Gates Industrial Corp Ltd.

Previous wording

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

Current wording

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

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 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.

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 original equipment manufacturers (“OEM”) as specified components, with the majority of our revenue coming from replacement channels. Our products are used in applications across numerous end markets, including: automotive replacement, automotive OEM, diversified industrial, industrial off-highway, industrial on-highway, energy and resources and personal mobility. 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

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

Current wording

The diversification of our business limits our exposure to trends in any given end market. In addition, a majority of our sales are generated from customers in replacement channels, who serve primarily a large base of installed equipment that follows a natural maintenance cycle that is somewhat less susceptible to various trends that affect our end markets. Such trends include infrastructure investment and construction activity, agricultural production and related commodity prices, commercial and passenger vehicle production, miles driven and fleet age, evolving regulatory requirements related to emissions and fuel economy and oil and gas prices and production. Key indicators of our performance include industrial production, industrial sales and manufacturer shipments.

Previous 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.

Current wording

During the three months ended March 29, 2025, sales into replacement channels accounted for approximately 68% of our total net sales. Our replacement sales cover a very broad range of applications and industries and, accordingly, are highly correlated with industrial activity and utilization and not a single end market. 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 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.

Current wording

During the three months ended March 29, 2025, sales into OEM channels accounted for approximately 32% 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

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.

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.

Previous 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

Current wording

Results for the three months ended March 29, 2025 compared to the results for the three months ended March 30, 2024

Previous wording

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

Current wording

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

Previous 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.

Current wording

Selling, general and administrative (“SG&A”) expenses

Previous 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.

Current wording

Restructuring and other restructuring-related expenses during the three months ended March 30, 2024 related to professional service fees, relocation of certain production activities in Mexico, and other restructuring 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 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.

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 for the three months ended March 29, 2025 decreased when compared to the comparable prior year period, primarily due to the combination of favorable impact of derivatives and lower 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 2021 Dollar Term Loans (as defined below) in February 2024.

Previous 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.

Current wording

Other expenses for the three months ended March 29, 2025 were $1.3 million, compared to $1.5 million of income in the prior year period. This change was driven primarily by the impact of lower interest income on bank deposits compared to the prior year period due to lower interest rates, and unfavorable net movements in foreign currency exchange rates on net debt and hedging instruments. The decrease was partially offset by a lower foreign currency remeasurement loss related to translation adjustments for entities that operate in highly inflationary economies, specifically Argentina and Türkiye.

Previous 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.

Current wording

For the three months ended March 29, 2025, we had an income tax expense of $25.2 million on pre-tax income of $93.8 million, which resulted in an effective tax rate of 26.9%, compared to 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% for the three months ended March 30, 2024.

Previous 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.

Current wording

For the three months ended March 29, 2025, the effective tax rate was driven primarily by the jurisdictional mix of earnings and by net discrete tax expense of $0.1 million comprised of a discrete tax benefit of $6.0 million related to excess tax benefits on stock option exercises and $0.1 million related to other net discrete benefits, offset by discrete expenses of $5.2 million primarily related to changes in the realizability of certain deferred tax assets and $1.0 million related to net unrecognized tax benefits. For the three months ended March 30, 2024, the effective tax rate was driven primarily by the jurisdictional mix of earnings and by discrete tax 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.

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. 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.

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. We do not expect the provisions effective in 2025 to have a materially adverse impact on our results of operations, financial position or cash flows.

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 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.

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 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 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.

Current wording

After weighing all of the evidence, giving more weight to the evidence that was objectively verifiable, we determined that, as of March 29, 2025, it is more likely than not that deferred tax assets in Türkiye are not realizable. Accordingly, we recognized a valuation allowance and recorded a $4.8 million discrete expense. As a result of changes in future taxable profits against which net operating losses can be utilized, our position and judgment regarding the realizability of these deferred tax assets changed.

