Gates Industrial Corp plc
For the period ended Sep 28, 2024. Filed Oct 30, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 28, 2024 · Filed Oct 30, 2024
GTES$24.10+2.3%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-06-29; filed 2024-07-31.
0001718512-24-000065
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-09-28; filed 2024-10-30.
0001718512-24-000084
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 140 previous paragraphs and 132 current paragraphs.
71 unchanged; 53 reworded; 7 added; 15 removed; 1 previous and 1 current paragraphs rearranged.
Tables are not compared: 14 previous and 12 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (7)
Current report
For the nine months ended September 28, 2024, we had net discrete tax benefits of $8.3 million, of which $13.8 million related to unrecognized tax benefits due to audit closures and $3.2 million discrete tax benefit from a loss on deconsolidation of Russian subsidiary, offset by $3.4 million of uncertain tax benefit interest accrual, $4.2 million of net discrete expense related to changes in the realizability of certain deferred tax assets and $1.1 million of other net discrete tax expenses. For the nine months ended September 30, 2023, the effective tax rate was driven primarily by discrete benefits of $11.0 million, of which $12.9 million related to unrecognized tax benefits due to audit closures, offset by $1.9 million of other net discrete tax expenses.
Current report
Adjusted EBITDA for the nine months ended September 28, 2024 was $580.3 million, compared to $561.2 million in the prior year period, an increase of 3.4% or $19.1 million. Adjusted EBITDA margin was 22.5% for the nine months ended September 28, 2024, a 180 basis point improvement from the prior year period Adjusted EBITDA margin of 20.7%. The increase in Adjusted EBITDA was largely the result of enterprise initiatives that favorably impacted manufacturing performance and pricing, and favorable mix of replacement channel sales to OEM channel sales, partially offset by lower volumes.
Current report
Nine months ended September 28, 2024 compared to the nine months ended September 30, 2023
Current report
Debt issuances and redemptions
Current report
During 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 15 to the condensed consolidated financial statements included elsewhere in this quarterly report. During September 2024, we partially paid down the borrowings on the revolving credit facility and had a balance of $30.0 million as of September 28, 2024.
Current report
•loss on deconsolidation of previously controlled subsidiary;
Current report
(1) In July 2022, Gates suspended our operations in Russia. As of September 28 2024, we deconsolidated the Russian subsidiary upon loss of control and recognized a deconsolidation loss.
Removed paragraphs (15)
Previous report
For the six months ended June 29, 2024, the net impact of discrete items was nominal, and the effective tax rate was driven primarily by jurisdictional mix of earnings. For the six months ended July 1, 2023, the net impact of discrete items was nominal, and the effective tax rate was driven primarily by jurisdictional mix of earnings.
Previous report
As a result of changes in future taxable profits and subsidiary structure, our position and judgment regarding the realizability of these deferred tax assets changed.
Previous report
Adjusted EBITDA for the six months ended June 29, 2024 was $397.8 million, compared to $371.8 million in the prior year period, an increase of 7.0% or $26.0 million. Adjusted EBITDA margin was 22.8% for the six months ended June 29, 2024, a 250 basis point improvement from the prior year period Adjusted EBITDA margin of 20.3%. The drivers of the increase in Adjusted EBITDA were similar to those described above for the three-month period, in addition to lower inflation-related costs during the six months ended June 29, 2024 compared to the prior year period.
Previous report
Six months ended June 29, 2024 compared to the six months ended July 1, 2023
Previous report
Debt drawings and redemptions
Previous report
Net Debt
Previous report
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 report
Net Debt
Previous report
Management uses Net Debt, rather than the narrower measure of cash and cash equivalents and restricted cash which forms the basis for the condensed consolidated statement of cash flows, as a measure of our liquidity and in assessing the strength of our balance sheet.
Previous report
Management analyzes the key cash flow items driving the movement in net debt to better understand and assess Gates’ cash performance and utilization in order to maximize the efficiency with which resources are allocated. The analysis of cash movements in Net Debt also allows management to more clearly identify the level of cash generated from operations that remains available for distribution after servicing our debt and post-employment benefit obligations and after the cash impacts of acquisitions and disposals.
