Gates Industrial (NYSE: GTES) Q2 profit surges on major tax benefit
Gates Industrial Corporation Ltd. reported stronger results for the quarter ended June 27, 2026. Net sales were $941.6 million, up from $883.7 million a year earlier, with growth in both Power Transmission and Fluid Power. Adjusted EBITDA was $211.4 million versus $199.2 million.
Profitability increased sharply: net income attributable to shareholders was $170.9 million, compared with $56.5 million, and diluted earnings per share were $0.67 versus $0.22. This was driven largely by $78.0 million of income tax benefit and a negative effective tax rate, reflecting discrete tax benefits from recognizing deferred tax assets, primarily in Luxembourg, in connection with the group’s redomiciliation.
As of June 27, 2026, Gates held $823.5 million in cash and cash equivalents and total debt with a carrying value of $2,233.5 million$108.8 million. The company repurchased and cancelled 1,633,005 shares for about $38.6 million and notes that roughly 68% of first-half sales came from aftermarket channels.
Positive
- None.
Negative
- None.
Filing Explained
The completed Bermuda redomiciliation changed the legal parent and enabled recognition of $96.6 million of deferred tax assets in the quarter.
As an unaudited quarterly report, this filing updates interim financial information and reports that on
The new parent became the sole shareholder of Gates Industrial Corporation plc and does not conduct operations apart from owning the group’s subsidiaries, so the completed event changed the group’s legal parent and jurisdiction rather than describing a pending transaction.
The redomiciliation also supported a tax-accounting change: as of
The remaining
Separately, approximately
Key Figures
Net sales Q2 2026: $941.6 million
Net income attributable to shareholders Q2 2026: $170.9 million
Diluted EPS Q2 2026: $0.67
+5 more
8 metrics
Net sales Q2 2026
$941.6 million
Three months ended June 27, 2026
Net income attributable to shareholders Q2 2026
$170.9 million
Three months ended June 27, 2026
Diluted EPS Q2 2026
$0.67
Three months ended June 27, 2026
Adjusted EBITDA Q2 2026
$211.4 million
Three months ended June 27, 2026
Income tax benefit Q2 2026
$78.0 million
Three months ended June 27, 2026, income tax (benefit) on continuing operations
Cash and cash equivalents
$823.5 million
As of June 27, 2026
Total debt principal
$2,235.3 million
As of June 27, 2026, secured term loans and 6.875% senior notes
Operating cash flow H1 2026
$108.8 million
Net cash provided by operating activities, six months ended June 27, 2026
Key Terms
Adjusted EBITDA, Redomiciliation, net investment hedges, cash flow hedges, +2 more
6 terms
Adjusted EBITDA financial
"The CEO uses Adjusted EBITDA, as defined below, to measure the profitability of each segment."
Adjusted EBITDA is a way companies measure how much money they make from their core operations, like running a business, by removing certain costs or income that aren’t part of regular business activities. It helps investors see how well a company is doing without distractions from unusual expenses or gains, making it easier to compare companies or track performance over time.
Redomiciliation regulatory
"On July 20, 2026, Gates Industrial Corporation group parent company changed its jurisdiction of incorporation to Bermuda (the “Redomiciliation”)."
Redomiciliation is when a company legally changes its country of incorporation while keeping the same business and assets, like moving a house to a new neighborhood but keeping the same furniture. Investors care because the company then follows a different set of laws and tax rules, which can change shareholder rights, reporting standards, dividend treatment and the ease of trading the stock, potentially affecting risk and return.
net investment hedges financial
"We hold cross currency swaps that have been designated as net investment hedges of certain of our foreign subsidiaries."
A net investment hedge is a financial step a company takes to protect the reported value of its ownership in foreign subsidiaries from swings in exchange rates. By using derivatives or foreign‑currency borrowings to offset translation gains or losses, the company reduces how much its balance sheet and reported equity jump around when currencies move — like locking a price tag on a foreign store so its value in the home currency stays steadier for investors.
cash flow hedges financial
"We use interest rate swaps as part of our interest rate risk management strategy; these instruments are all designated as cash flow hedges."
A cash flow hedge is an accounting label companies use when they enter financial contracts—like currency or interest-rate agreements—to protect expected future cash payments or receipts from unpredictable moves. For investors, it signals that the company is trying to smooth out future cash variability (think of locking in a price to avoid surprises), which can reduce reported profit swings but also means the company has exposure to derivative instruments and their associated risks.
stock appreciation rights financial
"Due to Chinese regulatory restrictions on foreign stock ownership, awards granted to Chinese employees have been issued as stock appreciation rights (“SARs”)."
Stock appreciation rights (SARs) are a form of employee compensation that give the holder the right to receive the increase in a company's stock price over a set baseline, paid in cash or shares, without having to buy the stock. For investors, SARs matter because they can create future cash outflows or share dilution and signal how a company rewards and motivates executives — similar to giving a bonus tied directly to how well the company’s stock performs.
other comprehensive income financial
"Gains and losses on certain hedging instruments are recognized in other comprehensive income (“OCI”) and reclassified into net income."
Other comprehensive income is a section of a company’s financial statements that records gains and losses not shown in the regular profit-and-loss line, such as paper gains or losses on certain investments, pension plan adjustments, and changes from converting foreign operations. These items don’t represent cash earned or spent today but change a company’s reported net worth, like value swings in things stored in a closet rather than money in your wallet, and help investors spot hidden strengths or risks to long-term financial health.
AI-generated analysis. How Rhea-AI works. Not financial advice.
See more from StockTitan in Google Search and AI answers.
Adds StockTitan as a preferred source · opens Google
FAQ
How did Gates Industrial (GTES) perform financially in Q2 2026?
Gates Industrial generated Q2 2026 net sales of $941.6 million and net income attributable to shareholders of $170.9 million. This compared to $883.7 million of net sales and $56.5 million of net income in the prior-year quarter, with diluted EPS rising from $0.22 to $0.67.
What drove the large tax benefit for Gates Industrial (GTES) in 2026?
Gates recorded an income tax benefit of $78.0 million in Q2 2026, producing a (77.8)% effective tax rate. Management attributes this mainly to discrete tax benefits of $99.0 million from changes in the realizability of deferred tax assets, primarily in Luxembourg, facilitated by the group’s redomiciliation.
How are Gates Industrial (GTES) segments performing in Q2 2026?
In Q2 2026, Power Transmission net sales were $588.5 million and Fluid Power net sales were $353.1 million. Segment Adjusted EBITDA was $134.8 million for Power Transmission and $76.6 million for Fluid Power, both modestly above the prior-year period on higher sales.
What is Gates Industrial’s (GTES) debt and liquidity position as of June 27, 2026?
As of June 27, 2026, Gates held $823.5 million in cash and cash equivalents and total debt with a carrying value of $2,233.5 million. The company’s $500.0 million revolving credit facility was undrawn for cash, with $27.8 million used for letters of credit.
How much cash did Gates Industrial (GTES) generate and invest in the first half of 2026?
For the six months ended June 27, 2026, Gates generated $108.8 million of net cash from operating activities. It used $41.8 million for investing, including $35.0 million of capital expenditures, and $50.8 million for financing, mainly $38.6 million of share repurchases.
What portion of Gates Industrial’s (GTES) revenue comes from aftermarket versus OEM channels?
During the six months ended June 27, 2026, Gates’ aftermarket channels generated $1,226.2 million of net sales, while OEM channels contributed $566.5 million. Aftermarket therefore represented about 68% of total first-half net sales, reflecting the company’s strong exposure to maintenance and replacement demand.
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
For the quarterly period ended June 27, 2026
or
For the transition period from ____ to ____
Commission file number 001-38366
(Exact Name of Registrant as Specified in its Charter)
| | ||||||||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
| (Address of principal executive offices) | (Zip Code) | |||||||
(303 ) 744-1911
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated filer | ☐ | |||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | |||||||||
| Emerging growth company | |||||||||||
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 July 29, 2026, there were 253,151,170 common shares of $0.01 par value per share outstanding.
Table of Contents
TABLE OF CONTENTS
| Part I – Financial Information | ||||||||
| Item 1. | Financial Statements (unaudited) | 1 | ||||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 30 | ||||||
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 42 | ||||||
| Item 4. | Controls and Procedures | 42 | ||||||
| Part II – Other Information | ||||||||
| Item 1. | Legal Proceedings | 43 | ||||||
| Item 1A. | Risk Factors | 43 | ||||||
| Item 5. | Other Information | 43 | ||||||
| Item 6. | Exhibits | 47 | ||||||
Signatures | 48 | |||||||
Table of Contents
Cautionary Note Regarding 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 I of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2025 (the “annual report”), as filed with the Securities and Exchange Commission (the “SEC”), which include the following: U.S. policies, actions or legislation (including the imposition of tariffs); economic, political and other risks associated with international operations (including as a result of the ongoing conflicts in the Middle East and their impact on supply chains, such as reduced availability of certain of our production materials and increased supply costs, and economic conditions); availability of raw materials or other manufacturing inputs at favorable prices in sufficient quantities, or at a given time; changes in our relationships with, or the financial condition, performance, purchasing power or inventory levels of, key channel partners; dependence on the continued operation of our manufacturing facilities, supply chains, distribution systems and information technology systems; our ability to forecast demand or meet significant increases in demand; market acceptance of new product introductions and innovations; longer lives of parts used in our end markets may affect demand for some of our aftermarket products; increasing competition; pursuit of strategic transactions, including acquisitions, divestitures, joint ventures, strategic alliances or investments, which could create risks and present unforeseen integration obstacles or costs; our investments in joint ventures; loss or financial instability of any significant customer; our cost reduction actions; the anticipated benefits of our completed redomiciliation to Bermuda may not be realized and such redomiciliation may have unanticipated negative impacts; societal responses to sustainability issues, including those related to climate change; the ability to maintain and enhance our strong brand; cyber-security vulnerabilities, threats, and more sophisticated and targeted computer crimes; failure of information systems; highly complex and rapidly evolving global privacy, data protection and data security requirements; existing or new laws and regulations, including but not limited to those relating to health, safety, and environmental concerns, and the sale of aftermarket products; recalls, product liability claims or product warranties claims; failure to develop, obtain, enforce and protect our intellectual property rights in all jurisdictions throughout the world; failure to comply with anti-corruption laws and other laws governing our international operations; litigation, legal and regulatory proceedings and obligations, and the availability and coverage of insurance; loss of senior management or key personnel; work stoppages and other labor matters; potential requirement to make additional cash contributions to our defined benefit pension plans; change in our effective tax rates or additional tax liabilities; change in tax laws; tax authorities may no longer treat us as being exclusively a resident of the U.K. for tax purposes; and our substantial indebtedness, including interest rate risk, 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.
Website Disclosure
We use our website (www.gates.com) as a channel of distribution of company information. The information we post through this channel may be deemed material. Accordingly, investors should monitor this channel, in addition to following our press releases, SEC filings and public conference calls, and webcasts. In addition, you may automatically receive email alerts and other information about Gates when you enroll your email address by visiting the “Investor Resources—Email Alerts” section of our website at https://investors.gates.com. The contents of our website and any alerts are not, however, a part of this report.
Table of Contents
ABOUT THIS QUARTERLY REPORT
Financial Statement Presentation
Gates Industrial Corporation plc was incorporated under the Companies Act 2006 on September 25, 2017 and registered in England and Wales. On July 20, 2026, Gates Industrial Corporation group parent company changed its jurisdiction of incorporation from England and Wales to Bermuda. As a result, Gates Industrial Corporation Ltd., an exempted company limited by shares incorporated under the laws of Bermuda, became the Gates Industrial Corporation group parent company. For additional information, refer to Note 1 to the condensed consolidated financial statements included elsewhere in this report.
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 “U.S.”) dollars, unless indicated otherwise.
Certain Definitions
As used in this quarterly report, unless otherwise noted or the context requires otherwise:
•“Gates,” “Gates Industrial Corporation,” the “Company,” “we,” “us” and “our” or any similar references relating to periods after the Redomiciliation (as defined below) refer to Gates Industrial Corporation Ltd. and its consolidated subsidiaries and, for periods prior to the Redomiciliation, refer to Gates Industrial Corporation plc and its consolidated subsidiaries; and
•“Board” refers to the board of directors of Gates Industrial Corporation Ltd. for periods after the Redomiciliation and to the board of directors of Gates Industrial Corporation plc for periods prior to the Redomiciliation.
Table of Contents
PART I — FINANCIAL INFORMATION
Item 1: Financial Statements (unaudited)
Gates Industrial Corporation Ltd.
Unaudited Condensed Consolidated Statements of Operations
| Three months ended | Six months ended | |||||||||||||||||||||||||||||||
(dollars in millions, except per share amounts) | June 27, 2026 | June 28, 2025 | June 27, 2026 | June 28, 2025 | ||||||||||||||||||||||||||||
| Net sales | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Cost of sales | ||||||||||||||||||||||||||||||||
| Gross profit | ||||||||||||||||||||||||||||||||
| Selling, general and administrative expenses | ||||||||||||||||||||||||||||||||
| Transaction-related expenses | ||||||||||||||||||||||||||||||||
| Asset impairments | ||||||||||||||||||||||||||||||||
| Restructuring expenses | ||||||||||||||||||||||||||||||||
| Operating income from continuing operations | ||||||||||||||||||||||||||||||||
| Interest expense | ||||||||||||||||||||||||||||||||
| Other expense | ||||||||||||||||||||||||||||||||
| Income from continuing operations before taxes | ||||||||||||||||||||||||||||||||
| Income tax (benefit) expense | ( | ( | ||||||||||||||||||||||||||||||
| Net income from continuing operations | ||||||||||||||||||||||||||||||||
Loss on disposal of discontinued operations, net of tax, respectively, of $ | ||||||||||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||||||
| Less: non-controlling interests | ||||||||||||||||||||||||||||||||
| Net income attributable to shareholders | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Earnings per share | ||||||||||||||||||||||||||||||||
| Basic | ||||||||||||||||||||||||||||||||
| Earnings per share from continuing operations | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Earnings per share from discontinued operations | $ | $ | ||||||||||||||||||||||||||||||
| Earnings per share | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Diluted | ||||||||||||||||||||||||||||||||
| Earnings per share from continuing operations | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Earnings per share from discontinued operations | $ | $ | ||||||||||||||||||||||||||||||
| Earnings per share | $ | $ | $ | $ | ||||||||||||||||||||||||||||
The accompanying notes form an integral part of these condensed consolidated financial statements.
1
Table of Contents
Gates Industrial Corporation Ltd.
Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)
| Three months ended | Six months ended | ||||||||||||||||||||||||||||
(dollars in millions) | June 27, 2026 | June 28, 2025 | June 27, 2026 | June 28, 2025 | |||||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||||||||
| Other comprehensive income (loss) | |||||||||||||||||||||||||||||
| Foreign currency translation: | |||||||||||||||||||||||||||||
—Net translation (loss) gain on foreign operations, net of tax benefit (expense), respectively, of $ | ( | ( | |||||||||||||||||||||||||||
—Gain (loss) on net investment hedges, net of tax benefit (expense), respectively, of $ | ( | ( | |||||||||||||||||||||||||||
| Total foreign currency translation movements | ( | ||||||||||||||||||||||||||||
| Cash flow hedges (interest rate and currency forward derivatives): | |||||||||||||||||||||||||||||
— Gain (loss) arising in the period, net of tax benefit (expense), respectively, of $( | ( | ( | |||||||||||||||||||||||||||
—Reclassification to net income, net of tax benefit, respectively, of $ | ( | ( | |||||||||||||||||||||||||||
| Total cash flow hedges movements | ( | ( | |||||||||||||||||||||||||||
| Post-retirement benefits: | |||||||||||||||||||||||||||||
—Reclassification of prior year actuarial movements to net income, net of tax benefit, respectively, of $( | ( | ( | ( | ||||||||||||||||||||||||||
| Total post-retirement benefits movements | ( | ( | ( | ||||||||||||||||||||||||||
| Other comprehensive income (loss) | ( | ||||||||||||||||||||||||||||
| Comprehensive income for the period | $ | $ | $ | $ | |||||||||||||||||||||||||
| Comprehensive income attributable to shareholders: | |||||||||||||||||||||||||||||
| —Income arising from continuing operations | $ | $ | $ | $ | |||||||||||||||||||||||||
| —Loss arising from discontinued operations | ( | ( | ( | ( | |||||||||||||||||||||||||
| Comprehensive income attributable to non-controlling interests | |||||||||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||||||||
The accompanying notes form an integral part of these condensed consolidated financial statements.
2
Table of Contents
Gates Industrial Corporation Ltd.
