What changed in this filing

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Item 1. Financial Statements

2023-11-03 compared with 2023-08-09 · 195 added, 169 removed, 626 unchanged (37% of the section changed)

6 unchanged sentences

For the Three Months Ended

June 30, For the Six Months Ended

September 30, For the Nine Months Ended

September 30,

2023 2022 2023 2022

7 unchanged sentences

Equity, royalty and interest income from investees 8.1 7.3 24.8 21.5

Other operating expense, net 0.2 0.9 0.3 3.6

Other operating (income) expense, net ( 0.2 ) — 0.1 3.6

OPERATING INCOME 58.8 64.9 192.2 167.4

9 unchanged sentences

Diluted earnings per share $ 0.45 $ 0.61 $ 1.64 $ 1.61

(a) Includes sales to related parties of $ 87.2 million and $ 176.3 million for the three and six months ended June 30, 2023, respectively, compared with $ 84.1 million and $ 170.0 million for the three and six months ended June 30, 2022, respectively.

(a) Includes sales to related parties of $ 86.9 million and $ 263.2 million for the three and nine months ended September 30, 2023, respectively, compared with $ 90.1 million and $ 260.1 million for the three and nine months ended September 30, 2022, respectively.

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

4 unchanged sentences

For the Three Months Ended

June 30, For the Six Months Ended

September 30, For the Nine Months Ended

September 30,

2023 2022 2023 2022

1 unchanged sentence

Other comprehensive loss, net of tax

Change in pension and other postretirement defined benefit plans 0.8 — 0.8 —

Foreign currency translation adjustments ( 6.9 ) ( 11.5 ) ( 9.0 ) ( 31.0 )

7 unchanged sentences

dollars, except share data)

September 30,

2023 December 31,

15 unchanged sentences

Current portion of accrued product warranty 4.5 5.9

Current maturities of long-term debt 3.7 —

Other accrued expenses 82.7 79.0

6 unchanged sentences

Common stock, $ 0.0001 par value ( 2,000,000,000 shares authorized

and 83,297,796 shares issued at June 30, 2023)

and 83,297,796 shares issued at September 30, 2023)

Net parent investment — 511.4

9 unchanged sentences

(in millions of U.S.

For the Six Months Ended

For the Nine Months Ended

September 30,

CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

21 unchanged sentences

Long-term debt proceeds 650.0 —

Payments on long-term debt ( 50.0 ) —

Net transfers to Parent ( 580.3 ) ( 65.5 )

Other, net 1.4 —

Net cash provided by (used in) financing activities 21.1 ( 65.5 )

14 unchanged sentences

Comprehensive

Three Months Ended June 30, 2023

Balances at April 1, 2023 $ — $ 527.7 $ — $ — $ ( 54.9 ) $ 472.8

Three Months Ended September 30, 2023

Balances at July 1, 2023 $ — $ — $ 44.6 $ 14.8 $ ( 57.9 ) $ 1.5

Net income — — — 37.6 — 37.6

Other comprehensive loss, net of tax — — — — ( 6.1 ) ( 6.1 )

Net transfers (to) from Parent — ( 559.1 ) 44.6 — — ( 514.5 )

Balances at June 30, 2023 $ — $ — $ 44.6 $ 14.8 $ ( 57.9 ) $ 1.5

Six Months Ended June 30, 2023

Share-based awards — — 1.4 — — 1.4

Balances at September 30, 2023 $ — $ — $ 46.0 $ 52.4 $ ( 64.0 ) $ 34.4

Nine Months Ended September 30, 2023

Balances at January 1, 2023 $ — $ 511.4 $ — $ — $ ( 55.8 ) $ 455.6

1 unchanged sentence

Other comprehensive loss, net of tax — — — — ( 8.2 ) ( 8.2 )

Share-based awards — — 1.4 — — 1.4

Net transfers (to) from Parent — ( 595.5 ) 44.6 — — ( 550.9 )

Balances at June 30, 2023 $ — $ — $ 44.6 $ 14.8 $ ( 57.9 ) $ 1.5

Three Months Ended June 30, 2022

Balances at April 1, 2022 $ — $ 505.2 $ — $ — $ ( 41.3 ) $ 463.9

Balances at September 30, 2023 $ — $ — $ 46.0 $ 52.4 $ ( 64.0 ) $ 34.4

Three Months Ended September 30, 2022

Balances at July 1, 2022 $ — $ 530.0 $ — $ — $ ( 61.1 ) $ 468.9

Net income — 50.4 — — — 50.4

1 unchanged sentence

Net transfers to Parent — ( 42.3 ) — — — ( 42.3 )

Balances at June 30, 2022 $ — $ 530.0 $ — $ — $ ( 61.1 ) $ 468.9

Six Months Ended June 30, 2022

Balances at September 30, 2022 $ — $ 538.1 $ — $ — $ ( 72.6 ) $ 465.5

Nine Months Ended September 30, 2022

Balances at January 1, 2022 $ — $ 469.2 $ — $ — $ ( 41.6 ) $ 427.6

2 unchanged sentences

Net transfers to Parent — ( 65.5 ) — — — ( 65.5 )

Balances at June 30, 2022 $ — $ 530.0 $ — $ — $ ( 61.1 ) $ 468.9

Balances at September 30, 2022 $ — $ 538.1 $ — $ — $ ( 72.6 ) $ 465.5

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

4 unchanged sentences

Atmus Filtration Technologies Inc.

(“Atmus” or the “Company”) develops, designs and manufactures and sells filters, coolant and chemical products.

(“Atmus” or the “Company”) develops, designs, manufactures and sells filters, coolant and chemical products.

Atmus offers products for first fit and aftermarket applications, including air filters, fuel filters, fuel water separators, lube filters, hydraulic filters, coolants, fuel additives and other filtration systems to original equipment manufacturers, dealers/distributors and end-users.

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On September 30, 2022, and as amended on February 15, 2023, Atmus entered into a $ 1.0 billion credit agreement (“Credit Agreement”) with Cummins and a syndicate of banks, providing for a $ 600 million term loan facility (the “term loan”) and a $ 400 million revolving credit facility (the “revolving credit facility”), in anticipation of the Separation.

Borrowings under the Credit Agreement did not become available under the Credit Agreement until the IPO occurred.

Borrowings under the Credit Agreement did not become available until the IPO occurred.

The facilities covered by the Credit Agreement will mature on September 30, 2027.

3 unchanged sentences

As of the closing of the IPO, Cummins owned approximately 80.5 % of the outstanding shares of Atmus common stock.

Upon completion of the IPO, Atmus borrowed approximately $ 650 million, consisting of proceeds of the term loan and amounts drawn under the revolving credit facility, and paid such amounts to Cummins in partial consideration for the Separation.

Upon completion of the IPO, Atmus borrowed $ 650 million, consisting of proceeds of the term loan and amounts drawn under the revolving credit facility, and paid such amounts to Cummins in partial consideration for the Separation.

BASIS OF PRESENTATION

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The unaudited financial statements for all periods presented, including the historical results of the Company prior to May 26, 2023, are now referred to as “Condensed Consolidated Financial Statements”, and have been prepared pursuant to the rules and regulations of the Commission for interim financial information .