Previous report
Net Debt represents the net total of:
Previous report
• the principal amount of our debt; and
Previous report
• the carrying amount of cash and cash equivalents.
Previous report
Net Debt was as follows:
Previous report
The principal amount of debt is reconciled to the carrying amount of debt as follows:
Reworded paragraphs (53)
Previous wording
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. 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. We sell our products globally under the Gates brand, which is recognized by distributors, equipment manufacturers, installers and end users as a premium brand for quality and technological innovation; this reputation has been built over more than 110 years since Gates’ founding in 1911.
Current wording
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 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 and OEM; 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. We sell our products globally under the Gates brand, which is recognized by distributors, equipment manufacturers, installers and end users as a premium brand for quality and technological innovation; this reputation has been built over more than 110 years since Gates’ founding in 1911.
Previous 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.
Current wording
During the nine months ended September 28, 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 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.
Current wording
During the nine months ended September 28, 2024, sales into OEM channels accounted for approximately 33% of our total net sales. OEM sales are to a variety of industrial and automotive customers. Our industrial OEM customers cover a diverse range of industries and applications and many of our largest OEM customers manufacture construction and agricultural equipment.
Previous wording
During the six months ended June 29, 2024, demands from industrial first-fit channels softened while the favorable mix of replacement channel sales to first-fit channel sales improved our profitability. We expect our improved inventory position will enable us to meet our customer demands in the second half of the year. Although we expect to experience profit headwind from less favorable foreign exchange and costs associated with incremental new business, our enterprise initiatives are expected to continue building through the balance of fiscal 2024 and support improving profitability and cash generation.
Current wording
During the nine months ended September 28, 2024, demands from industrial OEM channels softened while our enterprise initiatives and the favorable mix of replacement channel sales to OEM channel sales improved our profitability. We are continuing to manage our inventory position for the balance of the year to support exceptional customer service and position us for growth in 2025. As the industrial markets stabilize, we expect that our ongoing execution of enterprise initiatives and incremental new business investments will enable us to improve profitability and drive higher organic growth over the long term.
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 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.
Current wording
Global conflicts, such as the conflict between Russia and Ukraine, and sanctions and counter-sanctions imposed in response, 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. As of September 28, 2024, we deconsolidated the Russian subsidiary upon loss of control and recognized a deconsolidation loss of $12.8 million during the three months ended September 28, 2024.
Previous 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
Current wording
Results for the three and nine months ended September 28, 2024 compared to the results for the three and nine months ended September 30, 2023
Previous 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.
Current wording
Net sales during the three months ended September 28, 2024 were $830.7 million, compared to $872.9 million during the prior year period, a decrease of 4.8%, or $42.2 million, driven primarily by the impact of lower sales volume, partially offset by a $10.0 million benefit from pricing. Our net sales for the three months ended September 28, 2024 were adversely impacted by movements in average currency exchange ratesof $8.8 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 Mexican Peso and Brazilian Real. As such, core sales decreased by $33.4 million, or 3.8%, during the three months ended September 28, 2024 compared to the prior year period.
Previous wording
The overall decline in core sales was primarily driven by a 15.8% decline in sales to our industrial first-fit channel for the three months ended June 29, 2024, primarily in North America and EMEA. The industrial sales decline was primarily driven by agriculture, personal mobility and construction end markets for the three months ended June 29, 2024. Sales to our automotive replacement channel increased by 2.8%, primarily in EMEA and North America, offset by the decline of sales to our automotive first-fit channel.
Current wording
The overall decline in core sales was primarily driven by a 15.0% decline in sales to our industrial OEM channel for the three months ended September 28, 2024, primarily in North America and EMEA. The industrial sales decline was primarily driven by construction, agriculture, and personal mobility end markets for the three months ended September 28, 2024. Sales to our automotive OEM channel declined during the three months ended September 28, 2024, partially offset by a 2.9% sales increase to our automotive replacement channel, primarily in EMEA.