Unaudited Condensed Consolidated Balance Sheets
(dollars in millions, except share numbers and per share amounts) | As of June 27, 2026 | As of December 31, 2025 | |||||||||
| Assets | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Trade accounts receivable, net | |||||||||||
| Inventories | |||||||||||
| Taxes receivable | |||||||||||
| Prepaid expenses and other assets | |||||||||||
| Total current assets | |||||||||||
| Non-current assets | |||||||||||
| Property, plant and equipment, net | |||||||||||
| Goodwill | |||||||||||
| Pension surplus | |||||||||||
| Intangible assets, net | |||||||||||
| Right-of-use assets | |||||||||||
| Taxes receivable | |||||||||||
| Deferred income taxes | |||||||||||
| Other non-current assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and equity | |||||||||||
| Current liabilities | |||||||||||
| Debt, current portion | $ | $ | |||||||||
| Trade accounts payable | |||||||||||
| Taxes payable | |||||||||||
| Accrued expenses and other current liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Non-current liabilities | |||||||||||
| Debt, less current portion | |||||||||||
| Post-retirement benefit obligations | |||||||||||
| Lease liabilities | |||||||||||
| Taxes payable | |||||||||||
| Deferred income taxes | |||||||||||
| Other non-current liabilities | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies (Note 18) | |||||||||||
| Shareholders’ equity | |||||||||||
| —Additional paid-in capital | |||||||||||
| —Accumulated other comprehensive loss | ( | ( | |||||||||
| —Treasury shares | ( | ||||||||||
| —Retained earnings | |||||||||||
| Total shareholders’ equity | |||||||||||
| Non-controlling interests | |||||||||||
| Total equity | |||||||||||
| Total liabilities and equity | $ | $ | |||||||||
The accompanying notes form an integral part of these condensed consolidated financial statements
3
Table of Contents
Gates Industrial Corporation Ltd.
Unaudited Condensed Consolidated Statements of Cash Flows
| Six months ended | |||||||||||||||||
(dollars in millions) | June 27, 2026 | June 28, 2025 | |||||||||||||||
| Cash flows from operating activities | |||||||||||||||||
| Net income | $ | $ | |||||||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||||
Depreciation and amortization | |||||||||||||||||
| Foreign exchange and other non-cash financing income | ( | ( | |||||||||||||||
Share-based compensation expense | |||||||||||||||||
Decrease in post-employment benefit obligations, net | ( | ( | |||||||||||||||
Deferred income taxes | ( | ( | |||||||||||||||
Asset impairments | |||||||||||||||||
Other operating activities | |||||||||||||||||
| Changes in operating assets and liabilities: | |||||||||||||||||
| —Accounts receivable | ( | ( | |||||||||||||||
| —Inventories | ( | ( | |||||||||||||||
| —Accounts payable | ( | ||||||||||||||||
| —Prepaid expenses and other assets | ( | ( | |||||||||||||||
| —Taxes payable | ( | ||||||||||||||||
| —Other liabilities | ( | ||||||||||||||||
| Net cash provided by operating activities | |||||||||||||||||
| Cash flows from investing activities | |||||||||||||||||
| Purchases of property, plant and equipment | ( | ( | |||||||||||||||
| Purchases of intangible assets | ( | ( | |||||||||||||||
| Cash paid under company-owned life insurance policies | ( | ( | |||||||||||||||
| Cash received under company-owned life insurance policies | |||||||||||||||||
| Proceeds from the sale of property, plant and equipment | |||||||||||||||||
| Other investing activities | ( | ( | |||||||||||||||
| Net cash used in investing activities | ( | ( | |||||||||||||||
| Cash flows from financing activities | |||||||||||||||||
| Issuance of shares | |||||||||||||||||
| Repurchase of shares | ( | ( | |||||||||||||||
| Payments of long-term debt | ( | ( | |||||||||||||||
| Employee taxes paid from shares withheld | ( | ( | |||||||||||||||
| Dividends paid to non-controlling interests | ( | ||||||||||||||||
| Other financing activities | ( | ||||||||||||||||
| Net cash used in financing activities | ( | ( | |||||||||||||||
| Effect of exchange rate changes on cash and cash equivalents and restricted cash | ( | ||||||||||||||||
| Net increase in cash and cash equivalents and restricted cash | |||||||||||||||||
| Cash and cash equivalents and restricted cash at the beginning of the period | |||||||||||||||||
| Cash and cash equivalents and restricted cash at the end of the period | $ | $ | |||||||||||||||
| Supplemental schedule of cash flow information | |||||||||||||||||
| Interest paid | $ | $ | |||||||||||||||
| Income taxes paid | $ | $ | |||||||||||||||
| Accrued capital expenditures | $ | $ | |||||||||||||||
The accompanying notes form an integral part of these condensed consolidated financial statements
4
Gates Industrial Corporation Ltd.
Unaudited Condensed Consolidated Statements of Shareholders’ Equity
| Three months ended June 27, 2026 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
(dollars in millions) | Share capital | Additional paid-in capital | Treasury Shares | Accumulated other comprehensive loss | Retained earnings | Total shareholders’ equity | Non- controlling interests | Total equity | |||||||||||||||||||||||||||||||||||||||||||||
| As of March 28, 2026 | $ | $ | $ | ( | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Total comprehensive income | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Other changes in equity: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| —Issuance of shares | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| —Shares withheld for employee taxes | — | ( | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||
| —Repurchase of shares | — | — | ( | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||
| —Cancellation of treasury shares | — | — | — | ( | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| —Share-based compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| As of June 27, 2026 | $ | $ | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Three months ended June 28, 2025 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
(dollars in millions) | Share capital | Additional paid-in capital | Treasury Shares | Accumulated other comprehensive loss | Retained earnings | Total shareholders’ equity | Non- controlling interests | Total equity | |||||||||||||||||||||||||||||||||||||||||||||
| As of March 29, 2025 | $ | $ | $ | ( | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total comprehensive income | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Other changes in equity: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| —Issuance of shares | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| —Shares withheld for employee taxes | — | ( | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||
| —Cancellation of treasury shares | — | — | — | ( | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| —Share-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| —Dividends paid to non-controlling interests | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| As of June 28, 2025 | $ | $ | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
5
| Six months ended June 27, 2026 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in millions) | Share capital | Additional paid-in capital | Treasury Shares | Accumulated other comprehensive loss | Retained earnings | Total shareholders’ equity | Non- controlling interests | Total equity | |||||||||||||||||||||||||||||||||||||||||||||
| As of December 31, 2025 | $ | $ | $ | ( | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | ( | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Total comprehensive income | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other changes in equity: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| —Issuance of shares | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| —Shares withheld for employee taxes | — | ( | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||
| —Repurchase of shares | ( | — | ( | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||
| —Cancellation of treasury shares | — | — | — | ( | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| —Share-based compensation | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| As of June 27, 2026 | $ | $ | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Six months ended June 28, 2025 | |||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in millions) | Share capital | Additional paid-in capital | Treasury Shares | Accumulated other comprehensive loss | Retained earnings | Total shareholders’ equity | Non- controlling interests | Total equity | |||||||||||||||||||||||||||||||||||||||
| As of December 28, 2024 | $ | $ | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive (loss) income | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Total comprehensive (loss) income | |||||||||||||||||||||||||||||||||||||||||||||||
| Other changes in equity: | |||||||||||||||||||||||||||||||||||||||||||||||
| —Issuance of shares | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| —Shares withheld for employee taxes | — | ( | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| —Repurchase and cancellation of shares | — | — | — | — | ( | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| —Share-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| —Dividends paid to non-controlling interests | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||
| As of June 28, 2025 | $ | $ | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
The accompanying notes form an integral part of these condensed consolidated financial statements
6
Gates Industrial Corporation Ltd.
Notes to the Unaudited Condensed Consolidated Financial Statements
1. Introduction
A. Background
Gates Industrial Corporation plc was a public limited company that was registered in England and Wales on September 25, 2017.
On July 20, 2026, Gates Industrial Corporation plc completed a shareholder and court approved scheme of arrangement in the U.K., pursuant to which a new Bermudan holding company, Gates Industrial Corporation Ltd., a Bermuda exempted company limited by shares, became the sole shareholder of Gates Industrial Corporation plc and the parent company of the entire group of Gates Industrial Corporation companies (the “Redomiciliation”).
The Redomiciliation resulted in the Gates Industrial Corporation group parent company changing its jurisdiction of incorporation from England and Wales to Bermuda. As the parent company, Gates Industrial Corporation Ltd. does not conduct any operations other than with respect to its direct and indirect ownership of its subsidiaries.
In these condensed consolidated financial statements and related notes, all references to the “Company”, “Gates,” “we,” “us,” and “our” after the Redomiciliation refer, unless the context requires otherwise, to Gates Industrial Corporation Ltd. and its consolidated subsidiaries and, for periods prior to the Redomiciliation, refer to Gates Industrial Corporation plc and its consolidated subsidiaries.
B. Accounting periods
Our fiscal quarters end on the Saturday closest to the end of March, June and September for the first three fiscal quarters of each year, and on December 31 for our fourth fiscal quarter. Accordingly, the condensed consolidated balance sheets as of June 27, 2026 and December 31, 2025, and the related condensed consolidated statements of operations, comprehensive income, cash flows, and shareholders’ equity are presented, where relevant, for the 179 day period from December 31, 2025 to June 27, 2026, with comparative information for the 183 day period from December 28, 2024 to June 28, 2025.
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 June 27, 2026 and the results of its operations and cash flows for the periods ended June 27, 2026 and June 28, 2025. Interim period results are not necessarily indicative of the results to be expected for the full fiscal year.
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. Estimates and assumptions used are based on factors such as historical experience, observance of trends in the industries in which we operate and information available from our customers and other outside sources.
These condensed consolidated financial statements are unaudited and have been prepared on substantially the same basis as Gates’ audited annual consolidated financial statements and related notes for the year ended December 31, 2025 included in the Company’s Annual Report on Form 10-K and should be read in conjunction therewith. The condensed consolidated balance sheet as of December 31, 2025 has been derived from those audited financial statements.
7
During 2021, the Company implemented a program with an unrelated third party under which we may periodically sell trade accounts receivable from one of our aftermarket customers with whom we have extended payment terms as part of a commercial agreement. The purpose of using this program is to generally offset the working capital impact resulting from this terms extension. All eligible accounts receivable from this customer are covered by the program, and any factoring is solely at our option. Following the factoring of a qualifying receivable, because we maintain no continuing involvement in the underlying receivable, and collectability risk is fully transferred to the unrelated third party, we account for these transactions as a sale of a financial asset and derecognize the asset. Cash received under the program is classified as operating cash inflows in the consolidated statement of cash flows. As of June 27, 2026, the collection of $79.1 million of our trade accounts receivable had been accelerated under this program, compared to the accelerated collection of $165.9 million as of December 31, 2025. During the three and six months ended June 27, 2026, we incurred costs in respect of this program of $1.6 million and $3.8 million, respectively. During the three and six months ended June 28, 2025, we incurred costs in respect of this program of $2.5 million and $4.4 million, respectively.
8
2. Recent accounting pronouncements not yet adopted
The following accounting pronouncements are relevant to Gates’ operations but have not yet been adopted.
•Accounting Standards Update (“ASU”) 2026-02 “Environmental Credits and Environmental Credit Obligations (Topic 818)”
In May 2026, the Financial Accounting Standards Board (“FASB”) issued an ASU to improve the financial accounting for and disclosure of environmental credits and environmental credit obligations. This update impacts recognition, measurement, presentation, and disclosure requirements for all entities that generate, purchase, or receive environmental credits, or have a regulatory compliance obligation that may be settled with environmental credits. The updated standard is effective for our annual periods beginning in fiscal year 2028 and interim periods beginning in the first quarter of fiscal year 2029, with early adoption permitted. We are currently evaluating the impact the updated standard will have on our consolidated financial statements and disclosures and do not expect the application of this standard to have a material impact.
•ASU 2025-6 “Intangibles - Goodwill and Other Internal-Use Software (Subtopic 350-40)”
In September 2025, the FASB issued an ASU to modernize the accounting for software costs. The amendment removes all references to prescriptive and sequential software development stages (referred to as “project stages”) for capitalization throughout Subtopic 350-40 and introduces a principles-based capitalization model. Under the new guidance, an entity is required to start capitalizing software costs when both of the following occur: (i) management has authorized and committed to funding the software project and (ii) it is probable that the project will be completed and the software will be used to perform the function intended. The amendment also introduces the concept of significant development uncertainty, which precludes capitalization until such uncertainty is resolved. The updated standard is effective for our annual periods beginning in fiscal year 2028 and interim periods beginning in the first quarter of fiscal year 2028, with early adoption permitted. We are currently evaluating the impact the updated standard will have on our consolidated financial statements and disclosures.
•ASU 2024-03 “Income Statement - Reporting Comprehensive Income: Expense Disaggregation Disclosures”
In November 2024, the FASB issued an ASU to require disclosure of specified information about certain expense amounts comprising of Cost of sales, and Selling, general and administrative expenses, as well as qualitative description of the remaining expense amounts. The amendments in this update are intended to provide investors with additional information about specific expense categories in the notes to the financial statements at interim and annual reporting periods. The updated standard is effective for our annual periods beginning in fiscal year 2027 and interim periods beginning in the first quarter of fiscal year 2028, with early adoption permitted. We are currently evaluating the impact the updated standard will have on our consolidated financial statements and disclosures.
•ASU 2023-06 “Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative”
3. Segment information
A. Background
The segment information provided in these condensed consolidated financial statements reflects the information that is used by the chief operating decision maker for the purposes of making decisions about allocating resources and in assessing the performance of each segment. The chief executive officer (“CEO”) of Gates serves as the chief operating decision maker. These decisions are based principally on net sales and Adjusted EBITDA (defined below).
9
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 original equipment manufacturer (“OEM”) channels, throughout the world.
Our reportable segments are identified on the basis of our primary product lines, as this is the basis on which information is provided to the CEO for the purposes of allocating resources and assessing the performance of Gates’ businesses. Our operating and reporting segments are therefore Power Transmission and Fluid Power.
Segment asset information is not provided to the chief operating decision maker and therefore segment asset information has not been presented. Due to the nature of Gates’ operations, cash generation and profitability are viewed as the key measures rather than an asset-based measure.
C. Segment net sales and disaggregated net sales
Sales between reportable segments and the impact of such sales on Adjusted EBITDA for each segment are not included in internal reports presented to the CEO and have therefore not been included below.
| Three months ended | Six months ended | ||||||||||||||||||||||||||||
| (dollars in millions) | June 27, 2026 | June 28, 2025 | June 27, 2026 | June 28, 2025 | |||||||||||||||||||||||||
| Power Transmission | $ | $ | $ | $ | |||||||||||||||||||||||||
| Fluid Power | |||||||||||||||||||||||||||||
| Net sales | $ | $ | $ | $ | |||||||||||||||||||||||||
Our commercial function is organized by region and therefore, in addition to reviewing net sales by our reporting segments, the CEO also reviews net sales information disaggregated by region, including between emerging and developed markets.
The following table summarizes our net sales by key geographic region of origin:
| Three months ended | |||||||||||||||||||||||||||||||||||||||||||||||
| June 27, 2026 | June 28, 2025 | ||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in millions) | Power Transmission | Fluid Power | Power Transmission | Fluid Power | |||||||||||||||||||||||||||||||||||||||||||
| U.S. | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
| Americas, excluding the U.S. | |||||||||||||||||||||||||||||||||||||||||||||||
| United Kingdom ("U.K.") | |||||||||||||||||||||||||||||||||||||||||||||||
| Luxembourg | |||||||||||||||||||||||||||||||||||||||||||||||
EMEA(1), excluding the U.K. and Luxembourg | |||||||||||||||||||||||||||||||||||||||||||||||
APAC (2), excluding China | |||||||||||||||||||||||||||||||||||||||||||||||
| China | |||||||||||||||||||||||||||||||||||||||||||||||
| Net sales | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
10
| Six months ended | |||||||||||||||||||||||||||||||||||
| June 27, 2026 | June 28, 2025 | ||||||||||||||||||||||||||||||||||
| (dollars in millions) | Power Transmission | Fluid Power | Power Transmission | Fluid Power | |||||||||||||||||||||||||||||||
| U.S. | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Americas, excluding the U.S. | |||||||||||||||||||||||||||||||||||
| United Kingdom ("U.K.") | |||||||||||||||||||||||||||||||||||
| Luxembourg | |||||||||||||||||||||||||||||||||||
EMEA(1), excluding the U.K. and Luxembourg | |||||||||||||||||||||||||||||||||||
APAC (2), excluding China | |||||||||||||||||||||||||||||||||||
| China | |||||||||||||||||||||||||||||||||||
| Net Sales | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
(1) Europe, Middle East and Africa (“EMEA”).
(2) Asia-Pacific (“APAC”).
The following tables summarize our segment net sales into OEM and Aftermarket channels:
| For the three months ended | |||||||||||||||||||||||
| June 27, 2026 | June 28, 2025 | ||||||||||||||||||||||
| (dollars in millions) | Power Transmission | Fluid Power | Power Transmission | Fluid Power | |||||||||||||||||||
| Aftermarket | $ | $ | $ | $ | |||||||||||||||||||
| OEM | |||||||||||||||||||||||
| Net sales | $ | $ | $ | $ | |||||||||||||||||||
| For the six months ended | |||||||||||||||||||||||
| June 27, 2026 | June 28, 2025 | ||||||||||||||||||||||
| (dollars in millions) | Power Transmission | Fluid Power | Power Transmission | Fluid Power | |||||||||||||||||||
| Aftermarket | $ | $ | $ | $ | |||||||||||||||||||
| OEM | |||||||||||||||||||||||
| Net sales | $ | $ | $ | $ | |||||||||||||||||||
D. Measure of segment profit or loss
The CEO uses Adjusted EBITDA, as defined below, to measure the profitability of each segment. Adjusted EBITDA is, therefore, the measure of segment profit or loss presented in Gates’ segment disclosures.