Accordingly, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

Accordingly, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“U.S.

GAAP”) have been omitted.

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Historically, Atmus’s cash was transferred to Cummins on a daily basis.

This arrangement is not reflective of the manner in which Atmus would have been able to finance its operations had it been a standalone business separate from Cummins during the periods presented.

This arrangement was not reflective of the manner in which Atmus would have been able to finance its operations had it been a standalone business separate from Cummins during each of the periods presented.

Cummins’ debt and related interest expense were not allocated to Atmus for any of the periods presented since Atmus was not the legal obligor of the debt and Cummins’ borrowings were not directly attributable to Atmus.

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In connection with the Separation, we entered into various agreements with Cummins, including a separation agreement.

In the Separation Agreement, there were certain assets and liabilities identified in the schedules, including leases and unrecognized tax liabilities, which were retained by Cummins and were reflected as Net Parent Investment in the Company’s Condensed Consolidated Financial Statements, and those that were transferred to the Company, including additional pension assets, other compensation obligations and certain other assets and liabilities, which were transferred to the Company through Net Parent Investment in the Company’s Condenses Consolidated Financial Statements.

These agreements comprehensively provide a

framework for our relationship with Cummins and govern various interim and ongoing relationships between us and Cummins post IPO.

These various agreements comprehensively

provide a framework for our relationship with Cummins and govern various interim and ongoing relationships between us and Cummins post IPO.

As part of the Separation, Net Parent Investment was reclassified as Additional Paid-in Capital.

Periods Post IPO

Following the IPO, certain services continue to be provided by Cummins under the Transition Services Agreement.

Following the IPO, certain services continue to be provided by Cummins under the Transition Services Agreement (“TSA”).

The Company incurred certain costs in its establishment as a standalone public company and expects to incur ongoing additional costs associated with operating as an independent, publicly traded company.

1 unchanged sentence

Atmus currently files a consolidated Federal income tax return and returns in certain other jurisdictions with Cummins.

Following a full separation, Atmus will file tax returns in those jurisdictions on its own behalf.

Post IPO, Retained earnings began to accumulate and the balance reflected on the condensed consolidated balance sheets reflects earnings for the period post May 26, 2023 through June 30, 2023.

Following a full separation from Cummins, Atmus will file tax returns in those jurisdictions on its own behalf.

Post IPO, Retained earnings began to accumulate and the balance reflected on the Condensed Consolidated Balance Sheets reflects earnings for the period May 26, 2023 through September 30, 2023.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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Atmus has experienced, and expects to continue to experience, an inability to collect customer receivables from Russian customers.

Atmus also determined that it has some inventory items that were designated specifically for Russia which cannot be used elsewhere.

As a result of the suspension of Russian operations, the Company established a reserve of approximately $ 1.7 million for accounts receivable and $ 0.6 million of inventory that was written off during 2022.

As of June 30, 2023, the accounts receivable reserve for Atmus’s Russia operations was $ 1.5 million and no additional inventory was written off during the year.

The expense recognized in 2022 was recorded within Other operating expense, net and Cost of sales in the Condensed Consolidated Statements of Net Income.

Atmus also determined that it has some inventory items that were designated specifically for Russia that cannot be used elsewhere.

As a result of the suspension of Russian operations, the Company established a reserve of approximately $ 1.7 million for accounts receivable and $ 0.6 million of inventory was written off during 2022.

As of September 30, 2023 , the accounts receivable reserve for Atmus’s Russia operations was $ 1.5 million and no additional inventory was written off during the year.

The expense recognized in 2022 was recorded within Other operating (income) expense, net and Cost of sales in the Condensed Consolidated Statements of Net Income.

REVENUE FROM CONTRACTS WITH CUSTOMERS

4 unchanged sentences

For the Three Months Ended

June 30, For the Six Months Ended

September 30, For the Nine Months Ended

September 30,

2023 2022 2023 2022

6 unchanged sentences

For the Three Months Ended

June 30, For the Six Months Ended

September 30, For the Nine Months Ended

September 30,

2023 2022 2023 2022

8 unchanged sentences

For the Three Months Ended

June 30, For the Six Months Ended

September 30, For the Nine Months Ended

September 30,

2023 2022 2023 2022

10 unchanged sentences

In connection with the Separation, the Company entered into a Tax Matters Agreement with Cummins that among other things, formalized our agreement related to the responsibility for historical tax positions for the period prior to the IPO for jurisdictions where our business was included in the consolidated or combined tax returns of Cummins.

Atmus’s effective tax rate for the three and six month periods ended June 30, 2023, was 24.5 % and 24.1 %, respectively.

Atmus’s effective tax rate for the three and six month periods ended June 30, 2022, was 19.5 %

and 20.8 %, respectively.

The increase in the effective tax rate was driven by a change in discrete tax items and in the mix of earnings among tax jurisdictions.

Atmus’s effective tax rate for the three and nine month periods ended September 30, 2023, was 23.1 % and 23.8 %, respectively.

Atmus’s effective tax rate for the three and nine month periods ended September 30, 2022,

was 22.0 % and 21.3 %, respectively.

The increase in the effective tax rate was driven by a change in the mix of earnings among tax jurisdictions partially offset by a change in discrete tax items.

The Company’s effective tax rate differs from the U.S.

statutory rate primarily due to differences in rates applicable to foreign subsidiaries, withholding taxes and state income taxes.

The three and six month periods ended June 30, 2023 included unfavorable net discrete tax items related to return to provision adjustments.

Discrete items in the three months ended June 30, 2022, contained favorable net discrete tax items, primarily due to favorable changes in tax reserves.

The six month period ended June 30, 2022, contained favorable net discrete tax items, primarily due to favorable changes in tax reserves, partially offset by unfavorable withholding tax adjustments and unfavorable changes for return to provision items.

Inventories are stated at the lower of cost or net realizable value.

Inventories included the following:

September 30,

2023 December 31,

8 unchanged sentences

A tabular reconciliation of the product warranty liability, including accrued product campaigns, was as follows:

For the Six Months Ended

For the Nine Months Ended

September 30,

(in millions)

6 unchanged sentences

Warranty liabilities included in Atmus’s Condensed Consolidated Balance Sheets were as follows:

September 30,

2023 December 31,

6 unchanged sentences

A total of $ 24.2 million was accrued for this campaign during the years ended December 31, 2020 and 2019.

The remaining accrual balance at June 30, 2023 was $ 8.2 million with approximately $ 3.7 million in current portion of accrued product warranty and approximately $ 4.5 million in accrued product warranty on Atmus’s Condensed Consolidated Balance Sheet.

The remaining accrual balance at September 30, 2023 was $ 3.1 million all of which is included in current portion of accrued product warranty on Atmus’s Condensed Consolidated Balance Sheet.

DEBT AND BORROWING ARRANGEMENTS

On September 30, 2022, and as amended on February 15, 2023, Atmus entered into the Credit Agreement with Cummins and a syndicate of banks, providing for a $ 600 million term loan facility (the “term loan”) and a $ 400 million revolving credit facility (the “revolving credit facility”), in anticipation of the Separation.