Previous wording

Power Transmission (61.8% and 61.6%, respectively, of Gates’ net sales for the three and nine months ended September 28, 2024)

Current wording

Power Transmission (62.2% of Gates’ net sales for the three months ended March 29, 2025)

Previous 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,

Current wording

Net sales in Power Transmission for the three months ended March 29, 2025 decreased by 1.1%, or $5.6 million, compared to the prior year period. Net sales in Power Transmission experienced a $8.8 million increase driven by higher volumes and a $2.5 million benefit from favorable pricing. Power Transmission’s net sales were adversely impacted by movements in average currency exchange rates of $16.9 million. As such, core sales increased by 2.1%, or $11.3 million.

Previous 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.

Current wording

Power Transmission Adjusted EBITDA for the three months ended March 29, 2025 decreased by 1.9%, or $2.3 million, compared to the prior period. This decrease was driven primarily by a combination of increased SG&A expenses and the adverse net impact of movements in average currency exchange rates, partially offset by favorable benefits from pricing and enterprise initiatives that favorably impacted manufacturing performance. As a result, Adjusted EBITDA margin for the three months ended March 29, 2025 was 22.1%, a 20 basis point decrease from the prior year period Adjusted EBITDA margin of 22.3%.

Previous wording

Fluid Power (38.2% and 38.4%, respectively, of Gates’ net sales for the three and nine months ended September 28, 2024)

Current wording

Fluid Power (37.8% of Gates’ net sales for the three months ended March 29, 2025)

Previous 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.

Current wording

Net sales in Fluid Power for the three months ended March 29, 2025 decreased by 2.9%, or $9.4 million. Lower volumes drove $2.8 million of the decrease, which was more than offset by a $3.2 million benefit from pricing. Impact by movements in average currency exchange rates of $9.8 million was the primary driver of Fluid Power’s net sales decline. As such, core sales increased by 0.1%, or $0.4 million, compared to the prior year period.

Previous 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.

Current wording

Fluid Power Adjusted EBITDA for the three months ended March 29, 2025 decreased by 7.8%, or $6.0 million, compared to the prior year period. The decrease in Adjusted EBITDA was driven primarily by a combination of lower absorption of fixed costs and volumes, partially offset by favorable benefits from pricing and favorable mix of replacement channel sales to OEM channel sales. The Adjusted EBITDA margin consequently decreased by 120 basis points compared to the prior year period.

Previous wording

Our primary liquidity and capital resource needs are for working capital, debt service requirements, capital expenditures, share repurchases, facility expansions and acquisitions. We expect to finance our future cash requirements with cash on hand, cash flows from operations and, where necessary, borrowings under our revolving credit facilities. We have historically relied on our cash flow from operations and various debt and equity financings for liquidity.

Current wording

Our primary liquidity and capital resource needs are for working capital, debt service requirements, capital expenditures, share repurchases, facility expansions and acquisitions. We expect to finance our future cash requirements with cash on hand, cash flows from operations and, where necessary, borrowings under our secured revolving credit facility. We have historically relied on our cash flow from operations and various debt and equity financings for liquidity.

Previous 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.

Current wording

As market conditions warrant, we may from time to time seek to repurchase securities that we have issued or loans that we have borrowed in privately negotiated or open market transactions, by tender offer or otherwise. Subject to any applicable limitations contained in the agreements governing our indebtedness, any such purchases of ordinary shares or other securities or loans may be funded by existing cash or by incurring new secured or unsecured debt, including borrowings under our credit facilities. The amounts involved in any such purchase transactions, individually or in the aggregate, may be material. Any such purchases of debt securities or loans may relate to a substantial amount of a particular tranche of debt, with a corresponding reduction, where relevant, in the trading liquidity of that debt. In addition, any such purchases of debt made at prices below the “adjusted issue price” (as defined for U.S. federal income tax purposes) may result in taxable cancellation of indebtedness income to us, which may be material, and result in related adverse tax consequences to us.

Previous 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.

Current wording

Cash provided by operating activities was $7.3 million during the three months ended March 29, 2025 compared to cash used in operating activities of $21.0 million during the prior year period, driven primarily by a favorable $16.4 million in trade working capital movement, a decrease of $16.8 million in income taxes paid, and a decrease of $9.0 million interest paid compared to the prior year period.