“EBITDA” represents net income from continuing operations for the period before net interest and other expense, income taxes, depreciation and amortization.
“Adjusted EBITDA” represents EBITDA before certain items that are considered to hinder comparison of the performance of our businesses on a period-over-period basis or with other businesses. During the periods presented, the items excluded from EBITDA in computing Adjusted EBITDA primarily included:
•transaction-related expenses incurred in relation to major corporate transactions, including the acquisition of businesses and related integration activities, and equity and debt transactions;
•non-cash charges in relation to share-based compensation;
•inventory adjustments related to certain inventories accounted for on a LIFO basis;
•asset impairments;
•restructuring expenses, including severance and restructuring-related expenses; and
•other expenses (income), excluding foreign currency transaction gain or loss and insurance recoveries.
11
Adjusted EBITDA by segment was as follows:
| Three months ended | Six months ended | ||||||||||||||||||||||||||||
| (dollars in millions) | June 27, 2026 | June 28, 2025 | June 27, 2026 | June 28, 2025 | |||||||||||||||||||||||||
| Power Transmission | $ | $ | $ | $ | |||||||||||||||||||||||||
| Fluid Power | |||||||||||||||||||||||||||||
| Adjusted EBITDA | $ | $ | $ | $ | |||||||||||||||||||||||||
The table below represents the segment profit or loss provided to the CEO on a quarterly basis:
| Three months ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| June 27, 2026 | June 28, 2025 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Power Transmission | Fluid Power | Total | Power Transmission | Fluid Power | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net sales | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
Adjusted cost of sales (1) | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
Adjusted selling, general and administrative expenses ("SG&A") (2) | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Depreciation and software amortization | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Other adjustments(3) | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Adjusted EBITDA | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Six months ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| June 27, 2026 | June 28, 2025 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Power Transmission | Fluid Power | Total | Power Transmission | Fluid Power | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net sales | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
Adjusted cost of sales (1) | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
Adjusted selling, general and administrative expenses (2) | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Depreciation and software amortization | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Other adjustments (3) | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Adjusted EBITDA | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
(1) Adjusted cost of sales excluded inventory impairments and adjustments primarily related to the reversal of the adjustment to remeasure certain inventories on a LIFO basis, and restructuring related expenses (included in cost of sales).
(2) Adjusted selling, general and administrative expenses excluded acquired intangible assets amortization, share-based compensation expense, and restructuring related expenses (included in SG&A).
(3) Other adjustments primarily relates to net foreign currency transaction (loss) gain and insurance (losses) recoveries.
12
Reconciliation of income from continuing operations before taxes to Adjusted EBITDA:
| Three months ended | Six months ended | ||||||||||||||||||||||||||||
(dollars in millions) | June 27, 2026 | June 28, 2025 | June 27, 2026 | June 28, 2025 | |||||||||||||||||||||||||
| Income from continuing operations before taxes | |||||||||||||||||||||||||||||
| Interest expense | |||||||||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||||||||
Transaction-related expense (1) | |||||||||||||||||||||||||||||
| Asset impairments | |||||||||||||||||||||||||||||
| Restructuring expenses | |||||||||||||||||||||||||||||
| Share-based compensation expense | |||||||||||||||||||||||||||||
Inventory adjustments (included in cost of sales)(2) | |||||||||||||||||||||||||||||
| Restructuring related expenses (included in cost of sales) | |||||||||||||||||||||||||||||
| Restructuring related expenses (included in SG&A) | |||||||||||||||||||||||||||||
Other (income) expenses, excluding foreign currency transaction gain or loss and insurance recoveries(3) | ( | ( | |||||||||||||||||||||||||||
Adjusted EBITDA | $ | $ | $ | $ | |||||||||||||||||||||||||
(1) Transaction-related expenses relate primarily to advisory fees and other costs recognized in respect of major corporate transactions, including the acquisition of businesses, and equity and debt transactions.
(2) Inventory adjustments includes the reversal of the adjustment to remeasure certain inventories on a LIFO basis.
4. Restructuring, asset impairments, and restructuring related expenses
Gates continues to undertake various restructuring and restructuring related 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, streamline our SG&A back-office functions and relocate certain operations to lower cost locations.
Restructuring expenses by expense type and asset impairments are included in the table below:
| Three months ended | Six months ended | ||||||||||||||||||||||||||||
(dollars in millions) | June 27, 2026 | June 28, 2025 | June 27, 2026 | June 28, 2025 | |||||||||||||||||||||||||
| Restructuring expenses: | |||||||||||||||||||||||||||||
| —Severance and related benefit expense | |||||||||||||||||||||||||||||
| —Professional service fees | |||||||||||||||||||||||||||||
| —Other net restructuring expenses | |||||||||||||||||||||||||||||
| Total restructuring expenses | |||||||||||||||||||||||||||||
| —Asset impairments related to restructuring | |||||||||||||||||||||||||||||
| Total restructuring expenses and asset impairments | $ | $ | $ | $ | |||||||||||||||||||||||||
Restructuring expenses during the three and six months ended June 27, 2026 included $0.7 million and $1.4 million, respectively, of costs related to a global cost reduction effort and reorganization of our operations in Mexico.
Restructuring expenses during both the three and six months ended June 28, 2025 primarily included $12.6
13
Restructuring expenses and asset impairments by segment were as follows:
| Three months ended | Six months ended | ||||||||||||||||||||||||||||
(dollars in millions) | June 27, 2026 | June 28, 2025 | June 27, 2026 | June 28, 2025 | |||||||||||||||||||||||||
| Power Transmission | $ | $ | $ | $ | |||||||||||||||||||||||||
| Fluid Power | |||||||||||||||||||||||||||||
| Total restructuring expenses and asset impairments | $ | $ | $ | $ | |||||||||||||||||||||||||
The following summarizes the reserve for restructuring expenses for the six months ended June 27, 2026 and June 28, 2025, respectively:
| Six months ended | |||||||||||||||||
(dollars in millions) | June 27, 2026 | June 28, 2025 | |||||||||||||||
| Balance as of the beginning of the period | $ | $ | |||||||||||||||
| Utilized during the period | ( | ( | |||||||||||||||
| Charge for the period | |||||||||||||||||
| Released during the period | ( | ( | |||||||||||||||
| Foreign currency translation | ( | ||||||||||||||||
| Balance as of the end of the period | $ | $ | |||||||||||||||
Restructuring reserves are included in the condensed consolidated balance sheet within the accrued expenses and other current liabilities line.
Certain expenses related to strategic initiatives, not qualified as restructuring under U.S. GAAP, have been provided in the table below:
| Three months ended | Six months ended | ||||||||||||||||||||||||||||
(dollars in millions) | June 27, 2026 | June 28, 2025 | June 27, 2026 | June 28, 2025 | |||||||||||||||||||||||||
| Other restructuring related expenses: | |||||||||||||||||||||||||||||
| —Severance and restructuring related expenses included in cost of sales | $ | $ | |||||||||||||||||||||||||||
| —Severance and restructuring related expenses included in SG&A | |||||||||||||||||||||||||||||
| Total restructuring related expenses | $ | $ | $ | $ | |||||||||||||||||||||||||
Restructuring related expenses during the three and six months ended June 27, 2026 included $3.9 million and $6.3 million, respectively, of costs related to the relocation of certain production activities and reorganization of our operations in Mexico and $5.4 million and $6.8 million, respectively, of costs related to professional service fees and general severance.
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 June 27, 2026, we had an income tax benefit of $78.0 million on pre-tax income of $100.2 million, which resulted in an effective tax rate of (77.8 )%, compared to an income tax expense of $16.8 million on pre-tax income of $80.2 million, which resulted in an effective tax rate of 20.9 %, for the three months ended June 28, 2025.
14
For the three months ended June 27, 2026, the effective tax rate was driven primarily by net discrete tax benefits of $100.7 million, comprised of discrete tax benefits related to $97.1 million of changes in realizability of certain deferred tax assets primarily in Luxembourg, $8.3 million related to unrecognized tax benefits, and $3.5 million related to other net discrete tax benefits, offset by $8.2 million of discrete expense related to an audit settlement in China. For the three months ended June 28, 2025, the effective tax rate was driven primarily by net discrete tax benefits of $7.2 million, of which $3.2 million related to prior year adjustments primarily from various foreign jurisdictions in which returns were filed, $2.6 million related to excess tax benefits on stock option exercises, and $2.0 million related to changes in the realizability of certain deferred tax assets; offset by $0.6 million of other net discrete tax expenses.
For the six months ended June 27, 2026, we had an income tax benefit of $66.5 million on pre-tax income of $178.1 million, which resulted in an effective tax rate of (37.3 )%, compared to an income tax expense of $42.0 million on pre-tax income of $174.0 million, which resulted in an effective tax rate of 24.1 %, for the six months ended June 28, 2025.
For the six months ended June 27, 2026, the effective tax rate was driven primarily by net discrete tax benefits of $107.1 million, comprised of a discrete tax benefit of $99.0 million related to the changes in realizability of certain deferred tax assets primarily in Luxembourg, $9.1 million related to unrecognized tax benefits, $4.2 million related to the expected refund of research and development credits from prior years, and $3.0 million related to other net discrete tax benefits; offset by $8.2 million related to an audit settlement in China. For the six months ended June 28, 2025, the effective tax rate was driven primarily by net discrete tax benefits of $7.1 million, of which $8.6 million related to excess tax benefits on stock option exercises, $3.2 million related to prior year adjustments primarily from various foreign jurisdictions in which returns were filed and $0.6 million other discrete tax benefits, offset by $3.2 million related to changes in the realizability of certain deferred tax assets and $2.1 million related to net unrecognized tax benefits
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.
As of each reporting date, we consider new evidence, both positive and negative, that could impact our view with regard to the future realization of deferred tax assets. We will maintain our positions with regard to future realization of deferred tax assets, including those with respect to which we continue maintaining valuation allowances, until there is sufficient new evidence to support a change in expectations. Such a change in expectations could arise due to many factors, including those impacting our forecasts of future earnings, as well as changes in the international tax laws under which we operate and tax planning. It is not reasonably possible to forecast any such changes at the present time, but it is possible that, should they arise, our view of their effect on the future realization of deferred tax assets may materially impact our financial statements.
After weighing all of the evidence, giving more weight to the evidence that was objectively verifiable, we determined that, as of June 27, 2026, it is more likely than not that deferred tax assets in Luxembourg totaling $108.6 million are realizable as a result of facilitating the Redomiciliation which increased Luxembourg’s projected earnings. Accordingly, we recognized $96.6 million of our deferred tax assets as a discrete event in the quarter, while the remaining $12.0 million will be recognized during the year through the effective tax rate. As a result of changes in future taxable profits against which net operating losses and interest carryforward can be utilized, our position and judgment regarding the realizability of these deferred tax assets changed.
15
6. Earnings per share
Basic earnings per share represents net income attributable to shareholders divided by the weighted average number of shares outstanding during the period. Diluted 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 earnings per share is presented below:
| Three months ended | Six months ended | ||||||||||||||||||||||
(dollars in millions, except share numbers and per share amounts) | June 27, 2026 | June 28, 2025 | June 27, 2026 | June 28, 2025 | |||||||||||||||||||
| Net income attributable to shareholders | $ | $ | $ | $ | |||||||||||||||||||
| Weighted average number of shares outstanding | |||||||||||||||||||||||
| Dilutive effect of share-based awards | |||||||||||||||||||||||
| Diluted weighted average number of shares outstanding | |||||||||||||||||||||||
| Number of anti-dilutive shares excluded from the diluted earnings per share calculation | |||||||||||||||||||||||
| Basic earnings per share | $ | $ | $ | $ | |||||||||||||||||||
| Diluted earnings per share | $ | $ | $ | $ | |||||||||||||||||||
7. Inventories
(dollars in millions) | As of June 27, 2026 | As of December 31, 2025 | |||||||||
| Raw materials and supplies | $ | $ | |||||||||
| Work in progress | |||||||||||
| Finished goods | |||||||||||
| Total inventories | $ | $ | |||||||||
8. Goodwill
(dollars in millions) | Power Transmission | Fluid Power | Total | ||||||||||||||
| Cost and carrying amount | |||||||||||||||||
| As of December 31, 2025 | $ | $ | $ | ||||||||||||||
| Foreign currency translation | ( | ( | ( | ||||||||||||||
| As of June 27, 2026 | $ | $ | $ | ||||||||||||||
16
9. Intangible assets
| As of June 27, 2026 | As of December 31, 2025 | ||||||||||||||||||||||||||||||||||
(dollars in millions) | Cost | Accumulated amortization and impairment | Net | Cost | Accumulated amortization and impairment | Net | |||||||||||||||||||||||||||||
Finite-lived: | |||||||||||||||||||||||||||||||||||
—Customer relationships | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
—Technology | ( | ( | |||||||||||||||||||||||||||||||||
—Capitalized software | ( | ( | |||||||||||||||||||||||||||||||||
| ( | ( | ||||||||||||||||||||||||||||||||||
Indefinite-lived: | |||||||||||||||||||||||||||||||||||
—Brands and trade names | ( | ( | |||||||||||||||||||||||||||||||||
Total intangible assets | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
During the three months ended June 27, 2026, the amortization expense recognized in respect of intangible assets was $35.9 million, compared to $32.1 million for the three months ended June 28, 2025. In addition, movements in foreign currency exchange rates resulted in a decrease in the net carrying value of total intangible assets of $0.4 million for the three months ended June 27, 2026, compared to an increase of $22.6 million for the three months ended June 28, 2025.
During the six months ended June 27, 2026, the amortization expense recognized in respect of intangible assets was $70.5 million, compared to $63.5 million for the six months ended June 28, 2025. In addition, movements in foreign currency exchange rates resulted in a decrease in the net carrying value of total intangible assets of $4.2 million for the six months ended June 27, 2026, compared to an increase of $29.8 million for the six months ended June 28, 2025.
10. Derivative financial instruments
We are exposed to certain financial 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 sheets. We designate certain of our currency swaps as net investment hedges and designate our interest rate swaps as cash flow hedges. The gain or loss on the designated derivative instrument is recognized in 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.
17
The period end fair values of derivative financial instruments were as follows:
| As of June 27, 2026 | |||||||||||||||||||||||||||||||||||
(dollars in millions) | Gross Notional Amount | Prepaid expenses and other assets | Other non- current assets | Accrued expenses and other current liabilities | Other non- current liabilities | Net | |||||||||||||||||||||||||||||
Derivative instruments designated as net investment hedges: | |||||||||||||||||||||||||||||||||||
—Currency swaps and currency forward contract | $ | $ | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||||||
Derivative instruments designated as cash flow hedges: | |||||||||||||||||||||||||||||||||||
—Interest rate swaps | ( | ( | $ | ||||||||||||||||||||||||||||||||
—Currency forward contracts | ( | $ | |||||||||||||||||||||||||||||||||
Derivatives not designated as hedging instruments: | |||||||||||||||||||||||||||||||||||
—Currency forward contracts | $ | ||||||||||||||||||||||||||||||||||
| $ | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||||||||
| As of December 31, 2025 | |||||||||||||||||||||||||||||||||||
(dollars in millions) | Gross Notional Amount | Prepaid expenses and other assets | Other non- current assets | Accrued expenses and other current liabilities | Other non- current liabilities | Net | |||||||||||||||||||||||||||||
Derivative instruments designated as net investment hedges: | |||||||||||||||||||||||||||||||||||
—Currency swaps and currency forward contract | $ | $ | $ | $ | $ | ( | $ | ( | |||||||||||||||||||||||||||
Derivative instruments designated as cash flow hedges: | |||||||||||||||||||||||||||||||||||
—Interest rate swaps | ( | ( | $ | ( | |||||||||||||||||||||||||||||||
—Currency forward contracts | ( | $ | ( | ||||||||||||||||||||||||||||||||
Derivatives not designated as hedging instruments: | |||||||||||||||||||||||||||||||||||
—Currency forward contracts | $ | ||||||||||||||||||||||||||||||||||
| $ | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||||||||
A. Instruments designated as net investment hedges
We hold cross currency swaps that have been designated as net investment hedges of certain of our foreign subsidiaries. During the second quarter of 2025, we expanded our net investment hedge activity by entering into cross currency swaps and foreign exchange forward contracts with a gross notional value at inception of $820.0 million and terms between three to five years , designated in hedges of portions of our net investment in Canadian, Chinese, and Japanese subsidiaries.