Borrowings under the Credit Agreement did not become available under the Credit Agreement until the IPO occurred.

Atmus entered into the Credit Agreement with Cummins and a syndicate of banks, providing for a "term loan” and a revolving credit facility, in anticipation of the Separation.

Borrowings under the Credit Agreement did

not become available under the Credit Agreement until the IPO occurred.

The facilities covered by the Credit Agreement will mature on September 30, 2027.

Upon completion of the IPO, we borrowed approximately $ 650 million, consisting of proceeds of the term loan and amounts drawn under the revolving credit facility, and paid such amounts to Cummins in partial consideration for the Separation.

Upon completion of the IPO, we borrowed $ 650 million under the Credit Agreement, consisting of proceeds of the term loan and amounts drawn under the revolving credit facility, and paid such amounts to Cummins in partial consideration for the Separation.

Borrowings under the Credit Agreement bear interest at varying rates, depending on the type of loan and, in some cases, the rates of designated benchmarks and the applicable election made.

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dollar-denominated loans bear interest at an adjusted term Secured Overnight Financing Rate (“SOFR”) (which includes a 0.10 percent credit spread adjustment to SOFR) for the applicable interest period plus a rate ranging from 1.125 percent to 1.75 percent depending on Atmus’s net leverage ratio.

As of June 30, 2023, $ 600 million has been drawn on the term loan and $ 50 million has been drawn on the revolving credit facility, which are included within Long-term debt on the Balance Sheet.

As of June 30, 2023, Atmus’s fair value of Long-term debt was approximately $ 650 million.

Our credit lines available as of June 30, 2023 and December 31, 2022 include:

As of June 30, 2023 As of December 31, 2022

As of September 30, 2023, $ 600 million has been drawn on the term loan and no amount was drawn on the revolving credit facility.

These amounts are included within Long-term debt and Current maturities of long-term debt on the Balance Sheet.

As of September 30, 2023, Atmus’s fair value of Long-term debt was approximately $ 600 million, which was derived from Level 2 input measures.

Our credit lines available as of September 30, 2023 and December 31, 2022 include:

As of September 30, 2023 As of December 31, 2022

Facility Amount Borrowed Amount Facility Amount Borrowed Amount

5 unchanged sentences

September 30, 2027 (1)

400.0 50.0 — —

(1) Atmus maintains a term loan facility and a revolving credit facility as part of the Credit Agreement.

The Credit Agreement includes financial covenants that Atmus maintain certain net leverage, secured net leverage and interest coverage ratios.

At June 30, 2023, Atmus complied with all financial covenants.

At September 30, 2023, Atmus complied with all financial covenants.

The Credit Agreement also contains customary representations, events of default and covenants, including restrictions on the level of borrowing.

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The Company is subject to lawsuits and claims arising out of the ordinary course of its business.

While the Company cannot predict with certainty the outcome, costs recognized with respect to such actions were not material during the three months ended June 30, 2023.

While the Company cannot predict with certainty the outcome, costs recognized with respect to such actions were not material during the three months ended September 30, 2023.

The Company does not have any currently pending claims or litigation that the Company believes, individually or in the aggregate, will have a material adverse effect on its financial position, results of operations, liquidity or capital resources.

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Atmus does not believe that these lawsuits are material individually or in the aggregate.

While the Company believes it has established adequate accruals for our expected future liability with respect to pending lawsuits, claims and proceedings, where the nature and extent

of any such liability can be reasonably estimated based upon presently available information, there can be no assurance that the final resolution of any existing or future lawsuits, claims or proceedings will not have a material adverse effect on Atmus’s business, results of operations, financial condition or cash flows.

While the Company believes it has established adequate accruals for our expected future liability with respect to pending lawsuits, claims and proceedings, where the nature and extent of any such liability can be reasonably estimated based upon presently available information, there can be no assurance that the final resolution of any existing or future lawsuits, claims or proceedings will not have a material adverse effect on Atmus’s business, results of operations, financial condition or cash flows.

Indemnifications

Periodically, Atmus enters into various contractual arrangements where it agrees to indemnify a third-party against certain types of losses.

Common types of indemnities include:

• product liability and license, patent or trademark indemnifications;

• asset sale agreements where Atmus agrees to indemnify the purchaser against future environmental exposures related to the asset sold;

• any contractual agreement where we agree to indemnify the counterparty for losses suffered as a result of a misrepresentation in the contract.

Atmus regularly evaluates the probability of having to incur costs associated with these indemnities and accrue for expected losses that are probable.

1 unchanged sentence

ACCUMULATED OTHER COMPREHENSIVE LOSS

Following are the changes in accumulated other comprehensive income (loss) by component for the three and six month periods ended June 30, 2023 and June 30, 2022:

Following are the changes in Accumulated other comprehensive income (loss) by component for the three and nine month periods ended September 30, 2023 and September 30, 2022:

For the Three Months Ended

June 30, For the Six Months Ended

September 30, For the Nine Months Ended

September 30,

2023 2022 2023 2022

7 unchanged sentences

Balance at beginning of period $ 0.9 $ ( 1.5 ) $ 0.9 $ ( 1.5 )

Change in pensions and other benefit plans 0.8 — 0.8 —

Other comprehensive income (loss), net 0.8 — 0.8 —

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In addition, the expenses reflected in the Condensed Consolidated Financial Statements may not be indicative of expenses that will be incurred in the future by Atmus.

The Company entered into a Separation Agreement and a Transitional Services Agreement (“TSA”) with Cummins, among other transaction agreements, all of which will govern the parties relationship following the IPO.

The Company entered into the Separation Agreement and TSA with Cummins, among other transaction agreements, all of which will govern the parties relationship following the IPO.

This includes services provided by Cummins to the Company for a fixed term on a service-by-service basis.

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The Condensed Consolidated Financial Statements include corporate costs incurred by Cummins for services that were provided to or on behalf of Atmus for the period prior to IPO.

Such costs represent shared services and infrastructure provided by Cummins, including administrative, finance, human resources, information technology, legal, and other corporate and infrastructure services.

Such costs represent shared

services and infrastructure provided by Cummins, including administrative, finance, human resources, information technology, legal, and other corporate and infrastructure services.

The corporate costs reflected in the Condensed Consolidated Financial Statements consist of direct charges to the business and indirect allocations to Atmus.

The costs that were directly charged to Atmus, such as Cummins Business Services, were primarily determined based on actual usage.

The costs that were directly charged to Atmus, such as the shared services for finance provided by Cummins Business Services, were primarily determined based on actual usage.

Indirect allocations are related to shared services and infrastructure provided by Cummins that would benefit Atmus but have not been directly charged to Atmus in a manner discussed above.

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All corporate charges and allocations have been deemed paid by Atmus to Cummins in the period in which the cost was recognized in the Condensed Consolidated Statements of Income.

Total corporate costs allocated to Atmus were $ 5.5 million and $ 13.7 million for the three and six months ended June 30, 2023, respectively, compared with $ 12.8 million and $ 26.7 million for the three and six months ended June 30, 2022, respectively.

Total corporate costs allocated to Atmus were zero and $ 13.7 million for the three and nine months ended September 30, 2023, respectively, compared with $ 9.7 million and $ 36.4 million for the three and nine months ended September 30, 2022, respectively.

