# Atmus Filtration Technologies Inc.: Form 10-Q for the period ended Jun 30, 2023

- Company: [Atmus Filtration Technologies Inc.](/companies/atmu.md) (CIK 1921963)
- Form: 10-Q
- Filed: 2023-08-09
- Accepted by EDGAR: Aug 9, 2023, 16:22 ET
- Period: 2023-06-30
- Accession: 0001921963-23-000016
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1921963/000192196323000016/atmu-20230630.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1921963/000192196323000016/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-04-01 to 2023-06-30 | $413.6m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2023-01-01 to 2023-06-30 | $832.2m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-04-01 to 2023-06-30 | $299.2m | us-gaap:CostOfRevenue |
| Cost of revenue | 6 months, 2023-01-01 to 2023-06-30 | $608.0m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2023-04-01 to 2023-06-30 | $114.4m | us-gaap:GrossProfit |
| Gross profit | 6 months, 2023-01-01 to 2023-06-30 | $224.2m | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-04-01 to 2023-06-30 | $12.3m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 6 months, 2023-01-01 to 2023-06-30 | $22.1m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2023-04-01 to 2023-06-30 | $46.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2023-01-01 to 2023-06-30 | $85.1m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-04-01 to 2023-06-30 | $64.2m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2023-01-01 to 2023-06-30 | $133.4m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-04-01 to 2023-06-30 | $4.2m | us-gaap:InterestExpense |
| Interest expense | 6 months, 2023-01-01 to 2023-06-30 | $4.2m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-04-01 to 2023-06-30 | $15.0m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2023-01-01 to 2023-06-30 | $31.4m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-04-01 to 2023-06-30 | $46.2m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2023-01-01 to 2023-06-30 | $98.9m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-04-01 to 2023-06-30 | $0.55 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2023-01-01 to 2023-06-30 | $1.19 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-04-01 to 2023-06-30 | $0.55 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2023-01-01 to 2023-06-30 | $1.19 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-04-01 to 2023-06-30 | 83,300,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2023-01-01 to 2023-06-30 | 83,300,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2023-01-01 to 2023-06-30 | $89.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2023-01-01 to 2023-06-30 | $19.1m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-06-30 | $139.6m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-06-30 | $678.8m | us-gaap:AssetsCurrent |
| Total assets | at 2023-06-30 | $1.04bn | us-gaap:Assets |
| Current liabilities | at 2023-06-30 | $344.4m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-06-30 | $1.04bn | us-gaap:Liabilities |
| Long-term debt | at 2023-06-30 | $650.0m | us-gaap:LongTermDebt |
| Shareholders' equity | at 2023-06-30 | $1.5m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 1,312 characters.

### Use of Proceeds

On May 30, 2023, we completed the IPO, resulting in Cummins’ exchange of 16,243,070 shares of our common stock, including 2,118,661 shares of common stock allocated to the underwriters’ 30-day option to purchase additional shares of common stock, which was exercised in full on May 26, 2023. The shares of common stock exchanged by Cummins in the IPO represented approximately 19.5% of the Company’s outstanding shares, while Cummins continues to own approximately 80.5% of the Company’s outstanding shares. The shares sold in the offering were registered under the Securities Act pursuant to a Registration Statement on Form S-1, which was declared effective by the Commission as of May 25, 2023. The offering commenced on May 26, 2023 and did not terminate before all of the securities registered under the registration statement were sold. Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC served as joint lead book-running managers and as representatives of the underwriters for the IPO.

The aggregate offering price of the common stock registered and sold under the registration statement was approximately $298.5 million (including the shares issued pursuant to the underwriters’ option to purchase additional shares). None of the proceeds of the IPO were for the benefit of Atmus.

## Market risk

As filed, 3,107 characters.

### Foreign Currency Exchange Risk

As a result of our international business presence, we are exposed to foreign currency exchange rate risks. We transact business in foreign currencies and, as a result, our income and financial condition are exposed to movements in foreign currency exchange rates. This risk is closely monitored and managed through the use of financial derivative instruments. Financial derivatives are used by Atmus expressly for hedging purposes and under no circumstances are they used for speculative purposes. Substantially all of Atmus’s derivative contracts are subject to master netting arrangements which provide the option to settle certain contracts on a net basis when they settle on the same day with the same currency. In addition, these arrangements provide for a net settlement of all contracts with a given counterparty in the event that the arrangement is terminated due to the occurrence of default or a termination event.

To minimize the income volatility resulting from the remeasurement of net monetary assets and liabilities denominated in a currency other than the functional currency, Atmus enters into foreign currency forward contracts, which are considered economic hedges. The objective is to offset the gain or loss from remeasurement with the gain or loss from the fair market valuation of the forward contract. These derivative instruments are not designated as hedges.

The potential gain or loss in the fair value of our outstanding foreign currency contracts, assuming a hypothetical 10% fluctuation in the currencies of such contracts, would not have a material impact on the unaudited condensed consolidated financial statements for the three and six month periods ended June 30, 2023 and June 30, 2022. The sensitivity analysis of the effects of changes in foreign currency exchange rates assumes the notional value to remain constant for the next 12 months. The analysis ignores the impact of foreign exchange movements on our competitive position and potential changes in sales levels. Any change in the value of the contracts, real or hypothetical, would be significantly offset by an inverse change in the value of the underlying hedged items.