The fair value gains (losses) before tax recognized in OCI in relation to the instruments designated as net investment hedging instruments were as follows:
| Three months ended | Six months ended | ||||||||||||||||||||||
(dollars in millions) | June 27, 2026 | June 28, 2025 | June 27, 2026 | June 28, 2025 | |||||||||||||||||||
Net fair value gains (losses) recognized in OCI in relation to: | |||||||||||||||||||||||
| —Designated cross currency swaps & currency forwards | $ | $ | ( | $ | $ | ( | |||||||||||||||||
Total net fair value gains (losses) | $ | $ | ( | $ | $ | ( | |||||||||||||||||
During the three and six months ended June 27, 2026, a net gain of $5.8 million and $11.2 million, respectively, was recognized in interest expense in relation to our cross currency swaps and foreign exchange forward contracts that have been designated as net investment hedges, compared to a net gain of $5.7 million and $10.5 million, respectively, during the three and six months ended June 28, 2025.
18
B. Instruments designated as cash flow hedges
We use interest rate swaps 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. In April 2025, we entered into an agreement to execute two additional pay-fixed, receive floating interest rate swaps to hedge the cash flow risk on a portion of our floating-rate debt, effective starting June 30, 2025 upon expiration of the previous interest rate swaps. The notional amount of these interest rate swaps are $470.0 million and $230.0 million with five-year
During the second quarter of 2025, we hedged portions of our forecasted sales and purchases which occur within the next twelve months that are denominated in non-functional currencies, with currency forward contracts designated as cash flow hedges. These currency forward contracts are primarily used in respect of hedging our operational currency exposures in Europe to exchange currencies, principally between Euro and U.S. Dollar, Pound Sterling, Polish Zloty, and Czech Koruna.
The movements before tax recognized in OCI in relation to our cash flow hedges were as follows:
| Three months ended | Six months ended | ||||||||||||||||||||||||||||
(dollars in millions) | June 27, 2026 | June 28, 2025 | June 27, 2026 | June 28, 2025 | |||||||||||||||||||||||||
Movement recognized in OCI in relation to: | |||||||||||||||||||||||||||||
—Fair value gain (loss) on cash flow hedges | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||
| —Deferred OCI reclassified to net income | ( | ( | |||||||||||||||||||||||||||
Total movement | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||
C. Derivative instruments not designated as hedging instruments
Prior to second quarter of 2025, we did not designate our currency forward contracts that are primarily used in respect of hedging our operational currency exposures in Europe as discussed above. As of June 27, 2026, the notional amount of outstanding currency forward contracts that are not designated as hedging instruments was $0.1 million related to other foreign currencies, compared to $0.1 million as of December 31, 2025. The fair value 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, 2026 | June 28, 2025 | June 27, 2026 | June 28, 2025 | |||||||||||||||||||||||||
| Fair value gains recognized in relation to: | |||||||||||||||||||||||||||||
| —Currency forward contracts recognized in other expense (income) | $ | $ | ( | $ | $ | ||||||||||||||||||||||||
Total | $ | $ | ( | $ | $ | ||||||||||||||||||||||||
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.
19
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, drawings under 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:
| As of June 27, 2026 | As of December 31, 2025 | ||||||||||||||||||||||
(dollars in millions) | Carrying amount | Fair value | Carrying amount | Fair value | |||||||||||||||||||
| Current | $ | $ | $ | $ | |||||||||||||||||||
| Non-current | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
Debt is comprised principally of borrowings under the secured credit facility and the unsecured senior notes. The dollar term loans under the secured credit facilities pay interest at floating rates, subject to a 0.50 % Term SOFR floor as further described in Note 12. The fair values of the term loans are derived from a market price, discounted for 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 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:
(dollars in millions) | Significant observable inputs (Level 2) | Total | |||||||||||||||
| As of June 27, 2026 | |||||||||||||||||
| Derivative assets | $ | $ | |||||||||||||||
| Derivative liabilities | $ | ( | $ | ( | |||||||||||||
| Cash equivalents | $ | $ | |||||||||||||||
| As of December 31, 2025 | |||||||||||||||||
| Derivative assets | $ | $ | |||||||||||||||
| Derivative liabilities | $ | ( | $ | ( | |||||||||||||
| Cash equivalents | $ | $ | |||||||||||||||
Derivative assets and liabilities included in Level 2 represent foreign currency exchange forward and swap contracts, and interest rate derivative contracts. Cash equivalents included in Level 2 represent certificates of deposit and commercial paper.
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 1 or Level 3 inputs.
20
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 April 2024, Gates made a $5.0 million equity investment in a privately held company. Gates does not have the ability to exercise significant influence over the investee and the investment does not have a readily determinable fair value. We elected to recognize the investment at its cost in accordance with ASC 321 “Investments – Equity Securities” and will adjust the fair value of the investment if we identify any observable price changes in orderly transactions.
12. Debt
(dollars in millions) | As of June 27, 2026 | As of December 31, 2025 | |||||||||
| Secured debt: | |||||||||||
| —2024 Dollar Term Loans due June 4, 2031 | $ | $ | |||||||||
| —2022 Dollar Term Loans due November 16, 2029 | |||||||||||
| Unsecured debt: | |||||||||||
— | |||||||||||
| Total principal of debt | |||||||||||
| Deferred issuance costs | ( | ( | |||||||||
| Accrued interest | |||||||||||
| Total carrying value of debt | |||||||||||
| Debt, current portion | |||||||||||
| Debt, less current portion | $ | $ | |||||||||
| Weighted average interest rate | % | % | |||||||||
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.
Dollar Term Loans
Our outstanding secured credit facilities consist of two loans, which include a tranche of $1,300.0 million dollar-denominated term loans issued on June 4, 2024 (the “2024 Dollar Term Loans”) and a tranche of $575.0 million of dollar-denominated term loans issued on November 16, 2022 (the “2022 Dollar Term Loans”). These term loan facilities bear interest at a floating rate, at our option, at either a base rate as defined in the credit agreement plus an applicable margin, or Term SOFR plus an applicable margin.
As of June 27, 2026, the 2024 Dollar Term Loans’ interest rate was Term SOFR, subject to a floor of 0.50 %, plus a margin of 1.75 %, and borrowings under this facility bore interest at a rate of 5.37 % per annum. The interest rate is currently re-set on the last business day of each month based on the election of one month interest periods. The 2024 Dollar Term Loans mature on June 4, 2031.
As of June 27, 2026, the 2022 Dollar Term Loans’ interest rate was Term SOFR, subject to a floor of 0.50 %, plus a margin of 1.75 %, and borrowings under this facility bore interest at a rate of 5.37 % per annum. The interest rate is currently re-set on the last business day of each month based on the election of one month interest periods. The 2022 Dollar Term Loans mature on November 16, 2029.
The 2024 Dollar Term Loans and 2022 Dollar Term Loans are subject to quarterly amortization payments of 0.25 3.3 million and $1.4 million, respectively.
21
Under the terms of the credit agreement, we are obliged 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 2025 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 2026.
Gates Corporation, a wholly-owned U.S. subsidiary of Gates Industrial Holdco Limited (the parent guarantor and direct subsidiary of Gates Industrial Corporation Ltd.), is the principal obligor under the term loans for U.S. federal income tax purposes and makes the payments due on the term loans. As a result, interest received by lenders of this tranche of debt is U.S. source income.
Unsecured Senior Notes
As of June 27, 2026, we had $500.0 million of Dollar Senior Notes due 2029 outstanding that were issued on June 4, 2024. The Dollar Senior Notes due 2029 are scheduled to mature on July 1, 2029 and bear interest at an annual fixed rate of 6.875 % with semi-annual interest payments.
Prior to July 1, 2026, we may redeem the Dollar Senior Notes due 2029, at our option, in whole at any time or in part from time to time, at a “make-whole” redemption price. In addition, on or subsequent to July 1, 2026, we may redeem the Dollar Senior Notes due 2029, at our option, in whole at any time or in part from time to time, at the following redemption prices (expressed as a percentage of the principal amount), plus accrued and unpaid interest to the redemption date:
Redemption price | |||||
| On or subsequent to: | |||||
| —July 1, 2026 | % | ||||
| —July 1, 2027 | % | ||||
| —July 1, 2028 and thereafter | % | ||||
Additionally, net cash proceeds from an equity offering can be utilized at any time prior to July 1, 2026, to redeem up to 40 % of the Dollar Senior Notes due 2029 at a redemption price equal to 106.875 % of the principal amount thereof, plus accrued and unpaid interest through to the redemption date.
Upon the occurrence of specified types of change of control or of certain qualifying asset sales, the holders of the Dollar Senior Notes due 2029 will have the right to require us to make an offer to repurchase each holder's notes at a price equal to 101 % (in the case of a change of control offer) or 100 % (in the case of an asset sale offer) of their principal amount, plus accrued and unpaid interest.
Revolving credit facility
We have a secured revolving credit facility that provides for multi-currency revolving loans. On June 4, 2024, we amended the credit agreement governing this facility to increase the size of the facility from $250.0 million to $500.0 million, and extended the maturity date from November 18, 2026 to the date that is the earliest of (x) June 4, 2029 and (y) April 1, 2029, if greater than $500.0 million in aggregate principal amount of the Dollar Senior Notes due 2029 are outstanding. This facility also includes a letter of credit sub-facility of $150.0 million. Debt under the revolving credit facility bears interest at a floating rate, at our option, at either a base rate as defined in the credit agreement plus an applicable margin or the reference rate plus an applicable margin.
On January 21, 2025, we amended our credit agreement to lower the margin with respect to the revolving loans by 50 basis points compared to the previous term. The revolving loans bear interest at our option either Term SOFR (subject to a floor of — %) plus a margin of 1.75 % per annum or the base rate plus 0.75 % per annum. The applicable margin for the revolving credit facility borrowings will be subject to one 25 basis point step down determined in accordance with Gates Industrial Holdco Limited achieving a certain consolidated first lien net leverage level.
As of both June 27, 2026 and December 31, 2025, there were no
The letters of credit outstanding under this facility were $27.8 million and $29.0 million as of June 27, 2026 and December 31, 2025, respectively. In addition, Gates had other outstanding performance bonds, letters of credit and bank guarantees amounting to $11.8 million as of June 27, 2026, compared to $12.6 million as of December 31, 2025.
22
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 (income)
The components of the net periodic benefit cost (income) for pensions and other post-retirement benefits were as follows:
| Pension benefits | ||||||||||||||||||||||||||
| (dollars in millions) | Three months ended June 27, 2026 | Three months ended June 28, 2025 | ||||||||||||||||||||||||
| U.S. | Non-U.S. | U.S. | Non-U.S. | |||||||||||||||||||||||
| Net Periodic Benefit Cost: | ||||||||||||||||||||||||||
| Employer service cost | $ | $ | $ | $ | ||||||||||||||||||||||
| Settlements and curtailments | ||||||||||||||||||||||||||
| Interest cost | ||||||||||||||||||||||||||
| Expected return on plan assets | ( | ( | ( | ( | ||||||||||||||||||||||
| Amortization of prior net actuarial (gain) loss | ||||||||||||||||||||||||||
| Total net periodic benefit cost (income) | $ | ( | $ | $ | $ | |||||||||||||||||||||
| Pension benefits | ||||||||||||||||||||||||||
| (dollars in millions) | Six months ended June 27, 2026 | Six months ended June 28, 2025 | ||||||||||||||||||||||||
| U.S. | Non-U.S. | U.S. | Non-U.S. | |||||||||||||||||||||||
| Net Periodic Benefit Cost: | ||||||||||||||||||||||||||
| Employer service cost | $ | $ | $ | $ | ||||||||||||||||||||||
| Settlements and curtailments | ||||||||||||||||||||||||||
| Interest cost | ||||||||||||||||||||||||||
| Expected return on plan assets | ( | ( | ( | ( | ||||||||||||||||||||||
| Amortization of prior net actuarial (gain) loss | ( | |||||||||||||||||||||||||
| Total net periodic benefit cost (income) | $ | ( | $ | $ | $ | |||||||||||||||||||||
Other post-retirement benefit plans | ||||||||||||||||||||||||||
| (dollars in millions) | Three months ended | Six months ended | ||||||||||||||||||||||||
June 27, 2026 | June 28, 2025 | June 27, 2026 | June 28, 2025 | |||||||||||||||||||||||
| Net Periodic Benefit Cost: | ||||||||||||||||||||||||||
| Employer service cost | $ | $ | $ | $ | ||||||||||||||||||||||
| Settlements and curtailments | ||||||||||||||||||||||||||
| Interest cost | ||||||||||||||||||||||||||
| Expected return on plan assets | ||||||||||||||||||||||||||
| Amortization of prior net actuarial (gain) loss | ( | ( | ( | ( | ||||||||||||||||||||||
| Total net periodic benefit cost (income) | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||
The components of the above net periodic benefit cost (income) for pensions and other post-retirement benefits that are reported outside of operating income are all included in the other expense line in the condensed consolidated statement of operations.
In March 2026, we completed an annuity purchase for most of the retirees in the Canadian defined benefit pension plan. The $30.4 million purchase price, funded from plan assets, settled $30.4 million of the pension benefit obligation. We recognized a one-time, non-cash pension settlement loss of $5.2 million.
23
For 2026 as a whole, we expect to contribute approximately $12.6 million to our defined benefit pension plans and approximately $2.6 million to our other retirement 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 six months ended June 27, 2026, we recognized a charge of $9.4 million and $15.7 million, respectively, compared to $9.6 million and $15.7 million during the three and six months ended June 28, 2025, respectively.
Awards issued under the 2014 Gates Industrial Corporation plc Stock Incentive Plan (the “2014 Plan”)
Gates has a number of share-based incentive awards issued under the 2014 Plan, which was assumed by Gates Industrial Corporation plc and renamed the Gates Industrial Corporation plc Stock Incentive Plan in connection with our initial public offering in January 2018 (our “IPO”) and subsequently assumed by Gates Industrial Corporation Ltd. in connection with our Redomiciliation in July 2026. No new awards have been granted under this plan since 2017. The options granted prior to our IPO were split equally into four tiers, each with specific vesting conditions. Tier I, Tier II and IV options all vested, while the performance conditions associated with Tier III were not achieved and therefore expired during 2022. 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. The SARs have the same vesting terms as the Tier II, III and IV option awards described above. All Tier III SARs expired during 2022 as the specific performance conditions were not achieved.
Changes in the awards granted under this plan are summarized in the tables below.
Awards issued under the Gates Industrial Corporation Ltd. Amended and Restated 2018 Omnibus Incentive Plan (the “2018 Plan”)
In conjunction with the initial public offering in January 2018, Gates Industrial Corporation plc adopted the 2018 Plan, which is a long-term incentive program that allows for the issue of a variety of equity-based and cash-based awards, including stock options, SARs and restricted stock units (“RSUs”). In July 2026, Gates Industrial Corporation Ltd. assumed and amended and restated the 2018 Plan and renamed it the Gates Industrial Corporation Ltd. Amended and Restated 2018 Omnibus Incentive Plan.
The SARs issued under this plan take the form of options, except that, generally, 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. Certain premium-priced options vested 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 0 % to 200 % of the total award amount and is dependent upon the extent the Company achieves certain performance metric targets measured over a three-year performance period subject to the participant’s continued employment through the end of the performance period. Performance metrics include return on investments and relative total shareholder return (“Relative TSR”) or adjusted gross profit margin and data center revenue, each, as defined in the applicable award agreements.
24
New awards and movements in existing awards granted under this plan are summarized in the tables below.
Summary of movements in options outstanding
| Six months ended June 27, 2026 | ||||||||||||||||||||||||||
| Plan | Number of options | Weighted average exercise price $ | ||||||||||||||||||||||||
| Outstanding at the beginning of the period: | ||||||||||||||||||||||||||
| —Tier I | 2014 Plan | $ | ||||||||||||||||||||||||
| —Tier II | 2014 Plan | $ | ||||||||||||||||||||||||
| —Tier IV | 2014 Plan | $ | ||||||||||||||||||||||||
| —SARs | Both plans | $ | ||||||||||||||||||||||||
| —Share options | 2018 Plan | $ | ||||||||||||||||||||||||
| —Premium-priced options | 2018 Plan | $ | ||||||||||||||||||||||||
| $ | ||||||||||||||||||||||||||
| Granted during the period: | ||||||||||||||||||||||||||
| —SARs | 2018 Plan | $ | ||||||||||||||||||||||||
| $ | ||||||||||||||||||||||||||
| Exercised during the period: | ||||||||||||||||||||||||||
| —Tier I | 2014 Plan | ( | $ | |||||||||||||||||||||||
| —Tier II | 2014 Plan | ( | $ | |||||||||||||||||||||||
| —Tier IV | 2014 Plan | ( | $ | |||||||||||||||||||||||
| —SARs | Both Plans | ( | $ | |||||||||||||||||||||||
| —Share options | 2018 Plan | ( | $ | |||||||||||||||||||||||
| ( | $ | |||||||||||||||||||||||||
| Outstanding at the end of the period: | ||||||||||||||||||||||||||
| —Tier I | 2014 Plan | $ | ||||||||||||||||||||||||
| —Tier II | 2014 Plan | $ | ||||||||||||||||||||||||
| —Tier IV | 2014 Plan | $ | ||||||||||||||||||||||||
| —SARs | Both plans | $ | ||||||||||||||||||||||||
| —Share options | 2018 Plan | $ | ||||||||||||||||||||||||
| —Premium-priced options | 2018 Plan | $ | ||||||||||||||||||||||||
| $ | ||||||||||||||||||||||||||
| Exercisable at the end of the period | $ | |||||||||||||||||||||||||
| Vested and expected to vest at the end of the period | $ | |||||||||||||||||||||||||
As of June 27, 2026, the aggregate intrinsic value of options that were exercisable was $39.4 million, and these options had a weighted average remaining contractual term of 2.8 years. As of June 27, 2026, the aggregate intrinsic value of options that were vested or expected to vest was $39.9 million, and these options had a weighted average remaining contractual term of 3.0 years.
