SECURITIES AND EXCHANGE COMMISSION


England and Wales						98-1395184
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)



~~1144 Fifteenth Street, Denver, Colorado~~				~~80202~~
(Address of principal executive offices)				(Zip Code)

(Former name, former address and former fiscal year, if changed since last report)

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~November 4, 2019,~~July 31, 2020, there were ~~290,118,125~~290,756,522 ordinary shares of $0.01 par value outstanding.

Forward-looking Statements

This Quarterly Report on Form 10-Q (this “quarterly report” or “report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that reflect our current views with respect to, among other things, our operations and financial performance. Forward-looking statements include all statements that are not historical facts. In some cases, you can identify these forward-looking statements by the use of words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “predicts,” “intends,” “trends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those expressed in or implied by our forward-looking statements, including but not limited to the factors described in Item 1A. “Risk Factors” in Part II of the ~~section entitled “Item~~Company’s Quarterly Report on Form 10-Q for the period ended March 28, 2020, and in Item 1A. ~~Risk~~“Risk Factors” in Part I of the Company’s Annual Report on Form 10-K for the fiscal year ended December ~~29, 2018~~28, 2019 (the “annual report”), in both cases as filed with the Securities and Exchange Commission (the “SEC”), which include the following: the duration and severity of and governmental, market and individual responses to the novel coronavirus (“COVID-19”) pandemic; conditions in the global and regional economy and the major end markets we serve; economic, political and other risks associated with international operations, including exchange rate fluctuations; availability of raw materials at favorable prices and in sufficient quantities; changes in our relationships with, or the financial condition, performance, purchasing power or inventory levels of, key channel partners; competition in all areas of our business; pricing pressures from our customers; continued operation of our manufacturing facilities; our ability to forecast demand or meet significant increases in demand; market acceptance of new product introductions and product innovations; our cost-reduction actions; litigation, legal or regulatory proceedings brought against us; enforcement of our intellectual property rights; recalls, product liability claims or product warranties claims; anti-corruption laws and other laws governing our international operations; existing or new laws and regulations that may prohibit, restrict or burden the sale of aftermarket products; our decentralized information technology systems and any interruptions to our computer and IT systems; environmental, health and safety laws and regulations; insurance coverage of future losses we may incur; lives of products used in our end markets as well as the development of replacement markets; our ability to successfully integrate acquired businesses or assets; our reliance on senior management or key personnel; our ability to maintain and enhance our brand; work stoppages and other labor matters; our investments in joint ventures; liabilities with respect to businesses that we have divested in the past; terrorist acts, conflicts and wars; losses to our facilities, supply chains, distribution systems or information technology systems due to catastrophe or other events; additional cash contributions we may be required to make to our defined benefit pension plans; the loss or financial instability of any significant customer or customers; changes in legislative, regulatory and legal developments involving taxes and other matters; our substantial leverage; and the significant influence of our majority ~~shareholder,~~shareholders, affiliates of The Blackstone Group Inc., over us, as such factors may be updated from time to time in the Company’s periodic filings with the SEC. Investors are urged to consider carefully the disclosure in this report and our other filings with the SEC, which are accessible on the SEC’s website at www.sec.gov. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this report and in our other periodic filings. Gates undertakes no obligation to update or supplement any forward-looking statements as a result of new information, future events or otherwise, except as required by law.

ABOUT THIS QUARTERLY REPORT

Financial Statement Presentation

Gates Industrial Corporation plc is a public limited company that was organized under the laws of England and Wales on September 25, 2017.

Certain monetary amounts, percentages and other figures included elsewhere in this quarterly report have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables or charts may not be the arithmetic aggregation of the figures that precede them, and figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated may not be the arithmetic aggregation of the percentages that precede them.

All amounts in this quarterly report are expressed in United States of America (the “United States” or “U.S.”) dollars, unless indicated otherwise.

As used in this quarterly report, unless otherwise noted or the context requires otherwise:

•“Gates,” the “Company,” “we,” “us” and “our” refer, unless the context requires otherwise, to Gates Industrial Corporation plc and its consolidated subsidiaries; and

•“Blackstone” or “our Sponsor” refer to investment funds affiliated with The Blackstone Group Inc., which, although no individual fund owns a controlling interest in us, together represent our current majority owners.

PART I — FINANCIAL INFORMATION

Item 1: Financial Statements (unaudited)

Gates Industrial Corporation plc

Unaudited Condensed Consolidated Statements of Operations

The accompanying notes form an integral part of these condensed consolidated financial statements.

Gates Industrial Corporation plc

Unaudited Condensed Consolidated Statements of Comprehensive Income

Three months ended Nine months ended
(dollars in millions) September 28, 2019 September 29, 2018 September 28, 2019 September 29, 2018
Net income $ 37.4
$ 66.7
$ 668.7
$ 188.6
Other comprehensive (loss) income
Foreign currency translation:
—Net translation loss on foreign operations, net of tax expense, respectively, of $0.3, $1.3, $0.6 and $0.5 (94.7 ) (2.2 ) (49.6 ) (83.4 )
—Gain on net investment hedges, net of tax expense, respectively, of $0, $0.2, $0 and $0.2 13.3
3.8
14.1
4.7
Total foreign currency translation movements (81.4 ) 1.6
(35.5 )
(78.7 )
Cash flow hedges (Interest rate derivatives):
—(Loss) gain arising in the period, net of tax benefit, respectively, of $0.9, $0, $5.2 and $0 (4.0 ) 3.6
(27.6 ) 13.3
—Reclassification to net income, net of tax benefit, respectively, of $0, $3.3, $0 and $2.0 0.9
4.3
1.2
6.5
Total cash flow hedges movements (3.1 ) 7.9
(26.4 )
19.8
Available-for-sale investments:
—Net unrealized loss, net of tax expense, respectively, of $0, $0.1, $0 and $0.1 —
(0.5 ) —
(0.5 )
Total available-for-sale investments: —
(0.5 ) —
(0.5 )
Post-retirement benefits:
—Current year actuarial movements, net of tax benefit, respectively, of $0, $0, $0 and $0.1 —
—
—
(0.1 )
—Reclassification of prior year actuarial movements to net income, net of tax benefit, respectively, of $0, $0, $0.1 and $0 (0.1 ) (0.1 ) (0.2 ) (0.4 )
Total post-retirement benefit movements (0.1 ) (0.1 ) (0.2 )
(0.5 )
Other comprehensive (loss) income (84.6 ) 8.9
(62.1 ) (59.9 )
Comprehensive (loss) income for the period $ (47.2 ) $ 75.6
$ 606.6
$ 128.7

Comprehensive (loss) income attributable to shareholders:
—(Loss) income arising from continuing operations $ (37.4 ) $ 82.2
$ 617.0
$ 130.6
—Loss arising from discontinued operations (0.1 ) (0.3 ) (0.6 ) (0.7 )
(37.5 ) 81.9
616.4

129.9
Comprehensive loss attributable to non-controlling interests (9.7 ) (6.3 ) (9.8 ) (1.2 )
$ (47.2 ) $ 75.6
$ 606.6

$ 128.7


	Three months ended						Six months ended
(dollars in millions)	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
Net (loss) income	$	(28.0)	$	26.5	$	11.9	$	631.3
Other comprehensive income (loss)
Foreign currency translation:
––Net translation gain (loss) on foreign operations, net of tax expense, respectively, of $0, $0.1, $0 and $0.3	46.2		17.9		(160.8)		45.1
––(Loss) gain on net investment hedges, net of tax expense, respectively, of $0, $0, $0 and $0	(5.8)		(4.8)		(1.8)		0.8
Total foreign currency translation movements	40.4		13.1		(162.6)		45.9
Cash flow hedges (Interest rate derivatives):
––Loss arising in the period, net of tax benefit, respectively, of $1.2, $2.2, $3.7 and $4.3	(9.4)		(12.4)		(22.8)		(23.6)
––Reclassification to net income, net of tax expense, respectively, of $0, $0, $0 and $0	1.9		0.2		3.6		0.3
Total cash flow hedges movements	(7.5)		(12.2)		(19.2)		(23.3)
Post-retirement benefits:

––Reclassification of prior year actuarial movements to net income, net of tax expense, respectively, of $0, $0, $0 and $0.1	—		(0.1)		(0.1)		(0.1)
Total post-retirement benefits movements	—		(0.1)		(0.1)		(0.1)
Other comprehensive income (loss)	32.9		0.8		(181.9)		22.5
Comprehensive income (loss) for the period	$	4.9	$	27.3	$	(170.0)	$	653.8

Comprehensive income (loss) attributable to shareholders:
—Income (loss) arising from continuing operations	$	7.4	$	26.1	$	(164.4)	$	654.4
—Loss arising from discontinued operations	(0.2)		(0.2)		(0.2)		(0.5)
	7.2		25.9		(164.6)		653.9
Comprehensive (loss) income attributable to non-controlling interests	(2.3)		1.4		(5.4)		(0.1)
	$	4.9	$	27.3	$	(170.0)	$	653.8

The accompanying notes form an integral part of these condensed consolidated financial statements.

Gates Industrial Corporation plc

Unaudited Condensed Consolidated Balance Sheets

The accompanying notes form an integral part of these condensed consolidated financial statements.

Gates Industrial Corporation plc

Unaudited Condensed Consolidated Statements of Cash Flows

The accompanying notes form an integral part of these condensed consolidated financial statements.

Gates Industrial Corporation plc

Unaudited Condensed Consolidated Statements of Shareholders’ Equity


	Three months ended June 27, 2020

(dollars in millions)	Share capital		Additional paid-in capital		Accumulated other comprehensive loss		Retained earnings		Total shareholders’ equity		Non- controlling interests		Total equity
As of March 28, 2020	$	2.9	$	2,440.1	$	(1,065.8)	$	1,107.6	$	2,484.8	$	356.6	$	2,841.4

Net loss	—		—		—		(22.4)		(22.4)		(5.6)		(28.0)
Other comprehensive income	—		—		29.6		—		29.6		3.3		32.9
Total comprehensive income (loss)	—		—		29.6		(22.4)		7.2		(2.3)		4.9
Other changes in equity:
—Issuance of shares	—		0.6		—		—		0.6		—		0.6

—Share-based compensation	—		4.7		—		—		4.7		—		4.7


—Dividends paid to non-controlling interests	—		—		—		—		—		(9.9)		(9.9)

As of June 27, 2020	$	2.9	$	2,445.4	$	(1,036.2)	$	1,085.2	$	2,497.3	$	344.4	$	2,841.7

Three months ended September 28, 2019

(dollars in millions) Share
capital
Additional
paid-in capital
Accumulated
other
comprehensive
loss Retained
earnings Total
shareholders’
equity Non-
controlling
interests Total
equity
As of June 29, 2019 $ 2.9
$ 2,426.4
$ (835.6 ) $ 1,017.1
$ 2,610.8
$ 371.8
$ 2,982.6

Net income —
—
—
35.5
35.5
1.9
37.4
Other comprehensive loss —
—
(73.0 ) —
(73.0 ) (11.6 ) (84.6 )
Total comprehensive (loss) income —
—
(73.0 ) 35.5
(37.5 ) (9.7 ) (47.2 )
Other changes in equity:
—Issuance of shares —
0.1
—
—
0.1
—
0.1
—Share-based compensation —
4.0
—
—
4.0
—
4.0
—Dividends paid to non-controlling
interests —
—
—
—
—
(9.5 ) (9.5 )
As of September 28, 2019 $ 2.9
$ 2,430.5
$ (908.6 ) $ 1,052.6
$ 2,577.4
$ 352.6
$ 2,930.0


	Three months ended June 29, 2019

(dollars in millions)	Share capital		Additional paid-in capital		Accumulated other comprehensive loss		Retained earnings		Total shareholders’ equity		Non- controlling interests		Total equity
As of March 30, 2019	$	2.9	$	2,420.6	$	(840.0)	$	995.6	$	2,579.1	$	383.0	$	2,962.1

Net income	—		—		—		21.5		21.5		5.0		26.5
Other comprehensive income (loss)	—		—		4.4		—		4.4		(3.6)		0.8
Total comprehensive income	—		—		4.4		21.5		25.9		1.4		27.3
Other changes in equity:
—Issuance of shares	—		0.4		—		—		0.4		—		0.4

—Share-based compensation	—		4.2		—		—		4.2		—		4.2
—Change in ownership of a controlled subsidiary	—		1.2		—		—		1.2		(1.2)		—
—Shares issued by a subsidiary to a non-controlling interest	—		—		—		—		—		1.8		1.8
—Dividends paid to non-controlling interests	—		—		—		—		—		(13.2)		(13.2)

As of June 29, 2019	$	2.9	$	2,426.4	$	(835.6)	$	1,017.1	$	2,610.8	$	371.8	$	2,982.6

Three months ended September 29, 2018

(dollars in millions) Share
capital
Additional
paid-in capital
Accumulated
other
comprehensive
loss Retained
earnings Total
shareholders’
equity Non-
controlling
interests Total
equity
As of June 30, 2018 $ 2.9
$ 2,413.4
$ (809.2 ) $ 246.7
$ 1,853.8
$ 402.7
$ 2,256.5

Net income —
—
—
59.9
59.9
6.8
66.7
Other comprehensive income (loss) —
—
22.0
—
22.0
(13.1 ) 8.9
Total comprehensive income (loss) —
—
22.0
59.9
81.9
(6.3 ) 75.6
Other changes in equity:
—Issuance of shares —
0.4
—
—
0.4
—
0.4
—Share-based compensation —
1.7
—
—
1.7
—
1.7
—Dividends paid to non-controlling
interests —
—
—
—
—
(7.1 ) (7.1 )
As of September 29, 2018 $ 2.9
$ 2,415.5
$ (787.2 ) $ 306.6
$ 1,937.8
$ 389.3
$ 2,327.1

Table of Contents

Gates Industrial Corporation plc

Unaudited Condensed Consolidated Statements of Shareholders’ Equity (Continued)


	Six months ended June 27, 2020

(dollars in millions)	Share capital		Additional paid-in capital		Accumulated other comprehensive loss		Retained earnings		Total shareholders’ equity		Non- controlling interests		Total equity
As of December 28, 2019	$	2.9	$	2,434.5	$	(858.4)	$	1,072.0	$	2,651.0	$	359.7	$	3,010.7

Net income (loss)	—		—		—		13.2		13.2		(1.3)		11.9
Other comprehensive loss	—		—		(177.8)		—		(177.8)		(4.1)		(181.9)
Total comprehensive (loss) income	—		—		(177.8)		13.2		(164.6)		(5.4)		(170.0)
Other changes in equity:
—Issuance of shares	—		2.5		—		—		2.5		—		2.5

—Share-based compensation	—		8.4		—		—		8.4		—		8.4


—Dividends paid to non-controlling interests	—		—		—		—		—		(9.9)		(9.9)

As of June 27, 2020	$	2.9	$	2,445.4	$	(1,036.2)	$	1,085.2	$	2,497.3	$	344.4	$	2,841.7

Nine months ended September 28, 2019

(dollars in millions) Share
capital
Additional
paid-in capital
Accumulated
other
comprehensive
loss Retained
earnings Total
shareholders’
equity Non-
controlling
interests Total
equity
As of December 29, 2018 $ 2.9
$ 2,416.9
$ (854.3 ) $ 381.9
$ 1,947.4
$ 386.3
$ 2,333.7

Net income (loss) —
—
—
670.7
670.7
(2.0 ) 668.7
Other comprehensive loss —
—
(54.3 ) —
(54.3 ) (7.8 ) (62.1 )
Total comprehensive (loss) income —
—
(54.3 ) 670.7
616.4
(9.8 ) 606.6
Other changes in equity:
—Issuance of shares —
1.7
—
—
1.7
—
1.7
—Share-based compensation —
10.7
—
—
10.7
—
10.7
—Change in ownership of a controlled subsidiary —
1.2
—
—
1.2
(1.2 ) —
—Shares issued by a subsidiary to a non-controlling interest —
—
—
—
—
1.8
1.8
—Dividends paid to non-controlling
interests —
—
—
—
—
(24.5 ) (24.5 )
As of September 28, 2019 $ 2.9
$ 2,430.5
$ (908.6 ) $ 1,052.6
$ 2,577.4
$ 352.6
$ 2,930.0

Nine months ended September 29, 2018

(dollars in millions) Share
capital
Additional
paid-in capital
Accumulated
other
comprehensive
loss Retained
earnings Total
shareholders’
equity Non-
controlling
interests Total
equity
As of December 30, 2017 $ 2.5
$ 1,622.6
$ (747.4 ) $ 136.9
$ 1,014.6
$ 413.8
$ 1,428.4

Net income —
—
—
169.7
169.7
18.9
188.6
Other comprehensive loss —
—
(39.8 ) —
(39.8 ) (20.1 ) (59.9 )
Total comprehensive (loss) income —

—

(39.8 )
169.7

129.9

(1.2 ) 128.7
Other changes in equity:
—Issuance of shares 0.4
841.2
—
—
841.6
—
841.6
—Share-based compensation —
4.7
—
—
4.7
—
4.7
—Dividends paid to non-controlling
interests —
—
—
—
—
(23.3 ) (23.3 )
—Cost of shares issued —
(53.0 ) —
—
(53.0 ) —
(53.0 )
As of September 29, 2018 $ 2.9
$ 2,415.5
$ (787.2 ) $ 306.6
$ 1,937.8
$ 389.3
$ 2,327.1


	Six months ended June 29, 2019

(dollars in millions)	Share capital		Additional paid-in capital		Accumulated other comprehensive loss		Retained earnings		Total shareholders’ equity		Non- controlling interests		Total equity
As of December 29, 2018	$	2.9	$	2,416.9	$	(854.3)	$	381.9	$	1,947.4	$	386.3	$	2,333.7

Net income (loss)	—		—		—		635.2		635.2		(3.9)		631.3
Other comprehensive income	—		—		18.7		—		18.7		3.8		22.5
Total comprehensive income (loss)	—		—		18.7		635.2		653.9		(0.1)		653.8
Other changes in equity:
—Issuance of shares	—		1.6		—		—		1.6		—		1.6

—Share-based compensation	—		6.7		—		—		6.7		—		6.7
—Change in ownership of a controlled subsidiary	—		1.2		—		—		1.2		(1.2)		—
—Shares issued by a subsidiary to a non-controlling interest	—		—		—		—		—		1.8		1.8
—Dividends paid to non-controlling interests	—		—		—		—		—		(15.0)		(15.0)

As of June 29, 2019	$	2.9	$	2,426.4	$	(835.6)	$	1,017.1	$	2,610.8	$	371.8	$	2,982.6

The accompanying notes form an integral part of these condensed consolidated financial statements.