Previous wording
Net sales during the six months ended June 29, 2024 were $1,748.1 million, compared to $1,834.0 million during the prior year period, a decrease of 4.7%, or $85.9 million, driven primarily by the impact of lower sales volume, partially offset by a $24.0 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$15.9 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 Chinese Renminbi, Turkish Lira, and Japanese Yen. As such, core sales decreased by $70.0 million, or 3.8%, during the six months ended June 29, 2024 compared to the prior year period.
Current wording
Net sales during the nine months ended September 28, 2024 were $2,578.8 million, compared to $2,706.9 million during the prior year period, a decrease of 4.7%, or $128.1 million, driven primarily by the impact of lower sales volume, partially offset by a $34.3 million benefit from pricing. Our net sales for the nine months ended September 28, 2024 were adversely impacted by movements in average currency exchange rates of$24.7 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 Turkish Lira, Japanese Yen, and Chinese Renminbi. As such, core sales decreased by $103.4 million, or 3.8%, during the nine months ended September 28, 2024 compared to the prior year period.
Previous wording
The overall decline in core sales was driven by an 8.8% decrease of sales to our industrial customers for the six months ended June 29, 2024, particularly in North America and EMEA. Personal mobility, agriculture and construction drove most of the decline, with decreases of 34.5%, 14.0% and 7.4%, respectively, during thesix months ended June 29, 2024 compared to the prior year period.
Current wording
The overall decline in core sales was primarily driven by an 8.2% decrease of sales to our industrial customers for the nine months ended September 28, 2024, particularly in North America and EMEA. Personal mobility, agriculture and construction drove most of the decline, with decreases of 30.1%, 13.5% and 8.5%, respectively, during thenine months ended September 28, 2024 compared to the prior year period.
Previous wording
Cost of sales for the three months ended June 29, 2024 was $528.1 million, compared to $583.6 million for the prior year period, a decrease of 9.5%, or $55.5 million. This decrease was primarily attributable to a $40.8 million combined impact of lower volumes and enterprise initiatives that favorably impacted manufacturing performance. Favorable movements in average currency exchange rates further contributed a decrease of $10.0 million.
Current wording
Cost of sales for the three months ended September 28, 2024 was $494.9 million, compared to $529.5 million for the prior year period, a decrease of 6.5%, or $34.6 million. This decrease was primarily attributable to a combined impact of lower volumes and enterprise initiatives that favorably impacted manufacturing performance. Favorable movements in average currency exchange rates further contributed a decrease of $5.8 million. The decrease was partially offset by higher inflation-related costs.
Previous 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.
Current wording
Cost of sales for the nine months ended September 28, 2024 was $1,555.6 million, compared to $1,685.7 million for the prior year period, a decrease of 7.7%, or $130.1 million. The decrease was primarily attributable to a combined impact of lower volumes and enterprise initiatives that favorably impacted manufacturing performance and $19.1 million due to favorable movements in average currency exchange rates, partially offset by higher inflation-related costs.
Previous 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.
Current wording
As a result of the factors described above, gross profit for the three months ended September 28, 2024 was $335.8 million, compared to $343.4 million for the prior year period, a decrease of 2.2% or $7.6 million. Our gross profit margin improved by 110 basis points to 40.4% for the three months ended September 28, 2024.
Previous 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 six months ended June 29, 2024 was $687.4 million, compared to $677.8 million for the prior year period, an increase of 1.4% or $9.6 million. Our gross profit margin improved by 230 basis points to 39.3% for the six months ended June 29, 2024.
Current wording
As a result of the factors described above, gross profit for the nine months ended September 28, 2024 was $1,023.2 million, compared to $1,021.2 million for the prior year period, an increase of 0.2% or $2.0 million. Our gross profit margin improved by 200 basis points to 39.7% for the nine months ended September 28, 2024.
Previous wording
Selling, general and administrative (“SG&A”) expenses for the three months ended June 29, 2024 were $218.3 million compared to $220.7 million for the prior year period. This decrease of $2.4 million was driven primarily by the $7.2 million gain from disposal of property, plant and equipment, partially offset by an increase in labor and benefits expense of $3.8 million.