As of June 27, 2026, the unrecognized compensation charge relating to the nonvested options was $0.8 million, which is expected to be recognized over a weighted-average period of 2.2 years.
During the three and six months ended June 27, 2026, cash of $2.0 million and $2.5 million was received in relation to the exercise of vested options, respectively, compared to $2.9 million and $4.7 million during the three and six months ended June 28, 2025, respectively. The aggregate intrinsic value of options exercised during the three and six months ended June 27, 2026 was $1.3 million and $2.4 million, respectively, compared to $4.3 million and $18.2 million during the three and six months ended June 28, 2025, respectively.
25
Summary of movements in RSUs and PRSUs Nonvested
| Six months ended June 27, 2026 | |||||||||||||||||||||||
| Number of awards | Weighted average grant date fair value $ | ||||||||||||||||||||||
Nonvested at the beginning of the period: | |||||||||||||||||||||||
| —RSUs | $ | ||||||||||||||||||||||
| —PRSUs | $ | ||||||||||||||||||||||
| $ | |||||||||||||||||||||||
| Granted during the period: | |||||||||||||||||||||||
| —RSUs | $ | ||||||||||||||||||||||
| —PRSUs | $ | ||||||||||||||||||||||
| $ | |||||||||||||||||||||||
| Adjusted for performance during the period: | |||||||||||||||||||||||
| —PRSUs | $ | ||||||||||||||||||||||
| $ | |||||||||||||||||||||||
| | |||||||||||||||||||||||
| Forfeited during the period: | |||||||||||||||||||||||
| —RSUs | ( | $ | |||||||||||||||||||||
| —PRSUs | ( | $ | |||||||||||||||||||||
| ( | $ | ||||||||||||||||||||||
| Vested during the period: | |||||||||||||||||||||||
| —RSUs | ( | $ | |||||||||||||||||||||
| —PRSUs | ( | ||||||||||||||||||||||
| ( | $ | ||||||||||||||||||||||
Nonvested at the end of the period: | |||||||||||||||||||||||
| —RSUs | $ | ||||||||||||||||||||||
| —PRSUs | $ | ||||||||||||||||||||||
| $ | |||||||||||||||||||||||
As of June 27, 2026, the unrecognized compensation charge relating to unvested RSUs and PRSUs was $60.9 million, which is expected to be recognized over a weighted average period of 2.0 years, subject, where relevant, to the achievement of the performance conditions described above. The total fair value of RSUs and PRSUs vested during the three and six months ended June 27, 2026 was $0.3 million and $22.0 million, respectively, compared to $0.2 million and $20.7 million during the three and six months ended June 28, 2025, respectively.
26
Valuation of awards granted during the period
The grant date fair value of the SARs are measured using a Black-Scholes valuation model. RSUs are valued at the share price on the date of grant. The Relative TSR component of the PRSUs were valued using Monte Carlo simulations. As Gates only has volatility data for its shares for the period since its IPO, this volatility has, where necessary, 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, 2026 | June 28, 2025 | ||||||||||||||||
| Weighted average grant date fair value: | |||||||||||||||||
| —SARs | $ | $ | |||||||||||||||
| —RSUs | $ | $ | |||||||||||||||
| —PRSUs | $ | $ | |||||||||||||||
| Inputs to the model: | |||||||||||||||||
| —Expected volatility — SARs | % | % | |||||||||||||||
| —Expected volatility — PRSUs | % | % | |||||||||||||||
| —Expected option life for SARs (years) | |||||||||||||||||
| —Risk-free interest rate: | |||||||||||||||||
| SARs | % | % | |||||||||||||||
| PRSUs | % | % | |||||||||||||||
15. Equity
Movements in the Company’s number of shares in issue for the six months ended June 27, 2026 and June 28, 2025, respectively, were as follows:
| Six months ended | |||||||||||
(number of shares) | June 27, 2026 | June 28, 2025 | |||||||||
| Balance as of the beginning of the period | |||||||||||
| Exercise of share options | |||||||||||
| Vesting of restricted stock units, net of withholding taxes | |||||||||||
Shares repurchased | ( | ( | |||||||||
| Balance as of the end of the period | |||||||||||
In March 2026, the Company repurchased 710,058 shares under the existing share repurchase program in the open market at a total cost of approximately $16.5 million, plus costs paid directly related to the transaction of $0.1 million. All shares repurchased in March 2026 were cancelled.
In May 2026, the Company repurchased 922,947 shares under the existing share repurchase program in the open market at a total cost of approximately $22.0 million, plus costs paid directly related to the transaction of $0.1 million. All shares repurchased in May 2026 were cancelled. Approximately $155.8 million remained available under the share repurchase program as of June 27, 2026.
On July 22, 2026, the Board of Gates Industrial Corporation Ltd. approved the assumption of the remaining amounts available under the share repurchase program from Gates Industrial Corporation plc.
27
16. Analysis of accumulated other comprehensive (loss) income
Changes in accumulated other comprehensive (loss) income 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 31, 2025 | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||||||||
| Foreign currency translation | ( | — | ( | ( | |||||||||||||||||||||||||||||||||||||
| Cash flow hedges movements | — | — | |||||||||||||||||||||||||||||||||||||||
| Post-retirement benefit movements | — | — | |||||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss) | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||
| As of June 27, 2026 | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||||||||
(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, 2024 | $ | ( | $ | ( | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||||||||||
| Foreign currency translation | ( | — | |||||||||||||||||||||||||||||||||||||||
| Cash flow hedges movements | — | — | ( | ( | ( | ||||||||||||||||||||||||||||||||||||
| Post-retirement benefit movements | ( | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||
| Other comprehensive loss | ( | ( | |||||||||||||||||||||||||||||||||||||||
| As of June 28, 2025 | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||||||||
17. Related party transactions
A. Equity method investees
Purchases from equity method investees were as follows:
| Three months ended | Six months ended | ||||||||||||||||||||||
(dollars in millions) | June 27, 2026 | June 28, 2025 | June 27, 2026 | June 28, 2025 | |||||||||||||||||||
Purchases | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
Amounts outstanding in respect of these transactions were payables of $0.2 million as of June 27, 2026, compared to $0.1 million as of December 31, 2025. No
B. Non-Gates entities controlled by non-controlling shareholders
Sales to and purchases from non-Gates entities controlled by non-controlling shareholders were as follows:
| Three months ended | Six months ended | ||||||||||||||||||||||
(dollars in millions) | June 27, 2026 | June 28, 2025 | June 27, 2026 | June 28, 2025 | |||||||||||||||||||
| Sales | $ | $ | $ | $ | |||||||||||||||||||
| Purchases | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
Amounts outstanding in respect of these transactions were as follows:
(dollars in millions) | As of June 27, 2026 | As of December 31, 2025 | |||||||||
| Receivables | $ | $ | |||||||||
| Payables | $ | ( | $ | ( | |||||||
28
18. Commitments and contingencies
A. Contingencies
Gates is, from time to time, party to general legal proceedings and claims, which arise in the ordinary course of business. Gates is also, from time to time, party to legal proceedings and claims in respect of environmental obligations, product liability, intellectual property, commercial and contractual disputes, employment matters and other matters which arise in the ordinary course of business and against which management believes Gates has meritorious defenses available. When appropriate, management consults with legal counsel and other appropriate experts to assess claims. If, in management’s opinion, we have incurred a probable loss as set forth by U.S. GAAP, an estimate is made of the loss and the appropriate accrual is reflected in our consolidated financial statements. Currently, there are no material amounts accrued.
While it is not possible to quantify the financial impact or predict the outcome of all pending claims and litigation, management does not anticipate that the outcome of any current proceedings or known claims, either individually or in aggregate, will materially affect Gates’ financial position, results of operations or cash flows.
B. Warranties
The following summarizes the movements in the warranty liability for the six months ended June 27, 2026 and June 28, 2025, respectively:
| Six months ended | |||||||||||
(dollars in millions) | June 27, 2026 | June 28, 2025 | |||||||||
| Balance as of the beginning of the period | $ | $ | |||||||||
| Charge for the period | |||||||||||
| Payments made | ( | ( | |||||||||
| Foreign currency translation | |||||||||||
| Balance as of the end of the period | $ | $ | |||||||||
29
Item 2: Management’s Discussion and Analysis
of Financial Condition and Results of Operations
of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and related notes thereto included elsewhere in this quarterly report. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from management’s expectations. Factors that could cause such differences are discussed in “Cautionary Note Regarding Forward-Looking Statements” above and Part I, Item 1A. “Risk Factors” in our annual report.
Our Company
We are a global manufacturer of innovative, highly engineered power transmission and fluid power solutions. We offer a broad portfolio of products to diverse aftermarket channel customers, and to OEMs as specified components, with the majority of our revenue coming from aftermarket channels. Our products are used in applications across numerous end markets, including: automotive aftermarket, automotive OEM, diversified industrial, industrial off-highway, industrial on-highway, energy and resources and personal mobility. Our net sales have historically been, and remain, highly correlated with industrial activity and utilization, and not with any single end market given the diversification of our business and high exposure to the aftermarket channel. We sell our products globally under the Gates brand, which is recognized by distributors, equipment manufacturers, installers and end users as a premium brand for quality and technological innovation; this reputation has been built over more than 110 years since Gates’ founding in 1911.
Within the diverse end markets we serve, our highly engineered products are often critical components in applications for which the cost of downtime is high relative to the cost of our products, resulting in the willingness of end users to pay a premium for superior performance and availability. These applications subject our products to normal wear and tear, resulting in natural, and often preventative, aftermarket cycles that drive high-margin, recurring revenue. Our product portfolio represents one of the broadest ranges of power transmission and fluid power products in the markets we serve, and we maintain long-standing relationships with a diversified group of well-known customers throughout the world. As a leading designer, manufacturer and marketer of highly engineered, mission-critical products, we have become an industry leader across most of our end markets and the regions in which we operate.
Business Trends
The diversification of our business limits our exposure to trends in any given end market. In addition, a majority of our sales are generated from customers in aftermarket channels, who serve primarily a large base of installed equipment that follows a natural maintenance cycle that is somewhat less susceptible to various trends that affect our end markets. Such trends include infrastructure investment and construction activity, agricultural production and related commodity prices, commercial and passenger vehicle production, miles driven and fleet age, evolving regulatory requirements related to emissions and fuel economy and oil and gas prices and production. Key indicators of our performance include industrial production, industrial sales and manufacturer shipments.
During the six months ended June 27, 2026, sales into aftermarket channels accounted for approximately 68% of our total net sales. Our aftermarket sales cover a very broad range of applications and industries and, accordingly, are highly correlated with industrial activity and utilization and not a single end market. Aftermarket products are principally sold through distribution partners that may carry a very broad line of products or may specialize in products associated with a smaller set of end market applications.
During the six months ended June 27, 2026, sales into OEM channels accounted for approximately 32% of our total net sales. OEM sales are to a variety of industrial and automotive customers. Our industrial OEM customers cover a diverse range of industries and applications and many of our largest OEM customers manufacture construction and agricultural equipment.
During the six months ended June 27, 2026, sales in the personal mobility end market continued to experience strong growth, and our aftermarket channel sales grew modestly, including positive core growth in the industrial aftermarket channel. We continue to focus on managing our business through current economic uncertainties, improving our gross margins through our efforts of material cost savings, footprint optimization and productivity. In the first half of 2026, we expect certain one-time footprint optimization, restructuring, and system implementation costs. We anticipate these and other investments and product development in personal mobility and data center opportunities will position us to drive long term growth and margin expansion.
30
On February 20, 2026, the U.S. Supreme Court issued a ruling addressing the validity of certain tariffs implemented under the International Emergency Economic Powers Act ("IEEPA"). In March 2026, the U.S. Court of International Trade issued an additional ruling that importers that paid tariffs under IEEPA are due refunds. We paid tariffs during fiscal years 2025 and 2026 on certain imported products and materials that were subject to these IEEPA‑based duties. The Company submitted refund claims in the second quarter of 2026 and recognized a receivable for these claims. The Company is evaluating the disposition and potential pass-through of refunds to customers that were charged for tariffs related to these refunds. The ultimate receipt and disposition of IEEPA refunds is not material to the Company’s financial results.
Our global operating footprint and worldwide sales reach expose us to risks associated with geopolitical tensions and trade conflicts. Global trade conflicts due to recent U.S. and retaliatory tariffs and geopolitical tensions, including the conflict in the Middle East, have led to, and may continue to lead to, inflationary pressures, supply chain disruptions, uncertainty, and volatility in the market and, therefore, could impact our operations and financial performance. As the geopolitical climate continues to evolve, we could have additional exposures in the future. We will continue to monitor and evaluate risks related to geopolitical tensions and trade conflicts and any resulting impact on macroeconomic conditions and our business.
Results for the three and six months ended June 27, 2026 compared to the results for the three and six months ended June 28, 2025
Summary Gates Performance
| Three months ended | Six months ended | ||||||||||||||||||||||
(dollars in millions) | June 27, 2026 | June 28, 2025 | June 27, 2026 | June 28, 2025 | |||||||||||||||||||
| Net sales | $ | 941.6 | $ | 883.7 | $ | 1,792.7 | $ | 1,731.3 | |||||||||||||||
| Cost of sales | 555.5 | 523.5 | 1,068.6 | 1,026.5 | |||||||||||||||||||
| Gross profit | 386.1 | 360.2 | 724.1 | 704.8 | |||||||||||||||||||
| Selling, general and administrative expenses | 250.7 | 231.2 | 477.6 | 447.4 | |||||||||||||||||||
| Transaction-related expenses | 3.1 | — | 3.6 | 0.4 | |||||||||||||||||||
| Asset impairments | — | 0.2 | — | 0.8 | |||||||||||||||||||
| Restructuring expenses | 0.7 | 13.0 | 1.4 | 14.6 | |||||||||||||||||||
| Operating income from continuing operations | 131.6 | 115.8 | 241.5 | 241.6 | |||||||||||||||||||
| Interest expense | 30.0 | 28.8 | 59.9 | 58.4 | |||||||||||||||||||
| Other expense | 1.4 | 6.8 | 3.5 | 9.2 | |||||||||||||||||||
| Income from continuing operations before taxes | 100.2 | 80.2 | 178.1 | 174.0 | |||||||||||||||||||
| Income tax (benefit) expense | (78.0) | 16.8 | (66.5) | 42.0 | |||||||||||||||||||
| Net income from continuing operations | $ | 178.2 | $ | 63.4 | $ | 244.6 | $ | 132.0 | |||||||||||||||
Adjusted EBITDA(1) | $ | 211.4 | $ | 199.2 | $ | 388.8 | $ | 386.5 | |||||||||||||||
(1) See “—Non-GAAP Measures” for a reconciliation of Adjusted EBITDA to net income, the closest comparable GAAP measure, for each of the periods presented.
Net sales
Net sales during the three months ended June 27, 2026 were $941.6 million, compared to $883.7 million during the prior year period, an increase of 6.6%, or $57.9 million. The following table lists the primary drivers behind the change in net sales (amounts in millions):
| Power Transmission | Fluid Power | Total Company | |||||||||||||||
| Three months ended June 28, 2025 | $ | 550.1 | $ | 333.6 | $ | 883.7 | |||||||||||
| Currency translation | 9.5 | 5.5 | 15.0 | ||||||||||||||
| Volume | 20.2 | 2.9 | 23.1 | ||||||||||||||
| Pricing | 8.7 | 11.1 | 19.8 | ||||||||||||||
| Three months ended June 27, 2026 | $ | 588.5 | $ | 353.1 | $ | 941.6 | |||||||||||
31
Net sales during the six months ended June 27, 2026 were $1,792.7 million, compared to $1,731.3 million during the prior year period, an increase of 3.5%, or $61.4 million. The following table lists the primary drivers behind the change in net sales (amounts in millions):
| Power Transmission | Fluid Power | Total Company | |||||||||||||||
| Six months ended June 28, 2025 | $ | 1,077.3 | $ | 654.0 | $ | 1,731.3 | |||||||||||
| Currency translation | 28.7 | 14.2 | 42.9 | ||||||||||||||
| Volume | (4.3) | (17.3) | (21.6) | ||||||||||||||
| Pricing | 20.0 | 20.1 | 40.1 | ||||||||||||||
| Six months ended June 27, 2026 | $ | 1,121.7 | $ | 671.0 | $ | 1,792.7 | |||||||||||
Cost of sales
Cost of sales for the three months ended June 27, 2026 was $555.5 million, compared to $523.5 million for the prior year period, an increase of 6.1%, or $32.0 million. The following table lists the primary drivers behind the change in cost of sales (amounts in millions):
| Three months ended June 28, 2025 | $ | 523.5 | |||
| Currency translation | 6.2 | ||||
| Volume | 16.3 | ||||
| Manufacturing performance | (6.5) | ||||
| Mix | (0.2) | ||||
| Inflation | 7.8 | ||||
| Tariff | 6.9 | ||||
| Inventory impairments and adjustments | (0.3) | ||||
| Restructuring | 2.8 | ||||
| Other | (1.0) | ||||
| Three months ended June 27, 2026 | $ | 555.5 | |||
Cost of sales for the six months ended June 27, 2026 was $1,068.6 million, compared to $1,026.5 million for the prior year period, an increase of 4.1%, or $42.1 million. The following table lists the primary drivers behind the change in cost of sales (amounts in millions):
| Six months ended June 28, 2025 | $ | 1,026.5 | |||
| Currency translation | 21.2 | ||||
| Volume | 21.7 | ||||
| Manufacturing performance | (37.0) | ||||
| Mix | (2.0) | ||||
| Inflation | 16.0 | ||||
| Tariff | 15.6 | ||||
| Inventory impairments and adjustments | 4.6 | ||||
| Restructuring | 4.1 | ||||
| Other | (2.1) | ||||
| Six months ended June 27, 2026 | $ | 1,068.6 | |||
Selling, general and administrative expenses
Selling, general and administrative (“SG&A”) expenses for the three months ended June 27, 2026 were $250.7 million compared to $231.2 million for the prior year period. This increase of $19.5 million was driven primarily by higher labor and benefits expense of $5.4 million, unfavorable impacts of exchange rates of $3.5 million, an increase in depreciation expense of $3.2 million, and an increase in restructuring expense of $2.2 million. This increase was partially offset by lower corporate owned life insurance expense of $3.0 million.