Table of Contents

Gates Industrial Corporation plc

Notes to the Unaudited Condensed Consolidated Financial Statements

1. Introduction

A. Background

Gates Industrial Corporation plc (the “Company”) is a public limited company that was organized under the laws of England and Wales on September 25, 2017. Prior to the completion of the initial public offering of the Company’s shares in January 2018, the Company undertook certain reorganization transactions such that Gates Industrial Corporation plc became the indirect owner of all of the equity interests in Omaha Topco Ltd. (“Omaha Topco”), and has become the holding company of the Gates business. The previous owners of Omaha Topco were various investment funds managed by affiliates of The Blackstone Group Inc. (“Blackstone” or our “Sponsor”), and Gates management equity holders. These equity owners of Omaha Topco received depositary receipts representing ordinary shares in the Company in consideration for their equity in Omaha Topco, at a ratio of 0.76293 of our ordinary shares for each outstanding ordinary share of Omaha Topco. All share and per share amounts in these condensed consolidated financial statements have been retrospectively adjusted to reflect the effect of this ratio. The reorganization was accounted for as a transaction between entities under common control and the net assets were recorded on the historical cost basis, in a manner similar to a pooling of interests, when Omaha Topco was contributed into the Company. Gates Industrial Corporation plc had no significant business transactions or activities prior to the date of the reorganization transactions, and as a result, the historical financial information for periods prior to those transactions reflects that of Omaha Topco.

In these condensed consolidated financial statements and related notes, all references to “Gates,” “we,” “us,” and “our” refer, unless the context requires otherwise, to Gates Industrial Corporation plc and its consolidated subsidiaries.

B. Accounting periods

The Company prepares its annual consolidated financial statements for the period ending on the Saturday nearest December 31. Accordingly, the condensed consolidated balance sheet is presented as of ~~September~~June 27, 2020 and December 28, 2019 ~~and December 29, 2018~~ and the related condensed consolidated statements of operations, comprehensive income, cash flows, and shareholders’ equity are presented, where relevant, for the 91 day period from March 29, 2020 to June ~~30, 2019 to September 28, 2019,~~27, 2020, with comparative information for the 91 day period from ~~July 1, 2018~~March 31, 2019 to ~~September~~June 29, ~~2018~~2019 and for the ~~273~~182 day period from December 29, 2019 to June 27, 2020, with comparative information for the 182 day period from December 30, 2018 to ~~September 28, 2019, with comparative information for the 273 day period from December 31, 2017 to September~~June 29, ~~2018.~~2019.

C. Basis of preparation

The condensed consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and are presented in U.S. dollars unless otherwise indicated. The condensed consolidated financial statements and related notes contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the Company’s financial position as of ~~September 28, 2019~~June 27, 2020 and the results of its operations and cash flows for the periods ended ~~September 28, 2019~~June 27, 2020 and ~~September~~June 29, ~~2018.~~2019. Interim period results are not necessarily indicative of the results to be expected for the full fiscal year.

The first quarter of 2020 marked the beginning of an unprecedented environment for the global economy, which has continued through the second quarter of 2020, as governments, companies and communities implemented strict measures to minimize the spread of the novel coronavirus (“COVID-19”). As a result of the unpredictable and evolving impact of the pandemic and measures being taken around the world to combat its spread, the timing and trajectory of the recovery remain unclear at this time, and the adverse impact of the pandemic on the Company’s operations may continue to be material but cannot be reasonably estimated at this time.

The preparation of consolidated financial statements under U.S. GAAP requires us to make assumptions and estimates concerning the future that affect the reported amounts of assets, liabilities, revenue and expenses. Estimates and assumptions are particularly important in accounting for items such as revenue, rebates, impairment of long-lived assets, intangible assets and goodwill, inventory valuation, financial instruments, expected credit losses, product warranties, income taxes and post-retirement benefits.

Due to the inherent uncertainty involved in making assumptions and estimates, events and changes in circumstances arising after June 27, 2020, including those resulting from the impacts of the COVID-19 pandemic, may result in actual outcomes that differ from those contemplated by our assumptions and estimates.

These condensed consolidated financial statements are unaudited and, except as noted below, have been prepared on substantially the same basis as Gates’ audited annual consolidated financial statements and related notes for the year ended December ~~29, 2018.~~28, 2019. The condensed consolidated balance sheet as of December ~~29, 2018~~28, 2019 has been derived from those audited financial statements.

These condensed consolidated financial statements should be read in conjunction with the audited annual consolidated financial statements and related notes for the year ended December ~~29, 2018~~28, 2019 included in the Company’s Annual Report on Form 10-K.

Table of Contents

The accounting policies used in preparing these condensed consolidated financial statements are the same as those applied in the prior year, except for the adoption on the first day of the ~~2019~~2020 fiscal year of the following new Accounting Standard Updates (each, an “ASU”):

~~ASU 2016-02 “Leases” (Topic 842)~~

~~ASU 2018-10 “Leases” (Topic 842): Codification Improvements to Topic 842, Leases~~

~~ASU 2018-11 “Leases” (Topic 842): Targeted Improvements~~

~~ASU 2019-01 “Leases” (Topic 842): Codification Improvements~~

In February 2016, the Financial Accounting Standards Board (“FASB”) issued an ASU which introduces a lessee model that will bring most leases of property, plant and equipment onto the balance sheet. It requires a lessee to recognize a lease obligation (present value of future lease payments) and also a “right-of-use asset” for all leases. The ASU introduces two models for the subsequent measurement of the lease asset and liability, depending on whether the lease qualifies as a “finance lease” or an “operating lease.” This distinction focuses on whether or not effective control of the asset is being transferred from the lessor to the lessee.

The ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. In July 2018, the FASB issued ASU 2018-11, which allows entities an additional, optional transition method of applying the new leases standard at the adoption date with comparative periods continuing to be presented in accordance with prior GAAP (Topic 840 “~~Leases”). We have adopted Topic 842 using this practical expedient, and, consequently, comparative information in these condensed consolidated financial statements has not been restated.~~

~~We applied the following additional practical expedients on transition to Topic 842:~~


~~(i)~~	~~we did not reassess whether or not any expired or existing contracts were or contained leases;~~


~~(ii)~~	we did not reassess the lease classification for any expired or existing leases (i.e., all existing leases that were classified as operating leases continued to be classified as such under Topic 842, and all existing leases that were classified as capital leases continued to be classified as finance leases); and


~~(iii)~~	~~we did not reassess any initial direct costs for leases existing on the date of adoption of Topic 842.~~

On transition, we recognized a right-of-use asset of $126.0 million and a lease liability of $132.9 million, with the difference relating primarily to reclassifying deferred rent liabilities that existed under Topic 840 into the new right-of-use asset. Note 11 sets out disclosures related to Topic 842.

~~The following ASUs that were also adopted on the first day of the 2019 fiscal year did not have a significant impact on our results, financial position or disclosures:~~

~~ASU 2018-07 “Compensation - Stock Compensation” (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting~~

~~ASU 2018-16 “Derivatives and Hedging” (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes~~

~~In addition, we adopted ASU 2018-02 “Income Statement - Reporting Comprehensive Income~~” (Topic 220): Reclassification of Certain Tax Effects from Accumulated OCI; however, we have not adopted the policy election outlined therein regarding the reclassification from accumulated other comprehensive income (“OCI”) to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017 (the “Tax Act”). The remaining stranded tax effects in OCI will be released upon recognition of the related deferred tax basis differences.

~~2. Recent accounting pronouncements not yet adopted~~

~~The following recent accounting pronouncements are relevant to Gates’ operations but have not yet been adopted.~~

•ASU 2016-13 “Financial Instruments” - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”

•ASU 2020-02 “Financial Instruments - Credit Losses (Topic 326) and Leases (Topic 842)”

In June 2016, the ~~FASB~~Financial Accounting Standards Board (“FASB”) issued an ASU which broadens the information that an entity must consider when developing its expected credit loss estimate for financial assets. The measurement of expected credit losses should be based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The financial asset must be measured at the net amount expected to be collected.

The ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. ~~The~~On transition, no cumulative-effect adjustment was recognized to retained earnings.

Our businesses develop their expected loss estimates based either on the aging profile of outstanding receivables or by applying an experience factor (either a percentage of sales or a percentage of open receivables). These methodologies are based primarily on historical trends and experience, but credit controllers also regularly assess individual customer accounts to identify any potential increases or decreases in the level of expected credit loss needed to be applied to each customer based on current circumstances and future expectations.

Before accepting a new customer, we assess their credit quality and establish a credit limit. Credit quality is assessed by using data maintained by reputable credit rating agencies, by checking of references included in credit applications and, where they are available, by reviewing the customer’s recent financial statements. Credit limits are subject to multiple levels of authorization and are reviewed on a regular basis.

Although Gates has a wide variety of customers from multinational original equipment manufacturers and distributors to small family-owned businesses, the majority of our sales are generated from large companies with low credit risk. Recent global developments related to the COVID-19 pandemic and its impact on our ~~consolidated financial statements~~customers’ ability to pay us continue to be closely monitored and taken into account in the determination of ~~adopting~~our expected credit loss estimates.

•ASU 2020-04 “Reference Rate Reform” (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting

In March 2020, the FASB issued an ASU to provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.

The guidance in this ASU is optional and may be elected over time as reference rate reform activities occur. During the second quarter of 2020, the Company elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which ~~may affect~~future hedged transactions will be based matches the ~~recognition, measurement and~~index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. We will continue to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.

The following ASUs that were also adopted on the first day of the 2020 fiscal year did not have a significant impact on our results, financial ~~assets, is still being evaluated.~~position or disclosures:

• ASU 2018-13 “Fair Value Measurement” (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement

• ASU 2018-15 “Intangibles - Goodwill and Other - Internal-Use Software” (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract

~~In August 2018, the FASB issued an ASU to modify the disclosure requirements on fair value measurements in Topic 820 “Fair Value Measurement” including the consideration~~

Table of ~~costs and benefits. The amendments remove certain disclosures, clarify other disclosure requirements, and add new disclosure requirements that have been identified as relevant.~~Contents

2. Recent accounting pronouncements not yet adopted

The ~~amendments~~following recent accounting pronouncements are ~~effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Most of the amendments should be applied retrospectively~~relevant to ~~all periods presented,~~Gates’ operations but a few amendments should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. Early adoption is permitted and an entity is permitted to early adopt any removed or modified disclosures upon issuance of the ASU and delay adoption of the additional disclosures until their effective date. The impact on our consolidated financial statements of adopting this ASU, which will affect our fair value disclosures, is still being evaluated.have not yet been adopted.

•ASU 2018-14 “Compensation - Retirement Benefits - Defined Benefit Plans - General” (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans

In August 2018, the FASB issued an ASU to modify the disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans. The amendments remove certain disclosures, clarify other disclosure requirements, and add new disclosure requirements that have been identified as relevant.

The amendments are effective for fiscal years ending after December 15, 2020, and should be applied on a retrospective basis to all periods presented. The impact on our consolidated financial statements of adopting this ASU, which will affect our disclosures, is still being evaluated.

•ASU ~~2018-15~~2019-12 “~~Intangibles - Goodwill and Other - Internal-Use Software” (Subtopic 350-40): Customer’s~~Simplifying the Accounting for ~~Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract~~

Income Taxes” (Topic 740): Income Taxes

In ~~August 2018,~~December 2019, the FASB issued an ASU to ~~help entities evaluate~~simplify and reduce the ~~accounting~~complexity of general principles in Topic 740: Income Taxes. Such simplifications include the elimination of certain exceptions to: 1) the incremental approach for ~~fees paid by~~intraperiod tax allocation, 2) the requirement to recognize a ~~customer~~deferred income tax liability for equity method investments when a foreign subsidiary becomes an equity method investment, 3) the ability not to recognize a deferred income tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary, and 4) the general methodology for calculating income taxes in an interim period when a ~~cloud computing arrangement (hosting arrangement). The guidance permits capitalization of costs associated with~~year-to-date loss exceeds the ~~implementation of cloud-based software arrangements and aligns~~anticipated loss for the criteria for capitalization with those for purchased or internally-generated computer software intangible assets. Implementation costs meeting the criteria for capitalization would not be classified as intangible assets but would instead be classified as prepaid expenses that are then amortized over the period of the arrangement as an additional expense consistent with the ongoing costs under the cloud computing arrangement.year.

The amendments are effective for fiscal years beginning after December 15, ~~2019,~~2020, and interim periods within those fiscal years. Early adoption is ~~permitted and entities may choose~~permitted. The ASU provides for a number of different approaches to ~~apply~~applying the ~~requirements either retrospectively or prospectively~~changes, depending on the amendment, from full retrospective to ~~all implementation costs incurred after the date of adoption.~~modified retrospective to fully prospective. The impact on our consolidated financial statements of adopting this ASU ~~which may affect the recognition, measurement and presentation of cloud computing software arrangements,~~ is still being evaluated.

3. ~~Acquisitions~~

~~Description and financial effect of acquisitions~~

On April 26, 2018, Gates completed the acquisition of Rapro for $50.9 million, net of cash acquired. Rapro is a Turkey-based business that engineers, manufactures and sells molded and branched hoses and other products, the majority of which are sold into replacement markets. Rapro operates out of two facilities in Izmir, Turkey, with its products serving heavy-duty, commercial and light-vehicle applications.

Goodwill of $34.4 million arose from this acquisition and related primarily to the expected benefit from the acceleration of our growth strategy within the Fluid Power product line and expansion of our product range and geographic coverage.

~~Pro forma information has not been presented for this acquisition because it is not material.~~

4. Segment information

A. Background

~~Topic 280 “Segment Reporting~~” requires segment information provided in the consolidated financial statements to reflect the information that was provided to 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.

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 on net sales and Adjusted EBITDA (defined below).

~~Certain amounts relating to prior periods have been reclassified in this footnote to conform to the current year presentation.~~

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 base measure.

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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.