Allocated corporate costs are included in Net sales, Cost of sales, Selling, general and administrative expenses, Research, development and engineering expenses and Other income, net.

Post-IPO, Atmus has and will continue to incur its own corporate costs associated with being a standalone publicly traded company.

Related Party Balances

Atmus had trade receivables of $ 47.7 million and $ 52.0 million for products sold to, and accounts payable of $ 54.5 million and $ 57.6 million for products and services purchased in the ordinary course from Cummins as of June 30, 2023 and December 31, 2022, respectively.

Atmus’s sales to Cummins were $ 72.7 million and $ 149.4 million for the three and six months ended June 30, 2023, respectively, compared to $ 73.9 million and $ 148.4 million for the three and six months ended June 30, 2022, respectively.

Atmus had trade receivables of $ 45.1 million and $ 52.0 million for products sold to, and accounts payable of $ 59.9 million and $ 57.6 million for products and services purchased in the ordinary course from Cummins as of September 30, 2023 and December 31, 2022, respectively.

Atmus’s sales to Cummins were $ 71.7 million and $ 221.1 million for the three and nine months ended September 30, 2023, respectively, compared to $ 78.6 million and $ 227.0 million for the three and nine months ended September 30, 2022, respectively.

EARNINGS PER SHARE

1 unchanged sentence

For the Three Months Ended

June 30, For the Six Months Ended

September 30, For the Nine Months Ended

September 30,

2023 2022 2023 2022

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Diluted earnings per share $ 0.45 $ 0.61 $ 1.64 $ 1.61

Basic and diluted earnings per share for the three and six months ended June 30, 2022 was calculated using the shares of common stock that were issued and outstanding as of the completion of the IPO.

Basic and diluted earnings per share for the three and nine months ended September 30, 2022 was calculated using the shares of common stock that were issued and outstanding as of the completion of the IPO.

For the periods prior to the IPO, it is assumed that there were no dilutive equity instruments as there were no equity awards of Atmus outstanding prior to the IPO.

2 unchanged sentences

Other assets included the following:

September 30,

2023 December 31,

1 unchanged sentence

Operating lease assets (1)

$ 26.2 $ 32.4

Deferred income taxes 10.0 14.3

3 unchanged sentences

Other accrued expenses included the following:

September 30,

2023 December 31,

1 unchanged sentence

Marketing accruals $ 41.2 $ 47.3

Income taxes payable 10.0 6.0

Other taxes payables 12.1 7.5

Income taxes payable 11.2 6.0

Current portion of operating lease liabilities (1)

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Other liabilities included the following:

September 30,

2023 December 31,

(in millions)

Operating lease liabilities (1)

Long-term portion of operating lease liabilities (1)

$ 19.7 $ 23.2

Deferred income taxes 5.3 7.3

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Other liabilities $ 34.4 $ 71.2

(1) Balances at December 31, 2022 included an unrecognized tax liability for FIN48 reserves and leased assets and related depreciation which have been retained by Cummins Inc.

upon completion of Atmus’s initial public offering and are no longer included on Atmus’s condensed consolidated balance sheets at June 30, 2023.

(1) Balances at December 31, 2022 included an unrecognized tax liability for FIN48 reserves and leased assets and related depreciation, which have been retained by Cummins upon completion of Atmus’s IPO and are no longer included on Atmus’s Condensed Consolidated Balance Sheets at September 30, 2023.

See Note 1, Description of the Business , and in Note 2, Basis of Presentation for more information.

SUBSEQUENT EVENTS

On July 31, 2023, Atmus made a $ 20.0 million partial repayment on the revolving credit facility under the Credit Agreement.

As a result of the repayment, Atmus now has $ 30.0 million drawn on the revolving credit facility.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

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The discussion and analysis presented below refers to and should be read in conjunction with the unaudited condensed consolidated financial statements and the accompanying notes included elsewhere in this Quarterly Report on Form 10-Q.

The following is our discussion and analysis of changes in our financial condition and results of operations for the three and six months ended June 30, 2023 compared to the three and six months ended June 30, 2022.

The following is our discussion and analysis of changes in our financial condition and results of operations for the three and nine months ended September 30, 2023 compared to the three and nine months ended September 30, 2022.

Cautionary Note Regarding Forward-Looking Statements

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We design and manufacture advanced filtration products, principally under the Fleetguard brand, that enable lower emissions and provide superior asset protection.

We estimate that approximately 16% of our net sales in 2022 and 18% of our sales in the first six months of 2023 were generated through first-fit sales to original equipment manufacturers (“OEM”s), where our products are installed as components for new vehicles and equipment, and the balance were generated in the aftermarket, where our products are installed as replacement or repair parts, leading to a strong recurring revenue base.

We estimate that approximately 16% of our net sales in 2022 and 19% of our sales in the first nine months of 2023 were generated through first-fit sales to original equipment manufacturers (“OEM”s), where our products are installed as components for new vehicles and equipment, and the balance was generated in the aftermarket, where our products are installed as replacement or repair parts, leading to a strong recurring revenue base.

Building on our more than 65-year history, we continue to grow and differentiate ourselves through our global footprint, comprehensive offering of premium products, technology leadership and multi-channel path to market.

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In April 2022, Cummins Inc.

(“Cummins”) announced its intention to proceed with a plan to separate its filtration business (the “Filtration Business”) into a standalone publicly traded company (the “Separation”).

We were incorporated in Delaware on April 1, 2022, as a wholly-owned subsidiary of Cummins, in anticipation of the Separation, and prior to the completion of our initial public offering (the “IPO”), Cummins completed in all material respects the transfer of the assets and liabilities of the Filtration Business to us and our subsidiaries immediately prior to our IPO.

(“Cummins”) announced its intention to separate its filtration business (the “Filtration Business”) into a standalone publicly traded company (the “Separation”).

We were incorporated in Delaware on April 1, 2022, as a wholly-owned subsidiary of Cummins, in anticipation of the Separation, and prior to the completion of our initial public offering (the “IPO”), Cummins completed, in all material respects, the transfer of the assets and liabilities of the Filtration Business to us and our subsidiaries.

Our Registration Statement on Form S-1, as amended, filed on May 16, 2023, was declared effective on May 25, 2023, and our common shares began trading on the New York Stock Exchange under the symbol “ATMU” on May 26, 2023.

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On September 30, 2022, and as amended on February 15, 2023, Atmus entered into a $1.0 billion credit agreement (“Credit Agreement”) with Cummins and a syndicate of banks, providing for a $600 million term loan facility (the “term loan”) and a $400 million revolving credit facility (the “revolving credit facility”), in anticipation of the Separation.

Upon completion of the IPO, we borrowed approximately $650 million, consisting of proceeds of the term loan and amounts drawn under the revolving credit facility, and paid such amounts to Cummins in partial consideration for the Separation.

Borrowings under the Credit Agreement did not become available until the IPO occurred.

Upon completion of the IPO, we borrowed $650 million, consisting of proceeds of the term loan and amounts drawn under the revolving credit facility, and paid such amounts to Cummins in partial consideration for the Separation.