32
SG&A expenses for the six months ended June 27, 2026 were $477.6 million compared to $447.4 million for the prior year period. This increase of $30.2 million was driven primarily by higher labor and benefits expense of $9.7 million, unfavorable impacts of exchange rates of $9.6 million, an increase in depreciation expense of $5.4 million and higher consulting and professional fees of $3.1 million. This increase was partially offset by lower corporate owned life insurance expense of $5.2 million.
Transaction-related expenses
Transaction-related expenses of $3.1 million and $3.6 million were incurred during the three and six months ended June 27, 2026, respectively, primarily related to expenses surrounding the previously disclosed acquisition of the belts business from the Timken company, which is expected to close in the second half of 2026, and certain other corporate transactions. Transaction-related expenses of $0.0 million and $0.4 million were incurred during the three and six months ended June 28, 2025, respectively, and were primarily related to certain non-recurring debt related costs.
Restructuring expenses
Restructuring expenses during the three and six months ended June 27, 2026 included $0.7 million and $1.4 million, respectively, of costs related to a global cost reduction effort and reorganization of our operations in Mexico. Restructuring related expenses during the three and six months ended June 27, 2026 included $3.9 million and $6.3 million, respectively, of costs related to the relocation of certain production activities and reorganization of our operations in Mexico and $5.4 million and $6.8 million, respectively, of costs related to professional service fees and general severance.
Restructuring expenses during both the three and six months ended June 28, 2025 primarily included $12.6 million of severance and other labor and benefits expense related to a global cost reduction effort. Restructuring related expenses during the three and six months ended June 28, 2025 included $1.3 million and $2.3 million, respectively, of costs related to the relocation of certain production activities and reorganization of our operations in Mexico and $3.0 million and $4.7 million, respectively, of costs related to professional service fees and general severance.
Interest expense
Our interest expense was as follows:
| Three months ended | Six months ended | ||||||||||||||||||||||
(dollars in millions) | June 27, 2026 | June 28, 2025 | June 27, 2026 | June 28, 2025 | |||||||||||||||||||
Debt: | |||||||||||||||||||||||
| Dollar Term Loans | $ | 18.0 | $ | 15.6 | $ | 35.3 | $ | 32.3 | |||||||||||||||
Dollar Senior Notes | 8.5 | 8.5 | 16.9 | 17.2 | |||||||||||||||||||
| 26.5 | 24.1 | 52.2 | 49.5 | ||||||||||||||||||||
Amortization of deferred issuance costs | 1.5 | 1.7 | 3.0 | 3.2 | |||||||||||||||||||
Other interest expense | 2.0 | 3.0 | 4.7 | 5.7 | |||||||||||||||||||
| $ | 30.0 | $ | 28.8 | $ | 59.9 | $ | 58.4 | ||||||||||||||||
Details of our long-term debt are presented in Note 12 to the condensed consolidated financial statements included elsewhere in this report. Interest expense increased by $1.2 million and $1.5 million during the three and six months ended June 27, 2026, respectively, when compared to the equivalent prior year period, primarily due to a less favorable impact from derivatives, partially offset by lower applicable interest rates on the Dollar Term Loans.
33
Other expense
Our other expense was as follows:
| Three months ended | Six months ended | ||||||||||||||||||||||
(dollars in millions) | June 27, 2026 | June 28, 2025 | June 27, 2026 | June 28, 2025 | |||||||||||||||||||
| Interest income on bank deposits | $ | (2.5) | $ | (2.6) | $ | (4.7) | $ | (4.8) | |||||||||||||||
| Foreign currency transaction loss (gain), net | 1.5 | 1.0 | 4.3 | 2.1 | |||||||||||||||||||
| Net adjustments related to post-retirement benefits | 0.2 | 0.5 | 5.6 | 0.9 | |||||||||||||||||||
| Foreign currency loss on hyperinflation remeasurement | 1.2 | 1.0 | 1.4 | 2.0 | |||||||||||||||||||
| Other | 1.0 | 6.9 | (3.1) | 9.0 | |||||||||||||||||||
| $ | 1.4 | $ | 6.8 | $ | 3.5 | $ | 9.2 | ||||||||||||||||
Other expense for the three and six months ended June 27, 2026 was $1.4 million and $3.5 million, respectively, compared to $6.8 million and $9.2 million of expense, respectively, for the three and six months ended June 28, 2025. These changes were primarily driven by a financing related gain primarily due to foreign currency exchange rate movement on intercompany loans and hedging instruments. For the six months ended June 27, 2026, this was partially offset by a pension settlement loss of $5.2 million in March 2026.
Income tax expense
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 June 27, 2026, we had an income tax benefit of $78.0 million on pre-tax income of $100.2 million, which resulted in an effective tax rate of (77.8)%, compared to an income tax expense of $16.8 million on pre-tax income of $80.2 million, which resulted in an effective tax rate of 20.9%, for the three months ended June 28, 2025.
For the three months ended June 27, 2026, the effective tax rate was driven primarily by net discrete tax benefits of $100.7 million, comprised of discrete tax benefits related to $97.1 million of changes in realizability of certain deferred tax assets primarily in Luxembourg, $8.3 million related to unrecognized tax benefits, and $3.5 million related to other net discrete tax benefits, offset by $8.2 million of discrete expense related to an audit settlement in China. For the three months ended June 28, 2025, the effective tax rate was driven primarily by net discrete tax benefits of $7.2 million, of which $3.2 million related to prior year adjustments primarily from various foreign jurisdictions in which returns were filed, $2.6 million related to excess tax benefits on stock option exercises, and $2.0 million related to changes in the realizability of certain deferred tax assets, offset by $0.6 million of other net discrete tax expenses.
For the six months ended June 27, 2026, we had an income tax benefit of $66.5 million on pre-tax income of $178.1 million, which resulted in an effective tax rate of (37.3)%, compared to an income tax expense of $42.0 million on pre-tax income of $174.0 million, which resulted in an effective tax rate of 24.1%, for the six months ended June 28, 2025.
For the six months ended June 27, 2026, the effective tax rate was driven primarily by net discrete tax benefits of $107.1 million, comprised of a discrete tax benefit of $99.0 million related to the changes in realizability of certain deferred tax assets primarily in Luxembourg, $9.1 million related to unrecognized tax benefits, $4.2 million related to the expected refund of research and development credits from prior years, and $3.0 million related to other net discrete tax benefits; offset by $8.2 million related to an audit settlement in China. For the six months ended June 28, 2025, the effective tax rate was driven primarily by net discrete tax benefits of $7.1 million, of which $8.6 million related to excess tax benefits on stock option exercises, $3.2 million related to prior year adjustments primarily from various foreign jurisdictions in which returns were filed and $0.6 million other discrete tax benefits, offset by $3.2 million related to changes in the realizability of certain deferred tax assets and $2.1 million related to net unrecognized tax benefits.
34
In connection with facilitating the Redomiciliation, the Company recognized a tax benefit from the reduction of a valuation allowance on certain foreign deferred tax assets that are expected to be used in future periods. As a result, beginning the second quarter of 2026, the Company’s effective tax rate decreased, and is expected to be followed by an increase during the period in which the foreign deferred tax asset is utilized. Because these items are non-cash in nature and resulted from the non-recurring Redomiciliation rather than the Company’s ordinary operations, the resulting tax benefit in the three months ended June 27, 2026 is not, and the expected tax detriment in future periods will not be, reflected in certain of the Company’s non-GAAP measures, including adjusted net income and the adjusted effective tax rate.
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.
As of each reporting date, we consider new evidence, both positive and negative, that could impact our view with regard to the future realization of deferred tax assets. We will maintain our positions with regard to future realization of deferred tax assets, including those with respect to which we continue maintaining valuation allowances, until there is sufficient new evidence to support a change in expectations. Such a change in expectations could arise due to many factors, including those impacting our forecasts of future earnings, as well as changes in the international tax laws under which we operate and tax planning. It is not reasonably possible to forecast any such changes at the present time, but it is possible that, should they arise, our view of their effect on the future realization of deferred tax assets may materially impact our financial statements.
After weighing all of the evidence, giving more weight to the evidence that was objectively verifiable, we determined that, as of June 27, 2026, it is more likely than not that deferred tax assets in Luxembourg totaling $108.6 million are realizable as a result of facilitating the Redomiciliation which increased Luxembourg’s projected earnings. Accordingly, we recognized $96.6 million of our deferred tax assets as a discrete event in the quarter, while the remaining $12.0 million will be recognized during the year through the effective tax rate. As a result of changes in future taxable profits against which net operating losses and interest carryforward can be utilized, our position and judgment regarding the realizability of these deferred tax assets changed.
Analysis by Operating Segment
Power Transmission (62.5% and 62.6% of Gates’ net sales for the three and six months ended June 27, 2026, respectively)
| Three months ended | |||||||||||||||||
(dollars in millions) | June 27, 2026 | June 28, 2025 | Period over period change | ||||||||||||||
Net sales | $ | 588.5 | $ | 550.1 | 7.0 | % | |||||||||||
Adjusted EBITDA | $ | 134.8 | $ | 122.8 | 9.8 | % | |||||||||||
Adjusted EBITDA margin | 22.9 | % | 22.3 | % | |||||||||||||
| Six months ended | |||||||||||||||||
(dollars in millions) | June 27, 2026 | June 28, 2025 | Period over period change | ||||||||||||||
Net sales | $ | 1,121.7 | $ | 1,077.3 | 4.1 | % | |||||||||||
Adjusted EBITDA | $ | 246.8 | $ | 239.5 | 3.0 | % | |||||||||||
Adjusted EBITDA margin | 22.0 | % | 22.2 | % | |||||||||||||
Net sales in Power Transmission for the three months ended June 27, 2026, increased by 7.0%, or $38.4 million, compared to the prior year period, driven primarily by an increase in volume of $20.2 million and benefits from pricing of $8.7 million. Our net sales for the three months ended June 27, 2026 were favorably impacted by movements in average currency exchange rates of $9.5 million. As such, core sales increased by 5.3%, or $28.9 million, compared to the prior year period.
35
Net sales in Power Transmission for the six months ended June 27, 2026, increased by 4.1%, or $44.4 million, compared to the prior year period, driven primarily by benefits from pricing of $20.0 million, partially offset by lower volumes. Our net sales for the six months ended June 27, 2026 were favorably impacted by movements in average currency exchange rates of $28.7 million. As such, core sales increased by 1.5%, or $15.7 million, compared to the prior year period.
Power Transmission’s core sales to industrial customers increased by 9.0% and 6.3% during the three and six months ended June 27, 2026, respectively, compared to the prior year periods. Industrial OEM core sales increased by 13.6% and 10.4% during the three and six months ended June 27, 2026, respectively, particularly in APAC and EMEA. Core sales in the automotive end markets increased by 3.1% during the three months ended June 27, 2026, and decreased by 1.4% during the six months ended June 27, 2026. During the three months ended June 27, 2026, the growth in industrial sales were focused in personal mobility and on highway, which increased by 25.5% and 25.9% respectively. During the six months ended June 27, 2026, the growth in industrial sales were focused in personal mobility and on highway, which increased by 19.8% and 18.7%, respectively. The growth in personal mobility and on highway were primarily focused in EMEA and APAC.
Power Transmission Adjusted EBITDA for the three months ended June 27, 2026 increased by 9.8%, or $12.0 million, compared to the prior year period, driven primarily by an increase in volume, benefits from pricing and favorable manufacturing performance. As a result, Adjusted EBITDA margin was 22.9%, a 60 basis point improvement from the prior year period.
Power Transmission Adjusted EBITDA for the six months ended June 27, 2026 increased by 3.0%, or $7.3 million, compared to the prior year period, driven primarily by favorable manufacturing performance, benefits from pricing and favorable impacts in average currency exchange rates, partially offset by lower volume, increased spend in SG&A and inflationary impacts. As a result, Adjusted EBITDA margin was 22.0%, a 20 basis point decline from the prior year period.
Fluid Power (37.5% and 37.4% of Gates’ net sales for the three and six months ended June 27, 2026, respectively)
| Three months ended | |||||||||||||||||
(dollars in millions) | June 27, 2026 | June 28, 2025 | Period over period change | ||||||||||||||
Net sales | $ | 353.1 | $ | 333.6 | 5.8 | % | |||||||||||
Adjusted EBITDA | $ | 76.6 | $ | 76.4 | 0.3 | % | |||||||||||
Adjusted EBITDA margin | 21.7 | % | 22.9 | % | |||||||||||||
| Six months ended | |||||||||||||||||
(dollars in millions) | June 27, 2026 | June 28, 2025 | Period over period change | ||||||||||||||
Net sales | $ | 671.0 | $ | 654.0 | 2.6 | % | |||||||||||
Adjusted EBITDA | $ | 142.0 | $ | 147.0 | (3.4 | %) | |||||||||||
Adjusted EBITDA margin | 21.2 | % | 22.5 | % | |||||||||||||
Net sales in Fluid Power for the three months ended June 27, 2026 increased by 5.8%, or $19.5 million, compared to the prior year period, driven primarily by an $11.1 million benefit from pricing and favorable impacts in average currency exchange rates of $5.5 million. As such, core sales increased by 4.2%, or $14.0 million, compared to the prior year period.
Net sales in Fluid Power for the six months ended June 27, 2026 increased by 2.6%, or $17.0 million, compared to the prior year period, driven primarily by a $20.1 million benefit from pricing, partially offset by lower volumes. Our net sales for the six months ended June 27, 2026 were favorably impacted by movements in average currency exchange rates of $14.2 million. As such, core sales increased by 0.4%, or $2.8 million, compared to the prior year period.
Fluid Power’s core sales to industrial customers increased by 5.6% during the three months ended June 27, 2026, and remained flat for the six months ended June 27, 2026. The growth to industrial customers was primarily driven by industrial OEM core sales, which increased by 11.3% and 2.7% for the three and six months ended June 27, 2026, respectively, particularly in APAC. Fluid Power’s core sales to automotive customers increased by 0.3% and 1.7% for the three and six months ended June 27, 2026, respectively. This increase was driven primarily from automotive aftermarket, particularly in the Americas.
Fluid Power Adjusted EBITDA for the three months ended June 27, 2026 increased by 0.3%, or $0.2 million, compared to the prior year period, driven primarily by lower volumes and inflationary impacts, partially offset by benefits from pricing. As a result, the Adjusted EBITDA margin was 21.7%, a 120 basis point decline from the prior year period.
36
Fluid Power Adjusted EBITDA for the six months ended June 27, 2026 decreased by 3.4%, or $5.0 million, compared to the prior year period, driven primarily by lower volumes and inflationary impacts, partially offset by benefits from pricing. As a result, the Adjusted EBITDA margin was 21.2%, a 130 basis point decline from the prior year period.
Liquidity and Capital Resources
Treasury Responsibilities and Philosophy
Our primary liquidity and capital resource needs are for working capital, debt service requirements, capital expenditures, share repurchases, facility expansions and acquisitions. We expect to finance our future cash requirements with cash on hand, cash flows from operations and, where necessary, borrowings under our secured revolving credit facility. We have historically relied on our cash flow from operations and various debt and equity financings for liquidity.
From time to time, we enter into currency derivative contracts to manage currency transaction exposures. Similarly, from time to time, we may enter into interest rate derivatives to maintain the desired mix of floating and fixed rate debt.