	Net sales
	Three months ended						Six months ended
(dollars in millions)	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
Power Transmission	$	370.0	$	501.5	$	811.2	$	1,001.0
Fluid Power	206.5		308.4		475.4		613.8
Continuing operations	$	576.5	$	809.9	$	1,286.6	$	1,614.8

Net Sales
Three months ended Nine months ended
(dollars in millions) September 28, 2019 September 29, 2018 September 28, 2019 September 29, 2018
Power Transmission $ 474.4
$ 512.5
$ 1,475.4
$ 1,608.1
Fluid Power 272.2
315.9
886.0
947.4
Continuing operations $ 746.6
$ 828.4
$ 2,361.4
$ 2,555.5
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:


	Net sales
	Three months ended June 27, 2020						Three months ended June 29, 2019
(dollars in millions)	Power Transmission		Fluid Power		Power Transmission		Fluid Power
U.S.	$	121.5	$	112.5	$	153.5	$	161.8
North America, excluding U.S.	23.8		27.2		42.5		47.1
United Kingdom (“U.K.”)	6.0		3.4		11.8		9.6
EMEA⁽¹⁾, excluding U.K.	92.6		31.7		131.3		45.8
East Asia and India	48.1		9.7		73.6		18.6
Greater China	69.3		17.5		71.6		17.2
South America	8.7		4.5		17.2		8.3
Net sales	$	370.0	$	206.5	$	501.5	$	308.4

Net Sales
Three months ended Nine months ended
(dollars in millions) September 28, 2019 September 29, 2018 September 28, 2019 September 29, 2018
U.S. $ 284.3
$ 326.0
$ 909.6
$ 973.5
North America, excluding the U.S. 85.1
85.5
263.3
260.4
United Kingdom (“U.K.”) 18.7
23.3
62.6
73.8
Europe, Middle East and Africa (“EMEA”), excluding the U.K. 164.1
183.8
521.7
591.5
East Asia and India 87.9
95.9
274.2
296.9
Greater China 80.6
90.2
253.4
281.7
South America 25.9
23.7
76.6
77.7
Net Sales $ 746.6
$ 828.4
$ 2,361.4
$ 2,555.5


	Net sales
	Six months ended June 27, 2020						Six months ended June 29, 2019
(dollars in millions)	Power Transmission		Fluid Power		Power Transmission		Fluid Power
U.S.	$	259.2	$	252.2	$	306.4	$	318.9
North America, excluding U.S.	64.1		68.9		84.5		93.7
United Kingdom (“U.K.”)	17.4		10.3		23.5		20.4
EMEA⁽¹⁾, excluding U.K.	221.8		75.7		264.6		93.0
East Asia and India	113.3		27.1		147.2		39.1
Greater China	113.6		30.5		140.5		32.3
South America	21.8		10.7		34.3		16.4
Net sales	$	811.2	$	475.4	$	1,001.0	$	613.8

⁽¹⁾Europe, Middle East and Africa (“EMEA”).

The following table summarizes our net sales into emerging and developed markets:


	Net Sales									Net sales
	Three months ended				Nine months ended					Three months ended						Six months ended
(dollars in millions)	September 28, 2019		September 29, 2018		September 28, 2019		September 29, 2018		(dollars in millions)	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
Developed	$	486.6	$	558.4	$	1,564.4	$	1,671.1	Developed	$	372.6	$	534.1	$	848.4	$	1,077.8
Emerging	260.0		270.0		797.0		884.4		Emerging	203.9		275.8		438.2		537.0
Net Sales	$	746.6	$	828.4	$	2,361.4	$	2,555.5
Net sales									Net sales	$	576.5	$	809.9	$	1,286.6	$	1,614.8

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.

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“EBITDA” represents net income for the period before net interest and other ~~(income) expenses,~~income, income taxes, depreciation and amortization derived from financial information prepared in accordance with U.S. GAAP.

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:

•the non-cash charges in relation to share-based compensation;

•transaction-related expenses incurred in relation to business combinations and major corporate transactions, including acquisition integration activities;

•impairments, comprising impairments of goodwill and significant impairments or write downs of other assets;

•restructuring expenses, including severance-related expenses;

•the net gain or loss on disposals and on the exit of businesses; and

•fees paid to our private equity sponsor for monitoring, advisory and consulting services.

Adjusted EBITDA by segment was as follows:


	Adjusted EBITDA									Adjusted EBITDA
	Three months ended				Nine months ended					Three months ended						Six months ended
(dollars in millions)	September 28, 2019		September 29, 2018		September 28, 2019		September 29, 2018		(dollars in millions)	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
Power Transmission	$	99.7	$	119.0	$	315.2	$	377.6	Power Transmission	$	57.7	$	105.6	$	137.2	$	215.5
Fluid Power	45.3		62.2		160.7		192.4		Fluid Power	25.5		59.8		66.8		115.4
Continuing operations	$	145.0	$	181.2	$	475.9	$	570.0	Continuing operations	$	83.2	$	165.4	$	204.0	$	330.9

Reconciliation of net (loss) income from continuing operations to Adjusted EBITDA:


	Three months ended						Six months ended
(dollars in millions)	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
Net (loss) income from continuing operations	$	(27.8)	$	26.7	$	12.1	$	631.8
Income tax expense (benefit)	0.6		37.5		(15.5)		(502.2)
(Loss) income from continuing operations before taxes	(27.2)		64.2		(3.4)		129.6
Interest expense	34.3		39.2		71.0		77.3
Other income	(3.7)		(1.5)		(5.8)		(4.8)
Operating income from continuing operations	3.4		101.9		61.8		202.1
Depreciation and amortization	54.7		56.2		109.6		112.3
Transaction-related income ⁽¹⁾	—		(0.7)		(0.2)		(0.3)
Asset impairments	3.7		—		3.7		—
Restructuring expenses	17.2		0.3		19.1		3.6

Share-based compensation expense	5.7		3.8		8.6		6.4
Sponsor fees (included in other operating expenses)	—		2.0		1.7		3.8

Inventory impairments (included in cost of sales)	1.4		0.3		1.4		0.3

Severance expenses (included in cost of sales)	0.5		0.5		0.6		0.5
Severance expenses (included in SG&A)	0.3		1.4		0.8		1.2
Other items not directly related to current operations	(3.7)		(0.3)		(3.1)		1.0
Adjusted EBITDA	$	83.2	$	165.4	$	204.0	$	330.9

⁽¹⁾Transaction-related income relates primarily to advisory fees and other costs recognized in respect of major corporate transactions, including the acquisition of businesses and debt refinancings.

Three months ended Nine months ended
(dollars in millions) September 28, 2019 September 29, 2018 September 28, 2019 September 29, 2018
Net income from continuing operations $ 37.5
$ 67.0
$ 669.3
$ 189.3
Income tax expense (benefit) 4.4
7.2
(497.8 ) 30.4
Income from continuing operations before taxes 41.9
74.2
171.5
219.7
Interest expense 37.2
40.2
114.5
139.8
Other (income) expenses (2.4 ) 3.4
(7.2 ) 17.5
Operating income from continuing operations 76.7
117.8
278.8
377.0
Depreciation and amortization 55.1
53.7
167.4
163.3
Transaction-related expenses ⁽¹⁾
1.0
0.2
0.7
6.2
Impairment of intangibles and other assets 0.7
0.2
0.7
0.6
Restructuring expenses 0.3
1.2
3.9
3.2
Share-based compensation expense 4.1
2.3
10.5

5.5
Sponsor fees (included in other operating expenses) 1.1
1.9
4.9
5.9
Impact of fair value adjustment on inventory (included in cost of sales) —
—
—

0.3
Inventory impairments and adjustments (included in cost of sales) 1.0
—
1.3
0.8
Duplicate expenses incurred on facility relocation —
1.5
—
4.6
Severance-related expenses (included in cost of sales) 2.5
—
3.0
—
Other primarily severance-related expenses (included in SG&A) 1.8
0.7
3.0
0.6
Other operating expenses 0.7
1.7
1.7
2.0
Adjusted EBITDA $ 145.0
$ 181.2
$ 475.9

$ 570.0


⁽¹⁾ Table of Contents	Transaction-related expenses relate primarily to advisory fees recognized in respect of our initial public offering, the acquisition of businesses and costs related to other corporate transactions such as debt refinancings.

5.4. 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. Our recently completed manufacturing footprint investments and other productivity improvements 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 condensed consolidated statements as set forth below. Expenses incurred in relation to certain of these actions qualify as restructuring expenses under U.S. GAAP.


	Three months ended					Nine months ended						Three months ended						Six months ended
(dollars in millions)	September 28, 2019			September 29, 2018		September 28, 2019			September 29, 2018		(dollars in millions)	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
Restructuring expenses:											Restructuring expenses:
—Severance	$	0.4		$	0.1	$	3.3		$	—
—Professional fees	0.1			0.8		1.4			3.0
—Other restructuring (benefits) expenses	(0.2		)	0.3		(0.8		)	0.2
—Severance expenses											—Severance expenses	$	13.6	$	0.3	$	13.8	$	2.9
—Consulting expenses											—Consulting expenses	0.7		0.7		0.9		1.3
—Other restructuring expenses											—Other restructuring expenses	2.9		(0.7)		4.4		(0.6)
												17.2		0.3		19.1		3.6
Restructuring expenses in asset impairments:											Restructuring expenses in asset impairments:
—Impairment of fixed assets											—Impairment of fixed assets	3.7		—		3.7		—
	0.3			1.2		3.9			3.2
Restructuring expenses in cost of sales:											Restructuring expenses in cost of sales:

—Impairment of inventory	1.0			—		1.3			—		—Impairment of inventory	1.4		0.3		1.4		0.3

Total restructuring expenses	$	1.3		$	1.2	$	5.2		$	3.2	Total restructuring expenses	$	22.3	$	0.6	$	24.2	$	3.9

Expenses related to other strategic initiatives:											Expenses related to other strategic initiatives:
—Severance costs included in cost of sales	$	2.5		$	—	$	3.0		$	—
—Severance costs included in SG&A	1.8			0.9		3.0			0.3
—Impairment of fixed assets	0.7			—		0.7			—
—Severance expenses included in cost of sales											—Severance expenses included in cost of sales	$	0.5	$	0.5	$	0.6	$	0.5
—Severance expenses included in SG&A											—Severance expenses included in SG&A	0.3		1.4		0.8		1.2
Total expenses related to other strategic initiatives	$	5.0		$	0.9	$	6.7		$	0.3	Total expenses related to other strategic initiatives	$	0.8	$	1.9	$	1.4	$	1.7

Restructuring and other strategic initiatives undertaken during the three and six months ended ~~September 28, 2019~~June 27, 2020 related primarily to the June 2020 announcement of plans to close a manufacturing facility in Korea, the closure of 2 North American manufacturing facilities and reductions in ~~force, particularly~~workforce, primarily in the U.S., Mexico and ~~Asia, and impacts from~~Greater China. The closure of the Korean facility, ~~closures and consolidations, primarily~~ the most significant restructuring activity during the period, resulted in an accrual for severance costs of $12.8 million, an impairment of inventory of $1.4 million (recognized in cost of sales) and an impairment of fixed ~~assets.~~assets of $3.6 million, included in the asset impairments line in the unaudited condensed consolidated statement of operations. Expenses incurred ~~during the prior year period~~ in connection with our restructuring and other strategic initiatives ~~related primarily to the reorganization of our European corporate center and a strategic restructuring of part of our Asian business.~~

~~Restructuring and other strategic initiatives undertaken~~ during the ~~nine~~three and six months ended ~~September 28,~~June 29, 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. An additional $1.4 million of professional fees were incurred during the current period, 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. ~~Expenses incurred during the prior year period in connection with our restructuring and other strategic initiatives also related primarily to the items described above.~~

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:


	Three months ended						Six months ended
(dollars in millions)	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
Power Transmission	$	19.8	$	0.3	$	20.0	$	3.2
Fluid Power	2.5		0.3		4.2		0.7
Continuing operations	$	22.3	$	0.6	$	24.2	$	3.9

Three months ended Nine months ended
(dollars in millions) September 28, 2019 September 29, 2018 September 28, 2019 September 29, 2018
Power Transmission $ 0.3
$ 0.9
$ 3.5
$ 2.1
Fluid Power 1.0
0.3
1.7
1.1
Continuing operations $ 1.3
$ 1.2
$ 5.2
$ 3.2

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The following summarizes the reserve for restructuring expenses for the ~~nine month periods~~six months ended ~~September 28,~~June 27, 2020 and June 29, 2019, ~~and September 29, 2018,~~ respectively:


	Nine months ended							Six months ended
(dollars in millions)	September 28, 2019			September 29, 2018			(dollars in millions)	June 27, 2020		June 29, 2019
Balance as of the beginning of the period	$	2.6		$	8.6		Balance as of the beginning of the period	$	2.9	$	2.6
Utilized during the period	(4.0		)	(8.3		)	Utilized during the period	(4.9)		(5.0)
Net charge for the period	3.9			3.5			Net charge for the period	19.6		3.6
Released during the period	—			(0.3		)	Released during the period	(0.5)		—
Foreign currency translation	(0.1		)	0.1			Foreign currency translation	0.1		—
Balance as of the end of the period	$	2.4		$	3.6		Balance as of the end of the period	$	17.2	$	1.2

Restructuring reserves, ~~the majority of~~ which are expected to be utilized ~~during the remainder of 2019~~in 2020 and ~~in 2020,~~2021, are included in the condensed consolidated balance sheet ~~as follows:~~within the accrued expenses and other current liabilities line.

(dollars in millions) As of
September 28,
2019 As of
September 29,
2018
Accrued expenses and other current liabilities $ 2.4
$ 3.4
Other non-current liabilities —
0.2
$ 2.4
$ 3.6

6.5. Income taxes

We compute the year-to-date income tax provision by applying our estimated annual effective tax rate to our year-to-date pre-tax income and adjust for discrete tax items in the period in which they occur.

For the three months ended ~~September 28, 2019,~~June 27, 2020, we had an income tax expense of ~~$4.4~~$0.6 million on pre-tax ~~income~~loss of ~~$41.9~~$27.2 million, which resulted in an effective tax rate of ~~10.5%~~(2.2)%, compared with an income tax expense of ~~$7.2~~$37.5 million on pre-tax income of ~~$74.2~~$64.2 million, which resulted in an effective tax rate of ~~9.7%~~58.4% for the three months ended ~~September~~June 29, ~~2018.~~ 2019.

For the ~~nine~~six months ended ~~September 28, 2019,~~June 27, 2020, we had an income tax benefit of ~~$497.8~~$15.5 million on pre-tax ~~income~~loss of ~~$171.5~~$3.4 million, which resulted in an effective tax rate of ~~(290.3%)~~455.9%, compared with an income tax ~~expense~~benefit of ~~$30.4~~$502.2 million on pre-tax income of ~~$219.7~~$129.6 million, which resulted in an effective tax rate of ~~13.8%~~(387.5)% for the ~~nine~~six months ended ~~September~~June 29, ~~2018.~~2019.

The ~~increase~~decrease in the effective tax rate for the three months ended September 28, 2019 compared with the prior year period was primarily the result of a $5.3 million increase in discrete tax expense related to changes in previously released valuation allowances during the year, offset by an $8.0 million reduction in tax on ordinary operations.

~~The decrease in the effective tax rate for the nine months ended September 28, 2019~~June 27, 2020 compared with the prior year period was due primarily to the recognition in the prior year of a discrete tax expense of $25.3 million related to revaluing our deferred tax assets to reflect the reduction in the Luxembourg corporate tax rate from 18% to 17%. In addition, during the three months ended June 27, 2020, we incurred $18.5 million of non-operating costs for which no tax benefit was recognized, whereas there were no similar costs incurred in the prior year period.

The increase in the effective tax rate for the six months ended June 27, 2020 compared with the prior year period was due primarily to the recognition in the prior year of a discrete benefit of ~~$605.1~~$610.6 million related to the release of valuation allowances, ~~which occurred during the first quarter, in certain jurisdictions where it was determined that the realization of deferred tax assets was more likely than not. This benefit was~~mainly related to Luxembourg net operating losses, partially offset ~~partially~~ by a discrete expense of ~~$25.1 million related to the reduction in the Luxembourg corporate tax rate, which occurred during the second quarter, as well as a discrete expense of $65.6~~$65.1 million related to unrecognized tax benefits resulting primarily from the European business reorganization, and by a discrete expense of $25.3 million related to the reduction in the Luxembourg corporate tax rate. The current year rate is driven mainly by discrete tax benefits of $24.7 million, related to the reversal of unrecognized tax benefits, net of settlement amounts, arising from the resolution of audits in Canada and Germany and $3.2 million from law changes in India with respect to the taxation of dividends. These current period benefits were offset partially by $6.3 million of discrete expenses arising from the enactment in the U.S. of the Coronavirus Aid, Relief and Economic Security Act (the ~~“Reorganization”~~“CARES Act”)~~, which occurred during the first quarter.~~. In addition, during the ~~prior year period, there was $21.1~~six months ended June 27, 2020, we incurred $18.5 million of non-operating costs for which no tax benefit was recognized, ~~and~~whereas there were no similar costs incurred in the ~~current period, which also contributed to the comparative reduction in the effective tax rate.~~prior year period.