In connection with the Separation, we entered into various agreements with Cummins, including a separation agreement.

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For the periods prior to the IPO, the discussion below relates to the financial position and results of operations of a combination of entities under common control that have been “carved out” of Cummins’ historical combined financial statements and accounting records.

The historical combined financial statements reflect our historical financial position, results of operations and cash flows, in conformity with U.S.

The historical combined financial statements reflect our historical financial position, results of operations and cash flows, in conformity with generally accepted accounting principles in the United States of America (“U.S.

Refer to Note 2, Basis of Presentation , to the Condensed Consolidated Financial Statements included elsewhere in this report for additional information.

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As a worldwide business, our operations are also affected by currency exchange rate changes, political and economic uncertainty, public health crises (epidemics or pandemics) and regulatory matters, including adoption and enforcement of environmental and emission standards in the countries we serve.

Some of the more important factors are briefly discussed below.

Some of the more important factors affecting our performance are briefly discussed below.

Market demand

Aftermarket demand remained strong in the first half of 2023 across many of our end markets.

However, we anticipate a slowdown in these markets in the second half of 2023 due to an anticipated decline in global economic activity, and continued normalization of supply chain backlogs and inventory levels.

The market for our first-fit products remained strong in the first half of 2023, primarily as a result of strong demand for vehicles due to ongoing strong order books at most of our OEM customers.

We have continued to increase prices as a result of significant increases in our cost base in 2022 which has contributed to higher net sales in the three and six months ended June 30, 2023.

Aftermarket demand slowed slightly during the third quarter of 2023 across many of our end markets and we anticipate the slowdown to continue in these markets in the fourth quarter of 2023 due to an anticipated decline in global economic activity, and continued normalization of supply chain backlogs and inventory levels.

The market for our first-fit products remained strong in the third quarter of 2023, primarily as a result of strong demand for vehicles due to ongoing strong order books at most of our OEM customers.

We have continued to increase prices as a result of significant increases in our cost base in 2022, which has contributed to higher net sales in the nine months ended September 30, 2023.

Supply chain constraints

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Commodity prices, labor, inflation and foreign currency exchange rates

We continue to experience generally high inflation, though it has moderated in the first half of 2023.

We continue to experience generally high inflation, though it has moderated in the first three quarters of 2023.

Direct material cost pressures, driven largely by steel, resin and other petrochemical products, have stabilized somewhat, but we continue to see impacts from labor and energy.

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To mitigate these pressures, we instituted pricing actions, which have largely offset these cost increases.

During the second quarter of 2023, our Selling, general and administrative expenses increased as a result of costs related to the Separation, inefficiencies due to delays in the execution of our IPO, increased variable compensation costs and an increase in employee costs due to a change in timing of the effective date of annual merit increases to April 1 from July 1.

For 2022 and prior, annual merit increases were effective from July 1, this changed to April 1 for 2023.

During the third quarter of 2023, our Selling, general and administrative expenses increased as a result of costs related to the Separation, inefficiencies due to delays in the execution of our IPO and increased variable compensation costs.

The appreciation of the U.S.

dollar against foreign currencies in 2022 had a negative impact on our consolidated results of operations due to translation impacts, which have continued to negatively impact our results of operations in the first half of 2023 and may continue to have a negative impact through the remainder of 2023.

While we did see a slightly favorable impact on our results of operations in the third quarter, the overall negative impact on the year may continue through the remainder of 2023.

Standalone costs

We have incurred, and expect to continue to incur, additional costs associated with becoming a standalone public company.

During the three months ended June 30, 2023, we incurred approximately $8.8 million of one-time expenses including $2.6 million within Cost of sales, $6.1 million within Selling, general and administrative expenses and $0.1 million within Other income, net.

During the three months ended September 30, 2023, we incurred approximately $7.4 million of one-time expenses including $3.9 million within Cost of sales and $3.5 million within Selling, general and administrative expenses.

We expect to incur one-time expenses of approximately $30 million to $50 million between December 31, 2022 and December 31, 2024.

In addition, we expect to incur capital expenditures in connection with the Separation of approximately $20 million to $40 million between December 31, 2022 and December 31, 2024.

The actual amount of the one-time expenses and capital expenditures we will incur as a stand-alone public company may be higher, perhaps significantly, from our current estimates for a number of reasons, including, among others, the final terms we are able to negotiate

with service providers, as well as additional costs we may incur that we have not currently anticipated.

additional costs we may incur that we have not currently anticipated.

Additionally, the actual timing of when we incur these incremental expenses may be different, perhaps significantly, from our current estimates for a number of reasons, including, among others, unforeseen events that may cause delays or interruptions in our plans or our service providers’ ability to provide their services.

Results of Operations

Three Months Ended June 30, 2023 Compared to the Three Months Ended June 30, 2022

For the Three Months Ended June 30, Favorable

Three Months Ended September 30, 2023 Compared to the Three Months Ended September 30, 2022

Three Months Ended

September 30,

(Unfavorable)

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Equity, royalty and interest income from investees 8.1 7.3 0.8 11.0 %

Other operating expense, net 0.2 0.9 0.7 77.8 %

Other operating income, net

(0.2) — 0.2 — %

OPERATING INCOME 58.8 64.9 (6.1) (9.4) %

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Diluted earnings per share $ 0.45 $ 0.61 $ (0.16) (26.2) %

For the Three Months Ended June 30, Favorable

Three Months Ended

September 30,

(Unfavorable)

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Research, development and engineering expenses 2.8% 2.4% (0.4)

Net sales were $413.6 million (which included related party sales of $87.2 million) for the three months ended June 30, 2023, an increase of $20.4 million compared to $393.2 million (which included related party sales of $84.1 million) for the three months ended June 30, 2022.

Of the total Net sales increase of $20.4 million, $17.3 million was an increase in external sales and $3.1 million was an increase of related party sales.

Additionally, approximately $32.0 million of such increase was due to increased pricing, partially offset by $7.2 million due to lower volumes and the negative impacts of currency of $4.4 million.

Gross margin was $114.4 million for the three months ended June 30, 2023, an increase of $19.0 million compared to $95.4 million for the three months ended June 30, 2022.

The increase in Gross margin was mainly due to approximately $32.0 million of favorable pricing as described above and $11.5 million of favorable

commodities and freight costs, partially offset by $2.8 million of increased variable compensation costs, $3.6 million of unfavorable currency impacts and $2.6 million due to lower volumes.

Gross margin as a percentage of Net sales was 27.7% for the three months ended June 30, 2023, an increase of 3.4 percentage points compared to 24.3% for the three months ended June 30, 2022.

The increase in Gross margin as a percentage of Net sales was primarily due to pricing realization and lower material costs, partially offset by increased merit and variable compensation, unfavorable currency and lower sales volumes.

Net sales were $396.2 million (which included related party sales of $86.9 million) for the three months ended September 30, 2023, a decrease of $5.0 million compared to $401.2 million (which included related party sales of $90.1 million) for the three months ended September 30, 2022.

Of the total Net sales decrease of $5.0 million, $3.2 million was a decrease of related party sales and $1.8 million was a decrease in external sales.