As market conditions warrant, we may from time to time seek to repurchase securities that we have issued or loans that we have borrowed in privately negotiated or open market transactions, by tender offer or otherwise. Subject to any applicable limitations contained in the agreements governing our indebtedness, any such purchases of common shares or other securities or loans may be funded by existing cash or by incurring new secured or unsecured debt, including borrowings under our credit facilities. The amounts involved in any such purchase transactions, individually or in the aggregate, may be material. Any such purchases of debt securities or loans may relate to a substantial amount of a particular tranche of debt, with a corresponding reduction, where relevant, in the trading liquidity of that debt. In addition, any such purchases of debt made at prices below the “adjusted issue price” (as defined for U.S. federal income tax purposes) may result in taxable cancellation of indebtedness income to us, which may be material, and result in related adverse tax consequences to us.
It is our policy to retain sufficient liquidity throughout the capital expenditure cycle to maintain our financial flexibility. We do not have any meaningful debt maturities until 2029; however, we regularly evaluate market conditions, our liquidity profile, and various financing alternatives for opportunities to enhance our capital structure, and may refinance all or a portion of our indebtedness on or before maturity. We do not anticipate any material long-term deterioration in our overall liquidity position in the foreseeable future, and believe that we have adequate liquidity and capital resources for the next twelve months.
Cash Flow
Six months ended June 27, 2026 compared to the six months ended June 28, 2025
Cash provided by operating activities was $108.8 million during the six months ended June 27, 2026, compared to cash provided by operating activities of $110.3 million during the prior year period, primarily driven by a $102.8 million increase in deferred income taxes, a $17.3 million unfavorable movement in operating assets and liabilities and higher depreciation and amortization expense of $7.3 million, offset by a $112.8 million increase in net income.
Net cash used in investing activities during the six months ended June 27, 2026, was $41.8 million, compared to $62.0 million in the prior year period. The decrease of cash used in investing activities was primarily driven by decreased capital expenditures of $15.4 million, and a $5.3 million decrease in net cash paid under company-owned life insurance policies, partially offset by $0.6 million fewer proceeds from the sale of property, plant and equipment.
Net cash used in financing activities was $50.8 million during the six months ended June 27, 2026, compared to $33.4 million in the prior year period. Current year outflows were primarily related to $38.7 million paid to acquire shares under our share repurchase program and $8.7 million of employee taxes paid from shares withheld on exercised options. Prior year outflows were primarily related to $13.0 million paid to acquire shares under our share repurchase program, $16.9 million of employee taxes paid from shares withheld on exercised options and $9.4 million in debt repayment.
37
Indebtedness
Our long-term debt, consisting principally of secured term loans and the U.S. dollar denominated unsecured senior notes, was as follows:
| Carrying amount | Principal amount | ||||||||||||||||||||||
(dollars in millions) | As of June 27, 2026 | As of December 31, 2025 | As of June 27, 2026 | As of December 31, 2025 | |||||||||||||||||||
| Secured debt: | |||||||||||||||||||||||
| —2024 Dollar Term Loans due June 4, 2031 | $ | 1,274.9 | $ | 1,276.2 | $ | 1,280.5 | $ | 1,283.8 | |||||||||||||||
| —2022 Dollar Term Loans due November 16, 2029 | 446.6 | 444.7 | 454.8 | 456.3 | |||||||||||||||||||
| Unsecured debt: | |||||||||||||||||||||||
—6.875% Dollar Senior Notes due July 1, 2029 | 512.0 | 511.6 | 500.0 | 500.0 | |||||||||||||||||||
| $ | 2,233.5 | $ | 2,232.5 | $ | 2,235.3 | $ | 2,240.1 | ||||||||||||||||
We refer to the term loans denominated in U.S. dollars as the “Dollar Term Loans” and the unsecured senior notes denominated in U.S. dollars as the “Dollar Senior Notes”. The Dollar Term Loans that were issued on February 24, 2021 are referred to as the “2021 Dollar Term Loans”, which were extinguished on June 4, 2024. The new tranche of dollar term loans that were issued on June 4, 2024 are referred to as the “2024 Dollar Term Loans”, and the Dollar Term Loans that were issued on November 16, 2022 and repriced on June 4, 2024 are referred to as the “2022 Dollar Term Loans.” Details of our long-term debt are presented in Note 12 to the condensed consolidated financial statements included elsewhere in this quarterly report.
Amendments to credit agreements
On January 21, 2025, we amended our credit agreement to lower the margin with respect to the Revolving Credit Loans by 50 basis points compared to the previous term. The Revolving Credit Loans bear interest at our option either Term SOFR (subject to a floor of —%) plus a margin of 1.75% per annum or the base rate plus 0.75% per annum. The applicable margin for the Revolving Credit Facility borrowings will be subject to one 25 basis point step down determined in accordance with Gates Industrial Holdco Limited achieving a certain consolidated first lien net leverage level.
Non-guarantor subsidiaries
The majority of the Company’s U.S. subsidiaries are guarantors of the senior secured credit facilities.
For the three months ended June 27, 2026, before intercompany eliminations, our non-guarantor subsidiaries represented approximately 74% of our net sales and 67% of our EBITDA as defined in the financial covenants attaching to the senior secured credit facilities. As of June 27, 2026, before intercompany eliminations, our non-guarantor subsidiaries represented approximately 69% of our total assets and approximately 28% of our total liabilities.
Borrowing Headroom
Our secured revolving credit facility that provides for multi-currency revolving loans has a borrowing capacity of $500.0 million and matures on the date that is the earliest of (x) June 4, 2029 and (y) April 1, 2029, if greater than $500.0 million in aggregate principal amount of the Dollar Senior Notes due 2029 are outstanding. As of June 27, 2026, there were letters of credit outstanding against the facility amounting to $27.8 million. As of June 27, 2026, our total committed borrowing headroom was $472.2 million, in addition to cash and cash equivalents balances of $823.5 million.
38
Non-GAAP Measures
Adjusted EBITDA
Management uses “Adjusted EBITDA” as its key profitability measure. Adjusted EBITDA is a non-GAAP measure that represents Earnings Before Interest, Taxes, Depreciation, and Amortization (“EBITDA”), adjusted for certain items that are considered to hinder comparison of the performance of our businesses on a period-over-period basis or with other businesses. We use Adjusted EBITDA as our measure of segment profitability to assess the performance of our businesses, and it is used for total Gates as well because we believe it is important to consider our profitability on a basis that is consistent with that of our operating segments, as well as that of certain of our peer companies. We believe that Adjusted EBITDA should, therefore, be made available to securities analysts, investors and other interested parties to assist in their assessment of the performance of our businesses.
Differences exist among our businesses and from period to period in the extent to which their respective employees receive share-based compensation or a charge for such compensation is recognized. We therefore exclude from Adjusted EBITDA the non-cash charges in relation to share-based compensation in order to assess the relative performance of our businesses.
We exclude from Adjusted EBITDA acquisition-related costs that are required to be expensed in accordance with U.S. GAAP. We also exclude costs associated with major corporate transactions because we do not believe that they relate to our performance. Other items are excluded from Adjusted EBITDA because they are individually or collectively significant items that are not considered to be representative of the underlying performance of our businesses. During the periods presented, the items excluded from EBITDA in computing Adjusted EBITDA primarily included:
•transaction-related expenses incurred in relation to major corporate transactions, including the acquisition of businesses and related integration activities, and equity and debt transactions;
•non-cash charges in relation to share-based compensation;
•inventory adjustments related to certain inventories accounted for on a LIFO basis;
•asset impairments;
•restructuring expenses, including severance and restructuring-related expenses; and
•other expenses (income), excluding foreign currency transaction gain or loss and insurance recoveries.
We excluded changes in the LIFO inventory reserve recognized in cost of sales for certain inventories that are valued on a LIFO basis. During inflationary or deflationary pricing environments, LIFO adjustments can result in variability of the cost of sales recognized each period as the most recent costs are matched against current sales, while historical, typically lower, costs are retained in inventory. LIFO adjustments are determined based on published pricing indices, which often are not representative of the actual cost changes or timing of those changes as experienced by our business. Excluding the impact from the application of LIFO therefore improves the comparability of our financial performance from period to period and with the Company’s peers, and more closely represents the physical flow of our inventory and how we manage the business.
Adjusted EBITDA excludes items that can have a significant effect on our profit or loss and should, therefore, be used in conjunction with, not as substitutes for, profit or loss for the period. Management compensates for these limitations by separately monitoring net income from continuing operations for the period.
39
The following table reconciles net income to Adjusted EBITDA:
| Three months ended | Six months ended | ||||||||||||||||||||||||||||
(dollars in millions) | June 27, 2026 | June 28, 2025 | June 27, 2026 | June 28, 2025 | |||||||||||||||||||||||||
| Net income | $ | 178.0 | $ | 63.1 | $ | 244.2 | $ | 131.4 | |||||||||||||||||||||
| Loss on disposal of discontinued operations | 0.2 | 0.3 | 0.4 | 0.6 | |||||||||||||||||||||||||
| Income tax (benefit) expense | (78.0) | 16.8 | (66.5) | 42.0 | |||||||||||||||||||||||||
| Interest expense | 30.0 | 28.8 | 59.9 | 58.4 | |||||||||||||||||||||||||
| Depreciation and amortization | 57.1 | 53.3 | 112.8 | 105.5 | |||||||||||||||||||||||||
| Share-based compensation expense | 9.4 | 9.6 | 15.7 | 15.7 | |||||||||||||||||||||||||
Transaction-related expenses (1) | 3.1 | — | 3.6 | 0.4 | |||||||||||||||||||||||||
Inventory adjustments (included in cost of sales) (2) | 3.6 | 4.0 | 7.6 | 3.0 | |||||||||||||||||||||||||
| Restructuring expenses | 0.7 | 13.0 | 1.4 | 14.6 | |||||||||||||||||||||||||
| Restructuring related expenses (included in cost of sales) | 4.0 | 1.2 | 6.5 | 2.4 | |||||||||||||||||||||||||
| Restructuring related expenses (included in SG&A) | 5.3 | 3.1 | 6.6 | 4.6 | |||||||||||||||||||||||||
| Asset impairments | — | 0.2 | — | 0.8 | |||||||||||||||||||||||||
Other expense, excluding foreign currency transaction gain or loss and insurance recoveries (3) | (2.0) | 5.8 | (3.4) | 7.1 | |||||||||||||||||||||||||
| Adjusted EBITDA | $ | 211.4 | $ | 199.2 | $ | 388.8 | $ | 386.5 | |||||||||||||||||||||
(1) Transaction-related expenses relate primarily to advisory fees and other costs recognized in respect of major corporate transactions, including the acquisition of businesses, and equity and debt transactions.
(2) Inventory adjustments includes the reversal of the adjustment to remeasure certain inventories on a LIFO basis.
(3) Other(income) expenses excludes foreign currency transaction losses of $1.5 million and $4.3 million and insurance losses of $1.8 million and $2.5 million during the three and six months ended June 27, 2026, respectively, and foreign currency transaction losses of $1.0 million and $2.1 million during the three and six months ended June 28, 2025, respectively.
Core sales growth reconciliations
Core sales is a non-GAAP measure that represents net sales for the period excluding the impacts of movements in average currency exchange rates and the first-year impacts of acquisitions and disposals, when applicable. Core sales growth is the change in core sales expressed as a percentage of prior period net sales. We present core sales growth because it allows for a meaningful comparison of year-over-year performance without the volatility caused by foreign currency gains or losses or the incomparability that would be caused by impacts of acquisitions or disposals. Management believes that this measure is therefore useful for securities analysts, investors and other interested parties to assist in their assessment of the operating performance of our businesses. The closest GAAP measure is net sales.
| Three months ended June 27, 2026 | |||||||||||||||||
(dollars in millions) | Power Transmission | Fluid Power | Total | ||||||||||||||
| Net sales for the three months ended June 27, 2026 | $ | 588.5 | $ | 353.1 | $ | 941.6 | |||||||||||
| Impact on net sales of movements in currency rates | (9.5) | (5.5) | (15.0) | ||||||||||||||
| Core sales for the three months ended June 27, 2026 | $ | 579.0 | $ | 347.6 | $ | 926.6 | |||||||||||
| Net sales for the three months ended June 28, 2025 | $ | 550.1 | $ | 333.6 | $ | 883.7 | |||||||||||
| Increase in net sales | 38.4 | 19.5 | 57.9 | ||||||||||||||
| Increase in net sales on a core basis (core sales) | 28.9 | 14.0 | 42.9 | ||||||||||||||
| Net sales increase | 7.0 | % | 5.8 | % | 6.6 | % | |||||||||||
| Core sales increase | 5.3 | % | 4.2 | % | 4.9 | % | |||||||||||
40
| Six months ended June 27, 2026 | |||||||||||||||||
(dollars in millions) | Power Transmission | Fluid Power | Total | ||||||||||||||
| Net sales for the six months ended June 27, 2026 | $ | 1,121.7 | $ | 671.0 | $ | 1,792.7 | |||||||||||
| Impact on net sales of movements in currency rates | (28.7) | (14.2) | (42.9) | ||||||||||||||
| Core sales for the six months ended June 27, 2026 | $ | 1,093.0 | $ | 656.8 | $ | 1,749.8 | |||||||||||
| Net sales for the six months ended June 28, 2025 | $ | 1,077.3 | $ | 654.0 | $ | 1,731.3 | |||||||||||
| Increase in net sales | 44.4 | 17.0 | 61.4 | ||||||||||||||
| Increase in net sales on a core basis (core sales) | 15.7 | 2.8 | 18.5 | ||||||||||||||
| Net sales increase | 4.1 | % | 2.6 | % | 3.5 | % | |||||||||||
| Core sales increase | 1.5 | % | 0.4 | % | 1.1 | % | |||||||||||
Adjusted EBITDA adjustments for ratio calculation purposes
The financial maintenance ratio in our credit agreement and other ratios related to incurrence-based covenants (measured only upon the taking of certain actions, including the incurrence of additional indebtedness) under our credit agreement governing our revolving credit facility and our term loan facility and the indenture governing our outstanding notes are calculated in part based on financial measures similar to Adjusted EBITDA as presented elsewhere in this report, which financial measures are determined at the Gates Industrial Holdco Limited level and adjust for certain additional items such as severance costs, the pro forma impacts of acquisitions and the pro forma impacts of cost-saving initiatives. These additional adjustments during the twelve months ended June 27, 2026, as calculated pursuant to such agreements, resulted in a net benefit to Adjusted EBITDA for ratio calculation purposes of $3.2 million. Pursuant to the terms of the credit agreement governing our revolving credit facility and term loans, the Company may not, subject to certain exceptions, permit its Consolidated First Lien Net Leverage Ratio (as defined in the credit agreement) to exceed 4.50 to 1.00 as of the end of the test period if borrowings under the revolving credit facility exceed a certain threshold. Pursuant to the credit agreement, this ratio is defined as Consolidated First Lien Net Debt (as defined in the credit agreement) divided by Consolidated EBITDA (as defined in the credit agreement). For a description of the other material terms related to our debt agreements, please refer to Note 12 to the condensed consolidated financial statements included elsewhere in this report, and for a discussion of risks related to the compliance or non-compliance with the covenants described herein on the Company’s financial condition and liquidity, please refer to the factors described in Item 1A. “Risk Factors—Risks Related to Our Indebtedness” in Part I of the annual report. During the periods covered by the condensed consolidated financial statements included in this report, we were in compliance with the financial covenant and had no borrowing on the revolving credit facility.
Gates Industrial Corporation Ltd. is not an obligor under our revolving credit facility, our term loan facility or the indenture governing our outstanding notes. Gates Industrial Holdco Limited, a direct wholly-owned subsidiary of Gates Industrial Corporation Ltd., is the parent guarantor under our revolving credit facility, our term loan facility, and our outstanding notes. The only significant differences between the results of operations and net assets that would be shown in the consolidated financial statements of Gates Industrial Holdco Limited and those for the Company that are included elsewhere in this report are (i) an additional net intercompany loan receivable due to Gates Industrial Holdco and its subsidiaries from the Company, which was $240.7 million and $226.4 million as of June 27, 2026 and December 31, 2025, respectively, (ii) an additional intercompany receivable of $1.5 million as of June 27, 2026 and an intercompany receivable of $7.5 million as of December 31, 2025, due to Gates Industrial Holdco Limited and its subsidiaries from the Company attributable to UK tax group relief, and (iii) an additional cash and cash equivalents held by the Company, which was $3.6 million and $7.4 million as of June 27, 2026 and December 31, 2025, respectively.
Critical Accounting Estimates and Judgments
Our management’s discussion and analysis of financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions concerning the future that affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reported period.
41
Please refer to “Critical Accounting Estimates and Judgments” described in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2025, as filed with the SEC, from which there have been no material changes.
Item 3: Quantitative and Qualitative Disclosures about Market Risk
Our market risk includes the potential loss arising from adverse changes in foreign currency exchange rates, interest rates and commodity prices, and the credit risk of our customers and third-party depository institutions that hold our cash and short term deposits. 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. Our objective in managing these risks is to reduce fluctuations in earnings and cash flows associated with changes in foreign currency exchange rates and interest rate movements. For a discussion of quantitative and qualitative disclosures about market risk, please refer to our annual report from which our exposure to market risk has not materially changed.