Deferred Tax Assets and Liabilities

We recognize deferred tax assets and liabilities for future tax consequences arising from differences between the carrying amounts of existing assets and liabilities under U.S. GAAP and their respective tax bases, and for net operating loss carryforwards and tax credit carryforwards. We evaluate the recoverability of our deferred tax assets, weighing all positive and negative evidence, and are required to establish or maintain a valuation allowance for these assets if we determine that it is more likely than not that some or all of the deferred tax assets will not be realized. The weight given to the evidence is commensurate with the extent to which the evidence can be objectively verified. If negative evidence exists, positive evidence is necessary to support a conclusion that a valuation allowance is not needed.

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Our framework for assessing the recoverability of deferred tax assets requires us to weigh all available evidence, including:

•taxable income in prior carry back years if carry back is permitted under the relevant tax law;

•future reversal of existing temporary differences;

•tax-planning strategies that are prudent and feasible; and

•future taxable income exclusive of reversing temporary differences and carryforwards.

After weighing all of the evidence, giving more weight to the evidence that was objectively verifiable, we determined that, as of March 30, 2019, it was more likely than not that deferred tax assets in Luxembourg, the U.K., and the U.S. totaling $627.6 million were realizable. Accordingly, we discretely recognized $617.3 million of our deferred tax asset in the first quarter of 2019, while the remaining $10.3 million was to be recognized either during the year through the effective tax rate or in accumulated OCI as a cumulative translation adjustment.

For the period ended September 28, 2019 as a result of changes in the Luxembourg statutory tax rate, which occurred during the second quarter, further refinement of current year estimates and foreign currency movements, we reduced the recognition from $627.6 million to $570.1 million.

Included within the $570.1 million total deferred tax assets are deferred tax assets totaling $564.0 million related to €2.1 billion of indefinite lived net operating losses in Luxembourg for which our evaluation of the positive and negative evidence changed during the first quarter of 2019 due to the implementation of the Reorganization. The Reorganization was implemented in the first quarter of 2019 to centralize and strengthen regional operations in Europe, which thereafter became centrally managed from Luxembourg.

~~The positive evidence that existed in favor of releasing the allowance as of March 30, 2019 and ultimately outweighed the negative evidence included the following:~~

~~our profitability in Europe in 2018 and prior years and for the three months ended March 30, 2019, as well as our expectations regarding the sustainability of these profits;~~

the impact of the implementation in the quarter of the Reorganization, which created an expectation of future income in Luxembourg and, thereby, removed negative evidence that supported maintaining the valuation allowance against our deferred tax assets as of December 29, 2018; and

~~the fact that our net operating loss carryforwards in Luxembourg are indefinite lived.~~

For the period ended September 28, 2019, the recognition of deferred tax assets in Luxembourg was reduced from $615.6 million to $564.0 million primarily as a result of the reduction in the Luxembourg corporate tax rate from 18% to 17%, which occurred during the second quarter. This resulted in a $25.1 million reduction in the previously reported value of our deferred tax asset. The remaining $26.5 million reduction is the result of changes in foreign currency translation during the current period.

Further, as a result of additional financing income realized in the first quarter of 2019 that created taxable profits in the U.K., combined with our estimate that the financing income is likely to remain as a source of income through 2024, our judgment changed regarding valuation allowances totaling $6.2 million related to indefinite lived net operating losses in the U.K. For the period ended September 28, 2019, further refinement of estimated U.K. taxable profits resulted in a reduction of the valuation allowance release related to indefinite lived net operating losses from $6.2 million to $3.4 million.

Finally, as a result of changes in estimates of future taxable profits in the first quarter of 2019, our judgment changed regarding the realizability of $4.3 million of U.S. foreign tax credits with related recorded valuation allowances. For the period ended September 28, 2019, further refinement of estimated U.S. foreign tax credits expected to be utilized in the current year reduced the realizability of U.S. foreign tax credit carry forwards from $4.3 million to $2.7 million, as U.S. foreign tax credits generated in the current year must be utilized before U.S. foreign tax credit carry forwards.

As of each reporting date, management considers 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 impact materially our ~~consolidated~~ financial statements.

Significant Events

~~7. Earnings~~On March 27, 2020, the CARES Act was enacted and signed into law in the U.S. in response to the COVID-19 pandemic. One of the provisions of this law is an increase to the allowable business interest deduction from 30% of adjusted taxable income to 50% of adjusted taxable income for the 2019 and 2020 tax years. This modification significantly increases the current deductible interest expense of the Company for both years, which will result in a cash benefit while increasing our effective tax rate through requirements to allocate and apportion interest expense for certain other tax purposes, including in determining our global intangible low-taxed income inclusion, deduction for foreign derived intangible income, and the utilization of foreign tax credits.

6. (Loss) earnings per share

Basic (loss) earnings per share represents net income attributable to shareholders divided by the weighted average number of shares outstanding during the period. Diluted (loss) earnings per share considers the dilutive effect of potential shares, unless the inclusion of the potential shares would have an anti-dilutive effect. The treasury stock method is used to determine the potential dilutive shares resulting from assumed exercises of equity-related instruments.

The computation of (loss) earnings per share is presented below:


	Three months ended						Six months ended
(dollars in millions, except share numbers and per share amounts)	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
Net (loss) income attributable to shareholders	$	(22.4)	$	21.5	$	13.2	$	635.2

Weighted average number of shares outstanding	290,732,375		290,059,492		290,566,743		289,993,208
Dilutive effect of share-based awards	—		1,743,262		1,149,764		1,870,765
Diluted weighted average number of shares outstanding	290,732,375		291,802,754		291,716,507		291,863,973

Number of anti-dilutive shares excluded from the diluted (loss) earnings per share calculation	6,317,804		3,538,711		5,597,575		3,674,486

Basic (loss) earnings per share	$	(0.08)	$	0.07	$	0.05	$	2.19
Diluted (loss) earnings per share	$	(0.08)	$	0.07	$	0.05	$	2.18

Three months ended Nine months ended
(dollars in millions, except share numbers and per share amounts) September 28, 2019 September 29, 2018 September 28, 2019 September 29, 2018
Net income attributable to shareholders $ 35.5
$ 59.9
$ 670.7
$ 169.7

Weighted average number of shares outstanding 290,109,231
289,783,061
290,032,416
284,750,794
Dilutive effect of share-based awards 1,003,871
8,670,885
1,634,515
8,705,430
Diluted weighted average number of shares outstanding 291,113,102
298,453,946
291,666,931
293,456,224

Basic earnings per share $ 0.12
$ 0.21
$ 2.31
$ 0.60
Diluted earnings per share $ 0.12
$ 0.20
$ 2.30
$ 0.58

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For the three months ended September 28, 2019 and September 29, 2018, shares totaling 3,623,701 and 605,164, respectively, were excluded from the diluted earnings per share calculation because they were anti-dilutive. For the nine months ended September 28, 2019 and September 29, 2018, shares totaling 3,686,986 and 610,039 shares, respectively, were excluded from the diluted earnings per share calculation because they were anti-dilutive.7. Inventories


(dollars in millions)	As of June 27,2020		As of December 28, 2019
Raw materials and supplies	$	126.8	$	118.9
Work in progress	33.0		33.6
Finished goods	339.0		322.6
Total inventories	$	498.8	$	475.1

8. ~~Inventories~~Goodwill


(dollars in millions)	Power Transmission		Fluid Power		Total
Cost and carrying amount
As of December 28, 2019	$	1,377.5	$	683.0	$	2,060.5

Foreign currency translation	(36.1)		(41.8)		(77.9)
As of June 27, 2020	$	1,341.4	$	641.2	$	1,982.6

(dollars in millions) As of
September 28,
2019 As of
December 29,
2018
Raw materials and supplies $ 129.3
$ 152.1
Work in progress 36.6
38.4
Finished goods 341.9
347.1
Total inventories $ 507.8

$ 537.6

9. ~~Goodwill~~

(dollars in millions) Power
Transmission Fluid
Power Total
Cost and carrying amount
As of December 29, 2018 $ 1,374.1
$ 671.8
$ 2,045.9
Foreign currency translation (18.4 ) (3.4 ) (21.8 )
As of September 28, 2019 $ 1,355.7
$ 668.4
$ 2,024.1

~~10.~~ Intangible assets


	As of September 28, 2019							As of December 29, 2018								As of June 27, 2020										As of December 28, 2019
(dollars in millions)	Cost		Accumulated amortization and impairment			Net		Cost		Accumulated amortization and impairment			Net		(dollars in millions)	Cost		Accumulated amortization and impairment		Net		Cost		Accumulated amortization and impairment		Net
Finite-lived:															Finite-lived:
—Customer relationships	$	1,998.4	$	(618.8	)	$	1,379.6	$	2,017.4	$	(534.8	)	$	1,482.6	—Customer relationships	$	1,982.0	$	(702.5)	$	1,279.5	$	2,021.8	$	(656.3)	$	1,365.5
—Technology	90.5		(87.5		)	3.0		90.6		(87.0		)	3.6		—Technology	90.4		(87.9)		2.5		90.8		(87.8)		3.0
—Capitalized software	71.6		(35.4		)	36.2		64.2		(29.2		)	35.0		—Capitalized software	83.7		(43.9)		39.8		76.1		(38.0)		38.1
	2,160.5		(741.7		)	1,418.8		2,172.2		(651.0		)	1,521.2			2,156.1		(834.3)		1,321.8		2,188.7		(782.1)		1,406.6
Indefinite-lived:															Indefinite-lived:
—Brands and trade names	513.4		(44.0		)	469.4		513.4		(44.0		)	469.4		—Brands and trade names	513.4		(44.0)		469.4		513.4		(44.0)		469.4
Total intangible assets	$	2,673.9	$	(785.7	)	$	1,888.2	$	2,685.6	$	(695.0	)	$	1,990.6	Total intangible assets	$	2,669.5	$	(878.3)	$	1,791.2	$	2,702.1	$	(826.1)	$	1,876.0

During the three months ended ~~September 28, 2019,~~June 27, 2020, the amortization expense recognized in respect of intangible assets was ~~$32.4~~$31.7 million, compared with ~~$32.3~~$32.5 million expense for the three months ended June 29, 2019. In addition, movements in foreign currency exchange rates resulted in an increase in the net carrying value of total intangible assets of $11.2 million for the three months ended ~~September~~June 27, 2020, compared with an increase of $4.7 million for the three months ended June 29, ~~2018.~~2019.

During the six months ended June 27, 2020, the amortization expense recognized in respect of intangible assets was $63.9 million, compared with $65.1 million for the six months ended June 29, 2019. In addition, movements in foreign currency exchange rates resulted in a decrease in the net carrying value of total intangible assets of ~~$21.0~~$27.2 million for the ~~three~~six months ended ~~September 28, 2019,~~June 27, 2020, compared with ~~a decrease~~an increase of ~~$0.2~~$8.0 million for the ~~three~~six months ended ~~September~~June 29, ~~2018.~~2019.

During the nine months ended September 28, 2019, the amortization expense recognized in respect of intangible assets was $97.5 million, compared with $98.0 million for the nine months ended September 29, 2018. In addition, movements in foreign currency exchange rates resulted in a decrease in the net carrying value of total intangible assets of $13.0 million for the nine months ended September 28, 2019, compared with a decrease of $18.9 million for the nine months ended September 29, 2018.

~~As discussed in note 1, at the beginning of our 2019 fiscal year, we adopted new lease accounting guidance under Topic 842 “Leases~~”, which brings most leases of property, plant and equipment onto the balance sheet. It requires a lessee to recognize a lease obligation (present value of future lease payments) and also a “right-of-use asset” for all leases, although certain short-term leases are exempted from the standard.

Under Topic 842, we evaluate our contracts and supply arrangements and conclude that they contain a lease at inception where (i) a tangible asset is explicitly or implicitly identified in the contract, (ii) we use the same asset identified over the course of the agreement, (iii) we obtain substantially all of the economic benefits from the use of the underlying asset, and (iv) we direct how and for what purpose the asset is used during the term of the contract. Leases are typically recognized on the balance sheet at their commencement date. However, if we take legal possession and have control over the asset before the commencement date, we would recognize the lease on the balance sheet at the earlier date.

Gates has over 1,000 leases covering a wide variety of tangible assets that are used in our operations across the world. The value of our global leases is concentrated in approximately 80 real estate leases, which accounted for approximately 88% of the lease liability under non-cancellable leases as of September 28, 2019. The remaining leases are predominantly comprised of equipment and vehicle leases.

~~Options to extend or terminate leases~~

In determining the lease term, we consider various economic factors, including real estate strategies, the nature, length and underlying terms of the agreement, as well as the uncertainty of the condition of leased equipment at the end of the lease term. Based on these factors, where a contract has a renewal option, we generally assume with reasonable certainty that we will renew real estate leases and will not renew equipment, vehicles or any other leases.

~~Variable payments~~

We sometimes make payments under our lease agreements that are excluded from the measurement of our right-of-use assets and lease liabilities and are recognized instead as variable payments in the period in which the obligation for those payments is incurred. These costs include common area maintenance, insurance, taxes, utility costs, etc. A number of our leases, particularly real estate leases, include base rent escalation clauses. The majority of these are based on the change in a local consumer price or similar index. Payments that vary based on an index or rate are included in the measurement of our right-of-use assets and lease liabilities at the rate as of the commencement date with any subsequent changes to those payments being recognized as variable payments in the period in which they occur.

~~Residual value guarantees, restrictions or covenants, and leases that have not yet commenced~~

Gates does not have any significant leases containing residual value guarantees, restrictions or covenants. Additionally, as of September 28, 2019, there were no significant new leases that have not yet commenced.

~~B. Significant assumptions and judgments~~

The discount rate used to calculate the present value of the future minimum lease payments is the rate implicit in the lease, when readily available. As most of our leases do not have a readily determinable implicit rate, we discount the future minimum lease payments using an incremental borrowing rate which represents the rate of interest that we would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. We determine this rate at a country or lower level and take into account factors including currency, country risk premium, industry risk and adjustments for collateralized debt. Appropriate yield curves are used to derive different debt tenors to approximate the applicable lease term.

The discount rate is reassessed when there is a remeasurement of the lease liability, which happens predominantly when there is a contract modification and that modification does not result in a separate contract.

~~Elections and practical expedients~~

~~The following practical expedients have been adopted as part of our accounting policy on leases:~~

~~C. Quantitative disclosures~~

(dollars in millions)
Three months ended September 28, 2019 Nine months ended September 28, 2019
Lease expenses
Operating lease expenses $ 7.6
$ 22.6
Finance lease amortization expenses 0.1
0.2
Short-term lease expenses 1.3
3.2
Variable lease expenses 2.2
4.9
Sublease income —
(0.1 )
Total lease expenses $ 11.2
$ 30.8

Other information
Right-of-use assets obtained in exchange for new operating lease liabilities $ 4.6
$ 6.6

Cash paid for amounts included in the measurement of lease liabilities:
—Operating cash flows from operating leases $ 20.1
—Financing cash flows from finance leases 0.3
$ 20.4
Weighted-average remaining lease term — finance leases 9.0 years
Weighted-average remaining lease term — operating leases 10.3 years
Weighted-average discount rate — finance leases 2.6 %
Weighted-average discount rate — operating leases 5.7 %

~~Maturity analysis of liabilities~~

(dollars in millions)
Operating leases
Finance leases ⁽¹⁾
Next 12 months $ 25.3
$ 0.5
Year 2 21.1
0.5
Year 3 17.3
0.5
Year 4 14.4
0.3
Year 5 12.6
—
Year 6 and beyond 83.7
—
Total lease payments 174.4
1.8
Interest 46.7
0.1
Total present value of lease liabilities $ 127.7
$ 1.7

~~Balance sheet presentation of leases as of September 28, 2019~~

(dollars in millions)
Operating leases Finance leases
Right-of-use assets $ 117.3
$ 3.0

Short-term lease liabilities (included in “Accrued expenses and other current liabilities”) $ 19.2
$ 0.9
Long-term lease liabilities 108.5
0.8
Total lease liabilities $ 127.7
$ 1.7

~~Right-of-use assets arising under finance leases are presented in the property, plant and equipment, net line item in the condensed consolidated balance sheet.~~

~~Topic 840 Disclosures~~

~~Future minimum lease payments under operating and finance leases that had initial or remaining non-cancelable lease terms in excess of one year as of December 29, 2018 were as follows:~~

(dollars in millions)
Operating leases Finance leases Total
Fiscal year
2019 $ 25.0
$ 0.3
$ 25.3
2020 21.3
0.3
21.6
2021 18.2
0.3
18.5
2022 14.4
0.3
14.7
2023 12.6
0.4
13.0
2024 and beyond 86.5
0.4
86.9
Total $ 178.0
$ 2.0
$ 180.0

~~12.~~10. Derivative financial instruments

We are exposed to certain risks relating to our ongoing business operations. From time to time, we use derivative financial instruments, principally foreign currency swaps, forward foreign currency contracts, interest rate caps (options) and interest rate swaps, to reduce our exposure to foreign currency risk and interest rate risk. We do not hold or issue derivatives for speculative purposes and monitor closely the credit quality of the institutions with which we transact.