Current wording
Selling, general and administrative (“SG&A”) expenses for the three months ended September 28, 2024 were $219.9 million compared to $213.4 million for the prior year period. This increase of $6.5 million was driven primarily by the $3.1 million increase in stock compensation expense, increased outbound freight and warranty expenses, partially offset by a decrease in labor and benefit expense of $4.3 million.
Previous 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.
Current wording
SG&A expenses for the nine months ended September 28, 2024 were $649.9 million compared to $666.2 million for the prior year period. This decrease of $16.3 million was primarily attributable to an $11.5 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 and warranty costs.
Previous wording
Transaction-related expenses of $1.2 million and $1.6 million were incurred during the three and six months ended June 29, 2024, respectively, primarily related to the debt refinancing that occurred in June 2024 and certain other corporate transactions. Transaction-related expenses of $0.6 million and $0.8 million were incurred during the prior year three and six months ended July 1, 2023, respectively, related primarily to the secondary offering completed in May 2023 and certain other corporate transactions.
Current wording
Transaction-related expenses of $0.5 million and $2.1 million were incurred during the three and nine months ended September 28, 2024, respectively. Transaction expenses for the three months ended September 28, 2024 were primarily related to the secondary offering completed during August 2024. Transaction expenses for the nine months ended September 28, 2024 were primarily related to the debt refinancing that occurred in June 2024, the secondary offerings completed in both February and August 2024, and certain other corporate transactions. Transaction-related expenses of $1.3 million and $2.1 million were incurred during the prior year three and nine months ended September 30, 2023, respectively, related primarily to the fees for amending the New Dollar Term Loans in October 2023 and certain other corporate transactions.
Previous 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.
Current wording
Restructuring and other strategic initiatives during the three and nine months ended September 28, 2024 included $1.0 million and $2.5 million, respectively, of costs related to the relocation of certain production activities in Mexico. During the three months ended September 28, 2024, we also incurred severance costs of $1.0 million related to the consolidation of production activities across certain North American plants. Other restructuring costs incurred during the three and nine months ended September 28, 2024 included legal and consulting expenses, and costs associated with prior period facility closures or relocations in several countries.
Previous wording
Restructuring and other strategic initiatives during the three and six months ended July 1, 2023 related primarily to severance and other non-labor costs related to relocating certain production activities in China, Mexico and Europe. During the three months ended July 1, 2023, we also incurred additional labor and severance costs of $0.5 million related to relocation and integration of certain support functions into our regional shared service center in Europe.
Current wording
Restructuring and other strategic initiatives during the three and nine months ended September 30, 2023 related primarily to severance and other non-labor costs related to relocating certain production activities in China, Mexico and Europe. During the three months ended September 30, 2023, we also incurred additional non-severance labor and benefit costs of $0.3 million related to relocation and integration of certain support functions into our regional shared service center in Europe. Other restructuring costs incurred during the three months ended September 30, 2023 related to legal and consulting expenses, as well as 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 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.
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 decreased by $4.4 million for the three months ended September 28, 2024 when compared to the equivalent prior year period, primarily due to the favorable impact of derivatives and lower interest rates applicable on the floating rate Dollar Term Loans. Interest on debt decreased by $3.1 million for the nine months ended September 28, 2024 when compared to the equivalent prior year period. Interest expenses on the principal amount of debt decreased for the nine months ended September 28, 2024 primarily due to favorable impact of derivatives and lower interest rates applicable on the floating rate Dollar Term Loans. Amortization of deferred issuance costs during the nine months ended September 28, 2024 increased by $15.1 million, primarily due to the accelerated amortization of $14.8 million of deferred issuance costs related to the debt refinancing that occurred in June 2024 and the accelerated amortization of $1.0 million due to the $100.0 million repayment against our “2021 Dollar Term Loans” in February 2024.
Previous 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.
Current wording
Other (income) expenses for the three and nine months ended September 28, 2024 were income of $3.9 million and $8.5 million, respectively, compared to income of $0.2 million and expenses of $3.8 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 September 28, 2024 compared to the prior year period. The change was also attributed to the increased interest income on our bank deposits for the nine months ended September 28, 2024 compared to the prior year period.
Previous 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.