Previous wording

Net cash used in investing activities during the nine months ended September 28, 2024 was $80.3 million, compared to $58.0 million in the prior year period. The increase of cash used in investing activities was primarily driven by increased capital expenditures of $26.1 million, a $12.5 million cash derecognition from the deconsolidation of our Russian subsidiary, and higher investment purchases of $11.3 million. The increase in cash used in investing activities was partially offset by a $17.4 million decrease in net cash paid under company-owned life insurance policies, and $10.2 million additional proceeds from the sale of property, plant and equipment.

Current wording

Net cash used in investing activities during the three months ended March 29, 2025 was $31.0 million, compared to $19.5 million in the prior year period. The increase of cash used in investing activities was primarily driven by increased capital expenditures of $8.1 million and a $5.1 million increase in net cash paid under company-owned life insurance policies compared to the prior year period.

Previous wording

Net cash used in financing activities was $253.5 million during the nine months ended September 28, 2024, compared to $241.7 million in the prior year period. Current year outflows were primarily related to the $1,917.0 million debt repayment partially offset by the inflows of $1,840.0 million related to new debt issuance, $176.1 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, and $20.5 million payments related to debt issuance costs.

Current wording

Net cash used in financing activities was $24.6 million during the three months ended March 29, 2025, compared to $148.9 million in the prior year period. Current year outflows were primarily related to the $13.0 million paid to acquire shares under our share repurchase program, $4.7 million debt repayment, and $11.5 million of employee taxes paid from share withheld on exercised options.

Previous wording

Our long-term debt, consisting principally of 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 notes, was as follows:

Previous wording

On June 4, 2024, we entered into an amendment to our credit agreement governing our term loan facilities and our secured revolving credit facility. As part of this amendment, we issued new “2024 Dollar Term Loans” and used the proceeds to extinguish the entire outstanding principal balance of the 2021 Dollar Term Loans plus $1.1 million of accrued interest. We issued the 2024 Dollar Term Loans with no discount and incurred third party costs totaling approximately $9.5 million, which have been deferred and will be amortized to interest expense over the remaining term of the related borrowings using the effective interest method. The 2024 Dollar Term Loans require a prepayment premium in connection with certain repricing transactions occurring within nine months following the closing of the amendment. The repayment of our 2021 Dollar Term Loans resulted in the accelerated recognition of $11.2 million of deferred issuance costs (recognized in interest expense).

Current wording

On June 4, 2024, we entered into an amendment to our credit agreement governing our term loans and our secured revolving credit facility. As part of this amendment, we upsized the revolving credit commitments and issued the 2024 Dollar Term Loans. The proceeds of the 2024 Dollar Term Loans were used to extinguish the entire outstanding principal balance of the 2021 Dollar Term Loans plus $1.1 million of accrued interest and to redeem a portion of the Dollar Senior Notes due 2026 (as defined below). We issued the 2024 Dollar Term Loans with no discount and incurred third party costs totaling approximately $9.5 million, which have been deferred and will be amortized to interest expense over the remaining term of the related borrowings using the effective interest method. The repayment of our 2021 Dollar Term Loans resulted in the accelerated recognition of $11.2 million of deferred issuance costs (recognized in interest expense).

Previous wording

On June 4, 2024, we also issued new Dollar Senior Notes of $500.0 million, and fully redeemed our existing Dollar Senior Notes due 2026 of $568.0 million aggregate principal amount, which included the payment of $13.7 million of accrued interest thereon. We issued the new Dollar Senior Notes with no discount and incurred third party costs of approximately $7.6 million, which have been deferred and will be amortized to interest expense over the remaining term of the new Dollar Senior Notes using the effective interest method. The redemption of our existing Dollar Senior Notes resulted in the accelerated recognition of $2.6 million of deferred issuance costs (recognized in interest expense).

Current wording

On June 4, 2024, we also issued new Dollar Senior Notes due 2029 of $500.0 million (the “Dollar Senior Notes due 2029”), and fully redeemed our existing Dollar Senior Notes due 2026 of $568.0 million aggregate principal amount (the “Dollar Senior Notes due 2026”), which included the payment of $13.7 million of accrued interest thereon. We issued the new Dollar Senior Notes with no discount and incurred third party costs of approximately $7.6 million, which have been deferred and will be amortized to interest expense over the remaining term of the new Dollar Senior Notes using the effective interest method. The redemption of our Dollar Senior Notes due 2026 resulted in the accelerated recognition of $2.6 million of deferred issuance costs (recognized in interest expense).