Additionally, revenues were negatively impacted by lower volumes of approximately $25.3 million, partially offset by $17.0 million due to increased pricing and the favorable impacts of currency of $3.3 million.

Gross margin was $102.9 million for the three months ended September 30, 2023, an increase of $3.2 million compared to $99.7 million for the three months ended September 30, 2022.

The increase in Gross margin was mainly due to approximately $17.0 million of favorable pricing as described above and $15.8 million

of favorable freight and commodities costs, partially offset by $13.4 million of unfavorable manufacturing and other costs, $8.8 million due to lower volumes, $4.0 million of increased variable compensation costs and $3.8 million of one-time separation costs.

Gross margin as a percentage of Net sales was 26.0% for the three months ended September 30, 2023, an increase of 1.1% compared to 24.9% for the three months ended September 30, 2022.

The increase in Gross margin as a percentage of Net sales was primarily due to items noted above.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $46.0 million for the three months ended June 30, 2023, an increase of $13.5 million compared to $32.5 million for the three months ended June 30, 2022.

The increase was primarily driven by costs related to the Separation, inefficiencies due to delays in the execution of our IPO and increased variable compensation costs.

Selling, general and administrative expenses as a percentage of Net sales was 11.1% for the three months ended June 30, 2023, an increase of 2.8 percentage points compared to 8.3% for the three months ended June 30, 2022.

Selling, general and administrative expenses were $41.3 million for the three months ended September 30, 2023, an increase of $9.0 million compared to $32.3 million for the three months ended September 30, 2022.

The increase was primarily driven by costs related to the Separation and increased variable compensation costs.

Selling, general and administrative expenses as a percentage of Net sales were 10.4% for the three months ended September 30, 2023, an increase of 2.3% compared to 8.1% for the three months ended September 30, 2022.

The increase in Selling, general and administrative expenses as a percentage of Net sales was primarily driven by the items noted above increasing at a higher rate in relation to the increase in Net sales.

Research, Development and Engineering Expenses

Research, development and engineering expenses were $12.3 million for the three months ended June 30, 2023, an increase of $2.8 million compared to $9.5 million for the three months ended June 30, 2022.

Research, development and engineering expenses were $11.1 million for the three months ended September 30, 2023, an increase of $1.3 million compared to $9.8 million for the three months ended September 30, 2022.

The increase was primarily due to increased variable compensation costs.

Research, development and engineering expenses as a percentage of Net sales was 3.0% for the three months ended June 30, 2023, an increase of 0.6 percentage points compared to 2.4% for the three months ended June 30, 2022.

Research, development and engineering expenses as a percentage of Net sales were 2.8% for the three months ended September 30, 2023, an increase of 0.4% compared to 2.4% for the three months ended September 30, 2022.

The increase in Research, development and engineering expenses as a percentage of Net sales was mainly due to the items noted above.

Equity, Royalty and Interest Income From Investees

Equity, royalty and interest income from investees were $8.3 million for the three months ended June 30, 2023, an increase of $2.8 million compared to $5.5 million for the three months ended June 30, 2022.

Equity, royalty and interest income from investees were $8.1 million for the three months ended September 30, 2023, an increase of $0.8 million compared to $7.3 million for the three months ended September 30, 2022.

The increase was primarily due to higher earnings of $0.7 million from our joint ventures in China and India.

Interest Expense

Interest expense was $4.2 million for the three months ended June 30, 2023, an increase of $4.1 million compared to $0.1 million for the three months ended June 30, 2022.

The increase was primarily due to the interest on the $650 million of borrowings under the Credit Agreement immediately prior to our IPO.

Interest expense was $11.0 million for the three months ended September 30, 2023, an increase of $10.7 million compared to $0.3 million for the three months ended September 30, 2022.

The increase was primarily due to the interest on our borrowings under the Credit Agreement in 2023.

Other Income, Net

Other income, net was $1.2 million for the three months ended June 30, 2023, a decrease of $2.0 million compared to $3.2 million for the three months ended June 30, 2022.

The decrease in Other income, net was primarily due to the net loss on foreign exchange rate hedging, partially offset by higher interest income.

Other income, net was $1.1 million for the three months ended September 30, 2023, an increase of $1.1 million compared to zero for the three months ended September 30, 2022.

The increase in Other income, net was primarily due to higher interest income.

Income Tax Expense

Our effective tax rate for the three months ended June 30, 2023 was 24.5%, an increase of 5.0 percentage points compared to 19.5% for the three months ended June 30, 2022.

The increase was primarily due to the change in discrete tax items and in the mix of earnings among tax jurisdictions.

Our effective tax rate for the three months ended September 30, 2023 was 23.1%, an increase of 1.1% compared to 22.0% for the three months ended September 30, 2022.

The increase in the effective tax rate was driven by a change in the mix of earnings among tax jurisdictions partially offset by a change in discrete tax items.

Our effective tax rate differs from the U.S.

statutory rate primarily due to differences in rates applicable to foreign subsidiaries, withholding taxes and state income taxes.

Six Months Ended June 30, 2023 Compared to the Six Months Ended June 30, 2022

For the Six Months Ended June 30, Favorable

Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022

For the Nine Months Ended

September 30,

(Unfavorable)

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Diluted earnings per share $ 1.64 $ 1.61 $ 0.03 1.9 %

For the Six Months Ended

June 30, Favorable

For the Nine Months Ended

September 30,

(Unfavorable)

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Research, development and engineering expenses 2.7% 2.5% (0.2)

Net sales were $832.2 million (which included related party sales of $176.3 million) for the six months ended June 30, 2023, an increase of $56.5 million compared to $775.7 million (which included related party sales of $170.0 million) for the six months ended June 30, 2022.

Net sales were $1,228.4 million (which included related party sales of $263.2 million) for the nine months ended September 30, 2023, an increase of $51.5 million compared to $1,176.9 million (which included related party sales of $260.1 million) for the nine months ended September 30, 2022.

Of the total Net sales increase of $51.5 million, $48.4 million was an increase in external sales and $3.1 million was an increase of related party sales.

Additionally, approximately $68.3 million of such increase was due to increased pricing, partially offset by the negative impacts of currency of $11.1 million.

Gross margin was $224.2 million for the six months ended June 30, 2023, an increase of $47.4 million compared to $176.8 million for the six months ended June 30, 2022.

The increase in Gross margin was mainly due to approximately $68.3 million of favorable pricing as described above and approximately $13.8 million of favorable commodities and freight costs, partially offset by $5.6 million of increased variable compensation costs and $6.7 million of unfavorable currency impacts.

Gross margin as a percentage of Net sales was 26.9% for the six months ended June 30, 2023, an increase of 4.1 percentage points compared to 22.8% for the six months ended June 30, 2022.

The increase in Gross margin as a percentage of Net sales was primarily due to pricing realization, partially offset by increased merit and variable compensation and unfavorable currency.

Additionally, sales increased by approximately $85.3 million due to increased pricing, partially offset by lower volumes of $25.9 million and the negative impacts of currency of $7.9 million.

Gross margin was $327.1 million for the nine months ended September 30, 2023, an increase of $50.6 million compared to $276.5 million for the nine months ended September 30, 2022.