We recognize derivative instruments as either assets or liabilities in the condensed consolidated balance sheet. We designate certain of our currency swaps as net investment hedges and designate our interest rate caps and interest rate swaps as cash flow hedges. The gain or loss on the designated derivative instrument is recognized in ~~OCI~~other comprehensive income (“OCI”) and reclassified into net income in the same period or periods during which the hedged transaction affects earnings.

Derivative instruments that have not been designated in an effective hedging relationship are considered economic hedges, and their change in fair value is recognized in net income in each period.

The period end fair values of derivative financial instruments were as follows:

non-
current
liabilities

A. Instruments designated as net investment hedges

We hold cross currency swaps that have been designated as net investment hedges of certain of our European operations. As of ~~September~~June 27, 2020 and December 28, 2019, ~~and December 29, 2018,~~ the notional principal amount of these contracts was $270.0 million. During July 2019, we extended the maturity of these contracts from March 2020 to March 2022. In addition, we have designated ~~€75.5~~€147.0 million of our Euro-denominated debt as a net investment hedge of certain of our European operations.

The fair value (losses) gains ~~(losses)~~ before tax recognized in OCI in relation to the instruments designated as net investment hedging instruments were as follows:

During the three and ~~nine~~six months ended ~~September 28, 2019,~~June 27, 2020, a net gain of ~~$1.9~~$1.3 million and a net gain of ~~$6.1~~$2.9 million, respectively, was recognized in interest expense in relation to our cross currency swaps that have been designated as net investment hedges, compared with a net gain of ~~$0.7~~$2.0 million and a net gain of $4.2 million during the three and ~~nine~~six months ended ~~September~~June 29, ~~2018.~~2019.

B. Instruments designated as cash flow hedges

We use interest rate swaps and interest rate caps as part of our interest rate risk management strategy to add stability to interest expense and to manage our exposure to interest rate movements. These instruments are all designated as cash flow hedges. As of ~~September~~June 27, 2020 and December 28, 2019, ~~and December 29, 2018,~~ we held ~~three~~3 pay-fixed, receive-floating interest rate swaps with an aggregate notional amount of $870.0 ~~million,~~million. During June 2020, we extended these swaps, which ~~run~~originally ran from June 30, 2020 through June 30, ~~2023.~~2023, to now run from June 30, 2020 to June 30, 2025, locking in a lower blended fixed rate. The new, extended swaps have been designated as hedging instruments and the $53.7 million of losses accumulated in OCI in relation to the previously designated swaps will be reclassified into earnings over the term of the new swaps. Our interest rate caps involve the receipt of variable rate payments from a counterparty if interest rates rise above the strike rate on the contract in exchange for a premium. As of ~~September~~both June 27, 2020 and December 28, 2019, ~~and December 29, 2018,~~ the notional amount of the interest rate cap contracts outstanding was $1.7 ~~billion and $2.7 billion, respectively.~~billion.

The periods covered by our interest rate caps and their notional values are as follows:

(in millions) Notional value
June 30, 2017 to June 30, 2020 $ 200.0
June 28, 2019 to June 30, 2020 $ 1,000.0
July 1, 2019 to June 30, 2023 € 425.0


(in millions)	Notional value
June 30, 2017 to June 30, 2020	$	200.0
June 28, 2019 to June 30, 2020	$	1,000.0
July 1, 2019 to June 30, 2023	€	425.0

The movements before tax recognized in OCI in relation to our cash flow hedges were as follows:

During the three and ~~nine~~six months ended ~~September 28, 2019,~~June 27, 2020, a net expense of ~~$0.4~~$1.9 million and net expense of ~~$1.2~~$3.6 million, respectively, was reclassified to interest expense in relation to our cash flow hedges, compared with net expense of ~~$1.0~~$0.7 million and net expense of ~~$4.5~~$0.8 million, respectively, during the three and ~~nine~~six months ended ~~September~~June 29, ~~2018.~~

C. Derivative instruments not designated as hedging instruments

We do not designate our currency forward contracts, which are used primarily in respect of operational currency exposures related to payables, receivables and material procurement, or the currency swap contracts that are used to manage the currency profile of Gates’ cash as hedging instruments for the purposes of hedge accounting.

As of ~~September 28, 2019,~~June 27, 2020, the notional principal amount of outstanding currency swaps that are used to manage the currency profile of Gates’ cash was ~~$26.4~~$12.4 million, compared with $0$16.7 million as of December ~~29, 2018.~~28, 2019.

As of ~~September 28, 2019,~~June 27, 2020, the notional amount of outstanding currency forward contracts that are used to manage operational foreign exchange exposures was ~~$71.6~~$85.7 million, compared with ~~$108.0~~$82.5 million as of December ~~29, 2018.~~28, 2019.

The fair value (losses) gains recognized in net income in relation to derivative instruments that have not been designated as hedging instruments were as follows:


	Three months ended						Six months ended
(dollars in millions)	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
Fair value (losses) gains recognized in relation to:
—Currency forward contracts recognized in SG&A	$	(0.8)	$	(1.0)	$	(0.5)	$	1.7
—Currency swaps recognized in other income	0.4		(0.2)		0.9		—
Total	$	(0.4)	$	(1.2)	$	0.4	$	1.7

Three months ended Nine months ended
(dollars in millions) September 28, 2019 September 29, 2018 September 28, 2019 September 29, 2018
Fair value gains recognized in relation to:
—Currency forward contracts recognized in SG&A $ 0.3
$ 0.9
$ 2.0
$ 1.7
—Currency swaps recognized in other expenses 1.0
0.1
1.0
0.6
Total $ 1.3
$ 1.0
$ 3.0
$ 2.3

~~13.~~11. Fair value measurement

A. Fair value hierarchy

We account for certain assets and liabilities at fair value. Topic 820 “Fair Value Measurements and Disclosures” establishes the following hierarchy for the inputs that are used in fair value measurement:

•“Level 1” inputs are unadjusted quoted prices in active markets for identical assets or liabilities;

•“Level 2” inputs are those other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

•“Level 3” inputs are not based on observable market data (unobservable inputs).

Assets and liabilities that are measured at fair value are categorized in one of the three levels on the basis of the lowest-level input that is significant to its valuation.

B. Financial instruments not held at fair value

Certain financial assets and liabilities are not measured at fair value; however, items such as cash and cash equivalents, restricted cash, revolving credit facilities and bank overdrafts generally attract interest at floating rates and accordingly their carrying amounts are considered to approximate fair value. Due to their short maturities, the carrying amounts of accounts receivable and accounts payable are also considered to approximate their fair values.

The carrying amount and fair value of our debt are set out below:

Debt is comprised principally of borrowings under the secured credit facilities and the unsecured senior notes. Loans under the secured credit facilities pay interest at floating rates, subject to a 1% LIBOR floor on the Dollar Term Loan and a 0% EURIBOR floor on the Euro Term Loan. ~~Their principal amounts,~~The fair values of the term loans are derived from a market price, discounted for ~~illiquidity, are considered to approximate fair value.~~illiquidity. The unsecured senior notes have fixed interest rates, are traded by “Qualified Institutional Buyers” and certain other eligible investors, and their fair value is derived from their quoted market ~~prices.~~price.

C. Assets and liabilities measured at fair value on a recurring basis

The following table categorizes the assets and liabilities that are measured at fair value on a recurring basis:

Quoted prices in active

Significant observable

Available-for-sale securities represent equity securities that are traded in an active market and therefore are measured using quoted prices in an active market. Derivative assets and liabilities included in Level 2 represent foreign currency exchange forward and swap contracts, and interest rate derivative contracts.

We value our foreign currency exchange derivatives using models consistent with those used by a market participant that maximize the use of market observable inputs including forward prices for currencies.

We value our interest rate derivative contracts using a widely accepted discounted cash flow valuation methodology that reflects the contractual terms of each derivative, including the period to maturity. The methodology derives the fair values of the derivatives using the market standard methodology of netting the discounted future cash payments and the discounted expected receipts. The inputs used in the calculation are based on observable market-based inputs, including interest rate curves, implied volatilities and credit spreads.

We incorporate credit valuation adjustments, which consider the impact of any credit enhancements to the contracts, to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements.

Transfers between levels of the fair value hierarchy

During the periods presented, there were no transfers between Levels 1 and 2, and Gates had no assets or liabilities measured at fair value on a recurring basis using Level 3 inputs.

D. Assets measured at fair value on a non-recurring basis

Gates has non-recurring fair value measurements related to certain assets, including goodwill, intangible assets, and property, plant, and equipment. During the three and six months ended June 27, 2020, impairments of property, plant and equipment of $3.7 million were recognized in relation to restructuring and other strategic initiatives, primarily the closure of our manufacturing facility in Korea. No significant impairment was recognized during either the ~~nine~~three or six months ended ~~September 28, 2019 or the year ended December~~June 29, ~~2018.~~2019.

Gates’ secured debt is jointly and severally, irrevocably and fully and unconditionally guaranteed by certain of its subsidiaries and is secured by liens on substantially all of their assets.

Gates is subject to covenants, representations and warranties under certain of its debt facilities. During the periods covered by these condensed consolidated financial statements, we were in compliance with the applicable financial covenants. Also under the agreements governing our debt facilities, our ability to engage in activities such as incurring certain additional indebtedness, making certain investments and paying certain dividends is dependent, in part, on our ability to satisfy tests based on measures determined under those agreements.

~~Debt redemptions~~

On January 31, 2018, we redeemed in full our outstanding €235.0 million Euro Senior Notes, plus interest accrued up to and including the redemption date of $0.7 million. The Euro Senior Notes were redeemed at a price of 102.875% and a redemption premium of $8.4 million was therefore paid in addition to the principal of $291.7 million.

In addition, on February 8 and February 9, 2018, we redeemed Dollar Senior Notes with a principal of $522.0 million and $100.0 million, respectively. Both of these calls were made at a price of 103.0%, incurring redemption premiums of $15.6 million and $3.0 million, respectively. Interest accrued of $2.0 million and $0.4 million, respectively, was also paid on these dates.

All of the above prepayments, totaling $913.7 million in principal, $27.0 million in redemption premiums and $3.1 million in accrued interest, were funded primarily by the net proceeds from our initial public offering, with the remainder of the funds coming from cash on hand. As a result of these redemptions, the recognition of $15.4 million of deferred financing costs was accelerated and recognized in interest expense in the first three months of 2018.

In addition, in connection with certain reorganization transactions, a wholly-owned U.S. subsidiary of Gates Global LLC, has entered into intercompany agreements pursuant to which it became the principal obligor under the Term Loans and Senior Notes for U.S. federal income tax purposes and agreed to make future payments due on these tranches of debt. As a result, interest received by lenders of these debt tranches is U.S. source income.

Dollar and Euro Term Loans

Our secured credit facilities include a Dollar Term Loan credit facility and a Euro Term Loan credit facility that were drawn on July 3, 2014. The maturity date for each of the term loan facilities is March 31, ~~2024, with a springing maturity of April 15, 2022 if more than $500.0 million of the Dollar Senior Notes remain in issue at that time.~~2024. These term loan facilities bear interest at a floating rate, which for U.S. dollar debt can be either a base rate as defined in the credit agreement plus an applicable margin, or at our option, LIBOR plus an applicable margin. ~~The Euro Term Loan bears interest at Euro LIBOR subject to a floor of 0%, plus a margin of 3.00%.~~

~~On January 29, 2018, the applicable margin on each of the term loans was lowered by 0.25% following the successful completion of our initial public offering.~~ The Dollar Term Loan interest rate is currently LIBOR, subject to a floor of 1.00%, plus a margin of 2.75%, and as of ~~September 28, 2019,~~June 27, 2020, borrowings under this facility bore interest at a rate of ~~4.79%~~3.75% per annum. The Dollar Term Loan interest rate is re-set on the last business day of each month. As of ~~September 28, 2019,~~June 27, 2020, the Euro Term Loan bore interest at ~~Euro LIBOR,~~EURIBOR, which is currently below 0%, subject to a floor of 0%, plus a margin of 3.00%. The Euro Term Loan interest rate is re-set on the last business day of each quarter.

Both term loans are subject to quarterly amortization payments of 0.25%, based on the original principal amount less certain prepayments with the balance payable on maturity. During the ~~nine~~six months ended ~~September 28,~~June 27, 2020, we made amortization payments against the Dollar Term Loan and the Euro Term Loan of $8.7 million and $3.7 million, respectively. During the six months ended June 29, 2019, we made amortization payments against the Dollar Term Loan and the Euro Term Loan of $13.0 million and $5.5 million, respectively. ~~During the nine months ended September 29, 2018, we made amortization payments against the Dollar Term Loan and the Euro Term Loan of $13.0 million and $5.8 million, respectively.~~

Under the terms of the credit agreement, we are ~~obliged~~obligated to offer annually to the term loan lenders an “excess cash flow” amount as defined under the agreement, based on the preceding year’s final results. Based on our ~~2018~~2019 results, the leverage ratio as defined under the credit agreement was below the threshold above which payments are required, and therefore no excess cash flow payment is required to be made in ~~2019.~~2020.

During the periods presented, foreign exchange (losses) gains were recognized in respect of the Euro Term Loans as summarized in the table below. As a portion of the facility was designated as a net investment hedge of certain of our Euro investments, a corresponding portion of the foreign exchange (losses) gains ~~(losses)~~ were recognized in OCI.

Three months ended Nine months ended
(dollars in millions) September 28, 2019 September 29, 2018 September 28, 2019 September 29, 2018
Gain recognized in statement of operations $ 24.5
$ 3.5
$ 29.8
$ 32.6
Gain (loss) recognized in OCI 3.2
0.3
2.5
(6.5 )
Total gains $ 27.7
$ 3.8
$ 32.3
$ 26.1


	Three months ended						Six months ended
(dollars in millions)	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
(Loss) gain recognized in statement of operations	$	(6.9)	$	(8.1)	$	(2.0)	$	5.3
Loss recognized in OCI	(2.1)		(1.4)		(0.6)		(0.7)
Total (loss) gain	$	(9.0)	$	(9.5)	$	(2.6)	$	4.6

~~Subsequent to our initial public offering, the~~The above net ~~transactional~~ foreign exchange (losses) gains recognized in the other ~~(income) expenses~~income line of the condensed consolidated statement of operations have been substantially offset by net foreign exchange movements on Euro-denominated intercompany loans as part of our overall hedging strategy.

A wholly-owned U.S. subsidiary of Gates Global LLC is the principal obligor under the Term Loans for U.S. federal income tax purposes and makes the payments due on this tranche of debt. As a result, interest received by lenders of this tranche of debt is U.S. source income.

Unsecured Senior Notes

As of ~~September 28, 2019, there were~~June 27, 2020, we had $568.0 million of Dollar Senior Notes ~~outstanding.~~outstanding that were issued in November 2019. These notes are scheduled to mature on ~~July~~January 15, ~~2022~~2026 and bear interest at an annual fixed rate of ~~6.00%~~6.25% with semi-annual interest payments. ~~As noted above, on~~

On and after January ~~31, 2018,~~15, 2022, we ~~redeemed in full our outstanding €235.0 million Euro Senior Notes and made partial redemptions of the Dollar Senior Notes totaling $622.0 million.~~

Up to the date of their redemption, foreign exchange losses of $9.2 million were recognized in respect of the Euro Senior Notes. Of these losses, $5.0 million was recognized in OCI for the period during which the facility was designated as a net investment hedge of certain of our Euro investments, and $4.2 million was recognized in the statement of operations.