Previous 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).

Current wording

In 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

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.

Current wording

On December 10, 2024, we amended our credit agreement to lower the margin with respect to the 2022 Dollar Term Loans and 2024 Dollar Term Loans by 50 basis points compared to the previous term. The 2022 Dollar Term Loans and 2024 Dollar Term Loans bear interest, at our option at, either Term SOFR (subject to a floor of 0.50%), plus a margin of 1.75% per annum, or the base rate (subject to a floor of 1.50%) plus 0.75% per annum.

Previous wording

On June 4, 2024, 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 2.25% per annum, or the base rate, subject to a 1.50% per annum floor, plus 1.50% per annum.

Current wording

On June 4, 2024, 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 2.25% per annum or the base rate (subject to a 1.50% per annum floor), plus 1.25% per annum.

Previous wording

On June 4, 2024, in connection with the amendment to our credit agreement, we increased borrowing capacity under our revolving credit facility from $250.0 million to $500.0 million and extended the maturity from November 18, 2026 to the date that is the earliest of (x) June 4, 2029 and (y) April 1, 2029, if greater than $500.0 million in aggregate principal amount of the 2024 Unsecured Senior Notes are outstanding. We incurred associated third party costs of approximately $2.5 million, which have been deferred and will be amortized to interest expense over the remaining term of the revolving credit facility. Concurrently with this amendment, we terminated the $250.0 million asset-backed revolving credit facility governed by the second amended and restated credit agreement dated as of November 18, 2021.

Current wording

On June 4, 2024, as part of an amendment to our credit agreement, we increased borrowing capacity under our revolving credit facility from $250.0 million to $500.0 million and extended the maturity from November 18, 2026 to the date that is the earliest of (x) June 4, 2029 and (y) April 1, 2029, if greater than $500.0 million in aggregate principal amount of the Dollar Senior Notes due 2029 are outstanding. We incurred associated third party costs of approximately $2.5 million, which have been deferred and will be amortized to interest expense over the remaining term of the revolving credit facility. Concurrently with this amendment, we terminated the $250.0 million asset-backed revolving credit facility governed by the second amended and restated credit agreement dated as of July 3, 2014 (as amended and restated).

Previous wording

For the twelve months ended September 28, 2024, before intercompany eliminations, our non-guarantor subsidiaries represented approximately 75% of our net sales and 72% of our EBITDA as defined in the financial covenants attaching to the senior secured credit facilities. As of September 28, 2024, before intercompany eliminations, our non-guarantor subsidiaries represented approximately 66% of our total assets and approximately 27% of our total liabilities.

Current wording

For the three months ended March 29, 2025, before intercompany eliminations, our non-guarantor subsidiaries represented approximately 72% of our net sales and 63% of our EBITDA as defined in the financial covenants attaching to the senior secured credit facilities. As of March 29, 2025, before intercompany eliminations, our non-guarantor subsidiaries represented approximately 66% of our total assets and approximately 26% of our total liabilities.

Previous wording

On June 4, 2024, we extinguished our asset-backed revolving credit facility as discussed further in Note 12 to the condensed consolidated financial statements included elsewhere in this quarterly report. In connection with the amendment to our credit agreement, we increased borrowing capacity under our secured revolving credit facility that provides for multi-currency revolving loans from $250.0 million to $500.0 million and extended the maturity from November 18, 2026 to June 4, 2029. The letters of credit outstanding under this facility were $28.8 million as of September 28, 2024. As of September 28, 2024, drawings for cash under the revolving credit facility totaled $30.0 million.

Current wording

On June 4, 2024, we extinguished our asset-backed revolving credit facility as discussed further in Note 12 to the condensed consolidated financial statements included elsewhere in this quarterly report. As part of an amendment to our credit agreement, we increased borrowing capacity under our secured revolving credit facility that provides for multi-currency revolving loans from $250.0 million to $500.0 million and extended the maturity from November 18, 2026 to the date that is the earliest of (x) June 4, 2029 and (y) April 1, 2029, if greater than $500.0 million in aggregate principal amount of the Dollar Senior Notes due 2029 are outstanding. As of March 29, 2025, there were letters of credit outstanding against the facility amounting to $28.8 million and no drawings on the revolving credit facility. As of March 29, 2025, our total committed borrowing headroom was $471.2 million, in addition to cash balances of $640.2 million.