Current wording
For the three months ended September 28, 2024, we had income tax expense of $14.0 million on pre-tax income of $69.2 million, which resulted in an effective tax rate of 20.2%, compared to an income tax expense of $1.0 million on pre-tax income of $86.6 million, which resulted in an effective tax rate of 1.2% for the three months ended September 30, 2023.
Previous 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.
Current wording
For the three months ended September 28, 2024, the effective tax rate was driven primarily by net discrete tax benefits of $7.8 million, of which $6.5 million related to changes in the realizability of certain deferred tax assets, primarily related to U.S. foreign tax credit carryforwards, $3.2 million of discrete tax benefit related to the loss on deconsolidation of Russian subsidiary, offset by $1.9 million of other net discrete tax expenses. For the three months ended September 30, 2023, the effective tax rate was driven primarily by net discrete tax benefits of $11.0 million, of which $12.9 million related to unrecognized tax benefits due to audit closures, offset by $1.9 million of other net discrete tax expenses.
Previous wording
For the six months ended June 29, 2024, we had an income tax expense of $46.8 million on pre-tax income of $170.9 million, which resulted in an effective tax rate of 27.4%, compared to an income tax expense of $24.9 million on pre-tax income of $127.1 million, which resulted in an effective tax rate of 19.6% for the six months ended July 1, 2023.
Current wording
For the nine months ended September 28, 2024, we had an income tax expense of $60.8 million on pre-tax income of $240.1 million, which resulted in an effective tax rate of 25.3%, compared to an income tax expense of $25.9 million on pre-tax income of $213.7 million, which resulted in an effective tax rate of 12.1% for the nine months ended September 30, 2023.
Previous 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.
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 September 28, 2024 that it is more likely than not that deferred tax assets in the U.S. totaling $6.9 million are realizable. Accordingly, we recognized $5.7 million of discrete benefit, while the remaining $1.2 million is recognized as part of the annual effective tax rate. As a result of changes in estimates of future taxable profits against which the foreign tax credits can be utilized, our judgment changed regarding valuation allowances on these deferred tax assets.
Previous 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.
Current wording
Adjusted EBITDA for the three months ended September 28, 2024 was $182.5 million, compared to $189.4 million in the prior year period, a decrease of 3.6% or $6.9 million. Adjusted EBITDA margin was 22.0% for the three months ended September 28, 2024, a 30 basis point increase from the prior year period margin of 21.7%. The decrease in Adjusted EBITDA was largely the result of lower volumes and adverse impacts of movements in average currency exchange rates, partially offset by enterprise initiatives that favorably impacted manufacturing performance and pricing.
Previous wording
Power Transmission (61.2% and 61.5%, respectively, of Gates’ net sales for the three and six months ended June 29, 2024)
Current wording
Power Transmission (61.8% and 61.6%, respectively, of Gates’ net sales for the three and nine months ended September 28, 2024)
Previous 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,
Current wording
Net sales in Power Transmission for the three months ended September 28, 2024 decreased by 4.3%, or $23.0 million, compared to the prior year period, driven primarily by a decrease in volume, partially offset by a $4.5 million benefit from pricing. Our net sales for the three months ended September 28, 2024 were adversely impacted by movements in average currency exchange rates of $5.4 million. As such, core sales decreased by 3.3%, or $17.6 million, compared to the prior year period,
Previous wording
Net sales in Power Transmission for the three months ended June 29, 2024 decreased by 5.6%, or $32.0 million, compared to the prior year period, driven primarily by lower volumes, partially offset by a $4.6 million benefit from pricing. Our net sales for the three months ended June 29, 2024 were adversely impacted by movements in average currency exchange rates of $12.2 million. As such, core sales decreased by 3.5%, or $19.8 million, compared to the prior year period,
Current wording
Net sales in Power Transmission for the nine months ended September 28, 2024 decreased by 4.2%, or $70.3 million, compared to the prior year period, driven primarily by a decrease in volume, partially offset by an $18.8 million benefit from pricing. Our net sales for the nine months ended September 28, 2024 were adversely impacted by movements in average currency exchange rates of $23.5 million. As such, core sales decreased by 2.8%, or $46.8 million, compared to the prior year period.