We may redeem the Dollar Senior Notes, at our option, in whole at any time or in part from time to time, at ~~100%~~the following redemption prices (expressed as a percentage of ~~their~~the principal ~~value,~~amount), plus accrued and unpaid interest to the redemption ~~date.~~date:


	Redemption price
During the year commencing:
—2023	103.125	%
—2024	101.563	%
—2025 and thereafter	100.000	%

Additionally, net cash proceeds from an equity offering can be utilized at any time prior to January 15, 2022, to redeem up to 40% of the ~~event of a change of control over the Company, each holder will have the right to require Gates to repurchase all of such holder’s~~ notes at a ~~purchase~~redemption price ~~in cash~~ equal to ~~101%~~106.250% of the principal amount thereof, plus accrued and unpaid interest through to the ~~date~~redemption date.

Upon the occurrence of a change of control or a certain qualifying asset sale, the holders of the notes will have the right to require us to make an offer to repurchase ~~except~~each holder's notes at a price equal to 101% (in the ~~extent that Gates has previously elected to redeem~~case of a change of control) or 100% (in the ~~notes.~~case of an asset sale) of their principal amount, plus accrued and unpaid interest.

Revolving credit facility

We also have a secured revolving credit facility ~~maturing on January 29, 2023,~~ that provides for multi-currency revolving loans up to an aggregate principal amount of $185.0 million, with a letter of credit sub-facility of $20.0 million. The facility matures on January 29, ~~2023, with a springing maturity of April 15, 2022 if more than $500.0 million of the Dollar Senior Notes remain in issue at that time.~~

As of both ~~September~~June 27, 2020 and December 28, 2019, ~~and December 29, 2018,~~ there were no0 drawings for cash under the revolving credit facility and there were no0 letters of credit outstanding.

Debt under the revolving credit facility bears interest at a floating rate, which can be either a base rate as defined in the credit agreement plus an applicable margin or, at our option, LIBOR, plus an applicable margin.

Asset-backed revolver

We have a revolving credit facility backed by certain of our assets in North America. The facility allows for loans of up to a maximum of $325.0 million ($~~309.2~~277.1 million as of ~~September 28, 2019,~~June 27, 2020, compared with ~~$325.0~~$294.6 million as of December ~~29, 2018,~~28, 2019, based on the values of the secured assets on those dates) with a letter of credit sub-facility of $150.0 million within this maximum. The facility matures on January 29, ~~2023, with a springing maturity~~2023.

As of both ~~September~~June 27, 2020 and December 28, 2019, ~~and December 29, 2018,~~ there were no0 drawings for cash under the asset-backed revolver, but there were letters of credit outstanding of ~~$50.2~~$46.8 million and ~~$57.8~~$50.1 million, respectively.

Debt under the facility bears interest at a floating rate, which can be either a base rate as defined in the credit agreement plus an applicable margin or, at our option, LIBOR, plus an applicable margin.

~~15.~~13. Post-retirement benefits

Gates provides defined benefit pension plans in certain of the countries in which it operates, in particular, in the U.S. and U.K. All of the defined benefit pension plans are closed to new entrants. In addition to the funded defined benefit pension plans, Gates has unfunded defined benefit obligations to certain current and former employees.

Gates also provides other post-retirement benefits, principally health and life insurance coverage, on an unfunded basis to certain of its employees in the U.S. and Canada.

Net periodic benefit cost

The components of the net periodic benefit cost for pensions and other post-retirement benefits were as follows:


	Three months ended June 27, 2020										Three months ended June 29, 2019
(dollars in millions)	Pensions		Other post-retirement benefits		Total		Pensions		Other post-retirement benefits		Total
Reported in operating income:
—Employer service cost	$	1.4	$	—	$	1.4	$	1.4	$	—	$	1.4
Reported outside of operating income:
—Interest cost	4.5		0.4		4.9		5.9		0.5		6.4
—Expected return on plan assets	(5.4)		—		(5.4)		(6.9)		—		(6.9)
—Net amortization of prior period losses (gains)	0.2		(0.4)		(0.2)		0.2		(0.3)		(0.1)

Net periodic benefit cost	$	0.7	$	—	$	0.7	$	0.6	$	0.2	$	0.8

Contributions	$	1.5	$	0.9	$	2.4	$	1.9	$	1.0	$	2.9

Three months ended September 28, 2019 Three months ended September 29, 2018
(dollars in millions) Pensions Other post-retirement benefits Total Pensions Other post-retirement benefits Total
Reported in operating income:
—Employer service cost $ 1.3
$ —
$ 1.3
$ 1.3
$ —
$ 1.3
Reported outside of operating income:
—Interest cost 5.8
0.6
6.4
5.8
0.6
6.4
—Expected return on plan assets (7.0 ) —
(7.0 ) (5.6 ) —
(5.6 )
—Net amortization of prior period losses (gains) 0.2
(0.3 ) (0.1 ) —
(0.1 ) (0.1 )
—Settlements and curtailments —
—
—
0.1
—
0.1
Net periodic benefit cost $ 0.3

$ 0.3

$ 0.6

$ 1.6

$ 0.5

$ 2.1

Contributions $ 1.9
$ 0.8
$ 2.7
$ 1.7
$ 1.2
$ 2.9

The components of the above net periodic benefit cost for pensions and other post-retirement benefits that are reported outside of operating income are all included in the other ~~(income) expenses~~income line in the condensed consolidated statement of operations.

For ~~2019~~2020 as a whole, we expect to contribute approximately ~~$4.6~~$5.0 million to our defined benefit pension plans and approximately ~~$6.7~~$5.5 million to our other post-retirement benefit plans.

14. Share-based compensation

The Company operates a share-based incentive plan over its shares to provide incentives to Gates’ senior executives and other eligible employees. During the three and ~~nine~~six months ended ~~September 28, 2019,~~June 27, 2020, we recognized a charge of ~~$4.1~~$5.7 million and ~~$10.5~~$8.6 million, compared with ~~$2.3~~$3.8 million and ~~$5.5~~$6.4 million, respectively, in the prior year ~~period.~~periods.

Share-based incentive awards issued under the 2014 Omaha Topco Ltd. Stock Incentive Plan

Gates has a number of awards ~~in issue~~issued under the 2014 Omaha Topco Ltd. Stock Incentive Plan, which was assumed by the Company and renamed the Gates Industrial Corporation plc Stock Incentive Plan in connection with our initial public offering in January 2018. No new awards have been granted under this plan since 2017. The options are split equally into four tiers, each with specific vesting conditions. Tier I options vest evenly over 5 years from the grant date, subject to the ~~participant’s~~participant continuing to provide service to Gates on the vesting date. Tier II, III and IV options vest on achievement of specified investment returns by our majority owners, who are various investment funds managed by affiliates of The Blackstone Group Inc. (“Blackstone” or our “Sponsor”), at the time of a defined liquidity event, which is also subject to the participant’s continued provision of service to Gates on the vesting date. The performance conditions associated with Tiers II, III and IV must be achieved on or prior to July 3, 2022 in order for vesting to occur. All the options expire ten years after the date of grant.

Due to Chinese regulatory restrictions on foreign stock ownership, awards granted under this plan to Chinese employees have been issued as stock appreciation rights (“SARs”). The terms of these SARs are identical to those of the options described above with the exception that no share is issued on exercise; instead, cash equivalent to the increase in the value of the shares from the date of grant to the date of exercise is paid to the employee. These awards are therefore treated as liability awards under Topic 718 “Compensation - Stock Compensation” and are revalued to their fair value at each period end.

In addition to the above, in 2017, under the same plan, the Company issued 76,293 restricted stock units (“RSUs”). These RSUs vest evenly over three years from the date of grant, subject to the participant’s continued provision of service to Gates on the vesting date. The awards expire ten years after the date of grant, in December 2027. ~~There were no movements in these RSUs during the current period.~~

Changes in the awards granted under this plan are summarized in the tables below.

Share-based incentive awards issued under the Gates Industrial Corporation plc 2018 Omnibus Incentive Plan

In conjunction with the initial public offering in January 2018, Gates adopted a new equity-based compensation plan, which is a market-based long-term incentive program that allows for the issue of a variety of equity-based and cash-based awards, including stock options, SARs and RSUs.

The SARs issued under this plan take the form of options, except that no share is issued on exercise; instead, cash equivalent to the increase in the value of the shares from the date of grant to the date of exercise is paid to the employee. These awards are therefore treated as liability awards under Topic 718 “Compensation - Stock Compensation” and are revalued to their fair value at each period end. The SARs and the majority of the share options issued under this plan vest evenly over either three years or four years from the grant date. The remainder of the options, the premium-priced options, vest evenly over a three year period, starting two years from the grant date. All options vest subject to the participant’s continued employment by Gates on the vesting date and expire ten years after the date of grant.

The RSUs issued under the plan consist of time-vesting RSUs and performance-based RSUs (“PRSUs”). The time-vesting RSUs vest evenly over either one or three years from the date of grant, subject to the participant’s continued provision of service to Gates on the vesting date. The PRSUs provide that 50% of the award will generally vest if Gates achieves a certain level of average annual adjusted return on invested capital as defined in the plan (“Adjusted ROIC”) and the remaining 50% of the PRSUs will generally vest if Gates achieves certain relative total shareholder return (“Relative TSR”) goals, in each case, measured over a three year performance period and subject to the participant’s continued employment through the end of the performance period. The total number of PRSUs that vest at the end of the performance period will range from 0% to 200% of the target based on actual performance against a pre-established scale.

New awards and movements in existing awards granted under this plan are summarized in the tables below.

Summary of movements in options outstanding

Weighted average exercise price

As of ~~September 28, 2019,~~June 27, 2020, the aggregate intrinsic value of options that were vested or expected to vest was $11.1 million, and these options had a weighted average remaining contractual term of 7.1 years. As of June 27, 2020, the aggregate intrinsic value of options that were exercisable was $8.4 million, and these options had a weighted average remaining contractual term of 5.6 years.

As of June 27, 2020, the unrecognized compensation charge relating to the nonvested options other than Tier II, Tier III and Tier IV options, was $11.2 million, which is expected to be recognized over a weighted-average period of ~~2.7~~2.4 years. The unrecognized compensation charge relating to the nonvested Tier II, Tier III and Tier IV options was ~~$29.0~~$25.1 million, which will be recognized on occurrence of a liquidity event as described above.

During the three and ~~nine~~six months ended ~~September 28, 2019,~~June 27, 2020, cash of $0$0.6 million and ~~$1.6~~$2.7 million, respectively, was received in relation to the exercise of vested ~~options.~~options, compared with $1.6 million and $0.4 million, respectively, during the three and six months ended June 29, 2019. The aggregate intrinsic value of options exercised during the three and ~~nine~~six months ended ~~September 28, 2019~~June 27, 2020 was $0$0.1 million and $2.1 million, respectively, compared with $0.3 million and $2.0 million, ~~respectively.~~respectively, during the three and six months ended June 29, 2019.

Summary of movements in RSUs and PRSUs outstanding

Weighted average
grant date fair value

As of ~~September 28, 2019,~~June 27, 2020, the unrecognized compensation charge relating to nonvested RSUs and PRSUs was ~~$11.3~~$20.8 million, which is expected to be recognized over a weighted average period of 2.3 years, subject, where relevant, to the achievement of the performance conditions described above. The ~~aggregate intrinsic~~total fair value of RSUs and PRSUs vested during the three and ~~nine~~six months ended ~~September 28, 2019~~June 27, 2020 was ~~$0.1~~$0 and $2.7 million, respectively, compared with $0 and ~~$0.3~~$0.2 million, ~~respectively.~~respectively, during the three and six months ended June 29, 2019.

Valuation of awards granted during the period

The grant date fair value of the options ~~at their grant date was~~and SARs are measured using a Black-Scholes valuation ~~model in the case of SARs and share options.~~model. RSUs are valued at the share price on the date of grant. The premium-priced options and PRSUs were valued using Monte Carlo simulations. As Gates only has volatility data for its shares for the period since its initial public offering, this volatility has been weighted with the debt-levered volatility of a peer group of public companies in order to determine the expected volatility over the expected option life. The expected option life represents the period of time for which the options are expected to be outstanding and is based on consideration of the contractual life of the option, option vesting period, and historical exercise patterns. The weighted average fair values and relevant assumptions were as follows:


	Six months ended
	June 27, 2020			June 29, 2019
Grant date fair value:
—SARs	$	4.59		$	5.88
—Share options	$	4.78		$	5.88
—Premium-priced options	n/a			$	5.65
—RSUs	$	11.81		$	16.39
—PRSUs	$	14.41		$	20.07

Inputs to the model:
—Expected volatility - SARs	37.7		%	31.9		%
—Expected volatility - share options	37.6		%	31.9		%
—Expected volatility - premium-priced options	n/a			31.9		%
—Expected volatility - PRSUs	40.4		%	32.8		%

—Expected option life for SARs	6.0			6.0
—Expected option life for share options	6.0			6.0
—Expected option life for premium-priced options	n/a			7.0



—Risk-free interest rate:
SARs	1.25		%	2.51		%
Share options	1.33		%	2.51		%
Premium-priced options	n/a			2.53		%
PRSUs	1.29		%	2.48		%

Nine months ended September 28, 2019
Fair value:
—SARs $ 5.88
—Share options $ 5.88
—Premium-priced options $ 5.65
—RSUs $ 16.28
—PRSUs $ 20.07

Inputs to the model:
—Expected volatility - SARs, share options and premium-priced options 31.9 %
—Expected volatility - PRSUs 32.8 %
—Expected option life for SARs and share options 6.0
—Expected option life for premium-priced options 7.0
—Risk-free interest rate:
SARs and share options 2.51 %
Premium-priced options 2.53 %
PRSUs 2.48 %
—Expected dividends —

In January 2018, Gates completed an initial public offering of 38,500,000 shares at $19.00 each. Shortly thereafter, the underwriters of the initial public offering exercised their over-allotment option for a further 5,775,000 shares, also at $19.00 each. Movements in the Company’s number of shares in issue for the ~~nine month periods~~six months ended ~~September 28,~~June 27, 2020 and June 29, 2019, ~~and September 29, 2018,~~ respectively, were as follows:

The Company has one class of authorized and issued shares, with a par value of $0.01, and each share has equal voting rights.