### Interest Rate Risk

Our interest rate risk relates primarily to our $600 million term loan facility and our five-year $400 million revolving credit facility. Borrowings under these facilities would 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 by us. Generally, U.S. dollar-denominated loans would bear interest at an adjusted term 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 our net leverage ratio. Based on our outstanding borrowings at June 30, 2023, a 0.125% change in SOFR would have a $0.8 million annual impact on interest expense. Refer to Note 9, *Debt and Borrowing Arrangements,* to the Condensed Consolidated Financial Statements for further information.

## Controls and procedures

As filed, 3,754 characters.

### Evaluation of Disclosure Controls and Procedures

The Company's disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

As required by Rules 13a-15 and 15d-15 under the Exchange Act, management, including our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures as of June 30, 2023. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were not effective as of June 30, 2023, due to the material weakness in internal control over financial reporting described below.

### Material Weakness in Internal Control Over Financial Reporting

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. We did not design and maintain effective controls over period- end financial reporting to completely identify and accurately account for intercompany and related party transactions.

This material weakness resulted in errors in our related party receivables, related party payables, and net parent investment on the Balance Sheet; net cash provided by operating activities, and net cash used in financing activities on the Statements of Cash Flows; and, net transfers to parent on the Statements of Changes in Net Parent Investment, which resulted in a restatement of the unaudited condensed combined financial statements as of and for the period ending March 31, 2023 and a revision to the combined financial statements as of and for the years ending December 31, 2022, 2021 and 2020 and the unaudited condensed combined financial statements as of and for the period ending March 31, 2022. Additionally, this material weakness could result in a misstatement of the aforementioned account balances or disclosures that would result in a material misstatement to the annual or interim financial statements that would not be prevented or detected.

### Remediation Plans

We are committed to maintaining a strong internal control environment. Our management, with oversight from our Audit Committee, has begun to take steps to remediate the material weakness. During the three months ended June 30, 2023, we designed and implemented a new control activity to manually review sub-ledger activity to ensure intercompany activity is appropriately eliminated and to appropriately account for related party balances. The material weakness cannot be considered remediated until after the applicable control operates for a sufficient period of time, and management has concluded, through testing, that the control is operating effectively.

### Changes in Internal Control over Financial Reporting

As described above in the “Remediation Plans” section, there were changes made during the quarter ended June 30, 2023 in our internal control over financial reporting framework that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 4,347 characters.

There have been no material changes from the risk factors previously disclosed in our IPO Prospectus, except for the additional risk factor set forth below:

**We have identified a material weakness in our internal control over financial reporting. If our remediation of said material weakness is not effective, or if we experience additional material weaknesses, or if we fail to design and maintain effective internal control over financial reporting, our ability to timely and accurately report our financial condition and results of operations or comply with applicable laws and regulations could be impaired, which may adversely affect investor confidence in us and, as a result, the value of our common stock.**

As a public company, we will be required to maintain internal control over financial reporting and to evaluate and determine the effectiveness of our internal control over financial reporting. Beginning with our annual report on Form 10-K as of and for the year ending December 31, 2024, we will be required to provide a management report on internal control over financial reporting, as well as an attestation of our independent registered public accounting firm.

Subsequent to filing the Company’s registration statement on Form S-1/A, errors in the preparation of the unaudited condensed combined financial statements as of and for the period ended March 31, 2023, were discovered, which management believes resulted because the Company did not design and maintain effective controls over period-end financial reporting to completely identify and accurately account for intercompany and related party transactions.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis.

We did not design and maintain effective controls over period-end financial reporting to completely identify and accurately account for intercompany and related party transactions. This material weakness resulted in errors in our related party receivables, related party payables, and net parent investment on the Balance Sheets; net cash provided by operating activities and net cash used in financing activities on the Statements of Cash Flows; and, net transfers to parent on the Statements of Changes in Net Parent Investment which resulted in a restatement of the unaudited condensed combined financial statements as of and for the period ending March 31, 2023 and a revision to the combined financial statements as of and for each of the years ending December 31, 2022, 2021 and 2020 and the condensed combined financial statements as of and for the period ending March 31, 2022. Additionally, this material weakness could result in a misstatement of the aforementioned account balances or disclosures that would result in a material misstatement to the annual or interim financial statements that would not be prevented or detected. We are committed to maintaining a strong internal control environment. Our management, with oversight from our Audit Committee, has begun to take steps to remediate the material weakness.

We cannot assure you that the measures that we are implementing, will be sufficient to remediate the material weakness we have identified or avoid the identification of additional material weaknesses in the future. If the steps we are taking do not remediate the material weakness in a timely manner, there could continue to be a reasonable possibility that these control deficiencies or others could result in a material misstatement of our annual or interim consolidated financial statements that would not be prevented or detected on a timely basis.

As a result of the restatement we may have a higher likelihood of becoming subject to a stockholder or other litigation. We may lose investor confidence in the accuracy and completeness of our financial reports, the market price of our securities could decline, and we could be subject to sanctions or investigations by regulatory authorities. Further, failure to maintain effective internal control over financial reporting and disclosure controls and procedures could also restrict our future access to the capital markets.

Filed Aug 9, 2023.
Source: SEC EDGAR, the filing index for accession 0001921963-23-000016. Last ingested by Listed: Nov 6, 2026, 14:05 ET. No prices; not investment advice.