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Segment information
 3 Months Ended
Mar. 30, 2024
Segment Reporting [Abstract]  
Segment information Segment information
A. Background
The segment information provided in these condensed consolidated financial statements reflects the information that is used by the chief operating decision maker for the purposes of making decisions about allocating resources and in assessing the performance of each segment. The chief executive officer (“CEO”) of Gates serves as the chief operating decision maker. These decisions are based principally on net sales and Adjusted EBITDA (defined below).
B. Operating segments and segment assets
Gates manufactures a wide range of power transmission and fluid power products and components for a large variety of industrial and automotive applications, both in the aftermarket and first-fit channels, throughout the world.
Our reportable segments are identified on the basis of our primary product lines, as this is the basis on which information is provided to the CEO for the purposes of allocating resources and assessing the performance of Gates’ businesses. Our operating and reporting segments are therefore Power Transmission and Fluid Power.
Segment asset information is not provided to the chief operating decision maker and therefore segment asset information has not been presented. Due to the nature of Gates’ operations, cash generation and profitability are viewed as the key measures rather than an asset-based measure.
C. Segment net sales and disaggregated net sales
Sales between reporting segments and the impact of such sales on Adjusted EBITDA for each segment are not included in internal reports presented to the CEO and have therefore not been included below.
Three months ended
(dollars in millions)
March 30, 2024April 1, 2023
Power Transmission$532.8 $548.1 
Fluid Power329.8 349.6 
Continuing operations$862.6 $897.7 
Our commercial function is organized by region and therefore, in addition to reviewing net sales by our reporting segments, the CEO also reviews net sales information disaggregated by region, including between emerging and developed markets.
The following table summarizes our net sales by key geographic region of origin:
Three months ended March 30, 2024Three months ended April 1, 2023
(dollars in millions)
Power Transmission
Fluid Power
Power Transmission
Fluid Power
U.S.$141.0 $172.0 $144.8 $181.8 
North America, excluding U.S.
63.1 50.5 54.8 51.8 
United Kingdom (“U.K.”)10.6 15.8 10.5 20.4 
EMEA(1), excluding U.K.
153.0 52.0 167.7 53.9 
East Asia and India68.6 19.9 74.0 19.8 
Greater China68.7 10.4 70.0 11.3 
South America27.8 9.2 26.3 10.6 
Net sales$532.8 $329.8 $548.1 $349.6 
(1)    Europe, Middle East and Africa (“EMEA”).
The following table summarizes our net sales into emerging and developed markets:
Three months ended
(dollars in millions)
March 30, 2024April 1, 2023
Developed$557.0 $581.2 
Emerging305.6 316.5 
Net sales$862.6 $897.7 
D. Measure of segment profit or loss
The CEO uses Adjusted EBITDA, as defined below, to measure the profitability of each segment. Adjusted EBITDA is, therefore, the measure of segment profit or loss presented in Gates’ segment disclosures.
“EBITDA” represents net income from continuing operations for the period before net interest and other (income) expense, income taxes, depreciation and amortization.
Adjusted EBITDA 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. During the periods presented, the items excluded from EBITDA in computing Adjusted EBITDA primarily included:
•non-cash charges in relation to share-based compensation;
•transaction-related expenses incurred in relation to major corporate transactions, including the acquisition of businesses and related integration activities, and equity and debt transactions;
•restructuring expenses, including severance-related expenses;
•credit loss related to a customer bankruptcy;
•cybersecurity incident expenses; and
•inventory adjustments related to certain inventories accounted for on a Last-in First-out (“LIFO”) basis.
Adjusted EBITDA by segment was as follows:
Three months ended
(dollars in millions)
March 30, 2024April 1, 2023
Power Transmission$119.0 $107.7 
Fluid Power 76.6 66.8 
Continuing operations$195.6 $174.5 
Reconciliation of net income from continuing operations to Adjusted EBITDA:
Three months ended
(dollars in millions)
March 30, 2024April 1, 2023
Net income from continuing operations$46.2 $30.9 
Income tax expense34.5 15.3 
Income from continuing operations before taxes80.7 46.2 
Interest expense37.5 40.8 
Other (income) expenses(1.5)0.3 
Operating income from continuing operations116.7 87.3 
Depreciation and amortization54.6 54.5 
Transaction-related expenses (1)
0.4 0.2 
Restructuring expenses1.2 5.5 
Share-based compensation expense8.6 9.5 
Inventory impairments and adjustments (included in cost of sales) (2)
13.9 0.6 
Severance expenses (included in cost of sales)— 0.5 
Severance expenses (included in SG&A)0.1 0.6 
Credit loss related to customer bankruptcy (included in SG&A) (3)
0.1 10.7 
Cybersecurity incident expenses (4)
— 5.1 
Adjusted EBITDA$195.6 $174.5 
(1)    Transaction-related expenses relate primarily to advisory fees and other costs recognized in respect of major corporate transactions, including the acquisition of businesses, and equity and debt transactions.
(2)    Inventory impairments and adjustments include the reversal of the adjustment to remeasure certain inventories on a LIFO basis.
(3)    On January 31, 2023, one of our customers filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. In connection with the bankruptcy proceedings, we preliminarily evaluated our potential risk and exposure relating to our outstanding pre-petition accounts receivable balance from the customer and recorded an initial pre-tax charge to reflect our estimated recovery. Based on further developments in the bankruptcy proceedings, we recorded an additional $0.1 million pre-tax charge during the three months ended March 30, 2024. We will continue to monitor the circumstances surrounding the bankruptcy in determining whether adjustments to this recovery estimate are necessary.
(4)    On February 11, 2023, Gates determined that it was the target of a malware attack. Cybersecurity incident expenses include legal, consulting, and other costs incurred as a direct result of this incident, some of which may be partially offset by insurance recoveries.