16. Analysis of accumulated other comprehensive ~~(loss) income~~loss

Changes in accumulated other comprehensive ~~(loss) income~~loss by component, net of tax, were as follows:


(dollars in millions)	Post- retirement benefits		Cumulative translation adjustment		Cash flow hedges		Accumulated OCI attributable to shareholders		Non-controlling interests		Accumulated OCI
As of December 28, 2019	$	(9.3)	$	(812.3)	$	(36.8)	$	(858.4)	$	(46.0)	$	(904.4)
Foreign currency translation	1.3		(159.8)		—		(158.5)		(4.1)		(162.6)
Cash flow hedges movements	—		—		(19.2)		(19.2)		—		(19.2)
Post-retirement benefit movements	(0.1)		—		—		(0.1)		—		(0.1)
Other comprehensive income (loss)	1.2		(159.8)		(19.2)		(177.8)		(4.1)		(181.9)
As of June 27, 2020	$	(8.1)	$	(972.1)	$	(56.0)	$	(1,036.2)	$	(50.1)	$	(1,086.3)


(dollars in millions)	Post- retirement benefits		Cumulative translation adjustment		Cash flow hedges		Accumulated OCI attributable to shareholders		Non-controlling interests		Accumulated OCI
As of December 29, 2018	$	7.6	$	(850.0)	$	(11.9)	$	(854.3)	$	(43.6)	$	(897.9)
Foreign currency translation	—		42.1		—		42.1		3.8		45.9
Cash flow hedges movements	—		—		(23.3)		(23.3)		—		(23.3)
Post-retirement benefit movements	(0.1)		—		—		(0.1)		—		(0.1)
Other comprehensive (loss) income	(0.1)		42.1		(23.3)		18.7		3.8		22.5
As of June 29, 2019	$	7.5	$	(807.9)	$	(35.2)	$	(835.6)	$	(39.8)	$	(875.4)

(dollars in millions) Available-for-
sale investments Post-
retirement
benefit Cumulative
translation
adjustment Cash flow
hedges Accumulated OCI attributable to
shareholders Non-
controlling
interests Accumulated OCI
As of December 30, 2017 $ (0.3 ) $ 13.2
$ (742.8 ) $ (17.5 ) $ (747.4 ) $ (25.5 ) $ (772.9 )
  Foreign currency translation —
—
(58.7 ) —
(58.7 ) (20.0 ) (78.7 )
  Cash flow hedges movements —
—
—
19.8
19.8
—
19.8
  Available-for-sale investment movements (0.4 ) —
—
—
(0.4 ) (0.1 ) (0.5 )
  Post-retirement benefit movements —
(0.5 ) —
—
(0.5 ) —
(0.5 )
Other comprehensive (loss) income (0.4 ) (0.5 ) (58.7 )
19.8

(39.8 )
(20.1 )
(59.9 )
As of September 29, 2018 $ (0.7 )
$ 12.7

$ (801.5 )
$ 2.3

$ (787.2 )
$ (45.6 )
$ (832.8 )

(dollars in millions) Available-for-
sale investments Post-
retirement
benefit Cumulative
translation
adjustment Cash flow
hedges Accumulated OCI attributable to
shareholders Non-
controlling
interests Accumulated OCI
As of December 29, 2018 $ —
$ 7.6
$ (850.0 ) $ (11.9 ) $ (854.3 ) $ (43.6 ) $ (897.9 )
  Foreign currency translation —
—
(27.7 ) —
(27.7 ) (7.8 ) (35.5 )
  Cash flow hedges movements —
—
—
(26.4 ) (26.4 ) —
(26.4 )
  Post-retirement benefit movements —
(0.2 ) —
—
(0.2 ) —
(0.2 )
Other comprehensive loss —

(0.2 )
(27.7 )
(26.4 )
(54.3 )
(7.8 )
(62.1 )
As of September 28, 2019 $ —

$ 7.4

$ (877.7 )
$ (38.3 )
$ (908.6 )
$ (51.4 )
$ (960.0 )

~~19.~~17. Related party transactions

A. Entities affiliated with Blackstone

In January 2018, Gates and Blackstone Management Partners L.L.C. (“BMP”) and Blackstone Tactical Opportunities Advisors L.L.C., each affiliates of our Sponsor (the “Managers”), entered into a new Transaction and Monitoring Fee Agreement (the “New Monitoring Fee Agreement”). Under this agreement, Gates Industrial Corporation plc and certain of its direct and indirect subsidiaries (collectively the “Monitoring Service Recipients”) engaged the Managers to provide certain monitoring, advisory and consulting services in the following areas:

•advice regarding financings and relationships with lenders and bankers;

•advice regarding the selection, retention and supervision of independent auditors, outside legal counsel, investment bankers and other advisors or consultants;

•advice regarding environmental, social and governance issues pertinent to our affairs;

•advice regarding the strategic direction of our business; and

•such other advice directly related to or ancillary to the above advisory services as we may reasonably request.

In consideration of these oversight services, Gates agreed to pay BMP an annual fee of 1% of a covenant EBITDA measure defined under the agreements governing our senior secured credit facilities. In addition, the Monitoring Service Recipients agreed to reimburse the Managers for any related out-of-pocket expenses incurred by the Managers and their affiliates. During the three months ended ~~September 28, 2019,~~June 27, 2020, Gates incurred ~~$1.1 million,~~$0, compared with ~~$1.9~~$2.0 million during the prior year period, and during the ~~nine~~six months ended ~~September 28, 2019,~~June 27, 2020, Gates incurred ~~$4.9~~$1.7 million, compared with ~~$5.9~~$3.8 million during the prior year period, in respect of these oversight services and out-of-pocket expenses, of which there was no amount owing at ~~September 28, 2019~~June 27, 2020 or December ~~29, 2018.~~28, 2019.

~~The~~Monitoring fee obligations under the New Monitoring Fee Agreement ~~terminates~~terminated in January 2020 upon ~~the earlier to occur of (i)~~ the second anniversary of the closing date of the initial public offering of ~~Gates or (ii) the date our Sponsor beneficially owns less than 5%~~Gates.

In addition, in connection with the initial public offering, we entered into a new Support and Services Agreement with BMP, under which Gates Industrial Corporation plc and certain of its direct and indirect subsidiaries reimburse BMP for customary support services provided by Blackstone’s portfolio operations group to the Company at BMP’s direction. BMP will invoice the Company for such services based on the time spent by the relevant personnel providing such services during the applicable period and Blackstone’s allocated costs of such personnel. During the periods presented, no amounts were paid or outstanding under this agreement. This agreement terminates on the date our Sponsor beneficially owns less than 5% of our ordinary shares and such shares have a fair market value of less than $25.0 million, or such earlier date as may be chosen by Blackstone.

~~In connection~~B. Commercial transactions with sponsor portfolio companies

Our Sponsor and its affiliates have ownership interests in a broad range of companies. We have entered and may in the future enter into commercial transactions in the ordinary course of our ~~initial public offering~~business with some of these companies, including the sale of goods and services and the purchase of goods and services.

During the periods presented, our Sponsor held an interest in ~~January 2018, Blackstone Advisory Partners L.P.~~Custom Truck One Source (“Custom Truck”), ~~an affiliate~~a provider of ~~Blackstone, received underwriting fees of $3.2 million.~~specialized truck and heavy equipment solutions in North America. Net sales by Gates to Custom Truck were $0.1 million during the three and six months ended June 27, 2020, compared with $0 during the three and six months ended June 29, 2019.



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Ordinary Shares, $0.01 par value per share	GTES	New York Stock Exchange



Large accelerated filer	☐	Accelerated filer	☐☒
Non-accelerated filer	☒ ☐	Smaller reporting company	☐
		Emerging growth company	☐


Part I – Financial Information

~~Part I – Financial Information~~

Item 1.	Financial Statements (unaudited)		31
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		3629
Item 3.		Quantitative and Qualitative Disclosures about Market Risk		5343
Item 4.		Controls and Procedures		5344

Part II – Other Information

Item 1.		Legal Proceedings		5445
Item 1A.		Risk Factors		5445
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		5445
Item 6.		Exhibits		5546
Signatures					5647


(dollars in millions, except share numbers and per share amounts)	As of September 28, 2019			As of December 29, 2018			(dollars in millions, except share numbers and per share amounts)	As of June 27,2020		As of December 28,2019
Assets							Assets
Current assets							Current assets
Cash and cash equivalents	$	456.1		$	423.4		Cash and cash equivalents	$	639.7	$	635.3
Trade accounts receivable, net	733.2			742.3
Trade accounts receivable							Trade accounts receivable	655.3		694.7
Inventories	507.8			537.6			Inventories	498.8		475.1
Taxes receivable	24.8			7.2			Taxes receivable	30.3		22.1
Prepaid expenses and other assets	142.0			104.1			Prepaid expenses and other assets	135.3		131.4
Total current assets	1,863.9			1,814.6			Total current assets	1,959.4		1,958.6
Non-current assets							Non-current assets
Property, plant and equipment, net	721.1			756.3			Property, plant and equipment, net	671.2		727.9
Goodwill	2,024.1			2,045.9			Goodwill	1,982.6		2,060.5
Pension surplus	52.8			52.6			Pension surplus	36.3		38.1
Intangible assets, net	1,888.2			1,990.6			Intangible assets, net	1,791.2		1,876.0
Operating lease right-of-use assets	117.3			—			Operating lease right-of-use assets	118.2		123.0
Taxes receivable	34.2			27.9			Taxes receivable	24.1		23.0
Deferred income taxes	552.6			5.1			Deferred income taxes	575.7		587.1
Other non-current assets	31.7			29.6			Other non-current assets	17.6		17.1
Total assets	$	7,285.9		$	6,722.6		Total assets	$	7,176.3	$	7,411.3
Liabilities and equity							Liabilities and equity
Current liabilities							Current liabilities
Debt, current portion	$	43.5		$	51.6		Debt, current portion	$	63.5	$	46.1
Trade accounts payable	328.5			424.0			Trade accounts payable	317.8		374.7
Taxes payable	17.4			19.2			Taxes payable	25.5		48.5
Accrued expenses and other current liabilities	193.8			184.2			Accrued expenses and other current liabilities	222.5		188.8
Total current liabilities	583.2			679.0			Total current liabilities	629.3		658.1
Non-current liabilities							Non-current liabilities
Debt, less current portion	2,909.8			2,953.4			Debt, less current portion	2,906.9		2,912.3
Post-retirement benefit obligations	151.0			155.9			Post-retirement benefit obligations	146.4		151.2
Lease liabilities	109.3			—			Lease liabilities	111.2		116.2
Taxes payable	155.3			81.9			Taxes payable	106.2		108.8
Deferred income taxes	360.8			439.5			Deferred income taxes	333.9		369.3
Other non-current liabilities	86.5			79.2			Other non-current liabilities	100.7		84.7
Total liabilities	4,355.9			4,388.9			Total liabilities	4,334.6		4,400.6
Commitments and contingencies (note 20)
Commitments and contingencies (note 18)							Commitments and contingencies (note 18)
Shareholders’ equity							Shareholders’ equity
—Shares, par value of $0.01 each - authorized shares: 3,000,000,000; outstanding shares: 290,118,125 (December 29, 2018: authorized shares: 3,000,000,000; outstanding shares: 289,847,574)	2.9			2.9
—Shares, par value of $0.01 each - authorized shares: 3,000,000,000; outstanding shares: 290,754,856 (December 28, 2019: authorized shares: 3,000,000,000; outstanding shares: 290,157,299)							—Shares, par value of $0.01 each - authorized shares: 3,000,000,000; outstanding shares: 290,754,856 (December 28, 2019: authorized shares: 3,000,000,000; outstanding shares: 290,157,299)	2.9		2.9
—Additional paid-in capital	2,430.5			2,416.9			—Additional paid-in capital	2,445.4		2,434.5
—Accumulated other comprehensive loss	(908.6		)	(854.3		)	—Accumulated other comprehensive loss	(1,036.2)		(858.4)
—Retained earnings	1,052.6			381.9			—Retained earnings	1,085.2		1,072.0
Total shareholders’ equity	2,577.4			1,947.4			Total shareholders’ equity	2,497.3		2,651.0
Non-controlling interests	352.6			386.3			Non-controlling interests	344.4		359.7
Total equity	2,930.0			2,333.7			Total equity	2,841.7		3,010.7
Total liabilities and equity	$	7,285.9		$	6,722.6		Total liabilities and equity	$	7,176.3	$	7,411.3


	Nine months ended							Six months ended
(dollars in millions)	September 28, 2019			September 29, 2018			(dollars in millions)	June 27, 2020		June 29, 2019
Cash flows from operating activities							Cash flows from operating activities
Net income	$	668.7		$	188.6		Net income	$	11.9	$	631.3
Adjustments to reconcile net income to net cash provided by operations:							Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization	167.4			163.3			Depreciation and amortization	109.6		112.3
Non-cash currency transaction gain on net debt and hedging instruments	(29.2		)	(35.0		)
Premium paid on redemption of long-term debt	—			27.0
Non-cash currency transaction loss (gain) on debt and hedging instruments							Non-cash currency transaction loss (gain) on debt and hedging instruments	0.6		(4.7)

Other net non-cash financing costs	31.2			54.9			Other net non-cash financing costs	3.1		6.2
Share-based compensation expense	10.5			5.5			Share-based compensation expense	8.6		6.4
Decrease in post-employment benefit obligations, net	(6.4		)	(2.5		)	Decrease in post-employment benefit obligations, net	(3.4)		(4.5)
Deferred income taxes	(635.6		)	(44.0		)	Deferred income taxes	(11.6)		(618.2)
Asset impairments							Asset impairments	5.1		0.3
Other operating activities	3.4			1.5			Other operating activities	4.1		3.4
Changes in operating assets and liabilities, net of effects of acquisitions:							Changes in operating assets and liabilities, net of effects of acquisitions:
—Increase in accounts receivable	(4.0		)	(82.6		)
—Decrease (increase) in inventories	25.2			(81.0		)
—(Decrease) increase in accounts payable	(90.4		)	16.4
—Decrease (increase) in accounts receivable							—Decrease (increase) in accounts receivable	25.0		(37.0)
—(Increase) decrease in inventories							—(Increase) decrease in inventories	(39.3)		0.1
—Decrease in accounts payable							—Decrease in accounts payable	(49.1)		(47.4)
—Increase in prepaid expenses and other assets	(29.8		)	(24.6		)	—Increase in prepaid expenses and other assets	(0.4)		(13.3)
—Increase (decrease) in taxes payable	48.2			(6.4		)
—Decrease in other liabilities	(14.0		)	(38.8		)
—(Decrease) increase in taxes payable							—(Decrease) increase in taxes payable	(35.7)		53.8
—Increase (decrease) in other liabilities							—Increase (decrease) in other liabilities	43.1		(24.9)
Net cash provided by operations	145.2			142.3			Net cash provided by operations	71.6		63.8
Cash flows from investing activities							Cash flows from investing activities
Purchases of property, plant and equipment	(50.5		)	(143.0		)	Purchases of property, plant and equipment	(23.1)		(36.9)
Purchases of intangible assets	(8.0		)	(11.9		)	Purchases of intangible assets	(4.5)		(5.2)
Purchases of investments	(11.7		)	—
Net cash received (paid) under corporate-owned life insurance policies	0.3			(7.4		)
Purchase of businesses, net of cash acquired	—			(50.9		)

Cash paid under corporate-owned life insurance policies							Cash paid under corporate-owned life insurance policies	(9.8)		(9.5)
Cash received under corporate-owned life insurance policies							Cash received under corporate-owned life insurance policies	—		3.9

Other investing activities	0.3			(0.9		)	Other investing activities	0.3		0.2
Net cash used in investing activities	(69.6		)	(214.1		)	Net cash used in investing activities	(37.1)		(47.5)
Cash flows from financing activities							Cash flows from financing activities
Issuance of shares, net of underwriting costs	1.7			799.6
Other offering costs	—			(8.6		)
Issuance of shares							Issuance of shares	2.7		1.6

Payments of long-term debt	(18.9		)	(933.5		)	Payments of long-term debt	(12.4)		(18.9)
Premium paid on redemption of long-term debt	—			(27.0		)

Debt issuance costs paid							Debt issuance costs paid	(0.3)		—
Dividends paid to non-controlling interests	(24.5		)	(23.3		)	Dividends paid to non-controlling interests	(9.9)		(15.0)
Other financing activities	1.6			5.7			Other financing activities	1.0		1.0
Net cash used in financing activities	(40.1		)	(187.1		)	Net cash used in financing activities	(18.9)		(31.3)
Effect of exchange rate changes on cash and cash equivalents and restricted cash	(2.8		)	(9.2		)	Effect of exchange rate changes on cash and cash equivalents and restricted cash	(11.5)		2.6
Net increase (decrease) in cash and cash equivalents and restricted cash	32.7			(268.1		)	Net increase (decrease) in cash and cash equivalents and restricted cash	4.1		(12.4)
Cash and cash equivalents and restricted cash at the beginning of the period	424.6			566.0			Cash and cash equivalents and restricted cash at the beginning of the period	636.6		424.6
Cash and cash equivalents and restricted cash at the end of the period	$	457.3		$	297.9		Cash and cash equivalents and restricted cash at the end of the period	$	640.7	$	412.2
Supplemental schedule of cash flow information							Supplemental schedule of cash flow information
Interest paid, net of amount capitalized	$	112.5		$	142.4
Interest paid							Interest paid	$	48.5	$	80.0
Income taxes paid, net	$	90.4		$	83.7		Income taxes paid, net	$	16.6	$	61.9
Accrued capital expenditures	$	1.6		$	2.5		Accrued capital expenditures	$	0.9	$	1.1



	Three months ended September 28, 2019

(dollars in millions)	Share capital		Additional paid-in capital		Accumulated other comprehensive loss			Retained earnings		Total shareholders’ equity			Non- controlling interests			Total equity
As of June 29, 2019	$	2.9	$	2,426.4	$	(835.6	)	$	1,017.1	$	2,610.8		$	371.8		$	2,982.6

Net income	—		—		—			35.5		35.5			1.9			37.4
Other comprehensive loss	—		—		(73.0		)	—		(73.0		)	(11.6		)	(84.6		)
Total comprehensive (loss) income	—		—		(73.0		)	35.5		(37.5		)	(9.7		)	(47.2		)
Other changes in equity:
—Issuance of shares	—		0.1		—			—		0.1			—			0.1
—Share-based compensation	—		4.0		—			—		4.0			—			4.0
—Dividends paid to non-controlling interests	—		—		—			—		—			(9.5		)	(9.5		)
As of September 28, 2019	$	2.9	$	2,430.5	$	(908.6	)	$	1,052.6	$	2,577.4		$	352.6		$	2,930.0