Previous wording
Power Transmission’s core sales to industrial customers decreased by 5.3% and 7.7% during the three and six months ended June 29, 2024, respectively, compared to the prior year periods. Industrial first fit sales declined by 16.4% and 18.1%, respectively, during the three and six months ended June 29, 2024 compared to the prior year period, particularly in EMEA and North America. The decline of sales to our industrial first fit customers was partially offset by an increase in industrial replacement sales of 3.8% for the three months ended June 29, 2024, primarily driven by the on highway and energy end markets. Sales to our automotive channel remained relatively consistent with the prior year period, with automotive replacement sales slightly increased by 2.3% for the six months ended June 29, 2024.
Current wording
Power Transmission’s core sales to industrial customers decreased by 5.7% and 7.1% during the three and nine months ended September 28, 2024, respectively, compared to the prior year periods. Industrial OEM sales declined by 11.7% and 16.2%, respectively, during the three and nine months ended September 28, 2024 compared to the prior year period, particularly in North America and EMEA. Sales to our industrial replacement customers slightly declined by 1.3% for the three months ended September 28, 2024. While most industrial end markets experienced sales decline, personal mobility had the most significant impact, which declined by 17.6% and 31.8%, respectively, during the three and nine months ended September 28, 2024 compared to the prior year period. Sales to our automotive channel during the three and nine months ended September 28, 2024 remained relatively consistent with the prior year period, with decreasing demands from automotive OEM channel partially offset by automotive replacement sales growth.
Previous 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.
Current wording
Power Transmission Adjusted EBITDA for the three months ended September 28, 2024 decreased by 3.0%, or $3.5 million, compared to the prior year period, driven primarily by lower volumes and movements in average currency exchange rates, partially offset by enterprise initiatives that favorably impacted manufacturing performance and pricing. As a result, Adjusted EBITDA margin was 22.0%, a 30 basis point improvement from the prior year period.
Previous wording
Power Transmission Adjusted EBITDA for the six months ended June 29, 2024 increased by 7.1%, or $16.1 million, compared to the prior year period. This increase was driven primarily by enterprise initiatives that favorably impacted manufacturing performance, benefit from pricing, and lower inflation related costs, partially offset by lower volumes. The increase resulted in an Adjusted EBITDA margin of 22.6%, a 240 basis point improvement compared to the prior year period.
Current wording
Power Transmission Adjusted EBITDA for the nine months ended September 28, 2024 increased by 3.7%, or $12.6 million, compared to the prior year period. This increase was driven primarily by enterprise initiatives that favorably impacted manufacturing performance and pricing, partially offset by lower volumes and higher inflation related costs. The increase resulted in an Adjusted EBITDA margin of 22.4%, a 170 basis point improvement compared to the prior year period.
Previous wording
Fluid Power (38.8% and 38.5%, respectively, of Gates’ net sales for the three and six months ended June 29, 2024)
Current wording
Fluid Power (38.2% and 38.4%, respectively, of Gates’ net sales for the three and nine months ended September 28, 2024)
Previous wording
Net sales in Fluid Power for the three months ended June 29, 2024 decreased by 5.2%, or $18.8 million, compared to the prior year period, driven primarily by a decrease in volume, partially offset by a $5.2 million benefit from pricing. Our net sales were adversely impacted by movements in average currency exchange rates of $0.9 million. As such, core sales decreased by 4.9%, or $17.9 million, compared to the prior year period,
Current wording
Net sales in Fluid Power for the three months ended September 28, 2024 decreased by 5.7%, or $19.2 million, compared to the prior year period, driven primarily by a decrease in volume, partially offset by a $5.5 million benefit from pricing. Our net sales were adversely impacted by movements in average currency exchange rates of $3.4 million. As such, core sales decreased by 4.7%, or $15.8 million, compared to the prior year period.
Previous 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.
Current wording
Net sales in Fluid Power for the nine months ended September 28, 2024 decreased by 5.5%, or $57.8 million, compared to the prior year period, driven primarily by a decrease in volume, partially offset by a $15.5 million benefit from pricing. Our net sales were adversely impacted by movements in average currency exchange rates of $1.2 million. As such, core sales decreased by 5.4%, or $56.6 million, compared to the prior year period.
