhere in this quarterly report.

Current wording

On March 1, 2023, we amended the 2021 Dollar Term Loans, revolving credit facility and asset-backed revolver, which bore interests 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. For further information on the facilities, see Note 12 to the condensed consolidated financial statements included elsewhere in this quarterly report.

Previous wording

For the twelve months ended March 30, 2024, before intercompany eliminations, our non-guarantor subsidiaries represented approximately 75% of our net sales and 74% of our EBITDA as defined in the financial covenants attaching to the senior secured credit facilities. As of March 30, 2024, before intercompany eliminations, our non-guarantor subsidiaries represented approximately 68% of our total assets and approximately 26% of our total liabilities.

Current wording

For the twelve months ended June 29, 2024, before intercompany eliminations, our non-guarantor subsidiaries represented approximately 75% of our net sales and 75% of our EBITDA as defined in the financial covenants attaching to the senior secured credit facilities. As of June 29, 2024, before intercompany eliminations, our non-guarantor subsidiaries represented approximately 68% of our total assets and approximately 25% of our total liabilities.

Previous wording

Net Debt is a non-GAAP measure representing the principal amount of our debt less the carrying amount of cash and cash equivalents. During the three months ended March 30, 2024, our Net Debt increased by $93.5 million from $1,751.3 million as of December 30, 2023 to $1,844.8 million as of March 30, 2024. Net Debt was impacted adversely by $8.9 million due to movements in currency exchange rates. Excluding this impact, Net Debt increased by $84.6 million, which was driven primarily by $50.3 million paid to acquire shares under our share repurchase program, $21.0 million of cash used in operating activities, and $18.1 million of capital expenditures during the three months ended March 30, 2024.

Current wording

Net Debt is a non-GAAP measure representing the principal amount of our debt less the carrying amount of cash and cash equivalents. During the six months ended June 29, 2024, our Net Debt increased by $33.9 million from $1,751.3 million as of December 30, 2023 to $1,785.2 million as of June 29, 2024. Net Debt was impacted adversely by $16.2 million due to movements in currency exchange rates. Excluding this impact, Net Debt increased by $17.7 million, which was driven primarily by $50.3 million paid to acquire shares under our share repurchase program and $45.3 million of capital expenditures, partially offset by $72.8 million of cash provided from operating activities during the six months ended June 29, 2024.

Previous wording

In total, our committed borrowing headroom was $471.4 million, in addition to cash and cash equivalents balances of $522.2 million.

Current wording

In total, our committed borrowing headroom was $471.7 million, in addition to cash and cash equivalents balances of $579.7 million.

Previous wording

(3) On January 31, 2023, one of our customers filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. In connection with the bankruptcy proceedings, we 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. Based on further developments in the bankruptcy proceedings, we recorded an additional $0.1 million pre-tax charge during the three months ended March 30, 2024. We will continue to monitor the circumstances surrounding the bankruptcy in determining whether adjustments to this recovery estimate are necessary.

Current wording

(3) On January 31, 2023, one of our customers filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. In connection with the bankruptcy proceedings, we 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. Based on further developments in the bankruptcy proceedings, we recorded an additional $0.1 million pre-tax charge during the six months ended June 29, 2024. We will continue to monitor the circumstances surrounding the bankruptcy in determining whether adjustments to this recovery estimate are necessary.

Previous wording

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 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. 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 $4.2 million. Pursuant to the terms of the credit agreement governing our revolving credit facility and term loans, the Company may not, subject to certain exceptions, permit its Consolidated First Lien Net Leverage Ratio (as defined in the credit agreement) to exceed 5.75 to 1.00 as of the end of the test period if borrowings under the revolving credit facility exceed a certain threshold. Pursuant to the credit agreement, this ratio is defined as Consolidated First Lien Net Debt (as defined in the credit agreement) divided by Consolidated EBITDA (as defined in the credit agreement). For a description of the other material terms related to our debt agreements, please refer to Note 12 to the condensed consolidated financial statements included elsewhere in this report, and for a discussion of risks related to the compliance or non-compliance with the covenants described herein on the Company’s financial condition and liquidity, please refer to the factors described in Item 1A. “Risk Factors—Risks Related to Our Indebtedness” in Part I of the annual report. During the periods covered by the condensed consolidated financial statements included in this report, we were in compliance with the financial covenant and had no borrowing on the revolving credit facility.

Current wording

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. 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 $6.8 million. Pursuant to the terms of the credit agreement governing our revolving credit facility and term loans, the Company may not, subject to certain exceptions, permit its Consolidated First Lien Net Leverage Ratio (as defined in the credit agreement) to exceed 4.50 to 1.00 as of the end of the test period if borrowings under the revolving credit facility exceed a certain threshold. Pursuant to the credit agreement, this ratio is defined as Consolidated First Lien Net Debt (as defined in the credit agreement) divided by Consolidated EBITDA (as defined in the credit agreement). For a description of the other material terms related to our debt agreements, please refer to Note 12 to the condensed consolidated financial statements included elsewhere in this report, and for a discussion of risks related to the compliance or non-compliance with the covenants described herein on the Company’s financial condition and liquidity, please refer to the factors described in Item 1A. “Risk Factors—Risks Related to Our Indebtedness” in Part I of the annual report. During the periods covered by the condensed consolidated financial statements included in this report, we were in compliance with the financial covenant and had no borrowing on the revolving credit facility.

Previous wording

Gates Industrial Corporation plc is not an obligor under our revolving credit facility, our term loan facility or the indenture governing our outstanding notes. 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. 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 $382.3 million due to Gates Global LLC and its subsidiaries from indirect parent entities of Gates Global LLC as of March 30, 2024 (compared to a payable of $333.6 million due to Gates Global LLC and its subsidiaries as of December 30, 2023) and additional cash and cash equivalents held by the Company and other indirect parent entities of Gates Global LLC of $15.7 million and $3.5 million as of March 30, 2024 and December 30, 2023, respectively.

Current wording

Gates Industrial Corporation plc is not an obligor under our revolving credit facility, our term loan facility 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 loan facility, and our outstanding notes. The only significant difference 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 is (i) additional net intercompany loan payable due to Gates Industrial Holdco and its subsidiaries from the Company, which was $402.8 million and $333.6 million as of June 29, 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 $28.4 million and $26.6 million as of June 29, 2024 and December 30, 2023, respectively and (iii) additional cash and cash equivalents held by the Company, which was $5.3 million and $3.5 million as of June 29, 2024 and December 30, 2023, respectively.