	Three months ended September 29, 2018

(dollars in millions)	Share capital		Additional paid-in capital		Accumulated other comprehensive loss			Retained earnings		Total shareholders’ equity		Non- controlling interests			Total equity
As of June 30, 2018	$	2.9	$	2,413.4	$	(809.2	)	$	246.7	$	1,853.8	$	402.7		$	2,256.5

Net income	—		—		—			59.9		59.9		6.8			66.7
Other comprehensive income (loss)	—		—		22.0			—		22.0		(13.1		)	8.9
Total comprehensive income (loss)	—		—		22.0			59.9		81.9		(6.3		)	75.6
Other changes in equity:
—Issuance of shares	—		0.4		—			—		0.4		—			0.4
—Share-based compensation	—		1.7		—			—		1.7		—			1.7
—Dividends paid to non-controlling interests	—		—		—			—		—		(7.1		)	(7.1		)
As of September 29, 2018	$	2.9	$	2,415.5	$	(787.2	)	$	306.6	$	1,937.8	$	389.3		$	2,327.1



	Nine months ended September 28, 2019

(dollars in millions)	Share capital		Additional paid-in capital		Accumulated other comprehensive loss			Retained earnings		Total shareholders’ equity			Non- controlling interests			Total equity
As of December 29, 2018	$	2.9	$	2,416.9	$	(854.3	)	$	381.9	$	1,947.4		$	386.3		$	2,333.7

Net income (loss)	—		—		—			670.7		670.7			(2.0		)	668.7
Other comprehensive loss	—		—		(54.3		)	—		(54.3		)	(7.8		)	(62.1		)
Total comprehensive (loss) income	—		—		(54.3		)	670.7		616.4			(9.8		)	606.6
Other changes in equity:
—Issuance of shares	—		1.7		—			—		1.7			—			1.7
—Share-based compensation	—		10.7		—			—		10.7			—			10.7
—Change in ownership of a controlled subsidiary	—		1.2		—			—		1.2			(1.2		)	—
—Shares issued by a subsidiary to a non-controlling interest	—		—		—			—		—			1.8			1.8
—Dividends paid to non-controlling interests	—		—		—			—		—			(24.5		)	(24.5		)
As of September 28, 2019	$	2.9	$	2,430.5	$	(908.6	)	$	1,052.6	$	2,577.4		$	352.6		$	2,930.0



	Nine months ended September 29, 2018

(dollars in millions)	Share capital		Additional paid-in capital			Accumulated other comprehensive loss			Retained earnings		Total shareholders’ equity			Non- controlling interests			Total equity
As of December 30, 2017	$	2.5	$	1,622.6		$	(747.4	)	$	136.9	$	1,014.6		$	413.8		$	1,428.4

Net income	—		—			—			169.7		169.7			18.9			188.6
Other comprehensive loss	—		—			(39.8		)	—		(39.8		)	(20.1		)	(59.9		)
Total comprehensive (loss) income	—		—			(39.8		)	169.7		129.9			(1.2		)	128.7
Other changes in equity:
—Issuance of shares	0.4		841.2			—			—		841.6			—			841.6
—Share-based compensation	—		4.7			—			—		4.7			—			4.7
—Dividends paid to non-controlling interests	—		—			—			—		—			(23.3		)	(23.3		)
—Cost of shares issued	—		(53.0		)	—			—		(53.0		)	—			(53.0		)
As of September 29, 2018	$	2.9	$	2,415.5		$	(787.2	)	$	306.6	$	1,937.8		$	389.3		$	2,327.1



(dollars in millions)	As of September 28, 2019		As of September 29, 2018
Accrued expenses and other current liabilities	$	2.4	$	3.4
Other non-current liabilities	—		0.2
	$	2.4	$	3.6


~~(i)~~	~~we will not separate the lease component from the non-lease component for all asset classes. We have therefore not allocated consideration in a contract between lease and non-lease components; and~~


~~(ii)~~	we recognize the payments on short-term leases (leases with terms at inception of 12 months or fewer) in net income on a straight-line basis over the lease term. No amount is recognized on the balance sheet with respect to these leases.



(dollars in millions)	Operating leases		Finance leases ⁽¹⁾
Next 12 months	$	25.3	$	0.5
Year 2	21.1		0.5
Year 3	17.3		0.5
Year 4	14.4		0.3
Year 5	12.6		—
Year 6 and beyond	83.7		—
Total lease payments	174.4		1.8
Interest	46.7		0.1
Total present value of lease liabilities	$	127.7	$	1.7


⁽¹⁾	Although our finance leases have a weighted average remaining lease term of 9.0 years, the primary lease includes a ten year rent-free period at the end of the contract such that there will be no lease payments made beyond December 2022.



(dollars in millions)	Operating leases		Finance leases
Right-of-use assets	$	117.3	$	3.0

Short-term lease liabilities (included in “Accrued expenses and other current liabilities”)	$	19.2	$	0.9
Long-term lease liabilities	108.5		0.8
Total lease liabilities	$	127.7	$	1.7


(dollars in millions)	Quoted prices in active markets (Level 1)		Significant observable inputs (Level 2)			Total			(dollars in millions)	Quoted prices in active markets (Level 1)		Significant observable inputs (Level 2)		Total
As of September 28, 2019
Available-for-sale securities	$	1.0	$	—		$	1.0
As of June 27, 2020									As of June 27, 2020
Equity investments									Equity investments	$	0.8	$	—	$	0.8
Derivative assets	$	—	$	6.0		$	6.0		Derivative assets	$	—	$	1.6	$	1.6
Derivative liabilities	$	—	$	(58.4	)	$	(58.4	)	Derivative liabilities	$	—	$	(82.3)	$	(82.3)

As of December 29, 2018
Available-for-sale securities	$	0.8	$	—		$	0.8
As of December 28, 2019									As of December 28, 2019
Equity investments									Equity investments	$	1.1	$	—	$	1.1
Derivative assets	$	—	$	11.8		$	11.8		Derivative assets	$	—	$	5.4	$	5.4
Derivative liabilities	$	—	$	(41.7	)	$	(41.7	)	Derivative liabilities	$	—	$	(60.9)	$	(60.9)


	Nine months ended September 28, 2019					Six months ended June 27, 2020
	Number of options		Weighted average exercise price $			Number of options	Weighted average exercise price $
Outstanding at the beginning of the period:					Outstanding at the beginning of the period:
—Tier I	4,212,537		$	7.03	—Tier I	3,825,855	$	7.07
—Tier II	4,837,780		$	6.97	—Tier II	4,405,340	$	7.01
—Tier III	4,837,780		$	6.97	—Tier III	4,405,340	$	7.01
—Tier IV	4,837,780		$	10.46	—Tier IV	4,405,340	$	10.52
—SARs	724,372		$	8.17	—SARs	772,450	$	8.72
—Share options	582,717		$	17.14	—Share options	1,610,485	$	16.69
—Premium-priced options					—Premium-priced options	796,460	$	19.00
	20,032,966		$	8.16		20,221,270	$	9.09
Granted during the period:					Granted during the period:

—SARs	71,150		$	16.46	—SARs	69,361	$	12.08
—Share options	1,099,505		$	16.46	—Share options	1,193,114	$	12.55
—Premium-priced options	796,460		$	19.00

	1,967,115		$	17.49		1,262,475	$	12.52
Forfeited during the period:					Forfeited during the period:
—Tier I	(102,135	)	$	6.62	—Tier I	(149,522)	$	9.56
—Tier II	(391,792	)	$	6.59	—Tier II	(509,348)	$	8.03
—Tier III	(391,792	)	$	6.59	—Tier III	(509,348)	$	8.03
—Tier IV	(391,792	)	$	9.88	—Tier IV	(509,348)	$	12.04

—Share options	(44,895	)	$	17.03	—Share options	(154,408)	$	16.79
	(1,322,406	)	$	7.92
						(1,831,974)	$	10.01
Expired during the period:					Expired during the period:

—Share options	(1,250	)	$	17.72	—Share options	(3,055)	$	16.46

	(1,250	)	$	17.72		(3,055)	$	16.46
Exercised during the period:					Exercised during the period:
—Tier I	(257,322	)	$	6.58	—Tier I	(400,573)	$	6.64

	(257,322	)	$	6.58		(400,573)	$	6.64
Outstanding at the end of the period:					Outstanding at the end of the period:
—Tier I	3,853,080		$	7.07	—Tier I	3,275,760	$	7.01
—Tier II	4,445,988		$	7.00	—Tier II	3,895,992	$	6.88
—Tier III	4,445,988		$	7.00	—Tier III	3,895,992	$	6.88
—Tier IV	4,445,988		$	10.51	—Tier IV	3,895,992	$	10.32
—SARs	795,522		$	8.91	—SARs	841,811	$	9.00
—Share options	1,636,077		$	16.69	—Share options	2,646,136	$	14.82
—Premium-priced options	796,460		$	19.00	—Premium-priced options	796,460	$	19.00
	20,419,103		$	9.10		19,248,143	$	9.28

Exercisable at the end of the period	2,838,515		$	7.36	Exercisable at the end of the period	3,376,495	$	8.65
Vested and expected to vest at the end of the period					Vested and expected to vest at the end of the period	7,513,195	$	11.22


	Nine months ended September 28, 2019					Six months ended June 27, 2020
	Number of awards		Weighted average grant date fair value $			Number of awards	Weighted average grant date fair value $
Outstanding at the beginning of the period:					Outstanding at the beginning of the period:
—RSUs	81,800		$	17.13	—RSUs	718,269	$	16.20
—PRSUs					—PRSUs	248,550	$	20.07
	81,800		$	17.13		966,819	$	17.20
Granted during the period:					Granted during the period:
—RSUs	728,436		$	16.28	—RSUs	1,182,880	$	11.81
—PRSUs	248,550		20.07		—PRSUs	365,258	$	14.41
	976,986		$	17.25		1,548,138	$	12.42
Forfeited during the period:					Forfeited during the period:
—RSUs	(34,573	)	$	16.67	—RSUs	(48,274)	$	16.22
—PRSUs					—PRSUs	(42,158)	$	20.07
						(90,432)	$	18.01

	(34,573	)	$	16.67
Vested during the period:					Vested during the period:
—RSUs	(19,250	)	$	17.21	—RSUs	(225,441)	$	16.35

	(19,250	)	$	17.21		(225,441)	$	16.35
Outstanding at the end of the period:					Outstanding at the end of the period:
—RSUs	756,413		$	16.33	—RSUs	1,627,434	$	12.99
—PRSUs	248,550		20.07		—PRSUs	571,650	$	16.45
	1,004,963		$	17.25		2,199,084	$	13.89



	Nine months ended September 28, 2019
Fair value:
—SARs	$	5.88
—Share options	$	5.88
—Premium-priced options	$	5.65
—RSUs	$	16.28
—PRSUs	$	20.07

Inputs to the model:
—Expected volatility - SARs, share options and premium-priced options	31.9		%
—Expected volatility - PRSUs	32.8		%
—Expected option life for SARs and share options	6.0
—Expected option life for premium-priced options	7.0
—Risk-free interest rate:
SARs and share options	2.51		%
Premium-priced options	2.53		%
PRSUs	2.48		%
—Expected dividends	—


	Nine months ended			Six months ended
(number of shares)	September 28, 2019	September 29, 2018	(number of shares)	June 27, 2020	June 29, 2019
Balance as of the beginning of the fiscal year	289,847,574	245,474,605
Issuance of shares	—	44,275,000
Balance as of the beginning of the period			Balance as of the beginning of the period	290,157,299	289,847,574

Exercise of share options	257,322	58,545	Exercise of share options	400,573	246,924
Vesting of restricted stock units, net of withholding taxes	13,229	—	Vesting of restricted stock units, net of withholding taxes	196,984	7,153
Balance as of the end of the period	290,118,125	289,808,150	Balance as of the end of the period	290,754,856	290,101,651



(dollars in millions)	Available-for- sale investments			Post- retirement benefit			Cumulative translation adjustment			Cash flow hedges			Accumulated OCI attributable to shareholders			Non- controlling interests			Accumulated OCI
As of December 30, 2017	$	(0.3	)	$	13.2		$	(742.8	)	$	(17.5	)	$	(747.4	)	$	(25.5	)	$	(772.9	)
Foreign currency translation	—			—			(58.7		)	—			(58.7		)	(20.0		)	(78.7		)
Cash flow hedges movements	—			—			—			19.8			19.8			—			19.8
Available-for-sale investment movements	(0.4		)	—			—			—			(0.4		)	(0.1		)	(0.5		)
Post-retirement benefit movements	—			(0.5		)	—			—			(0.5		)	—			(0.5		)
Other comprehensive (loss) income	(0.4		)	(0.5		)	(58.7		)	19.8			(39.8		)	(20.1		)	(59.9		)
As of September 29, 2018	$	(0.7	)	$	12.7		$	(801.5	)	$	2.3		$	(787.2	)	$	(45.6	)	$	(832.8	)


(dollars in millions)	As of June 27, 2020		As of December 28, 2019
Receivables	$	3.8	$	4.2
Payables	$	(3.2)	$	(5.9)


⁽¹⁾	~~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.~~


	Carrying amount				Principal amount					Carrying amount						Principal amount
(dollars in millions)	As of September 28, 2019		As of December 29, 2018		As of September 28, 2019		As of December 29, 2018		(dollars in millions)	As of June 27,2020		As of December 28, 2019		As of June 27,2020		As of December 28, 2019
Debt:									Debt:
—Secured									—Secured
Term Loans (U.S. dollar and Euro denominated)	$	2,384.6	$	2,428.7	$	2,407.7	$	2,458.5	Term Loans (U.S. dollar and Euro denominated)	$	2,388.8	$	2,395.0	$	2,407.1	$	2,416.8
—Unsecured									—Unsecured
Senior Notes (U.S. dollar and Euro denominated)	568.5		575.7		568.0		568.0
Senior Notes (U.S. dollar)									Senior Notes (U.S. dollar)	581.4		563.2		568.0		568.0
Other debt	0.2		0.6		0.2		0.6		Other debt	0.2		0.2		0.2		0.2
	$	2,953.3	$	3,005.0	$	2,975.9	$	3,027.1		$	2,970.4	$	2,958.4	$	2,975.3	$	2,985.0


Purchases of Equity Securities by Affiliated Purchasers⁽¹⁾
Period	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs⁽²⁾	Maximum number of shares that may yet be purchased under the plans or programs
3/29/2020 - 4/30/2020	—	$	—	N/A	N/A
5/1/2020 - 5/31/2020	603,000	$	8.97	N/A	N/A
6/1/2020 - 6/27/2020	—	$	—	N/A	N/A
Total	603,000	$	8.97	N/A	N/A


⁽²⁾	~~No purchases reflected in the table were made pursuant to a publicly announced plan or program.~~



Exhibit No.			Description
3.1			Certificate of Incorporation of Gates Industrial Corporation plc (incorporated by reference from Exhibit 3.1 to the registrant’s Amendment No. 1 to its Registration Statement on Form S-1, filed on January 8, 2018 (File No. 333-222310)).
3.2			Articles of Association of Gates Industrial Corporation plc, effective October 7, 2019*2019
31.1			Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
31.2			Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32.1			Certification by the Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
101			The following financial information from Gates Industrial Corporation’s Quarterly Report on Form 10-Q for the three and ~~nine~~six months ended ~~September 28, 2019,~~June 27, 2020, formatted in inline Extensible Business Reporting Language ~~(XBRL)~~(iXBRL): (i) Condensed Consolidated Statements of Operations for the three and ~~nine~~six months ended ~~September 28,~~June 27, 2020 and June 29, 2019, ~~and September 29, 2018,~~ (ii) Condensed Consolidated Statements of Comprehensive Income for the three and ~~nine~~six months ended ~~September 28,~~June 27, 2020 and June 29, 2019, ~~and September 29, 2018,~~ (iii) Condensed Consolidated Balance Sheets as of ~~September~~June 27, 2020 and December 28, 2019, ~~and December 29, 2018,~~ (iv) Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September 28,~~June 27, 2020 and June 29, 2019, ~~and September 29, 2018,~~ (v) Condensed Consolidated Statements of Shareholders’ Equity, and (vi) Notes to the Condensed Consolidated Financial Statements.Statements
104			Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit 101)