Previous wording

Management uses Adjusted EBITDA as its key profitability measure. This is a non-GAAP measure that represents EBITDA before certain items that are considered to hinder comparison of the performance of our businesses on a period-over-period basis or with other businesses. We use Adjusted EBITDA as our measure of segment profitability to assess the performance of our businesses, and it is used for total Gates as well because we believe it is important to consider our profitability on a basis that is consistent with that of our operating segments, as well as that of our peer companies with a similar leveraged, private equity ownership history. We believe that Adjusted EBITDA should, therefore, be made available to securities analysts, investors and other interested parties to assist in their assessment of the performance of our businesses.

Current wording

Management uses “Adjusted EBITDA” as its key profitability measure. This is a non-GAAP measure that represents EBITDA before certain items that are considered to hinder comparison of the performance of our businesses on a period-over-period basis or with other businesses. We use Adjusted EBITDA as our measure of segment profitability to assess the performance of our businesses, and it is used for total Gates as well because we believe it is important to consider our profitability on a basis that is consistent with that of our operating segments, as well as that of certain of our peer companies. We believe that Adjusted EBITDA should, therefore, be made available to securities analysts, investors and other interested parties to assist in their assessment of the performance of our businesses.

Previous wording

•credit loss related to a customer bankruptcy;

Current wording

•credit gain related to a customer bankruptcy; and

Previous wording

We exclude from Adjusted EBITDA acquisition-related costs that are required to be expensed in accordance with U.S. GAAP. We also exclude costs associated with major corporate transactions because we do not believe that they relate to our performance. Other items are excluded from Adjusted EBITDA because they are individually or collectively significant items that are not considered to be representative of the underlying performance of our businesses. During the periods presented, we excluded loss on the deconsolidation of a previously controlled subsidiary reflecting management’s determination that the Company is unable to manage and control its Russian subsidiary; restructuring expenses and severance-related expenses that reflect specific, strategic actions taken by management to shutdown, downsize, or otherwise fundamentally reorganize areas of Gates’ business; expenses related to a malware attack that occurred in February 2023; and changes in the LIFO inventory reserve recognized in cost of sales for certain inventories that are valued on a LIFO basis. During inflationary or deflationary pricing environments, LIFO adjustments can result in variability of the cost of sales recognized each period as the most recent costs are matched against current sales, while historical, typically lower, costs are retained in inventory. LIFO adjustments are determined based on published pricing indices, which often are not representative of the actual cost changes or timing of those changes as experienced by our business. Excluding the impact from the application of LIFO therefore improves the comparability of our financial performance from period to period and with the Company’s peers, and more closely represents the physical flow of our inventory and how we manage the business.

Current wording

We exclude from Adjusted EBITDA acquisition-related costs that are required to be expensed in accordance with U.S. GAAP. We also exclude costs associated with major corporate transactions because we do not believe that they relate to our performance. Other items are excluded from Adjusted EBITDA because they are individually or collectively significant items that are not considered to be representative of the underlying performance of our businesses. During the periods presented, we excluded restructuring, restructuring-related expenses, and asset impairments that reflect specific actions taken by management to shutdown, downsize, or otherwise fundamentally reorganize areas of Gates’ business. We also excluded a credit gain related to a customer bankruptcy, share based compensation, and changes in the LIFO inventory reserve recognized in cost of sales for certain inventories that are valued on a LIFO basis. During inflationary or deflationary pricing environments, LIFO adjustments can result in variability of the cost of sales recognized each period as the most recent costs are matched against current sales, while historical, typically lower, costs are retained in inventory. LIFO adjustments are determined based on published pricing indices, which often are not representative of the actual cost changes or timing of those changes as experienced by our business. Excluding the impact from the application of LIFO therefore improves the comparability of our financial performance from period to period and with the Company’s peers, and more closely represents the physical flow of our inventory and how we manage the business.