Restructuring and other strategic initiatives

12 Months Ended

Jan. 02, 2021

Restructuring and Related Activities [Abstract]

Restructuring and other strategic initiatives

Gates continues to undertake various restructuring and other strategic initiatives to drive increased productivity in all aspects of our operations. These actions include efforts to consolidate our manufacturing and distribution footprint, scale operations to current demand levels, combine back-office workgroups and relocate certain operations to lower cost locations. The manufacturing footprint investments and other productivity improvements completed in recent years have helped to position us to accelerate and expand upon our previously announced restructuring program, which is primarily intended to optimize our manufacturing and distribution footprint over the mid-term by removing structural fixed costs, and, to a lesser degree, to streamline our selling, general and administrative (“SG&A”) back-office functions.

Overall costs associated with our restructuring and other strategic initiatives have been recognized in the consolidated statements as set forth below. Expenses incurred in relation to certain of these actions qualify as restructuring expenses under U.S. GAAP.


	For the year ended
(dollars in millions)		January 2, 2021		December 28, 2019		December 29, 2018
Restructuring expenses:
—Severance expenses		$	24.0	$	4.7	$	0.5
—Non-severance labor and benefit expenses		3.8		—		—
—Consulting expenses		2.1		1.6		3.5
—Other restructuring expenses (benefits)		7.4		(0.3)		2.4
		37.3		6.0		6.4
Restructuring expenses in asset impairments:
—Impairment of fixed assets		5.2		0.7		—

Restructuring expenses in cost of sales:

—Impairment of inventory		1.4		1.2		0.4
—Other restructuring expenses		—		—		0.5
Total restructuring expenses		$	43.9	$	7.9	$	7.3

Expenses related to other strategic initiatives:
—Severance expenses included in cost of sales		$	1.0	$	4.0	$	1.2
—Severance expenses included in SG&A		8.0		3.4		3.1

Total expenses related to other strategic initiatives		$	9.0	$	7.4	$	4.3

Restructuring and other strategic initiatives during the year ended January 2, 2021 related primarily to the closure of a manufacturing facility in Korea, a European reorganization involving office and distribution center closures or downsizings and implementation of a regional shared service center, and the closure of two North American manufacturing facilities, in addition to reductions in workforce, primarily in EMEA and North America. The closure of the Korean facility resulted in severance and other labor and benefit costs of $13.2 million, an impairment of inventory of $1.4 million (recognized in cost of sales) and an impairment of fixed assets of $4.8 million (recognized in asset impairments). Restructuring costs incurred in relation to our European reorganization were $12.6 million, of which $11.4 million related to estimated severance.

Expenses incurred in connection with our restructuring and other strategic initiatives during the year ended December 28, 2019 related primarily to reductions in force across all regions and impairments of inventory and fixed assets related to facility closures in countries including France, the U.S., Turkey and Australia. During the year ended December 28, 2019 we also incurred $1.6 million of professional fees relating primarily to the closure of one of our facilities in France, the reorganization of our European corporate center, and a strategic restructuring of part of our Asian business.

Restructuring expenses of $7.3 million were recognized during the year ended December 29, 2018, related primarily to the implementation of our European corporate center and a strategic restructuring of part of our Asian business.

Restructuring activities

As indicated above, restructuring expenses, as defined under U.S. GAAP, form a subset of our total expenses related to restructuring and other strategic initiatives. These expenses include the impairment of inventory, which is recognized in cost of sales. Analyzed by segment, our restructuring expenses were as follows:


	For the year ended
(dollars in millions)		January 2, 2021		December 28, 2019		December 29, 2018
Power Transmission		$	32.6	$	3.5	$	2.8
Fluid Power		11.3		4.4		4.5
Continuing operations		$	43.9	$	7.9	$	7.3

The following summarizes the reserve for restructuring expenses for the year ended January 2, 2021 and December 28, 2019, respectively:


	For the year ended
(dollars in millions)	January 2, 2021		December 28, 2019
Balance as of the beginning of the period	$	2.9	$	2.6
Utilized during the period	(23.4)		(5.7)
Net charge for the period	37.7		6.1
Released during the period	(0.4)		(0.1)
Foreign currency translation	1.1		—
Balance as of the end of the period	$	17.9	$	2.9

Restructuring reserves, which are expected to be utilized during 2021, are included in the consolidated balance sheet within the accrued expenses and other current liabilities line.