Previous wording
Fluid Power’s core sales to our industrial channel declined by 9.5%, while sales to our automotive channel increased by 11.0% during the three months ended June 29, 2024 compared to the prior year period. The decline in the industrial channel was primarily attributed to North America and EMEA, with agriculture and construction driving most of the sales decline of 18.4% and 8.1%, respectively, during the three months ended June 29, 2024 compared to prior year period. During the six months ended June 29, 2024, the decline of Fluid Power’s core sales of 5.7% was primarily attributable to a 9.7% decrease in the industrial channel sales compared to the prior year period, primarily driven by agriculture, construction, and diversified industrial end markets. The decline in industrial sales was partially offset by an 8.7% increase in automotive sales for the six months ended June 29, 2024, primarily from North America and EMEA.
Current wording
Fluid Power’s core sales to our industrial channel declined by 7.6%, while sales to our automotive channel increased by 4.5% during the three months ended September 28, 2024 compared to the prior year period. The decline in the industrial channel was primarily attributed to North America and EMEA, with construction and agriculture driving most of the sales decline of 10.3% and 14.2%, respectively, during the three months ended September 28, 2024 compared to prior year period. During the nine months ended September 28, 2024, the decline of Fluid Power’s core sales was primarily attributable to a 9.0% decrease in the industrial channel sales compared to the prior year period, primarily driven by agriculture, construction, and energy end markets. The decline in industrial sales was partially offset by a 7.3% increase in automotive sales for the nine months ended September 28, 2024, primarily from North America and EMEA.
Previous wording
Fluid Power Adjusted EBITDA for the three months ended June 29, 2024 increased by 0.1%, or $0.1 million, compared to the prior year period, driven primarily by pricing and enterprise initiatives that favorably impacted manufacturing performance, largely offset by lower volumes. As a result, the Adjusted EBITDA margin was 22.8%, a 120 basis point improvement from the prior year period.
Current wording
Fluid Power Adjusted EBITDA for the three months ended September 28, 2024 decreased by 4.7%, or $3.4 million, compared to the prior year period, driven primarily by lower volumes, partially offset by enterprise initiatives that favorably impacted manufacturing performance and pricing. As a result, the Adjusted EBITDA margin was 21.9%, a 20 basis point improvement from the prior year period.
Previous wording
Fluid Power Adjusted EBITDA for the six months ended June 29, 2024 increased by 6.8%, or $9.9 million, compared to the prior year period. This increase was driven primarily by pricing and enterprise initiatives that favorably impacted manufacturing performance, and lower inflation related costs partially offset by lower volumes, resulting in an Adjusted EBITDA margin of 23.0%, a 260 basis points improvement compared to the prior year period.
Current wording
Fluid Power Adjusted EBITDA for the nine months ended September 28, 2024 increased by 3.0%, or $6.5 million, compared to the prior year period. This increase was driven primarily by enterprise initiatives that favorably impacted manufacturing performance and pricing, partially offset by lower volumes, resulting in an Adjusted EBITDA margin of 22.7%, a 190 basis points improvement compared to the prior year period.
Previous wording
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. 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. 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. 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.
Current wording
As market conditions warrant, we and/or Blackstone 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. 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. 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. 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.
Previous 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.
Current wording
Cash provided by operating activities was $188.7 million during the nine months ended September 28, 2024 compared to cash provided by operating activities of $291.7 million during the prior year period, driven primarily by $119.8 million in trade working capital movement compared to the prior year period and an increase of $17.6 million in income taxes paid, partially offset by a decrease of $21.1 million interest paid compared to the prior year period.
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Rearranged current paragraphs (1)
Current report — wording carried from elsewhere
(1) Net income from continuing operations expressed as a percentage of net sales.
Rearranged previous paragraphs (1)
Previous report — wording carried elsewhere
Similarly, we determined during the three months ended June 29, 2024 that is more likely than not that deferred tax assets of $3.7 million, primarily in Germany, are realizable. Accordingly, we recognized $2.5 million of discrete benefit, while the remaining $1.2 million benefit is recognized as part of the annual effective tax rate.