Item 4: Controls and Procedures
Disclosure Controls and Procedures
The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. The Company’s management, with the participation of the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, the Company’s Chief Executive Officer and the Company’s Chief Financial Officer concluded that, as of June 27, 2026, the Company’s disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
42
PART II — OTHER INFORMATION
Item 1: Legal Proceedings
Information regarding legal proceedings is incorporated into this Part II, Item 1 from Note 18 of the notes to the condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Item 1A: Risk Factors
Except as set forth below, there have been no material changes to the risk factors previously disclosed in Item 1A “Risk Factors” in Part I of the Company’s Annual Report on Form 10-K for the year ended December 31, 2025 filed with the SEC on February 12, 2026 (the “annual report”).
The following disclosure is added as the last risk factor under the caption “Risks Related to Legal and Regulatory Matters” contained in the annual report.
Legislation enacted in Bermuda as to economic substance may affect our operations.
Pursuant to the Economic Substance Act 2018 of Bermuda, as amended, and the Economic Substance Regulations 2018, as amended (collectively, the “ES Act”), that came into force on January 1, 2019, a registered entity other than an entity which is resident for tax purposes in certain jurisdictions outside Bermuda that carries on as a business any one or more of the “relevant activities” referred to in the ES Act . The ES Act will require in-scope Bermuda entities which are engaged in such “relevant activities” to be directed and managed in Bermuda, have an adequate level of qualified employees in Bermuda, incur an adequate level of annual expenditure in Bermuda, maintain physical offices and premises in Bermuda and perform core income-generating activities in Bermuda. The list of “relevant activities” includes carrying on any one or more of banking, insurance, fund management, financing, leasing, headquarters, shipping, distribution and service center, intellectual property and holding entities.
To the extent the Company is conducting a “relevant activity,” we believe it will be the relevant activity of a “holding entity” within the meaning of the ES Act. On this basis, the Company should be subject to only minimum economic substance requirements under the ES Act and related regulations. However, if the Company is deemed to be carrying on another “relevant activity” within the meaning of the ES Act, other than that of a holding entity (such as the relevant activity of financing and leasing or headquarters business), the Company may be required to increase its substance in Bermuda in response to requirements imposed by the ES Act and related regulations. If this were the case, this could result in additional costs that could adversely affect the Company’s financial condition or results of operations.
The following disclosure replaces in its entirety the risk factors under the caption “Risks Related to Tax Matters” contained in the annual report.
Risks Related to Tax Matters
The Company may have future exposure to changes in its tax residency.
The Company intends to conduct its affairs so that it is resident for tax purposes solely in Bermuda. It is possible that in the future, whether as a result of a change in law or the practice of any relevant tax authority, or as a result of any change in the conduct of the Company’s affairs following a review by its directors or for any other reason, the Company could become, or be regarded as having become, a tax resident or otherwise subject to tax in a jurisdiction other than Bermuda. In such an event, the Company may have exposure related to unexpected tax liabilities that would have an adverse effect.
The Company’s effective tax rate may fluctuate.
In connection with the Redomiciliation, the Company recognized a tax benefit from the reduction of a valuation allowance on certain foreign deferred tax assets that are expected to be used in future periods. This is not expected to affect the Company’s cash taxes or adjusted net income per share. However, beginning the second quarter of 2026, the Company’s effective tax rate decreased as a result, and is expected to be followed by an increase during the period in which the foreign deferred tax asset is utilized. As a result, the Company’s results of operations may be negatively impacted during such period.
43
Bermuda’s limited network of international tax treaties may present an incremental tax risk to the Company, its subsidiaries and their cash flow.
The Company is a Bermuda exempted company intended to be tax resident solely in Bermuda. Bermuda has no comprehensive income tax treaties and only a very limited number of special purpose tax treaties. Certain tax treaty benefits may or will not be available with respect to various intercompany distributions and other intercompany transactions or dispositions. This could adversely impact our ability to make intercompany distributions or engage in other intercompany transactions.
Future changes to tax laws could adversely affect us.
Changes to international tax laws could result in substantially higher taxes and have a significant adverse effect on our operations, financial condition and liquidity. In recent times, the Parliament of the United Kingdom, the European Union, the Organization for Economic Co-operation and Development (“OECD”), the U.S. Congress and other government agencies in jurisdictions where the Company and its affiliates will do business have focused extensively on issues related to the taxation of multinational corporations. As a result, Bermuda, U.K. and U.S. tax laws, as well as tax laws in other countries in which the Company and its affiliates do business, could change, including on a retroactive basis, and any such changes could adversely affect the Company and its affiliates.
Specifically, further changes in the tax laws of the various jurisdictions in which we operate could arise as a result of the Base Erosion and Profit Shifting (“BEPS”) project undertaken by the OECD. The OECD represents a coalition of member countries that encompasses most of the jurisdictions in which we operate. In October 2021, the OECD announced the OECD/G20 Inclusive Framework of Base Erosion and Profit Shifting (the “BEPS Framework”), which involved a two-pillar solution to reform international taxation. Pillar Two establishes a global minimum tax regime that applies to multinational enterprises with global revenue of at least €750 million in at least two years out of the four previous years. Under Pillar Two, a top-up tax can be imposed in each jurisdiction in which the group operates if the effective tax rate in such jurisdiction is less than 15%. Under certain charging rules, the top-up tax may be collected in a jurisdiction other than the jurisdiction where profits arise solely because a member of a multinational enterprise group is located in a jurisdiction that has implemented such charging rules pursuant to Pillar Two. Most jurisdictions in which we operate have introduced legislation to implement Pillar Two, which could result in the taxation of the profits of Gates affiliates worldwide.
Bermuda has not adopted Pillar Two. Instead, a 15% corporate income tax was introduced in Bermuda in 2023 pursuant to the Bermuda Corporate Income Tax Act 2023, as amended, and became fully effective on January 1, 2025. Bermuda’s corporate income tax only applies to profits arising in Bermuda and not to profits arising in non-Bermuda subsidiaries. This 15% corporate income tax could apply to the Company notwithstanding that the Company has obtained an assurance from the Minister of Finance of Bermuda under the Exempted Undertakings Tax Protection Act 1966 that, in the event that any future legislation is enacted in Bermuda imposing any tax computed on profits or income, or computed on any capital asset, gain or appreciation or any tax in the nature of estate duty or inheritance tax, such tax shall not, until March 31, 2035, be applicable to the Company or to any of its operations or shares, debentures or other obligations except insofar as such tax applies to persons ordinarily resident in Bermuda or is payable by the Company in respect of real property owned or leased by it in Bermuda.
In addition, the BEPS Framework, as well as legislative changes in many countries, has resulted in various initiatives that require the sharing of company financial and operational information with taxing authorities on a local or global basis. This may lead to greater audit scrutiny of profits earned in other countries as well as disagreements between jurisdictions associated with the proper allocation of profits between jurisdictions.
Overall, ongoing developments relating to the BEPS Framework, including Pillar Two and the Bermuda corporate income tax, could adversely affect our financial position through increasing our tax liabilities on a worldwide basis. The impact that these tax law changes will have on the Company is uncertain.
The following disclosure replaces in its entirety the risk factors under the caption “Risks Related to the Ownership of our Ordinary Shares” contained in the annual report.
Risks Related to the Ownership of our Common Shares
Because we have no current plans to pay dividends on our common shares, our shareholders may not receive any return on their investments unless they sell their common shares for a price greater than that which they paid.
44
We have no current plans to pay dividends on our common shares. The declaration, amount and payment of any future dividends on our common shares will, subject to contractual, legal, tax and regulatory restrictions, be at the sole discretion of our Board. Our Board may take into account general economic conditions, our financial condition and results of operations, our available cash and current and anticipated cash needs, capital requirements and implications on the payment of dividends by us to our shareholders or by our subsidiaries to us, and such other factors as our Board may deem relevant. In addition, our ability to pay dividends is limited by our senior secured credit facilities and notes and may be limited by covenants of other indebtedness we or our subsidiaries incur in the future. As a result, our shareholders may not receive any return on an investment in our common shares unless such shares are sold for a price greater than that which was paid for them.
If we were to issue preference shares, they may have rights, preferences and privileges that adversely affect our common shares or our other securities.
The Company is authorized under its amended and restated bye-laws (“Bye-laws”) to issue preference shares, with such rights, preferences and privileges as may be determined from time-to-time by our Board. Similarly, our Board is empowered to issue preference shares with nominal value in any currency and with, or having attached to them, such powers, designations, preferences, voting rights, rights and terms of redemption, and relative participating, optional or other special rights and qualifications, limitations and restrictions attaching thereto as our Board may determine, including rights to (a) receive dividends (which may include rights to receive preferential or cumulative dividends), (b) distributions made on a winding up of the Company and (c) be convertible into, or exchangeable for, shares of any other class or classes or of any other series of the same or any other class or classes of shares, at such price or prices (subject to the Companies Act 1981 of Bermuda, as may be amended from time to time (the “Bermuda Companies Act”)) or at such rates of exchange and with such adjustments as may be determined by our Board.
No preference shares are presently issued and outstanding and we have no immediate plans to issue preference shares. The issue of preference shares, depending on the rights, preferences and privileges attributable to the preference shares, could adversely reduce the voting rights and powers of our common shares and the portion of our assets allocated for distribution to our shareholders in a liquidation event, and could also result in dilution in the net book value per share of our common shares. We cannot assure you that we will not, under certain circumstances, issue preference shares for the purposes of raising capital, a shareholder rights plan or otherwise. However, the Company does not have a shareholder rights plan, or poison pill, and any rights plan adopted by our Board without prior shareholder approval will automatically terminate one year after adoption of the plan unless the plan is approved by shareholders prior to such termination.
U.S. investors may have difficulty enforcing judgments against the Company, its directors and its officers.
There is doubt as to whether Bermuda courts would enforce certain civil liabilities under U.S. securities laws in original actions or in judgments of U.S. courts based upon these civil liability provisions. We have been advised by our Bermuda counsel that there is no treaty in force between the United States and Bermuda providing for the reciprocal recognition and enforcement of judgments in civil and commercial matters. As a result, whether a U.S. judgment would be enforceable in Bermuda against the Company or its directors and officers depends on whether the U.S. court that entered the judgment is recognized by a Bermuda court as having jurisdiction over the Company or its directors and officers, as determined by reference to Bermuda conflict of law rules. A judgment debt from a U.S. court that is final and for a sum certain based on U.S. federal securities laws will not be enforceable in Bermuda unless the judgment debtor had submitted to the jurisdiction of the U.S. court, and the issue of submission and jurisdiction is a matter of Bermuda (not U.S.) law.
In addition, and irrespective of jurisdictional issues, the Bermuda courts will not enforce a U.S. federal securities law that is either penal or contrary to Bermuda public policy. We have been advised that an action brought pursuant to a public or penal law, the purpose of which is the enforcement of a sanction, power or right at the instance of the state in its sovereign capacity, will not be entertained by a Bermuda court. Certain remedies available under the laws of U.S. jurisdictions, including certain remedies under U.S. federal securities laws, may not be available under Bermuda law or enforceable in a Bermuda court, as they may be contrary to Bermuda public policy. Further, no claim may be brought in Bermuda against the Company or its directors and officers for alleged violations of U.S. federal securities laws because these do not have force of law in Bermuda. A Bermuda court may, however, impose civil liability on the Company or its directors and officers if the facts alleged in a federal securities law complaint or the fact of breaching or possibly breaching federal securities law constitute or give rise to a cause of action under Bermuda law (for example, a claim against directors for breach of fiduciary duty for failing to act in the best interests of the company because they have caused or allowed the company to breach U.S. federal securities law).
45
Our Bye-laws generally restrict the Company’s shareholders from bringing legal action against its officers and directors.
Our Bye-laws contain customary provisions for the indemnification and protection of directors and officers, including a general waiver by the Company’s shareholders for any claim or right of action a shareholder might have (whether individually or by or in the right of the Company) against any director or officer of the Company on account of any action taken by such director or officer, or the failure of such director or officer to take any action in the performance of such director’s or officer’s duties with or for the Company or any subsidiary of the Company; provided that such waiver will not extend to any matter in respect of any fraud or dishonesty which may attach to such director or officer nor shall such waiver extend to any claims of violations of the Securities Act of 1933, as amended (the “Securities Act”), or the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which waiver would be prohibited by Sections 14 of the Securities Act and 29(a) of the Exchange Act. Consequently, this waiver limits the right of the Company’s shareholders to assert claims against the Company’s officers and directors unless the act or failure to act involves fraud or dishonesty or involves claims of violations of the Securities Act or the Exchange Act.
Our Bye-laws provide that the Supreme Court of Bermuda will have exclusive jurisdiction in the event of any dispute that arises concerning the Bermuda Companies Act or out of or in connection with our Bye-laws.
Our Bye-laws provide that in the event that any dispute arises concerning the Bermuda Companies Act or out of or in connection with our Bye-laws, including any question regarding the existence and scope of any bye-law and/or whether there has been any breach of the Bermuda Companies Act or our Bye-laws by an officer or director of the Company (whether or not such a claim is brought in the name of a shareholder or in the name of the Company), any such dispute shall be subject to the exclusive jurisdiction of the Supreme Court of Bermuda. This choice of forum provision may limit a shareholder’s ability to bring a claim in a judicial forum that the shareholder believes is favorable for disputes with us or our directors and officers, which may discourage lawsuits against us and our directors and officers.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table sets forth information regarding our purchases of our ordinary shares during the three months ended June 27, 2026:
| Period | Total number of shares purchased | Average price paid per share (1) | Total number of shares purchased as part of publicly announced plans or programs(2) | Maximum dollar value of shares that may yet be purchased under the plans or programs ($ million) | ||||||||||||||||||||||
| 3/29/2026 - 4/25/2026 | — | $ | — | — | $ | 177.8 | ||||||||||||||||||||
| 4/26/2026 - 5/23/2026 | 918,247 | $ | 24.0175 | 918,247 | $ | 155.9 | ||||||||||||||||||||
| 5/24/2026 - 6/27/2026 | 4,700 | $ | 24.9573 | 4,700 | $ | 155.8 | ||||||||||||||||||||
| Total | 922,947 | $ | 24.0222 | 922,947 | $ | 155.8 | ||||||||||||||||||||
(1) Does not include commissions or other costs paid to repurchase shares.
(2) The share repurchase program was established in October 2025, allowing for up to $300 million in authorized share repurchases of our ordinary shares, exclusive of commissions, through December 2026. Under this publicly announced program, we were authorized to repurchase ordinary shares using a variety of methods, including but not limited to open market purchases and privately negotiated transactions, all in compliance with the rules and regulations of the SEC and other applicable legal requirements. In May 2026, we repurchased approximately $22.0 million of our ordinary shares under the share repurchase program pursuant to a share repurchase contract. Approximately $155.8 million remained available under the share repurchase program as of June 27, 2026.
Item 5. Other Information
Trading Arrangements
During the three months ended June 27, 2026, no director or officer (as defined in Rule 16a-1(f) of the Exchange Act) of the Company informed us of the adoption termination
46
Item 6: Exhibits
Exhibit No. | Description | ||||
| 3.1 | Memorandum of Association of Gates Industrial Corporation Ltd. (incorporated by reference from Exhibit 3.1 to the registrant’s Current Report on Form 8-K filed on July 20, 2026 (File No. 001-38366)) | ||||
| 3.2 | Certificate of Deposit of Memorandum of Increase of Share Capital (incorporated by reference from Exhibit 3.2 to the registrant’s Current Report on Form 8-K12B filed on July 20, 2026 (File No. 001-38366)) | ||||
| 3.3 | Amended and Restated Bye-laws of Gates Industrial Corporation Ltd. (incorporated by reference from Exhibit 3.3 to the registrant’s Current Report on Form 8-K filed on July 20, 2026 (File No. 001-38366)) | ||||
| 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 six months ended June 27, 2026, formatted in inline Extensible Business Reporting Language (iXBRL): (i) Condensed Consolidated Statements of Operations for the three and six months ended June 27, 2026 and June 28, 2025, (ii) Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 27, 2026 and June 28, 2025, (iii) Condensed Consolidated Balance Sheets as of June 27, 2026 and December 31, 2025, (iv) Condensed Consolidated Statements of Cash Flows for the six months ended June 27, 2026 and June 28, 2025, (v) Condensed Consolidated Statements of Shareholders’ Equity for the three and six months ended June 27, 2026 and June 28, 2025, and (vi) Notes to the Condensed Consolidated Financial Statements* | ||||
| 104 | Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit 101) | ||||
* Filed herewith.
** Furnished herewith.
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.
47
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| GATES INDUSTRIAL CORPORATION LTD. (Registrant) | ||||||||||||||
| By: | /s/ L. Brooks Mallard | |||||||||||||
| Name: | L. Brooks Mallard | |||||||||||||
| Title: | Chief Financial Officer | |||||||||||||
(On behalf of the Registrant) | ||||||||||||||
| By: | /s/ John S. Patouhas | |||||||||||||
| Name: | John S. Patouhas | |||||||||||||
| Title: | Chief Accounting Officer | |||||||||||||
(Principal Accounting Officer) | ||||||||||||||
Date: July 31, 2026
48