The increase in Gross margin was mainly due to approximately $85.3 million of favorable pricing as described above and approximately $29.1 million of favorable freight and commodities costs, partially offset by $28.7 million of unfavorable manufacturing and other costs, $11.9 million of increased variable compensation costs, $9.1 million due to lower volumes, $7.3 million of one-time separation costs and $6.5 million of unfavorable currency impacts.

Gross margin as a percentage of Net sales was 26.6% for the nine months ended September 30, 2023, an increase of 3.1% compared to 23.5% for the nine months ended September 30, 2022.

The increase in Gross margin as a percentage of Net sales was primarily due to the items noted above.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $85.1 million for the six months ended June 30, 2023, an increase of $20.1 million compared to $65.0 million for the six months ended June 30, 2022.

The increase was primarily driven by costs related to the Separation, inefficiencies due to delays in the execution of our IPO, increased variable compensation costs.

Selling, general and administrative expenses as a percentage of Net sales was 10.2% for the six months ended June 30, 2023, an increase of 1.8 percentage points compared to 8.4% for the six months ended June 30, 2022.

Selling, general and administrative expenses were $126.4 million for the nine months ended September 30, 2023, an increase of $29.1 million compared to $97.3 million for the nine months ended September 30, 2022.

The increase was primarily driven by costs related to the Separation, inefficiencies due to delays in the execution of our IPO and increased variable compensation costs.

Selling, general and administrative expenses as a percentage of Net sales were 10.3% for the nine months ended September 30, 2023, an increase of 2.0% compared to 8.3% for the nine months ended September 30, 2022.

Research, Development and Engineering Expenses

Research, development and engineering expenses were $22.1 million for the six months ended June 30, 2023, an increase of $2.2 million compared to $19.9 million for the six months ended June 30, 2022.

Research, development and engineering expenses were $33.2 million for the nine months ended September 30, 2023, an increase of $3.5 million compared to $29.7 million for the nine months ended September 30, 2022.

The increase was primarily due to increased variable compensation costs.

Research, development and engineering expenses as a percentage of Net sales was 2.7% for the six months ended June 30, 2023, an increase of 0.1 percentage points compared to 2.6% for the six months ended June 30, 2022.

Research, development and engineering expenses as a percentage of Net sales were 2.7% for the nine months ended September 30, 2023, an increase of 0.2% compared to 2.5% for the nine months ended September 30, 2022.

The increase in Research, development and engineering expenses as a percentage of Net sales was mainly due to the items noted above.

Equity, Royalty and Interest Income from Investees

Equity, royalty and interest income from investees were $16.7 million for the six months ended June 30, 2023, an increase of $2.5 million compared to $14.2 million for the six months ended June 30, 2022.

Equity, royalty and interest income from investees were $24.8 million for the nine months ended September 30, 2023, an increase of $3.3 million compared to $21.5 million for the nine months ended September 30, 2022.

The increase was primarily due to higher earnings of $2.9 million from our joint ventures in China and India.

Other Operating Expense, Net

Other operating expense, net was $0.3 million for the six months ended June 30, 2023, a decrease of $3.3 million compared to $3.6 million for the six months ended June 30, 2022.

Other operating expense, net was $0.1 million for the nine months ended September 30, 2023, a decrease of $3.5 million compared to $3.6 million for the nine months ended September 30, 2022.

The decrease was primarily due to prior year asset write-offs related to a discontinued program and the establishment of reserves against accounts receivable from Russian customers in 2022 that did not recur.

Interest Expense

Interest expense was $4.2 million for the six months ended June 30, 2023, an increase of $3.9 million compared to $0.3 million for the six months ended June 30, 2022.

The increase was primarily due to the interest on the $650 million of borrowings under the Credit Agreement immediately prior to our IPO.

Interest expense was $15.2 million for the nine months ended September 30, 2023, an increase of $14.6 million compared to $0.6 million for the nine months ended September 30, 2022.

The increase was primarily due to the interest on our borrowings under the Credit Agreement in 2023.

Other Income, Net

Other income, net was $1.1 million for the six months ended June 30, 2023, a decrease of $2.8 million compared to $3.9 million for the six months ended June 30, 2022.

Other income, net was $2.2 million for the nine months ended September 30, 2023, a decrease of $1.7 million compared to $3.9 million for the nine months ended September 30, 2022.

The decrease in Other income, net was primarily due to the net loss on foreign exchange rate hedging, partially offset by higher interest income.

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Our effective tax rate for the six months ended June 30, 2023 was 24.1%, an increase of 3.3 percentage points compared to 20.8% for the six months ended June 30, 2022.

The increase was primarily due to the change in discrete tax items and in the mix of earnings among tax jurisdictions.

Our effective tax rate for the nine months ended September 30, 2023 was 23.8%, an increase of 2.5% compared to 21.3% for the nine months ended September 30, 2022.

The increase in the effective tax rate was driven by a change in the mix of earnings among tax jurisdictions partially offset by a change in discrete tax items.

Our effective tax rate differs from the U.S.

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Liquidity and Capital Resources

Our facilities under the Credit Agreement provide for $1.0 billion in total availability, including the $600 million term loan and the $400 million revolving credit facility.

The proceeds of our borrowings of $600 million pursuant to the term loan and $50 million pursuant to the credit facility were paid to Cummins upon completion of the IPO in partial consideration for the Separation.

As a result, we had capacity under our credit facility of $350 million as of June 30, 2023.

Upon completion of the IPO, we had approximately $115 million of cash on hand.

We believe that cash from operations and our facilities under our Credit Agreement will continue to provide sufficient liquidity for our working capital needs, planned capital expenditures and future payments of our contractual, tax and benefit plan obligations.

Our facilities under the Credit Agreement provide for $1.0 billion in total availability, which includes the $600 million term loan and the $400 million revolving credit facility.

As of September 30, 2023, we have borrowed $600 million on the term loan and zero on the revolving credit facility.

As a result, we had capacity under our revolving credit facility of $400.0 million as of September 30, 2023.

We believe that cash from operations and the facilities under our Credit Agreement will continue to provide sufficient liquidity for our working capital needs, planned capital expenditures and future payments of our contractual, tax and benefit plan obligations.

Overall, we do not expect negative effects to our funding sources that would have a material effect on our liquidity.

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Our management reviews our liquidity needs in determining any and all indebtedness options.

We also have the ability to access the capital markets following the IPO and we continue to generate substantial cash from operating activities and believe that our operating cash flow and other sources of liquidity will be sufficient to allow us to manage our business and give us flexibility to meet our short- and long-term financial commitments.

We have the ability to access the capital markets following the IPO, and we continue to generate substantial cash from operating activities and believe that our operating cash flow and other sources of liquidity will be sufficient to allow us to manage our business and give us flexibility to meet our short- and long-term financial commitments.

Our cash flow activity is noted below:

For the Six Months Ended

For the Nine Months Ended

September 30,

(in millions)

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Operating Cash Flow

Net cash provided by operating activities was $89.0 million for the six months ended June 30, 2023, an increase of $49.3 million compared to net cash provided by operating activities of $39.7 million for the six months ended June 30, 2022.

The increase was driven primarily by lower working capital requirements of $19.3 million and a favorable increase in net income of $14.9 million.

During the six months ended June 30, 2023, lower working capital requirements resulted in a cash outflow of $23.7 million compared to a cash outflow of $43.0 million for the six months ended June 30, 2022, mainly due to lower inventories, higher other accrued expenses and lower related party receivables, partially offset by lower related party payables.

Dividends received from our unconsolidated equity investees were $14.8 million and $13.8 million for the six months ended June 30, 2023 and June 30, 2022, respectively.

Net cash provided by operating activities was $147.3 million for the nine months ended September 30, 2023, an increase of $59.4 million compared to Net cash provided by operating activities of $87.9 million for the nine months ended September 30, 2022.

The increase was driven primarily by lower working capital requirements of $48.3 million, a favorable change in other liabilities of $7.7 million and an increase in Net income of $2.1 million.

During the nine months ended September 30, 2023, lower working capital requirements resulted in a cash inflow of $2.0 million compared to a cash outflow of $46.3 million for the nine months ended September 30, 2022, mainly due to lower inventories, higher other accrued expenses and lower trade receivables, partially offset by lower related party and trade payables.

Dividends received from our unconsolidated equity investees were $17.3 million and $13.9 million for the nine months ended September 30, 2023 and September 30, 2022, respectively.

Dividends are typically paid in the second through the fourth quarters and are included in Net cash provided by operating activities.

Investing Cash Flow

Net cash used in investing activities for the six months ended June 30, 2023 and June 30, 2022 was primarily used for capital expenditures.

Our capital expenditures were $19.1 million (of which approximately

$2.6 million were in connection with the Separation and $0.8 million related to capitalized internal use software costs) and $16.5 million (of which approximately $0.4 million related to capitalized internal use software costs) for the six months ended June 30, 2023 and June 30, 2022, respectively, corresponding to approximately 2.3% of Net sales for the six months ended June 30, 2023 and approximately 2.1% of Net sales for the six months ended June 30, 2022.

Net cash used in investing activities for the nine months ended September 30, 2023 and September 30, 2022 was primarily used for capital expenditures.

Our capital expenditures were $29.6 million (of which approximately $4.8 million related to one-time separation costs) and $22.4 million for the nine months ended

September 30, 2023 and September 30, 2022, respectively, corresponding to approximately 2.4% of Net sales for the nine months ended September 30, 2023 and approximately 1.9% of Net sales for the nine months ended September 30, 2022.

Financing Cash Flow

Net cash provided by financing activities for the six months ended June 30, 2023 consisted primarily of long-term debt proceeds from our borrowings of $650 million under our Credit Agreement, partially offset by net transfers of $580.3 million to Cummins as part of the Separation.

Net cash used in financing activities for the six months ended June 30, 2022 consisted entirely of transfers to Cummins.

Net cash provided by financing activities for the six months ended June 30, 2023 was $69.7 million and Net cash used in financing activities for the six months ended June 30, 2022 was $(23.2) million.

Net cash provided by financing activities for the nine months ended September 30, 2023 consisted primarily of long-term debt proceeds from our borrowings of $650 million under our Credit Agreement, partially offset by net transfers of $580.3 million to Cummins as part of the Separation and $50 million in payments made on our revolving credit facility.

Net cash used in financing activities for the nine months ended September 30, 2022 consisted entirely of transfers to Cummins.

Net cash provided by financing activities for the nine months ended September 30, 2023 was $21.1 million and Net cash used in financing activities for the nine months ended September 30, 2022 was $65.5 million.

Contractual Obligations

Our commitments consist of lease obligations for real estate and equipment.

For more information regarding our lease obligations, see Note 9, Leases , to the historical combined financial statements included in the IPO Prospectus , which provides a summary of our future minimum lease payments.

Our total debt was $650 million at June 30, 2023 and zero at December 31, 2022.

At June 30, 2023, the weighted-average term of our outstanding long-term debt was 4.9 years.

For more information regarding our lease obligations, see Note 9, Leases , to the historical combined financial statements included in the IPO Prospectus and to the revised financial statements for the years ended December 31, 2022, 2021 and 2020 as filed with the Commission on August 8, 2023 on Form 8-K, which provides a summary of our future minimum lease payments.

Our total debt was $600.0 million at September 30, 2023 and zero at December 31, 2022.

At September 30, 2023, the weighted-average term of our outstanding long-term debt was 4.2 years.

Refer to Note 9, Debt and Borrowing Arrangements , to the Condensed Consolidated Financial Statements for more information on our debt and debt covenants.

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GAAP financial measures and may not be consistent with measures used by other companies.

It should be considered supplemental data;

however, the amounts included in the EBITDA, EBITDA margin, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted earnings per share, Free cash flow and Adjusted free cash flow calculations are derived from amounts included in the consolidated statements of net income.

The metrics should be considered supplemental data;

We do not consider our non-GAAP financial measures as superior to, or a substitute for, the equivalent measures calculated and presented in accordance with GAAP.

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A reconciliation of Net income to EBITDA and Adjusted EBITDA is shown in the table below:

For the Three Months Ended June 30, For the Six Months Ended June 30,

For the Three Months Ended

September 30,

For the Nine Months Ended

September 30,

2023 2022 2023 2022

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A reconciliation of Diluted earnings per share to Adjusted earnings per share is shown in the table below:

For the Three Months Ended June 30, For the Six Months Ended June 30,

For the Three Months Ended

September 30,

For the Nine Months Ended

September 30,

2023 2022 2023 2022

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(a) Primarily comprised of one-time expenses related to Information Technology, warehousing and Human Resources separation costs and the related tax impact of those expenses.

The tax impact of one-time separation costs for the three months ended June 30, 2023 and 2022 were $2.2 million and $0.1 million, respectively, and for the six months ended June 30, 2023 and 2022 were $3.1 million and $0.2 million, respectively.

The tax impact of one-time separation costs for the three months ended September 30, 2023 and 2022 were $1.7 million and $0.3 million, respectively, and for the nine months ended September 30, 2023 and 2022 were $4.8 million and $0.5 million, respectively.

A reconciliation of Net cash provided by operating activities to Free cash flow and Adjusted free cash flow is shown in the table below:

For the Three Months Ended June 30, For the Six Months Ended June 30,

For the Three Months Ended

September 30,

For the Nine Months Ended

September 30,

2023 2022 2023 2022

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Actual results could differ from those estimates and assumptions.

Our significant accounting policies are described in Note 3, Summary of Significant Accounting Policies , to our historical combined financial statements in the IPO Prospectus and in our Form 8-K as filed with the Commission on August 8, 2023 .

Our significant accounting policies are described in Note 3, Summary of Significant Accounting Policies , to our historical combined financial statements in the IPO Prospectus, our Form 8-K as filed with the Commission on August 8, 2023 and Note 3, Summary of Significant Accounting Policies , to the Condensed Consolidated Financial Statements.

Our significant accounting estimates are described in the section entitled Management’s Discussion and Analysis of Financial Condition and Results of Operations in our IPO Prospectus and in our Form 8-K as filed with the Commission on August 8, 2023 .

See also Note 3, Summary of Significant Accounting Policies , to the Condensed Consolidated Financial Statements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements